Alliant Energy Corp (LNT) 2021 Q4 法說會逐字稿

Good morning, and welcome to Alliant Energy's Conference Call for Fourth Quarter and Year-end 2021 results. This call is being recorded for rebroadcast. (Operator Instructions)

I would now like to turn the call over to your host, Zac Fields, Lead Investor Relations Analyst at Alliant Energy.

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. Joining me on this call are John Larsen, Chair, President and Chief Executive Officer; and Robert Durian, Executive Vice President and CFO.

Following prepared remarks by 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 fourth quarter and year-end 2021 financial results and updated our 2022 earnings guidance. This release, as well as an earnings presentation, will be referenced during today's call and are available on our Investors 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 references to 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 this point, I'll turn the call over to John.

Thank you, Zac. Hello, everyone, and thank you for joining us. 2021 was another successful year of growth, solid operations and strong financial performance. I want to thank our talented and dedicated employees for all they do to help us deliver on our purpose: to serve customers and build stronger communities. It shows in how we work each day and in our results. I'm humbled by their efforts and proud to be part of the Alliant Energy team. My sincere thank you to our team.

Yesterday, we announced 2021 GAAP earnings of $2.63 per share compared to $2.47 per share in 2020, finishing the year at the top of our guidance range. Excluding temperature and nonrecurring items, our earnings per share were up 7% from 2020. This was our third straight year of delivering 7% EPS growth and the 19th year of consecutive dividend increases. This consistent growth, driven by solid execution and operational results, showcases the resilience and flexibility of our employees, our strategy and our company.

I'll highlight a few of our many strategic and operational achievements from the year then turn it over to Robert, who will provide more details on our solid financial and regulatory outcomes.

From the start of last year with Winter Storm Yuri to the heat waves experienced during the summer months, our employees weathered each and every storm to keep delivering safe, reliable and affordable energy to our customers, and our customers noticed as we earn the second highest increase in year-over-year J.D. Power's residential electric customer satisfaction scores among large utilities.

2021 was also the first full year of operations for our 1,150 megawatts of new wind, delivering clean, reliable and affordable electricity for our customers. Our forward thinking and renewable investments also led us to develop our comprehensive clean energy blueprints for Iowa and for Wisconsin, which continue to showcase our commitment to providing a thoughtful path to a clean energy future.

Also in 2021, we made tremendous progress on advancing the solar and storage aspects of our clean energy blueprints. The customer-focused and transparent planning by our teams led to successful regulatory outcomes and positions us well for straightforward execution.

We received approval for our first certificate of authority for 675 megawatts of solar in Wisconsin and have advanced into the construction phase. We also filed for an additional 414 megawatts of solar for our customers in Wisconsin and 475 megawatts of solar and battery storage for our customers in Iowa. Both filings are expected to be decided in 2022.

I'd also like to note that our teams were well prepared and continue to navigate through difficult global supply chain issues. And while these supply chain issues are not over, the proactive efforts by our talented team, along with leveraging our strong partnerships, have resulted in solid progress on panel and equipment deliveries, resulting in an increase in our capital investment plan. Robert will be sharing more details about this positive news later in the call.

Our efforts to build stronger communities were also on full display this past year. While there are many examples I could share, I'll take a little time and highlight a few for you now. Alliant Energy was, once again, named a Top Utility in Economic Development by Site Selection magazine. Site Selection credits our economic development team in collaboration with local, regional and state partners with delivering more than $900 million in new capital investment and more than 2,200 jobs in 2021. We were honored to receive the award and proud of all we've accomplished to help bring new jobs and continued investment to our communities.

Another way we're making things better in our communities is our pledge to plant 1 million trees by the end of 2030. These trees will grow to provide shade, reduce greenhouse gases and improve water quality, and we're off to a great start planting thousands of trees at community events from Ripon, Wisconsin to Cedar Rapids, Iowa. It's just another way we are living our value of acting for tomorrow.

We also helped to build stronger communities by nurturing a culture of diversity, equity and inclusion. This past year, we earned a perfect score on the Corporate Equality Index issued by the Human Rights Campaign Foundation, and they named us a Best Place to Work for the fifth year in a row.

And we were proud to be named in Newsweek Magazine's Most Responsible Companies for the second year in a row, and we made Forbes America's Best Midsize Employers List for the fourth year in a row.

2021 was an excellent year for our company, our customers and our communities. We look forward to building on that momentum in 2022. I thank you for your continued interest in Alliant Energy, and I'll now turn the call over to Robert.

Thanks, John. Good morning, everyone.

Yesterday, we announced 2021 GAAP earnings of $2.63 per share compared to $2.47 per share in 2020. On an adjusted basis, which excludes impacts of temperatures and nonrecurring adjustments, our earnings per share increased 7% from 2020. Looking year-over-year, the increases in 2021 were driven by higher revenue requirements, primarily due to increasing rate base at our Wisconsin and Iowa utilities and higher electric sales due to strong demand from commercial and industrial customers and the impacts of warmer summer temperatures. These favorable drivers were partially offset by higher depreciation and lower allowance for funds used during construction.

Our temperature-normalized retail electric sales grew 3% in 2021 when compared to 2020, primarily driven by a resurgence of our commercial and industrial customers as our state economies have strengthened for the worst impacts of the pandemic in 2020. This recovery was more robust in 2021 than initially forecasted, led by stronger industrial sales resulting in total commercial and industrial sales levels for the year, roughly 1% higher than 2019 levels. As customers across our service territories have gradually been returning to their workplaces, we have seen some decline in residential sales. However, residential sales remained modestly higher than 2019 levels.

The strong sales we experienced in 2021 were bolstered by a great year from our economic development efforts as our team was able to assist with several key industrial customer additions and expansions, ultimately adding about 75 megawatts of load to our system. And additionally, we saw one of the strongest years of incremental customer growth in the past decade.

We are announcing an update to our capital expenditure plans for 2022 through 2025. Our new plan is summarized on Slide 6 of our earnings presentation. There are 2 primary drivers for the updated plan. The first relates to recent progress made with our solar equipment suppliers that will allow us to receive equipment and materials earlier than previously anticipated. These efforts have allowed us to pull forward approximately $300 million of renewable expenditures into 2022. This enables us to complete these clean energy investments earlier than planned with 325 megawatts now scheduled to go into service in 2022 for our Wisconsin customers. The balance of our previously announced solar and battery projects are expected to go in service in 2023 and 2024.

The second driver of the updated capital expenditure plans involves accelerating clean energy investments into 2023 through 2025 to address capacity needs resulting from MISO's proposed seasonal resource adequacy construct. For those who may not be familiar, MISO has proposed to a credit generation capacity on a seasonal basis under this new construct versus the current state where capacity is credited on an annual basis. The additive investments included in our updated capital expenditure plans will help satisfy our anticipated seasonal capacity requirements and support reliability for our customers.

Our capital expenditure plans also continue to include investments to replace the capacity from the anticipated exercise of options by WEC Energy and MG&E to purchase a portion of our West Riverside natural gas facility. We anticipate making the Certificate of Authority filing with the PSCW in the first half of this year for additional capacity resources to replace the capacity expected to be lost with the exercise of these options. We plan to share more details about these resources as we get closer to making that filing.

Turning to this year's earnings guidance. With the updates to our capital expenditures plans, we are increasing our 2022 earnings guidance and remain well positioned for consistent 5% to 7% earnings growth going forward. The midpoint of our updated guidance range is $2.74 per share, which represents a 6% increase over 2021 adjusted earnings. The expected drivers of this increase in earnings include higher earnings on increasing capital investments and higher APDC benefits from our solar projects under construction. More details on our 2022 earnings guidance are provided on Slide 7 of our earnings presentation.

In 2022, we estimate a consolidated effective tax rate of 4% with substantial production tax credits generated by our large wind portfolio, helping us maintain the low effective tax rate for the upcoming year and several more years to come. The benefits from these production tax credits are passed on to our electric customers to help manage customer bills and therefore are largely earnings neutral.

Moving on to the financing plans for 2022. We plan to issue long-term debt of up to $1.4 billion in total for WPL and Alliant Energy Finance. The proceeds from the new debt will be used largely to finance investments in solar projects as well as to refinance $625 million of debt maturities in 2022. We also expect to receive approximately $25 million of new common equity under our DRIP plan in 2022.

Lastly, we have included this year's key regulatory initiatives on Slide 8 related to our customer investments. In Wisconsin, we anticipate a decision on our approval request for 414 megawatts of solar in the first half of this year. And in Iowa, our advanced ratemaking filing for 475 megawatts of solar and battery is progressing as expected. The Iowa Utilities Board issued a procedural schedule last month which can be found on Slide 9. We anticipate a decision on this advanced remaking filing in the second half of this year.

In Wisconsin, we also filed a joint application for the sale of a portion of our West Riverside natural gas generating facility to WEC Energy and MG&E at the end of January. We anticipate a decision on this application in either late 2022 or early 2023. These regulatory initiatives are an important part of executing our strategy, and we are thankful for their continued constructive relationships with our regulators in both of our state jurisdictions.

As we conclude another successful year with solid financial results and constructive regulatory outcomes, I want to express my optimism for the year ahead. We've demonstrated the flexibility of our CapEx plan to shift quickly due to opportunities in the solar project supply chain. We have regulatory certainty for the next couple of years with no major rate reviews planned, and we have dedicated and talented employees working hard every day to serve our customers and share owners.

We appreciate your continued support of our company and look forward to meeting with many of you virtually and in person in the coming months. As always, we will make our Investor Relations materials available on our website.

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

(Operator Instructions) And we'll take our first question from Julien Dumoulin-Smith with Bank of America.

It's Dariusz on for Julian. Just wanted to, at the outset, ask a more high level as far as your long-term EPS CAGR. It seems like in the last few years, you've had pretty good success achieving growth at the upper end of that range. So as we look ahead in the context of your increased CapEx plan, I guess what kind of -- what would you see happen that would potentially see growth at the lower end of that CAGR? Just trying to think of the various scenarios, again, in the context of the increased investment plan.

Yes, appreciate the question. And yes, we're still very comfortable with the 5% to 7%. Think of it as sales would be one of those drivers for being either on the upper or lower end of that. And certainly, we've got a strong focus on controlling costs, O&M. So those would be -- always along with weather, but those are the primary drivers.

Okay. Great. Appreciate that. And I guess more on the potential legislation side of things. I know the environment has changed a little bit, and we were talking about potential direct pay getting passed a few months ago. Just curious, how are you thinking about that prospectively? How would your financing or FFO metrics change, assuming that some kind of direct pay legislation or provision were passed in coming months?

Yes, Dariusz. This is Robert. So first off, I just want to reiterate, our strategy was created without the expectation of Build Back Better, any type of clean energy legislation. So no impact to our strategy if that does not pass. But if it does, we are evaluating the opportunities to switch from tax equity partnership structures to a full ownership. As a result of that, we would expect, I think, somewhere in the neighborhood of a little over $1 billion of additional capital expenditures in our plan over the next 4 years. We would expect to maintain our capital structures consistent with what our regulatory bodies have approved in both states. And therefore, you'd see probably a mix of both debt and equity issued as a result of that to maintain the current credit ratings that we have and the strong balance sheet and the strong metrics that we currently entertain.

Okay. Great. If I could just sneak one more in here, just a point of clarification on the updated CapEx plan. Obviously, you can appreciate that the renewable spend went up, as you alluded to. It looked like the other -- the nonrenewable bucket on generation ticked down a little bit. Can you just speak to, I guess, what got either reduced or moved out in that bucket?

Yes, Dariusz. Think of that as we continue to look at our resource plan as we go through the process, and I'd characterize as we have more confidence in our ability to execute on renewable projects going forward. So you'll see that is our primary focus, along with our electric distribution spend. So the nice thing about our spend is it's very flexible, and so we can constantly evaluate it and look for different opportunities. And right now, we see renewables as kind of the best opportunities when we think about both renewables and storage for the future of our customers. We're always trying to balance the needs of our customers, which are focused largely on clean energy, reliable energy and affordable. And we see that as really a big focus on solar, storage and even some wind as we think into the future. And that's what made us pivot a little bit to that.

We'll take our next question from Andrew Weisel with Scotiabank.

I'd like to ask a question about the CAGR in a different way. Similar idea, though, you're reiterating 5% to 7%. In the past, you've talked about a bias towards the midpoint. I believe the guidance midpoint for '22 was 6%. Just given the historical strength, I know you're sticking with the range, but is there a bias for the high end in '22 and beyond? Or do you really think that 6% is the more realistic number? I know you're conservative, but how to think about that?

Thanks, Andrew. I think you might have captured my answer or response back -- perhaps a bit of, I guess, conservatism in there, but we do plan for the 6% for the long term and right in the middle of our 5% to 7%. So that will remain.

Okay. Got it. Then on equity, I see the $25 million in '22. That's a number you've talked about for kind of the foreseeable future, I believe. Is that still the case given the increase to the CapEx plan? Or might there be some upward pressure on equity needs? A lot of variables, of course, but given what you know today.

Yes. Given what we have today, still -- besides the DRIP, no other equity planned.

Okay. And remind us -- the DRIP was the $25 million, you mean, right?

Yes, yes.

We'll now take our next question from Peter Bourdon with Mizuho.

So on the solar CapEx pull forward, is that for Iowa or Wisconsin? And then secondly, how should we be thinking about the recovery of that spend?

Yes. That's for our Wisconsin projects. That pull forward represents that CA 1 that we referred to, that first 675 megawatts. About half of that's in 2022, in '23, and so we've gone through the regulatory process for that and you would think of it in the normal course of our regulatory proceedings.

Okay. And then the additional $300 million to that same period, does that have any regulatory approvals tied to it?

Yes. Peter, think of that as it's mainly for the CA 1 projects that we're constructing here in 2022 and as part of the '22/'23 rate review that was approved by the PSCW in December. They've approved those projects and allowed us to get a recovery on those costs as well as to earn AFUDC as we're constructing those facilities, and so we will have to prove prudency with those given the cost for about 7% to 10% higher than what we originally filed for when we received approval for that. But we feel confident with the execution of those projects and the prudency of the spend that will be supported. We've been keeping the PSCW informed all along with updates on the capital expenditure costs for the solar projects in both CA 1 and CA 2 and feel well positioned to get recovery of those costs.

Okay, appreciate that detail. And then just one other separate one for me. Can you just kind of give us an update on the West Riverside Energy Center with the ownership options. Is there still a cash inflow expected for 2022? Or is that pushed into later year?

Yes. I think we would expect more in the 2023 for that -- think of that regulatory proceeding right now that we filed jointly. I think we're thinking end of this year, maybe early '23, so we would expect the cash infusion in '23.

Yes. And just as a reminder, Peter, yes, there's 2 pieces to that. There's actually -- the first half of it, as John indicated, we'll see for the first time in 2023, and there's also a 2024 piece. So that roughly $200 million to $250 million of cash will come in pretty evenly between those 2 years.

(Operator Instructions) We'll now take our next question from Michael Sullivan with Wolfe Research.

Wanted to follow up with that last question there on the 7% to 10% cost increase. That , as I recall, is a number you already pointed to. So no additional change since prior communications on costs?

That's correct, Michael.

Correct, Michael.

Okay. Great. And just from a total incremental megawatts perspective, so I think you pulled some forward, and that drove some of the CapEx increase. But in the back end of the plan and what's tied to this MISO capacity construct change, how should we think about that from a megawatt standpoint?

Yes. Michael, maybe I'll kick it off here. So there's actually 2 pieces. There's about up to 300 megawatts of capacity needs we expect as a result of the West Riverside options being exercised. So think of us as making a filing, like I said, sometime here in 2022 for that, most likely here in the first half of the year.

And then as we think about the forward capacity requirements as a result of the MISO seasonal construct, keep in mind that's still in a proposed state and still working through some of the details on that. So we don't have specific information. But most likely expect to have something later this year. We'll provide more details regarding the exact megawatts and the nature of the resources that we're going to use between renewables and storage.

Okay. Great. And then my last one was just what are you embedding for sales growth in 2022 guidance? Any color on that?

Yes. Think of it as maybe flat to maybe 0.5% long term is generally what we have for our sales. We did see a nice 2020 to 2021 increase, but we're not assuming that to be necessarily go forward. So back to what our typical 0.5% type of overall growth.

We'll take our next question from Ross Fowler with UBS.

Just following up on the 7% to 10% increase in CapEx, I know you pointed to that number before. That's a little bit of cost pressure on the solar side, but you were able to pull it forward into this year. And I just -- I step back and I juxtapose that against post some others in the industry that have actually pushed out solar projects because of cost and supply chain issues. So maybe just delving into the details of your agreements there with your suppliers that allowed you to pull that forward. And then second part of the question is are you seeing further sort of cost pressures or supply chain issues beyond that 7% to 10% as I think about future years for solar, in particular?

Yes. Thanks, Ross. Maybe a couple of parts to that, and I'll ask Robert if he wants to add a bit here. So we've got a good portion of the materials for the first part of our CA that we're going to be constructing here in 2022. So we feel good about having those pieces of equipment, panels on site, if you will, but we've got more solar to build. So we certainly know the supply chain issues aren't over with. But the team has done a lot of great work and proactive planning. We do partner with some very strong suppliers as well. So we did a lot of work back in -- earlier years as well into 2021 that really put us in a pretty good shape here for carrying that out in '22.

So those were the -- probably no more detail than besides we picked some very strong partners to work with. We were able to navigate that for our first CA. We know the supply chain issues will continue for a while, so we continue to monitor it. But we're in good shape for our first solar coming out, and that's why we've been able to be more confident about having that completed in '22 and '23. Anything to add, Robert?

Yes. Maybe just relatively speaking, in November, we pushed out some of those projects, knowing that there were some supply chain constraints, but the team has done an amazing job over the past few months to remedy that situation. So we're pretty much close to the original planned in-service dates that we had towards the earlier part of 2021. So just to keep that in mind to keep it as a reference point.

And it appears there are no further questions at this time.

This concludes Alliant Energy's fourth quarter and year-end earnings call. A replay will be available on our investor website. Thank you for your continued support of Alliant Energy, and feel free to contact me with any follow-up questions.

And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.