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Alliant Energy Corporation (NYSE:LNT)

Q4 2012 Earnings Call

February 14, 2013 10:00 AM ET

Executives

Susan Gille - IR

Pat Kampling - Chairman, President and CEO

Tom Hanson - VP and CFO

Analysts

John Ali - Decade Capital

Brian Russo - Ladenburg Thalmann

Eli Kraicer - Millennium Partners

Andy Bischoff - Morningstar

Andrew Weisel - Macquarie

Andy Levi - Avon Capital

Brian Russo - Ladenburg Thalmann

Operator

Thank you for holding, ladies and gentlemen, and welcome to the Alliant Energy's fourth quarter 2012 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. Please go ahead.

Susan Gille

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, Vice President and CFO; and Robert Durian, Controller and Chief Accounting Officer as well as other members of the senior management team.

Following prepared remarks by Pat and Tom, we will have time to take questions from the investment community. We issued a news release this morning announcing Alliant Energy's year end 2012 earnings, and affirmed 2013 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.

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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 this morning 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 reconciliations between the non-GAAP and GAAP measures are provided in the supplemental slides which are available on our website at www.alliantenergy.com.

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

Pat Kampling

Good morning and thank you for joining us today to review the year end 2012 results. I am pleased to report that 2012 was a year that Alliant Energy employees should be proud of and investors should be pleased with. Not only that we deliver solid financial results but we also make noteworthy improvements in reliability, customer service, generation availability and safety. Nothing is more important than the safety of our employees and 2012 was our safest year on record.

Reportable injuries decreased 39% and loss-time accidents decreased 36%. I am very proud of our collective focus and commitment to make sure our employees go home safely each and every day. Let’s start with our financial results.

As we have previously discussed the hot summer weather certainly contributed to higher earnings in 2012. However excluding the impact of weather our non-GAAP 2012 earnings were 5% higher than the same measure for 2011 and the midpoint of our 2013 earnings guidance is forecasted to result in a weather normalized growth of 6% of a calendar year 2012. This is consistent with our five year, 5% to 7% weather-normalized long term earnings growth objective. We are updating our base year for our long term growth to the 2013 non-GAAP weather-normalized earnings of $2.93 per share.

We also increased our common dividend to $1.88 per share annually which is the 4% increase over the 2012 dividend rate. Our long term objective is to maintain the targeted dividend in the rage of 60% to 70% of consolidated earnings.

2012 was also one of the largest capital deployment years in the company history totaling $1.2 billion. Included in this capital was the acquisition of the Riverside Energy Center, completion of the Franklin County wind farm, the installation of the SCR Edgewater Unit 5 and the beginning of construction of baghouses and scrubbers at our Ottumwa and Columbia facilities.

Construction is proceeding well at these facilities and also at MidAm's Neal three and four units. The expected in-service dates for most of these environmental controls is 2014 but the new four projects will be in service later this year.

In 2012, we also deployed approximately $200 million in our electric and gas distribution system and continue to see the reliability improvements from our investments.

On the regulatory front, we recently received the IUB’s order of the new 11 year DAEC PPA which is effective with the expiration of the current contract in February 2014. All costs of the new DAEC PPA will flow through the energy adjustment cost.

Issues were raised in the docket about the potential double recovery of the capacity cost if IPO does not file a new base rate case in 2014. Since the $135 million of DAEC capacity payments were included in 2009 base rates which was the last base rate case and starting in February 2014, all DAEC payments will flow through the energy adjustment clause.

The IUB acknowledges IPL’s commitment to work with consumer advocate and large customer groups to resolve this issue before the EAC tariff changes. However, if the parties cannot resolve this issue, IPL will file a general rate case proceeding in the first quarter of 2014 along with the refund obligation with an effective date of the DAEC agreement of February 22, 2014. Any required refund is based upon the IUB’s final rate order in late 2014 and applied retroactively to February 22, 2014.

We would like to extend the current three year base rate freeze that expires at the end of this year until the proposed Marshalltown generating plant is placed in service which is currently expected in the second quarter of 2017. We are developing a rate stabilization plan that we will avoid the news for multi-year rate cases and eliminate base rate volatility for our customers. To stabilize rates for our electric customers during the 2014 through March 2017 time period we will propose using the remaining funds available from the tax benefit rider.

At the end of 2013 there will be an additional $230 million available to refund to electric customers. We remain committed and look forward to working with the Office of Consumer Advocate, industrial groups and other interested parties to reach agreement on a rate stabilization plan by February 2014. If a rate stabilization agreement cannot not be reached, the base rate case filed at early 2014 would include the recovery and return on rate base additions of approximately $500 million and other changes in revenue requirements since our 2009 test year case.

We also anticipate that we would likely need additional rate cases before 2017 since electric rate base is expected to increase in late 2014 and 2015. As we have discussed in the past the DAEC capacity payments in base rates would offset the increase in revenue requirements.

In November 2012 IPL filed applications with the Utilities Board, for advanced rate making principles and site approvals for the proposed Marshalltown generating plant. Our proposed advanced rate making principles include a fixed cost cap of $700 million excluding AFUDC and transmission upgrades.

And to return on common equity 11.25% with no application of double leverage. We expect a decision from the IUB by the end of this year. And we have included the regulatory milestones related to these filings and supplemental slide nine for reference. One of the milestones is intervener testimony which is scheduled to be filed today.

In July 2012, we filed the construction authorization request with the PSCW for a scrubber and baghouse at Edgewater 5. We are expecting a deficient from the PSCW on these matters soon after the hearing on March 5th. Construction of this approximately $410 million project is expected to begin in 2014 and to be completed in 2016.

In Wisconsin, we participated in transmission through our 16% increase in ATC. MISO's Transmission Owner Agreement requires that a project running between the facilities of two transmission owning members must be shared equally unless the parties agree otherwise.

In recent rulings, FERC has directed ATC to negotiate conditions for the shared ownership for two projects. One with ITC and the other was Xcel. 2015 will be the first year we would see any impact to earnings generated from our ATC ownership if appeals are unsuccessful and of other projects in do not fill a part or all of the void left in the capital expenditure plan as a result of these FERC decisions.

Let me summarize the key messages for today. We will continue to meet our 5% to 7% earnings growth and 60% to 70% common dividend payout target. We will make a great progress, transforming our generation portfolio to one that is balanced with lower emissions and has the flexibility to comply with all existing and currently proposed environmental regulations. We are focused on working safely, providing excellent customer service and improving reliability.

And finally, we will manage our company focusing on operational and financial discipline with the goal of earning our authorized returns while minimizing customer rate volatility and increases.

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

Tom Hanson

Good morning, everyone. Today we released our 2012 non-GAAP earnings from continuing operations of $3.05 per share, which is a $0.10 per share increase over 2011 non-GAAP results.

The growth in non-GAAP earnings is primarily a result of income taxes at IPL due to tax planning strategies, lower operations and maintenance expenses. Higher WPL retail fuel recoveries and higher AFUDC related to emission control projects.

The positive EPS drivers were partially offset by higher depreciation expense, higher capacity charges for nuclear purchase power agreements and record warm weather in the first quarter negatively impacting electric gas sales.

2012 weather resulted in positive earnings of $0.12 per share, $0.04 lower than 2011, weather impact of $0.16 per share. Comparisons between 2012 and 2011 earnings per share are detailed on supplemental slides 2, 3 and 4. The 2012 results reflect no material changes in weather normalized sales over 2011 and in 2013 we are forecasting no material changes in weather normalized sales or 2012. Sales trends between 2011 and 2012 weather normalized actual and 2013 estimate are illustrated on supplemental slide 5.

The electric tax benefit rider resulted in no earnings impact for 2012, just like it had no earnings impact in 2011. The actual quarterly earnings impact of the 2012 electric tax benefit rider as well as the projected quarterly earnings impact of the 2013 electric and gas tax benefit riders are provided in supplemental slide 6.

Turning to our financing plan, cash flows from operations are expected to stay strong since we do not expect to make any material federal income tax payments until 2015, and the 2013 cash flows will be impacted partially due to the credits to customer billed in accordance with IPLs tax benefit riders. Due to our current net operating loss position the extension of bonus depreciation is not expected to impact your financing plans prior 2015. With the extension of the bonus depreciation, we project approximately $150 million of cash in 2015. Also, if you look at bonus depreciation in isolation, we are forecasting a reduction of a previously released rate base estimates by approximately 20 million and 60 million in 2014 and 2015 respectively. These forecasted rate base amounts are projected to be evenly split between IPL and WPL.

Last week we announced the redemption of IPLs 150 million, 8 and 3/8 preferred stock. Our current 2013 financing plan anticipates issuing long term debt and or preferred stock up to $500 million at IPL. Yesterday we announced the redemption of WPL's $60 million of preferred stock. We currently have no plans to replace the preferred stock at WPL. The impacts of these financings is included in the 2013 guidance. However the onetime charges related to the redemption are excluded from our 2013 guidance. We believe that with our strong cash flows and financing plan we can maintain our targeted liquidity, capitalization ratio and credit metrics. Therefore we do not plan to issue any material new common equity in 2013.

We will continue to assess our future common equity needs based on their pending regulatory approvals for the Edgewater 5 scrubber baghouse and Marshalltown generating plant which we expect later this year. Let's review our 2013 guidance range of $2.95 to $2.25 per share, a walk from the 2012 non-GAAP weather normalized actuals to the 2013 estimated guidance midpoint is shown on supplemental slide 7. The 2013 guidance assumes normal weather, continued cost controls and approval from the IUB for the proposed $0.13 per share revenue requirement adjustment associated with the electric tax benefit rider, the 2013 guidance also reflects the impacts of WPL’s previously announced retail rate freeze and gas rate decrease and IPL’s base rate freeze and settlement of its gas rate case.

The WPL rate freeze reflected electric rate-base growth as a result of the Riverside acquisition and placing the Edgewater 5 SCR in service at the end of 2012. The increase in electric revenue requirement for 2013 from these rate-base additions was completely offset by the impact of lower purchased power capacity cost from the Riverside PPA and the lower conservation expense resulting in no change to WPL's retail electric customers base rate in 2013.

However, WPL expects increased earnings from the reduction in purchased power capacity and conservation costs. The 2013 guidance also reflect a decrease in rates from the reduction in WPL's base rates effective January first of this year. Our 2013 guidance range forecasts WPL earning its authorized return of 10.4%.

Now, let’s turn our focus to IPL. IPL is in the last year of its current electric base-rate freeze. We forecast IPL to benefit from the proposed increase in electric revenues due to the proposed revenue requirement adjustment from the electric tax benefit rider, expected higher AFUDC from its environmental controls currently under construction and continued cost controls. These benefits are expected to be partially offset by higher depreciation expense.

Our 2013 guidance range forecasts, IPL earning is slightly less than its authorized return on common equity of approximately 10%.

As stated in our third quarter 2012 call, IPL’s revenue requirement adjustment proposed for 2013 under the tax benefit rider is based upon tax planning strategies which lead to the establishment of the electric tax benefit rider. If we had followed traditional rate making practices in IPL’s last electric rate case, these tax planning strategies would have reduced customer rates due to the tax benefits generated and increased customer rates due to the rate base impact from the changes in deferred taxes resulting in a net decrease in customer rates.

Due to the materiality and uncertainty of these tax planning strategies, the IUB issued a 2010 accounting order to temporarily suspend the traditional Iowa ratemaking practices until IRS certainty was reached. In 2012, we have reached agreement with IRS on the benefits of these strategies through 2011 tax year. Thus, IPL submitted a proposal to the IUB in November 2012 to finalize the impact for the strategies in two ways.

First, IPL proposed the final amount of the tax benefits from the IRS audit of these strategies to be reflected in the regulatory liability account available for tax benefit riders. At the end of the 2013, IPL expects to have approximately $265 million remaining in the regulatory liability account. Second, the increase to electric rate base is proposed as reduction to the regulatory liability account resulting in a $0.13 of additional earnings in 2013 as illustrated on supplemental slide seven.

We anticipate a decision from the IUB in this matter before the end of the first quarter of this year. Given the changes expected in income taxes in 2013, supplemental slide eight has been provided to assist you in modeling our forecasted 2013 effective tax rates for WPL and AEC.

As you could see from the log, we are expecting lower effective tax rates in 2013 due to increased tax benefit rider billing credits and additional production tax credits.

Turning to our regulatory calendar, we have several regulatory dockets of note in 2013, in addition to our pursuit of a rate stabilization plan which are summarized on slide nine. We expect three noteworthy decisions from the IUB in 2013.

The first is a decision on the finalization of the electric tax benefit rider discussed earlier. The second relates to a decision regarding the settlements reached with the OCA related to the emissions plan and budget filings submitted by IPL and MidAm in April 2012. And the third is the construction authorization and rate-making principles for the purposed Marshalltown generating plant.

The hearing for the Marshalltown project is scheduled for May 21st. In Wisconsin, we expect a decision from the Public Service Commission Wisconsin during the first half of 2013 regarding the Edgewater 5 scrubber and baghouse project. The hearing from this project is scheduled for March 5th. We very much appreciate continued support of our company. At this time I will turn back to you operator to facilitate the question and answer session.

Question-and-Answer Session

Operator

(Operator Instructions) We will take our first question from John Ali with Decade Capital.

John Ali - Decade Capital

I was wondering your CAGR is 5 to 7%, what is the new base and how many years of that expand you.

Susan Gille

Sure at the beginning of the call we mentioned that the new base of the 2012 non-GAAP revised earnings so that number is $2.93 per share and we should go out five years and its five years.

Operator

Brian Russo with Ladenburg Thalmann.

Brian Russo - Ladenburg Thalmann

I apologize but if you could just run through the impacts of bonus depreciation again at the two utilities that would be helpful.

Susan Gille

Yes, Brian we are going to see the cash benefit in 2015 and that's because of our annual NOL. However we will see a rate base reduction in 2014 and 2015 of 20 and $60 million. So if we would just look at that in isolation that's what we would see In terms of the rate base reduction compared to the information we've previously shared.

Brian Russo - Ladenburg Thalmann

But the cash for the tax benefit of about $150 million.

Susan Gille

We will be receiving that in 2015.

Brian Russo - Ladenburg Thalmann

So $150 million of cash benefit in the cash flow statement in 2015 and then the $20 and $60 million in '14, '15 rate base adjustments are split evenly between the two utilities?

Tom Hanson

That is correct.

Brian Russo - Ladenburg Thalmann

So, when we look at your total rate base of 5.6 billion or so this bonus depreciation seems to be fairly immaterial.

Tom Hanson

That is correct.

Brian Russo - Ladenburg Thalmann

The Marshalltown review approval process, can you just comment on the RFP process that I think has concluded?

Susan Gille

There is two RFPs processes so I apologize if I go back in history a little bit. We recently did an RFP process to see if there was a better alternative to the market Marshalltown facility and that's when the DAAC proposal was put on the table as well. There is another RFP process going on right now for the construction of the facility and that's still underway.

Brian Russo - Ladenburg Thalmann

Okay, so do we have any details on the outcome of the first RFP on other alternatives?

Pat Kampling

Yes and that's part of the - that'll be part of the case.

Brian Russo - Ladenburg Thalmann

Okay so it's not public yet?

Pat Kampling

No.

Brian Russo - Ladenburg Thalmann

Okay, got you. And then lastly just the IPO rate stabilization plan that you're working on, any idea on the timing of when we might see a filing?

Pat Kampling

Brian, I wish I could give you timing at this point but we really can't. We'll be working with all the interested parties and make sure that we get to conclusion on this, but I don’t want to commit some time frame at this point.

Brian Russo - Ladenburg Thalmann

Okay, so maybe second half of '13 type of filing?

Pat Kampling

We can't speculate at this point.

Operator

(Operator Instructions) We'll go next to Andy Bischoff with Morningstar.

Andy Bischoff - Morningstar

Actually just kind of a clarifying question. Could you walk through again, your plans for redeeming the preferreds and the debt plans?

Tom Hanson

In IPL as I mentioned we did release a press release last week indicating that we were going to redeem all of the 150 million of outstanding preferreds and our financing plan at IPL includes an anticipated issuance, it's up to $500 million of long-term debt and or preferred stock in 2013. And at WPL we've issued the press release stating that we are redeeming that 60 million of preferred stock and is not our plan to replace the preferred stock at WPL.

Operator

We'll go next to Andrew Weisel with Macquarie.

Andrew Weisel - Macquarie

My first question is, I just want to make sure I understood the comments around the potential rate cases. I understand you'd like to extend the rate freeze until Marshalltown comes into service, but that you may need to file a rate case about a year from now if things don’t work the way you're hoping. Did I hear you say that you also might need additional rate cases between those two or would it be one or the other?

Pat Kampling

We would need to file a case a year from now and then likely file another case before 2017. So we would want to…

Andrew Weisel - Macquarie

Is it possible to have a multiyear plan instead of possibly three rate cases over 4 years?

Pat Kampling

That's why we considered a rate stabilization plan. Yes that's definitely our preference because we do not like the volatility on our customer's base rates.

Andrew Weisel - Macquarie

Okay, remind me the timing of when you would have an idea about that?

Pat Kampling

Yes, we'll be working on that this year. Again, Brian had the same question, I really can’t commit to any time frame but we will need to get this done before, before February of 2014, but our goal would be to get something done this year. I just can’t commit to a time frame at this point.

Andrew Weisel - Macquarie

Okay, fair enough, and then my only other question you mentioned no equity needs in 2013 in light of the 150 million of cash that you're expecting two years later, any thoughts on the longer term outlook for equity needs. I know it’ll depend on approvals for Edge 5 and Marshalltown, but maybe some of the best case and worst case scenarios.

Tom Hanson

Certainly the bonus depreciation will help in that respect but as we get until we get the order from the public service commission here within Wisconsin relating to Edge 5 and the Marshalltown approval, it's premature at this time to be stating any specifics in terms of those future equity needs. But the point is the bonus depreciation certainly will help in that regard and as said, as we get those two orders which were expected this year we'll be able to add more clarity in terms of those potential future needs.

Operator

We go next to Eli Kraicer with Millennium Partners.

Eli Kraicer - Millennium Partners

Just had a question regarding the regulatory approval process for the CCGT, are there hearings coming in May regarding that, is that correct.

Pat Kampling

Yes, the testimony will be filed today and the hearing's on, if you look at schedule 9 in the attached slides hearing's on May 21st.

Eli Kraicer - Millennium Partners

Okay and how shall we think, is there any interrelation between the regulatory process regarding the approval for the rating parameters for the plan and how you will ultimately deal or discuss the post 2013 rates for IPL or the two issues at all related or how should we think about that.

Pat Kampling

Yes, you know Steve, we actually consider this our strategy so we are relating the issues, however we stated that the rate stabilization plan would like to go through on the date when the Marshalltown plant will be in service. So it will not be including a rate stabilization due to this facility itself, but up to that point.

Eli Kraicer - Millennium Partners

Okay, maybe I’ll follow up offline on that.

Pat Kampling

Okay but we would expect to have to file a rate case in 2017 for the Marshalltown gas plant.

Operator

We'll go next to Andy Levi with Avon Capital.

Andy Levi - Avon Capital

Just back on the rate stabilization plan, I think you had discussed your desire to possibly work out a settlement on this first going through a full proceeding, can you give us an update on whether talks have begun and kind of what’s the status of that is at this point? I know it’s early, but any information would be great?

Pat Kampling

The information that I can provide is that the interested parties are well aware of our intentions here and the goal is to stabilize rates for our customers. I really cannot say much more than that at this point.

Operator

And the next is Brian Russo with Ladenburg Thalmann

Brian Russo - Ladenburg Thalmann

Can you remind us of the amount and the timing of when that parent debt matures in 2014, the (inaudible) related?

Tom Hanson

Yes, it’s October 2014.

Brian Russo - Ladenburg Thalmann

Okay, and what’s the interest, what’s the rate on that?

Tom Hanson

4%.

Brian Russo - Ladenburg Thalmann

And how much is it?

Tom Hanson

250 million.

Brian Russo - Ladenburg Thalmann

Okay, and where does that, kind of flow through the income statement. Is it in the other non-rank and parent classification?

Tom Hanson

Yes-yes.

Operator

There are no further questions at this time.

Susan Gille

With no more questions, that concludes our call. A replay will be available through February 21, 2013 at 888-203-1112 for U.S. and Canada, or 719-457-0820 for international. Caller should reference conference ID 8244179.

In addition, an archive of the conference call and a script of prepared remarks made on the call will be available on the investors section of the company's website later today. We thank you for your continued support of Alliant Energy and feel free to contact me with any follow-up questions.

Operator

That does conclude today's presentation. We thank you for your participation.

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