Alliant Energy's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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 |  About: Alliant Energy Corporation (LNT)
by: SA Transcripts

Alliant Energy Corporation (NYSE:LNT)

Q4 2013 Earnings Conference Call

February 25, 2014, 10:00 AM ET

Executives

Susan Gille - Manager, Investor Relations

Patricia Kampling - Chairman, President and Chief Executive Officer

Thomas Hanson - Senior Vice President and Chief Financial Officer

Robert Durian - Controller and Chief Accounting Officer

Analysts

Mike Bates - Wunderlich Securities

Brian Russo - Ladenburg Thalmann

Steve Fleishman - Wolfe Research

Ashar Khan - Visium

Andy Bischof - Morningstar Equity Research

Operator

Welcome to the Alliant Energy's calendar year 2013 earnings conference call. (Operator Instructions) I would now like to turn the call over to your host, Susan Gille, Manager of Investor Relations at Alliant Energy.

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, Senior 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 fourth quarter and calendar year 2013 earnings, affirming 2014 earnings guidance and updating 2014 through 2017 capital expenditure 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 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 reconciliation 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.

Patricia Kampling

Thanks Sue. Good morning and thank you for joining us today. I am pleased to report that for 2013, we were successful in managing our company in accordance with our operating plan. Our large construction projects continue to be on time and at or below budget.

We remain focused on our mission to deliver energy safely and reliably, while maintaining constructive regulatory frameworks and competitive rates for customers. I am extremely grateful to the men and women that made sure our operations met customer needs during the hot summer and unusually cold winter, and most importantly they worked safely and looked out for one another.

From 2010 to 2013 we delivered approximately 6% annualized earning growth based on our non-GAAP weather normalized earnings. Our 2014 earnings guidance continues to meet our five-year annualized growth objective of 5% to 7%, starting from 2013's non-GAAP weather-normalized earnings of $3.14.

Please keep in mind that the projected increase in this year's guidance included no change in customer's base rates, since the expiring fixed capacity payments at both utilities will offset rate impacts from rate base additions. Slide 2 provides the comparison to our historic non-GAAP weather-normalized earnings and the 2014 earnings guidance midpoint.

This year WPL is in the last year of its base rate freeze. As we review our forecast, we expect minimal impact to customer base rates for the 2015, 2016 test year case, as we believe we may be able to offset the modest revenue requirement increase by utilizing the remaining balance in the energy conservation regulatory liability.

We have already begun conversations with commission staff and will engage other parties, just as we did in the 2013, 2014 test year. If an agreement can be reached, WPL will expect to file an abbreviated request for commission approval in the spring, and then file a 2015 fuel-only case in the third quarter. If agreement cannot be reached, WPL will file a full rate case in late March for the test years 2015 and 2016.

Our 2014 focus in Iowa will be driven by the expiration of our three-year Iowa Retail Electric base rate freeze, implementation of the 2013 DAEC PPA order as well as continuation of our generating fleet transition.

As ordered in last year's DAEC nuclear PPA approval, all of the costs of the new PPA agreement began flowing through the Energy Adjustment Clause this month. We agreed to work with interveners to reach a settlement or file a rate case, without requesting interim rates in the first quarter of 2014.

This was intended to alleviate concerns that interveners raised about the perceived double recovery of the $135 million of capacity payments that were included in the 2009 test year base rates, as well as reflecting IPL's other revenue requirement changes since the last rate case.

We continue working with various stakeholders on a possible settlement, which would provide multiyear electric base rate certainty for our customers. But, if a unanimous settlement is not reached with all the parties by the end of the first quarter, we will file a 2013 test year retail electric base rate case at the end of March.

The 2013 test year retail electric base rate case would eliminate the revenue requirement for DAEC capacity costs and include known and measurable adjustments through 2014, including the revenue requirement for the recovery of and return on the net increase in rate base of approximately $750 million at yearend 2014.

Other revenue requirement adjustments would include changes in depreciable lives of assets, capital structure, operating expenses and the requested return on equity including no application of double leverage.

We also expect to request continuation of the transmission rider and Energy Adjustment Clause as well as request inclusion of Production Tax Credits and chemical costs in the Energy Adjustment Clause.

If the revenue requirement approved by the IUB in the 2013 test year case is lower than the current base rate, then a refund would be required and would be calculated starting in February 2014, which is when the original DAEC contract expired.

And of course, we will continue to work with intervening parties to attempt to reach a settlement on all or part of the case throughout the rate case process. Depending on the outcome of this rate case, there would also be a need for additional rate cases before 2017, when the Marshalltown Generating Station is expected to be placed in service.

Now, let me provide a quick update on the Marshalltown Generating Station. The ratemaking principles order approved a return on common equity of 11% for the 35-year depreciable life of the facility, and the use of 10.3% on common equity for the calculation of AFUDC.

The order also established a $920 million cost cap, including AFUDC and transmission upgrade costs. Although we anticipate ITC will be self-funding the transmission upgrade, the transmission costs are included in the overall cost cap of the project, and we will continue to work with ITC in managing the project.

We expect ITC to bill IPL directly for the revenue requirement related to the Marshalltown transmission line, once the line is in service and expect these costs to flow through the transmission rider. Construction of the Marshalltown Generating Station is expected to begin in the second quarter of this year, and we believe that cost cap is sufficient to complete the project.

Now, let me quickly brief you on our current emission control construction activities. 2014 is a big year for emission control projects at Alliant Energy. The installation of the baghouse and scrubber at our Ottumwa facility is on budget, construction is approximately 80% complete with an in-service planned for late 2014.

In addition, MidAmerican is installing baghouses and scrubbers at Neal units 3 and 4. The Neal 4 project was placed in service at the end of 2013 and the Neal 3 project is expected to be placed in service in the second quarter of 2014.

In Wisconsin, construction of baghouses and scrubbers at Columbia units 1 and 2 is progressing well and is over 90% complete. This project is expected to be under budget and in service in the first half of this year.

The 2014 in-service was factored into the WPL rate case settlement for 2014. In addition to the progress we are making on transforming our Tier 1 units, we are also making progress in preparing our Tier 2 units to be compliant with the utility mercury and air toxic standards by the April 2015 deadline.

We are currently installing low-cost controls at our Prairie Creek and Burlington generating stations and are converting the ML Kapp generating station from coal to gas. Our 2014 to 2017 capital expenditure plan includes investments of up to $40 million for the Tier 2 units.

Through yearend 2013, we have spent $20 million on these facilities for coal-to-gas conversion and low-cost emission controls. We believe we are well-positioned to ensure a balanced, flexible and environmentally compliant generating fleet that will serve our customers well.

We also provided an updated capital expenditure plan this morning. The only change to the plan is the removal of $190 million of transmission network upgrades in 2014 to 2016, since ITC has informed us, they expect to self-fund the transmission work related to IPL's Marshalltown Generating Station and WPL's Bent Tree wind facility.

During our third quarter call, we noted a planned capital expenditures starting in 2016 for the additional generation at WP&L. Our current forecast indicates a need for a resource in 2019, driven by growth in sales, the need for capacity and energy and the planned retirement of three coal units in Wisconsin over the next few years.

As part of our long-term planning resource efforts, WPL is conducting a feasibility study of resource options. We plan to issue a request for proposal in the second quarter of this year to determine what available options might be in the region and anticipate the regulatory filing with the PSCW to be made in late '14 or early '15.

Our current capital expenditure plan includes a new 300 megawatt natural gas-fired combined cycle generating facility as a placeholder until we determine the desired resource.

I would now like to update you on some positive economic developments in our service territory. The economy continues to improve for both Iowa and Wisconsin. Unemployment rates are below the national average, with Iowa's rate now at 4.2% and Wisconsin's rate now at 6.2%.

And our customer counts are increasing modestly, industrial customers are expanding and we're seeing a slight increase in use per customer. As a result, we experienced a nice increase in residential weather-normalized sales in 2013 and we look forward to further growth in 2014 based on these trends.

So now let me summarize the key messages for today. We performed well in 2013 and we are forecasting another solid year in 2014, as we reaffirm our guidance today.

We will continue to manage the company striking a balance between capital investment, operational and financial discipline and cost impact to customers. We have a plan that will continue to meet our 5% to 7% long-term earnings growth objective and 60% to 70% common dividend payout target.

We are making progress transforming our generation portfolio to one that is balanced, with lower emissions and that has the flexibility to comply with all existing and currently proposed environmental regulations while economically meeting the energy and capacity needs of our customers. We've continued to work closely with our regulators and stakeholders to receive fair and timely outcomes.

And finally, I must acknowledge and give thanks to our dedicated workforce, which not only provides outstanding service to our customers, but also delivers the financial results that we are discussing today. And I must add that like many of you on the call we are so looking forward to the arrival of warmer weather.

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

Thomas Hanson

Thank you, Pat. Good morning, everyone. We announced 2013 yearend earnings this morning, with our GAAP earnings from continuing operations of $3.29 per share. Our two non-GAAP earnings adjustments in 2013 related to the preferred stock redemptions at IPL and WPL in early 2013, and the December 2013 Minnesota Public Utility Commission order allowing for the recovery of IPL's Whispering Willow - East wind project, which was higher than we initially estimated in 2011.

Comparisons between 2012 and 2013 earnings per share are detailed on Slides 3, 4 and 5. 2013 earnings were higher than 2012, primarily due to lower Riverside Energy Center purchased power capacity costs, higher tax benefits related to IPL's revenue requirement adjustment, increased weather-normalized electric and gas sales, and lower energy conservation expenses.

These positive EPS drivers were partially offset by higher depreciation and transmission expense, and higher generation and distribution O&M expenses. Higher than expected weather-normalized retail sales, and the IPL tax benefits, enabled us to increase generation and distribution O&M expenses in 2013 to further enhance the reliability of our system. We experienced weather-normalized sales growth in 2013.

Retail sales trends between 2012 and 2013 are illustrated on Slide 6. For the first time in three years, weather-normalized residential retail sales grew. In addition, several industrial customers expanded their operations, which increased weather-normalized sales at both IPL and WPL.

The agriculture and food processing-related segment provided the most growth in Wisconsin due to the excellent condition for crops, and the wet, but high-yielding, harvest last fall. Other industrial segments experiencing electric sales growth in our territory included health services and chemicals.

The walk from the 2012 to the 2013 effective tax rates for IPL, WP&L and AEC is provided on Slide 7. More renewable energy was produced and as a result we earned higher PTC's in 2013 when compared to 2012 due to the completion of the transmission upgrades at both our Whispering Willow and Bent Tree wind facilities, which allowed for greater output.

In November, we issued our consolidated 2014 EPS guidance range of $3.25 to $3.55. A walk from the 2013 actuals to the 2014 estimated guidance range midpoint is shown on Slide 8.

The 2014 guidance assumes normal weather and modest electric sales changes as profiled on Slide 9. Due to our assumption of normal weather, we do not expect the same level of ag-related sales in 2014 for Wisconsin as we experienced in 2013. In Iowa, a couple of industrial customers expanded their operations late in 2013, thus we anticipate experiencing a full year's impact of those expansions in 2014.

The 2014 guidance is based upon the impacts of WP&L's previously announced electric and gas retail rate freezes and the assumptions about IPL's expected Iowa retail electric base rate case outcome. In 2012, WPL reached settlement with the parties and froze base rates for 2013 and 2014. The WPL rate freeze reflected electric rate base growth as a result of the Columbia scrubber and baghouse projects coming online this year, as well as other rate base additions.

The increase in the electric revenue requirement for 2014 was offset by the net impact of the lower purchased power capacity costs from the Kewaunee PPA, which expired at the end of 2013 and higher conservation expense resulting in no change to WP&L's electric base rates for this year. For IPL, retail electric base rates are not expected to change in 2014. We will share additional details of our test year 2013 rate case at the end of March when we expect to file.

Slide 10 provides guidance regarding effective tax rates given the changes expected in 2014. Please note that the 2014 effective tax rate includes the approved 2014 electric and gas bill credits of $97 million through IPL's tax benefit riders.

Cash flows from operations are expected to be strong given the earnings generated by the business. We will also benefit, given we do not expect to make any material federal income tax payments until 2016 nor do we expect to make any contributions to our qualified pension plans over the next two years, since they were approximately 95% funded at the end of 2013.

We believe that with our strong cash flows and financing plan, we will maintain our targeted liquidity, capitalization ratios and credit metrics. Our financing plan assumes that the sale of our Minnesota distribution assets closes in 2014. The estimated sales proceeds of approximately $128 million are expected to be used to reduce IPL's financing needs.

The sale requires state and federal regulatory approvals. We filed for the approval of the gas sale with the MPUC earlier this year, and expect to file with the MPUC for the approval of the electric sale in the next 60 days. This transaction will also require IUB and FERC approvals.

Our current financing plan anticipates issuing up to $300 million of long-term debt at both IPL and WP&L in the latter half of 2014. We currently anticipate issuing approximately $150 million in aggregate of new common equity in 2015 and 2016. We do not currently plan to issue any material new common equity in 2014. We may adjust plans as deemed prudent if market conditions warrant and our equity needs continue to be reassessed.

We have several current and planned regulatory dockets for 2014, which are summarized on Slide 11. In addition to the anticipated rate case filings for both WP&L and IPL, we plan to file IPL's Emission Plan and Budget in April. As you may recall the Emission Plan and Budget is the regulatory evaluation process for major environmental projects in Iowa.

The plan we are filing is consistent with our current capital expenditure plan provided in our earnings release issued this morning. In Wisconsin, we plan to request a certificate of authority to install an SCR at Columbia Energy Center's unit 2, as well as a filing for the proposed generation investment at WPL. We very much appreciate your continued support of our company and look forward to meeting with you throughout the year.

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

Question-and-Answer Session

Operator

(Operator Instructions) We'll take our first question from Mike Bates with Wunderlich Securities.

Mike Bates - Wunderlich Securities

Can you talk us through some of the puts and takes in your rate base assumptions down at IP&L, given the removal of transmission for Marshalltown?

Thomas Hanson

The rate base that we have issued out there, Mike, really remains in basically the same estimates with one assumption, the Marshalltown transmission project we assumed would go in service in 2016. So assume that approximately $100 million would come out of that rate base forecast in 2016. Again, that's assuming that ITC is going to fund the Marshalltown transmission project. So that's the only adjustment we would expect because of that.

Mike Bates - Wunderlich Securities

And why is it that the CapEx assumption is $190 million lower, but the rate base assumption is only $100 million lower. What's the delta there?

Thomas Hanson

Well, what we're showing in 2013 is the 13-month average. And then also keep in mind, a portion of the $190 million that we're taking out is relating to Bent Tree as well. The largest portion is related to Marshalltown, but a portion of that relates to Wisconsin here with the Bent Tree project.

Mike Bates - Wunderlich Securities

And also if you could offer us some additional color around your demand expectations for 2014, you mentioned a couple of significant industrial customers expanded in 2013. Are you able to disclose who those customers are and where do you see the greatest likelihood of potential upside from your current demand forecast?

Thomas Hanson

First with respect to identification of the customers, I think in fairness, it's inappropriate that we would mention specific names. But as we've stated, we are seeing increase in actual customer count. We are also seeing additional residential usage, unlike the historical pattern. And as we mentioned, we do have a number of industrial customers in both the IPL and WP&L service territory that either have completed their expansions or provided us indication that those expansions are occurring and that's what's really giving them rise to the sales increases that we portrayed on Slide 9.

Mike Bates - Wunderlich Securities

And my last question is can you walk us through some of your assumptions in terms of O&M as we look into 2014? Do you have some significant plans, outages or anything like that that is assumed in your guidance at this point?

Thomas Hanson

Well, the biggest change would be with respect to the energy conservation expense here in Wisconsin. And keep in mind that tends to be one of the items that we've seen some adjustments occurring in light of the rate freeze that we have in 2013 and 2014. So that's the single largest item. But also we're seeing lower pension expense as we have talked about on our third quarter call because of the change in discount rate that we experienced at yearend. Other than that I would say there is nothing extraordinary in terms of the change from 2013 to 2014.

Operator

We'll take our next question from Brian Russo with Ladenburg Thalmann.

Brian Russo - Ladenburg Thalmann

Just a clarification. The proceeds of $128 million from the Minnesota asset sale, is that net or is that gross proceeds minus some sort of tax?

Thomas Hanson

That's a gross, Brian.

Brian Russo - Ladenburg Thalmann

It's a gross number?

Thomas Hanson

Yes.

Brian Russo - Ladenburg Thalmann

Do you have any idea what the net number would be?

Thomas Hanson

Well, given the fact, we're not going to be a federal taxpayer for several years. For planning purposes, I guess you could use a statutory rate of 40%.

Brian Russo - Ladenburg Thalmann

And if I heard you correctly, your equity needs have been revised to $150 million from $250 million?

Thomas Hanson

That is correct. And that reflects the removal of the transmission CapEx of $190 million.

Brian Russo - Ladenburg Thalmann

And then, I apologize, Pat, but I missed your commentary earlier on the Wisconsin regulatory strategy. Could you just reiterate real quickly what you said earlier, what the plan is there?

Patricia Kampling

Sure. No problem, Brian. This is our year to file the two-year rate case, so that would be years '15 and '16. We still have our additional funds left in the escrow account that we have been utilizing over the last couple of years. So we're hoping we can reach a settlement because the customer rate impacts won't be large, if we use the account.

So we are hoping to reach a settlement, and we'll know that over the next couple of months. And if we don't reach a settlement, it would be like the settlement like we had last time, very simplified settlement that we will ask the Commission to approve and then file a fuel case later in the year. If we don't reach a settlement, we'll be filing the full two-year rate case at the end of March.

Operator

We'll take our next question from Steve Fleishman with Wolfe Research.

Steve Fleishman - Wolfe Research

My question has been answered. Thank you very much.

Operator

We'll take our next question from Ashar Khan with Visium.

Ashar Khan - Visium

If I heard correctly, you said by the end of March, we will know whether we have to -- either we will be filing a case or there will be a settlement. Is there a date specific or by which this outcome has to be known?

Patricia Kampling

Are you talking about in Iowa?

Ashar Khan - Visium

Yes, correct.

Patricia Kampling

No. There is no date specific. That's just the plan that we've been talking about. And we're continuing discussions ongoing with all the parties to see if we can still reach a settlement, but if we can't reach a settlement, we'll have to file a case.

Ashar Khan - Visium

And any kind of color you can provide on those talks to present?

Patricia Kampling

What I can honestly tell you is that the discussions have been very good and very constructive. Right now there is just not full alignment on what the settlement would look like. So we'll still have to continue with discussions with all the parties, but if there is not full alignment on what a settlement should look like then we'll be filing the case.

Operator

We'll take our next question from Andy Bischof with Morningstar Equity Research.

Andy Bischof - Morningstar Equity Research

For the WPL generation investment, I know it's just a placed cover, but is that $300 million for the '16, '17, the total expectation for the 300 megawatt plant or are there expected costs in 2018 as well?

Thomas Hanson

Yes, there will be some costs that spillover into '18 as well.

Operator

And Ms. Gille, there are no further questions at this time.

Susan Gille

With no more questions, this concludes our call. A replay will be available through March 4, 2014, at 888-203-1112 for U.S. 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's 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 question.

Operator

And that does conclude today's conference. Thank you for your participation.

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