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Executives

Susan Gille – Manager, IR

Pat Kampling – Chairman, President, CEO

Tom Hanson – Vice President, CFO

Analysts

Jay Dobson – Wunderlich Securities

Brian Russo – Landenburg Thalmann

Alliant Energy (LNT) Q3 2012 Earnings Call November 9, 2012 10:00 AM ET

Operator

Thank you for holding, ladies and gentlemen, and welcome to the Alliant Energy's third 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.

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 third quarter 2012 earnings, updated 2012 earnings guidance, updated 2012 through 2016 capital expenditure guidance and 2013 earnings guidance and dividend target.

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 this morning and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward-looking statements.

I 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.aliantenergy.com.

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

Pat Kampling

Good morning and thank you for joining us today. First, on behalf of all the employees at Alliant Energy, I'd like to offer our encouragement and support for those of you impacted by hurricane Sandy. We hope that you, your families and your businesses are on a path to recovery and with you all the very best.

I must recognize the over 200 dedicated Alliant Energy employees who have been working in New York. I also want to thank them and their families for the personal sacrifices they have made to help those in need.

And to many of you on the call, our employees certainly appreciate the gratitude and encouragement you've shown our crews as you've seen them in your neighborhood. However, a very special thanks go to our employees who are maintaining the excellent customer service and liability here at home while our crews are away.

I couldn't be prouder of the compassion, work ethic and dedicated of our entire organization. And speaking of dedication, with Veteran's Day just a few days away, I would also like to take a moment and pay tribute to the 400 proud veterans that work here at Alliant Energy and to those veterans that are on the call with us today.

This morning, we issued a press release that provided third quarter results, revised 2012 earnings guidance, a slight revision to the capital expenditures for 2012 through 2016 and earnings guidance and a targeted dividend level to 2013.

Tom will provide the detail on the quarterly financial results and year-end 2012 and 2013 projections. But in summary, I am pleased to let you know that for 2012, the midpoint o the guidance increased by $0.07, the targeted 2013 dividend level is 4.5% above current levels and adjusting 2012 for weather impacts, the 2013 midpoint of guidance is 10% above expected 2012 results.

This is consistent with our 5% to 7% weather normalized long-term earnings growth goals and targeted dividend payout ratio of 50% to 70% of earnings.

Supplemental Slide 2 provides the comparison to our current 2012 and 2013 guidance midpoints. The 2012 guidance on this page includes the $0.14 of weather benefits, therefore, is not weather normalized.

Much of the focus over the last year has been on IPO's regulatory strategy for the orderly transition of our generating fleet with the objective of managing total customer costs. Our regulatory strategy is impacted by a number of key initiatives, including the 2013 expiration of our Iowa retail electric based rate freeze for post extension of the DACPPA, several initial control investments, the proposed Marshalltown Generating Station and the disposition of the remaining electric tax benefit writer funds.

Our objective is to continue to pursue a solution with Iowa stakeholders to stabilize retail electric base rates until the Marshalltown generating station is in service in 2017.

This objective is achievable since we expect that the decline in revenue requirements related to the DAC capacity payments will be offset by increase I cost of service and rate base through 2016.

Approximately three months ago, IPL (inaudible) to the DAC sale docket to request approval from the IUB, an 11 year extension of the PPA and recovery of new charters through the energy adjustment clause.

The hearing on this matter will be held in December and we are expecting a decision on this filing in 2013. Currently, $135 million is expected in Iowa retail electric base rates for the DAC capacity payment.

The current purchase power agreement ends in February 2014 and that year's capacity payment totals $28 million. IN the event a base rate settlement is not reached for years 2014 to 2016, we are prepared to file a test year 2013 retail electric rate case in early 2014.

We would expect the 2013 rate base and that portion of the 2014 rate base addition that occurred prior to the filing date to be included in interim rates. A majority of the 2014 rate base would be included in final rates.

Supplemental Slide 3 shows a projected IPO rate base for 2013 through 2015. As you can see from the slide, rate base is expected to grow from the time of the rate freeze until 2014 at over 20% or $600 million.

The projected 2014 rate base does include the (kneel) three and four (inaudible) mission controls projects.

Later this month, we plan to file an application wit the Iowa utilities board for advanced rate making principles and site approval for the Marshalltown generating station. Our proposed advanced rate making principles included fixed costs after $700 million excluding (AFEDC) and transmission upgrades for a return on common equity of 11.25% and no double leverage penalty.

(Inaudible) to the filing and the expected regulatory approval schedule are included in supplemental Slide 4.

We expect the decision from the IUB approximately 12 months after filing. We anticipate the Marshalltown generating station by itself would increase customer rates approximately 7% in 2017 and another 3% in 2018. This assumes an April 2017 in service date.

The electric tax benefit writer will continue to be used to mitigate overall customer cost at IPL. There is still approximately $250 million remaining to be refunded back to customers starting in 2013. We will work with stakeholders to develop an appropriate refund plan to best stabilize rates.

Next, let me quickly brief you on all of our construction activities. We currently have over 500 contract workers on the property assisting with all our projects. The construction of the scrubber and (back half) at our (Tummer) facility is transitioning from foundation work to steel erection and this project is expected to be in service in 2014.

In addition, (Mid America) is currently installing (bag houses) and scrubbers new units three and four. A portion of these projects will be going into service in 2013 and remain through 2014.

In Wisconsin, construction of the Edgewater 5 SCR and Columbia units one and two (bag house) and scrubber is well underway. We are pleased to report that the Edge 5 SCR tie and outage is complete within budget and performance testing has begun. The controls are expected to be in service by the end of this year.

Steel work is underway at Columbia and the project is expected to be in service in the first half of 2014. Both of these projects were factored into the WPL retail investor grade settlement for 2013 and 2014.

In July, we filed the construction authorization request with the PSCW for a scrubber and (bag house) at Edgewater 5. We expect approval in mid 2013 and construction will be approximately $410 million project is expected to begin in 2014 and be completed in 2016.

By the end of this year, we will be adding two generating facilities to our fleet, which are the Riverside Energy Center and our unregulated Franklin County Wind Farm.

All regulatory approvals are now in hand for WPL's $395 million purchase of the Riverside Energy Center. With the addition of the 95 megawatts of capacity at Edgewater Unit 5 and the incremental 100 megawatts of capacity upon the purchase of Riverside, WPL has almost fully replaced the capacity that will be lost in the 2013 expiration of the (Kuwana) PPA.

(Dominion)'s plan to shut down (Kuwana) in the middle of 2013 is not expected to have a material impact on WPL. The contract terms will remain in effect through the end of 2013.

At the Franklin County Wind Farm, I am pleased to report that construction is substantially complete and over one-third of the megawatts have been commissioned and are in test mode. The total estimated cost of the project is approximately $235 million, excluding capitalized interest cost.

Since this project is schedule to be in service by year-end, it will allow us to elect a cash grant option. We continue to seek and all-take contract for the facility but in the mean time we will be selling this power into the my sell market.

Our 2012 through 2016 capital expenditure plan has been updated slightly to reflect current timelines for all of our construction projects. Our new detailed capital expenditure plan is provided in the earnings release we issued this morning and the WPL, IPL split of these expenditures will provided in the third quarter 10-Q filing, which will be submitted to the SEC today.

Before handing off to Tom, I am pleased to inform you that we have signed a letter of intent on the sell of RMT. We are currently working on the final details of the sale and expect to close in December.

Let me summarize the key messages for today. We continue to meet our 5% to 7% earnings growth and 60% to 70% dividend payout target. We've increased the midpoint and now with the range of 2012 earnings guidance, provided earnings and divided guidance for 2013.

We are making great progress on transforming our generating 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 increases.

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

Tom Hanson

Good morning, everyone. We released third quarter earnings this morning with our GAAP earnings from continuing operations went down to $0.34 per share. There are no adjustments to GAAP earnings this quarter.

2012 third quarter earnings are up over third quarter 2011 primarily due to the impacts of warmer weather and the timing of the electric tax benefit writer. These positive EPS drivers were personally offset by expected increases in depreciation and new purchase power capacity expenses.

Comparisons between third quarter 2012 and 2011 earnings per share are detailed on supplemental Slides 5, 6 and 7. The third quarter 2012 weather resulted in positive earnings on electric sales of $0.20 per share, $0.04 higher than third quarter 2011 weather impact of $0.16 per share.

Year to date, weather increased earnings $0.14 in 2012. With the higher earnings from the summer weather, we are planning to incur some additional expenses in the fourth quarter to get a head start on some key operational initiatives.

These initiatives include tree trimming, providing our field and plant employees with flame retardant pants and enhancing our business continuity planning. As a result of the earnings impacts of the weather and these initiatives, we narrowed the 2012 earnings guidance range to $2.90 to $3.05 per share.

As a reminder, our 2012 guidance was based on no material growth in weather normalized sales between 2011 and 2012 and that is still our forecast for this year as well as next year.

Sales trends are illustrated on supplemental Slide 8 and 9. The electric tax benefit writer resulted in quarter-over-quarter variation in IPL and (apparent) of $0.04 per share of higher earnings in the third quarter of 2012 when compared to the third quarter of 2011.

The actual and projected quarterly earnings impact on the 2012 as well as the actual quarterly impact on the 2011 electric tax benefit writer was provided in the earnings release issued this morning.

As demonstrated in the earnings release, the electric tax benefit writer quarterly timing issue is not anticipated to impact full-year 2012 results. The walk from the 2011 to 2012 projected effective tax rates for IPL, WPL and AEC is provided on supplemental Slide 10.

Turning to our financing plan, we believe that with our strong cash flow and financing plan we can maintain our targeted liquidity, capitalization ratios and credit metrics. Our current financing plan anticipates issuing long-term debt up to $375 million in the third – in the fourth quarter of 2012 including up to $300 million for the acquisition of Riverside.

During the third quarter of this year, our service company issued $75 million of debt to finance the acquisition of our corporate headquarters building and general working capital. We do not plan on issuing any material new common equity through 2013.

We will continue to assess our future equity needs based on the regulatory approvals received for the various large capital spending projects that we are proposing and also based on our ongoing assessment of evolving market conditions.

Cash flows from operations are expected to stay strong since we do not expect to make any material federal income tax payments until 2015. These cash flows will be partially offset with credits to customer builds in accordance with IPL's tax benefit writer.

Now, let's review our 2013 guidance. This morning we issued our consolidated 2013 guidance range of $2.95 to $3.25 per share. A walk from the midpoint of the 2012 to the 2013 estimated guidance ranges is shown on supplemental Slide 11.

Starting with utilities, the 2013 guidance assumes normal weather and is based upon the impacts of WPL's previously announced electric retail rate freeze and gas rate decrease and IPL's proposed settlement of its gas rate case.

The WPL rate case reflected electric rate-based 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-based additions was completely offset by the impact of lower purchase 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.

Despite no change in WPL's electric customers base rates, WPL expects to increase earnings from the reduction in purchase power capacity and conservation costs. The 2013 guidance also reflect a decrease in earnings from the $13 million annual reduction in WPL's gas base rates effective January 1, 2013.

Our 2013 guidance range forecast that WPL is expected to earn close to its authorized return of equity of 10.4% and we expect to infuse $100 million of equity from the parent into IPL later this year for the Riverside acquisition.

Now, turning to IPL, IPL is forecasted to benefit from the increase in electric revenues from a revenue requirement adjustment proposed with the finalization of the amounts for its electric tax benefit writer, higher ACDC from is environmental control projects currently under construction and lower income tax expense from certain tax projects.

These benefits are expected to be partially offset by higher DACPPA capacity costs as well as higher depreciation expense in 2013 when compared to 2012.

Our 2013 guidance range forecast, that IPL is expected to earn slightly below its authorized average return on equity of approximately 10%.

The revenue requirement adjustment proposed for 2013 is based upon three tax projects which were initiated prior to IPL's 2009 test year retail electric rate case which led to the establishment of the electric tax benefit writer.

These projects were the allocation of flood insurer's proceeds, the allocation of mixed service cost and the deduction of additional repair expenditures. If we had followed traditional Iowa rate making practices in IPL's last electric rate case, these projects would have changed customer rates by reducing tax expenses and increasing rate base.

Due to the materiality and uncertainty of these projects, the IUB issued an account order in 2010 to temporarily suspend the traditional Iowa rate making practices and not reflect these projects in rates until IRS certainty was reached.

We have now reached agreement with the IRS on the benefits of these three projects through the 2011 tax year. With certainty achieved, IPL's proposing to finalize the reconciliation of rate impacts for these three projects to reflect traditional Iowa rate making practices in two ways.

First, the reduction of tax expense will be updated to reflect the final amount of billing credits available to electric customers based on IRS audit results. Second, the increase to electric rate base will be proposed as an adjustment to the billing credits, which is expected to result in $0.13 of additional revenues in 2013 as illustrated on supplemental Slide 12.

This proposal has been reflected in the 2013 tax benefit writer filing, which is expected to be made with the IUB in November 2012. Given the changes expected in the income tax for 2013, supplemental Slide 13 has been provided to assist you with modeling our forecasted 2013 effective tax rates at IPL, WPL and AEC.

Finally, with respect to our guidance, we turn to the projections for the parent and non-regulated businesses. We forecast that the transportation business remains steady, earnings per share between $0.11 to $0.13.

The parent will continue paying interest on $250 million of debt at an interest rate of 4%. The Franklin County Wind Farm will be fully operational by the end of 2012. We are still investigating off take options for this facility.

Our 2013 guidance assumes this facility will operate as a merchant generator in 2013 at an estimated $0.04 loss. The loss, primarily due to lower expected short-term electricity prices as well as interest and depreciation expenses that begin with the start of operations.

The forecasted weather normalized EPS growth from the midpoint of 2012 earnings guidance to the midpoint of 2013 earnings guidance is 10%. This growth contributes to our forecasted long-term earnings growth rate of 5% to 7% based upon weather normalized 2010 earnings of $2.62 per share.

Turning to our regulatory calendar, we have several current and planned regulatory dockets of note for the rest of 2012 and for the first quarter of 2013 which are summarized on Slide 14.

In December, the IUB has two scheduled hearings relating to IPL filings. The first is for the Iowa gas case. In August of this year, a settlement agreement was filed with the IUB which contains an annual $11 million gas increase.

As part of this settlement, we propose to use a temporary gas tax benefit writer of approximately $36 million to minimize the impact to customer rates. This amount is expected to be spread over a three-year period.

The second hearing in December will address our request for approval of the new DACPPA which would start in February 2014.

We are expecting four decisions from the IUB during the first quarter 2013. The first relates decisions concerning the emission plan and budget filings submitted by IPL and (Mid-American) in April 2012. IPL and (Mid-American) recently filed settlements reached with the OCA for the emission control projects at (George Neal), (Otamwa) and (Lancing) generating facilities.

The second decision is regarding our proposal to change the Iowa energy adjustment rules to include costs or credits resulting from future EPA rule changes, emission control chemicals and renewable energy credit revenues as well as an option to include production tax credits.

The third is a decision on the November filing to the 2013 retail electric tax benefit writer credits and related revenue requirement adjustment for 2013 being proposed. And the fourth is the transmission cost factor for 2013.

We very much appreciate your continued support of our company and look forward to meeting with you at EEI. The slides to be discussed at EEI will be posted on our website later today.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Jay Dobson – Wunderlich Securities.

Jay Dobson – Wunderlich Securities

Tom, quick question, the contract cancellation that you have in the quarter-over-quarter walk, I assume that's Riverside. Can you confirm what that is?

Tom Hanson

No, that is a long-term service agreement at (Emry) that we're stepping out of.

Jay Dobson – Wunderlich Securities

So that's almost a non-recurrer. That's something that we won't see again.

Tom Hanson

That is correct.

Jay Dobson – Wunderlich Securities

And then, Pat, on the Franklin County plant, I noted that we're now looking for a loss and certainly a contract could potentially mitigate that. But how do you think about sale opportunities of that asset? Obviously an unregulated wind is probably not core to what you're trying to accomplish.

Pat Kampling

Jay, we went down this path. We knew this was the least risky option for us was just to complete the site before the tax credits expire. We're still open to many different ideas on what to do with the facility.

Right now, we're just willing to ride the my sell market even though the costs are lower just because of the long-term pricing of PPAs right now. So we're definitely open for all types of options on that as we go forward.

Jay Dobson – Wunderlich Securities

And that $0.04 reflects current market environment.

Pat Kampling

Yes, yes.

Jay Dobson – Wunderlich Securities

Then on the Iowa rate base that you included in the supplemental slides, does that include quip or not include quip?

Tom Hanson

It does not include quip.

Jay Dobson – Wunderlich Securities

Given the changes in the CapEx – I know it was only about $50 million net across the 2012 to 2016 – would the quip balances change a lot from what you had previously disclosed appreciating that they'll likely be included in the slides that you published this afternoon?

Tom Hanson

No, no.

Operator

(Operator Instructions) Your next question comes from the line of Brian Russo – Ladenburg Thalmann.

Brian Russo – Landenburg Thalmann

I apologize because I got on the call a little bit late. The Iowa rate proposal, has that been filed yet or should we expect that shortly?

Tom Hanson

That will be filed here in November. Well, I should say probably at the end of November.

Pat Kampling

Are you talking about the Marshalltown generating station, Brian?

Brian Russo – Landenburg Thalmann

No, I'm referring to a proposed rate structure in 2014.

Pat Kampling

No, that has not been filed. We are still working with the stakeholders to find an appropriate method to come up with the rate stabilization plan. We can talk to you when we see you at the EEI over the weekend. But you'll see in the slides that we posted the rate base additions will be really offsetting the reduction in the capacity payment.

Brian Russo – Landenburg Thalmann

Just to clarify, the rate base numbers for IPL in the current slides that's after any deferred tax adjustment, correct?

Pat Kampling

That's true, yes.

Brian Russo – Landenburg Thalmann

Then just on the rate stabilization plan, I think you said earlier the goal is to keep rates where they are and backfill it with CapEx. Would you be in a position of overearning in 2014 and, therefore, you might look to implement some sort of ROE sharing band?

Pat Kampling

That's definitely open. The overearning, though, is not going to be very meaningful, Brian, as you look at the additional rate base that's been – will be added to IPL.

Brian Russo – Landenburg Thalmann

And if I heard you correctly, if you don't reach a rate stabilization plan settlement you'll file in '13 in IPL for rates in '14 and also include 2014 rate base in that.

Pat Kampling

Yes, what we'll do, Brian, is file at the end of the first quarter in '14, which is really the '13 rate base. But you can also file for first quarter additions to rate base, so it will be a hybrid of '13 plus the first quarter additions to '14 that we'll file if we have to go down that path.

Brian Russo – Landenburg Thalmann

Then on the 2013 guidance, I noticed this $0.11 year-over-year positive for higher PTCs and change in tax accounting that's related to property. Could you just add some background on that?

Tom Hanson

Yes, with respect to the higher PPCs, we would expect there would be additional generation from the (Ben Tree) project and, to a lesser degree, at Whispering Willow East and then the tax method change that we're proposing is that this would allow us to take an immediate deduction for cost removal items in IPL service territory which would then allow us to capture the benefit that we have highlighted on Slide 11.

Brian Russo – Landenburg Thalmann

Is that ongoing?

Tom Hanson

Yes. That would be a change in method on a going forward basis. So we would continue to see some continuation of that benefit in future years.

Brian Russo – Landenburg Thalmann

And then what's the load growth assumption in '13 versus '12?

Tom Hanson

In the supplemental slides, we have identified that but the reality is it's virtually flat. We have a slide that shows '11 to '12 and then '12 to '13 but for all intensive purposes it's flat.

Operator

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 November 16th 2012 at 888-203-1112 for US and Canada or 719-457-0820 for international. Callers should reference conference ID 8244179.

In addition, an archive of the conference call and a script of 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 conference. Thank you for your participation.

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