Alliant Energy Corporation (NASDAQ:LNT) Q3 2022 Earnings Conference Call November 8, 2022 10:00 AM ET
Susan Gille - IR Manager
John Larsen - Chair, President and CEO
Robert Durian - EVP and CFO
Conference Call Participants
Dariusz Lozny - Bank of America
Michael Sullivan - Wolfe Research
Nick Campanella - Credit Suisse
Ashar Khan - Verition
Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's Third Quarter 2022 Earnings Conference Call. At this time, all lines are in a listen-only mode. Today's conference call is being recorded.
I would now like to turn the call over to your host, Susan Gille, Investor Relations Manager at Alliant Energy.
Good morning. I would like to thank all of you on the call and the webcast for joining us today. We appreciate your participation. With me here today are John Larsen, Chair, President and CEO; 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 third quarter and year-to-date financial results, narrowed and raised the midpoint of our 2022 earnings guidance range and announced the 2023 earnings guidance and common stock dividend target. It also provided our annual capital expenditure plan through 2026. This release as well as an earnings presentation, which 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 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 and our quarterly report on Form 10-Q, which is available on our website.
At this point, I'll turn the call over to John.
Thank you, Susan. Good morning, everyone, and thank you for joining us today.
We continue to be on track for another solid year with strong financial and operating results. I'll hit - on the key headlines and then turn it over to Robert for additional details.
I'll start with 2022. A combination of solid weather-normalized sales, positive temperature impact, project execution and our continued focus on cost management have us well-positioned for another year of achieving our long-term guidance objectives. As a result, we are increasing and narrowing our 2022 earnings guidance range. We are well positioned for 2022 to be the 13th year in a row of achieving our targeted 5% to 7% earnings growth objective.
And turning to 2023, I'm pleased to share our earnings guidance and dividend target. We pride ourselves on consistency, and these targets demonstrate our commitment to our long-term 5% to 7% earnings growth objectives. Our 2023 earnings midpoint represents a 6% increase to our forecasted 2022 temperature-normalized adjusted earnings. And our 2023 common stock dividend target is $1.81 per share, which is a 6% increase from the prior year.
Our commitment to steady and predictable results has never been stronger. Another key headline is our updated capital investment forecast. We are adding $2.4 billion of investment compared to last year's plan. This is yet another indication of how our well-executed and transparent Clean Energy Blueprint has us positioned for long-term growth. Our Clean Energy Blueprint serves as our road map to deliver on our purpose to serve customers and build stronger communities.
It's not only well-designed for success, but also flexible, allowing us to adjust and adapt to the needs of our customers and economic changes. One of the largest opportunities to add value for our customers is the Inflation Reduction Act, or IRA. Our success in advancing and executing our capital projects this year has us well-positioned to take advantage of the many customer benefits from the IRA.
An example of this was our fast pivot away from tax equity to full ownership of our solar projects. As we shared in the last call, we haven't taken our foot off the gas as we continue to execute on our large solar project portfolio. This positioned us well to take immediate advantage of the IRA, providing even greater benefits to our customers and value to our shareowners.
On our current solar and battery projects, our customers will see nearly $500 million of incremental net present value benefits as a result of the impacts from the IRA when compared to traditional ownership. We don't have to change our plans to take advantage of the IRA. It's a natural fit with our Clean Energy Blueprint. Another area of focus is addressing the proposed MISO seasonal capacity construct.
We've shared in previous calls how this has also impacted retirement dates for some of our remaining coal facilities. We have always kept a balanced generation portfolio, and while the end state of our blueprint will not change, this new construct will advance our need for dispatchable and flexible generation, ensuring reliable service to our customers no matter the season.
As we embrace these opportunities, we revised our capital expenditure plan, which contributed to a solid 8% rate base growth through 2026. Approximately one-half of our investments over the next four years will be in renewable generation and battery storage, a strong demonstration of our commitment to a clean energy future for our customers.
Now with our outlook for 2023 established, let me share some of the achievements during the last quarter. We are keeping pace on our projects within the Clean Energy Blueprint. Not only has this positioned us well to take advantage of the IRA, we are also well-positioned for future investments. We have all 16 sites that make up our overall 1.5 gigawatts of solar additions across both Iowa and Wisconsin under site control.
We also have the majority of generator interconnect agreements in place and all solar panels are either under - our control or under construction. Our 50-megawatt Bear Creek project went into service on time and within budget and two more projects should be operational by the end of the year, including our 150-megawatt Wood County and our 50-megawatt North Rock projects. We also added two new battery storage projects, 1 in Portage, Wisconsin and one in Cedar Rapids, Iowa.
I'm very proud of our teams that work to make this all happen in some very challenging sourcing and economic times. I'm also pleased to share that we continue to see solid growth in both Iowa and Wisconsin. And for the fourth year in a row, we've been named a Top Utility in economic development by Site Selection magazine. As I've discussed in the past, we invest in key industrial property locations to spur economic development and growth within the communities we serve.
This past quarter, it was an honor to help celebrate the planned expansion of Wyffels Hybrids as they announce their expansion in Ames, Iowa. Our team was also busy positioning us for the next phase of our generation transformation and grid resilience. They have been identifying additional IRA opportunities, advancing our efforts to move our grid underground and continuing our development efforts for future investments in new wind, repowered wind, solar, storage and sustainable fuels.
We continue to have a strong backlog of development to provide us with choices for our future investments. To cap off a great third quarter of solid results and execution, I reflect on how the intersection of the IRA and our Clean Energy Blueprint has made such a tremendous impact for us. Alliant is well positioned to be one of the strongest beneficiaries of the IRA because we can put the IRA to work immediately to benefit both our shareowners and customers through added rate base opportunities and lower costs to customers.
We're also well-positioned to benefit from cash flow improvements through transferability of tax credits and we're not subject to the corporate minimum tax in the near term. Before I close, a quick reminder that it's not too late to vote and with Veterans' Day coming up soon, I'd like to pass on a sincere thank you to all veterans, especially to the over 200 that are part of the Alliant Energy team and all military families. I thank you for your service and sacrifice. Robert and I look forward to sharing more details next week when we see many of you in Florida at the EEI Conference.
I'll now turn the call over to Robert.
Thanks, John. Good morning, everyone.
Yesterday, we announced third quarter non-GAAP earnings of $0.93 per share, compared to $1.02 per share in the third quarter of 2021. Our quarterly earnings change year-over-year was primarily due to higher interest expenses and the timing of income taxes. The non-GAAP adjustment recorded in the third quarter of $0.03 per share related to Iowa tax Reform enacted earlier this year.
In September, the Iowa Department of Revenue announced a corporate state tax rate of 8.4% for 2023, which is down from the current rate of 9.8%. This change resulted in a current year charge at our nonutility and parent operations related to lower deferred tax asset value. However, this change will also enable us to pass millions of dollars of annual savings from lower state taxes onto our customers in Iowa for decades into the future.
Through September of this year, our net temperature impacts increased Alliant Energy earnings by approximately $0.07 per share. And our temperature-normalized sales are tracking above our sales growth expectations from the beginning of the year. Looking forward to the fourth quarter and our full year 2022 results, we expect strong earnings growth from investments in Wisconsin solar projects and the reversal of tax timing issues that have impacted the first nine months of this year.
As a result of stronger sales through September and our projected fourth quarter results, we have narrowed and raised our 2022 earnings guidance to a range of $2.76 per share to $2.83 per share. During 2022, our team has been advancing and transforming our Clean Energy Blueprint to ensure that we not only accomplish our current year goals, but also enable the achievement of our financial and operational objectives over the long-term.
Our sourcing team, has been ensuring materials and equipment are on-site or are on order to achieve the targeted completion dates of our announced solar project. And our development team has been advancing a robust portfolio of future generation resources that supports the future of clean, affordable and reliable energy for our customers. As John mentioned, we issued our consolidated 2023 earnings guidance range of $2.82 to $2.96 per share.
The key drivers of the 6% growth in EPS are related to earnings on investments in our core utility business and our continued efforts to reduce cost to support customer affordability. We are forecasting these key earnings growth drivers will be offset by higher depreciation and higher financing costs associated with new construction projects. We invest strategically and in the best interest of our customers.
These investments include implementing technology in many areas of our business, from our enterprise work and asset management solution to our advanced distribution management system. We are working to improve the customer and employee experience while controlling customer costs. Through our ongoing transition and retirement of our fossil fuel generation resources, we will continue reducing our operating costs.
And as we bring our planned solar projects into service, we expect production tax credits and lower fuel expenses to largely offset the impact of increases in renewables rate base, which makes these new investments very cost-effective for customers. This will translate into long-term benefits for our customers and as John mentioned long-term value for our shareowners.
Moving to our financing plans, in August, we successfully completed a $600 million green bond issuance at WPL to finance solar generation project. And in September, we filed information with our two state commissions, announcing plans to move away from tax equity financing to full ownership of WPL and IPL's solar and battery projects to capture even more benefits for our customers.
We expect to replace the previously planned tax equity financing with additional long-term debt issuances, supplemented with some modest levels of new common equity to fund our announced solar and battery project. Our 2023 plans include $1.3 billion of financing, largely related to funding customer focused investment. This includes issuing up to $300 million of long-term debt at both our Iowa and Wisconsin Utilities, up to $450 million of debt at Alliant Energy Finance and up to $250 million of new common equity.
We have won $400 million maturity in mid-2023, which will be refinanced with the planned new debt issuance in Alliant Energy Finance. This 2023 financing plan is driven by robust capital expenditure plan, and supports our objective of maintaining capital structures at our two utilities, consistent with their most recent regulatory decisions.
And our future financing plans anticipate utilizing the new transferability provisions within the Inflation Reduction Act to accelerate cash flows from future tax credits generated by wind, solar and battery projects, thereby reducing our future financing needs.
Finally, I'll highlight our regulatory initiatives in progress as well as those regulatory filings we plan to make in 2023. First, there are two key regulatory initiatives currently in progress. In Wisconsin, we recently requested construction authority for 175 megawatts of battery storage, which supports capacity needs resulting from the proposed sale by WPL of a portion of the West Riverside generating facility to our neighboring utilities.
And in Iowa, we are expecting a decision from regulators on our advanced ratemaking filing for 400 megawatts of solar and 75 megawatts of battery storage. This proceeding is progressing, and we anticipate a decision in the next few weeks. As a reminder, this decision should include an improved ROE and depreciation rates for the life of the solar and battery storage assets.
Turning to our 2023 regulatory plans, in conjunction with our updated capital expenditure plan, we expect to make regulatory filings in both Iowa and Wisconsin in 2023 for additional renewables and dispatchable resources to improve seasonal reliability and meet customer energy needs. From a rate review calendar, we expect to file a WPL rate review covering future test years 2024 and 2025 in the first half of next year.
And for IPL, we expect to file our next rate review by the first half of 2024. Before I wrap my remarks, I want to acknowledge our Alliant Energy employees. You've executed our plan and kept our strategic projects on track, allowing us to share the financial and operational plans today from clearing supply chain hurdles to regulatory planning and communication, from preparing our tax equity financing to pivoting to full ownership to capture even greater customer benefits from the Inflation Reduction Act.
Your actions have been and continue to be focused on the best interest of our customers and the communities we are privileged to serve. We very much appreciate the continued support of our company by our investors and look forward to meeting with many of you at the EEI Finance Conference next week. Later this week, we plan to post on our website the updated materials in advance of EEI.
At this time, I'll turn the call back over to the operator to facilitate the question-and-answer session.
Thank you, Mr. Durian. [Operator Instructions] And we'll take our first question from Julien Dumoulin-Smith with Bank of America. Please go ahead.
Hi guys, good morning, this is Dariusz on for Julien. Thank you for taking the question. My first one is just about the substantial step-up in the capital funding plan. Just curious, how should we be thinking about equity funding needs beyond 2023? Is it as straightforward as just taking approximately half of that incremental capital versus the previous plan or just curious how we should be thinking about that?
Yes, thanks for the question, Dariusz. Yes. As we announced, in 2023, we are planning on issuing up to $250 million of new common equity. As we think about beyond 2023 at this point, there may be some modest levels of new common equity needed. And really, what we're going to target there is to achieve equity ratio at the consolidated group of 40% to 45% as well as to maintain those strong credit metrics that we need at the parent company.
I would point to the fact that in addition to the factor of adding a bunch of new rate base as a result of the inflation Reduction Act, we are also going to take advantage of the ability to transfer tax credits into the future. And we think that's going to be a great opportunity for us to reduce those future financing needs. As we think about not only the wind production tax credits, from those that we put into service in 2019 and 2020 or 2020, sorry.
But also the solar projects from 2022 through 2025, we're going to generate a significant amount of production tax credits and the monetization of those tax credits are going to significantly reduce the amount of financing needs we have in the future. So, we're not signaling the exact numbers of what the equity would be beyond 2023 as we're still working through the exact timing as well as the amounts of those monetization of tax credits, but we do think that's going to significantly reduce what previously we had expected with new common equity.
Dariusz, this is John here. I just might add that primary drivers here are really growth, renewables and dispatchable as Robert had outlined. And the IRA alone adds about $1 billion of investment that will have really minimal or no impact - will impact the customers so really a great CapEx update and refreshment.
Got it, thank you for the detail there, I appreciate that. Maybe a related one, just relative to the 5% to 7% long-term CAGR target, the 2023 guidance range, basically right at that midpoint, maybe just incrementally lower. How should we think about the cadence of the 5% to 7%, again, beyond 2023? Obviously, the capital steps up in the '24, '25 period, should we expect a corresponding increase in EPS CAGR?
Yes, I think thinking of it as continued on the 5% to 7%, Dariusz. But as you noted, the capital plan we have - sets us up quite well for a very long-term, 5% to 7%. So we feel very well positioned and a lot of strength in that 5% to 7% long-term outlook.
Excellent, thank you very much for the color, I'll pass it along here.
[Operator Instructions] We'll take our next question from Michael Sullivan with Wolfe Research. Please go ahead.
Hi everyone, good morning.
Sticking with the kind of credit funding plan line of questioning, can you give any more specifics on just how helpful to cash flow the transferability provision can be and like on a metric basis, whether it be FFO to debt or how that helps you with that consolidated equity ratio target?
Yes, Michael, maybe I'll give you some sense of the magnitude of the production tax credits that we're forecasting. So right now, we're generating a little over $100 million a year from those wind projects that we've put into service in 2019 and 2020, when you layer on the 1,500 megawatts of solar that we're planning on putting this service by the 2025 time period, that's also roughly another $100 million of production tax credit.
So roughly in, the neighborhood of about $200 million to $250 million of production tax credits from wind and solar projects. We also expect, with our battery projects, investment tax credits that will be generated, those will be, I would say, less consistent. They'll be just timed within - we put those into service. But we're talking upwards of probably $200 million to $300 million of annual tax credits and depending upon the ability to monetize those timely.
Then we do see some pretty significant inflows of cash flows that will reduce our future financing needs. So, we're still working with the credit rating agencies to know exactly how they'll treat those future inflows of cash. But we know we will be able to reduce our financing needs on the debt side. We're just not sure if that will be reflected as part of our FFO to know exactly how that's going to be treated for the debt credit metrics.
Okay great. That's really helpful. I know you don't want to give like specifics on the out years on equity yet, but just maybe if you can help us out directionally like is $250 million this year in 2023. Should we think of that as kind of like the max that you see in any one given year as we look out over, say, the next four or five?
I think that's a fair statement. We don't expect any years in the future to be even at that level, we're expecting it to be lower than level when you think about '24 through '26.
I just might add, Michael, a lot of moving parts there, but a lot of positives as well. So as you can imagine, I think we're following that as a modest in the future, but working towards making that on the low end, if at all needed.
Okay very helpful, thanks. And my last one just on - can you just refresh us on where things stand on the MISO seasonal construct? Like is that all in place or are there still some things that need to be hashed out and how that shapes where you're at on your resource planning?
Yes, maybe I'll start. We're anticipating that seasonal construct. It's a matter of probably when, not if, as we see that go forward. So we've been doing a lot of planning for that in advance. We've got capacity and resource needs just from our load growth and maintaining reliability.
And then when you add, what we'd expect on the seasonal construct, if you think of that long-term with resources and resource plan, it's just going to drive some additional resources for us. Timing-wise, I might ask Robert to opine on where we're at on the schedule for that, but it's likely to happen. It's just timing is the question, Michael.
Yes, Michael. So the FERC approved the seasonal construct at the end of August. And so there have been some requests to reconsider the timing aspect of it. I would expect that we'll probably hear about that here in the next couple of quarters as the new seasonal construct is going to go into effect, starting on June 1 of 2023.
Okay thanks so much. See you guys down in Florida.
We'll take our next question from Nick Campanella with Credit Suisse. Please go ahead.
Hey good morning everyone. Good to connect here. Thanks for all the updates. So I guess, Robert, I assume you've now kind of provisioned the new plan here for higher inflation. Can you maybe just give us an update on kind of how you're viewing O&M, how you're viewing long-term interest rate, financing sensitivities in this new 5% to 7% EPS plan? And I know that in the prior plan, you might have been assuming some O&M cuts. So just trying to think about how you're thinking through that in this new plan? Thanks.
Yes, sure Nick. So we're continuing down the path. We kicked off several years ago to create some sustainable O&M savings in the business and are working to advance those efforts. We go back to 2019 and bring it forward. We've reduced O&M about 5% or about $40 million in total. So in 2022 here, we've done quite a bit of work with different strategic initiatives to set us up for a solid financial future, including expenses incurred this year to enable sales growth through economic development and electrification.
We've updated our resource planning to maximize the IRA benefits and meet our new seasonal requirements and then accelerated technology and automation investments to gain cost efficiencies. So quite a bit of work in 2022 to really help us offset and reduce inflationary pressures that we're going to see in 2023. We're also expecting our coal plant costs to go down in 2023, partly because of the Lansing Generation facility retirement as well as the fact that we're able to defer costs associated with the Edgewater 5 Unit as a result of the last rate case.
So when you kind of factor all that together, we actually expect 2023 O&M expenses to be lower than 2022. And so, we'll use that to offset some of the impacts we're seeing as far as interest rate increases. And so as we think about the key drivers for next year, those are probably two of the factors that will offset each other, and then we'll see the growth largely from all the investments that we're making in solar and battery projects in both our Iowa and Wisconsin jurisdiction.
From a longer-term perspective, it will continue to be a focus for us for O&M. We'd say probably flat to declining over the longer term, and we're really focused on that right now from a customer affordability perspective.
Got it, that's super helpful. And then just maybe an update on rate case strategy. You're going to file in WPL for '24, '25. I heard you say that you're going to do Iowa in the first half of '24. I did note that you said test years under analysis for IPL. So could you just kind of give us a sense of what the considerations there are? And just recognizing, I think you've already moved toward the forward-looking test year in this jurisdiction so what's just the other considerations in that test year that we should be thinking about? Thanks.
Nick, John here, maybe I'll - you've got the Wisconsin spot on with our typical two-year cadence. In Iowa, think of it as one of those major drivers is the consideration would be our 475 megawatts of solar and storage. So thinking about the timing of the rate case with that, we obviously like to stay out of that a little bit longer, but that's going to be one of the considerations.
And obviously, there's some cost impacts that will factor into that decision-making as well. As Robert noted, sometime between middle of '23 and first half of '24 would be likely the timeframe that we would file. Anything you'd add to that, Robert?
I don't think anything specifically other than just as we think about that rate case, as John indicated, it's largely going to be the timing of when we put into service those solar and battery projects. And so right now, they're scheduled for that second half of 2024. So we'll want to file that about a year in advance of the in-service date so that we can get the rates into effect.
And start recovering on those investments when they go into service as well as start providing back to customers the production tax credits as well as the energy savings or energy margins from those projects. So it's largely going to be timed with the - with that next major construction in service dates for the 475 megawatts of solar and batteries.
Got it, that's really helpful. And one last from me and I recognize it's small, but you do have a small proportion of unregulated earnings, mostly at parent, and I'm just curious in this new forecast, are you just holding that flat? Is there any kind of considerations there around the unregulated business either way? Thanks.
Yes, Nick, think of it as fairly modest and relatively flat, maybe a slight increase in 2023, but nothing significant or material.
All right, we'll see in a few - see you next week actually. Thank you.
And we'll take our next question from Ashar Khan with Verition. Please go ahead.
Hi, how are you doing? So I just wanted to go back, the rate base CAGR is up, if I'm right, a couple of hundred basis points. I know there is a little bit more equity next year, but then you're saying you're trying to minimize equity in the next two years. So - and you laid out all the benefits on the sheet of the IRA?
So why doesn't this point to us being on the higher end of the CAGR. I mean that's what the math would - all the benefits you think that's what's missing to me is, am I thinking something wrong all of these benefits that you have described and mentioned. This should translate into a higher end of a CAGR going beyond 2023?
Yes, I think you've got the right thinking as far as when we think about the rate base CAGR at roughly 8%. So really, the offset to that right now is financing costs, both the new equity that we proposed in 2023 as well as we are expecting some higher interest expense at the parent and non-regulated businesses. So that's the key offset as we think about the next few years.
I would say that - we do have some opportunities to be kind of in the upper half of that earnings range when we get out to the full impact of the rate base opportunities, but we tend to kind of signal our longer-term guidance range of 5% to 7% and target that midpoint and very comfortable with that over the next four or five years.
Okay, thank you.
And Ms. Gille, there are no further questions at this time.
With no more questions, this concludes our call. A replay will be available on our Investor website. We thank you for your continued support of Alliant Energy, and feel free to contact me with any follow-up questions.
And this concludes today's call. Thank you for your participation. You may now disconnect.