Alliant Energy Corp

NASDAQ:LNT

Earnings Call Transcript 2019-Q1

[Operator]

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's First Quarter 2019 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. Please go ahead Miss. Gille.

[Susan Gille, Investor Relations Manager]

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 and Chief Executive Officer, John Larsen, President and Chief Operating Officer, and Robert Durian, Senior Vice President and CFO, as well as other members of the senior management team.

Following prepared remarks by Pat, 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 first quarter financial results, and affirmed the consolidated 2019 earnings guidance issued in November 2018. This release, as well as supplemental slides that will be referenced during today's call, are available on the investor's 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 10-Q which will be available on our website at www.alliantenergy.com.

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

[Pat Kampling, Chairman and Chief Executive Officer]

Thanks, Su. Good morning and thank you for joining us today. I am pleased to share with you our first quarter 2019 results and highlight progress-to-date on key strategic priorities.

We had a solid start to the year. Our first quarter results were in line with our expectations, with an additional $0.05 per share benefit from higher sales due to colder than normal temperatures. With these results, we are well positioned to deliver on our 2019 earnings guidance range of $2.17 to $2.31 per share.

In the first quarter, we also achieved a major milestone accelerating our progress towards cleaner energy with our English Farms and Upland Prairie wind farms being placed in service in late March.

As you are well aware, we filed our electric and gas rate reviews in Iowa on March 1 with electric interim rates effective on April 1. This was the first filing that included a forward looking test year.

The electric interim rate increase includes recovery of the significant investments in our English Farms and Upland Prairie wind farms, enhancements to our distribution network, and upgrades to customer service technologies. A large portion of this increase has been offset from the benefits of PTCs and reduced fuel costs, from the new wind farms.

As part of the electric filing, we requested a renewable energy rider which would allow recovery of pre-approved investments in renewable energy when they are placed in service. If approved, this rider would reduce the likelihood of a 2021 test year rate review, seeking full recovery of our next group of wind farms.

For our gas customers, the rate review was based only on the 2020 future test year, so interim rates for gas were not necessary. This requested base rate increase will be offset by reduced energy efficiency costs and lower forecasted natural gas prices.

Under Iowa statutes, rate reviews must generally be decided within 10 months. Therefore, we expect final orders in both the electric and gas reviews by year end.

As you know, the first quarter brought very extreme weather conditions to the Midwest. Our employees did an excellent job maintaining the reliability of our generating stations, wind farms and electric and gas distribution systems during the Polar Vortex.

I would like to thank them for their dedication to excellent customer service, even in the toughest winter conditions.

Now to summarize. Our team is committed to again delivering on our financial and operational goals. We have a great track record and will continue to deliver results as we focus on the following:

Continue to complete large construction projects on time and at or below budget, and in a very sustainable and safe manner. Advancing affordable and cleaner energy through substantial investments in wind, construction of the West Riverside Energy Center, and enhancements to our distribution network. Delivering on 5% to 7% percent earnings growth guidance, and a 60% to 70% percent common dividend payout target. We will continue to manage the company to strike a balance between capital investment, operational and financial discipline, and cost impact to customers.

In closing, I invite you to participate in our second virtual only, annual shareowners' meeting on May 16. We look forward to expanded participation from our shareowners since you can join the meeting from any location, through your computer or telephone. I hope you all can participate.

On a personal note, it has been a pleasure working with all of you, and I greatly appreciated the support and confidence you had in me and my management team throughout the years

I'm leaving the company in very good hands with John taking over on July 1st. I am so proud of what we've accomplished at Alliant Energy in my seven years as CEO and I know that under John's leadership, the company will continue to thrive. I wish you all well and thank you for your support of our company.

With that, I will now turn the call over to John.

[John Larsen, President and Chief Operating Officer]

Thank you Pat, I appreciate the kind remarks. I would also like to thank you for your tremendous contributions and dedicated service to our employees, customers, and shareowners. We are all going to miss you and we wish you the very best in retirement.

Good morning everyone. Pat provided a great overview of our key accomplishments in the first quarter. I will focus my comments on key operational achievements, and Robert will address the financial outcomes and regulatory matters.

We continue to make great progress as we transition to a more efficient, modern, and balanced energy portfolio. In March, we achieved another major milestone when we placed 470 MW of wind into service for our Iowa customers.

These two new wind farms, Upland Prairie and English Farms, were on-schedule and below budget, continuing our long track record of meeting or exceeding expectations established when we request construction authority from our regulators.

And we are on track to install an additional 530 megawatts of new wind for Iowa customers in 2020. This added wind will complete the 1,000 megawatts of renewable investment approved by the Iowa Utilities Board. Construction is going well - and we plan to begin the turbine installation phase next month.

Our wind resources performed as expected in the first quarter, achieving an average capacity factor of 36%. Our newer wind farms are expected to achieve even higher capacity factors and provide energy production nearly 25% higher than existing.

Wind energy brings many customer benefits including reduced fuel costs, lower air emissions, and local payments that support the rural communities we have the privilege to serve.

Another major milestone in the first quarter was the completion of a selective catalytic reduction system at our Ottumwa Generating Station in Iowa. This environmental improvement project supports compliance obligations under the Cross-State Air Pollution Rule and advances our objective of improving overall air emissions. This project also represents the last planned air emission control system for our fleet.

As we continue to transition our energy mix, we are making great progress on the new West Riverside Energy Center, located near Beloit, Wisconsin. This 730 megawatt highly-efficient natural gas resource is over 80 percent complete and expected to go into service by the end of this year. The project is on track to be completed on time and on budget.

We're committed to providing reliable, economical energy in a sustainable manner. In addition to achieving on time and below budget project execution, we are advancing our environmental value through sustainable construction practices.

I am very pleased to report that the Institute for Sustainable Infrastructure awarded our Upland Prairie and English Farms projects, Gold Envision Certifications. This certification recognizes our commitment to environmental stewardship and our collaboration with local communities and landowners.

I am also pleased to share that we were notified that two of our recently added generating facilities, our Marshalltown combined cycle natural gas facility and our Dubuque Solar project are two of three finalists for the Innovation in Sustainable Engineering Award that will be awarded at the International Conference on Sustainable Infrastructure this fall.

To be eligible for consideration, projects must demonstrate adherence to the principles of economic, social and environmental sustainability. It is an honor to be recognized for our sustainability efforts.

I thank you for your interest in Alliant Energy, and will now turn the call over to Robert.

[Robert Durian, Senior Vice President and CFO]

Thanks John. Good morning everyone. Yesterday, we announced first quarter 2019 earnings of $0.53 per share, compared to $0.52 per share in the first quarter of 2018. Our utilities had higher earnings year over year driven by higher electric and gas margins from increasing rate base and higher electric and gas sales due to the colder temperatures, partially offset by higher depreciation expense.

Our non-utility businesses had lower earnings year over year primarily driven by timing impacts of Tax Reform benefits recognized in the first quarter of 2018 and higher interest expense. We have provided additional details on the earnings variance drivers for the quarter on slide two.

Our consolidated 2019 earnings guidance range continues to be $2.17 to $2.31 per share. The key drivers of the projected 6% growth in EPS are related to investments in our core utility business including our wind expansion program in Iowa and WPL's West Riverside Energy Center.

First quarter earnings were in line with expectations. To assist with modeling, please note that the 6% projected increase in earnings for 2019 will note be recognized consistently for all four quarters this year, as IPL's interim rate increase went into effect April 1, thus skewing the earnings growth more to the last three quarters.

Slide three has been provided to assist you in modeling the effective tax rates for our two utilities and our consolidated group. We estimate a consolidated effective tax rate of 11% for 2019. As we continue adding wind generation to our portfolio, the resulting additional PTCs are expected to result in low effective tax rates into the future.

Moving to our financing plans, please see slide four for details of our 2019 plan which remains unchanged. During the first quarter Alliant Energy issued 1.1 million shares of new common equity under the forward equity agreements. The remaining shares under the forward equity agreements are expected to be issued by the end of the third quarter.

To finance our wind expansion, we also issued our second Green Bond at IPL in early April. Green Bonds provide investors with an opportunity to invest in renewable projects and have helped to lower our overall cost of debt for our Iowa customers.

The 2019 financing plans support our objective of maintaining capital structures at our two utilities consistent with their most recent regulatory decisions. We will adjust the financing plan if market conditions warrant, and as our external financing needs are reassessed.

Lastly, we have included our regulatory initiatives of note on slide five with two notable developments in the first quarter. First, IPL received approval from the Iowa Utilities Board in March to implement a new energy efficiency plan for calendar years 2019 through 2023. Effective June 1st, our Iowa customers will start seeing direct financial savings from the new plan. And over the next five years, Iowa customers are expected to see approximately $180 million of lower energy efficiency costs compared to the previous five year plan.

Second is the electric and gas rate reviews filed by IPL on March 1st. On slide six we have provided the procedural schedules for the IPL retail electric and gas dockets so that you may monitor the progress of these rate review proceedings throughout the year.

These regulatory initiatives are important components of our overall operational and financial goals for 2019. We appreciate your continued interest in our company. At this time, I will turn the call back over to the operator to facilitate the question and answer session.

[Operator]

Thank you, Mr. Durian. At this time, the company will open up the call to questions from members of the investment community. Alliant Energy's management will take as many questions as they can within the one-hour time frame for this morning's call. [Operator Instructions] We have our first question from Julien Dumoulin-Smith of Bank of America Merrill Lynch. Please go ahead.

[Nick Campanella, Bank of America Merrill Lynch]

Hey, everyone congrats on the quarter. It's Nick Campanella on for Julien today.

[Patricia Kampling]

Good morning, Nick.

[Nick Campanella, Bank of America Merrill Lynch]

Hey, good morning. I just wanted to talk about the Iowa rate case - cadence post the current proceeding that we have. If you get the renewable rider in this rate case is it safe to say that you could potentially stay out of future rate cases for the foreseeable future. How do how do we think about that?

[Robert Durian, Senior Vice President and CFO]

I think as Pat mentioned in here prepared remarks, I think there is a higher likelihood of us being able to stay out of a 2021 test year rate review if we get the renewable rider.

[Nick Campanella, Bank of America Merrill Lynch]

Got it. And I just want to confirm, I know we're kind of waiting on the rate case to decide for what the 2020 equity need would be. Just given we get an order by year end here, is this a third quarter or fourth quarter item for you guys to tell the market where the equity is going to be?

[Robert Durian, Senior Vice President and CFO]

I'd say most likely, its Robert again, Nick, most likely it will probably come up with something in the November timeframe as far as what the 2020 equity needs are.

[Nick Campanella, Bank of America Merrill Lynch]

Got it…

[Robert Durian, Senior Vice President and CFO]

At that point, we'll open the indications of what the equity layer is for the IPL rate review which will give us kind of the final piece of the puzzle for us next year.

[Nick Campanella, Bank of America Merrill Lynch]

Great. That's it for me and congrats again to Pat. Thank you very much.

[Pat Kampling, Chairman and Chief Executive Officer]

Thanks, Nick.

[Operator]

[Operator Instructions] And we'll take our next question now from Andrew Levi of ExodusPoint.

[Andrew Levi, ExodusPoint]

Hey, how are you guys?

[Pat Kampling, Chairman and Chief Executive Officer]

Hey. Good morning, Andrew.

[Andrew Levi, ExodusPoint]

Actually, I wasn't going to - I do have one question, but first, I just want to say, Pat you did an amazing job. We're going to miss you. Investment community is going to miss you, greatly. And I know you were one of the best CEOs in my 25 year career. So you will be...

[Pat Kampling, Chairman and Chief Executive Officer]

Thanks, Andrew. That's very kind. It's always been a pleasure working with you.

[Andrew Levi, ExodusPoint]

Great job. And then a little a little question kind of off the beaten path, not number related. I just want to get your thoughts on ATC and obviously you know, it's kind of like an annuity for you guys, it doesn't grow a lot. It's probably worth a good amount of money, that maybe someone else who may want the asset more than maybe you guys do. I'm not saying you don't want it, don't misunderstand me.

But and also you know, if you look at that versus the cost of issuing equity and that equity that you issue or that cash that you have gets put back into the utility and it grows versus ATC that doesn't grow. So if the price was right. Would that be something that you would consider kind of trading equity for ATC for no better way to put it?

[Pat Kampling, Chairman and Chief Executive Officer]

You know, Andy again, this is Pat. You know, we've consider you know ATC a really good investment. As you said, it's a really good annuity income for us and it still has some growth in there and we're still optimistic about some other outside footprint growth opportunities that they have.

So you know, we consider this one of our - one of our crown jewels of our portfolio here so you know, we're definitely planning on keeping it.

[Andrew Levi, ExodusPoint]

Okay. That was my question. Have fun Pat with retirement.

[Pat Kampling, Chairman and Chief Executive Officer]

Thank you. I will for sure.

[Robert Durian, Senior Vice President and CFO]

Thanks, Andy.

[Operator]

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

[Susan Gille, Investor Relations Manager]

With no more questions, this concludes our call. A replay will be available through May 10, 2019 at 888-203-1112, for US and Canada, or 719-457-0820 for international. Callers should reference conference ID 4175543 and pin 9578. 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. We thank you for your continued support of Alliant Energy and feel free to contact me with any follow-up questions.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.