Alliant Energy Corp

NASDAQ:LNT

Earnings Call Transcript 2020-Q2

[Operator]

Good morning, and welcome to the Alliant Energy's Conference Call for the Second Quarter 2020 Results. This call is being recorded for rebroadcast. At this time, all lines are in a listen-only mode.

I would now like to turn the call over to your host, Susan Gille, Investor Relations Manager at Alliant Energy. Please go ahead.

[Susan Gille, IR Manager]

Good morning. I would like to thank all of you on the call and the webcast for joining us today. We appreciate your participation. Joining me on this call are John Larsen, Chairman, President and Chief Executive Officer; and 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 second quarter financial results and reaffirmed the consolidated 2020 earnings guidance issued in November 2019. 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 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 this point, I'll turn the call over to John.

[John Larsen, Chairman, President and CEO]

Thanks Sue. Good morning, everyone.

I hope you're all staying safe and healthy. Thank you for joining us today as we highlight our solid results for the second quarter of 2020. I'll share a few notable stories from the quarter and then turn the call over to Robert as he recap some of our regulatory, customary and financial highlights.

I'll start my comments with a focus on our recently issued Corporate Responsibility Report. This year's update showcases many examples of our environmental stewardship, as well as our longstanding efforts to address the important social needs of the communities we proudly serve.

On the environmental front, we were excited to announce that we achieved our 2030 goal of having 30% of our energy mix come from carbon free renewable resources, 10 years ahead of schedule, and we're not stopping there. Our customer-focused strategy continues to advances toward a clean energy future and our Responsibility Report has been updated with new and even more aggressive clean energy goals.

These new goals are shown on Slide 2 of the supplemental slides. Our report also highlights the great work of our employees to support our customers and communities. This is not new for Alliant Energy. It's part of how we do business. We continue to support our customers and communities as they respond to the ongoing demands of the COVID-19 health and economic crisis.

Our charitable foundation recently released a new wave of community grants, benefiting more than 230 non-profit organizations across Iowa and Wisconsin. Our stated purpose to serve customers and build stronger communities is core to everything we do, and we're proud of the many ways we hope to build stronger communities where we live, work and raise our families.

Now more than ever, the social part of our corporate responsibility is at the forefront. We are committed to partnering with our communities, working to understand and help address their needs.

We act by providing financial support to agencies and non-profit organizations that help our communities bridge gaps of social inequities, and through programs that support food and security and housing, workforce readiness, environmental stewardship, and diversity, safety and well-being. Our employees and retirees are a driving force in our communities, and I'm very proud to be part of the company that lives our values in so many ways.

In a few moments, I'll turn the call over to Robert, who will address the trends we are seeing across our residential, commercial and industrial customer bases as a result of the ongoing COVID pandemic. Our employees have made great progress in driving cost reductions and advancing our broader transformation efforts during the first half of the year, while keeping a strong focus on safety and reliability.

Turning to the execution of our strategy. I'll highlight progress we've made as we advance our Clean Energy Vision. A key driver to achieving our goals is the continued successful advancement of new renewable energy source, wind and solar.

In May, we filed a certificate of authority with the Public Service Commission of Wisconsin for 675 mega watts of new solar generation. Collectively, these solar projects are expected to create more than 1,200 local construction jobs, and once operational, will provide an estimated $80 million in local tax revenues over the next 30 years.

In conjunction with our solar filing, we also announced our plans to retire our Edgewater Generating Station. Our efforts to transition our generation to a cleaner and more efficient fleet are not new, in fact, we've been on this path for over a decade. As we have in the past, we will live our values to care for others and do the right thing as we support the transition of impacted employees in the Sheboygan community.

The expansion of our Wisconsin renewable resource portfolio as well as the decision to retire the Edgewater facility was a result of a year-long process that involved working with key stakeholders and ultimately forming, what we call our Clean Energy Blueprint. We have a similar process started in Iowa and expect to share the results of our Clean Energy Blueprint for our IPL business later this year.

Speaking of Iowa, I'll also share that we recently announced an innovative partnership with the City of the Decorah. The new project features a 2.5 megawatt battery storage facility to support distributed solar. This battery system will help us better serve the community and allow us to efficiently integrate a growing desire for distributed energy resources.

And while a lot of great work is happening related to solar and energy storage, I also want to highlight American Wind Week, which kicks off next Monday. We are proud to be part of advancing wind energy and the many benefits it brings to our customers and rural communities.

We remain on track to install an additional 280 mega watts of wind for our Iowa and Wisconsin customers by the end of this year. Our 130 megawatt Richland wind farm will be completed by the end of the third quarter, and our 150 megawatt Kossuth wind farm is 80% complete and will be placed into service in the fourth quarter of this year, making us the third largest owner-operator of regulated wind in the United States.

To summarize, we remain committed to focusing on the health, safety and well-being of our employees, customers, and communities, advancing our Clean Energy Vision, ensuring our investments are well executed, efficient and customer-focused, and delivering consistent returns for our investors with a 5% to 7% growth rate and a 60% to 70% dividend payout ratio.

Thank you for your interest in Alliant Energy. I'll now turn the call over to Robert.

[Robert Durian, EVP and CFO]

Thanks John. Good morning, everyone.

Yesterday we announced second quarter 2020 GAAP earnings of $0.54 per share compared to $0.40 per share in the second quarter of 2019. Our utilities had higher earnings year-over-year, driven by increasing rate base and higher electric margins from warmer temperatures. These increases in earnings were partially offset by higher depreciation expense.

We provided additional details on earnings variance drivers for the quarter on the slides three and four. Temperature-normalized retail electric sales in the second quarter were down 6% versus last year, reflecting the impact of the COVID-19 pandemic. Residential temperature-normalized sales increased 5% year-over-year, largely driven by our customer spending more time at home.

On the other hand, commercial and industrial temperature-normalized sales declined 9%. Manufacturing sales which make up approximately 50% of our commercial and industrial sales were down 15% to 25% during April and May. And as expected, we saw material declines in electric sales in April and May to other sectors of our commercial and industrial customers, including retail, lodging and foodservice, as a result of temporary business closures.

More recently, we've been encouraged to see electric sales to our commercial and industrial customers rebound in June and July, to levels that were only modestly lower than the same month last year.

We are also fortunate to have a broad diversity of customers across our two state jurisdictions, that even some certain customers, such as our food processing, packaging and warehouse customers having flat to higher than normal sales in the initial months of the pandemic. With the faster than expected rebound in electric sales, we've updated our current projections to reflects an approximate 2% to 3% reduction in temperature-normalized electric sales for calendar year 2022 compared to last year.

We've made significant progress mitigating this pandemic-related sales declines by accelerating planned cost transformation activities and re-imagining how we do work. This is a direct reflection of our employees leadership and dedication to reducing cost for our customers.

I speak for the entire executive team and sharing my appreciation for the employees of Alliant Energy, especially for the men and women who were in the field each day, ensuring the safe and reliable delivery of affordable energy to our customers throughout this pandemic. The health crisis has reaffirmed how essential energy services are to the country. And our reminder, just how critical our purpose is to the communities and customers we serve.

Slide 6 has been provided to assist you in modeling the effective tax rates for our two utilities and our consolidated group. We currently estimate a consolidated effective tax rate of negative 10% for 2020. The primary drivers for the lower tax rate are production tax credits and excess deferred tax benefits which flow back to customers resulting in lower electric margins, thereby resulting in no material impact on full year earnings.

The timing of wind production cash credits and excess deferred income tax amortizations are recognized will cause quarter-over-quarter fluctuations in earnings. This results in higher earnings in the first half of the year and lower earnings in the second half of the year when compared to the results of last year.

On Slide 7, we've provided the details of our financial plan for 2020, which is now largely been completed. In June, we finalized a $400 million 10-year bond issuance at our Iowa utility, a huge part of the proceeds to call earlier maturity that was due later this year.

This deal was well received by the market and achieve the lowest bond interest rate in our Iowa Utilities history. We will also use a portion of the remaining proceeds from the new bond issuance to make $110 million payment in September for the buyout of the Duane Arnold purchase power agreement.

Our current liquidity is approximately $1.1 billion, including cash and borrowing capacity under our credit facility and our sale of accounts receivable program. With no material debt maturities in 2021, we are well positioned to respond to any potential changes and projected cash flows.

The key to achieving our updated carbon dioxide emission goals is expanding our user community resources. As John mentioned, we recently announced plans to retire one of our Wisconsin coal-fired generating facility and to add 1,000 megawatts of solar in Wisconsin by the end of 2023.

We recently filed a certificate of authority request for the first phase of construction, which includes 675 mega watts of new solar generation. As a result of this filing, we are planning to shift $350 million of expenditures into 2021 and 2022 that were originally forecasted in 2023. The earlier timing of capital expenditures is based on our progress with development activities to date and the expected construction schedules.

Our forecast also assumes 35% of the construction cost will be financed through tax equity partners, with contributions from the tax equity partners occurring in the projects that are placed in service. We expect to place 425 megawatts of solar into service in 2022 and 575 megawatts in the service in 2023. We planned to refresh our full future capital expenditure forecast and disclosed our 2021 financing plans as part of our third quarter earnings release in November.

Lastly, we have included our regulatory initiatives as noted on Slide 8. As shown on the slide, our regulatory calendar for 2020 has many key milestones now behind us. The one noteworthy disclosure development since our last quarterly earnings call was the Wisconsin certificate of authority filing in late May for 675 megawatts of new solar generation. The filing is progressing as expected and we are currently awaiting the procedural schedule.

We are also encouraged by the progress on our 2021 customer rate stabilization proposal in Wisconsin. Comments recently filed by the end of the new group, representing our retail customers and food support for the proposal. We anticipate a decision from the Public Service Commission of Wisconsin on our proposal later this quarter.

We appreciate your continued interest in our company and look forward to connecting with many of you virtually over the coming months. At this time, I'll turn the call back over the operator to facilitate the question-and-answer session.

[Operator]

Thank you, Mr. Durian. At this time, the company will open the call to questions from members of the investment community. [Operator Instructions] And we'll take our first question from Andrew Weisel from Scotiabank. Caller, please go ahead.

[Andrew Weisel, Scotiabank]

Couple of questions here. First, as far as the demand trend, I think you said manufacturing was down like 15% to 25%, do you have overall weather-adjusted demand by month and how that progressed through the quarter?

[Robert Durian, EVP and CFO]

This is Robert. I'd say, what we saw in April and May was the low point, but here in the June and July, as I indicated in my prepared remarks, we saw commercial and industrial down maybe about 3%. A lot of that was largely offset by an increase in residential sales. So that's the more recent trends we're seeing, hoping that continues through the remainder of the year. And that's what we projected at this point to get us to a full-year forecast, and we bottomed 2% to 3% temperature-normalized decrease for the calendar year relative to last year.

[Andrew Weisel, Scotiabank]

No, I understand that. I guess, I'm asking more, was it a step-up in demand when the states reopened or has it been sort of an ongoing continuous improving trajectory?

[Robert Durian, EVP and CFO]

I'd say it was more of a step change when we work from May to June, and I think a larger part of it, as you indicated, was largely to reopening the States. But yes, from May to June, it was quite a bit of a jump with bit little bit - levelized off at this point from June to July, but a lot better than we expected. So we are optimistic.

[John Larsen, Chairman, President and CEO]

Hi, Andrew, John here. I think I might add that. We've seen businesses really plan for and prepare for how to operate during the COVID crisis. So we've seen some really innovative ways for businesses to get back to the production and still address the safety needs of employees, et cetera. So I think it's a combination of that, just some really smart business operations we're seeing as well.

[Andrew Weisel, Scotiabank]

Good to hear. Next question is on the IPL debt issuance. First of all, very impressive coupon at 2.3%. You walked through the proceeds - the use of proceeds and all that, but I guess I'm asking, was it upsized, right? The first quarter slide deck showed up to $300 million and you actually raised $400 million. Can you just discuss why that was upsized and what that means for the balance sheet and future plans for debt issuances?

[Robert Durian, EVP and CFO]

Good question. Andrew, thanks. Yes, we got into the deal with very strong market demand for that debt issuance and we utilized that obviously to capture that lower interest rates. To this point of view, the proceeds largely for two purposes. One is to retire $200 million of debt in June that was expected to be maturing in, I think, September of this year. Right now, we have about $200 million left on our balance sheet in the form of cash.

We're going to use a $110 million of that for the payment that we needed to make to next hurdle to terminate the Duane Arnold energy purchase power agreement. In the remaining funds, the larger will be invested in wind projects that we're continuing to finish up, including the Richland project that will be finished sometime later this quarter.

[Andrew Weisel, Scotiabank]

Hard to believe that payment is coming up already in just a month or so. Then one last one if I may. I wanted to go back to the option at some of your neighbors in Wisconsin have to buy ownership places in West Riverside. I know they have a few more years to decide, I believe, until '24 and '25. But I'm just wondering, have you spoken to them recently and how are they thinking about the impact of COVID-19 on demand in the massive growth in renewables. Just wondering what the latest thinking might be as far as how likely they might need to exercise the options? And maybe just remind us what's embedded in your rate base and EPS growth forecast around that?

[John Larsen, Chairman, President and CEO]

Yes, you bet, Andrew. So you've got the timing right for that and we've assumed that there will be options taken in our plan. I won't speak for the potential co-owners, I'll let them address that. So nothing to add on the IP sides where our plans will assume that they taken ownership interest, and I think you've got the timing right. Appreciate the question.

[Operator]

[Operator Instructions] And we'll take our next question from Ryan Greenwald with Bank of America.

[Julien Dumoulin-Smith, Bank of America]

It's Julien here. Thanks guys for the time. If I can follow-up on the last question a little bit further. You all obviously are changing your forecast after a pretty meaningful swing in your expectations. What does it say about your cost, latitude and flexibility? And especially, for instance, let's say things turnaround here again, how are you thinking about the cost levers that you guys talk about just a few months ago at this point, in ability to use them again?

[Robert Durian, EVP and CFO]

Thanks for the question. I'd say, we're very well prepared going into the second half of the year. The employees have done an amazing job of identifying a lot of different opportunities to reduce costs for our customers, a majority of which are sustainable, others are temporary in nature. But a lot of flexibility is how I'd characterize it at this point, with being able to adjust. If we do see an upsurge or resurgence of the pandemic, and some related sales implications, we feel very well positioned as we look at the rest of the year.

[Julien Dumoulin-Smith, Bank of America]

And then just coming back to the last question there, I'll be quick, if you don't mind. I think you always have seen a pretty big swing as some of your peers, but I'm curious, can you more specifically define what your Q3 and Q4 like normalized trajectory would be to reconcile with a 2% to 3% update, slightly different iteration of the last one as well?

[John Larsen, Chairman, President and CEO]

Yes, Julien, maybe I'll share a bit. But I think earlier we had looked at around 5% to 6% total year impact, and I think as Robert said, it's maybe looking more now like in the 2% to 3%. We had planned for a slow and steady improvement in the back half of the year. Nothing right now that would cause us to think any differently. We did see a step change improvement in Q2, a little faster recovery towards the tail end of that than what we had originally planned.

And then as Robert mentioned, we're keeping flexibility in our plan for a little bit of the unknown. So part of our planning was to look at a few different scenarios for the back half. But assuming it does stay steady and slowly improving, it's certainly going to be overall better than what we had originally thought. If that - if that addresses your question?

[Julien Dumoulin-Smith, Bank of America]

Yes, indeed. Let me try to summarize this, if you don't mind. Are you effectively view your latitude to be in the upper end of your guidance range? How about that to give an…

[John Larsen, Chairman, President and CEO]

What I had shared Julien is, as Robert noted, we've taken a lot of actions in the first half of the year reducing cost and help offset lower sales. So that's kept us solidly at the midpoint. But what we take a look here, the weather trends that we've seen here in July, we would see that helping us trend into the upper half of the guidance range.

[Julien Dumoulin-Smith, Bank of America]

And sorry, one last one here if I can. Obviously with the first wave here you're putting some capital, it seems like it's accelerating if I heard you right from '23 into '21 and '22 to the tune of $350 million. So that sounds like a net increase in your outlook at least from a timing perspective. If I understand the offset there would be, some of that capital that was originally forecasted in '23, I mean, was it always assumed at 35% tax equity? Just to make sure I have mentioned all the puts and takes there against your outlook?

[Robert Durian, EVP and CFO]

Yes, I think you've got that spot on Julien.

[Operator]

[Operator Instructions] And we'll take our next question from Michael Sullivan with Wolfe Research.

[Michael Sullivan, Wolfe Research]

I wanted to ask on the rate freeze approval in Wisconsin. I think we got some intervene or testimony there earlier this week. But just kind of what - what's the remaining path forward here? Whether there are any issues with what the interveners put out there? Can you settle and when will the commission weigh in on this thing?

[Robert Durian, EVP and CFO]

Yes, Michael, thanks for that question. Actually we're very encouraged by the progress we're making with the 2021 customer rate stabilization proposal, and we currently expect a decision from the PSCW sometime later in this quarter, it could be as early as later this month. In general, overall, we saw support for the plan given the purpose of it was driven. We'll try and protect our customers from rates given the economic conditions that we've seen through this pandemic. We were very pleased to see the support from the major customer groups representing our residential and C&I customers.

[Michael Sullivan, Wolfe Research]

And then my second one was just on - it seems like with this Clean Energy Vision, you guys are laying out the continued transition from coal towards renewables. I'm just curious how you're thinking about the recovery or regulatory treatment of the coal and rate base that you have as you work through this? I know, I think Edgewater is going to come out maybe in the next rate case, and however, you're going to handle things in Iowa. So yeah, maybe just what the past precedent has been and how are you thinking about this regulatory treatment in the future?

[Robert Durian, EVP and CFO]

Yes. So I'll try to give you a little picture of the past precedent. So we’ve had a few different examples in both of our jurisdictions where we saw its recovery pertains a little bit early. Both states has approved, both a return of and return on a full recovery of those facilities. Those facilities generally with the remaining balances will probably in the 10s of millions of dollars each. So as we look forward, we have announced the Edgewater 5 retirements by the end of 2022. So we're expecting that that decision and that issue will be addressed in the next rate filing that we make sometime next year.

Iowa, we've not announced any early retirements to the states, and we're evaluating that as part of our Clean Energy Blueprint that we're performing in Iowa and we will have some more information to share later this year of any potential early retirements for Iowa.

[Michael Sullivan, Wolfe Research]

Maybe if I can just follow up. I think you just said that the past precedent, we are only talking 10s of millions of dollars, and it sounds like these plants going forward are probably materially higher than that. So does that potentially change how regulators might be thinking about how they get treated?

[John Larsen, Chairman, President and CEO]

I think, Mike, you've got the magnitude right. I think, as we look at some of the larger facilities, they certainly have a little bit larger balance. But as we filed with our Clean Energy Blueprint, all of that factors in to show a net customer benefit for our plans going forward. So certainly can't tell you exactly how that's going to play out with regulators right now, but I think we have a solid track record of working with the regulators in putting a very - very solid plan that makes sense for customers or we wouldn't file that. So I'd say, we feel comfortable with that filing, but some of those are yet to be determined.

[Operator]

[Operator Instructions] And at time, it appears there are no further questions.

[Susan Gille, IR Manager]

This concludes Alliant Energy's second quarter earnings call. A replay will be available through August 14, 2020, at 888-203-1112 for U.S. and Canada or 719-457-0820 for international. Callers should reference conference ID 4175543 and PIN of 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 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]

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