Alliant Energy - Earnings Call - Q1 2016

Transcript

Speaker 0

Thank you for holding, ladies and gentlemen, and welcome to the Alliant Energy's First Quarter twenty sixteen At this time, all lines are in a listen only mode. Today's conference is being recorded. I would like to turn the call over to your host, Susan Gill, Manager of Investor Relations at Alliant Energy. Please go ahead.

Speaker 1

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 Pat Campling, Chairman, President and Chief Executive Officer Tom Hanson, Senior Vice President and CFO CFO and Robert Duran, Vice President, Chief Accounting Officer and Controller 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 community.

We issued a news release last night announcing Alliant Energy's first quarter twenty sixteen earnings and reaffirmed 2016 earnings guidance. This release as well as supplemental slides that will be referenced during today's call are available on the Investor page of our website at www.alliantenergy.com. Before we begin, I need to remind you 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.

Speaker 2

We disclaim any obligation to update these forward looking statements. At this point, I'll turn the call over to Pat. Thank you, Sue. Good morning and thank you for joining us for our first quarter twenty sixteen earnings call. I'll begin with an overview of our first quarter performance.

Then I'll review the progress made in transforming our generation fleet, creating a smarter energy infrastructure and expanding our natural gas system. I will then turn the call over to Tom to provide details on our first quarter results as well as review our regulatory calendar. Like other utilities in the region, mild winter temperatures reduced first quarter results, ours by $05 per share. This was quite the opposite from first quarter twenty fifteen, where we experienced a $04 per share positive temperature impact to earnings. Therefore, temperature swings led to a significant quarter over quarter variance of $09 per share.

During the past few years, we've been executing on a plan for the orderly transition of our generating fleet in an economic manner to serve our customers. We've made progress in building a generation portfolio that has lower emissions, greater fuel diversity and is more cost efficient. The transition includes increasing levels of natural gas fired and renewable energy generation, lower levels of coal generation through coal unit retirements and installing emission controls and performance upgrades at our largest coal fired facilities. We have also started water and ash programs at our facilities to meet current and expected future environmental requirements. Now let me brief you on our construction activities.

2016 is another very active construction year with forecasted investments of over $1,100,000,000 Our investments are projected to include approximately $300,000,000 for our electric distribution systems. These investments are driven by customer expectations to make our electric systems more robust, reliable and resilient. This year's plan also includes $200,000,000 for improvements and expansion of our natural gas distribution business, almost double prior year spending. The electric and gas distribution business will continue to be a focus for future investments as we create a smarter energy infrastructure. Now I'll provide an overview of our growing investments in new gas fired generation.

As you are aware, the Public Service Commission of Wisconsin approved the Certificate of Public Convenience and Necessity for the Riverside expansion and we expect to receive the written order today. We have already received the air permit and are awaiting approval of the water permit. We expect the output from the new Riverside units to be approximately 700 megawatts and the total anticipated capital expenditure for Riverside remains at approximately $700,000,000 excluding AFUDC and transmission. The targeted in service date is by early twenty twenty. Later this month, we plan to announce the engineering procurement and construction firm selected for this project.

In Iowa, the Marshalltown natural gas fired generating facility is progressing well and is now approximately 73% complete. Total capital expenditures are anticipated to be approximately 700,000,000 excluding AFUDC and transmission. Marshalltown is on time and on budget and is expected to go in service in the spring of twenty seventeen. Riverside and Emory, our two primary existing gas generating facilities had another quarter of significant increase in their dispatch when compared to prior years. During the first quarter of twenty sixteen, Riverside and Emory's capacity factors were more than double their five year averages.

The ability to lean on our gas fired generation during periods of low gas prices results in fuel savings for our customers and shows the importance of a balanced energy mix. Moving on to our existing coal fleet. We're getting towards the end of our successful construction program to reduce emissions at our largest facilities. At Edgewater Unit five, progress continues on the installation of a scrubber and bag house. This project is approximately 97% complete and it is on time and below budget and should be in service later this year.

Total capital expenditures for this project are anticipated to be approximately $270,000,000 And last month construction of the Columbia Unit 2 SCR began. WPL's total capital expenditure for this project is anticipated to be approximately $50,000,000 and is expected to go in service in 2018. There are several new water and ash regulations being developed by the Environmental Protection Agency, which we anticipate will impact nine of our generating facilities located across Iowa and Wisconsin. Our water and ash program was designed according to pending EPA and DNR rules and regulations. We have ash pond closures and bottom ash conversion projects underway in Iowa as outlined in IPL's filed emissions plan and budget.

In Wisconsin, we filed an application for a certificate of authority for bottom ash conversion at Edgewater. The total expenditures for our water and ash programs are anticipated to be over $200,000,000 during the next seven years. The rate based estimates provided in our Investor Relations presentation include the near term expenditures for this program. As we plan for future generation needs, we aim to minimize environmental impacts while providing safe, reliable and affordable energy for our customers. We believe that our carbon emissions will continue to decrease due to the transition of our generating fleet, the availability of lower natural gas prices and increased renewable energy.

We have and will continue to invest in and purchase renewable energy. We currently own five sixty eight megawatts of wind generation and purchase approximately four seventy megawatts of energy from renewable sources. Our 10 capital plan includes additional wind investments to meet customer energy needs. Also, we have several solar projects from which we anticipate gathering valuable experience on how best to integrate solar in a cost effective manner into our electric system. At our Madison headquarters, over 1,300 solar panels have been installed and they are now generating power for the building.

Construction has also started on Wisconsin's largest solar farm on our Rock River Landfill, which is adjacent to Riverside. And in Iowa, construction has started on the Indian Creek Nature Center in Cedar Rapids where we will own and operate the solar panels there. We also anticipate selecting additional solar investment opportunities in the near future. Listening to our customers and understand their evolving needs is shaping the path for the future. We replaced our decades old customer information and billing system, which is now providing customers with many more online self-service offerings options.

And we have plans to ramp up additional offerings through this new platform. We have managed our company well and made great strides growing our company on behalf of our investors, customers and employees. In fact, our stock price doubled between year end twenty ten and the end of the first quarter of this year. In recognition of this progress and the growth prospects going forward, the Board of Directors announced a two for one stock split last month. Each shareowner of record for the close of business on May 4 will receive one additional share for every outstanding common share held on that date.

The additional shares will be distributed by book entry on May 19. And on May 20, shares will be sold at the post split price. This is a significant milestone that our company and investors should be proud of. Let me summarize the key messages for today. We will work to deliver Our plan continues to provide for 5% to 7% earnings growth and a 60% to 70% common dividend payout target.

Our targeted 2016 dividend increased by 7% over the 2015 dividend. Successful execution execution of our major construction projects include completing projects on time and at or below budget in a very safe manner working with our regulators, consumer advocates, environmental groups, neighboring utilities and customers in a collaborative manner reshaping the organization to be leaner and faster, while keeping our focus on serving our customers and being good partners in the community. And we will continue to manage the company to strike a balance between capital investment, operational and financial discipline and cost impacts to customers. You're invited to join us at our Annual Meeting next week, which will be held on May 13 in Madison, Wisconsin. Thank you for your interest in Alliance Energy and I will now turn the call over Tom.

Speaker 3

Good morning, everyone. We released first quarter twenty sixteen earnings last evening with our earnings from continuing operations of $0.86 per share, which was $01 per share lower than first quarter twenty fifteen earnings. Zero A summary of the quarter over quarter earnings drivers may be found on Slides two and three. Consistent with the growth assumed in our 2016 earnings guidance, retail electric temperature normalized sales for Iowa and Wisconsin increased approximately 1% between first quarter twenty fifteen and 2016. The commercial and industrial sectors continued to be the largest sales growth drivers quarter over quarter.

Now let's briefly review our 2016 guidance. In November, we issued our consolidated 2016 earnings guidance range of 3.6 to $3.9 on a pre stock split basis. The key drivers for the 5% growth in earnings relate to infrastructure investments, such as the Edgewater and Lansing emission control equipment and higher AFUDC related to the Marshalltown generating station. The earnings guidance is based upon the impacts of IPL's and WP and L's previously announced retail base rate settlements. In 2016, IPL expects to credit customer bills by approximately $10,000,000 By comparison, the billing credits in 2015 were $24,000,000 IPL expects to provide tax benefit rider billing credits to electric and gas customers of approximately $62,000,000 compared to $72,000,000 in 2015.

As in prior years, the tax benefit riders may have a quarterly timing impact, but are not anticipated to impact full year results. The WP and L settlement reflected electric rate base growth for the Edgewater scrubber and Baghouse projected to be placed in service this year. The increase in revenue requirements in 2016 for this and other rate base additions was completely offset by lower energy efficiency cost recovery amortization. Slide four has been provided to assist you in modeling the effective tax rates for IPL, WP and L and AEC. Turning to our forecasted capital expenditures.

In March, the Pipeline and Hazardous Materials Safety Administration announced proposed regulations to update the safety requirements for gas pipelines. We currently anticipate final regulations will be issued in 2017. The forecasted capital expenditures provided during our year end call include estimated amounts expected regulations. Now turning to our financing plans. Our current forecast incorporates the extension bonus depreciation deductions through 2019.

As a result of the five year extension of bonus depreciation, Reliant Energy does not expect to make any significant federal income tax payments through 2021. This forecast is based on current federal net operating losses and credit carryforward positions as well as future amounts of bonus depreciation expected to be taken on the federal income tax returns over the next five years. Cash flows from operations are expected to be strong given the earnings generated by the business. We believe that with our strong cash flows and financing plan, we will maintain our targeted liquidity and capitalization ratios as well as high quality credit ratings. Our 2016 financing plans assume we'll be issuing approximately $25,000,000 of new common equity through our share in our direct plan.

The twenty sixteen financing plan also anticipates issuing long term debt of up to $300,000,000 at IPO and approximately $400,000,000 at the parent and Alliance Energy Resources. Dollars $310,000,000 of the proceeds at the parent and Alliance Energy Resources are expected to be used to refinance maturity of term loans. As we look beyond 2016, our equity needs will be driven by the Riverside expansion project. Our forecast assumes that capital expenditures for 2017 would be financed primarily by a combination of debt and new common equity. Our 2017 finance plan currently assumes issuing up to $150,000,000 of common equity.

We may adjust our financing plans as deemed prudent if market conditions warrant and as our debt net equity needs continue to be reassessed. We have several current and planned regulatory dockets of note for 2016 and 2017, which we have summarized on Slide five. During the second quarter of this year, we anticipate filing a WP and L retail electric and gas base case for 2017 and 2018 rates. For IPL, we expect a decision application for the approximately $60,000,000 Clinton Natural Gas Pipeline. The next Iowa retail electric and gas based rate cases are expected to be filed in the first half of twenty seventeen.

We very much appreciate your continued support of the company. At this time, I'll turn the call back over to the operator to facilitate the question and answer session.

Speaker 0

Thank you, Mr. Hansen. At this time, the company will open 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. We'll go first to Andy Levy at Avon Capital.

Speaker 4

Wow, first question.

Speaker 2

Good morning, Andy. Congratulations.

Speaker 4

Thank you. What do I get for it? Anything or nothing I guess. Just a quick question. Just on the non reg, what was the breakdown of the earnings on the non reg for the quarter?

The railroad and the wind facility?

Speaker 3

I think the transportation generated $0.1 Our non reg generation was another $1 Franklin County was a drag of about $01 And then we had some parent activity I think about another $0

Speaker 4

Okay. And then oh, go ahead. I'm sorry.

Speaker 3

No, the last item was a positive in terms of the other benefits at parent.

Speaker 4

Okay. And how did the Franklin, the non reg generation and the railroad, how did that compare to last year?

Speaker 3

I would say it's fairly consistent.

Speaker 4

Okay. And then just in general on Franklin and the railroad, what's kind of the thinking on the outlook for this year relative to last year?

Speaker 3

I think with Franklin last November when we gave guidance, said it would probably be a drag on earnings of about 4% to 5%. I think you should $04 to $05 excuse me. Still Is good? That's still reasonable, yes.

Speaker 4

And then on the Railroad?

Speaker 3

And assume that $07 was in our current outlook current forecast, and we're assuming the same expectation for 2016 now.

Speaker 4

Dollars $0.07 for the railroad. And is that what that I'm sorry, that what the railroad earned in 'fifteen? Or was it higher or lower?

Speaker 3

No. It was $07 last year as well.

Speaker 4

Got it. That's all I needed. You very much.

Speaker 2

Thanks, Andy.

Speaker 0

We'll go next to Brian Russo with Ladenburg Thalmann. Hi, good morning.

Speaker 2

Good morning, Brian.

Speaker 5

Just curious, you reaffirmed your 5% to 7% CAGR. Does that run through a particular year or through a particular planning period? Maybe you could just talk about that just a little bit.

Speaker 2

Yes. So Brian, we actually base it on last year's weather normalized sales and it goes out five years, so that's through 2019.

Speaker 5

Okay. And what was last year's weather normalized sales?

Speaker 2

Tom's looking that up in the IR. It's in the IR deck, yes.

Speaker 3

Dollars $3.05 7. Okay.

Speaker 5

And then just remind us the Riverside settlement and options from the munis or co ops and WEC Energy? Can you just remind us of the timing of that? Then Yes.

Speaker 2

And Brian, we updated our investor deck earlier this season and so there's a slide on it. You go to Slide nine on the deck, but basically it's Wisconsin Public Service has the option for up to 200 megawatts in the twenty twenty to twenty twenty four timeframe. MG and E is up to 50 megawatts from the 2020 to 2025 timeframe. And the co ops have up to 60 megawatts and they'll determine that in the third quarter of this year.

Speaker 5

And how is that priced?

Speaker 2

It'd be at the current book value at the time.

Speaker 5

Current book value. Okay, great. All right, that's all I had. Thank you.

Speaker 2

Sure. Thanks, Brian.

Speaker 0

We'll go next to Andrew Weisel with Macquarie Capital.

Speaker 6

Hey, good morning.

Speaker 2

Good morning, Andrew.

Speaker 6

Appreciate the commentary on potential equity needs for next year. Just want to understand is that sort of a run rate we should assume for all years in 2017 and beyond? Or is it sort of a one time thing? Obviously, there's a billion other variables that could make the number the need go up or down. But should we think of that as the number for the next several years or 2017 and there could be more in 2018?

Speaker 3

Assume that as the initial estimate for 2017. And in terms of the outer years, it's going be somewhat dependent on the options that some of the parties that Pat just made reference to in terms of the Riverside expansion. So if and when MG and E and pub service might step into Riverside. So for now, just assume up $250,000,000 applies only to 2017.

Speaker 2

Dollars 150,000,000, one. Excuse me. Okay,

Speaker 6

great. And then the other one is I want to verify there was some change to the effective tax rate forecast in the slide deck. I believe I just want to confirm that's earnings neutral, right? That's an offset to revenue line or is that something that could affect where you shake out within the guidance range?

Speaker 3

There'll be some movements within the income statement. What has changed is principally at IPL, we'll have less flow through benefit.

Speaker 6

So that's

Speaker 3

that should not be impacting earnings. That will be offset someplace else.

Speaker 6

Okay. So that change to the effective tax rate for both IPL and the corporation, I should think of those as earnings neutral?

Speaker 3

No. Think of it as it will be an adjustment to tax, but something else will be offsetting it. So the earnings guidance will remain consistent with previous estimates. So

Speaker 2

it should not impact the bottom line, Andrew.

Speaker 6

Okay. So the zero nine dollars benefit in the full year guidance is still a good number to think about?

Speaker 3

Probably a little high. But again, it's not going to be significantly different. And as Pat said, it will be offset by something else. So our guidance for 2016 is unchanged.

Speaker 2

We know how carefully you guys track the effective tax rate. That's why we want to provide the update at this quarter.

Speaker 6

Yes. We appreciate it, but every penny does count. So I'm just trying to understand the potential impact to the bottom line. Thank

Speaker 2

Tom counts every penny also.

Speaker 0

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

Speaker 1

With no more questions, this concludes our call. A replay will be available through May 1236 at (888) 203-1112 for U. S. And Canada or (719) 457-0820 for international. Callers should reference conference ID 8244179.

In addition, an archive of the conference call and a script of the prepared remarks made on the call will be available on the 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.

Speaker 0

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