Q3 2023 Earnings Summary
- Advancing renewable development with significant future capital expenditure opportunities, including plans to add more renewables such as additional solar projects and 500 megawatts of wind repowering, which will produce new production tax credits to monetize.
- Strong tax credit position: The company has a very robust set of tax credits to monetize over the next 4-5 years, from existing wind projects, new solar projects (1,500 megawatts), wind repowering (500 megawatts), and battery projects (275 megawatts). This enhances cash flows and reduces financing needs.
- Positive regulatory relationships and focus on affordability: Alliant Energy continues to push for general rate increases at or below cost of living increases, and affordability has been and will continue to be top of mind. The company has a strong track record of settlements in Iowa and expects continued constructive regulatory outcomes.
- Pressure on Margins Due to Rising Costs: The company faces higher financing costs amid a higher-for-longer interest rate environment and increased capital expenditure plans. While they aim to keep rate increases at or below inflation, this commitment may constrain their ability to recover these increased costs, potentially pressuring margins.
- Regulatory Risks in Rate Case Settlements: Regulatory proceedings in Wisconsin and Iowa may become more challenging. Parties with greater emphasis on policy-related goals are increasingly influencing rate case proceedings, potentially complicating settlements. While the company has a history of constructive settlements, there is no guarantee of similar outcomes in the future.
- Flat Electric Load Growth Limiting Revenue: Similar to other Midwest peers experiencing declines in load, the company's electric load growth may remain flat, limiting revenue growth. While they note economic development interest, their forecasts remain conservative, suggesting potential challenges in increasing future revenues.
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Financing Plans and Equity Needs
Q: Can you elaborate on tax credits and equity needs?
A: Management expects to fund capital expenditures through 2027 using cash flows from operations, including monetizing tax credits averaging close to $300 million per year. This reduces the need for material common equity issuances for capital expenditures. Potential new equity may be required depending on regulatory outcomes affecting capital structures, particularly if there are increases in equity layers at their utilities. They requested a 250 basis point increase in the equity layer at WPL, equating to about $200 million, or $40 million for every 50 basis point change. -
CapEx Plans and Renewables
Q: What is driving changes in your CapEx plans?
A: Management is adjusting their capital expenditure plans by shifting some investment from renewables to gas projects in response to MISO capacity requirements. Despite lower renewables spending, they still expect robust tax credit monetization from existing wind projects, new solar developments of 1,500 MW, wind repowering of 500 MW, and 275 MW of battery projects, all generating tax credits over the next 4–5 years. -
Regulatory Outcomes and Impact on Equity
Q: How might regulatory decisions affect your equity needs?
A: Potential equity needs are tied to regulatory outcomes on capital structures in pending rate cases. In Iowa, the IUB approved a 10.25% ROE for their 400 MW solar project, lower than the 10.75% they sought. They plan to use the rate review process to push for the higher ROE and believe this decision isn't indicative of outcomes in the rate filing. In Wisconsin, they requested a 250 basis point increase in the equity layer at WPL, equating to about $200 million in equity need. -
O&M Reductions and Sustainability
Q: Can you update us on O&M reductions?
A: They are targeting a 3% to 4% O&M reduction. About half of these reductions are sustainable due to efficiencies, such as benefits from the undergrounding program and cost reductions from plant retirements. The other half comes from strategic spend adjustments. They anticipate further O&M reductions in Q4 and expect to end up lower than in 2022. -
Load Growth Expectations
Q: What are your load growth assumptions for '24 and beyond?
A: Load in 2023 is largely in line with expectations after adjusting for temperatures. They are planning similarly for 2024 but have seen strong economic development interest, which could lead to updates if that materializes.
Research analysts covering ALLIANT ENERGY.