Alliant Energy Corp (LNT) — Q4 2019 Earnings Call Transcript

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, Chairman, President and CEO; and Robert Durian, Executive Vice President and CFO, as well as other members of the senior management team. 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 year-end and fourth quarter financial results and affirmed our 2020 earnings guidance range 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 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. A reconciliation between non-GAAP and GAAP measures is provided in the earnings release and will be in the 10-K, both of which will be available on our website at www.alliantenergy.com. At this point, I'll turn the call over to John.

Thank you, Susan. Good morning, everyone, and thank you for joining us. 2019 was another excellent year for our company both financially and operationally, made possible by the dedicated men and women of Alliant Energy. I want to thank our employees for their continued commitment to safety and serving our customers. And recognize our talented engineers as we celebrate National Engineers Week. Our employees work tirelessly delivering on our purpose to serve customers and build strong communities. And we are delivering a strong return to our shareholders, with a total shareholder return of more than 33% in 2019. In 2019, we raised our annual dividend by $0.08 per share, which was the 16th straight year we've increased our dividend. Our non-GAAP temperature-normalized earnings of $2.26 per share grew by 7% over 2018's comparable number. This was the ninth year in a row we achieved at least 5% earnings per share growth. We continue to make great progress as we execute our customer-focused strategy. I'll highlight a few of our many strategic and operational achievements, and Robert will provide more details on our solid financial and regulatory outcomes. First, as it relates to our transition to a cleaner and more efficient generation fleet, we're proud to report we met our 2020 SOx, NOx and mercury emission reduction goals one year early. In addition, we are well on our way to achieving our 2030 carbon reduction goal of 40%, and as of the end of 2019, we've achieved a 35% reduction in CO2 from 2005 levels. Our progress on these goals is highlighted in the posted supplemental materials. Our strategy and investments are tightly linked to our commitment to the environment as well as the social and governance standards we have set for ourselves. We look forward to highlighting our strong ESG performance from the past year and sharing the vision for our future goals when we update our corporate sustainability report later this year. We are continuing our track record of solid execution on renewable investments, putting additional clean energy to work for our customers and communities. One example of that progress is the recent completion of our 200-megawatt Whispering Willow North Wind project. We now have nearly 70% of our planned 1,000 megawatts of new wind placed into service for our Iowa customers producing clean, efficient renewable energy. We are on track to complete the balance of this plan by the end of this year. An important complement to our renewable resources will be the addition of the West Riverside Energy Center. This highly efficient natural gas facility located in Southern Wisconsin is over 98% complete and is expected to be in service producing low-cost energy for our Wisconsin customers in the coming weeks. The expansion of renewables and efficient natural gas generation will benefit our customers for decades. Our fuel costs in 2019 were lower than 2018 by nearly $80 million through a combination of expanded wind investments, solid operational performance, and lower commodity prices. Another example of our strategy in action. An efficient and resilient energy grid remains an important focus of our strategy. In 2019, we completed our AMI meter installations in Iowa, providing us with the ability for early detection of outages and information that our customers can use to make smart energy choices. We also plan to use these investments to improve how we operate the energy grid, reducing the number of substations and helping us lower operating costs. Making investments that help us better serve customers and communities is core to our strategy. An example is the upcoming launch of a new web application and matching mobile application, we call My Account. Once fully launched, customers will be able to get more detailed information to help them understand and adjust their energy usage. This refreshed customer portal is another example of how we are investing to enable our customers with more choice, convenience, and control over their energy use. I'll highlight one last area before I turn it over to Robert. Last fall, we announced the results of a year-long voluntary resource planning process, which we call the Wisconsin Clean Energy Blueprint. This plan balances many important goals including reliability, affordability, building stronger communities, and the impacts transitions have on our talented and dedicated employees. The blueprint highlights the opportunity to capture customer benefits by expanding our renewable resource portfolio by building up to 1,000 megawatts of solar. In the coming months, we'll be sharing more details of how we will take the next steps in our fleet transition and the changes to our Wisconsin facilities. I'm excited about our accomplishments in 2019. Our team is committed to delivering on our financial and operational goals for 2020. I'll summarize the key areas of our 2020 focus: continuing as an industry leader in advancing renewable energy, customer-focused investments completed on time and on budget, delivering solid returns for our investors, balancing capital investments and cost impacts to customers, and living our values. Thank you for your interest in Alliant Energy. I will now turn the call over to Robert.

Thanks, John. Good morning, everyone. I'm pleased to report that 2019 GAAP earnings were $2.33 per share compared to $2.19 per share in 2018. Excluding non-GAAP adjustments and temperature impacts, earnings were up 7% year-over-year driven by higher revenue requirements due to increasing rate base, partially offset by higher depreciation and financing expenses. We provided additional details on the earnings variance drivers on slides 5 and 6 of our supplemental slides. The non-GAAP adjustment in 2019 is related to an ATC equity earnings adjustment as a result of the November FERC decision regarding MISO transmission owners' return on equity complaints. The $0.02 per share of non-recurring earnings were largely due to a reversal of reserves previously recorded for the second complaint period. Our temperature-normalized retail electric sales declined 1% in 2019 when compared to 2018, primarily driven by lower sales to our industrial customers. A few of our largest customers in Iowa experienced temporary operational issues in 2019, and economic conditions resulting from additional tariffs last year impacted certain manufacturing customers' production resulting in lower industrial demand. Since industrial sales generate our lowest margins, these sales declines did not have a material impact on our 2019 results. Turning to this year's earnings guidance, we are affirming our 2020 earnings guidance of $2.34 per share to $2.48 per share. Based on our current forecast, we are trending to the upper half of the range. We are also reaffirming our long-term annual earnings growth guidance of 5% to 7%. We have rebased our long-term earnings growth guidance off 2019 non-GAAP temperature-normalized EPS of $2.26 per share. Our long-term growth guidance is through 2023 and is supported by our capital expenditure plans, modest sales growth, and earning our allowed rates of return. The key drivers of the 7% growth in 2020 EPS are related to investments in our core utility business including WPL's West Riverside generating facility and IPL's wind expansion program. These investments were reflected in WPL's approved electric rates for 2020 and IPL's retail electric rate review order received last month. A walk from our 2019 non-GAAP temperature-normalized earnings to the midpoint of our 2020 earnings per share guidance is provided on Slide 7. The 2020 guidance range assumes a 1% growth in retail electric sales, which includes the impact of leap year. We are forecasting most of the sales growth from commercial and industrial customers, as they resume normal operations in 2020. Our strategy includes a continued focus on providing affordable energy to our customers. In Wisconsin, we are holding electric and gas base rates flat through 2020 by using federal tax reform benefits and lower fuel costs to offset the cost of utility investments. These investments include the highly efficient West Riverside Energy Center, which will be in service in the coming months. In Iowa, we are forecasting average residential electric bills for Iowa customers will also remain relatively flat in 2020, as the impact of final base rates implemented in early 2020 will be offset by $35 million of billing credits we will provide to Iowa electric customers, related to federal tax reform benefits and interim rate refunds from 2019. Also, more production cash credits and significant fuel cost reductions are expected to flow back to customers as a result of further expansion of wind generation in 2020. As we look to the future, we have also added new low-cost wind PPAs and we'll be ending the Duane Arnold PPA later this year, which will begin saving our Iowa electric customers money in 2021. Slide 8 has been provided to assist you in modeling the effective tax rates for our two utilities in our consolidated group. We estimate a consolidated effective tax rate of negative 11% for 2020. The primary drivers of the lower tax rates are the additional tax credits from new wind projects being placed in service and the return of excess deferred taxes from federal tax reform to our customers. The production tax credits and excess deferred tax benefits will flow back to customers resulting in lower electric margins. Thus, the decrease in effective tax rate is largely earnings neutral. Our 2020 financing plan summarized on Slide 9 remains unchanged from the plan we shared last November, including issuing up to $250 million of new common equity. $225 million of this equity was priced through the equity forward agreements executed in November 2019. We expect to settle those equity forward agreements over the next 10 months to fund capital expenditures for our utilities. We expect the remaining $25 million to be issued ratably during 2020 through our Shareowner Direct program. Lastly, we have included our key regulatory initiatives on Slide 10. We have the privilege of serving customers in states that have proven track records of constructive regulation. In December and January, we received decisions regarding the first forward-looking test year rate filings in the state of Iowa. In the electric rate review decision, the IUB approved a new renewable energy rider, which allowed us to earn a return of and return on the 1,000 megawatts of new wind after they're placed in service. With the approval of the renewable energy rider and continued cost controls, our plan is to stay at the rate reviews in Iowa for at least the next few years. In Wisconsin, we filed a certificate of authority request last year to expand natural gas capacity by 20% in Western Wisconsin. This request is another tool we are using to support economic development in the communities we serve. We expect a decision on that filing by the second quarter of 2020. In the second quarter, WPL also expects to file a retail electric and gas rate review for test years 2021 and 2022. Key drivers of the rate review will be our increased investments in the distribution grid and the Kossuth wind farm we expect to place into service later this year. We will be utilizing excess deferred tax benefits and regulatory liabilities to offset a portion of the revenue requirement for these utility investments. Lastly, in Wisconsin, we anticipate filing a certificate of authority in the first half of 2020 for a portion of the 1,000 megawatts of new solar generation we announced last fall. We continue to make good progress with advancing these solar projects including acquiring safe harbor equipment in 2019 and securing favorable sites in our service territory to provide additional cost-effective clean energy for our customers in Wisconsin. We very much appreciate your continued support of our company and look forward to meeting with many of you in the coming weeks at upcoming conferences. As always, we will make our Investor Relations materials used at the conferences available on our website. At this time, I'll turn the call back over to the operator to facilitate the question-and-answer session.

Hi. Good morning to you. Can you hear me?

We can.

We sure can. Good morning Julien.

Hey. Good morning to you guys. So I wanted to follow-up in the same vein of many of your comments earlier and just ask you to elaborate a little bit first. With respect to Iowa and solar, I'm thinking more specifically on the legislative side there's been some development. And I know there was a carryover bill. I know there was perhaps a deal in the last day here at least in the local news teams. Can you talk about what any of it in Iowa from what city perspective may mean ultimately to you specifically knowing that not all of it is necessarily focused on Alliant utility-scale solar in terms of what was contemplated there? And then separately, I'll throw my second question out there at the same time. Coming back to Wisconsin, you alluded in your remarks to some development coming up ahead in the next months. I wasn't quite sure if that pertained directly to the solar filing you're making, or with respect to the voluntary filing you made earlier is there something else in parallel we should be anticipating here? So again, I just want more of a clarification from the earlier prepared remarks.

Yeah. Hey, Julien. Thanks for the question. I'll touch on the first couple and I might turn it over to Robert as well. As it relates to Iowa and the build relating to solar, it's very early in the process, so as you can imagine this can change a bit. We are evaluating that and certainly talking with stakeholders in MidAmerican. So I would hesitate to go beyond identifying the direct impacts on that right now. It's something we're keeping a close eye on. And in Wisconsin, we do have our rate filing that we'll have in the second quarter and then we're putting together the application for our first tranche of the solar investment. Those would be two that we talked about and I'll ask Robert here to add anything else to that.

As a reminder, last November we announced plans to build up to 1,000 megawatts of new solar by 2023. The filing we will submit in the next couple of months can be considered the first tranche, and we anticipate that roughly half of that will be included in an early April filing along with many more details about the transactions, the sites, and all the necessary information associated with those filings.

Got it. Excellent. Thank you. Could you please provide an update on the upcoming solar filing in the second quarter? Is there anything we should expect that differs from similar filings by your peers in the state who have also initiated a pilot program? I'm trying to understand if there are any unique issues to consider, or is it largely comparable to what others are experiencing?

I'd say the one area where it may be different from what you've seen in the state historically is, we are contemplating doing some type of tax equity structure that is different from what some of the previous filings in the state event. We're still in the early stages of kind of determining exactly what that's going to look like, but expect when you see the filing come out in that early April timeframe, there will be some type of partnership with the third-party to help us really try and monetize those tax benefits booked for our customers. And we see this as a great opportunity to lower the cost for our customers with these new solar projects.

All right. Excellent. Thank you guys. Thanks for the time. Have a good day.

Okay. Thank you.

Hey, good morning, everybody.

Good morning, Andrew.

First question on the emissions front, you made very impressive progress to-date and I'm glad to see you emphasizing that a bit more in the slide deck. Thanks for that too. John, I think you mentioned you'll update the corporate sustainability goal later this year. Do you have any sense of what that means for a longer-term carbon reduction goal? You've got your 2030 target. What might it take to get even bigger reduction say for carbon dioxide by 2040 or 2050? Would it be coal plant retirements, more renewables, energy efficiency? I imagine it's all of that, but where do you see the biggest opportunities?

Yes. Thanks, Andrew. We are excited by being able to continue to update our sustainability report in a number of environmental improvements that we've made. We do have a current 80% reduction goal that we have in there in addition to our 2030 goal. So what we'd be looking at is, as we update our resource planning efforts and we take a look at some of our continued fleet transition, we'll review that and make further adjustments in our sustainability report. In addition to that, some of the areas for example water reduction with our West Riverside plant, our addition of wind and solar, and some of the retirements we've already had, we've made significant progress in reducing the amount of water usage. Then obviously we've done some work with habitat meaning pollinator plantings in conjunction with solar installation. So very excited about the story and I appreciate you asking about that.

Okay, great. Thank you that’s correct. Next question in Wisconsin, you'll be filing the rate case in the coming months for WPL. You've been holding rates flat. You mentioned some offsets, but how do you think about the potential to either keep rates flat for two more years or have a minimal increase? And then possibly related how do you think about the potential for yet another settlement? And similarly, are there any atypical issues that might come up in the filing?

Andrew this is Robert. Yes, I think when we look forward to the 2021, 2022 forward-looking test periods, we do believe that there will be a modest increase to our customers, but given the ability for us to use excess deferred taxes and various other regulatory liabilities that we've accumulated over the past few years, we'll see a pretty significant mitigation of any increase. So I would think of those in the kind of single digits, maybe low single-digit percentage increases on an annual basis, so nothing very significant. And so we'll continue our strong track record of maintaining pretty low or relatively low rates for our customers in Wisconsin. And as far as the settlement process, we do have a long history of constructive settlements and outcomes. We would continue to look forward to working with the stakeholders to try and reach a settlement with that after we make the initial filings sometime in that second or third quarter of this year.

Sounds good. Then just to clarify, I think in Iowa you said you're planning to stay out for at least the next two years. Just to really be explicit, does that mean that you'd file in 2021 for rates in 2022 or file in 2022 for rates in 2023?

Just as a reminder with the renewable energy rider that was approved with the last rate case, we have a mechanism now to be able to get all of the rate base additions from the new wind generation that we're putting into service in 2020 in that rider which will become effective or get renewed I guess on January 1, 2021. So with that mechanism we actually think that we can stay out of rate cases for probably over a couple of years out. So at least probably into that '23 timeframe, if not beyond, depending on how well we can control costs.

Fantastic. Thank you very much.

Hey, everyone good morning.

Good morning.

Good morning.

I just wanted to clarify and make sure I heard right. I think you guys had said, you were trending within the upper half of the range for 2020 guidance already. Was that right? And what's driving that if so?

Yeah, good question Michael. You are correct that we are trending to the upper half of the range. We really have had some beneficial developments here probably in the last couple of months. We saw favorable pension costs. And we had a pretty strong year when it comes to the returns of our pension assets, which translates into lower pension costs in 2020. We also are starting off the year very well when it comes to a fuel cost perspective. As a reminder in Wisconsin, we've got a fuel sharing mechanism where both the shareholders and the customers benefit from lower fuel costs and given how low natural gas prices are and how well our natural gas facilities are running, we're able to generate some savings both for our shareholders as well as our customers. And then we're also benefiting from lower interest expenses given interest rate environments that are currently there. So those are the primary drivers that we started out the year very well with.

Okay, great. Thanks. My other question was regarding the future of your coal fleet. In Iowa, you mentioned that by the end of this year a new plan will be announced. Will there be a similar announcement in Wisconsin alongside the solar filing you outlined, or how will that be communicated or discussed?

Thanks, Michael, this is John. When we file, as Robert mentioned for the second quarter regarding solar, we will provide more information about our plans for our Wisconsin coal facilities at that time. You're correct that we are currently going through that process in Iowa, which I see more towards the end of the year.

Great. Thanks, guys.

Thank you.

My questions were answered by Wolfe. So thank you.

Thanks, Ashar.

With no more questions, this concludes our call. A replay will be available through February 28, 2020 at 888-203-1112 for U.S. 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 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.