Alliant Energy (LNT) Q1 2019 Earnings Call Transcript

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Alliant Energy (NASDAQ: LNT)
Q1 2019 Earnings Call
May. 03, 2019, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's first-quarter 2019 earnings conference call. [Operator instructions] Today's conference 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, Mrs.

Gill.

Susan Gille -- Investor Relations Manager

Good morning. I would like to thank all of you on the call and 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 affirm to 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 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.

A 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 -- Chariman and Chief Executive Officer

Thanks, Sue. Good morning, and thank you for joining us today. I'm 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're 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 to a cleaner energy with our English Farms and Upland Prairie Wind Farms being placed in service in late March. As you're well aware, we've 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 rates increase includes recovery of the significant investments in our English Farms and Upland Prairie Wind Farms, enhancement 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 cost from the new wind farms. As part of the electric filing, we requested a renewable energy writer which will allow recovery of preapproved investments in renewable energy when they're placed in service.

If approved, this writer would reduce the likelihood of a 2021 test year rate review, seeking full recovery of our next group of wind farms. The gas customers, the rate review is 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 cost and lower forecasted natural gas prices. Under Iowa statute, 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 fleet did an excellent job maintaining the reliability of our generating stations, wind farms and electric and gas distribution systems during the polar vortex. I'd like to thank them for their dedication to excellent customer service even in the toughest winter conditions.

To summarize, our team is committed to, again, delivering on our financial and operating goals. We have a great track record and will continue to deliver results as we focus on the following: to change or complete our large construction projects on time and below budget 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 a distribution network; delivering on 5% to 7% earnings growth guidance and a 60% to 70% common dividend payout target. We'll continue to manage the company to strike a balance between capital investment, operational and financial disciplines and cost impact to customers. In closing, I invited to participate in our second virtual only annual shareholders meeting on May 16.

We look forward to expanded participation from our share owners since you can now join the meeting from any location through your computer or telephone. I hope you all can participate. And on a personal note, it has been a pleasure working with all of you, and I greatly appreciate 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 1.

I'm so proud of what we 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'll turn the call over to John.

John Larsen -- President and Chief Operating Officer

Well, thank you, Pat. I appreciate the kind remarks. But also like to thank you for your tremendous contributions and dedicated service to our employees, our customers and share owners. We're 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 megawatts 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're 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 new 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're 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% 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'm very pleased to report that the Institute for Sustainable Infrastructure awarded our Upland Prairie and English Farm projects Gold Envision Certifications. This certification recognizes our commitment to environmental stewardship and our collaboration with local communities and landowners. I'm also pleased to share that we were notified that two of our recently added generating facilities, the 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 much demonstrate adherence to the principles of economic, social and environmental sustainability.

It's an honor to be recognized for our sustainability efforts. I thank you for your interest in Alliant Energy, and we'll now turn the call over to Robert.

Robert Durian -- Senior Vice President and Chief Financial Officer

Thanks, John, and 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 colder temperatures, partially offset by higher depreciation expense. Our nonutility 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 2. 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 earnings 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 our expectations.

To assist with modeling, please note that the 6% projected increase in earnings for 2019 will not 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 3 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 production tax credits are expected to result in lower effective tax rates into the future.

Moving to our financing plans. Please see Slide 4 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 its 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 plan supports our objective of maintaining capital structures at our two utilities consistent with our most recent regulatory decisions. We'll adjust the financing plan if market conditions warrant and as our external financing needs are reassessed.

Lastly, we've included our regulatory initiatives of note on Slide 5, 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 1, 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 cost compared to the previous five-year plan.

Second is the electric and gas rate reviews filed by IPL on March 1. On Slide 6, we 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'll turn the call back over to the operator to facilitate the question-and-answer session.

Questions & Answers:

Operator

Thank you, Mr. Durian. [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 -- Analyst

Hey, everyone. Congrats on the quarter. It's Nick Campanella on for Julien today. I just wanted to talk about the Iowa rate case cadence post the current proceeding that we have.

If you get the renewable writer 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 we think about that?

Robert Durian -- Senior Vice President and Chief Financial Officer

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

Nick Campanella -- Bank of America Merrill Lynch -- Analyst

Got it. And I just wanted 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 you get an order by year-end here, is this a third quarter or fourth quarter, I don't see you guys to tell the market what the equity is going to be.

Robert Durian -- Senior Vice President and Chief Financial Officer

Yes. I'd say most likely -- it's Robert again, Nick. Most likely, we'll probably come out with something in the November time frame as far as what the 2020 equity needs are. 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 -- Analyst

Great. That's it for me, and congrats again to Pat. 

Operator

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

Andrew Levi -- ExodusPoint -- Analyst

Hey, how are you, guys? Actually, I wasn't going to -- I do have 1 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 just -- you were one of the best CEOs in my 25-year career.

So you will be missed.

Pat Kampling -- Chariman and Chief Executive Officer

Thanks, Andy, that's very kind of -- really been a pleasure working with you.

Andrew Levi -- ExodusPoint -- Analyst

Great job. And then, a little question kind of off the beat and path, not number related. I just want to get your thoughts on ATC, and obviously that was 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 that you don't want it, don't misunderstand me, but I was telling 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, if there's no better way to put it?

Pat Kampling -- Chariman and Chief Executive Officer

Andy, again, this is Pat. We've considered 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 of their outside of footprint growth opportunities that they have. So we consider this one of our crown jewels of our portfolio here.

So we're definitely planning on keeping it.

Andrew Levi -- ExodusPoint -- Analyst

OK. That was my question. Have fun past retirement. Thank you. 

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 U.S. and Canada or (719) 457-0820 for international. Callers should reference conference ID 417-5543 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.

Duration: 21 minutes

Call participants:

Susan Gille -- Investor Relations Manager

Pat Kampling -- Chariman and Chief Executive Officer

John Larsen -- President and Chief Operating Officer

Robert Durian -- Senior Vice President and Chief Financial Officer

Nick Campanella -- Bank of America Merrill Lynch -- Analyst

Andrew Levi -- ExodusPoint -- Analyst

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