Alliant Energy (LNT) Q2 2020 Earnings Call Transcript

Alliant Energy (LNT -0.57%)
Q2 2020 Earnings Call
Aug 07, 2020, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

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. [Operator instructions] 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 -- Investor Relations 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 Chief Executive Officer

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 recaps some of our regulatory, customer 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 long-standing 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 advance us 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've continued 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 nonprofit 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 help 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 nonprofit 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 wellbeing.

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 megawatts 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 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 megawatts 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 wellbeing 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 our 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 -- Executive Vice President and Chief Financial Officer

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 Slides 3 and 4. Our 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 customers 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 food service 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, but even saw certain customers, such as our food processing, packaging, and warehouse customers, having flat to higher-than-normal sales at the initial months of the pandemic. With the faster-than-expected rebound in electric sales, we have updated our current projections to reflect an approximate 2% to 3% reduction in temperature-normalized electric sales for calendar year 2020 compared to last year. We have made significant progress mitigating this pandemic-related sales declines by accelerating planned cost transformation activities and reimagining 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 in sharing my appreciation for the employees of Alliant Energy, especially for the men and women who are 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 a reminder of 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 of the lower tax rate are production tax credits and excess deferred tax benefits which flowed back to customers, resulting in lower electric margins, thereby, resulting in no material impact on full-year earnings. The timing of wind production tax 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 have provided the details of our financial plan for 2020, which has now largely been completed.

In June, we finalized a $400 million, 10-year bond issuance at our Iowa utility and used part of the proceeds to call early a maturity that was due later this year. This deal was well received by the market and achieved the lowest bond interest rate in our Iowa utility's 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 in projected cash flows. The key to achieving our updated carbon dioxide emission goals is expanding our use of clean energy resources. As John mentioned, we recently announced plans to retire one of our Wisconsin coal-fired generator facilities 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 megawatts of new solar generation.

As a result of this filing, we are planning to ship $350 million of capital 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 costs will be financed through tax equity partners. The contributions from the tax equity partners are current when the projects are placed in service.

We expect to place 425 megawatts of solar into service in 2022 and 575 megawatts of the service in 2023. We plan to refresh our full future capital expenditure forecast and disclose our 2021 financing plans as part of our third-quarter earnings release in November. Lastly, we have included our regulatory initiatives of note 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 innovating groups representing our retail customers include 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 all of you virtually over the coming months. At this time, I'll turn the call back over to the operator to facilitate the question-and-answer session.

Questions & Answers:

Operator

[Operator instructions] And we'll take our first question from Andrew Weisel from Scotiabank. Caller, please go ahead.

Andrew Weisel -- Scotiabank -- Analyst

Hey, everyone, good morning.

John Larsen -- Chairman, President, and Chief Executive Officer

Good morning, Andrew.

Andrew Weisel -- Scotiabank -- Analyst

A 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 -- Executive Vice President and Chief Financial Officer

Hey, Andrew, this is Robert. So I'd say what we saw in April and May was the low points. But here in June and July, as I indicated in my prepared remarks, we saw commercial and industrial down maybe about 3% and a lot of that was largely offset by an increase in residential sales. So that's the more recent trends we're seeing and hoping that continues through the remainder of the year.

And that's what we project at this point to get us to a full-year forecast of about a 2% to 3% temperature-normalized decrease for the calendar year relative to last year.

Andrew Weisel -- Scotiabank -- Analyst

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 -- Executive Vice President and Chief Financial Officer

I'd say it's more of a step change when you look from May to June. And I think a larger part of it, as you indicated, was largely to reopening the states. But yeah, from May to June, it was quite a bit of a jump. It's a little bit leveled -- levelized off at this point from June to July, but a lot better than we originally expected.

So we're optimistic.

John Larsen -- Chairman, President, and Chief Executive Officer

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

Andrew Weisel -- Scotiabank -- Analyst

Good to hear. Next question is on the IPL debt issuance. You know, 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, it was 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 -- Executive Vice President and Chief Financial Officer

Good question, Andrew. Thanks. Yeah, as we got into the deal, very strong market demand for that debt issuance and we utilize that, obviously, to capture that lower interest rate. To this point, we've used 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 $110 million of that for the payment that we need to make to NextEra to terminate the Duane Arnold Energy purchase power agreement. And the remaining funds will largely be invested in the wind projects that we're continuing to finish up, including the Richland project that will be finished up sometime later this quarter.

Andrew Weisel -- Scotiabank -- Analyst

Got it. Hard to believe that payment is coming up already in just a month or so. Then one last one, if I may. The -- I wanted to go back to the option that some of your neighbors in Wisconsin had to buy ownership slices 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 and the massive growth in renewables, just wondering what the latest thinking might be as far as how likely they might be to exercise the options? And will you just remind us what's embedded in your rate base and EPS growth forecast around that?

John Larsen -- Chairman, President, and Chief Executive Officer

Yeah, you bet, Andrew. So you've got the timing right for that and we've assumed that there will be options taken in -- in our plan. I won't speak for the potential co-owners. I'll let them address that.

So nothing to add on that besides where our plans would assume that they take an ownership interest and I think you've got the timing right. Appreciate the question.

Andrew Weisel -- Scotiabank -- Analyst

OK. Great. Thank you.

John Larsen -- Chairman, President, and Chief Executive Officer

You're welcome.

Operator

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

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

It's Julien here. Thanks, guys for your 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? Especially, if for instance, let's say, things turn around here again, how are you thinking about the cost levers that you guys spoke about just a few months ago at this point and ability to use them again?

Robert Durian -- Executive Vice President and Chief Financial Officer

Yeah. Good morning, Julien, 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 cost 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 here.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. Excellent. OK. And then you -- just coming back to the last question there super quick, if you don't mind.

You always have seen a pretty big swing as have some of your peers. But I'm just curious, can you more explicitly define what your Q3 and Q4, like, normalized trajectory would be to reconcile with that 2% to 3% update? And so a slightly different iteration of the last one as well.

John Larsen -- Chairman, President, and Chief Executive Officer

Yeah. Julien, maybe I'll start to share a bit. But you know, 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 toward 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 addresses your question.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Yeah, indeed. Well, let me try to summarize this, if you don't mind. Are you effectively -- do you have latitude to be in the upper end of your guidance range? How about that? Given that --

John Larsen -- Chairman, President, and Chief Executive Officer

Yeah. You know, I -- what I shared, Julien, 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 with 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 Merrill Lynch -- Analyst

OK. All right. Fair enough. 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 forecast in '23. I mean, was it always assumed at 35% tax equity? Just to make sure we understand all the puts and takes here against your outlook.

John Larsen -- Chairman, President, and Chief Executive Officer

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

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

OK. There we go. Excellent. Well, thank you all very much.

I'll leave you to the next person. Thank you.

Operator

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

Michael Sullivan -- Wolfe Research -- Analyst

Hey, everyone, good morning.

Robert Durian -- Executive Vice President and Chief Financial Officer

Good morning, Michael.

Michael Sullivan -- Wolfe Research -- Analyst

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

Robert Durian -- Executive Vice President and Chief Financial Officer

Yeah. Michael, thanks for that question. I'd say we're very encouraged by the progress we're making with the 2021 customer rate stabilization proposal and we currently expect the decision from the PSCW sometime later this quarter, could be as early as later this month. And generally, overall, we saw support for the plan, given the purpose of it was to really try and protect our customers from rates.

Given the economic conditions that we see 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 -- Analyst

Great. Thanks. 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 toward renewables, and 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 up 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 you're thinking about this regulatory treatment in the future?

Robert Durian -- Executive Vice President and Chief Financial Officer

Yeah. So I'll 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 slow recovery of coal plants that we retired early. Both states have approved both a return of and return on a full recovery of those facilities.

Those facilities generated with the remaining balances are probably in the tens 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 decision or 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'll have some more information this year -- later this year on any potential early retirements for Iowa State.

Michael Sullivan -- Wolfe Research -- Analyst

OK. Maybe if I could just follow-up. I think you just said that the past precedent, we were only talking tens of millions of dollars, I mean, it sounds like these plans going forward are probably materially higher than that. So does that potentially change how -- how regulators might be thinking about how they get treated?

John Larsen -- Chairman, President, and Chief Executive Officer

Yeah. You know, Michael, you've got the magnitude right. I think as -- as we look at some of the larger facilities, they certainly have a little bit larger balance. But you know, 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 and putting a very solid plan that makes sense for customers or we wouldn't file that. So you know, I'd say we feel comfortable with that filing, but some of those are yet to be determined.

Michael Sullivan -- Wolfe Research -- Analyst

OK. Awesome. Thanks a lot.

John Larsen -- Chairman, President, and Chief Executive Officer

You're welcome.

Operator

[Operator instructions] And at this time, it would appear there are no further questions at this time.

Susan Gille -- Investor Relations Manager

Thank you. This concludes Alliant Energy's second-quarter earnings call. A replay will be available through August 14th, 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

[Operator signoff]

Duration: 31 minutes

Call participants:

Susan Gille -- Investor Relations Manager

John Larsen -- Chairman, President, and Chief Executive Officer

Robert Durian -- Executive Vice President and Chief Financial Officer

Andrew Weisel -- Scotiabank -- Analyst

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Michael Sullivan -- Wolfe Research -- Analyst

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