Alliant Energy (LNT) Q3 2021 Earnings Call Transcript

Alliant Energy (LNT -0.28%)
Q3 2021 Earnings Call
Nov 05, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Alliant Energy's conference call for third quarter 2021 results. This call is being recorded for rebroadcast. At this time, all lines are in a listen-only mode. I would now like to turn the call over to your host, Zac Fields, lead investor relations analyst at Alliant Energy.

Zac Fields -- Lead Investor Relations Analyst

Good morning. I would like to thank all of you on the call and on the webcast for joining us today. We appreciate your participation. Joining me on this call are John Larsen, chair, 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 third quarter financial results, updated our consolidated 2021 guidance range and announced our 2022 earnings guidance and common stock dividend target. This release as well as supplemental slides that will be referenced during today's call are available on the Investors 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.

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, Zac. Good morning, everyone. And thank you for joining us today as we highlight our solid results for the third quarter of 2021. To start us off, I'm pleased to share our narrowed and increased 2021 earnings guidance range of $2.61 to $2.67, which represents a forecasted 12th consecutive year of 5% or greater earnings growth.

We are also announcing our 2022 earnings guidance range of $2.65 to $2.79 per share, marking yet another year of forecasted 5% to 7% growth. We understand the importance of delivering consistent returns for our investors and solid operations for our customers. And in keeping with our plan to grow dividends commensurate with earnings growth, I'm pleased to share that our board of directors has approved a 6% increase in our targeted annual common stock dividend to $1.71 per share. In a few moments, I'll turn the call over to Robert to share more details of our excellent third quarter financial results.

But before I do, I'll highlight some of our many accomplishments from the quarter. Over the past several weeks, I've been pleased to meet with many investors and continue to share our ESG story. It's been a natural journey for us and a direct outcome of how we deliver on our purpose: to serve customers and build stronger communities. We know that a clear vision and solid execution are very important factors when making investment decisions.

We are proud that our progress and results have been recognized by several key ESG rating organizations who rate us near the top of the utility industry. Our top-performing results can be seen on supplemental Slide No. 2. Our recent corporate responsibility report highlights many of our achievements.

We continue to make steady progress, such as our commitment to plant more than one million trees across our service territory over the next decade. Not only will this support our care for the environment value and our carbon reduction efforts, it is also responsive to the impact from the 2020 derecho windstorm that devastated our service territory. In Wisconsin, we celebrated our first community solar project with a public open house and tours in the town of Fond du Lac. The one megawatt solar garden will supply clean energy to up to 1,000 homes and is expected to be operational by the end of 2021.

Celebrating this solar garden reflects the community's innovative spirit and passion for clean energy. In Iowa, we are excited to have received IUB approval for our first solar garden. It's expected to be constructed in 2022 at a site near Cedar Rapids. In the third quarter, we also assumed ownership of the Bear Creek, North Rock, Wood County and Grand County solar projects in Wisconsin.

Construction has either started or will be started shortly on these projects that totaled 450 megawatts. And here in the fourth quarter, we acquired the Crawfish River project and expect to acquire the Onion River project before the end of the year. With those acquisitions, we will have assumed ownership of all 675 megawatts of solar that was approved as part of our first CA filing in Wisconsin. Two final highlights I'll share are tied to the social side of ESG.

In September, we committed $4 million to the Hometown Care Energy Fund to help customers who need financial assistance to help pay their energy bills during the upcoming home heating season. The U.S. Energy Information Administration estimates that Midwest natural gas expenditures will rise by nearly 50% compared with last winter. And while we expect the proactive planning by our energy markets team will keep us in line or below those forecasted increases, we know customers will welcome the additional support from this donation to help them stay on track with their energy bills during this time of increased natural gas demand.

And finally, I'm excited to share that with the support of our suppliers and partners, our 15th annual Drive Out Hunger event raised over $400,000, bringing our 15-year fundraising total to more than $5 million. This event has provided over 17 million meals to families in need across our service territory. Combating hunger is one of the focus areas of our charitable foundation and we are proud to partner with our Feeding America food bank partners in Iowa and Wisconsin to help thousands of our customers access nutritious food to strengthen their families. With all the great results from the quarter, I would be remiss in not mentioning that our economic development and customer growth efforts have resulted in our third year in a row of being named a top utility and economic development by Site Selector magazine.

Our economic development team in collaboration with local, regional and state partners in Iowa and Wisconsin created more than $900 million in new capital investments and more than 2,200 new jobs across Iowa and Wisconsin. I look forward to meeting with many of you next week at the EEI Financial Conference to share even more about our company, including our clean energy vision, flexible and well-executed capital investment plan, our long track record of consistent financial and operational results and our focus on the well-being of our employees, customers and communities. Thank you for your confidence 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 third quarter 2021 GAAP earnings of $1.02 per share compared to $0.98 per share in the third quarter last year. Our higher earnings year over year were driven by higher revenue requirements due to increasing rate base as well as higher temperature normalized sales compared to the third quarter of 2020.

These higher earnings were partially offset by higher depreciation expense and timing of income tax expense. Additionally, in the third quarter of 2020, we recorded a non-GAAP adjustment of $0.04 per share related to a legacy guarantee in our nonutility operations. Through the first nine months of this year, temperatures in our service territory have increased retail electric and gas margins by approximately $0.08 per share. By comparison in 2020, the year-to-date temperature impacts through the first three quarters increased retail electric and gas margins by approximately $0.01 per share.

Turning to temperature normalized sales. Our retail electric sales in the third quarter of 2021 were up 4.1% versus last year. The two key drivers for this increase are continued pandemic recovery in year-over-year sales, particularly in the commercial and industrial classes and minimal storm activity this year compared to the third quarter of 2020 when our Iowa territory experienced a derecho windstorm. Through the first nine months of 2021, temperature-normalized electric sales have been better than forecasted, largely due to higher-than-expected demand from residential and industrial customer classes.

As John mentioned, last night, we issued our consolidated 2022 earnings guidance range of $2.65 to $2.79 per share. The key driver of the 6% growth in temperature normalized EPS is higher earnings on increasing capital investments, primarily driven by our solar program. The details of our refreshed capital expenditure plans are shown on Slides 5 and 6. Our capital expenditures, net of expected tax equity contributions over the five year period from 2021 through 2025, will total approximately $7 billion or an average of $1.4 billion per year.

Our capital expenditure plans continue to be focused on the transition to cleaner energy and strengthening the reliability and resiliency of our electric grid. We continue to make progress on our plans to add 1,500 megawatts of solar energy for both our Wisconsin and Iowa customers and have adjusted our flexible capital expenditure plans to address the current market conditions for solar panels and related project materials. Our plan includes expectations for increasing costs for these solar projects as supply constraints and commodity inflation continue to be prevalent in the solar market. Despite increasing costs, these solar projects remain key elements of our clean energy blueprints and will bring long-term environmental and cost benefits to our customers.

In addition to the 1.1 gigawatts of solar previously announced for our Wisconsin customers, our plan includes additional renewables and energy storage in Wisconsin, in part to replace the capacity from a portion of the West Riverside Energy Center that we anticipate will be purchased by our neighboring utilities over the next few years. In Iowa, we recently completed an advanced rate making filing for our announced 400 megawatts of solar and 75 megawatts of battery storage. We plan for 200 megawatts of that solar, plus the battery storage, to be located at the site of the recently retired Duane Arnold Energy Center, leveraging the existing transmission interconnection from the former nuclear plant. This will be our first utility-scale battery storage installation and will be an important complement to our solar generation.

Finally, we've also included capital expenditures in the latter part of our five year plan for additional energy storage and renewables, including wind repowering opportunities, to increase our portfolio of cost-effective clean energy sources for our utility customers. Slide 9 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 negative 13% for 2021 and positive 6% for 2022. At our Wisconsin utility, we will have returned essentially all of the available excess deferred income tax benefits to our customers by the end of 2021, leading to a higher effective tax rate going forward.

At our Iowa utility, our large wind portfolio and the resulting production tax credits will maintain our lower effective tax rate for several more years. The production tax credits and excess deferred tax benefits flow back to customers, resulting in lower electric margins. Thus, the changes in the effective tax rate related to the PTCs and excess deferred tax benefits are largely earnings neutral. Next, I'd highlight our continued focus on controlling costs for our customers.

We have met virtually with many of you throughout this year and shared our strategy to reduce O&M over the next few years. This strategy is important as we head into the upcoming winter heating season, with much higher anticipated fuel prices, reminding us that our customers need our continued focus on controlling costs to keep rates affordable. Additionally, while we are not immune to rising commodity prices, we are able to leverage our risk management programs to mitigate the impact of rising natural gas and coal costs on customer bills. Let's move next to our financing plans.

In September, we issued a $300 million green bond at WPL to finance renewal projects in Wisconsin. The coupon rate of 1.95% represents the lowest interest rate for a 10-year debenture issued by WPL, helping to support our customer affordability objectives. Our financing plan over the next 14 months includes issuing up to $1.4 billion of long-term debt at our utilities and Alliant Energy Finance. The proceeds from the new debt issuances will be used to refinance existing debt and the redemption of preferred stock and to finance the utilities capital expenditure plans.

Our 2022 financing plans also include $25 million of new common equity through our DRIP plan. Lastly, we have included our regulatory initiatives of note on Slide 7. As mentioned earlier, this week, we filed the advanced ratemaking principles for 400 megawatts of solar and 75 megawatts of storage for our Iowa utility. The key details of this filing are outlined on Slide 8.

We plan to receive a decision on this filing in the second half of 2022. Looking ahead, this quarter, we expect to receive the written decision regarding our WPL rate review, including the decision on the innovative cost recovery mechanism for the Edgewater Unit 5 coal plant expected to retire by the end of 2022. And in the first half of next year, we plan to receive a decision on our second solar CA filing in Wisconsin. We very much appreciate your continued support of our company and look forward to meeting with many of you during the EEI finance conference next week.

Later today, we expect to post on our website the EEI investor presentation and the November 2021 fact book, which details the separate IPL and WPL updated capital expenditures, rate base and construction work and progress forecast through 2025. 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 Julien Dumoulin-Smith with Bank of America.

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

Hey, good morning, team. Thanks for the timely opportunity. Look forward to seeing many of you. Perhaps just -- hey, good morning.

So perhaps just to kick things off, can we go back to the solar capex and some of the shifts here? Obviously, you kind of alluded to it, but I want to make this a little bit more explicit. The shift in capex here to '24, is that just about inflation and supply chain uncertainties here in the near term or are there other factors, especially in the later years, whether that's '22 or '23 that are driving it out?

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

Yeah. Hey. Good morning, Julien. John here.

Yes. I think you have that. Just a little bit of an adjustment for inflation. And then, of course, this time of year, we bring in our new refreshed capex.

And as Robert noted, we've added a bit there with some repower and some additional resources. But I think you've got the headline on that one.

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

Yeah. I -- it's -- you're not alone is what I'll say. But if I can actually ask that a little bit in reverse here. How are you thinking about financing it today? I mean certainly, the conversation or indirect pay from several of your peers has taken note.

How are you thinking about this impacting your financing structure, and/or more importantly, your cash flow outlook?

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

Robert, do you want to take that one?

Robert Durian -- Executive Vice President and Chief Financial Officer

Yeah. Sure, Julien. So yeah, you'll see in the information that we shared in the earnings release with the capex table, we continue to model out a tax equity structure and that will finance roughly 25% to 45% of these solar projects with a tax equity financing partner. But to your point, we are watching the new legislation that's being proposed in the Budget Reconciliation Bill.

And if we do see some type of direct pay, plus production tax credits for solar, we'll reevaluate that financing mechanism. Right now, we've got about $1 billion of financing planned over the next five years with the tax equity structures. So that could be an opportunity for us for future rate base growth if those provisions come to fruition through the new legislation.

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

Got it. But you're not ready to talk about what the, shall we say, nearer-term benefit to your cash flow metrics looks like thus far?

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

I think there's still some moving targets on that, Julien. John here. But I think the net result from what we're seeing, it's very much in line with where we're going with our plan. And as Robert noted, if anything, it appears to have some favorability for both customers and investors.

So I think as we see that play out, we'll certainly talk more about any impacts to our plan.

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

Got it. And the last quick one there. Just on the shift in distribution capex, obviously, stepping up in the later years. Is there any undergrounding in there? I know we've talked about that at various points with respect to ratio follow-up.

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

Yeah, continue to have a lot of focus on advancing underground. What we're working on is making sure we continue to get more and more efficient. So we look at not only advancing the underground but getting efficient with each unit of capital if you will Julien. So that's very much in there.

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

Got it. OK, so you're undergrounding is in there. All right. Excellent.

I will leave it there. Thank you, guys. 

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

Very good. Thanks, Julien. 

Operator

[Operator instructions] We'll now take a follow-up from Julien Dumoulin-Smith with Bank of America.

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

Hey. Sorry, guys. If no one is going to ask this question, I might as well jump in to confirm it. Just on Duane Arnold, is that in -- the solar facility, is that in the updated capex? Sorry.

Not sure if I heard that right in the commentary. And then on the reconciliation bill, just clarifying this, you're not really concerned about minimum cash tax considerations here either, right?

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

Yeah. Affirmative on both, Julien. The solar in Iowa, we recently announced is in our capex and we don't see the minimum tax as impacting Alliant Energy.

Robert Durian -- Executive Vice President and Chief Financial Officer

Yeah. I might add, Julien. So right now, what we're seeing is the minimum threshold for the book income to qualify for the 15% minimum tax would be $1 billion. And right now, we're probably in that $600 million to -- growing to $700 million over the next few years.

So we think we'll be exempt from that assuming that the provision comes out with the same minimum threshold of $1 billion.

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

Got it. All right. Thanks, guys. I'll get back in queue.

Robert Durian -- Executive Vice President and Chief Financial Officer

You bet.

Operator

[Operator instructions] We'll now take a question from Andrew Levi with HITE Hedge.

Andrew Levi -- HITE Hedge Asset Management -- Analyst

Hww fast you guys. So I want to ask a question. How are you guys doing? 

Robert Durian -- Executive Vice President and Chief Financial Officer

Doing well, Andrew.

Andrew Levi -- HITE Hedge Asset Management -- Analyst

Yeah, OK. That's good. Hold on. I'm just moving a little bit.

So I'd like the answer to Julien's question, especially on the financing take. You guys, obviously, are taking a look at that really depending on what's going on. Some other companies do not. As far as looking forward, because you always kind of -- your capex plans are somewhat front-end loaded and then you kind of fill in.

As you look at the second part of the decade, you get out to '25 and beyond, what's kind of not included yet that you envisioned to, whether it's in '24 or '25 and more importantly, '26, '27 to be kind of added or to be  capex spend going forward?

Robert Durian -- Executive Vice President and Chief Financial Officer

Yeah, Andrew. This is Robert. I guess when we look beyond '25, which we've announced to date, we have provided some guidance through some of our materials that show we're thinking about roughly $7 billion to $9 billion of capex over the following five year plan. And as you think about that, I think it's going to be a continuation of what we're focused on now.

A lot of it is going to be focused on cleaner energy sources. So think of that as more solar, more wind, including repowering opportunities, more storage. So all of those line up well with what our intention is, to translate or transfer our generation fleet to cleaner sources. And we think this new legislation that's being proposed under the Budget Reconciliation Bill, we'd be very supportive of that and help be able to provide some good cost benefits for our customers through that program.

And also, on a continuation of our electric grid spend, so we've obviously talked a lot to you guys about the fact that we feel it's very important to focus on reliability and resiliency in that system. And so we'll see a continuation of undergrounding spend on 25 kV standardization. So that's going to drive a lot of that capex in the latter half. So those are the two primary categories.

We'll have other things that we'll obviously watch. And as John indicated before, we let our capital compete. We're always looking for the best opportunities for our customers. But those seem to be bubbling up to the top right now as far as cleaner sources of energy and the grid.

Andrew Levi -- HITE Hedge Asset Management -- Analyst

OK. That's great. And then just on the transmission side, again, I think a smaller opportunity for you. But then also to kind of look at your customers and all the other money that you're spending and at the same time, saving by what you feel to kind of give and take.

But one area that kind of I think, always been something that you guys are focused on is like lowering the cost of transmission for your customers since I think ITC is a big part of that cost. So could you kind of maybe talk about what efforts, if any, you're trying to do as far as reduce your transmission costs, as far as returns and what you may be hearing from the FERC and what direction they're going as far as adders and also potential reduction of the base ROE and whether you're in support of that or you're just kind of an onlooker?

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

Yeah. Maybe I'll just start off. Yeah, it's certainly important Andrew, from overall cost and we know it's important for transmission that's needed to connect renewables. So we certainly have a forecast for that and certainly would like to see transmission commensurate with the renewable adds.

We do continue to focus on making sure those investments remain affordable for our customers. So you'll see us weighing in on occasion on those. To handicap what's going to come out with the FERC, I guess I'd say it's going to be -- I'm just going to assume that it's going to be reasonable. It's going to continue to be helpful for transmission to get built.

And other than trying to predict numbers, I think we've got a lot of that baked into our forecast and we'll continue to monitor it.

Robert Durian -- Executive Vice President and Chief Financial Officer

Thank you, guys. I'll see you in a couple days.

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

Yeah. You bet, Andrew. Thank you.

Zac Fields -- Lead Investor Relations Analyst

This concludes Alliant Energy's third quarter earnings call. A replay will be available through November 12, 2021 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. Thank you for your continued support of Alliant Energy and feel free to contact me with any follow-up questions.

Operator

[Operator signoff]

Duration: 35 minutes

Call participants:

Zac Fields -- Lead Investor Relations Analyst

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

Robert Durian -- Executive Vice President and Chief Financial Officer

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

Andrew Levi -- HITE Hedge Asset Management -- Analyst

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