Alliant Energy Corporation (LNT) Q3 2013 Earnings Report, Transcript and Summary

Thank you for holding, ladies and gentlemen, and welcome to the Alliant Energy's Third Quarter 2013 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, Manager of Investor Relations at Alliant Energy.

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 Pat Kampling, Chairman, President and Chief Executive Officer; Tom Hanson, Senior Vice President and CFO; and Robert Durian, Controller and Chief Accounting Officer, as well as other members of the senior management team. Following prepared remarks by Pat and Tom, we'll have time to take questions from the Investment community. We issued a news release this morning announcing Alliant Energy's third quarter 2013 earnings guidance, updating 2013 earnings guidance and providing 2013 through 2017 capital expenditure guidance. We also issued 2014 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 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 this morning 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 non-GAAP financial measures. The reconciliation between the non-GAAP and GAAP measures are provided in the supplemental slides, which are available on our website at www.alliantenergy.com. At this point, I'll turn the call over to Pat.

Good morning, and thank you for joining us today. With Veteran's Day just a few days away, I'd like to take a moment and pay tribute to the approximately 400 proud veterans that work here at Alliant Energy, to those veterans that are on call with us today. We thank you for your service to our country, and for protecting our freedom. This morning, we issued a press release that provided third quarter results, and increased our 2013 earnings guidance. We also provided earnings guidance and our targeted common stock dividend levels for 2014. As finally, we updated our capital expenditure plans through 2017. Tom will provide more details on all the financial updates, but in summary, I am pleased to let you know that for 2013 we’ve been successful at managing our company in accordance with our operating plan. The $0.13 increase in the midpoint of our annual guidance was primarily driven by $0.11 of positive weather impacts through the third quarter. Now looking at next year, the midpoint of our guidance for 2014 is $3.40 per share, 9% higher than a projected weather normalized 2013 guidance of $3.12 per share. This earnings increase comes from increased margins, created by our ability to use expiring fixed capacity payments at both utilities to offset rate impacts from rate-based additions. Our long-term earnings growth objective continues to be 5% to 7% based on 2012 weather normalized earnings and 2014's guidance is slightly above that range at 7.7%. Supplemental Slide 2 provides the comparison to our 2012 weather normalized earnings base year, current midpoint of our 2013 estimated weather normalized earnings, and the 2014 earnings guidance midpoint. We also announced this morning, a targeted 2014 common dividend level of $2.04 per share, which represents an 8.5% increase from our current annual dividend…

Thank you, Pat. Good morning, everyone. We released third quarter earnings this morning, with our GAAP earnings from continuing operations at $1.43 per share. There are no earnings adjustments this quarter. 2013 third quarter earnings are higher than third quarter 2012, primarily due to purchase power capacity costs, related to the Riverside Energy Center, and lower income tax expense. The higher earnings were partially offset by lower quarter-over-quarter earnings attributed to weather, and higher depreciation expense, primarily resulting from the purchase of Riverside. Comparisons between the third quarter of 2013 and 2012 earnings per share are detailed on supplemental Slides 5 and 6. The third quarter 2013 weather resulted in positive earnings from higher electric sales of $0.07 per share. However this is $0.13 lower than third quarter 2012 weather impact of $0.20 per share. Year-to-date, weather has increased earnings of $0.11 in 2013. As a result, we have increased the 2013 consolidated earnings guidance range to $3.15 to $3.30 per share. We have seen modest weather normalized sales growth in 2013. Retail sales trends between 2013 -- 2012 and 2013 are illustrated in supplemental Slide 7. IPL's Tax Benefit Riders resulted in a $0.02 quarter-over-quarter variation in the third quarter 2013, when compared to third quarter 2012. The actual and projected quarterly earnings impact of the 2013 Tax Benefit Riders, as well as the actual quarterly earnings impact of the 2012 Tax Benefit Rider is provided in supplemental Slide 8. The Tax Benefit Riders have a quarterly timing impact, but are not anticipated to impact full year 2013 results. The walk from the 2012 to the 2013 projected effective tax rates for IPL, WPL, and AEC, is provided on supplemental Slide 9. Now, let's review our 2014 guidance. This morning, we issued our consolidated 2014 guidance range of $3.25…

[Operator Instructions] And we will go to Brian Russo with Ladenburg Thalmann. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: If you could just reiterate about what you said earlier on the bonus depreciation, I think it was $250 million deduction to rate base. Where did that fall in the IPL or WPL?

Both, it was the 3 projects at Neal, and some of which would be IPL and Columbia which would be WP&L. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay. So that -- that's reduction to the '13 rate base?

Yes. When they going into service. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: When they are going into service?

Which should be end of '14.

And Brian, the slide that we will be posting here either today or tomorrow will reflect that in terms of the rate base from the schedules you've seen before.

And the $250 million, Brain, is the deduction. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Right. It's a deduction in your rate base, and I guess that kind of offset by the incremental transmission spend?

Sure, Brian. It's the tax deduction. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Oh, tax deduction. Got you.

Sure, just want to be clear. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Tax deduction, not a rate base deduction.

That's correct. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay. Does it have an impact on rate base?

Yes. Of course Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay. And then I think you mentioned earlier that you going to provide the CapEx breakdown by the IPL and WPL also in the EEI presentation?

That's correct, Brian. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay. And the Franklin County, pickup in 2014, you mind sharing kind of like the year-over-year improvement in capacity factors.

Through September, the capacity factor was approximately 25%, and that reflected in improvement in the transmission line that was completed in the second quarter, we're expecting further improvement due to additional transmission lines that will be done in 2014. So we would expect that cap factor is probably going to get certainly closer to 30%, if not slightly above the 30%. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay. And the equity needs that you need in, I think it's '14 or '15 and '16, could that be kind of handled under some sort of driven[ph] program?

Certainly that's an option. Whether it's driven, [ph] whether it's for a 1k needs and what not. So all those options are items that will need to be considering. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay. And then Pat just lastly, you've been spending quite a bit on environmental retrofits, et cetera, and I was just curious as to your thoughts on the EPA's carbon standards on existing fleets that are due in June of '14? I mean under what's proposed now, would your goal plans meet that standard?

Again, what's proposed right now has to do with a lot of the new construction, which again we’re not proposing any new coal construction. What's being discussed that I wouldn’t even say proposed at this point, we'll be working with EEI and rest of industry, on what we think the rules for the existing plans need to be, Brian.

[Operator Instructions] .We will go next to Ela Gratia with Millenium.

It's Steven Gambuzza. I just wanted to follow up on Brian's question on the deductions for deferred taxes at the environmental units. I know there are differences in how you account for deferred taxes in Iowa, and Wisconsin. Can you just repeat -- is this a reduction to rate base? And if so, I know you had previously provided rate base forecast for 2015 in your last investor presentation, should we -- were those forecasts including the impact of these deferred tax benefits or not?

Yes, if you recall back in our January call that we made some reference that because of the of the enactment of Taxpayer Release Act that there would be continuing depreciation, so this is reflecting those projects that were started in 2013 that would be placed in service in 2014. As Pat mentioned in her script, the $250 million is the deduction that will take in the tax return, you multiply that times your tax rates. So it's about a $100 million reduction in rate base. Some of that will be split at IPL and WPL, and as I said, the rate base slides that we will be sharing reflect that reduction because of the incremental bonus depreciation.

So it's not in the old presentation rate base forecast, but it will be on a new one?

It was footnoted in the old, it will be in the bar graphs with the new.

Okay. And then I just wanted to make sure, just clarify the comment on the -- you said you did not earn your allowed ROE in Iowa in 2013, and you would -- the midpoint of your guidance would reflect earning your allowed ROE in 2014? Is that correct?

That's correct.

And it's -- and to the kind of parameters are 10% return on equity and a 48% equity layer? Is that right?

That's reasonable, yes.

Okay. And then just the tax rate, 2014 versus 2013, is it -- is there any change in the -- I think you said 20% in 2014 effective, what was it in 2013?

Yes. If we go to, on Slide 9, the effective tax rate was 12%, and then on slide 12 for 2014, the estimate is 20%.

Okay. And the change in that tax rate, has some of that reflected in some of the regulatory riders you have? Or is that -- how did that...

Yes. Certainly the biggest rider would be at IPL with the Tax Benefit Rider, and also we do have some flow throughs whether that relates to repairs or mixed up service cost that also influence that and given the fact we have flow-through in Iowa. That's what tends to move your IPL effective tax rate around more than you would see certainly in Wisconsin because of the tax treatment here.

We'll go next Andrew Weisel with Macquarie Capital.

I just wanted to ask the 2014 guidance, like you said is a 9% increase, obviously above your 5% to 7% long-term range. Should we think, I know you can’t get specific beyond 2014, but should we think of that 5% to 7% as being sort of a CAGR, I believe you previously said from 12% to 17%, or should we think of years beyond '14 as being in that 5% to 7% range?

Yes. This is Pat. We're still using 2012 weather normalize as our base for that. So if you still use that and use a 5%, that's the range we're talking about long-term.

As a cager, meaning there maybe. Okay. So there may be some lumpiness between here and there, but that's the endpoint, right?

Yes, absolutely.

Okay, great. My next question is just maybe I need a reminder of the rate case process in Iowa, but if you do go ahead with a rate case rather than a settlement, when would the new rates take effect, and how big of an impact is that in your '14 guidance?

We have it. Pretty well factored and what happened in Iowa is if we file a case, we will not be requesting interim rate. We will request final rates -- would be at the end of the year most likely. Again, there's not a set schedule. We would expect it to be the end of the year, and any refund, at all, would be retroactive back to the February date, when the DAEC payment changes from the old agreement to the new payment. And all of that is reflected in our 2014 guidance.

Meaning, retroactive refund is embedded in your guidance or potential?

A Potential. Whatever the options are at the end of the case we have reflected in the guidance.

Okay. I guess, maybe what I am a little confused about when is what would make your earned ROE increase in '14 if the new rates wouldn't take effect until say January of '15?

It has to do with the math, Andy, about the -- capacity payments going away and additional rate base getting added. The earning on additional rate base and having lower capacity payments.

Okay, okay. Maybe I'll follow up them offline. And then just lastly, the equity, was it $250 million over the 2-year period of '15 and '16 or in each of those years?

No, it's in aggregate. So it's for both of those 2 years.

[Operator Instructions] And there are no other questions in the queue at this time.

With no more questions, this concludes our call. A replay will be available through November 14, 2013, at (888) 203-1112 for U.S. and Canada, or (719) 457-0820 for international. Callers should reference conference ID 8244179. In addition, an archive of the conference call and a script to 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.

Thank you. And that does concludes today's conference. Thank you for your participation.