Q3 2019 Earnings Call
Please standby.
Thank you for holding ladies and gentlemen, and welcome to your line Energys third quarter 2019 earnings Conference call.
Time, all lines are in listen only mode.
Today's conference call is being recorded I would now like to turn the call over to your host Susan Gil Investor Relations manager and wind energy.
Good morning.
I like to thank all of you on the call and the webcast for joining US today. We appreciate your participation.
With me here today, or John Larsen, Chairman, President and CEO , and Robert Dorian Senior Vice President and CFO as well as other members of the senior management team.
Following prepared remarks by John and Robert we'll have time to take questions from the investment community.
We issued a news release last night announcing Alliant Energy's third quarter and year to date financial results.
Update our 2019 earnings guidance range and announced the 2020 earnings guidance in common dividend target.
The earnings release also provided our annual capital expenditure plan through 2023.
That's really used as well as supplemental slides that are referenced during todays call are available on the investor page for website at Www Dot line energy Dot com.
Before we begin I need to remind you the remarks, we make on this call inner 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 reconciliation between non-GAAP and GAAP measures are provided in earnings release enter quarterly report on Form 10-Q , which is available on our website at www Dot online energy Dot com.
At this point I'll turn the call over to John .
Thank you Sue good morning, everyone and thank you for joining us.
I look forward to sharing highlights of our strong year to date financial and operational performance along with sharing key elements of our plan to power, what's next for our customers and communities.
Robert will provide more details on our financial results, our financing plans and our capital expenditure plan.
Last night in our earnings release, we increased our earnings guidance for 29 team based on the sales performance experienced so far this year, which has been largely driven by whether.
Our updated guidance reflects a six cents per share increase from the previous midpoint.
We are forecasting another year of 5% to 7% growth our ninth year in a row and a track record we intend to keep up.
For 2020, we expect earnings between $2.34 and $2.48 per share.
Midpoint of this range $2.41.
As a 7% increase from our forecasted 2019 temperature normalized earnings per share of $2.25.
Keeping with our plan to grow dividends commensurate with earnings growth. Our board of directors has approved the 7% increase in our targeted annual common stock dividend to $1.52 cents per share.
Later in this call Robert will share more details about our financial results and guidance targets.
Last night, we also shared our five year investment forecast, which totaled 6.8 billion.
Our investment plan reflects our continued journey to accelerate renewable energy a path we've been on for more than a decade.
Over the last year, we've been developing a clean energy blueprint. The first phase of this blueprint outlined several areas of investment with a focus on putting renewable energy to work for our Wisconsin customers and communities.
Improving economics sustainability goals and delivering on customer expectations are key drivers for our transition to renewable energy.
Last week, we announced a key element of our clean energy blueprint.
Spansion of our Wisconsin solar generation by up to 1000 megawatts by the end of 2023.
We're taking advantage of the continued cost reductions for solar generation, along with the near term opportunity to capture investment tax credits, which makes solar a cost effective renewable energy choice for our customers.
When looking to transform our generation fleet, we thoughtfully balance many factors that include reliability customer rates strengthening strengthening the communities, we serve and our talented employees, who have served our customers with tremendous care and service for decades.
These factors will guide us as we evaluate the path for future retirements of our Wisconsin coal facilities.
More information will be shared over the course of the coming months as we further outline these elements in our Wisconsin clean energy blueprint.
Our capital investment plan also reflects the planned investments in our electric and distribution and gas distribution systems designed to ensure our customers continue to benefit from safe reliable and affordable energy.
We're planning for the future needs of our customers and making investments in our communities to help drive economic development opportunities.
Our plans include developing a strong distribution network that enables additional local energy resources.
And we plan to move more of our electric lines from overhead to underground further strengthening the grid and helping to reduce impacts from severe weather events.
And our plans are mindful of customer cost impacts.
We expect to reduce the number of Substations and add devices that you smart sensors to detect problems and improve our response, resulting in more efficient and safe operations.
Now, let me update you on our progress with some of our current strategic projects.
In Iowa, we continue to see great progress on the significant wind investments, we're making for our I what customers.
Earlier this year, we placed 470 megawatts of wind into service and we're making great progress with the remaining 530 megawatts of new wind.
This will complete our planned 1000 megawatts of new win for our I will customers by the end of 2020 .
We're also nearing completion of our am I meter deployment in Iowa with all meters expected to be installed and operating by the end of this year.
For our Wisconsin customers, we're making progress constructing the 150 megawatt to suit wind farm.
We expect to place this project in service by the end of 2020.
And we're nearing completion of our West Riverside Energy Center, a 730 megawatt highly efficient natural gas facility that will be an important complement to our renewable generation resources.
We expect to continue our long track record of delivering projects on time and on budget.
The third quarter also saw strong operating performance from our existing gas generation with year to date capacity factors exceeding 70%.
No natural gas prices and strong wind resources resulted in lower fuel costs for our customers.
The financial and operational results, we're communicating today would not be possible without the dedication of our employees and the strong community partnerships we have developed.
We are delivering on our purpose to serve customers and build strong communities.
Recently, the new Commerce Park, and Beaver Damn, Wisconsin.
With certified by the state for economic development.
Later this month, the Ames, Iowa Economic Development Commission will recognize Alliant energy at the economic impact awards for our commitment to the Prairie view Industrial Center and also the Alliant energy digital manufacturing lab.
Both located near I will state University.
These achievements would not have been possible without the countless employees and community officials, who contributed their time energy and talents.
I'm excited about our accomplishments and look forward to achieving our goals for 2020, I'll summarize the key areas of focus.
Continuing our solid track record of project execution completing projects on time on budget and in very sustainable and safe manner.
Advancing affordable and clean energy through smart investments in renewables high efficiency natural gas and distribution networks.
Consistently delivering on 5% to 7% earnings growth guidance, and 60% to 70% common dividend payout target.
And we will continue to manage the company to strike a balance between capital investment operational and financial discipline and cost impact to customers.
With veterans day, only a few days away I'd like to take a moment and pay tribute to all veterans and the many proud veterans that work here at Alliant energy.
I also want to extend my thanks, and appreciation to all the military families for everything they do while their loved ones are away from home.
Thank you for your interest in Alliant energy I.
Ill now turn the call over to Robert.
Thanks, John Good morning, everyone.
Yesterday, we announced third quarter earnings of 94 cents per share compared to non-GAAP earnings of 85 cents per share in the third quarter of financing.
Hi earnings year over year were driven by higher revenue requirements due to increasing rate base and the timing of income tax expense.
These higher earnings were partially offset by higher depreciation and financing expenses.
We provided additional detailed on the earnings variance drivers for the quarter on slide two and three.
Through the first nine months of this year temperatures in our service territory of increased retail electric and gas margins by approximately five cents versus there.
In 2018, the year to date temperature impact net of reserves for W. feels earnings sharing mechanism and additional performance fee expense were also a five cents per share increase in earnings.
As John mentioned last night, we issued our consolidated 2020 earnings guidance range of $2.34 to $2.48 per share.
The key drivers on the 7% growth in NPS related to investments in our core utility business, including W. feels west Riverside generating facility and I filled women expansion program.
These investments will reflect an individual's approved electric rates for 2000, Tony and I feels retail electric rate review settlements, which is subject to the iwear utility boards final decision.
Our guidance assumes I'd bills, New 2020 electric base rates will go into effect in the first quarter of next year.
The 2020 guidance range assumes a 100% growth in electric sales when compared to temperature normalized sales for 2019.
We are forecasting most of this sales growth from commercial and industrial customers.
The details of our capital expenditure plan are shown on slide four.
For your convenience, we provided a walk from the previous capital plan to our current capital plan on slide five.
You will see on the capital plan walk we've increased our forecasted investments in renewables and decreased electric and gas distribution investments when comparing last year's plan to Theres plan.
This is consistent with our objective to make the best investment decisions on behalf of our customers with a constant focus on customer affordability.
Slide six has been provided to assist you in modeling the effective tax rates for two utilities and our consolidated group.
We estimate a consolidated effective tax rate of positive, 10% for 2019 and negative 11% for 2020.
The additional production tax credits from the new wind projects being placed in service and the excess deferred taxes being returned to customers. In 2020 are the primary drivers for the decrease in the effective tax rate.
The production tax credits at excess deferred tax benefits will flow back to customers resulted in lower electric margins next year.
Both the decreases in the effective tax rate related to ptcs and excess deferred tax benefits are largely earnings neutral.
We remain very focused on controlling costs for our customers. We continue delivering the benefits for federal tax reform and lower fuel costs to our customers in both Wisconsin and Iowa.
In Wisconsin, we will hold electric and gas base rates flat through 2020, or using fuel savings and excess deferred taxes for federal tax reform to offset the cost of utility investments, including the highly efficient whispers that energy center, which we placed in service in the coming month.
In Iowa will be flowing back tax benefits to customers as part of the 2020 test your retail electric rate review settlements.
And as we bring 530 megawatts of new wind projects into service next year for I would customers.
We expect production tax credits and lower fuel expenses to largely offset the impact of increases and renewables rate base.
In addition, we've added new when people is and amended the Duane Arnold.
Which will begin saving our Iowa customers money in 2021.
Moving to our financing plans, which have been summarized on slide seven.
We have completed our 2019 long term debt financings with the issuance of 300 million dollar Green bond at IPO in September to finance wind generation projects in Iowa.
We plan to issue the remaining approximately $200 million of new common equity under the 2019 equity forward agreements by year end.
As we look to next year. Our 2020 financing plan includes is going up to $250 million, new common equity and up to $950 million of new long term debt across our two utilities and align energy finance.
$650 million of long term debt will be maturing next year.
So majority of the proceeds from the 2020 financing plan will be used to refinance existing debt.
The 2020 financing plan is driven by the robust capital expenditure plans for the utilities.
The September 2020, DDAC prepaid termination payment.
Regulatory decisions on delivering tax reform benefits to our customers.
And the settled IPO rate review, which would increase I feel is allowed common equity component of its capital structure by 200 basis points.
Lastly, we have included our regulatory initiatives as noted on slide eight.
Since last quarter, we filed settlement agreements in both the I feel retail electric and gas test year 2020 rave reviews.
We expect the Iwear utility boards decision on these settlements by yearend.
We also filed a construction authority request with the public service Commission of Wisconsin to expand natural gas capacity by 20% in Western Wisconsin.
We expect a decision on that filing by the second quarter of 2020.
Next year in Wisconsin, we anticipate filing a certificate of public convenience and necessity for additional solar generation.
And a retail electric and gas rate review for test years, 2021 and 2022.
These regulatory initiatives are important components of our operational and financial results.
We very much appreciate your continued support of our company and look forward to meeting with many of you at the I Finance Conference next week.
Later today, we expect to post on our website at the Investor presentation and on November 29 to infect.
Which detailed a separate ipill NW feel a bit of capital expenditures through 2023.
As well as provide updated rate base and construction work in progress forecasts.
At this time I'll turn the call back over to the operator to facilitate the question and answer session.
Thank you Mr., Jerry and at this time the company will open the call to questions for members of the investment community.
Why Energys management will take as many questions as they can within the one hour timeframe for this morning's call. If you would like to signal with questions. Please press star one you touched on telephone if you're joining US today, you say speakerphone. Please make sure you function is turned off to like your signal to reach our equipment again that star one.
If you would like to singles questions.
Our first question come from Julien Dumoulin Smith with Bank of America.
Hi, good afternoon.
Alex Morgan dialing in for Julien Thanks, much for taking my question.
Good morning, good morning.
Good morning.
I was hoping you might be able to give us a little bit more commentary around your dividend growth rate first since your EPS growth rate.
And more or less kind of.
Discuss your your different trajectory Sir.
Fiscal as a as John indicated in his prepared remarks, we generally have grown dividends in line with our earnings growth in that 5% to 7%, which is seeing that consistently over the last couple of years, including or projections for 2020.
So no real differences between that we currently have are a.
Dividend payout ratio.
On the bottom half of our 60% to 70% targeted range, but were generally comfortable with that as a as we're going through more of a heavy capex cycle right now.
Okay. Thank you so much and then my second and final question is Jeff.
If you have any more information about the equity issuance that we should be seeing and 2020 whether that.
Be.
Actually a block issuance, how we should be thinking about the ATM going forward and then beyond 2020, what we should more or less the thinking about when it comes to equity fit for the company.
Yes, so as we announced a less night in this morning, we're planning on issuing up to $250 million of new common equity for 2020 and.
To answer your question beyond 2020, right now we do not expect any material equity issuances, we do have a sound a direct plan where individual shares are allowed to reinvest our dividends, which generates roughly about $25 million a year and proceeds and we expect that to continue on beyond 2020, but that's the only equity we see in the fourth.
Well future.
Regarding the remaining $225 million for 2020, we have had success in the past issuing equity under ATM programs. When we've had smaller needs for equity in last year as many as you're aware, we did issue an equity forward.
For a larger equity issuance of $375 million.
This amounts to 25 really gives us a lot of flexibility to use either one of those types of programs in the future.
I'd also indicate that the timing of this will largely be dependent on our financing needs and the market conditions. So a lot of flexibility there.
So we have not yet determined what method to use but see like I said a lot of flexibility in our opportunities going forward.
Okay. Thank you so much that that's all from me have a great. Okay.
Thanks, Alan Thank you.
Our next question comes from sharper resonate with Guggenheim partners.
Hey, guys I forgot it actually chance for sure.
Yes.
Good morning or James.
I just want to ask on the new Wisconsin Solar could you remind us what the recovery room for that would look like is it a rider as its base rate cases.
Yeah. This is John we would see that is being as Robert noted in his remarks, we would be looking to file the first.
Regulatory filing for that in the first part of 2020 that would be CPCN, so that would be through the normal regulatory process and.
Rate review event.
Okay I got it.
And then just the quarter.
One of your peers saw some weaker industrial load.
It looks like you guys were kind of flat, maybe the customer count down a little.
Are you seeing if anything of concern I know you saw.
You have seen I growth in your go forward, but just any we can see soft this quarter.
Yes, as we've we've seen somewhat lower temperature normalized sales.
Relative to last year, I think through the first nine months of the year or temperature normalized size.
Patrick sales were about seven cents a percent lower than last year.
This has largely been in or Iowa jurisdiction with our larger industrial customers due to various operate in a business issues with those individual customers, including experienced some pressure as a result of the agriculture economy challenges because of the trick on going trade issues.
But we're very fortunate we've got a very diversified mix of industrial customers thinking more agricultural based in Iowa, and more manufacturing base in Wisconsin.
So nothing significant would note too that the lower sales that we have seen or from our industrial customers. So the generally lower margins. So it's not been enough to have any material impact on our variance drivers for earnings.
The economies in the two states as a measure of unemployment or remaining strong there well below the national average and we have seen some growth in our.
Customer accounts.
Added about 5000 electric customers relative to this time last year. So all in all no concerns from us, but we're definitely watching some of the ongoing trade issues as it impacts our agricultural based economies in the tuesday's.
Got it thanks guys.
Once again, if you would like to signals questions. Please press star one again a star one.
Our next question comes from Andrew Weisel with Scotia Bank.
Hey, good morning, everyone.
Congrats good morning.
Congrats on the IPO settlement I've got a couple of questions I know it still has to be approved but my first question is I know you had a lot of interveners onboard maybe 15 or so but the parties that didnt participate what were some of the sticking points and do you see that potentially turning into a big deal.
Yeah, Andrew I'll, maybe start out we had.
Many of the Interveners. It did sign on so we're very pleased with that there are a number of parties that intervene just to be part of the process.
So I would.
Robbie characterize it as those that had most of the.
Interest in the rate case were signed on parties to our ultimate settlement, but again there are some parties that.
Our our part of the rate proceeding, which is typical in any rate proceeding in August Robert if theres anything else you want to add onto that no I'd say the ones that did not sign on or just some more learn about the process than for informational purposes, not necessarily to influence the process. Yeah. Thanks for the question.
Okay. So from what you can tell them. There is no sort of debatable debated points, a anything around like rate design, perhaps or are they more fine tuning issues in your mind.
Yes, just to be clear as part of the settlement process, we really aligned around the revenue requirements.
The rate design issues still pending that we had to go through a hearing process with the electric rate review to discuss those issues. So those were not part of the settlement process and what Weve decided by the Iwear utilities Board.
When they make their final decision by the end of this year.
Got it okay that makes sense.
And then similarly, I believe there's a lot of talk about the writer for renewables and you know you've got as you mentioned that thousand megawatts in Iowa by the end of next year.
How can you maybe talk about your latest thinking about whether you might want to file again, a in 21 or 22 are.
All assuming that the writers in the final decision that is.
Yeah, we really see the renewable energy writers as a as a win from a perspective of with that so we think the chances of us having to file again next year or very remote at this point, assuming it gets approved by the retailers board with that writer and the fact that most of the rate based on this as we see in 2020 or with the the when price.
Thanks for putting into service in Iowa, We don't expect a needs in 2020 to file another rig days.
Okay great.
Then one last one on the Capex walk you show the buckets. There I appreciate the reconciling basically the old forecast for the new one it looks like a good amount of spending was pushed from 2019th 2020 was there anything specific you can point to as far as an overall trend or is that just a bunch of individual things that happened to all be moving in that same direction.
Yeah, I think it's more of the latter Andrew what we saw is in 2019, we have had some extreme weather conditions in our service territory and we had a very extreme cold spell in the first quarter of 2019. We've also had I would say wetter than normal weather conditions and that's.
Creating a few challenges for us when it comes to some of the wind farms that we're trying to put into service in 2020, nothing significant we're very confident that we're still going to get these wind projects in on time and at or below budget, but they have pushed out some of those wind projects, maybe a few months and so you see a little bit of that spilling over into 2020, but no concerns markers.
Okay.
All right. Thank you that's very helpful.
In mid scale there are no further questions at this time.
With no more questions. This concludes our call a replay will be available through November 14, 2019 at 82 or 3111 Q for us in Canada, or 7194, or five 708 year old for international callers should reference conference I'd 0.75.
For three and 10 9578.
In addition, an archive of the conference call and his scripted the prepared remarks made on the call will be available on the Investor section of our 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 question.
Well, thank you and that does conclude today's conference. We do thank you for your participation have a wonderful day.