Q4 2019 Earnings Call
Thank you for holding ladies and gentlemen, and welcome to Alliant Energys.
In 2019 earnings conference call.
This time all lines are in listen only mode.
This conference call is being recorded I would now like to turn the call over to your host Susan Gil Investor Relations manager at Alliant energy.
Good morning, I'd like to thank all of you on the call handle websites for joining.
We appreciate your participation.
Nurses, there John Larsen, Chairman, President and CEO, Robert Varian, Executive Vice President and CFO as long as other members of the senior management team.
Prepared remarks by John Roberts, we'll have time to take questions for me investments.
You should have news release last night announcing Alliant energy <unk>.
Fourth quarter results.
Our 2020, earning guidance.
Issued in November 29.
That's really a solid supplemental size it will be reference during today's call are available on the birds are paid for one.
VW data light energy Uh huh.
Before we begin I need to remind you that bremer see make on this call and art answers to your question 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, there's the sustained online synergies press release issued last night.
Right.
Sure.
We disclaim any obligation to update.
Yes.
In addition, this presentation contains references to non-GAAP financial measures.
A reconciliation between non-GAAP and GAAP measures are provided in the earnings release.
We'll be in this presentation.
He will be available on our website www dot money energy Uh huh.
It's point I'll turn the call over to John.
Thank you Susan good morning, everyone and thank you for joining us.
2019 was another excellent year for a company both financially and operationally made possible by the dedicated men and women of a wind energy.
Want to thank our employees for their continued commitment to safety in serving our customers.
And recognize are talented engineers as we celebrate national engineers week.
Our employees worked tirelessly delivering on our purpose to serve customers and build strong communities.
We are delivering a strong return to our shareholders with a total shareholder return up more than 33% in 2019.
In 2019, we raised our annual dividend by eight cents per share, which was the 16th straight year, we increased our dividends or non gap temperature normalized earnings of $2.26 per share grew by 7% over 20 eighteens comparable number.
This was the ninth year in a row, we achieved at least 5% earnings per share growth.
We continue to make great progress as we execute our customer focused strategy I'll highlight a few of our many strategic and operational achievements and Robert will provide more details on our solid financial and regulatory outcomes.
First as it relates to our transition to a cleaner and more efficient generation fleet.
I'll do report, we met our 2020 Sox Nox and Mercury emission reduction goals one year early.
In addition, we're well on our way to achieving our 2030 carbon reduction goal of 40% and.
After the end of 29 team, we've achieved that 35% reduction and C O two from 2005 levels.
Our progress on these goals are highlighted in the posted supplemental materials.
Our strategy and investments are tightly linked to our commitment to the environment as well as the social and governance standards, we have set for ourselves.
We look forward to highlighting our strong E.S.G. performance from the past year and shared the vision for our future goals when we update our corporate sustainability report later this year.
We're continuing our track record of solid execution on renewable investments, putting additional clean energy to work for our customers and communities.
One example of that progress is the recent completion of our 200 megawatt whispering Willow North wind project.
We now have nearly 70% of our planned 1000 megawatts of new when placed into service for I will customers producing clean efficient renewable energy.
We're on track to complete the balance of this plan by the end of this year.
An important compliment to our renewable resources will be the addition of the West Riverside Energy Center.
This highly efficient natural gas facility located in southern Wisconsin is over 98% complete an expected to be in service producing low cost energy for all Wisconsin customers in the coming weeks.
The expansion of renewables any sufficient natural gas generation will benefit our customers for decades.
Our fuel cost in 2019 were lower than 2018 by nearly $80 million through a combination of expanded wind investments solid operational performance and lower commodity prices. Another example of our strategy in action.
And efficient in Brazilian energy grid remains an important focus of our strategy and 2019, we completed our air mine meter installations in Iowa, providing us with the ability for early detection of outages and information that our customers can use to make smart energy choices.
We also plan to use these investments to improve how we operate the energy grid, reducing the number of substation and helping us lower operating costs.
Making investments that help us better serve customers and communities is core to our strategy.
An example that gives the upcoming launch of a new web application and matching mobile application we call my account.
Once fully launched customers will be able to get more detailed information to help them understand and adjust their energy usage.
This refreshed customer portal is another example of how we are investing to enable our customers with more choice convenience and control over their energy use.
Although I like one last year, he before I turn it over to Robert.
Last fall, we announced the results of a yearlong voluntary resource planning process, we called it Wisconsin clean energy blueprint.
This planned balances many important goals, including reliability affordability building stronger communities and the impacts transitions have on our talented and dedicated employees.
The blueprint highlights the opportunity to capture customer benefits by expanding our renewable resource portfolio.
My building up to 1000 megawatts of solar.
In the coming months, we'll be sharing more details of how we will take the next steps in our fleet transition and the changes to our Wisconsin facilities.
I'm excited about our accomplishments in 2019, our team is committed to again deliver on our financial and operational goals for 2020.
I'll summarize the key high gear is of our 2020 focus.
Continuing as an industry leader in advancing renewable energy.
Customer focused investments completed on time and on budget.
Delivering solid returns for investors.
Balancing capital investments and cost impacts to customers and living our values.
Thank you for your interest in wind energy I.
Ill now turn the call over to Robert.
Thanks, John Good morning, everyone.
I'm pleased to report that 29, King death earnings were $2.33 per share compared to $2, a 19 cents per share and 28 theme.
Excluding non-GAAP adjustments and temperature impact.
Earnings were up 7% year over year, driven by higher revenue requirements due to increasing rate base.
Partially offset by higher depreciation in financing expenses.
We provided additional details on the earnings various drivers on slides five and six of our supplemental slides.
The non-GAAP adjustments in 2019 is related to APC equity earnings adjustments.
As a result of the November FERC decision regarding MISO transmission owners return on equity complaints.
The two cents per share of non recurring earnings largely due to a reversal of reserves previously recorded for the second complaint period.
Our temperature normalized retail electric sales declined 1% in 29 team when compared to 22.
Primarily driven by lower sales where industrial customers.
A few of our largest customers in Iowa experienced temporary operational issues of 29.
And economic conditions, resulting from additional tariffs last year impacted certain manufacturing customers production, resulting in a lower industrial demand.
That's industrial sales generate our lowest margins. These sales decline did not have a material impact on our 2018 years old.
Turning to this years earnings died and we are affirming our 2020 earnings guidance of $2.34 per share to.
$2 and 40, a cause for sure.
Based on our current forecast, we're trending toward the upper half of the right.
We're also reaffirming our long term annual earnings growth guidance of 5% to 7%.
We have reduced our long term earnings growth guidance of 29 to non-GAAP temperature normalized EPS up $2 and 26 that's for sure.
Our long term growth guidance is through 2023 and is supported by our capital expenditure Glenn.
Modest sales growth and earning our allowed rates of return.
The key drivers of the 7% growth in 2020 bps related to investments in our core utility business, including W. drills, west Riverside generating facility and I've deals with expansion program.
As investments were reflecting the W. feels approved electric rates for 2020.
And I'd deals retail electric rate review order received last month.
A walk from our 2019 non-GAAP temperature normalized earnings so the midpoint of our 2020 earnings per share guidance is provided on slide seven.
The 2020 guidance range assumes a 1% growth in retail electric sales, which includes the impact of leap year.
We are forecasting most of the sales growth in commercial and industrial customers as they resumed normal operations in 20 Twond.
Our strategy includes continued focus on providing affordable energy to our customers.
In Wisconsin, we are holding electric and gas base rates flat for 2020.
Using federal tax reform benefits and lower fuel cost to offset the cost of utility investments.
These investments include the highly efficient West Riverside Energy Center, which will be in service in the coming on.
In Iowa, we are forecasting average residential electric bills for I look customers will reap also remain relatively bugs and 2020.
As the impact of final base rates implemented early twenties, one it will be offset by $35 million a billing credits, we will ride to Iowa electric customers related to federal tax reform benefits and interim rate refunds from 29 team.
Also more production tax credits and significant fuel cost reductions are expected to flow back to customers. As a result, a further expansion of wind generation in the 20 twond it.
As we look to the future. We've also added new low cost when people do and little bit ending the delaying or LPTA later this year.
Which will begin saving arrival electric customers money in 2021.
But it has been provided to assist you in modeling the effective tax rates for utilities and our consolidated group.
We estimate a consolidated effective tax rate of negative 11% for 2020.
The primary drivers of the lower tax rate or the additional tax credits from new wind projects being placed in service and.
And the return of excess deferred taxes for federal tax reform to our customers.
The production tax credits and excess deferred tax benefits will pull back to customers, resulting in lower electric margins. Thus the decrease in effective tax rate is largely earnings neutral.
Our 2020 financing plan summarized on slide nine remains unchanged from the plan we showed last November.
Including their tune up to $250 million of new common equity.
$225 million of this equity was price through the equity forward agreements executed in November 2018.
We expect to settle those equity for today live over the next 10 months to fund capital expenditures for utilities.
We expect the remaining $25 million to be issued Ratably during 2020 through our share of direct program.
Lastly, we've included our key regulatory initiatives on slide 10.
We have the privilege of serving customers in states that have proven track records of constructive regulation.
In December and January we received decisions regarding the first forward looking test your rate filings in the state of Iowa.
And the electric rate revered decision.
Be approved a new renewable energy rider, which allows us to earn a return of and a return on 1000 megawatts of new wind after has placed in service.
With the approval of the renewable energy writer and continued cost controls.
Our plan is to stay at a rate reviews, and Iowa for at least the next two years.
In Wisconsin, we filed a certificate of authority requests last year to expand natural gas capacity by 20% of lesser has gone.
This request as another tool we are using to support economic development communities we serve.
We expected a surgeon on that filing by the second quarter of 2020.
In the second quarter W. fill also expects to file a retail electric and gas rate review for test years, 2021 and 2022.
He drivers of the rate review will be our increased investments in the distribution grid and liquid foods wind farm expected placed into service later this year.
We will be utilizing excess deferred tax benefits and regulatory liabilities to offset a portion of the revenue requirement for these utility of us.
Lastly, in Wisconsin, we anticipate filing a certificate of authority on the first half of 2020 for a portion of the thousand megawatts of new solar generous we announced last fall.
We continue to make good progress with advancing solar project, including acquiring safe Harbor equipments in 2019.
And securing favorable starts in our service territory to provide additional cost effective clean energy for our customers in Wisconsin.
We very much appreciate your continued support of our company and look forward to meeting with many of you in the coming weeks at upcoming conferences.
As always we will make our investor relations materials used at the conference is available on our website.
At this time I'll turn the call back over the operator to facilitate the question and answer session.
Thank you Mr., Jerry and at this time the company well open the call two questions from members of the investment community.
Energy's management will take as many questions as they can within the one hour timeframe for this morning's call.
I would like if you would like to ask a question to signal by pressing star one on your telephone keypad.
If you are using a speakerphone. Please make sure your mute function is turned off two layers <unk>.
And then start wanted to ask a question.
Just a moment hello, everyone an opportunity to signal.
Well take our first question from Julien Dumoulin Smith with Bank of America.
Hi, Good morning to you can you hear me.
Yeah, we share Ken good morning Julien.
Hey, good morning to guys. Thanks, very much so.
One of the follow up in the same band of many of your comments earlier, just ask you elaborate a little bit first.
We're supposed to Iowa, and solar I'm thinking more specifically on the legislative side, there's been some developments I can I know there was a carry work, though I know there was a perhaps deal in the last day here at least not the local news. The teams can you talk about.
What.
Any of it in Iowa, the lets say perspective, they need also.
Specifically.
No that's not all of it is necessarily focused on alliance utility scale solar in terms of what what's contemplated there and then separately also my second question out there at the same time coming back to Wisconsin.
In your remarks to some developments coming up ahead I'm in the next month.
Wasn't quite sure if that changes directly to the solar farming, you're making or with respect to the voluntary fire you need earlier you is there something else in parallel we should be anticipating here. So I can I just more of a clarification from the earlier cop prepared remarks.
Yeah, Hey, Julien.
Thanks for the questions I'll I'll touch on the first couple and I might turn it over to Robert as well as as it relates to Iowa and the.
The build relating to solar it's very early in the process. So as you can imagine a this can change a bit we are.
Evaluating that in certainly talking with stakeholders in mid American So I would hesitate to go beyond identifying the direct impacts on that right now it's something we're keeping a close eye on and in Wisconsin. We do have our rate filing that we'll have a in the second quarter and then we're putting together.
For the application for our first tranche of the solar investment those would be too that we talked about and I'll I'll.
Ask Robert here to add anything else today.
Yes, so as a reminder, last November we announced plans to build up to 1000 megawatts of new followed by 2023 I think of this filing ever going to make here in the next couple of months as the first tranche and that's a little.
Maybe pick up roughly half of that will come out with a filing in the early April timeframe.
Many more details regarding the the nature of the transaction.
So all the details I'd have to go along with Pepsi.
Got it excellent. Thank you and then perhaps.
Can I ask a follow up on that the saw a phone coming up here to Q1 of those lines or anything different that we should expect in this filing reverses out of.
Tiers and to say you also pursue the similar early Oh, let's call. It a pilot a hard on the so well just just trying to think about different but potentially a different set of issues or is it pretty comparable.
Hey, Mike So maybe the on the one area, where maybe different from what you've seen unlisted historically as we are contemplating doing some type of tax equity structure, that's different from what some of the for this filings. This data then we're still in the early stages of.
Kind of determining exactly that that's going to look like but its but when you see the filing come out of that early April time frame a little do some type of partnership on the third party to help those.
Really trying to monetize book tax benefits, but good for a customer. So we see this is a great opportunity to lower their cost for customers.
Subject.
Hi, excellent. Thank you guys and most of the time okay.
Yep. Thank you.
Your next question comes from Andrew Weisel with Scotiabank.
Hey, good morning, everybody.
Good morning, Andrew.
First question I mean missions for I think you made very impressive progress to date and I'm glad you emphasizing that a bit more on this slide deck, thanks for that too.
John I think you mentioned you will update corporate sustainability go later this year do you have any sense of what that means for a longer term carbon reduction goal. A you know you got your 2030 target what might it take to get hearing bigger reduction saving for carbon dioxide by 2040 or 50 would it be coal plant retirements more renewable.
Energy efficiency I imagine it to all of that but where do you see the biggest opportunities.
Yeah. Thanks, Andrew we we are excited.
By being able to continue to update our sustainability report in a number of environmental.
Improvements that we've made we do have a current 80% reduction.
Goal that we have.
In there in addition to our 2030 equal so what we'd be looking at is as we update our resource planning efforts and we take a look at some of our continued suite transition will review that and make further adjustments in our.
Sustainability report in addition to that so many areas for example, water reduction with our West Riverside plant. Our addition of wind and solar.
In some of the retirements, we've already had we've made significant progress in reducing the amount of water usage. Then obviously, we've done some work with habitat, meaning a pollinate or plantings in conjunction with solar installation. So very excited about the story and I appreciate you asking.
About that.
Okay, great. Thank you that for that.
Next question in Wisconsin, you'll be filing rate cases in coming months for W.P.L. <unk> been holding rates flat you mentioned some offsets, but you know how do you think about the potential to either keep rates flat for two more years or have a minimally creates a and possibly related how do you think about the potential for yet another settlement.
And similarly are there any atypical issues that might come up in the filing.
Yeah. Andrew This is Robert from the I think when we look forward to the 2021 2022 forward looking tests periods.
We do believe that there would be a modest increase to our customers, but given the ability for us to use excess deferred taxes and various other regulatory liabilities that we've accumulated over the past few years.
We'll see a pretty significant mitigation within the increase so.
I would think of those in the kind of single digits, maybe low single digit percentage increases on annual basis.
Nothing very significant and so we'll continue their strong track record of.
Maintaining Roe pretty low are relatively low rates for customers in Wisconsin.
There are any part of the effect.
Yes, Bergen settlement process, we do a have a long history of constructive settlements and outcomes on them. We would continue to to look forward to working with all stakeholders to trying to reach a settlement with that after we like the initial filing sometime in that second or third quarter of this year.
Sounds good maybe just to clarify thinking what you said you you're planning to stay out for at least the next two years just to really be explicit does that mean that you file in 21 for rate 22, or filing 22 for rates and 23.
This was a reminder, the a renewable energy rather there was approved with allow us to rate case, we have a mechanism, though to be able to get all of the revisit their sales from the new wind generation that were put into this or is it 2020.
In that varied or which will become effective or get renewed I guess on January onest 2021.
So with that mechanism, we actually think there we're going to stay at a rate cases for lack of a couple of years out so at least probably into the 23 time frame.
Depending on how well we can control costs.
Fantastic. Thank you very much.
Okay next question from Michael Sullivan with Wolfe Research.
[noise] pay a wrong good morning.
Good morning, good morning.
Hey, I just wanted to clarify and make sure I heard rate I think you guys had said you were trending within the the upper half of the range for for 22 2020 guidance already.
Was that right in and what's what's driving that itself.
Yeah, because you're likely that you were correct that we are turned into the upper half of the range. We really have had some beneficial developments you are probably the last couple of months I'm boost of favorable pension costs, we have a pretty strong year. When it comes to the returns of our pension assets, which translate into lower.
Entering class in 2020.
We also are starting out the are very well when it comes to a fuel cost perspective, and as a reminder, in Wisconsin. We've got a feels very mechanism, where both the shares and the customers benefit from lower fuel cost and given how low natural gas prices are and how well our natural gas facilities are running we're able to generate sensitivities are both for our shareholders as well as our customers.
And then we're also benefiting from lower interest expense and given interest rate environments are currently there. So what were the primary drivers that sort of we've started up here very well.
Okay, great. Thanks, and and then my other one was just Ah I think you may have alluded to this a little bit but just wanted to clarify.
As far as the future of your coal fleet I think again.
In Iowa, you're saying sort of.
By the end of this year, you come up with a new plan, but in Wisconsin is that going to happen in conjunction with with the solar filing were you lay that out or what's the avenue where that gets.
Disclose or.
Discussed.
Yeah. Thanks, Michael This is John we it and when we file as is Robert had noted in the.
Second quarter is what we're expecting for the solar we will be in forming a bit more about our plan Sparta, Wisconsin coal facilities at that time and you're right. We are.
Going through that process in Iowa, which would be thing to that more towards the end of the year.
Great. Thanks, guys.
Thank you.
Your next question from Ashar Khan with very shift.
My questions were answered by a role so thank you.
Like sharp.
[noise] mid scale there no further questions at this time.
My question. This concludes our crop a replay will be available through February 20, 2020 at 82 or 3111 too for USA, Canada, or 7194 or 570, it's easier for international callers should reference conference I'd 0.17, Buyside for three.
And then nine by 70.
In addition, an archive of the conference calls and unscripted their prepared remarks made on the call will be available on the Investor section of the company's website later today.
Thank you for your continued support of line energy and feel free to time.
Hello.
That does conclude todays conference. We thank you for your participation you may now disconnect.
[noise] App.
[noise] Oh.
[noise] Oh.
[noise].
[noise] Oh.
[noise].
Oh.
And.
[noise].
[noise] Oh.
[music].