Q1 2020 Earnings Call
Good morning, ladies and gentlemen, and welcome to Alliant Energy's conference call for first quarter 2020 results.
This call is being recorded for rebroadcast.
I guess I'm all lines are in listen only mode.
Now, let's turn the call over to your host Susan Gil Investor Relations manager 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.
Joining me on that color, John Larkin, Chairman, President and Chief Executive Officer, and Robert Dream, Executive Vice President and CFO.
Following prepared remarks by Jonathan Robert will have changed you take questions from the investment community.
Issued a news release last night announcing Alliant Energy's first quarter financial results and reaffirmed the consolidated 2020 earnings guidance issued in November 29 cheap.
That's really a supplemental slides will be referenced during today's call are available on the investor page of our website at www dot like energy Dot 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 oh threats, including among others matters discussed in light Energy's press release issued last night.
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We disclaim any obligation to update you as forward looking statements.
In addition, this presentation contains references to non-GAAP financial.
Reconciliations between non-GAAP measures are provided you didn't really and our train Q.
Isn't that will be available on our website at www Dot white energy Dot com.
At this point I'll turn the call over to John.
Thank you you.
Good morning, everyone. Thank you for joining us.
I'll start with a review of several actions we've taken to continue our critical service to our customers and communities during the current pandemic.
I'll draw your attention to slight true.
These are indeed imports it ended times and brings to life the values that guide our every decision.
One of those values is carried for others.
I understand the responsibility that comes with your assumption service we provide.
You wind energy team is taking several steps to continue safe and reliable service to our customers in communities.
You are focused now more than ever to ensure uninterrupted energy delivery.
So those on the front lines can help those you need businesses can operate and provide critical products and services charitable organizations can support those most vulnerable and our customers can focus on their health and wellbeing.
Like many of you we've adjusted the way we work and many of our employees now work from home.
We've made changes to our operations to ensure we can see if we keep the lights on at the gas flowing.
We're following the important guidance from the CDC, maintaining physical distinction and adding additional precautions like where we think coverings and blogs when the situation requires.
And well located in ships for certain functions to limit exposure and business disruption.
Another one of our core values is to do the right thing.
Temporarily suspending disconnections and waving late fees for our customers once the right thing to do.
In addition.
We know we knew that now what's the time for creative way to keep rates low unpredictable for our customers.
Filed a proposal in Wisconsin to keep customer reach steady.
2021.
This filing is a continuation of our ongoing efforts to maintain among the lowest rates in the state.
And then I walk with our continued focused on cost reductions and the new renewable energy writer, we do not anticipate filing electric rate. We view the next couple of years.
In the health crisis first started we reached out to our nonprofit partners to understand the unmet needs in the communities, we're still privileged to serve.
Over the past several weeks made donations to several local charities such as food banks, you American Red Cross in the United way.
We also provided 2 million dollar contribution to the home child care Energy fund to support families, who need assistance and paying their bills and.
To a partnership with I will state University.
We've been providing three deeply could see shields to local medical facilities and healthcare workers.
I think we can all agree the times like these is when that social part, yes cheap matters. The most.
Despite the disruption in many personal impacts. This pandemic is had our employees commitment to our customers and community. That's been remarkable I'm proud to work for a line energy and thankful for all our teams are doing to help our customers, they're living our values and delivering on our purpose to serve customers.
Build strong communities.
Sounds like teams also require accurate real time monitoring and energy use it allows us to make better decisions.
<unk> investments, we made in smart meter technology, it's been a critical part of our planning efforts.
Since the crisis begin we spend time to understand the impacts on our customers' demand for our services.
Robert will address the trends, we're seeing across our residential commercial and industrial customer base.
However, I Wanna mention three important factors to keep in mind as Robert outlines the impacts one we have a diverse customer base and operate in true constructive regulatory jurisdictions.
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We have some repricing in place you know I will business and treat a larger commercial and industrial electric margins include both in energy and demand component.
We've managed to many economic cycles over a 100 year history and drawing upon that experience, we're keeping a strong focus on our operational and financial discipline.
Therefore, I'm reaffirming our 2020 earnings guidance of $2.34.
The $2.48.
We remain committed to our 5% to 7% growth targets in or 60% to 70% dividend payout ratio.
Our first quarter 2020 was a solid start to the year, both financially and operationally.
This was a direct result of the planning and execution of our long term strategy designed to focus on customer costs smart investments in advance and clean energy future.
Despite operating in a time of great uncertainty, we continue to make great progress advancing our transition to a more efficient modern and balanced energy portfolio.
In the first quarter, we achieved another major milestone we placed 400 megawatts of you went into service or I what customers.
These two new wind farms, whispering, Willow, north and Golden planes.
Completed on schedule and below budget, continuing our long track record of meeting or exceeding expectations established when we request construction authority for more regulators.
And we're on track to install an additional 200 megawatts of new win for Iowa, and Wisconsin customers by the end of this year.
This will complete the full 1000 megawatts of renewable investment approved by the I will utility Board and also 150 megawatts Nubile investment approved by the public Service Commission, Wisconsin.
Our experience in planning developing and constructing renewable energy resources puts us in a great position to advance even more renewable energy for our customers you're now entering the regulatory approval phase of our 1000 megawatt solar Buildout in Wisconsin.
We are in advanced discussions with developers and anticipate filing certificate of authority for approximately two thirds of the 1000 megawatts by the end of this quarter.
Our Wisconsin solar investments will be enough to power more than 260000 homes with clean and affordable energy from this summer.
Expansion, Wisconsin renewable resource portfolio was result of a you long voluntary resource planning process, we called the Wisconsin clean energy blueprint.
We started the I will clean energy blueprint process and plan to share proposal or proposed resource plan for Iowa for the ended this year.
These plans balance many important goals, including reliability affordability building stronger communities in the impacts the transitions may have on our talented and dedicated employees.
I'm pleased to report that we're making great strides towards achieving another major milestones in our generation transformation strategy.
Well first Riverside Energy Center, located near Beloit, Wisconsin has met several key testing criteria. We anticipate the 730 megawatt highly efficient natural gas resource to be completed below budget in time to meet the upcoming customer demand.
This resource will bring significant benefits to our customers to lower fuel costs and continued reliability as a complement to the renewable resources in the Midwest.
Well wind energy is committed to providing reliable economical energy and also in a sustainable manner.
I'm very pleased to report that the institute for sustainable infrastructure has awarded our West Riverside Energy Center, its highest certification which is platinum.
The certification recognizes our commitment to construct sustainable projects and reinforces our commitment to environmental stewardship in collaboration with local communities and land owners.
Regulations to our west Riverside team for accomplishing this important and distinguished achievement.
In closing, let me summarize the key messages.
We're continuing to provide safe reliable and affordable energy to our customers.
Advancing our clean energy strategy on schedule on budget.
Ensuring our investment sorry, fishing and customer focused.
Delivering solid returns for our investors and continuing to focus on that C.
And well being of our employees customers and communities.
Thank you for your interest in the wind energy I will now turn the call over Robert.
Thanks, John Good morning, everyone.
It should they be announced first quarter 2020, GAAP earnings of 70 cents per share.
For the 53 cents per share the first quarter of 29 too.
Our utilities had higher earnings year over year, driven by higher electric and gas margins from increasing rate base and timing of income tax.
These increases in earnings were partially offset by lower sales due to warmer winter temperatures in the first quarter higher depreciation expense.
Added additional details on the earnings variants drivers for the first quarter.
On slide three or four.
So I will start to the year accounts for approximately 30% over 2020 earnings targets, while just a real for like 2020 earnings guidance.
2034 cents for shirt.
Oh and 48 cents for sure.
The key drivers or the growth in 2020 bps or related to investments when a core utility business included they'll be pills, whats Riverside generating facility and I feel the wind expansion program.
These investments will it's likely that I'd build individuals approved electric rates for 22 on it.
As John indicated like many of our utility peers, you're expecting lower retail sales and 2020 due to the impacts other pandemic.
As noted on slide five experienced a 4% increase in residential sales in April driven largely by more people working from home.
Our residential customers represent nearly 50% of our retail electric margins every 1% change and annual residential sales equates to approximately two cents a place for sure.
On the commercial and industrial side is still is different.
Let's see United sales decreased by 13% in April and every 1% change that we'll see a nice sales, which were partially too sensitive goes.
Under an assumption that the more significant pandemic related sales declines extends to the end of the second quarter.
And the slow recovery through the end of the year, we are forecasting approximately 5% lower overall retail sales and sure.
Your position to continue our long track record of delivering Oh. This girl targets are mitigating colder Nike Bugs as noted on slide six.
We will accelerate transformation activities or it is discretionary spending to lower cost.
While sitting a large portion of the cold in nature Lindbergh.
In addition, both the public Service Commission It works Council and the I'm utilities Board of issued orders authorizing some regulatory vehicles to defer incremental OCO caused literally called midnight city.
Lastly, during times of low energy prices like though.
There's an opportunity to capture and keep a portion of fuel cost savings through WPS fuel sharing mechanism.
Which is also expected to help offset a portion of the cool edgy impacts and 20 twond.
It's just your modeling our quarterly earnings. This year is an important to note that the projected increase in earnings from 2020 will not be recognized ratably throughout the year.
For example, I feel interim rate increase went into effect April 1st 2019.
But skewing more of the full year, increasing earnings to the first quarter 2012.
Also the timing of when production tax credits of excess deferred income tax obligations are recognized across quarter over quarter fluctuations in earnings.
We expect favorable variances and the timing of tax expense to continue through the first half of the year when reversal of second that from 2020.
Slide seven has been provided to assist you are leveling the effective tax rates for two utilities consolidated group.
We estimate a consolidated effective tax rate of negative 12% for 20 tool.
The primary drivers to the lower tax rates are there additional tax credits for new wind projects being placed in service.
And the return of excess deferred taxes from federal tax reform for customers.
The production tax credits and access to for tax benefits will pull back to customers, resulting in lower electric margins.
That's a decrease in the effective tax rate largely earnings neutral.
Our strategy includes continued focus on providing affordable energy to our customers.
In Wisconsin, we are holding electric and gas base rates flat through 2020, or using federal tax reform benefits and lower fuel costs, well, so the cost of utility investments.
Earlier this month, we propose an extension of the courage, Wisconsin electric and gas rates from 20 to 21.
As summarized on slide eight.
Proposing to use additional fuel cost reductions and tax benefits.
Also the increase revenue requirements and 2021 associated with Rebase additions.
Which includes 150 megawatt wind project.
And the Western Wisconsin gas pipeline expansion.
That's the duration of the impactful over 19, it's unclear.
We are seeking escrow treatment for bad debt and retirement plan expenses.
And the flexibility to adjust regulatory liability in escrow mechanisms. So that's the possible impacts on 2021 sales demand.
Finally, the 2021 late filing because continuation of our current Alteris earlier, 10%.
Our current authorized common equity component and a regulatory capital structure of 52.5% and our current orally sharing mechanism.
Turning to Iowa, we plan to reduce our electric customer bills $35 million of credits what do the federal tax reform benefits and enter laboring funds.
We also expect increased production tax credits and significant fuel cost reductions to pull back to their customers and twice what it.
As a result, it further expansion of wind generation low natural gas prices.
Right well gas customers are also expected to see benefits in 2000, Teus lower energy efficiency charges as a result at 28 team I will legislation.
As we look for the future in Iowa, we've taken further action to reduce cost for electric customers. The addition of new low cost one p. is and the termination of the blade Little PPNR later this year.
Most of this will begin cellular I will electric customers money at 2021.
Moving toward 2020 financing plans, which are shown on slide nine.
During the first quarter, we took steps to improve our and solid liquidity position.
These included two debt offerings.
First of all the refinancing over 300 million dollar term loan for another day business since.
Second the issuance of $350 million or 30 year debentures for Wisconsin utilities.
Well that deals were well received by the market with favorable interest rates, allowing us to lower our overall average cost of debt.
In addition in March we also issued the common equity plans in 2020 from our equity holdings are in its.
Generating proceeds of $222 million.
With these actions we increased our current liquidity to approximately $1.2 billion, including fashion borrowing capacity under our credit facility and ourselves accounts receivable turnover.
Our remaining financing plan for 2020 included Truing up to $300 million a long term debt.
Really.
What's the exit fusion or equity 40 agreements with no further material equity issuance plans for the foreseeable future.
With a large portion like 2020 financing plan already completed.
And only $350 million of debt maturities over the next two years we.
We believe we are well positioned to respond to any potential disruptions and cash flows and there's all from the pandemic.
We may adjust the financing plan market conditions warrant.
As our internal external financing needs every assessed.
Lastly, we've included a regulatory initiatives are built on slide 10.
Good for little bit development, so far this year.
First I feel received approval from the I recently for example that final retail electric grids and the new renewable energy rather in February.
Second the public service Commission of Wisconsin, Ghettos construction authority for the Western Wisconsin type of expansion in March.
Third we filed doesn't appeals 2021 reach stabilization plan for electric and gas customers, which I have outlined earlier.
And finally, well state commissions have approved accounting to for orders related to covert late June incremental cost.
These regulatory initiatives are important components, where overall operational and financial goals for 2020 and 2021.
We appreciate your continued interest in our company I look forward to connecting with any of your virtually over the coming up.
This time, we'll turn the call back over the operator to facilitate the question answer session.
Yeah.
Thank you.
Ladies and gentlemen, if you wish to ask a question about this time, we signaled by pressing star one on your telephone keypad.
He's in short the mute function on your telephone switched off to allow your signals for each hour [laughter].
Again by the Star one last question it would take a brief pause trying to all participants jumped <unk>.
God damn it.
Our first question today comes from Julien Dumoulin Smith of Bank of America.
Hi, Good morning difference out from Morgan, calling in for Julien I think so much for taking my question and congratulations on results.
Good morning, Thanks else.
No problem. So I wanted some check and specifically on Oh I am I know that you mentioned in the prepared remarks, a little bit about some expenses that youre going to.
To be able to balance some of the Covidien tax that I was wondering if you could talk maybe specifically about oh and and Ah.
Hi, how you were factoring that in originally in 2020, and then maybe the year over year expectation now. Thank you so much.
Sure great Okay.
So you know we had a number of items that bringing a 580 megawatts of wind River side. So we had some on n. increases in.
Coming into 2020, and we had some offsets as well so we are expecting it to be relatively flat coming into the year.
Certainly with the Covidien tax we know we have to further reduce the good news here is we've had a lot of work internally on.
Planning for cost reduction so we'll see some acceleration of our plans that we had certainly this isn't the first time, we've had to react for our company during economic downturns Oh. So we'll take a look there are number of levers that we have to reduce costs. So we would see addressing that here this year.
And maybe for a few more details I'll see if Robert wants to add a couple of points.
Yeah like so maybe to give you some sense so other than the year.
As expected as John indicated maybe just a slight decrease a little them, but we're going to benefit from the fact that are pension costs are expected to be lower in 2020.
Largely because of what they will return as we saw a 19.
As John indicated the remainder of the decreases are largely related to elimination that discretionary spending because that is a costs incurred for traveled employee expenses.
So spending at this point in time, there's always some contractors in the water than a person.
And then as John noted for the kids are pretty good of acceleration in some of the planned transformation activities, where they're going through and the reevaluated processes across the organization to gain some efficiencies and automate delivered to us.
Well positioned to be able to execute on those and also do so sales decline.
Thank you and one more question for me I was wondering around the Wisconsin filings. If you could maybe provide a little more commentary on your expectations. If if you expect interveners chair to under.
And the filing actually will largely be okay, with that I'm, especially with no being able to use some of those fuel savings on to balance out the rate base increase I'm I'm definitely interested in hearing about that and then potentially any expectation around timing.
Like the ever can see our final results.
And that's it from thank you for Washington.
Yeah, great in and certainly important or that we maybe start out thinking about we've had a great productive conversations with our regulators and interveners or thinking about getting ready for not only the stabilization filing that also work that we're doing on or clean energy.
Blueprint so a lot of work going in and I would say that we've always had.
A very collaborative and transparent process. So there are a number of levers and.
As we put forward.
Now the right time to think about introducing a couple of these important projects. Our pursuit project, namely is one of those that would be able to put forward as well as our west Riverside and then have a number of these office offsets that could keep customer rates flat. So we've got a lot of productive discussions.
Felt that went well and we appreciate that it as far as tiny Alex I would you know I think we're looking at maybe a lucky third quarter, a tiny obviously, that's a subject to making sure. We have all the information in respond to questions at the regulators have but we feel comfortable with filing.
I think it's the right thing to do for customers.
Thank you very much had a great though.
Our next question comes from Andrew Weisel of Scotiabank.
Hi, good morning, everyone.
Hi, good morning.
First question on the W.P.L. firing.
A little more specific or does it come to the slides and filing about using regulatory mechanisms to rugrats estimated corporate impacts on 2021 cells can you.
Dig a little deeper into that are in terms or how you quantify that I I believe that's not a johnson for where just covert specifically right.
Hey, listen drugs that is correct. So so it's part of our filings requests or the ability to go back into the later date.
And potentially use some of the regulatory liabilities that we've accumulated through cost reductions excluding fuel cost sharing mechanisms in our research mechanisms to be able offsets any potential impact some 2021 sales demand because of cold in Beijing.
Because we don't know that exact impact that next year will likely until we get probably later this year. We just asked for the ability to come back into the later point to address with them.
Okay got it thank you.
The next question I had was I believe you said, you're expecting a 5% overall reduction in sell this year from corporate banking can you break that up a customer class Wallace.
Yeah, I think you could probably a very that the slide that we put out there.
Break down between the increase.
Residential sales and the decrease in the commercial and industrial sales so think of that profiles pretty consistent. So we do expect some increase in the residential side and then due to the offset to the commercial industrial so the residential is probably going to be about 3% to 5% positive in them.
Commercial industrial will likely be around the 10% to 30%.
Well when do the math if it weren't that suggests it would be down 9% for the full year.
Yeah, that's just for the second quarter and then we'll have a slow recovery through the remainder of the year. So but you can look this is a direct that's important for residential yeah.
Hi, Andrew John here, certainly, we'd see a minimal as we noted minimal in Q1, we certainly see Q2 is being.
The major impact right now and then having a gradual but slow.
Trajectory for the balance of the year certainly recognize that's.
Not necessarily give me linear we know there's going to be some ups and downs. So we've done quite a bit scenario planning and think 'cause it as a.
An aggregate of a number of whatever plans put together as Robert noted then.
Comes to around that 5% overall decline.
Okay got it thank you very much.
You're welcome.
Hi, My last question today comes from Michael Sullivan of Wolfe Research.
Hey, good morning, everyone Hope girl.
Yeah, Thanks, Michael it would be worth well.
Thanks, Yeah.
Just on the 2020 guidance I think last quarter you guys indicated that you were tracking to.
Upper end other range and just wanted to confirm whether that's still the case or work are able to indicate where within a range kind of course, or what you're seeing or covert side of things.
Yeah, Great question. Thanks, Michael you one thing to keep in mind, we do have our range in guidance a weather normalized. So this is important to keep that didn't mind, but as we thought about reaffirming it we certainly have a target for being at the midpoint to that guidance.
Weather normalized.
Okay, so weather normal, but not normalizing for.
Okay.
Correct, we would you plan on offsetting the Coca 19 impacts all at the end of the year. When you look at our temperature normalized nonjet, because well be targeting the midpoint of the current guidance range into 41.
Okay.
And I'm just curious there in one of the footnotes on the.
Filing indicated I'm assuming that.
Right.
And exercise their options in west herbicide have they given you that indication or is that just kind of the mechanics. Here you guys are assuming that are interesting any color on.
On extra cash on that front.
Yeah, Michael just based on the timing for this one year stabilization.
Nothing more than that as a base planning assumption.
Okay that was all for me thanks a lot.
Great. Thank you.
With no more questions that concludes our call a replay will be available through May 17, 2020 at eight to all 3111 Q4, you have to Canada or 7194, or five 708 truly zero for international callers should.
Reference conference I'd, well, one seven I for three and 10.9578.
In addition, an archive of the conference call and it script in the prepared remarks made on the call will be available on the Investor section of the company's website later today.
Thank you your continued support of Alliant energy and feel free to contact me with any follow up question.
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