Alliant Energy Q4 2023 Earnings Call Transcript

Presentation

[Operator]

Thank you for holding and welcome to Alliant Energy's Year End 2023 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, Investor Relations Manager at Alliant Energy. Please go ahead.

[Susan Gille, Investor Relations Manager 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 John Larsen, Executive Chairman; Lisa Barton, President and CEO; and Robert Durian, Executive Vice President and CFO. Following prepare remarks by John, Lisa and Robert, we will have time to take questions from the investment community. We issued a news release last night announcing Alliant Energy's fourth quarter and year end financial results. This release as well as an earnings presentation will be referenced during today's call and are available on the investor page of our website at alliannergy.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 news 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. References to adjusted earnings exclude non-GAAP adjustments as well as net temperature impacts. The reconciliation between non-GAAP and GAAP measures are provided in the earnings release, which is available on our website.

At this point, I'll turn the call over to John.

[John O. Larsen, Executive Chairman, Chairman of the Board at Alliant Energy]

Thank you, Susan. Hello, everyone, and thank you for joining us. 2023 was another successful year. Our adjusted earnings of $2.88 which excludes temperature impacts and non-GAAP adjustments continued to deliver on our 5% to 7% long term growth expectations. We take exceptional pride in delivering on our purpose to serve customers and build stronger communities and consistently achieving our earnings growth objectives. As we look back at 2023, I'm proud we can say once again we achieved EPS growth of at least 5%, our 14th straight year of delivering on that objective. We increased our dividend with 2023 marking the 20th straight year of dividend increases. We successfully executed on one of the largest capital expenditure programs in our history and as of the end of 2023, nearly 30% of our electric distribution system is underground improving reliability and reducing operating expenses.

I will now highlight a few of our many 2023 accomplishments and then turn it over to Lisa and Robert to provide details on our 2023 regulatory, operating and financial results. Throughout 2023, our team demonstrated their dedication and resilience as we faced a dynamic economic environment and weather related challenges while also successfully advancing our customer focused investments. We made notable progress on our generation investments. An example is the progress we made in Wisconsin on our utilities scale solar projects. As of today, over 90% of our solar investments are complete and in operation and we expect to be 100% complete later this spring. These strategic investments enhance customer value by providing access to zero cost fuel resources and diversify our energy mix, also supports our local economies through new jobs and tax revenues.

In addition, our wind and solar investments generate renewable tax credits that provide even more benefits to our customers. In 2023, we executed agreements to transfer those credits improving our cash flow and providing us greater flexibility in our financing plans. Our technology investments and undergrounding efforts place Alliant Energy among the top performers for electric reliability when compared to pure U.S. utilities. Through these investments, we are better positioned to provide our customers with the high level of reliability they expect.

Reflecting on the past year and with my tenure as CEO concluding as of year end 2023, I wish to express my profound pride in all our employees who consistently embody our purpose and values. Each and every day, our employees bring our purpose driven strategy to life serving our customers and helping to build stronger communities. I am proud to acknowledge the outstanding contributions of our engineers whose work to innovate and advance our industry will be celebrated next week during National Engineers Week. I'd like to thank our customer service team for consistently going above and beyond as they assist our customers and a sincere thank you to our dedicated crews and support staff for their unwavering commitment to excellence and for being the driving force behind our operating success.

In closing, I'd like to extend one more congratulations to Lisa. Her thoughtful leadership, care for the customer and industry knowledge will guide Alliant Energy into the next phase of its journey. I look forward to collaborating with her and the team for continued success in 2024.

Now I'll hand the call over to Lisa.

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

Thank you, John. I am honored for the opportunity to build on your legacy of growth and exceptional service to the communities we are so privileged to serve. As I reflect on 2023, I am appreciative of our employees for their ongoing determination and commitment to serving our customers and strengthening our communities. I'll begin by building on John's comments about our notable progress on our generation transformation in Wisconsin where we recently brought eight solar projects online, a huge milestone. We are currently leveraging the sun in Wisconsin to fuel nearly 900 megawatts for customers. This will increase to nearly 1.1 gigawatts this spring when our final Wisconsin solar project becomes operational coupled with our plans to bring 400 solar online in Iowa this year. By year end nearly 1,500 of additional megawatts of the energy our customers use will be from clean, zero fuel cost energy resource.

In addition to our utility scale solar investments, we continue to partner with local businesses and communities interested in hosting solar projects. Our customer hosted projects help local businesses achieve their clean energy goals while community solar projects provide all customers with affordable options to participate in the solar revolution. In Cedar Rapids, our community solar garden, is fully operational and will soon be generating bill credits for all solar block purchasers. Our Janesville Solar Garden in Wisconsin now has an anchor tenant, JP Cullen, and construction is set to begin this spring. We have additional customer hosted projects underway and expect they'll be operational before summer.

We made great progress in our clean energy transformation in 2023. We retired the last coal unit at Lansing, which had dutifully served our customers and communities for nearly 50 years. The retirement reduces O&M costs and advances us towards a cleaner, more efficient and cost effective energy mix. At the same time, we continue to see the frequency and duration of outages in our service footprint steadily decline, a 20 year trend that we expect will continue as we continue focusing on improving reliability and system resilience to meet the expectations of the customers we serve. We began the process to repower the Franklin County Wind project in Iowa to increase the efficiency of our fleet. This investment will provide our customers with many more years of production tax credits.

On the environmental front, we completed closure work at 29 surface impoundments across 10 sites eliminating all Alliant Energy ash ponds in Iowa and Wisconsin. With these 2023 accomplishments, coupled with our planned investments in dispatchable gas generation, battery storage and wind repowering, we are well on our way of enabling a successful and responsible clean energy transition while assuring we are addressing our system resiliency needs. Looking forward, we continue to plan for the future by evolving and refining our clean energy blueprint taking into account dynamic economic developments, evolving energy technologies and the emerging needs of the communities we serve.

It is a necessary step as we look to balance our energy mix, create greater grid reliability, ensure customer affordability and address Myso's resource adequacy needs. 2023 was a record year for us for economic development activities with more than 130 megawatts of announced new load across our footprint, primarily in the manufacturing sector. With a capital investment of approximately $3.8 billion, these projects are expected to create more than 4,000 new local jobs. Going forward, we will continue to pursue opportunities for new customer growth at our industrial parks as we strive to build and support stronger communities.

Our strong customer and community focus were contributing factors in recently being named a top utility by Business Facilities Magazine for the fourth year in a row. Alliant Energy received a number of recognitions this past year, a few of them including ones that focus on our employees' dedication to creating a welcoming and inclusive workplace are highlighted on Slide 5. Earlier this week, we announced the retirement of Terry Koba, President of ITL. In early March, Terry will be celebrating his 43rd year with the company and has been a thoughtful, respected and customer focused leader of our Iowa operations. We are grateful for his service and dedication to Alliant Energy, our customers, communities and employees.

As we celebrate Terry's well deserved retirement, we are advancing our succession plan by appointing May Farlinger to the position of President of IPL effective May 1. May has spent her career at Alliant Energy serving in several leadership roles. We are confident in her ability to lead our dedicated team of professionals in Iowa. As we move forward in 2024, I have every confidence we will continue to take the required actions to meet our customer needs and deliver on investor expectations. We are well positioned to quickly adapt to a dynamic environment as we execute our strategy for generating clean, reliable and affordable energy.

At this time, I'll turn the call over to Robert.

[Robert J. Durian, Executive Vice President and Chief Financial Officer at Alliant Energy]

Thanks, Lisa. Good morning, everyone. Yesterday, we announced 2023 adjusted earnings of $2.88 per share compared to adjusted earnings of $2.73 per share in 2022. This represents a 5.5% increase in earnings consistent with our long term earnings growth target of 5% to 7%. Adjusted earnings exclude the impacts of both nonrecurring adjustments and temperatures. As a reminder, we do not manage our business to offset the temporary positive or negative impacts of temperatures on sales. We manage the business to deliver long term consistency and enable operational efficiency. The adjusted earnings year-over-year increase was primarily due to higher revenue requirements and AFUDC from capital investments, including the progress us by our teams on our solar projects in Wisconsin and Iowa and lower operating and maintenance expenses at IPL and WPL resulting from our employees' focus on cost controls. These positive drivers were partially offset by higher financing and depreciation expenses associated with our customer focused capital expenditure programs.

The 2023 results we are sharing today are result of our consistent efforts to manage through and mitigate ongoing inflationary pressures. We're extremely proud that our 2023 O&M expenses were approximately $30 million less than 2022 allowing us to help offset the negative impacts on earnings from rising, financing and depreciation expenses. Year-over-year sales changes in 2023 were largely impacted by temperature changes. Net temperature impacts decreased Alliant Energy's earnings by approximately $0.06 per share in 2023. In comparison, net temperatures increased Alliant Energy earnings in 2022 by $0.07 per share.

Temperature normalized electric sales to our retail customers were relatively flat in 2023 when compared to 2022. We experienced growth in the number of residential customers as well as higher sales from plant expansions in Wisconsin. However, these positive drivers were offset by lower electric sales to industrial customers in Iowa due to plant closures and maintenance outages.

Turning to cash flows 2023. Cash flows from operations increased by almost $400 million when compared to 2022. This substantial increase was primarily due to the timing of WPL's fuel related cost recoveries and monetization of approximately $100 million of tax credits in December. This increase resulted in a material increase in our key cash flow metrics in 2023. I'm also pleased to report that our investing cash flows in 2023 aligned with our projected capital expenditures set at the beginning of the year due to the successful execution of our key construction projects.

Turning to 2024. We are positioned for another year of consistent 5% to 7% growth in adjusted earnings per share. We are affirming our 2024 earnings guidance range of share of $2.99 to $3.13 per share. Our efforts to support customer value by making smart investments in our future and controlling operating costs while receiving constructive regulatory outcomes support our ability to consistently deliver solid financial results. Our financing plans for 2024 include $1.7 billion of new debt largely to finance our investments in renewable and battery projects and support refinancing $800 million in debt maturities this year.

We also expect to raise approximately $25 million in new common equity under drip plan and receive approximately $120 million from the sales of partial interests in West Riverside. In addition, we expect to generate and transfer more than $200 million of renewable tax credits in 2024 to reduce financing needs. With the implementation of our new solar projects and the repowering of our older vintage wind facilities, we anticipate the increased production tax credits and reduced fuel costs will help offset the impact of additional renewable rate base, rendering these new investments cost effective solutions for our customers. This will result in long term benefits for our customers and long term value for our shareowners.

Our customers experienced the benefits of a diverse generation portfolio in 2023 as the average retail electric rates declined for our Iowa customers due to lower fuel costs and in Wisconsin, we ended the year in an over collected position for fuel costs when compared to the 2023 monitoring level. As a result, we plan to refund $34 million back to our Wisconsin retail electric customers in the future. We are also continuing to be well positioned to capture additional benefits for our customers from the Inflation Reduction act and other government programs. These additional benefits include applying for lower cost federal funding and infrastructure grants, including a grant from the DOE for long duration energy storage in Wisconsin.

We are also maximizing tax benefits by meeting tax credit adder requirements and continuing the monetization of tax credits, which materially improves our cash flow and credit metrics as well as reduces our future financing needs. Finally, I will highlight our regulatory initiatives in progress as well as those regulatory filings we plan to initiate in 2024. We filed rate reviews in both states in 2023 and received a written order in December for the Wisconsin rate review with new rates effective January 1 of this year. And in Iowa, our electric and gas rate review is proceeding as expected with the decision anticipated in the third quarter of this year.

The IUB recently finalized the procedural schedule. It is included on slides 11. We have two additional pending proceedings in Wisconsin. First, we requested authority to increase the efficiency, capacity and reliability of our Neenah and Sheboygan Falls gas generating units. And second, we filed a joint application to sell an additional 125 megawatts of the West Riverside facility to WEC Energy and Madison Gas and Electric. We are anticipating decisions from the PSCW on both of these applications by the end of the second quarter.

Turning to our planned regulatory filings in 2024. We expect to make regulatory filings in both Iowa and Wisconsin for additional renewables and dispatchable resources following our routine continuous modeling updates of our clean energy blueprint. We expect these projects will enhance reliability, further diversify our energy resources and meet customer energy needs. We very much appreciate the continued support of our company and look forward to meeting with many of you in the coming months.

At this time, I'll turn the call back over to the operator to facilitate the question and answer session.

Questions and Answers

[Operator]

[Operator Instructions] And your first question would be from Shar Pourreza at Guggenheim Partners, please go ahead.

[Shahriar Pourreza, Analyst at Guggenheim Securities]

Hey, guys. Good morning.

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

Good morning, Shar.

[Shahriar Pourreza, Analyst at Guggenheim Securities]

Good morning. Now that we've got a schedule, obviously, it was in the prepared remarks, right, the schedule for Iowa. Can you just maybe speak to the prospects for a settlement? When would that window be for that to occur?

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

Sure. So I mean, we're feeling very good about where we are with respect to IPL. Everything is going as expected with the schedule on track. If you're looking at a settlement window, it's really anytime after the intervener testimony is submitted through that June 18 deadline.

[Shahriar Pourreza, Analyst at Guggenheim Securities]

Got it. Perfect. And Lisa, there was a report from the IUB to the legislator last December kind of discussing rate making reforms, PBRs, multi year plans and other sort of potential policy updates. Is that a process you're involved in sort of at this point? And could we see something come out of this session?

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

So those recommendations actually have been out for the legislature to consider. As we look at our legislative priorities this year, the mega site development to support economic development is top of mind for us advancing -- the advanced rate making for alternative technologies. One of the elements that has been brought up in the legislature is asking for Contested IRP. And that is something that we are not supportive of. We have been very transparent in our resource plans. We're pro planning, we're pro transparency. But in terms of a contested proceeding, that's just something that is not really consistent with the evolving generation landscape that we're finding ourselves in.

[Shahriar Pourreza, Analyst at Guggenheim Securities]

Okay, perfect. That's all the questions I had. Thank you guys. Appreciate it.

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

Thank you. Take care.

[Operator]

Next question is from Nicolas Campanella at Barclays. Please go ahead.

[Nicolas Campanella, Analyst at Barclays]

Hey, good morning, everyone. Thanks for taking my question. I guess, just you previewed some kind of tax credit monetization already. You have $200 million in the plan for '24. Just is it still the case that you kind of expect $300 million a year plus in '25 and beyond or can you just help us kind of think about what the tax credit transferability benefit is in the out years?

[Robert J. Durian, Executive Vice President and Chief Financial Officer at Alliant Energy]

Yeah, sure, Nick. So we've been very successful at the execution of bilateral agreements with the first round of tax credits we sold here in 2023. As we think about the future and we think about all the different opportunities we have to sell renewable tax credits, we do think we'll get up above $300 million once we get out to that 2025 time frame. When you think about the volume of wind production that we have right now combined with the 1,500 megawatts of solar that Lisa referenced, the 275 megawatts of battery projects that we've received approval from the PSCW to implement in Wisconsin and the fact that we're going to repower several of our older vintage wind projects. The volume of tax credits like I said will get above that $300 million level starting in 2025 and continue for several years into the future.

[Nicolas Campanella, Analyst at Barclays]

Thanks. That's really helpful. And then just on your comments on Wisconsin filing cadence, I think you kind of mentioned that you have new renewables coming into the picture that you have to file for. But is that just like a follow on limited reopener type filing from the prior rate case or there's not like a full rate case here to contemplate right now? Can you just kind of maybe update us on your overall strategy there?

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

I think what you're referring to are the updates on our clean energy blueprint. That is something that we're doing in both Iowa and Wisconsin this year. The work that we're doing there will really identify the projects needed to meet our future resource needs and reflecting changes that are there from the MYSO rule constructs. So any capex associated with that would be in the fall.

[Nicolas Campanella, Analyst at Barclays]

Got it. And that capex is not in the plan now and it's more of a fall update to your point, okay.

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

Correct.

[Nicolas Campanella, Analyst at Barclays]

Thank you. Appreciate the time.

[Operator]

Thank you. Next question will be from Julien Dumoulin-Smith at Bank of America. Please go ahead.

[Julien Dumoulin-Smith, Analyst at Bank of America Global Research]

Thank you, operator. Good morning to you all and congratulations to Lisa again. Thank you.

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

Thank you, Julien.

[Julien Dumoulin-Smith, Analyst at Bank of America Global Research]

Maybe just -- Of course, absolutely. Look forward to it. And just with respect -- maybe let me pick it up where Nick left it off, because I think that's a nice point on just talking through the updated clean energy blueprint. Is this an appropriate route to talk about just the demand from customers and talk about what we've seen from some of your peers with respect to demand growth? I get that this is a little bit adjacent in terms of modeling and sort of, as you say, continuous routine modeling, but we've seen some of these out of cycle updates pop up in some of these more mundane integrated resource filings elsewhere. Just curious on how you would set up expectations here in both the jurisdictions.

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

Yeah, that's a great question, Julien. We are certainly focused on economic development. That's something we're doubling down on. In terms of putting that into our forecasts and into our resource plans, we need to have a level of confidence that they'll be there. So just stay tuned with respect to that space. And as I mentioned earlier, later in '24, we will be updating our resource planning needs over the future where we have factored in loan growth and factored in the implications of the MYSO rules that are constantly evolving.

[Julien Dumoulin-Smith, Analyst at Bank of America Global Research]

Yeah, indeed. Actually, since you bring it up, let me jump to this question. I think MYSO has an update on MTAP coming up ahead as well. I know they do this on the regular, but I think there's another more meaningful update on the come here. Would that conceivably align with the timeline that you're talking about?

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

Well, we constantly watch MYSO's work with respect to tranche 1 and tranche 2. Tranche 2 is expected later this year. It'd probably be in about the same time frame

[Julien Dumoulin-Smith, Analyst at Bank of America Global Research]

. Okay. All right. Excellent. And maybe actually to put a finer point on that demand, I get that this is perlite, but I get that some of this load growth is sort of concentrated in specific corridors and specific interstates. But would you say that some of the dynamics that you're seeing elsewhere in the state could be mirrored in your geographies, if you will? Are there any specific geography corridors that we should be watching here as we see especially some of the more data centered load materializing here?

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

So we are actively and aggressively marketing our mega sites that are located in both Iowa and Wisconsin and that would really be the locations to be looking at.

[Julien Dumoulin-Smith, Analyst at Bank of America Global Research]

Right. Wonderful. Okay. Excellent. We'll leave it there. Thank you, guys. Speak to you soon. Again, congrats.

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

Thank you. Thank you again.

[Operator]

[Operator Instructions] And the next question will be from Andrew Weisel at Scotiabank. Please go ahead.

[Andrew Weisel, Analyst at Scotiabank GBM]

Hey, good morning, everyone.

[Lisa M. Barton, President and Chief Executive Officer at Alliant Energy]

Good morning.

[Andrew Weisel, Analyst at Scotiabank GBM]

Just wanted to clarify a little bit of I think, Robert, you talked about this in the prepared remarks, but I want ask about O&M and the weather impact, the $0.06 of negative weather that is not included in the adjusted earnings I think. So first question is, is that a change? Have you historically done that?

[Robert J. Durian, Executive Vice President and Chief Financial Officer at Alliant Energy]

No, Andrew. So we've consistently and probably for more than a decade now removed the weather impacts from our adjusted earnings. Really, we think that's the appropriate way to manage the business. We've seen more efficiencies from an operational perspective to avoid ramping up and ramping down cost profiles of our operations group and so that's something we've done I think for the entire 14 years that we've been able to achieve at least 5% growth.

[Andrew Weisel, Analyst at Scotiabank GBM]

Okay. I guess I don't mean to be critical, but you've got a great track record of meeting or exceeding the midpoint in I think going back to 2015 or so. And obviously this one was a little bit light. Anything to look into there? Obviously, it was a tough year with the interest rates and all that, but anything philosophically changing around either O&Ms or the midpoint as a target?

[Robert J. Durian, Executive Vice President and Chief Financial Officer at Alliant Energy]

No, Andrew, I think we're managing the business as we've always managed the business. I think what you're seeing is the first time in the last six years where we've actually seen the temperature impacts come in with lower earnings. And the previous five years, we let that additional earnings flow through to the bottom line and didn't offset that with additional spending. So we feel like we're being very consistent with the way we're operating the business.

[Andrew Weisel, Analyst at Scotiabank GBM]

Okay, very good to hear. Then lastly, apologies if I missed it, but what's your outlook for O&Ms in 2024?

[Robert J. Durian, Executive Vice President and Chief Financial Officer at Alliant Energy]

Yeah, right now, we think it'll be relatively flat. We are obviously facing inflationary pressures. We also have some additional O&M that we're expecting from the large amount of new generation that we're putting into service with solar projects and battery projects. But we have a lot of confidence in the team to be able to offset those impacts with our continued cost control measures.

[Andrew Weisel, Analyst at Scotiabank GBM]

Okay, sounds great. Thank you very much. And again, congrats to both John and Lisa and all the other management changes you mentioned earlier.

[Operator]

Thank you. Ms. Gille, at this time, there are no further questions.

[Susan Gille, Investor Relations Manager at Alliant Energy]

With no more questions, this concludes our call. A replay will be available on our investor website. Thank you for your continued support of Alliant Energy and feel free to contact me with any follow up questions.

[Operator]

[Operator Closing Remarks]

Participants

Corporate Executives

• Susan Gille, Investor Relations Manager
• John O. Larsen, Executive Chairman, Chairman of the Board
• Lisa M. Barton, President and Chief Executive Officer
• Robert J. Durian, Executive Vice President and Chief Financial Officer

Analysts

• Shahriar Pourreza, Guggenheim Securities
• Nicolas Campanella, Barclays PLC
• Julien Dumoulin-Smith, Bank of America Global Research
• Andrew Weisel, Scotiabank GBM