Alliant Energy Q2 2024 Earnings Call Transcript

Participants

Corporate Executives

• Susan Gille, Investor Relations
• John Larsen, Executive Chairman & Chairman-Board
• Lisa Barton, President & Chief Executive Officer
• Robert Durian, Executive Vice President & Chief Financial Officer

Analysts

• Nathan Richardson, Barclays PLC
• Andrew Weisel, Scotiabank
• Paul Zimbardo, Jefferies Financial Group Inc.
• Alex Mortimer, Mizuho Securities

Presentation

[Operator]

Thank you for holding, and welcome to Alliant Energy's Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Today's conference call 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 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 prepared 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 second quarter financial results. This release, as well as the earnings presentation which will be referenced during today's call, are available on the investor page of our website at www. alliantenergy.com.

Before we begin, I need to remind you the remarks we make on this call and our answers to your questions include forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters discussed in Alliant Energy's 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 ongoing earnings per share, which is a non-GAAP financial measure. The reconciliation between non-GAAP and GAAP measures is provided in the earnings release, which is available on our website. References to ongoing earnings exclude material charges or income that are not normally associated with ongoing operations. At this point, I'll turn the call over to John.

[John Larsen, Executive Chairman & Chairman-Board at Alliant Energy]

Thank you, Sue. Good morning, everyone, and thank you for joining us. As we pass the midpoint of 2024, I'm pleased to report that we are on track to achieve our strategic objectives and maintain our long track record of solid operational and financial execution. We remain fully committed to our purpose, serving customers and building stronger communities.

Before I highlight some of the recent achievements, I want to briefly address the recent announcement of my retirement plans. Over the past 36 years, I've witnessed significant changes within our industry, positive changes that have led to improved service quality for our customers, along with an incredible transformation of how we produce and deliver energy. One thing, however, that has not changed is the incredible talent and dedicated service from our employees. It has been an honor to be part of this company, and to work alongside the Alliant Energy team.

From my early days as an engineer in Iowa through the merger that created Alliant Energy more than 25 years ago, and all the experiences in between, including our expansive and industry leading investments for the benefit of our customers, serving customers across Iowa and Wisconsin and working alongside my colleagues has been a privilege. With that, I want to say thank you to everyone I've worked with during my tenure at Alliant Energy.

Additionally, I'd like to reiterate my previous comments about Lisa. She's an exceptional leader with a well-established track record of success. With her leadership and the talented team at Alliant Energy, we are well positioned to deliver long-term value to our customers, our communities and our shareowners. With customer value in mind, I'm pleased with our efforts in reaching partial settlement in our Iowa rate review. In collaboration with several intervening groups, we remain focused on what's best for our customers, share owners, and the communities we proudly serve, providing stability and opportunities for continued economic development and growth. I'll now turn the call over to Lisa.

[Lisa Barton, President & Chief Executive Officer at Alliant Energy]

Thank you, John. I'd like to take a moment to recognize John's outstanding leadership. John's vision, dedication and passion for our customers and the communities we serve has laid a strong foundation for our continued success -- a focus which will continue to guide us into the future. John's foresight and commitment to advancing clean energy solutions, coupled with an acute focus on our customers has left an indelible mark on our organization and communities. Congratulations, John, on your upcoming retirement. I look forward to working with you in your continued role as board chair.

Building on John's remarks and before we get into additional updates, we are committed to our long term 5% to 7% earnings growth target, and we are reaffirming our 2024 ongoing EPS guidance range of $2.99 to $3.13. Our confidence in reaffirming the range assumes the following: Normal weather for the remainder of the year, execution of cost controls and receipt of a timely order from the Iowa Utilities Commission, with rates effective October 1.

I want to highlight the extraordinary focus the organization has on maintaining the financial discipline needed to deliver on investor and customer expectations. We continue to focus on making capital investments to serve the needs of our customers and communities, while also focusing on operational excellence to drive efficiencies within the business. Our team is focused on prioritizing reliability, supporting economic growth in our communities and driving affordability, which gives me confidence in our ability to execute on our plan.

Pivoting now to our strategic priorities of driving consistent growth and building stronger communities. Our Iowa rate review settlement provides continued regulatory progress. It strikes the right balance between shareholders and customers and uniquely positions IPO to attract economic development growth to our service territory, benefiting customers, share owners and the state of Iowa. Our settlement in Iowa is a testament to the benefits of parties rolling up their sleeves and coming together to engage in constructive settlement discussions and outcomes. With this settlement, customers will see base rate stability through the end of the decade. Through the individual customer rate construct, IPO will have the ability to move quicker and more nimbly to attract new commercial and industrial customers to the region.

Share owners will retain tax and energy benefits from new generation with the ability to earn a consistent and fair return. Most importantly, Iowa will benefit from economic growth, rate stability and be recognized as the state that is open for business, with utilities well positioned to support the evolving needs of its customers and communities.

As noted in our news release, the settlement also provides greater flexibility to attract economic development, which is expected to have a positive and meaningful impact on promoting load growth. We have been proactively working to attract new customers in both Iowa and Wisconsin, and we are pleased to announce that we have executed multiple agreements with data centers in both states. Approval by the IUC of the settlement, which includes the individual customer rate construct is necessary for these projects to move forward in Iowa.

In our third quarter call, we'll provide details on the expected customer load commitments and the timing of the energy demands associated with this growth. Locking in both is necessary to drive our resource and capex forecast. The interest we have seen is a testament to the value of our incentive rate design structures in Iowa and Wisconsin, and the commitment and hard work of our economic development teams. These rate design structures will fuel our ability to deliver on earnings growth and affordability.

To support our economic development aspirations, we have built a strong partnership with both ATC and ITC Midwest to ensure timely interconnection of new loads in our service area. We have prioritized economic development, and will continue to focus on partnering with existing customers looking to grow and attracting new industries to our service territory. The recently passed MEGA site legislation in Iowa is already yielding interest from large businesses. As a reminder, the legislation is designed to attract projects that span at least 250 acres with investments of at least $1 billion in capital. The incentives are geared towards advanced manufacturing, biosciences and research-based companies locating at a certified site.

Moving on to our clean energy blueprint, our resource planning process, we continuously plan ahead for new generation development, identifying sites and strategic transmission interconnections that enable us to be flexible as we respond to load growth and changes in MISO's capacity accreditation. We understand the importance for our investors to have transparency in our future plans. As such, we will provide updated load forecasts, resource needs and capex requirements in our third quarter capital expenditure update and in future regulatory filings.

Before I turn the call over to Robert, I would like to express my appreciation to our employees, especially our field and operation team members. Thank you for your tireless efforts to ensure our customers have the reliability they expect. A special note of appreciation for those who answered the call for mutual assistance and stepped up to aid our neighboring utilities. This program serves as the cornerstone of the industry, offering a unique framework for rapid, coordinated support during emergencies, ensuring reliable service is restored as quickly and safely as possible. I will now turn the call over to Robert.

[Robert Durian, Executive Vice President & Chief Financial Officer at Alliant Energy]

Thanks Lisa. Good morning, everyone. Yesterday we announced second quarter 2024 GAAP earnings of $0.34 per share and ongoing earnings of $0.57 per share. The difference between these two amounts relates to non-recurring charges from legacy assets that were recorded in the second quarter of 2024, which are excluded from our ongoing earnings. First, based on the terms of IPL's rate review settlement agreement executed in the second quarter, we currently expect to recover a return of the remaining net book value of the Lansing Generating Station, but not earn a return on that asset in the future. Because we no longer expect to receive a full return on the asset, we were required to write down the asset in the second quarter, resulting in an after-tax charge of $0.17 per share that we disclosed in an 8-K filed in June. Second, due to the EPA's recent enactment of the revised coal combustion residual rule, we remeasured our asset retirement obligations related to ash ponds and landfills in the second quarter. A majority of the increase in asset retirement obligations was offset to regulatory assets and property in our balance sheet. The remaining amount, related to a portion of two generating stations utilized to serve our steam customers, resulted in an after-tax charge of $0.06 per share. IPL has two high-pressure steam customers under contract through 2025, after which time IPL expects to end its steam operation.

The coal combustion residual rule is expected to be challenged. We believe we are very well positioned for compliance whether the rule withstands the challenge or not. The quarter over quarter variances in our ongoing earnings per share were mainly driven by the successful execution of WPL's customer focused capital investment program, which supported new electric and gas rates that took effect on January 1, and resulted in higher financing and depreciation expenses. In addition, the second quarter 2024 results were impacted by the temporary effects of the timing of income tax expense.

To assist you in modeling our quarterly earnings this year, I wanted to provide some additional context to the timing of income tax expense. Income tax expense is recorded each quarter based on an estimated annual effective tax rate, and the proportion of full year earnings generated each quarter, as shown and quantified on slide 7 of our supplemental slides. This causes fluctuations in the amount of tax expenses quarter over quarter, but it will not have an impact on our full year earnings. To reiterate, the level of our annual tax benefits expected to be generated in 2024 are in line with our expectations. However, the percentage recognized each quarter is a function of the amount of earnings generated each quarter.

Through the first half of this year, approximately 40% of our annual tax benefits have been accrued, setting us up for a larger benefit in the second half of the year, which drives the timing difference for the quarter.

Temperature normalized electric sales to residential customers were higher in the first half of 2024 when compared to last year, as we continue to experience solid growth in the number of new residential customers in both states. However, these positive residential sales were offset by decreased electric sales in 2024 to a limited number of low-margin industrial customers with their own generation capabilities in Iowa.

We continue to make progress with lowering operating expenses at our two utilities to achieve our financial objectives and support customer affordability. In fact, our adjusted operations and maintenance expenses for the first half of 2024 were approximately $20 million less than the first half of 2023. These positive results are due to the ongoing efforts by our employees to identify and execute initiatives that have resulted in meaningful reductions in operating expenses. For the full year, we are reaffirming our ongoing earnings guidance of $2.99 to $3.13 per share, which excludes the two non-reoccurring charges I discussed earlier. Details on our second quarter earnings drivers and 2024 full earnings guidance can be found on slides 5 and 6.

Turning to cash flows, during the first half of 2024, cash flows from operations increased by approximately $250 million when compared to last year. These strong cash flows demonstrate the strength of our ongoing business. The increased cash flows were primarily due to WPLs electric gas rate increases, which were effective January 1 of this year, the successful execution of our tax credit monetization program, and improvements in working capital.

Looking forward, we expect continued improvements in our cash flow metrics as a result of the aforementioned drivers. Through the first seven months of this year, we have monetized over $130 million in tax credits. The strength of our renewable fleet in both Iowa and Wisconsin positions us well for generating significant tax credits and ensuring our customers and investors realize the value of these investments.

We have executed a substantial portion of our 2024 financing plan to fund our investments in renewable and battery projects and to support refinancing $800 million in debt maturities this year. In addition to successful debt issuances in the first quarter, we issued $375 million of long-term debt at Alliant Energy finance in June. Our overall financing plan for 2024 remains unchanged, including one remaining planned financing for up to $700 million of long-term debt at IPL, in part to refinance $500 million in debt that matures in December.

In the second quarter of 2024, we also closed on the sales of 125 megawatts of our West Riverside natural gas facility, providing proceeds which will help reduce our external financing requirements. The sales of these partial interests in West Riverside were anticipated in our plans and providing combined proceeds of $123 million.

Shifting to our regulatory initiatives, we continue to make good progress on our notable regulatory initiatives for 2024 shown on slide 8. Lisa provided the highlights of IPL's rate review settlement agreement executed in the second quarter. The hearing for the rate review was completed in July, and the final order is currently expected from the Iowa Utilities Commission in August or September.

We are also making progress with several key regulatory proceedings in Wisconsin. Last month, the Public Service Commission of Wisconsin approved a reconciliation of actual fuel costs to the authorized fuel recoveries in WPL's 2023 fuel cost plan. Per the order, WPL will refund $34 million to its Wisconsin electric customers in the fourth quarter of this year, helping lower customer bills.

Continuing with our Wisconsin jurisdiction, we have two filings requesting authority for additional investments in existing generation stations that are pending decisions from the PSCW. Enhancements to the Riverside generation station and the proposed repowering of the Bent Tree Wind facility. We expect decisions from the PSCW on these two filings in 2025.

We appreciate your continued support of our company, and look forward to meeting with many of you in the coming months. As always, our investor relations materials are available on our website. At this time, I'll turn the call back over to John for his closing remarks.

[John Larsen, Executive Chairman & Chairman-Board at Alliant Energy]

Thank you, Robert. As you heard today, Alliant Energy is well positioned for the future. Before I turn the call back to the operator, let me take a minute and summarize the key takeaways. We are reaffirming our 2024 ongoing earnings guidance range. We've made great progress with the regulatory and economic development, positioning us for long-term growth, and we are looking forward to sharing progress updates on our clean energy blueprint and economic development efforts, as we lead up to the fall EEI conference. I want to thank my colleagues for their collaboration and customer focus, which have strengthened the communities we proudly serve. I also want to thank the investors and analysts for your support of Alliant Energy. I look forward to the next chapter and continuing to serve Alliant Energy in my role as Board Chairman. At this time, I will turn the call back over to the operator to facilitate the question-and-answer session.

Questions and Answers

[Operator]

Thank you. [Operator Instructions] I will take our first question from Nicolas Campanella with Barclays. Please go ahead.

[Nathan Richardson, Analyst at Barclays]

Hey, everybody, it's actually Nathan Richardson on for Nick. I was just wondering, oh, sorry. Hey. I was wondering, for slide 8, you say modest equity needs to maintain 40% to 45% parent equity structure. I was wondering if you could quantify that a little bit more, and maybe some more color on how we can think about that.

[Robert Durian, Executive Vice President & Chief Financial Officer at Alliant Energy]

Yeah, Nathan, this is Robert. Think of that as right now, we currently have a share in a direct plan where we're issuing approximately $25 million a year. And so, we see that to extend into the foreseeable future. That's really the only material equity needs that we have planned at this date. I will say that we're going to continue to monitor that. And as we'll talk maybe further here, we do expect to refresh our capital expenditure plans in November as part of the financial updates that we do on an annual basis. And as part of that process, we may revisit that, but largely based on kind of future capital needs.

[Nathan Richardson, Analyst at Barclays]

Got it. That's super helpful. Thank you. And then one more, in terms of weather headwinds year to date, I was wondering where, if you wouldn't mind, where you're tracking in the '24 range right now.

[Robert Durian, Executive Vice President & Chief Financial Officer at Alliant Energy]

Yeah, so, great question. So, as we think about 2024, there's a lot of moving parts to the earnings this year. We talked a little bit about the non-reoccurring charges, which we consider related to legacy assets, not reflective of what we should expect in our ongoing earnings, so we excluded that. We also have a temporary issue as it relates to the income tax expense that we will see reverse here later this year. And then really, after you get through those unusual items, you really focus on the key drivers for the earnings so far this year have been the temperatures. To date, we've seen about a $0.10 reduction in earnings through the first half of the year. Most of that was recorded in the first quarter, but some modest levels in the second quarter as well.

As we look at that, we are working, and the team's been very successful in identifying opportunities to offset some of those costs to this date. We have line of sight to about half of the offsets there that we need to offset those temperature impacts, and the team continues to work on that. So, that gives us the confidence to reaffirm the guidance of $2.99 to $3.13, and we'll continue to work on that as we go through the rest of the year.

[Nathan Richardson, Analyst at Barclays]

Awesome. Thank you again. Have a good one.

[Operator]

Our next question comes from Andrew Weisel with Scotiabank. Please go ahead.

[Andrew Weisel, Analyst at Scotiabank]

Hi. Good morning and congratulations again to John.

[John Larsen, Executive Chairman & Chairman-Board at Alliant Energy]

Thanks, Andrew.

[Andrew Weisel, Analyst at Scotiabank]

First question. Lisa, if you could clarify, I just want to make sure, I think you said you'll be in a position to announce some data center customers or contracts by the third quarter call. Or maybe you could just elaborate or were you talking about updated load forecast perhaps? What was it that you were foreshadowing?

[Lisa Barton, President & Chief Executive Officer at Alliant Energy]

So, it's really all of the above. So, in terms of how our process works, Andrew, we thoroughly vet all economic development inquiries that come. We have executed multiple agreements with data centers to date. Obviously, these are all confidential. And once we feel that we have certainty with respect to the amount of the load and the timing of the load, we'll announce those projects. What we will be doing, as both I and Robert mentioned, is putting all of that together at our third quarter earnings call, really in prep for EEI. So, we will then be sharing what's the load, what's the timing, what are the resources needed to fill those obligations and the capex that supports all of that growth.

[Andrew Weisel, Analyst at Scotiabank]

Okay, great. So typical cadence of the updates, but we'll have a bit more juice or color or detail in terms of some of these economic development updates. Is that kind of what you're saying?

[Lisa Barton, President & Chief Executive Officer at Alliant Energy]

Exactly. And as a reminder, with our clean energy blueprint, we did something unique this year, where in both Wisconsin and Iowa, we're looking at three different load levels, and low, medium and high. And why we're doing that is that allows us to identify the resource needs once we have settled in on the load and the timing. So, we're very well positioned for us to be communicating our plans at EEI.

[Andrew Weisel, Analyst at Scotiabank]

Sounds great. Definitely looking forward to that. Then a couple questions on the Iowa settlement, if I may. First, when you think to years three to five, five years, certainly a long stay out, what are the upside and downside risks to the earned ROE relative to the allowed? In other words, you have this earning sharing mechanisms. Under what scenario might you see the earned ROE exceed the allowed, or what might you, under what scenario might you under earn? And are there any off ramps, so to speak, where you might need some relief, for example, if we went into a hypothetical deep recession in two years?

[Lisa Barton, President & Chief Executive Officer at Alliant Energy]

Great question. So, I'll start off with answering that and then I'll turn it over to Robert for filling in on some of the details. The way that I really see that Iowa rate review settlement, it's a flywheel effect and it's fueled very much by economic development. If we're successful in capturing economic development activities, then that's going to continue to fuel affordability and our ability to work within the provisions of the stay out. Our shareowners are going to benefit from the tax benefits and energy benefits during that period. And I will note this, it is a very similar model that MidAM has been operating with very successfully over the past 10 years. So, it's not new to the state. It's something that is familiar to the commission, which is why we're very bullish on it. Robert, why don't you talk a little bit of some of the off ramps that we have.

[Robert Durian, Executive Vice President & Chief Financial Officer at Alliant Energy]

Yeah, so when we structured the agreements with the intervening parties as part of the settlement agreements, we did take into consideration that situation that you described, Andrew, and there's a provision within the agreement, if you read into the details of it, that allow us to come back in for a rate case if our ROEs fall below a certain level, either on an annual basis or over a two-year period. And so, we feel like that will protect us well in case of any significant decrease. But we remain pretty optimistic about the upside opportunities, as Lisa described, with the ability to capture some of this new data center load growth and benefit from that, as well as what I would say is more of an innovative model that allows us to keep the tax benefits and the energy margins and the capacity revenues related to new generation, as well as the tax benefits from any repowering opportunities that we may have over that opportunity. So that gives us some level of optimism for that period.

[Andrew Weisel, Analyst at Scotiabank]

Very innovative and very reassuring. Thank you. One last one, if I may, on advanced rate making, I know there was some confusion or noise, and I'm using those terms generously in the past about how that was applied to certain projects. Can you talk about how advance rate making was discussed in the settlement, and how you expect it to be applied going forward?

[Robert Durian, Executive Vice President & Chief Financial Officer at Alliant Energy]

Yeah, Andrew, we didn't get into a lot of details on the advanced remaking principles in the settlement. As you may recall, there's legislation that's been recently passed in Iowa that expands the eligibility of advanced remaking principles to include not only renewables, but now also energy storage facilities as well as nuclear. So, I'd say it opens us up for some additional opportunities over the next few years, mainly related to what I would say, larger gas projects, renewable projects, as well as now battery projects.

[Lisa Barton, President & Chief Executive Officer at Alliant Energy]

And one thing, Andrew, that I would add is that my big takeaway with Iowa is, Iowa is open for business. When you look at the combination of the MEGA site legislation, you look at the changes to the advanced rate making, it really expands it to more resources, as well as the movement that the state has made with respect to taxes that are paid by customers. It's really a state that is dedicated to economic development, which we see as very good for us, and that we are well positioned to support that growth.

[Andrew Weisel, Analyst at Scotiabank]

Good stuff. Thank you very much.

[Operator]

[Operator Instructions] We will move next with Paul Zimbardo with Jefferies. Please go ahead.

[Paul Zimbardo, Analyst at Jefferies Financial Group]

Hi, good morning, team. The first was hopefully a small clarification with respect to the two steam customer contracts you talked about through 2025 that are ending. Is there any ongoing earnings impact to think about from those?

[Robert Durian, Executive Vice President & Chief Financial Officer at Alliant Energy]

Yeah. Paul, think of that as a fairly modest portion of the earnings profile of IPL historically, and so do not think of that as a significant impact. We actually structured the agreements to end in 2025, and we got the depreciation expense to end as well because we'll be fully depreciated the steam assets. So, the ongoing impacts should not be material.

[Paul Zimbardo, Analyst at Jefferies Financial Group]

Okay, great. And then not to front run the bigger EEI update coming, but is there any way to kind of frame the scope of the capital needs, maybe like how much generation length you have under the current plan before factoring in the data centers? Any kind of flavor of like what kind of system needs could be on the generation side be helpful?

[Lisa Barton, President & Chief Executive Officer at Alliant Energy]

We don't have specifics on that. What we can say, Paul, is that we're fearing -- feeling very well positioned for that. You know, if you think about a premium utility, you know, looking kind of out into the future, that is really a utility that has significant load growth to drive affordability, that ability to capture economic development, whether it be data centers, onshoring, and so forth, and we feel very well positioned in that space. We've got land, we've got transmission access, we've got flexible rate mechanisms in states that are supportive of economic development. And so, as we look at that more broadly, to unlock that potential for shareholders, you really need that utility that's focused on customers and communities, which we are, those mechanisms, and constructive regulatory jurisdictions. We know that for you all to have this information in the model, you need as much transparency as possible. But we really want to make sure that you've got the right information for that, and that is best served by us first having the details of the load, the timing of the load, and then the resources that we need. I will say this about both Iowa and Wisconsin. The clean energy blueprint, that resource planning mechanism that we have is very flexible, and it offers more flexibility than I think is there with a lot of peers in the industry. And so, it puts us in a very good position to be able to grow and scale completely in line with the needs of our customers and communities.

[Paul Zimbardo, Analyst at Jefferies Financial Group]

Okay, great. No, thank you. We at least have to try. Thanks again.

[Lisa Barton, President & Chief Executive Officer at Alliant Energy]

I know you do.

[Operator]

[Operator Instructions] We will move next with Alex Mortimer with Mizuho securities. Please go ahead.

[Alex Mortimer, Analyst at Mizuho Securities]

Hi, good morning, team. So, I know you say we'll get a more holistic update in the fall, but maybe just directionally, how should we think about the update to your low growth forecast? You have a regional peer highlighting somewhere in the 4.5% to 5% range potentially. Does that seem reasonable to you, or are there puts and takes that may have you above or below those levels, especially as you highlight some of the updates in Iowa that do seem very bullish for your low growth prospects.

[Lisa Barton, President & Chief Executive Officer at Alliant Energy]

You know, really, all is a matter of timing. And so, yeah, again, as soon as we have that information, we'll be putting it out.

[Alex Mortimer, Analyst at Mizuho Securities]

Okay, thank you so much.

[Operator]

And we show no further questions at this time. I will turn the call back to management for closing remarks.

[Susan Gille, Investor Relations at Alliant Energy]

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

[Operator]

[Operator Closing Remarks]