Alliant Energy Q2 2021 Earnings Call Transcript

Presentation

[Operator]

Good morning. And welcome to Alliant Energy's Conference Call for Second Quarter 2021 Results. This call is being recorded for rebroadcast. At this time, all lines are in listen-only mode.

I would now like to turn the call over to your host, Zach Fields, Lead Investor Relations Analyst at Alliant Energy.

[Zach Fields, 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. Joining me on this call are John Larsen, Chair, President and CEO; and Robert Durian, Executive Vice President and CFO. Following prepared remarks by John 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 2021 financial results. This release, as well as supplemental slides that 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 questions include forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different.

Those risks include, among others, matters discussed in Alliant Energy's press release issued last night and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update these forward-looking statements.

In addition, this presentation contains references to non-GAAP financial measures. The reconciliation between non-GAAP and GAAP measures is provided in the earnings release and our 10-Q, which will be available on our website.

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

[John Larsen, Chair, President & Chief Executive Officer at Alliant Energy]

Thank you, Zach. Hello, everyone. Thank you for joining us today. We completed another solid quarter with strong operational and financial results. I'll share a few of the highlights from the quarter and then turn it over to Robert to recap key regulatory, customer and financial results.

I'll start with a focus on our strong ESG story. We recently issued our 2021 Corporate Responsibility Report. This year's update showcases many examples of our environmental stewardship, governance and our longstanding efforts to address the important social needs of the communities we proudly serve.

I'll start with the end in mind is no clean energy story is complete without results. First off in 2020, we achieved a 42% reduction in CO2 emissions compared to 2005 levels, with a clear path toward our goal of 50% reduction by 2030. We also reduce water usage by 66% in 2020, well on our way to a 75% reduction by 2030. And we've already met or exceeded our ambitious NOx, SOx and Mercury emission goals. Looking forward, our aspiration is to achieve net zero carbon dioxide emissions from the electricity we generate by 2050.

We've been reducing our carbon footprint for many years, transitioning from older and less efficient coal units to low cost and efficient generation resources like wind, natural gas and solar. These resources continue to be low cost options in our service territory, making them a smart choice to serve our customers well into the future.

We're building on our successful wind energy expansion. That includes our excellent track record of project execution, as we turn toward expanding our solar energy profile. A balance generation profile of efficient natural gas, wind, solar and battery storage will serve as the backbone for delivering safe, reliable, affordable and resilient energy to our customers.

We recently announced that our first 675 megawatts of new solar in Wisconsin is advancing to the construction phase, after receiving approval from the Public Service Commission. Robert will share more details on these projects, as well as our efforts to expand our solar energy footprint in Iowa a bit later in the call.

You've heard us talk about our Clean Energy Blueprint designed to guide us toward a clean energy future. Our blueprint is comprehensive, going beyond generation to also ensure a clean, efficient and resilient energy grid.

We are adding smart technologies to our grid, transitioning our electric lines from overhead to underground and expanding the use of energy storage. Our blueprint is designed to ensure resiliency and reliability of our grid, reduce customer costs and allow for more distributed renewable generation on our grid.

For example, we recently were joined by Iowa's Lieutenant Governor Adam Gregg, along with several local and state leaders and our partners at the ribbon cutting event for our latest battery storage project in Decorah, Iowa.

We're very excited to continue expanding battery storage solutions. Not only do these projects have a future on our system as dispatchable load, but they can also serve to enable distributed energy resources and support the resiliency of our distribution system.

Speaking of resiliency, as we approach the one year anniversary of the derecho that devastated our Iowa service territory, I reminded of the resiliency of our customers, employees, as we recovered from the largest storm in our company's history. It's one of the reasons I'm also excited about our commitment to plant 1 million trees, representing the customers we're so privileged to serve. As these trees grow, they'll capture CO2 out of the atmosphere and help rebuild the tree canopy lost in the storm across so many Iowa communities.

I mentioned earlier focus on ESG. One of our newest social efforts is investing in the energy impact partners Elevate Future Fund, which aims to create a more diverse founder community within the broader energy transition.

The fund will be focused on investing in companies founded or run by diverse leaders that are driving innovation and advancing the low carbon economy, including supply decarbonisation, electrification and technology enabled infrastructure.

The Elevate team will form partnerships with technology accelerators and universities, including historically black colleges to nurture talent, promote infrastructure and support systems to retain talent from underrepresented groups.

We're excited about the promising opportunities this partnership creates for inclusiveness locally and nationally, and we appreciate the opportunities to support innovative ways to build a more diverse and inclusive workforce that advances our collective efforts for creating a carbon free future.

Before I turn the call over to Robert, I want to share that the accomplishments that I've highlighted today are the direct result of the efforts of our talented employees who work each and every day, to deliver on our purpose, to serve customers and build stronger communities. Their efforts over the past year are nothing short of amazing and I want to take the opportunity today to thank them for all that they do.

Thank you for your continued interest in Alliant Energy. I'll turn the call over to Robert.

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

Thanks, John. Good morning, everyone. Yesterday we announced second quarter 2021 GAAP earnings of $0.57 per share, compared to $0.54 per share in 2020. Our utility earnings increased year-over-year, driven by higher margins from increasing rate base and warmer temperatures. These increases in earnings were partially offset by higher depreciation expense and lower allowance for funds used during construction for rate base additions in 2020.

With a very solid first half of the year now in the book, we are reaffirming our 2021 earnings guidance range of $2.50 per share to $2.64 per share, and as a result of favorable margins from temperature impacts here today, as well as our continued success in managing costs, we are currently trending towards the upper half of our guidance range.

Contributing to the higher margins was a higher rate base at our Iowa utility related to the successful completion of our 1000-megawatt wind expansion program in 2020, which has resulted in lower fuel costs and increased tax credits for Iowa customers.

Additionally, our Iowa utility began recovering earlier this year, a return of and a return on $110 million payment made to NextEra to terminate the purchase power agreement with the Duane Arnold nuclear facility five years early. Customers in Iowa begin benefiting from lower energy costs related to this transaction last fall.

In Wisconsin, higher margins are attributable to the rate stabilization plan that was approved last year. Based with the unexpected challenges associated with the COVID-19 pandemic, we work collaboratively with our stakeholders to keep rates flat for customers in 2021. This approach is benefiting both our customers, as well as our shareholders, as we began recovery of previously approved projects such as our Kossuth Wind Farm and the Western Wisconsin Pipeline, which we offset with excess deferred income tax benefits and fuel saving.

The second quarter continued the trend of improving economic conditions as our service territories returned to pre pandemic levels of economic activity. Our temperature normalized retail electric sales in the second quarter were up 4% versus in the second quarter last year. This increase was largely from strength in commercial and industrial sale. These changes in sales are a positive sign of economic recovery and resulted in a positive impact to margin.

As economic conditions have improved, we've also seen an uptick in economic development in our service territory. Two noteworthy successes so far this year are the announcements of new facilities for Simmons Pet Food in our Iowa jurisdiction and SprayCheck [Phonetic] our Wisconsin jurisdiction. These two new customers are bringing new jobs into communities in our service territories, in addition to new load for Alliant Energy.

Many of you joined us a few weeks ago at our ESG Investor Event. I hope you took away from our comments how passionate we are about our leadership position in the transition to cleaner energy and other important aspects of our ESG performance.

One key area of ESG story is our commitment to focus on customer affordability. That begins with the efforts and innovations of our outstanding employees. Two such innovations include our plans, tax equity partnerships for solar generation and the levelized cost recovery mechanism for retiring Edgewater coal plant in Wisconsin. Both of these were brought to us through the research and hard work of our employees, who are consistently looking for new and unique ways to keep customer costs low.

Let me spend a moment on our corporate tax rate, which are provided on slide four of our supplemental slide. We estimate our full year 2021 effective tax rate will be negative 17%, which is primarily the result of production tax credits we earned from our expansion of wind generation and the excess deferred tax benefits from the 2017 federal tax reform, which we continue to return to our customers. Both of these items support affordable rates for our customers. And please note that these items are largely earnings neutral, as they lower both revenues and income tax expense.

Our financing plans for 2021 remain unchanged. We plan to issue up to $300 million of long-term debt for our Wisconsin utility later this year and we're also on track to issue approximately $25 million of common equity through our shared DRIP plan in 2021.

Moving to our key regulatory initiatives. We are pleased that our strong collaboration with stakeholders resulted in a settlement agreement in the second quarter for 2022 and 2023 revenue requirements in our Wisconsin rate review. The agreement includes maintaining 10% return on equity, achieving an effective regulatory equity layer of 54% and utilizing an innovative recovery mechanism for WPL's retiring Edgewater coal plant. The settlement is now subject to review and approval by the PSCW and we anticipate a decision on this filing later this year. More details on the terms of the settlement agreement can be found on slide six.

As John mentioned earlier, we received written approval from the PSCW in June for 675 megawatts of new solar generation at Wisconsin. This is a significant milestone in our clean energy transition and another example of our long track record of achieving constructive regulatory outcome. We also filed our second Certificate of Authority application on additional 414 megawatts of Wisconsin solar in March. We anticipate a decision from the PSCW on this filing in the first half of next year.

Later this quarter, we plan to file a request for advanced ratemaking principles for up to 400 megawatts of new solar project in Iowa. The advanced remaking principles process in Iowa includes approval of the return on equity for the life of the asset, depreciation rates and cost caps for the project. We anticipate a decision from the Iowa Utility Board on this filing by the middle of next year.

Thank you for joining us today and for your interest in Alliant Energy. We look forward to connecting with many of you over the coming month.

Now, I will ask the operator to facilitate the question-and-answer session.

Questions and Answers

[Operator]

Thank you, Mr. Durian. [Operator Instructions] We can now take the first question from Julien Dumoulin-Smith from Bank of America.

[Gaylen, Analyst at Bank of America]

Hi. Good morning. It's Gaylen [Phonetic] on for Julien. Thank you for taking my question. I just wanted to ask about your comments about the upper half of the 2021 guidance range. Just want to maybe talk through some of the puts and takes as far as how you're looking at Q3 and 4, relative to how you're tracking for the first half of the year compared to 2020, if you can maybe just talk about some of the moving parts there? And additionally, is there any July weather effect built into that assumption as well? Thank you.

[John Larsen, Chair, President & Chief Executive Officer at Alliant Energy]

Yeah. You bet. Thanks for the question. Maybe I'll start with the July part, not really any notable impact on the July front. So, we did track whether in some favorable O&M or costs, if you will, in the first half. So it has us currently tracking towards the upper half.

We're expecting a fairly normal second half of the year. There's always a number of things that can come into play. But with those things in consideration, that's why we've noted the upper half that we're currently tracking. So I'll see, Robert, anything else you'd like to add?

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

Yeah. Just maybe to quantify the impacts, so through the first half of the year, the weather impacts on our sales or temperature impacts on our sales are about $0.05 to $0.06 positive and so that's what's really pushing us to that upper half of the range.

[Gaylen, Analyst at Bank of America]

Okay. Great. Thank you. That's very helpful. If I can also ask one more about, I know in the past you've spoken about some potential future undergrounding efforts for some of your distribution lines. I was curious when we might hear more about that, as far as specific investment amount, as far as rolled forward CapEx plan or anything along those lines, if you can speak to that at all?

[John Larsen, Chair, President & Chief Executive Officer at Alliant Energy]

Yeah. Certainly, we would expect to roll forward CapEx as we get to EEI. So you'll see more at that time along with some other items that we typically share dividend and others financing toward that time of the year.

We've been working the overhead to underground now and getting more and more efficient at that. So we've got certainly a lot more opportunity. We'll share more of the specifics a bit later in the year, as I noted. But we're -- we really are moving towards that path quite aggressively and we'll share more about how that plays into future CapEx when we get towards the EEI later in the year.

[Gaylen, Analyst at Bank of America]

Okay. Great. Thank you very much. I'll leave it there.

[John Larsen, Chair, President & Chief Executive Officer at Alliant Energy]

Okay. Thank you.

[Operator]

[Operator Instructions] We can now take the next question from Michael Sullivan from Wolfe Research.

[Michael Sullivan, Analyst at Wolfe Research]

Yeah. Hey. Good morning. First question, just wanted to ask on, just -- could you guys remind us where you stand on credit metrics and how much capacity there -- is there as potentially take up CapEx over time?

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

Yeah. Michael, this is Robert. So you should think of us as right now when you think about 2021 we're probably lower in a range of credit metrics, largely because we're refunding a lot of tax reform benefits back to our customers in this timeframe. That's scheduled to sunset towards the end of this year into 2022 and so we're expecting over time those credit metrics to improve when we go through 2023, 2024 timeframe. So we're well positioned to maintain our current credit ratings, and if anything, I see some optimism as far as increasing credit metrics over time largely because of the cash flow improvements that we see in the future.

[Michael Sullivan, Analyst at Wolfe Research]

Okay. But any just like number specifics in terms of terms of like recorded debt?

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

Yeah. Think of us right now in the mid-teens for the most part, like I said, a lot of that will be improving over time as we get into 2023 and 2024, even until the latter part of 2022. So like I said, we feel well-positioned for where we're at with our credit metrics and credit ratings currently, and improving environment going forward. But think of us in the mid-teens now with things getting better over time.

[Michael Sullivan, Analyst at Wolfe Research]

Okay. Great. Thanks. And then also just any color on what you guys are seeing in terms of inflationary pressures, particularly with some of the solar development that you're doing?

[John Larsen, Chair, President & Chief Executive Officer at Alliant Energy]

Yeah. Thanks, Michael. John here. Certainly we have seen some costs increase, a lot of those commodities are levelizing a better, some of them are, but we've seen that at least to our estimates, so we do see some additional costs for the solar going forward.

The projects we have that we've filed for with our first CA in Wisconsin and we expect others are very low cost. So they're very, very competitive costs even with these increases, and of course, they provide significant benefits for our customers over time. So well-positioned, a lot of flexibility in our plan, but we have seen some increases on commodities, as I'm sure most of our peers have as well.

[Michael Sullivan, Analyst at Wolfe Research]

Great. Thanks. And just last one real quick, I could have missed it in the prepared remarks, but are you guys reaffirming the 5% to 7% long-term?

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

There wasn't specifically in our regards, but we are, so we've identified the 5% to 7% over the long-term, I think through this point, maybe through 2023 and we'll refresh that when we get through the November EEI conference, that's our normal protocols. We easily add another year into the process when we provide additional CapEx for another year and rate base for another year to support that.

[Michael Sullivan, Analyst at Wolfe Research]

Awesome. Thanks so much.

[John Larsen, Chair, President & Chief Executive Officer at Alliant Energy]

Thanks, Michael.

[Operator]

This concludes today's question-and-answer session. Mr. Fields, I'd like to turn the conference back over to you for any additional or closing remark.

[Zach Fields, Investor Relations at Alliant Energy]

This concludes Alliant Energy's second quarter earnings call. A replay will be available through August 13, 2021 at 888-203-1112 for U.S. and Canada or 719-457-0820 for international. Callers should reference conference ID 4175543 and PIN 9578. In addition, an archive of the conference call and a script of the prepared remarks made on the call will be available on the investors section of the company's website later today. Thank you for your continued support of Alliant Energy and feel free to contact me with any follow up questions.

Participants

Corporate Executives

• Zach Fields, Investor Relations
• John Larsen, Chair, President & Chief Executive Officer
• Robert Durian, Executive Vice President & Chief Financial Officer

Analysts

• Gaylen, Bank of America Co.
• Michael Sullivan, Wolfe Research