Alliant Energy Q2 2022 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to Alliant Energy's Conference Call for Second Quarter 2022 results. This call is being recorded for rebroadcast. [Operator Instructions]

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

[Zac Field, Lead Investor Relations Analyst at Alliant Energy]

Good morning. I would like to thank all of you on the call and on 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 2022 financial results.

This release as well as an earnings presentation will be referenced during today's call and are available on the Investors page of our website at www.alliantenergy.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 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.

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

[John O. Larsen, Chair, President and Chief Executive Officer at Alliant Energy]

Thanks, Zac. Hello, everyone. Thank you for joining us today. We had another exceptional quarter, delivering strong financial results, and we're reaffirming our 2022 earnings guidance range of $2.67 to $2.81. And given our strong start to the year, we are currently trending to the upper half of that range. Similar to other calls, I'll share some highlights from the quarter and then turn it over to Robert to recap key financial results and regulatory progress. I'll start with an update on our Clean Energy Blueprint.

You may recall the topic of discussion last quarter was the potential for added tariffs to our projects. Given the strong need for our planned solar resources and the benefits to our customers, we have continued our momentum on executing our planned projects. I'm pleased to share that we have made excellent progress in advancing solar projects in both of our states. Let me share some of the key milestones we have achieved recently. We executed a tax equity partnership covering four solar projects that will go into service this year.

We have received approval from the Wisconsin Public Service Commission for the entirety of our nearly 1.1 gigawatts of planned solar in the state of Wisconsin. And we have all 16 sites that make up our overall 1.5 gigawatts of solar additions across both Iowa and Wisconsin under site control. That momentum will continue into Q3 with our Bear Creek project scheduled to go into service soon and the final panel installation occurring at our Wood County. I could not be prouder of our team as they continue to advance this important part of our strategy.

We are also proud of the positive recognition we've received for our use of a skilled union workforce as we build out these projects and how we're bringing jobs, investment and economic benefits to Iowa and Wisconsin. I also want to point out that while Clean Energy Blueprint is not dependent on passing a new legislation, we are encouraged by the proposed Inflation Reduction Act that's making its way through Congress. The proposal may present us with even more customer benefits and added flexibility as we bring renewable solutions to our customers.

Even without legislation, we have a great plan and strategy that brings clean energy to our customers in an affordable and reliable manner. Robert will share more details with respect to the proposed Inflation Reduction Act and its potential impacts a bit later in the call. Another topic I'll touch on is the recent announcement to extend the retirement dates for two of our coal facilities. Given the uncertainty in the MISO market, coupled with the high cost to replacement capacity, we took action to ensure we address the near-term reliability needs of our customers.

This also further reinforces the need for our solar expansion efforts and the need to continue to plan for both near- and long-term capacity needs for our customers. The progress I highlighted earlier with respect to our renewable projects should leave no doubt as to our continued focus and solid execution of our Clean Energy Blueprint, reaffirming our commitment to our carbon reduction goals. Our blueprint is comprehensive.

Going beyond generation to also ensure a clean, efficient and resilient energy grid, we're 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. Let me now turn to the recent release of our corporate responsibility report.

As you know, we have been a leader in ESG performance for many years. Our latest corporate responsibility report showcases the many ways we plan, operate and achieve our objectives, delivering top-tier results. I'll highlight a few of those from this year's report. In partnership with the Electric Power Research Institute, we added a clear science-based report that confirms how our Clean Energy Blueprint and carbon dioxide reduction goals are consistent with the United Nations Paris Agreement objectives to limit global annual temperature rise.

We also published our new biodiversity commitment, which solidifies our long-standing transition of caring for the environment, including protecting natural resources and wildlife, especially those that are or may become threatened or endangered. And our one million trees initiative is off to a very exciting start. In our first year, more than 120,000 trees were planted across Iowa and Wisconsin through our residential and community tree programs in partnership with Trees Forever.

I encourage you to learn more about our corporate responsibility on our website. I'll end with two examples that illustrate our commitment to addressing the social needs in our communities and how we link everything we do to our purpose to serve customers and build stronger communities. The first example also highlights our focus on a core value of safety. According to the National Child ID program, a child goes missing in the U.S. every 40 seconds.

That's more than 800,000 children each year. Earlier this year, we partnered with the National Child ID program to provide DNA identification kits to nearly one million children and their families all across Wisconsin, giving families the critical information they need to help be reunited with their lost children. In partnership with the IBEW and the Green Bay Packers, Wisconsin is only the third state to provide kits to all children from kindergarten to 12th grade free of charge and made possible through a gift from our foundation.

We are humbled to be recognized by the National Child ID program with their Utility of the Year award at their 25th anniversary celebration this weekend in conjunction with the NFL Hall of Fame induction ceremonies, and we look forward to expanding our efforts to children and families in Iowa later this year. The second example ties to our long-standing commitment to our communities. Since we are in the thick of baseball season, this example will resonate well with you baseball fans.

You may recall that last August, Major League Baseball hosted a game at the iconic Field of Dreams movie site located in our service territory near Dyersville, Iowa. Since then, the owners of the complex have announced an economic development expansion of the site to include multiple venues and amenities from sports training camps to concert venues and more, which plan to draw tourists from around the country and the world, bringing additional economic benefits to the region.

We have been proud to partner with the owners to extend smart infrastructure to the site, including plans for EV charging as they ready for construction expansion this fall. Before I turn the call over to Robert, I want to share that the accomplishments that I've highlighted today are the direct results of the outstanding efforts of our talented employees who work each and every day to deliver on our purpose, to serve customers and build stronger communities. Thank you for the continued interest in Alliant Energy.

I'll now turn the call over to Robert.

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

Thanks, John. Good morning, everyone. Yesterday, we announced second quarter 2022 GAAP earnings of $0.63 per share compared to $0.57 per share in the second quarter of 2021. Our utility earnings increased year-over-year, driven by higher AFUDC earnings attributable to increasing solar construction activities, higher electric and gas sales and the timing of income taxes. These increases in earnings were partially offset by higher interest expense.

For the year, we are reaffirming our 2022 earnings guidance range of $2.67 to $2.81 per share. And as a result of strong sales year-to-date, combined with our employees' continued focus on managing costs, we are currently trending towards the upper half of our 2022 guidance range. In the second quarter, we experienced strong electric sales, driven by warmer-than-normal temperatures throughout our service territories and our continued trend of better-than-expected temperature normalized sales.

This continued strength in electric sales has resulted in first half 2022 temperature normalized sales, more than 2% above the first half of 2021 with our second quarter temperature normalized sales 3% higher than last year. This strength was reflected in all electric customer classes in both states and most pronounced in sales to residential and commercial classes. We continue to see strong customer growth at our Wisconsin utility and a continued pandemic recovery, particularly in customer-facing businesses, such as entertainment, education and recreation.

These sales results are indicative of the strength of the economies in Wisconsin and Iowa, and are helping offset the impact of current cost trends. Turning to our solar investments. As John mentioned, we are moving forward on our planned solar projects without major delays. We have maintained strong momentum on these projects through proactive procurement and panel deliveries and solid progress with our construction activities this summer. We are also encouraged by the Biden administration's executive order in June, to establish a 2-year moratorium on tariffs related to the investigation by the Department of Commerce.

That order is expected to help ensure lower project costs for our customers as we complete the 1.5 gigawatts of solar projects planned through 2024. In June, WPL announced plans to adjust the timing of the retirement of its two remaining Wisconsin coal plants. While this decision will change the trajectory of our projected O&M, it also limits our customers' exposure to potentially higher capacity charges.

This short-term shift of the retirement dates allows us the ability to manage regional capacity and supply chain challenges while continuing to move forward with adding new solar generation and providing safe and reliable service to our customers, which is our #1 priority. We do not expect any material earnings impacts from this short-term shift. Given the most recent Wisconsin rate order provides WPL, the ability to defer costs incurred to operate the Edgewater generating facility beyond its previously planned retirement date.

We continue to make progress on our key regulatory initiatives included on Slide six of the supplemental slides. Looking first at our Wisconsin jurisdiction. In June, we received written approval for our second certificate of authority filing for 414 megawatts of solar, enabling us to move forward with the construction of six additional solar projects throughout our Wisconsin service territory. In July, WPL filed an updated request for the recovery of its forecasted 2023 fuel cost to reflect the impact of adjusting the retirement date of its Edgewater generating facility.

If approved, the request would result in flat year-over-year fuel cost recoveries in 2023 to help stabilize electric rates for our Wisconsin customers despite increasing energy prices. We anticipate a decision on this request from the PSCW later this year. And as announced earlier this year, WPL expects to make additional filings in the coming months for up to 300 megawatts of firm capacity to replace capacity related to its West Riverside Energy Center that may be purchased by other Wisconsin utilities under outstanding purchase options.

Turning to Iowa. We filed rebuttal testimony in our advanced ratemaking filing for 400 megawatts of solar and 75 megawatts of batteries to meet future capacity requirements for our Iowa Utility. We use the rebuttal testimony to update our requested cost cap to reflect increases in costs since our initial filing in the fourth quarter of last year. The hearing for this filing is scheduled to take place next week, and we requested a decision from the Iowa regulators by the end of the third quarter.

While I'm on Iowa renewables, it's worth noting that our wind portfolio in Iowa has performed well this year. In fact, the energy produced by our wind facilities through the first six months was approximately 30% higher than the same time period last year. These higher levels of wind output have helped reduce fuel costs for our Iowa customers in 2022, and is another example of the customer benefits from a strong and diverse generation portfolio.

On the legislative front, while the inflation Reduction Act is still a proposal, we are encouraged by the opportunities presented within the current text to enhance the value of our current Clean Energy Blueprint for both customers and shareowners. Certain key provisions, including tax credit transferability, production tax credit eligibility for solar projects and stand-alone tax credits for energy storage, could provide us even more pathways to bring clean and affordable energy to our customers. We will continue to monitor this proposed legislation and evaluate its potential impacts.

Finally, our financing plans for 2022 remain unchanged. In June, we started receiving contributions from our first tax equity partnership related to WPL's 2022 solar projects. And we anticipate receiving the balance of the contributions after the solar projects are placed into service later this year. Our remaining financing activities in 2022 include plans to issue up to $600 million of long-term debt at our Wisconsin utility to provide additional funding for solar construction projects.

We are also on track to issue approximately $25 million of common equity through our Shareowner Direct Plan. In closing, I'd like to echo John's remarks related to our talented employees. I am so proud to work alongside such dedicated people who work hard each and every day to deliver on our purpose of serving customers and building stronger communities. Thank you for joining us today and for your interest in Alliant Energy. We look forward to meeting with many of you in the coming months.

Now I'll turn the call back over to the operator to facilitate the question-and-answer session.

Questions and Answers

[Operator]

[Operator Instructions] And we'll take our first question from Julien Dumoulin-Smith with Bank of America.

[Dariusz Lozny, Analyst at Bank of America]

Hey. Good morning, everyone. This is Dariusz on for Julien. Thanks for taking my question. First one, if I may, just around the potential IRA legislation. I realize it's fairly preliminary and you noted in the comments you're continuing to evaluate. Just curious if you have any preliminary thoughts as to impact on items such as credit metrics, FFO to debt, anything along those lines that you could potentially speak to. Thank you.

[John O. Larsen, Chair, President and Chief Executive Officer at Alliant Energy]

Yes. Dariusz, thanks for the question. I'll maybe just share a few comments and let Robert hit on the credit metrics. One thing I'll mention, there were really three items in the previous build back better that we were advocating for the solar PTCs, stand-alone storage and then direct pay and largely from our read of that, certainly, it's not at the finish line. Those three things are in there.

So as we noted, I think it gives us flexibility, not necessarily what we're going to do. I think our plan remains very solid, but maybe in some of the financing, as you noted. Also, I think with the stand-alone storage, we've got so many sites that we're developing with solar and others. We've got a lot of flexibility as to where we can locate storage. So I think of some of that value stacking. And maybe, Robert, if you want to talk a little bit about the positive credit metric aspect of it. I'll turn it to you?

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

Thanks, John. Yes. For the most part, we haven't been prepared to disclose any specific details. But I think directionally, you can think of this giving us an opportunity to actually increase our rate base an opportunity to lower customer costs and an opportunity really to improve our cash flow metrics. When you think about the transferability of tax credits, not only the ones that we be generating from our new solar projects, but from our existing wind projects, we see a pretty good opportunity to increase our cash flow over the next several years as a result of those provisions.

When you kind of combine that with the fact that we do not think will be subject to the 15% minimum tax based on our current income levels, we actually think it's going to be pretty positive all around when it comes to customers, shareholders and debt holders. So pretty encouraged by the legislation.

[Dariusz Lozny, Analyst at Bank of America]

Great. Thank you very much. If I could take that one step further, I guess, as it relates to your equity needs across the forecast period over the next several years. It sounds like if you have improving cash flow that could potentially mitigate some of those needs.

[John O. Larsen, Chair, President and Chief Executive Officer at Alliant Energy]

Yes. I think you spot on, Dariusz. As Robert noted, it's likely that this could move us more towards ownership, so increased rate base. So we'd certainly take a look at that. But also with the cash aspect of this, it can tend to balance out a bit. But anything you want to add with that, Robert, but I think you're spot on, Dariusz?

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

No, I think you had the key issues.

[Dariusz Lozny, Analyst at Bank of America]

Okay. Great. That's super helpful. One more, if I can, just on the pension. Any impact from higher pension plan expense? I think it's something that you alluded to in the previous update, just given the moves both in interest rates and also in asset values. Just curious if there's any update there. I think in the past, you've said that WPL, there's a deferral mechanism, so the impact would be mostly at IPL. But just curious if there's any update you can provide on that front.

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

No, I think you've summarized it well, Dariusz, I think. When we look at it, we're similar to other utilities where we've experienced the impact of the lower-than-expected returns on our plan assets so far this year. And this will be partially offset by the impact of the rising interest rates that would reduce our pension obligation at our next measurement date, which will be at the end of 2022 here.

So we won't know the exact impact of the '23 pension costs until we get to the end of the year. But as you indicated, I'd say we're partially but not fully insulated from the earnings impact of pension. When you think about the deferral order in Wisconsin, that should fully insulate us. But in Iowa, we will be subject to some level of cost. But we do have the ability to capitalize a portion of those pension costs, usually about 30% to 40% on an annual basis as part of our labor overhead process.

So -- and as we kind of think about the long-term impacts of this, while we may see some impact in 2023, we would expect that all of these costs will be reflected in our next rate reviews in both Ireland and Wisconsin. So there should not be any long-term earnings impact as a result of those.

[Dariusz Lozny, Analyst at Bank of America]

Got it. That's super helpful. Thank you.

[Operator]

We'll now take our next question from Michael Sullivan with Wolfe Research.

[Michael Sullivan, Analyst at Wolfe Research]

Hey, everyone. Good morning.

[John O. Larsen, Chair, President and Chief Executive Officer at Alliant Energy]

Hello, Michael.

[Michael Sullivan, Analyst at Wolfe Research]

Hey, John. Just wanted to circle back to kind of what I discussed in the Q&A on the last call. Can you just clarify, so on the solar plans, is everything back to fully on track, including those 500 megawatts in late '23 that seem to be facing some uncertainty? And then I think during Q&A, you had indicated that, that uncertainty may put you towards the lower end of the growth rate temporarily. Is that still the case? Or should we think of all that as kind of resolved now?

[John O. Larsen, Chair, President and Chief Executive Officer at Alliant Energy]

Yes. We're -- short answer, our solar projects are moving quite well and as planned. So we're very comfortable with the progress we're making on all of our solar projects.

[Michael Sullivan, Analyst at Wolfe Research]

Okay. And on the growth rate, should we still think of some pressure potentially in the near term? Or do you think you're kind of firmly back at the midpoint?

[John O. Larsen, Chair, President and Chief Executive Officer at Alliant Energy]

Yes, the long term 5% to 7% and certainly, the impact of what we saw on possible delay of the solar projects, that certainly not going to be a driver to that. So the typical drivers as you have, Michael, with O&M or others, but we feel good about our cost management. I might note that our sales have been very strong. In fact, we've seen probably the strongest sales temperature normalized that we've had in over a decade.

I think the second quarter this year was 3% higher than last year, which was up over the previous. So it's a great tailwind. And as Robert noted and probably both of our comments, the IRA provides another pretty solid tailwind for -- there's certainly macroeconomic issues that we're all facing, but it's nice to have a couple of really solid tailwinds as well.

[Michael Sullivan, Analyst at Wolfe Research]

Okay. Great. Thanks. And then can you just review rate case timing plans in both states and whether or not the coal retirement delays has any impact on that?

[John O. Larsen, Chair, President and Chief Executive Officer at Alliant Energy]

I'll maybe turn to that. Robert, do you want to give a quick overview on rate cases?

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

Yes, sure, Michael. Maybe starting in Wisconsin here. The rate case schedule for Wisconsin would indicate another rate case for '24, '25 to keep on our 2-year cycle. And the change in the retirement dates for the Columbia and Edgewater facility would not impact the timing of those rate cases. So think of '24 and '25, the next one in Wisconsin. For Iowa, we're continuing to watch these cost trends.

Historically, we were trying to stay out a little bit longer in Iowa, but we may be inclined to come in a little bit sooner now maybe as early as 2023. So that's still to be determined and what that might look like in the future as far as whether it's a future historical test year. But all of indications are from a cost -- we probably would be coming in a little bit earlier and maybe as early as the 2023 time period.

[Michael Sullivan, Analyst at Wolfe Research]

Okay, great. Thank you.

[Operator]

[Operator Instructions] Our next question will come from Andrew Weisel with Scotiabank.

[Andrew Weisel, Analyst at Scotiabank]

Hey. Good morning, guys.

[John O. Larsen, Chair, President and Chief Executive Officer at Alliant Energy]

Good morning, Andrew.

[Andrew Weisel, Analyst at Scotiabank]

First question is at WPL, I think you mentioned the 300 megawatts of capacity, I guess you'll file for that kind of any day now. Any updated thoughts on what that's going to look like?

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

Yes. Our teams are really putting the finishing touches on that planned filing for additional resources. And again, as I indicated in my prepared remarks, Andrew, this is largely intended to replace the capacity that we expect to be sold off to some of our Wisconsin utilities at the West Riverside facility. So think of that as we'll probably be filing that sometime in the next 60 days, and we'll be providing some more details regarding the specifics of that filing when we get to the next earnings call in November.

[Andrew Weisel, Analyst at Scotiabank]

Okay. Great. Next a couple of questions on the coal plants. Can you talk about the O&M impacts? I think you alluded a little bit to higher O&M kind of offset by the avoided capacity costs. Robert, can you maybe just talk a little bit about some of the numbers behind that and how that would impact rates between now and the next rate case that you just sort of alluded to?

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

Yes. So maybe to kind of break it up into two different pieces. So yes, as you indicated, we will experience both O&M and capital costs to continue these facilities to operate over the next couple of years. We do have a deferral mechanism available to us in the last rate case for the '22, '23 rate case that allows us to defer those costs until we get to the next rate case cycle in 2024. So we're not expecting that O&M to have any earnings impact to us.

And then as far as the capacity cost that we'll be mitigating for our customers, that usually flows through as a fuel cost. And so we've reflected that into the latest filing that we put in front of the commission for the 2023 fuel cost. So all in all, think of this as earnings neutral given that deferral mechanism for the O&M and capital costs. And you'll see hopefully some modest benefits when we think about our fuel cost for 2023 that are really helping us keep those rates flat from '22 to '23.

[Andrew Weisel, Analyst at Scotiabank]

Okay. Great. That's helpful. And then how do you expect the units to run as they transition to becoming capacity resources? I understand that Miso determines the dispatch, but are you expecting a gradual decline in capacity factors or more like an abrupt change at some point?

[John O. Larsen, Chair, President and Chief Executive Officer at Alliant Energy]

Yes. I think on that one, Andrew. It's maybe a little bit yet to be determined. But right now, we don't see those units operating in any significant way in the market. So just think of them as that reserve capacity for reliability for our customers. We've retired a lot of coal plants previously and transitioned them, and they all have a little bit of a different path. So we'll -- we'll monitor that and make the right decisions for our customers.

[Andrew Weisel, Analyst at Scotiabank]

Sounds good. One last one, if I may. Given the strength of the year-to-date results, have you started to pull some expenses forward from '23 or beyond to help customers and better position yourselves financially? Or are you waiting to get through this summer before you reinvest?

[John O. Larsen, Chair, President and Chief Executive Officer at Alliant Energy]

Yes. It's more of the latter, Andrew. We usually have about 40% of our earnings are in Q3. And so we typically, about this time of the year, we'll give a little indication of trending to the upper lower half and then usually wait until the end of the third quarter before we do any potentially narrowing or guidance change. So we like to get through that third quarter before we do that.

[Andrew Weisel, Analyst at Scotiabank]

Just to clarify, I wasn't asking about guidance. I was asking about your O&Ms and how you're potentially like accelerating feed trimming or programs like that?

[John O. Larsen, Chair, President and Chief Executive Officer at Alliant Energy]

Yes, got it. Sorry for that. Also pretty heavy potential for storm season here during Q3. So while we're certainly looking at the potential for that. I think we want to be fairly conservative in our approach and make sure we're prepared for storms or any unexpected here for the summer months.

[Andrew Weisel, Analyst at Scotiabank]

Very good. Thank you for the details.

[Operator]

And it appears there are no further telephone questions. I'd like to turn the conference back to Mr. Fields for any additional or closing remarks.

[Zac Field, Lead Investor Relations Analyst at Alliant Energy]

This concludes Alliant Energy's second quarter earnings call. A replay will be available on our investor website. Thank you for your continued support for Alliant Energy, and feel free to contact me with any follow-up questions.

[Operator]

[Operator Closing Remarks.]

Participants

Corporate Executives

• Zac Field, Lead Investor Relations Analyst
• John O. Larsen, Chair, President and Chief Executive Officer
• Robert J. Durian, Executive Vice President and Chief Financial Officer

Analysts

• Dariusz Lozny, Bank of America Co.
• Michael Sullivan, Wolfe Research
• Andrew Weisel, Scotiabank