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Alliant Energy Corporation (NYSE: LNT ) Q1 2016 Earnings Conference Call May 5, 2016 10:00 ET Executives Susan Gille – IR Pat Kampling – Chairman, President & CEO Tom Hanson – SVP & CFO Analysts Andrew Levi – Avon Capital Brian Russo – Ladenburg Thalmann Andrew Weisel – Macquarie Research Operator Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy’s First Quarter 2016 Earnings Conference Call. At this time, all lines are in a listen-only mode and today’s conference is being recorded. I would now like to turn the call over to your host, Susan Gille, Manager of Investor Relations at Alliant Energy. Susan Gille 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 Pat Kampling, Chairman, President and Chief Executive Officer; Tom Hanson, Senior Vice President and CFO; and Robert Durian, Vice President, Chief Accounting Officer and Controller; as well as other members of the Senior Management Team. Following prepared remarks by Pat and Tom, we will have time to take questions from the investment community. We issued a news release last night announcing Alliant Energy’s first quarter 2016 earnings, re-affirmed 2016 earnings guidance. 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 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 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 non-GAAP financial measures. The reconciliation between non-GAAP and GAAP measures are provided in the earnings release, which are available on our website at alliantenergy.com. At this point I’ll turn the call over to Pat. Pat Kampling Thank you, Su. Good morning and thank you for joining us on the first quarter 2016 earnings call. I will begin with an overview of our first quarter performance. I will now review the progress made and transforming our generation fleet creating a smarter energy infrastructure and expanding our natural gas system. I will then turn the call over to Tom to provide details on our first quarter results as well review our regulatory calendar. Like the utilities in the region mild with the temperatures reduced first quarter results, ours by $0.05 per share. This is quite the opposite from first quarter 2015 where we experienced a positive temperature impact to earnings therefore temperature swings led to a significant quarter-over-quarter variance of $0.09 per share. During the past few years we have been executing on our plan for the orderly transition of our generating fleet and economic manner to serve our customers. We made progress in building a generation portfolio that has lower emissions, greater fuel diversity, is more cost efficient. The transition includes increasing levels of natural gas fired and renewable energy generation, lower levels of coal generation through coal unit retirements and installing emission controls on performance upgrades on largest coal fired facilities. We have also started water and ash program at our facilities to meet current and expected future environmental requirements. Now let me brief you on our construction activities. 2016 is another very active construction year with 4 investments of over $1.1 billion. Our investments are projected to include approximately $300 million for our elective distribution systems. These investments are driven by customer expectations to make our systems more robust, reliable and resilient. This year’s plan also includes $200 million for improvements in expansion of our natural gas distribution business almost double our year spending. The electric and gas distribution business will continue to be a focus for future investments as we create a smarter energy infrastructure. Now I will provide an over view of our drilling, investments and gas power generation. As you are aware the Public Sewage Commission of Wisconsin approved the certificate of public convenience and necessity for the river side expansion. And we expect to receive the written order today. We have already received the air permits and are awaiting approval for the water permits. We expect the asset from the new river side units to be approximately 700 MW and the total anticipated capital expenditure for river side remains at approximately $700 million excluding AFUDC and transmission. The targeted in service state is by early 2020. Later this month we plan to announce the engineering procurement and construction firms selected for this project. In Iowa the Marshalltown natural gas fired generating facility is progressing well and is now approximately 73% complete. Total CapEx is anticipated to be approximately $700 million excluding AFUDC and transmission. Marshalltown is on time and on budget and is expected to go in service in spring 2017. Riverside and Emery are two primary existing gas generating facilities, had another quarter of significant increase in dispatch when compared to prior years. During the first quarter of 2016 Riverside’s and Emery’s were more than double their five year averages. The ability to lean on our gas generation during periods of low gas prices results in fuel savings of our customers and shows the importance of a balanced energy mix. Moving on to our existing coal field, we are getting towards the end of our successful construction program to reduce emissions at our largest facility. At Edgewater Unified, we continue on the installation of backhouse. This project is approximately 97% complete and is on time and below budget and should be in service later this year. Total CapEx for these projects are anticipated to be $270 million. And last month construction of the Columbia Unit II SCR began. EPL’s total CapEx anticipated to be approximately $50 million and is expected to go in service in 2018. There are several new order and ash regulations being developed by the environmental protection agency which we anticipate will impact 9 of our generating facilities both located across Iowa and Wisconsin. Our water and ash program was designed according to EPA and DNR rules and regulations. We have ash plant closers and bottom ash conversions underway in Iowa as IPLs filed commission plan and budget. In Wisconsin we filed an application for the certificate of authority for bottom ash conversion for Edgewater. The total expenditures for our water and ash programs are anticipated to be over $200 million over the next 7 years. The estimates provided in our investor release presentation include the near term expenditures for this program. As we plan for future generation needs we aim to minimize impacts while providing safe, reliable and affordable energy for our customers. We believe that our current emissions will continue to decrease due to the transition of our generating fleet, the availability of lower natural gas prices and increase of renewable energy. We have continued to invest in and purchase renewable energy. We currently own 568MW of wind generation and purchased approximately 470MW of energy from renewable sources. Our 10 year capital plan includes additional investments to meet customer energy needs. Also we have several solar projects from which we anticipate gathering valuable experience on our best to integrate solar in a cost effective manner into our electric system. At our headquarters over 1300 solar panels have been installed and they are now generating power for the building. Construction has also started on Wisconsin largest solar farm on our Rock River landfill which is adjacent to riverside. In Iowa construction has started on the Indian Creek Nature Center in Cedar Rapids. We will own and operate the solar panels there. We also anticipate collecting additional solar investment opportunities in the near future. Listen to our customers and understand their evolving needs is shaping the path for the future. We have replaced our decade old customer information and billing system which is now providing customers of now many more online self service offerings and robust customer communication options. And we have plans to ramp up additional offerings with this new platform. We are managed our company well and have made great strides growing for our company on behalf of our investors, customers and employees. In fact, our stock price doubled between yearend 2010 and into the first quarter of this year. As recognition of this progress and the growth prospects going forward the Board of Director’s announced a two form stock split last month. Each share on record on the close of business on May 4 will receive one additional share for every outstanding common share held on that date. The additional shares will be distributed on May 19 and May 20 shares will be sold at the post-split price. This is a significant milestone that our company and investors should be proud of. Let me summarize today, we will work to deliver 2016 operating objectives. Our plan continues to provide for 5% to 7% earnings growth and a 60% to 70% common dividend payout target. Our target 2016 dividend increased by 7% over the 2015 dividend. Successful execution of our major construction projects include completing projects on time and at a below budget in a very safe manner, working with the regulators and customers and utilities in a collaborative manner, reshaping the organization to be leaner and faster while keeping our focus on our customers and being good partners in the community. We will continue to manage the company to strike a balance between capital investments, operational and financial discipline and impacts to customers. You are invited to join us at our annual meeting next week which will be held on May 13 in Wisconsin. Thank you for your interest in Alliant Energy and I will now turn the call over to Tom. Tom Hanson Good morning everyone, we released first quarter 2016 earnings last evening with our earnings from continuing operations of $0.86 per share which was $0.01 per share lower than 2015 earnings. a summary of the quarter over quarter earning’s drivers may be found on Slide 3. Consistent with our growth assumed in our 2016 earning’s guidance retail electric and temperature normalized sales for Iowa, Wisconsin increased to approximately 1% between first quarter 2015 and 2016. The commercial and industrial sectors continued to be the largest hales growth drivers quarter-over-quarter. Now let’s briefly review our 2016 guidance. In November we issued our consolidated 2016 earnings guidance range of $3.60 – $3.90 on a pre-stock split basis. The key drivers for the 5% growth in earnings led to infrastructure investments such as the Edgewater and the Lansing emission control equipment. And hire AFUDC related to the Marshalltown generating station. The earing’s guidance is based upon the impacts of IPLs and WPLs previously announced retail based rate settlement. In 2016 IPL expects to credit customer builds by approximately $10 million. By comparison the building credits in 2015 were $24 million. IPL expects to provide tax driver billing credits to electric and gas customers of approximately $62 million compared to $72 million in 2015. Over the years the tax benefit riders may have a timing impact but are not anticipated to impact full year results. The WPL settlement reflected electric growth for the Edgewater house projected to be place in service this year. The increase in requirements in 2016 for this and other base additions completely offset by lower energy efficiency recovery amortization. Slide 4 has been provided to assist you in modeling the assisted tax rates in IPL and WPL and AEC. Turning to our forecasted capital expenditures. In March, the pipeline and hazardous materials safety administration announced proposed regulations to update the safer requirements for gas pipeline. We currently anticipate final regulations will be issued in 2017. The forecasted capital expenditures provided during our year-end call include estimated amounts for this expected regulations. Now turning to our financing plans. Our current forecast incorporates the extension bonus depreciation deduction through 2019. As a result of the 5 year bonus depreciation Alliant Energy does not expect to make any significant federal income tax payments through 2021. This forecast is based on current federal net operating losses and credit carry forward positions as well as future mounted bonus depreciation expected to be taken under federal income tax returns over the next 5 years. Cash flows from operations are expected to be strong. Given their earnings generated by business. We believe that with strong cash flows and financing plan we will maintain our target liquidity and capitalization ratios as well as high quality credit rating. 2016 financing plans will soon be issued in approximately $25 million of our new common equity through our share to direct plan. The 2016 financing plan also anticipates issuing the long term debt of up to $300 million of IPL and approximately $400 million of parent Alliant Energy resources. We added $10 million to the proceeds at the energy resources are expected to be used to refinance the maturity of term loans. As we look beyond 2016 our equity needs will be driven by riverside expansion project, our forecast assumes that Capital expenditures for 2017 would be financed primarily by a combination of debt and new common equity. Our 2017 financing plan currently assumes issuing up to $150 million of common activity. We may adjust our financing plans as deemed prudent if market conditions warrant and our debt needs continue to be reassessed. We have several current and planned regulatory redactors of note of 2016 and 2017 which we have summarized in Slide 5. During the second quarter this year we anticipate filing a WPL retail electric and gas case for the 2017 and 2018 rates. For IPL we expect decision regarding permit application for approximately $60 million in natural gas pipeline. Iowa and retail electric and gas based cases are expected to be filed in the first half of 2017. We very much appreciate the continued support of your company. At this time I will turn the call back over to the operator to facilitate the question-and-answer session. Question-and-Answer Session Operator Thank you, Mr. Hanson. At this time the company will open the call for question for members of the investment community. Alliant Energy’s management team will take as many questions as they can within the one hour timeframe for this morning’s call. [Operator Instructions] We will go first to Andrew Levi at Avon Capital. Andrew Levi Hi, first question. Susan Gille Good morning Andy, congratulations. Andrew Levi Thank you. What do I get for anything or? Pat Thompson Nothing. Andrew Levi Just a quick question. Just on the non-reg, where was the breakdown on the earnings on the non-reg on the quarter? Pat Thompson Yes, the railroad and train facility. Tom Hanson I think the transportation $0.01 and our non-reg generation was another $0.01. Franklin County was a drag of about $0.01 and then we had activity of about another penny. Last time it was a positive in terms of the other benefits of the parent. Andrew Levi Okay and how did the Franklin, the non-reg generation and the railroad, how did that compare to last year? Tom Hanson I would say it’s fairly consistent. Andrew Levi Okay and then just in general on Franklin and the railroads. What’s kind of the thinking of the outlook this year relative to last year? Tom Hanson I think with Franklin last November when we gave guidance we said it would probably be a drag on earnings of about $0.04 to $0.05. And that is still reasonable, yes. Andrew Levi And on the railroad? Tom Hanson And assume $0.07 was our current outlook, current forecast we are assuming the same expectations for 2016. Andrew Levi $0.07 to the railroad. Is that what the railroad earned in 2015 or was it higher or lower? Tom Hanson No it was $0.07 last year as well. Andrew Levi Got it, that’s all I needed. Thank you very much. Operator We move next to Brian Russo with Ladenburg Thalmann. Brian Russo Hi, good morning. You reaffirmed your 5% to 7%, does that run through a particular year or through a particular planning periods? Maybe you could just talk about that just a little bit. Pat Thompson Yes, Brian we actually based it on last year’s weather normalized sales and it goes on for 5 years so till 2019. Brian Russo Okay and what was last year’s weather normalized sales? Pat Thompson $3.57 Brian Russo Okay. And just remind us the Riverside settlement and options from communities to grow up and energy, just remind us of the timing of that? Susan Gille Yes, Brian we updated our Investor Deck so if you got to Slide 9 on the Deck, basically the Wisconsin public service has the option for up to 200 MW in the 2024 timeframe. MG&E has up to 50 MW from the 2020 to 2025 timeframe and the co-op have up to 60 MW and they will determine that in the quarter this year. Brian Russo And how is that priced? Susan Gille Current book value at the time. Brian Russo Okay. Thank you. Operator Moving next to Andrew Weisel with Macquarie Capital. Andrew Weisel Good morning, appreciate the commentary on potential equity meets for next year. Just want to understand is that sort of a run rate we should assume for all years in 2017 and beyond or is it sort of a onetime thing? Obviously there’s other variables that could make the need go up and down but should we think of that as the number for the next several years or 2017 and there could be more 2018? Tom Hanson Assume that as the initial estimate for 2017 and in terms of the outer years. It’s going to be somewhat depended on the some of the parties just made reference to, in terms of the Riverside expansion so if and when MG&E might step into Riverside so for now assume up to $150 million applies to only till 2017. Andrew Weisel Okay. Great and the other one there was some change to the effective tax rate forecast in the Slide Deck, I believe and want to confirm. That’s earning as neutral and that offsets right to revenue line or is that something that could effectively shake out within the guidance range? Tom Hanson There will be some movement with the income statements. What has changed is principally an IPL which will have a less low through benefit. But that could not be impacting earnings. That will be offset someplace else. Andrew Weisel Okay. That cancelled the effect of tax rate so both IPL and corporation, I should think of it as neutral? Tom Hanson No, think of it as lien adjustment tax and something else will be offsetting it so the earnings guidance will remain consistent with previous estimates. Andrew Weisel Okay. So the $0.09 benefit in the full year guidance is still a good number to think about? Tom Hanson A little bit high but it is not going to be significantly high and will be offset by something else so far, guidance for 2016 is unchanged. Pat Thompson We know how carefully you guys track the tax rate so we want to provide the update this quarter. Andrew Weisel Yes, appreciate it was just trying to understand the potential impact of the bottom line. Thank you. Pat Thompson And Tom counts every penny also. Operator Ms. Gille, there are no further questions at this time. Susan Gille With no more questions, this concludes our call. A replay will be available through May 12, 2016 at 888-203-1112 for U.S. & Canada or 719-457-0820 for international. Callers should reference conference ID 8244179. In addition an archive of the conference call and the prepared remarks made on the call will be available on the Investor sections of the company’s website later today. we thank you for your continued support of Alliant Energy and feel free to contact me with any follow-up questions. Operator And that concludes today’s presentation. Thank you for your participation. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. 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