Alliant Energy Q2 2024 Earnings Call Transcript

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August 2, 2024

Key Takeaways

  • Alliant Energy reaffirmed its 2024 ongoing EPS guidance of $2.99 to $3.13, backed by normal weather assumptions, cost controls, and timely Iowa rate relief.
  • A partial settlement in the Iowa rate review secures base rate stability through the decade and introduces an individual customer rate structure designed to attract economic development and drive load growth, including data center projects pending regulatory approval.
  • Q2 GAAP EPS of $0.34 lagged ongoing EPS of $0.57 due to one-time after-tax charges totaling $0.23 per share, primarily from the Lansing Generating Station write-down and updated coal ash pond liability estimates.
  • Operating cash flow surged by approximately $250 million year-over-year, aided by WPL rate increases and the monetization of over $130 million in tax credits, supporting the company’s capital investment and financing plans.
  • Key regulatory milestones include an expected Iowa Utilities Commission order by September, a PSCW-approved $34 million fuel cost refund in Wisconsin, and pending 2025 decisions on generation investment filings.
AI Generated. May Contain Errors.
Earnings Conference Call
Alliant Energy Q2 2024
00:00 / 00:00

There are 8 speakers on the call.

Operator

you for holding, and welcome to Alliant Energy's Second Quarter 2024 Earnings Conference Call. At this time, all lines are in a listen only mode. Today's conference call is being recorded. I would now like to turn the call over to your host, Susan Gill, Investor Relations Manager at Alliant Energy. Please go ahead.

Speaker 1

Good morning. 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 Larson, Executive Chairman Lisa Barton, President and CEO and Robert Durian, Executive Vice President and CFO.

Speaker 1

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 2nd 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 Web site 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.

Speaker 1

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.

Speaker 1

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

Speaker 2

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.

Speaker 2

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 Align 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.

Speaker 2

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.

Speaker 2

In collaboration with several intervening groups, we remain focused on what's best for our customers, shareowners and the communities we proudly serve, providing stability and opportunities for continued economic development and growth. I'll now turn the call over

Speaker 3

to Lisa. 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.

Speaker 3

Congratulations, Sean, 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.

Speaker 3

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.

Speaker 3

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.

Speaker 3

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 Q3 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.

Speaker 3

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 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 $1,000,000,000 in capital. The incentives are geared towards advanced manufacturing, biosciences and research based companies locating at a certified site.

Speaker 3

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 accreditation. We understand the importance for our investors to have transparency in our future plans. As such, we will provide updated load forecast, resource needs and CapEx requirements in our Q3 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.

Speaker 3

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.

Speaker 4

Thanks, Lisa. Good morning, everyone. Yesterday, we announced Q2 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 reoccurring charges from legacy assets that were recorded in the Q2 of 2024, which are excluded from our ongoing earnings. 1st, based on the terms of IPL's rate review settlement agreement executed in the Q2, 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.

Speaker 4

Because we no longer expect to receive a full return on the asset, we were required to write down the asset in the 2nd quarter resulting in an after tax charge of $0.17 per share that we disclosed in an 8 ks filed in June. 2nd, due to the EPA's recent enactment to the revised coal combustion residual rule, we remeasured our asset retirement obligations related to ash ponds and landfills in the Q2. 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 2 generating stations utilized to serve our steam customers resulted in an after tax charge of $0.06 per share. IPL has 2 high pressure steam customers under contract through 2025, after which time IPL expects to end its steam operations.

Speaker 4

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 Q2 2024 results were impacted by the temporary effects of the timing of income tax expense. This issue in modeling our quarterly earnings this year, I want to provide some additional context to the timing of income tax expense.

Speaker 4

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.

Speaker 4

Temperature normalized electric sales to residential customers were higher in the first half of twenty twenty four 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 2 utilities to achieve our financial objectives and support customer affordability. In fact, our adjusted operations and maintenance expenses for the first half of twenty twenty four were approximately $20,000,000 less than the first half of twenty twenty three. 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.

Speaker 4

For the full year, we are reaffirming our ongoing earnings guidance of 2.99 dollars to $3.13 per share, which excludes the 2 non reoccurring charges I discussed earlier. Details on our Q2 earnings drivers and 2024 full earnings guidance can be found on Slides 56. Turning to cash flows. During the first half of twenty twenty four, cash flows from operations increased by approximately $250,000,000 when compared to last year. These strong cash flows demonstrate the strength of our ongoing business.

Speaker 4

The increased cash flows were primarily due to WPL's electric gas rate increases, which were effective January 1 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 1st 7 months of this year, we have monetized over $130,000,000 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 $800,000,000 in debt maturities this year.

Speaker 4

In addition to successful debt issuances in the Q1, issued $375,000,000 of long term debt at Alliant Energy Finance in June. Our overall financing plan for 2024 remains unchanged, including one remaining plan financing for up to $700,000,000 of long term debt at IPL, in part to refinance $500,000,000 in debt that matures in December. In the Q2 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 $123,000,000 Shifting to our regulatory initiatives. We continue to make good progress on our notable regulatory initiatives for 2024 shown on Slide 8.

Speaker 4

Lisa provided the highlights of IPL's rate review settlement agreement executed in the Q2. 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. For the order, WPL will refund $34,000,000 to its Wisconsin Electric customers in the Q4 of this year helping lower customer bills.

Speaker 4

Continuing with our Wisconsin jurisdiction, we have 2 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 Bantry 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.

Speaker 2

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.

Speaker 2

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.

Operator

Thank I will take our first question from Nicholas Campanella with Barclays. Please go ahead.

Speaker 5

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

Speaker 4

Yes, Nathan, this is Robert. Yes, I think of that as right now we currently have a shareowner direct plan where we're issuing approximately $25,000,000 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.

Speaker 4

And as we'll talk maybe further here, we do expect to refresh our capital expenditure plans in November as part of the natural 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.

Speaker 5

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?

Speaker 4

Yes. 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've excluded that.

Speaker 4

We also have a temporary issue as it relates to the income tax expense that we'll see reverse here later this year. And then really after you get through those unusual items, you really focus on the key drivers 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 has been very successful in identifying opportunities to offset some of those costs to this date.

Speaker 4

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.

Speaker 5

Awesome. Thank you again. Have a good one.

Speaker 4

Thanks.

Operator

Our next question comes from Andrew Weisel with Scotiabank. Please

Speaker 5

go ahead.

Speaker 6

Hi, good morning and congratulations again to John.

Speaker 2

Thanks Andrew.

Speaker 6

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 Q3 call or maybe you could just elaborate or were you talking about updated load forecast perhaps? What was it that you were foreshadowing?

Speaker 3

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.

Speaker 3

What we will be doing, as both I and Robert mentioned, is putting all of that together at our Q3 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.

Speaker 6

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

Speaker 3

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 3 different load levels and low, medium and high. And why we're doing that is that allows timing. So we're very well positioned for us to be communicating our plans at EEI.

Speaker 6

Sounds great. Definitely looking forward to that. Then a couple of questions on the Iowa settlement, if I may. First, when you think to years 3 to 5, 5 years certainly a long stay out, what are the upside and downside risk to the earned ROE relative to the allowed? In other words, you have this earning sharing mechanisms.

Speaker 6

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 2 years?

Speaker 3

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 share owners are going to benefit from the tax benefits and energy benefits during that period.

Speaker 3

And I will note this, it is a very similar model that Mid Am 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. So Robert, why don't you talk a little bit of some of the off ramps that we have?

Speaker 4

Yes. So when we structured the agreements with the intervening parties as part of the settlement agreement, 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 below a certain level either on an annual basis or over a 2 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.

Speaker 4

So that gives us some level of optimism for that period.

Speaker 6

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 advanced rate making was discussed in the settlement and how you expect it to be applied going forward?

Speaker 4

Yes, Andrew, we didn't get into a lot of details on the advance we're making principles in the settlement. As you may recall, there's legislation that's been recently passed in Iowa that expands the eligibility of the Managed Form Making 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 those next few years, mainly related to what I would say, larger gas projects, renewable projects as well as now battery projects.

Speaker 3

And the 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. Good to

Operator

We will move next with Paul Zimbardo with Jefferies. Please go ahead.

Speaker 7

Hi, good morning team.

Speaker 3

Good morning.

Speaker 7

The first, I'll play a small clarification. With respect to the 2 steam customer contracts you talked about through 2025 that are ending, is there any ongoing earnings impact to think about from those?

Speaker 4

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

Speaker 7

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 the system needs could be on the generation side would be helpful.

Speaker 3

We don't have specifics on that. What we can say, Paul, is that we're feeling very well positioned for that. If you think about a premium utility 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, on shoring 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.

Speaker 3

And so as we look at that more broadly to unlock that potential for shareholders, we 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.

Speaker 3

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.

Speaker 7

Okay, great. Thank you. We at least have to try.

Operator

We will move next with Alex Mortimer with Mizuho Securities. Please go ahead.

Speaker 7

Hi, good morning team.

Speaker 3

Good morning, Alex.

Speaker 7

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 seem very bullish for your low growth prospects?

Speaker 3

Really all is a matter of timing. And so yes, again, as soon as we have that information, we'll be putting it out.

Speaker 7

Okay. Thank you so much. That's all I had.

Operator

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

Speaker 1

With no more questions, this concludes our call. A replay will be available on our investor website.

Speaker 3

We thank you for

Speaker 1

your continued support of Alliant Energy and feel free to contact me with any follow-up questions.

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