Alliant Energy Q4 2021 Earnings Call Transcript

Participants

Corporate Executives

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

Analysts

• Darius, Bank of America Merrill Lynch
• Andrew Weisel, Scotiabank
• Peter Borden, Mizuho
• Michael Sullivan, Wolfe Research
• Ross Fowler, UBS Group AG

Presentation

[Operator]

Good morning, and welcome to Alliant Energy's Conference Call for Fourth Quarter and Year End 2021 results. This call is being recorded for rebroadcast. [Operator Instructions]

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

[Zac Fields, 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 Chief Executive Officer; and Robert Durian, Executive vice president and CFO.

Followed prepared -- 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 fourth quarter and year-end 2021 financial results and updated our 2022 earnings guidance. This release as well as an earnings presentation will be referenced during today's call and are available on our 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. In addition, this presentation contains references to non-GAAP financial measures. The reconciliation between non-GAAP and GAAP measures are provided in the earnings release which is available on our website.

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

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

Thank you, Zac. Hello, everyone, and thank you for joining us. 2021 was another successful year of growth, solid operations and strong financial performance. I want to thank our talented and dedicated employees for all they do to help us deliver on our purpose, to serve customers and build stronger communities. It shows in how we work each day and in our results. I'm humbled by their efforts and proud to be part of the Alliant Energy team. My sincere thank you to our team.

Yesterday, we announced 2021 GAAP earnings of $2.63 per share compared to $2.47 per share in 2020, finishing the year at the top of our guidance range. Excluding temperature and non-reoccurring items, our earnings per share were up 7% from 2020. This was our third straight year of delivering 7% EPS growth and the 19th year of consecutive dividend increases. This consistent growth driven by solid execution and operational results showcases the resilience and flexibility of our employees, our strategy and our company. I'll highlight a few of our many strategic and operational achievements from the year, then turn it over to Robert, who will provide more details on our solid financial and regulatory outcomes.

From the start of last year, with Winter Storm Uri to the heat waves experienced during the summer months, our employees weathered each and every storm to keep delivering safe, reliable and affordable energy to our customers. And our customers noticed as we earned the second highest increase in year-over-year J.D. Power's Residential Electric Customer Satisfaction scores among large utilities. 2021 was also the first full year of operations for our 1,150 megawatts of new wind, delivering clean, reliable and affordable electricity for our customers.

Our forward thinking in renewable investments also led us to develop our comprehensive clean energy blueprint for Iowa and for Wisconsin, which continue to showcase our commitment to providing a thoughtful path to a clean energy future. Also in 2021, we made tremendous progress on advancing the solar and energy storage aspects of our clean energy blueprint. The customer-focused and transparent planning by our teams led to successful regulatory outcomes and positions us well for straightforward execution.

We received approval for our first certificate of authority for 675 megawatts of solar in Wisconsin, and have advanced into the construction phase. We also filed for an additional 414 megawatts of solar for our customers in Wisconsin, and 475 megawatts of solar and battery storage for our customers in Iowa. Both filings are expected to be decided in 2022. I'd also like to note that our teams were well prepared and continue to navigate through difficult global supply chain issues. And while these supply chain issues are not over, the proactive efforts by our talented team along with leveraging our strong partnerships have resulted in solid progress on panel and equipment deliveries, resulting in an increase in our capital investment plan. Robert will be sharing more details about this positive news later in the call.

Our efforts to build stronger communities were also on full display this past year. While there are many examples I could share, I'll take a little time and highlight a few for you now. Alliant Energy was once again named a top utility in economic development by Site Selection Magazine. Site selection credits are economic development team in collaboration with local, regional and state partners with delivering more than $900 million in new capital investment and more than 2,200 jobs in 2021. We were honored to receive the award and proud of all we've accomplished to help bring new jobs and continued investment to our communities.

Another way we're making things better in our communities is our pledge to plant 1 million trees by the end of 2030. These trees will grow to provide shade, reduce greenhouse gases and improve water quality. And we're off to a great start, planting thousands of trees at community events from Ripon, Wisconsin to Cedar Rapids, Iowa. It's just another way we are living our value of acting for tomorrow.

We also help to build stronger communities by nurturing a culture of diversity, equity and inclusion. This past year we earned a perfect score on the Corporate Equality Index issued by the Human Rights Campaign Foundation, and they named us a best place to work for the firth year in a row. And we were proud to be named to Newsweek Magazine's Most Responsible Companies for the second year in a row, and we made Forbes, America's Best Mid-Size Employers list for the fourth year in a row.

2021 was an excellent year for our company, our customers and our communities. We look forward to building on that momentum in 2022. And thank you for your continued interest in Alliant Energy.

And 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 2021 GAAP earnings of $2.63 per share compared to $2.47 per share in 2020. On an adjusted basis, which excludes impact of temperatures and non-recurring adjustments, earnings per share increased 7% from 2020. Looking at year-over-year, the increases in 2021 were driven by higher revenue requirements, primarily due to increasing rate base at our Wisconsin and Iowa Utilities and higher electric sales due to strong demand from commercial, industrial customers and the impacts of warmer summer temperatures. These favorable drivers were partially offset by higher depreciation and lower allowance for funds used during construction.

Our temperature normalized retail electric sales grew 3% in 2021 when compared to 2020, primarily driven by a resurgence of our commercial and industrial customers as our state economies have strengthened from the worst impacts of the pandemic in 2020. This recovery was more robust in 2021 than initially forecasted, led by stronger industrial sales resulting in total commercial and industrial sales levels for the year, roughly 1% higher than 2019 levels. As customers across our service territories have gradually been returning to their workplaces, we have seen some decline in residential sales. However, residential sales remain modestly higher than 2019 levels.

The strong sales we experienced in 2021 were bolstered by a great year from our economic development efforts, as our team was able to assist with several key industrial customer additions and expansions, ultimately adding about 75 megawatts of load to our system. Additionally, we saw one of the strongest years of incremental customer growth in the past decade. We are announcing an update to our capital expenditure plans for 2022 through 2025. Our new plan is summarized on Slide 6 of our earnings presentation.

There are two primary drivers for the updated plans. The first relates to recent progress made with our solar equipment suppliers that will allow us to receive equipment and materials earlier than previously anticipated. These efforts have allowed us to pull forward approximately $300 million of renewable expenditures into 2022. This enables us to complete these clean energy investments earlier than planned with 325 megawatts now scheduled to go into service in 2022 for our Wisconsin customers. The balance of our previously announced solar and battery projects are expected to go in service in 2023 and 2024.

The second driver of the updated capital expenditure plans involves accelerating clean energy investments into 2023 through 2025, to address capacity needs resulting from MISO's proposed seasonal resource adequacy construct. For those who may not be familiar, MISO has proposed to a credit generation capacity on a seasonal basis under this new construct versus the current state where capacity is accredited on an annual basis. The additive investments included in our updated capital expenditure plans will help satisfy our anticipated seasonal capacity requirements and support reliability for our customers.

Our capital expenditure plans also continue to include investments to replace the capacity from the anticipated exercise of options by WEC Energy and MG&E to purchase a portion of our West Riverside natural gas facility. We anticipate making a certificate of authority filing with the PSCW in the first half of this year for additional capacity resources to replace the capacity expected to be lost with the exercise of these options. We plan to share more details about these resources as we get closer to making that filing.

Turning to this year's earnings guidance with the updates to our capital expenditures plans, we are increasing our 2022 earnings guidance and remain well-positioned for consistent 5% to 7% earnings growth going forward. The midpoint of our updated guidance range is $2.74 per share, which represents a 6% increase over 2021 adjusted earnings. The expected drivers of this increase in earnings include higher earnings on increasing capital investments and higher AFUDC benefits from our solar projects under construction. More details on our 2022 earnings guidance are provided on Slide 7 of our earnings presentation.

In 2002, we estimate a consolidated effective tax rate of 4% with substantial production tax credits generated by our large wind portfolio, helping us maintain the low effective tax rate for the upcoming year and several more years to come. The benefits from these production tax credits are passed on to our electric customers to help manage customer bills and therefore are largely earnings neutral.

Moving on to the financing plans for 2022, we plan to issue long-term debt of up to $1.4 billion in total for WPL and Alliant Energy Finance. The proceeds from the new debt will be used largely to finance investments in solar projects as well as to refinance $625 million of debt maturities in 2022. We also expect to receive approximately $25 million of new common equity under our DRIP plan in 2022.

Lastly, we have included this year's key regulatory initiatives on Slide 8 related to our customer investments, in Wisconsin, we anticipate a decision on our approval request for 414 megawatts of solar in the first half of this year. And in Iowa, our advance ratemaking filing for 475 megawatts of solar and battery is progressing as expected. The Iowa Utilities Board issued a procedural schedule last month which can be found on Slide 9. We anticipate a decision on this advance ratemaking filing in the second half of this year.

In Wisconsin, we also filed a joint application for the sale of a portion of our West Riverside natural gas generating facility to WEC Energy and MG&E at the end of January. We anticipate a decision on this application in either late 2022 or early 2023. These regulatory initiatives are an important part of executing our strategy, and we are thankful for the continued constructive relationships with our regulators in both of our state jurisdictions.

As we conclude another successful year with solid financial results and constructive regulatory outcomes, I want to express my optimism for the year ahead. We've demonstrated the flexibility of our capex plan to shift quickly due to opportunities in the solar projects supply chain. We have regulatory certainty for the next couple of years with no major rate reviews planned, and we have dedicated and talented employees working hard every day to serve our customers and shareowners.

We appreciate your continued support of our company and look forward to meeting with many of you virtually and in person in the coming months. As always, we will make our Investor Relation materials available on our website.

At this time, I'll turn the call back over to the operator to facilitate the question-and-answer session.

Questions and Answers

[Operator]

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

[Darius, Analyst at Bank of America Merrill Lynch]

Hi, good morning, everyone. It's Darius [Phonetic] on for Julien. Thank you for taking my question. I just wanted to at the outset ask more high-level as far as your long-term EPS CAGR, it seems like in the last few years you've had pretty good success achieving growth at the -- at the upper-end of that range. So, as we look ahead in the context of your increased capex plan, I guess what kind of -- what would you see happen that would potentially see growth at the lower end of that CAGR? I am just trying to think of the various scenarios, again in the context of the increased investment plan.

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

Yeah. I appreciate the question, and we are still very comfortable with the 5% to 7%. Think of it as sales would be one of those drivers for me either on the upper or lower end of that. And certainly we got a strong focus on controlling costs, O&M. So those would be always along with weather, but those are the primary drivers.

[Darius, Analyst at Bank of America Merrill Lynch]

Okay, great. I appreciate that. And I guess more on the potential legislation side of things. I know the environment changed a little bit and we were talking about potential direct pay getting passed a few months ago. Just curious how are you thinking about that prospectively? How would your financing or FFO metrics change assuming that some kind of direct pay legislation or provision were passed in coming months?

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

Yeah, Darius, this is Robert. So first off, I just want to reiterate, our strategy was created without the expectation of build back [Phonetic] better any type of clean energy legislation. So, no impact to our strategy if that does not pass. But if it does, we are evaluating the opportunities to switch from tax equity partnership structures to a full ownership. As a result of that, we would expect, I think somewhere in the neighborhood of a little over $1 billion of additional capital expenditures in our plan over the next four years. We would expect to maintain our capital structures consistent with what our regulatory bodies have approved in both states, and therefore you'd see probably a mix of both debt and equity issued as a result of that to maintain the current ratings that we have and the strong balance sheet and the strong metrics that we currently entertain.

[Darius, Analyst at Bank of America Merrill Lynch]

Okay, great. Thank you. If I could just sneak one more in here, just a point of clarification on the updated capex plan. Obviously, you can appreciate that the renewable spend went up, as you alluded to. It looked like the other, the nonrenewable bucket on generation ticked down a little bit. Can you just speak to, I guess what got either reduced or moved out in that bucket?

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

Yeah, Darius, think of that as we continue to look at our resource plan as we go through the process. And I'd characterize it as we have more confidence in our ability to execute on renewable projects going forward. So, you'll see that is our primary focus, along with our electric distribution spend. So, the nice thing about our spend is it's very flexible and so we can constantly evaluate it and look for different opportunities. And right now, we see renewables as kind of the best opportunities when we think about both renewables and storage for the future of our customers. We're always trying to balance the needs of our customers, which are focused largely on clean energy, reliable energy and affordable. And we see that as really a big focus on solar storage, and even some wind as we -- as we think into the future and that's what made us pivot a little bit to that.

[Darius, Analyst at Bank of America Merrill Lynch]

Okay, great. I appreciate those responses. I'll pass it along here.

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

Thank you.

[Operator]

We'll take our next question from Andrew Weisel with Scotiabank.

[Andrew Weisel, Analyst at Scotiabank]

Thank you. Good morning, everybody. I'd like to ask a question about the CAGR in a different way, similar idea though, you're reiterating 5% to 7%. In the past you've talked about a bias towards the midpoint and I believe the guidance midpoint for '22 is 6%. Just given your historical strength, I know you're sticking with the range, but is there a bias for the high-end in '22 and beyond or do you really think that 6% is the more realistic number? I know you're conservative, but how to think about that?

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

Thanks, Andrew. I think you might have captured my answer or response back there. Perhaps a bit of, I guess conservatism in there, but we do plan for the 6% for the long-term and right in the middle of our 5% to 7%, so that will remain.

[Andrew Weisel, Analyst at Scotiabank]

Okay, got it. Then on equity, I see the $25 million in '22, that's a number you've talked about for kind of the foreseeable future, I believe. Is that still the case given the increase to the capex plan or might there be some upward pressure on equity needs, a lot of variables, of course, but given what you know today?

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

Yeah, given what we have today, still, besides the DRIP, no other equity planned.

[Andrew Weisel, Analyst at Scotiabank]

Okay, remind us - the DRIP within $25 million you mean, right?

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

Yes, yes.

[Andrew Weisel, Analyst at Scotiabank]

Okay, perfect. Thank you very much.

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

You're welcome. Thanks, Andrew.

[Operator]

We will now take our next question from Peter Borden [Phonetic] with Mizuho.

[Peter Borden, Analyst at Mizuho]

Good morning, John and Robert. Thanks for taking my question.

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

Good morning, Peter.

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

Good morning.

[Peter Borden, Analyst at Mizuho]

So, on the solar capex pull-forward, is that for Iowa or Wisconsin? And then secondly, how should we be thinking about the recovery of that spend?

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

Yeah, that's for our Wisconsin projects. That pull-forward represents that CA1 that we referred to that first 675 megawatts. About half of that's in 2022, in '23. And so we've gone through the regulatory process for that one. And you would think of it in the normal course of our regulatory proceedings.

[Peter Borden, Analyst at Mizuho]

Okay, and then the additional $300 million to that same period, does that have any regulatory approvals tied to it?

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

Yeah, Peter, think of that as it's mainly for the CA1 projects that we're constructing here in 2022. And as part of '22, '23 rate review that was approved by the PSCW in December, they've approved those projects and allowed us to get a recovery on those costs as well as to earn AFUDC, as we're constructing those facilities. And so we will have to prove prudency with those given the costs were about 7% to 10% higher than what we originally filed for when we received approval for that, but we feel confident with the execution of those projects and the prudency of the spend that will be supported. We've been keeping the PSCW informed all along with updates on the capital expenditure costs for the solar projects in both CA1 and CA2 and feel well positioned to get recovery of those costs.

[Peter Borden, Analyst at Mizuho]

Okay, I appreciate that detail. And then just one other separate one for me. Can you just kind of give us an update on the West Riverside Energy Center with the ownership options? Is there still a cash inflow expected for 2022 or is that pushed into later year?

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

Yeah, I think we would expect more in the 2023 for that, think of that regulatory proceeding right now that we filed jointly. I think, we're thinking end of this year, maybe early '23, so we would expect the cash infusion in '23.

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

And just as a reminder, Peter, there's two pieces to that. There's actually the first half of it, as John indicated, we'll see for the first time in 2023 and there's also a 2024 piece. So, the roughly $200 million to $250 million of cash will come in pretty evenly between those two years.

[Peter Borden, Analyst at Mizuho]

Okay, perfect. Thanks for the detail.

[Operator]

[Operator Instructions] 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]

Good morning.

[Michael Sullivan, Analyst at Wolfe Research]

I wanted to follow-up with that last question there on the 7% to 10% cost increase. That -- that as I recall is a number you've already pointed to, so no additional change since prior communications on cost?

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

That's correct, Michael.

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

Correct, Michael.

[Michael Sullivan, Analyst at Wolfe Research]

Okay, great. And just from a total incremental megawatts perspective, so I think you pulled some forward and that drove some of the capex increase, but in the back end of the plan and what's tied to this MISO capacity construct change, how should we think about that from a megawatt standpoint?

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

Yeah, Michael, maybe I'll kick it off here. So, there's actually two pieces. There's about up to 300 megawatts of capacity needs we expect as a result of the West Riverside options being exercised. So, think of us as making a filing, like I said, sometime here in 2022 for that, most likely here in the first half of the year. And then as we think about the forward capacity requirements as a result of the MISO seasonal constructs, keep in mind that's still in a proposed state and so we're working through some of the details on that, so we don't have specific information. But most likely expect to have something later this year. We'll provide more details regarding the exact megawatts and the nature of the resources that we're going to use between renewables and storage.

[Michael Sullivan, Analyst at Wolfe Research]

Okay, great. Thank you. And then my last one was just what are you embedding for sales growth in 2022 guidance, any color on that?

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

Yeah, think of it is maybe flat to maybe half 0.5% long-term is generally what we have for sales. We did see a nice 2020 to 2021 increase, but we're not assuming that to be necessarily go forward, so, back to what our typical 0.5% type of some overall growth.

[Michael Sullivan, Analyst at Wolfe Research]

Very helpful. Thanks a lot.

[Operator]

We will take our next question from Ross Fowler with UBS.

[Ross Fowler, Analyst at UBS Group]

Good morning, John. Good morning, Robert. How are you?

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

Good.

[Ross Fowler, Analyst at UBS Group]

Just, just following up on the 7% to 10% increase in capex, and I know you've pointed to that in a group before. That's a little bit of cross pressure on the solar side, but you were able to pull it forward into this year and I just -- I stepped back and I juxtapose that against some others in the industry that have actually pushed out solar projects because of cost and supply chain issues. So, maybe -- maybe just delving into the details of your agreements there with your suppliers that allowed you to pull that forward. And then second part of the question is, are you seeing further sort of cost pressures or supply chain issues beyond that 7% to 10% as I think about future years for solar, in particular?

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

Thanks, Ross. Maybe couple parts of that, and I will ask Robert if he wants to add a bit here. So, you know, we've got a good portion of the materials for the first part of our CA that we're going to be constructing here in 2022. So, we feel good about having those pieces of equipment panels on site, if you will. But we've got more solar to build. So, we certainly know the supply chain issues aren't over with. But the team's done a lot of great work and proactive planning. We do partner with some very strong suppliers as well. So we did a lot of work back in earlier years and as well into 2021 that really put us in a pretty good shape here for carrying that out in '22. So, those were the, probably no more detailed and besides we picked some very strong partners to work with. We were able to navigate that for our first CA. We know that supply chain issues will continue for a while. So, we continue to monitor it. But we're in -- we are in good shape for our first solar coming out, and that's why we've been able to be more confident about having that completed in '22 and '23.

Anything to add, Robert?

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

Yeah, maybe just relatively speaking, in November we pushed out some of those projects knowing that there was some supply chain constraints, but the team has done an amazing job over the past few months to remedy that situation. So, we're pretty much close to the original planned in-service dates that we had towards the earlier part of 2021, so just to keep that in mind to keep as a reference point.

[Ross Fowler, Analyst at UBS Group]

Okay, thanks. That's great.

[Operator]

And it appears there are no further questions at this time.

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

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

[Operator]

[Operator Closing Remarks]