Alliant Energy Q1 2023 Earnings Call Transcript

Participants

Corporate Executives

• Susan Gille, Investor Relations Manager
• John O. Larsen, Board Chair and Chief Executive Officer
• Robert J. Durian, Executive Vice President and Chief Financial Officer

Analysts

• Dariusz Lozny, Bank of America Co.

Presentation

[Operator]

Good morning, and welcome to Alliant Energy Conference Call for First Quarter 2023 Results. This call is being recorded for rebroadcast. [Operator Instructions] I would now like to turn the call over to your host, Susan Gille, Investor Relations Manager at Alliant Energy.

[Susan Gille, Investor Relations Manager 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, Board Chair 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 first quarter 2023 financial results. This release as well as an earnings presentation that will be referenced during today's call are available on the Investor page of our website at www.alliantenergy.com.

Before we begin, I need to remind you the remarks we make on this call and our answers to 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, Board Chair and Chief Executive Officer at Alliant Energy]

Thank you, Susan. Hello, everyone, and thank you for joining us. To begin the call, I want to acknowledge that we recently celebrated Alliant Energy's 25th anniversary. On April 21, 1998, our three predecessor companies, IES Utilities, Interstate Power Company and Wisconsin Power & Light officially came together as one unified company we know today as Alliant Energy.

I'd like to recognize all employees past and present who have built and continue to build one of the most consistent performing energy companies in the nation. Because of this team, Alliant Energy has reliably delivered energy to our customers while continuing to provide the stability and growth that investors expect. This is in addition to the unwavering dedication from our employees to work safely and strengthen our connection with communities and customers we proudly serve.

As we continue our long track record of consistent execution, 2023 is off to a solid start, and our strong investment thesis remains. Despite warmer-than-expected weather and taking into account timing of tax expenses, which will reverse later this year, we achieved Q1 results on plan. We have reaffirmed our annual earnings guidance of $2.82 to $2.96, and we remain committed to delivering on our long-term 5% to 7% growth target. It has been a busy and productive start to the year. I will highlight several updates that demonstrate our strategy, purpose in motion. We are continuing to invest in advance toward a more reliable and sustainable energy future.

Investing in a diverse and reliable energy mix is a top priority. At the same time, we are building a more resilient energy network. Resilience and reliability are the foundation of our recently filed rate review in Wisconsin. Our customers continue to see benefits of our prudent investments in diversifying the energy resources within our portfolio.

We are committed to making our energy supply competitive and reliable, creating a diverse mix of resources that help to reduce exposure to energy price volatility and deliver value to our customers. An example of that is our renewable and battery storage investments. These investments have no fuel costs and generate tax credits, which flow back to customers. We continue to manage through and mitigate ongoing inflationary pressures, our work to accelerate our strategic spend initiatives in 2022 and recently completed financing have positioned us well for 2023 and beyond.

Our proactive efforts to build a flexible, reliable and resilient energy grid, a key element of our Clean Energy Blueprint, have demonstrated strong results and helped us successfully navigate the recent extreme weather events. One example is our continued focus on placing electric distribution lines underground. We have made significant progress in this effort with over a quarter of our distribution lines already underground. And in 2022, 55% of our customers experienced no power outages and approximately 80% of outage events were restored in less than two hours.

Another key area of progress is our renewable energy portfolio. We continue to be the largest owner-operator of solar in Wisconsin, we have all solar sites and panels in our control for our planned 1.1 gigawatts of utility-scale solar projects within Wisconsin, and we are on track to put the approximately 840 megawatts of remaining utility-scale solar in service by the first half of 2024.

And while we're proud of our industry-leading renewable investments and the progress we're making on our clean energy blueprint, our efforts go beyond these investments. We focus on all aspects of ESG as we execute our plan. A great example of this is our Wood County Solar project in Wisconsin. This project was recently awarded ISI's Envision Platinum Award for sustainability, highlighting the project's contributions to the environmental protections, social well-being and equity, all while helping the community thrive economically. This recognition showcases the tenets of our Clean Energy Blueprint and our purpose.

In Iowa, we're continuing to advance our solar and storage projects. Robert will share more on the status of the regulatory proceedings but I'll note that we remain committed to advancing clean energy projects and delivering on the benefits they will provide to our customers and communities. As part of our transition in Iowa, we will soon be closing our Lansing coal facility. For decades, our dedicated employees at the Lansing Generating Station have been providing customers and communities with safe and reliable energy.

As we transition from coal towards a cleaner energy mix, we are caring for our employees, creating new jobs and bringing economic development opportunities to the communities we serve. Ultimately, the closing of the facility helps control long-term costs for customers and is another step in advancing our clean energy blueprint. One last area I'll mention is technology. We are excited to have made advancements in grid and customer technologies that will enable us to enhance service to our customers, more quickly respond and restore power and improve the customer and employee experience. We believe this will improve customer satisfaction and provide cost savings and efficiencies.

I'll end my remarks where I began with our employees. I mentioned the hard work of our employees at the outset. I'm always happy to see their hard work recognized by other organizations. For the fifth year in a row, we've made the Bloomberg Gender Equality Index. And once again, we were named to Newsweek's list of America's most trustworthy companies. Great recognition for our dedicated employees and the result of their work serving our customers and communities. We've been fortunate to build on the legacy of employees that have come before us, and I'd like to spend a special thank you to the nearly 500 employees who are part of these last 25 years of Alliant Energy for your contributions to our consistent and sustained success. To reinforce where we are in 2023, I want to reiterate our continued ability to deliver consistent results and the year-over-year execution of our strategy that has enabled Alliant Energy to be a top performer within our industry. We look forward to another year of solid financial and operational performance, and we appreciate your continued interest in our company.

I will 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 first quarter 2023 GAAP earnings of $0.65 per share. The primary drivers of the quarter-over-quarter EPS variances were the impacts of warmer temperatures than last year, resulting in lower retail electric and gas sales for this quarter. Higher interest expense due to additional financings and increasing interest rates and the timing of income tax expense that will reverse later this year. These items were partially offset by higher earnings resulting from increasing revenue requirements and allowance for funds used during construction from Wisconsin Power & Light's capital investments.

For the full year, we are reaffirming our earnings guidance of $2.82 to $2.96 per share. The midpoint of that range is a 6% increase over 2022 adjusted earnings per share. Details on our quarter earnings drivers and 2023 full year earnings guidance can be found on Slide 3.

To assist you in modeling our quarterly earnings this year, I wanted to provide some additional context to a few of the quarterly 2023 drivers. First, in anticipation of continuing inflationary pressures, we accelerated our cost transformation efforts in the second half of 2022. We do not anticipate the same heightened spend in the second half of 2023 for such efforts. Thus, we are anticipating that most of our year-over-year O&M savings will occur in the second half of 2023.

Second, we anticipate quarter-over-quarter variances related to interest expense were at their highest level in the first quarter with the quarter-over-quarter variances expected to taper as we proceed through the year. This quarterly interest expense impact is based on the cadence of our financings in 2022 versus 2023.And third, income tax expenses recorded each quarter based on an estimated annual effective tax rate and the proportion of full year earnings generated each quarter. This causes fluctuations in the amounts of tax expenses quarter-over-quarter, but it will not have an impact on our full year earnings. We've already executed a large portion of our 2023 financing plan to fund our investments in renewable projects and to support refinancing of $400 million debt maturity in 2023.In March, Alliant Energy issued $575 million of 3.875% convertible senior notes maturing in 2026. These convertible notes offered us an attractive financing opportunity given the current interest rate environment.

In March, WPL also issued $300 million of 4.950% Green Bonds maturing in 2033. The proceeds from this offering will be used for the development and acquisition of solar generating units, which are a key component of our clean energy blueprint. We have taken proactive steps to significantly reduce exposure to higher interest rates with these two debt issuances and an interest rate swap all executed in the first quarter of 2023. These actions will help insulate us from interest rate increases and produce better-than-expected interest expense relative to our annual plan. Earlier this year, we also closed on the sale of 25 megawatts of our West Riverside natural gas facility to MG&E. And we are working towards a closing on the sale of 100 megawatts of West Riverside to WEC Energy later this quarter. The sales of these partial interests in West Riverside were included in our plans and are expected to provide combined proceeds of approximately $125 million.

We're also making progress with plans to start transferring 2023 renewable tax credits later this year after we received guidance from the treasury on the requirements for such transfers under the inflation Reduction Act. We have seen strong interest in transferring these tax credits, and the proceeds from these asset transfers will help fund our future utility investments and reduce some of our future financing needs. The remaining financings for 2023 include plans to issue up to $300 million of long-term debt IPO and plans to raise up to $225 million of new common equity through our at-the-market program. The ATM is in addition to the $25 million of common equity that we expect to raise under our DRIP plan.

The 2023 financing plan is driven by robust capital expenditure plans, and supports our objective to maintain the capital structures at our two utilities, consistent with their most recent regulatory decisions.

We've included our key regulatory initiatives for 2023 on Slide 5. Starting in Wisconsin. Last week, WPL filed an electric and gas rate review for test years 2024 and 2025. The filing includes recovery of several investments that support sustainability and resiliency while keeping customer value and competitive rates top of mind. These investments include nearly 1.1 gigawatts of solar generation in the state by mid-2024 and 274 megawatts of energy storage by 2025.WPL is also exploring opportunities to enhance the value of its existing natural gas assets with new projects to increase output and efficiency. Finally, we plan to continue investing in underground distribution and standardizing system voltage to enhance resiliency while reducing O&M expenses.

Next steps in the rate review process included a discovery phase and audit by the PSCW staff and interveners, with a hearing anticipated in early fall and a final decision expected from the PSCW later this year. More details on the rate review, including key terms requested in this filing can be found on Slides 6 and 7.

Additionally in Wisconsin, WPL recently submitted its 2022 fuel reconciliation filing. This field reconciliation filing is requesting future recovery of $117 million of additional field costs incurred by WPL in 2022 due to higher energy cost to serve its customers. WPL currently anticipates a decision from the PSCW on this filing in the third quarter of this year. While our utilities experienced higher fuel costs in 2022 driven by elevated commodity prices, during the first three months of 2023, we have experienced significant reductions in natural gas prices which will help lower fuel costs for our Wisconsin customers in the future. And in Iowa, we have already started passing these lower fuel cost benefits on to our customers through the monthly fuel cost tariff. Looking forward in Wisconsin, we are preparing applications to request approval for capacity and efficiency improvements for some of our natural gas-fired peaking units. Also, we are awaiting the PSCW decision on the proposed 274 megawatts of battery storage projects. These projects were part of the capital expenditure plan announced in the third quarter of 2022 and are part of the proposed revenue requirement WPL's recently filed rate review for test periods 2024 and 2025.

Moving on to our Iowa jurisdiction. In late 2021, we filed for advanced rate making principles for approximately 400 megawatts of solar generation and 75 megawatts of battery storage. In January of this year, we provided additional testimony and evidence to the Iowa Utilities Board as requested in this proceeding. This testimony and evidence further demonstrated that IPL is taking prudent action to meet its customers' need for capacity, and our projects represent cost-effective solutions compared to alternative options available in the market. Last week, the IUB approved advance ratemaking principles for 200 megawatts of build-transfer solar projects at the Duane Arnold location. And we are proceeding with the judicial review requesting a District Court decision to enable the IUB to issue advanced frame-making principles for the 200 megawatts of Creston and Weaver self-build solar projects and 75 megawatts of battery storage projects.

We are confident these projects will provide customer benefits including reliability and resiliency and remain committed to executing these projects. With an active regulatory calendar, we look forward to getting to know and engage with the new commissioner in Wisconsin, Summer Strand and the two new Board members in Iowa, Sarah Martz and Eric Helen. We congratulate them on their appointments. We appreciate your continued support of our company and look forward to meeting with many of you in the coming months. As always, we will make our Investor Relations 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] Your first question comes from Dariusz Lozny with Bank of America. Please go ahead.

[Dariusz Lozny, Analyst at Bank of America]

Hey. Good morning and thank you for taking my question. Just wanted to maybe pick up on that last comment that Robert was making about the advanced ratemaking process in Iowa. I noticed that the Duane Arnold order included no ROE incentive, which had been included in projects in the past. Just wondering with just kind of given where you guys are in the energy transition in Iowa, Obviously, you've got the blueprint out there. Can you maybe comment on expectations for future ROE incentives on future projects that you'll be proposing?

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

Yes. Certainly. Thanks for the question. John here, and Robert wants to add anything, feel free to do so, Robert. Feel very confident that certainly, the projects we put forward, we feel that they met the standard for driving generation and investment in Iowa providing economic development benefits a bit disappointed. We didn't receive that fixed ROE approval, but feel very confident in that process going forward in the RPU. And quite frankly, pleased to be at this point in the process, and we look forward to working with the IUB and the new members on this for future projects.

[Dariusz Lozny, Analyst at Bank of America]

Okay. Great. Excellent. One more, if I could. And again, this is probably more a little bit high level. Can you comment at all on the opportunity set that you see for repowering any of your existing wind assets in the portfolio?

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

Yes. Certainly, we have wind facilities that we placed in service, think of it as maybe a decade or so ago that we feel that those are in position now for a potential repower either partial or full. So we've been evaluating that, and we've signaled before that certainly on our look forward possible investments. So they are certainly in position for economic benefit for customers to do that repower. So that's on our ongoing study, and we think we have some great potential there.

[Dariusz Lozny, Analyst at Bank of America]

And just to confirm, John, nothing in the existing plan as far as capital for repowering?

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

Correct.

[Dariusz Lozny, Analyst at Bank of America]

Okay. Excellent. Thank you very much. I'll pass it along here.

[Operator]

Thank you. [Operator Instructions] There are no further questions at this time. Ms. Gille, back over to you.

[Susan Gille, Investor Relations Manager at Alliant Energy]

This concludes Alliant Energy's first quarter earnings call. Thank you for your continued support of Alliant Energy, and feel free to contact me with any follow-up questions.

[Operator]

[Operator Closing Remarks]