Alliant Energy Q2 2023 Earnings Call Transcript

Participants

Corporate Executives

• Susan Gille, Manager of IR
• John Larsen, Chairman and CEO
• Lisa M. Barton, Chief Operating Officer
• Robert Durian, Chief Financial Officer

Analysts

• Dariusz Lozny, Bank of America Co.
• Alex Mortimer, Mizuho Securities
• James Kennedy, Guggenheim

Presentation

[Operator]

Good morning, and welcome to Alliant Energy's Conference Call for second-quarter 2023 results. This call is being recorded for rebroadcast. At this time, all lines are in listen-only mode. I would now like to turn the call over to your host, Susan Gille, Investor Relations Manager at Alliant Energy. Please go-ahead.

[Susan Gille, Manager of IR 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; Lisa Barton, President and COO; and Robert Durian, Executive Vice-President and CFO. 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 second-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. Those 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 Larsen, Chairman and CEO at Alliant Energy]

Thank you, Susan. Hello, everyone, and thank you for joining us. Our second-quarter results were on track with expectations and we have made solid progress towards achieving the consistent full-year growth that our shareowners have come to expect from our company. As we continue our longstanding track record of consistent execution, we have several areas of progress to highlight that will also serve to reinforce our strong investment thesis.

Our focus on 2023 began well before the start of the year. As we shared last quarter, we took actions in the latter half of 2022, to advance our resource plans and added additional focus on cost management and resilience. We are pleased with the positive results from those efforts. The results are clearly shown through the advancement of key regulatory filings, great progress we've made on our major capital projects, and our expectation to reduce 2023 O&M compared to 2022 and we continued our focus to derisk 2023 in the early part of this year by successfully mitigating rising interest rates through our convertible debt offering and interest-rate hedging.

In addition, we've seen strong core operations year-to-date. I am incredibly proud of the great progress our team has made in the first half of this year. We have seen remarkable advancements across all fronts, including our focused efforts on operating a safe and resilient energy grid, our commitment to advancing Clean Energy, and our unwavering dedication to delivering exceptional service to our customers and communities. In a moment, I will turn the call over to Lisa Barton, our President and Chief Operating Officer to share more details on our investment and operating progress and Robert will close the call with more updates relating to our financials and regulatory progress.

But before I do that I'll highlight a couple of key themes from this quarter. We continue to make exceptional progress advancing our investments that make our Energy Network efficient, reliable, and resilient. We remain a leader in the renewable energy sector currently ranking nationally as the third-largest owner-operator of regulated wind assets. We are continuously investing in a more diverse generation portfolio prioritizing both value and reliability in our energy supply. A great example of this is our recently approved 175 MW of battery storage projects, which will complement our solar investments at Wood and Grant counties in Wisconsin.

We continue to excel in power quality and reliability as recognized by JD Power. Our ongoing efforts and results are centered around enhancing the resilience of our energy grid through the undergrounding of our distribution system. We continue to achieve new levels of efficiency in this area and have underground more than 25% of our distribution system, further solidifying our commitment to a more robust and secure infrastructure. We are actively pursuing the exploration of cutting-edge technologies to establish energy storage capabilities, highlighted by our advancement of a first-in the United States long-duration storage system at our Columbia Energy Centre site.

As we anticipate the retirement of the Columbia coal-fired energy center in 2026, we are committed to leveraging the existing infrastructure and interconnections at this site to promote resilience. The project has generated significant excitement within our organization, serving as a prime illustration of our commitment to pursue federal funding and embrace innovation to contribute to a sustainable future. We remain agile and proactive in identifying and capitalizing on financing opportunities that arise both at the federal and state-level. Simply stated, we continue to execute our forward-thinking strategy and are consistently delivering financial and operating results.

Our strong results were made possible by our dedicated employees. Every day they worked tirelessly to fulfill our purpose which is to serve our customers and build stronger communities. Their exceptional contributions throughout the past year have been truly incredible. I want to thank and recognize them for everything they do. We eagerly anticipate another year of strong financial and operational performance and we deeply value your ongoing interest in our company. As a result of our team's efforts, our strong investment thesis remains our first-half 2023 results are on plan, we have reaffirmed our annual earnings guidance and we remain committed to delivering on our long term consistent 5% to 7% growth in earnings and dividends.

I will now turn the call over to Lisa.

[Lisa M. Barton, Chief Operating Officer at Alliant Energy]

Thank you, John. One of the areas that drew me to Alliant Energy revolves around our unwavering commitment to delivering value in a holistic and sustainable manner and our dedication to ESG principles. We are resolute in our long-term commitment to consistent growth in ensuring a successful clean-energy transition for our customers and communities. Making a positive difference in the lives of our customers and communities is a core value and guides us as we navigate the evolving energy landscape.

We recently released our 2023 Corporate Responsibility Report showcasing our commitment to environmental stewardship, meeting the social needs of our communities in corporate governance with a diverse portfolio of generating facilities we consistently provide reliable energy to our valued customers, while continuing to broaden their access to zero fuel cost and carbon-free energy resources. As we advance our clean-energy initiatives we prioritize competitive rates, reliability, system resiliency, sustainability, and innovation. We partner and invest in organizations, which proactively advance our industry's knowledge and collaborate on best practices.

Now let's review our great environmental progress from 2022. First-off, 40% of the energy we supplied to our retail customers in 2022 was from renewable sources. Second, we reduced our annual carbon dioxide emissions from fossil fuel generation by 39% from our 2005 levels. Evidence that we are well on our way to achieving our goal of 50% CO2 reduction by 2030. We reduced our water usage by 50% from our 2005 levels, demonstrating our progress towards our 75% reduction goal by 2030. Looking forward, we have updated our clean energy goals to reflect our company's progress and strategic plans to support the transition to a low carbon economy.

On Slide three we highlighted examples of our sustainability efforts. Over the years we have made significant strides in reducing our carbon footprint by transitioning from older, less-efficient coal units to cost-effective and efficient generation resources such as wind, natural gas, battery storage, and solar. These resources not only demonstrate our commitment to environmental sustainability but also serve as lower-cost options for our service territory, providing value for our customers well into the future. Building upon our successful wind energy expansion our strong project management execution capabilities, we are focusing on expanding our solar energy portfolio.

With our substantial investments totaling 1.1 gigawatts of solar projects, we are set to become the largest owner-operator of solar energy in Wisconsin. In 2022, we successfully placed 250 MW of solar capacity into service and we are on schedule to add an additional 840 MW by mid-2024. Our investments are helping customers focus on their sustainability objectives in the communities we serve. With our customer hosted renewables projects we partner with businesses or communities to host an Alliant Energy solar farm on-site.

Two examples are with the Iowa State University and the University of Wisconsin Madison. In partnership with Iowa State we are also investing in [indecipherable] the study of crop or livestock production underneath or adjacent to solar panels. Through our Community Solar program we created community-funded solar sites, bringing the cost synergies of large-scale solar and offering customers an alternative to rooftop installations. Our Clean Energy Blueprint services are roadmap towards a cleaner energy future. This Blueprint encompasses not only generation but emphasizes the importance of an efficient, reliable, and resilient energy grid.

John mentioned our focus on resiliency by undergrounding our distribution system. Undergrounding distribution lines, allows us to reduce the resources needed to trim trees, improves reliability, and reduces the cost and customer inconvenience associated with storm response. Through our innovative solutions and strategic investments we continuously strive to deliver sustainable energy options without compromising customer satisfaction. An example of this is our investment in the Nina[phonetic] and Sheboygan Falls gas plants, where our advanced gas half upgrades will increase the efficiency, capacity, and reliability of these units.

Finally, in Iowa I am pleased to report, we reached a settlement with the Office of Consumer Advocate regarding our Iowa rate-making principles docket. Settlement details are provided on slide five, the hearing on the advanced rate-making principles for these projects was completed earlier this week. We requested an expedited decision from the Iowa Utilities Board, so that we can start construction on these cost-effective investments for our Iowa customers. These investments will create jobs in Iowa during construction, support reliability of electric service in our Iowa service territory bring shared revenues to our local communities and lease payments to rural landowners, all of which aligns with our purpose to serve customers and build stronger communities.

I will now pass the mic to Robert, who will share our financial results and provide additional detail on our regulatory progress. Robert?

[Robert Durian, Chief Financial Officer at Alliant Energy]

Thanks Lisa. Good morning, everyone. Yesterday, we announced second-quarter 2023 GAAP earnings of $0.64 per share. The primary drivers of the quarter over quarter EPS variances were higher earnings resulting from capital investments, including our solar expansion program and lower WPL electric fuel-related costs, net of recoveries compared to the second-quarter of 2022. These positive drivers were partially offset by lower estimated temperature impact on retail electric and gas sales when compared to second-quarter 2022 and higher interest expense due to additional financings to fund 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 second-quarter earnings drivers and 2023 full-year earnings guidance can be found on slide six. To assist you in modeling our quarterly earnings this year I wanted to quantify and provide some additional context to the timing of income tax expense. 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. This causes fluctuations in the amount of tax expenses quarter over quarter but it will not have an impact on full-year earnings.

As we continue to increase our renewable portfolio and generate higher levels of renewable tax benefits these quarter over quarter variances have increased. We have provided our quarterly EPS estimates related to the tax benefit recognition timing for 2023 and 2022 on slide seven. We have already executed a substantial portion of our 2023 financing plan to fund our investments in renewable projects to mitigate rising interest rates and to support retiring a 400 million debt maturity, which occurred in June. In addition to several successful debt issuances in the first quarter, we have raised approximately 1/3 of the up to $250 million of new common equity issuances we expect to execute in 2023 through an ATM program and shareowner direct plan.

Our overall financing plans for 2023, have remained unchanged and our remaining debt financing includes up to $300 million of long-term debt at IPL in the second-half of the year. Earlier this year, we also closed on the sales of 125 MW of our West Riverside natural gas facility providing proceeds which will help reduce our external financing requirements. The sales of these partial interest in West Riverside were anticipated in our plans and provided combined proceeds of approximately $120 million. The progress we have made in our generation transformation positions us well to take advantage of the enhanced tax benefits from the Inflation Reduction Act that will positively impact our cost profile.

With our strong focus on cost competitive rates for customers we are working to optimize the tax benefits available under the IRA and continue to make progress with the planned transfers of our renewable tax credits as we have seen strong counterparty interest for these credits. As a reminder, the proceeds from these tax credit transfers will be used to help lower customer costs on our renewables and battery investments and enhance our cash flows, thereby reducing some of our future financing needs and improving our credit metrics. Shifting to regulatory we have included our notable regulatory initiatives for 2023 on slide nine.

Lisa covered our progress with some key regulatory proceedings related to our planned customer-focused investments. In addition, we are also making progress with several other key regulatory proceedings in Iowa and Wisconsin. Starting in Wisconsin, the rate review for test years 2024 and 2025 includes request for recovery of several investments that support sustainability, reliability, and resiliency while keeping customer value and competitive rates in top-of-mind. This proceeding is progressing as planned with the next steps in the rate review process involving continuing discovery and audit by the PSCW staff and interveners to support their testimonies scheduled to be filed by September 5th.

Followed by a hearing on September 27th and a final decision expected from the PSCW later this year. We have provided the procedural schedule for WPLs rate review on slide nine. Additionally in Wisconsin WPL submitted its 2022 fuel reconciliation filing which requested future recovery of $117 million of additional fuel costs incurred by WPL in 2022 to serve its customers. WPL currently anticipates a decision on the amount of recovery and the timeframe for such recovery from the PSCW by the end of this quarter. While our utilities experienced higher fuel costs in 2022, driven by elevated commodity prices.

During the first-six months of 2023, we have experienced significant reductions in natural gas prices and strong performance of our generation facilities, which will help lower future fuel costs for our Wisconsin customers. And in Iowa, we have already started passing these lower fuel cost benefits onto our customers through the monthly fuel cost tariff in 2023. Continuing with our Iowa jurisdiction, in anticipation of completing construction of several key investments for Iowa customers before the end of 2024. We filed notice with the Iowa Utilities Board this week so we will be requesting an IPL electric and gas rate review later this year.

Our last Iowa rate review included a forward[phonetic] test year in 2020 and since that time, we've made significant progress in transitioning the Iowa grid, rebuilding from a devastating Derecho storm. In advancing IPLs transition to cleaner sources of generation. All while managing inflation and interest-rate increases not anticipated in the last proceeding. The installation of the planned solar projects and the existing wind facilities in Iowa reduces IPLs fuel costs and provides enhanced tax credit benefits enabled by the Inflation Reduction Act. The retirement of the Lansing coal plant earlier this year is also a notable component of our generation transformation and will allow IPLs customers to avoid significant capital cost associated with continuing to operate the unit while reducing emissions and support the more distributed and changing resource mix.

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 Relation materials available on our website. At this time, I will turn the call back over to the operator to facilitate the question-and-answer session.

Questions and Answers

[Operator]

Thank you, Mr. Durian. At this time, the company will open the call to questions from members of the investment community. [Operator Instructions] Your first question will come from Julien Dumoulin-Smith at Bank of America. Please go ahead.

[Dariusz Lozny, Analyst at Bank of America]

Hi, everybody. This is Dariusz on for Julien. Thank you for taking my questions. Maybe just starting off in Iowa, it took a look at the proposed settlement -- partial settlement that you filed in your advanced rate-making process earlier in the week. Was just wondering if you could maybe discuss some of the puts and takes that went into formulating that settlement which I believe was a 1075[phonetic] ROE but then, not including the proposed battery storage. Also, any takeaways from the hearing that took place earlier in the week and also importantly, where you see the process, moving from here and over what timeframe? Thank you.

[John Larsen, Chairman and CEO at Alliant Energy]

Great, Dariusz good morning. This is John. So we're very pleased with the progress on this docket and the hearing went as expected. I think as you're aware, we also reached settlement with the Office of Consumer Advocate. So we are going to be awaiting the IUB's decision, but maybe I'll ask Robert to share a few of those items, a little more color on the puts and takes as you noted Dariusz.

[Robert Durian, Chief Financial Officer at Alliant Energy]

Good morning Dariusz. Yeah, I'd say it was a very balanced settlement between shareowner interest and customer interests. As you kind of explain some of the details there. We do think it warrants to have a premium ROE at [indecipherable] incentivize us to put renewables in the statements. The nature of the law that we have in Iowa. We also appreciated the willingness to agree on a cost target that was reasonable in light of what we've seen as far as cost for a similar solar project in our area. I'd say the one thing on the customer side that the intervening parties are interested in is a consumer protection plan, which is something newer for us, but we are confident in our ability to execute and operate the facilities to be able to achieve that.

So all in all I think it was a pretty balanced set of agreement, principles, and look forward to the Iowa Utilities Board making a decision on this -- on this docket, it'll probably be I would guess sometime within maybe the next couple of months we might see a decisions.

[Dariusz Lozny, Analyst at Bank of America]

Great, thank you very much for that color there. If I could ask one more and this is more on the quarter/trends that you're seeing year-to-date, certainly noted maybe a bit of a softer quarter from a weather or temperature standpoint, can you just comment on the growth that you're seeing on a normalized basis across the three main customer classes.

[John Larsen, Chairman and CEO at Alliant Energy]

Yeah, Dariusz John again. Similar to last year, we've seen some really solid temperature normalized retail sales in the first-half. So we had a pretty solid 2022 and very much on par with that this year. We also see some strong growth in the first-half of '23, we've seen about 85 MW of new announced growth, so some nice strength there. I think I've mentioned before, we'd like to see a long-term trend before we call it a trend, but it continues to have some nice economic development and weather normalized sales growth. Robert or Lisa if you want to add anything, but appreciate the question Dariusz.

[Robert Durian, Chief Financial Officer at Alliant Energy]

The only thing I will add is, as John indicated, was slightly better-than-expected as far as the temperature normalized growth and was really on our residential side where we saw most of that. Really good meter growth for both electric and gas this quarter. So that was the primary driver.

[Dariusz Lozny, Analyst at Bank of America]

Okay, great, thank you guys for the responses. I'll pass it along here.

[Operator]

Your next question will come from Alex Mortimer[phonetic] at Mizuho Securities. Please go ahead.

[Alex Mortimer, Analyst at Mizuho Securities]

Hi, good morning team.

[John Larsen, Chairman and CEO at Alliant Energy]

Good morning.

[Alex Mortimer, Analyst at Mizuho Securities]

As you've examined your cost management throughout this year and planned out your O&M cuts for the later half of the year and have you discovered any savings may be able to continue into the future, maybe phrase, another way, what portion should we think of it as more onetime in nature versus ongoing a run-rate.

[Robert Durian, Chief Financial Officer at Alliant Energy]

Yeah, Alex I would say a majority of what we're seeing as far as the difference between 2022 levels and 2023, are primarily because of some additional spend that we incurred in the second-half of 2022. We continue to focus on O&M controls and continue to make progress with different activities to try and reduce costs for our customers, a lot of some of the more exciting things that we're focused on right now is in the technology area, identifying different opportunities for us to use, things to spend capital dollars to reduce what I'll call longer-term O&M costs, things like undergrounding which has been very effective at us being able to reduce storm costs this year.

We've also implemented quite a bit of fiber throughout our service territory, which is helping reduce telecommunication costs. And we've got a pretty exciting new system, we're going to put in to help us with enterprise workforce and asset management that we think we'll gain some efficiencies with a lot of our field operations so we also have what I'd call more of a step change with this recent quarter because we just retired the Lansing facility, one of our coal plants, which you will see a reduction on. And as I look to the future, probably some exciting things in the artificial intelligence area, but we're still in what I'd characterize as the evaluation phase there and so we'll continue to monitor that and provide updates for the investors once we see more progress in that area.

[Lisa M. Barton, Chief Operating Officer at Alliant Energy]

Now Alex, the one thing that I would add to what Robert talked about is the fact that we are focused on affordability. We understand that that's going to be a driver of growth in the future. So from a cultural standpoint, the entire organization is really focused on evaluating our processes, our cost structure to make sure that we're delivering as best we can for our customers and communities.

[Alex Mortimer, Analyst at Mizuho Securities]

Okay, understood. And then on more of a big-picture level, we've seen a move to promote gas spends even in cold-weather states like Massachusetts, how do you think about the long-term outlook for gas utilities and your gas infrastructure?

[John Larsen, Chairman and CEO at Alliant Energy]

Yeah, Alex, I think we're still at a point where it's going to be very important, particularly in the region and climate that we have for gas to play a major role. Certainly understand there's going to be a lot of discussion about the role of natural gas where it plays on either producing for generation or for home heating, but for at least immediate future and for a while past that, we see natural gas playing a very important role.

[Lisa M. Barton, Chief Operating Officer at Alliant Energy]

One thing I would add is -- the one thing I would add is, our renewables portfolio really protects our customers from fuel cost volatility. The fact that 40% of our retail customers were served by renewable resources is a big differentiator I think for us.

[Alex Mortimer, Analyst at Mizuho Securities]

Understood. All right. Thanks so much and congrats on the quarter.

[Operator]

[Operator Instructions] Your next question will come from James Kennedy at Guggenheim. Please go ahead.

[James Kennedy, Analyst at Guggenheim]

Hey guys, good morning. Happy Friday.

[John Larsen, Chairman and CEO at Alliant Energy]

Good morning, James.

[James Kennedy, Analyst at Guggenheim]

Just a quick one. I'm sorry if I missed this, but what will you be in a position to provide in terms of guidance for the next update if the Wisconsin case is still outstanding.

[Robert Durian, Chief Financial Officer at Alliant Energy]

Yeah, James, this is Robert. So if you think forward to the third-quarter conference call in early November and the EEI[phonetic] Finance Conference will be shortly after that. We will be providing updated capital expenditure and rate base projections for 2023 through 2027 and expect to have additional insights on expectations of our rate reviews in Iowa and Wisconsin to provide us more specifics on what we'll see for earnings guidance and financing plans in 2024.

[James Kennedy, Analyst at Guggenheim]

Okay, what is the formal guidance on it?

[Robert Durian, Chief Financial Officer at Alliant Energy]

To be determined, like I said, we're expecting to make good progress with both of those proceedings in Wisconsin and Iowa and hopefully have more details or specifics regarding exactly what we'll show for earnings guidance of '24 and financing plans for '24, we're still very confident with the 5% to 7% long-term growth plan for EPS. So you shouldn't expect anything. But we'll just provide some more specifics. Hopefully, once we get further through these rate revisions.

[James Kennedy, Analyst at Guggenheim]

Okay, cool. And then on the settlement, the battery wasn't included, so I guess just pathway forward there. Any color you can provide?

[John Larsen, Chairman and CEO at Alliant Energy]

Yeah, maybe James, I'll just note that battery storage is very cost-effective solution and quite frankly, important part of our resource plan for our customers. So we fully expect to advance energy storage. But there are some options on kind of the regulatory recovery and preceding going-forward. So a little more to be played out as the RPU preceding advances, so I think we'll have more updates as we get to the Q3 call or EEI on the energy storage.

[James Kennedy, Analyst at Guggenheim]

Excellent. Thanks guys. Have a good weekend.

[John Larsen, Chairman and CEO at Alliant Energy]

Yeah, thank you.

[Operator]

As there are no other questions I will turn the conference back to Susan Gille, for any closing remarks.

[Susan Gille, Manager of IR at Alliant Energy]

This concludes Alliant Energy's Second 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]