Alliant Energy Corporation

Good morning and welcome to the Alliance Energy's conference call for second quarter 2020 results. This call is being recorded for rebroadcast. At this time, all lines are in a listen-only mode. I would now like to turn the call over to your host, Susan Gill, Investor Relations Manager at Alliance Energy. Please go ahead.

Good morning. I would like to thank all of you on the call and the webcast for joining us today. We appreciate your participation. Joining me on this call are John Larson, Chairman, President, and Chief Executive Officer, 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 second quarter financial results and reaffirmed the consolidated 2020 earnings guidance issued in November 2019. This release, as well as supplemental slides that will be referenced during today's call, are available on the investor page of our website at 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 risk 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 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 and our time queue, which will be available on our website. At this point, I'll turn the call over to John.

Thanks, Sue. Good morning, everyone. I hope you're all staying safe and healthy. Thank you for joining us today as we highlight our solid results for the second quarter of 2020. I'll share a few notable stories from the quarter and then turn the call over to Robert as he recaps some of our regulatory, customer, and financial highlights. I'll start my comments with a focus on our recently issued corporate responsibility report. This year's update showcases many examples of our environmental stewardship, as well as our long-standing efforts to address the important social needs of the communities we proudly serve. On the environmental front, we were excited to announce that we achieved our 2030 goal of having 30% of our energy mix come from carbon-free renewable resources 10 years ahead of schedule. And we're not stopping there. Our customer-focused strategy continues to advance us toward a clean energy future that And our responsibility report has been updated with new and even more aggressive clean energy goals. These new goals are shown on slide two of the supplemental slides. Our report also highlights the great work of our employees to support our customers and communities. This is not new for Alliant Energy. It's part of how we do business. We continue to support our customers and communities as they respond to the ongoing demands of the COVID-19 health and economic crisis. Our charitable foundation recently released a new wave of community grants, benefiting more than 230 nonprofit organizations across Iowa and Wisconsin. Our stated purpose to serve customers and build stronger communities is core to everything we do, and we're proud of the many ways we help to build stronger communities where we live, work, and raise our families. Now more than ever, the social part of our corporate responsibility is at the forefront. We are committed to partnering with our communities, working to understand and help address their needs. We act by providing financial support to agencies and nonprofit organizations that help our communities bridge gaps of social inequities and through programs that support food insecurity and housing, workforce readiness, environmental stewardship, and diversity, safety, and well-being. Our employees and retirees are a driving force in our communities. and I'm very proud to be part of a company that lives our values in so many ways. In a few moments, I'll turn the call over to Robert, who will address the trends we are seeing across our residential, commercial, and industrial customer bases as a result of the ongoing COVID pandemic. Our employees have made great progress in driving cost reductions and advancing our broader transformation efforts during the first half of the year while keeping a strong focus on safety and reliability. Turning to the execution of our strategy, I'll highlight progress we've made as we advance our clean energy vision. A key driver to achieving our goals is the continued successful advancement of new renewable energy sources, wind and solar. In May, we filed a certificate of authority with the Public Service Commission of Wisconsin for 675 megawatts of new solar generation. Collectively, these solar projects are expected to create more than 1,200 local construction jobs, and once operational, will provide an estimated $80 million in local tax revenues over the next 30 years. In conjunction with our solar filing, we also announced our plans to retire our Edgewater Generating Station. Our efforts to transition our generation to a cleaner and more efficient fleet are not new. In fact, we've been on this path for over a decade. As we have in the past, we will live our values to care for others and do the right thing as we support the transition of impacted employees in the Sheboygan community. The expansion of our Wisconsin Renewable Resource Portfolio, as well as the decision to retire the Edgewater facility, was a result of a year-long process that involved working with key stakeholders and ultimately forming what we call our Clean Energy Blueprint. We have a similar process started in Iowa and expect to share the results of our Clean Energy Blueprint for our IPL business later this year. Speaking of Iowa, I'll also share that we recently announced an innovative partnership with the City of Decorah. The new project features a 2.5 megawatt battery storage facility to support distributed solar. This battery system will help us better serve the community and allow us to efficiently integrate a growing desire for distributed energy resources. And while a lot of great work is happening related to solar and energy storage, I also want to highlight American Wind Week, which kicks off next Monday. We are proud to be part of advancing wind energy and the many benefits it brings to our customers and rural communities. We remain on track to install an additional 280 megawatts of wind for our Iowa and Wisconsin customers by the end of this year. Our 130-megawatt Richland wind farm will be completed by the end of the third quarter, and our 150-megawatt Kossuth wind farm is 80% complete and will be placed into service in the fourth quarter of this year, making us the third largest owner-operator of regulated wind in the United States. To summarize, we remain committed to focusing on the health, safety, and well-being of our employees, customers, and communities, advancing our clean energy vision, ensuring our investments are well executed, efficient, and customer focused, and delivering consistent returns for our investors with a 5% to 7% growth rate and a 60% to 70% dividend payout ratio. Thank you for your interest in Alliant Energy.

I'll now turn the call over to Robert. Thanks, John. Good morning, everyone. Yesterday, we announced second quarter 2020 gap earnings of $0.54 per share. compared to $0.40 per share in the second quarter of 2019. Our utilities had higher earnings year-over-year, driven by increasing rate base and higher electric margins for warmer temperatures. These increases in earnings were partially offset by higher depreciation expense. We provided additional details on earnings variance drivers for the quarter on slides three and four. Our temperature normalized retail electric sales in the second quarter were down 6% versus last year, reflecting the impact of the COVID-19 pandemic. Residential temperature normalized sales increased 5% year over year, largely driven by our customers spending more time at home. On the other hand, commercial and industrial temperature normalized sales declined 9%. Manufacturing sales, which make up approximately 50% of our commercial and industrial sales, were down 15% to 25% during April and May. And as expected, we saw material declines in electric sales in April and May to other sectors of our commercial and industrial customers, including retail, lodging, and food service, as a result of temporary business closures. More recently, we've been encouraged to see electric sales to our commercial and industrial customers rebound in June and July, to levels that were only modestly lower than the same month last year. We are also fortunate to have a broad diversity of customers across our two state jurisdictions. It even saw certain customers, such as our food processing, packaging, and warehouse customers, having flat to higher than normal sales to the initial month of the pandemic. With the faster than expected rebound in electric sales, we have updated our current projections to reflect an approximate 2% to 3% reduction and temperature normalized electric sales for calendar year 2020 compared to last year. We have made significant progress mitigating these pandemic-related sales declines by accelerating planned cost transformation activities and reimagining how we do work. This is a direct reflection of our employees' leadership and dedication to reducing costs for our customers. I speak for the entire executive team in sharing my appreciation for the employees of Align Energy, especially for the men and women who are in the field each day, ensuring the safe and reliable delivery of affordable energy to our customers throughout this pandemic. The health crisis has reaffirmed how essential energy services are to the country and are a reminder of just how critical our purpose is to the communities and customers we serve. Slide six has been provided to assist you in modeling the effective tax rates for our two utilities and our consolidated group. We currently estimate a consolidated effective tax rate of negative 10% for 2020. The primary drivers of the lower tax rate are production tax credits and excess deferred tax benefits which flow back to customers resulting in lower electric margins, thereby resulting in no material impact on full-year earnings. The timing of when production tax credits and excess deferred income tax autorizations are recognized will cause quarter-over-quarter fluctuations in earnings. This results in higher earnings in the first half of the year and lower earnings in the second half of the year than compared to the results of last year. On slide seven, we provided the details of our financing plan for 2020, which has now largely been completed. In June, we finalized a $400 million 10-year bond issuance at our Iowa utility and used part of the proceeds to call early a maturity that was due later this year. This deal was well-received by the market and achieved the lowest bond interest rate in our IO Utilities history. We will also use a portion of the remaining proceeds from the new bond issuance to make a $110 million payment in September for the buyout of the Dwayne Arnold Purchase Power Agreement. Our current liquidity is approximately $1.1 billion, including cash and borrowing capacity under our credit facility and our sale of accounts receivable program. With no material debt maturities in 2021, we are well positioned to respond to any potential changes in projected cash flows. The key to achieving our updated carbon dioxide emission goals is expanding our use of clean energy resources. As John mentioned, we recently announced plans to retire one of our Wisconsin coal-fired generator facilities and to add 1,000 megawatts of solar in Wisconsin by the end of 2023. We recently filed a certificate of authority request for the first phase of construction which includes 675 megawatts of new solar generation. As a result of this filing, we are planning to shift $350 million of capital expenditures into 2021 and 2022 that were originally forecasted in 2023. The earlier timing of capital expenditures is based on our progress with relevant activities to date and the expected construction schedules. Our forecast also assumes 35% of the construction costs will be financed through tax equity partners, with contributions from the tax equity partners occurring when the projects are placed in service. We expect to place 425 megawatts of solar into service in 2022 and 575 megawatts into service in 2023. We plan to refresh our full future capital expenditure forecasts and disclose our 2021 financing plans as part of our third quarter earnings release in November. Lastly, we've included our regulatory initiatives of note on slide eight. As shown on the slide, our regulatory calendar for 2020 has many key milestones now behind us. The one noteworthy disclosure or development since our last quarterly earnings call was the Wisconsin Certificate of Authority filing in late May for 675 megawatts of new solar generation. The filing is progressing as expected, and we are currently awaiting the procedural schedule. We are also encouraged by the progress on our 2021 customer rate stabilization proposal in Wisconsin. Comments recently filed by the intervening groups representing our retail customers include support for the proposal. We anticipate a decision from the Public Service Commission of Wisconsin on our proposal later this quarter. We appreciate the continued interest in our company and look forward to connecting with many of you virtually over the coming months. At this time, I'll turn the call back over to the operator to facilitate the question and answer session.

Thank you, Mr. Durian. At this time, the company will open the call to questions from members of the investment community. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's star 1 to ask a question. And we'll pause for just a moment to allow everyone an opportunity to signal for questions. And we'll take our first question from Andrew Wiesel with the Scotiabank. Caller, please go ahead.

Hey, everyone. Good morning.

Good morning, Andrew.

Good morning. A couple questions here. First, as far as the demand trend, I think you said manufacturing was down like 15% to 25%. Do you have overall weather-adjusted demand by month and how that progressed through the quarter?

Hey, Andrew. This is Robert. I'd say what we saw in April and May was below points. But here in June and July, as I indicated in my prepared remarks, we saw commercial and industrial down maybe about 3%, and a lot of that was largely offset by an increase in residential sales. So that's the more recent trend we're seeing. I'm hoping that continues through the remainder of the year, and that's what we project at this point to get us to a full-year forecast of about a 2% to 3% temperature normalized decrease for the calendar year relative to last year.

I understand that. I guess I'm asking more, was it a step up in demand when the states reopened, or has it been sort of an ongoing, continuous improving trajectory?

I'd say it was more of a step change when we looked from May to June, and I think a larger part of it, as you indicated, was largely to reopening the states. But yeah, from May to June, it was quite a bit of a jump. It leveled off at this point from June to July, but a lot better than they originally expected, so we're optimistic.

Andrew, John, I think I might add that we've seen businesses really plan for and prepare for how to operate during the COVID crisis, so we've seen some really innovative ways for businesses to get back to production and still address the safety needs of employees, et cetera. So I think it's a combination of that, just some really smart business operations we're seeing as well.

Good to hear. Next question is on the IPL debt issuance. First of all, very impressive coupon at 2.3. You walked through the use of proceeds and all that, but I guess I'm asking, it was upsized, right? The first quarter slide deck showed up to $300 million, and you actually raised $400 million today. Can you just discuss why that was upsized and what that means for the balance sheet and future plans for debt issuances?

Good question, Andrew. Thanks. Yeah, as we got into the deal, very strong market demand for that debt issuance, and we utilized that, obviously, to capture that lower interest rate. To this point, we've used the proceeds largely for two purposes. One is to retire $200 million of debt in June that was expected to be maturing in, I think, September of this year. Right now, we have about $200 million left on our balance sheet in the form of cash. We're going to use $110 million of that for the payment that we need to make to Nextera to terminate the Dwayne Edmund Energy Purchase Power Agreement. The remaining funds will largely be invested in projects that we're continuing to finish up, including the Richland project that will be finished up sometime later this quarter.

Got it. Hard to believe that payment is coming up already in just a month or so. Then one last one, if I may. I wanted to go back to the option that some of your neighbors in Wisconsin have to buy ownership slices in West Riverside. I know they have a few more years to decide, I believe until 2024 and 2025, But I'm just wondering, have you spoken to them recently and how are they thinking about the impact of COVID-19 on demand and the massive growth in renewables? Just wondering what the latest thinking might be as far as how likely they might be to exercise the options. And will you just remind us what's embedded in your rate-based and EPS growth forecast around that?

Yeah, you bet, Andrew. So you've got the timing right for that. And we've assumed that there will be options taken in our plan. I won't speak for the potential co-owners. I'll let them address that. So nothing to add on that besides where our plans would assume that they take an ownership interest, and I think you've got the timing right. Appreciate the question. Okay, great.

Thank you.

You're welcome.

And again, that's star one to ask a question. If you find your question has been answered, please press star two to be removed from the queue. And we'll take our next question from Ryan Greenwald with Bank of America.

Good morning. It's Julian here. Thanks for catching the time. If I can follow up on the last question a little bit further, you all obviously are changing your forecast after a pretty meaningful swing in your expectations. What does this say about your cost, latitude, and flexibility, especially if, for instance, let's say things turn around here again. How are you thinking about the cost levers that you guys spoke about just a few months ago at this point and the ability to use them again?

Good morning, Julian. Thanks for the question. I'd say we're very well prepared going into the second half of the year. The employees have done an amazing job of identifying a lot of different opportunities to reduce costs for our customers, a majority of which are sustainable, others are temporary in nature. But a lot of flexibility is how I characterize it at this point with being able to adjust. If we do see an upsurge or resurgence of the pandemic and some related sales implications, we feel very well positioned as we look at the rest of the year here.

Got it. Excellent. Okay, and then just coming back to the last question there super quick, if you don't mind, you all have seen a pretty big swing, as have some of your peers, but I'm just curious, can you more explicitly define what your Q3 and Q4 normalized trajectory would be to reconcile with that 2% to 3% update? It's a slightly different iteration of the last one as well.

Yeah, Julie, maybe I'll share a bit, but I think earlier we had looked at around 5% to 6% total year impact, and I think as Robert said, it's maybe looking more now like in the 2 to 3. We had planned for a slow and steady improvement in the back half of the year. Nothing right now that would cause us to think any differently. We did see a step change improvement in Q2, a little faster recovery towards the tail end of that than what we had originally planned. And then, as Robert mentioned, we're keeping flexibility in our plan for, you know, a little bit of the unknown. So part of our planning was to look at a few different scenarios for the back half. But assuming it does stay steady and slowly improving, it's certainly going to be overall better than what we had originally thought, if that addresses your question.

Yeah, indeed. Well, let me try to summarize this, if you don't mind. Are you effectively, do you have latitude to be in the upper end of your guidance range? How about that?

Yeah, you know, what I shared, you know, Julian, is, you know, as Robert noted, we've taken a lot of actions in the first half of the year, you know, reducing costs and help offset lower sales. So, That's kept us solidly at the midpoint, but what we take a look here, the weather trends that we've seen here in July, we would see that helping us trend into the upper half of the guidance range. Okay.

All right. Fair enough. And sorry, one last one here if I can. Obviously, with the first wave here, you're putting some It seems like it's accelerating, if I heard you right, from 23 into 21 and 22 to 250 million. So that sounds like a net increase in your outlook, at least from a timing perspective. If I understand the offset, there would be some of that capital that was originally forecast in 23. Was it always assumed at 35% tax equity, just to make sure we understand all the puts and takes here against your outlook?

Yep, I think you've got that spot on, Julian.

Okay, there we go. Excellent. All right. Well, thank you all very much. I'll leave it to the next person. Thank you.

And again, that's star one to ask a question. And we'll take our next question from Michael Sullivan with Wolf Research.

Hey, everyone. Good morning.

Good morning, Michael.

I wanted to ask on the rate freeze approval in Wisconsin. I think we got some intervener testimony there earlier this week but just uh kind of what what's the remaining path forward here uh were there any uh issues with what the interveners put out there can you settle and when when will the commission um weigh in on this thing yeah michael thanks for that question uh

I'd say we're very encouraged by the progress we're making with the 2021 customer rate stabilization proposal, and we currently expect a decision from the PSCW sometime later this quarter. It could be as early as later this month. And generally, overall, we saw support for the plan, given the purpose of it was to really try and protect our customers from rates. Given the economic conditions that we've seen through this pandemic, we were very pleased to see the support from the major customer groups representing our residential and C&I customers.

Great. Thanks. And then my second one was just on – it seems like with this clean energy vision you guys are laying out, the continued transition from coal towards renewables. And I'm just curious how you're thinking about – the recovery or regulatory treatment of the coal and rate base that you have as you work through this? I know I think Edgewater is going to come up maybe in the next rate case and however you're going to handle things in Iowa. So yeah, maybe just what the past precedent has been and how you're thinking about this regulatory treatment in the future.

Yeah, so I'll give you a little picture of the past precedent. So we've had a few different examples in both of our jurisdictions where we've sought recovery of coal plants that were retired early. Both states have approved both return of and return on a full recovery of those facilities. Those facilities generally with the remaining balances are probably in the tens of millions of dollars each. As we look forward, We have announced the Edgewater 5 retirements by the end of 2022, so we're expecting that decision or that issue will be addressed in the next rate filing that we make sometime next year. Iowa, we've not announced any early retirements to this date, and we're evaluating that as part of our clean energy blueprint that we're performing in Iowa, and we'll have some more information to share later this year on any potential early retirements for our Iowa states.

Okay. Maybe if I could just follow up. I think you just said that the past precedent, we were only talking tens of millions of dollars, and it sounds like these plans going forward are probably materially higher than that. So does that potentially change how regulators might be thinking about how they get treated?

You know, Michael, you've got the magnitude right, I think, as we look at Some of the larger facilities certainly have a little bit larger balance, but as we filed with our clean energy blueprint, all of that factors in to show a net customer benefit for our plans going forward. So I certainly can't tell you exactly how that's going to play out with regulators right now, but I think we have a solid track record of working with the regulators in putting a very you know, very solid plan that makes sense for customers or we wouldn't file that. So, you know, I'd say we feel comfortable with that filing, but some of those are yet to be determined.

Okay. Awesome. Thanks a lot.

You're welcome.

And again, that's star one to ask for questions. And at this time, it would appear there are no further questions at this time.

Thank you. This concludes Alliance Energy's second quarter earnings call. A replay will be available through August 14, 2020 at 888-203-1112 for U.S. and Canada or 719-457-0820 for international. Callers should reference conference ID 417-5543 and PIN of 9578. In addition, an archive of the conference call and a script of the prepared remarks made on the call will be available on the investor section of the company's website later today. We thank you for your continued support of Alliant Energy and feel free to contact me with any follow-up questions.

And this concludes today's call. Thank you for your participation. You may now disconnect.