Alliant Energy Corporation
Q4 2020 Earnings Call Transcript

Published: 19 Feb 2021

[Operator:]

Good afternoon and welcome to Alliant Energy's conference call for fourth quarter and year-end 2020 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:]

Good afternoon. 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, Chairman, President and Chief Executive Officer and Robert Durian, Executive Vice President and CFO. Following prepared remarks by John and Robert, we will take time to for questions from the investment community.

[John Larsen:]

Thank you Susan. Hello everyone and thank you for joining us. 2020 was a year we will all number. It was also another successful year of growth and solid operations for Alliant Energy. We continue to consistently deliver on our purpose to serve customers and build stronger communities. I am proud of what our team accomplished and how we delivered on our purpose in a year with many challenges from the ongoing global pandemic to racial injustice and a destructive derecho windstorm. In the face of these challenges, we finished near the top of our original earnings guidance range with a 2020 consolidated earnings per share of $2.47. Our non-GAAP temperature normalized earnings grew more than 7% over 2019. This was the 10th year in a row of achieving our 5% to 7% growth objective. This consistent growth, solid execution and operational results showcases the resiliency and flexibility of our company. I will highlight a few of our many strategic and operational achievements from the year. Then I will turn it over to Robert, who will provide more details on our solid financial and regulatory outcomes. I would like to start by mentioning a few of our recognitions from 2020. I mentioned earlier the August derecho windstorm. I am proud that our efforts to restore electricity to our customers was recognized by receiving the Edison Electric Institute Emergency Response Award. Alliant Energy was also included in Bloomberg's Gender-Equality Index, highlighting just 380 companies from around the world who are committed to supporting gender equality in the workplace. And we were recently named to Newsweek's Most Responsible Companies list where we ranked 12th overall for our social responsibility efforts. And to top it off, for the fourth year in a row, Alliant Energy has earned a perfect score in the Corporate Equality Index issued by the Human Rights Campaign Foundation. As I reflect on these achievements, they each showcase how we live our values as we care for others, do the right thing and act for tomorrow. I am proud of our Alliant Energy team and thankful for all they do.

[Robert Durian:]

Thanks John. Good afternoon everyone. Yesterday, we announced 2020 GAAP earnings of $2.47 per share compared to $2.33 per share in 2019. Excluding non-GAAP adjustments and temperature impacts, earnings per share were up more than 7% year-over-year, driven by higher revenue requirements due to increasing rate base, partially offset by the higher depreciation and financing expenses from these rate base additions. As John noted earlier, our dedicated employees rose to the challenge in 2020 by reducing O&M expenses to offset the impact of lower sales caused the pandemic and derecho storm. These efforts allowed us to finish the year in the upper half of earnings guidance range. We provided additional details on the earnings variance drivers on slides four and five.

[Operator:]

Thank you, Mr. Durian. . We will take our first question from Andrew Weisel with Scotiabank. Please go ahead.

[Andrew Weisel:]

Thank you. Good afternoon everyone.

[John Larsen:]

Hi. Good afternoon Andrew.

[Andrew Weisel:]

My first question is, can you repeat that stat? I think I heard you say that Iowa will be 50% of generation from renewables by 2030. I know you have the overall target of 53% from renewables. So does that include both Iowa and Wisconsin? And does that include owned and PPA'd?

[John Larsen:]

I think you got all right on there, Andrew. So the first one, the 50%, was Iowa. And I think you got all the rest spot on.

[Andrew Weisel:]

Okay. Great. Are you able to breakout how much of that is owned? Or said differently, what percent of your own capacity will be renewables?

[John Larsen:]

You know, I will give you rough numbers around 70% is owned and 30% purchased. Of course, that's going to chance a bit as we are bringing units online and we renew. But that's a high-level split for you, Andrew.

[Andrew Weisel:]

Okay. Great. Thank you. Next on O&Ms, impressive year after several other previously impressive years. What's your outlook for 2021 and beyond? And how much of the savings you identified in 2020 would you consider to be sustainable versus one-time?

[Robert Durian:]

Yes. It is a great question. This is Robert. First off, it's a key a component to providing affordable energy for our customers. So we are very focused on that. And we are currently targeting sustainable O&M reductions of approximately 3% to 5% on an annual basis, off of 2019 base line in order to support the customer affordability. Our employees did an excellent job in 2020 as they captured some additional savings largely to offset the COVID and the derecho impacts. And I would say, it's a pretty even mix between sustainable savings and temporary savings, at least on 2020. Some of the temporary items were things like travel, healthcare and insurance. But we also saw some great progress with sustainable savings. Largely, I would put it broadly in the three main areas. One is technology. We continue to advance technology, including things like the AMI that we put into service in early 2020 that really helped reduce some of the metering costs. Some great improvements with automation and self service to help us reduce some of our call center costs. And then we also, obviously added some enhance connectivity through the pandemic here that we think we will be able to leverage into the future. So that's one category. Second is probably on the generation side. Really, we have seen some pretty strong efficiency gains at some of our existing coal plants that allows us to operate with fewer employees. And then lastly on the distribution side as we talked about with our strategy. We continue to focus on trying to move from overhead to underground. And that's really going to position us well there for our O&M cost in the future. So back to your specific question, I would say it's probably a pretty even mix between the two. To think of on a longer term basis, we are really to achieve maybe a 3% to 5% reduction in sustainable savings over the long term.

[Andrew Weisel:]

Great color there. That's very helpful and a very impressive target. Last question is, you had a very good track record in Wisconsin of keeping rates stable and you mentioned you are planning to file again in the second quarter. is there any potential to further delay that or find creative ways to keep rates stable? And then you mentioned that the case could cover one, two or three years. What would determine that? What will that depend on?

[John Larsen:]

Yes. Andrew, great question. We entered last year, as you recall, well positioned for a rate filing which we have some CapEx and other things that we have to put forward and found a path for stabilization and executed quite well under that. We are well positioned again but we have a very clear opportunity to put a filing in front of the commission. I guess I would say, will it cover one, two or three years, that's still an area that we are continuing to evaluate. We will share more as we get closer to the second quarter call. So I appreciate that. Robert, anything you would like to add?

[Robert Durian:]

Yes. Maybe one thing to note, Andrew. One of the components of this case will be the expiration of some of the larger amounts of excess deferred taxes that we are giving back to customers currently. And those are pretty well set in stone. So we don't have a lot of flexibility with those and fairly straightforward. So I don't think it will be anything that will be controversial with the case itself. And then as John indicated, the other key component is the solar projects that we will be advancing. So a little more insight to that when we get the decision back from the PSCW in that April time frame for inclusion of that most likely like we talked about a second quarter filing. The third and probably last piece of that rate filing is really to address the anticipated recovery for the Edgewater coal facility that will be retired by the end of 2022. So we think this is the appropriate time for us to come in for a rate filing and we will give you some more indication of the one, two or three years most likely when we get to the next earnings call in May

[Andrew Weisel:]

Okay. Certainly a lot of issues to discuss there. Thank you very much. I appreciate it.

[John Larsen:]

Yes. Thanks Andrew.

[Operator:]

Okay. And we will take our next question from Julien Dumoulin-Smith with Bank of America.

[Julien Dumoulin-Smith:]

It's okay. Thank you. Good afternoon to the team.

[Operator:]

[Julien Dumoulin-Smith:]

Yes. It's all good. Thank you team. I appreciated it. So perhaps if I can circle back here on the Columbia announcement. Obviously a fairly large unit here. Can you talk about the recovery of undepreciated plant, securitization prospects and whether or not you see legislation as being part of that conversation? Obviously, some of your peers hadn't necessarily pursued that route. But I am curious on how you think about that avenue specifically? And then also the timing and resource planning as part of the replacement, whatever that will eventually be around it?

[John Larsen:]

Sure. Great to hear from you, Julien. Good afternoon. So that's clearly with the announced retirement, we look at the flexibility that we have in our CapEx plan. So we do have some opportunity as we think about between distribution and generation. But there is no question there will be some additional need. We don't have the details of the size and timing of that quite yet. That's probably an area for later in the year. But we do have an opportunity for additional renewables likely to be coupled with storage. We have been working on our development plans, anticipating that we will need additional renewables. So as you know, we have got lot of development efforts in place for what we did on wind in Iowa and then our solar efforts plus storage in Wisconsin. So we are going to lean heavily on a lot of great work we have done over the last few years on that. As it relates to securitization, there is a provision that currently exists and I am sure there is going to be discussion about the securitization and the potential for that to be another tool, if you will, in the process. But as we think about it, Julien, it's really about having the right balance between investor outcomes and customer cost and affordability. Our path forward with our tax equity, we see our solar projects to be perhaps the lowest, if not among the very lowest, cost projects that you are going to see on solar and renewables. So we feel very good about having that right balance with our tax equity. Certainly, the process going forward, I am sure all of that will be in discussion relative to what's the best path for that balance between customers and shareowners. So we expect reasonable outcomes. We have for many, many years. We are very confident in filings we put forward. But certainly more work to come on that. Robert, anything you would like to add on to those two items?

[Robert Durian:]

Yes. Maybe just one brief item to help with the clarification of the timing. So we have obviously announced the timing for the Edgewater facility retirement by the end of 2022 and now the Columbia by the end of 2024. The other piece of the puzzle is the West Riverside options and we are still working through the exact timing on those. So once we have that, like John said, we expect to have better clarity by the end of the year. And so I think we will get some more updates on the CapEx implications, the timings of the resources sometime in the second half of 2021 here.

[Julien Dumoulin-Smith:]

Got it. Okay. So maybe to clarify that, would the stars align effectively to get that for the next 4Q 2021 call if you have all these elections in the course of the back half of this year? And then secondly, if you can clarify, sort of related to the long-term outlook, the 5% to 7% is off what base year? So what's the base line for that, again? Sorry for the details for the nuance here?

[John Larsen:]

Yes. The first one, you got that. That's spot on with the timing. And the second question was?

[Robert Durian:]

Yes. I will take that one, Julien. For the base year, it's off of 2020.

[John Larsen:]

Right.

[Robert Durian:]

That's normalized, that's $2.42. So the 5% to 7% is off that base.

[Julien Dumoulin-Smith:]

Awesome. Thank you guys for the time. I really do appreciate it. Best of luck. Speak soon.

[John Larsen:]

Yes. Thanks.

[Operator:]

Okay. And we will take our next question from Michael Sullivan with Wolfe Research.

[Michael Sullivan:]

Hi everyone. Hope you are all doing well. First question is just following on the Wisconsin rate filing there. I think you alluded to one of the potential rate offsets that you may have in taxes which has been consistent with the past. Is there anything else in the form of regulatory liabilities? And can you help quantify those at all in terms of rate offsets?

[John Larsen:]

Yes. Michael, good to hear from you. So yes, we do still have some regulatory liabilities remaining for the excess deferred taxes. They are just not at the same level that we are experiencing here in refunds through 2021. We do have some other, I will call them, regulatory liabilities that were actually approved as part of the rate stabilization plan that we received approval from for the WPL jurisdiction in December. One more notable one was some liquidated damages that we received as part of the West Riverside facility. I think that was roughly $35 million to $40 million. And there are some various other benefits that we have been accumulating over time, whether it was from excess earnings above our authorized returns that we have a sharing mechanism for. But think of it as probably in the neighborhood somewhere between probably $60 million and $80 million of total regulatory liabilities that are available to us to be able to use over the next several years to help offset some of the rate implications.

[Michael Sullivan:]

Got it. Okay. That's super helpful. And then switching over the Iowa, I just wanted to check in. I thought, in your last deck you had on the calendar there a filing related to the 2020 test period that was going to be made in Q2 of this year and I didn't see that in the updated deck. So just wondering where that stands?

[John Larsen:]

Yes. I think what you are referring to is, there is a subsequent proceeding process. So as part of the 2020 rate filing, there are rules that are still being drafted. So they are not completely filed yet. But the IUB recently decided that we will be coming in for, what they call, a subsequent proceeding. And really, what that's intended to do is to make sure that the rates that we put into effect in 2020 were reasonable and just. And we believe they don't expect any refunds or any potential changes in the future. And that's largely going to be based on where our earned ROEs come out for the end of 2020. We actually under-earned in 2020, below the 10% authorized level. So we don't expect any impacts of that but we will still be working through the process with the Iowa Utilities Board over the next several months. And then there will also be some processes to finalize those rules and exactly what needs to be filed excellence over the next several months.

[Michael Sullivan:]

Okay. Great. And my last one was just, you gave that data point of, I think, 20% renewables in rate base right now. And parameters you can hopefully give on where that could potentially go over the next four to five years, given the plan that you have laid out?

[John Larsen:]

I will give you a directional area of north, Michael, but probably no additional specifics right now, but it's certainly growing.

[Michael Sullivan:]

Okay. Great. Thanks a lot.

[John Larsen:]

You bet. Thanks Michael.

[Operator:]

Okay. And we have one last question on the phone lines. And we will take it from Andy Levi with ‎HITE Hedge. Please go ahead.

[Andy Levi:]

Hi guys. How are you doing out there?

[John Larsen:]

Great.

[Andy Levi:]

Everything's running well, I hope, unlike Texas. But just a couple of questions. So first just on, in both Iowa and Wisconsin as you go through regulatory processes there, what's the opportunity and timing, if the answer is there is some, on potential settlements in both places?

[John Larsen:]

Yes. Maybe think of Iowa as we are probably a couple years away from a rate filing, a formal rate filing, if you will, in Iowa. So that's a little bit out there. In Wisconsin, we’ve had a good track record of working very collaboratively and we will put a very solid case together. So there is always that potential. I don't want to handicap it beyond that. But we have had some very recent success in achieving that type of settlement outcome. But other than that, I’d say it's as we have in the past years, I think that opportunity exists.

[Andy Levi:]

Okay. And then just focusing on the clean energy blueprint. The focus on investor calls or just in sell side reports, juries will always be on the fleet transition and that obviously is a great opportunity. But then we talk to some of my peers and they are like, well, what happens after that? And I guess, in conversations that I have had with you guys in the past, there seems to be a lot of runway beyond the fleet transition that we can do that needs to be done to, one, help the fleet transition but also help your service territory, both in Wisconsin and Iowa convert to a clean energy world, I guess. Can you kind of talk about the runway opportunities there and what is in the CapEx already and what is not in these longer-term opportunities there?

[John Larsen:]

Sure. Happy to. I’ll probably have, if Robert wants to add any of the numbers there. But if you think about the clean energy future, it's really got to make sure that we think about how that fits transition, generation and it really doesn't happen much, the distribution grid is also moving that way. So we have got, as I noted, opportunities for resiliency to put our systems from more overhead to underground. We are starting that out and there is opportunity to grow that area as well as having a stronger distribution grid at a voltage that allows for more distributed energy resources to connect. So that's also an opportunity for us. It's in our current, but there is certainly an opportunity as we get more efficient for those two areas to grow. So, we do see the distribution areas having plenty of growth potential for us. But as we do in many cases, we start, kind of walk before we run and make sure that we get very efficient as we deploy capital. Maybe if there is anything on categories and growth numbers, Robert, I will ask you weigh in.

[Robert Durian:]

Andy, good to hear from you. Yes. I would characterize our rate base growth is much in line with our earnings growth. We are not expecting any new common equity for the foreseeable future. So, we think we can manage the business appropriately to achieve our 5% to 7% EPS targets without having much of an impact on customer bills over the long run. And maybe just to add a couple more categories to the information John shared, we still have repowering on our insights that I would say is probably more in the second half of this decade. And then we really don't have much of any storage built into our CapEx plans at this point. We do have some smaller, I would say, pilot programs that we are using but there is also some further opportunity there. And then lastly, we have got a series of coal plants still in Iowa that we haven't announced the timing of any potential retirement. So if we think of that over the next 10 or 15 years, that will likely create some capacity needs for us that would provide some additional growth for us.

[Andy Levi:]

Yes. Can I ask you more questions? Actually the storage tech, I am glad that you actually brought up. I think you and I were discussing that a few weeks ago, actually debating it as far as timing. So I guess maybe what is your thinking on storage because obviously based on what you are installing as far as solar and wind, storage would be a good incremental addition to those assets? And if you kind of look at what NextEra is already doing with storage, it's a great opportunity and also there's like software for storage has evolved, it’s really a benefit to customers. So, why have you guys not rolled out a storage plan yet, maybe a way to put it?

[John Larsen:]

Yes. Great question on that, Andy. And certainly as I had shared, we do have storage facilities, I will call them small. Again, we kind of prove those technologies out and then scale them up. We have done some great deferral storage work up to this point and tied it in with some of our community efforts and community solar side. So, think of that as a little bit smaller size. We do have development work going on right now to size that up. And so think of that as great deferral, but as we are putting larger scale wind and solar out there, we also have development plans to look at adding larger scale storage to help with the front and back end of how those units are introduced into the market. So completely agree. We are making sure that it's always got to make sense to our customers. So we are eager to add those when it make sense for our customers and we are in heavy development work right now.

[Andy Levi:]

So, what I guess maybe in the third quarter when you roll out your new CapEx plan, we may see the numbers around storage, is that possible ?

[John Larsen:]

Yes. You know as well, Andy.

[Andy Levi:]

Okay. And then the other thing just focusing on the line, isn't there a large opportunity and maybe you can talk about it? Doesn't the voltage on your line could be increased from like 3KV to a much higher KV? Can you maybe talk about that and kind of where you are? So I think you have done the process on that. And maybe some numbers around how many, I don't know if you want do miles, but how much of your system needs to be converted and if there is any type of measurement that you can give us as far as CapEx per conversion, whether it's mileage or whatever it may be?

[John Larsen:]

Yes. Certainly as we think about that, Andy, I think you are referring to our efforts to put a 25 KV backbone system out there. And that's what I had referred to earlier that allows us to put more distributed energy resources or customer connected resources to our grid. We are in the beginning stages of that. I think we are roughly, I will us numbers around 5% of our system. But think of that as that's something you want to have condensed to certain areas where you convert smartly. In certain areas as you are doing other work, it makes sense and as we look for areas that have higher growth for some of those DER penetration. The cost for per unit and CapEx, I don't have those readily available. But that would refer back to our opportunities for additional distribution grid spend as we think about getting more and more efficient in that space. So think about it as the tail-end of our current CapEx. And I think you will see more of that as we refresh our CapEx going forward.

[Andy Levi:]

Well, let me ask it this way, maybe Robert would nail it. So like, you said right now it's just 5% of your this thing that you are doing the work on for the upgrade. Robert, do you have any clue how much you are spending on that, just that one project? I don't know if it's one big project that equals 5%, but any type of numbers around that?

[Robert Durian:]

I mean right now we are probably replacing our system at the normal replacement rate of maybe 2% of the total system on an annual basis. We have roughly about 43,000 miles of line. About a fourth of it is underground and about three-fourths of it is overhead at this point. And like John said, only about 5% of it is at the 25 KV level at this point in time. So when you think about costs for putting stuff, for example underground, you are probably talking a couple hundred thousand dollars a mile at least, depending on whether it's in town or in the country. So a lot of opportunity for us. We don't absolutely set a quantification of the exact dollars that you will see in the future. But that's really part of the flexible plan that we have that as we have all of this generation opportunities in the near term, we pushed some of that out. But we see a great opportunity maybe in the second half of this decade into the following decade for those types of expenditures and a good long runway to the growth that we are targeting.

[Andy Levi:]

Thank you. Great. Thank you guys very much. I will stop asking questions because its 1

[John Larsen:]

Yes. Thanks Andy. Good to hear from you.

[Operator:]

And it does look like we have an additional question on the phone line from Andrew Weisel of Scotiabank. Please go ahead.

[Andrew Weisel:]

Thanks for the follow-up. After Andy just trying to send everyone to happy hour, I feel kind of guilty for having one more question here. But if I may, so you have got in the slide that your carbon emissions were down 42% in 2020 versus 2005. Do you have any way to quantify how much of that was due to the impact of the pandemic? Volumes obviously, dispatch was a bit abnormal last year, to say the least. Are you expecting that member to go up a little bit before it resumes the downward trend?

[John Larsen:]

Yes. Andrew, when you think of that, it's one of those numbers that will cycle up and down a bit. We look at overall trajectory of that getting to our stated goal when we reach 2030. So we like the path that we are on. I am sure there is a contributor from a number of those factors. But we also look at the transitions we are making with some of our planned retirements of coal facilities to highly efficient West Riverside. So I don't have the specifics. That number will bounce around a bit. But we look at the overall trend line and it's really on track with what our stated objectives are.

[Andrew Weisel:]

Okay. So on target for the 50% reduction by 2030 and then net zero by 2050, right? On target, not necessarily better?

[John Larsen:]

Yes. I would say on target for right now. But appreciate the question.

[Andrew Weisel:]

Okay. Great. Thank you.

[John Larsen:]

Thanks Andrew.

[Operator:]

And it does appear that there are no further questions at this time. Ms. Gille, I would like the turn the conference back to you for any additional or closing remark.

[Susan Gille:]

This concludes Alliant Energy's fourth quarter and year-end earnings call. A replay will be available through February 26, 2021, at 888-203-1112 for U.S. and Canada or 719-457-0820 for international. Callers should reference conference ID 4175543 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 Investors 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 question.