Alliant Energy Earnings Call Insights: Service Territories and Transmission Constraints

Alliant Energy Corporation (NYSE:LNT) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Service Territories

Brian Russo – Ladenburg Thalmann: Maybe you could just comment on a little further on the weather-normalized year-over-year sales changes on Slide 5, and it seems to be a divergence between IPL versus WPL? Just wondering if you can give a little color on maybe the different service territories.

Thomas L. Hanson – SVP and CFO: Well, as we look at the residential sector, we would not really see any significant differences. Simply there is a difference in the industrial sector. But as I stated, the IPL is somewhat artificially low because of the additional sales that we had – the cogeneration customers that we had last year. So if you adjust for that, the profile would be similar between the two states. And again, from our perspective, again, sales are relatively flat. Certainly, we see some slight signs of improvement but nothing that would suggest that we would be changing our forecast.

Brian Russo – Ladenburg Thalmann: Correct me if I’m wrong, but the IUB granted an oral decision approving Marshalltown. Is that accurate?

Patricia Leonard Kampling – Chairman, President and CEO: No, that’s not accurate, Brian. We reached settlement with the OCA, and part of its proceeding right now, but we have not received any order from the IUB yet.

Brian Russo – Ladenburg Thalmann: Is there a procedural schedule when that order is expected?

Patricia Leonard Kampling – Chairman, President and CEO: No, there is not. But we still expect it in the fourth quarter, though.

Brian Russo – Ladenburg Thalmann: Then, remind us what the drag on the merchant wind farm is in 2013, and are there any initiatives to maybe mitigate that in ’14 and beyond?

Thomas L. Hanson – SVP and CFO: The amount that we have in our forecast here is a $0.05 drag on earnings for Franklin County. Much of that is attributable to the transmission congestion that occurred in 2013. There are steps underway that would remedy that – would suggest that that certainly would have a probably less of a loss, if I could characterize it that way, going into 2014…

Brian Russo – Ladenburg Thalmann: Lastly, just on the IPL rate stabilization plan, at what point do you just stop discussions and just prepare to file a rate case, and when would that occur? I believe you filed in March and also self-implement.

Patricia Leonard Kampling – Chairman, President and CEO: Yes, Brian, we’ll be going down parallel paths on this. We need to be prepared to have to file a rate case. But at the same time, we’ll continue discussions with all parties up to that point and even including after the point when we file the case if we have to go down that path, but it’ll be a parallel path at this point.

 

Transmission Constraints

James Dobson – Wunderlich Securities: Revisiting on the Franklin County topic, maybe, Pat, if you could just parse it into two topics. So if you were to resolve some of the transmission constraints that might allow you to sell the output, but maybe talk a little bit about efforts to contract the asset, which might make it a little bit easier to sell and potentially mitigate some of the equity needs in ’15.

Patricia Leonard Kampling – Chairman, President and CEO: Yeah, J., really nothing has changed on the Franklin County at this point. We’re pleased to report that the performance has been going very well and the transmission constraints are getting alleviated as we speak. But we’re still looking at all the options on what to do with that facility at this point, so there’s really nothing new to report on that.

James Dobson – Wunderlich Securities: But it’s fair to say, I guess where I am going – and maybe I overstepped my balance there, it’s fair to say you are attempting to contract it, but certainly you’ve got to resolve the transmission constraints in order to get those parties more willing to contract?

Patricia Leonard Kampling – Chairman, President and CEO: I would say we’re looking at multiple options at this point J. There is not just one option we’re looking at, at this point.

James Dobson – Wunderlich Securities: Then Tom, to the $0.18 benefit on weather, if I take that and sort of assume normal weather for the third quarter, but then say, well, Riverside is going to be $28 million benefit of the absence of the capacity charge netted obviously against some depreciation, and then the sort of net benefit of the tax benefit rider which should be about $0.02, assuming sort of flat, we ought to be able to offset that weather impact. Am I thinking about that right?

Thomas L. Hanson – SVP and CFO: I’m thinking here J. Well, let’s look at the individual pieces. Certainly, July was extreme; last year in terms of the quarter, it was $0.20. So for the month of July it was $0.18. So our forecast assumes that it would be weather-normalized. Certainly, we are getting a benefit because of Riverside. Again, that’s in our guidance. As we stated, also we’re a third quarter company, both in terms of sales and with our summer rates. So the third quarter always is the largest of the four quarters. Also, if you go back to the guidance that we’ve provided in terms of the walk going from ’12 to ’13, hopefully, we will try to identify those individual items, and really our focus is more on the annual basis as opposed to a quarter-over-quarter basis. The reason we just wanted to call out the July weather effect is because it was so significant last year.

James Dobson – Wunderlich Securities: Exactly, and I think that’s a great call out. Weighing against $28 million of the capacity charge absence would be about $0.16 a share, roughly, and then it looks like you get, roughly, $0.02 of benefit from the comparative benefit of the tax benefit rider. So no, that’s fine. Then maybe just last question on operating costs. I know you’ve had, Pat, a lot of focus on continuing to manage and reduce cost just from a continuous improvement and productivity point of view. Sort of how are those efforts going? And sort of, do you continue to see a lot of wood to chop there as far as opportunity to manage costs.

Patricia Leonard Kampling – Chairman, President and CEO: I would tell you I think we’ve done a fantastic job over the last couple of years of identifying these items and reducing costs. We expect cost to remain relatively flat. Again, a lot of the benefits from our cost reductions have been the conversion of our – some of our coal facilities to gas. We don’t have any of those coming down in the next couple of years, at least major savings, but we would expect our O&M to remain relatively flat until we add new facilities to the portfolio.

A Closer Look: Alliant Energy Earnings Cheat Sheet>>