Susan Gille - Manager, IR Patricia Kampling - Chairman & CEO John Larsen - President Robert Durian - SVP, CFO & Treasurer.

Julien Dumoulin-Smith - Bank of America Merrill Lynch Andrew Weisel - Scotia Howard Weil.

Thank you for holding, ladies and gentlemen, and welcome to Alliant Energy's Third Quarter 2018 Earnings Conference Call. [Operator Instructions]. Today's conference is being recorded. I would now like to turn the call over to your host, Susan Gille, Investor Relations Manager at Alliant Energy..

Good morning. I would like to thank all of you on the call and the webcast for joining us today. We appreciate your participation. With me here today are Pat Kampling, Chairman and Chief Executive Officer; John Larsen, President; and Robert Durian, Senior Vice President, CFO and Treasurer; as well as other members of the senior management team.

Following prepared remarks by Pat, John and Robert, we will take time to take questions from the investment community. We issued a news release last night announcing Alliant Energy's third quarter and year-to-date financial results, updated our 2018 earnings guidance range and announced the 2019 earnings guidance and common stock dividend target.

We also provided our annual capital expenditure plan through 2022 and our current estimated total CapEx for 2023 through 2027. 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 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. In addition, this presentation contains references to non-GAAP financial measures.

The reconciliation between non-GAAP and non-GAAP measures are provided in our earnings release and our quarterly report on Form 10-Q, which is available on our website at www.alliantenergy.com. At this point, I'll turn the call over to Pat..

Complete our large construction projects on time and at/or below budget in a very sustainable and safe manner; advance cleaner energy through additional fossil plant retirements, construction of West Riverside Energy Center and substantial investments in wind energy; deliver on 5% to 7% earnings growth guidance and a 60% to 70% common dividend payout target; and we'll continue manage the company to strike a balance between capital investment, operational and financial discipline and cost impact to customers.

With that, I turn the call over to John to provide updates on several of our key strategic priorities..

The 300-megawatt Upland Prairie project and the 170-megawatt English Farms project. Both projects are on schedule and on budget. The remaining 530 megawatts of wind is expected to be in play -- to be placed in service in 2020.

We believe our generation investments encourage economic development and job creation while meeting customer expectations for cleaner energy. We continue to work with state and local agencies to encourage further economic growth in our service territory.

Last month, we celebrated as our Big Cedar Industrial Park became the first site in Iowa to receive the mega site certification. This 1,300-acre site located near Cedar Rapids, Iowa has multimodal transportation options, including air, rail and highway access.

In addition, Alliant Energy's nonregulated transportation division, AET, is developing a 75-acre logistics park adjacent to Big Cedar, offering a multitude of supply chain, transportation and logistic services. AET has also recently announced plans to acquire Hybrid Transit Systems, a freight management services company based in Cedar Rapids, Iowa.

Along with Big Cedar Industrial Park in Cedar Rapids, our company has also economic -- also has economic growth sites in Ames and Ottumwa, Iowa and Beaver Dam, Wisconsin. Thank you for your interest in Alliant Energy. I will now turn the call over to Robert..

Thanks, John. Good morning, everyone. Yesterday, we announced third quarter non-GAAP earnings of $0.85 per share compared to $0.75 per share in the third quarter of 2017. The key drivers for the $0.10 increase were higher electric sales caused by warmer temperatures and higher electric and gas margins from increasing rate base.

We provided additional details on the earnings variance drivers for the quarter on Slides 5 and 6. For the first 9 months of 2018, temperatures in our service territory have increased Alliant Energy's retail electric and gas margins by approximately $0.09 per share.

Due to WPL's earnings sharing mechanism, we currently expect the majority of the higher margins resulting from the temperature impacts at -- or sorry, WPL will be given back to our Wisconsin retail customers. In addition, Alliant Energy's performance base is based on earnings.

As a result, a portion of the higher earnings resulting from the temperature impacts will be offset by higher performance pay expense. Therefore, the year-to-date temperature impacts, net of reserves for WPL's earnings sharing mechanism and additional performance pay expense, are estimated to be a $0.05 per share increase in earnings.

As Pat mentioned, last night, we issued our consolidated 2019 earnings guidance range of $2.17 to $2.31 per share. A walk from the midpoint of the 2018 non-GAAP temperature-normalized EPS range to the midpoint of the 2019 earnings guidance range is shown on Slide 7.

The key drivers of the 6% growth in EPS are related to investments in our core utility business, including WPL's West Riverside Energy Center and IPL's wind expansion program.

These investments were reflected in WPL's approved electric rates for 2019 and will be reflected in IPL's interim rates, following our anticipated retail electric rate filing early next year. We are forecasting IPL's interim electric base rate will go into effect in the second quarter of 2019.

The 2019 guidance range assumes a 1.5% growth in electric sales when compared to temperature-normalized sales for 2018. We are forecasting most of this sales growth from commercial and industrial customers in our Wisconsin service territory.

Slide 8 has been provided to assist you in modeling the effective tax rates for our 2 utilities and our consolidated group. We estimate a consolidated effective tax rate of 10% for 2018 and 9% for 2019. We continue to focus on controlling costs for our customers.

We are currently delivering the 2018 savings from Federal Tax Reform to our customers in both Iowa and Wisconsin.

In Wisconsin, we will also hold electric and gas base rates flat for the next 2 years by using fuel savings and excess deferred taxes from Federal Tax Reform to offset the cost of utility investments, including bringing our new highly efficient West Riverside Energy Center into service in late 2019.

We have made significant progress for our Iowa customers as well.

We have recently renegotiated to reduce transportation rates for coal deliveries, lowered energy efficiency spend beginning in 2019 and, earlier this month, FERC issued an order to lower the independent adder that our transmission service providers allowed, thereby reducing expenses for our customers.

Last quarter, we also shared with you that we entered an agreement to shorten the Duane Arnold Energy Center purchase power agreement with NextEra and add 340 megawatts of new wind PPAs, which will begin saving our customers money in 2021.

Lastly, as we bring our planned wind projects into service, lower fuel expenses and production tax credits for our Iowa customers will largely offset the impacts of increases in renewables rate base. Moving to our financing plans, which have been summarized on Slide 9.

We have completed our key financings for 2018 with the issuance of a $500 million Green Bond at IPL in September to finance wind and solar generation projects in Iowa.

As we look to 2019, our financing plan includes issuing up to $400 million of new common equity, up to $600 million of long-term debt at IPL and up to $400 million of long-term debt at WPL.

This 2019 financing plan is driven by the robust capital expenditure plans for the utilities, regulatory decisions on delivering tax reform benefits to our customers and the recently approved increase in WPL's common equity percentage by the PSCW.

This 2019 financing plan supports our objective of maintaining capital structures at our 2 utilities, consistent with their most recent regulatory decisions. We will adjust the financing plan if market conditions warrant and as our external financing needs are reassessed. Lastly, we have included our regulatory initiatives of note on Slide 10.

Our regulators have issued several constructive decisions so far this year that support our wind expansion programs and authorized us to provide our customers 2018 Federal Tax Reform benefits with billing credits. Also, since last quarter, we filed settlement agreements in both the DAEC PPA docket and the IPL test year 2017 retail gas rate review.

These regulatory initiatives are important components of our operational and financial results. We very much appreciate your continued support of our company and look forward to meeting with many of you at the EEI Finance Conference next week.

Later today, we expect to post on our website the EEI investor presentation and November 2018 fact book, which details the separate IPL and WPL updated capital expenditures through 2022 as well as provide updated rate base and construction work in progress estimates.

At this time, I will turn the call back over to the operator to facilitate the question-and-answer session..

[Operator Instructions]. We will take our first question from Julien Dumoulin-Smith from Bank of America Merrill Lynch..

So a few different things. First, just in terms of equity needs to correspond with the latest capital plan, wanted to come back to potential equity layer thickness. Obviously, you've got a 51% success in Iowa gas.

If you had a similar equity layer at Iowa electric, can you quantify the equity injection needed and kind of how you think about the total quantity of equity needed across the new capital plan and any layer changes?.

Yes. So Julien, yes, right now, as you indicated, we've got a settlement agreement for the gas portion of the business in Iowa that we're awaiting the Iowa Utility Board decision on. We're pretty optimistic that they'll approve that settlement given it's a unanimous settlement. And in that, it had a 51% common equity layer.

We will be pursuing a similar layer for common equity with the IPL electric case, which will be filed most likely sometime in the first quarter of 2019. And we'll likely get a decision, hopefully, by the end of 2019 or early 2020.

As far as the amount of additional equity needed to finance that, if we raised the common equity ratio by a couple hundred basis points, it's probably close to $50 million of additional equity that we'll need to be able to finance that..

Got it. Excellent. And then turning to the '19 guide, can you talk a little bit more about the corporate and other segment? I'm just curious what's moved around there because obviously you have other businesses that contribute earnings historically to that. So is it a shift there or is it just cost? I'm curious..

There's probably two primary drivers. I think what you're looking at is the revised guidance for 2018 is pretty flat as far as earnings for that business unit whereas the guidance that we put in the earnings release is, I think, a $0.06 to $0.08 loss range. Really, probably 2 primary things I'd point out there. One is additional interest expense.

As a reminder, we went through and refinanced several different debt issuances on our nonutility side of the business in 2018 and that is going to require additional interest expense in 2019 once we get the full year impact of that.

And then we also saw some additional tax benefits in the first quarter of 2018 related to our Great Western wind project that we won't see in 2019. But generally speaking, all the other businesses are performing as expected and pretty consistent with 2018..

Got it. Excellent. And then final one here just on the renewable project and the pushout of cap -- or maybe not pushout, but the reduction in 2019 for renewables. Can you elaborate a little bit more in that change? I mean, it seems like the bulk of it was tied to who's responsible for transmission interconnection and upgrade costs.

Can you elaborate? Is it more of a policy? Was that more discrete-specific projects that you're working on? Any commentary?.

Yes. Of that amount that's in 2019, I think roughly $60 million of it was related to the fact that we've reduced our capital expenditure plans for the belief that the transmission providers will now be able to fund that on their own.

That was based on the FERC decision that came out in the third quarter and so that's why we revised the capital expenditure guidance. The vast majority though of the rest of the difference there is just moving the dollars around between years just based on finalizing the expected timing of the in-service dates for the various different wind projects.

As John indicated in his presentation, we've got about 470 megawatts that we're expecting to get into service in the first quarter of 2019 and the remaining 530 megawatts for Iowa sometime in the 2020 time frame, so just finalizing those timing moved around the CapEx dollars a little bit..

[Operator Instructions]. We will now take our next question from Andrew Wiesel from Scotia Howard Weil..

First, I wanted to ask if you can elaborate a little bit on the IPL rate case in 2019? You indicated in your regulatory slide that it will be both historical test year and one or more future forecasted test periods.

What might that look like? Will it be sort of one combined hybrid filing? Could it be 2 or more simultaneous filings? And what -- which expenses might be included in those forecasted periods?.

Yes.

So right now, the plan would be to file a test year 2018 historical filing with all of the rate base additions up through the end of the first quarter and that would incur or include all of the rate base additions for really the first half of the wind expansion programs, so think of that as the 470 megawatts of wind projects that we're expecting to put into service in the first quarter of 2019.

Concurrently with that filing, we would filing -- be filing a forward-looking test period of either 1 or 2 years. It will either include 2020 and/or 2021. And that second one would likely include the 530 megawatts of wind projects that we're proposing to put into service in 2020.

Those are, by far, the biggest drivers for the 2 portions of the cases there, but think of those as probably being filed concurrently. We're still finalizing some of the rules as it relates to the forward-looking test periods in Iowa, given that's just a recent legislative change that happened in May.

But that's, generally speaking, what we're planning right now..

Okay.

Then, on the equity, I know you haven't gotten specific on needs in 2020 and beyond, but given what you talked about with the higher CapEx level as well as your answer to the last question about equity ratios, qualitatively, should we think of it as being similar to the '19 or somewhere lower than that, given the drop-off in CapEx? Just sort of directionally, any related thoughts?.

Yes. We have not indicated any information as far as the 2020 equity layers. We'll most likely have better information for you sometime towards the end of 2019. Really, your observations are correct.

We are seeing additional capital expenditures in 2020 based on the latest CapEx update, but we are also targeting a higher equity layer in IPL that's going to require some additional equity.

We also have the Duane Arnold PPA buyout that we're expecting to get a decision on soon that would require us to fund about $110 million of a payout in late 2020 that would drive some of our equity needs in 2020.

So those are all the key factors that we'll make a decision on most likely sometime in the second half of 2019 and share that with you guys at that time..

Okay. Good. Then, on the distribution CapEx, some nice increases for both businesses.

Can you describe a little bit more what drove those positive increases, particularly in 2020?.

Yes, sure. I'll take that, Andrew. We're actually looking at really cost-effective ways to serve customers better. And as you put more automation on our systems, underground systems and actually standardize voltages, we're just finding out that these are really good economic investments to serve customers.

So as we evaluate other alternatives for the distribution system, we'll be adjusting the CapEx as well, but we've got a really good plan right now and still really confident going forward accelerating some of the investments..

Okay. Sounds good. Then one last one.

I realize I'm asking a bunch here, but any latest thoughts on the latest FERC decisions on allowed transmission ROEs and adders and can you remind us your sensitivity to the ROEs there?.

Yes. I'll take that one, Andrew. Just as to thinking about this from two perspectives, one is from a customer cost perspective. Obviously, the transmission service costs are part of the billings that we make to our customers in both jurisdictions.

The independents adder recent reduction from ITC based on the FERC decision will help our customer billings in Iowa. But then the other side of it is the earnings impact from our ATC investment. Right now, we've got built into our models a base ROE of 9.7% with a 50 basis point adder at ATC for 2019's earnings.

As a reminder, it's not a significant impact on our earnings profile for 2019. So I wouldn't expect that to have a real material impact unless there's something significantly different from that, but generally speaking, it's right around 10.2% is what we've got built into the forecast..

And Andrew, the reason that we challenged the independents adder was that our transmission provider in Iowa we don't consider independent anymore now that they have a new owner. So that's why we went through that process to have FERC decide that, which they did relatively quickly..

Ms. Gille, there are no further questions at this time..

With no more questions, this concludes our call. A replay will be available through November 14, 2018 at 888-203-1112 for U.S. and Canada or 719-457-0820 for international. Callers should reference conference ID 4175543 and pin 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 questions..