Q3 2019 Earnings Call
Greetings and welcome to Ameren Corporation third quarter 2019 earnings call.
This time, all participants are on the listen only mode.
A brief question and answer session will follow the formal presentation.
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A reminder, this conference is being recorded it is now my pleasure to introduce your host Andrew Kirk Director of Investor Relations for Amarin Corporation. Thank you Mr. Kirk you may begin.
Thank you and good morning.
Call with me today, our Warner Baxter, Our Chairman President Chief Executive Officer, Marty Alliance, our executive Vice President and Chief Financial Officer, as well as the other members of the haven't management team.
Hi, Marty will discuss earnings guidance as well as provide business update.
Well open the call for questions before we began let me cover a few administrative detailed this call contains time sensitive data that's accurate only as of todays I broadcast and redistribution of this broadcast is prohibited.
To assist with our call. This morning, we have posted a presentation on the hammered investors Dot com home page that would be referenced by our speakers.
As noted on page two of the presentation comments made during this conference call may contain statements. There are commonly referred to as forward looking statements.
Such statements include does about future expectations beliefs plans strategies objectives events conditions and financial performance.
We caution you that various factors could cause actual results to differ materially from those anticipated.
For additional information concerning these factors. Please read the forward looking statements section in the news release, we should today and the forward looking statements and risk factor section in our filings with the FCC.
Lastly, all per share earnings amounts discussed during today's presentation, including earnings guidance are presented on a diluted basis unless otherwise noted here. It's warm start on page four of the presentation [noise].
Thanks, Andrew Good morning, everyone and thank you for joining us [noise].
Earlier today, we announced third quarter 2019 cap incorporating was $1.47 cents per share.
Compared to 2018 core earnings of $1.50 cents per share.
Summary, the key drivers of the third quarter year over year changing earnings per share that's provided on page four.
Marty will discuss the and other items in more detail a bit later.
Overall, we delivered solid results during the third quarter.
From an operation standpoint, our team continues to perform very well we continue to execute on all elements of our strategy, which includes significant investments in energy infrastructure and disciplined cost management.
Oh sure my perspectives on the progress we made in executing key elements of our strategy during the whole third quarter in a moment.
Due to the strong execution of our strategy I'm pleased to report that we are narrowing our 2019 earnings guidance range to treat hours and 23 cents to $3.33 per share from our initial 2019 guidance range 2015 cents to $3 and started five cents per share.
[noise], so doing we're raising the guidance midpoint three cents per share from $3.25 to $3.28 per share.
Moving to page five care, we reiterate our strategic plan, which we expect to continue delivering significant value for our customers and strong long term earnings growth for our shareholders.
First pillar of our strategy stresses investing in an operating our utilities in a manner consistent with existing regulatory frameworks.
This is driven our multiyear focused on investing in energy infrastructure for the long term benefit of customers and jurisdictions that are supported by modern constructive regulatory frameworks.
As we've discussed with you in the past all four of our business segments have constructive regulatory frameworks that support investment and energy infrastructure.
As a result, unless you can see on the right side of this page during the first time much of this year, we invested significant capital in each of our business segments.
You may recall it was in the third quarter of last year. They run the Missouri began do you have seen plant in service accounting enabled by Senate Bill 564 [noise].
Enactment Senate Bill 564 improved our ability to earn a fair return, while making significant infrastructure investments for the benefit of our customers.
Consequently capital expenditures at Ameren, Missouri, <unk> up a.
Approximately 15% and the first nine months of this year versus the comparable period in 2018.
Consistent with the Ameren Missouri's Smart energy plan, we're putting meaningful dollars to work to modernize the energy grid.
For example has it been able to September we've installed 120 distribution automatic swishes replaced or upgrade and six substations and installed 15004 to five goals.
Speaking of making progress in Illinois, we're on track to complete the installation of over 1.2 billion electric smart meters and over 830000 gas modules by yearend.
Installation of these important tools for our customers will be completed ahead of schedule and on budget.
And on transmission business, we're on track to finish the Mark Twain much I buy project by the end of this year.
Looking ahead, there is much more to come in a way of energy infrastructure investments and all of our segments, which will deliver long term body to our customers and the communities we serve.
We haven't bats energy transmission and distribution system that we will continue to prudently and systematically investing [noise].
In addition, we'll continue to transition a generation portfolio to a cleaner and more diverse portfolio in a responsible fashion.
That transition will include significant investments in renewable energy, which will cover in more detail in a moment.
And we'll continue doing best suited fancy technologies, including digital technologies to meet our customers rising expectations [noise].
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I would make these investments it is important we continue to be focused on keeping rates affordable and competitive and we're doing just that.
Our pending regulatory electric rate review request for a $1 million decrease and annual electric revenues demonstrates that focus.
Similarly in late August , Missouri, PSC issued an order approving and $1 million annual revenue decrease in the gamut numbers right natural gas rate review.
And just last month administrative law judges recommended a decreasing ameren Illinois' annual electric formula rate update.
Consistent with ever know much request of $7 million.
In addition, we continue to make significant investments in Missouri, and Illinois, and robust energy efficiency programs that allow our customers to better manage their energy usage.
Controlled or overall energy cost.
These programs are delivering significant results.
These rate repair filings couple of what that robust energy efficiency programs demonstrate that we are clearly focused on keeping our customers rates competitive.
Affordable well, we make significant investments in energy infrastructure to improve service to our customers and drive earnings growth for our shareholders.
Moving to the second pillar of our strategy, which focuses on enhancing regulatory frameworks and advocating for responsible energy and economic policies.
Earlier this year constructive electric grid modernization legislation that would extend electric formula ratemaking through 2032.
Well widely supported was not brought to a vote for the fall I want to my General Assembly due to other legislative matters, taking priority during this year's general session.
Today, that's important grid modernization legislation has not been addressed during the veto session, which is scheduled to end on November 14th.
If not addressed during the veto session. We will continue to support extension electric formula Ratemaking in the future.
Shifting to Missouri I'm pleased to report that last month, we received Missouri PSC approval for the next phase of our charge I program, which will bring significantly more electric vehicle charging stations to our service territory.
This program provides incentives to develop electric vehicle charging stations along highways and it came in at least Ralph <unk> service territory.
The program is expected to drive the installation overall for 1000 charge imports at more than 350 locations to enable long distance vehicles travel [noise].
Readers range anxiety and encourage electrification of the transportation sector.
This program is consistent with our focus on reducing economy wind carbon emissions to address risks and concerns over climate change and to meet our customers rising energy names and expectations.
Of course, we're doing our part and driving down carbon emissions in many ways, which leads me to an update on a third pillar of our strategy, which includes creating and capitalizing on opportunities for investment that will benefit our customers and shareholders.
On page six of our presentation, we outline our investment plans to achieve compliance with Missouri's renewable and that's your standard and continue to transition our generation portfolio.
Specifically, we have to build transfer agreements in place for 700 megawatts of no wind generation.
We expect our investment in these projects to be approximately $1.2 billion, which is $200 million above the guidance. We provided at the beginning of year for wind generation investment.
I'm also pleased report that we now have all regulatory approvals for these two projects and both interconnection agreements have been executed.
Construction is also now underway on these two important renewable energy projects for the state of Missouri.
Well facilities will be significant additions to our renewable energy portfolio are not expected to be him service by the end of next year.
We expect to see meaningful contributions to earnings in 2021 on these investments.
At this time. These investments are also expected to fulfill our 2021 compliance needs Missouri's renewable energy standard.
Consistent with our plans to reduce carbon emissions by 80% from 2005 levels by 2050, we will assess additionally, renewable generation opportunities for the benefit of our customers and the context of our next comprehensive integrated resource plan, which we plan to file in September 2020.
For a moment on my discussion not generation portfolio I'd like to provide an update on litigation regarding Ameren Missouri's past compliance with the new source reveal provisions of the clean Air Act.
As you May recall this litigation dates back to 2011, when the department of Justice on behalf of the EPA filed a complaint against one of misery. Let you then to perform certain projects at the rush traveling energy Center, we have violated the Newsource review provisions of the clean Air Act.
In 2017, the district Court issued a liability rowing in the September 2019, or the installation of pollution control equipment at the restaurant Energy Center as well is that the Labadie Energy Center.
We believe kind of reaching this liability and remedy the sessions the district court, both misinterpreted and misapplied the law on several accounts.
As a result, we immediately start to stay of this decision, but the district Court and appeal. This decision to the United States Court of Appeals <unk> circuit.
Recently, the district court granted stay of the majority of its order, which will allow us to avoid unnecessary and costly expenditures for our customers all the cases on appeal.
We strongly believe that we have comply with the clean Air Act and we look forward to present in our arguments to the court of Appeals.
Based on the initial procedural schedule arguments are expected to be heard in 2020.
However, the court of Appeals conductor no deadline to ensure brewing in this case.
Turning now to page seven I'd like to expand a bit more now we are leaning forward and I know some innovative programs and investments to deliver a brighter and cleaner industry future consistent with our customers energy needs and rising expectations.
As I've said before our customers are at the center of our strategy.
In addition to the robust energy infrastructure investments, we're making to modernize the energy grid.
Customers are asking for innovative programs and investments to enhance reliability and produce cleaner forms of energy at affordable and competitive costs. So models to enable them to better manage their energy usage.
As you can see on this page we are listening to our customers.
In addition to the charge that program. So magnet megawatts of one generation I spoke about earlier.
We are investing in innovative technologies and have developed several programs to help bring clean energy group to the grid and our customers.
These include every Missouri, Snam grid Solar program community Solar program when all the choice program and solar plus storage. In addition to robust energy efficiency programs in Missouri and Illinois.
I will briefly touch on a few of these programs now.
No choice program allows large commercial and industrial customers and municipalities.
To elect to receive up to 100% of their energy from renewable resources.
This program enables us to supply customers with up to 400 megawatts of wind generation.
200 megawatts, which we could own.
We are currently enterprises reviewing wind generation projects for this program and soliciting binding interest from customers.
Don't expect any projects associated with this program to go into service until 2021.
I'll give you a more comprehensive update during our year end conference call next February .
Our community Solar program allows residential and small business customers to electric role for up to half of their average annual energy usage to participate in solar generation.
This program launched in the fall 2018 and quickly reached full subscription.
Based on customer demand, we plan to filed a request with the Missouri PSC to expand the program in 2021 megawatt just seven megawatts.
During our second quarter call, we discussed the 310 megawatt solar plus storage facilities.
These facilities will be the first or they're kind of the state and designed to meaningfully enhance reliability for our customers and cost effective manner.
We have already filed for a certificate of convenience and necessity with the Missouri, PSC and expect to decision by the first quarter of 2020.
In summary, we believe that to robust energy infrastructure investment plans that I described earlier.
A couple of what these and other innovative customers programs help create their smarter cleaner and more reliable mr. Ryan integrated energy grid that will deliver a brighter energy future for our customers and the communities we serve.
Moving now to page eight we believe that the execution of our strategy in 2019 and beyond well continue to deliver superior value to our customers.
And shareholders.
In February we rolled forward, our five year growth plan, which included our expectation of 6% to 8% compound annual earnings per share in Brazil for the 2018 through 2023 period, using 2019 weather normalized core earnings per share as a base.
This earnings growth is primarily driven by expected, 8% compound annual rate base growth over the same period.
As I noted earlier, we have a strong pipeline investments in each of our jurisdictions that will deliver value to our customers.
In addition, we will continue to advocate for constructive regulatory frameworks and energy policies to support these important investments for the future.
We will provide an update on our five year capital plan during the year on his earnings call next February .
Finally, our strong earnings growth expectation positions us well for future dividend growth.
Last month in France Board of directors expressed its confidence in our long term growth plan by increasing the dividend over 4% the six consecutive year with a dividend increase.
Together, we believe our strong earnings growth outlook combined with our solid dividend, which currently provides yield of approximately 2.7% results in an attractive total return opportunity for shareholders.
Before I turn the call ill turn the call over to Marty I like to touch on executive rotation announced last month.
Effective December 1st Marty currently our executive Vice President and Chief Financial Officer in President on their managed services will be kind of Crescent Ameren, Missouri.
And Michael Man currently President of Air, Missouri, well suited marty's current responsibilities.
This rotation of responsibilities is consistent with Amarins robust leadership development plan.
I firmly believe this rotation well not only brought under our restaurant work experiences.
But will also further strengthen our senior leadership expertise and better position us to execute our long term strategic plan.
I'm sure that many of you know that Marty and micro worked closely together for many years.
And I'm very confident that the transition would be seen much and that they were performed exceptionally well and they're under rose just they have almost 20 years leveraged at amarin.
So in closing we accomplished a great deal during the third quarter.
Operations or financial results were solid.
Our investments are delivering results for our customers I'll keep it makes affordable and competitive and we narrowed our 2019 earnings guidance, while also increasing our guidance midpoint three cents per share.
Simply put we are doing what we said we would do.
We are delivering superior and long term value for our customers. The communities, we serve and you are shareholders.
Again, thank you all for joining US today now now turn the call over to Mark.
Thank you Warner and good morning, everyone on page 11 of our presentation at the table outlining the gap to core earnings Reconciliations I will simply note that there was a non core charge in 2018, but no noncore activity in 2019.
Turning to page 12 of our presentation as Warner mentioned today, we reported third quarter 2019, GAAP and core earnings.
One dollar and 47 cents per share compared to core earnings of $1.50 cents per share for the year ago quarter.
Here, we highlight the key factors by segment the drove the overall three cents per share decrease.
Earnings per share for Ameren, Illinois electric distribution were down two cents compared to last year driven by a lower allowed return on equity due to our projected average 30 year Treasury bond yield in 2019 compared to 2018.
This was partially offset by earnings on increased infrastructure and energy efficiency investments.
The expected allowed return on equity this year is 8.3% down from the 2018 average of 8.9%.
The 2019 allowed our away is based on an expected average 30 year treasury yield of 2.5% down from the 2018 average of 3.1%.
Ameren, Illinois natural gas results decreased one cents due to a change in rate design, which was partially offset by earnings on increased infrastructure investments.
The rate design change is not expected to impact full year results.
Ameren parent results decreased two cents per share primarily due to timing of income tax expense, which is also not expected to impact full year results.
Ameren transmission earnings were up two cents, reflecting increased infrastructure investments.
And finally amort, Missouri, our largest segment reported earnings that were comparable to prior year results.
Ameren Missouri's 2019 earnings reflect of me outperformance incentive related to the 2016 energy efficiency plan, which contributed five cents per share.
Hi, I'm pleased to report that we met the energy saving schools needed to earn the maximum performance incentive available under the 2016 media plan.
Ameren Missouri's earnings comparison also reflects the positive comparative impacts of timing differences in 2018 related to federal tax reform, which are not expected to impact full year earnings comparisons.
These favorable factors were mostly offset by lower electric retail sales, which decreased earnings by an estimated four cents per share primarily due to milder mid summer temperatures in this quarter compared to the year ago period.
However, I will note the cooling degree days for the quarter were above normal driven primarily by the month of September which was the hottest on record for St. Louis.
Finally, Ameren Missouri's 2019 earnings reflect increased property tax expense due to higher assessed values, which decreased earnings by two cents per share.
Before moving on let me briefly cover electric sales trends parameters, there any Andy Ameren, Illinois electric distribution for the first nine months of this year compared to the first nine months of last year.
Weather normalized kilowatt hour sales to Missouri residential and commercial customers on a combined basis increased one half percent, excluding the effects of our energy efficiency plan under media.
Kilowatt hour sales to low margin, Missouri industrial customers decreased about 3% after excluding the effects of our energy efficiency plan.
We exclude me on facts because the plan provides rate recovery to ensure that earnings are not affected by reduced electric sales, resulting from our energy efficiency efforts.
Weather normalized kilowatt hour sales to Illinois residential and commercial customers on a combined basis decreased about 2% and kilowatt hour sales to Illinois industrial customers decreased 1%.
Recall that these changes in electric sales in Illinois reflect the impacts of our robust energy efficiency programs and no matter the cause do not affect our earnings since we have full revenue decoupling.
Moving onto page 13 of our presentation.
Despite the lower 30 year Treasury yields discussed earlier, our year to date results are solidly on track.
As Warner noted due to the solid execution of our strategy, we narrowed our 2019 earnings guidance to a range of $3.23 to $3.33 per share.
Increasing the midpoint by three cents.
Select earnings considerations for the balance of the here are listed on this page.
I will not comment specifically on these considerations since they are largely self explanatory and consistent with the 2019 earnings drivers and assumptions discussed on our February earnings call and the balance of year considerations outlined on our second quarter call.
Moving now to page 14 for a discussion of select regulatory matters, starting with Ameren, Missouri.
As you will recall on July 3rd we filed for a 1 million dollar revenue decrease with the Missouri Public Service Commission.
The request includes a 9.95% return on equity a 51.9% equity ratio ended December 30, Onest 2019 estimated rate base of $8 billion.
Based on the 2018 test year with certain pro forma adjustments through the end of 2019 and January Onest 2020.
Intervenor testimony on will be filed in early December with responsive testimony filed in early 2020.
Absent a comprehensive settlement evidentiary hearings are scheduled to began in early March 2020.
Zuhri P.S.C. decision is expected by late April 2020, with new rates expected to be effective by late may.
Regarding our amarin is there any natural gas rate review.
Missouri PSC decision was issued in late August for a $1 million annual revenue reduction in new rates were effective on September onest.
While this was a black box settlement. It specifically provides for the use of the actual Missouri capital structure as of May 30, Onest 2019 of 52% equity and arrange a reasonable allowed our we have 9.4% to 9.95%, including the use of nine.
Good 0.7% to 5% for the infrastructure rider.
Finally last week, we requested Missouri PSC approval for a change to the way we account for scheduled Callaway Energy center refueling and maintenance outage expenses.
If the request is approved prior to the fall 2020 outage, we expect to defer the maintenance expenses incurred related to the outage in begin amortizing those expenses over approximately 18 months after completion of the outage.
We believe this change would allow the timing of expense recognition associated with these outages to more closely aligned with the timing of related revenue recognition.
Moving to page 15, and Ameren, Illinois electric distribution regulatory matters.
In April we made our required annual electric distribution rate update filing.
Under Illinois' Formula Ratemaking, our Amarin, Illinois utility is required to file annual rate updates to systematically adjusts cash flows over time for changes in cost of service and to true up any prior period over or under recovery of such costs.
In October the administrative law judges issued a proposed order consistent with the Ameren, Illinois request.
And I see see decision is expected in December with new rates expected to be effective in January 2020.
Finally, we expect to file a rate review with the I see see for our Ameren, Illinois natural gas business in early 2020, using a future test year ending December 30, Onest 2021.
Turning now to page 16 for an update on notable financing activities that we would like to highlight.
On August 15, we entered into an equity forward sale agreement to fund a portion of the 700 megawatt wind generation investment expected to be insert risk by the end of next year.
With expected proceeds of $548 million to $550 million upon settlement.
This was another important milestone for our wind generation investment.
Settlement of the forward sale agreement is expected to occur as we closed on the wind project acquisitions.
In addition to take advantage of the decline in interest rates that occurred during the quarter on September 16th Amarin Corporation issued $450 million of 2.5% senior unsecured notes due in 2024.
Proceeds of the issuance were used to repay short term debt.
Finally on October Onest, Ameren, Missouri issued $330 million of 3.25% first mortgage bonds due in 2049.
This was the lowest rate for a 30 year bond issue in Amarin, Missouri's history, which helps keep customer rates low as proceeds were used to repay at maturity $244 million, a 5.1% senior secured notes due October onest as well as to repay short term debt.
Lastly, ameren, Illinois as expected the issue long term debt by the end of this year.
Moving now to page 17.
We plan to provide 2020 earnings guidance when we release fourth quarter results in February next year.
Using our 2019 year to date results and guidance as a reference point, we have listed on this page select items to consider as you think about the earnings outlook for next year.
Beginning with Missouri, we expect new electric service rates to be implemented in 2020 as result of our pending rate review.
These rates are expected to reflect recovery of and return on new infrastructure investments lower fuel on transportation costs as well as more recent sales and other costs, which collectively are expected to increase earnings when compared against 2019.
I would note the due to the excellent results stemming from our robust energy efficiency programs for our customers wherein strong performance incentives in Missouri in 2019.
As a result, we expect energy efficiency performance incentives to be approximately nine cents per share lower than 2019.
Further we expect a return to normal weather in 2020 will decrease Ameren, Missouri earnings by approximately two cents compared to 29 team results to date, assuming normal weather and the last quarter of this year.
Absent the Missouri PSC approval of around our requested change in the way, we account for Callaway scheduled refueling and maintenance outages, which I discussed earlier.
We expect expenses associated with the fall 2020 outage to be approximately two cents per share higher the known as experienced for our spring 2019 outage and prospective outages.
We are going to perform some additional maintenance activities for this fall 2020 outage that will result in the costs being approximately 11 cents per share versus nine cents per share this year.
As previously noted the 700 megawatts of wind generation are expected to be in service by the end of 2020 as a result, we expect to see contributions to earnings from these investments in 2021.
Earnings from our FERC regulated electric transmission activities are expected to benefit from additional investments and Ameren, Illinois, and ATX I made under formula under forward looking Formula Ratemaking.
Ameren transmission earnings would of course be affected by any change positive or negative to the current allowed our we have 10.82%.
For Amarin, Illinois Electric distribution earnings are expected to benefit in 2020 compared to 2019 from additional infrastructure investments made under Illinois' Formula Ratemaking.
The allowed Aro, we under the Formula will be the averaged 20 2030 year Treasury yield plus 5.8%, which is applied to year end rate base.
For Amarin, Illinois natural gas earnings are expected to benefit from an increase in infrastructure investments qualifying for writer treatment that will earn the current allowed our or we have 9.87%.
Finally, the issuance of common shares for our dividend reinvestment and employee benefit plans are expected to unfavorably impact earnings per share.
Of course in 2020, we will seek to manage all of our businesses to earn as close to our allowed returns as possible, while being mindful of operating and other business needs.
Turning to page 18, I will summarize.
We continue to expect to deliver strong weather normalized earnings growth in 2019, as we successfully execute our strategy.
As we look to the longer term, we continue to expect strong earnings per share growth driven by rate base growth and disciplined financial management.
Our outlook includes a strong pipeline of investments, which allows us flexibility to manage headwinds as we look to deliver on our long term earnings per share growth goals.
Further we expect this growth to compare favorably with the growth of our regulated utility peers.
In addition, amarin shares continue to offer investors an attractive dividend in total we have an attractive total shareholder return story that we believe compares very favorably to our peers.
That concludes my prepared remarks with that we now invite your questions.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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Corporatist participants uses speaker equipment, it may be necessary to pick up your handset before personal Starkey one moment. Please why we poll for questions.
My first question comes from Julien Dumoulin Smith with Bank of America. Please proceed with your question.
Good morning Julien.
If it's actually Alex Morgan, calling in for John Hello.
Hey, Alex taking my question I'm doing well how are you terrific. Thank you.
Congrats on the guide up in 2019 earnings.
Okay. Thank you hi, I have two quick questions.
First one I was just hoping you might be able to confirm that you have not received a letter from the FCC already FDI regarding any of your activities in Illinois, just thinking about some of your your Pearson Steve.
Sure sure. This is Warner and so look the simple answer that question is now on both counts and.
Just to be clear yet in a normal course, we don't normally comment on litigation matters in subpoenas, unless they're material or have a financial impact, but I recognize the sensitivity and this and so I'll just reiterate again no on both counts period.
Okay. Thank you hi, I just wanted to.
Asked that one quickly and then the other question that I had was just I'm a little bit on that 2020 driver side that you had included.
In Ameren, Missouri, I know you talked a little bit about nine cents lower energy efficiency performance.
Hoping you could delve into that a little bit more.
Specifically, how we should be thinking about energy efficiency going forward.
And also for 2020, how should we be thinking about that being offset.
Sure. Alex This is Marty let me talk a little bit about that in.
2019, we've had a little bit of an unusually positive year in terms of.
We have performance incentive benefits.
In Q1, you may recall that we had about a 20 million dollar benefit.
And in Q3, we've recognized another approximately $18 million benefits for the total is about 38 million for the year.
Or approximately 11 cents, maybe maybe a little over 11 and really that's because of incentives related to two prior programs. Both the 2013 program and the 2016 programs and in the quarter, we actually had the as I mentioned third quarter, we had this $18 million benefit in the range.
I have been anywhere from a target incentive of about 5 million up to the 18 million that was recognized as I mentioned in our prepared remarks, where we achieved the maximum.
Under the.
Under the program. So we actually had a fairly positive year, just just to give you a little bit of.
You know a sense of history you go back in time.
In 2017, we had really no benefit in 2018, I think it was about a three cents benefit and then this year, we had as a set about 11 11 cents benefit and like I said it was something that was could it could have been a range of five 5 million 18 in Q3, so a bit of a positive benefit there.
Relatively and versus expectations as you look ahead. The next year, we roll land to we're into now this year the media three and a third version of this energy efficiency program and depending upon the performance under this first year, we expect that the benefits next year could be in the range of seven day.
Million dollars. So so down next year, which is why we're guiding at this point to about a nine cents negative year over year.
But I just do one highlight again that.
You look at this year. The fact that we are raising guidance.
Here is in the quarter raising the midpoint of our guidance by three cents.
Certainly part of our ability to do that is the is the performance incentives that we did earn in in Q3 at that maximum level.
How much have a great.
Next we'll see you next week.
Our next question comes from Greg race with antennas. Please proceed with your question.
Right.
Hey, congrats on good quarter. Thank you.
I Wonder and can you guys or quantify this callaway deferral request now that you've embedded about 11 cents for next year as a headwind, but if you get this deferral I guess, how much of that 11 cents would get pushed out and spread over the next period.
Hi, Greg This is Marty again, you're right. The outage next year, we're forecasting being about 11 cents outage.
If the request we made a is is accepted by the commission. What we would expect then is that we would defer that 11 cents.
And then amortize it over approximately an 18 month period so.
To a large extent that 11 cents would be removed from.
Earnings next year.
There would be a little bit of amortization sort of at the end of next year.
But then of course, the next year when you rolled around to 2021, when we otherwise when we won't have an outage.
That we would see approximately two thirds of an outage expense reflected in that year. So.
That's how we'll do it I'll tell you Greg.
Yes in terms of of this ask we've made of the commission.
It's really not a change in ratemaking per se revenue requirement, but I think would this would allow us to do is over time.
Not have fluctuations in our earnings due to the timing of these callaway outage and give us a smoother trajectory of earnings growth going forward and so thats.
Part of part of the goal with respect to this to this ask.
Gotcha, and then would you envision this being something that you'd be able to utilize to potentially help offset some of the.
Headwinds you're experiencing from the 30 year Treasury move down.
No not really specifically Greg in terms of that I think that really like I said the thrust behind that says to over time have a more normalized level of growth overtime.
And not have the sort of fluctuations associated with with Callaway.
Look at what we did this year, Greg I made just in terms of.
This this 30 year treasury.
This year.
We went into the are thinking is going to be about 3.1% and.
We're booking to about 2.5, so down about 60 basis points, which created this year about four cents of headwind.
As you heard today, we raised the midpoint of our guidance three cents a little bit of that as positive weather. We've had a couple of cents a positive weather. We also had these media performance incentives I spoke to earlier.
But also contributing to that ability to raise guidance for the disciplined cost control as we look ahead towards the longer term in the growth that we're expecting of 6% to 8%.
Look the long term guidance, we've given 6% to 8% growth out through 2023.
Yields about a 40 cents earnings range out there in 2023.
If you look at where we are from the beginning of this year until today from say, a 3.1% treasury down to about a 2.4 today, it's about 70 basis points, we're talking about a nickel or so of earnings if those.
2.4% treasury rates old.
Nicola end up itself, certainly not going to move us outside that that 40% range. It as we look to the longer term, yes, we've got a number of tools in our tool box. We have actions. We believe we can take we've discussed many times that we've got a very robust.
Pipeline of capital investments that we can make over time and certainly a tool in our tool kit, but bottom line is gonna Greg that range, we've got up there.
Accommodates a range of treasury rates allowed returns on equity spending levels regulatory decisions rate review timing economic conditions financing plans et cetera.
And.
And we'll continue to take actions prospectively as we have in the past to deliver on our commitments.
Got you. Thank you very much.
Thanks, Greg.
As a reminder, if you like to ask a question. Please press star one on your telephone keypad.
One moment, please why we poll for questions.
Our next question comes from Paul Patterson with Glenrock Associates. Please proceed with Boston.
Good morning.
Morning.
I want to follow up a little bit on.
Greg.
Question regarding the the change in sort of the.
The or are we in Illinois and.
Was wondering I mean, you went over pretty well.
The sort of impact on EPS in general, but just.
The the difference in return versus other jurisdictions is pretty significant.
And I'm wondering I know, there's going to get the Capex update.
In February but could you give us a little bit of a flavor of how it may or may not change.
In terms of your investment outlook just simply.
Given the differential that sure.
That you're now seeing in Illinois.
Distribution versus the other jurisdictions yet.
Sure. Paul This is Warner I'll, I'll touch a little bit on it and and then Martin feel free to jump in but now look at the end of the dairy.
We've we've said before we like Formula rate framework, there are many things like about including the ability to to not only earn our allowed returns.
But also to get very time in cash flows to make these investments and so that's worked very well for us for a long time and as you heard US saying, let me say on the call. It's a framework there we're going to continue to support whether it be though session on the next legislative session.
No look we're mindful of the lower are always too and it's not lost upon us and and certainly is we think about.
The overall framework, if there's an opportunity in the context of a legislative initiative for a good reasonable fixed to the two there are always going to Richard and his team now let's take a look at that but we are clearly focused on on on this formula rates legislation and pass that through 2032, because we think.
That is delivered significant results in Illinois for so many reasons not just investments reliability jobs and affordability.
Now when we think about capital allocation certainly won't be mindful that too.
But.
Right now.
We'll come out with our more specific plan next year that is potentially labor, but but as Marty also said we have we have robust capital expenditures that we can put to work in all four of our business segments. So stay tune, what we'll talk more about that in February Marty anything more to add to that.
I Wonder I think those.
As Great response, and then I think one of things Paul to look at us, especially on slide eight I mean overtime we have.
Allocated more growth capital to the places where we've had.
The more robust star or we isn't this Warner said, we do have robust.
Pipelines of infrastructure investment opportunities that all of our jurisdiction, so without giving any specifics as to what we might unveil in February .
Certainly we've we've carefully allocated capital over time based upon our always and quality of regulatory frameworks.
Other thing I just mentioned this gets a little bit back to Alex's question as well as years to Paul I mean in each one of our jurisdictions will continue to.
Work to earn as close to our allowed returns as we can.
Yes, Alex was specifically asking about misery and overcoming some of this.
The.
Declined and the performance incentives and I would just note as I reflect on her question as it relates to Missouri in each one of our jurisdictions and earning the allowed.
Yes, certainly we're going to exercise disciplined financial management, both capital allocation as well as.
One m. controls as well.
To work to earn as close to those allowed as we can as we deploy that growth capital.
Okay great.
Just a.
In terms of the the outlook on the legislation in Illinois.
Is there potential do you think for for changing the legislation significantly or is it pretty much more just sort of it effort of getting what's been working for you pretty well.
Ended default would themselves.
Hi, good promises Warner Daniela we've been real Claire.
Our objective is to take the existing formula rate framework and extended to 2032.
We've been that's what we've been advocating throughout this year. It's what we continue to advocate today and that's what I said on on the call whether we have an opportunity to address the are we that's that is that is something that we will look at but look we like what we have in if we can make it even better we will do that as well.
Hi, Thanks, so much goes.
Our next question comes from Kevin Fallon with Citadel. Please proceed with your question.
Hey, guys how are you.
Good morning, good Kevin Thanks.
Just wanted to ask just a little bit more specifically on the.
On the FERC transmission subs, what kind of of opportunity is there to add more capital and also in terms of the kind of rolling five year period on the a pizza Inn in Missouri, what's the headroom beyond what you currently have in the plan.
Yeah.
So a couple of things there Kevin I think when you look at I'll start with transmission and Michael I'll, let you jump in on on that the Missouri piece there.
Together it transmission, we've said before we think there are many robust transmission opportunities I think number one.
Which said and other calls that when you see the level of renewable generation being added in the broader MISO footprint.
And you see all the interconnection agreements that are being put in place that today. We believe when you step back when we get through these interconnection agreements that that my so we'll have an opportunity to step back and say look is this the most efficient and effective way for the transmission system to be configured and will give.
Those that are in MISO, an opportunity to look at potentially multi value projects down the road and I've asked that tomorrow, but we do see that is certainly an opportunity down underground that could be not robust expansion there.
Even today no that we have a vast transmission system and so today, we are continuing to address aging infrastructure. We continue to address as sort of a new compliance standards, that's not ending booked in Missouri, and Illinois, and so we continue to see those investment opportunities to be real and significant.
And certainly yes beyond that there's there's certainly grid modernization work out to security and all these other types of things and so no Sean.
In the transmission business, we've talked often about this but we see the b b.
The pipeline to continue to be robust anything that that that I've missed in those areas that you're you and your tumor looking at.
No.
Right.
I think you got to why there's a lot of opportunity that we see coming down the road, especially as we think about the transition to.
Carbon free generation portfolio that will in fact nonwhite.
Upgrades, our system, but the form as our system, which will cause us to.
Think about additional investments sharp micro might you have on those aren't place yeah. It's really just similar Warner I don't think we specifically of comment about sort of where are you know.
Complete opportunities our other than to say, we have a robust pipeline there and right I mean, we're investing quite a bit of capital already year over year. This year, but as we look I mean, we're just beginning just scratched the surface in terms of making the investments to continue to improve the grid make.
And to meet the expectations the customers have for us from an increasing standpoint. So we feel that we have you ram underneath the cap to continue to do that overtime tap you look as I said during the my my my prepared remarks, Missouri is going in for a rate review and it's been it's asking for 1 million dollar rate decrease and and so.
That is evidence of above the work that we're doing to be very disciplined in our cost management as well as putting to work really significant investments that are driven significant value to our customers in our communities.
That's very helpful and just a follow up when you guys raise the the.
Growth rate before obviously it was driven by a lot of the stuff you're just highlighting in terms of the sizable capital program that you have going forward and I know people are focused on the headwind from the 30 year should we still think that you guys have the program in place to do the midpoint of the of the range through the through the guidance period.
Yes, Kevin This is Marty I look at goes back to the statement I made earlier in the guidance range. We gave that six day percents about a 47 range.
If you look at where treasury rates were at the beginning of the year about 3.1% when we gave guidance and now about 2.4%. It's about a five cents delta. So you know that that is not going to many of you outside the range and frankly not move you all of that far off the midpoint and as I said earlier, we have a lot of tools in our tool kit as well as.
As actions that we can take.
To offset a five cents decline so.
Look I mean, we just talked about the robust pipeline, we have been all of our jurisdictions. We do believe we have a robust pipeline and transmission as well as.
Missouri.
Illinois gas, Illinois electric delivery, it really across the board and that's a major tool that we have in our tool kit, but as I said overtime.
That that range, we have out there accommodates.
A lot of a lot of variables that we expect to continue to allocate capital.
Wisely, we expect to exercise disciplined management with respect to our costs.
The real eye towards affordability for our customers and.
We've talked here today about.
Making sure that we do the right things Regulatorily legislatively, a to make sure we deliver on our commitments.
Okay. So it just doesn't sound the nickel is basically the bogey for where what you guys are half Doug to offset with the capital or whatnot.
Well as.
As I outlined were 3.1 of the beginning to here, where a 2.4 today that's about a nickel.
Okay. That's very helpful. Thanks, guys. Thanks, Kevin.
Mr. Kirk there are no further questions at this time I'd like to turn the floor back over to you for closing comments.
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