Q4 2020 Ameren Corp Earnings Call
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Greetings and welcome to Ameren Corporation's fourth quarter 2020 earnings.
Conference call.
At this time, all participants are on a listen only mode.
<unk> and answer session will follow the formal presentation.
And anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host Mr.
Mr. Andrew Kirk.
Director of Investor Relations. Thank you you may begin.
Thank you and good morning on the call with me today are Warner Baxter, Our chairman, President and Chief Executive Officer, and Michael <unk>, Our executive Vice President and Chief Financial Officer, as well as other members of the Ameren management team joining remotely.
Remotely Warner and Michael will discuss our earnings results and guidance as well as provide a business update and then we will open the call for questions. Before we begin let me cover a few administrative details on this call contains time sensitive data that is accurate only as of the date of today's live broadcast and redistribution of this broadcast is prohibited.
To assist with our call. This morning, we have posted.
Presentation on the Ameren investors Dot com homepage that will be referenced by our speakers and.
Noted on page two of the presentation comments made during this conference call may contain statements that are commonly referred to as forward looking statements. Such statements include those about future expectations beliefs plans and strategies.
Posted on active events conditions and financial performance.
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 and the news release, we issued today and the forward looking statements and risk factors sections and.
Options with the SEC.
Lastly, all per share earnings amounts discussed during today's presentation, including earnings guidance are presented on a diluted basis, unless otherwise noted and here's Warner.
Thanks, Andrew Good morning, everyone and thank you for joining us.
Before I begin our discussion of year end results and other key business matters.
Our final and start with few comments on COVID-19, as well as the steps, we have taken to deliver safe and reliable electric and natural gas service to our customers. During our recent periods of extremely cold weather and a region.
To begin I hope you your families and colleagues are safe and healthy.
While COVID-19 has driven a great deal of change.
I can assure you that one thing that remains constant and ameren and our strong commitment to the safety of our coworkers customers and communities.
So too is our strong focus on delivering safe reliable and cleaner and.
Portable electric and natural gas service during this unprecedented time.
We recognize that.
On customers, and Missouri, and Illinois are dependent on us.
I can't express enough appreciation to my coworkers, who have shown great agility.
Innovation determination and a keen focus on safety, while delivering on our mission to power the quality of life.
And while we are focused on addressing the challenges associated with the pandemic.
And achieving our mission each day.
We never lose sight of our vision, leading the way towards sustainable energy future.
Despite the significant challenges presented by COVID-19, I look to the future with optimism.
And that's just because vaccines are now being distributed to millions around the world.
But also because.
And at a co-worker stepped up and addressed a multitude of challenges and capitalize on opportunities from 2020.
And clearly help us achieve our vision.
Speaking of stepping up the challenges to ensure that we continue to deliver on our mission and vision.
And our team has been tirelessly working over the last week to ensure that.
How are you needing to deliver safe and reliable electric and natural gas services to millions of people and our service territory. Despite the extremely cold weather that we're experiencing and our region.
As you know the extremely cold weather has created significant challenges to maintain the safety and health.
Liability and energy grid and <unk>.
Areas of the country.
We can.
And understandably.
Weather has driven a significant increase in customer demand for electric and natural gas service.
At the same time, the extreme weather has resulted and natural gas supply disruptions and limitations operational issues at power plants and transmission constraints.
Combined.
Country extraordinary circumstances that several regional transmission organizations to implement emergency operations protocols, which included controlled interruptions of service to customers and several states most notably in Texas.
Not surprisingly the same set of conditions, resulting in significant increases and power and natural gas prices.
And the energy markets.
To date, we have not experienced any significant reliability issues, and our Missouri, and Illinois businesses as past investments and energy infrastructure and paid off.
In addition, the strong operation of our gas storage fields, and Illinois, and coal fired energy centers and Missouri as well.
On a robust interconnections with gas pipeline and suppliers and the power markets and played a major role as well.
Rest assured we will continue to actively manage this challenging situation for our customers.
Turning now to page four.
Before I jump into the details of our accomplishments and strategic areas of focus.
And I want to reiterate the strategy.
And on delivering significant long term value to all of our stakeholders.
Specifically.
Our strategy is to invest and a robust pipeline of great regulated energy infrastructure.
And as we improve operating performance and advocate for responsible energy and economic policies to deliver superior value to our.
Customers and shareholders.
As always our customers continued to be at the center of our strategy.
I am pleased to say that our actions and performance and 2020 as.
And so while as our strategic areas of focus for the future are strongly aligned with our customers and shareholders expectations to lead the way to a sustainable.
And both energy future.
Which brings me to a discussion of our 2020 performance.
As I said earlier, we delivered strong financial and operational performance and 2020.
Yesterday, we announced 2020 earnings of $3 50 per share.
Earnings of $3 35 per share.
And in 2019.
Excluding the impact from weather 2020 normalized earnings increased to $2.04 per share or approximately six 6% from 2019 as weather normalized earnings of $3 and 32 per share.
With our customers and shareholders expectations.
They're denied we made significant investments and energy infrastructure and 2020 the resulted in a more reliable.
And secure and cleaner energy grid.
And as well as contributed to strong rate base growth and all of our business segments.
Consistent with these objectives and despite COVID-19 challenges.
Patients, we successfully executed on a robust pipeline of investments across all of our businesses.
And 2020 as outlined on this page.
And also achieved constructive outcomes and several regulatory proceedings that will help drive additional infrastructure investments that will benefit customers and shareholders I'll.
<unk> and our customers' rates affordable.
The bottom line is that we successfully executed our strategy in 2020, which will drive significant long term value for all of our stakeholders.
Turning to page five here, we highlight the significant progress we've made and an area that has and will continue to be a significant area of focus.
I'll keep on sustainability.
Last September we announced the transformation and clean energy transition plan that effectively balances environmental stewardship with reliability and affordability.
And particular reestablished a clean energy goal of net zero carbon emissions by 2050 across all of our operations and Missouri.
<unk> and Illinois.
We also establish strong interim carbon reduction goals of 50% by 2030 and 85% by 2040 based on 2000 and type levels.
In addition, our plan includes robust investments and new wind and solar generation, while being mindful of reliability.
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Notably we are targeting adding 5400 megawatts, new renewable wind and solar generation resources from our generation portfolio by 2040.
Our plan also includes advancing the retirement of two coal fired energy centers, extending the life of our carbon free Callaway nuclear Energy Center.
Tears.
And partnering with the electric power Research Institute, and necessity and advanced clean energy technologies for the future.
We have already executed key elements of this plan.
In particular, a significant milestone toward accomplishing on net zero carbon emissions call was reached with the acquisition of the 400 megawatt.
Hi, Prairie renewable energy Center and December.
This was our first wind generation in addition, and as the largest wind facility and the state of Missouri.
Earlier this year, we also acquired our second wind generation investment the interest and renewable energy Center, which when completed is expected to be at 300 megawatt facility.
And to 80.
We also have a strong long term commitment to our customers and communities to be socially responsible and economically impactful.
There has never been a more important time and now to be a leader in this area and we are.
Leaning forward.
In terms of COVID-19 relief, we've been continuously working to help our.
Cylinders and need including implementing disconnection moratoriums, providing special bill payment plans and providing over $23 million of critical funds for energy assistance and other basic needs.
We held a virtual diversity equity and inclusion leadership summit in June 2020 that included over 600 community.
And the leaders and coworkers.
During that summit and.
And you made a commitment of $10 million over the next five years to nonprofit organizations focused on day Eni.
And we spent over $800 million.
With diverse suppliers and 2020.
24% increase over 2019.
From a governance perspective, our board of directors oversight or sustainability risks was enhanced.
In addition, we named our first Chief renewable development officer to lead our continued efforts to transition to a cleaner and more diverse generation portfolio.
Further the board of directors strengthening our executive compensation.
<unk> program by adding a 10% long term incentive based on implementing our clean energy transition plans and just last week. The board approved. The addition of workforce and supply diversity metrics to our short term incentive plan for 2021.
All of these efforts are consistent with our vision, leading the way.
Energy future and army.
And the power of the quality of life.
Turning to page six as you can.
Can see on this page on our laser focus on executing our strategy for the last several years has delivered strong results.
From a customer standpoint, our investments and infrastructure had driven our.
To assist to top quartile performance.
While at the same time and disciplined cost management has kept our electric rates among the lowest in the country.
The combination of these factors has helped drive significantly higher customer satisfaction scores.
We have also delivered superior value to our shareholders as you can see on page seven.
<unk> and weather normalized core earnings per share is written and 70% are and and approximately 8% compound annual growth rate since we exited our unregulated generation business and 2013.
Dividend rate has increased 25% over the same time period.
This has resulted in a significantly.
Production and our weather normalized dividend payout ratio from over 77% and 2013.
86% and 2020 net.
At the bottom of our 55% to 70% targeted dividend payout range.
<unk> and as well for continued strong infrastructure investment and rate base growth.
And we dwell as future dividend growth.
Speaking of dividend growth and I'm pleased to report that last week Ameren Board of directors approved a quarterly dividend increase of approximately 7%, resulting in an annualized dividend rate of $2 and 20 per share.
This increase coupled with the dividend increase.
2% in October 2020 reflects confidence by Ameren board of directors and the outlook for our businesses and management's ability to execute and strategy for the long term benefit of our customers and shareholders.
And while I'm very pleased with our past performance, we are not sitting back and taking a deep breath.
Are formed and focused on accelerating and enhancing our performance in 2021 and in the years ahead. So we can continue to deliver superior value to our customers communities and shareholders.
Which brings me to page eight.
Yesterday afternoon, we also announced that we expect our 2021 earnings to be and a range of $3.
We went from 65 to.
And to $3 85 per share.
Michael will provide you with more details on our 2000 and 'twenty one guidance a bit later.
Building on the strong execution of our strategy and our robust earnings growth over the past several years.
We continue to expect to deliver long term earnings growth that is among.
And the industry.
We expect to deliver 6% to 8% compound annual earnings per share growth from 2021 through 2025.
Using the midpoint of our 2000 and 'twenty one guidance.
<unk> 75 per share as the base.
Our long term earnings growth will be driven by continued.
The batteries from our strategy, including investing in infrastructure for the benefit of our customers, while keeping rates affordable.
Another important element of our strong total shareholder return story is our dividend.
Looking ahead, and Ameren expects future dividend growth to be in line with its long term earnings per share growth expectations.
<unk> X and within our payout ratio range at 55% to 70%.
In addition to earnings growth considerations future dividend decisions will be driven by cash flow investment requirements and other business conditions.
Turning to page nine the first pillar of our strategy stresses investing in and.
And operating on our utilities and a manner consistent with existing regulatory frameworks.
The strong long term earnings growth I, just discussed is primarily driven by rate base growth plan.
Today, we are rolling forward, our five year investment plan and as you can see we expect to grow our rate base and and approximately eight.
And to compound annual rate for the 2020 through 2025 period.
This growth was driven by a robust capital plan of approximately $17 billion over the next five years that will deliver significant value to our customers and the communities we serve.
Our plan includes strategically allocating capital.
<unk> to all four of our business segments.
Importantly, our five year earnings and rate base growth projections do not include 200 megawatts of incremental renewable investment opportunities frozen and Ameren Missouri's integrated resource plan.
Our team continues to assess several renewable generation proposals from developers.
We expect to file for certificates and convenience and necessity for some renewable generation projects and 2021 with the Missouri PSC.
We expect to add these investments through our multi year rate base outlook as we finalized pinion negotiations with renewable energy developers and move further along and the regulatory approval process and Missouri.
And finally, we remain focused on disciplined cost management earn as close to our lab returns as possible and all of our businesses.
Speaking of disciplined cost management, let's now turn to page 10.
Over the last several years, we have worked hard to enhance the regulatory frameworks and both Missouri and Illinois to help drive additional.
And infrastructure investments that will benefit customers and shareholders.
At the same time, we've been very focused on disciplined cost management to keep rates affordable.
Our efforts are paying off.
As outlined on this page residential rates have decreased since opting into these enhanced regulatory frameworks for all of our Missouri electric.
And Illinois electric and natural gas distribution businesses.
So to be clear since these constructive frameworks have been put in place significant investments have been made reliability is improved rates have gone down and thousands of jobs have been created.
And this is a great win for our customers and communities.
We're not done.
Turning to page 11, as you can see from this chart, our operating expenses have decreased 14% since 2015.
We will remain relentlessly focused on disciplined cost management.
Look forward to the next five years and beyond.
This will not only include a robust cost management initiatives.
Undertaken to manage through COVID-19.
But also several other customer affordability initiatives.
These initiatives include the automation and optimization of our processes, including leveraging the benefits from significant past and future investments and digital technologies and grid modernization.
In addition.
<unk> part of the Ameren, Missouri integrated resource plan, we will work to responsibly retire our coal fired energy centers overtime, which includes thoughtfully managing workforce changes to attrition transfers from other facilities and retaining retraining for other positions and the company.
Turning now to page 12 next.
So I want to cover the second pillar of our strategy enhancing regulatory frameworks and advocating for responsible energy and economic policies.
And enhanced version of the Downstate clean Energy Affordability Act legislation was filed in the past week, which.
Which if passed would apply to both the Ameren, Illinois electric and natural gas distribution.
Next businesses.
This legislation would allow ameren, Illinois to make significant investments and solar energy battery storage and gas infrastructure to improve safety and reliability.
On transportation electrification and order to benefit customers and the economy across central and southern Illinois.
Attributes Morton piece of legislation also required diverse supplier spend reporting for all electric renewable energy providers.
Another key component from the downstate clean air and the Junior Portability Act.
Is that it would allow for a performance based ratemaking for Ameren, Illinois, natural gas and electric distribution businesses to 2032.
This proposed performance metric.
But ensure investments are aligned with and are contributing to reliability of the energy grid as well as to transition to the clean energy vision of the state.
Further this legislation would modify the allowed return on equity methodology and each business to align with returns.
And other gas and electric utilities across the nation.
This legislation and builds on Ameren illinois' efforts to invest and critical energy infrastructure under a transparent and stable regulatory framework and has supported significant investment improves safety and reliability as well as created over 1400 jobs.
All while keeping electric rates well below the Midwest and national averages.
This bill will also move the state of Illinois closer to reaching its goal of 100% clean energy by 2015.
By providing for performance based ratemaking, both electric and gas distribution businesses. We believe the proposed legislation with further.
Further aligned energy goes of Ameren, Illinois, and the state of Illinois for the benefit of our customers the communities, we serve and the environment.
And all of these benefits and mine we are focused on working with key stakeholders to get this important legislation passed this year.
Moving now to page 13 for an update on our $1.
And $1 billion.
Wind generation investment plan to achieve compliance with Missouri's renewable energy standard through the acquisition of 700 megawatts, new wind generation at two sites and Missouri.
As I mentioned earlier Ameren, Missouri closed on the acquisition of our first wind Energy Center a.
400 megawatt project.
<unk> and northeast, Missouri and December.
Last month, we acquired our second wind generation project, the 300 megawatt etch and renewable energy center located in northwest, Missouri.
Proximately 120 megawatts are already in service.
Spect, a total of 150 megawatts to be and service by the end of the first quarter with.
And with remain expected later in 2021 upon the replacement of certain turbine blades.
We financed these projects through a combination of green first mortgage bonds and common stock issued under our forward equity sale agreement.
We do not expect the construction delay on our etch and wind facility drove a significant.
And consequences and reduce the production tax credits for this project because of the rule change made by the U S Department of Treasury last year to extend the and service criteria by one year to December 31 2021.
Turning now to page 14, and an update on our Callaway Energy Center.
Turning to return to full power as part of his 24th refueling and maintenance outage in late December 2020.
And Missouri's Callaway Energy center experienced and non nuclear operating issue related to a generator.
A thorough investigation and Smatter was conducted and the decision was made to replace certain key components of the generator in order.
Economically and sustainably returned to energy center to service.
Work is already underway on this capital project, which we expect will cost approximately $65 million.
We are also pursuing recovery of cost per cobalt warranties and insurance.
Due to the long lead time from the manufacturing repair.
Is it safe installation of these components and.
Interest Center is expected to return to service in late June early July.
And as announced previously we do not expect this managed to have a significant impact on ameren and financial results.
Turning now to page 15 is relative to the future and successful execution of our five year plan.
<unk> and its not only focused on delivering strong results for 2025.
But it is also designed to position Ameren for success over the next decade and beyond.
We believe that a safe reliable resilient secure and cleaner energy grid will be increasingly important and bring even greater value to our customers our communities.
<unk> and shareholders.
With this long term view in mind, we are making investments that will position ameren to meet our customer's future energy needs and buyers and expectation.
Right side of this page shows that our allocation of capital is expected to grow our electric and natural.
These energy delivery investments to be 82% of our rate base by the end of 2025.
As a result of Ameren, Missouri's investment and 700 and maybe.
Generation to decline to just 7% of rate base, and our renewable generation to increase to 6% of rate base, a year and 2025.
As noted previously our current five year plan does not include and 1200 megawatts and incremental renewable generation included and and Missouri's integrated resource plan.
<unk> 8025.
These actions are just further examples of the steps we are taking to address our customers and shareholders focus on ESG matters and achieve our net zero carbon emissions call by 2050.
The Bottomline is that we're taking steps today across the board to presume and Ameren for success.
And 2021 and.
And beyond.
Moving to page 16.
Looking ahead to the end of this decade, we have a robust pipeline of investment opportunities over $40 billion that will deliver significant value to all of our stakeholders and making our energy grid stronger smarter and cleaner.
Got Ya man these investment opportunities exclude any new regionally beneficial transmission projects that would increase the reliability and resiliency and the energy grid as well as enable additional renewable generation projects.
Of course, our investment opportunities from not only create a stronger and cleaner energy grid to meet our customers needs.
Important and see their expectations, but they were also create thousands of jobs from our local economies.
Maintaining constructive energy policies.
Country's future energy needs and delivering.
And our customers' expectations.
Moving to page 17.
We have outlined in our presentation today, we're focused on debt.
Yesterday, we issued our updated ESG investor presentation called leading the way.
And to a sustainable energy future.
This presentation demonstrates how we have been effectively integrating our focus on environmental social governance and sustainability matters into our corporate strategy.
The slides summarize our strong sustainability value proposition for environmental social and governance matters.
Of course.
And our discussion this morning.
Already covered many of these topics.
A few other notable points include the fact that we were honored to again be recognized by diversity, Inc. Is one of the top utilities and the country for diversity equity and inclusion.
While it will be rated and the top 25 of all companies for ESG and their inaugural list.
And my divinely our strong corporate governance is led by a very talented and diverse board of directors focused on strong oversight and ESG matters.
I encourage you to take some time to read more about our sustainability value proposition.
You can buy and this presentation and ameren investors Dot com.
Moving to page 18.
Some of our value proposition, we remain firmly convinced that the execution of our strategy in 2021 and beyond will deliver superior value to our customers shareholders and the environment.
We believe our expectation of a 6% to 8% compound annual earnings growth from 2021 through 2025.
Driven by strong rate base growth.
Theres very favorably with our regulated utility peers.
I am confident and our ability to execute our investment plans and strategies across all four of our business segments, as we have and experience and dedicated team to get it done.
And that fact, coupled with our sustained past execution.
True energy on many fronts has positioned us well for future success.
Further our shares continue to offer investors a solid dividend.
Our strong earnings growth expectations outlined today position us well for future dividend growth.
Simply put we believe our strong earnings and dividend growth outlooks.
And restaurant and a very attractive total return opportunity for shareholders again. Thank you all for joining us today and I'll now turn the call over to Michael.
Thanks, Warner and good morning, everyone. Turning now to page 20 of our presentation yesterday, we reported 2020 earnings of $3 50 per share compared to earnings of $3.
<unk> <unk> five per share and 2019.
Ameren transmission earnings were up <unk> 13 per share, which reflected increased infrastructure investments and the impact of the FERC order on the MISO allowed base return on equity.
Earnings for Ameren, Illinois, natural gas were up six per share, which reflected increased infrastructure investments.
And 30, and lower other operations and maintenance expenses due to disciplined cost management.
Earnings in Ameren, Missouri on.
Our largest segment increased <unk> <unk> per share from $1 74 per share and 2019 to $1 77%.
Per share and 2000 and 2020.
And then Ericsson and reflected new electric service rates effective April one, which increased earnings by 23 per share compared to 2019.
Earnings also benefited from lower operations, and maintenance expenses, which increased earnings and 16 cents per share.
This was due in part to the deferral of expenses related to the fall 2020.
And that can play energy center scheduled refueling and maintenance outage compared to recognizing all of the expenses for the spring 2000, 1919 outage at that time.
The change and timing of and expense recognition was approved by the Missouri, PSC and early 2020 and better aligns revenue with expenses.
In addition, the decline and other.
And Cowen and <unk> expenses were driven by disciplined cost management exercise throughout the year. These payroll factors on mostly offset by lower electric retail sales driven by the impacts from COVID-19, and weather, which together reduced earnings by approximately <unk> 18 per share.
In 2020, we experienced milder than normal.
Other owner and winter temperatures compared to near normal summer and winter temperatures and 2019.
In addition, lower EMEA performance incentives reduced earnings by nine cents per share compared to 2019 and higher interest expense due to higher long term debt outstanding reduced earnings by four cents per share.
And finally on returned to.
Oh, sorry, rave reviews, and settlement and where we recognized a onetime charitable contribution which reduced earnings by <unk> <unk> per share.
Moving to Ameren, Illinois electric distribution earnings decreased <unk> <unk> per share, which reflected a lower allowed return on equity under performance based ratemaking, mostly offset by increased infrastructure.
Structuring and energy efficiency investments.
The allowed return on equity under formulaic rate, making was seven 4% and 2020 compared to eight 4% and 2019 and was applied to year and rate base.
The 2020 allowed ROE was based on the 2020 average 30 year treasury yield of approximately one 6%.
Sent down from the 2019 average of two 6%.
And finally, Ameren parent and other results were lower compared to 2019 due to the increased interest expense, resulting from higher long term debt outstanding as well as reduced tax benefits primarily associated with share based compensation.
Turning to page 21 ally on this page our electric sales trends for Ameren, Missouri, and Ameren, Illinois electric distribution for 2020 compared to 2019.
Overall, the year and results for Ameren, Missouri are largely consistent with our expectations outlined on our call in may and in terms of impact on total sales and earnings per share for 2000.
And in 'twenty due to COVID-19.
Recall that changes on electric sales and in Illinois, and no matter the cause do not affect earnings.
Since we have full revenue decoupling.
Moving to page 22 of the presentation here, we provide an overview of our $17 $1 billion and strategically allocated capital.
And planned expenses expenditures for the 2021 through 2025 period.
By business segment that underlines, the approximately 8% projected rate base growth Warner discussed earlier.
This plan includes an incremental $1 1 billion compared to the $16 billion five year plan for 'twenty and 'twenty through 2024.
That we laid out last February.
Turning to page 23, we outlined here and the expected funding sources for the infrastructure investments noted on the prior page, we expect continued growth and cash from operations as the investments are reflected in customer rates. We also expect to generate significant tax deferrals those taxes.
And the Roes are driven primarily by timing differences and doing financial statement, depreciation reflected and customer rates and ink salad accelerated depreciation for tax purposes.
In addition to the benefits and accelerated tax depreciation as a result of a $1.1 billion investment and and 700 megawatts of wind generation we will.
We'll generate production tax credits over this period.
From a financing perspective, while we have no long term debt maturities and 'twenty 'twenty. One we do expect to continue to issue long term debt at the Ameren parent Ameren, Missouri, and Ameren, Illinois to fund a portion of our cash requirements.
We also plan to continue to use newly.
Issued shares from our dividend reinvestment employee benefit plans over the five year guidance period.
We expect this to provide equity funding of approximately $100 million annually.
Last week, we physically settled the remaining shares under our forward equity sale agreements and generate approximately $115 million.
In order for us and maintain a strong balance sheet, while we fund our robust infrastructure plan, we expect incremental equity issuance of approximately $150 million in 2021 and $300 million each year, starting in 2022 through 2025.
All of these actions are expected to enable us to maintain a consolidated capitalization.
Newly Ala.
Out of approximately 45% equity.
Moving to page 24 of our presentation I would now like to discuss key drivers impacting our 'twenty and 'twenty one earnings guidance as Warner stated, we expect 'twenty into 'twenty, one diluted earnings per share to be and the range of $3 65.
The $3 85.
<unk>.
On this page and the next we have listed key earnings drivers and assumptions behind our 2021 earnings guidance broken down by segment as compared to our 2020 and results.
Beginning with Ameren, Missouri earnings are expected to range.
And 2021 as previously.
Per share the majority of the 700 megawatts of wind generation investment was placed in service at the end of 2020 and early 2021.
As a result, we expect to see significant contributions to earnings from these investments in 'twenty and 'twenty one.
The 2021 earnings comparisons are also expected to be favorably impacted by the first quarter.
And the first quarter by increased Missouri Electric service rates that took effect April one 2020.
We also expect higher weather normalized electric sales and other margins in 2021 compared to 2020 as outlined by customer class on this on the slide reflecting the continued improvement and economic activity since the COVID-19 Lockdowns.
And again and the second quarter of last year.
While 2021 sales expectations are much improved over 2020, we do not expect total sales to return to pre COVID-19 levels. This year.
Further we expect a return to normal weather in 2021 will increase air, Missouri, and Ameren, Missouri earnings by approximately.
<unk> <unk> compared to 2020 results.
We expect the amortization expenses associated with the fall 2020, and calorie scheduled refueling and maintenance and outage to reduce earnings by approximately eight cents per share and 2021.
Fall 2020 outage costs of approximately <unk> 12 per share was deferred.
Pursuant to the Missouri, PSC order and and.
And expected to be amortized over approximately 17 months starting January 2021.
We also expect higher operations and maintenance expenses to reduce earnings.
Moving on earnings from our FERC regulated electric transmission activities are expected to benefit from additional investments.
Illinois.
And <unk> projects made under forward looking formula Ratemaking.
This benefit will be partially offset by the absence and the impact of the 22020 FERC order on the MISO base allowed return on equity.
Turning to page 25 for Ameren, Illinois Electric distribution earnings are expected to benefit.
And in 2021 compared to 2020 from additional infrastructure investments made under Illinois performance based ratemaking.
Our guidance incorporates a rate base formula based allowed ROE of 775% using a forecasted one nine.
Per cent 2020 average yield from the 30 year Treasury bond, which is higher than the.
Allowed Roe of seven four.
And 4% and 2020.
The allowed ROE is applied to year and rate base.
For Ameren, Illinois, natural gas earnings will benefit from higher delivery service rates based on on 2021 future test year, which were effective late last month as well as from infrastructure investments qualifying for the.
A writer and best treatment.
Moving now to Ameren wide drivers and assumptions, we expect the increased common shares outstanding as a result of the issuance into the forward equity sale agreement and our dividend reinvestment employee benefit plans and additional equity issuance of approximately 115 $915 million to unfavorably impact earnings.
Share by 12 cents.
Of course, and 2021, we will seek to manage all of our businesses during as close to our allowed returns as possible, while being mindful of operating and other business needs.
I would also like to take a moment to the LCR and.
Electric retail sales outlook.
We expect weather normalized and Missouri.
Kilowatt hour sales to be and the range of flat to up approximately 0.5% compounded annually over our five year plan, excluding the effects of our EMEA and energy efficiency plans using 2021 as the base year.
Again, we exclude EMEA effects because the plan provides rate recovery to ensure that earnings.
<unk> per affected by reduced electric sales, resulting from our energy efficiency efforts.
Turning to Illinois, and we expect our weather normalized kilowatt hour sales, including energy efficiency to be relatively flat over the five year plan.
Turning to page 26, and Ameren, Missouri regulatory matters.
Last October we filed a request with the Missouri PSC to track and defer on a regulatory asset certain COVID-19 related costs incurred net of any COVID-19 realized cost savings.
Through December 31, 2020, we have accumulated approximately $6 million from net cost and <unk>.
And additional true ups.
These are not our requests are approved by the Missouri, PSC the ability to recover and the time and they recover these costs would be determined as part of the next electric and gas rate reviews, we continue to work towards a settlement with key stakeholders.
I would also note that the PSC is under no deadline to issue orders.
Speaking of future rate reviews, we continue to expect.
To file the next day and Missouri electric.
And gas rate reviews by the end of March 2021.
Turning to page 27, and Illinois, Ameren, Illinois electric regulatory matters and December the ICC approved a $49 million base electric distribution rate decrease and the.
Annual rate update.
And with new rates effective at the beginning of the year.
This marks the third consecutive overall reduction in rates and the seventh overall rate decrease and its performance based ratemaking began in 2011.
And Ameren, Illinois natural gas regulatory matters last month, the ICC approved a $76 million annual increase in gas distribution.
8% using a 2021 future test year on <unk>.
Nine 6%, 7% return on equity and a 52% equity ratio.
The $76 million included $44 million of annual revenue that would otherwise be recovered in 2021 under Ameren, Illinois qualifying infrastructure plant and other.
Other writers.
New rates were effective in late January.
Finally, turning to page 28, we have a strong team and are well positioned to continue to execute our plan. We delivered strong earnings growth and 2020, and we expect to deliver strong earnings growth and 2021 as we continued to successfully execute our strategy.
And as we look ahead, we expect 6% to 8% compound earnings per share growth from 2021% to 2025, driven by robust rate base growth and disciplined cost management.
Further we believe this growth will compare favorably with the growth of our regulated utility peers and Ameren shares continue to offer investors an attractive dividend.
And in total we have an attractive total shareholder return story that compares very favorably to our peers that concludes our prepared remarks, we are now and invite your questions.
At this time, we'll be conducting a question and answer session.
And if you'd like to ask a question. Please press star one on your telephone keypad and confirmation tone.
And your line is and the question queue. You May press star two if you'd like to remove your question from the queue.
And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Julien Dumoulin.
Milan Smith with Bank of America. Please proceed with your question.
Good morning, Julien and congratulation on.
Thank you Sir how are you doing.
Quite well thank you all for engineered index.
[laughter].
And I.
And.
If you.
And Linda and a little bit I know you provided some comments on your in your remarks here on Callaway.
You elaborate a little bit more about how you've been able to reduce your fuel and purchase power cost growth here through the through the period as well as elaborate a little bit more on just exactly what has transpired and what repairs or alongside them.
It seems like Youre going to seek the bulk of the recovery through insurance and warranty here, but if you can elaborate there too.
And thanks, Joe and lots of stuff to unpack there you know and I'm going to first ask Marty to talk a little bit about sort of what happened in the event and some on the actions that we're taking to make sure we get timely recovery and.
And then I will talk a little bit about how we're balancing the fuel and purchase power cost So Marty and once you talk a little bit about the event and Callaway and how we're managing through that please.
Yes, sure Warner and good morning Julien.
As we talked about.
And our prepared remarks during the return to full power after our last refueling and.
Maintenance outage, we experienced.
And issue with the electric generators, so non nuclear part of the.
And the plant non nuclear operating issue. So subsequently we did open up generator for inspection and.
Identified issues with both the router as well and the.
So we decided that.
Significant components didn't need to be replaced but most are long lead time materials that need to be manufactured installed tested et cetera. So that we can ultimately make sure that we bring and plant back safely and sustainably and we do estimate that that'll take till now as we said late.
June early July so.
During this period of time.
The plan does remain down but as we suggested we're going to be doing everything we can to reduce the ultimate costs, including.
Pursuing recovery of.
Costs through warranties as well as we've made insurance claims.
And to have insurance, both on the property side as well as for accidental outage.
Impacts as it relates to lost generation.
So I think that summarizes generally the event and what we're doing from a warranty and insurance perspective I think.
Julian what we're doing from an operational perspective is what we do and when Kelly has just normal outages suite, we adjusted the efforts and the outages or moving those around for our coal fired energy centers and I got to tell you I am pleased to say during this very cold periods are coal fired energy centers operating extremely well.
And we do the same thing with the rest of our generating news because all of those go to mitigate the impact that debt calories out and so those are those are things that our team is already checked and adjusted for during this period of time and we're very focused on just doing that the work that Marty described and extremely well and getting callaway back and service for the benefit of our customers.
Excellent.
And if I can.
Sneak and this one on legislation and I mean, there's been some consternation out and the market about this 30 year Treasury.
Generation and some of the proposals out there I know a lot of bills floating out there.
And then some pickup and the attention on that new on how would you characterize that it seems like perhaps part of the.
Back and forth and negotiation and the early part of the session here.
But you're right there are a lot of bills being discussed and actually filed and the state of Illinois and I'd tell you. We're excited about the downstate clean energy Affordability Act.
And and really the enhancements that were made to the.
The debt that we just filed last year and it does several things one Julian and addresses the issue that you talked about.
And it really is no longer the debt downstate clean energy Affordability Act that was filed is and based on the 30 year Treasury and.
It is doing what legislators really wanted to have done back in 2012 and.
And then the modernization action plan was put in place and that was simply to try and you have the return on equity really become very close to two day national average and Thats exactly whats reflected in there and so we that's why we like that and of course, we'd like to build debt debt that was filed because.
Not only applies to our electric business, but our gas business because <unk>.
Firmly convinced and performance based ratemaking has been terrific things for the state of Illinois in terms of reliability in terms of affordability and jobs and and we think we can duplicate that and our natural gas business. We think that's the best way forward.
Yeah.
Electric together every year.
I'm sorry Julien.
On a bit there I'm sorry.
And I'm, sorry, and the GAAP GAAP as well as electric it seems like a priority.
Exactly exactly right. So so look just to sum it up there are a lot of bills out there obviously very early innings of the recession.
Yes, there are some that are trying to take different approaches to it. The only thing you can rest assured us that Richard Mark and his team. They are at the table, we're talking with key stakeholders and.
And we are strongly supporting the downstate clean energy Affordability Act.
Excellent guys and I'll pass it back.
And in Q.
Our next question comes from into Kim with Goldman Sachs. Please proceed with your question and good morning and soon.
Good morning, Thank you.
For the time.
And going back to the Callaway outage, and a little bit and the <unk>.
Book to mitigate any of the cost increases.
From purchase power appeal.
Session and the expectation currently that during this time period, whether it's coal and that now or in the next few months, but the outage ongoing.
On the path durable they'll happen through bills or is there a contemplation that maybe there would be some type of book default and that being set up.
Good morning. This is Michael Yes, you see on the right.
We have a fuel adjustment clause and place into that Paul and I expect that those costs will flow through that and the 95 five.
Sharing on that and mechanism as Marty said I mean, there is this.
Do everything we can and possibly mitigate the overall impact on customers and so there is insurance debt both.
And the property side as well as the replacement power side.
Not upon me on whether or not and we're going to get recovery, there, but to the extent that we do and obviously would go to mitigate a big part of that impact.
Got it and then on your on the equity plan through 2025 and correct.
And if I'm wrong, but I think the last time, you were contemplating on the $150 million.
And our run rate per year.
And in 2024 and now it seems like on.
Stepped up a bit starting 2022 is that.
Contemplating just that base capex back from 2025 or <unk>.
Somewhat and close to the cash.
And I'll pass on renewable power.
And.
No.
Looking at the right way I mean.
It's up about 150 per per year, starting in 2022 from where we were before and that really is driven by we got about $1 $1 billion of additional capital here me on 16 billion and where we were last February to where we are today $17 one.
And it really is just to continue to conservatively financed this balance sheet, we like our ratings.
Where they are and being able they want on Moody's Triple B plus at S&P and.
Maintaining that capital structure right at about 45%. So that's really what it's being driven to do at the end of the day.
Got it and if.
If I may what.
Range of ethical to debt should we be considering at this point.
Yes, we havent specifically.
Given that in the past.
And Moody's we have a threshold of third and S&P, we have a threshold and at <unk>, we have a 17% threshold and annuities.
I'd tell you historically.
In 19, and 20% and it's been coming down a little bit over time and as we've invested more on capital, but we've had some we've had some good margins there.
Got it thank you so much.
And consume.
Our next question comes from <unk> Chopra with Evercore ISI.
Please proceed with your question.
Good morning.
Hey, good morning, guys. Thanks for taking my question.
Moving.
Going back to thank you going back to just the ROE can you you're pretty clear on what youre, assuming for 'twenty and 'twenty, one, but maybe just how youre thinking about.
And 30 year in the context.
And five year plan.
And I appreciate the question.
Historically, you're right I mean, we're assuming $1 95 here for this year and.
As you think about our overall range, 6% to 8% off on this.
$3 75, and provide you had quite a bit of a range that you go out and time obviously.
Obviously about 40% to 40% or 40.
In total.
And we really haven't historically said, what we are assuming and obviously accommodates a number of things within that in terms of those ROE in terms of Capex in terms of regulatory outcomes et cetera.
But we havent we havent.
Specifically said, what we're targeting from a 30 year treasury.
And it is it can be assumed debt.
Like with the with the most of the forecasts here that you do.
And you're assuming debt yields creep up higher is that a fair assumption or or are you kind of modeling truly a flat and that would.
And it is a wide range and lots of different things can accommodate it.
And there I mean, obviously, the 30 years move quite a bit here on the last few.
A few months or so but difficult to speculate exactly where it's going on.
Okay I understand that.
B ups, just one quick one.
One two gigawatt of debt.
The investment that you highlight in the Missouri IRB.
And what's the cadence of.
The timing and cadence of including that in the current five year final do you think that falls out of the current five year and then it's more.
And like 2025 and beyond.
So this is.
This is Warner look.
We've said before and we're focused on and getting some of these renewable energy projects done consistent with our integrated resource plan and Marty and his team are working very hard.
And at.
Several proposals and as we said on our.
And maybe your prepared remarks that we.
Plan on filing some cc and still in 2021 to start addressing that and so we don't have a specific number.
Number in terms of what we will pursue that.
We're looking to execute that plan simply put once we when we do that we get further along and the regulatory process we.
And our negotiations with developers and we think about the interconnection agreements to be extent needed.
And all those things will really dictate when we ultimately put them on our Capex plan, but I would not suggest net debt.
And that 200 megawatts are outside of that all of that would be outside of the 2025 period.
Okay.
Okay, Great I appreciate the color Warner and thank you you bet take care.
Our next question comes from Steve Fleishman with Wolfe Research. Please proceed with your question. Good morning, Steve How are you doing.
Hey, great Thanks, and Warner.
So just a question on the dividend increase.
Finishing which obviously are very.
Very happy about but.
You did do it kind of off cycle, So you kind of data and increase.
Higher increase and you've been doing five months. After you did your last one so kind of curious like why didn't you do that on October one do you wait till next October.
Is there any.
If you do.
Kind of sense on what like why why now and is this kind of the timing when youre going to do dividend increases going forward.
No. That's a great question look we've we've discussed with you and investors and in the past that you know.
Ameren as dividend and this dividend policy are really important matters to our board.
And if there's and.
And so clearly the board.
Careful consideration in terms of thinking first and foremost about the dividend policy and as.
As you know, we announced that dividend policy change and I talked about the future dividend growth is really going to be in line with our long term earnings per share growth and within our payout ratio of 50.
And a directly to 70%, which is what we talked about in the past.
And so when they did that and we all collectively did that.
We also carefully considered the practice and.
And we've been using over the last several years of raising the dividend and the fall on October.
And at the end of the day the board of directors came to conclusion.
And I really just appropriate to align the dividend increase we announced last week with with the simultaneous updated and on the dividend policy, which I just described.
And then also do align it with our discussion of our long term earnings guidance, which as you know we typically do right now at the beginning of the year and so.
So I can.
And I was telling you exactly what the board to do and the future and I would expect the practice.
Debt.
From a point this year to continue and the future.
And of course on future dividend decisions as we've said before are driven by all kinds of things earnings growth cash flow investments business conditions, those types of things, but on unexpected.
And never the student debt.
And employed this year to be consistent and the future.
Okay, great. Thanks, a lot.
Beth.
Our next question comes from Paul Patterson with <unk> Associates. Please proceed with your question.
Hello, how are you.
Are you.
And to practice <unk>.
Sure.
Excuse me book.
With respect to the legislation.
And then just a follow up on Julians question.
It seems like the sort of your you've got a downstate approach and as you know there and as you mentioned the other bills.
Growth going on and I'm just wondering.
Sort of the strategy there are the thoughts about having.
So the what approach for.
For downstate versus upstate and.
Just sort of elaborate a little bit more on the strategy there.
And just sort of a general what.
The thoughts are about.
And this might be going on.
Sure.
And really our message around this Paul hasn't really changed we talked last year and we will continue to talk about that.
And as we see it as our legislators hit the downstate needs are different and key.
And mining and when you think about downstate and we are the major energy.
Well hear downstate not just on the electric side, but on the gas side as well.
And so as our downstate legislators and looked at it and they clearly recognize there are some broad policy issues.
And the state of Illinois, clearly and the northern portion of the state around the nuclear plants and these are important issues and so we get that and of course, we're engaged and those.
<unk>, because we want to make sure that policy decisions made for.
For the nuclear plants and others don't have negative implications for our customers down state. So we're engaged there.
But similarly, we know the importance of investing and energy infrastructure on the electric and gas businesses, and we don't want to lose side of that and.
And so we.
And proposal legislation like we did last year that really is affecting the downstate, which is very consistent with what the state of Illinois wants to move towards a cleaner energy future and this downstate affordability isn't just about grid modernization and let's just be clear it is in part and <unk>.
Certainly around the gas business, but also.
Also is driving towards greater electrification, greater solar and battery storage and I'll just add policies to support these critical investments so.
At the end of the day. We are we believe this is an appropriate approach of course, we're still early in the session is Julian and I discussed.
Just a little while ago.
And so we will engage with key stakeholders other utilities on these important matters, but.
And this is the direction that we think is appropriate and certainly the sponsors on the legislation and do as well.
Okay, Great and then.
I appreciate the data on on the cost reductions and.
And.
And build out of it but just in general.
As you've updated your forecast and everything here, what's your expectation for <unk>.
On the potential bill impact just roughly speaking.
With this growth trajectory that you guys have.
Yeah.
And I might comment.
And specifically on O&M I'm, not going to really comment on the overall bill and that impact itself I think we've done and we're very good job, obviously over time and managing that.
In terms of impact to customers, but every day.
About the O&M and piece of that.
As Warner pointed out we've had some good success and managing those costs.
Early on on a flat basis over the last five years.
And as we think about the future and we're obviously mindful of the capital that we're investing and we're really focused on keeping that O&M flattish over this.
Five year forecast as well.
Okay. Thanks.
Thanks, so much.
You bet.
You bet.
And it can be safe.
Right.
Our last question comes from the line of Jeremy Tonet with Jpmorgan. Please proceed with your question Jeremy.
Jeremy and good morning.
On a.
Yeah. Thanks for taking my questions looking at your quite a bit.
And today's update.
The growth into 2025 of course at 9%.
And if I'm doing the math there right.
And this is the capex that Nokia.
The typical industry profile that is more.
And loaded on the Capex and it.
And do you have any.
Thoughts on ultimate and I'm on here.
And Jeremy I'm, sorry, you were breaking up it was hard to hear the first part of your question. So something on our rate base growth. If you could if you could start and I apologize it just wasn't coming across clearly please.
Sure can you hear me now as it's better, yes, and thats much better. Thank you.
Sorry about that.
So looking at your prior rate base disclosures and today's update and it looks like growth into 2025, and his question and 9% and can you speak to the Capex preference here versus typical industry profile, which is more on unloaded on the Capex and then just also kind of thinking about it.
And the Missouri renewables ownership and transmission and.
And by Central as well do you see this is additive to this growth expanding the growth runway or clubbing any other impacts here.
So let me I'll answer the second part and then Michael maybe you can you can get a little bit and true to the math and the first part a couple of things.
And with regard to the renewables and the transmission we do.
Do see.
He has meaningful opportunities to continue our rate base growth now as we've said in the past we're not out here given our five year plan and weather.
100% additive in all respects and that would be premature for me to say that.
But to be clear.
We see.
The real needs clearly and our integrated resource plan for renewables and we are taking steps as we discussed earlier to be on executing that plan and factory have already started that as you know with regard to the 700 megawatts, but we believe it's absolutely a prudent and appropriate to do more as we transition to a cleaner.
<unk> future, but on a cleaner energy future really is not going to be coming forth. If we don't have greater levels of investment and transmission.
And so as we pointed out in our and our slides and before that these large regional transmission projects, which have really put our.
Cleaner and agree on a position where it is today in terms of our growth in renewables and need to do more of that and so we see those as greater opportunities when they come in is on.
A little early to say, we have been actively working with MISO and other key stakeholders to try and put the process in place for those transplant.
Our country investments to get going on those.
I've said before those take time and not going to be done here and a year or two if anything we might see some towards the back end of our 21% to 25 plan, but we certainly see greater levels of investment and transmission and the next decade to enable this.
Transmission to a cleaner energy future.
Stay tuned in terms of how it ultimately gets additive.
And but we see that as clearly potential upside opportunities and Michael I'll, Let you address specific rate base, yes, Jim and I'm not sure I completely followed your question, but let me try and and anything you can do a little follow up if it doesn't.
And looking for I mean.
Transit.
And the overall rate base growth that obviously has come down a little bit from where we were on February. It's just a function of obviously a higher jump off point here and in 2020, but still very robust.
Rate base growth of 8%.
As is noted noted on the slide.
As we think about beyond 25, and obviously theres.
A large pipeline of opportunity there 40 plus billion that we've indicated and level. We'll have to just continue to assess over time, how are you continuing to.
Saves us into the capital plan and we're mindful.
The previous question about customer affordability and just manage on overall rate impact. So that's got to be factored.
And all of this just overall financing those types of things. So I think theres lots of opportunity there in terms of the.
Overall runway and.
And we will just continue to update as we move through time.
Got it that's helpful moving just to clarify.
Clinical and <unk>.
And.
Items, but the rate base I think it looked like a 9% stuff out there and so the.
But we could take that discussion offline and sets.
Uh huh.
Hmm.
And maybe just kind of building out that you know and somebody other comments you out here and giving the speech extreme weather. How is your system you know performed overall on gas.
But.
And in light of everything and but more importantly, do you do you expect any local policy and taxes and result of this week, whether it's capacity resiliency.
Generational transition or anything from.
And from these events.
And so so Jeremy.
Jeremy. This is this is Warner again book.
And when you couple of things one.
Our system.
<unk> really quite well do we have our share of challenges because of the overall impact should the energy grid broadly and different areas of the country.
Yes, we are impacted by that because of the interconnect ability, but our system performed well.
And.
And I said before.
Certainly the fact that head.
There are a coal fired energy centers running well.
Gas storage.
Our operations doing very well and those investments that we've been making.
Over the last 510 years really paid off during this period of time so.
No.
As I said, we did not have any significant reliability issues and we're pleased to say that.
And now when you step back and say what is going to happen as a result of all this I believe there will be greater levels of.
And oversight or perhaps hearings and as we all collection.
Collectively trying to understand how we can continue to improve the grid and.
And not going to speculate where it'll be whether there'll be I think frankly state or federal matters, but we're just we've been very focused on as an industry is making sure that we're taking care of our customers collectively, but theres going to be more to be.
We had on this to be short.
And we look forward to engaging with stakeholders should we be asked to but I can be pleased to tell you and others and that's just and held up well and we delivered and customers safe and reliable electric and natural gas during this period of time.
Got it that's very helpful and just one month and if.
And Callaway here and outage and.
And just wanted to come back to how much ultimate cost recovery and do you expect to seek from warranties and restaurant and insurance and just.
Are there any early investigations findings that inform your kind of confidence here on the ultimate liability and and prudence.
And Jeremy I honestly, you know where we're at.
And I could be premature.
And for us to comment on that we're dealing with the appropriate parties from a warranty perspective from an insurance perspective that work continues so when we have material updates on that and we'll provide a and it. It's just too early for us to really comment any further at this stage.
Understood I appreciate.
Thank you so much for taking my questions you bet. Thanks every weekend.
We have reached the end of the question and answer session I would like to turn the call back over to Andrew Kirk for closing comments.
Thank you for participating in this call a replay of this call will be available for one year on our website. If you have questions you may call the contacts.
<unk> listed on our earnings release financial Analyst inquiries should be directed to me Andrew Kirk.
Media should call Tony per annum again, thank you for your interest and Ameren and have a great day.
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Yeah.
Okay.