Q2 2022 Ameren Corp Earnings Call
<unk> actual results to differ materially from those anticipated.
For additional information concerning these factors. Please read the forward looking statements section in our news release, we issued yesterday and the forward looking statements and risk factors section in our filings with SEC.
Lastly, all per share earnings amounts discussed during today's presentation, including earnings guidance are presented on a diluted basis unless otherwise noted.
Now, here's martie, who will start on page four.
Thanks, Peg and good morning, everyone and thank you for joining US we had a solid quarter and we're excited to share an update today on a number of recent developments.
As always our team continues to work hard to execute our strategic plan across all of our business segments, allowing us to deliver significant value to our customers and shareholders yesterday.
We announced second quarter 2022 earnings of <unk> 80 per share compared to earnings of <unk> 80 per share in the second quarter of 2021.
The year over year results reflected increased infrastructure investments across all our business segments that will drive significant long term benefits for our customers.
The key drivers of our second quarter results are outlined on this slide.
I am pleased to report that we remain on track to deliver solid earnings growth in 2022 and are reaffirming our 2022 earnings guidance range of $3 95 per share to $4 15 per share Michael.
Michael will discuss our second quarter earnings 2022 earnings guidance and other related items in more detail later.
Moving to slide five you will find our strategic plan reiterated we continued to invest in and operate our utilities in a manner consistent with existing regulatory frameworks enhanced regulatory frameworks and advocate for responsible energy and economic policies.
And create and capitalize on opportunities for investment for the benefit of our customers shareholders and the environment.
Turning now to page six which highlights our commitment to the first pillar of our strategy investing in and operating our utilities in a manner consistent with existing regulatory frameworks.
Our strong long term earnings growth guidance is primarily driven by our infrastructure investment and rate base growth plans, which are supported by constructive regulatory frameworks.
You can see on the right side of this page we continue to strategically invest significant capital in each of our business segments in order to maintain safe and reliable operations as we transition to a cleaner energy grid.
Regarding regulatory matters earlier this week Ameren, Missouri filed an electric rate review with the Missouri Public Service Commission requesting a $316 million annual revenue increase.
This request reflects significant modernization upgrades to the electric grid for system reliability resiliency.
The resiliency and safety as well as investments to support the transition to cleaner energy for the benefit of our customers and local communities.
In our Illinois Electric business, we recently requested an $84 million revenue increase in our required annual electric distribution rate filing.
Again key drivers for this rate increase includes significant investments to enhance the grid for our customers and communities, which will deliver long term benefits.
Michael will cover these in more detail a bit later and we will provide updates on these proceedings as they develop later this year.
As we invest to build a safer stronger smarter and cleaner energy grid for our customers. We also continue to work diligently to manage our costs leverage our investments and optimize our performance move.
Moving now to page seven in the second pillar of our strategy enhancing regulatory frameworks and advocating for responsible energy and economic policies.
Without question energy policy at the federal and state levels, and constructive regulatory frameworks that incentivize meaningful in needed infrastructure investments have never been more important as we look to reliably and securely transition to a cleaner energy future as affordably as possible.
As you know late last week, it was announced that Senators Schumer and mention reached agreement on proposed legislation that would among other things extend significant incentives for clean energy development and deployment.
Given the clean energy transition underway in Illinois, and Missouri as highlighted by our recent change to the Ameren, Missouri integrated resource plan filed with the Missouri PSC in June .
And our goal of reaching net zero carbon emissions by 2045, we are very excited about the potential benefits of this legislation.
Specifically the credits proposed for wind solar storage nuclear carbon capture utilization and storage or <unk> and hydrogen will align very well with the significant investments proposed in the Missouri ERP.
Importantly, the benefits of these tax incentives will ultimately lower the cost of the clean energy transition for our customers in Missouri, and Illinois overtime.
These potential tax credits when coupled with the significant clean energy funding made available through the infrastructure investment and jobs Act passed earlier. This year, we will drive significant long term benefits for our customers communities and the country.
I will also note that the proposed legislation includes a minimum corporate income tax for public companies with pretax book earnings above $1 billion.
At the state level as part of Ameren, Missouri's Smart energy plan, a multiyear effort to strengthen the grid our customers are benefiting from stronger poles more resilient power lines smart equipment, including modern substations and upgraded circuits to better withstand severe weather events and restore power more quickly.
As we mentioned on our first quarter earnings call, Missouri Senate, Bill 745, which enhances and extends the smart energy plan passed earlier this year with strong majority support in the General Assembly.
The Bill was later signed by Governor Parson.
We believe extending Missouri's smart energy plan will continue to benefit our customers and communities as we transform the energy grid of today to build a brighter energy future for generations to come and while creating significant economic development and jobs in the state.
Moving to page eight for Illinois Legislative matters, we continue to make progress working towards the implementation of the Illinois energy transition legislation enacted last year, including the performance metrics required by the legislation.
<unk>, Illinois has proposed eight performance metrics each were three basis points of incentives for a total of 24 basis points of symmetric equity return upside or downside potential.
The ICC staff is mostly aligned with Ameren, Illinois on the performance metrics and has proposed a range of 20 to 24 total basis points of increased or decreased return opportunities.
We expect a final order from the ICC by late September in the performance metrics docket.
We look forward to the ICC order and filing our first multi year rate plan next year as we believe this legislation will support important energy grid investments and deliver value to customers.
Turning to page nine for an update on our plan to accelerate the retirement of the Rush Island Energy Center.
Last month in response to our notification to MISO of our intention to retire the energy Center MISO issued its final attachment Y report designating the generating units at the Rush Island Energy Center as system support resources.
MISO also concluded that certain mitigation measures, including transmission upgrades should occur to ensure reliability before the energy center is retired.
Those transmission upgrade projects have been approved by the MISO and we've started the design and procurement process associated with the upgrades, which we expect to complete by late 2025.
In the interim until Rush island can be retired Ameren, Missouri has proposed limiting operations at the energy Center the.
The district Court is under no obligation or deadline to issue a rule modifying its remedy order to reflect the MISO SSR designation or proposed interim operating parameters.
The original March 31, 2024 compliance date remains in effect unless extended by the court.
We expect a decision in the near term.
Turning now to page 10 for an update on changes to our 2020, Ameren, Missouri integrated resource plan, which we filed in June .
<unk> is a 20 year energy plan created to ensure reliability for our customers for years to come.
I am excited to share with you that these changes to the plan accelerate our clean energy additions reduced carbon emissions, even further in the short term and accelerate the company's net zero carbon emissions goal by five years, specifically the planned targets a 60% reduction in carbon emissions below 2005 levels by <unk>.
30, and an 85% reduction by 2040 and by 2045, our goal is to achieve net zero carbon emissions across all of Ameren.
The new goals include both scope, one and scope two emissions, including other greenhouse gas emissions of methane nitrous oxide and sulfur hexafluoride.
We plan to achieve these goals by making significant investments in renewable energy, including 2800 megawatts of renewable energy by 2030, representing an investment opportunity of $4 3 billion.
This is an increase of $1 billion from our 2022 or excuse me our 2020 ERP.
By 2040 in total the plan includes 4700 megawatts of renewable generation for a total investment opportunity of seven 5 billion.
The plan also includes 200 megawatts of gas combined cycle generation by 2031 and.
An investment opportunity of $1 7 billion.
Which will allow us to safely and reliably advance the net retirement timeline of our fossil generation, including the accelerated retirement of the Rush Island Energy Center.
Further the plan includes 800 megawatts of battery storage by 2040, representing an investment opportunity of $650 million, we expect to add 200 megawatts of clean dispatch able resource by 2042 and to also seek an extension of the operating license of our carbon free Callaway.
Nuclear Energy center beyond the current expiration date of 2044.
These changes to the 2020, ERP will drive our ability to meet customers' rising needs and expectations for reliable affordable and clean energy sources achieving.
Achieving these goals is dependent upon a variety of factors, including cost effective advancements and innovative clean energy technologies, and constructive federal and state energy and economic policies.
We have issued a request for proposal to solicit solar and wind projects that will allow us to take the next steps and deliver the best value for our customers.
One thing is clear our ERP include significant incremental investment opportunities and we're very excited as we continue to execute our clean energy transition plan.
Turning now to page 11.
Speaking of executing our clean energy transition plan in July we filed certificates of convenience and necessity or CCN with the Missouri Public Service Commission for two solar project acquisitions.
Boomtown, a 150 megawatts solar energy center located in Southern Illinois is expected to be in service by the fourth quarter of 2024, Huck Finn a 200 megawatt solar energy center located in Eastern Missouri would.
We'd be Ameren is largest solar project to date generating more than two five times the amount of energy of Missouri's largest existing solar facility.
This solar project is also expected to be in service by the fourth quarter of 2024.
While the Missouri PSC is under no deadline to issue an order on the CCN filings, we expect decisions by March and April 2023 for the 200 megawatt and the 150 megawatt facilities respectively.
Looking ahead, we expect to announce further agreements for the acquisition of renewables between now and the first half of 2023.
Turning to page 12, and the third pillar of our strategy, creating and capitalizing on opportunities for investment for the benefit of our customers shareholders and the environment.
This page provides an update on the MISO long range transmission planning process.
As we have discussed with you in the past MISO completed a study outlining a potential roadmap of transmission investments through 2039, taking into consideration the rapidly evolving generation mix that includes significant additions of renewable generation based on announced utility integrated resource plans state mandates and goals.
Clean energy or carbon emission reductions as well as electrification of the transportation sector among other things.
And July MISO approved tranche, one a set of projects located in MISO, North which is estimated to cost more than $10 billion.
These projects approximately $1 8 billion represent projects in our service territory that have been assigned to Ameren.
We expect to refine the scope cost estimates and timelines for these projects over the remainder of this year.
In addition to the assigned projects MISO approved approximately $700 million of competitive projects.
Cross through our Missouri service territory, which provide additional potential investment opportunities.
We are well positioned to compete for and successfully execute on these projects given the location of the projects and our expertise constructing large regional transmission projects.
Later this month MISO is expected to post a schedule outlining the RFP process for competitive bidding with the first RFP expected to be issued by late September the competitive bidding process is expected to take 12 to 24 months for.
For the projects assigned to Ameren, we expect capital expenditures to begin in 2025 with the completion dates expected near the end of this decade.
<unk> has also begun work on three additional tranches and has indicated that an initial set of tranche. Two projects also located in MISO North is expected to be approved in the second half of 2023.
Projects included in tranche three are expected to be located in MISO south with approval scheduled by the end of 2024, while projects identified in tranche four are expected to improve transfer capability between MISO north in MISO, South and we will be studied upon approval of tranche three.
Turning then to page 13.
Looking ahead over the next decade, we have a robust pipeline of investment opportunities that will deliver significant value to all of our stakeholders by making our energy grid stronger smarter and cleaner, we have updated the investment opportunities to reflect the additional renewable and combined cycle generation included in the change to the IRB.
<unk> filed in June .
We now expect over $48 billion of investment opportunities over the next decade made.
Maintaining constructive energy policies that support robust investment in energy infrastructure, and a transition to a cleaner future in a responsible fashion will be critical to meeting our country's energy needs in the future and delivering on our customers' expectations.
Moving now to page 14.
We are focused on delivering a sustainable energy future for our customers communities and our country.
This slide summarizes our strong sustainability value proposition and focus on environmental social governance and sustainable growth goals.
The change to the Ameren, Missouri ERP filed in June supports our goal of net zero carbon emissions by 2045 and is also consistent with the objectives of the Paris agreement and limiting global temperature rise to one five degree Celsius.
We also remain focused on supporting our communities, including our very robust supplier diversity program.
Our strong sustainable growth proposition remains among the best in the industry.
We have a robust pipeline of future investments that will continue to modernize the grid and enable the transition to a cleaner energy future.
Encourage you to take some time to read more about our strong sustainability value proposition you can find all of our ESG related reports at Ameren investors Dot com.
Turning to page 15.
To sum up our value proposition, we remain firmly convinced that the execution of our strategy in 2022 and beyond will deliver superior value to our customers shareholders and the environment.
In February we issued our five year growth plan, which included our expectation of a 6% to 8% compound annual earnings growth rate from 2022 through 2026.
This earnings growth is primarily driven by strong rate base growth supported by strategic allocation of infrastructure investment to each of our operating segments based on their constructive regulatory frameworks.
We expect ameren future dividend growth to be in line with our long term earnings per share growth expectations and within our payout ratio range of 55% to 70%.
We expect to deliver strong long term earnings and dividend growth.
Which resulted in an attractive total return that compares favorably with our regulated utility peers.
I am confident in our ability to execute our investment plans and strategies across all four of our business segments. As we have an experienced and dedicated team to get it done.
Finally, turning to page 16.
I'd like to take the opportunity to congratulate Richard Mark on his retirement and extend my gratitude for his many contributions made to ameren and our communities.
Richard served in several leadership positions during his 20 year career at Amarin and was influential in the advancement of the electric and natural gas distribution grids throughout southern and central Illinois, including installing advanced technologies, improving reliability and creating thousands of jobs. In addition to a strong community engagement. Thank you Richard and I were.
Wish you well in your retirement.
I would also like to introduce to you Ameren, Illinois, New President Lenny sing.
He brings more than 30 years of utility experience serving in both electric and natural gas operations. Most recently as senior Vice President of consolidated Edison Company of New York.
Over the course of his career Lenny is focused on operational excellence and value creation prioritizing safety customer satisfaction continuous improvement action and accountability I look forward to working with Lenny as he builds on Ameren, Illinois success, as we work to safely reliably and securely drive the clean energy transition in the state of Illinois.
Again, thank you all for joining us today and I'll now turn the call over to Michael.
Thanks, Marty and good morning, everyone yesterday, we reported second quarter 2022 earnings of <unk> 80 per share compared to <unk> 80 per share for the year ago quarter.
Slide 18 summarizes key drivers impacting earnings at each segment.
Like to take a moment to highlight a few key variances for the quarter.
Earnings at Ameren, Missouri, our largest segment benefited from higher electric retail sales driven by warmer early summer temperatures during the quarter compared to near normal temperatures in the year ago period.
Higher electric grids.
The positive factors impacting earnings of Ameren, Missouri were more than offset by among other things higher operations and maintenance expenses.
The higher O&M reflected unfavorable market returns in 2022 on company owned life insurance investments compared to favorable market returns in the year ago period.
In addition, the higher O&M expenses were driven by the absence of refined coal credits in 2022, which had been a benefit to our coal fired energy centers in 2021, and prior years and the increased transmission and distribution expenses, including storm costs.
The reduction in refined coal credits was anticipated and reflected in the new electric service rates effective earlier this year.
In fact year to date O&M costs, excluding coli are largely in line with what we expected when we provided guidance in February .
We remain focused on disciplined cost management for the second half of the year.
Before moving on I will touch on sales trends for our Missouri, and Ameren, Illinois electric distribution year to date weather normalized kilowatt hour sales to Missouri residential and commercial customers increased about <unk>, 5% and one 5% percent respectively.
Our weather normalized kilowatt hour sales to Missouri industrial customers decreased about <unk>, 5%.
Weather normalized kilowatt hour sales to Illinois residential and commercial customers increased about one 5% each year to date.
And weather normalized kilowatt hour sales to Illinois, industrial customers increased about <unk>, 5% recall that changes in electric sales in Illinois, no matter the cause do not affect our earnings since we have full revenue decoupling.
Turning to page 19, I would now like to briefly touch on key drivers impacting our 2022 earnings guidance, we delivered solid earnings in the first half of 2022 and are well positioned to finish the year strong as Marty stated we continue to expect 2022 diluted earnings to be in the range of $3 95 to $4 15 per share.
Select earnings considerations for the balance of the year listed on this page in our supplemental to the key drivers and assumptions discussed on our call earnings call in February .
As we reflect on our earnings for the full year results. The benefits we've seen from weather during the first half of the year and from the higher expected 30 year Treasury rates were offset in part by unfavorable market returns on company owned life insurance as well as higher than expected short term and long term borrowing rates.
I encourage you to take these into consideration as you develop your expectations for the third quarter and full year earnings results.
Turning now to page 20 for an update on regulatory matters, starting with Ameren, Missouri earlier. This week, we filed for a $316 million electric.
Electric revenue increase with the Missouri Public Service Commission.
Our request includes a 10, 2% return on equity a 51, 9% equity ratio and a December 31, 2022 estimated rate base of 11 $6 billion.
Drivers of the requested increase our investments in on the Smart energy plan, including increased cost of capital and depreciation expense as well as increased net fuel expense due to reduced off system sales driven by expected reduced operations at Rush Island.
As Marty noted earlier customers are benefiting from investments made in the smart energy plan to strengthen the grid, including infrastructure upgrades bolstering reliability and resiliency installation of smart meters and an improvement in reliability of up to 40% on circuits with new smart technology upgrades.
We expect the Missouri PSC decision by June 2023, and new rates to be affected by July one 2023.
We look forward to working with all key stakeholders on this request.
Moving to page 21, and Ameren, Illinois regulatory matters in April we made our required annual electric distribution rate update filing.
Under Illinois performance based ratemaking. These annual rate update systematically adjust cash flows overtime for changes in cost of service and true up any prior period over or under recovery of such cost.
In late June the ICC staff recommended a $60 million base rate increase compared to our updated request of an $84 million base rate increase the.
The $24 million of Aaron's is primarily driven by a difference in the common equity ratio as we proposed 54% compared to the ICC staff's recommended 50%.
For perspective, the order received from the ICC last December including a common equity ratio of 51%.
An ICC decision is expected in December with new rates expected to be effective in January 2023.
On page 22, we provide a financing update we continue to have a very feel very good about our financial position on April one Ameren, Missouri issued $525 million of three 9% Green first mortgage bonds due 2052.
Proceeds of the offering were used to fund capital expenditures and refinance short term debt.
In order to maintain a strong balance sheet, while we fund our robust infrastructure plan consistent with the guidance in February this year, we expect to issue approximately $300 million of common equity under our aftermarket equity program. We have fulfilled all of our 22 equity needs through the forward sales agreement entered into is April one and we expect to issue three four.
4 million common shares by the end of this year upon settlement.
Further as of July 12, approximately 225 of the $300 million of equity outlined in 2023 has been sold forward under that program.
Finally, turning to page 23, we've had a solid first half and we expect to deliver strong earnings growth in 2022, as we continue to successfully execute our strategy strategy today, we've outlined significant and exciting investment opportunities over the back half of our current capital plan and beyond that are not reflected in our 2022 to 2026 capital plan.
Consistent with our approach in the past, we will step back and take a comprehensive look at our investment opportunities and provide our five year capital plan for 2023 through 2027 during our year end conference call in February .
As we look to the longer term, we continue to expect strong earnings per share growth 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. The bottom line is that we are well positioned to continue executing our current plan.
And Ameren shares continue to offer investors an attractive dividend.
In total we have an attractive total shareholder return story that compares very favorably to our peers that concludes our prepared remarks, we now invite your questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It 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 Shar <unk> with Guggenheim Partners. Please proceed with your question.
Hey, good morning, Marty.
Good morning, Shar, how are you today.
Too bad not too bad it's a very good day.
Good.
Let me ask just thank you for the visibility obviously on the tranche one opportunities, but just a two part question here.
What's your confidence level on the competitive slice or how should we be thinking about maybe your ability to capture that as there are technical or cost of capital facet to your advantage and then does this how does this sort of in Iraq with your prior Capex and sort of rate base guide I mean, some of the <unk>.
<unk> do break ground and 25% so could these be accretive to your 6% to 8%.
Yes, you bet.
Questions.
I hope you have a good Friday and a good good weekend.
Back to your questions in terms of the competitive projects coming out of trench one as we highlighted a little over $700 million of those and as we mentioned in our prepared remarks that we do believe we're well positioned to compete for and successfully execute those and I think the bottom line is that we believe we're really well positioned to <unk>.
<unk> build operate and maintain those assets over time.
The projects that are competitive or within our footprint.
There are places, where we have strong relationships with local communities regulators suppliers contractors et cetera, and we've been operating in this area for many years. So we know the land we know the environmental conditions that issues.
And I would tell you too that we've been working for several years now as you know we've developed billions of dollars' worth of transmission projects and we've been working over time with suppliers and contractors to really bring down the cost of construction.
And because these projects these competitive projects are contiguous with other assets that we own and operate we think we're really well positioned to operate and maintain these assets.
At a low cost over time. So those are some of the reasons that we believe at the end of the day, we are well positioned to compete and execute on those projects. So we look forward to.
Participating in that competitive process over time.
And then your second question.
Really got to some of the incremental.
Capital into our plan and I'll, let Michael comment on that but you're right in terms of the $1 $8 billion worth of projects that were assigned to US. We do again expect to begin those in 2025 and those cash flows.
And capital expenditures to.
And be incurred over between 2025 at the end of the decade, Michael any comments in terms of added Capex, yes.
Good morning Shar.
I think Marty you said it well in terms of the capital plan and sell Sean We've talked about this I mean, I think that it's great to start getting some clarity here around these.
Different projects and as Marty said I think some of this could even benefit the five year plan.
Indicated we're going to step back and what we typically do with our cadence is we'll update all of this in the February timeframe and my sense is this has got the ability to be accretive to our five year capital plan as well as just additive to the overall runway as we talk about the growth story.
As we can.
Remember if you reflect back on the $48 billion that we have there now.
That number used to be 40, we captured about $5 billion associated with transmission projects that was broadly to try to look at these LR television projects over the next 10 years. So I think we got it in there now it's a matter of where it just ends up by year, if that makes sense.
Yes, Im sorry, Im sorry, Im sure. This is Marty and I think Michael touched on a good thing as we started the year. We looked ahead to Q2 and we noted that there were going to be some important updates in Q2, and I think thats exactly what came through in terms of the integrated resource plan in Missouri.
That indicated about $2 7 billion of incremental spend between now and 2031 and then as Michael said, the LR TP, adding.
$1 8 billion of Av.
Expenditures that we have assigned to us as well as the potential for $700 million of additional competitive projects. So as Michael said, all those things gave us confidence to add that $8 billion to.
To that long term capital expenditure outlook.
Perfect and then just I know you just touched on it a little bit on just the inflation reduction Act I mean, obviously.
Cinema proposed some changes I think we go to a vote on Saturday can you just touch a little bit on the tax side I mean, some of the utilities have talked about a technical fix with the 50% empty are you in sort of EI lobbing against it could even get a carve out and then if there is an enactment of that A&P.
How do we sort of think about the cash flows and rate base growth impact and the recovery timing. Thanks.
Sure there was there's a lot there and as you noted.
Even based on the reports this morning, there seems to be some moving pieces as it relates to the corporate minimum tax let me just say this overall about the legislation. We're excited about the potential tax credits in the legislation, especially the wind and the solar given the 4700 megawatts of renewables that we looked at.
In Missouri by by 2040 based on our integrated resource plan. So.
That's all pretty exciting and even net of CMT impact. We think the legislation is good for ameren for our customers in both Missouri, and Illinois, because it really should lower the cost of the clean energy transition in both states.
That's not even mentioning some of the other positives in there whether it's the credits for nuclear storage Cc U S. Hydrogen things, we talked about on the call all of which align with our long term resource plan. So that's all really good other things youre aware of things like the PTC for solar as a positive.
Versus the prior ITC and transferability provisions, which are.
Things that we really think could.
Help us to pass the value associated with some of these tax credits to our customers more swiftly. So like I said net we think that.
The legislation overall is good.
To help facilitate a lower cost transition to clean energy.
As it relates to the CMT.
It is applicable to us given that we have pretax book income of greater than $1 billion, but.
Probably premature to.
Speculate on exactly what that impact would be given as you mentioned some of the moving pieces that aren't even really clear to us at this particular time, but at the end of the day, we do think based on what we have seen we do believe that the cash flow impacts would be manageable and as wood and Michael can comment on.
It's better but also the impact on credit metrics and credit ratings.
That's I guess, where we stand on things Shar, hopefully I answered all of your questions Michael.
I think at a high level you gave it.
David Good Justice there I mean, I think overall, we do see it as being manageable there are a lot of moving pieces here. So I think thats why were trying to stay away from the specifics, but as we look at it and model. It out we do think as Marty said, both from a cash flow as well as any sort of impact on our <unk> to debt metrics.
Definitely its something Thats manageable and I think the important thing to remember is just that the net benefit to customers just from an overall credit standpoint, certainly on the Missouri side as you think about the clean energy transition that we're about to go through.
Fantastic guys listen I have a great weekend and I appreciate the disclosures.
Due to sharp.
Our next question comes from Jeremy Tonet with Jpmorgan. Please proceed with your question.
Hi, good morning.
Good morning, Jeremy.
Just wanted to round out the MISO tranche, one conversation a little bit more.
And with Ameren entertain the notion of pursuing competitive processes beyond the $700 million identified or is that the extent of what.
You would consider.
And also we've heard about there being kind of some incremental upside to these projects, maybe 10% to 15% of Capex. Additionally for kind of ancillary components to these projects and just wondering if you had any thoughts along those lines.
Yes, Jeremy.
Good questions.
Certainly we will look to compete for the $700 million. If there are other projects that are competitive certainly we'll take a look at those as well we're not limited to these.
But of course as you know.
In many of the surrounding states.
You have entities with rights of first refusal so.
Look.
We feel good about the ones that have been assigned to us I can't emphasize that enough. This one 8 billion we feel.
Great about and we'll go after the $700 million, if we see other opportunities, we'll certainly look to compete in those as well.
I wouldn't speculate right now Germany on in terms of any incremental investment beyond these.
These are the estimates that really came from MISO and as we indicated.
Sure.
Call.
<unk> prepared remarks, we will certainly be looking to next steps is really work on more refined design procurement, the regulatory approvals et cetera, and give updates on what we think the overall value of these projects are perhaps when we get around to February and update our overall plans but for.
Now we think these are the best estimates to be able to provide.
Got it that's helpful. Thanks, and then just as it relates to Rush Island here, if you could provide any incremental thoughts with regards to transmission upgrade opportunity here.
Can you provide any estimates on what these upgrades can look like I know, it's bigger than a bread box, but trying to kind of scope out what that might look like.
Yes. Good question look we.
Gave a pretty good update in our prepared remarks on Rush Island, we did indicate that design and procurement is underway with respect to the upgrade projects that MISO approved.
I think our best estimate today and this is a bit of a broad range, probably in the 100 $150 million range and but like I said, we will be able to refine that further as we go through the design and procurement activities.
Got it that's very helpful I'll leave it there thanks.
Thanks, John .
Our next question is from Julien Dumoulin Smith with Bank of America. Please proceed with your question.
Hey, good morning, Thanks for the time and the opportunity for you guys as well.
Hey, Julien hope you're a wells also.
Thank you thank you Sir.
Maybe I wanted to come back to the Russian situation I know you mentioned 25 here for instance.
Fireman here, but I wanted to talk about these other.
CSA regulations.
Docks I'm, just trying to understand how that lines up I know that there's some proposals out there for 2026, and obviously you've got a couple of other plants <unk> and <unk>, how do you see this playing out because obviously.
The EPA regs and sort of hypothetically if there.
<unk>.
Them lining up against your portfolio in a pretty meaningful way.
Just wondering if you're seeing sort of the specifics.
Obviously, it's subject to litigation, but how do you see this playing out more specifically for your portfolio and how do you see to try to balance that.
Yes, so as it relates to the CSA PR rules.
Look it's something more.
Not only monitoring, but engaging with the EPA in terms of providing comment.
<unk>.
Merrimack is retiring this year Rush island as you mentioned it looks like it's going to retire in the 2024 to 2025 timeframe again, we don't expect to the.
Transmission investments to be fully completed until 2025.
As we noted we have proposed some limited operations between now and then between now and when the plant would ultimately retired all subject to the court's ruling in terms of <unk>.
Operating parameters as well as the ultimate closure date, but.
Certainly going to significantly reduce nox emissions as we ramped down towards.
Closure of that facility. So I think the focus really becomes Julien then on Nox controls at <unk> and <unk>.
And I would remind you there that we've made significant investments over time in terms of Nox controls and we're more than complying with all the.
The current standards that are out there so.
With respect to the proposed additional rules I think we'll wait to comment on specifically what the impacts will be at labadie ensue over time until we get the final rules, which we expect to come out next March but I will tell you that we'll be doing we are analyzing strategies for compliance.
Ensure that.
We get the full benefit of the controls that we do have in place today at labadie in soup.
Yes.
Excellent. Thank you and then if I can just jumping in on the <unk>.
Inflation kind of a conversation obviously.
Filed here.
The latest iteration of the rate case.
How do you see sort of cost inflation manifest itself across your portfolio and how do you think about balancing that given the test year embedded in the current rate case.
And then the other levers you might have.
Hey, yes, thanks, Julien Michael.
Inflation, it's certainly we're in a little different environment today, but I mean, I think as we've talked historically and we've showed you a couple of times you didn't have a slide I think that went through <unk> through 'twenty one.
Overall operating costs were down about three 3% and so look we remain focused on it and you referenced this in Missouri rate review that we just filed here I would tell you that that's really predicated on a lot of capital investment within the Smart energy plan, we outlined I think the benefits the customers are getting associated with those.
Those investments and obviously, it's also being impacted by what we just talked about with respect to rush island, and the net fuel costs and operating that plant.
More limited fashion as well so when you really cut through what's going on in our case, it's not it's really not about O&M costs, which I think is a testament to what this team has been doing in terms of just looking for ways to continue to to hold down costs wherever possible. So in the present environment I think we're managing well through it as we noted on the call we had.
O&M was up but it was really driven by some one time things between the coli performance as well as some storm costs and when you cut through it certainly lines up with what our expectations were on the February timeframe, we released guidance.
Got it and just prospectively here, just if I can push a little bit further obviously you've done a good job.
To date, if you will if you look prospectively, whether thats related to.
The cadence of labor relation negotiations et cetera.
What kind of trajectory you know an inflation are you seeing sort of in fill time more perspective of Europe . If you can comment a little bit more.
Yes sure.
Absolutely I'll keep my comments consistent with already been in the past.
Marty I and the rest of the team are very focused on these costs and doing all we can to control what we can control and look we aspire to keep these O&M costs I think we said this before that really flat over the five year horizon. If at all possible. It's obviously, it's a bit more challenging in this environment, but again as we look to our capital plan.
We look to the investments that we're making in automation and digital and smart meters. I mean, we're using all of those things to increase productivity lower costs, where we can and we're going to stay focused on it and just do absolutely all that we can because we know again, what it means to our customers we understand and we've talked about this from a capital perspective for every dollar.
O&M, we reduce we can spend an equivalent to $7 of capital and so it is certainly top of mind.
Continuous everyday focus here.
Thank you have a good we got.
Thank you Julien.
Our next question is from Paul Patterson with Glenn <unk> Associates. Please proceed with your question.
Good morning.
Good morning, Paul.
So just on <unk>.
Russia Island, just sort of tactically speaking.
If you don't get the I mean.
If the courts don't.
Don't completely go your way playing out what would actually happen or do we have an idea about what.
What would happen.
I guess I don't want to speculate that Paul I think that.
Obviously, a process that we're still working through with the with the court and the court proceedings and so we laid out for you on slide nine the facts as they stand today and certainly wouldn't speculate if we get to that.
That crossroads I would point you on slide nine we said that with respect to the core at the March 31, 2020 for compliance day remains in effect unless extended by the court. So the courts got that ability.
Certainly don't want to speculate as to what the court will or won't do.
These proceedings play out.
Okay fair enough I don't want to.
Pushed out I guess, it's all it's all hypothetical I guess to a certain degree.
With respect to wind curtailments that we've been seeing in the area I was wondering if you could.
Tell us what you've been seeing not just in amarin, but but greater ameren neighborhood, so to speak as.
As well as how tranche one.
And other sort of activity occurring like I guess green belt is talking about a 25% I think increase among other things.
And.
There's just a lot of moving pieces right.
So I'm just sort of wondering what if you could just sort of comment about.
What youre seeing there in terms of additions of generation.
Traditional plants shutting down and transmission what do you see sort of the current situation with wind curtailments is generically speaking.
General region and.
And what tranche, one and other things might might do with respect to the issue.
Yes.
Paul I guess I don't have a specific comment on wind curtailments and something we can follow up on your follow up with you on that.
That said what.
I have seen recently is a map of these tranche one projects overlaid against where we're seeing congestion.
Cross MISO and I will tell you there is tremendous alignment there meeting.
These planned projects in tranche, one really align well with where we are seeing congestion across the footprint really promise to alleviate some of that congestion and I.
That's why if you go back a year or so ago Warner made a comment about these being.
I forget the word to use but.
No brainer projects or something like that and no regrets projects and.
I think what he really meant by those is that whether we proceed towards future one two or three in MISO.
These projects are very foundational no matter, where you go in there needed today to address some of the congestion that we're already seeing within the MISO footprint.
As I look ahead to tranche, two three and four especially based on what we're seeing coming out of this.
IRI legislation.
I think it's really going to push us beyond.
That future one.
More of like a closer to a future to kind of outlook.
And my sense is that some of that will end up getting baked into.
The extent of the projects that are approved in future tranches, including tranche, two which is still expected to be approved by late next year. So again don't have a specific comment on your question about what we're seeing currently but to your question about these transmission projects and the need to alleviate.
Congestion issues, we're seeing absolutely they align very well.
Okay awesome. Thanks, so much.
Have a great weekend.
You too.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Our next question comes from Anthony <unk> with Mizuho. Please proceed with your question.
Hey, good morning, Mike Good morning, Marty Thanks for taking my question.
You bet good morning.
I guess first off.
On the Missouri rate filing just if I think about you filed in 'twenty, one filing again in 'twenty two.
We have that piece of legislation passed.
Now that you maybe have more clarity on the forward looking capex plan, what kind of frequency of rate filings you are expecting in Missouri for the next two to three years.
Yes, Andrew.
Andrew we havent actually.
I mean, you're right we've been on kind of a two year cycle here at this point and look I mean, we obviously, we want to continue to stretch these out as much as we possibly can.
But just given the pace that we've been on from a capital standpoint, two years has been.
Sort of what the required paces.
It needed to be.
I think the only other thing to just keep in mind is that we are required to file every four years, just because of the fuel adjustment clause, but otherwise we do want to try to stretch them out as long as we can.
Yes.
Great and then I guess lastly, maybe harder or it may not be great.
Great question, I think about the futures one projects.
The company will pay on.
Did the incumbent utilities.
Operating that jurisdiction it seems that maybe the incumbent utilities are more likely to to submit a proposal for a more robust infrastructure because it's in your jurisdiction you are looking at Kevin that asset.
The active for 50 years, 60 years or something like that whereas the competitor coming in there may just need to bear minimal of a design spec and it makes it more affordable and wins the competitive process is that possible or it's the design specs of the same for everyone.
I really I really think.
MISO is going to do their best to make sure that there are very clear.
Scope and design and construction expectations and attributes such that you can really get apples to apples comparisons in these bids in.
Gave a fairly extensive answer to a question earlier at the end of the day I just want to reinforce I mean, we really do believe that we're well positioned to efficiently build operate and maintain these assets over time, but.
It is our expectation that there'll be every effort made to ensure theres apples to apples comparisons.
Great. Thanks, so much and have a wonderful weekend.
You too.
Our next question is from Neil Calton with Wells Fargo Securities. Please proceed with your question.
Hi, guys how are you.
Yeah Yeah.
So I know, it's not your project grain belt Express.
There has been some recent developments the capacity as Paul mentioned is going up on the project and I would imagine <unk>, probably have some positive implications for the economics and prospects I would love your.
Latest thoughts on that project, if you will.
Hey, Neil it's Marty absolutely.
We laid out in this updated integrated resource plan, some pretty significant ambitions in terms of addition of renewables.
We're talking about 2800 megawatts through $2030 to 4300 megawatts by 2035.
<unk>.
We have filed a couple of ccm's related to that as you know the Boomtown project Huck Finn project a couple of projects, we outlined on this call, but theres a long way to go in terms of the addition of renewables. So we have issued a request for proposal.
And we are evaluating the best options for our customers.
We've discussed with you and others over time.
Grain belt remains a project that is of interest primarily because of the opportunity to.
Bring wind energy from the West Kansas Region for example into Missouri for the benefit of our Missouri customers and in fact in our integrated resource plan.
<unk> highlighted.
Potential to utilize that line to bring in as much as 1000 megawatts of wind energy. So it is something that we continue to evaluate and we'll evaluate as we look at.
The opportunities for renewables that come out of this RFP ultimately as you know we want to make sure we pick the right projects for our customers.
From the standpoint of <unk>.
Portability and.
Good.
Mix of assets to meet their needs over time.
Great. Thanks, and then one.
One other question I think in your prepared remarks, you mentioned hydrogen.
You sort of mentioned that as part of the IRS.
Can you elaborate a bit more on sort of how youre thinking about hydrogen is this sort of a nearer term opportunity.
Any thoughts on that as well please.
Yes, Neal so in our updated integrated resource plan that we filed in June we actually added a 200 megawatt combined cycle plant by 2031.
And the idea there is to get to our net zero ambitions by 2045.
<unk> would be to construct that with an eye towards transitioning to hydrogen or hydrogen blend with carbon capture retrofit by as early as the 2040 timeframe. So.
With regard to that project, specifically that we think about that.
Okay, great. Thank you.
Okay sure.
We have reached the end of the question and answer session I would now like to turn the call back over to Marty Lyons for closing comments.
Great Hey, thank thank you all for joining us today.
I hope what you heard is that we had a very strong start to 2022.
We're looking to finish strong for the remainder of this year and we remain focused on continuing to deliver significant long term value.
To our customers the communities that we serve and to our shareholders and so anyway. We look forward to seeing many of you at conferences over the next couple of months and we again appreciate you joining us have a great day.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.