Q4 2022 Ameren Corp Earnings Call
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Greetings and welcome to Ameren Corporation's fourth quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
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Press Star Zero on your telephone keypad.
Minder This conference is being recorded.
It is now my pleasure to introduce your host for today's call Andrew Kirk Director of Investor Relations for Ameren Corporation.
Thank you Mr. Kirk you may begin.
Thank you and good morning on the call with me today are Marty Lyons, our President and Chief Executive Officer, and Michael <unk>, Our senior Executive Vice President and Chief Financial Officer, as well as other members of the Ameren management team.
Call contains time sensitive data that is accurate only as of the date of today's live broadcast.
Redistribution of this broadcast is prohibited.
We have posted a presentation on the ameren investors dot com homepage that will be referenced by our speakers as noted on page two of the presentation comments made during this conference call may contain statements about future expectations plans projections financial performance and similar matters, which are commonly referred to as forward looking statements.
Please refer to the forward looking statements sections in the news release, we issued yesterday as well as our SEC filings for.
For more information about various factors that could cause actual results to differ materially from those anticipated Here's martie, who will start on page four.
Thanks, Andrew and welcome back we're thrilled that you're healthy again and here with us for this call and ready to fully engage with our investors and the analysts.
Everyone and thank you for joining us today as we reflect on our 2022 performance and look ahead to 2023 and beyond.
I'd like to start by expressing appreciation for the Ameren team's dedication and hard work over the last year.
In 2022, we continued to successfully execute our long term strategy as shown on page four which is delivering strong results today, while laying a strong foundation for the future.
Shown on page five for some exciting strategic achievements from the past year for Ameren, our customers shareholders and the environment and the industry as a whole.
Let me touch on a few key accomplishments.
We made $3 $4 billion of infrastructure investments in 2022, the resulted in a more reliable resilient secure and cleaner energy grid as well as contributed to strong growth at all of our business segments.
For example, as part of our Ameren Missouri's Smart energy plan over 400, smart switches were installed to reduce outages from hours to minutes and even seconds in 34, Substations were upgraded or built new to better serve communities in.
In addition over 300000 smart meters were installed for our Missouri customers, enabling better.
Better visibility into their energy usage.
In Illinois, our customers are benefiting from the replacement of more than 3000 electric Poles 64 miles of coupled steel distribution pipelines and 24 miles of gas transmission pipelines further our transmission business placed and serviced 19, new or upgraded transmission substations and approximate.
200 miles of new or upgraded transmission lines.
These are just a few of the many projects completed in 2022.
As a result of these and similar investments I'm proud to say that Ameren is most recent system average interruption frequency reliability scores have ranked in the top quartile of our industry.
We also had several achievements on the regulatory and legislative front.
In February New Ameren, Missouri Electric service rates took effect as a result of our 2021 rate review, which was constructively settled.
In June we filed a change to our integrated resource plan accelerating our planned clean energy investments carbon emission reduction goals and our plan to achieve net zero by 2045, while thoughtfully considering customer affordability and energy grid reliability.
In July our pipeline of investments with significantly enhanced when the mid continent independent system, operator, or MISO approved a portfolio of long range transmission projects, including significant projects in our operating footprint.
And in August Senate, Bill 745 was enacted in Missouri, extending the constructive smart energy plan legislation that became law in 2018 out through 2028 with possible extension to 2033.
I am pleased to say that a result, as a result of these developments in 2022, we were able to increase our 10 year investment opportunity pipeline from 40 billion to 48 billion.
Further in our Ameren, Illinois electric distribution business in September the Illinois, Commerce Commission or ICC approved constructive performance metrics, which paved the way for a multiyear rate plan filing this January .
And finally at the federal level passage of the inflation reduction Act will support the clean energy transition, reducing the cost of related infrastructure investments for both our customers in both Missouri and Illinois.
I would like to express appreciation for all the hard work of the entire Ameren team to advance these important achievements.
At the same time across Ameren, we are all working to keep customer bills as low as possible, while investing to ensure we provide safe reliable and cleaner energy for our customers. We remain laser focused on disciplined cost management practicing continuous improvement and optimizing our operating performance.
As we transform our business.
In 2022, we continued our transition to a cleaner energy generation portfolio and as planned in December we retired our oldest and least efficient coal fired plant the Meramec Energy Center.
Thank you to all of our co workers, who have worked at Merrimack, providing reliable energy over the past several decades.
We recognize that our customers depend on us every day to supply the energy that supports their daily lives and as such we have kept them at the center of our strategy we.
We are honored that in 2022 and for the third consecutive year, our residential customers have recognized ameren with a top quartile overall customer satisfaction ranking among large electric utility providers in the Midwest.
In addition, Ameren, Missouri ranked number one in business customer satisfaction.
And finally for our shareholders yesterday, we announced 2022 earnings of $4 14 per share compared to earnings of $3 84 per share in 2021.
This result was at the high end of our earnings per share guidance range.
The strong execution of our strategy in 2022 reflects strategic alignment across all of our business segments. We are staying focused on optimizing our operations and safely completing billions of dollars of value, adding projects to deliver significant value to our customers communities shareholders and the environment.
Turning now to page six.
Here you can see we have delivered consistent superior value to our shareholders for nearly a decade since 2013, our weather normalized core earnings per share have risen, 92% and an approximate seven 5% compound annual growth rate, while our annual dividends paid per share increased approximately 48%.
<unk> over the same time period.
This drove a strong total return of nearly 226% for our shareholders from 2013 to 2022, which was significantly above our utility peer average.
While I am very pleased with our track record of strong and consistent performance rest assured that we are not letting up our team will remain focused on enhancing performance in 2023 and in the years ahead. So that we can continue to deliver superior value to our customers communities and shareholders turning to page seven.
This page summarizes our strong sustainability value proposition and focus on environmental social governance, and sustainable growth goals and reflects the way, we integrate our sustainability values into our normal course of business.
Beginning with environmental stewardship last June we announced an acceleration of our transformational generation resource plan now aiming to achieve net zero scope, one and two carbon emissions by 2045 across all of our operations in Missouri, and Illinois, which is consistent with the objectives of the Paris agreement and limiting global.
Temperature rise to one five degrees Celsius.
This plan also advances our interim greenhouse gas emission reduction targets to 60% and 85% below 2005 levels by 2030 and 2040, respectively.
As mentioned in 2022, we were assigned certain projects as part of the tranche one project portfolio to prospectively build and operate significant transmission investments in MISO territory.
These as well as other transmission investments will provide our region access to a diverse mix of energy resources and are an important step forward to support a smooth clean energy transition.
We also have a strong long term commitment to our customers and communities to be socially responsible and economically impactful.
One example is our effort to drive inclusive economic growth at Amarin and in our communities. In 2022, we spent approximately $1 $1 billion with diverse suppliers, including minority women and veteran owned businesses of 22% increase over 2021.
Because of actions like this in May we were honored to be recognized again by diversity, Inc. As number one on the nation's top utilities list for diversity equity and inclusion. This is the 14th consecutive year, we have been named to this distinguished list.
I am also very pleased to say that Ameren was named a top company for ESG for the third consecutive year.
In addition, we continue to support many nonprofit organizations and the communities, we serve including programs focused on DNI to which we have made a $10 million contribution commitment by 2025 movie.
Moving to governance, our strong corporate governance is led by a diverse board of directors focused on strong oversight of our sustainability efforts in.
In 2022, we named our first combined chief sustainability diversity, and philanthropy officer to further optimize our initiatives.
And our executive compensation practices include performance metrics that are tied to diversity equity inclusion and progress toward a clean energy future for all.
Finally, this slide summarizes our very strong sustainable growth proposition, which we believe remains among the best in the industry.
Today, we published our updated sustainability investor presentation called leading the way to a sustainable energy future, which is available at Ameren investors Dot com and.
And it demonstrates how we have been effectively integrating our sustainability values and practices into our corporate strategy I encourage you to take some time to read more about our strong sustainability value proposition.
Moving to page eight we turn our focus to the current year.
We expect 2023 to be another busy year and we are excited about a number of strategic objectives, notably we will maintain our focus on significant infrastructure investment for the benefit of our customers.
We expect to invest approximately $3 5 billion in electric natural gas and transmission infrastructure to bolster safety security reliability resiliency and further the clean energy transition in a responsible fashion.
And as the nation's clean energy transition continues we plan to help develop the needed transmission investment by submitting bids for the MISO tranche, one competitive long range transmission projects as well as support analysis of potential tranche two projects.
We have an active regulatory calendar. This year, we look to constructively conclude our Ameren, Missouri Electric rate review, Ameren, Illinois electric multiyear rate plan and Ameren, Illinois natural gas rate review.
We will also work to successfully advocate for certificates of convenience and necessity for future renewable generation at Ameren, Missouri.
And our next Ameren, Missouri integrated resource plan will be filed in September which will include a comprehensive update of assumptions, including changes driven by the inflation reduction Act enacted last year.
Finally, we are focused on maintaining disciplined cost management with the expectation of holding operations and maintenance expenses flat in 2023 relative to 2022.
Moving now to page nine.
Yesterday afternoon, we announced that we expect our 2023 earnings to be in a range of $4 25.
Two $4 45 per share.
Based on the midpoint of the range. This represents 7% earnings per share growth compared to the midpoint of our original 2022 guidance range of $4 <unk> per share.
Michael will provide you with more details on our 2023 guidance a bit later.
Building on the strong execution of our strategy and our robust earnings growth over the past several years, we expected to deliver 6% to 8% compound annual earnings per share growth from 2023 through 2027, using the midpoint of our 2023 guidance $4 35 per share as the base.
Our dividend is another important element of our strong total shareholder return proposition.
Last week Ameren Board of directors approved a quarterly dividend increase of approximately 7%, resulting in an annualized dividend rate of $2 52 per share.
This represents our third consecutive year of approximately 7% dividend growth and the increase reflects confidence by Ameren board of directors in our business outlook and management's ability to execute our strategy.
Looking ahead, 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 our weather normalized dividend payout ratio in 2023 to be approximately 58%.
I have full confidence in our team as we look ahead.
Turning to page 10.
The strong long term earnings growth I. Just discussed is primarily the result of rate base growth driven by investment in energy infrastructure under constructive regulatory frameworks.
<unk>, we're rolling forward, our five year investment plan and as you can see we expect to grow our rate base at an approximate 8% compound annual rate for the 2022 through 2027 period.
Our robust capital plan of approximately $19 7 billion over the next five years will deliver significant value to our customers and the communities we serve.
Our plan includes strategically allocating capital to all four of our business segments and importantly includes investment in assigned MISO long range transmission planning projects of approximately $800 million and.
And renewable energy projects of approximately $2 5 billion.
Through 2027.
Finally, we remain focused on disciplined cost management to keep customer bills as low as possible and improved earned returns in all of our businesses.
Moving to page 11.
As we look to the future our five year plan is not only focused on delivering strong results through 2027, but it is also designed to position ameren for success over the next decade and beyond.
The right side of this page shows that our allocation of capital is expected to grow our electric and natural gas energy delivery investments to be 81% of our rate base by the end of 2027.
Incorporating renewable investment opportunities from our latest ERP, we expect our rate base from renewable generation to grow to 11% and for coal fired generation to decline to just 3% of rate base by the end of 2027.
In light of the Rush Island in Sioux Energy centers approaching retirement by 2025 and 2030, respectively.
Only approximately three 5% of the capital expenditures in our five year plan are expected to be spent on coal related projects focusing on investments needed for safety reliability and environmental compliance.
The bottom line is that we are taking steps today across the board to position ameren to provide safe reliable affordable and cleaner energy for the long term.
Turning now to page 12.
Looking ahead over the next decade, we have a robust pipeline of investment opportunities are $48 billion that will deliver significant significant value to all of our stakeholders by making our energy grid stronger smarter and cleaner.
Of course, our investment opportunities will also create thousands of jobs for our local economies maintaining.
Constructive energy policies that support robust investment in energy infrastructure and to 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 13.
Our investment plans released today incorporate our intentions to invest in significant renewable resources as we execute the clean energy transition laid out in our Ameren, Missouri integrated resource plan.
Our ERP lays out the most prudent approach to systematically invest in renewable energy generation to complement existing and planned dispatch will resources building a diverse reliable resilient and affordable system for our customers. We continue to work in earnest with developers to acquire renewable generation projects.
And expect to announce further agreements over the course of this year.
We are pleased to say that last week, the Missouri PSC approved our certificate of convenience and necessity for the 200 megawatt Huck Finn Solar project construction of this facility is expected to create approximately 250 jobs and once in operation produce enough energy to power approximately 40000 homes.
We expect a Missouri PSC decision on our remaining pending certificate of convenience and necessity for the 150 megawatt Boomtown Solar project by April though the commission is under no deadline to issue a decision.
We look forward to continuing to engage with stakeholders regarding our future generation needs and clean energy transition.
Moving to slide 14.
As we've discussed in the past MISO completed a study outlining the potential roadmap of transmission projects through 2039 in.
In July MISO approved the first set of projects, which includes $1 $8 billion assigned to Ameren.
Detailed design work and project planning for the assigned tranche one projects are underway.
MISO request for proposal on the remaining competitive projects have begun to be issued and we expect a proposal and evaluation process to take place over the course of 2023 and 2024.
Looking ahead to tranche two analysis of potential projects is underway and will continue for the remainder of the year.
<unk> anticipates the tranche two portfolio of projects will be approved in the first half of 2024.
Moving to page 15.
As noted earlier, we will remain relentlessly focused on continuous improvement and disciplined cost management ongoing.
Ongoing initiatives include the automation and optimization of numerous processes leveraging the benefits from significant past and future investments in digital technologies and grid modernization.
Additionally, in 2022, we extended most of our collective bargaining unit labor agreements out through mid to late 2026 for nearly all Ameren Union represented employees, which will provide predictability in our labor costs in the coming years.
In 2023, we expect our operations and maintenance expenses to be flat with 2022, and we are targeting flat operations and maintenance expenses through 2027.
Moving to page 16.
To sum up our value proposition, we remain firmly convinced that the execution of our strategy in 2023 and beyond we will continue to deliver superior value to our customers shareholders and the environment. We believe our expectation of 6% to 8% compound annual earnings growth from 2023 through 2027 driven by.
Strong rate base growth compares very favorably with our regulated utility peers.
Im confident in our ability to execute our strategy and investment plans across all four of our business segments. As we have an experienced and dedicated team with a track record of execution that has positioned us well for future success.
Further our shares continue to offer investors, an attractive dividend and the strong earnings growth expectations, we outlined today position us well for future dividend growth simply put we believe this results in a very attractive total return opportunity for shareholders.
Again, thank you all for joining us today, and I will now turn the call over to Michael.
Thanks, Marty and good morning, everyone, turning now to page 18 of our presentation.
Yesterday, we reported 2022 earnings of $4 14 per share compared to earnings of $3 84 per share in 2021, an increase of approximately 8%.
This page summarizes key drivers impacting earnings at each segment.
I would note in the fourth quarter, we benefited from colder than normal weather as well as an improved market conditions related to the cash surrender value of our company owned life insurance investments, which contributed to 2022 earnings results at the top end of the earnings per share guidance range that we outlined on our third quarter call.
We've also included on this page the year over year weather normalized sales trends for Ameren, Missouri.
Weather normalized kilowatt hour sales to Illinois residential and industrial customers were down approximately one five and 1% year over year, respectively and.
Weather normalized kilowatt hour sales to Illinois commercial customers increased by approximately 5%.
Call that changes in electric sales in Illinois, no matter the cost do not affect our earnings since we have full revenue decoupling.
Moving to page 19 of the presentation.
Here, we provide an overview of night of our $19 $7 billion of planned capital expenditures for the 2023 through 2027 period by business segment and that supports the approximately 8% projected compound annual rate base growth.
We've incorporated an incremental $2 $4 billion compared to the $17 3 billion.
Five year plan for 2022 through 2026 that we laid out last February .
The plan includes investments related to date assigned MISO long range transmission projects as well as renewable energy generation investments align with our 2022, Missouri integrated resource plan.
As you can see on the right side of this page, we're allocating capital consistent with the allowed return on equity under each regulatory framework.
Turning to page 20, we outline here the expected funding sources for the infrastructure investments noted on the prior page.
We expect continued growth in cash from operations as investments are reflected in customer rates.
We also expect to generate significant tax deferrals. The tax deferrals are driven primarily by the timing differences between financial statement depreciation reflected in customer rates and accelerated depreciation for tax purposes.
From a financing perspective, we expect to continue to issue long term debt to fund a portion of our cash requirements.
We also plan to continue to use newly issued shares from our dividend reinvestment and employee benefit plans over the five year guidance period.
We expect this to provide equity funding.
Funding of approximately $100 million annually.
In order for us to maintain a strong balance sheet, while we fund our robust infrastructure plan, we expect incremental equity issuances of approximately $300 million in 2023 and $500 million each year from 2024 through 2027.
The $300 million of equity needs outlined for 2023 had been.
Fulfilled through foreign sales agreements under our at the market equity distribution program, which we expect to settle by the end of this year.
All of these actions are expected to enable us to support our consolidated capitalization target of approximately 45% equity.
And lastly, the bottom of page 20 shows our pension and <unk> obligations were well funded at the end of 2022.
Constructive regulatory mechanisms are in place and recovery of associated costs, including a tracker at Ameren, Missouri, and formulaic rates and Ameren, Illinois electric distribution and Ameren transmission.
Moving to page 21 of our presentation I would now like to discuss key drivers impacting our 2023 earnings guidance.
We expect 2023 diluted earnings per share to be in the range of $4 25 per share to $4 45 per share.
On this page and next we have listed key earnings drivers and assumptions behind our 2023 earnings guidance broken down by segment as compared to the 2022 results.
I would note consistent with past practice, our 2023 earnings guidance does not include any expectation of coli gains or losses.
Beginning with Ameren, Missouri earnings are expected to rise in 2023.
New electric service rates effective July one 2023 are expected to increase earnings.
The earnings comparison was also expected to be favorably impacted by higher investments in infrastructure that are eligible for pizza, primarily during the first half of 2023 before rates are reset.
We expect a return to normal weather in 2023 will decrease Ameren, Missouri earnings by approximately <unk> 14, compared to 2022 results.
Further we expect higher interest expense largely driven by higher long term debt outstanding.
And we expect to recognize earnings related to energy efficiency performance incentives from a single plan year in 2023.
Moving on earnings from our FERC regulated electric transmission activities are expected to benefit from additional investments in Ameren, Illinois, and <unk> Si projects made under forward looking formula Ratemaking.
Turning to page 22 for Ameren, Illinois Electric distribution earnings are expected to benefit in 2023 compared to 2022 from additional infrastructure investments made under Illinois performance based ratemaking.
We also expect higher earnings in Ameren, Illinois electric distribution from a higher allowed return on equity due to the expected higher 30 year treasury rates.
Our guidance incorporates an ROE of 955% using a forecasted 375% 2023 average yield for the 30 year Treasury bond, which is higher than the allowed ROE of eight 9% in 2022.
The allowed ROE is applied to year end rate base.
For Ameren, Illinois, natural gas earnings will benefit from infrastructure investments qualifying for rider treatment, which are expected to be partially offset by higher depreciation expense.
Moving now to Ameren wide drivers and assumptions, we expect increased common shares outstanding to unfavorable impact earnings per share by <unk> <unk>.
And we expect higher interest expense and Ameren parent.
Of course in 2023, we will seek to manage all of our businesses to earn as close to our allowed returns as possible, while being mindful of operating and other business needs.
I'd also like to take a moment to discuss our retail electric sales outlook, we expect weather normalized Missouri kilowatt hour sales to be in the range of flat to up approximately.
5% compounded annually over a five year plan, excluding the effects of EMEA energy efficiency plans using 2022 as the base year.
Excluding the FX because the plan provides rate recovery to ensure that earnings are not affected by reduced electric sales, resulting from our energy efficiency efforts.
Turning to Illinois, we expect our weather normalized kilowatt hour sales, including energy efficiency to be relatively flat over our five year plan.
Turning to page 23 of Missouri regulatory matters in August we filed for a $316 million electric revenue increase with the Missouri Public Service Commission.
The 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.
In January of the Missouri Public Service Commission staff and other intervenors filed rebuttal testimony.
Missouri, PSC staff recommended a $199 million revenue increase including a return on equity range of $9, three 4% to 984% and an equity ratio of 50, 184% based on the <unk> capital structure at September 32022.
The equity ratio will be updated to use the capital structure as of December 31, 2022.
The difference between our request and the Missouri PSC staff recommendation is primarily driven by return on equity and treatment of the high Prairie and restaurant energy centers.
Both of our request and staffs recommendation will be true up through December 31, 2022.
As always we will seek to work through these and other differences with intervenors as we work through the proceedings evidentiary hearings are scheduled to begin in April and a decision from the Missouri PSC is expected by June 2023 with rates effective July one 2023.
Turning to page 24 for details on Illinois electric matters.
In January Ameren, Illinois Electric distribution filed its first multi year rate plan or <unk> with the ICC.
The MRP includes a grid plan that lays out our electric distribution investment plans for Illinois and supports our annual revenue increase request for the next four years.
Our request for a $175 million revenue increase in 2024 is based on an average rate base.
$4 3 billion a return on equity of 10, 5% and an equity ratio of just under 54%.
You can find additional key components of our NY RFP on this slide.
The base return on equity will be adjusted up or down annually based on seven performance metrics focused heavily on reliability and peak load reduction.
Importantly, our capital expenditure plans for the coming years are expected to drive improvements in many of the areas of focus for these performance metrics.
And annual revenue requirement Trump will take place each year with a 105% cap on actual costs compared to the revenue requirement approved in the <unk>.
However, many variable items such as changes in purchased power costs interest rates changes in taxes and large storm restoration costs are excluded from this camp.
We expect the ICC decision on the <unk> by December 2023, with new rates effective in January 2024.
Additionally, as part of the Illinois energy transition legislation in June Ameren, Illinois filed a transportation beneficial electrification plan.
The plan proposes to spend $27 million to provide incentives rates and programs to encourage electric vehicle utilization.
And infrastructure development across the Ameren, Illinois service territory through 2025.
This is being done in support of the Governor's goal of $1 million electric fields on the road by 2030.
We expect an ICC order on the transportation electrification following by the end of March 2023.
Moving to page 25, we recently concluded our Formula rate review of Ameren, Illinois Electric distribution.
In December the ICC approved a $61 million rate increase as part of its annual performance based rate update.
New rates became effective in January .
Major investments included in this request for the installation of outage avoidance and detection technology integration of storm hardening equipment and the implementation of new technology.
Prove communication with our customers.
Since implementing performance based ratemaking and 2012 reliability has increased by approximately 20% and the equivalent over 7100 7500 jobs have been created.
We look forward to the new performance based ratemaking under the MRI ERP, which will also allow us the opportunity to improve our returns in exchange for meaningfully meaningful improvements for the benefit of our customers.
Finally on January Ameren, Illinois, natural gas requested a $160 million revenue increase from the ICC based on a 10, 7% return on equity and an approximately 54% equity ratio and a $2 $9 billion rate base using our future 2024 test here.
This requested increase includes approximately $77 million that would otherwise be recovered in 2024, and our Q IP and other riders.
An ICC decision is required by late November 2023 with rates expected to be effective in early December 2023.
You can see we have an active regulatory calendar ahead of us we've developed strong relationships with our stakeholders.
Long track record of constructive result, mature investments are truly making a difference in the lives of our customers.
On page 26, we provide an update regarding the inflation reduction Act.
As we sit here today, we do not expect the corporate minimum tax or CMT to apply in 2023 of 2024, we continue to model the CMT and it's possible it could impact 2025 and beyond.
We wait additional guidance from Treasury, which we expect.
To provide further clarity.
These potential incremental annual cash tax payments are not expected to be material.
These estimates are of course subject to the amount and timing of capital expenditures being placed in service or retired timing of rate reviews, and additional guidance that may be issued by the IRS or department of Treasury among other items.
Finally, moving to page 27, I'll emphasize again, we have a strong team and are well positioned to continue executing our plan. We delivered strong earnings growth in 2022, and we expect to deliver strong earnings growth in 2023, as we continued to successfully execute our strategy and as we look ahead, we expect 6% to 8% compound earnings per share growth from 2023 to <unk>.
2007, driven by robust rate base growth and disciplined cost management. We believe this growth will compare favorably with the growth of our peers. Further 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.
By your questions.
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Our first question comes from the lineup Nicholas Campanella with Credit Suisse. Please proceed with your question.
Hey, everyone. Thanks for thanks for all the info today and Andrew welcome back really really happy to hear your voice.
Thank you I appreciate it.
Absolutely yes.
I guess just on the.
On the Missouri rate case, you did have some differences here and rate base for staff, but.
Just wanted to get a sense of your overall appetite to settle this case, if that's still a possibility.
Just thinking back to how prior cases have gone. Thank you.
Yes, <unk> this is Marty Lyons.
Good morning, Thanks for the question.
Yes look as we go into each case we.
We certainly are hopeful of.
Being able to reach a constructive settlement and as we talked about many times, we have a good history of working with stakeholders in Missouri, and reaching constructive settlements.
We outlined where we are in the case today in our prepared materials you saw in the slide deck and.
We outlined some of the issues that <unk>.
Divide us today.
Mainly in some of the traditional areas like Roe.
But also on a couple of issues like high Prairie and Rush Island energy centers, where there are some differences between us and the staff in particular.
Fortunately all of us will be updating our cases based on year end rate base as well as other true up items that go through December 31. So you mentioned some of the differences in rate base really those are just timing differences between the staffs rate base, which was as of June 30, and the <unk>.
Companies filed position, which projected through December 31, but all of those things are going to be true it up here.
In the in the coming days up through December 31, or so.
Fortunately some dates that we highlighted.
A reconciliation of the parties' positions will be due march 30th.
That comes after Surrebuttal testimony, which is filed March 13th and then evidentiary hearings. If those are needed would start on April 3rd So traditionally the best time to be able to reach a constructive settlement.
Given where this rate case is this rate review would be end of March early April in terms of when we might be able to really reach a constructive settlement with the parties.
That's helpful. I appreciate that and then.
Just on the equity financing recognizing that you did raise capex in this new five year plan.
You have some sizable needs here in the out years.
I know you recently last quarter.
<unk> also said that you were.
Increasing the ATM to $1 billion for 2024 and beyond but can you just help us understand what the equity in the plan.
You prefer preferred source of funding that.
Our sourcing it rather.
You bet, Nick Good morning, Michael a couple of things and then I'll get specific line of question I mean, again I think as we've talked over time.
We do believe our balance sheet really provides us.
Our position of strength here, we've worked hard to continue to conservatively manage and.
I think we like our ratings, where they are <unk> plus we obviously have more margin S&P than we do at Moody's we talked about that from time to time, we are continuing to target this capitalization ratio of close to 45%.
Which I think again, it's served us well in these various regulatory proceedings and making sure remain maintain these balance sheets appropriately.
The subsidiaries.
In terms of what we need here, you're right I mean, the $2 $4 billion of incremental capital I think we continued.
Message along the year as we thought about any increases in capital associated with these opportunities around RTP or the renewables that we should continue to think our balance sheet in a similar fashion and I think that's what we're doing here, we're laying out those incremental really $800 million of equity. There is some obviously retained earnings in there as well kind of gets you back to that.
I'm sort of capitalization ratio.
And that served us well up to this point I mean, we've taken care of all of our needs for 23 net we've sold forward in 'twenty. Three so we're really finished with that 300 million, we started to sell forward into 'twenty four.
Youre right. We did increase the capacity of the ATM will have to continue to evaluate that over time as we would run into any limits there, but again, it's a really efficient way for us to issue capital. We think it is a manageable amount. If you look at it relative to our total market capitalization. So we feel comfortable with it and again I think that it.
Rides us quite a bit of strength there as we just think about the overall funding that we need over.
In the course of the next five years.
Appreciate the color I'll get back in the queue. Thank you.
Yes.
Our next question comes from Jeremy Tonet with Jpmorgan. Please proceed with your question.
Hi, good morning.
Good morning, Jeremy.
Just wanted to start off with I guess, a great base kicker.
The 8% as you laid out there and the $2 5 billion.
Gary just wondering what are the IRB assumptions Capex plan update that underpin the $2 5 billion there.
What does this imply for company ownership of resources versus PPA and how do you think how do you view. The overall line of sight here and when do you expect to kind of get final.
The commission decisions on all resources.
Yes, good morning, Jeremie this is Marty.
A few questions I think embedded in that question, so I'll start and perhaps Michael would want to add on.
First of all the.
The capital expenditures that we've put into the plan in Missouri for the AARP.
Really tie to the plan that we laid out in the AARP. So if you go back and you look at that overall timeline.
We plan to add 800 megawatts through 2025, and then another 2000 megawatts of renewables between 26 and 2030 and if you just do some simple math there it's about 400 megawatts.
<unk> per year.
So you end up with about 600 megawatts overall over a five year period and again, we've put in about $2 5 billion as an estimate for that so that's how it lines up we were.
Pleased to have the commission.
The Missouri Public Service Commission approved the Huck Finn project, which was a 200 megawatt solar project, we propose they approve that one recently a CCN and of course, we've got the Boomtown project, which was 150 megawatt solar project.
Before them now and awaiting the decision and we continue to work with developers on an additional renewable projects to really fill out that that plan that we have under the AARP, which we think is absolutely the most prudent way to move forward to provider customers.
Reliable affordable and cleaner energy that they are seeking now back to the overall Capex plan.
What Youll notice is we've got a $19 7 billion overall capital expenditure plan for 23 to 27 that compares to the one we had previously which was 22% to 26, we had $17 3 billion. So we've added about $2 4 billion overall as we move from our prior plan to this.
One in Missouri in particular, I would point out that we previously had $8 9 billion of planned expenditures moving now to $10 four which is about $1 $5 billion. Overall addition, so.
We've embedded the expectation of those renewable projects getting done in the overall 10, four but I would say we've taken it.
Measured approach to upping, our overall capital expenditure plan, which gives us great confidence in our ability to achieve it again, we've already had one renewable project approved and we've got a strong pipeline of capital expenditure opportunity over the next 10 years as we've talked about $48 billion and have a lot of confidence in.
Our ability to execute not only the $10 4 billion plan for Missouri, but the overall a $19 $7 billion plan, we've laid out today.
Only thing I might add to that Marty just getting really comprehensive.
The answer is just specifically the pipeline to renewables itself.
The team continues to do a lot of really hard work out there is some active rfps. They continue to have open. They continue to have a lot of conversations with developers about these projects I think you had something embedded in there about how do we think about maybe ppas versus ownership again, we believe that ownership is in the best interest of our customers for the <unk>.
Long term and that's really where our focus has been it's certainly.
It ends by what we did with the <unk> wind projects, certainly will closing with the two renewable solar projects that <unk> spoke about so I would say an active pipeline and I think obviously the supply chain issues have been well publicized I think we continue to work through those and feel good about the projects we have out there and it's going to continue to be a lot of <unk>.
<unk> an effort over the coming coming years.
Got it that's very helpful. There, Thanks and then.
Moving.
MISO here what are your current thoughts on potential MISO long range transmission planning tranche to spend given MISO. It seems to be modeling more aggressive assumptions in light of Iras. So I'm wondering your thoughts on the outlook there.
Yes, I would say with respect to tranche two.
Certainly actively engaged with other stakeholders with MISO and modeling out.
The benefits of potential projects that would come out of tranche two R.
Our overall expectation as we sit here today is that the overall portfolio of projects that MISO would approve as part of tranche two will be larger than the overall size of the projects that were approved as part of tranche one.
But I think it would be premature to comment on specifically, which projects might land in our service territory or or be assigned specifically to us the.
But rest assured we will be working with other stakeholders to model the.
Transmission projects that we think would be best for customers and the reliability of the system overall.
And two obviously effectuate the clean energy transition and we do expect then as we said in our prepared remarks MISO to make some final determination early next year.
Got it that's very helpful. And then just kind of tying this together you've raised capex, you've raised rate base growth a little bit here and just wondering what you think that could mean for EPS.
You don't have the 30 year, I guess, bringing flux.
Fluctuations in the way.
As in the past, though as you're currently locate our EPS CAGR outlook do you see any bias it within the range towards.
Higher parts, given this step up in Capex and rate base here.
Yes, Jeremy I mean, I think as you know I mean, our past practice really has not been to sort of speculate where it will be within that range I think.
Point to where we have achieved results obviously historically, we've been close to seven 5% CAGR since about 2013.
So all of that sort of speak bye.
Itself, obviously, we did raise the rate base growth from 7% to 8%.
And again as you think about that range over time and drives about a 45% range that six to eight over that five year period, and obviously there are some drivers as you pointed out in terms of just outcomes in the multiyear rate plan earned versus allowed Roe.
Financing assumptions et cetera, but.
Again, let's sort of a past speak for itself at the moment.
And Jeremy I'd, just I'd, just reiterate what I said, we feel very confident in our ability to be able to execute that 19 7 billion Capex plan, which gives us confidence in our ability to execute that 8% rate base growth plan.
That underscores our confidence in the 6% to 8% EPS CAGR that we've outlined today.
Got it that's helpful. I'll leave it there and Andrew really great to hear you on the call.
Yeah.
Thanks, Jeremy I appreciate it but glad to hear 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 Julien Dumoulin Smith with Bank of America. Please proceed with your question.
Hey, good morning, Thanks for the time I appreciate the comments as far maybe to follow up on Nick's question earlier, just with respect to Illinois, and the prospects for settling here any further elaboration around the new compact there just as you step into this I just want to understand does this needs to be.
The sort of fully litigated and fully flushed out to establish more of a record given the context of some shift in the compact here and again, that's a question specifically directed at both the electric and the gas.
Yes, Julien this is Marty hey, great great to hear from me, Yes, I think.
Your intuition is probably right there, especially as it relates to the multiyear rate plan.
I think it's hard to speculate if ever we have the opportunity to really enter into a constructive settlement with stakeholders, we're certainly going to.
Be interested in having that dialogue with stakeholders I think it's just very early in this multiyear rate plan filing obviously, we haven't seen any.
Staff are intervenor direct testimony, we won't see that till may and.
Really premature to know whether that's something that could be constructively settled or not I will note that in Illinois, there hasnt been that history of overall.
Overall global settlements that we've had in Missouri.
We will certainly be looking at after we get testimony to work with stakeholders to resolve differences narrow the issues and if we can constructively saddle and that would hold true for the gas case as well.
Right. It holds true then you probably want to work through a fully litigated case here.
No I guess, what I was saying there is we're always going to be wanting to work with stakeholders. Once we see the differences to narrow those differences.
Correct any errors and really narrow the issues and if we can reach a global settlement and put that before the commission, we will seek to do that.
I was just saying with respect to the electric distribution part of the business given the newness of this framework and the fact that we haven't seen any testimony really premature to say whether thats something that.
As a high degree of probability.
Alright, Thank you for clarifying that theyre actually as it pertains to.
So Q IP here just.
And then there is the new framework on the electric side and Thats largely established at this point pending implementation, but Q IP.
And its subsequent forms of iterations.
It remains a little bit outstanding can you elaborate what your thoughts are and perhaps going back whether it legislatively or otherwise at this point to get something new again I'll leave it open ended on what that might look like I know we've talked about this in the past at times, but is there a window today to revisit that conversation, perhaps on the slate than before.
Julien This is Marty again look we haven't given up on some sort of replacement for QEP and really because the <unk> is in our diet or a really great rider for our customers really allowed us to make some investments that bolster the safety and reliability of the gas system.
Say our focus right now is really though on the gas case that you and I just discussed and really looking to get a constructive resolution of that case.
As you know.
The overall gas regulatory environment, even without <unk> IP is solid with forward test years revenue decoupling bad debt riders et cetera. So we believe that going forward.
Without the Q IP, we'd need to be thoughtful about the timing of rate reviews, but they do use forward test years, which I think is very important to think about and.
We'll be thoughtful about the timing of capital expenditures to replace aging equipment et cetera. So we do think the regulatory environment without Q IP is something we can manage around we can still invest we can earn good returns, but we will look for windows of opportunity to look for something to replace the <unk> IP.
I'll leave the door open like you did in terms of what form that may take.
But right now our focus is on that gas case.
Yes.
Sorry, a quick quick clarification from earlier Boomtown just is there anything different about this let's say relative to Doug fit or something like that that might stand out in terms of that approval process.
Do you see the timing here being a little different in terms of the duration into the CCF.
Yes, I think one of the differences Julian is the Huck Finn project was proposed to be.
For compliance with the renewable energy standard that we have in Missouri.
And it was approved as such the Boomtown project is really being proposed twofold one.
For for customers, especially large industrial commercial customers that are looking for renewable energy as part of.
<unk> program for them and as well as part of our transition under the AARP, but it's not being proposed for specific compliance with the renewable energy standard and so that's a distinguishing fact between the two.
Wonderful, Thank you guys and Andrew Echo those sentiments.
Thanks, Julien I appreciate it thank you Julien.
We have reached the end of the question and answer session I would now like to turn the call back to Marty Lyons for closing comments.
Sure.
Well. Thank you all for joining US today as you heard we had a very strong 2022, and we really remain focused on delivering again in 2023 and beyond for our customers for our communities and for our shareholders. So with that be safe and we look forward to seeing many of you over the coming months.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.