Ameren Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 7 speakers on the call.

Operator

Greetings, and welcome to Amarin Corporation's 2nd Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, to Andrew Kirk, Director of Investor Relations for Amarin Corporation.

Operator

Thank you, Mr. Kirk. You may begin.

Speaker 1

Thank you, and good morning. On the call with me today are Marty Lyons, our President and Chief Executive Officer and Michael Main, our Senior Executive Vice President and Chief and the other members of the Ameren management team. This call contains time sensitive data that is accurate only as of the date of today's live broadcast and redistribution of this broadcast is prohibited. We have posted a presentation on the amortinvestors.com homepage that will be referenced by our speakers. As noted on Page 2 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.

Speaker 1

Please refer to the forward looking statements section in the news release we issued yesterday as well as our SEC filings for more information about the various factors that could cause actual results to differ materially from those anticipated. Now here's Marty, who will start on Page 4. Thanks, Andrew. Good morning, everyone, and thank you for joining us today.

Speaker 2

Before we cover our Q2 earnings results, I would like to discuss a series of major storm events, which occurred in late June July and disrupted power to a significant number of our electric customers across Illinois and Missouri. Collectively, this was the worst month for storm events Ameren has experienced in approximately 15 years. I would like to thank our customers for their patience as we worked to restore their power. I'm also grateful for and proud of the Amarin team. Importantly, our team worked hundreds of thousands of man hours in challenging conditions with no significant employee injuries.

Speaker 2

These outages emphasize why we believe continued investment in grid reliability and resiliency remains as important and necessary as ever for our customers, Which brings me to Page 4. Our dedicated team will continue to execute our strategic plan across all of our business segments, Which entails proactively investing in energy infrastructure to deliver safe, reliable, clean and affordable Electric and natural gas services to our customers. And moving to Page 5, our strategic plan integrates Our strong sustainability value proposition, balancing the 4 pillars of environmental stewardship, positive social impact, strong governance And sustainable growth. Here we summarize some of the many things we are doing for our customers, communities, coworkers and shareholders. And today, we published our updated sustainability investor presentation called Leading the Way to a Sustainable Energy Future, are available at amereninvestors.com, which more fully details how we have been effectively integrating our sustainability values and into our corporate strategy.

Speaker 2

I encourage you to take some time to read more about our strong sustainability value proposition. Turning to Page 6. Yesterday, we announced Q2 2023 earnings of $0.90 per share Compared to earnings of $0.80 per share in the Q2 of 2022. The key drivers of our 2nd quarter results are outlined on this slide. As a result of our strong execution in the first half of the year, I'm pleased to report that we remain on track to deliver within our in the Q3 earnings guidance range of $4.25 per share to $4.45 per share.

Speaker 2

Moving to Page 7. On our call in February, I highlighted some of our key strategic business objectives for 2023. We continue to make great progress as a result of our team's dedication. Outlined on Page 8 are a few key accomplishments this quarter. As you can see on the right side of this page, we've invested significant capital in each of our business segments during the first half of this year, Increasing spending nearly 20% compared to the year ago period.

Speaker 2

These investments will continue to improve the reliability, resiliency, safety and efficiency of our system as we make a clean energy transition for the benefit of our customers. During these 1st 6 months of the year, Ameren Missouri installed over 175,000 smart meters, 147 smart switches and 32 underground cable miles and energized 8 upgraded substations. Over 75% of our Ameren Missouri Electric customers now have smart meters, allowing for better understanding of energy usage and choice among several time of use rates offered. In Illinois, Our customers are benefiting from over 3,700 new or reinforced electric poles and 91 new smart switches on electric distribution circuits year to date, and we continue to focus on replacing mechanically coupled gas service pipes. Further, our transmission business completed a total of 117 projects in the first half of the year, including line rebuilds, new transmission circuits, transformer replacements, generator interconnections and other upgrades to aging infrastructure, supporting the economic delivery of renewable energy resources for our customers as well as the overall resiliency of the transmission system.

Speaker 2

This includes the transmission portion of our Intelligrid program, which was completed this spring. Amarin's Intelligrid network is a safe and secure private telecommunications network, which enables the full functionality of smart grid technologies, giving Amarin greater awareness of system conditions, potentially reducing outage frequencies and durations to milliseconds instead of minutes or hours. As a result, it will reduce costs and wait times for customers. I'd like to express my appreciation for the Amarin team's dedication, Hard work and collaboration so far this year to deliver value for our customers. Moving on to regulatory matters.

Speaker 2

In June, the Missouri Public Service Commission approved constructive settlement terms of the Ameren Missouri Electric Rate Review, which call for a $140,000,000 annual revenue increase. New customer rates were effective July 9, Representing an increase of approximately 2% compounded annually since April 1, 2017, Prior to Ameren Missouri adopting plant and service accounting or PISA. PISA, which is effective through at least 2028 allows Ameren Missouri to make meaningful and timely infrastructure investments, providing significant benefits to our customers. We also continue to make progress on the clean energy transition through the addition of solar to our generation portfolio. Moving to Ameren Illinois.

Speaker 2

Our team has been working diligently with key stakeholders in our ongoing electric distribution Multi year rate plan or MYRP and natural gas rate reviews. We filed rebuttal and surrebuttal testimony in June July, Effectively and are encouraged by the constructive progress made today. Michael will discuss these in more detail in a moment. In June, the Ameren Illinois beneficial electrification plan approved by the commission in March was updated to include $65,000,000 through 2025 for programs, incentives and rates encouraging electric vehicle adoption and infrastructure development. In legislative matters, we were supportive of the transmission efficiency and cooperation law were House Bill 3,445, which was passed by the Illinois General Assembly in May.

Speaker 2

This bill would support timely and cost effective construction of transmission projects, which I will touch on more on the next slide. Moving on to operational matters. We remain focused on keeping customer bills as low as possible through disciplined cost management, Continuous improvement and optimizing our operating performance as we transform our business through investment to ensure we sustainably provide are safe, reliable and cleaner energy for our customers. Finally, in early May, the Callaway Energy Center was brought back online following a brief planned maintenance outage, which was completed safely and on schedule. The next scheduled Callaway refueling and maintenance outage is planned for this fall.

Speaker 2

Turning to Page 9. As I just mentioned, in May, the Illinois General Assembly passed House Bill 3,445 or the Transmission Efficiency and Cooperation Law, which if enacted would provide incumbent utilities including Amarin The right of first refusal to build MISO long range transmission planning projects approved by year end 2024. If enacted, HB 3,145 will support the clean energy transition, benefiting our Illinois customers and communities and the broader MISO region. As the local utility, we believe we are well positioned to efficiently build, operate and maintain these transmission assets over time. The right of first refusal allows for the construction process to begin sooner and the resulting customer benefits to be realized much quicker.

Speaker 2

Importantly, we competitively bid each component of our projects and utilize local suppliers and contractors who support the local economy. In addition, we have long term relationships with key stakeholders in the region and work closely with landowners and communities when citing transmission lines. The bill supports the timely and cost effective construction of the MISO long range transmission projects, including 1 tranche 1 project approved in July 2022 and tranche 2 projects expected to be approved in the first half of twenty twenty four. The legislation was sent to the governor for signature on June 20 2nd, who has until August 21st to sign, veto or abstain from acting on the bill. Should the Governor abstain, the bill will automatically become law.

Speaker 2

Turning to Page 10. As we've discussed in the past, MISO completed a study outlining a potential roadmap of transmission projects through 2,039 detailed project planning, design work and procurement for the tranche 1 projects assigned to Ameren is underway and we expect construction to begin in 2026. MISO requests for proposal for its estimated $700,000,000 of Tranche 1 competitive projects have been issued. We submitted our first bid related to the Orient Denny Fairport project in May. The remaining two bids are due in October November of this year.

Speaker 2

The proposal and evaluation process for the competitive projects is expected to take place over the course of 2023 And into mid-twenty 24. Looking ahead to tranche 2, MISO's analysis of potential projects is well underway will continue for the remainder of the year and into next year. MISO anticipates the tranche 2 portfolio of projects will be approved in the first half of twenty twenty four. Continued investment in transmission is needed to facilitate the transfer capability of energy across the region as more dispatchable generation retires and renewables come online. On another matter related to MISO, An independent review was completed in July at the request of the ICC, which evaluated the benefits of Ameren Illinois' continued participation in MISO compared to the PJM Interconnection Regional Transmission Organization.

Speaker 2

The study considered reliability, resource adequacy, resiliency, affordability, equity, environmental impact and general health, safety and welfare of Illinois residents. In conclusion, the independent consultant determined that Ameren Illinois remaining in MISO avoids significant economic costs for the customers of Ameren Illinois and Illinois residents more broadly. Before moving on, I'm happy to say that the Illinois Power Agency's Procurement events this past May, which set energy and capacity prices from June 1, 2023 through May 31, 2024 resulted in significantly lower prices compared to last year. In fact, we expect a decline of over 25% in Ameren Illinois' basic generation service rate. For customers taking power from Ameren Illinois, assuming normal weather, This could result in double digit percentage decreases on their overall electric bill, providing welcome relief for customers.

Speaker 2

Moving now to Page 11. As laid out in our June 2022 Missouri Integrated Resource Plan or IRP, We are taking a thoughtful and measured approach to investing in new generation as our older energy centers near retirement. In support of this transition, we were pleased with the Missouri PSC approvals of certificates of convenience and necessity or CCNs for the Huck Finn Solar Project in February and the BoomTown Solar Project in April. Construction of BoomTown began in July and construction of Huck Fin is expected to begin in October. In June, we filed with the Missouri PSC for 4 additional CCNs totaling 5 50 megawatts of new solar generation across our service territory.

Speaker 2

These projects support our ongoing generation transformation, which calls for adding 2,800 megawatts These projects will bring over 900 new construction jobs and additional tax revenues and other payments to the area. Subject to approval, these solar projects are expected to go in service between 20242026. While the Missouri PSC is under no deadline to issue an order on these CCN filings, we expect decisions in the Q1 of 2024. Ameren Missouri is in the process of finalizing its next IRP, and we look forward to filing it with the Missouri PSC by the end of September. We believe the plan filed in 2022 includes a balanced and measured approach to adding renewables over time.

Speaker 2

As we continue the transition to a cleaner, more diverse generation portfolio, we are focused on reliability of the system, In particular, in the hot summer and cold winter months. As a result, we are evaluating the need for more dispatchable energy prior to 2,030, Which is also consistent with MISO's view of future generation capacity needs in our region. On Page 12, we look ahead to the next decade. We have a robust pipeline of investment opportunities totaling more than $48,000,000,000 that will deliver significant value to all of our stakeholders by making our energy grid stronger, smarter and cleaner. Of course, our investments also create thousands of jobs for our local economies.

Speaker 2

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 delivering on our customers' expectations. Turning to Page 13. In February, we updated our 5 year growth plan, which included our expectation of a 6% to 8% compound annual earnings growth rate from 2023 through 2027. This earnings growth is primarily driven by our strong compound annual rate base growth of 8.4%, supported by strategic allocation of infrastructure investment to each of our operating segments based on their constructive regulatory frameworks. Combined, we expect to deliver strong long term earnings and dividend growth, resulting in an attractive total return That compares favorably with our regulated utility peers.

Speaker 2

I'm confident in our ability to execute our investment plans and strategies across All 4 of our business segments as we have an experienced and dedicated team to get it done. Again, thank you all for joining us today. I will now turn the call over to Michael. Thanks, Marty, and good morning, everyone. Turning now to Page 15 of our presentation.

Speaker 2

Yesterday, we reported Q2 2023 earnings of $0.90 per share compared to $0.80 per share for the year ago quarter. This page summarizes key drivers impacting earnings at each segment. As you can see, under our constructive regulatory frameworks, We experienced earnings growth driven by increased investments in infrastructure in all of our business segments. And Missouri earnings were negatively impacted by normal temperatures in the quarter compared to warmer than normal temperatures in the year ago period. We were still able to deliver strong earnings performance during the quarter as a result of our diverse business mix and disciplined cost management.

Speaker 2

Before moving on, I'll touch on sales trends for Ameren Missouri and Ameren Illinois Electric Distribution. Year to date weather normalized Kilowatt hour sales to Missouri residential and industrial customers decreased about 1% and 2.5% respectively. Year to date weather normalized kilowatt hour sales to Missouri commercial customers increased about 0.5%. The modest decline in residential sales year over year were expected as more people return to the office, yet there's been nearly a 4% increase in residential sales as compared to pre pandemic levels. Year to date weather normalized kilowatt hour sales to Illinois customers have declined about 3.5% compared to last year.

Speaker 2

Recall that changes in Illinois Electric sales, no matter the cause, do not affect our earnings since we have full revenue decoupling. On the economic development front, there have been several announcements to build or expand within our territory. In Missouri, Boeing plans for a nearly $2,000,000,000 expansion of its aerospace program and will create 500 new jobs. In addition, ICL Group plans to expand Their lithium battery material manufacturing plant in St. Louis, which will support the production of EV batteries and be the 1st large scale plant of its type in the country, creating an additional 165 jobs.

Speaker 2

I'm pleased to say that we continue to see a strong labor market in Missouri With an unemployment rate of 2.6 percent, well below the national average. And in Illinois, Manor Polymers in the Prismian Group announced plans to build facilities manufacturing electric vehicle components and renewable energy cable, which collectively would create nearly 150 jobs in the Moving to Page 16. Yesterday, we reaffirmed our 2023 earnings guidance range of $4.25 to $4.45 per share. On this page, we've highlighted select considerations impacting our 2023 earnings guidance for the remainder of the year. These are supplemental to the key drivers and assumptions discussed on our earnings call in February.

Speaker 2

I encourage you to take these into consideration as you develop your expectations for quarterly earnings results for the remainder of the year. Turning now to Page 17, I'll provide an update on our regulatory rate proceedings. In June, the Missouri PSC approved a stipulation agreement in our Ameren Missouri Electric Rate Review for $140,000,000 annual revenue increase. The agreement was a black box settlement and did not specify certain details, including return on equity, capital structure or rate base. The agreement did provide for the continuation of key trackers and riders, including the fuel adjustment clause.

Speaker 2

New electric service rates were effective July 9th. In other Missouri regulatory matters, in preparation for the planned retirement of our Rush Island Energy Center, last week, Ameren Missouri filed 60 day notice with the Missouri PSC for the securitization of costs associated with the Rush Island Energy Center. We will seek to finance the costs associated with the retirement, including the remaining net book value of the Russian Island Energy Center through securitization. As of June 30, 2023, the net book value was approximately $550,000,000 We expect to file our petition seeking commission approval of the securitization as early as Q4 of this year. Once filed, the regulatory proceeding is expected to take up to 7 months to complete.

Speaker 2

Moving to Page 18, in January Ameren Illinois Electric Distribution followed its 1st multiyear rate plan For MYRP with the ICC. Our MYRP is designed around 3 key elements, providing safe and reliable energy to our customers, deploying capital in a way that achieves the Climate and Equitable Jobs Act objectives as included in our performance metrics And facilitating the clean energy transition by preparing our system to accept more renewables and electric vehicles over time. The MYRP details a grid modernization plan that includes our planned electric distribution investments and supports our annual revenue increase request for the next 4 years. On July 13, the ICC staff filed rebuttal testimony recommending a cumulative increase of $317,000,000 in revenue for 2024 through 2027. This includes a return on equity of 8.9%, reflecting the 2022 average 30 year treasury rate plus 580 basis points.

Speaker 2

If adopted, staff suggested the return on equity would be updated annually. It also includes a 50% equity ratio. On July 27th, Ameren Illinois updated its request for a cumulative increase of $448,000,000 in revenues. This increase includes a return on equity of 10.5% and an equity ratio of 54%. The variance in Ameren Illinois cumulative request and the staff's recommended cumulative increase is driven primarily by the return on equity and the common equity ratio, which Which makes

Speaker 3

up $81,000,000 of the

Speaker 2

$131,000,000 variance and ICDC decisions is required by December 2023 With new rates affected by January 2024. Turning to Page 19. In April, we filed our electric distribution annual rate reconciliation following to reconcile the 2022 revenue requirement to actual cost. In late June, the ICC staff recommended $109,000,000 base rate increase compared to our updated request of $125,000,000 base rate increase. The $16,000,000 variance is primarily driven by a difference in the common equity ratio as we have proposed 54% compared to the ICC stance recommended 50%.

Speaker 2

An ICC decision is required by December 2023 and the full amount will be from customers in 2024. Earlier this year, we also filed with the ICC for an annual increase in Ameren Illinois natural gas distribution rates using a 2024 In July, we filed SERR rebuttal testimony requesting $148,000,000 increase Based on a 10.3 percent ROE, a 54 percent equity ratio and a $2,900,000,000 rate base. Staff has recommended $128,000,000 increase, reflecting a 9.89% return on equity and a 50% equity ratio. Other interveners have recommended an increase of $98,000,000 to $106,000,000 reflecting a 9.5% return on equity and a 52% equity ratio. An ICC decision is required by late November 2023 with rates expected to be effective in early December of this year.

Speaker 2

On Page 20, we provide a financing update. We continue to feel very good about our financial position. On May 31, Ameren Illinois issued $500,000,000 4.95 percent first mortgage bonds due in 2,030 3. Proceeds of this offering were used to repay a portion of the short term debt And to repay $100,000,000 or 0.375 percent first mortgage bonds that matured June 15. Further, in order for us to maintain our credit ratings and a strong balance sheet while we fund our robust infrastructure plan, We expect to issue approximately $300,000,000 of common equity, consisting of approximately 3,200,000 shares by the end of this year.

Speaker 2

These shares were previously sold forward under our ATM Equity Program. Additionally, we have begun to enter into forward sales agreements to support our 2024 equity needs. As of June 30, approximately $92,000,000 of the $500,000,000 of equity outlined for 2024 Has been sold forward under the program. Together with the issuance under our 401 and DRIP plus programs, Our ATM equity program is expected to support our equity needs in 2024 and beyond. And turning to Page 21, were off to a strong start and well positioned to continue executing our plan.

Speaker 2

We expect to deliver strong earnings growth in 2023 and over the long term, Driven by robust rate based growth and disciplined cost management. Further, we believe this growth will compare favorably with the growth of our peers. Ameren shares continue to offer investors an attractive dividend and total shareholder return story. This concludes our prepared remarks. We now invite your questions.

Operator

Thank you. At this time, we will be conducting a question and answer session. Our first question comes from Julien Dumoulin Smith with Bank of America. Please proceed with your question.

Speaker 4

Hey, good morning, team. Thanks so much for the time. I appreciate it. Thanks for all the comments. Maybe just kicking this thing off on the Rush Island side of the equation.

Speaker 4

Just with the book value, it seems like that's $550,000,000 Can you comment a little bit on the size of the securitization and maybe the offset to that, if you will, when you think about the additional transmission rate base opportunities and otherwise you articulated, just thinking about the timing and the

Speaker 3

net puts and takes here, if

Speaker 5

you will.

Speaker 2

Yes. Hey, good morning, Julian. I appreciate the question. This is Michael. Yes, from an overall amount, I mean, again, we provide that book value of Again, this will be probably a year from now, but you should think roughly in those lines, I mean around $500,000,000 will be some of the depreciation, etcetera, that will occur.

Speaker 2

There's another couple of items that get incorporated into that, like inventory, etcetera, but around $500,000,000 And Yes, I think as we've talked about in the past, I mean, we have a lot of flexibility here in terms of what we do with that in terms of additional investments. It's Really not restricted. It just really needs to go back into infrastructure. We obviously can use it to buyback and debt and other things as well. But I mean, given our capital plan, there's lots I think from a timing perspective, that's what we're being very thoughtful about trying to determine the actual retirement date itself, get this Well in advance of that to give us plenty of time to make sure that we continue to replace that rate base over time and avoid any sort of earnings hit there.

Speaker 2

Hopefully, that helps.

Speaker 4

No, it does. Absolutely. Thanks, Ken. And then just when you think about the offsets here, just Push a little bit further on that, right? Brush Island, okay, securitization when you're out.

Speaker 4

Obviously, you alluded to a few different things there, transmission probably being the single most notable element of what you talked about a Can you maybe elaborate a little bit what HB-three thousand four hundred and forty five, if I got the number right, does? And then separately, just on timing for tranche I mean, what opportunity do you see there as well, right? I mean, and or competitive pieces from Tranche 1. Just trying to think about like, again, that end business on the puts And especially here, the opportunities.

Speaker 2

Hey, Julian, this is Marty. Hey, thanks again for your questions. Just to first tack on to what Michael said and then answer some of your specific questions. But when we planned out our Capital expenditures for this 5 years and we looked at the timing and amount on a year by year basis. We were thoughtful about the potential timing of this Rush Island closure and securitization filing.

Speaker 2

And so within that, we had already Time some of our capital expenditures in a thoughtful manner to, as Michael said, ensure that as Rush Island comes out of rate base, That we don't have any kink, if you will, in the trajectory of our rate base growth and our earnings growth. Some of that's already baked into our plan, Julie, and I guess, 1st and foremost. Now you did ask about Some of the transmission investment and specifically about the legislation coming through Illinois, The transmission efficiency and cooperation law, which was HB 3,445 that you referenced, there as we explained in our prepared remarks, the General Assembly passed that legislation in May of this year. And now it's really on the Governor's desk for his potential signature. So it got to the governor in late June, June 22nd, and he has 60 days, which means the decision deadline for the governor is August 21.

Speaker 2

And if you were to sign that, that would mean then that the One Tranche 1 project in Illinois would come to us and then any tranche 2 projects that were approved in the first half Of 'twenty four, that's our expectation, but anytime in 2024 would also come to us as the incumbent transmission owner. Now, The Governor has expressed some concerns about that legislation. So it's unsure what action he will take. I'll tell you that supporters of the bill, including ourselves, continue to share the benefits of the legislation and hopefully address his concerns. If he signs the law, obviously, our bill obviously becomes law.

Speaker 2

And as we mentioned in our prepared remarks, if he takes no action, That bill becomes law as well. So we'll see what action he ultimately takes, but we continue to believe that Right of first refusal is really in the best interest of our customers and the residents of the State of Illinois. Then you just mentioned on Overall, what MISO is doing in terms of these projects, again, as you know, MISO is evaluating what projects might come out of Tranche 2, I will say there that we continue to believe that the work that they're doing points to an overall portfolio that would be larger than what they approved in part of tranche 1. And that's really because as They've gone through this analysis. One of the things obviously that's come to fruition is the IRA legislation In DC, which means that we expect more renewables than had previously been expected.

Speaker 2

And MISO is planning towards something that's between sort of a future 2 and future 3. And again, we expect that they'll continue to work through that. It's premature to say exactly how large that portfolio will be or exactly what transmission projects may fall into are service territories in Illinois or Missouri, but MISO continues to believe that they'll approve those projects in the first half of next year.

Operator

Our next question comes from Paul Patterson with Glenrock Associates. Please proceed with your question.

Speaker 5

Hey, good morning, guys. Good morning, Paul. So just to follow-up on Julian's questions about the ROFR. I know that you guys are involved in

Speaker 6

I apologize.

Speaker 5

But what I was wondering is that the Supreme Court and this 5th Circuit decision regarding the ROFR in Texas. Do you think that could have any wider implications In the country, if it's allowed to stand.

Speaker 2

Julian or sorry, Paul, I apologize. Paul, Yes, it's okay. I apologize again. But look, it's some of the actions that have been taken in various states seem to be Particular to the way that legislation was passed or and so look, we're going to continue to pursue it. We think that if the governor were signed this into law.

Speaker 2

It would be applicable and applicable to, as I said before, both the MISO Tranche 1 projects as well as tranche 2 projects that are approved in 2024. So look, I guess time will tell, but I think that As we sit here today, we think this would stand.

Speaker 5

You think it would stand? So I got you. So in other words, if the 5th Just so it, which is a Texas situation, you don't think would apply to Illinois because of the individual wallets that were Because of the differences, if I understand you correctly, tell me if I'm wrong, because of the differences between the Texas law and what passed in Illinois, assuming that it's signed. Is that right?

Speaker 2

I do believe that.

Speaker 5

Okay. That's great. Thanks so much. Thanks, Paul.

Operator

Our next question comes from Jeremy Tonet with JPMorgan. Please proceed with your question.

Speaker 3

Hi, good morning.

Speaker 2

Hey, good morning, Jeremy. Hi, Jeremy.

Speaker 3

Hi, just want to dial into Illinois a little bit more because I know that you touched on your commentary, But just wondering if it's possible to provide any more color on updates in the Illinois Electric rate case and Just maybe how the tone of conversations with regulators and stakeholders have been trending recently.

Speaker 2

Yes. I think that maybe I'll start and perhaps Michael would want to tack on here as well. This is Marty. I think what you heard in our prepared remarks again is that we really feel like we're working constructively with stakeholders as we work through this process. Of course, this is the first Multi year grid and multi year rate filing.

Speaker 2

And so as to be expected, you're going to have to work through some of the mechanics. But ultimately, I still believe that we're going to get to a constructive outcome, something that accomplishes the policy goals that CJA had for the state. And you'll notice that when we started this down this path in direct testimony, The ICC staff's recommendation was about 56% of our overall ask. And Through the rounds of testimony and additional support that we've been able to provide with the staff, we've been able to work constructively with them Where their suggested revenue increase now is about 70% of our request. So we've made Positive progress there.

Speaker 2

In our slides, we detailed that there's still a difference between our recommended or requested cumulative increase and that recommended by the staff and that difference is about $131,000,000 over that 4 year period and we broke down some of the components for you. So look, we're going to continue to work constructively with stakeholders. And like I said, I think we'll be able to get to a constructive outcome and importantly that accomplishes the policy goals of CJA.

Speaker 3

So I don't know if

Speaker 2

you have any more specific questions or Michael, you want to add something? Yes, just a couple of comments, Marty, a good overview. And I look, I do think the Teams collectively between us and staff and others continue to work very collaborative, trying to really work through these I think we all want the best answer obviously for customers making sure that we're delivering on all of the policy objectives that Marty talked about Seige is really wanting to achieve as well. And I think as Marty talked about that difference today of about 131,000,000 About 62% of that is really tied up in ROE and cap structure. And so there is this Sort of fundamental difference on our OE today.

Speaker 2

They're still recommending the old formula that was approved under EMIA, which was basically 580 basis points plus the 30 year treasury versus we really think the law Look, it's a cost of equity determined by the commission under their authority under the laws of the State that govern these rate reviews. But I mean, even putting that aside, I think the important thing to remember too, if you took a current mark On that ROE today at 5.80 basis points. I mean, it's something approaching 10. And I think the only other point I would make too is I think, and as there are kind of Traditional cost of capital under like a Cap N or DCF. The staff did also point out, I think they would have been at about 10.02, but then reverted back to this formula.

Speaker 2

So Anyway, I give you those details because I think it does kind of narrow a lot of the issues in terms of where the difference is, Jeremy.

Speaker 3

Got it. That's Very helpful. And maybe to follow-up, peel back a little bit more if I can, if there is anything left that can be said here, just Specifically with regards to your rebuttal strategy on the notably lower than expected ROE, the $700,000,000 capital discrepancy, $100,000,000 medical OPEB overfunded balance. Just wondering if you could speak to any changes Receptivity overall, given Amarin's rebuttal argument.

Speaker 2

Yes. Hey, Jeremy, this is Michael again. Yes, I mean, Again, to be clear, I think that receptivity has shown in the fact that I think we've closed that gap. So you continue you referred to the $700,000,000 gap. I'd say that gap is about $350,000,000 today.

Speaker 2

So I mean there's been some good work that's been done on both sides to agree that look, here's some additional support and go ahead and accept those. That really Ultimately, Marty mentioned going from 56% to 70% of the add, that was really a large part of that. The other items you noted are still out there, the post Retirement issue that we'll continue to argue for. We do think that it should be included. Customers are benefiting from this.

Speaker 2

It's an overfunded plan. It's throwing off gains that are actually reducing rates for customers, etcetera. We're going to continue to make those arguments and we'll see ultimately where it goes Through the process over the next couple of months.

Speaker 3

Got it. That's very helpful. One just quick last one, if I could. With the decrease in energy prices as we've seen, has bill pressure kind of faded from the conversation with the public and policymakers or is this still front of mind in discussion?

Speaker 2

No, look, I mean, I think the overall Backdrop is much better today. I mean, just given what's happened with commodity prices, both on the natural gas side. So you've actually already seen some of those benefits start rolling through on the PGAs, Etcetera. I think we've talked about that. And then certainly, some of these capacity auctions and corresponding energy auctions are certainly providing relief to That's always a good thing to see, right, in terms of just making sure that we're trying to get the lowest possible bill for customers.

Speaker 2

So I'd say it's less of a conversation today and it's a good tailwind as we think about the future.

Speaker 3

Got it. That makes sense. That's helpful. I'll leave it there. Thanks.

Speaker 2

Okay. Thanks, Jeremy.

Operator

Our next question comes from Sophie Karp with KeyBanc Capital Markets. Please proceed with your question.

Speaker 6

Hi. Good morning and thank

Operator

you for taking my question.

Speaker 4

Good morning, gentlemen. Yes, good morning, I

Speaker 6

can chew on this Illinois situation a little more. And you provided a lot of color already, but I'm just curious if you think there's a legitimate legal argument as to why the old formula should be used in the new framework, why the staff is sticking to that hold for me here.

Speaker 2

Yes, Sophie, this is Marty. One of the things CJ called for In the legislation was that the cost of equity be determined consistent with commission practice and law. And we believe that means the use of traditional methods like capital asset pricing model, discounted cash flow analysis, EIMA, which was the prior legislation, had some very explicit language that required the use of formulaic. We've certainly argued that the intent of CJ was for the commission to use its traditional methodology. And I would note there that the staff and their testimony as part of the multiyear rate plan, it's set of that traditional CAPM and DCF kind

Speaker 4

of analysis was used that

Speaker 2

they would get an ROE of about was used that they would get an ROE of about 10.02 as a recommendation. And of course, in our gas rate case that's pending, the staff there recommending a 9.89%. So, Sophie, at the end of the day, That's what we're hanging our head on is that we believe that Inocesia called for the use of that kind of methodology.

Speaker 6

Got it. Got it. Thank you. And then maybe if I can ask a solar question. I'm just curious on your Missouri solar projects, particularly the ones that you're self building or participating in building them.

Speaker 6

How are you thinking about your procurement strategy with respect to potentially getting adders for domestic Content and things like that, does that influence your decision as to what equipment you're going to procure for these?

Speaker 2

Yes. Sophie, it certainly does. So as you saw in our slides in terms of Our build out, we do plan to have projects that are build transfer agreements that are built by developers, Projects that are developed to a certain point and then we procure them and finalize the construction ourselves And then some self build. And certainly, we're taking a host of considerations into account when we look at Where these projects are being built and what they're being built with. And so if we Take advantage of a site that provides us with incremental tax credit opportunities.

Speaker 2

We'll do that. If we can take advantage of procurement strategies that and resources that allow us to maximize the value We're going to do that. So at the end of the day, our goal with this is to build a portfolio of projects that really provides Good diversity, low cost for our customers, reliability for our customers, and we'll look to maximize those tax credits to the extent possible to again deliver the lowest present value of revenue requirements for our customers.

Speaker 6

Great. Thank you. And do you expect to self consume those tax credits? Or would you be looking to monetize them with a third party?

Speaker 2

Yes. Ultimately, I think it's a combination of both, Sophie. I mean, we're not sitting on a lot of credits today, but I mean, as we build into these, Again, we'll be very thoughtful about we've been very involved in these issues on transferability and getting clarification working through some of these rating agency issues, But I absolutely think that it could be a combination of both as we move forward.

Speaker 6

All right. Thank you so much.

Speaker 2

You bet. Thanks.

Operator

Our next question comes from Julien Dumoulin Smith with Bank of America. Please proceed with your question.

Speaker 4

Hey, guys. I was worried it was going to end early. I wanted to squeeze in a couple here. Look, I wanted to come back To what was being discussed on Illinois real quickly, do you have any thoughts about Illinois gas here? I know that's very preliminary, but it seems like there could be some conversations going into 2024 On perhaps reform that might look akin to Colorado or something like that, but you or Minnesota at that.

Speaker 4

But you guys tell me, what are you guys hearing or seeing on any front

Speaker 2

Yes. Julie, in terms of legislation for next year, I can't say that there's anything Percolating right now that we're aware of or involved in. I think that right now, our focus obviously is on this Illinois multiyear rate plan on the electric side and also getting a constructive resolution of our pending Illinois gas case. And so that's our focus right now. I know in the past there was some discussion around QIP, but of course that's expiring at the end of This year and right now, we think we're positioned well as we utilize the forward rate cases In Illinois for our gas business.

Speaker 2

So really nothing to share with you on that front right now, Julian.

Speaker 4

Fair enough. And obviously, you've got these new CTNs going on Missouri side. Just any lessons learned from BoomTown, Hawk, etcetera.

Speaker 2

I don't think there are any specific lessons learned. We were certainly pleased received the commission's authorization to move forward with Huck Finn and BoomTown and pleased with The orders received and the resolution of those. So, I wouldn't say there's any specific lesson learned. We think all 4 of the projects that we have proposed are excellent projects for the benefit of our customers and move us along the path towards the Investments that were laid out in our 2022 IRP and we've got another IRP that we plan to file this September and certainly we think those projects are consistent with the path that we'll lay out as part of that IRP as well.

Operator

It appears that there are no further questions at this time. I would now like to turn the floor back over to Marty Lyons for closing.

Speaker 2

Yes, terrific. Well, thank you all for joining us today. We had a strong first half of twenty twenty three and we remain absolutely focused on strong execution for the remainder of this year. So we look forward to seeing many of you at conferences in the coming months. And thanks again.

Speaker 2

Have a great day.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Powered by Quartr
Earnings Conference Call
Ameren Q2 2023
00:00 / 00:00