Ameren Corporation
Q1 2019 Earnings Call Transcript

Published: 9 May 2019

[Operator:]

Greetings. Welcome to the Ameren Corporation's First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I will now turn the conference over to your host Andrew Kirk, Director of Investor Relations for Ameren Corporation. Mr. Kirk you may begin.

[Andrew Kirk:]

Thank you and good morning. On the call with me today are Warner Baxter, our Chairman, President and Chief Executive Officer and Marty Lyons, our Executive Vice President and Chief Financial Officer, as well as other members of the Ameren management team. Warner and Marty will discuss our earnings results and guidance as well as provide a business update. Then we will open the call for questions.

[Warner Baxter:]

Thanks Andrew. Good morning everyone and thank you for joining us. Earlier today we announced first quarter 2019 earnings of $0.78 per share compared to $0.62 per share earned in 2018. Year-over-year increase of $0.16 per share reflected the benefits of increased infrastructure investments that will drive significant long-term benefits for our customers. The key drivers of first quarter results are described on this slide. Ameren Illinois Natural Gas earnings increased as a result of higher delivery service rates incorporating increased infrastructure investments and a change in rig design. Increased infrastructure investments also drove higher earnings at Ameren Transmission and Ameren Illinois Electric Distribution each of which benefits from formulaic ratemaking. Ameren Missouri earnings also rose reflecting higher weather-driven electric retail sales and energy efficiency performance incentives that offset the impact of timing differences in 2018 related to federal tax reform. Marty will discuss these and other factors driving the quarterly results in more detail in a moment. I am also pleased to report that we continue to effectively execute our strategic plan and remain on track to deliver within our 2019 earnings guidance range of $3.15 per share to $3.35 per share.

[Marty Lyons:]

Thank you, Warner and good morning everyone. Turning now to page 10 of our presentation. Today, we reported first quarter 2019 earnings of $0.78 per share compared to earnings of $0.62 per share for the year-ago quarter. The key factors that drove the overall $0.16 per share increase are highlighted by segment on this page. Earnings for Ameren Illinois Natural Gas were up $0.05 reflecting higher delivery service rates that were effective in November 2018 incorporating increased infrastructure investments and a higher allowed ROE as well as a change in rate design. The first quarter 2019 benefit from the change in rate design is not expected to impact full year results. Earnings for Ameren Transmission and Ameren Illinois Electric Distribution were up $0.03 and $0.02 respectively reflecting increased infrastructure investments. Ameren Missouri, our largest segment reported earnings that were also up though slightly. The results reflected higher electric retail sales due in part to colder winter temperatures in 2019 compared to the year-ago period, which contributed approximately $0.03 per share as well as recognition of MIA performance incentives related to the 2013 and 2016 energy efficiency plans, which contributed $0.05 per share. These favorable factors offset $0.08 of timing differences in 2018 between income tax expense and revenue reductions related to federal tax reform. These timing differences will impact 2019 quarterly earnings comparisons, but are not expected to impact the full year comparison.

[Operator:]

Our first question comes from the line of Julien Dumoulin-Smith from Bank of America. Please proceed with your question.

[Warner Baxter:]

Good morning, Julien.

[Nick Campanella:]

Hey. Good morning. This is actually Nick Campanella on for Julien today.

[Warner Baxter:]

Hey, Nick. How are you doing?

[Nick Campanella:]

Hey, good and I hope you guys are doing well too.

[Warner Baxter:]

We are. Thank you.

[Nick Campanella:]

Just to kick it off here. I know that you guys mentioned in your prepared remarks, the Missouri rate review is for the timing of some of these wind investments and whatnot, but just given you have the RESRAM there and then also the PISA, and the fact that the fuel tracker, it implies that it doesn't need to be renewed until 2021. I guess the question is why now?

[Marty Lyons:]

Yeah, sure, Nick. This is Marty. Thanks for the question. So as we said on the call, we do plan to file for an electric rate case as early as July. Recall that we've been saying for a while that we expected to file between May 1 of this year 2019 and May 1, 2020. We really have to file before May 1 of 2020 in order to keep the fuel adjustment clause. And, of course, our rate case when you think about it, Missouri typically takes 11 months and only allows for rate base true-ups to a date about six months post-filing. So those are some considerations or constraints when you think about the timing of these cases and you think about the wind assets being completed in late 2020. So in any event as we said on the call, the file in July allows us to do a couple of things; updates rates for infrastructure investments and other cost of service that have changed over the past few years and incorporate these lower coal and transportation costs into base rates; and then number two, it provides us flexibility around the timing of that next rate review to include the wind. A couple things to note related to your question. I mean, our last rate update was in April of 2017. It was based on a 3/31/16 test year with the true-up to 12/31/16 so it has been a few years. And, of course, the PISA that we began to use late in 2018, again didn't apply to any rate base infrastructure investments made before that date. So those types of things would be picked up in this base rate increase. With regard to your prospective question on the wind assets, I mean you're right. The PISA and RESRAM will allow investors to make sure that they're whole in terms of the return on the wind. But as you might recall both the cash and the recognition of a full equity return will not be recognized until after a subsequent rate review. So including those wind assets in a rate review will be important in that regard.

[Nick Campanella:]

That was very clear. I appreciate it. I guess just on financing the plan. I think everyone saw Moody's come out with a lower floated debt target at the parent. Has this changed your equity need for the wind CapEx at all in your mind?

[Marty Lyons:]

Yeah. Nick thanks again for the question. So, look the bottom line answer to your question is, no. We still feel like the financing plans we talked about on the second quarter call are appropriate. You recall that as it relates to equity that includes issuing equity through our dividend reinvestment employee benefit plans over the course of the next five years, it's about $100 million per year. And then also incremental common equity issuance to fund a portion of our ultimate total wind investment. And so those are the plans that we have and we're going to stick with those. I appreciate your question about the Moody's action though. Just one consideration amongst the number when we think about financing our business going forward, we were pleased with the action Moody's took. For those on the call, you'll recall that our Ameren Corp. issuer rating at S&P is a BBB+ with a stable outlook. There we have an FFO-to-debt threshold of 13%. At Moody's we have a BAA1 issuer rating with -- also with a stable outlook. And there's where as Nick points out, Moody's lowered the threshold on the cash flows from operations pre-working capital to total debt. They lowered that threshold from 19% to 17%. So we are pleased that Moody's took that action. We believe it brings us that threshold closer in line with our peers. And certainly it does provide us some more flexibility with regard to financing within that range. But again it's just one consideration that we think about when we look at financing the business. We've always looked to maintain very strong balance sheets. On our call in February we said, one of our expectations over the next five years was to be able to maintain capitalization structures similar to those that existed at year-end and as existed March 31. And we seek to make sure that as we carry out these infrastructure investments including the wind that we position those for success in the regulatory proceedings that follow. So there are lot of things that we take into consideration but bottom line is we expect the financing plan we laid out in February to continue to be our plan going forward.

[Nick Campanella:]

Hey, thanks a lot. I’ll leave it there. Congrats on a strong quarter.

[Marty Lyons:]

Thanks, Nick.

[Warner Baxter:]

Have a good day.

[Operator:]

Our next question comes from the line of Insoo Kim from Goldman Sachs. Please proceed with your question.

[Insoo Kim:]

Hey, good morning. Just one question on the wind investments. Maybe just a quick update on beyond the 700 megawatts that you guys plan to have by the end of 2020. Have your strategy or outlook changed on the incremental megawatts through the 2023 planning horizon?

[Warner Baxter:]

Good morning, Insoo. How are you doing?

[Insoo Kim:]

Good.

[Warner Baxter:]

I appreciate the question. This is Warner. No, the bottom line is, no. As we said before we are focused on obtaining at least 700 megawatts of additional wind generation. And as I said on the call a moment ago, we continue to negotiate with developers for that additional wind generation. And we remain confident in our ability not only to negotiate successfully with those developers, but also to move through the regulatory approval process and get the facilities constructed in a timely fashion. So while we like to point to 700 megawatts, I mean we're very pleased with the fact that as we sit here today we have 557 megawatts not only negotiated, but approved by the Missouri Public Service Commission. So Michael Moehn and his team have worked effectively with stakeholders to get those deals across the finish line from an approval perspective. And so we look forward to bringing more to the Missouri Public Service Commission in the future. Keeping in mind as you I'm sure understand that trying to find projects that fit just nicely into 700 megawatts that just is not likely just because projects don't come in sort of byte sizes. And so as we look forward we'll look forward to the next deal to get done in a timely fashion and get it across the finish line.

[Insoo Kim:]

Yes, that's clear. And then in terms of the rate case filing. Beyond this rate case cycle and given the different mechanisms you do have in place like PISA and RESRAM is it -- should we expect the next timing of the Missouri rate case to be at least two to three years down the line to meet the every 4-year requirement? Or could we see a potential filing sooner than that?

[A – Marty Lyons:]

Yes. This is Marty again. Look, we'd like to have as much time as possible between rate case filings. As I mentioned, it's this next one we plan to file this next rate review in July would represent three years between the last one and this one and is somewhat being driven by the infrastructure investments made prior to PISA, but also driven by as I mentioned earlier the expected timing of our wind investments and the timing of the next rate case. So I wouldn't read anything into that other than what we've laid out in terms of future cycles or periods of time between cases. Again we said many times that the fuel adjustment clause does require us to file for rate reviews at least every four years. So I would say four years or less, but we'd like to make the period as great as possible frankly.

[Insoo Kim:]

Understood. Thank you very much.

[Operator:]

Our next question comes from the line of Paul Patterson from Glenrock Associates.

[Paul Patterson:]

Good morning guys. Just on Illinois. As you know there's a legislation -- there's lot of legislative activity I guess going on there with both the utilities and non-utilities or budgetary related kind of issues. And I'm just wondering sort of how you see the politics sort of working there procedurally? And whether or not the EIMA extension bill might get wrapped in with others? Or just sort of how you see all that stuff sort of unfolding? And sort of just in general the I know you guys don't own generation in Illinois, but just how you look at the capacity procurement legislation vis-à-vis potential -- just how it might influence you or just your thoughts on that if you'd like to opine on that?

[Warner Baxter:]

Sure Paul. This is Warner and I invite Richard Mark to add anything after I offer some of these comments. Look talking about the EIMA provision -- or the modernization act that we've been talking about that I referred to in my talking points. Look we certainly can't predict what happens here over the next several weeks. But the only thing we can say about that legislation is that, it has produced significant benefits for all stakeholders. Our customers the state of Illinois and certainly our shareholders and I've outlined those benefits in terms of reliability, affordability, job creation and really driving a more modernized grid in Illinois. So as a result when we think about what might happen here over the next several weeks, the fact that that legislation or that policy has been so strong and has been extended twice that puts us in a good position. We believe for legislators to take notice that this is something that we want to continue. And so I think this is why you saw the strong votes in the committee and Rich and his team has done a great job with many other stakeholders to position two bills, one in the House and one in the Senate to move forward. So we can't predict right now where they stand. They stand with nothing else on them. And certainly we will -- hopefully that will -- the way it will continue here over the next several weeks. As you said before, you're right. There are several legislative proposals in Illinois that relate to what I would call energy policy. And look I think our vested interest in all of those bills is what the impact could be on our customers. And so we are at the table working with stakeholders to make sure that our customer’s best interest are being looked out for. Now I'm not going to comment on any particular piece of legislation at this point. Yes there is certainly legislation out there related to the capacity markets, related principally to Exelon, but it's just -- it's too uncertain to see just exactly where they may or may not be here over the next several weeks and/or in a veto session. So Richard I highlighted at a very high level. Is there anything else that you would like to add?

[Richard Mark:]

Thanks, Warner. I thought you covered it really good, but I would just add that as you said the policymakers have seen this legislation twice. Many of them have voted on extending it twice. They've seen the job creation that formula rates have brought to the state of Illinois and the value of it. So they're familiar with it and I think that's a benefit as they look at it going forward.

[Warner Baxter:]

I agree. Thank you.

[Paul Patterson:]

But let's just say for whatever reason because there are lots of I mean going beyond the merits of the legislation just -- if it does for whatever reason shocking or not that it may be that they don't get to this session if it goes to the veto session or next could it be addressed -- is there any timing issue that we should be concerned about if it doesn't get past this legislation? I mean this session.

[Warner Baxter:]

Yes, Paul. So look I think as I said, this legislative session ends on May 31. And so as you know in Illinois it is possible that legislation can be passed during the veto session. And so while that's the case look I'll tell you that Rich and his team are focused on getting this important legislation passed this legislative session not the veto session. And so for all the reasons before we were hopeful that that will happen. And if it gets to the veto session look we'll just cross that bridge if and when we come to it but right now we're very focused on getting this across the line this veto session by May 31.

[Paul Patterson:]

Okay. Great. And then just on the Missouri rate case. Can you give us any sort of rough sense as to how much you might be seeking or just – I mean, know it's early but you guys have filed noticed. It's going to be a couple of months before we're going to get the full details but is there any rough sense you want to give to us as to what the impact can be on that?

[Marty Lyons:]

Paul, this is Marty. No. We'll make that filing and let it speak for itself. I mean I think we gave you some of the broad outline of what it will include which is not only the increased rate base and infrastructure investments over the past few years and changes in cost of service, but also noted that it will also incorporate in the base rates the lower coal and transportation costs which we've begun to realize over the past year. And so those are some of the broad things that will be included but no further specificity at this time.

[Paul Patterson:]

Okay. Great. Thanks so much, guys.

[Marty Lyons:]

Thanks, Paul.

[Operator:]

Our next question comes from the line of Greg Rice from Suntenise . Please proceed with your question.

[Unidentified Analyst:]

Hi, guys. Congrats on a good call. Most of my questions have been answered. Just really quickly this rate case is it going to include the wind the 557 megawatts?

[- Martin Lyons:]

Greg, it's Marty. No, it would not. I mean again that's -- I mentioned it as the key consideration because in this case it won't. The wind won't be included in the rate review until it's actually in service. And so it's a key consideration on why we're filing now to provide visibility in terms of the next rate review to be able to pick up that wind investment once it's placed in service which again we expect to be in late 2020.

[Michael Moehn:]

Yes. I would just note -- this is Michael Moehn. I mean the true-up period with respect to this case assuming it's filed in July would be most likely through the end of 2019.

[Unidentified Analyst:]

Gotcha. Perfect. And then just any update on kind of how negotiations are going on the incremental wind?

[Warner Baxter:]

So, Michael, I noted -- this is Warner, I noted a little bit before that we're negotiating with developers. And any particular insights you want to offer at this point in time?

[Marty Lyons:]

No. I'll just echo what you said is that we remain confident that we're going to get this done. We're very focused on it, making good progress and very focused on making sure that we meet the renewable standard by the end of 2020.

[Warner Baxter:]

And to your point, look, I think Mike and his team have been working very hard to make sure we get the best deal for our customers, right? This is why we want to make sure we're thoughtful about it. Of course, we're mindful of 2020 and we're confident getting that done. We want to get the best deal for our customers and so that's exactly what we're doing.

[Unidentified Analyst:]

Perfect. Thank you.

[Warner Baxter:]

Thank you.

[Operator:]

Our next question comes from the line of Ashar Khan from Verition. Please proceed with your question.

[Warner Baxter:]

Good morning, Mr. Ashar.

[Ashar Khan:]

Hi. How are you doing, Warner? Good earnings.

[Warner Baxter:]

Thank you. Thank you.

[Ashar Khan:]

Can I just ask you -- just wanted to -- you laid down the factors for the remaining three quarters. So, can you just talk a little bit about the O&M? O&M was to be a little bit lower this year, Marty, and I wanted to check how that went versus the first quarter? Or are most of those savings going to come in the last three quarters?

[Marty Lyons:]

Yeah. Ashar, thanks for the question. You're absolutely right. So we guided at the beginning of the year when we talked about 2019 that excluding the impacts of the Callaway refueling and maintenance outage that we expected lower operations and maintenance expenses about $0.05 year-over-year from 2018 to 2019. And Ashar, we're tracking well against that expectation. You will recall that last year some of those higher O&M costs did come in the latter part of the year associated with some outages at non-nuclear plants as well as other costs. So my recollection is those were kind of back-end loaded last year but we are on track to achieve that $0.05 year-over-year improvement.

[Ashar Khan:]

Okay. Okay. Thank you. Thank you so much.

[Warner Baxter:]

Thank you, Ashar.

[Marty Lyons:]

Thank you, Ashar.

[Operator:]

We have reached the end of the question-and-answer session and I will now turn the call back to management for closing remarks.

[Andrew Kirk:]

Thank you for participating in the call. A replay of this call will be available for one year on our website. If you have questions, you may call contacts listed on our earnings release. Financial inquiries should be directed to me, Andrew Kirk. Media should call Erin Davis. Again, thank you for your interest in Ameren. Have a great day.

[Operator:]

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