Ameren Corp (AEE) — Q3 2022 Earnings Call Transcript

Thank you, and good morning. On the call with me today are Marty Lyons, our President, Chief Executive Officer; Michael Moehn, our Executive Vice President and Chief Financial Officer; as well as other members of the Ameren management team. Marty and Michael will discuss our earnings results and guidance, as well as provide a business update. Then we will open the call for questions. Before we begin, let me cover a few administrative details. This call contains time-sensitive data that is accurate only as of the date of today's live broadcast and redistribution of this broadcast is prohibited. To assist with our call this morning, we have posted a presentation on the amereninvestors.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 that are commonly referred to as forward-looking statements. Such statements include those about future expectations, beliefs, plans, projections, strategies, targets, estimates, objectives, events, conditions, and financial performance. We caution you that various factors could cause actual results to differ materially from those anticipated. For additional information concerning these factors, please read the forward-looking statements section on our news release we issued yesterday and the forward-looking statements and risk factors section in our filings with the SEC. Lastly, all per share earnings amounts discussed during today’s presentation including earnings guidance are presented on a diluted basis unless otherwise noted. Now here's Marty, who will start on page 4.

Thanks, Megan. Good morning, everyone. And thank you for joining us. I'm pleased to report that we continue to execute on our strategic plan across each of our business segments, delivering significant value to our customers and shareholders while remaining focused on safety. At the start of the year, we laid out some key initiatives we were focused on. As I sit here today, I can confidently say that we have been able to deliver on these through strong execution of our plan. Starting with Ameren Missouri in February, our new Ameren Missouri Electric service rates took effect as a result of our recent rate review, which was constructively settled at the end of last year. 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. The Midcontinent 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 a possible extension to 2033. I am pleased to say 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 keep us on track to file a multi-year rate plan next January. And finally, at the federal level, the passage of the Inflation Reduction Act will support the clean energy transition, reducing the cost of related infrastructure investments for 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. Additionally, I'd like to recognize our team's strong commitment to the communities we serve. This year we named our first Chief Sustainability Diversity and Philanthropy Officer to further optimize our ESG impact. In October, she convened more than 1,000 Ameren team members and community leaders in person and virtually for a diversity and inclusion summit, featuring many nationally recognized leaders and speakers. Because of actions like this, in May, Ameren was recognized for the third time as DiversityInc’s top-rated utility and made the overall top utilities list for the 14th consecutive year. Another example of our team's commitment to our communities is our recently concluded 2022 company-wide United Way Campaign, which raised approximately $1.7 million, funds which will go a long way towards supporting approximately 50 United Way organizations in our service territory. This is in addition to the nearly $2.6 million United Way contribution made by Ameren. Again, thank you for all you do. Moving now to quarterly results. Yesterday, we announced third quarter 2022 earnings of $1.74 per share, compared to earnings of $1.65 per share in the third quarter of 2021. The year-over-year improvement reflected increased infrastructure investments across all of our business segments that will drive significant long-term benefits for our customers. This page highlights the key drivers of our strong performance. Due to strong execution of our strategy, we have narrowed our 2022 earnings guidance to a range of $4 to $4.15 per share. This compares to our initial guidance range of $3.95 per share to $4.15 per share. Michael will discuss our third quarter earnings, 2022 earnings guidance, and other related items in more detail.

Thanks, Marty. And good morning, everyone. Yesterday we reported third quarter 2022 earnings of $1.74 per share, compared to $1.65 per share for the year-ago quarter. Page 15 summarizes key drivers impacting earnings at each segment. I'd like to take a moment to highlight a few key variances for the quarter. Earnings in Ameren Missouri, our largest segment, benefited from higher electric service rates, which became effective on February 28, 2022. The increase in reserve was partially offset by higher O&M driven in part by unfavorable market returns in 2022 on company-owned life insurance investments. Earnings at our remaining three business segments were higher primarily driven by increased investments in infrastructure, in addition to a higher allowed return equated to Ameren Illinois Electric Distribution. Before moving on, I'll touch on year-to-date sales transfer for Ameren Missouri and Ameren Illinois Electric Distribution. Weather-normalized kilowatt-hour sales to Missouri residential customers were comparable versus the prior year, and sales to commercial customers increased about 1%. Weather-normalized kilowatt-hour sales to Missouri industrial customers decreased about 1%. Weather-normalized kilowatt-hour sales to Illinois residential customers decreased about 1%, and sales to commercial and industrial customers increased about 0.005% and 1% respectively. Recall that changes in electric sales in Illinois, no matter the cause, do not affect earnings since we have full revenue decoupling. Turning to page 16. I would now like to briefly touch on our 2022 earnings guidance. We have delivered strong earnings in the first nine months of 2022 and are well positioned to finish the year strong. As Marty stated, we have narrowed our 2022 diluted earnings guidance to be in the range of $4 to $4.15 per share. This is a comparison to our original guidance range of $3.95 to $4.15 per share. Select earnings considerations for the balance of the year are listed on this page and are supplemental to the key drivers and assumptions discussed in our earnings call in February. As we reflect on our full year results, the benefits we have seen from weather year-to-date and from higher than expected 30-year Treasury rates are mostly offset by company-owned life insurance investments' performance, as well as higher than expected short-term and long-term borrowing rates.

Yes, perfect. Good morning, this is Michael. Yes, I'll start and Marty can certainly supplement it. Look, we haven't really said exactly what our future cadence will be; you're correct that the QIP is set to sunset at the end of '23. And so, we're indicating that we're going to file a case here, and it'll be effective under this QIP for the balance of 2023. I mean, I think the thing to keep in mind is you step back, and you look at the Illinois gas regulations. I mean, it's still very constructive, even absent the QIP and all, I'll come back to that. But I mean, there are forward test year rates, decoupled, bad debt tracker, et cetera. I mean, there are some real positives with respect to what goes on there. But as the team gets to look at the opportunities there. I mean, we may have to have a different cadence if it were ultimately expired. But there could be an appetite to extend something at some point. We just really haven't engaged in those conversations at the moment. But we feel like absent even getting an extended, there are certainly ways to continue to manage that business very constructively going forward. Anything to add, Marty?

Yes, I appreciate the question there too. Historically, we really haven't given O&M guidance, especially as you think about some of these ongoing rate reviews, which makes it a little bit complicated at the end of the day. I would tell you that we continue to stay very focused on O&M itself. And if you look at kind of our year-to-date results, and I think Missouri is a good example. And you back out obviously some of the noise with COLI and some of the refined coal that got caught up in the rate review. We really have managed that to about 1.5%, 1.7% sort of increase. So I think the team has done a great job from a core perspective. We have made comments before that we continue to aspire to being flat over the time horizon we look out over the five-year plan. If you look at historically where we've been, I think we've shared a couple of these slides in the past, I think maybe the '16 through '21 period was the last time we were actually down over that period of time. So I always look to make it really a nondriver at the end of the day. I think we can give you a little more color as we get to February. But again, it is just a little more complicated because of some of the ongoing rate reviews as well. So hopefully, that helps.

Yes, David, this is Marty. Yes, in our February call, we will plan to update you on our thoughts in terms of EPS CAGR from 2023 to 2027 at that point in time. We'll also, at that time, expect to update our capital expenditure plan which right now really runs through '26, we'll take that out through 2027. And we'll also update you on our expectations in terms of our rate base CAGR out through 2027. So those are all things that we plan to do on the February call. In terms of the overall investment pipeline, as we've discussed this morning, this year as a result of the Missouri Integrated Resource Plan, as a result of the MISO approving Tranche 1 projects, we bumped our overall 10-year pipeline from $40 billion to $48 billion. And as we mentioned in some of the specifics, some of those capital expenditures, we would expect to start to fall in the latter half of that five-year update.

Yes, David, this is Michael. Yes, so when we roll forward our plan in February '22, so we had $300 million basically of external equity through the balance of that plan, plus $100 million of DRIP as indicated. Very pleased with where we are today. I mean we've gotten the '22 and '23 offer there. So you should continue to assume that $300 million '24 through the balance, we continue to target a capitalization ratio close to 45% over that five-year plan. So we'll stay focused on that. And then as Marty just talked about, as we roll forward into February and roll forward the new capital plan, obviously, we'll step back and address any financing needs as part of what happens with that capital plan itself, but you should continue to think about that $300 million at the moment.

Okay. Well, thank you all for joining us today. As you heard on the call, we've had a strong 2022 year-to-date. We remain focused on continuing to deliver strong value through the end of this year for our customers, communities, and our shareholders. So again, thanks for joining us. We look forward to seeing many of you, I think, at the EEI conference, which is just a couple of weeks away. Thanks all and be safe.