Ameren Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2024

There are 11 speakers on the call.

Operator

Greetings, and welcome to Ameren Corporation's Second Quarter 2024 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, Andrew Kirk, Director of Investor Relations and Corporate Modeling for Ameren Corporation.

Operator

Thank you, Mr. Kirk. You may begin.

Speaker 1

Thank you, and good morning.

Speaker 2

On the

Speaker 1

call with me today are Marty Lyons, our Chairman, President and Chief Executive Officer and Michael Main, our Senior Executive Vice President and Chief Financial Officer as well as 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 amereninvestors.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. 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.

Speaker 1

Now here's Marty, who will start on Page 4.

Speaker 3

Thanks, Andrew. Good morning, everyone. We're pleased to have you joining today as we cover our Q2 2024 earnings results and recent developments across our business segments. Overall, it was a very productive and positive quarter. As always, our dedicated and experienced management team remained laser focused on executing our strategic plan, positioning us well to take advantage of future opportunities to drive significant value for our customers and shareholders.

Speaker 3

Speaking of opportunities, I'm tremendously excited about the investment opportunities ahead for us in this dynamic period for the utility industry. In my 20 plus years with the company, our economic development and sales growth pipeline is the most robust I have seen, which I'll touch on more in a moment. First, let me cover our earnings and operations results for the Q2. Yesterday, we announced Q2 2024 earnings of $0.97 per share compared to earnings of $0.90 per share in the Q2 of 2023. Key drivers of these strong results are highlighted on this page.

Speaker 3

And for the 1st 6 months of the year, our results have been solid, driven by infrastructure investments made for the benefit of our customers, encouraging weather normalized retail sales and disciplined cost control. We remain on track to deliver earnings within our guidance range of $4.52 per share $4.72 per share. Turning to Page 5, our strategic plan is designed to deliver on our steadfast commitment to providing safe and reliable energy in a sustainable manner. We do this by investing in rate regulated infrastructure, enhancing regulatory frameworks and advocating for responsible energy policies while optimizing operating performance through ongoing continuous improvement in order to keep rates affordable. I'd like to express appreciation for my Amarin co workers unwavering commitment to our strategy.

Speaker 3

On Page 6, we highlight our key accomplishments in the Q2 as we execute our strategy to deliver on our 2024 objectives. The strategic infrastructure investments we have made in the 1st 6 months of the year are designed to maintain the safety and reliability of the energy grid, to modernize the grid and to harden against more frequent severe weather events. Over Memorial Day weekend, severe thunderstorms swept through Missouri and Illinois, bringing strong winds, flooding and golf ball sized hail. As always, our teams quickly and safely assessed the damage, cleared trees and worked long hours to make repairs to restore power as quickly as possible, allowing critical infrastructure to continue operations, businesses to remain open and homes to stay cool and safe. But even better, during the first half of twenty twenty four, over 22,000 Missouri and 11,000 Illinois customer outages were prevented during storms due to rapid detection, rerouting and restoration of power by automated switches across our system and over 6,400,000 minutes of customer outages across both states were avoided due to investments to modernize the grid.

Speaker 3

As we look ahead to future investment for the benefit of our customers, it's important to operate under constructive regulatory jurisdiction and legislative policies. This quarter, we've made significant regulatory advancements, which Michael and I will cover in more depth on the coming slides. At Ameren Missouri, our largest business segment, we continue to make regulatory progress with the Missouri Public Service Commission for new solar and natural gas generation, which supports our integrated resource plan. Our Cass County solar project was approved in June and is expected to be one of 3 solar projects placed in service this year, which collectively, along with Huck Finn and Boomtown, represent an investment of approximately $1,000,000,000 The commission also approved a constructive order for the securitization of costs associated with our Rush Island Energy Center in connection with its retirement in October of this year. And finally, regarding generation updates, in June, we filed a CCN with the Missouri PSC for our dispatchable Castle Bluff Energy Center.

Speaker 3

Overall, we continue to make significant progress on our smart energy plan in Missouri, a combination of distribution, transmission and generation projects to bolster reliability and empower our customers. In late June, Ameren Missouri filed its electric rate review request with the commission, which is substantially driven by infrastructure improvements made under this plan. If approved, Ameren Missouri customer rates would still remain well below national and Midwest averages. Turning to transmission. The Mid Continent Independent SysTop Operator or MISO's long range transmission plan continues to evolve.

Speaker 3

In April, MISO concluded the bid evaluation process for the tranche 1 competitive projects in our service territory, ultimately awarding all 3 competitive projects to Ameren. And they continue to develop the $23,000,000,000 to $27,000,000,000 Tranche 2.1 project portfolio, which promises meaningful brownfield and greenfield investment opportunities within our service territory. Finally, in Illinois, the Illinois Commerce Commission issued an order on the rehearing of Ameren Illinois' multi year rate plan for 2024 through 2027. Importantly, the order supports our planned base level of grid reliability rate base in our ongoing multi year rate plan proceeding. We look forward to an ICC decision on the multi year grid investment and rate plans by the end of this year.

Speaker 3

In addition to these significant regulatory advancements, we have seen strong operational performance across the business with a focus on delivering safe, reliable, affordable energy service through enhanced automation, optimization and standardization, which Michael will cover in more detail. Moving now to Page 7 for an update on our expanding customer growth opportunities. On the Q1 call, we touched on economic development opportunities in our service territory. Since then, collectively across Ameren Missouri and Illinois, we have seen a significant increase in the number of data center inquiries and formal engineering reviews underway, which combined would represent 1,000 of megawatts of additional demand. Our teams along with a variety of state and local stakeholders are working aggressively to attract these and manufacturing and other economic development opportunities to our service territories.

Speaker 3

Of course, Ameren has a strong track record of reliable infrastructure development and we have the people, resources, expertise and partnerships needed to go after these opportunities. Further, our Missouri and Illinois territories offer an attractive value proposition for commercial and industrial customers. This includes sites with transmission, fiber and water access coupled with competitive rates and tax incentives. In Missouri, we also have reliable generation with a growing portfolio of clean and dispatchable assets and the ability to expand in order to serve these economic development opportunities. So far this year, a construction agreement has been executed for a 2 50 megawatt data center, which would represent an approximate 40% 5% annualized increase to Ameren Missouri's industrial Megawatt Hour Sales and total megawatt hour sales respectively upon completion and full ramp up.

Speaker 3

Our construction to extend transmission and distribution services to support this data center is expected to be completed in December of 2025 with the customer ramping up operations from 2026 through 2028. In addition, we've received expansion commitments or executed new contracts for over 85 megawatts of additional load for manufacturing, smaller data centers and other industries across both states. We would expect these new and expanding customers to be fully ramped up by 2028 with sufficient generation to serve them creating value for all customers over time. We're excited about these opportunities which will bring jobs and additional tax base to benefit our state and local communities. Importantly, the new data center and other customer commitments were not reflected in the weather normalized sales expectations included in our 5 year earnings per share growth guidance issued in February.

Speaker 3

Of course, the ultimate net impact of any incremental load will be dependent upon a variety of including customer ramp up time, additional generation investment needs, timing of rate reviews and tariff structures. To that end, we currently expect to update our Ameren Missouri Integrated Resource Plan or IRP by February 2025 following a careful evaluation of potential load growth and our planned generation portfolio. And we will work with all stakeholders to bring the economic benefits of these customer expansion opportunities to all customers, our communities and shareholders. Turning to Page 8. We continue to execute our Missouri IRP, which focuses on maintaining and building a diverse generation portfolio to ensure a reliable, low cost and cleaner mix of energy resources to serve our customer needs.

Speaker 3

We had 2 key developments this quarter. First, in June, the Missouri PSC approved the CCN for the 150 Megawatt Cass County solar facility, which is expected to begin serving customers in the Q4 of this year. This facility will serve business customers who subscribe through our Renewable Energy Solutions program to receive all or part of their energy needs from renewables. The Missouri PSC approval followed a successful auction held in May where customers across Missouri signed up to take part in the Renewable Energy Solutions program expansion. Demand remains strong for programs that bring businesses ready made solutions to help them reach their sustainability goals.

Speaker 3

2nd, in June, we also filed a CCN with the Missouri PSC for our Castle Bluff Energy Center, an on demand 800 Megawatt natural gas simple cycle facility to serve as a reliable backup source of energy ready to operate on the most extreme winter nights and summer days. Castle Bluff, subject to commission approval, represents an approximately $900,000,000 investment and is expected to be in service by the end of 2027. Moving now to page 9 for an update on the MISO long range transmission projects. MISO and its transmission owners continue to engage in economic analysis of the tranche 2 proposed set of projects. In June, an initial set of tranche 2 projects now referred to as tranche 2.1 were proposed with a cost estimate of $23,000,000,000 to $27,000,000,000 The portfolio identifies a need for a mix of brownfield and greenfield transmission lines of varying voltage levels and new or improved substations in both our Missouri and Illinois service territories.

Speaker 3

Ultimately, we won 100 percent of the tranche 1 projects in our service territories, reflecting our ability to deliver timely, cost effective, high value projects to our communities. We expect we'll be able to compete for tranche 2 greenfield projects in a similarly competitive manner to better serve our customers. MISO expects to approve the tranche 2.1 projects by the end of the year. Once approved, MISO plans to propose a second set of tranche 2 projects or tranche 2.2 in 2025 to address further transmission needs in the North and Midwest regions. Turning to Page 10.

Speaker 3

Looking ahead over the next decade, we have a robust pipeline of investment opportunities of well over $55,000,000,000 that will deliver significant value to our stakeholders and create thousands of jobs for our local economies. In addition, we see several tailwinds forming across our business segments. Specifically, we are seeing significant sales growth potential, which I discussed a few moments ago, and this may require us to reassess our Ameren Missouri IRP and further expand our generation investment pipeline. We're seeing a growing focus amongst Missouri stakeholders on generation planning and reliability, and we see a strong need to embrace enhanced reliability focused policies in legislative sessions to come. Further, MISO's analysis of transmission needs in the Midwest region will likely identify additional opportunities to improve the ability to move electricity across the region.

Speaker 3

Maintaining constructive energy policies that support robust investment in energy infrastructure and to maintain reliability while transitioning to a cleaner energy future in a responsible fashion will be critical to meeting our country's growing energy needs and delivering on our customers' expectations. Moving to page 11. In February, we updated our 5 year growth plan, which included our expectation of 6% to 8% compound annual earnings growth rate from 2024 through 2028. This earnings growth is primarily driven by strong compound annual rate base growth of 8.2% supported by strategic allocation of infrastructure investment to each of our business segments based on their regulatory frameworks. Investment in Amarin presents an attractive opportunity for those seeking a high quality utility growth story.

Speaker 3

Combined, our strong long term 6% to 8% earnings growth plan and an attractive and growing dividend, which today yields 3.4% result in a compelling total return story. We have a strong track record of execution, a strong balance sheet and an experienced management team. I'm confident in our ability to execute our investment plans and strategies across all four of our business segments. Again, thank you all for joining us today and I'll now turn the call over to Michael. Thanks, Marty, and good morning, everyone.

Speaker 3

I'll begin on Page 13 of our presentation. Yesterday, we reported Q2 2024 earnings of $0.97 per share compared to $0.90 per share for the year ago quarter. We delivered strong earnings performance during the quarter driven primarily by strategic infrastructure investments and disciplined cost management. While earnings saw a strong benefit from favorable weather, we also continue to see encouraging levels of customer growth and energy usage. Further, through disciplined cost controls, operations and maintenance expenses company wide were flat for the quarter when excluding the impacts from non reoccurring items as part of the 2023 Ameren Missouri rate order.

Speaker 3

Additional factors that contribute to the overall $0.07 per share increase are highlighted on this page. Year to date results are outlined on Page 24 of today's presentation. Notably, year to date 2024, we've experienced strong weather normalized industrial sales growth of 3% as compared to the prior year period. This has been driven primarily by significant growth from our existing large primary service customers in the digital and data analytics industry. We expect to see continued growth as we bring on new customers and support existing customers' expansions in the coming years.

Speaker 3

Further, we continue to see strong weather normalized kilowatt hour sales growth across all rate classes in Missouri. Moving to Page 14, as we think about the remainder of the year, we remain confident in our 2024 earnings guidance range and continue to expect earnings to be in the range of $4.52 to $4.72 per share. The warmer spring and early summer temperatures experienced this quarter offset the mild first quarter as we are flat year to date for weather. In addition, as we outlined in our Q1 call, we expect to see meaningful year over year O and M reductions in the second half of the reflecting several cost savings initiatives implemented in 2024, the benefits of which continue to build throughout the year. I encourage you to take these and other supplemental earnings drivers noted on the slide into consideration as you develop your expectations for quarterly earning results for the remainder of the year.

Speaker 3

Moving to Page 15, ANAMRA Missouri regulatory matters. In June, the Missouri PSE approved the securitization of approximately $470,000,000 in costs associated with the scheduled retirement of our Rush Island Energy Center on October 15. We expect the difference between our original ask of $519,000,000 and the final order to be reflected in future rate proceedings. Turning to Page 16. In late June, Ameren Missouri filed for a $446,000,000 electric revenue increase with the Missouri PSC.

Speaker 3

90% of this request is driven by increased capital investment under Ameren Missouri Smart Energy Plan to recover investments in major upgrades, the electrical system and investments in generation. The request includes a 10.25 percent return on equity, a 52% equity ratio and a December 31, 2024 estimated rate base of $14,000,000,000 We expect a decision from the Missouri PSC by May 2025 with new rates affected by June of next year. Turning to Ameren Illinois on Page 17. Under Illinois formula rate making, which expired at the end of 2023, Ameren Illinois was required to file annual rate updates to systematically adjust cash flows over time for changes in cost of service and to true up any prior period over or under recovery of such cost. For the final electric distribution reconciliation of 2023's revenue requirement, in July, the ICC staff recommended a $157,000,000 base rate increase compared to our updated request of $158,000,000 The full amount would be collected from customers in 2025, replacing the prior reconciliation adjustment of $110,000,000 that is being collected during 2024.

Speaker 3

This will result in a net customer impact of $48,000,000 or an approximately 1.5% increase in the total average residential customer bill. The ICC will review this matter in the months ahead with a decision expected by December of this year and new rates effective early next year. Turning to Page 18 for an update on the multi year rate plan covering 2024 through 2027. We are pleased to receive a constructive decision from the ICC in the rehearing of our multiyear rate plan. Recall in January, the ICC upon approving our rehearing request had ordered that we identify a base level investment needed to adequately operate the grid safely.

Speaker 3

In June, after extensive stakeholder engagement and additional analysis provided by our team, the ICC approved a $285,000,000 cumulative revenue increase from 2023, representing approximately 94% of our rehearing request and a 1% average residential bill increase for 2024. Excluding OPEB, the order represents approximately 99% of our rehearing rate base request and also 96% of the rate base included in the revised multiyear rate plan, which will be reviewed by the commission later this year. Interim rates for this order were effective in late June and will remain in effect until superseded by a revised MYRP order. The re earn was a positive first step in getting a base level grid investment approved. However, there is still much work to be done in the state of Illinois to achieve the objectives laid out in the Climate and Equitable Jobs Act passed in 2021.

Speaker 3

Approval of our revised multiyear grid plan and rate plan will allow us to appropriately invest more in the energy grid, preserve safety, reliability and day to day operations of our system and make progress towards an affordable, equitable, clean energy transition. In July, the ICC staff recommended a cumulative revenue increase of $302,000,000 versus our July 2024 updated request of $334,000,000 with the variance driven primarily by the removal of OPEB and certain capital projects from rate base. Annual revenues will be based on actual recoverable cost, year end rate base and a return on equity adjusted for any performance incentives or penalties provided they do not exceed 105% of the approved revenue requirement. Lastly, with the narrowing of remaining issues, cross examination was waived for hearings earlier this week and we expect an ICC decision by December with rates effective January 1, 2025. Moving to Page 19, we provide a financing update.

Speaker 3

We continue to feel very good about our financial position. Our Ameren parent credit ratings of Baa1 and BBB Plus at Moody's and S and P respectively compare favorably to the peer average providing us with financial flexibility. To maintain our credit ratings and strong balance sheet while we fund our robust infrastructure plan, we expect to issue approximately $300,000,000 of common equity in 2024. By the end of 2023, we had sold forward approximately $230,000,000 of this $300,000,000 through the at the market or ATM program consisting of approximately 2,900,000 shares, which we expect to issue by the end of this year. Together with the issuance under our 401 and DRIP plus programs, our ATM equity program is expected to support our equity needs in 2024.

Speaker 3

Turning to Page 20, Ameren continuously strives to find ways to work more efficiently to reduce costs for our customers. At the start of the year, we instituted several cost savings initiatives, including a detailed review of all hiring with a focus on spans and layers, reducing some of our contractor and consultant workforce and deferring or eliminating discretionary spending while we identified further opportunities for sustainable cost reductions. Since then, we have enhanced our continuous improvement and disciplined cost management efforts through numerous customer affordability initiatives that will provide greater collaboration and coordination across our business. Through company wide automation, standardization and optimization, we are streamlining processes, leveraging shared capabilities and eliminating redundant work to provide sustainable cost savings. Our leadership team is committed to prudently managing costs on behalf of our customers while providing quality service and reliability.

Speaker 3

Turning to Page 21. We're off to a solid start in the first half of the year and expect to deliver strong earnings growth in 2024 as we continue to successfully execute our comprehensive business strategy. We continue to expect strong earnings per share growth driven by robust rate base growth and disciplined cost management. As Marty mentioned, we see several tailwinds forming in the months years ahead. We have the right strategy, team and opportunities to create value for our customers and our shareholders.

Speaker 3

We believe this growth will compare favorably with the growth of our peers. Ameren shares continue to offer investors an attractive dividend. In total, we have an attractive total shareholder return story. That concludes our prepared remarks. We now invite your questions.

Operator

Thank you. We will now be conducting a question and answer session. Thank you. Our first question is from Shahriar Pourreza with Guggenheim Partners. Please proceed with your question.

Speaker 1

Hey, guys. Good morning.

Speaker 4

Good morning, Shar. Good morning, Marty. So just real quick on Rush Island, kind of a bid ask. Saw you guys got a 3rd party mediated a few days ago. Any sort of read through from that to timing or where the process could land within that $100,000,000 range?

Speaker 3

Yes. Thanks, Shahriar. We posted a slide in the appendix, Slide 27, that just provides anybody listening a little bit of background on the case. But we were pleased that the judge ordered mediation, which hopefully will lead to some constructive settlement negotiations between the parties. We expect the mediation to take place this summer.

Speaker 3

In the event that mediation isn't successful in reaching a settlement between the party. We would expect that the judge would likely have evidentiary hearings in September and we'd still get a resolution of the case this year. So I don't think any read through on exactly where we'll end up between in that bid ask spread, but nonetheless, we think a positive step forward.

Speaker 4

Okay, perfect. And then just on the transmission side and obviously it was a little topical, it was part of the repairs on tranche 2.0, 2.1. Any color at this point on how to think about the competitive allocation within that? Is it line by line, greenfield versus brownfield? And just remind us on potential timing of spend associated with these, what are in service dates?

Speaker 4

Thanks.

Speaker 3

Yes, Shar. All good questions. So when you look at tranche 2.1 and you look at the map that we provided on Page 9, you see a breakdown between the 765 kV lines and the 3 45 kV lines and you see some of those in Missouri and Illinois. And we're pretty excited about the way this is shaping up overall. With respect to the red lines, we see those as being more likely brownfield.

Speaker 3

The green dotted lines more likely greenfield. And so you see a mix of those things there. At this point, no specific cost estimates for those lines that run-in our service territory. The $23,000,000,000 to $27,000,000,000 numbers we give overall are MISO's estimates for the total portfolio, but can't give you a breakdown right now on those that are in our footprint. And of course, at the brownfield, we would expect them to be allocated to us.

Speaker 3

If they're greenfield, we would expect to compete for those. And we were very pleased with our ability to compete for the tranche 1 projects, as we noted in our prepared remarks, really winning all three that were in our service territory. And Shar, at the end of the day, we think it speaks to our ability to deliver these projects in a timely way, in a cost effective way. Again, we feel like we good at constructing these and great at operating them and we've done a great job partnering with munis, co ops, contractors and others to make sure we can deliver. Now with respect to the timeline on the Tranche 1 projects, we really expect the construction of those to extend from 2026 to 2,030.

Speaker 3

I think we have about $1,600,000,000 or so in our 5 year plan for those Tranche 1 projects. And then with respect to the Tranche 2.1 projects, I think largely that spend is probably outside of our 5 year plan. However, there's really no reason that these have to happen sequentially to the extent that any of these tranche 2.1 projects can be started and overlap with some of the work on Tranche 1, no problem there. And again, excited about this Tranche 2.1, but also expect in Tranche 2.2 that we'll see even more projects in our Missouri and Illinois footprints. And so overall, again, just very pleased with the work MISO is doing here and the responsiveness to stakeholders in the process.

Speaker 4

Fantastic. Thank you guys so much. Appreciate the disclosures. I'll pass it to someone else. See you soon.

Operator

Thank you. Our next question is from Nick Campanella with Barclays. Please proceed with your question.

Speaker 5

Hey, good morning. Hello,

Speaker 3

Nick. Good morning.

Speaker 5

Hey. So, yes, just I wanted to ask on the data center construction slide. It just seems that you're really only kind of focusing on things where dirt is turning, But you have it looks like gigawatts of opportunity. The Missouri system seems to have capacity to supplement this 85 plus megawatts, if I'm right. But what do you think the tipping point is to really accelerate procurements in this next IRP?

Speaker 5

And I guess how many more megawatts do you think you'll have realistically kind of have clarity on by the time you get to that filing? Thank you.

Speaker 3

Yes, Nick, those are all good observations and takeaways from the information we provided on Slide 7. When you look at that graph on the right, there we talk about the economic development pipeline we have, thousands of megawatts or gigawatts of opportunity. And in fact, that is true. So we've got just a number of parties that are doing engineering reviews and interconnection studies and all of that's great. Those are initial process.

Speaker 3

What we called out on the left, however, is, you mentioned dirt turning. I would say, when we have construction agreements, it means we have an executed agreement between ourselves and a data center, which confirms transmission capacity, cost to extend service and timelines, etcetera, and importantly, obligates the customer to pay for that extension of service with down payments for equipment. So you're right, things have begun to take shape. And so that's when we felt like we can move it into the category of really kind of talking about what we see in terms of the timeline, how that would ramp up, its overall size. And so pretty excited there to have a 2 50 megawatt data center that we see starting to use service in 2026 and ramping up through 2028.

Speaker 3

And of course, that's a nice tailwind as we think about that usage over that period of time. And then then mention this other 85 megawatts. We're not just going after data centers from an economic development standpoint, really going after manufacturing and others. And that 85 megawatts that you mentioned is really a mix of manufacturing, smaller data centers, etcetera. So look, we're pretty excited.

Speaker 3

There's certainly I think you mentioned there's a concentration of interest in Missouri. And to the extent that this load grows, that very well may require that we would provide an update to our IRP. So again, we expect that over the coming 6 months or so that we'll see affirming of some of these other economic development opportunities. And as we further assess that load and what it means to our sales, and we give thought to what that means to our generation portfolio, that's where we expect that we would need to update our IRP with in mind right now. We're thinking February of next year.

Speaker 3

Hey, Nick. This is Michael here. I might just add. That's a great update from Marty. And just from an overall macro perspective, I mean, I think the backdrop in the St.

Speaker 3

Louis region is positive though. Even putting aside this data center opportunity and we noted this in the slide, year to date sales for residential up 2.5%, commercial 1.6% industrial, 3.1%, so a little bit over 2% year to date, which is a marked change since where we've been in the past. And so there are some really positive things happening, about 25,000 jobs created in the past year in the St. Louis region, one of the kind of hotter job markets here, unemployment rates running below the national average. So all of those things I think bode well with respect to all the things that Marty talked about as well.

Speaker 5

Absolutely. Yes. Thanks for the additional color there. And I guess just to count a few things that have changed since Q4 when you kind of set this guidance of the 6% to 8%. The IRP is coming.

Speaker 5

You have this tranche to visibility than MISO. I understand that that's a little bit more longer dated. Obviously, we have more kind of clarity on Illinois with the rehearing process. But your stock is also up year to date and that should also help your kind of financing accretion if you're still doing that $600,000,000 a year through the plan. And in the Q4, you kind of talked about tracking towards the 6.2%.

Speaker 5

I mean, you said 6.2% when kind of discussing the 6% to 8%. Just how do you feel about your position within the 6% to 8% now? Has that improved a bit, with some of these tailwinds? How should we think about that? Thanks.

Speaker 3

Yes, yes, Nick. I'd tell you that was a great questionstatement. And I think you got it right. If you look back at our track record over the past 10 plus years, we've been growing EPS at north of 7%. And that's our goal, which is to deliver at or above the midpoint of our earnings per share growth range.

Speaker 3

And as I sit here today versus where we were 6 months ago, I agree with you that there are a number of tailwinds that have been forming. Inflation has been cooling, interest rates have been moderating, stock price has been improving. You're all right on all those things. Our demand outlook has been improving with data centers and other. Michael just talked about some of the job growth that we're seeing in the Greater St.

Speaker 3

Louis region. We're really excited about these transmission investment prospects we have with Tranche 1, Tranche 2.1, Tranche 2.2, all very exciting. We still have a tremendous amount of investment needed for grid modernization and the clean energy transition. And we've got a really strong balance sheet to be able to get it done. So very excited about those prospects.

Speaker 3

And again, when we look back just in terms of what our team was able to accomplish in the Q2, I'm very proud of that overall. We continue to make great investments for the benefit of our customers. And on Page 6, we listed out half dozen things that we completed during the Q2 that really position us for success in the years ahead. And I have to say this was all accomplished by a team that is also at the same time really focused on customer affordability. We put a lot of cost savings initiatives in place this year and the team overcame that and delivered a really strong quarter from an operations and earnings standpoint.

Speaker 3

And again, I think you're right, we're set up very well for the future given some of the tailwinds we have.

Speaker 5

All right. Well, thanks a lot. Have a great weekend here.

Speaker 3

Thanks. You too.

Operator

Thank you. Our next question is from Jeremy Tonet with JPMorgan. Please proceed with your question.

Speaker 6

Hi, good morning.

Speaker 3

Hey, Jeremy. Good to hear from you.

Speaker 6

You guys as well. Just wanted to pick up, I guess, start with the Chevron doctrine here. In recent changes, does that impact your thought process going forward or any thoughts you could share there?

Speaker 3

Yes, Nick, I don't know that it really changes our thought process going forward. Obviously, Chevron is going to probably have far reaching implications for federal agencies and court proceedings going forward. Of course, it doesn't affect any prior cases. I mean, I think when the Supreme Court ruled on Chevron, they basically as it relates to things coming out of FERC or as it relates to things coming out of FERC or things coming out of EPA, etcetera. So again, I think there'll be far reaching impacts, but I'll leave it to the lawyers that are working through all those matters to assess how it may impact things.

Speaker 6

Got it. This is Jeremy, but Nick's a friend, so we're all good here. But maybe to follow-up on Nick's question, just as far as that just seems like a vast opportunity set with the multiple gigs you're talking about. And how you think about, I guess, conversion rate there? Still seems like a sizable opportunity, but just wondering there's thoughts about double counting out there.

Speaker 6

So just wondering how you, I guess, think about that whole process? Yes, Jeremy. I don't think

Speaker 3

I called you Nick, but if I did, I apologize. But in any event, Jeremy, it's a good question. I think again, when I did respond to Nick earlier, I think that again, we're going to be conservative, I would say, in how we bring these things into our guidance. Obviously, when we gave our guidance at the beginning of the year, none of this was in our load growth projections. And so we're going to be thoughtful about it.

Speaker 3

As I said earlier, we thought it'd be good to share with you all the economic development pipeline that we have and it's robust. But again, a large amount of this is still in the process of engineering reviews and interconnection studies. And so we're really excited about that. And as I said in the prepared remarks, our team as well as state and local stakeholders are working hard to bring these fruition. We think that both of our states Missouri and Illinois should be very competitive with respect to these opportunities.

Speaker 3

Again, access to transmission, fiber, workforce, water, all those things. Both of our states have very good sales and use tax incentives. I think we're 2 of just 26 states that have these and our incentives are very competitive with those that do. So we feel like we're positioned very well to convert these and bring these to fruition. But to your point, Jeremy, it's hard to know with some of these folks, they're looking at our sites, they're looking potentially at sites in other states.

Speaker 3

And so we're going to be conservative about how we bring those into our guidance. Again, just repeating, we felt comfortable talking about this 250 Megawatt data center because we have a construction agreement. We think that's a firmer position to be in. And then as we update our sales guidance again in February, we'll incorporate those opportunities that we believe are firmer like this one that has a construction agreement.

Speaker 6

Got it. That's helpful there. Maybe just picking up real quick with stakeholders in the state. Our conversations with stakeholders in Missouri seem to indicate a view of constructive commentary, I guess, coming out of the commission there. And we've seen some kind of changes over time with the composition.

Speaker 6

And just

Speaker 2

wondering any updated thoughts, you could

Speaker 6

share on Missouri or any changes you see there? Well, I would just say that I'd refer you back just to,

Speaker 7

you know,

Speaker 3

even this past quarter, Jeremy, and some of the things that we accomplished from a regulatory standpoint. Missouri, which is back on Page 6, the approval of the Cass County project, we filed the CCN for the 800 Megawatt Castle Bluff Natural Gas Energy Center. Some of the commentary coming out of the commission suggest a desire for more dispatch able resources and an understanding that we need that for reliability. So we're excited to make that filing. And then we got the approval of the securitization.

Speaker 3

So I think that what we're seeing is a continuation of constructive regulatory results in Missouri. The commission is going to have a forum to talk about reliability for the state looking forward and we think that's a constructive thing. We're seeing these exciting economic development opportunities and we need to make sure that Missouri has the resources to serve our existing customers and those additional economic development opportunities. And so we think again that's a good constructive forum setting up for the future.

Speaker 6

Got it. Very helpful. Thank you.

Operator

Thank you. Our next question is from Carly Davenport with Goldman Sachs. Please proceed with your question.

Speaker 8

Hey, good morning. Thanks so much for taking my question. Maybe just to start to go quickly back to the IRP update that you guys expect to file early next year. Recognize you've got the low growth element that could have an impact there, but could you also talk a little bit about the

Speaker 3

Yes. Carly, it's a good question. And look, it's something we'll file in February, a lot of work to be done, as I mentioned, really trying to assess the load growth, get our arms around what of this will come to fruition, how do we want to serve it. I think when you look at the IRP that we filed back in September 2023, it was a good mix of resources, maintaining our existing dispatchable assets, thinking about bringing in a mix of renewables, dispatchable resources like simple cycle gas, combined cycle gas, as well as battery storage technologies. And my sense is that if we see load growth that we're going to build into our plans going forward, it probably means in the short term an acceleration of some of the renewables, the batteries and very possibly additional simple cycle natural gas.

Speaker 3

When you look longer term, we will have to give some thought as we file that into your point about how we think about the EPA's proposed greenhouse gas rules. And that may be impacted by whether the Supreme Court issues a stay of those later this year. But again, I would just say the things we have to think about, as I mentioned on one of our prior calls, is the implications of those rules for carbon capture at our planned combined cycle facility as well as co firing with gas at our Labadee Energy Center. And so those are some of the things we'll be thinking about. And given the uncertainty of whether that greenhouse gas rule will ultimately come into effect.

Speaker 3

We'll have to think about how we do or don't reflect that in our plans going forward. So a lot to think about. So I appreciate you teeing it up. I don't have any firm answer for you today, but those are some of the considerations. Yes.

Speaker 3

Carly, it's Michael. The only thing I might add to that is with respect to some of these environmental rules, there probably are some no regrets moves that we'll continue to look at. Marty mentioned this co firing issue, trying to make sure we have access to gas at some of these facilities that we don't have today. So taking some steps there that we think probably are prudent to give us some additional flexibility, not knowing exactly where these rules will ultimately end up.

Speaker 8

Got it. Okay. That context is super helpful and we'll stay tuned there. The follow-up was just on MISO tranche 2. I know you guys addressed kind of Tranche 2.1 a bit earlier, but could you talk a little bit about 2.2 kind of how that split of the tranches came about?

Speaker 8

And ultimately, you have any views on what that could look like from a sizing perspective relative to Tranche 2.1 and also Tranche 1?

Speaker 3

Yes. This is Marty again, Carly. I'll start. I think as MISO looked at these projects and heard from stakeholders, there was some logical order in terms of how you might want to build out some of the infrastructure that we believe is ultimately going to be required in the Midwest region, given all of the region's goals with respect to clean energy transition and what MISO sees in terms of the potential relocation of generation facilities and load, etcetera. So I think it was more or less what's a logical order to build some of these things out and then to step back and use the expectation of these investments in the consideration and planning for the next set of projects.

Speaker 3

Now with that said, I'd mentioned, for example, we have this 345 line that they're planning in Missouri. It may or may not preclude the need for a 765 line, which was in the last presentation presented. We also don't see a whole lot of investment on the current map in the southern part of Illinois and extending Indiana. So we may see some more investment there. But again, it's premature.

Speaker 3

Again, we'll get these finalized by MISO expecting this year. And talking to MISO while they've been at it working on potential for 2.2, there's still a lot of more work to be done, which is why they really don't expect to get those approved until sometime into 2025. So look, I just think it's really premature to talk about what those might be, and what the size of it's going to be. I don't think it'll be insignificant in terms of the additional investment, but probably premature to specifically speculate.

Speaker 8

Got it. Great. Thank you so much for that color.

Operator

Thank you. Our next question is from Paul Patterson with Glenrock Associates. Please proceed with your question.

Speaker 7

Hey, good morning. Hey, Paul. Just to follow-up on the weather and the sales growth and what have you. Am I reading this correct that absent Mia, you would be up 2% and with Mia, it's flat. Is that pretty much right?

Speaker 7

Or if you could just elaborate a little bit on that, I apologize for not being completely clear.

Speaker 3

Hey, Paul, this is Michael. From a year to date standpoint, again, residential is up 2.5%, 1.6 percent on the commercial side and 3.1% on the industrial side, so about 2.2% overall. With the EMEA impact, I mean, it is a little bit less than that. I don't have it right here in front of me. But overall, I mean, look, it's just it's been much stronger than it has historically been.

Speaker 3

So.

Speaker 7

No, no. I hear you. I apologize. I'm just looking at Slide 24 and if I looked at it, it seems to say like versus normal, it was 0. So in terms of at least on the EPS impact.

Speaker 7

So I'm just sort of if I'm looking at it, I just wanted to it sounds like you guys have your media is really working in terms of its impact on keeping for efficiency. Am I right about that or?

Speaker 3

Well, I mean, there certainly is some impact from an energy efficiency standpoint, although I think it's less than that. I mean the one thing that you're not seeing in here a little bit is a bit of price variance. So as you're switching kind of from between summer and winter rates, you get some different price variances in the block sales. And so when you strip that out, that's masking a little bit of the growth there and that will should like it typically does will flip around as you kind of move through time. So EE does have an impact.

Speaker 3

Yes. I think Paul, if you're looking at that 0 versus normal, what that's really just meant to say is that the weather to date has been normal. So in the Q1 weather was weak, second quarter weather was strong. What we're saying here is year to date there's been no weather impact versus normal conditions.

Speaker 7

Okay. Thanks so much. Sorry about that. Okay. And then with respect to your load forecast and the IRP that's going to be refreshed, I was wondering, can you give us maybe just a little bit of a sense as to it sounds obviously like you've got a lot of positive things happening here.

Speaker 7

What kind of maybe range we might be looking at in terms of when the IRP when it's refreshed like how much it might go up?

Speaker 3

Yes. Paul, Michael here again. A bit premature I think to get into that conversation again. I mean as we came out in February and I probably recall this, I mean we've been seeing historically kind of flat to up maybe 0.5% in terms of growth. And then I think there's been some positive updates as we've kind of moved through the year here and I just went through the year to date statistics.

Speaker 3

I mean, we will absolutely do that. I think we're just wanting to make sure we feel good about the confidence level around, as Marty mentioned, around a number of these data centers, etcetera. And as we I think kind of march through time, we were going through our typical update and planning process as we always do right now. And so we'll do that here into the fall. And then I think we'd be in a much better position as we refresh that IRP and refresh that sales forecast to give you a sense.

Speaker 3

Again, just I think we've used a little bit of the statistic in the past. I mean, just from an industrial perspective, that 2 50 Megawatt project that Marty referenced, I mean, that would represent about a 40% increase in our industrial sales and about an overall 5% increase in Missouri's retail sales, just to give you a sense of it. Yes. And I think, Paul, following up on Michael's comment there, I mean, we have the ability to serve that data center today with our existing mix of resources and the planned additions that we've got. So as we think about that IRP update, it's really about thinking about those thousands of megawatts that are in the queue today looking doing these engineering studies, interconnection studies and really working with them and giving more thought to what of that's going to come to fruition and what changes to the IRP might need to be made in light of those.

Speaker 7

Okay. And then just should we think of this as sort of a considering that their existing resources can serve all this, is this basically going to be something that would help customers or in the near term at least in terms of just more cost being spread over more megawatt hours Or is there an economic development issue that's happening here that I guess what I'm trying to say is, would there how should we think about this impacting rates vis a vis earnings, if you follow what I'm saying, at least in the near term?

Speaker 3

Yes. Well, the customers that are signing on today, the 2 50 megawatts as well as the 85 plus megawatts are really utilizing existing tariffs that we have in place today that obviously have been vetted by the commission and put in place. And the goal of any of these tariffs is to make sure that costs are allocated appropriately and spread appropriately amongst customer classes. I think as we sit here today, I think we're fine. As we move through time, if we have thousands of megawatts that come to fruition and we start to think about the different resources we may need to put in place to serve them, we're going to have to be thoughtful about what the appropriate tariffs are for those customers to make sure that they pay a fair price and that value again accrues to all of our customers and communities.

Speaker 7

Awesome. Thanks so much. Really appreciate it. Have an awesome weekend.

Speaker 3

Thank you. You too.

Operator

Thank you. Our next question is from Anthony Caldwell with Mizuho. Please proceed with your question.

Speaker 2

Hey, good morning, team. Hope all is well out there in Missouri.

Speaker 3

Good morning. It's a beautiful day here. Yes, things are good.

Speaker 2

Just one quick one, kind of like a follow-up and it may be challenging to answer. I mean, if I think back to and I know you guys don't have the exposure to PGM capacity auction. But if I think back 10, 15 years ago, where we started to see some real bullish prices on capacity, I think the utilities kind of in that part of the country really responded with higher CapEx and the regulators really supported it. If we fast forward maybe last December, Illinois really, I think, sent a message of maybe slow down the CapEx spend in the state. I know you're not exposed to PGIM capacity prices, but you think the Illinois regulators maybe change their view and maybe realize the value of the added infrastructure maybe to help out customer bills as more ways to get power to them?

Speaker 3

Yes. Look, I think in both states, I

Speaker 9

the same concerns I

Speaker 3

know exist in Illinois. And so, the same concerns I know exist in Illinois. And so we'll see how policies shift and change over time. But look, I think at the end of the day, all stakeholders in both states and certainly us as a utility and other service providers, we're all concerned and mindful of resource adequacy, reliability, affordability and a clean energy transition. And so I think your intuition is right that as you see cost pressures grow because of things like capacity prices or you see the need to support economic development and growth.

Speaker 3

Logically, you have to start to think about the policies that support those things and resource adequacy. So I think your intuition is correct.

Speaker 2

Great. Have a wonderful weekend, guys.

Speaker 3

You too. Thanks.

Operator

Thank you. Our next question is from David Pass with Wolfe Research. Please proceed with your question.

Speaker 10

Good morning. Thanks for sweeping me in your popular call today.

Speaker 9

Good morning, David.

Speaker 3

You bet, David. Thanks.

Speaker 10

Yes. So I just one thing just popped up as I listened to your responses. Just have you provided what a just a simple rule of thumb sensitivity on EPS for every 1% increase in industrial sales?

Speaker 3

Yes, we have historically, David, for every 1% on the industrial side, it's about a half a penny is a good way to think about it. Now that change, it will change over time as you kind of move through and you got to change the generation mix, etcetera. But I mean, I think it's probably a decent rule of thumb today.

Speaker 10

Got it. Thank you. And just on the discussions, and I know there's been plenty of questions here on attracting large load and efforts you're making. But just what have you told rate these stakeholders and leaders that that would what you need from a rate making standpoint? And could we see efforts to add trackers or riders to expedite the energization of these large load or maybe an expansion of PECO?

Speaker 10

Just what are you telling them that could be in Starry, Missouri?

Speaker 3

Yes, I think David, all things for consideration. As I mentioned a few moments ago, with respect to the data center that we show on page 7, this 250 Megawatt Data Center and the other 85 Megawatts of Load, again, they're able to use our current industrial tariffs and we're able to serve them with our current generation and planned generation. So no need for any special tariff there. Over time, as I said, to the extent that these other opportunities come to fruition, we may think need to think about special tariffs. One thing to point to is we just had that Cass County solar project approved and there we did put a special sort of tariff arrangement into place to ensure that there was an appropriate apportionment of costs between our customer base as well as those industrial customers that are going to take power from Cass County.

Speaker 3

So we do have some experience working with the commission to put special tariffs in place And we'll be giving thought to that as we move forward with additional data centers that we may be able to serve. And then to your point on, I think it was on PISA, certainly one of the things we pursued legislatively last spring that had very good support was the extension of PISA to dispatchable generation, such as the simple cycle assets that we're planning and combined cycle asset that we're planning. And so again, we had very good support for that. Again, the legislative session ended with that not getting across the finish line, but certainly expect that a strong support as we go into next year.

Speaker 10

Great. Thank you so much.

Speaker 5

You bet.

Operator

Thank you. Our next question is from Julien Dumoulin Smith with Jefferies. Please proceed with your question.

Speaker 9

Hey, good morning team. I'll make it quick. Good to chat with you guys again. Yes, good

Speaker 3

to hear from you, Julien.

Speaker 9

Yes, likewise. Hey, just following up on this, right. So just on the process behind the, shall we say shorter term procurement potential here, right? You alluded to it earlier. Obviously, you have enough resources to deal with the 250 here initially, perhaps that's not it as you allude to.

Speaker 9

How do you think about the process itself, right? You do typically these IRPs at relatively consistent periods, interims as well as there's a construction cycle behind that, there's a PSC process behind that. You mentioned kind of the shorter term potential need or medium term potential need. How do you think about expediting that? We've seen that potentially in some of your adjacent jurisdictions.

Speaker 9

How do you think about that, A? And then, B, going back to the point raised, would you expect some of these tariff dynamics to just play out in the like, shall we say, a subsequent rate case process beyond the current instance?

Speaker 3

Yes, all good questions, Julien. So first of all, as I mentioned, with respect to these opportunities, we're certainly not waiting. We and other stakeholders around the states are aggressively interacting with these folks that are doing these engineering reviews, interconnection studies and doing everything we can to be able to support them in locating these facilities either in Missouri or Illinois as is appropriate. And so we're aggressively doing that. When you look at some of this opportunity, think about this 250 Megawatt 1 that we talked about specifically.

Speaker 3

There, they're going to be in service in 2026, ramping up usage through 2028. And that's what we're hearing from many of these is really a desire to ramp up over time. And so the idea is that, that would sort of dovetail with an update to the IRP where we would potentially accelerate some of the planned additions, perhaps add some additional resources that we would get in place and time to be able to serve this load as it grows. When you think about that, certainly there are some limitations, but when you think about that 800 Megawatt simple cycle that we're putting in, in our plans today, the Castle Bluff, about 4 years to get that in service between turbines, transformers, construction timeline, etcetera. So we feel like we'll be able to work with some of these data center opportunities, get the IRP updated and filed and hopefully be able to sort of have all these things dovetail and brought together at the right pace and speed.

Speaker 3

And yes, in terms of the any kind of changes in tariffs, we think those can happen both inside the context of a rate review or outside of a rate review. So we think we have flexibility there.

Speaker 9

Okay. Even outside of rate review. Nice. It sounds like you had something in mind already. All right.

Speaker 9

And then separately quickly, just coal ash new rags here in the last few months. Just curious on AROs accumulating and just thoughts about some of the twists here.

Speaker 3

Hey, Julien, Michael here. It's really not a significant issue for us. I mean, we did go through and freshen up a couple AROs, but it really immaterial. And if you think about our exposure from a coal ash standpoint, I mean, we really got in front of this issue probably 7 or 8 years ago. All of our ponds are closed or in the process of being finalized here.

Speaker 3

And so just not a lot of additional exposure, just a little bit of stuff around the edges.

Operator

Got it.

Speaker 9

Okay. Excellent. Thank you, guys. Have a great day. Cheers.

Speaker 3

You too, Julie. Have a good weekend.

Operator

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Marty Lyons for any closing comments.

Speaker 3

Yes. Hey, thanks everybody for joining us today. Some great questions. Appreciated the dialogue. Look, overall, we are really pleased to share our updates with you today and we remain absolutely focused on strong execution for the remainder of this year.

Speaker 3

And we look forward to seeing many of you in the coming months. So with that, thanks. Have a great day. Have a great weekend.

Operator

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

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Earnings Conference Call
Ameren Q2 2024
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