Ameren (NYSE:AEE) invested $1.9bn in utility infrastructure in 2015, with almost 70%, or $1.3bn, of that going to projects in the company’s FERC-regulated electric transmission and Illinois electric and natural gas delivery businesses, Ameren Chairman, President and CEO Warner Baxter said on Feb. 19 during the company’s 4Q15 earnings call.
“A significant portion of these investments was made in the Illinois Rivers Project,” he said, adding that construction on the 345-kV project is proceeding according to plan, with work on the nine line segments and 10 substations well underway, and some portions already complete.
“The strategic allocation of capital and effective execution of these projects, coupled with disciplined cost management, contributed to a higher consolidated earned return on equity [(ROE)], and this was accomplished while maintaining our financial strength and flexibility,” he said.
He also noted that late last year, the company said that it was evaluating bringing forward into its new, five-year investment plan certain reliability projects, which total between $500m and $1bn.
“Our team ultimately brought forward an excess of $1.5bn of additional Ameren Illinois energy delivery and transmission reliability projects that have now been incorporated into our updated five-year plan,” he said.
Ameren is allocating significant and growing amounts of capital to its FERC-regulated transmission businesses and Illinois utilities in line with the company’s strategy.
“Our list of transmission projects is projected to increase FERC-regulated rate base by approximately 20% compounded annually over the 2016 through 2020 period,” he said.
Among other things, he said, “Our updated five-year capital expenditure plan illustrates Ameren’s strong pipeline of investment opportunities to address aging infrastructure and reliability needs that we have discussed … previously.”
Baxter also said that the company will continue to work to obtain constructive outcomes in the complaint cases pending at FERC that seek to reduce the base allowed ROE for Midcontinent ISO (MISO) transmission owners, including Ameren Illinois and Ameren Transmission Company of Illinois (ATXI).
“In late December, a FERC administrative law judge issued a proposed order in the initial complaint case recommending a 10.32% base allowed ROE,” he said. “We expect a final order in that case in the fourth quarter of this year.”
Discussing Illinois electric and natural gas delivery, Baxter said that Ameren Illinois will continue to invest in infrastructure improvements to upgrade systems to enhance reliability and safety, including those under its modernization action plan, which includes the installation of about 780,000 advanced electric meters and the upgrading of about 470,000 gas meters by the end of 2019, including about 148,000 electric and 103,000 gas meters this year.
He also noted that the Missouri Public Service Commission (PSC) recently approved a new Ameren Missouri energy efficiency plan, which will begin on March 1 and continue through February 2019, and follows on the heels of the company’s three-year energy efficiency plan that was completed at the end of 2015.
“We believe the new plan, which reflected an agreement between Ameren Missouri and other key stakeholders, appropriately balances customer and shareholder interests,” he said.
In addition, Baxter discussed recently introduced legislation in Missouri, Senate Bill 1028 and its identical House Bill 2495, which he said would modernize Missouri’s regulatory framework to support and encourage investment in aging energy infrastructure for all Missouri investor-owned electric utilities for the benefit of their customers.
The proposed legislation calls for timely recovery of actual, prudently incurred costs of providing service to customers, and provides long-term, competitive electric rates for energy intensive customers, he said. In addition, the legislation would include several customer benefits, including earnings caps and rate stabilization mechanisms, as well as provide incentives for utilities to achieve certain performance standards, he said.
“This legislation would spur investment in aging infrastructure, support incremental investments in physical and cyber security, support environmental upgrades and cleaner generation sources, as well as position Missouri’s grid for growth in the future, at a time when interest rates remain very low,” Baxter said. “All this would be done while providing more stable and predictable rates for customers and other appropriate safeguards under the strong oversight of the Missouri [PSC]. Importantly, this legislation will create and retain jobs throughout the state of Missouri. It is a win-win for all stakeholders.”
Ameren expects that in the upcoming weeks, additional language will be added to the bills as they move through the legislative process, he said, adding, “As a result, it would be premature to go through the specific details of the legislation at this time.”
Of Ameren-wide initiatives for 2016, Baxter noted that the U.S. Supreme Court recently stayed the U.S. Environmental Protection Agency’s (EPA) Clean Power Plan, blocking the plan’s implementation until its legality is determined by the courts. A panel of judges at the U.S. Court of Appeals for the District of Columbia Circuit is scheduled to hear legal challenges to the plan beginning in June, he said.
“We agree with the Supreme Court decision,” Baxter said. “It is in the best interest of our customers and the communities we serve because we believe it is important to know whether this rule will withstand legal challenges before steps are taken to implement [the plan]. Of course, we can’t predict the outcome of these legal challenges. We remain committed to transitioning to a cleaner, more fuel diverse generation portfolio in a responsible fashion.”
As a result, he said, Ameren will continue to advocate for responsible energy policies related to the Clean Power Plan, while working with key stakeholders to address important issues associated with the Missouri and Illinois implementation plans, should the plan ultimately be upheld.
Ameren on Feb. 19 announced 2015 net income attributable to common shareholders in accordance with generally accepted accounting principles (GAAP) of $630m, or $2.59 per diluted share, compared to $586m, or $2.40 per diluted share, for 2014. Excluding certain items, Ameren said it recorded core earnings of $622m, or $2.56 per diluted share, for 2015, compared to core earnings of $587m, or $2.40 per diluted share, for 2014.
The year-over-year increase in 2015 core earnings reflected increased investments in electric transmission and delivery infrastructure, as well as the absence last year of a nuclear refueling and maintenance outage at the Callaway Energy Center, which is scheduled to occur every 18 months, the company said. The positive effects of those factors were partially offset by increased depreciation and amortization expenses and lower retail electric and gas sales volumes in 2015 driven by milder winter temperatures, Ameren said.
"We delivered strong earnings growth in 2015," Baxter said in the statement. "Despite some challenges, including very mild fourth quarter weather, we were able to achieve this growth through the continued execution of our strategy, which includes allocating capital to jurisdictions with modern, constructive regulatory frameworks and managing costs in a disciplined manner."