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Ameren says grid modernization bill in Missouri could support $1B of investment

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Ameren says grid modernization bill in Missouri could support $1B of investment

Ameren Corp. executives are optimistic that a bill headed for the Missouri House, if passed, can enable $1 billion worth of investments to upgrade the state's power grid.

While a similar grid modernization bill failed to pass in 2017, Senate Bill 564 passed out of the Republican-controlled Senate on Feb 15. The bill addresses a variety of topics from utility investment in solar projects to infrastructure replacement. Of importance to Ameren is that it allows deferring of depreciation on capital investments between rate cases.

"If enacted, as currently written, this legislation will support our ability to invest an incremental $1 billion in infrastructure through 2023" and allow for better returns on investment, Ameren Chairman, President and CEO Warner Baxter said on Feb. 16 during the utility's fourth-quarter 2017 earning call.

One reason the House could support the bill is that it already includes hefty consumer protections, executives said. The bill caps the compounded annual growth rate that utilities could achieve each year through 2023 to 2.85% but allows the cap to get extended to 2028 if utilities request and state regulators approve.

To expand its rate base beyond 2018, Ameren plans to spend about $1 billion by 2020 in wind, according to its fourth-quarter earnings presentation. Utility subsidiary Ameren Missouri, whose legal name is Union Electric Co., is in negotiations with developers to own at least 700 MW of wind, Ameren said in its presentation. In the first half of 2018, the subsidiary plans to apply to the Missouri Public Service Commission for a permit to construct, Baxter said.

Ameren Missouri Chairman, President and CEO Michael Moehn said the company would seek to use a regulatory recovery mechanism for the renewable energy projects and that the PSC could take an estimated six to 10 months to review the permit application.

S.B. 564 also facilitates refunds to utility customers from reduced tax expenses under the federal Tax Cuts and Jobs Act, which President Donald Trump signed in December 2017 to lower the corporate tax rate to 21% from 35%.

Though the new tax law is expected to reduce overall cash flows by about $1 billion over the 2018-to-2022 time frame, Baxter held a strong earnings outlook and expects the new law to deliver benefits for customers. In 2017, Ameren recorded a noncash charge of $154 million mainly from a re-evaluation of deferred taxes at the parent company, executives said in the presentation.

Ameren's 2017 earnings rose to $2.83 per share from $2.68 per share in 2016, according to its earnings presentation, and beat S&P Capital IQ's consensus estimate of $2.79 per share. Executives expect 2018 earnings to be in the range of $2.95 per share to $3.15 per share, or roughly 7.8% above the 2017 EPS, according to the company's earnings presentation.

In the fourth quarter of 2017, Ameren reported core earnings of $94 million, or 39 cents per diluted share, which beat S&P Capital IQ's EPS estimate for the quarter of 34 cents per share. In the same quarter of 2016, Ameren booked core earnings of $32 million, or 13 cents per diluted share.