Ameren Corp (AEE) Q2 2022 Earnings Call Transcript

Ameren Corp  (NYSE: AEE) Q2 2022 earnings call dated Aug. 05, 2022

Corporate Participants:

Megan McPhail — Manager Investor Relations

Martin Lyons — President, Chief Executive Officer

Michael Moehn — Executive Vice President, Chief Financial Officer

Analysts:

Shar Pourreza — Guggenheim Partners — Analyst

Jeremy Tonet — JP Morgan — Analyst

Julien Dumoulin Smith — Bank of America Merrill Lynch — Analyst

Paul Patterson — Glenrock Associates — Analyst

Anthony Crowdell — Mizuho — Analyst

Neil Kalton — Wells Fargo Securities — Analyst

Presentation:

Operator

Greetings, and welcome to Ameren Corporation’s Second Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the conference over to your host, Megan McPhail, Manager of Investor Relations. Thank you. You may begin.

Megan McPhail — Manager Investor Relations

Thank you and good morning. On the call with me today are Marty Lyons, our President and Chief Executive Officer and Michael Moehn, our Executive Vice President and Chief Financial Officer, as well as other members of the Ameren management team joining us remotely. 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 2 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 in our news release we issued yesterday in the Forward-Looking Statements and Risk Factors sections 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 is Marty, who will start on Page 4.

Martin Lyons — President, Chief Executive Officer

Thanks Megan. Good morning everyone, and thank you for joining us. We had a solid quarter, and we’re excited to share an update today on a number of recent developments. As always, our team continues to work hard to execute our strategic plan across all of our business segments, allowing us to deliver significant value to our customers and shareholders. Yesterday, we announced second quarter 2022 earnings of $0.80 per share compared to earnings of $0.80 per share in the second quarter of 2021. The year-over-year results reflected increased infrastructure investments across all our business segments that will drive significant long-term benefits for our customers. The key drivers of our second quarter results are outlined on this slide.

I am pleased to report that we remain on track to deliver solid earnings growth in 2022, and are reaffirming our 2022 earnings guidance range of $3.95 per share to $4.15 per share. Michael will discuss our second quarter earnings, 2022 earnings guidance and other related items in more detail later. Moving to Slide 5, you will find our strategic plan reiterated.

We continue to invest in and operate our utilities in a manner consistent with existing regulatory frameworks, enhance regulatory frameworks and advocate for responsible energy and economic policies and create and capitalize on opportunities for investment for the benefit of our customers, shareholders and the environment. Turning now to Page 6, which highlights our commitment to the first pillar of our strategy investing in and operating our utilities in a manner consistent with existing regulatory frameworks. Our strong long-term earnings growth guidance is primarily driven by our infrastructure investment and rate based growth plans, which are supported by constructive regulatory frameworks.

You can see on the right side of this page, we continue to strategically invest significant capital in each of our business segments in order to maintain safe and reliable operations, as we transition to a cleaner energy grid. Regarding regulatory matters earlier this week Ameren Missouri filed an electric rate review with the Missouri Public Service Commission requesting a $316 million annual revenue increase. This request reflects significant modernization upgrades to the electric grid for system reliability, resiliency and safety, as well as investments to support the transition to cleaner energy for the benefit of our customers and local communities.

In our Illinois Electric business, we recently requested an $84 million revenue increase in our required annual electric distribution rate filing. Again key drivers for this rate increase includes significant investments to enhance the grid for our customers and communities, which will deliver long-term benefits. Michael will cover these in more detail a bit later, and we will provide updates on these proceedings as they develop later this year. As we invest to build a safer stronger smarter and cleaner energy grid for our customers we also continue to work diligently to manage our costs, leverage our investments and optimize our performance.

Moving now to Page 7, and the second pillar of our strategy, enhancing regulatory frameworks and advocating for responsible energy and economic policies. Without question energy policy at the federal and state levels and constructive regulatory frameworks that incentivize meaningful and needed infrastructure investments have never been more important, as we look to reliably and securely transition to a cleaner energy future as affordably as possible. As you know, late last week, it was announced that Senator’s Schumer and Manchin reached agreement on proposed legislation that would, among other things, extend significant incentives for clean energy development and deployment.

Given the clean energy transition underway in Illinois and Missouri, as highlighted by our recent change to the Ameren Missouri Integrated resource plan filed with the Missouri PSC in June, and our goal of reaching net zero carbon emissions by 2045 we are very excited about the potential benefits of this legislation. Specifically the credits proposed for wind, solar, storage, nuclear, carbon capture utilization and storage or CCUS and hydrogen all aligned very well with the significant investments proposed in the Missouri IRP. Importantly the benefits of these tax incentives will ultimately lower the cost of the clean energy transition for our customers in Missouri and Illinois over time.

These potential tax credits when coupled with the significant clean energy funding made available through the infrastructure investment in JOBS Act passed earlier this year, will drive significant long-term benefits for our customers, communities and the country. I will also note that the proposed legislation includes a minimum corporate income tax for public companies with pre-tax book earnings above $1 billion. At the state level as part of the Ameren Missouri’s Smart Energy Plan a multiyear effort to strengthen the grid our customers are benefiting from stronger poles, more resilient power lines, smart equipment including modern substations and upgraded circuits to better withstand severe weather events and restore power more quickly.

As we mentioned on our first quarter earnings call Missouri Senate Bill 745 which enhances and extends the Smart Energy Plan passed earlier this year with strong majority support in the General Assembly. The bill was later signed by Governor Parson. We believe extending Missouri’s Smart Energy Plan will continue to benefit our customers and communities as we transform the energy grid of today to build a brighter energy future for generations to come, and while creating significant economic development and jobs in the state.

Moving to Page 8, for Illinois legislative matters, we continue to make progress working towards the implementation of the Illinois energy transition legislation enacted last year including the performance metrics required by the legislation Ameren Illinois has proposed eight performance metrics each were 3 basis points of incentives for a total of 24 basis points of symmetric, equity return, upside or downside potential. The ICC staff is mostly aligned with the Ameren Illinois on the performance metrics and his proposed a range of 20 to 24 total basis points of increased or decreased return opportunities. We expect a final order from the ICC by late September in the performance metrics target.

We look forward to the ICC’s order and filing our first multi-year rate plan next year, as we believe this legislation will support important energy grid investments and deliver value to customers. Turning to Page 9, for an update on our plan to accelerate the retirement of the Rush Island Energy Center. Last month in response to our notification to MISO of our intention to retire the energy center MISO issued its final Attachment Y Report designating the generating units at the Rush Island Energy Center, as system support resources. MISO also concluded that certain mitigation measures including transmission upgrades should occur to ensure reliability before the energy center is retired. Those transmission upgrade projects have been approved by the MISO and we have started the design in procurement process associated with the upgrades, which we expect to complete by late 2025.

In the interim until Rush Island can be retired Ameren Missouri has proposed limiting operations at the energy center. The District Court is under no obligation or deadline to issue a rule modifying its remedy order to reflect the MISO SSR designation or proposed interim operating parameters. The original March 2024 compliance date remains in effect unless extended by the court. We expect a decision in the near term.

Turning now to Page 10, for an update on changes to our 2020 Ameren Missouri Integrated Resource Plan, which we filed in June. Our IRP is a 20-year energy plan created to ensure reliability for our customers for years to come. I’m excited to share with you that these changes to the plan accelerate our clean energy additions, reduced carbon emissions even further in the short term, and accelerate the company’s and net zero carbon emissions goal by five years. Specifically, the plan targets a 60% reduction in carbon emissions below 2005 levels by 2030 and an 80% reduction by 2040 and by 2045 our goal is to achieve net zero carbon emissions across all of Ameren.

The new goals include both Scope 1 and Scope 2 emissions including other greenhouse gas emissions of methane, nitrous oxide in sulfur hexafluoride. We plan to achieve these goals by making significant investments in renewable energy, including 2,800 megawatts of renewable energy by 2030, representing an investment opportunity of $4.3 billion. This is an increase of $1 billion from our 2022 or excuse me, our 2020 IRP. By 2040 in total, the plan includes 4,700 megawatts of renewable generation for total investment opportunity of $7.5 billion. The plan also includes 1,200 megawatts of gas combined cycle generation by 2031 an investment opportunity of $1.7 billion, which will allow us to safely and reliably advance the net retirement timeline of our fossil generation including the accelerated retirement of the Rush Island Energy Center.

Further, the plan includes 800 megawatts of battery storage by 2040, representing an investment opportunity of $650 million. We expect to add 1,200 megawatts of a clean dispatchable resource by 2042 and to also seek an extension of the operating license of our carbon free Callaway Nuclear Energy Center beyond the current expiration date of 2044. These changes to the 2020 IRP will drive our ability to meet customers’ rising needs and expectations for reliable, affordable and clean energy sources. Achieving these goals is dependent upon a variety of factors including cost-effective advancements in innovative clean-energy technologies and constructive federal and state energy and economic policies. We have issued a request for proposal to solicit solar and wind projects that will allow us to take the next steps and deliver the best value for our customers. One thing is clear, our IRP includes significant incremental investment opportunities, and we’re very excited. As we continue to execute our clean energy transition plan.

Turning now to Page 11. Speaking of executing our clean energy transition plan in July we filed certificates of convenience and necessity or CCNs with the Missouri Public Service Commission for two solar project acquisitions. Boomtown a 150 megawatt solar energy center located in Southern Illinois is expected to be in service by the fourth quarter of 2024 Huck Finn a 200 megawatt solar energy center located in Eastern Missouri would be Ameren’s largest solar project to-date generating more than 25 times the amount of energy of Missouri’s largest existing solar facility. This solar project is also expected to be in service by the fourth quarter of 2024.

While the Missouri PSC is under no deadline to issue an order on the CCN filings we expect decisions by March and April, 2023 for the 200 megawatt and the 150 megawatt facilities, respectively. Looking ahead, we expect to announce further agreements for the acquisition of renewables between now in the first half of 2023. Turning to Page 12, and the third pillar of our strategy, creating and capitalizing on opportunities for investment for the benefit of our customers, shareholders and the environment.

This page provides an update on the MISO long-range transmission planning process. As we have discussed with you in the past MISO completed a study outlining the potential road map of transmission investments through 2009, taking into consideration the rapidly evolving generation mix that includes significant additions of renewable generation based on announced utility integrated resource plans, state mandates and goals for clean energy or carbon emission reductions, as well as electrification of the transportation sector among other things.

In July MISO approved Tranche 1 a set of projects located MISO North, which had estimated to cost more than $10 billion. Of these projects, approximately $1.8 billion represent projects in our service territory that have been assigned to Ameren. We expect to refine the scope, cost estimates and timeline for these projects over the remainder of this year. In addition to the assigned projects MISO approved approximately $700 million of competitive projects across through our Missouri service territory, which provide additional potential investment opportunities.

We are well positioned to compete for and successfully execute on these projects given the location of the projects and our expertise constructing large regional transmission projects. Later this month MISO is expected to post a schedule outlining the RFP process for competitive bidding with the first RFP expected to be issued by late September. The competitive bidding process is expected to take 12 to 24 months. For the projects assigned to Ameren we expect the capital expenditures to begin in 2025 with the completion dates expected near the end of this decade. MISO has also begun work on three additional tranches and has indicated that an initial set of Tranche 2 projects also located MISO North is expected to be approved in the second half of 2023.

Projects included in Tranche 3 are expected to be located MISO South with approval scheduled by the end of 2024 while projects identified in Tranche 4 are expected to improve transfer capability between MISO North and MISO South, and will be studied upon approval of Tranche 3. Turning then to Page 13. Looking ahead, over the next decade we have a robust pipeline of investment opportunities that will deliver significant value to all of our stakeholders by making our energy grid stronger smarter and cleaner. We have updated the investment opportunities to reflect the additional renewable and combined cycle generation included in the change to the IRP filed in June.

We now expect over $48 billion of investment opportunities over the next decade. Maintaining constructive energy policies that support robust investment in energy infrastructure and a transition to a cleaner future in a responsible fashion will be critical to meeting our country’s energy needs in the future and delivering on our customers’ expectations.

Moving now to Page 14. We are focused on delivering a sustainable energy future for our customers, communities and our country. This slide summarizes our strong sustainability value proposition and focus on environmental social, governance and sustainable growth goals. The change to the Ameren Missouri IRP filed in June supports our goal of net zero carbon emissions by 2045 and is also consistent with the objectives of the Paris Agreement and limiting global temperature rise to 1.5 degree Celsius. We also remain focused on supporting our communities, including our very robust supplier diversity program. Our strong sustainable growth proposition remains among the best in the industry. We have a robust pipeline of future investments that will continue to modernize the grid and enable the transition to a cleaner energy future. I encourage you to take some time to read more about our strong sustainability value proposition. You can find all of our ESG-related reports at amereninvestors.com.

Turning to Page 15. To sum up our value proposition, we remain firmly convinced that the execution of our strategy in 2022 and beyond will deliver superior value to our customers, shareholders and the environment. In February we issued our five-year growth plan, which included our expectation of a 6% to 8% compound annual earnings growth rate from 2022 through 2026. This earnings growth is primarily driven by strong rate-based growth supported by strategic allocation of infrastructure investment to each of our operating segments based on their constructive regulatory frameworks.

We expect Ameren’s future dividend growth to be in line with our long-term earnings per share growth expectations and within a payout ratio range of 55% to 70%. We expect to deliver strong long-term earnings and dividend growth, which resulted in attractive total return that compares favorably with our regulated utility peers. I am confident in our ability to execute our investment plans and strategies across all four of our business segments as we have an experienced and dedicated team to get it done.

Finally, turning to Page 16. I would like to take the opportunity to congratulate Richard Mark on his retirement and extend my gratitude for his many contributions made to Ameren and our communities. Richard served in several leadership positions during his 20-year career at Ameren, and was influential in the advancement of the electric and natural gas distribution grids throughout Southern and Central Illinois including installing advanced technologies, improving reliability and creating thousands of jobs, in addition to a strong community engagement. Thank you, Richard, and I wish you well in your retirement.

I would also like to introduce to you Ameren Illinois New President Lenny Singh. Lenny brings more than 30 years of utility experience serving in both electric and natural gas operations, most recently as Senior Vice President of Consolidated Edison Company of New York. Over the course of his career Lenny is focused on operational excellence and value creation prioritizing safety, customer satisfaction, continuous improvement action and accountability. I look forward to working with Lenny, as he builds on the Ameren Illinois success as we work to safely reliably and securely drive the clean energy transition in the State of Illinois.

Again, thank you all for joining us today, and I will now turn the call over to Michael.

Michael Moehn — Executive Vice President, Chief Financial Officer

Thanks, Marty, and good morning everyone. Yesterday, we reported second quarter 2022 earnings of $0.80 per share compared to $0.80 per share for the year-ago quarter. Slide 18, 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 retail sales driven by warmer early summer temperatures during the quarter compared to near-normal temperatures in the year ago period, and higher electric grids.

The positive factors impacting earnings Ameren Missouri were more than offset by, among other things, higher operations and maintenance expenses. The higher O&M reflected unfavorable market returns in 2022 on company-owned life insurance investments compared to favorable market returns in the year ago period. In addition, the higher O&M expenses were driven by the absence of refined coal credits in 2022, which had been a benefit to our coal-fired energy centers in 2021 and prior years and the increase transmission and distribution expenses, including storm cost.

The reduction in refined coal credits was anticipated, and reflected in the new electric service rates effective earlier this year. In fact, year-to-date O&M costs excluding COLI are largely in line with what we expected when we provide guidance in February. We remain focused on disciplined cost management for the second half of the year. Before moving on, I’ll touch on sales trends for our Ameren Missouri and Ameren Illinois Electric Distribution year-to-date. Weather-normalized kilowatt-hour sales to Missouri residential and commercial customers increased about 0.5% and 1.5% respectively, while weather-normalized kilowatt-hour sales to Missouri industrial customers decreased about 0.5%.

Weather-normalized kilowatt-hour sales to Illinois residential and commercial customers increased about 1.5% each year-to-date and weather normalized kilowatt-hour sales to Illinois industrial customers increase about 0.5%. Recall that changes in electric sales in Illinois, no matter the cause do not affect our earnings since we have full revenue decoupling.

Turning to Page 19, I would now like to briefly touch on key drivers impacting our 2022 earnings guidance. We delivered solid earnings in the first half of 2022 and are well positioned to finish the year strong. As Marty stated, we continue to expect 2022 diluted earnings to be in the range of $3.95 to $4.15 per share. Select earnings considerations for the balance of the year are listed on this page and our supplemental of the key drivers and assumptions discussed on our call earnings call on February.

As we reflect on our earnings for the full year results the benefits that we’ve seen from weather during the first half of the year and from the higher expected 30-year treasury rates were offset in part by unfavorable market returns and company-owned life insurance, as well as higher than expected short-term and long-term borrowing rates. I encourage you to take these into consideration as you develop your expectations for the third quarter and full year earnings results.

Turning now to Page 20 for an update on regulatory matters starting with Ameren Missouri. Earlier this week, we filed for a $316 million electric revenue increase with the Missouri Public Service Commission. The request includes a 10.2% return on equity of 51.9% equity ratio and a 31 December 2022 estimated rate base of $11.6 billion. Drivers of the requested increase our investments are in the Smart Energy Plan, including increased cost of capital and depreciation expense as well as increase in fuel expense due to reduced off system sales, driven by expected reduced operations at Rush Island.

As Marty noted earlier, customers are benefiting from investments made under the Smart Energy Plan to strengthen the grid, including infrastructure upgrades bolstering reliability and resiliency installation of smart meters and an improvement in reliability of up to 40% on targets with new smart technology upgrades. We expect the Missouri PSC decision by June 2023 and new rates to be effective by July 1 2023. We look forward to working with all key stakeholders on this request.

Moving to Page 21 and Ameren Illinois regulatory matters. In April, we made our required annual electric distribution rate update filing. Under Illinois performance-based rate making these annual rate update systematically adjust cash flows over time for changes in cost of service and true up any prior period over or under the recovery of such cost. In late June the ICC staff recommended a $60 million base rate increase compared to our update or request of an $84 million base rate increase. The $24 million variance is primarily driven by a difference in the common equity ratio, as we proposed 54% compared to the ICC staff recommended 50%.

For perspective, the order received from the ICC last December included a common equity ratio of 51%. An ICC decision is expected in December with new rates, expected to be effective in January 2023. On page 22, we provide a financing update. We continue to the very feel very good about our financial position. On April 1 Ameren Missouri issued $525 million or 3.9% green first mortgage bonds due 2052. Proceeds of the offering were used to fund capital expenditures and refinance short-term debt.

In order to maintain a strong balance sheet while we fund our robust infrastructure plan consistent with the guidance in February this year we expect to issue approximately $300 million of common equity under our at-the-market equity program. We have fulfilled. All of our ’22 equity needs through the forward sales agreement entered into as April 1, and we expect to issue 3.4 million common shares by the end of this year upon settlement. Further as of July 12 approximately $125 million of the $300 million of equity outlined in 2023 has been sold forward under that program.

Finally, turning to Page 23. We have had a solid first half and we expect to deliver strong earnings growth in 2022, as we continue to successfully execute our strategy. Today we have outlined significant and exciting investment opportunities over the back half of our current capital plan and beyond that are not reflected in our 2022 to 2026 capital plan. Consistent with our approach in the past we will step back and take a comprehensive look at our investment opportunities and provide our five-year capital plan for 2023 through 2027 during our year-end conference call in February.

As we look at the longer term we continue to expect strong earnings per share growth, driven by robust rate-based growth and disciplined cost management. Further, we believe this growth will compare favorably with the growth of our regulated utility peers. The bottom line is that we are well positioned to continue executing our current plan. And Ameren shares continue to offer investors an attractive dividend. In total, we have an attractive total shareholder returns to where the compares very favorably to our peers. That concludes our prepared remarks. We now invite your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Shar Pourreza with Guggenheim Partners. Please proceed with your question.

Shar Pourreza — Guggenheim Partners — Analyst

Hey, good morning. Marty.

Martin Lyons — President, Chief Executive Officer

Good morning Shar, how are you there.

Shar Pourreza — Guggenheim Partners — Analyst

Not too bad, not too bad. It’s a Friday.

Martin Lyons — President, Chief Executive Officer

Very good.

Shar Pourreza — Guggenheim Partners — Analyst

Very good. Martin, let me ask. Just thank you for the visibility, obviously on the Tranche 1 opportunities, but just a two-part question here. What should I guess confidence level on the competitive slice or how should we be thinking about maybe your ability to capture that? Is there a technical or cost of capital facet to your advantage? And then does this, how does this sort of interact with your prior capex and sort of rate-based guide? I mean some of the projects to break ground in ’25. So, could this be accretive to your 6% to 8%? Thanks.

Martin Lyons — President, Chief Executive Officer

Yeah, you bet, Shar. Good questions, and you’re right. Hope you have a good Friday and a good weekend. But back to your questions. In terms of the competitive projects coming out of Tranche 1 as we highlighted, a little over $700 million of those. And as we mentioned in our prepared remarks that we do believe we’re well positioned to compete for and successfully execute those. And I think the bottom line is that we believe we’re really well positioned to efficiently build, operate and maintain those assets over time.

The projects that are competitive or within our footprint there are places where we have strong relationships with local communities, regulators, suppliers, contractors, etc., and we’ve been operating in this area for many years. So we know the land, we know the environmental conditions and issues and. And I’d tell you too that we’ve been working for several years now, as you know we’ve developed billions of dollars worth of transmission projects. And we’ve been working over time with suppliers and contractors to really bring down the cost of construction.

And because these projects these competitive projects are contiguous with other assets that we own and operate, we think we’re really well positioned to operate and maintain these assets at a low cost over time. So those are some of the reasons that we believe at the end of the day, we’re well positioned to compete and execute on those projects. So we look forward to participating in that competitive process over time. And then, your second question. Really to some of the incremental capital into our plan.

I’ll let Michael comment on that, but you’re right. In terms of the $1.8 billion worth of projects that were assigned to us, we do again expect to begin those in 2025. And those cash flows, and capital expenditures to be incurred over between 2025 at the end of the decade. Michael, any comments in terms of the added capex?

Michael Moehn — Executive Vice President, Chief Financial Officer

Yeah, good morning. Shar. I think, Marty said it well. In terms of the capital plan, and so I’ll, Shar, and we’ve talked about this. I mean I think that it’s great to start getting some clarity here around these these different projects. Then as Marty said, I think some of this could even benefit the five-year plan. As we have indicated, we’re going to step back and what we typically do with our cadence is we’ll update all of this in the February timeframe. And my sense is, this has got the ability to be accretive to our five-year capital plan, as well as, just additive to the overall runway, as we talk about the growth story.

I think as we, if you kind of remember if you reflect back on the $48 billion that we have there now, that never used to be $4 billion we captured about $5 billion associated with transmission projects that was broadly to try to look at these LRTP projects over the next 10 years. So I think we got it in there. Now it’s a matter of where it just ends up by year, if that makes sense.

Martin Lyons — President, Chief Executive Officer

Yes. Shar.

Shar Pourreza — Guggenheim Partners — Analyst

Sorry. Yeah, Martin go ahead.

Martin Lyons — President, Chief Executive Officer

Yeah, Shar it’s Marty. And I think Michael touched on a good thing. As we started the year we look ahead to Q2, and we noted that there were going to be some important updates in Q2. And I think that’s exactly what came through. In terms of the integrated resource plan in Missouri that indicated about $2.7 billion of incremental spend between now and 2031. And then, as Michael said the LRTP adding another $1.8 billion of of expenditures that we have assigned to us, as well as this potential for $700 million of additional competitive projects.

So, as Michael said, all those things gave us confidence to add that $8 billion to to that long-term capital expenditure outlook.

Shar Pourreza — Guggenheim Partners — Analyst

Perfect, perfect. And then just, I know you just point you touched on it a little bit on just the Inflation Reduction Act. I mean obviously see proposed some changes, I think we go to a vote on Saturday. Can you just touch a little bit on the tax side. I mean some of the utilities have talked about a technical fix with the 50% AMT. Are you in sort of EI logging against that could you are going to carve out. And then if there is an enactment of that AMT how do we just sort of think about the cash flows and rate-based growth impact, and the recovery timing. Thanks.

Martin Lyons — President, Chief Executive Officer

Well, Shar, there was, there is a lot there. And as you noted, even, based on the reports this morning, there seems to be some moving pieces as it relates to the corporate minimum tax. Let me just say this overall about the legislation. We’re excited about the potential tax credits in the legislation, especially the wind and the solar given the 4,700 megawatts of renewables that we looked at in Missouri by 2040 based on our Integrated Resource Plan. So that’s all pretty exciting. And even net of CMT impact we think the legislation, good for Ameren for our customers in both Missouri and Illinois because it really should lower the cost of the clean energy transition in both states. And that’s not even mentioning some of the other positives in there, whether it’s the credits for nuclear storage CCUS hydrogen. Things we talked about on the call, all of which align with our long-term resource plan.

So that’s all really good. Other things you’re aware of things like the PTC for solar is a positive versus the prior ITC and transfer ability provisions which are things that we really think could help us to pass the value associated with some of these tax credits to our customers more swiftly. So like I said net, we think that the legislation overall is good and will help facilitate a lower cost transition to this clean energy. Is it relates to the CMT? It is applicable to us given that we have pre tax book income of greater than $1 billion. But probably premature to speculate on exactly what that impact would be given as you mentioned.

Some of the moving pieces that aren’t even really clear to us at this particular time. But at the end of the day, we do think based on what we have seen, we do believe that the cash flow impacts would be manageable. And as would Michael can comment on this better, but also the the impacts on credit metrics and credit ratings. So that’s I guess where we stand on things. Shar, hopefully I answered all of your questions. Michael, do you have any thing to add?

Michael Moehn — Executive Vice President, Chief Financial Officer

Yeah. I mean, Marty. I think at a high level, you gave it you gave it a good Justice there. I mean I think overall, we do see it as being. there are a lot of moving pieces here. So I think that’s why we’re trying to stay away from the specifics. But as we look at it and model how we do think, as Marty said, both from a cash flow as well as any sort of impact Shar on our FFO to debt metrics that it definitely is something that’s manageable. And I think the important thing to remember is just the net benefit the customers just from our overall credit standpoint.

Certainly on the Missouri side as you think about this clean energy transition that we’re about to go through.

Shar Pourreza — Guggenheim Partners — Analyst

Fantastic, guys. Listen and have a great weekend and appreciate the disclosures.

Michael Moehn — Executive Vice President, Chief Financial Officer

You too, Shar.

Operator

Our next question comes from Jeremy Tonet with JP Morgan. Please proceed with your question.

Jeremy Tonet — JP Morgan — Analyst

Hi, good morning.

Martin Lyons — President, Chief Executive Officer

Good morning, Jeremy.

Jeremy Tonet — JP Morgan — Analyst

Just wanted to round out the MISO Tranche 1 conversation, a little bit more. And would Ameren entertain the notion of pursuing competitive processes beyond the $700 million identified or is that the extent of what you would consider? And also we’ve heard about there being kind of a some incremental upside to these projects may be 10% to 15% of capex additionally for kind of ancillary components to these projects. And just wondering if you had any thoughts along those lines.

Martin Lyons — President, Chief Executive Officer

Yeah. Jeremy good questions you’ve certainly we’ll look to compete for these $700 million. If there are other projects that are competitive certainly we’ll take a look at those as well. We’re not limited to these. But of course as you know, in many of the surrounding states, you have entities where the rights of first refusal. So, look we feel good about the ones that have been assigned to us. I can’t emphasize that enough. This $1.8 billion we feel great about and we’ll go after the $700 million. And if we see other opportunities, we’ll certainly look to compete in those as well.

I wouldn’t speculate right now, Jeremy, on in terms of any incremental investment beyond these. These are the estimates that really came from MISO. And as we indicated in our call prepared remarks, we’ll certainly be looking to next steps is really work on more refined design, procurement, the regulatory approvals, etc., and give updates on what we think the overall value of these projects are perhaps when we get around February and update our overall plans. But for now we think these are the best estimates to be able to provide.

Jeremy Tonet — JP Morgan — Analyst

Got it. That’s helpful, thanks. And then just as it relates to Rush Island here. If you could provide any incremental thoughts with regards to transmission upgrade opportunity here. Any, can you provide any estimates on what these upgrades could look like? I know it’s bigger than a breadbox, but trying to kind of scope out what that might look like.

Martin Lyons — President, Chief Executive Officer

Yeah, good question. Look we getting gave a pretty good update in our prepared remarks on Rush Island. We did indicate that design and procurements underway with respect to the upgrade projects that MISO would approved. I mean I think our best estimate today, and this is a bit of a broad range, probably in the $100 million to $150 million range. And, but like I said, we’ll be able to refine that further as we go through the design and procurement activities.

Jeremy Tonet — JP Morgan — Analyst

Got it. That’s very helpful. I’ll leave it there. Thanks.

Martin Lyons — President, Chief Executive Officer

Thanks, Jeremy.

Operator

Our next question is from Julien Dumoulin Smith with Bank of America. Please proceed with your question.

Julien Dumoulin Smith — Bank of America Merrill Lynch — Analyst

Hey, good morning team. Thanks for the time and the opportunity. Hope you guys are well.

Martin Lyons — President, Chief Executive Officer

Hey, Julien. Hope you’re well also.

Julien Dumoulin Smith — Bank of America Merrill Lynch — Analyst

Thank you. Thank you, sir. So maybe I want to come back to the Rush situation. I know you mentioned ’25 here for instance retirement here. But I want to talk about these other CSAPR regulations and NOCs. I’m just trying to understand how that lines up. I know that there is some proposals out there for 2026 and obviously you’ve got a couple of the plans, Labadie and Sioux. How do you see this playing out? Because obviously there is EPA regs in sort of hypothetically there and then there is reality of them lining up against your portfolio in a pretty meaningful way.

I just wanted to understand sort of the specifics as to. I mean obviously this subject to a litigation, but how do you see this playing out more specifically for your portfolio? And as you see to try to balancing.

Martin Lyons — President, Chief Executive Officer

Yeah. So as it relates to the CSAPR rules. Look it’s something more not only monitoring but engaging with EPA in terms of providing comment. Of course Meramec is to retire in this year Rush Island is, as you mentioned, looks like it’s going to retire in the 2024 to 2025 timeframe. Again, we don’t expect to the transmission investments to be fully completed until 2025.

As we noted, we have proposed some limited operations between now. And then between now and when the plant would ultimately retired all subject to the court’s ruling in terms of operating parameters as well as the ultimate closure date. But certainly going to significantly reduce NOx emissions as we ramped down towards closure of that facility. So I think the focus really becomes Julien that on NOx controls at Labadie and Sioux. And I would remind you there that we’ve made significant investments over time in terms of NOx controls and we’re more than complying with all the, the current standards that are out there.

So with respect to the proposed additional rules I think we’ll wait to comment on specifically what the impacts will be at Labadie and Sioux over time. I mean, until we get the final rules, which we expect to come out next March. But I will tell you that we’ll be doing and we are, were analyzed and strategies for compliance and making sure that we get the full benefit of the controls that we do have in place today at Labadie and Sioux.

Julien Dumoulin Smith — Bank of America Merrill Lynch — Analyst

Excellent, thank you. And then if I can just jumping in on the inflation conversation. Obviously you filed here your latest iteration of the rate case. But how are you seeing sort of cost inflation manifests itself across your portfolio? And how do you think about balancing that given the test you’re embedded in the current rate case and then any of the levers you might have.

Michael Moehn — Executive Vice President, Chief Financial Officer

Yeah, thanks. Julien, this is Michael. Yeah. Look at inflation, it’s certainly, we’re in a little different environment today. But I mean I think as we’ve talked historically and we’ve showed you a couple of times you can have a slide, I think that went through ’16 through ’21 and our overall operating costs were down about 3%. And so, look, we remain focused on it. You referenced this in Missouri rate review that we just filed here. I would tell you that it’s really predicated on a lot of capital investment within the Smart Energy Plan.

We outlined, I think the benefits, the customers are getting associated with those investments. And obviously it’s also being impacted by what we just talked about with respect to Rush Island and the net fuel costs and operating that plant in a more limited fashion as well. So when you really cut through what’s going on the case, it’s not, it’s really not about O&M cost, which I think is a testament to what this team has been doing in terms of just looking for ways to continue to hold down costs wherever possible.

So in the present environment I think we’re managing well through it. As we noted on the call, we had some O&M was up, but it was really driven by some one-time things between the COLI performance to all some storm costs. And when you cut through it. It’s certainly lines up with what our expectations were in the February timeframe we released guidance.

Julien Dumoulin Smith — Bank of America Merrill Lynch — Analyst

Got it. And just prospectively here. Just if I can push a little bit further. Obviously, you’ve done a good job sort of to-date, if you will. If you look prospectively whether that’s related to the cadence of labor relation negotiations etc. I mean, do you, what kind of trajectory and inflation are you seeing sort of in-fill time more perspective of year, if you can comment a little bit more.

Yeah.

Michael Moehn — Executive Vice President, Chief Financial Officer

Yeah. Absolutely. Not you look I keep my comments consistent with where we’ve been in the past. And as Marty I and the rest of the team are very focused on these costs and doing all that we can to control what we can control. And look we aspire to keep these O&M costs. I think we said this before that really flat over the five-year horizon, if at all possible. It’s obviously, it’s a bit more challenging in this environment. But again as we look to our capital plan we look to the investments that we’re making in automation and digital and smart meters. I mean, we’re using all of those things to increase productivity, lower costs where we can and we’re going to stay focused on it and just do have all that we can because we know, again what it means to our customers.

We understand, we talked about us from a capital perspective for every dollar of O&M. We reduce, we can spend equivalent $7 of capital. And so it is certainly top of mind, and continuous everyday focus here.

Julien Dumoulin Smith — Bank of America Merrill Lynch — Analyst

Thank you, team. Have a good weekend. See you soon.

Michael Moehn — Executive Vice President, Chief Financial Officer

Thank you.

Martin Lyons — President, Chief Executive Officer

Thank you, Julian.

Operator

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

Paul Patterson — Glenrock Associates — Analyst

Hey, good morning.

Michael Moehn — Executive Vice President, Chief Financial Officer

Good morning, Paul.

Paul Patterson — Glenrock Associates — Analyst

So just on on Rush Island just sort of tactically speaking, if you don’t get the I mean if the courts don’t completely go your way the plan, as you said, what would actually happen or do we have an idea about what we’re going to do?

Martin Lyons — President, Chief Executive Officer

Yeah, I guess, I don’t want to speculate that, Paul. I think that it’s a, obviously a process that we’re still wait working through with the court, and the court proceedings. And so we laid out for you on slide 9 the facts as they stand today and certainly wouldn’t speculate if we get to that that crossroads. So I would point you on slide 9, we said that with respect to the court, the March 31 2024 compliance stay remains in effect unless extended by the court.

So the court’s got that ability. And certainly don’t want to speculate as to what the court will or won’t do. And we’ll these proceedings play out.

Paul Patterson — Glenrock Associates — Analyst

Okay, fair enough. I don’t want to push that I guess it’s all, it’s all hypothetical I guess to a certain degree. So with respect to wind curtailments that we’ve been seeing in the area. I was wondering if you could tell us what you’ve been seeing, not just in Ameren but the greater Ameren neighborhood, so to speak. As well as how Tranche 1 and other sort of activity occurring. Like I guess green belt is talking about it, a 25% I think increase among other things. And as there is just a lot of moving pieces I can’t put it right. So I’m just sort of wondering what if you could just sort of comment about what you’re seeing there in terms of additions of generation plants traditional setting down and transmission. What do you see sort of the current situation with wind curtailments just generically speaking in your general region? And what Tranche 1 and other things might do with respect to the issue.

Martin Lyons — President, Chief Executive Officer

Yeah, Paul, I guess, I don’t have a specific comment on wind curtailments and something we can follow-up on you — follow-up with you on. That said, what I have seen recently is a map of these Tranche 1 projects overlaid against where we’re seeing congestion across MISO. And I will tell you there is tremendous alignment there meeting the these planned projects in Tranche 1 really align well with where we’re seeing congestion across the footprint really promise to alleviate some of that congestion.

And I. Yeah, I think that’s why if you go back a year or so ago Warner made a comment about these being I forget the word he used. But kind of no-brainer projects or something like that, and no regrets projects. And I think what he really meant by those is that whether we proceed towards future 1, 2 or 3 and MISO these projects are very foundational no matter where you go. And there needed today to address some of the congestion that we’re already seeing within the MISO footprint.

And as I look ahead to Tranche 2, 3 and 4, especially based on what we’re seeing coming out of this IRA legislation I think it’s really going to push us beyond that Future 1 to more of like a closer to a future 2 kind of outlook. And my sense is that some of that will end up getting baked into the extent of the projects that are approved in future tranches including Tranche 2, which is still expected to be approved by late next year. So again, don’t have a specific comment on your question about what we’re seeing currently. But to your question about these transmission projects and the need to alleviate congestion issues we’re seeing absolutely they align very well.

Paul Patterson — Glenrock Associates — Analyst

Okay, awesome. Thanks so much and all have a great weekend.

Martin Lyons — President, Chief Executive Officer

You too.

Operator

[Operator Instructions] Our next question comes from Anthony Crowdell with Mizuho. Please proceed with your question.

Anthony Crowdell — Mizuho — Analyst

Hey, good morning, Mike. Good morning, Marty. Thanks for taking my questions.

Martin Lyons — President, Chief Executive Officer

You bet. Good morning.

Anthony Crowdell — Mizuho — Analyst

I guess first on the Missouri rate filing. Just if I think about you filed in ’21 you’re filing again in ’22. We have the PISA legislation passed. Just what’s now that you may have more clarity on the forward-looking capex plan. What kind of frequency of rate filing you expecting in Missouri for the next two to three years?

Martin Lyons — President, Chief Executive Officer

Yeah. Andy, we haven’t actually said. I mean you’re right. We’ve been on kind of a two-year cycle here at this point. And look, I mean we obviously we want to continue to stretch these out as much as we possibly can. But just given the pace that we’ve been on from a capital standpoint two years has been sort of what that required pace be needed to be.

I think the only other thing to just keep in mind is that we are required to file every four years, just because of the fuel adjustment clause. But otherwise we do want to try to stretch amount as long as we can.

Anthony Crowdell — Mizuho — Analyst

Great. And then I guess last. It may be harder or may not be a great question. If I think about the future one projects that the company have bet on. Is there any incumbent utilities or are you guys operate in that jurisdiction. It seems that maybe you’re the incumbent terms are more likely to to submit a proposal for a more robust like infrastructure because it’s in your jurisdiction. You’re looking at having that asset be active for 50 years 60 years or something that was a competitor coming in there may just meet the minimal of a design spec and it makes it more affordable and wins the competitive process. Is that possible or it’s the design specs at the same for everyone?

Martin Lyons — President, Chief Executive Officer

I really, I really think MISO is going to do their best to make sure that there are very clear scope and design and construction expectations and attributes such that you can really get apples to apples comparisons in these bids. And I gave a fairly extensive answer to a question earlier, at the end of the day, I just want to reinforce, I mean we really do believe that we’re well positioned to efficiently build-operate and maintain these assets over time. But it is our expectation that there’ll be every effort made to ensure there is apples-to-apples comparisons.

Anthony Crowdell — Mizuho — Analyst

Great. Thanks so much and have a wonderful weekend.

Martin Lyons — President, Chief Executive Officer

Thank you. Same to you.

Michael Moehn — Executive Vice President, Chief Financial Officer

You too.

Operator

Our next question is from Neil Kalton with Wells Fargo Securities. Please proceed with your question.

Neil Kalton — Wells Fargo Securities — Analyst

Hi guys, how are you. Good morning.

Martin Lyons — President, Chief Executive Officer

Good morning, Neil.

Michael Moehn — Executive Vice President, Chief Financial Officer

Good morning.

Neil Kalton — Wells Fargo Securities — Analyst

Yeah. So I know it’s not your project green belt expressed there has been some recent developments, the capacity, as Paul mentioned is going up on the project. And I would imagine IRA probably has some positive implications for the economics and prospects. I would love your latest thoughts on that project, if you will.

Martin Lyons — President, Chief Executive Officer

Hey, Neil, it’s Marty absolutely. We laid out in this updated integrated resource plan at some pretty significant ambitions in terms of addition of renewables. We are talking about 2,800 megawatt through 2030 4,300 megawatts by 2035. And we’ve filed a couple of CCNs related to that. As you know the Boomtown project Huck Finn project a couple of projects we outlined on this call, but there’s a long way to go in terms of the addition of renewable. So we have issued a request for proposal and are evaluating the best options for our customers.

As we’ve discussed with you and others over time a green belt remains a project that is of interest, primarily because of the opportunity to bring wind energy from the West, the Kansas region for example into Missouri for the benefit of our Missouri customers. And in fact in our integrated resource plan had highlighted the potential to utilize that line to bring in as much as a 1,000 megawatts of wind energy. So it is something that we continue to evaluate, and we’ll evaluate as we look at the opportunities for renewables that come out of this RFP.

Ultimately as you know, we want to make sure we pick the right projects for our customers from the standpoint of affordability and a good mix of assets to meet their needs over time.

Neil Kalton — Wells Fargo Securities — Analyst

Great, thanks. And then one other question. I think in your prepared remarks, you mentioned hydrogen as being you sort of mentioned as part of the. Can you elaborate a bit more on sort of how you’re thinking about hydrogen? Is this sort of the nearer term opportunity or any thoughts on that as well, please.

Martin Lyons — President, Chief Executive Officer

Yeah. Neil. And also in our updated integrated resource plan that we filed in June, we actually added 1,200 megawatt combined cycle plant by 2031. And the idea there is to get to our net zero ambitions by 2045. The idea would be to construct that with an eye towards transitioning to hydrogen or hydrogen blend with carbon capture retrofit by as early as the 2040 timeframe.

So it’s with regard to that project specifically that we think about that.

Neil Kalton — Wells Fargo Securities — Analyst

Okay, great. Thank you.

Martin Lyons — President, Chief Executive Officer

Yeah.

Michael Moehn — Executive Vice President, Chief Financial Officer

Thank you.

Operator

We have reached the end of the question-and-answer session. I’d now like to turn the call back over to Marty Lyons for closing comments.

Martin Lyons — President, Chief Executive Officer

Great. Hey, thank. Thank you all for joining us today. I hope what you heard is that we had a very strong start to 2022. We are looking to finish strong for the remainder of this year, and we remain focused on continuing to deliver significant long-term value to our customers. The communities that we serve and to our shareholders. And so anyway. We look forward to seeing many of you at conferences over the next couple of months, and we again appreciate you joining us. Have a great day. [Operator Closing Remarks]

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