Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. AMEREN CORP (1002910) 10-Q published on May 10, 2019 at 1:07 pm
Reporting Period: Mar 30, 2019
In 2018, Ameren Missouri entered into two build-transfer agreements to acquire, after construction, an up-to 400-megawatt wind generation facility and an up-to 157-megawatt wind generation facility. In October 2018, the MoPSC issued an order approving a unanimous stipulation and agreement regarding a requested certificate of convenience and necessity for the up-to 400-megawatt facility. In March 2019, the MoPSC issued an order approving a nonunanimous stipulation and agreement regarding a requested certificate of convenience and necessity for the up-to 157-megawatt facility. Final MISO interconnection costs for the up-to 400-megawatt facility are expected to be determined in June 2019, and a related transmission interconnection agreement with the MISO is expected in the fall of 2019. Final MISO interconnection costs for the up-to 157-megawatt facility are expected to be determined in the fall of 2019, and a related transmission interconnection agreement with the MISO is expected in early 2020.
All three facilities are expected to be completed by the end of 2020, which would support Ameren Missouri’s compliance with the Missouri renewable energy standard. Each acquisition is subject to certain conditions, including the issuance of a certificate of convenience and necessity by the MoPSC for the up-to 300-megawatt facility, obtaining FERC approval for the up-to 157-megawatt facility and the up-to 300-megawatt facility, entering into an RTO transmission interconnection agreement at an acceptable cost for each facility, and other customary contract terms and conditions.
Since the maximum FERC-allowed refund period for the November 2013 complaint case ended in February 2015, another customer complaint case was filed in February 2015. MISO transmission owners subsequently filed a motion to dismiss the February 2015 complaint, as discussed below. The February 2015 complaint case seeks a further reduction in the allowed base return on common equity for FERC-regulated transmission rate base under the MISO tariff. In June 2016, an administrative law judge issued an initial decision in the February 2015 complaint case. If approved by the FERC, it would lower the allowed base return on common equity for the 15-month period of February 2015 to May 2016 to 9.70%, or a 10.20% total allowed return on equity with the inclusion of a 50 basis point incentive adder for participation in an RTO. It would also require customer refunds, with interest, for that 15-month period. A final FERC order would also establish the allowed return on common equity that will apply prospectively from the effective date of such order, replacing the current 10.82% total return on common equity. In April 2017, the United States Court of Appeals for the District of Columbia Circuit vacated and remanded to the FERC an order in an unrelated case in which the FERC established the allowed base return on common equity methodology subsequently used in the two MISO complaint cases described above. In October 2018, the FERC issued an order in an unrelated case that proposed a new methodology for determining the base return on equity and required further briefs from the participants. In November 2018, the FERC issued an order related to the February 2015 complaint case and the September 2016 order, which required participants to file briefs in February 2019 regarding the FERC’s proposed methodology for determining the base return on common equity, including whether and how to apply the proposed methodology to the two MISO complaint cases. In March 2019, the FERC issued separate Notices of Inquiry regarding its allowed base return on common equity policy and its transmission incentives policy, with comments due in June 2019. The Notice of Inquiry addressing the FERC’s return on common equity policy, among other things, broadens the ability to comment on the new methodology
beyond electric utilities that are participants in the complaint cases, and the transmission incentives Notice of Inquiry is open for industry comment on the FERC’s transmission incentive policy, including incentive adders to the return on common equity. Ameren is unable to predict the ultimate impact of the proposed methodology on these complaint cases or the Notices of Inquiry at this time. As the FERC is under no deadline to issue a final order, the timing of the final order in the February 2015 complaint case, and any potential impact to the amounts refunded as a result of the September 2016 order, is uncertain.
In the first quarter of 2019, we adopted authoritative accounting guidance related to leases, which affected our financial position, but did not materially affect our results of operations or liquidity. The most significant impact for us was the recognition of right-of-use assets and lease liabilities for operating leases, while the accounting for our finance leases remained substantially unchanged. Ameren and Ameren Missouri recognized right-of-use assets and offsetting lease liabilities of $38 million and $36 million at January 1, 2019, respectively, primarily related to rail car leases. The effect of the adoption was immaterial at Ameren Illinois. No adjustment to comparative periods was made. We elected the available practical expedients upon adoption.
Ameren Missouri leases rail cars under operating lease arrangements for the transportation of coal inventory to its energy centers. Although Ameren Missouri has options to renew a portion of these arrangements for up to five years on similar terms, the exercise of these options was not assumed in the recognition of right-of-use assets and lease obligations. For rail car leases, we account for the lease and non-lease components as a single lease component.
Ameren's first quarter 2019 net income attributable to common shareholders was $191 million, or 78 cents per diluted share, compared with first quarter 2018 net income attributable to common shareholders of $151 million, or 62 cents per diluted share. The increase in year-over-year earnings reflected the benefits of increased infrastructure investments, which contributed to higher net income at each of Ameren’s business segments. Ameren Illinois Natural Gas earnings increased as a result of higher delivery service rates and a change in rate design, which concentrates more revenues in the winter heating season due to an increase in volumetric rates. Increased infrastructure investments drove higher earnings at Ameren Transmission and Ameren Illinois Electric Distribution, each of which benefits from formulaic ratemaking. Ameren Missouri earnings also rose reflecting higher weather-driven electric retail sales and energy-efficiency performance incentives that offset the comparative impacts of timing differences in 2018 between income tax expense and revenue reductions related to federal tax reform. This timing difference will affect 2019 quarterly earnings comparisons but is not expected to affect the full-year comparison. The first quarter earnings comparison also benefited from a lower consolidated effective income tax rate.
Interest charges decreased $4 million at both Ameren and Ameren Missouri in the three months ended March 31, 2019, compared with the year-ago period, primarily because of a lower average interest rate on long-term debt at Ameren Missouri and a deferral of interest expense under PISA of $2 million. Partially offsetting these decreases at Ameren Missouri was an increase in interest charges resulting from higher average outstanding debt. Interest charges were comparable between periods at Ameren Illinois and its segments resulting from a lower average interest rate on long-term debt offset by higher average outstanding debt.