Morningstar | Management Meeting: Ameren Sees Missouri Growth Opportunities After Legislation
We are reaffirming our $57 per share fair value estimate, no moat, and stable moat trend for Ameren after meeting with management at the Edison Electric Institute Financial Conference in San Francisco.Ameren has made great progress enhancing the regulatory framework in Missouri, which is leading to significant investment in the state. As part of state Senate Bill 564, Ameren has in place infrastructure trackers reducing regulatory lag supporting $1 billion of additional investment in the next five years. Additional adjustments, such as trackers for fuel costs, uncertain tax position, and pension have also aided the regulatory environment.
However, Ameren's returns remain lower than many of its peers. While no ROE was specified in its 2017 rate review, Ameren is using 9.53% allowed return on AFUDC, one of the lowest in the U.S. Continued progress in the Missouri regulatory environment and execution under current legislation would likely lead us to re-examine our no-moat rating.
Ameren has significant growth opportunities. In addition to infrastructure investment in Missouri, Ameren is progressing with its 700 MW wind turbine construction for a total of $1 billion investment in Missouri. We expect there will be additional renewable energy investment opportunities beyond the initial wind investment. Ameren will also continue its transmission rate base growth, with expectations to grow rate base to $4.4 billion in 2022 from a $2.5 billion in 2017. We like transmission investment because of its forward-looking rate treatment and higher allowed returns than state regulated investment. Ameren also has numerous grid modernization investments across its Illinois and Missouri subsidiaries.
Ameren is a public utility holding company. Through its subsidiary, Union Electric Company, the company operates a rate-regulated electric generation, transmission, and distribution business and a rate-regulated natural gas distribution business in Missouri. Through its subsidiary, Ameren Illinois Company, the company operates rate-regulated electric transmission, electric distribution, and natural gas distribution businesses in Illinois. Through its Ameren Transmission Company of Illinois subsidiary, the company operates a Federal Energy Regulatory Commission rate-regulated electric transmission business. The company also has other subsidiaries that conduct other activities, such as providing shared services.
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