Business Context and Reporting Period
This Form 8-K is a current report filed by Ameren Corporation and its subsidiary, Union Electric Company (Ameren Missouri), on July 3, 2019. The filing addresses a regulatory event where Ameren Missouri submitted a request to the Missouri Public Service Commission (MoPSC) to decrease its annual revenues for electric service by $1 million. This filing is a mandatory reset of base rates, last adjusted in 2017 and 2018, required to maintain the use of the fuel adjustment clause (FAC).
Key Financial Metrics and Rate Request Details
The rate request is based on the following financial assumptions and metrics:
- Revenue Adjustment: Requested decrease of $1 million in annual revenues.
- Return on Equity: 9.95%.
- Capital Structure: Estimated 51.9% common equity.
- Rate Base: Estimated electric rate base of $8.0 billion.
- Test Year: Ended December 31, 2018, with pro-forma adjustments through December 31, 2019.
The filing does not provide consolidated revenue, profit, cash flow, or debt figures for the company as a whole, as this is a regulatory event report rather than a financial results report.
Material Changes and Drivers
The requested $1 million revenue decrease is driven by the following factors:
- Net Energy Costs: Decreased by approximately $100 million, otherwise subject to FAC recovery.
- Customer Sales Volumes: Higher weather-normalized volumes reduced the rate request by approximately $55 million.
- Operating Expenses: Decreased by approximately $20 million (excluding net energy costs), including an $80 million decrease in expenses subject to regulatory recovery mechanisms.
- Depreciation and Amortization: Increased by $115 million for new infrastructure investments. This includes $35 million from higher depreciation rates and $35 million that would otherwise be deferred under plant-in-service accounting (PISA).
- Return on Rate Base: Increased by approximately $60 million (pre-tax), including $30 million that would otherwise be deferred under PISA.
Outlook, Risks, and Contingencies
Regulatory Timeline: The MoPSC proceeding is expected to last up to 11 months, with a decision anticipated by late April 2020 and new rates effective in late May 2020. Ameren Missouri cannot predict the final approved rate change or the approval of requested regulatory recovery mechanisms.
Strategic Intent: The filing allows Ameren Missouri to time its next regulatory rate review to include wind generation investments expected in late 2020.
Key Risks: The filing lists numerous forward-looking risks, including:
- Regulatory, judicial, or legislative actions affecting ratemaking and cost recovery.
- Impact of Missouri Senate Bill 564 and customer rate caps.
- Fuel cost volatility and availability (coal, natural gas, uranium).
- Cyberattacks and operational disruptions.
- Environmental compliance costs and renewable energy requirements.
- Capital market disruptions and credit rating actions.
Investor Verification Checklist
- Verify the final MoPSC decision on the rate decrease and the approval of the fuel adjustment clause (FAC) in late April 2020.
- Monitor the impact of Missouri Senate Bill 564 on future rate caps and cost recovery.
- Track the status of the natural gas regulatory rate review filed in December 2018 and the renewable energy standard appeal filed in January 2019.
- Review future filings for the inclusion of wind generation investments in the next rate case.
- Assess the company's ability to recover costs and earn a reasonable return given the requested $1 million revenue reduction.