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Ameren (NYSE:AEE)
Q4 2018 Earnings Conference Call
Feb. 14, 2019 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to Ameren Corporation's fourth-quarter 2018 earnings call. [Operator instructions] As a reminder, this conference is being recorded.  It is now my pleasure to introduce your host, Andrew Kirk, director of investor relations for Ameren Corporation. Thank you, Mr. Kirk.

You may begin.

Andrew Kirk -- Director of Investor Relations

Thank you, and good morning. On the call with me today are Warner Baxter, our chairman, president and chief executive officer; and Marty Lyons, our executive vice president and chief financial officer; as well as other numbers of the Ameren management team. Warner and Marty 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's accurate only as of today's date. 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, strategies, 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 the news release we issued today and 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's Warner, who will start on Page 4 of the presentation.

Warner Baxter -- Chairman, President and Chief Executive Officer

Thanks, Andrew. Good morning, everyone, and thank you for joining us. Earlier today, we announced 2018 core earnings of $3.37 per share, compared to $2.83 per share earned in 2017. While Marty will discuss the drivers of our 2018 results in a few minutes, I'd like to highlight some key accomplishments that are indicative of our team's strong performance in 2018, and importantly, that will position Ameren for success in years ahead.  As you can see from this slide, we were very busy in 2018.

2018 marked another year of solid earnings growth, driven by the successful execution of our strategy across all of our businesses. Our strategy is to invest in rate-regulated energy infrastructure, continuously improve operating performance and advocate responsible energy policies to deliver superior customer and shareholder value. Our customers are at the center of our strategy. Simply put, we are focused on meeting our customers' energy needs and exceeding their expectations and, in so doing, delivering superior shareholder value.  With these objectives in mind, we made $2.3 billion of investments in 2018, that resulted in a more reliable, resilient and secure energy grid as well as a strong rate-based growth.

And we were pleased to be able to pass on to customers in a very timely fashion the savings from the lower federal income tax rate.  In 2018, we also achieved constructive outcomes in many regulatory proceedings that will help drive additional investments for the benefit of customers and shareholders. I was also pleased by the fact that many of these constructive regulatory outcomes were supported by strong collaboration with key stakeholders, which ultimately resulted in agreements on the key issues. In our Illinois businesses, we received approval from the Illinois Commerce Commission on our electric delivery and natural gas rate reviews, consistent with our request. In addition, we were pleased with the FERC's decision to allow for a 50 basis point ROE incentive added for Mark Twain due to the unique nature of the risks involved in that project.

We also received approvals for several Ameren Missouri customer-focused programs, including the third energy efficiency plan as well as the renewable choice and community solar programs, both of which will allow customers to work with Ameren Missouri to procure greater levels of renewable energy in a cost-effective manner. We see these achievements as a big win for our customers and the environment. Yet our biggest achievements in 2018 related to the significant progress we made in advancing energy policy to support significant incremental electric grid modernization investments in Missouri as well as the progress we made in responsibly transitioning to a cleaner, more diverse generation portfolio with the announcement of significant wind investments in Missouri. The enactment of Senate Bill 564 marks a step change in Missouri's energy policy to enable investment to modernize the energy grid and drive the economic development in the state.

And our planned acquisition of at least 700 megawatts of wind generation consistent with Missouri's renewable energy standard will drive significant incremental investments in renewable energy.  I will cover both of these important strategic opportunities in more detail shortly. The bottom line is, we now have constructive regulatory frameworks in all of our jurisdictions, which allows us to allocate significant amounts of much-needed investment to each of our business segments for the benefit of our customers, the communities we serve and our shareholders. As I said a few minutes ago, we accomplished a great deal in the execution of our strategy in 2018, which will drive significant long-term value for all of our stakeholders. I think it's important to note that our team's strong execution of our strategy in 2018 was not an aberration.  As you can see on Page 5 of our presentation, we have been laser focused on executing this same strategy for the last five years.

Our successful execution of this strategy has transformed our business mix, delivered significant value to our customers and shareholders and positioned the company for success in years ahead. In particular, consistent with regulatory frameworks, the supported investment in energy infrastructure, we invested approximately $10 billion over the last five years.  Slide 5 highlights some of the investments we have made during this period. Since 2013, we have improved the safety and reliability of our electric and natural gas systems, improved the efficiency of our energy centers, enhanced our environmental footprint and strengthened our cyber security posture. At the same time, our relentless focus on disciplined cost management has kept our electric rates affordable and very competitive, as they remained well below the Midwest and national averages.

We have also been very active and successful in working collaboratively with key stakeholders in Missouri and Illinois on implementing constructive energy policies in all of our jurisdictions to support ongoing and future investment in energy infrastructure. And we have been capitalizing on new opportunities for investment, most notably those associated with transmission projects and planned wind generation in Missouri. All of these actions, when taken together, resulted in a successful execution of our strategy, which has delivered significant value to our customers and shareholders. Our investments over the last five years have driven robust compound annual rate base growth of approximately 8%.

That growth, coupled with improved earned returns drove a strong, compound annual earnings-per-share growth of more than 7% over the same period. We also grew our common dividend during this time period and improved our overall business risk profile. Combined, these actions also resulted in a strong total shareholder returns over the same five-year period.  I want to be clear, we do not take these results for granted. Achieving these results required a great deal of hard work, persistence and team effort.

While I am pleased with what we have accomplished, I am even more excited about the fact that the execution of our strategy has positioned us very well to continue to deliver superior customer and shareholder value in the future, which brings me to Page 6 of our presentation and a discussion of earnings growth expectations for the next five years. We expect our 2019 earnings per share to be in the range of $3.15 to $3.35 per share. And it's within this range, we'll deliver strong growth again in 2019, as the midpoint of this guidance represents nearly 7% earnings-per-share growth compared to 2018 weather-normalized core results. Marty will provide you with more details in our 2019 guidance a bit later.  Building on our robust earnings growth over the past several years, I'm also pleased to announce that we have rolled forward our long-term guidance.

Last February, we guided to a 5 to 7% compound annual earnings-per-share growth rate for the 2017 to 2022 period. For the 2018 to 2023 period, we have increased that range and now expect a strong 6 to 8% compound annual earnings-per-share growth using 2018 weather-normalized core earnings of $3.05 per share as base. This base excludes Ameren Missouri's estimated favorable weather impact of $0.32 per share from the 2018 core earnings per share of $3.37. This long-term earnings growth outlook is driven by continued execution of our strategy, including investing in infrastructure for the benefit of customers while keeping rates affordable.  This outlook also accommodates a range of treasury rates, sales growth, spending levels, and regulatory developments.

And of course, earnings growth in any individual year will be impacted by the timing of capital expenditures, regulatory rate reviews, Callaway refueling and maintenance outages and weather, among other factors.  I would also note that a Callaway refueling outage is scheduled for 2023. In contrast, we did not have a Callaway refueling outage in 2018. We believe the best way to assess our long-term earnings growth is to normalize for the timing of Callaway refueling costs as well as weather impacts. That said, our earnings guidance range accommodates the inclusion or exclusion of 2023 Callaway refueling outage cost.  Turning now to Page 7.

We expect to grow our rate base at an approximately 8% compound annual rate for the 2018 to 2023 period. Our plan includes allocating significant capital to all four of our business segments, as they now all have -- excuse me, operating jurisdictions with constructive regulatory frameworks for investments. This is reflected in the expected rate base growth for each of these businesses, as noted in the graph on the right side of this page. Importantly, our five-year earnings and rate base growth projections includes significant investments to modernize the electric grid, as set forth in Ameren Missouri's smart energy plan, which we filed with the Missouri PSC earlier this morning.

Enabled by the enactment of Senate Bill 564, the smart energy plan includes $6.3 billion of investment over the next five years, with a specific focus on modernizing the grid and acquiring renewable wind generation. Specifically, it includes approximately $1 billion for Ameren Missouri's wind generation investment related to the announced build-transfer agreements for up to 557 megawatts. The incremental grid modernization and announced wind generation investments increased Ameren Missouri's compound annual rate base growth from 3.5% in last year's five-year plan to 7.8% in our five-year plan announced today. It is important to note that any additional wind generation investments would be incremental to this capital plan, and our plan continues to call for investment in at least 700 megawatts of wind generation.  Finally, we remain relentlessly focused on continuous improvement and disciplined cost management, to keep rates affordable, and keep earn returns close to the allowed returns in all of our jurisdictions.  Moving now to Page 8.

As previously noted, today, Ameren Missouri filed its smart energy plan with the Missouri Public Service Commission. Driven by the enactment of constructive legislation in 2018, this five-year plan includes significant investments to modernize the energy grid and enhance how customers receive and consume electricity, while at the same time keeping electric rates stable and predictable. Constructive energy policies have driven similar investments at our Ameren Illinois electric distribution and natural gas businesses, delivering significant customer benefits and adding thousands of new jobs to the state's economy, while also keeping customer rates affordable.  Ameren Missouri's smart energy plan following includes a five-year capital investment overview with a detailed one-year plan for 2019, and sets forth the improvements and upgrades to modernize the nice energy grid infrastructure to benefit customers and offer more tools to manage their energy usage. Upgrades and reliability, resilience and service throughout Ameren Missouri's 24,000 square-mile service territory are the foundation of the plan, that includes more than 2,000 electric infrastructure improvement projects across the state.

This plan also includes major renewable energy projects to continue the transition to a cleaner generation portfolio in a responsible fashion for our customers.  This slide highlights several key elements for the five-year smart energy plan. The smart energy plan meets our customer's desire for stable and predictable rates, a smarter energy grid that is even more reliable, resilient and secure, new sources of clean energy and greater tools to manage their energy usage. In addition to the 6.1% rate decrease last August for the lower federal income tax rate, customers will also benefit from a rate freeze until April 2020, and a 2.85% compound annual cap on electric rate increases from April 1, 2017, to December 31, 2023. Several cost reduction opportunities are expected to provide headroom to stay under this rate cap, including the benefit of tax reform, lower fuel and transportation costs, refinancing of long-term debt at lower rates and expected O&M savings for technological improvements and disciplined cost control.  In addition, we will seek to drive greater economic development in Missouri with a meaningful incentive rate, enabled by Senate Bill 564 for new or expanding large energy users.

We look forward to working with the commission and others key stakeholders to implement the benefits of the smart energy plan as we transform the energy grid of today to power the quality of life and build a brighter energy future for generations to come.  Moving now to Page 9 for an update on our wind generation investment plans to achieve compliance with Missouri's Renewable Energy Standard and continue to transition our generation portfolio. To date, I am pleased with the progress we have made to pursue ownership of at least 700 megawatts of wind generation by 2020. Specifically, Ameren Missouri has reached agreements with two developers to acquire after construction up to 557 megawatts of wind generation, representing about 80% of our compliance needs. The proposed 400-megawatt facility to be located in northeastern Missouri was approved by the Missouri PSC last October, and when built, will be the largest ever in the state.

The next key milestone is a MISO transmission interconnection agreement, which is expected in the fall of 2019. For the proposed 157-megawatt facility to be located in the northwestern Missouri, a non-unanimous stipulation and agreement was reached earlier this month with the Missouri PSC staff and other parties on our CCN request. A Missouri PSC decision is expected by May 1 of this year, and we expect a decision on the MISO interconnection agreement in early 2020. These two wind generation facilities collectively represented approximately $1 billion investment and are expected to be in service by the end of 2020.

Of course, we're not done. Our team continues to actively negotiate with several developers for additional wind generation. And, as I noted earlier, any additional investments in wind generation will be incremental to the capital and rate base growth plan I discussed previously. We remain confident in our ability to complete these negotiations, obtain necessary regulatory approvals and have these facilities constructed in a timely fashion.

We believe these investments will deliver clear long-term benefits to our customers, the environment and the communities we serve.  Turning now to Page 10. As we look to the future, the successful execution of our five-year plan is not only focused on delivering strong results through 2023, but is also designed to position Ameren for success for the next decade and beyond. We believe that the energy grid will be increasingly important, as we expect Ameren and our industry to be critical enablers of advancing technologies that will bring even greater value to our customers, the communities we serve and our shareholders.  With this long-term view in mind, we are making investments that will position Ameren to meet our customers' future energy needs and rising expectations, support increased electrification of the transportation sector and other industrial processes, and provide safe and reliable natural gas services. The right side of this page shows that our allocation of capital is expected to grow our energy delivery businesses to approximately three quarters of our rate base by the end of 2023.

In addition to focusing on investment in the energy grid, we are also committed to transitioning Ameren Missouri's generation to a cleaner, more diverse portfolio in a responsible fashion. Ameren Missouri's pursuit of at least 700 megawatts of wind by 2020, combined with a scheduled retirement of the Meramec coal-fired energy center in 2022, reflects this continued commitment. As a result, our investment in coal and gas-fired generation is expected to be a combined 11% of rate base by year-end 2023. The bottom line is that we are taking steps today across the board to position Ameren for success in 2019, the next five years, the next decade and beyond.  Moving to Page 11.

To sum up our value proposition, we remain firmly convinced that the execution of our strategy in 2019 and beyond will deliver superior value to our customers and shareholders. We believe the rate base and related earnings-per-share growth rates, I just discussed, compare very favorably with those of our regulated utility peers, and I'm confident in our ability to execute our investment plans and strategies because we now have all four of our business segments operating with constructive regulatory frameworks to support investments. That fact, coupled with our sustained past execution of our strategy on many fronts, has positioned us well for future success. Further, our shares continue to offer investors a solid dividend.

In the fourth quarter of last year, Ameren's board of directors expressed its confidence in our long-term growth plan by increasing the dividend by approximately 4%, the fifth consecutive year with a dividend increase.  For 2018, our dividend payout, based on weather-normalized earnings, was in the lower half of our expected payout range of between 55% and 70% of annual earnings. Our strong earnings growth expectation outlined today positions us well for future dividend growth. Of course, future dividend decisions will be driven by earnings growth in addition to cash flows and other business conditions. Together, we believe our strong earnings growth outlook, combined with our solid dividend, which currently provides a yield of approximately 3%, results in a very attractive total return opportunity for shareholders.  Again, thank you all for joining us today and I'll now turn the call over to Marty.

Marty Lyons -- Executive Vice President and Chief Financial Officer

Thanks, Warner, and good morning, everyone. Turning now to Page 13 of our presentation. Today, we reported 2018 GAAP earnings of $3.32 per share compared to GAAP earnings of $2.14 per share for the prior year. As outlined in the table on this page, excluding the 2018 and 2017 non-core noncash charges for the revaluation of deferred taxes of $0.05 and $0.69 per share, respectively, Ameren reported core earnings of $3.37 per share for 2018 compared to core earnings of $2.83 per share for 2017.

Turning to Page 14. We highlight by segment the key factors that drove the overall $0.54 per share increase in 2018 core earnings compared to 2017 results. Ameren Missouri, our largest segment, and also the largest driver of the year-over-year earnings increase, experienced an increase of $0.50 per share from $1.48 per share in 2017 to $1.98 per share in 2018. This earnings improvement was largely driven by higher electric retail sales, which contributed approximately $0.42 per share.

The higher electric sales were primarily due to warmer summer and colder winter temperatures in 2018 compared to near-normal summer and milder winter temperatures in the year-ago period. In addition, the earnings improvement was driven by higher electric service rates effective April 1, 2017, as well as the absence in 2018 of a Callaway Energy Center nuclear refueling and maintenance outage. Each contributed approximately $0.09 per share to 2018 compared to 2017. These favorable earnings drivers were partially offset by a planned increase in other operations and maintenance expenses, primarily reflecting higher than normal scheduled nonnuclear plant outages, increased routine maintenance work and additional distribution reliability projects.  Turning to the other segments, earnings for Ameren transmission and Ameren Illinois electric distribution were up $0.09 and $0.03, respectively, reflecting increased infrastructure investments.

In addition, Ameren Illinois electric distribution's earnings benefited from a higher allowed return on equity under formulaic rate making of 8.9% compared to 8.7% for the prior year. The 2018 allowed ROE was based on the 2018 average 30-year treasury yield of 3.1%, up from the 2017 average of 2.9%. Earnings for Ameren Illinois Natural Gas were up $0.04, reflecting increased infrastructure investments and higher rates effective in early November 2018.  Finally, Ameren parent and other results reflected higher charitable donations, lower net state and federal tax benefits and dilution. Before moving on, let me briefly cover electric sales trends for Ameren Missouri and Ameren Illinois electric distribution for 2018 compared to 2017.

Weather-normalized kilowatt-hour sales to Missouri residential and commercial customers on a combined basis were up 1%, excluding the effects of our Missouri Energy Efficiency plan under MEEIA. Kilowatt-hour sales to Missouri industrial customers also increased about 1% after excluding the effects of our energy efficiency plan. We exclude MEEIA effects because the plan provides rate recovery to ensure that earnings are not affected by reduced electric sales resulting from our energy efficiency efforts. Weather-normalized kilowatt-hour sales to Illinois residential and connect commercial customers on a combined basis increased to 0.5% and kilowatt-hour sales to Illinois Industrial customers increased 2%.

Recall the changes in electric sales in Illinois, no matter the cause did not affect our earnings since we have full revenue decoupling.  Moving to Page 15 of the presentation. Here, we provide an overview of our approximately $13.3 billion of planned capital expenditures for the 2019 through 2023 period by business segment that underlies the 8% projected rate base growth Warner discussed earlier. Note the capital expenditures and rate base shown on this page include Ameren. Missouri's approximately $1 billion wind generation investment for up to 557 megawatts related to its announced build-transfer agreements.

Any additional wind generation investments would be incremental to this investment plan.  Turning to Page 16. Looking ahead, we will remain focused on maintaining a strong balance sheet. We're comfortable with the current capitalization levels in each legal entity and expect our capitalization levels over the coming five-year period to remain in line with those at the end of 2018. Consistent with that expectation, here we outline the expected funding sources for the infrastructure investments noted on the prior page.

We expect continued growth in cash from operations as investments are reflected in customer rates. We also expect to generate significant tax deferrals. The tax deferrals are driven primarily by timing differences between financial statement depreciation reflected in customer rates and accelerated appreciation for tax purposes under makers. I should note that over the five-year time horizon of our plan, we do not expect to be a material federal or state cash taxpayer.

In addition to the benefits of accelerated tax depreciation because of our expected $1 billion investment in up to 557 megawatts of wind generation, we also expect to generate production tax credits beginning in the 2020 time frame. From a financing perspective, we expect to continue to issue long-term debt to refinance maturing obligations and to fund a portion of our cash requirements. We also plan to continue to use newly issued shares for our dividend reinvestment and employee benefit plans over the five-year guidance period. We expect this to provide equity funding of approximately $100 million annually.

Our plans also include incremental common equity to fund a portion of Ameren Missouri's expected wind generation investment. We believe these actions should enable us to maintain the strong balance sheet and credit ratings that we have worked hard to achieve over time. Moving to Page 17 of our presentation. I would now like to discuss key drivers impacting our 2019 earnings guidance.

As Warner stated, we expect 2019 diluted earnings to be in a range of $3.15 to $3.35 per share. The midpoint of this range represents nearly 7% EPS growth versus 2018 weather-normalized core results. On this page and the next, we have listed key earnings drivers of, and assumptions behind our 2019 earnings guidance, broken down by segment and as compared to 2018 results. Beginning with the Ameren Missouri, earnings are expected to be lower in 2019, largely due to an approximately $0.32 per share benefit from favorable weather in 2018.

We also expect expenses for the spring 2019 scheduled Callaway refueling and maintenance outage to decrease earnings by approximately $0.09 per share. Recall that there was no refueling outage for Callaway in 2018 given that these scheduled outages occurred on an 18-month cycle. Further, higher depreciation expense will decrease earnings approximately $0.03, which reflects the full year application of plant-in-service accounting, or PISA, to a higher level of infrastructure investments. Partially offsetting these unfavorable earnings drivers, we expect lower interest expense of approximately $0.05 per share, including the PISA benefit.We also expect lower other operations and maintenance expenses to benefit 2019 earnings by approximately $0.05.

This reduction is primarily driven by higher-than-normal scheduled nonnuclear plant outages and increased maintenance work experienced in 2018. Finally, in Ameren Missouri, we expect higher electric margins, including benefits under MEEIA. For Ameren Illinois electric distribution, we anticipate increased earnings in 2019 compared to 2018 from additional infrastructure investments made under Illinois' formula ratemaking. Our guidance incorporates a formula-based allowed ROE of 8.9% using a forecasted 3.1% 2019 average yield for the 30-year treasury bond, which is comparable to an allowed ROE of 8.9% in 2018.

We have provided the earning sensitivity to changes in the allowed ROE of the Ameren Illinois electric distribution segment on this page. For Ameren Illinois Natural Gas distribution earnings, we expect to benefit from a full year of increased delivery rates as well as qualified investments that are included in rates on a timely basis under the state's gas infrastructure rider. Turning to Page 18, Ameren Transmission earnings are expected to benefit from additional investments in Ameren Illinois and ATXI projects made under FERC's formula ratemaking. Our guidance assumes continuation of the current 10.82% allowed ROE for the full year of 2019, which includes a 50 basis point adder from MISO participation, except for the Mark Twain project, which assumes an allowed ROE of 11.32%.

We have provided the earning sensitivity that changes in the allowed ROE of the Ameren Transmission segment on this page. Moving now to Ameren wide drivers and assumptions. We expect an effective income tax rate of approximately 19% this year, a decrease from last year's core effective income tax rate of 21%. This reflects the full-year impact of excess deferred tax flow back in customer rates that began during 2018.

Additionally, we expect lower donations at the parent company of about $0.03 per share. Finally, the issuance of common shares for our dividend reinvestment and employee benefit plans are expected to unfavorably impact earnings by $0.02 per share. I would also like to take a moment to discuss our electric sales outlook. We expect weather-normalized Missouri kilowatt-hour sales to residential and commercial customers to be up approximately 0.5% to 1%, compounded annually over the five-year plan, excluding the effects of our MEEIA energy efficiency plans.

We expect sales to our Missouri Industrial customers to be relatively flat over our five-year plan after excluding the effects of our energy efficiency plan. Again, we exclude MEEIA effects because the plan provides rate recovery to ensure that earnings are not affected by reduced electric sales resulting from our energy efficiency efforts. Turning to Illinois. We expect our weather-normalized kilowatt-hour sales to residential, commercial and industrial customers, including energy efficiency to be flat over our five-year plan.

Moving now to Page 19, for a discussion of select regulatory matters. For Ameren Transmission, there have been recent developments that may impact the base allowed ROE from MISO transmission owners. In November 2018, the FERC issued an order in the MISO ROE complaint cases, proposing a new methodology for determining the base allowed ROE and to soliciting feedback from participants. The MISO transmission owners, including the Ameren Illinois and ATXI, filed initial briefs yesterday regarding the MISO complaint cases.

In summary, we believe the FERC-proposed methodology is an improvement over the existing approach with certain recommended modifications. We are unable to predict the timing and ultimate impact of the complaint cases at this time. Turning to Page 20 for an update on cash flow guidance. For 2019, we anticipate negative free cash flow of approximately $950 million.

On the right side of this page, we provide a breakdown of our $2.4 billion of planned 2019 capital expenditures by business. We expect to fund this year's negative free cash flow and debt maturities, primarily through a combination of short- and long-term debt borrowings and issuances as well as the previously mentioned issuances of common shares for our dividend reinvestment and employee benefit plans. Finally, turning to Page 21, I will summarize. We delivered solid core earnings growth in 2018, capping five years of outstanding compound annual earnings growth.

We expect to again deliver strong earnings growth in 2019 as we continue to successfully execute our strategy. And as we look ahead, we expect strong 6% to 8% compound earnings-per-share growth over the 2018 to 2023 period, driven by an approximately 8% compound annual rate base growth and disciplined financial management. We believe this growth will compare favorably with the growth of our regulated utility peers, and Ameren shares continue to offer investors an attractive dividend. In total, we have an attractive total shareholder return story that we believe 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 Julien Dumoulin Smith with Bank of America. Please proceed with your question. Please proceed with your question.

Nick Campanella -- Bank of America Merrill Lynch -- Analyst

Hey, good morning. This is actually Nick Campanella, on for Julian.

Warner Baxter -- Chairman, President and Chief Executive Officer

No worries. How are you doing this morning?

Nick Campanella -- Bank of America Merrill Lynch -- Analyst

Very good. Congrats on the on the update here. I just wanted to start quickly on the incremental equity funding for the wind. This is within excess of the drip.

Can you just expand at all in terms of the magnitude of the funding needed there? Or how we should think about quantifying that? Whether it's from, you know, solving for an FFO to debt metric or just in terms of how you plan to finance it?

Marty Lyons -- Executive Vice President and Chief Financial Officer

Yeah. Good morning Nick. This is Marty. I think it's probably good to step back and look at the totality of what we said and what we said on prior calls.

We feel very good about the capitalization levels that we have today meaning the debt-to-equity ratios, and that's both at the parent as well as various legal entities that we have. And we're going to seek to keep levels in line with those or approximating those levels over the five-year guidance period. We believe we can do that given the retained earnings associated with our ongoing operations and into some equity financing, as we noted on the call. So the equity financing, as you know, comes in two parts.

I mean, one of it that we noted is through the dividend reinvestment employee benefit programs. There, we think, we can generate about $100 million a year of equity proceeds, or about $500 million over the period. And then we expect to issue some additional equity in an amount which equates to a portion of our ultimate wind investment, as we mentioned on the call. You bat them out being sized to achieve the capital structure objectives that we talked about earlier.

So look, I recognize you're maybe looking for a little bit more specificity, but as we think about what we said and we think about the wind, I'd also ask you to think about how Ameren Missouri is financed overall today, which is about 52% equity, knowing that the wind ultimately is going to end up in that legal entity.

Nick Campanella -- Bank of America Merrill Lynch -- Analyst

Appreciate that. And then just like the timing of the wind cap. I think that should all be realized in one year, roughly, is that correct?

Marty Lyons -- Executive Vice President and Chief Financial Officer

Nick, I think it's a good way to think about it. The 557 megawatts that we've announced today, we're going to acquire through build-transfer agreements. So there, again, we look for those deals to close between the middle of 2020 and end of 2020. And so I would be thinking about the cash flows occurring during that period of time.

Nick Campanella -- Bank of America Merrill Lynch -- Analyst

OK. And then my last question just on the -- sticking with Missouri. I think you had a net $1.5 billion increase in the five-year program. I saw that you filed, I think, your grid mod plan.

And can you just kind of talk about your expectations for grid mod versus the prior -- your previous expectations to the $1 billion? And if that has shifted at all?

Marty Lyons -- Executive Vice President and Chief Financial Officer

Maybe I could talk a little bit about the overall investment picture, which is on the Slide 15, and then see if you have some follow-up questions or we can elaborate in some way. Overall, we had previously a plan of 2018 to 2022. Obviously, when you roll forward, you not only adjust spending within those periods, but -- and also we're looking out to 2023. And so overall, it's a $13.3 billion plan for the five-year period looking ahead.

If you compare to the prior plan, I think what you'd find is, as we said, we have a strong pipeline of growth in each of our segments. And so as you look at the capital spend in the updated four and five-year period for Ameren Illinois electric distribution, Ameren Illinois Natural Gas and Transmission, those are all pretty consistent with the levels of investment that we made over the -- we are planning for the prior five-year plan that we've given. You know the real updates here, and I think -- and it should meet with generally expectations as we've added $1 billion for Ameren Missouri wind generation investment. This $1 billion is really associated with the 557 megawatts that we've announced to date.

And then getting to your point, the capital expenditure plan outside of that wind from Missouri is $5.8 billion, which compares favorably to the plan we had before, which was $4.3 billion over five years. So again, it is up $1.5 billion over the five-year period, as you mentioned. Of course, we're rolling forward to a future period. And so in any event, I think you're absolutely right.

As you would have expected, given Senate Bill 564 in the wind generation investment, the investment in Missouri overall is up in plan.

Nick Campanella -- Bank of America Merrill Lynch -- Analyst

Thanks. Congrats again.

Warner Baxter -- Chairman, President and Chief Executive Officer

Thanks, Nick.

Operator

Our next question comes from Ali Agha with SunTrust Robinson. Please proceed withyour question.

Warner Baxter -- Chairman, President and Chief Executive Officer

Good morning, Ali.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Good morning. First question, and I just wanted to clarify the -- one of the remarks, I think, you made in your opening comments in regards to the 6% to 8% EPS CAGR that you have over the next five years. And correct me if I'm wrong, but did I hear it right that the 8% CAGR would normalize for the Callaway outage and exclude that, whereas the 6% would include that? Did I hear that right? Or does the 8% also contemplate including the Callaway outage?

Marty Lyons -- Executive Vice President and Chief Financial Officer

This is Marty, let me answer that. I think what we meant to say there, what Warner was saying is that 6% to 8% range,  if you will, would accommodate either inclusion or exclusion of the cost of the Callaway outage in 2023. Clearly, we are planning for an outage in 2023. We had none in 2018.

We think the best way to look at our earnings growth profile over time is to normalize for things like the Callaway outage timing and weather. But we wanted folks to know that whether you were thinking about earnings in 2023, including or excluding those costs. That we believe that our earnings guidance range was such that it would accommodate either.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

I see. But Marty, just to be clear. So including -- if we include those costs and keep them in there, that could still get us to an 8% CAGR?

Marty Lyons -- Executive Vice President and Chief Financial Officer

Well, it would depend on other things. Again, it's a range. So what I'm saying is, if you include the cost, it still gets you into that range. If you exclude the cost you're within the range.

But I wasn't really commenting on whether you would get to the 8% or not. And Ali, I think, the way to think about it is the range accommodates a number of things. I mean, it accommodates a range of treasury rates, allowed ROEs, earned ROEs, various spending levels, regulatory decisions, sales levels, economic conditions, financing plans, all of those things. So when we give out the range, the range accommodates all of those variables that may occur.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

OK. And second clarification as well, Marty. So I think, as you mentioned, for the wind investments you're looking at completing those acquisitions in mid- to late-2020, and I'm assuming that to the extent there's additional wind that comes in, that's also a 2020 time frame period. So when we think about additional equity, should we think all of that if required will be a 2020 event, and all the other years, we should model out $100 million a year? Or should we think differently? And also, for modeling purposes, should we assume wind will be an earnings contributor? And the incremental wind will be an earnings contributor in 2020?

Marty Lyons -- Executive Vice President and Chief Financial Officer

Sure, Ali. Let me take those a little bit in reverse order. In terms of the wind, as I mentioned, one of the things that we want to get done is to get those in, in 2020, working with the developers, to make sure we take maximum advantage of the production tax credit. So with respect to the projects that we've announced today, the 557 megawatts as well as additional wind investments that we're pursuing that are not embedded in the current plans, in both cases, we're seeking to work with the developers to acquire projects that will get completed, as I mentioned earlier, in the second half of 2020.

So as you think about that, there would be some earnings impact in 2020, but it really would depend on when those projects went into service or when they get into rate base in 2020. And you really get to, I think, a more full annualized benefit of the wind when you get into 2021. And as you get through the rate cases associated with those, even into 2022, but you're really going to get to a more full annualized benefit again in that 2021 time frame. Now as it relates to the equity we talked about today that we do expect incremental equity to fund a portion of the wind investment.

And so again, those cash flows, you're right, occur in the 2020 time frame. So that's a consideration. And then I would also say that, again, we have not announced the -- we aspire to acquire additional wind beyond the 557. And so as we complete those negotiations, we'll be certainly thinking about financing that in addition to what we've talked about, the wind we've announced to date, and we'll be thinking about the sizing in a way that's consistent with what we discussed today and on prior calls.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

OK. And last question. I know in the past when you talked about the SB 564 related CAPEX, you had mentioned, at a minimum $1 billion over five years, and I guess, based on your commentary today, it looks like it's more than $1 billion at least embedded in this five-year plan. Does that still leave you room for even additional upside to that CAPEX as we think about these five years? Or do you think this is pretty much what you expect to spend now going forward?

Warner Baxter -- Chairman, President and Chief Executive Officer

Ali, this is Warner. Thanks for the question. I'll let Michael comment a little bit further because he just filed the smart energy plan out. I'll just start with this saying that the robust infrastructure plan that we talked about over five years and 10 years in Missouri, as I sit here today, it still remains robust beyond just the five years, and frankly, continues to grow with various needs.

But Michael, you can talk a little bit about what you've incorporated in the five-year plan, and certainly some opportunities that you continue to see from Missouri.

Michael Moehn -- Chairman and President

Well, I mean, I think Warner just adding a little bit to that, I mean, obviously, we have the $5.3 billion that we filed today on the electric side. As we get in and develop this plan and build to show all the customer benefits, it's obvious that we're finding just more opportunities. I think you described it as a robust plan. I would say that that is absolutely the case and we look forward to continue to work through time and looking for projects that are going to provide meaningful benefits to customers.

So the bottom line, when you look back three years ago when we talked about that plan that was filed, we look at the grid modernization opportunities, every bit is robust today as we looked at them back then three years ago.

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Understood. Thank you.

Operator

Our next question is from Insoo Kim with Goldman Sachs. Please proceed with yourquestion.

Warner Baxter -- Chairman, President and Chief Executive Officer

Morning, Insoo.

Insoo Kim -- Goldman Sachs -- Analyst

Good morning. Starting on the wind side, just to clarify, by 2020, the 700 megawatts that you guys are targeting or at least the 700 megawatts, that implies out a guess of conversive of the current plan that you have today, you'll have another around 150 megawatts at least announced and built and transferred by 2020? Or are you -- when you talk about negotiating with multiple developers, are there opportunity beyond that 700 that you're talking about? Or is that largely it?

Michael Moehn -- Chairman and President

This is Michael Moehn. As we think about it today, I mean, we're obviously very focused on that 700 megawatts for that Missouri renewable standard, having that 15% by 2021. Obviously, we're keeping our mind and options open as we move through time in terms of other offerings that we have out there, but we're really focused on filling out that 700 megawatts at this point.

Insoo Kim -- Goldman Sachs -- Analyst

Understood. And then on the cost side, I think, in the past, you've targeted -- maybe not a formal guidance, but trying to keep one of growth flat on a year-over-year basis, is that still part of your plan?

Marty Lyons -- Executive Vice President and Chief Financial Officer

Yeah, this is Marty. Yeah, as we look ahead, I mean, that continues to be our goal. I mean, we recognize that one of our objectives is to make sure that we can carry out this $13.3 billion infrastructure plan for the benefit of our customers and keep rates affordable along the way. So we will look to keep tight control on our O&M costs as we look ahead.

Insoo Kim -- Goldman Sachs -- Analyst

Understood. And then maybe just one more if I could. The recent electric vehicle decision, I know it's a fairly small part of your investment opportunity, but that decision for the five-year, $4 million or so, does that basically cap how much you're going to be spending in that arena at least for the medium term?

Michael Moehn -- Chairman and President

Yeah, again, this is Michael. I would say, it's a start with respect to what we're trying to do from a transportation perspective. We're excited about having the opportunity to build out this corridor. I think we will continue to evaluate over time.

I think the commission has actually opened up a workshop to have some further conversations beyond just the charging corridor that they approved. So that could also end up including other types of charging as well. So we look forward to engaging in that discussion, to see if we can move this discussion forward.

Warner Baxter -- Chairman, President and Chief Executive Officer

Mike, I'll just add, look I think this is clearly a step forward. And importantly, I think, what Mike and his team have been able to do is, just raise the level of awareness and the conversion in the state of Missouri on this. So this is what we have today, but dialogue will be ongoing here in the relative near future, and we look forward to continue to lean further forward in the electric -- electrification because we think there are real opportunities and benefits for our customers in the state of Missouri, and we will be looking at similar types of things frankly in the state of Illinois too because we see similar benefits over there as well.

Insoo Kim -- Goldman Sachs -- Analyst

Understood. Thank you very much.

Warner Baxter -- Chairman, President and Chief Executive Officer

Thanks, Insoo.

Operator

Our next question comes from Stephen Byrd with Morgan Stanley. Please proceed with your question.

Warner Baxter -- Chairman, President and Chief Executive Officer

Well, Stephen how are you?

Stephen Byrd -- Morgan Stanley -- Analyst

Great. Congratulations on a constructive update.

Warner Baxter -- Chairman, President and Chief Executive Officer

Thank you.

Stephen Byrd -- Morgan Stanley -- Analyst

So I just wanted to discuss the smart energy plan filed in Missouri, and just better understand the regulatory process and just how we think about where procedurally it goes from here. It's obviously great that the customer bills -- the bill impact is capped. It seems to all make sense, but I just wanted to understand a little bit more about what we should be looking for now that you've made that filing?

Warner Baxter -- Chairman, President and Chief Executive Officer

Sure. Michael why don't you talk about that because I know that some of this is embedded in Senate Bill 564, so why don't you give an update there?

Michael Moehn -- Chairman and President

Perfect. Thanks for the question. Look, obviously, it's an important filing that we did today with the commission. We were required to lay out in quite a bit of detail for 2019 where our investments are going to go, and then a little less detail for the next four years to 2023.

What also is contemplated is a public meeting that's scheduled for March 4 for, again, lay out the customer benefits associated with this, where our investments are going, etc., and get some feedback from that. And then obviously, Senate Bill 564 didn't change the commission's authority in any way. So they'll have a chance to weigh in this as we go through regular rate reviews and have an opportunity to look at where we're making investments, etc.. So we look forward to engaging with them around this, getting feedback along the way.

Marty Lyons -- Executive Vice President and Chief Financial Officer

And I would just add, Steve, when you look at the details of the plan. I think these are the things that we have been talking about as needed in the state of Missouri, frankly, for many years. And so I think what we've now provided is just greater levels of detail and, as we referred to a little bit earlier, Mike and his team have put together a plan three years ago almost now that highlighted some of these things. So a lot of the dialogue and conversations around these have been discussed before.

Now we're giving a lot more detail, which I think is certainly appropriate at this time.

Michael Moehn -- Chairman and President

Yeah, that's right. I mean, I think the other thing just to note is that we have been operating under this Senate Bill 564 released on September 1, and I think, Stephen, you noted the 6% rate reduction that occurred as part of the tax refund. We obviously had some solar rebates that were required to do, all of that has been taken care of. We had recently an economic development rider approved.

And so I gave you that just because there are a number of aspects that we have been executing underneath the Senate Bill 564 for some time.

Stephen Byrd -- Morgan Stanley -- Analyst

That all make sense. It does seem consistent to what you've talked about before. And just shifting over to Illinois. I guess, there's some discussion of potential movement toward greater levels of clean energy in the state.

I'm just curious from your system perspective or just more broadly investment opportunities, changes to the grid, anything else that you would foresee if the state did, in fact, move toward greater levels of clean energy?

Warner Baxter -- Chairman, President and Chief Executive Officer

Sure, Stephen, this is Warner, and then Richard, feel free to jump in. Look, big picture, when you think about renewable generation, we're not allowed to own renewable generation in the state of Illinois. And so we stay very mindful of the activities here because certainly, since we purchase energy on behalf of our customers, we want to make sure that that rates continue to be good as well as making sure that the reliability is thought through. Having said that, Richard, was that the table with key stakeholders during the governor's transition period and they talked about the transition plan around energy policy.

One of the things that we pointed out very clearly is that the energy policy in the state of Illinois is working quite well. The formula rates is working quite well, and so we see that if there are investment opportunities associated with that in distribution business to make sure we can continue to deliver the safe reliable service for our customers, we will do so. If we become more broadly in terms of a renewable generation, certainly, we will be thoughtful about transmission opportunities because we said this before and we'll say it again, when you look at the MISO footprint, there are a lot of wind and solar projects going on in the MISO footprint. And we stand ready and are able to help implement those with not just interconnection agreements but perhaps some time down the road, there'll be an opportunity for multi-value projects.

Early innings, but we can see that as a potential opportunity. And so Richard, I know that you've been working with your team over there, anything that you would add to what I said.

Richard Mark -- Chairman and President, Illinois Company

I don't -- I think you've covered it perfectly. I think that's really good observation of how it's going to work and all that.

Stephen Byrd -- Morgan Stanley -- Analyst

All right. Thank you. Thank you very much.

Warner Baxter -- Chairman, President and Chief Executive Officer

Thanks, Stephen.

Operator

[Operator instructions] Our next question comes from Kevin Fallon with Citadel. Please proceed with your question.

Warner Baxter -- Chairman, President and Chief Executive Officer

Good morning. How are you?

Kevin Fallon -- Citadel -- Analyst

I'm well. How are you doing today?

Warner Baxter -- Chairman, President and Chief Executive Officer

I'm good. Thank you.

Kevin Fallon -- Citadel -- Analyst

Just to clarify. Is the implied cost per KW on the 557 megawatts of wind you guys have right now a reasonable proxy for what would cost to get you up to the 700?

Michael Moehn -- Chairman and President

This is Michael Moehn. I think it's difficult. You got to be a little careful with it just because so many different factors apply here in terms of there's some benefits associated with doing projects in state. There's a 1.25% credit versus out state.

There's capacity factor issues. So you can probably draw some conclusions, but you got the be a little careful with it just in terms of some of the specifics.

Kevin Fallon -- Citadel -- Analyst

OK, fair enough. But the actual target amount is the 700 megawatts, correct?

Michael Moehn -- Chairman and President

That is what we're focused on.

Warner Baxter -- Chairman, President and Chief Executive Officer

That's what we are focusing. Kevin, maybe I'll add to that though and to build off of what Michael said into earlier, I mean, hitting 700 neatly is a difficult thing to do. These projects vary in sizes. So one of the things we said -- if you look closely at the wording we used, we said at least 700.

It could be that the ultimate project that's selected and picked would actually be -- get us to a number that was above 700 because again, it's difficult to find a site that neatly gets you to 700. So we think it's going to be at least 700. But the target again is to fulfill the requirements under the renewable energy standard, which we believe would approximate about 700.

Kevin Fallon -- Citadel -- Analyst

OK, that's helpful. And the other thing is, I think a securitization bill has been introduced in the Missouri legislature. I know you guys have said in the past, you have very low dispatch costs on your coal fleet, but if the securitization was passed, would that change the dynamic there and kind of steel for fuel type of outlook?

Warner Baxter -- Chairman, President and Chief Executive Officer

You're right. There are a couple of securitization bills pulling around. Look, I would just say at a very high level and Marty can certainly add to this as well, I mean, we're having some conversations with those stakeholders. None of those bills have been assigned a committee yet so that they've had a hearing at this point, but we look forward to continue to have some conversations around the details of these bills, and what benefit there may or may not be there for us.

Kevin Fallon -- Citadel -- Analyst

Are these bills being -- are you guys sponsoring these bills or supporting these bills? Or is that all just to be determined?

Warner Baxter -- Chairman, President and Chief Executive Officer

Yeah. That is all to be determined.

Operator

Ladies and gentlemen, we've reached the end of the question-and-answer session. At this time, I'd like to turn the call back to Andrew Kirk for closing comments.

Andrew Kirk -- Director of Investor Relations

Thank you for participating in this call. A replay of this call will be available for one year on our website. If you have questions, you make call the contacts listed on our earnings release. Again, thank you for your interest in Ameren, and have a great day.

Operator

[Operator signoff]

Duration: 62 minutes

Call Participants:

Andrew Kirk -- Director of Investor Relations

Warner Baxter -- Chairman, President and Chief Executive Officer

Marty Lyons -- Executive Vice President and Chief Financial Officer

Nick Campanella -- Bank of America Merrill Lynch -- Analyst

Ali Agha -- SunTrust Robinson Humphrey -- Analyst

Michael Moehn -- Chairman and President

Insoo Kim -- Goldman Sachs -- Analyst

Stephen Byrd -- Morgan Stanley -- Analyst

Richard Mark -- Chairman and President, Illinois Company

Kevin Fallon -- Citadel -- Analyst

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