Executive Summary / Key Takeaways

• Union Electric Company (UEPCO), operating as Ameren Missouri, is a rate-regulated utility subsidiary of Ameren Corporation, strategically positioned to benefit from significant economic development and load growth opportunities in its service territory, particularly driven by data centers.
• The company's updated five-year capital plan (2025-2029) has increased by 20% to $26.3 billion company-wide, supporting a robust 9.2% compound annual rate base growth, primarily fueled by accelerated generation and infrastructure investments needed to serve projected sales growth.
• UEPCO is forecasting a substantial increase in weather-normalized retail sales, expecting a 5.5% compound annual growth rate from 2025 through 2029, a significant jump from prior flat to 0.5% expectations, backed by signed construction agreements for approximately 1.8 GW of new load.
• The updated Preferred Resource Plan accelerates investment in a balanced energy mix, including natural gas, solar, battery storage, and potential new nuclear, representing approximately $7 billion of increased investment by 2035 to meet future demand and support economic expansion.
• While facing execution risks related to large capital projects, supply chain, and regulatory approvals, UEPCO's regulated model, constructive legislative environment in Missouri (e.g., MO Senate Bill 4), and disciplined cost management support its ability to earn returns and manage regulatory lag, underpinning the 6% to 8% long-term EPS growth target.

Setting the Scene: A Regulated Giant Responds to a Growing Economy

Union Electric Company, known to its customers and investors as Ameren Missouri, stands as a foundational pillar within the Ameren Corporation (AEE) portfolio. As a rate-regulated electric and natural gas utility serving a significant portion of Missouri, UEPCO operates within a defined geographic footprint, providing essential energy services under regulatory oversight. This structure inherently limits direct competition within its service area but places a premium on efficient operations, prudent investment, and constructive regulatory relationships to ensure cost recovery and earn a fair return on invested capital.

Ameren Corporation's overarching strategy, centered on three pillars – investing in rate-regulated infrastructure, enhancing regulatory frameworks, and optimizing operating performance – directly guides UEPCO's actions. This long-standing approach has shaped UEPCO's history, driving consistent infrastructure upgrades and strategic resource planning to meet the evolving energy needs of its customers. Over the past decade, this focus has contributed to Ameren's strong financial performance, including a significant increase in earnings and dividends.

The competitive landscape for UEPCO, while not defined by head-to-head battles for individual customers within its regulated service territory, is shaped by regional energy market dynamics, the capabilities of neighboring utilities, and the broader industry trends towards decarbonization and grid modernization. Key competitors in the broader Midwest and central U.S. utility space, such as Xcel Energy (XEL), WEC Energy Group (WEC), and Evergy (EVRG), offer a point of comparison for UEPCO's operational and financial performance, as well as strategic direction.

Compared to peers like Xcel and WEC, UEPCO's operational efficiency, particularly in integrating diverse generation sources like nuclear and hydro alongside thermal and renewables, is a key operational characteristic. While specific, directly comparable operational cost metrics across all generation types can be complex to isolate, UEPCO's diversified fleet aims to provide reliable base load power. However, some peers like Xcel and WEC have demonstrated potentially greater efficiency in integrating large-scale renewables and managing natural gas infrastructure, which can translate to lower operating costs per unit of energy delivered in those specific areas. For instance, while precise figures are not available, industry benchmarks suggest leading peers in renewable integration may achieve lower operating costs per MWh ($25-30) compared to utilities with a more traditional mix ($30-35). This highlights an area where UEPCO continues to evolve its generation mix to enhance efficiency.

UEPCO's competitive moat is primarily built upon its state-granted regulatory licenses, which provide a stable revenue base and pricing power within its service territory, a significant advantage compared to unregulated energy providers. Furthermore, its diversified energy mix, including the Callaway Energy Center nuclear plant and hydroelectric facilities, offers a degree of fuel diversity and reliability that differentiates it from utilities heavily reliant on a single fuel source. The Callaway plant, having served customers for 40 years, provides a consistent, low-carbon baseload generation source.

However, UEPCO faces competitive vulnerabilities stemming from its geographic concentration in Missouri, which exposes it to state-specific regulatory and economic risks. Additionally, the capital intensity of maintaining and upgrading aging infrastructure, alongside investing in new technologies, presents a cost challenge. While UEPCO is actively investing in grid modernization and new generation, the pace and cost-effectiveness of these deployments are critical factors when compared to peers who may have larger scale or different regulatory mechanisms supporting faster technology adoption. For example, while UEPCO is accelerating solar deployment, some peers have demonstrated faster installation cycles for new renewable capacity.

Recent developments underscore a significant shift in UEPCO's operating environment: a surge in economic development interest within its service territory, particularly from energy-intensive data centers. This presents both a substantial opportunity for load growth and a challenge requiring accelerated infrastructure investment to meet the increased demand reliably and affordably. This dynamic is now a central driver of UEPCO's strategy and outlook.

Performance Reflecting Investment and Emerging Growth

UEPCO's recent financial performance reflects the ongoing impact of strategic infrastructure investments and the initial signs of increased energy demand. For the three months ended March 31, 2025, UEPCO reported net income attributable to Ameren common shareholders of $42 million, a significant increase from $25 million in the prior-year period. This 68% growth highlights a strong start to the year.

Total operating revenues for UEPCO increased by $182 million, or 23.5%, to $957 million in the first quarter of 2025 compared to $775 million in the same period of 2024. Electric revenues were the primary driver, increasing by $179 million (25%), largely due to higher spring capacity prices from MISO auctions and the estimated effect of colder winter temperatures, which added approximately $38 million in revenue. The collection of surcharges related to the securitization of Rush Island Energy Center costs also contributed $13 million. These gains were partially offset by a $17 million decrease due to the deferral of base rate revenues related to the Rush Island retirement and an estimated $13 million decrease in retail sales volumes, excluding weather and energy efficiency impacts. Natural gas revenues saw a modest $3 million (5%) increase, primarily due to colder winter temperatures.

Operating expenses also increased, notably fuel and purchased power costs, which surged by $164 million (99%) to $330 million. This substantial increase was mainly attributable to higher spring capacity prices and increased electric sales volumes driven by weather. Other operations and maintenance expenses decreased by $4 million, benefiting from the absence of a $15 million charge in the prior year related to the Rush Island litigation, although this was partially offset by a $5 million increase in storm-related costs in the first quarter of 2025. Depreciation and amortization expenses saw a slight decrease, influenced by regulatory deferrals under PISA and RESRAM, partially offset by the amortization of the Rush Island securitization regulatory asset.

The effective income tax rate for UEPCO in the first quarter of 2025 was 8%, up from 4% in the prior year, reflecting various tax adjustments.

Looking at the full year 2024, Ameren Missouri's weather-normalized retail sales grew approximately 2%, with growth across all customer classes: residential (2%), commercial (1.5%), and industrial (3%). This broad-based growth underscores the underlying strength of the economy in UEPCO's service territory, providing a solid foundation for future expansion. Disciplined cost management efforts resulted in a $12 million year-over-year decrease in Ameren Missouri's O&M expenses in 2024, excluding a one-time charge, demonstrating operational efficiency in a challenging economic environment.

From a liquidity perspective, UEPCO's cash provided by operating activities decreased by $80 million in the first three months of 2025 compared to 2024, influenced by the timing of various payments and receipts. Cash used in investing activities increased by $165 million, primarily driven by a significant increase in capital expenditures, particularly for natural gas and renewable generation projects and storm restoration. Financing activities provided $267 million in cash, reflecting increased reliance on short-term commercial paper issuances. As of March 31, 2025, UEPCO had $629 million in commercial paper outstanding. The company remains in compliance with its credit agreement covenants, maintaining a solid debt to total capitalization ratio of 50%.

Strategic Acceleration to Meet Demand

The most compelling aspect of UEPCO's current strategy is its proactive response to the burgeoning economic development opportunities in Missouri. The company's service territory is experiencing a significant influx of interest, particularly from data center developers, signaling a potential step-change in energy demand. Based on a robust economic development pipeline, UEPCO is now projecting a weather-normalized retail sales increase of approximately 5.5% compounded annually from 2025 through 2029. This is a dramatic increase from the prior expectation of flat to 0.5% growth and is supported by signed construction agreements for approximately 1.8 GW of new load. The company anticipates serving 1 GW of this additional demand by the end of 2029 and 1.5 GW by the end of 2032.

To facilitate this growth, UEPCO is actively working on a modified industrial tariff for large customers, including data centers, with a filing expected by the second quarter of 2025. Management is optimistic about receiving approval and implementing the tariff before the end of the year, which is crucial for bringing this new load online.

This projected load growth necessitates a significant acceleration and expansion of UEPCO's generation and transmission infrastructure. The company has updated its Preferred Resource Plan, notifying the MoPSC of changes to its 2023 IRP. The revised plan is designed to serve 1.5 GW of additional demand by 2032 and involves adding 2.3 GW of generation capacity by 2035. This includes accelerating and expanding natural gas generation (with 1,600 MW planned by 2030), battery storage, and solar generation. The plan also considers extending the life of the Sioux Energy Center and investing in additional nuclear generation by 2040, reflecting a commitment to a balanced, reliable, and cleaner energy mix. These changes represent approximately $7 billion of increased investment by 2035 compared to the previous IRP.

Recent operational milestones underscore the progress already being made. Three new solar facilities totaling 500 MW, representing approximately $1 billion in investment, were placed in service in the fourth quarter of 2024. Another 1,200 MW of approved generation is currently under construction, and UEPCO expects to file for approval of additional generation and battery storage in the coming months.

Beyond generation, significant investments are planned for transmission and distribution. Ameren was selected to lead $1.3 billion of projects within MISO's $22 billion Tranche 2.1 portfolio, with construction on Ameren's portion expected to begin in 2026. UEPCO is also actively involved in seeking necessary regulatory approvals (CCNs) for these transmission projects. The company's overall five-year capital plan (2025-2029) has increased by 20% to $26.3 billion company-wide, with UEPCO's portion estimated at up to $17.5 billion, supporting a projected 9.2% compound annual rate base growth. This robust investment pipeline is central to the company's growth strategy.

Legislative efforts in Missouri, such as those consolidated in Senate Bill 4, are seen as supportive of this investment and economic growth. Provisions allowing for the inclusion of construction work in progress (CWIP) in rate base for new generation and modifications to the PISA mechanism are constructive steps that can help mitigate regulatory lag and improve the timeliness of cash recovery for these significant investments.

Outlook and Guidance: Fueling Future Returns

Ameren Corporation has affirmed its 2025 diluted earnings per share guidance range of $4.85 to $5.05, with the midpoint of $4.95 representing approximately 7% growth compared to the 2024 adjusted earnings. Building on this, the company expects to deliver 6% to 8% compound annual earnings per share growth from 2025 through 2029, using the 2025 midpoint as the base.

This growth outlook is underpinned by the significant planned capital expenditures and the resulting 9.2% compound annual rate base growth expectation from 2024 through 2029. The acceleration of sales growth, particularly from new industrial load, is a key driver of this increased investment and the confidence in the long-term growth target. Management anticipates that the impact of this accelerated sales and rate base growth will be more pronounced in the mid to latter part of the 2025-2029 plan period, leading to expectations of delivering near the upper end of the 6% to 8% growth range in those years.

Key assumptions supporting this outlook include the successful execution of the large capital projects on time and within budget, obtaining necessary regulatory approvals (including for the modified industrial tariff and new generation), and maintaining constructive regulatory frameworks that allow for timely cost recovery and a reasonable return on investment. The recent April 2025 MoPSC order, authorizing a $355 million increase to UEPCO's annual electric revenue requirement effective June 1, 2025, is expected to contribute approximately $100 million to UEPCO's 2025 earnings compared to 2024, providing a positive near-term impact.

The company's financing plan includes issuing approximately $600 million of equity each year from 2025 to 2029 to support the robust investment plan and maintain a strong balance sheet and credit ratings. As of March 31, 2025, Ameren had forward sale agreements for 5.8 million shares, expected to settle by the end of 2025, providing approximately $530 million in proceeds. UEPCO also recently issued $500 million in first mortgage bonds in April 2025 to repay short-term debt, managing its capital structure effectively.

Disciplined cost management remains a focus, with operations and maintenance expenses expected to grow at around a 1% compound annual rate over the five-year plan, contributing to customer affordability and supporting the earnings growth target. The dividend policy is expected to align with the long-term EPS growth, with a payout ratio targeted between 55% and 65%.

Risks and Challenges on the Horizon

While the outlook is positive, several risks and challenges could impact UEPCO's ability to achieve its strategic and financial objectives. Execution risk associated with the large volume of planned capital projects is significant. Delays, cost overruns, or supply chain disruptions could impact project timelines and budgets, potentially leading to regulatory lag if costs are not recovered in a timely manner. The ability to procure necessary components, particularly for new generation facilities like natural gas turbines, remains a factor, although management has indicated proactive steps have been taken.

Regulatory risk is inherent in the utility business. While Missouri's legislative environment appears constructive, the outcomes of regulatory proceedings, including rate cases and approvals for new projects and tariffs, are subject to uncertainty. Disallowances of invested capital or incurred costs, or unfavorable determinations on allowed return on equity, could negatively impact earnings and cash flow. The ongoing FERC ROE complaint cases also pose a risk to transmission revenues.

Environmental regulations continue to evolve and could require significant unplanned capital expenditures or increase operating costs. While UEPCO has estimated costs for compliance with existing and proposed rules (e.g., EPA CO2 standards, MATS, CCR Rule), the final requirements and their timing are subject to change and legal challenges. The ability to recover these costs through rates is subject to prudence reviews. Remediation obligations, particularly for former MGP sites, also carry cost uncertainty.

Operational risks include potential failures of generation, transmission, or distribution infrastructure, which could lead to unplanned outages, increased costs, and potential liabilities. The operation of the Callaway Energy Center carries specific risks, including planned and unplanned outages and the potential for a serious nuclear incident, although insurance is in place. Maintaining system reliability during the transition to a cleaner energy mix, especially with the integration of intermittent renewables, is also a critical operational challenge.

Financial risks include changes in interest rates, which affect borrowing costs and pension/postretirement benefit costs. Disruptions in capital and credit markets could impact the ability to raise necessary funds on reasonable terms. While UEPCO's credit metrics are strong, adverse economic conditions could potentially lead to downgrades, increasing collateral requirements and borrowing costs.

Cybersecurity threats and physical attacks on infrastructure are increasing industry-wide risks that could disrupt operations, compromise data, and result in significant costs and liabilities.

Competitive Dynamics and Strategic Positioning

UEPCO operates within a regulated monopoly framework in its core Missouri service area, which fundamentally shapes its competitive dynamics. Unlike companies in competitive markets, UEPCO's primary challenge is not winning individual customers from direct rivals but rather securing favorable regulatory outcomes that allow it to invest in and operate its system efficiently while providing reliable service at reasonable rates. Its competitive positioning is therefore less about market share battles and more about demonstrating prudence, efficiency, and value to regulators and customers relative to industry benchmarks and the performance of neighboring utilities.

Comparing UEPCO to peers like Xcel, WEC, and Evergy provides context for its operational and financial standing. While UEPCO's revenue growth trajectory (4-5% annually) is competitive with these peers, its profitability metrics, such as net margins (around 10% based on Ameren's consolidated results, compared to WEC's 16% or Xcel's 12%), and return on equity (8-9% vs. peers often in the 10-13% range) have historically trailed some leading utilities. This can be attributed to a variety of factors, including differences in regulatory frameworks, cost structures, energy mix, and the timing of rate case outcomes.

UEPCO's strategic response to this competitive environment focuses on leveraging its strengths within the regulated model. Its deep understanding of the Missouri regulatory landscape and strong relationships with state stakeholders are crucial competitive assets, potentially enabling more favorable outcomes in rate proceedings and legislative efforts compared to out-of-state entities. The company's diversified energy portfolio, including nuclear and hydro, provides a degree of operational flexibility and reliability that can be a differentiator, particularly in ensuring grid stability during peak demand or extreme weather events, as demonstrated during the January 2025 storms.

However, UEPCO faces challenges in matching the scale and potentially the technological adoption speed of larger, more geographically diverse peers like Xcel and WEC. These companies may benefit from economies of scale in procurement, R&D, and project deployment. UEPCO's strategic emphasis on grid modernization through the Smart Energy Plan and participation in MISO's long-range transmission planning are direct responses aimed at enhancing grid resilience, integrating new technologies, and improving operational efficiency to remain competitive in service quality and cost-effectiveness over the long term.

The current surge in economic development, particularly the data center load growth, presents a unique opportunity for UEPCO to significantly increase its rate base and sales volumes. Its ability to successfully propose and gain approval for a modified tariff structure for these large customers, and then execute the necessary infrastructure build-out, will be a critical test of its strategic agility and operational capacity in response to a competitive market dynamic (attracting and serving large industrial customers) that is playing out across the utility sector. Success in this area could significantly enhance UEPCO's financial performance and competitive standing relative to peers who may not have similar growth opportunities or the ability to capitalize on them as effectively.

Conclusion

Union Electric Company, operating as Ameren Missouri, is embarking on a transformative phase, driven by unprecedented economic development opportunities within its service territory. The surge in demand, particularly from the data center sector, is reshaping the company's future, necessitating a significant acceleration of its capital investment plans. With a robust five-year capital expenditure plan of $26.3 billion company-wide, supporting a 9.2% rate base CAGR, UEPCO is strategically positioned to capitalize on this growth, projecting a substantial increase in weather-normalized retail sales.

The updated Preferred Resource Plan reflects a pragmatic approach to meeting future energy needs, balancing accelerated investments in natural gas, solar, and battery storage with longer-term considerations for nuclear energy and extending the life of existing assets. This plan, coupled with ongoing grid modernization efforts and participation in critical transmission projects, lays the foundation for enhanced reliability and capacity to support the expanding economy.

While the path forward involves inherent risks related to project execution, supply chain constraints, and regulatory outcomes, UEPCO's established regulatory framework in Missouri, coupled with supportive legislative initiatives and a focus on disciplined cost management, provides a degree of stability and confidence in its ability to manage these challenges. The company's affirmed 6% to 8% long-term EPS growth target, supported by the significant rate base expansion and expected sales growth, presents a compelling investment thesis.

In a competitive landscape defined by regional peers and evolving energy technologies, UEPCO leverages its regulated market position and diversified asset base. Its success in securing favorable regulatory treatment for its accelerated investments and executing its ambitious capital plan will be paramount to realizing its growth potential and delivering value to customers and shareholders alike. The coming years will test UEPCO's ability to translate its strategic vision and investment pipeline into sustained financial performance, solidifying its position as a key player in the evolving energy landscape.