Ameren Corporation 2021 Q3 Form 10-Q Summary
Business context and reporting period
Ameren Corporation is a regulated utility holding company headquartered in St. Louis, Missouri. Its principal subsidiaries are Ameren Missouri, which operates regulated electric generation, transmission, distribution, and natural-gas businesses in Missouri; Ameren Illinois, which operates regulated electric transmission, distribution, and natural-gas businesses in Illinois; and ATXI, a regulated electric transmission business. This combined Form 10-Q covers the three and nine months ended September 30, 2021, and was filed November 4, 2021. Dollar amounts are in millions unless otherwise stated.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 |
|---|---|---|---|---|
| Total operating revenues | $1,811 | $1,628 | $4,849 | $4,466 |
| Operating income | $534 | $494 | $1,136 | $1,089 |
| Net income attributable to Ameren common shareholders | $425 | $367 | $865 | $756 |
| Diluted EPS | $1.65 | $1.47 | $3.36 | $3.04 |
| Net cash provided by operating activities | Not separately provided for the quarter | Not separately provided for the quarter | $1,192 | $1,329 |
| Capital expenditures and wind-generation expenditures | Not separately provided in the consolidated cash-flow statement | Not separately provided | $2,613 | $1,884 |
- Q3 revenue increased 11%, while Q3 net income attributable to common shareholders increased 16%; YTD revenue increased 9% and YTD net income increased 14%.
- Operating margin was approximately 29.5% in Q3 2021 versus 30.3% in Q3 2020, and approximately 23.4% for the first nine months of 2021 versus 24.4% in the prior-year period.
- Q3 electric margins increased $117 million, or 10%, and YTD electric margins increased $144 million, or 5%. Natural-gas margins decreased $7 million in Q3 but increased $29 million YTD.
- At September 30, 2021, Ameren reported $7 of cash and cash equivalents, $553 of short-term debt, and $12,501 of long-term debt including current maturities. Net available liquidity was approximately $1.75 billion, supported by credit agreements with aggregate capacity of $2.3 billion.
- Consolidated indebtedness to total capitalization under credit-agreement definitions was 57% for Ameren, 48% for Ameren Missouri, and 45% for Ameren Illinois. The companies were in compliance with applicable debt covenants.
- Ameren paid $423 of common-stock dividends during the first nine months, compared with $367 in the prior-year period. Management expects a long-term dividend payout ratio of 55% to 70% of annual earnings.
Material changes versus the prior comparable period
- Ameren Missouri benefited from higher electric sales, warmer summer and colder winter weather, infrastructure investment, MEEIA incentives, and a rate-design change that increased Q3 margins by approximately $64 million but was not expected to materially affect full-year results.
- Ameren Illinois Electric Distribution benefited from higher recognized ROE, rate-base growth, reconciliation adjustments, and increased energy-efficiency investment revenues. Ameren Illinois Transmission benefited from higher capital investment and recoverable expenses.
- Operating and maintenance expense increased $39 million in Q3 and $49 million YTD, primarily from Ameren Missouri maintenance, Callaway outage-cost amortization, wind-generation costs, storm costs, technology spending, and Ameren Illinois program and bad-debt costs.
- Depreciation and amortization increased $17 million in Q3 and $57 million YTD, primarily because of additional property, plant, and equipment investments.
- Interest expense decreased $16 million in Q3 and $21 million YTD, mainly because greater PISA and RESRAM deferrals were recorded as regulatory assets, partially offset by higher debt balances.
- Operating cash flow declined $137 million to $1,192 YTD, while investing cash outflows increased $665 million to $2,646. The change was driven primarily by the $515 million acquisition of the Atchison wind project and higher capital expenditures.
- Ameren issued $1,423 of long-term debt and received $297 from common-stock issuances during the first nine months. Ameren also issued $450 of senior notes, Ameren Missouri issued $525 of first-mortgage bonds, and Ameren Illinois issued $450 of first-mortgage bonds.
Guidance, outlook, commentary, and risks
- Management expected gradual improvement in 2021 sales volumes compared with 2020, but customer receivables past due or under deferred-payment arrangements remained above historical levels. At September 30, such balances represented 18% of Ameren customer trade receivables, or $97 million.
- Ameren Missouri’s Smart Energy Plan contemplated approximately $8.4 billion of investment from 2021 through 2025. Across Ameren Missouri, Ameren Illinois, and ATXI, planned capital expenditures were estimated at up to $17.8 billion over the same period.
- Management planned approximately $300 million of annual equity issuance from 2022 through 2025, in addition to approximately $100 million annually from employee and dividend-reinvestment plans, and expected equity to remain approximately 45% of total capitalization through 2025.
- Ameren Missouri requested annual electric and natural-gas revenue increases of $299 million and $9 million, respectively. Missouri PSC staff recommended increases of $188 million and $4 million. Decisions were expected by mid-February 2022, with rates effective in late February 2022.
- Following enactment of Illinois CEJA, Ameren Illinois anticipated filing a four-year multi-year rate plan for rates beginning in 2024. The plan could include annual reconciliation, performance-based ROE adjustments, and continued sales-volume decoupling.
- The Callaway Energy Center returned to service August 4, 2021, after generator repairs costing approximately $60 million, largely capitalized. A $35 million insurance receivable was recorded at September 30, 2021.
- The Rush Island Clean Air Act litigation remained a significant contingency. A court decision affirmed the requirement to install a flue-gas desulfurization system. Estimated capital expenditures were up to $1 billion, with additional annual operating costs of $30 million to $50 million. Ameren Missouri stated that the matter could materially affect results, financial position, and liquidity.
- Environmental compliance, coal-ash closure, carbon-emissions regulation, renewable-generation performance, supply-chain disruption, inflation, commodity prices, capital-market access, cyberattacks, and the COVID-19 vaccine mandate were identified as material risks.
- Ameren Missouri estimated $175 million to $225 million of environmental-compliance capital expenditures from 2021 through 2025. Ameren Illinois estimated remaining obligations for former manufactured-gas-plant remediation of $80 million to $145 million and recorded an $80 million liability.
- February 2021 extreme cold weather created significant under-recoveries: $53 million for Ameren Missouri’s PGA, $50 million for its FAC, and $221 million for Ameren Illinois’s PGA. These amounts were expected to be recovered from customers over periods ranging from 8 to 36 months.
Most important facts for investors to verify
- Whether Missouri regulators approve Ameren Missouri’s requested rate increases and associated recovery mechanisms, including PISA and Meramec-related treatment.
- The ultimate cost, timing, and regulatory recovery of the Rush Island flue-gas-desulfurization requirement and related Clean Air Act proceedings.
- Ameren’s ability to fund its substantial capital program and dividends while operating cash flow remains below capital expenditures and financing needs.
- The effect of COVID-19-related customer arrears, deferred payments, bad debt, labor availability, supply-chain constraints, and vaccine-mandate compliance.
- Ameren Illinois’s election and implementation of a multi-year rate plan beginning in 2024, including reconciliation caps and performance-based ROE adjustments.
- The impact of environmental rules, CEJA emission standards, energy-center retirements, renewable investments, and Callaway operating performance on future costs and rate base.
- Future equity issuance, debt levels, credit ratings, collateral requirements, and continued access to the capital markets.