Ameren Corporation 2020 Q3 Form 10-Q Summary
Business context and reporting period
Ameren Corporation is a regulated utility holding company serving Missouri and Illinois through Ameren Missouri, Ameren Illinois, and transmission operations. The filing covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods. Results were materially influenced by COVID-19, regulatory orders, weather, infrastructure investment, and customer sales volumes.
Key financial metrics
| Ameren consolidated | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Operating revenues | $1,628 million | $1,659 million | $4,466 million | $4,594 million |
| Operating income | $494 million | $520 million | $1,089 million | $1,088 million |
| Net income attributable to common shareholders | $367 million | $364 million | $756 million | $734 million |
| Diluted EPS | $1.47 | $1.47 | $3.04 | $2.97 |
| Operating margin | 30.3% | 31.3% | 24.4% | 23.7% |
| Net margin | 22.6% | 22.0% | 17.0% | 16.1% |
| Operating cash flow | Not separately presented for Q3 | $1,329 million | $1,668 million | |
| Capital expenditures | Not separately presented for Q3 | $1,884 million | $1,761 million |
- Electric revenue was $1,489 million in Q3 and $3,846 million for nine months; natural gas revenue was $139 million and $620 million, respectively.
- Cash, cash equivalents, and restricted cash totaled $168 million at September 30, 2020, including only $6 million of unrestricted cash and cash equivalents on the consolidated balance sheet.
- Long-term debt, including current maturities, was approximately $10.5 billion at September 30, 2020, compared with approximately $9.4 billion at December 31, 2019. Short-term debt was $272 million, down from $440 million.
- Net available liquidity was approximately $2.0 billion, supported by $2.3 billion of credit agreements, commercial paper capacity, and cash. The companies were in compliance with applicable covenants.
- Consolidated indebtedness-to-total-capitalization ratios under the credit agreements were 55% for Ameren, 48% for Ameren Missouri, and 45% for Ameren Illinois.
- Ameren paid $367 million of common dividends during the first nine months. The October 2020 dividend declaration increased the annualized dividend rate to $2.06 per share from $1.98.
Material changes versus the prior comparable period
- Q3 net income attributable to common shareholders increased $3 million, while diluted EPS was unchanged at $1.47. Nine-month net income increased $22 million, or 7 cents per diluted share.
- Revenue declined $31 million in Q3 and $128 million year to date, primarily reflecting lower Ameren Missouri electric sales, milder weather, reduced demand charges, and lower MEEIA performance incentives.
- Ameren Missouri electric margins declined $49 million in Q3 and $86 million year to date. COVID-19-related commercial and industrial volume reductions, milder weather, lower late-fee and reconnection revenue, and lower MEEIA incentives outweighed benefits from lower net energy costs and the Missouri rate order.
- Ameren Transmission margins increased $13 million in Q3 and $49 million year to date, driven by rate-base growth and the May 2020 FERC order increasing the allowed base ROE to 10.02%.
- Ameren Illinois electric distribution margins increased $9 million in Q3 and $19 million year to date, primarily from recoverable costs, capital investment, and energy-efficiency investment, partly offset by a lower recognized ROE.
- Ameren Illinois natural gas margins increased $6 million in both Q3 and the first nine months, primarily from qualifying infrastructure investment recovered under the QIP rider.
- Other operations and maintenance expense decreased $16 million in Q3 and $61 million year to date, including lower Callaway outage costs, disciplined cost management, and deferred projects. Depreciation and amortization increased $25 million in Q3 and $54 million year to date because of additional utility investments.
- Operating cash flow decreased $339 million to $1.329 billion, primarily because of lower customer collections, higher receivables, increased inventory, asset-retirement-obligation payments, and pension contributions.
- Capital expenditures increased $123 million to $1.884 billion. Financing cash flow increased to $644 million from $178 million, supported by $1.263 billion of long-term debt issuance.
Guidance, outlook, commentary, risks, and unusual items
- Management expects Ameren Missouri electric sales volumes for calendar 2020 to decline approximately 2.0% from 2019, excluding weather and energy-efficiency effects. The company expects the COVID-19-related net decline to continue in the fourth quarter and estimates a roughly 1-cent diluted EPS impact for October through December.
- Ameren Missouri expects to file electric and natural gas rate reviews in the first half of 2021. Ameren Illinois rate proceedings include a proposed $97 million annual natural gas delivery revenue increase, an ICC staff recommendation of $69 million, and a proposed electric distribution rate reduction of approximately $49 million. Decisions were expected by December 2020 or January 2021.
- Ameren Missouri’s 2020 Integrated Resource Plan targets a 50% reduction in CO2 emissions by 2030, an 85% reduction by 2040, and net-zero emissions by 2050. It contemplates 3,100 megawatts of renewable additions by 2030 and 5,400 megawatts by 2040.
- Two wind projects totaling up to 700 megawatts represent approximately $1.2 billion of capital expenditures. The 400-megawatt project was expected in service by year-end 2020; approximately $200 million of the 300-megawatt project was expected to be delayed into the first quarter of 2021.
- Ameren expects capital expenditures of up to $16.6 billion from 2020 through 2024, including up to $8.4 billion for Ameren Missouri, $8.0 billion for Ameren Illinois, and $0.2 billion for ATXI. Ameren expects equity to represent approximately 45% of total capitalization through 2024.
- Ameren expects cash used for planned capital expenditures and dividends to exceed operating cash flow over the next several years. Planned funding includes approximately $100 million of annual equity from employee and dividend reinvestment plans, approximately $150 million of incremental annual equity from 2021 through 2024, debt issuance, and settlement of a forward sale agreement for 7.5 million shares expected to generate approximately $540 million to $550 million.
- COVID-19 increased past-due or deferred-payment customer receivables to 26% of Ameren customer trade receivables, or $151 million, versus 13%, or $65 million, a year earlier. Ameren Missouri’s comparable amount was $49 million and Ameren Illinois’ was $102 million. Ameren Missouri lacks a bad-debt rider and has greater earnings exposure.
- Ameren Missouri requested authority to defer approximately $9 million of COVID-19 costs and forgone late fees incurred through September 2020, but recovery remains subject to MoPSC approval.
- The Rush Island Clean Air Act litigation could require approximately $1 billion of flue-gas-desulfurization capital expenditures and $30 million to $50 million of annual operating costs if the district court order is upheld. The appeal remains unresolved.
- Environmental compliance capital expenditures were estimated at $200 million to $250 million from 2020 through 2024, including coal-ash and wastewater requirements. Ameren Illinois estimated remaining former manufactured-gas-plant remediation obligations of $106 million to $178 million and recorded a $106 million liability.
- Accounts receivable allowances increased to $44 million from $17 million at year-end 2019, reflecting higher expected credit losses. The 2020 adoption of the CECL standard had no material financial-statement impact.
Most important facts for investors to verify
- Whether COVID-19-related customer payment issues, bad debt, sales-volume declines, and regulatory recovery requests worsen or stabilize.
- Final outcomes and timing of Ameren Illinois rate cases and Ameren Missouri’s COVID-19 accounting authority requests.
- Progress, final cost, and in-service timing of the two wind projects and the associated equity and debt funding.
- Resolution of the FERC ROE refund appeals and transmission formula-rate proceedings.
- Outcome and potential cost recovery implications of the Rush Island Clean Air Act litigation.
- Execution of the $16.6 billion 2020–2024 capital program while maintaining targeted leverage and investment-grade credit ratings.
- Actual fourth-quarter sales volumes, Callaway outage costs, commodity costs, and customer collections compared with management’s assumptions.