Ameren Corporation Form 10-Q Summary
Business context and reporting period
Combined quarterly filing for Ameren Corporation, Union Electric Company (Ameren Missouri), and Ameren Illinois Company, covering the three and six months ended June 30, 2013. Ameren operated regulated electric, natural gas, and transmission businesses, while its Merchant Generation operations were classified as discontinued operations following the planned divestiture of New AER and certain gas-fired plants.
Financial performance and key metrics
| Ameren Corporation | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Operating revenues | $1,403 million | $1,402 million | $2,878 million | $2,814 million |
| Operating income | $261 million | $344 million | $446 million | $502 million |
| Income from continuing operations | $106 million | $162 million | $162 million | $201 million |
| Net income attributable to Ameren | $95 million | $211 million | $(50) million | $(192) million |
| EPS attributable to Ameren | $0.39 | $0.87 | $(0.21) | $(0.79) |
- Q2 operating margin was approximately 18.6%, compared with approximately 24.5% in the prior-year quarter. The filing does not present a separate adjusted margin measure.
- Q2 electric margin decreased $25 million, or 3%, while natural gas margin increased $5 million, or 5%. For the first six months, electric margin increased $25 million, or 2%, and natural gas margin increased $29 million, or 13%.
- Operating expenses increased to $1,142 million in Q2 from $1,058 million, primarily because of higher operations and maintenance costs, fuel expense, depreciation, and the Callaway refueling outage.
- Net cash provided by operating activities was $768 million for the first six months, including $729 million from continuing operations, versus $761 million and $664 million, respectively, in the comparable 2012 periods.
- Capital expenditures were $575 million for the first six months, compared with $485 million in 2012. Net cash used in investing activities was $637 million.
- Cash and cash equivalents were $150 million at June 30, 2013, compared with $184 million at December 31, 2012. Ameren had $25 million of commercial paper outstanding and approximately $2.061 billion of available credit capacity under its $2.1 billion credit agreements.
- Ameren reported $6.158 billion of long-term debt and capital lease obligations, including current maturities, at June 30, 2013. Current maturities of long-term debt were $884 million, including significant maturities within the next twelve months.
- Ameren, Ameren Missouri, and Ameren Illinois were in compliance with applicable debt covenants. Consolidated indebtedness-to-capitalization ratios under the credit agreements were 52%, 48%, and 42%, respectively.
- Common dividends were $0.40 per share for the quarter and $0.80 per share for the first six months.
Material changes versus the prior comparable period
- Q2 continuing-operations income attributable to Ameren declined $56 million, primarily because of the scheduled Callaway refueling and maintenance outage, cooler early-summer weather, the absence of a prior-year Entergy-related refund benefit, and the Missouri FAC prudence charge.
- Ameren Missouri’s Q2 continuing-operations income declined $59 million, despite higher rates effective January 2013. Ameren Illinois’ Q2 income was broadly comparable with the prior-year period.
- Ameren recorded a $23 million pretax FAC prudence charge in Q2 for estimated customer refunds related to sales during October 2009 through May 2011. The Missouri PSC subsequently calculated the refund at $26 million, including interest.
- Other operations and maintenance expense increased $52 million in Q2 and $82 million for the first six months. Major drivers included Callaway outage costs, employee benefits, energy-efficiency programs, storm restoration, labor, and pipeline-integrity compliance.
- Discontinued operations produced a $10 million loss in Q2 2013 versus $48 million of income in Q2 2012. The six-month loss was $209 million versus $394 million in 2012.
- The discontinued-operations loss included a cumulative $168 million pretax impairment charge on the New AER disposal group and a $7 million Illinois sales and use tax settlement charge in Q2. The final impairment and tax effects may differ materially from recorded amounts.
- Ameren Illinois increased capital expenditures by approximately $99 million year over year, primarily for electric transmission investments.
Guidance, outlook, commentary, risks, and unusual items
- Ameren expected the New AER divestiture to IPH to close in the fourth quarter of 2013, subject to FERC, FCC, and Illinois Pollution Control Board approvals. The transaction would reposition Ameren as a primarily rate-regulated electric, natural gas, and transmission company.
- The sale of the Elgin, Gibson City, and Grand Tower gas-fired plants was expected to be completed during 2013. Genco had received an initial $100 million payment and expected at least an additional $33 million, subject to required approvals and appraised value.
- Ameren Illinois requested a $50 million annual natural-gas delivery revenue increase; ICC staff recommended a $24 million increase. A decision was expected by December 2013.
- Ameren Illinois’ revised electric formula-rate filing proposed a $38 million decrease in the 2014 revenue requirement; ICC staff recommended a $60 million decrease. The ICC decision was expected in December 2013.
- Ameren planned approximately $2.2 billion of FERC-regulated transmission investment over the five years ending 2017, including the Illinois Rivers project.
- Management expected to refinance substantial debt maturities, including Ameren’s $425 million senior notes, Ameren Missouri’s $304 million of notes, and Ameren Illinois’ $150 million of notes maturing within twelve months.
- Genco’s interest-coverage ratio was 1.60 versus a 2.50 threshold for additional external indebtedness. Its access to external third-party borrowing was restricted, and management did not expect Genco to pay common dividends through at least June 30, 2016.
- Key risks included regulatory rate decisions and refunds, environmental compliance and potential generation impairments, commodity prices, weather, capital-market access, pension funding, legal proceedings, nuclear operations, and the completion of the Merchant Generation divestiture.
- Ameren Missouri’s Callaway plant experienced a small turbine-building fire on July 26, 2013. No above-normal radioactive release was reported; the plant was temporarily out of service while damage was assessed.
- Ameren recorded a $68 million insurance receivable related to the Taum Sauk incident and continued litigation with insurers. Ameren also recorded $256 million of liabilities for former manufactured-gas-plant remediation, with estimated total costs ranging from $256 million to $339 million.
Most important facts for investors to verify
- Completion, timing, regulatory approvals, and final economics of the New AER and gas-fired plant divestitures.
- Final New AER impairment, tax consequences, pension curtailment effects, and any working-capital adjustment.
- Refinancing plans and availability of liquidity for the $884 million of current long-term debt maturities.
- Final Missouri FAC prudence refund and outcomes of related regulatory appeals.
- ICC decisions on Ameren Illinois’ electric formula-rate update and natural-gas rate case.
- Potential costs and asset-impairment exposure from environmental rules, Clean Air Act litigation, coal-ash requirements, and Clean Water Act proposals.
- Callaway’s operating status and the financial impact of the July 2013 fire and future outages.
- Genco’s restricted external borrowing capacity, reliance on internal funding, and continuing Ameren guarantees and credit-support obligations.