Ameren Corporation 2012 Form 10-K Summary
Business context and reporting period
Combined Form 10-K for Ameren Corporation, Union Electric Company (Ameren Missouri), and Ameren Illinois Company, covering the fiscal year ended December 31, 2012. Ameren operates regulated electric and natural gas utilities in Missouri and Illinois, plus a merchant generation business through AER, Genco, AERG, Marketing Company, and EEI.
The most significant strategic development was Ameren’s December 2012 decision that it intends, and believes it is probable, to exit Merchant Generation before the previously estimated useful lives of its long-lived assets. The timing and method of exit were not determined at filing.
Financial performance and key metrics
| Ameren consolidated | 2012 | 2011 | Change |
|---|---|---|---|
| Operating revenues | $6.828 billion | $7.531 billion | Down $703 million |
| Operating income (loss) | $(1.240) billion | $1.241 billion | Primarily due to impairments |
| Net income (loss) attributable to Ameren | $(974) million | $519 million | Decline of $1.493 billion |
| Basic and diluted EPS | $(4.01) | $2.15 | Down $6.16 |
| Cash flow from operations | $1.690 billion | $1.878 billion | Down $188 million |
| Capital expenditures | $1.240 billion | $1.030 billion | Up $210 million |
| Long-term debt, excluding current maturities | $6.626 billion | $6.677 billion | Down $51 million |
| Total assets | $21.835 billion | $23.645 billion | Down $1.810 billion |
| Stockholders’ equity | $6.616 billion | $7.919 billion | Down $1.303 billion |
Reported operating and net margins were approximately negative 18.2% and negative 14.3%, respectively, versus positive margins in 2011; the comparison is heavily distorted by the 2012 impairment charges.
- Noncash impairments: Ameren recorded $2.578 billion of pretax impairment and other charges in 2012, including a $1.950 billion fourth-quarter impairment of most Merchant Generation coal- and gas-fired energy centers and a $628 million first-quarter impairment of AERG’s Duck Creek facility. The Joppa coal-fired facility was not impaired. Merchant Generation long-lived assets had a $748 million net book value after the charges.
- Segment earnings: Ameren Missouri generated $416 million of net income available to common stockholders, up from $287 million. Ameren Illinois generated $141 million, down from $193 million. Merchant Generation recorded a $1.516 billion loss attributable to Ameren, compared with $45 million of income in 2011.
- Margins: Consolidated electric margins decreased $116 million, or 3%, to $3.881 billion. Merchant Generation electric margins fell $150 million, or 22%, while Ameren Missouri electric margins increased $88 million, or 4%. Natural gas margins increased $21 million, or 5%, to $452 million.
- Cash flow and liquidity: Operating cash flow funded $382 million of common dividends and $1.240 billion of capital expenditures. Cash and available credit facilities provided approximately $2.3 billion of liquidity at year-end, up approximately $100 million from 2011. Cash and cash equivalents were $209 million.
- Credit facilities: New 2012 credit agreements provided $2.1 billion of aggregate commitments through November 2017, with approximately $2.091 billion available after letters of credit. Ameren had no commercial paper outstanding at year-end.
- Debt and financing: Ameren Missouri issued $485 million of 3.90% senior secured notes due 2042; Ameren Illinois issued $400 million of 2.70% senior secured notes due 2022. Proceeds primarily refinanced or repurchased existing debt.
- Dividends: Ameren paid $382 million, or $1.60 per share, in common dividends during 2012. The board declared a $0.40 quarterly dividend payable in March 2013.
Material changes versus the prior comparable period
- Ameren moved from $519 million of net income in 2011 to a $974 million net loss in 2012, driven principally by Merchant Generation impairments and weaker merchant power economics.
- Merchant Generation power sales volumes declined, capacity factor decreased to 66% from 72%, and electric margins fell because of lower Midwest power prices, reduced utilization, lower capacity revenues, and higher fuel costs.
- Ameren Missouri benefited from the full-year effect of the 2011 electric rate increase, reduced outage and storm costs, lower operations and maintenance expense, and an Entergy power-purchase-agreement refund. Its earnings increased despite lower winter demand.
- Ameren Illinois earnings declined because of the initial implementation of Illinois’ IEIMA formula ratemaking, a lower allowed return on equity, required nonrecoverable contributions, and lower natural gas sales caused by warmer winter weather.
- Capital expenditures increased 20% to $1.240 billion, including $442 million at Ameren Illinois and $178 million in Merchant Generation. Ameren Illinois slowed IEIMA-related spending because of uncertainty over the ICC’s implementation of the law.
- Operating cash flow declined as Ameren Missouri’s fuel-adjustment-clause deferrals increased, customer collections declined, and debt repurchase premiums were paid.
- The company reduced consolidated net property and plant from $18.127 billion to $16.096 billion, primarily reflecting Merchant Generation impairments.
Guidance, outlook, risks, contingencies, and unusual items
- Regulated utility outlook: Ameren Missouri’s December 2012 rate order authorized a $260 million annual electric revenue increase effective January 2, 2013, including $80 million for energy-efficiency programs and $96 million for infrastructure and other nonfuel costs.
- Ameren Missouri expects to invest approximately $147 million in energy-efficiency programs over 2013–2015 and may earn an incentive of approximately $19 million if 100% of its goals are achieved.
- Ameren Illinois filed a January 2013 request for a $50 million annual natural gas delivery revenue increase, using a 2014 future test year. The ICC decision was required by December 2013.
- Ameren Illinois recorded a $55 million regulatory liability for an estimated refund to customers related to its 2012 IEIMA revenue requirement reconciliation. The amount and treatment remained subject to ICC and court proceedings.
- Ameren expects $7.445 billion to $9.540 billion of capital expenditures from 2013 through 2017, including significant regulated transmission and distribution investments. Three MISO-approved transmission projects are expected to require more than $1.3 billion through 2019.
- Genco expected its interest coverage ratio to fall below the threshold for additional external borrowing by the end of the first quarter of 2013. Management expected Genco to need mid-month liquidity during 2013 from asset sales or Ameren-controlled money-pool borrowings. Genco was restricted from paying dividends.
- Ameren expects to reduce or eliminate Merchant Generation’s reliance on parent financial and shared-services support. Potential exit actions could generate additional impairments, disposal losses, contingencies, restructuring costs, or loss of deferred tax assets.
- Ameren had $354 million of parent guarantees outstanding at year-end, including $189 million related to Merchant Generation and $100 million related to the Genco-AERG put option. Estimated exposure under the Merchant Generation guarantees was $25 million, and MISO-related exposure was $32 million.
- Major risks include regulatory disallowances and rate appeals, environmental compliance costs, declining power prices, coal and nuclear operating risks, commodity and counterparty exposure, capital-market access, pension funding, cybersecurity, and severe weather.
- Pending matters include EPA Clean Air Act litigation involving Rush Island and a Notice of Violation involving Genco’s Newton facility; Taum Sauk insurance litigation involving a $68 million insurance receivable; rate-case and FERC proceedings; asbestos and manufactured-gas-plant remediation; and other tax and environmental contingencies.
- Ameren estimated environmental compliance capital expenditures of $1.510 billion to $1.820 billion for 2013–2022, assuming continued ownership of Merchant Generation facilities. Actual requirements could differ materially as regulations and power-market conditions change.
- Auditors issued unqualified opinions, and management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2012.
Most important facts for an investor to verify
- Whether Ameren can execute a Merchant Generation exit without additional impairments, disposal losses, restructuring costs, or material parent support.
- Genco’s actual 2013 liquidity, compliance with debt covenants, asset-sale proceeds, and access to Ameren’s money pool.
- Final outcomes of Ameren Illinois’ IEIMA appeals, revenue reconciliations, natural gas rate case, and potential customer refunds.
- Final outcomes and financial exposure from EPA enforcement and Clean Air Act litigation, including Rush Island and Newton.
- Recovery and timing of the $68 million Taum Sauk insurance receivable and other material litigation claims.
- Whether regulated capital spending, transmission projects, and environmental investments receive timely and full regulatory recovery.
- Future cash flow available for dividends after capital expenditures, pension contributions, debt maturities, environmental spending, and Merchant Generation support requirements.
- The sensitivity of earnings, collateral requirements, and liquidity to power prices, fuel prices, interest rates, credit ratings, and severe weather.