Ameren Corporation 2010 Form 10-K Summary
Business context and reporting period
Ameren Corporation filed a combined Form 10-K for the fiscal year ended December 31, 2010, together with Union Electric Company, Ameren Illinois Company and Ameren Energy Generating Company. Ameren is a Missouri-based utility holding company with three principal segments: regulated Ameren Missouri, regulated Ameren Illinois, and Merchant Generation in Missouri and Illinois.
The filing reflects a significant internal reorganization completed October 1, 2010. CILCO and Illinois Power merged into Ameren Illinois, while AERG was transferred from Ameren Illinois to Resources Company. AERG is presented as discontinued operations by Ameren Illinois but remains in continuing operations in Ameren’s consolidated financial statements.
Financial and operating highlights
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Operating revenues | $7.638 billion | $7.135 billion | +7% |
| Operating income | $916 million | $1.416 billion | -35% |
| Net income attributable to Ameren | $139 million | $612 million | -$473 million |
| Basic and diluted EPS | $0.58 | $2.78 | -$2.20 |
| Operating cash flow | $1.842 billion | $1.977 billion | -$135 million |
| Capital expenditures | $1.031 billion | $1.704 billion | -$673 million |
| Long-term debt, excluding current maturities | $6.853 billion | $7.111 billion | -$258 million |
| Cash and cash equivalents | $545 million | $622 million | -$77 million |
Operating income and earnings were materially reduced by $589 million of noncash goodwill and other impairment charges, including $420 million of Merchant Generation goodwill, $101 million of long-lived asset impairments and $68 million of emission-allowance impairments. Ameren’s effective tax rate was 68%, compared with 35% in 2009; excluding the nondeductible goodwill impairment, management reported an adjusted 2010 effective tax rate of approximately 36%.
Electric margins increased $202 million to $4.092 billion, while natural-gas margins increased $2 million to $448 million. Regulated margins benefited from higher rates, warmer summer weather, improved sales volumes and the return of Taum Sauk to service. Merchant Generation margins declined $232 million, or 23%, because of lower realized power prices, expiration of higher-margin contracts and higher fuel and transportation costs.
Ameren generated 85% of its electricity from coal, 12% from nuclear, 1% from natural gas and 2% from hydroelectric sources. Total electric sales increased to 111.9 billion kilowatthours from 104.1 billion in 2009, while natural-gas sales declined to 103 million dekatherms from 108 million.
Material changes versus the prior comparable period
- Regulated earnings improved: Ameren Missouri net income increased to $364 million from $259 million, and Ameren Illinois net income available to its common stockholder increased to $248 million from $241 million.
- Merchant Generation shifted to a $409 million attributable loss from $247 million of attributable income, primarily because of impairment charges and weaker power-market economics. Genco reported a $39 million loss versus $160 million of net income.
- Ameren Missouri received a $230 million annual electric-rate increase effective June 21, 2010. Ameren Illinois received orders resulting in an aggregate annual delivery-service increase of approximately $40 million.
- Ameren completed the Taum Sauk rebuild; the facility returned to service in April 2010.
- Capital spending fell substantially as major scrubber projects and storm-repair work were completed or reduced. Ameren redeemed $310 million of long-term debt and $52 million of preferred stock and issued no long-term debt in 2010.
- Common dividends were $368 million, or $1.54 per share, unchanged per share from 2009. The payout exceeded reported net income because of the noncash impairment charges.
Liquidity, debt and cash flow
Ameren reported approximately $1.9 billion of consolidated liquidity at December 31, 2010, consisting of cash and available credit facilities, unchanged from year-end 2009. New 2010 credit agreements provided aggregate commitments of $2.1 billion through September 2013, subject to sublimits and extensions; approximately $1.38 billion was available at year-end after borrowings, commercial paper and letters of credit.
Ameren had $269 million of commercial paper outstanding, $460 million of credit-facility borrowings and $6.853 billion of long-term debt excluding current maturities. Long-term debt maturities, including current maturities, totaled $155 million in 2011, $179 million in 2012, $355 million in 2013 and $585 million in 2014. Management stated that the Ameren Companies were in compliance with applicable financing covenants.
Management projected 2011–2015 capital expenditures of approximately $6.35 billion to $8.15 billion, including substantial regulated infrastructure, transmission and environmental spending. Ameren also estimated $3.05 billion to $3.64 billion of environmental capital expenditures through 2020 for known and proposed requirements.
Guidance, outlook, risks and unusual items
- Management expected regulated returns in 2011 to remain below authorized levels and continued to pursue rate cases and mechanisms intended to reduce regulatory lag.
- Ameren Missouri requested a $263 million annual electric-rate increase; Missouri staff recommended an increase of $45 million to $99 million. The filing stated that a decision was expected by July 2011.
- Ameren Illinois requested $60 million of additional electric delivery revenue and $51 million of additional natural-gas delivery revenue using a 2012 future test year.
- Merchant Generation expected low power prices to continue pressuring results, although management sought to stabilize cash flow through hedging, cost reductions and contracted sales. As of February 15, 2011, approximately 26 million megawatthours of 2011 generation had been hedged at an average price of $46 per megawatthour.
- Environmental exposure is significant because 85% of Ameren’s generation was coal-fired. Proposed or developing rules concerning SO2, NOx, mercury, greenhouse gases, coal ash and cooling-water systems could require large capital expenditures, increase operating costs, impair assets or lead to plant closures.
- The EPA filed a January 2011 complaint against Union Electric concerning alleged Clean Air Act and Missouri-law violations at the Rush Island facility. Potential penalties and compliance costs were not determinable.
- Taum Sauk insurance litigation and the recovery of $89 million of capitalized Taum Sauk-related costs through future rates remained unresolved. Ameren stated that the ultimate financial impact could be material.
- Pending rate appeals, a Missouri FAC prudence review involving up to $42 million of disputed margins, and challenges to Missouri electric-rate increases could result in refunds or reduced earnings and cash flow. The filing described potential 2011 pretax impacts of approximately $100 million or $300 million if certain rate schedules were suspended, depending on the rate comparison used.
- Ameren expected annual pension contributions of $75 million to $110 million over the next five years, with estimated aggregate contributions of $470 million.
- Other material risks included commodity-price volatility, coal transportation disruptions, nuclear operations and decommissioning, access to capital markets, counterparty defaults, MISO cost allocation, regulatory disallowances and changing energy-efficiency requirements.
Most important facts for an investor to verify
- Whether Merchant Generation power prices, fuel costs and environmental requirements lead to additional impairments or sustained losses.
- The final outcomes of the Missouri and Illinois rate cases, rate-order appeals and the Missouri FAC prudence review.
- The ultimate liability, insurance recovery and rate recovery associated with the Taum Sauk incident.
- The scope, timing and recoverability of environmental compliance spending, particularly for coal-fired facilities.
- Ameren’s ability to fund projected capital expenditures, debt maturities, dividends and pension contributions while maintaining adequate liquidity.
- Whether the internal reorganization and AERG discontinued-operations presentation affect comparability between Ameren consolidated and Ameren Illinois results.