Ameren Corporation 2010 Q3 SEC Filing Summary
Business context and reporting period
Ameren Corporation filed a combined unaudited Form 10-Q for the quarter and nine months ended September 30, 2010. Ameren operates regulated electric and natural-gas utilities in Missouri and Illinois and merchant-generation businesses in Missouri and Illinois.
On October 1, 2010, Central Illinois Public Service Company, Central Illinois Light Company, and Illinois Power Company merged into the surviving entity, renamed Ameren Illinois Company. Ameren also transferred AERG into its Resources Company. Historical results in this filing continue to refer to CIPS, CILCO, and IP, while current operations are referred to as Ameren Illinois.
Key financial metrics
| Ameren consolidated metric | Three months ended September 30, 2010 | Three months ended September 30, 2009 | Nine months ended September 30, 2010 | Nine months ended September 30, 2009 |
|---|---|---|---|---|
| Operating revenues | $2,254 million | $1,815 million | $5,874 million | $5,415 million |
| Operating income | $89 million | $485 million | $718 million | $1,171 million |
| Net income attributable to Ameren | $(167) million | $227 million | $87 million | $533 million |
| Basic and diluted EPS | $(0.70) | $1.04 | $0.37 | $2.48 |
| Operating margin | Approximately 3.9% | Approximately 26.7% | Approximately 12.2% | Approximately 21.6% |
| Common dividends per share | $0.385 | $0.385 | $1.155 | $1.155 |
Revenue growth was driven primarily by higher electric sales, warmer summer weather, higher regulated rates, increased Noranda sales, and higher transmission revenues. Electric revenue increased to $2,122 million in the quarter from $1,679 million; gas revenue decreased to $132 million from $136 million.
Electric margin increased $235 million, or 21%, in the quarter and $193 million, or 6%, for the nine-month period. Regulated utility margins improved, but Merchant Generation experienced lower realized power prices, higher fuel and transportation costs, and reduced higher-margin sales after expiration of the 2006 Illinois auction agreements.
The filing does not present a separately labeled consolidated EBITDA measure. Net income and operating income were materially affected by noncash impairment charges.
Cash flow, balance sheet, debt, and liquidity
- Net cash provided by operating activities was $1,504 million for the first nine months of 2010, compared with $1,696 million in 2009.
- Capital expenditures were $746 million, compared with $1,295 million in 2009. Net cash used in investing activities was $776 million, compared with $1,345 million.
- Net cash used in financing activities was $742 million, compared with $120 million of financing cash provided in 2009. Financing uses included $276 million of common dividends, $106 million of long-term debt redemptions, and $52 million of preferred-stock redemptions.
- Cash and cash equivalents were $608 million at September 30, 2010, versus $622 million at December 31, 2009.
- Total assets were $23.631 billion and total equity was $7.909 billion at September 30, 2010.
- Balance-sheet debt included $6.859 billion of long-term debt, $354 million of current maturities, $125 million of short-term debt, and $400 million of credit-facility borrowings.
- New 2010 credit agreements provided aggregate commitments of $2.1 billion. Aggregate availability under those facilities was approximately $1.58 billion at September 30, 2010; including cash, consolidated liquidity was approximately $2.2 billion.
- Ameren had $125 million of commercial paper outstanding and a fully drawn $20 million revolving facility. Management stated that all applicable credit-facility covenants were satisfied.
Material changes versus the prior comparable period
- Ameren reported a third-quarter net loss of $167 million versus net income of $227 million, and nine-month net income fell to $87 million from $533 million.
- Third-quarter and year-to-date earnings included $589 million of pretax noncash goodwill and other impairment losses. These consisted principally of $420 million of Ameren Merchant Generation goodwill impairment, $65 million of Genco goodwill impairment, $101 million of Ameren long-lived-asset impairments, and $68 million of Ameren emission-allowance impairments. Genco separately reported $170 million of pretax impairment charges.
- The impairments reflected sustained lower power prices, reduced industry valuation multiples, and potentially more stringent environmental regulations. Goodwill assigned to Ameren’s and Genco’s Merchant Generation reporting units was fully impaired.
- Regulated operations improved: Ameren Missouri net income attributable to Ameren rose to $223 million from $141 million in the quarter and to $363 million from $244 million for nine months. Ameren Illinois rose to $89 million from $59 million in the quarter and to $168 million from $99 million for nine months.
- Merchant Generation shifted to a $470 million quarterly loss from $37 million of income and to a $428 million nine-month loss from $205 million of income.
- Operating cash flow declined despite higher margins, primarily because of lower Taum Sauk insurance recoveries, the Callaway nuclear outage, higher commodity and coal-transportation payments, increased pension contributions, and collateral postings.
- Capital spending was reduced or deferred in response to lower cash flows, economic conditions, and expected financial returns. Merchant Generation reduced estimated 2010–2014 capital costs by approximately $440 million, and Ameren Illinois reduced 2010 estimates by approximately $60 million.
Guidance, outlook, commentary, risks, and unusual items
- Management stated that 2010 other operations and maintenance expense was expected to be approximately $300 million, about 10% below 2009, reflecting workforce and spending reductions.
- Estimated Ameren capital expenditures were $1.130 billion in 2010 and $4.670 billion to $6.470 billion for 2011–2014, for a total of $5.800 billion to $7.600 billion. These estimates exclude potential costs from the proposed Clean Air Transport Rule and other future regulations.
- UE requested approximately $263 million of annual electric-rate increases and approximately $12 million of annual natural-gas-rate increases. Decisions were expected by August 2011 and May 2011, respectively. The filing does not provide an approved amount for these pending cases.
- The Illinois Commerce Commission’s November 2010 rehearing order increased annual delivery-service revenues by an overall $40 million, with related rate changes expected to become effective in mid-November 2010.
- Environmental compliance remains a major risk. Ameren estimated total environmental capital expenditures of up to $1.43 billion through 2017 for coal-fired plant controls. Future rules concerning sulfur dioxide, nitrogen oxides, mercury, greenhouse gases, coal ash, and cooling-water intakes could increase costs, impair assets, or require plant closures.
- UE’s Taum Sauk facility returned to service in April 2010 after a rebuild costing approximately $490 million. UE had received $422 million of insurance recoveries, recorded a $67 million remaining liability-insurance receivable, and had $89 million of Taum Sauk-related costs included in its pending rate request. Recovery remains subject to litigation and regulatory approval.
- UE faced appeals concerning its 2009 and 2010 Missouri electric-rate orders and a prudence review that could require the pass-through of up to $42 million of previously recognized contract margins.
- MISO and PJM disputed historical market-flow calculations. Ameren could receive or pay an undetermined portion of any resettlement; no prospective refund or payment had been recorded.
- Ameren expected pension contributions of approximately $75 million to $275 million annually over the next five years, with estimated aggregate contributions of $970 million, subject to market and regulatory changes.
- Ameren’s 2010 credit ratings included Baa3/BBB-/BBB for the parent issuer. A downgrade could increase collateral requirements and borrowing costs. Potential additional collateral requirements tied to sub-investment-grade ratings were $282 million for Ameren, $62 million for UE, $43 million for CIPS, $12 million for Genco, $51 million for CILCO, and $67 million for IP.
Most important facts for investors to verify
- Whether Merchant Generation’s lower power prices, fuel costs, and environmental requirements cause further impairments or sustained cash-flow weakness.
- The final outcomes and timing of UE’s Missouri rate cases, rate-order appeals, and fuel-adjustment prudence review.
- The effective financial and operating results of the post-October 1, 2010 Ameren Illinois structure, including the impact of the November 2010 ICC rehearing order.
- Actual environmental compliance costs, required capital spending, plant-retirement decisions, and the recoverability of regulated expenditures.
- Progress of Taum Sauk insurance litigation and the regulatory treatment of unrecovered rebuild costs.
- Available liquidity after commercial paper, letters of credit, collateral requirements, debt maturities, and potential commodity-price movements.
- The assumptions supporting goodwill and long-lived-asset valuations, including power-price forecasts, discount rates, industry multiples, and environmental compliance costs.