Ameren Corporation 2019 Q3 Form 10-Q Summary
Business context and reporting period
Ameren Corporation is a regulated utility holding company headquartered in St. Louis, Missouri. Its principal subsidiaries are Ameren Missouri, which operates regulated electric generation, transmission, distribution, and natural-gas businesses, and Ameren Illinois, which operates regulated electric transmission and distribution and natural-gas businesses. The filing covers the three and nine months ended September 30, 2019, with comparative periods ended September 30, 2018. The financial statements are unaudited and presented in millions except per-share amounts.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Operating revenues | $1,659 | $1,724 | $4,594 | $4,872 |
| Operating income | $520 | $533 | $1,088 | $1,191 |
| Net income attributable to Ameren common shareholders | $364 | $357 | $734 | $747 |
| Diluted EPS | $1.47 | $1.45 | $2.97 | $3.04 |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $1,668 | $1,686 |
| Capital expenditures | Not separately provided | Not separately provided | $1,761 | $1,689 |
Operating margin, calculated as operating income divided by operating revenues, was approximately 31.3% in Q3 2019 versus 30.9% in Q3 2018, and approximately 23.7% for the first nine months of 2019 versus 24.5% in the comparable 2018 period.
- At September 30, 2019, total assets were $28,546, long-term debt was $8,651, current maturities of long-term debt were $336, and short-term debt was $544.
- Cash and cash equivalents were $20; cash, cash equivalents, and restricted cash totaled $155.
- Net available liquidity was $1.574 billion, supported by $2.1 billion of aggregate credit agreements, commercial paper programs, and cash.
- Ameren’s consolidated indebtedness-to-total-capitalization ratio under its credit agreements was 53%; the ratios were 48% for Ameren Missouri and 47% for Ameren Illinois.
- Ameren issued $900 million of long-term debt during the first nine months, including $450 million of 2.50% senior unsecured notes due 2024 and $450 million of Ameren Missouri first mortgage bonds due 2029.
- Common dividends paid were $350 million during the first nine months, compared with $334 million in 2018. The quarterly dividend declared in October 2019 was $0.495 per share, implying an annualized rate of $1.98.
Material changes versus the prior comparable period
- Q3 net income attributable to common shareholders increased $7 million, or 2%, while nine-month net income decreased $13 million, or 2%.
- Revenue declined $65 million in Q3 and $278 million for the first nine months, primarily reflecting lower electric revenue, milder weather, lower cost-recovery-related revenue, and reduced Ameren Missouri off-system sales.
- Nine-month electric margins decreased $87 million, principally because of milder weather and lower Ameren Missouri margins. Transmission margins increased $31 million for the nine months because of rate-base growth and additional capital investment.
- Nine-month natural-gas margins increased $19 million, mainly from higher Ameren Illinois base rates and qualifying infrastructure investment recoveries; Q3 natural-gas margins decreased $4 million because of the Illinois rate-design change that shifts more revenue into the winter heating season.
- Ameren Missouri recorded $38 million of MEEIA performance-incentive revenue during the first nine months of 2019, including $18 million in Q3, compared with $11 million for full-year 2018.
- Nine-month operating cash flow decreased $18 million. Ameren Missouri’s operating cash flow fell $121 million, primarily from lower customer collections, weather-related sales impacts, and $28 million of Callaway refueling and maintenance-outage payments. Ameren Illinois operating cash flow increased $190 million.
- Capital expenditures increased $72 million to $1.761 billion. Management increased its 2019 capital-expenditure estimate by approximately $150 million to $2.585 billion.
- Depreciation and amortization increased $32 million for the first nine months, primarily because of additional property, plant, and equipment. Interest expense decreased $12 million, principally because of lower Ameren Missouri borrowing costs and PISA-related regulatory deferrals.
Guidance, outlook, commentary, risks, and unusual items
- Ameren estimates up to $13.9 billion of capital expenditures from 2019 through 2023, including up to $7.1 billion at Ameren Missouri, $6.6 billion at Ameren Illinois, and $0.2 billion at ATXI. Ameren Missouri’s Smart Energy Plan represents approximately $6.3 billion of investment from 2019 through 2023.
- Two Ameren Missouri wind projects, with capacity of up to 400 megawatts and 300 megawatts, represent approximately $1.2 billion of planned capital expenditures and are expected to be completed by the end of 2020. A separate 157-megawatt project was terminated because of uneconomic interconnection costs.
- Ameren Missouri filed for a proposed $1 million annual electric revenue decrease; a MoPSC decision was expected by late April 2020, with new rates expected by late May 2020. Ameren Illinois’ pending 2020 electric distribution formula-rate update was expected to reduce rates by $7 million, subject to ICC approval.
- Ameren Missouri’s next Callaway nuclear refueling and maintenance outage is scheduled for fall 2020. The company requested regulatory deferral treatment for related maintenance costs, but the outcome was uncertain.
- The FERC MISO transmission return-on-equity complaint remains unresolved. Ameren and Ameren Illinois had recorded regulatory liabilities of $46 million and $27 million, respectively, for expected refunds and interest. A 50-basis-point reduction in the FERC-allowed base return could reduce Ameren net income by an estimated $9 million.
- Ameren Missouri is appealing a Clean Air Act judgment requiring pollution-control installations at the Rush Island and Labadie energy centers. Rush Island compliance capital expenditures are estimated at approximately $1 billion, with additional annual operating and maintenance costs estimated at $30 million to $50 million. The order was largely stayed during the appeal.
- Environmental compliance capital expenditures are estimated at $300 million to $400 million from 2019 through 2023, excluding potential costs from the Clean Air Act litigation. Ameren Missouri also estimates $150 million to $200 million for CCR compliance during that period.
- Ameren Illinois estimated remaining remediation obligations for former manufactured-gas plant sites at $139 million to $209 million and recorded a $139 million liability.
- Ameren entered into a forward sale agreement for 7.5 million shares, potentially generating approximately $540 million to $550 million if physically settled by March 31, 2021. The agreement may dilute earnings per share.
- Major recurring risks include regulatory disallowances or delayed recovery, interest-rate and credit-market conditions, weather, commodity prices and availability, nuclear operations and insurance, environmental requirements, cyberattacks, equipment failures, litigation, and changes in energy demand from efficiency, storage, private generation, and electrification.
- Two ultra-low-sulfur coal suppliers entered Chapter 11 proceedings. Ameren Missouri expected to replace any supply shortfall and did not anticipate a material operational impact as of the filing.
Most important facts for an investor to verify
- Whether Ameren can execute its large capital program while maintaining liquidity, credit metrics, and targeted equity-to-capitalization levels.
- The ultimate outcomes and timing of the FERC return-on-equity proceedings, Missouri RESRAM appeal, Ameren Missouri rate case, and Illinois formula-rate proceedings.
- The financial and regulatory consequences of the Rush Island and Labadie Clean Air Act litigation, including potential approximately $1 billion of Rush Island capital spending.
- Whether the two Missouri wind projects are completed on schedule and within the approximately $1.2 billion combined investment estimate.
- The effect of weather normalization, Callaway outage costs, MEEIA performance incentives, and lower Ameren Illinois return-on-equity assumptions on future earnings.
- The timing and form of settlement of the 7.5 million-share forward sale agreement and its effect on share count and EPS.
- Future environmental remediation, CCR, nuclear decommissioning, and coal-supply obligations, including amounts that may exceed recorded liabilities or current estimates.