Ameren Corporation 2013 First-Quarter Form 10-Q Summary
Business context and reporting period
Ameren Corporation, Union Electric Company (Ameren Missouri), and Ameren Illinois Company filed a combined unaudited Form 10-Q for the three months ended March 31, 2013. Ameren operates regulated electric generation, transmission and distribution businesses, regulated natural-gas businesses, transmission projects, and merchant-generation operations being divested.
On March 14, 2013, Ameren agreed to divest New AER, substantially comprising its merchant-generation business, to Illinois Power Holdings, an indirect subsidiary of Dynegy. The transaction and the planned sale of the Elgin, Gibson City, and Grand Tower gas-fired energy centers were classified as discontinued operations.
Key financial metrics
| Ameren consolidated metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Operating revenues | $1,475 million | $1,412 million |
| Operating income | $185 million | $158 million |
| Income from continuing operations | $56 million | $39 million |
| Net loss attributable to Ameren Corporation | $145 million, or $0.60 per share | $403 million, or $1.66 per share |
| Continuing-operations EPS | $0.22 | $0.15 |
| Dividends per common share | $0.40 | $0.40 |
| Operating cash flow | $379 million | $383 million |
| Operating cash flow from continuing operations | $342 million | $304 million |
| Capital expenditures | $275 million | $245 million |
Revenue increased 4.5% year over year. Operating income improved, while continuing-operations income increased 44%. The consolidated net loss remained significant because of discontinued-operations losses.
Discontinued operations produced a $199 million after-tax loss in Q1 2013 versus a $442 million loss in Q1 2012. The 2013 loss included a $155 million pretax impairment charge for New AER. The 2012 loss included a $628 million pretax impairment charge related primarily to AERG’s Duck Creek energy center.
| Balance-sheet metric | March 31, 2013 | December 31, 2012 |
|---|---|---|
| Cash and cash equivalents | $161 million | $184 million |
| Total assets | $21,952 million | $22,209 million |
| Current maturities of long-term debt | $355 million | $355 million |
| Long-term debt, net | $5,803 million | $5,802 million |
| Total equity | $6,516 million | $6,767 million |
Ameren had $2.063 billion of available capacity under its committed credit agreements after letters of credit. It had no commercial paper outstanding at March 31, 2013. Consolidated indebtedness-to-total-capitalization ratios under credit agreements were 52% for Ameren, 48% for Ameren Missouri, and 42% for Ameren Illinois; management reported compliance with applicable covenants.
Material changes versus the prior comparable period
- Colder winter weather increased electric and natural-gas demand; heating degree-days increased approximately 40% systemwide compared with Q1 2012.
- Electric margin increased $50 million, and natural-gas margin increased $24 million. Ameren Missouri electric margin increased $57 million, while Ameren Illinois electric margin decreased $8 million and natural-gas margin increased $21 million.
- Ameren Missouri’s new electric rates became effective in January 2013, including an annual revenue increase approved by the MoPSC of approximately $260 million. The order also authorized approximately $147 million of energy-efficiency investment over three years.
- Ameren Illinois electric delivery results were pressured by the timing and amount of recoverable costs under formula ratemaking. Its 2013 electric delivery rates reflected an approved revenue requirement of $765 million.
- Operations and maintenance expense increased $30 million, primarily from labor, energy-efficiency and environmental-remediation costs, distribution maintenance, pipeline-integrity compliance, and Callaway outage-related maintenance.
- Continuing-operations operating cash flow rose $38 million, but total operating cash flow declined slightly because discontinued-operations cash flow fell $42 million.
- Capital expenditures increased $30 million, while nuclear-fuel expenditures decreased $27 million because of purchase timing.
- Ameren Illinois’ natural-gas rate case seeks an annual revenue increase of $50 million. An April 2013 electric formula-rate filing is expected to reduce the 2014 revenue requirement by approximately $30 million and includes a proposed customer refund of approximately $50 million.
Guidance, outlook, risks, and unusual items
- Ameren expected the New AER divestiture to close in the fourth quarter of 2013, subject to FERC, FCC, Illinois Pollution Control Board, and other approvals. The company expected the sale of the three gas-fired energy centers to be completed during 2013.
- Ameren expects to focus increasingly on regulated electric, natural-gas, and transmission operations. Three MISO-approved transmission projects are expected to require more than $1.3 billion of investment through 2019; Ameren Illinois separately expects approximately $1 billion of transmission investment over five years.
- Genco’s interest-coverage ratio fell below the threshold for additional external borrowing. Its ability to obtain third-party financing and pay dividends was restricted, and management expected these restrictions to continue for several years.
- The divestiture could produce additional impairment, disposal, tax, pension, working-capital, or contingency effects. The ultimate New AER impairment loss may differ materially from the $155 million pretax estimate.
- Ameren must maintain certain credit support for New AER for up to 24 months after closing, subject to indemnification by IPH and a limited Dynegy guarantee. Parent guarantees outstanding totaled $269 million; estimated exposure under the merchant-generation guarantees was $26 million.
- Ameren’s estimated potential additional collateral requirement from credit-rating-related triggers was $140 million. Commodity-price movements could also require additional collateral.
- Major regulatory and legal uncertainties include Missouri fuel-adjustment-clause prudence reviews, Illinois formula-ratemaking appeals, FERC transmission-rate matters, environmental litigation, former manufactured-gas-plant remediation, asbestos claims, and Taum Sauk insurance litigation.
- Environmental rules concerning mercury, air emissions, greenhouse gases, coal ash, cooling-water intake, and wastewater could require substantial capital expenditures, raise operating costs, or lead to asset impairments or plant closures.
- Ameren Missouri’s Callaway refueling and maintenance outage began April 8, 2013 and was expected to last approximately 40 days. The filing states that related costs are largely addressed through the fuel-adjustment mechanism, although revenue recovery timing may affect earnings.
- Ameren expects annual pension contributions of $60 million to $150 million over the next five years, with estimated aggregate contributions of approximately $550 million.
Most important facts for an investor to verify
- Whether the New AER and gas-fired energy-center divestitures received all required regulatory approvals and closed on the anticipated timetable.
- The final disposal-group impairment, tax consequences, pension curtailment effects, and any continuing guarantees or indemnities after closing.
- Ameren Illinois’ formula-ratemaking appeals, 2014 rate update, proposed customer refund, and pending $50 million natural-gas rate case.
- Ameren Missouri’s fuel-adjustment-clause prudence reviews and any potential customer refunds or additional charges.
- The effect of environmental compliance requirements on capital spending, plant-retirement decisions, regulatory recovery, and liquidity.
- Genco’s liquidity, debt-covenant restrictions, ability to obtain external financing, and dependence on asset-sale proceeds and intercompany funding.
- Ameren’s ability to fund planned transmission, reliability, environmental, pension, and other capital requirements while maintaining credit metrics and dividends.
- The outcome of Taum Sauk insurance claims, FERC proceedings, environmental litigation, asbestos matters, tax examinations, and remediation obligations.