Ameren Corporation 10-Q Summary
Business Context and Reporting Period
Combined unaudited Form 10-Q for Ameren Corporation, Union Electric Company (d/b/a Ameren Missouri), and Ameren Illinois Company for the three months ended March 31, 2019, compared with the three months ended March 31, 2018. Ameren is a regulated utility holding company serving Missouri and Illinois through electric generation, transmission and distribution, natural gas distribution, and transmission businesses.
Key Financial Metrics
| Ameren consolidated | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Operating revenues | $1,556 million | $1,585 million | Down $29 million |
| Operating income | $288 million | $273 million | Up $15 million |
| Net income | $193 million | $153 million | Up $40 million |
| Net income attributable to common shareholders | $191 million | $151 million | Up $40 million |
| Basic and diluted EPS | $0.78 | $0.62 | Up $0.16 |
| Operating cash flow | $387 million | $258 million | Up $129 million |
| Capital expenditures | $544 million | $579 million | Down $35 million |
| Cash, cash equivalents and restricted cash | $118 million | $89 million | At period-end |
Consolidated operating margin, calculated as operating income divided by operating revenues, was approximately 18.5% in Q1 2019 versus 17.2% in Q1 2018. The effective income tax rate declined to 12% from 22%, primarily reflecting amortization of excess deferred taxes and higher tax benefits related to stock-based compensation.
At March 31, 2019, Ameren reported $799 million of short-term debt, $8.2 billion of long-term debt, and total equity of $7.8 billion. Consolidated indebtedness-to-total-capitalization under credit agreement definitions was 54%. Commercial paper outstanding increased to $799 million from $597 million at December 31, 2018.
Available liquidity was approximately $1.3 billion, consisting primarily of $1.292 billion of unused credit capacity and $8 million of cash and cash equivalents. The company was in compliance with applicable credit agreement and debt covenants.
Material Changes Versus the Prior Comparable Period
- Net income attributable to common shareholders increased 26%, and diluted EPS increased 26%, despite a 2% decline in revenue.
- Electric revenue declined $41 million, principally because of Missouri rate reductions under the Tax Cuts and Jobs Act-related Senate Bill 564, lower recovery associated with storm restoration assistance, and lower off-system sales.
- Natural gas revenue increased $12 million, while natural gas margins increased $22 million, primarily from higher Ameren Illinois rates and a rate-design change that shifted more revenue into the winter heating season.
- Electric margins decreased $6 million overall. Ameren Missouri electric margins fell $18 million, partially offset by increases of $10 million at Ameren Transmission and $4 million at Ameren Illinois Electric Distribution.
- Ameren Missouri recognized $20 million of MEEIA 2013 and MEEIA 2016 energy-efficiency performance incentives in Q1 2019, compared with $5 million in Q1 2018.
- Operations and maintenance expense declined $14 million, while depreciation and amortization increased $14 million because of continued infrastructure investment.
- Operating cash flow improved substantially, aided by working-capital timing, regulatory cost-recovery mechanisms, lower coal inventories, and improved margins.
- Ameren Missouri issued $450 million of 3.50% first mortgage bonds due 2029 and repaid $329 million of 6.70% senior secured notes that matured in February 2019.
Guidance, Outlook, Risks and Unusual Items
- Ameren expects capital expenditures of up to $13.9 billion 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 contemplates approximately $6.3 billion of investment from 2019 through 2023. The company also expects approximately $1.4 billion of 2020 capital expenditures under three wind-generation build-transfer agreements, subject to regulatory, FERC, interconnection, and other conditions.
- Ameren Missouri expects to invest $226 million over the life of its MEEIA 2019 plan and may earn up to $30 million of performance incentives if specified energy-efficiency goals are achieved through December 2021.
- Ameren expects its common-stock dividend payout ratio to be 55% to 70% of annual earnings over the next several years. The board declared a quarterly dividend of $0.475 per share payable June 28, 2019.
- Ameren Missouri’s Callaway nuclear facility began a scheduled refueling and maintenance outage in April 2019. Related 2019 maintenance expense is expected to be $34 million; purchased-power and outage effects may vary, with fuel-cost impacts generally recovered through the fuel adjustment clause.
- Ameren Illinois’ April 2019 formula-rate filing is expected, pending ICC approval, to reduce electric distribution rates by $7 million beginning in January 2020. Ameren Missouri also planned to file an electric rate review as early as July 2019.
- The FERC MISO transmission return-on-equity complaint remains unresolved. Ameren and Ameren Illinois had recorded regulatory liabilities of $44 million and $26 million, respectively, for potential refunds. A 50-basis-point reduction in the allowed return could reduce estimated annual net income by approximately $9 million for Ameren and $5 million for Ameren Illinois.
- Environmental and legal exposures include the Rush Island Clean Air Act litigation, coal-ash compliance, cooling-water requirements, and former manufactured-gas-plant remediation. Ameren Missouri estimates $300 million to $400 million of environmental compliance capital expenditures from 2019 through 2023; Ameren Illinois estimates former MGP remediation obligations of $145 million to $215 million and has recorded a $145 million liability.
- Ameren expects near-term operating cash flow pressure from lower customer rates under federal tax reform and the return of excess deferred taxes. Management expects capital expenditures and dividends to exceed operating cash flow over the next several years, requiring debt and equity financing.
- Potential risks include regulatory lag or disallowance, changes in allowed returns, commodity prices, weather, nuclear operations, environmental requirements, cyberattacks, credit-rating changes, capital-market access, and additional collateral requirements. A downgrade below investment grade could require up to $87 million of additional collateral across the Ameren Companies.
Important Facts for Investors to Verify
- Whether higher earnings are sustainable after the $20 million MEEIA incentive, favorable tax effects, colder weather, and the winter-weighted Illinois gas rate design.
- The final outcome and timing of the FERC transmission return-on-equity proceedings and related refund exposure.
- Regulatory approval and cost recovery for the planned Missouri wind projects and the approximately $13.9 billion five-year capital program.
- The financial and operational impact of the Callaway outage and the Rush Island Clean Air Act remedy.
- Ameren Illinois’ 2020 formula-rate decision and the effect of the expected $7 million rate decrease on customer cash receipts.
- Future leverage, equity issuance, dividend funding, and liquidity as capital spending exceeds operating cash flow.
- Changes in environmental compliance costs, coal-ash remediation, manufactured-gas-plant obligations, and related regulatory recovery.