Ameren Corporation 2017 Form 10-K Summary
Business Context and Reporting Period
Combined Form 10-K for Ameren Corporation, Union Electric Company doing business as Ameren Missouri, and Ameren Illinois Company, covering the fiscal year ended December 31, 2017. Ameren is a regulated utility holding company serving Missouri and Illinois through electric generation, transmission and distribution, natural gas distribution, and FERC-regulated transmission businesses. Its principal reporting segments are Ameren Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission.
The filing was signed February 28, 2018. The source presents full-year 2017 results; fourth-quarter information is included in the selected quarterly information.
Key Financial Metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Operating revenues | $6.177 billion | $6.076 billion | +2% |
| Operating income | $1.458 billion | $1.381 billion | +$77 million |
| Income from continuing operations | $529 million | $659 million | -$130 million |
| Net income attributable to common shareholders | $523 million | $653 million | -$130 million |
| Diluted EPS from continuing operations | $2.14 | $2.68 | -$0.54 |
| Cash flow from continuing operations | $2.104 billion | $2.124 billion | -$20 million |
| Capital expenditures | $2.132 billion | $2.076 billion | +$56 million |
| Long-term debt, excluding current maturities | $7.094 billion | $6.595 billion | +$499 million |
| Total assets | $25.945 billion | $24.699 billion | +$1.246 billion |
| Shareholders’ equity | $7.184 billion | $7.103 billion | +$81 million |
Operating margin, calculated from reported operating income and revenue, was approximately 23.6% in 2017 versus 22.7% in 2016. The effective income tax rate was 52% for Ameren, compared with 37% in 2016, primarily because of the Tax Cuts and Jobs Act of 2017.
Operating cash flow covered approximately 99% of capital expenditures before dividends. Ameren paid $431 million of common dividends, or $1.778 per share, and expects a dividend payout ratio of 55% to 70% over the next several years.
At December 31, 2017, consolidated liquidity totaled $1.625 billion, consisting of $1.615 billion of available credit and $10 million of cash. The two credit agreements provide $2.1 billion of aggregate commitments through December 2021. Consolidated commercial paper outstanding was $484 million.
Segment and Operating Performance
- Ameren Missouri: Operating revenues were $3.539 billion, operating income was $747 million, and net income available to common shareholders was $323 million, compared with $357 million in 2016. Electric margins increased $34 million, helped by the April 2017 rate order, but were pressured by milder weather, the absence of the 2016 MEEIA 2013 performance incentive, and higher depreciation.
- Ameren Illinois: Operating revenues were $2.528 billion, operating income was $580 million, and net income available to common shareholders was $268 million, compared with $252 million in 2016. Results benefited from infrastructure investment, formula ratemaking, and higher transmission margins.
- Ameren Transmission: Electric margins increased $71 million, or 20%, to $426 million, primarily from rate-base growth and higher recoverable costs under forward-looking formula ratemaking.
- Margins: Consolidated electric margins increased 3% to $3.935 billion, while natural gas margins increased 3% to $556 million.
- Rate base: Consolidated rate base increased to $14.4 billion from $13.6 billion, with electric and natural gas transmission and distribution rate base increasing to $10.1 billion.
Material Changes Versus the Prior Comparable Period
- Net income declined mainly because Ameren recorded a $154 million noncash income-tax charge from revaluing deferred taxes after the federal corporate tax rate was reduced from 35% to 21%. Ameren Missouri recorded a related $36 million net-income reduction; the effect on Ameren Illinois was immaterial.
- Revenue and operating income increased despite lower demand. Consolidated electric and natural gas margins benefited from higher regulated rates, transmission investment, and Ameren Illinois formula ratemaking.
- Ameren Missouri’s March 2017 rate order increased its annual electric revenue requirement by $92 million and reduced base net energy costs by $54 million.
- Capital expenditures increased to $2.132 billion. Spending included $773 million at Ameren Missouri, $476 million in Ameren Illinois Electric Distribution, $245 million in Ameren Illinois Natural Gas, and $644 million in transmission.
- Long-term debt increased following $1.345 billion of debt issuances, including Ameren Missouri’s $400 million 2.95% notes due 2027, Ameren Illinois’s $500 million 3.70% first mortgage bonds due 2047, and ATXI’s $450 million 3.43% notes due 2050. Debt issuances were partly used to refinance higher-cost obligations.
- Ameren Illinois implemented FEJA decoupling, which separated electric distribution revenues from sales volumes beginning in 2017, and began earning a return on qualifying electric energy-efficiency investments.
Guidance, Outlook, Risks, and Unusual Items
- Ameren projects $10.525 billion to $11.405 billion of capital expenditures from 2018 through 2022, including up to $4.505 billion at Ameren Missouri, $6.570 billion at Ameren Illinois, and $310 million at ATXI. Ameren Missouri’s resource plan could add approximately $1 billion of incremental investment through 2020, subject to approval.
- Management expects the TCJA to reduce operating cash flow by approximately $1 billion from 2018 through 2022 while increasing rate base by approximately $1 billion. Ameren may need incremental debt and/or equity financing and intends to maintain an equity ratio near 50% under applicable ratemaking frameworks.
- Ameren expects to refinance $951 million of Ameren Missouri debt and $457 million of Ameren Illinois debt scheduled to mature by the end of 2019.
- Ameren Missouri plans to add at least 700 megawatts of wind generation by 2020 and 100 megawatts of solar generation over the following decade. It also targets an 80% reduction in CO2 emissions by 2050 from 2005 levels.
- A pending February 2015 FERC complaint could reduce the allowed MISO transmission return on equity and require customer refunds. A 50-basis-point reduction would reduce estimated annual earnings by approximately $8 million for Ameren and $4 million for Ameren Illinois.
- The EPA and Ameren Missouri are litigating alleged Clean Air Act and Missouri law violations relating to projects at the Rush Island coal-fired plant. The remedy could require additional pollution-control capital expenditures and operating costs; the ultimate cost is unclear.
- Environmental compliance remains significant. Ameren Missouri estimates $325 million to $425 million of environmental capital expenditures from 2018 through 2022, including coal-combustion-residual compliance. Ameren Missouri recorded approximately $150 million of asset-retirement obligations related to coal-ash storage facilities.
- Ameren relies on Westinghouse as the only NRC-licensed supplier of Callaway nuclear fuel assemblies, while Westinghouse is in bankruptcy proceedings. Management did not expect a material near-term impact but identified potential replacement-power and fuel-inventory losses.
- Ameren Illinois estimated remediation obligations for 44 former manufactured-gas-plant sites at $175 million to $249 million and recorded the low end of the range as a liability.
- The Callaway nuclear unit is licensed through 2044. Its next scheduled refueling and maintenance outage is expected in spring 2019; the 2017 outage incurred $35 million of maintenance expense.
Most Important Facts for Investors to Verify
- Whether regulators’ treatment of TCJA benefits, excess deferred taxes, and customer-rate reductions produces the projected cash-flow and rate-base effects.
- The final FERC decision on the February 2015 transmission return-on-equity complaint, including any required refunds and prospective rate changes.
- The outcome and remedy phase of the Rush Island environmental litigation and the related potential capital and operating costs.
- Ameren’s ability to fund projected capital expenditures and dividends while maintaining targeted credit metrics and approximately 50% equity capitalization.
- Progress, costs, permitting, and completion timing for the Illinois Rivers and Mark Twain transmission projects and other transmission investments.
- Actual performance against Ameren Illinois FEJA energy-efficiency and IEIMA reliability, capital-spending, and return-on-equity requirements.
- The availability and cost of Callaway nuclear fuel following Westinghouse’s bankruptcy proceedings, together with nuclear decommissioning and insurance exposures.
- Changes in coal, water, air-emissions, coal-ash, and carbon regulations and the extent to which related costs are recovered through customer rates.
- The impact of weather, energy efficiency, distributed generation, storage, customer demand, interest rates, and Treasury yields on regulated returns and cash flow.