Business Context and Reporting Period
Ameren Corporation is a rate-regulated utility holding company serving Missouri and Illinois through Ameren Missouri, Ameren Illinois, and transmission operations. This unaudited combined Form 10-Q covers the three and six months ended June 30, 2019, compared with the corresponding 2018 periods. All dollar amounts are in millions unless otherwise stated.
Key Financial Metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Operating revenues | $1,379 | $1,563 | $2,935 | $3,148 |
| Operating income | $280 | $385 | $568 | $658 |
| Net income attributable to Ameren common shareholders | $179 | $239 | $370 | $390 |
| Diluted EPS | $0.72 | $0.97 | $1.50 | $1.59 |
| Net cash from operating activities | Not separately provided | Not separately provided | $879 | $820 |
| Capital expenditures | Not separately provided | Not separately provided | $1,125 | $1,112 |
Consolidated operating margin was approximately 20.3% in Q2 2019 versus 24.6% in Q2 2018, and approximately 19.4% for the first six months versus 20.9% in the prior-year period. Net margin was approximately 13.0% in Q2 2019 versus 15.3% in Q2 2018, and 12.6% for the first six months versus 12.4% in 2018.
- At June 30, 2019, cash and cash equivalents were $6; total cash, cash equivalents, and restricted cash were $122.
- Short-term debt was $999, including $595 at the parent, $205 at Ameren Missouri, and $199 at Ameren Illinois.
- Long-term debt, net, was $8,222; current maturities of long-term debt were $336.
- Consolidated indebtedness-to-total-capitalization ratios under the credit agreements were 54% for Ameren, 49% for Ameren Missouri, and 47% for Ameren Illinois.
- Net available liquidity was approximately $1.1 billion, including $1.092 billion of unused credit capacity and $6 of cash.
- Common dividends paid were $233 for the first six months, compared with $223 in 2018. The quarterly dividend was $0.475 per share versus $0.4575 in the prior-year quarter.
Material Changes Versus the Prior Comparable Period
- Q2 revenue declined 12%, primarily from lower electric revenue. Six-month revenue declined 7%.
- Q2 net income attributable to common shareholders decreased $60, or 25%, and six-month net income decreased $20, or 5%.
- Ameren Missouri electric margins decreased $93 in Q2 and $111 for the first six months. Milder weather reduced six-month margins by an estimated $78, while reduced off-system sales also pressured results.
- The Callaway nuclear refueling and maintenance outage, completed in May 2019, increased Ameren Missouri operations and maintenance expense by approximately $22 in Q2 and $27 for the first six months.
- Ameren Transmission margins increased $6 in Q2 and $16 for the first six months, benefiting from higher rate base investment. Ameren Illinois Natural Gas margins increased $23 for the first six months, partly due to rate design and higher base rates.
- Operating cash flow increased $59 to $879, although cash flow at Ameren Missouri declined $51 to $361. Ameren Illinois operating cash flow increased $165 to $452.
- Ameren Missouri issued $450 of 3.50% first mortgage bonds due 2029 and used the proceeds partly to repay $329 of maturing senior secured notes and short-term debt.
- The effective income tax rate decreased to 18% from 24% in Q2 and to 15% from 23% for the first six months, primarily reflecting amortization of excess deferred taxes and other tax items.
Guidance, Outlook, Risks, and Unusual Items
- Management expects to invest up to $13.9 billion in 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 contemplates approximately $6.3 billion of investment from 2019 through 2023. Two wind build-transfer agreements, for facilities of up to 400 MW and 300 MW, represent approximately $1.2 billion of expected 2020 capital expenditures and remain subject to regulatory, FERC, and transmission approvals.
- Ameren expects its common dividend payout ratio to remain between 55% and 70% of annual earnings over the next several years. Management expects cash used for planned capital expenditures and dividends to exceed operating cash flow, requiring debt and equity financing.
- Ameren Missouri filed for an electric rate proceeding seeking an annual revenue decrease of $1. The decision is expected by late April 2020, with new rates expected by late May 2020. A 50-basis-point change in the allowed return on equity would affect Ameren and Ameren Missouri net income by an estimated $20.
- Ameren Illinois’ 2020 electric distribution formula-rate update is expected to reduce annual rates by $7 beginning in January 2020, subject to ICC approval. Its energy-efficiency filing would add $44 to 2020 rates, subject to approval.
- The pending FERC MISO transmission return-on-equity complaint could reduce prospective returns and require refunds. Ameren and Ameren Illinois recorded regulatory liabilities of $45 and $26, respectively, for expected refunds and interest. A 50-basis-point reduction in the FERC return could reduce Ameren and Ameren Illinois net income by estimated amounts of $9 and $5, respectively.
- Ameren Missouri faces Clean Air Act litigation relating to the Rush Island energy center. The potential remedy could require significant pollution-control capital expenditures and operating costs; the ultimate effect remains uncertain.
- Environmental compliance capital expenditures are estimated at $300 to $400 from 2019 through 2023. Ameren Missouri’s CCR compliance plan is estimated at $150 to $200, and its CCR-related asset-retirement obligation was $162 at June 30, 2019.
- Ameren Illinois estimated remaining obligations for former manufactured-gas-plant remediation at $145 to $212 and recorded a $145 liability.
- Ameren Missouri’s next Callaway refueling and maintenance outage is scheduled for fall 2020. Two ultra-low-sulfur coal suppliers entered bankruptcy proceedings, but management does not expect a material operating impact.
- The filing states that there were no material changes to previously disclosed risk factors and no significant off-balance-sheet financing arrangements other than variable-interest entities, letters of credit, and parent guarantees.
Most Important Facts to Verify
- Progress and final approvals for the two Missouri wind projects, including interconnection costs, FERC approval, and recoverability of approximately $1.2 billion of planned investment.
- Outcomes and timing of the Missouri electric and natural-gas rate proceedings and Ameren Illinois’ formula-rate proceedings.
- The FERC MISO return-on-equity complaint, potential refund amount, and any change to the currently allowed 10.82% total return.
- The potential remedy, capital requirements, and regulatory recovery associated with the Rush Island Clean Air Act litigation.
- Execution of the $13.9 billion 2019–2023 capital program and the resulting debt, equity issuance, dividend coverage, and leverage.
- Actual weather-normalized demand, Callaway outage costs, environmental compliance expenditures, and the timing of regulatory cash recovery.