Ameren Corporation 10-Q Summary
Business Context and Reporting Period
Combined Form 10-Q for Ameren Corporation, Union Electric Company (Ameren Missouri), and Ameren Illinois Company for the three months ended March 31, 2020. Ameren is a regulated utility holding company serving Missouri and Illinois through electric generation, transmission and distribution, and natural gas distribution businesses. The financial statements are unaudited and presented in millions, except per-share data.
Key Financial Metrics
| Ameren consolidated | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Operating revenues | $1,440 | $1,556 | Down $116, or 7% |
| Operating income | $241 | $288 | Down $47, or 16% |
| Net income | $148 | $193 | Down $45, or 23% |
| Net income attributable to common shareholders | $146 | $191 | Down $45, or 24% |
| Diluted EPS | $0.59 | $0.78 | Down $0.19 |
| Operating margin | Approximately 16.7% | Approximately 18.5% | Down approximately 1.8 percentage points |
| Net margin | Approximately 10.3% | Approximately 12.4% | Down approximately 2.1 percentage points |
| Cash flow from operations | $290 | $387 | Down $97, or 25% |
| Capital expenditures | $636 | $544 | Up $92, or 17% |
| Cash, cash equivalents and restricted cash | $203 | $118 | Up $85 year over year |
At March 31, 2020, Ameren reported total assets of $29.3 billion, long-term debt of $9.4 billion, current maturities of long-term debt of $357 million, and short-term debt of $615 million. Net available liquidity was approximately $1.7 billion, including committed credit facilities and cash. Debt-to-total-capitalization ratios under the credit agreements were 55% for Ameren, 51% for Ameren Missouri, and 46% for Ameren Illinois. The companies were in compliance with applicable debt covenants.
Ameren paid $122 million of common dividends during the quarter. The board subsequently declared a quarterly dividend of $0.495 per share payable June 30, 2020.
Segment and Period-over-Period Developments
- Ameren Missouri reported a $10 million loss available to common shareholders, compared with $39 million of earnings in Q1 2019. Electric margins declined $41 million, primarily because of milder winter weather, the absence of prior-year MEEIA performance incentives, and lower off-system sales.
- Ameren Illinois reported $120 million of net income available to its common shareholder, unchanged from Q1 2019. Electric distribution earnings benefited from infrastructure investment and recoverable costs, while a lower recognized ROE reduced earnings. Natural gas margins declined due primarily to lower cost-recovery revenues, partially offset by QIP investment recovery.
- Ameren Transmission earnings increased $3 million, and transmission margins increased $9 million, reflecting rate-base growth.
- Electric margins decreased $20 million overall, while natural gas margins were approximately unchanged. Other operations and maintenance expense increased $21 million, driven largely by unfavorable changes in company-owned life insurance values and higher labor and benefit costs.
- Interest expense declined $4 million, primarily because Ameren Missouri deferred more interest under PISA. The effective consolidated income tax rate was 12%, unchanged from the prior-year quarter.
- Operating cash flow declined because of lower customer collections, higher coal inventory, and higher property-tax payments. Investing cash use increased due primarily to higher capital expenditures and nuclear fuel spending.
Financing, Liquidity, and Capital Program
- Ameren Missouri issued $465 million of 2.95% first mortgage bonds due 2030 and used the proceeds primarily to repay short-term debt and $85 million of maturing debt.
- In April 2020, Ameren issued $800 million of 3.50% senior unsecured notes due 2031 and received net proceeds of $793 million. Proceeds were intended for general corporate purposes, repayment of short-term debt, and the November 2020 maturity of $350 million of senior unsecured notes.
- Ameren expects approximately $16.6 billion of capital expenditures from 2020 through 2024, including up to $8.4 billion at Ameren Missouri, $8.0 billion at Ameren Illinois, and $0.2 billion at Ameren Transmission.
- Ameren Missouri’s Smart Energy Plan contemplates approximately $7.6 billion of investment from 2020 through 2024. Two wind projects represent approximately $1.2 billion of planned investment, with total capacity of up to 700 megawatts.
- Ameren expects to fund capital needs partly through approximately $100 million annually of stock issuance under employee and dividend reinvestment programs, approximately $150 million annually of incremental equity issuance from 2021 through 2024, and settlement of a forward sale agreement covering 7.5 million shares expected to provide $540 million to $550 million.
Guidance, Outlook, Risks, and Unusual Items
- Management stated that COVID-19 had no material impact on first-quarter results, financial position, or liquidity, but warned that subsequent periods could be materially affected by lower demand, customer nonpayment, higher bad-debt expense, supply-chain disruptions, workforce issues, construction delays, cybersecurity risks, and capital-market volatility.
- Ameren Missouri reported that April 2020 electric sales declined 7% year over year, including a 15% decline in commercial sales and a 10% decline in industrial sales, partly offset by a 6% increase in residential sales. Current projections assumed approximately a 2.5% decline in 2020 Ameren Missouri electric sales volumes, excluding unanticipated COVID-19 effects.
- Ameren Missouri suspended disconnections and waived late fees beginning March 16, 2020. Ameren Illinois took similar action beginning March 13, and Illinois regulators imposed a broader disconnection moratorium. Ameren Missouri bears greater exposure to future bad-debt expense because it lacks a comparable bad-debt rider.
- Ameren Missouri’s March 2020 rate order reduced annual electric revenue requirements by $32 million, required an $8 million donation to low-income assistance programs, and changed recovery mechanisms. The new rates became effective April 1, 2020.
- Ameren Illinois filed for a $102 million annual natural-gas delivery revenue increase, with a decision expected by January 2021. It also filed an electric distribution formula-rate update that, subject to approval, would reduce 2021 rates by $45 million.
- Wind-project schedules have been affected by COVID-19-related manufacturing and shipping issues. Approximately $100 million of the up-to-300-megawatt project could enter service in the first quarter of 2021, potentially affecting production tax credits.
- Ameren Missouri faces Clean Air Act litigation concerning Rush Island and Labadie energy centers. If the district court order is upheld, Rush Island compliance capital expenditures are estimated at approximately $1 billion, with additional annual operating costs of $30 million to $50 million. The ultimate outcome remains uncertain.
- Ameren Illinois estimated remaining remediation obligations for former manufactured-gas-plant sites at $126 million to $213 million and recorded a $126 million liability.
- Environmental compliance capital expenditures for Ameren Missouri are estimated at $200 million to $250 million from 2020 through 2024, excluding potential costs from the Clean Air Act litigation.
- FERC transmission ROE proceedings could require approximately $40 million of refunds by Ameren and $23 million by Ameren Illinois. A 50-basis-point reduction in the allowed ROE could reduce annual net income by approximately $10 million for Ameren and $6 million for Ameren Illinois.
Investor Verification Checklist
- Verify the magnitude and duration of COVID-19 effects on customer collections, sales volumes, bad-debt expense, construction schedules, and liquidity.
- Monitor Ameren Missouri’s rate-order implementation, PISA and RESRAM recovery, and future MEEIA performance incentives.
- Track Ameren Illinois’ pending natural-gas rate review and 2021 electric distribution formula-rate update.
- Assess completion timing and tax-credit eligibility for the two wind projects, including the potential 2021 delay.
- Follow the Clean Air Act appeal and the potential approximately $1 billion Rush Island compliance obligation.
- Review FERC transmission ROE rehearing proceedings, refund amounts, and future allowed-ROE changes.
- Confirm financing plans, including the November 2020 debt maturity, the April 2020 notes issuance, and settlement terms for the 7.5 million-share forward sale.
- Evaluate whether planned capital expenditures and dividends will continue to exceed operating cash flow and require additional debt or equity financing.