Ameren Corporation 2016 Form 10-K Summary
Business context and reporting period
Combined annual report for Ameren Corporation, Union Electric Company (doing business as Ameren Missouri), and Ameren Illinois Company for the fiscal year ended December 31, 2016. Ameren is a regulated utility holding company serving Missouri and Illinois through electric generation, transmission and distribution, natural gas distribution, and FERC-regulated transmission operations. The company reported four segments: Ameren Missouri, Ameren Illinois Electric Distribution, Ameren Illinois Natural Gas, and Ameren Transmission.
The filing was signed February 28, 2017. Ameren changed its segment reporting structure during the fourth quarter of 2016; prior periods were recast for comparison.
Key financial metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Operating revenues | $6,076 million | $6,098 million | Down $22 million |
| Operating income | $1,381 million | $1,259 million | Up $122 million |
| Net income from continuing operations | $659 million | $585 million | Up $74 million |
| Net income attributable to common shareholders | $653 million | $630 million | Up $23 million |
| Diluted EPS from continuing operations | $2.68 | $2.38 | Up $0.30 |
| Cash flow from continuing operations | $2,124 million | $2,035 million | Up $89 million |
| Capital expenditures | $2,076 million | $1,917 million | Up $159 million |
| Long-term debt, excluding current maturities | $6,595 million | $6,880 million | Down $285 million |
| Total assets | $24,699 million | $23,640 million | Up $1,059 million |
| Ameren shareholders’ equity | $7,103 million | $6,946 million | Up $157 million |
Operating margin, calculated as operating income divided by operating revenues, was approximately 22.7% in 2016 versus 20.6% in 2015. Net margin attributable to common shareholders was approximately 10.7% versus 10.3%.
Cash provided by operations exceeded capital expenditures by approximately $48 million before dividends. After $416 million of common dividends, internally generated cash was insufficient to fund capital investment and dividends. Cash and cash equivalents declined to $9 million from $292 million.
At December 31, 2016, Ameren had $1,538 million of credit available and $1,547 million of total liquidity, including $9 million of cash. Consolidated short-term debt was $558 million, and current maturities of long-term debt were $681 million. Total contractual cash obligations were $18.0 billion, including $7.3 billion of long-term debt and capital lease obligations and $6.8 billion of interest payments.
Material changes versus the prior comparable period
- Continuing-operations earnings increased $74 million, primarily from higher Ameren Transmission and Ameren Illinois Electric Distribution earnings, warmer summer weather, higher Illinois natural gas rates, lower certain operations and maintenance costs, and a $21 million income-tax benefit from new share-based compensation accounting guidance.
- Ameren Transmission electric margins increased $96 million, or 37%, largely because of significant transmission investment and rate-base growth. Ameren Illinois Electric Distribution margins increased $31 million, or 3%, and Ameren Illinois Natural Gas margins increased $37 million, or 9%.
- Ameren Missouri electric margins decreased $84 million, or 3%. Principal unfavorable items were the suspension of New Madrid Smelter operations, expiration of MEEIA 2013 net shared benefits, increased transmission charges, and the 2016 Callaway refueling and maintenance outage. These effects were partially offset by warmer weather, higher base rates, and stronger off-system sales and capacity revenues.
- Natural gas operating revenues declined to $880 million from $918 million, mainly because of lower commodity prices and volumes; natural gas margins nevertheless increased $36 million because of higher Illinois base rates and weather-related effects.
- Operating cash flow increased despite higher capital spending. Cash used in investing activities rose to $2,141 million, while financing activities used $265 million compared with $232 million provided in 2015.
- The company paid $416 million of common dividends, or $1.715 per share, compared with $402 million, or $1.655 per share, in 2015. The quarterly dividend was increased to $0.44 per share in October 2016.
Guidance, outlook, commentary, risks, and unusual items
- Ameren expects 2017-2021 capital expenditures of approximately $10.4 billion to $11.2 billion, including up to $4.2 billion at Ameren Missouri, $6.4 billion at Ameren Illinois, and $0.6 billion at ATXI. Management expects capital spending and dividends to exceed operating cash flow over the next several years and expects to use debt to fund the shortfall; it does not currently expect to issue equity.
- Ameren expects its dividend payout ratio to remain between 55% and 70% of earnings over the next few years. A $0.44 quarterly dividend was declared for payment March 31, 2017.
- A February 2017 unanimous stipulation in Ameren Missouri’s electric rate case, subject to MoPSC approval, contemplated a $92 million increase in annual revenue requirement and rates effective on or before March 20, 2017. The stipulation did not specify the final rate base, common-equity percentage, or allowed return on equity.
- FERC reduced the MISO transmission base return on equity to 10.32%, or 10.82% including the RTO incentive adder. A separate complaint proceeding could reduce the total return to 10.20% and require additional customer refunds. Ameren recorded $62 million of current regulatory liabilities for estimated refunds at December 31, 2016. A 50-basis-point reduction in the FERC return was estimated to reduce annual Ameren earnings by $7 million.
- The Illinois FEJA extended formula ratemaking through 2022, decoupled electric distribution revenues from sales volumes beginning in 2017, and permits Ameren Illinois to earn a return on electric energy-efficiency investments beginning as early as June 2017.
- Ameren Missouri’s next Callaway refueling outage was scheduled for fall 2017, with approximately $32 million of expected maintenance expense. The Callaway operating license expires in 2044.
- The New Madrid Smelter, historically Ameren Missouri’s largest customer, remained shut down after Noranda’s restructuring and sale of the facility. Ameren Missouri was uncertain about future sales and expected rates to be adjusted to reflect actual volumes.
- Environmental exposure remains significant. Ameren Missouri estimated $425 million to $525 million of environmental capital expenditures from 2017 through 2021, excluding potential Clean Power Plan impacts. The Clean Power Plan was stayed pending litigation.
- In January 2017, a federal district court found that projects at Ameren Missouri’s Rush Island energy center violated the Clean Air Act and Missouri law. The remedy phase remained pending, and the company stated that the ultimate resolution could materially affect results, liquidity, and capital requirements.
- Ameren Illinois estimated former manufactured-gas-plant remediation obligations of $200 million to $268 million and recorded a $200 million liability. The filing states that actual costs could vary substantially.
- Ameren’s unfunded pension and postretirement obligation increased to $774 million from $567 million, primarily because the discount rate declined by 50 basis points. Estimated pension contributions were $50 million to $70 million annually over the next five years, totaling approximately $290 million.
Most important facts for investors to verify
- Approval and implementation of the February 2017 Ameren Missouri rate-case stipulation, including the final allowed return on equity and rate base.
- Final FERC action in the February 2015 transmission complaint case, the amount and timing of customer refunds, and the effect on transmission earnings.
- Progress, cost, permitting, and recovery of the Illinois Rivers, Spoon River, and Mark Twain transmission projects, including the unresolved county road-crossing assents for Mark Twain.
- Remedy requirements and potential capital or operating costs from the Rush Island Clean Air Act litigation.
- Future status of the New Madrid Smelter and the resulting effect on Ameren Missouri sales, margins, and rate recovery.
- Actual capital expenditures, operating cash flow, debt refinancing, and liquidity as the company funds its projected $10.4 billion to $11.2 billion investment program.
- Recovery and timing of environmental, pension, regulatory-asset, and remediation costs, including the $1.44 billion of noncurrent regulatory assets and $1.99 billion of noncurrent regulatory liabilities reported at year-end.