Ameren Corporation 2016 Q1 SEC Filing 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, 2016. Ameren operates regulated electric generation, transmission, and distribution businesses and regulated natural gas transmission and distribution businesses in Missouri and Illinois. Results exclude discontinued operations unless stated otherwise.
Key Financial Metrics
| Ameren consolidated | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Operating revenues | $1,434 million | $1,556 million | Down $122 million |
| Operating income | $220 million | $256 million | Down $36 million |
| Income from continuing operations | $107 million | $110 million | Down $3 million |
| Net income attributable to common shareholders | $105 million | $108 million | Down $3 million |
| Basic and diluted EPS | $0.43 | $0.45 | Down $0.02 |
| Operating margin | 15.3% | 16.5% | Down approximately 1.2 percentage points |
| Net margin attributable to common shareholders | 7.3% | 6.9% | Up approximately 0.4 percentage points |
| Operating cash flow | $349 million | $312 million | Up $37 million |
| Capital expenditures and nuclear fuel expenditures | $517 million | $434 million | Up $83 million |
| Cash dividends paid | $103 million | $99 million | Up $4 million |
Cash and cash equivalents declined to $13 million at March 31, 2016, from $292 million at December 31, 2015. Consolidated short-term debt increased to $581 million from $301 million, while long-term debt, including current maturities, was approximately $7.0 billion. Total assets were $23.4 billion and total equity was $7.0 billion at quarter-end.
Ameren had $1.515 billion of available credit capacity and $13 million of cash, or approximately $1.528 billion of total liquidity. The company was in compliance with its credit covenants. Consolidated indebtedness-to-capitalization ratios under the credit agreements were 52% for Ameren, 49% for Ameren Missouri, and 46% for Ameren Illinois.
Segment Results and Material Changes
- Ameren Missouri: Net income declined to $15 million from $42 million. Electric margins decreased $48 million, primarily due to milder weather, the idling of Noranda’s aluminum smelter, expiration of MEEIA 2013 net shared benefits, and changes to the fuel adjustment clause. Noranda’s reduced operations lowered first-quarter margins by approximately $13 million.
- Ameren Illinois: Net income increased to $60 million from $54 million. Electric margins were flat, while natural gas margins increased $4 million due primarily to higher base rates and seasonal rate redesign. Formula-ratemaking investment and higher natural gas delivery rates supported results.
- Other and parent activities: Common-shareholder earnings increased to $32 million from $14 million, including a favorable income tax benefit from the adoption of new share-based payment accounting guidance. The adoption produced a $21 million income tax benefit in the quarter.
- Revenue and demand: Consolidated electric revenue declined $41 million and gas revenue declined $81 million. Milder winter temperatures reduced demand; heating degree-days decreased 22% at Ameren Missouri and 20% at Ameren Illinois.
- Expenses: Depreciation and amortization increased $14 million, primarily from higher depreciation rates and capital additions. Interest charges increased $7 million, partly due to debt issued in late 2015.
- Cash flow: Operating cash flow increased to $349 million, but investing cash use increased to $510 million, driven by higher capital spending. Financing activities used $118 million, including debt repayment and dividends.
Guidance, Outlook, Risks, and Unusual Items
- Management expects to invest up to $11.5 billion in capital expenditures from 2016 through 2020, excluding potential Clean Power Plan impacts: up to $4.3 billion at Ameren Missouri, $6.2 billion at Ameren Illinois, and $1.0 billion at ATXI.
- Ameren expects capital expenditures and dividends to exceed operating cash flow over the next several years and expects to fund the shortfall primarily with debt. Management did not expect to issue equity over the next several years.
- Ameren Missouri expected to file an electric rate case in 2016 to address infrastructure investment, depreciation, transmission costs, property taxes, and Noranda’s lower sales volumes. Management estimated that Noranda-related effects could reduce 2016 earnings by approximately $38 million versus 2015 until rates are adjusted.
- Ameren Missouri expects to recognize at least $19 million of MEEIA 2013 performance-incentive revenue in 2016, subject to regulatory approval. No related revenue had been recorded as of March 31, 2016.
- Ameren Illinois filed an update expected, subject to approval, to reduce its electric delivery service revenue requirement by $14 million beginning in January 2017.
- FERC complaint cases challenge the 12.38% allowed base return on equity for MISO transmission owners. Ameren and Ameren Illinois had recorded regulatory liabilities of $55 million and $37 million, respectively, for estimated potential customer refunds. A 50-basis-point reduction in the allowed return was estimated to reduce annual earnings by approximately $6 million for Ameren and $3 million for Ameren Illinois.
- Ameren Missouri’s Callaway nuclear plant began a scheduled refueling and maintenance outage on April 2, 2016. Management expected approximately $37 million of 2016 maintenance expense related to the outage.
- Major risks include Noranda’s bankruptcy and idled operations, regulatory recovery and rate-case outcomes, environmental compliance, pending Clean Air Act litigation, the stayed Clean Power Plan, commodity prices, weather, capital-market access, cyberattacks, nuclear operations, and remediation obligations.
- Ameren Illinois estimated obligations for former manufactured-gas-plant sites at $224 million to $313 million and recorded a $224 million liability. Total contractual commitments for fuel, purchased power, equipment, and related obligations were $4.566 billion for Ameren, $2.786 billion for Ameren Missouri, and $1.729 billion for Ameren Illinois.
- On April 29, 2016, the board declared a quarterly dividend of $0.425 per share. Management expected a dividend payout ratio of 55% to 70% of earnings over the next several years.
Important Facts for Investors to Verify
- Progress and final economic impact of Ameren Missouri’s expected rate case and any recovery of Noranda-related revenue shortfalls.
- Outcome of the MEEIA 2013 performance-incentive appeal and the amount ultimately recognized.
- FERC decisions on the MISO transmission return-on-equity complaint cases and resulting customer refunds or earnings effects.
- Actual capital expenditures, debt funding needs, liquidity usage, and maintenance of approximately 50% equity capitalization.
- Impact of the Callaway outage, environmental compliance requirements, Clean Air Act litigation, and potential Clean Power Plan implementation.
- Ameren Illinois formula-ratemaking updates, including the proposed $14 million reduction in the 2017 revenue requirement.
- Exposure to commodity-contract collateral requirements, credit-rating changes, weather, and Noranda’s bankruptcy proceedings.