Ameren Corporation 2015 Second-Quarter Form 10-Q Summary
Business context and reporting period
Combined unaudited quarterly report for Ameren Corporation, Union Electric Company (doing business as Ameren Missouri), and Ameren Illinois Company for the three and six months ended June 30, 2015. Ameren is a regulated utility holding company with electric and natural-gas operations in Missouri and Illinois, plus FERC-regulated transmission investments through ATXI. Dollar amounts are in millions unless otherwise stated.
Key financial metrics
| Ameren Corporation | Three months ended June 30, 2015 | Three months ended June 30, 2014 | Six months ended June 30, 2015 | Six months ended June 30, 2014 |
|---|---|---|---|---|
| Operating revenues | $1,401 | $1,419 | $2,957 | $3,013 |
| Operating income | $237 | $322 | $493 | $568 |
| Income from continuing operations | $99 | $151 | $209 | $250 |
| Net income attributable to Ameren | $150 | $149 | $258 | $245 |
| EPS attributable to Ameren, basic | $0.61 | $0.61 | $1.06 | $1.01 |
| EPS from continuing operations, basic | $0.40 | $0.62 | $0.85 | $1.02 |
| Dividends per share | $0.41 | $0.40 | $0.82 | $0.80 |
- Operating margin was approximately 16.9% in the second quarter and 16.7% for the first six months, versus approximately 22.7% and 18.9%, respectively, in the comparable 2014 periods.
- Electric margins increased $19 million, or 2%, in the second quarter and $29 million, or 2%, for the six months. Natural-gas margins were flat in the quarter and decreased $7 million, or 2%, year to date.
- Net cash provided by operating activities was $767 million for the first six months, including $768 million from continuing operations, compared with $654 million and $658 million, respectively, in 2014.
- Capital expenditures were $846 million, compared with $883 million in the prior-year period. Cash used in investing activities was $875 million; financing activities provided $105 million.
- Cash and cash equivalents were $2 million at June 30, 2015, compared with $5 million at December 31, 2014. Current liabilities exceeded current assets by approximately $565 million.
- Consolidated commercial paper outstanding increased to $886 million from $714 million at December 31, 2014. The companies had $2.1 billion of committed credit capacity, of which $1.2 billion was available at quarter-end.
- Ameren’s consolidated long-term debt, including current maturities, was approximately $6.4 billion at June 30, 2015; total debt and preferred stock fair value was approximately $7.0 billion.
- Debt-to-total-capitalization covenant ratios were 51% for Ameren, 50% for Ameren Missouri, and 46% for Ameren Illinois, below the 65% covenant limit. All credit covenants were satisfied.
Material changes versus the prior comparable period
- Continuing-operations earnings attributable to Ameren declined $52 million, or 22 cents per share, in the second quarter and $41 million, or 17 cents per share, for the six months.
- Ameren Missouri earnings declined $65 million in the quarter and $71 million year to date, primarily because of a $69 million noncash pretax provision related to abandoning efforts to license and build a second Callaway nuclear unit.
- Milder weather reduced electric and natural-gas demand. Ameren Missouri retail sales volumes, excluding weather, declined 1%; Noranda sales volumes declined 8%. Energy efficiency programs also reduced demand.
- Ameren Illinois earnings increased $3 million in both the quarter and six-month period. Electric margins rose $21 million in the quarter and $37 million year to date, supported by rate-base growth, formula ratemaking, transmission investment, and a $15 million purchased-power reconciliation benefit in the first six months.
- Ameren Illinois natural-gas margins declined $7 million year to date, primarily because of warmer winter weather and lower related volumes.
- Discontinued operations contributed $52 million after tax in both 2015 periods, compared with losses of $1 million and $2 million in the comparable 2014 periods. The 2015 benefit primarily reflected a $53 million tax benefit from resolution of an IRS matter related to the divested New AER merchant-generation business.
- Asset retirement obligations increased by $182 million, including $99 million for Callaway decommissioning assumptions and $79 million related to coal-combustion-residual storage regulations.
Guidance, outlook, commentary, and unusual items
- Ameren expects 2015–2019 capital expenditures of up to $9.3 billion, including up to $3.9 billion at Ameren Missouri, $4.0 billion at Ameren Illinois, and $1.4 billion at ATXI. It is evaluating an additional $500 million to $1.0 billion of potential Ameren Illinois investments for 2016–2019.
- Management expects to finance planned investments without issuing additional equity and anticipates that capital expenditures and dividends will exceed operating cash flow over the next several years, requiring debt financing.
- The April 2015 Missouri electric rate order authorized a $122 million annual revenue increase, a 9.53% allowed return on common equity, and a $7.0 billion rate base. Rate changes became effective May 30, 2015. Ameren Missouri appealed portions of the order, including treatment of transmission costs and Noranda rates.
- Ameren Missouri expects to exceed its 2013–2015 energy-efficiency goals and potentially recognize more than $19 million of performance-incentive revenue within two years, subject to regulatory review. A proposed 2016–2018 plan would involve up to $197 million of investment and approximately $65 million of projected net shared benefits, but approval and implementation remain uncertain.
- Ameren Illinois requested a $110 million increase in its 2016 electric delivery revenue requirement; ICC staff recommended approximately $107 million. Its natural-gas rate case seeks an annual increase of approximately $45 million, with decisions expected by December 2015.
- Two FERC proceedings challenge the 12.38% allowed base return on equity for MISO transmission owners. A 50-basis-point reduction could reduce annual Ameren earnings by approximately $4 million and Ameren Illinois earnings by approximately $2 million. Liabilities for potential refunds were recorded.
- The finalized EPA Clean Power Plan and other environmental requirements could increase operating costs, capital expenditures, and financing needs, and could alter or restrict the operation of coal- and gas-fired plants. Ameren estimates $350 million to $400 million of environmental-compliance capital expenditures through 2019, excluding Clean Power Plan impacts.
- Ameren Missouri’s next scheduled Callaway refueling and maintenance outage is expected in spring 2016. The company reported a $41 million net insurance receivable related to the Taum Sauk reservoir breach and is pursuing recovery through litigation.
- Ameren Illinois recorded a $240 million liability for the estimated minimum obligation related to 44 former manufactured-gas-plant sites; the estimated obligation range was $240 million to $309 million.
- Ameren had $79 million of unrecorded guarantees outstanding for New AER and $9 million of related letters of credit at June 30, 2015. Most related credit-support obligations were scheduled to end December 2, 2015.
Most important facts for investors to verify
- Whether the Callaway license-cost write-off, discontinued-operation tax benefit, and other unusual items are excluded from normalized earnings analyses.
- Final outcomes and timing of the Missouri rate-order appeal, Ameren Missouri’s MEEIA filing, Ameren Illinois rate proceedings, and the FERC return-on-equity complaints.
- The effect of lower demand, Noranda’s financial condition and sales volumes, energy efficiency, and weather on future regulated revenue requirements and earnings.
- Actual capital spending, incremental Ameren Illinois investment decisions, debt funding needs, and compliance with targeted leverage levels.
- Potential environmental-compliance costs, coal-plant operating changes, regulatory recovery, and related regulatory lag.
- Collection of the $41 million Taum Sauk insurance receivable and resolution of environmental, asbestos, nuclear, and other legal contingencies.
- Liquidity sensitivity to commercial-paper refinancing, credit-rating changes, commodity prices, and potential collateral requirements.