Ameren Corporation 2014 Q3 Form 10-Q Summary
Business context and reporting period
Ameren Corporation is a regulated utility holding company headquartered in St. Louis, Missouri. Its principal operating subsidiaries are Ameren Missouri, a regulated electric generation, transmission, distribution and natural gas utility, and Ameren Illinois, a regulated electric and natural gas transmission and distribution utility. The filing covers the quarter and nine months ended September 30, 2014, and was filed November 10, 2014. Amounts are in millions unless otherwise stated.
New AER and certain merchant-generation assets are presented as discontinued operations following Ameren’s divestiture of its merchant-generation business.
Financial performance and key metrics
| Ameren consolidated | Three months 2014 | Three months 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Operating revenues | $1,670 | $1,638 | $4,683 | $4,516 |
| Operating income | $561 | $567 | $1,129 | $1,013 |
| Income from continuing operations | $296 | $307 | $546 | $469 |
| Net income attributable to Ameren | $293 | $302 | $538 | $252 |
| Diluted EPS | $1.20 | $1.24 | $2.20 | $1.03 |
| Diluted EPS from continuing operations | $1.20 | $1.25 | $2.21 | $1.91 |
| Dividends per share | $0.40 | $0.40 | $1.20 | $1.20 |
Approximate consolidated operating margins were 33.6% for the third quarter and 24.1% for the first nine months of 2014, compared with 34.6% and 22.4%, respectively, in the comparable 2013 periods. Ameren’s electric margin increased 2% in the quarter and 4% year to date; natural gas margin increased 10% and 11%, respectively.
- Ameren Missouri reported net income of $223 million for the quarter and $398 million for the nine months, compared with $239 million and $365 million, respectively, in 2013.
- Ameren Illinois reported net income of $75 million for the quarter and $158 million for the nine months, compared with $77 million and $141 million, respectively.
- Cash provided by operating activities was $1,203 million for the nine months, including $1,208 million from continuing operations, versus $1,314 million in 2013.
- Capital expenditures were $1,310 million, up from $943 million, including significant investment in transmission, reliability, environmental and distribution projects.
- Cash used in investing activities was $1,212 million; cash used in financing activities was $8 million. Ending cash and cash equivalents were $13 million.
- At September 30, consolidated current assets were $1,942 million and current liabilities were $2,119 million. Long-term debt was $5,825 million and short-term debt was $753 million.
Material changes versus the prior comparable period
- Third-quarter continuing-operations earnings declined $11 million, primarily because of milder summer weather, higher income tax rates, higher depreciation and amortization, and increased operating expenses. These effects were partly offset by higher regulated rates and transmission earnings and lower interest expense.
- Nine-month continuing-operations earnings increased $77 million. Drivers included the absence of the 2013 Ameren Missouri FAC prudence-review charge, favorable timing of the Callaway outage, higher Ameren Illinois and ATXI transmission earnings, higher Ameren Illinois natural-gas rates, lower interest expense and colder winter weather.
- Total nine-month earnings increased substantially because 2013 included a $212 million loss from discontinued operations, including a $175 million pretax impairment charge and related tax effects. Discontinued operations generated a $3 million loss in 2014.
- Operating cash flow declined despite higher earnings, primarily due to FAC under-recoveries, $53 million of Ameren Illinois customer refunds, higher solar-generation rebates, timing of commodity collections and the absence of 2013 storm-restoration receipts.
- Ameren issued $598 million of long-term debt and redeemed or matured $692 million. Ameren Missouri issued $350 million of 3.50% senior secured notes due 2024; Ameren Illinois issued approximately $248 million of 4.30% senior secured notes due 2044.
- Consolidated commercial paper increased to $753 million from $368 million at year-end 2013, including new programs at Ameren Missouri and Ameren Illinois.
Guidance, outlook, risks and unusual items
- Ameren Missouri filed for a $264 million annual electric revenue increase. The request includes recovery of increased net energy costs and approximately $1.4 billion of rate-base additions. A regulatory decision was expected by May 2015, with rates potentially effective in June 2015.
- Ameren Illinois filed for an approximately $205 million increase in its 2015 electric delivery-service revenue requirement. An administrative law judge proposed an increase of $204 million; a final ICC decision was expected by December 2014.
- Ameren expects cash used for capital expenditures and dividends to exceed operating cash flow over the next several years. Management intends to finance investments with a blend of debt and equity while maintaining an equity ratio around 50% under constructive regulatory conditions.
- The company had $2.1 billion of committed credit capacity, of which $1.334 billion was available at September 30, 2014. The companies were in compliance with applicable debt covenants, including indebtedness-to-capitalization ratios of 49% for Ameren, 48% for Ameren Missouri and 46% for Ameren Illinois.
- Ameren Missouri’s Callaway refueling and maintenance outage began October 11, 2014. Expected outage-related maintenance costs were $35 million to $40 million, with some costs recovered over an 18-month period.
- Proposed environmental rules, including the Clean Power Plan, could require significant additional investment. Ameren Missouri estimated approximately $325 million to $375 million of environmental capital expenditures through 2018 under existing regulations, excluding potential Clean Power Plan impacts. Compliance with the proposed Clean Power Plan could require approximately $2 billion of new or accelerated generation investment by 2020.
- Ameren Illinois recorded a $24 million liability for a FERC wholesale distribution refund and a $4 million reduction in electric revenues for a potential electric transmission refund. The maximum estimated pretax transmission-refund charge through December 31, 2014 was $19 million before interest.
- Ameren Missouri held a $41 million insurance receivable related to the Taum Sauk incident and could be adversely affected if the remaining insurer does not pay.
- Ameren Illinois estimated former manufactured-gas-plant remediation obligations at $254 million to $316 million and recorded the $254 million minimum estimate.
- Ameren’s credit-support obligations for divested New AER included $141 million of outstanding guarantees and $9 million of letters of credit that were not recorded as liabilities because payment was not considered probable. These obligations generally extend through December 2, 2015.
- Ameren declared a quarterly dividend of $0.41 per share in October 2014, increasing the annualized rate to $1.64 from $1.60. Management expected a dividend payout ratio of 55% to 70% over the next few years.
Important facts for investors to verify
- Final outcomes of the Ameren Missouri electric rate case and Ameren Illinois formula-rate proceeding, including approved returns and timing of rate increases.
- Potential FERC refunds and the outcome of the MISO return-on-equity complaint case.
- Actual Callaway outage costs, generation availability and the effect on fourth-quarter earnings and cash flow.
- Environmental compliance requirements, including the final Clean Power Plan and CCR rules, and whether related investments are recovered promptly through rates.
- Ameren’s ability to fund elevated capital expenditures and dividends while commercial paper balances remain high and cash balances remain low.
- Resolution and collectability of the $41 million Taum Sauk insurance receivable and the company’s continuing New AER guarantees and collateral obligations.
- Changes in weather, customer demand, commodity prices, interest rates, credit ratings and regulatory treatment of deferred costs and assets.