Ameren Corporation 2013 Q3 Form 10-Q Summary
Business context and reporting period
Combined unaudited quarterly filing for Ameren Corporation, Union Electric Company (d/b/a Ameren Missouri), and Ameren Illinois Company for the three and nine months ended September 30, 2013. Ameren operates regulated electric and natural-gas utilities in Missouri and Illinois, transmission assets, and a merchant-generation business classified as discontinued operations following the planned divestiture of New AER.
Key financial metrics
| Ameren Corporation | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Operating revenues | $1,638 million | $1,709 million | $4,516 million | $4,523 million |
| Operating income | $567 million | $578 million | $1,013 million | $1,080 million |
| Income from continuing operations attributable to Ameren | $305 million | $309 million | $464 million | $507 million |
| Net income attributable to Ameren | $302 million | $374 million | $252 million | $182 million |
| Diluted EPS | $1.24 | $1.54 | $1.03 | $0.75 |
| Dividends per share | $0.40 | $0.40 | $1.20 | $1.20 |
- Operating margin was approximately 34.6% in Q3 and 22.4% for the first nine months, compared with approximately 33.8% and 23.9%, respectively, in the prior-year periods.
- Continuing-operations earnings declined modestly in Q3 and 9% for the first nine months, despite higher regulated utility margins. The nine-month decline principally reflected the Callaway refueling outage, the Missouri FAC refund charge, and the absence of a 2012 Entergy refund.
- Electric margin increased $32 million, or 3%, in Q3 and $57 million, or 2%, for the first nine months. Natural-gas margin decreased $1 million in Q3 but increased $28 million, or 9%, for the first nine months.
- Nine-month net cash provided by operating activities was $1,314 million, including $1,215 million from continuing operations, compared with $1,312 million and $1,090 million, respectively, in 2012.
- Capital expenditures were $943 million for the first nine months, up from $762 million. Net cash used in investing activities was $1,033 million; net cash used in financing activities was $296 million.
- September 30 cash and cash equivalents were $169 million for continuing operations and $194 million including discontinued operations. Ameren had approximately $2.086 billion of available credit capacity under its credit agreements.
- Ameren reported $6,158 million of long-term debt and capital lease obligations, including current maturities, at September 30, 2013. Current maturities of long-term debt were $884 million, contributing to a $209 million continuing-operations working-capital deficit.
- Credit-agreement debt-to-capitalization ratios were 51% for Ameren, 48% for Ameren Missouri, and 42% for Ameren Illinois, below the 65% covenant limit. Management reported compliance with applicable covenants.
Material changes versus the prior comparable period
- Q3 revenue decreased $71 million, primarily because of cooler summer weather and lower electric demand. The decline was partly offset by higher regulated rates and improved Ameren Illinois formula-ratemaking results.
- Ameren Missouri’s Q3 and nine-month results included $3 million and $25 million, respectively, of FAC prudence-review charges; the total customer refund obligation was estimated at $26 million including interest.
- Ameren Missouri’s 2013 Callaway refueling and maintenance outage increased nine-month operations and maintenance expense by approximately $38 million and reduced earnings by approximately 10 cents per diluted share.
- Ameren Illinois electric margin increased $24 million in Q3 and $29 million for the first nine months, driven by formula ratemaking, higher rate base, and transmission revenues, despite weaker weather-adjusted demand.
- Merchant-generation results deteriorated materially: discontinued-operations income changed from $63 million in Q3 2012 to a $3 million loss in Q3 2013, while the nine-month loss improved to $212 million from $331 million because the prior year included a larger impairment charge.
- The filing corrected a prior interim cash-flow classification error: 2012 nine-month operating cash flow was reduced by $49 million, with an offsetting increase in investing cash flow.
Guidance, outlook, risks, contingencies, and unusual items
- Ameren expected to complete the New AER divestiture and exit merchant generation by year-end 2013. FERC approval was received in October 2013, but Illinois Pollution Control Board approval remained a closing condition. The sale of the Elgin, Gibson City, and Grand Tower facilities to Medina Valley closed in October for total proceeds of $137.5 million; a subsequent sale to Rockland Capital remained subject to approvals.
- Ameren expects the divestiture to produce a predominantly rate-regulated business with more predictable earnings and cash flows, but additional impairment, tax, disposal, pension, and liquidity effects remained possible.
- Ameren Missouri planned approximately $147 million of energy-efficiency investment over three years under MEEIA and expected to file an electric rate case in the second half of 2014.
- Ameren Illinois sought a $47 million annual natural-gas delivery-rate increase; ICC staff recommended $28 million. A decision was expected in December 2013. The company also expected to begin participating in Illinois’ natural-gas infrastructure rider framework in 2014.
- Ameren Illinois’ 2014 electric delivery update was under review. The company’s filing proposed a $22 million revenue-requirement decrease, while ICC staff recommended a $42 million decrease, including a customer refund.
- Ameren planned approximately $2.2 billion of FERC-regulated transmission investment over five years through 2017. The Illinois Rivers project, estimated at $1.1 billion, had only partial route and substation approval and remained subject to rehearing.
- Major risks include environmental compliance costs, coal-plant impairment or retirement, power and fuel-price volatility, regulatory recovery, weather, nuclear operations, capital-market access, and legal proceedings.
- Environmental obligations were estimated at $1.115 billion to $1.340 billion for continuing operations through 2022, principally at Ameren Missouri. Known remediation liabilities for former manufactured-gas-plant sites were $251 million, with estimated total costs ranging from $251 million to $337 million.
- Ameren Missouri had a $68 million insurance receivable related to the Taum Sauk incident; recovery remained subject to litigation. Ameren also disclosed Clean Air Act litigation, asbestos claims, municipal-tax disputes, FERC refund matters, and transmission-rate proceedings.
- Ameren’s pension plans were expected to require aggregate contributions of approximately $475 million over the next five years, subject to market performance, interest rates, regulation, and voluntary funding decisions.
Most important facts for investors to verify
- Whether the New AER divestiture closed on the expected terms and whether final discontinued-operations impairment, tax, pension, and working-capital adjustments differed materially from estimates.
- The ultimate amount and timing of Missouri FAC customer refunds and the outcome of the request to defer $36 million of related fixed costs.
- Final ICC decisions on Ameren Illinois’ electric formula-rate update and natural-gas rate case, including the size and timing of customer refunds or rate changes.
- Refinancing plans for debt maturities, including Ameren’s $425 million senior notes and remaining utility maturities following the October 2013 retirement of $200 million of Ameren Missouri debt.
- Progress, cost recovery, and regulatory approvals for Illinois Rivers and other transmission, modernization, and environmental projects.
- Potential cash requirements from environmental, nuclear, asbestos, Taum Sauk insurance, FERC transmission, tax, and Clean Air Act matters.
- Liquidity and collateral exposure if credit ratings or power, natural-gas, and fuel prices change; potential additional collateral requirements for continuing operations were disclosed at up to $133 million.