Ameren Corporation 2012 First-Quarter Form 10-Q Summary
Business context and reporting period
Ameren Corporation is a Missouri-based utility holding company with rate-regulated electric and natural-gas businesses in Missouri and Illinois, merchant-generation operations, and electric-transmission investments. This combined Form 10-Q covers Ameren Corporation, Union Electric Company (Ameren Missouri), Ameren Illinois Company, and Ameren Energy Generating Company for the three months ended March 31, 2012. Amounts are in millions unless otherwise stated.
Key financial metrics
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Operating revenues | $1,658 | $1,904 | Down $246 |
| Operating income (loss) | $(422) | $227 | Down $649 |
| Net income (loss) attributable to Ameren | $(403) | $71 | Down $474 |
| Basic and diluted EPS | $(1.66) | $0.29 | Down $1.95 |
| Net cash provided by operating activities | $392 | $560 | Down $168 |
| Capital expenditures | $282 | $231 | Up $51 |
| Cash and cash equivalents at March 31 | $208 | $573 | Down $365 |
Revenue decreased primarily because of mild weather, lower regulated electric and gas sales, and reduced merchant-generation volumes. Electric margin was $820, down from $864, while natural-gas margin was $133, down from $146. The reported operating loss includes a $628 noncash pretax impairment charge related to AERG's Duck Creek energy center.
Ameren paid common dividends of $90 and declared a quarterly dividend of $0.40 per share. Long-term debt, net, was $6,677 at March 31, 2012, and current maturities plus short-term debt totaled $305. Total debt, including current maturities and commercial paper, was approximately $6,982. Credit facilities totaled $2.1 billion, with $1.959 billion available after commercial paper and letters of credit. The company reported compliance with its debt covenants.
Material changes versus the prior comparable period
- Ameren moved from $71 of attributable net income to a $403 net loss, primarily because of the Duck Creek impairment, lower merchant-generation margins, and mild weather.
- Merchant Generation produced a $363 attributable loss versus $20 of income in Q1 2011. Ameren Missouri attributable earnings were unchanged at $21, while Ameren Illinois declined to $27 from $33.
- Operating and maintenance expense decreased by $36, including lower storm-related costs, staffing reductions, plant-maintenance timing, and the $10 gain on the Medina Valley energy-center sale.
- Cash from operations decreased despite the impairment being noncash, reflecting lower margins, increased counterparty collateral, severance payments, and changes in fuel-cost recovery and working capital.
- Capital expenditures increased, primarily for boiler, turbine, maintenance, reliability, and nuclear-fuel projects.
- Ameren Illinois entered performance-based formula ratemaking under the Illinois Electric Infrastructure and Modernization Act. It recorded a $12 regulatory asset and corresponding revenue for the estimated first-quarter reconciliation adjustment.
Guidance, outlook, risks, and unusual items
- Management expects regulated businesses to pursue rate increases, formula ratemaking, transmission investment, and cost-recovery mechanisms. Ameren Missouri requested a $376 annual electric-revenue increase, with a decision expected in December 2012.
- Ameren Missouri proposed investing $145 over three years in energy-efficiency programs, subject to regulatory approval. Ameren Illinois expected initial formula-rate filings to reduce annual electric-delivery revenues by $19, with a further $15 reduction reflected in the update filing, subject to ICC approval.
- Merchant Generation expected approximately 25.5 million megawatthours of 2012 generation, including 19 million at Genco, versus 32.5 million of available coal-fired generation capacity. The business had hedged approximately 27.5 million megawatthours for 2012 at an average price of $43 per megawatthour.
- Management expects Genco's interest-coverage ratio to fall below the level required for additional external borrowing by the end of Q1 2013. Genco was restricted from paying common dividends and was expected to remain unable to pay them through March 31, 2015.
- Genco entered a put option agreement allowing it to sell three energy centers to AERG for at least $100, subject to appraisals and regulatory approvals. Ameren guaranteed AERG's contingent payment obligations; Genco had not exercised the option as of March 31, 2012.
- Management identified potential for additional material impairments because merchant-generation asset fair values exceeded carrying values by more than $1 billion after the Duck Creek impairment. Future impairments could result from power prices, fuel costs, environmental requirements, operating performance, or asset-retirement decisions.
- Environmental compliance requirements could require approximately $1.825 billion to $2.185 billion of Ameren investment from 2017 through 2021, within an estimated $1.825 billion to $2.185 billion total for 2012 through 2021 as presented in the filing. The filing states that estimates may change materially.
- Key regulatory and legal matters include Missouri rate-case appeals, FAC prudence reviews, Taum Sauk insurance litigation, Illinois formula-ratemaking proceedings, FERC wholesale-rate litigation, EPA Clean Air Act matters, environmental remediation, asbestos litigation, and the Callaway nuclear-license and spent-fuel matters.
- Ameren had $9,306 of total other obligations, including fuel, purchased power, equipment, services, and tax-credit commitments. Pension contributions were estimated at $90 to $150 annually over the next five years, with aggregate estimated contributions of $580.
- Derivative collateral and market exposure remain significant. At March 31, 2012, Ameren had $162 of cash collateral posted, and adverse market or credit changes could require additional collateral.
Most important facts for an investor to verify
- Whether the Duck Creek impairment is isolated or signals further merchant-generation impairments.
- Future Midwest power prices, merchant-generation utilization, hedging levels, and Genco's projected covenant compliance.
- Outcomes and timing of Ameren Missouri and Ameren Illinois rate cases, formula-ratemaking adjustments, FAC proceedings, and related appeals.
- Environmental compliance costs, the Illinois emissions variance request, possible coal-unit mothballing, and recoverability of regulated versus merchant investments.
- Availability of the $1.959 billion credit capacity, commercial-paper needs, collateral requirements, and the September 2012 $173 debt maturity.
- Potential cash recoveries or liabilities from Taum Sauk insurance litigation, EPA proceedings, tax matters, remediation, asbestos claims, and other contingencies.
- Whether reported cash flow remains adequate to fund capital expenditures, dividends, pension contributions, environmental obligations, and debt maturities.