Business Context and Reporting Period
Ameren Corporation filed a combined unaudited Form 10-Q for the quarter and nine months ended September 30, 2011. The filing covers Ameren Corporation, Union Electric Company (Ameren Missouri), Ameren Illinois Company, and Ameren Energy Generating Company. Ameren operates regulated electric and natural-gas businesses in Missouri and Illinois and merchant-generation businesses primarily in Illinois.
Ameren Illinois’ prior-year results reflect the October 1, 2010 internal reorganization; AERG results were presented as discontinued operations for Ameren Illinois before that date but remain continuing operations for consolidated Ameren.
Key Financial Metrics
| Ameren consolidated | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Operating revenues | $2,268 million, versus $2,267 million | $5,953 million, versus $5,932 million |
| Operating income | $550 million, versus $89 million | $1,093 million, versus $718 million |
| Net income attributable to Ameren | $285 million, versus $(167) million | $494 million, versus $87 million |
| Basic and diluted EPS | $1.18, versus $(0.70) | $2.05, versus $0.37 |
| Dividends per common share | $0.385 | $1.155 |
Consolidated operating margin was approximately 24.3% in the third quarter and 18.4% for the first nine months, compared with approximately 3.9% and 12.1%, respectively, in the comparable 2010 periods. Net margin was approximately 12.6% for the third quarter and 8.3% year to date, compared with negative 7.4% and 1.5% in 2010.
- Cash flow: Nine-month operating cash flow was $1,566 million, versus $1,496 million. Investing cash flow used $757 million, including $758 million of capital expenditures and $45 million of nuclear-fuel expenditures. Financing cash flow used $832 million, including $279 million of common dividends, $379 million of short-term debt and credit-facility repayments, and $150 million of long-term debt repayments.
- Liquidity: Cash and cash equivalents were $522 million at September 30, 2011, compared with $545 million at December 31, 2010. The company reported $1,755 million of available committed credit capacity, $330 million of commercial paper outstanding, and $15 million of letters of credit outstanding.
- Debt and capitalization: Consolidated long-term debt, net, was $6,682 million, with $178 million of current maturities and $350 million of short-term debt. Ameren’s debt-to-total-capitalization ratio under its credit agreements was 48%; the company reported compliance with all credit covenants.
- Capital spending outlook: Estimated 2011-2015 Ameren capital expenditures were $6.28 billion to $7.125 billion, including $2.98 billion to $3.36 billion for Ameren Missouri, $2.17 billion to $2.47 billion for Ameren Illinois, and $620 million to $700 million for Genco.
Material Changes Versus the Prior Comparable Period
- Net income improved substantially because 2010 included approximately $589 million of goodwill, impairment, and other charges, compared with $124 million in the third quarter of 2011 and $126 million for the first nine months of 2011.
- Third-quarter 2011 earnings included an $89 million pretax charge for the Missouri Public Service Commission’s disallowance of certain Taum Sauk rebuilding costs and $35 million of charges related to the planned closure of Genco’s Meredosia and Hutsonville units.
- Ameren Missouri’s third-quarter net income declined to $190 million from $223 million despite higher rates, primarily because of the Taum Sauk disallowance, lower sales volumes, and other operating factors. Nine-month net income declined to $301 million from $363 million.
- Ameren Illinois’ nine-month net income available to common stockholders declined to $168 million from $211 million, while its third-quarter amount declined to $98 million from $109 million. Prior-year results included income from discontinued operations of $19 million for the quarter and $40 million year to date.
- Genco returned to profitability for the first nine months, reporting net income attributable to Genco of $29 million versus a $65 million loss. Third-quarter results remained negative at $(5) million versus $(101) million.
- Merchant Generation electric margins decreased $69 million, or 29%, in the third quarter and $101 million, or 17%, year to date, reflecting lower realized power prices, higher fuel and transportation costs, and mark-to-market losses.
- Interest expense declined $17 million in the third quarter and $41 million year to date, reflecting debt redemptions, maturities, and lower credit-facility borrowings.
- Ameren Missouri’s 2011 electric rate order became effective July 31, 2011, authorizing approximately $173 million of annual revenue increases. Ameren Illinois’ electric margin benefited from prior rate increases, but natural-gas margins declined.
Guidance, Outlook, Risks, and Unusual Items
- Management expects regulated operations to improve earned returns through more constructive rate mechanisms, cost control, and infrastructure investment. Ameren expects cash and cash equivalents to exceed short-term debt and credit-facility borrowings at December 31, 2011.
- Ameren announced a fourth-quarter dividend of $0.40 per share, increasing the annualized dividend rate to $1.60 from $1.54.
- Genco planned to cease operating four units at the Meredosia and Hutsonville energy centers by the end of 2011, primarily because compliance with the Cross-State Air Pollution Rule was uneconomical. Management did not expect the closures to reduce future earnings or cash flow relative to expected 2011 results.
- Ameren Illinois planned to pursue Illinois formula ratemaking under the Energy Infrastructure Modernization Act, which would require approximately $625 million of incremental distribution investment over ten years, plus specified contributions. The company planned to withdraw its pending electric rate case; its natural-gas rate case was to continue.
- Key regulatory contingencies include appeals of Missouri electric rate orders, the Missouri fuel-adjustment-clause prudence review, pending Illinois rate proceedings, and potential refunds. Ameren Missouri recorded an $18 million pretax charge related to an earlier FAC prudence review and did not consider an additional potential $26 million refund probable as of the filing date.
- Environmental compliance remains a major risk. Estimated environmental capital costs through 2020 were $1.26 billion to $1.535 billion for Ameren Missouri and $525 million to $620 million for Genco, with additional amounts for AERG. Future rules could require higher spending, plant closures, or asset impairments.
- Taum Sauk insurance recovery litigation remains unresolved. Ameren Missouri had received $104 million and reported a remaining insurance receivable of $68 million related to liability coverage.
- Ameren expects annual pension contributions of approximately $125 million to $150 million for each of the next five years, with estimated aggregate contributions of $690 million.
- Other material exposures include coal and power prices, weather, customer demand, derivative and counterparty risk, potential additional collateral requirements, nuclear operations and decommissioning, environmental remediation, asbestos litigation, labor negotiations, and capital-market access.
Important Facts for Investors to Verify
- Whether Missouri rate-order appeals or FAC proceedings result in refunds, additional charges, or release of the $18 million and $14 million held in court registries.
- The final effects of Illinois formula ratemaking, required infrastructure spending, performance standards, and pending natural-gas rate proceedings.
- Actual costs, timing, and recoverability of environmental compliance investments and the effect of further generating-unit closures.
- Progress and ultimate recovery of the remaining Taum Sauk insurance receivable and the impact of related litigation.
- Merchant Generation realized power margins, hedge performance, mark-to-market volatility, and the adequacy of liquidity under adverse commodity-price scenarios.
- Changes in pension funding requirements, credit ratings, collateral postings, and access to commercial paper and committed credit facilities.
- The treatment and recoverability of approximately $68 million of capitalized costs related to the proposed new Callaway nuclear unit if the project is abandoned or costs are disallowed.