Ameren Corporation 2009 Q3 Form 10-Q Summary
Business context and reporting period
Ameren is a regulated utility holding company with electric and natural-gas operations in Missouri and Illinois and merchant-generation operations. This combined, unaudited Form 10-Q covers the three and nine months ended September 30, 2009, with comparative periods ended September 30, 2008. Registrants include Ameren Corporation, Union Electric Company, CIPS, Ameren Energy Generating Company, CILCORP, CILCO and Illinois Power Company.
Financial performance and key metrics
| Ameren consolidated | Q3 2009 | Q3 2008 | 9M 2009 | 9M 2008 |
|---|---|---|---|---|
| Operating revenues | $1,815 million | $2,060 million | $5,415 million | $5,931 million |
| Operating income | $485 million | $428 million | $1,171 million | $1,193 million |
| Net income attributable to Ameren | $227 million | $204 million | $533 million | $548 million |
| EPS | $1.04 | $0.97 | $2.48 | $2.61 |
| Operating margin | 26.7% | 20.8% | 21.6% | 20.1% |
| Net margin attributable to Ameren | 12.5% | 9.9% | 9.8% | 9.2% |
- Electric revenue was $1,679 million in the third quarter and $4,589 million for nine months, compared with $1,928 million and $4,944 million, respectively, in the prior-year periods. Gas revenue was $136 million in the quarter and $826 million year to date.
- Nine-month operating cash flow was $1,746 million, up from $1,253 million. Capital expenditures were $1,295 million, producing negative operating cash flow less capital expenditures of approximately $451 million before financing and other investing items.
- Cash and cash equivalents were $563 million at September 30, 2009, versus $92 million at December 31, 2008. Total assets were $23.6 billion.
- Current liabilities were $1.926 billion, including $435 million of short-term debt and $128 million of current long-term debt maturities. Long-term debt was $7.321 billion; including current maturities, long-term debt carrying value was approximately $7.449 billion.
- Ameren had approximately $2.2 billion of available liquidity, consisting of cash and available credit facilities. Committed facilities included $1.3 billion of multiyear revolving capacity, with $874 million available, and an $800 million Illinois facility, with the full amount available at September 30, 2009.
- Ameren issued $425 million of 8.875% senior unsecured notes in May 2009 and raised $535 million net from a September common-stock offering. The equity proceeds were contributed to UE, CIPS, CILCO and IP.
- Ameren paid $247 million of common dividends during the first nine months, compared with $399 million in 2008. The quarterly dividend was $0.385 per share, versus $0.635 in the prior-year quarter.
Material changes versus the prior comparable period
- Third-quarter earnings increased despite lower revenue, primarily because of Missouri and Illinois rate increases, lower fuel and purchased-power costs, lower operations and maintenance expense, and favorable derivative mark-to-market activity.
- Nine-month earnings and EPS declined because of weaker utility sales, lower merchant-generation margins, higher interest expense, increased depreciation, severance costs and other unusual charges.
- Cooler weather and the economic downturn reduced demand. Third-quarter cooling degree-days were 18% below the prior year and 23% below normal. Residential sales declined 10%, commercial sales 3% and industrial sales 13%, excluding Noranda.
- Merchant Generation electric margin declined $91 million in the quarter and $141 million year to date. Lower power prices, lower utilization, transmission congestion, outages and unfavorable derivative activity were key factors.
- CILCORP recorded a $462 million noncash goodwill impairment charge in the first quarter of 2009, reducing goodwill from $542 million to $80 million and producing a nine-month net loss attributable to CILCORP of $380 million. The impairment was not recognized at the consolidated Ameren level.
- A third-quarter pretax charge of $17.5 million was recorded for employee separation programs and merchant-generation staff reductions. Approximately 300 positions were expected to be eliminated. Genco also recorded a $4 million charge related to retiring two Meredosia generating units and obsolete inventory.
- UE suspended efforts to develop a potential 1,600-megawatt Callaway nuclear unit and asked the NRC to suspend review of its COLA. Approximately $68 million remained capitalized as construction work in progress; abandonment could result in a future earnings charge.
Guidance, outlook, risks and contingencies
- Management expected 2009 weather-normalized residential and commercial sales to decline approximately 1% to 2% and industrial sales to decline approximately 11%, excluding Noranda. Management anticipated residential and commercial sales growth in 2010 assuming a moderate economic recovery.
- Ameren identified approximately $2 billion of potential reductions or deferrals in planned 2010-2013 capital spending, including approximately $1 billion in Merchant Generation and approximately $1 billion under evaluation in regulated operations.
- Planned Ameren capital expenditures were estimated at $1.715 billion in 2009 and $5.7 billion to $7.6 billion for 2010-2013. Environmental compliance capital spending through 2018 was estimated at $4.0 billion to $5.0 billion.
- UE requested a $402 million annual electric revenue increase, including approximately $227 million for normalized net fuel costs, and interim relief of approximately $37 million. The Ameren Illinois Utilities requested aggregate electric and gas delivery increases of $162 million. Regulatory outcomes and timing remained uncertain.
- Taum Sauk rebuild costs were estimated at approximately $490 million. Ameren expected insurance recovery of 80% to 90% of the property claim, but disputes with three insurers remained pending. Costs not recovered through insurance, rates or otherwise could materially affect earnings.
- Ameren remained exposed to coal, natural-gas, nuclear-fuel and power-price volatility, derivative counterparty risk, credit-market access, regulatory lag, severe weather, plant outages, environmental rules and potential greenhouse-gas regulation.
- At September 30, 2009, potential additional collateral requirements under specified credit-rating and commodity-price scenarios were as high as $413 million for Ameren on a consolidated basis. The company reported compliance with its credit facilities and financial covenants.
- Management expected annual pension contributions of $100 million to $250 million during each of the next five years, subject to investment performance, interest rates and regulatory changes.
- Environmental remediation liabilities included estimated ranges of $56 million to $79 million for CIPS and $100 million to $175 million for IP. The filing states that ordinary-course legal proceedings were not expected to have a material adverse effect, but several environmental, asbestos, regulatory and insurance matters remained unresolved.
Most important facts for an investor to verify
- Whether UE and the Ameren Illinois Utilities receive the requested rate increases, interim relief and cost-recovery mechanisms, and the effect of regulatory lag on cash flow.
- The final insurance recovery and customer-rate recoverability of Taum Sauk rebuild and related costs.
- Merchant Generation power prices, plant availability, utilization, hedge coverage and the potential for additional goodwill or asset impairments.
- Ameren’s ability to fund planned capital expenditures, debt maturities and pension contributions while maintaining liquidity and credit ratings.
- Future environmental compliance costs, greenhouse-gas regulation, coal-plant requirements and potential remediation or New Source Review liabilities.
- The status and valuation of UE’s suspended Callaway COLA investment and any resulting impairment or contractual costs.
- The sustainability of earnings growth after separating rate benefits and derivative mark-to-market effects from underlying demand and operating performance.