Ameren Corporation 2011 First-Quarter Form 10-Q Summary
Business context and reporting period
Combined quarterly report for Ameren Corporation and subsidiaries Union Electric Company (Ameren Missouri), Ameren Illinois Company, and Ameren Energy Generating Company, covering the three months ended March 31, 2011. Ameren operates regulated electric and natural-gas businesses in Missouri and Illinois and merchant electric-generation businesses in Missouri and Illinois.
The filing reflects the October 2010 internal reorganization. AIC’s prior-period results include AERG as discontinued operations, while AERG remains in Ameren’s continuing operations.
Key financial metrics
| Ameren consolidated | Q1 2011 | Q1 2010 |
|---|---|---|
| Operating revenues | $1,904 million | $1,940 million |
| Operating income | $227 million | $298 million |
| Net income | $74 million | $106 million |
| Net income attributable to Ameren | $71 million | $102 million |
| Basic and diluted EPS | $0.29 | $0.43 |
| Operating margin | Approximately 11.9% | Approximately 15.4% |
| Common dividend per share | $0.385 | $0.385 |
| Net cash from operating activities | $554 million | $380 million |
| Capital expenditures | $227 million | $289 million |
Revenue declined 2%, operating income declined 24%, and net income attributable to Ameren declined 30%. The principal earnings pressure was lower Merchant Generation margins, including lower realized power prices, higher fuel and transportation costs, and a $35 million reduction in net unrealized mark-to-market gains on nonqualifying power hedges.
At March 31, 2011, Ameren reported cash and cash equivalents of $573 million, total assets of $23.3 billion, long-term debt of $6.9 billion, short-term debt of $334 million, credit-facility borrowings of $270 million, and total equity of $7.9 billion. Aggregate availability under the 2010 credit agreements was approximately $1.5 billion; consolidated available liquidity, including cash, was approximately $2.1 billion.
Operating cash flow exceeded capital expenditures by $327 million. Cash increased by $28 million during the quarter, after $276 million of financing cash outflows, including $93 million of common dividends.
Segment results and material changes
- Ameren Missouri: Net income attributable to Ameren decreased to $21 million from $27 million. Electric margin increased $14 million, primarily from higher rates, the return of Taum Sauk, and increased Noranda sales, but these benefits were offset by higher fuel costs, lower wholesale sales, milder weather, storm expenses, and lower allowance for equity funds used during construction.
- Ameren Illinois: Net income attributable to Ameren decreased to $33 million from $47 million. The 2010 comparison included $12 million of after-tax discontinued-operation income from AERG. Continuing-operations income declined to $34 million from $36 million. Electric margin was essentially flat, while natural-gas margin declined $6 million.
- Merchant Generation: Net income attributable to Ameren decreased to $20 million from $44 million. Electric margin declined $45 million, or 20%, due to lower market prices, higher fuel costs, lower plant utilization, unplanned outages, and reduced mark-to-market gains.
- Operations and maintenance: Consolidated expense increased $26 million, including $18 million of higher storm-repair costs, $8 million of higher bad-debt expense, and $7 million of higher labor costs, partly offset by lower plant-maintenance and distribution-maintenance costs.
- Interest and taxes: Interest expense declined $13 million, principally following debt repayment at Genco and Ameren Missouri. The effective tax rate declined to 38% from 41%, mainly because the prior-year period included a $13 million after-tax charge related to a federal health-care tax-law change.
Guidance, outlook, risks, contingencies, and unusual items
- Ameren Missouri’s amended electric rate request seeks approximately $200 million of annual revenue increases; the Missouri staff recommendation was $86 million. A decision was required by July 2011. AIC requested $60 million of electric and $51 million of natural-gas delivery revenue increases, with an Illinois decision required by January 2012.
- Following an April 2011 Missouri FAC prudence order, Ameren Missouri expected to record a $17 million pretax charge in the second quarter of 2011 for customer refunds. The company was also assessing possible additional refunds related to $25 million of subsequent pretax earnings.
- Ameren expected up to $3.6 billion of coal-plant environmental-control investment from 2011 through 2020. Recovery is expected primarily in regulated operations but remains subject to prudence reviews, regulatory lag, and final environmental requirements.
- Management estimated 2011 federal tax-payment reductions of $150 million to $200 million from accelerated depreciation provisions. Illinois tax-rate changes were expected to increase 2011 income-tax expense by approximately $5 million to $10 million.
- AIC’s $150 million of 6.625% senior secured notes were scheduled to mature in June 2011. AIC also planned to contribute up to $100 million to Ameren’s postretirement benefit plan.
- Genco agreed to sell its remaining interest in the Columbia CT facility for expected proceeds of $45 million, with closing scheduled for June 1, 2011.
- Material risks include regulatory rate outcomes and appeals, FAC prudence proceedings, power and fuel-price volatility, environmental rules affecting coal generation, nuclear-plant operations and safety requirements, Taum Sauk insurance and rate-recovery claims, Clean Air Act litigation, remediation obligations, counterparty and collateral exposure, pension funding, and capital-market access.
- Recorded MGP remediation liabilities were $131 million for Ameren, with estimated obligations ranging from $131 million to $211 million. Taum Sauk-related insurance receivables totaled $172 million, including $68 million remaining subject to liability-coverage recovery; additional rate recovery remained uncertain.
Investor verification priorities
- Verify the final outcomes of Ameren Missouri’s pending rate case, the 2009 and 2010 rate-order appeals, and the FAC prudence proceeding, including the potential for additional refunds.
- Assess Merchant Generation exposure to power prices, fuel and transportation costs, plant availability, unhedged generation, and mark-to-market volatility.
- Review the final scope, timing, and recoverability of environmental-compliance capital expenditures, including MACT, CATR, CCR, greenhouse-gas, and Clean Water Act requirements.
- Confirm AIC’s June 2011 debt repayment and planned postretirement contribution against available cash and operating cash flow.
- Monitor Taum Sauk insurance litigation and regulatory recovery, Clean Air Act litigation, asbestos and remediation matters, and the Callaway nuclear-related contingencies.
- Reconcile reported liquidity with commercial paper, credit-facility borrowings, collateral requirements, rating sensitivity, and upcoming debt maturities.