Business Context and Reporting Period
Company: Ameren Corporation (Ameren)
Filing Type: Form 8-K (Current Report)
Report Date: February 14, 2002 (Reporting on events of February 13, 2002)
Period Covered: Consolidated financial statements for the years ended December 31, 2001, 2000, and 1999.
Business Overview: Ameren is a holding company registered under the Public Utility Holding Company Act of 1935. Its primary subsidiaries, AmerenUE and AmerenCIPS, provide electric and natural gas services to approximately 1.5 million electric and 300,000 gas customers in Missouri and Illinois. The company also operates nonregulated energy trading, marketing, and generation subsidiaries.
Key Financial Metrics (Year Ended December 31, 2001)
| Metric | 2001 | 2000 | 1999 |
|---|---|---|---|
| Total Operating Revenues | $4,505.9 million | $3,856.8 million | $3,536.1 million |
| Net Income | $468.5 million | $457.1 million | $385.1 million |
| Earnings Per Share (Basic) | $3.41 | $3.33 | $2.81 |
| Operating Cash Flow | $738.0 million | $855.6 million | $917.6 million |
| Capital Expenditures | $1,102.6 million | $928.7 million | $570.8 million |
| Total Assets | $10,400.6 million | $9,714.4 million | N/A |
| Long-Term Debt | $2,835.4 million | $2,745.1 million | N/A |
| Short-Term Debt | $641.3 million | $203.3 million | N/A |
| Cash and Equivalents | $67.1 million | $126.0 million | N/A |
Note: All figures in millions of dollars unless otherwise noted. 2001 Net Income includes a $6.8 million cumulative effect of a change in accounting principle.
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenues increased 16.8% to $4.5 billion, driven primarily by a 19% increase in total kilowatthour sales and an 85% increase in interchange sales. Electric revenues rose $629 million year-over-year.
- Profitability: Net income increased 2.5% to $468.5 million. Earnings per share rose to $3.41 from $3.33. This growth occurred despite a $7 million after-tax charge related to the adoption of SFAS No. 133 (derivatives accounting).
- Operating Expenses: Fuel and purchased power costs increased significantly by $537 million ($1.56 billion total) due to higher purchased power costs associated with increased interchange sales and the Callaway Nuclear Plant refueling outage. Other operating expenses rose $44 million, largely due to higher employee benefit costs.
- Cash Flow: Operating cash flow decreased 13.7% to $738 million, attributed to the timing of credits to Missouri electric customers and changes in working capital. Investing cash outflows increased to $1.1 billion due to heavy capital expenditures ($1.1 billion) for new combustion turbine facilities and nuclear fuel.
- Liquidity: Short-term debt increased substantially from $203 million to $641 million to fund operations and construction, while cash and cash equivalents declined from $126 million to $67 million.
Guidance, Outlook, Risks, and Unusual Items
Guidance and Outlook
Management estimates ongoing earnings per share for the year ending December 31, 2002, will range between $3.15 and $3.45. This estimate assumes a future form of incentive regulation for Missouri electric operations, which could include rate reductions and customer credits. Capital expenditures for 2002 are expected to approximate $800 million, with a five-year (2002-2006) estimate of $3.5 billion.
Unusual Items
- 2001: Recorded a $7 million after-tax unusual charge due to the adoption of SFAS No. 133 regarding derivative financial instruments.
- 2000: Recorded a $25 million pretax charge ($15 million after-tax) related to the withdrawal from the Midwest Independent System Operator (Midwest ISO).
- 1999: Recorded a $52 million nonrecurring charge for coal contract terminations.
Material Risks and Contingencies
- Regulatory Proceedings (Missouri): The Missouri Public Service Commission (MoPSC) staff filed an excess earnings complaint proposing annual electric revenue reductions of $213 million to $250 million. A final decision is not expected until the fourth quarter of 2002, with potential retroactive rate reductions to April 1, 2002.
- Regulatory Proceedings (Illinois): Retail direct access for residential customers begins May 1, 2002. The company faces potential rate decreases if rates exceed the Midwest utility average and must refund excess earnings.
- Environmental Compliance: Significant capital expenditures ($300 million to $350 million) are estimated to comply with new NOx control regulations in Illinois and Missouri. Future regulations regarding mercury, SO2, and Regional Haze could add further costs.
- Rating Agency Outlook: Moody's, Standard & Poor's, and Fitch changed their outlooks for Ameren's long-term unsecured debt from stable to negative in 2001 due to regulatory uncertainty.
- Accounting Changes: Adoption of SFAS No. 143 (Asset Retirement Obligations) in 2002 is expected to significantly increase reported assets and liabilities related to Callaway Nuclear Plant decommissioning costs.
Investor Verification Checklist
- Missouri Rate Case Outcome: Verify the final decision of the MoPSC regarding the excess earnings complaint and the potential for retroactive revenue reductions.
- Capital Expenditure Execution: Monitor the $3.5 billion five-year capital plan, specifically the $340 million investment in combustion turbines for 2002 and compliance costs for NOx regulations.
- Debt Maturities and Refinancing: Review the $139 million in long-term debt maturing in 2002 and the company's ability to refinance given the negative credit outlook.
- Illinois Restructuring Impact: Assess the financial impact of the May 2002 residential retail direct access implementation and potential rate caps.
- Environmental Liabilities: Track the finalization of EPA NOx rules and the potential costs associated with mercury and Regional Haze regulations.