Ameren Corporation 2015 Form 10-K Summary
Business context and reporting period
Ameren Corporation is a regulated electric and natural-gas utility holding company headquartered in St. Louis, Missouri. Its principal operating segments are Ameren Missouri, Ameren Illinois, and FERC-regulated transmission subsidiary ATXI. The filing covers the fiscal year ended December 31, 2015, with comparative results for 2014 and 2013. The registrants also include Union Electric Company, doing business as Ameren Missouri, and Ameren Illinois Company.
Ameren Missouri operates regulated electric generation, transmission, and distribution and natural-gas businesses in Missouri. Ameren Illinois operates regulated electric and natural-gas transmission and distribution businesses in Illinois. Former merchant-generation activities have been presented as discontinued operations.
Key financial metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Operating revenues | $6.098 billion | $6.053 billion | +$45 million |
| Operating income | $1.259 billion | $1.254 billion | +$5 million |
| Income from continuing operations | $585 million | $593 million | -$8 million |
| Net income attributable to common shareholders | $630 million | $586 million | +$44 million |
| Diluted EPS from continuing operations | $2.38 | $2.40 | -$0.02 |
| Total diluted EPS | $2.59 | $2.40 | +$0.19 |
| Operating cash flow from continuing operations | $2.021 billion | $1.557 billion | +$464 million |
| Capital expenditures | $1.917 billion | $1.785 billion | +$132 million |
| Long-term debt, net | $6.880 billion | $6.085 billion | +$795 million |
Operating margin was approximately 20.6%, while net income attributable to common shareholders from continuing operations represented approximately 9.5% of operating revenues. Total net income included a $51 million discontinued-operations benefit, primarily from a $53 million tax benefit following completion of the IRS audit of the 2013 tax year.
Electric operating revenues were $5.180 billion, up from $4.913 billion. Gas operating revenues were $918 million, down from $1.140 billion, primarily because of lower natural-gas prices and warmer weather. Electric margins increased $162 million, or 4%, while natural-gas margins decreased $22 million, or 4%.
- Ameren Missouri net income available to common shareholders was $352 million, down from $390 million. Operating income was $742 million, down from $785 million.
- Ameren Illinois net income available to common shareholders was $214 million, up from $201 million. Operating income was $466 million, up from $450 million.
- Ameren Missouri electric margins increased $45 million, helped by higher base rates and MEEIA net shared benefits, but were pressured by lower sales volumes, warmer weather, and reduced Noranda sales.
- Ameren Illinois electric margins increased $84 million, or 7%, primarily from rate-base growth, formula ratemaking, transmission investment, and the purchased-power rider order.
Cash flow, balance sheet, debt, and liquidity
- Operating cash flow from continuing operations was $2.021 billion, compared with $1.557 billion in 2014. The increase reflected higher collections under Ameren Missouri’s fuel-adjustment clause, Illinois formula-ratemaking collections, and lower solar-rebate and nuclear-outage payments.
- Cash used in investing activities from continuing operations was $1.951 billion. Ameren invested $1.917 billion in capital expenditures, including $918 million at Ameren Illinois, $622 million at Ameren Missouri, and approximately $375 million by ATXI.
- Cash and cash equivalents were $292 million at December 31, 2015, compared with $5 million at year-end 2014.
- Consolidated liquidity was approximately $2.078 billion, consisting of $1.786 billion of available credit capacity and $292 million of cash. The credit agreements mature in December 2019.
- Commercial paper outstanding was $301 million at year-end. Ameren, Ameren Missouri, and Ameren Illinois were in compliance with applicable debt covenants.
- Ameren issued $700 million of parent-level senior unsecured notes in November 2015. Ameren Missouri issued $250 million of senior secured notes, and Ameren Illinois issued $250 million of senior secured notes.
- Ameren paid $402 million of common dividends, or $1.655 per share. Management expected a dividend payout ratio of 55% to 70% of earnings over the next several years.
- Total assets were $23.640 billion and Ameren shareholders’ equity was $6.946 billion at December 31, 2015.
Material changes versus the prior comparable period
- Continuing-operations earnings declined modestly despite higher electric margins, primarily because of a $69 million pretax noncash provision for abandoned plans to build a second Callaway nuclear unit, lower sales volumes caused by warmer weather and energy efficiency, higher Ameren Missouri financing costs, higher depreciation, and the absence of a prior-year recovery of certain debt-premium costs.
- Ameren Illinois results improved because of continued transmission and distribution rate-base investment and formula-rate recovery.
- Ameren Missouri’s 2015 electric rate order authorized a $122 million annual revenue increase and a 9.53% allowed return on equity, but changed the fuel-adjustment clause to exclude transmission revenues and substantially all transmission charges, increasing exposure to regulatory lag.
- Ameren invested $1.3 billion in FERC-regulated transmission and Illinois electric and natural-gas delivery businesses during 2015.
- Ameren Missouri’s Callaway operating license was extended from 2024 to 2044. The company discontinued its second-unit licensing effort and withdrew its application with the NRC.
- Asset-retirement obligations increased materially, including a $99 million increase related to Callaway decommissioning and a $100 million increase related to coal-combustion residual storage facilities.
Guidance, outlook, commentary, risks, and unusual items
- Ameren projected 2016–2020 capital expenditures of approximately $10.6 billion to $11.5 billion, excluding potential Clean Power Plan impacts. The filing identified up to $4.3 billion for Ameren Missouri, up to $6.2 billion for Ameren Illinois, and up to $1.0 billion for ATXI.
- Management expects cash used for capital expenditures and dividends to exceed operating cash flow over the next several years and expects to use debt to fund the shortfall. It did not expect to issue equity over that period.
- Noranda’s aluminum smelter, Ameren Missouri’s largest customer, curtailed operations following a January 2016 supply-circuit failure and filed for Chapter 11 bankruptcy in February 2016. Ameren estimated that lower Noranda sales could reduce 2016 earnings by approximately $32 million versus 2015 until rates are reset. Ameren Missouri expected to file a rate case in 2016.
- FERC proceedings challenge the 12.38% allowed base return on equity for MISO transmission owners. An administrative law judge proposed a 10.32% base return in the November 2013 case. Ameren recorded $45 million of estimated potential refunds, including $32 million at Ameren Illinois. A 50-basis-point reduction in the FERC return was estimated to reduce annual earnings by $6 million for Ameren and $3 million for Ameren Illinois.
- Ameren Missouri had not recognized the disputed 2014–2015 MEEIA performance incentive. Management expected to recognize at least $19 million in 2016, subject to litigation. A new March 2016–February 2019 MEEIA plan authorized $158 million of program investment and a potential $27 million performance incentive if 100% of goals are achieved.
- The Clean Power Plan was stayed by the U.S. Supreme Court in February 2016. If ultimately implemented in substantially similar form, management expects higher operating and capital costs and possible changes or retirements at coal- and gas-fired facilities.
- Other significant risks include environmental compliance and litigation, coal-combustion residual obligations, the EPA’s Rush Island Clean Air Act case, regulatory disallowances or lag, cybersecurity, severe weather, nuclear operations and decommissioning, fuel supply disruptions, pension funding, interest rates, credit markets, and customer adoption of energy efficiency or distributed generation.
- Ameren Illinois’ return on equity under the IEIMA formula is linked to 30-year U.S. Treasury yields. A 50-basis-point change in average yields was estimated to change annual net income by approximately $6 million.
- Ameren Missouri expected a spring 2016 Callaway refueling outage and approximately $37 million of 2016 maintenance expense. It received $42 million in February 2016 under a settlement related to the Taum Sauk insurance claim.
Most important facts for an investor to verify
- Whether Noranda’s curtailment and bankruptcy produce the projected $32 million 2016 earnings impact and how quickly Ameren Missouri’s rate case addresses the revenue shortfall.
- The final FERC decisions on the MISO return-on-equity complaint cases, including refund amounts and the effect on transmission earnings and cash flow.
- The outcome of Ameren Missouri’s MEEIA performance-incentive appeal and the timing and amount of any 2016 recognition.
- Whether the projected $10.6 billion to $11.5 billion capital program remains recoverable under applicable regulatory frameworks and how it affects leverage and dividends.
- The ultimate cost and recoverability of Clean Power Plan, CCR, Clean Water Act, MATS, CSAPR, and other environmental compliance requirements.
- The status and potential exposure from the Rush Island litigation, former manufactured-gas-plant remediation, asbestos claims, municipal-tax litigation, and other contingencies.
- Ameren’s ability to maintain liquidity and credit metrics while funding capital expenditures, debt maturities, pension contributions, and dividends.
- The effect of weather, energy efficiency, distributed generation, customer usage trends, and future interest-rate movements on regulated earnings.