Ameren Corporation 2016 Q3 Form 10-Q Summary
Business Context and Reporting Period
Combined unaudited Form 10-Q for Ameren Corporation, Union Electric Company (Ameren Missouri), and Ameren Illinois Company for the quarter and nine months ended September 30, 2016. Ameren is a regulated utility holding company with electric and natural gas operations in Missouri and Illinois and FERC-regulated transmission operations through ATXI.
Key Financial Metrics
| Metric | Three Months 2016 | Three Months 2015 | Nine Months 2016 | Nine Months 2015 |
|---|---|---|---|---|
| Operating revenues | $1,859 million | $1,833 million | $4,720 million | $4,790 million |
| Operating income | $691 million | $626 million | $1,236 million | $1,119 million |
| Net income attributable to Ameren common shareholders | $369 million | $343 million | $621 million | $601 million |
| Diluted EPS from continuing operations | $1.52 | $1.41 | $2.56 | $2.26 |
| Cash flow from operations | Not separately provided | Not separately provided | $1,559 million | $1,547 million |
| Capital expenditures and nuclear fuel expenditures | Not separately provided | Not separately provided | $1,537 million | $1,362 million |
- Calculated consolidated operating margin was approximately 37.2% for the quarter and 26.2% for the nine months. Calculated net margin attributable to common shareholders was approximately 19.8% and 13.2%, respectively.
- At September 30, 2016, cash and cash equivalents were $18 million, compared with $292 million at December 31, 2015.
- Consolidated long-term debt, including current maturities, was $7.038 billion; short-term debt was $608 million.
- Total liquidity was approximately $1.506 billion, consisting of $1.488 billion of available credit capacity and $18 million of cash.
- Ameren reported $24.134 billion of total assets and $7.335 billion of total equity at September 30, 2016.
- The quarterly common dividend was $0.425 per share during the period. In October 2016, the board increased the quarterly dividend to $0.44 per share, or an annualized $1.76.
Material Changes Versus the Prior Comparable Period
- Third-quarter common earnings increased 8% to $369 million, while nine-month continuing-operations earnings increased 13% to $621 million.
- Revenue increased in the third quarter but declined for the nine months, primarily because of lower gas revenue and the suspension of operations at the New Madrid Smelter.
- Ameren Illinois and ATXI benefited from rate-base growth, formula ratemaking, higher transmission revenues, and increased electric distribution earnings. Ameren Illinois segment net income rose to $119 million from $98 million in the quarter and to $223 million from $182 million for the nine months.
- Ameren Missouri segment net income rose modestly to $241 million from $239 million in the quarter and to $347 million from $341 million for the nine months.
- Electric margins increased $54 million in the quarter and $46 million for the nine months. Benefits from warmer weather, transmission investment, and the MEEIA 2013 performance incentive offset lower New Madrid Smelter sales, the absence of MEEIA 2013 shared benefits, and higher transmission charges.
- The 2015 $69 million pretax noncash provision for the abandoned second Callaway nuclear-unit licensing effort did not recur.
- Net income from discontinued operations was zero in 2016 versus $52 million for the first nine months of 2015, primarily reflecting a prior-year tax benefit.
- Operating cash flow was broadly stable at $1.559 billion, but investing cash use increased because capital expenditures rose by approximately $164 million. Financing cash use increased to $282 million from $113 million.
- Interest expense increased to $287 million from $264 million for the nine months, reflecting higher average debt and borrowing costs at the parent and Ameren Illinois.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- No specific full-year earnings guidance is provided in the filing. Management expects the common dividend payout ratio to be approximately 55% to 70% of earnings over the next few years.
- Ameren expects up to $11.5 billion of capital investment from 2016 through 2020: up to $4.3 billion at Ameren Missouri, $6.2 billion at Ameren Illinois, and $1.0 billion at ATXI. Management expects cash expenditures and dividends to exceed operating cash flow over the next several years and anticipates using debt rather than equity to fund the shortfall.
- Ameren Missouri requested a $206 million annual electric revenue increase, based on a 9.9% return on equity and a $7.2 billion rate base. A regulatory decision was expected by late April 2017, with new rates expected in late May 2017.
- The New Madrid Smelter remained largely shut down following Noranda’s restructuring and subsequent sale of the smelter. Ameren Missouri estimated a $38 million reduction in 2016 earnings versus 2015 and an $8 million reduction during the first five months of 2017, partially offset by expected rate adjustments.
- Ameren Missouri recognized $19 million of MEEIA 2013 performance-incentive revenue in the third quarter. The MoPSC subsequently approved a $28 million total incentive, implying an additional $9 million of revenue in the fourth quarter. Additional amounts remained possible depending on an appeal.
- FERC reduced the allowed base return on equity for MISO transmission owners to 10.32% prospectively from September 2016. A separate complaint case could reduce the return further; Ameren and Ameren Illinois recorded regulatory liabilities of $61 million and $42 million, respectively, for estimated refunds and interest.
- Ameren Illinois’ proposed 2017 electric distribution revenue requirement reflected a $14 million decrease, subject to ICC approval.
- Material risks include regulatory rate decisions and cost recovery, lower transmission returns, regulatory lag, weather, customer conservation and distributed generation, commodity costs, environmental compliance, capital-market access, nuclear operations and insurance, litigation, remediation obligations, cybersecurity, and transmission-project permitting.
- Environmental compliance expenditures for Ameren Missouri were estimated at $600 million to $700 million from 2016 through 2020, excluding potential Clean Power Plan impacts. The Clean Power Plan was stayed pending litigation.
- Ameren Illinois estimated obligations for remediation of 44 former manufactured-gas-plant sites at $204 million to $274 million and recorded the low end of the range as a liability.
- Total commitments for coal, natural gas, nuclear fuel, purchased power, equipment, and other obligations were $4.328 billion for Ameren, $2.428 billion for Ameren Missouri, and $1.859 billion for Ameren Illinois.
- Management reported effective disclosure controls, no material changes to internal controls, and compliance with applicable credit covenants at September 30, 2016.
Most Important Facts for Investors to Verify
- Whether the Missouri rate case ultimately provides the requested recovery for infrastructure investment, New Madrid Smelter losses, and transmission costs.
- The final FERC decision and refund requirements in the February 2015 transmission-return complaint case.
- The timing and cost recovery of the Illinois Rivers, Spoon River, and Mark Twain transmission projects, including Mark Twain permitting litigation.
- The sustainability of earnings growth from Ameren Illinois and ATXI formula ratemaking as allowed returns decline.
- The financial impact of the suspended New Madrid Smelter operations and the effectiveness of future rate adjustments.
- Ameren’s ability to fund planned capital expenditures and dividends while maintaining liquidity and credit metrics.
- Potential environmental, nuclear, remediation, and legal liabilities, including the Rush Island Clean Air Act litigation and former manufactured-gas-plant remediation.