Ameren Corporation 2014 Q1 Form 10-Q Summary
Business context and reporting period
Combined unaudited Form 10-Q for Ameren Corporation, Union Electric Company doing business as Ameren Missouri, and Ameren Illinois Company for the three months ended March 31, 2014, compared with the three months ended March 31, 2013. Ameren is a regulated utility holding company serving electric and natural gas customers in Missouri and Illinois, with additional FERC-regulated transmission operations.
Key financial metrics
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Operating revenues | $1,594 million | $1,475 million |
| Operating income | $246 million | $185 million |
| Operating margin | 15.4% | 12.5% |
| Income from continuing operations | $99 million | $56 million |
| Net income attributable to Ameren | $96 million | $(145) million |
| EPS, basic | $0.40 | $(0.60) |
| EPS from continuing operations, basic | $0.40 | $0.22 |
| Operating cash flow | $239 million | $379 million |
| Capital expenditures and nuclear fuel | $452 million | $286 million |
| Cash and cash equivalents | $26 million | $186 million |
| Long-term debt, including current maturities | $5,874 million | $6,038 million at December 31, 2013 |
Revenue increased 8%, led by higher gas revenue, colder winter weather, rate increases, transmission investment, and formula-based recovery mechanisms. Electric margin increased $66 million, or 9%, and natural gas margin increased $27 million, or 17%.
Ameren Missouri reported net income of $48 million versus $41 million. Ameren Illinois reported $54 million versus $32 million. Ameren Corporation's continuing-operations EPS improved primarily because of colder weather, higher regulated rates and transmission revenues, reduced costs associated with the divested merchant generation business, and lower interest expense.
Material changes versus the prior comparable period
- Net income attributable to Ameren improved by $241 million, primarily because Q1 2013 included a $155 million pretax impairment charge and related tax effects associated with discontinued merchant-generation operations.
- Continuing-operations earnings increased $43 million, or $0.18 per share.
- Operating cash flow from continuing operations declined $103 million, reflecting regulatory cost deferrals, lower natural-gas commodity recoveries, customer refunds, higher energy-efficiency spending, working-capital timing, and the absence of prior-year storm restoration receipts.
- Capital spending increased $167 million to $442 million, driven by transmission, reliability, environmental, and generation projects.
- Ameren Illinois redeemed $163 million of environmental improvement and pollution-control bonds in January 2014 and replaced part of the funding with money-pool borrowings.
- On January 31, 2014, Ameren sold the Elgin, Gibson City, and Grand Tower gas-fired plants for $168 million before working-capital adjustments. The assets remain presented as discontinued operations; Ameren recorded a $1 million discontinued-operations loss in Q1 2014.
- Ameren Missouri issued $350 million of 3.50% senior secured notes in April 2014, after quarter-end, to repay short-term debt and fund a $104 million maturity.
Guidance, outlook, risks and unusual items
- Ameren Missouri planned to file an electric rate case by July 15, 2014. The filing is expected to seek recovery for higher operating costs, fuel costs, infrastructure investment, the Callaway reactor-head replacement, environmental projects, substations, and solar-generation rebates.
- Ameren Illinois filed a 2015 electric delivery formula-rate update that, pending approval, would increase annual revenue requirements by $206 million beginning in January 2015.
- Ameren planned approximately $2.25 billion of FERC-regulated transmission investment for 2014 through 2018, including $1.4 billion by ATXI and $850 million by Ameren Illinois.
- Management expected cash used for capital expenditures and dividends to exceed operating cash flow over the next several years and planned to finance investments with a combination of debt and equity while targeting approximately a 50% equity ratio.
- At March 31, 2014, total credit capacity was $2.1 billion, of which approximately $1.4 billion was available. Ameren had $700 million of short-term debt and $648 million of current long-term debt maturities.
- Ameren was in compliance with its credit covenants. Consolidated indebtedness-to-capitalization ratios were 50% for Ameren, 49% for Ameren Missouri, and 44% for Ameren Illinois; Ameren's funds-from-operations-to-interest ratio was 5.6x versus a 2.0x minimum.
- Key regulatory risks include the Noranda and residential-customer complaints seeking a $67 million annual Ameren Missouri revenue reduction, pending ICC and FERC appeals, a FERC complaint seeking to reduce the 12.38% MISO transmission return on equity, and potential transmission refunds.
- Environmental compliance could require substantial future capital and operating expenditures. Ameren and Ameren Missouri estimated $275 million to $350 million of capital investment over five years for existing environmental requirements, excluding certain proposed water and effluent rules.
- Other material exposures include the $68 million Taum Sauk insurance receivable, former manufactured-gas-plant remediation liabilities, asbestos litigation, Callaway nuclear risks, and $184 million of Ameren guarantees plus $9 million of letters of credit supporting New AER obligations through December 2015.
- Ameren declared and paid a quarterly dividend of $0.40 per share and expected a payout ratio of 55% to 70% of earnings over the next several years.
Most important facts for investors to verify
- Whether the pending Ameren Missouri rate case and Noranda complaint cases alter allowed revenue or return on equity.
- Whether the $206 million Ameren Illinois formula-rate increase is approved and realized in 2015 cash flows.
- The timing and ultimate cost recovery of transmission, environmental, Callaway, reliability, and smart-grid investments.
- The ability to refinance the $425 million Ameren senior-note maturity in May 2014 and manage elevated short-term debt.
- Potential cash requirements from collateral postings, New AER guarantees, regulatory refunds, litigation, remediation, and the Taum Sauk insurance claim.
- The sustainability of dividends given expected negative free cash flow after capital expenditures and dividends.