AMEREN CORP quarterly report, Q2 FY2020

Business Context and Reporting Period

Ameren Corporation is a rate-regulated utility holding company headquartered in St. Louis, Missouri. Its principal subsidiaries are Ameren Missouri, which operates regulated electric generation, transmission, distribution, and natural gas distribution businesses, and Ameren Illinois, which operates regulated electric transmission and distribution and natural gas distribution businesses. This combined unaudited Form 10-Q covers the three and six months ended June 30, 2020, and compares results with the corresponding 2019 periods.

Financial Performance and Key Metrics

Ameren consolidated	Q2 2020	Q2 2019	YTD 2020	YTD 2019
Operating revenues	$1,398 million	$1,379 million	$2,838 million	$2,935 million
Operating income	$354 million	$280 million	$595 million	$568 million
Net income attributable to common shareholders	$243 million	$179 million	$389 million	$370 million
Diluted EPS	$0.98	$0.72	$1.57	$1.50
Net cash from operating activities	Not separately provided	Not separately provided	$694 million	$879 million
Capital expenditures	Not separately provided	Not separately provided	$1,228 million	$1,125 million

Q2 operating margin was approximately 25.3%, compared with approximately 20.3% in Q2 2019; year-to-date operating margin was approximately 21.0%, compared with 19.4%.
Q2 net margin attributable to common shareholders was approximately 17.4%, compared with 13.0%; year-to-date net margin was approximately 13.7%, compared with 12.6%.
At June 30, 2020, Ameren had $8 million of unrestricted cash, $120 million of short-term debt, $10.528 billion of long-term debt including current maturities, and $2.183 billion of net available liquidity. Credit agreements provided $2.3 billion of aggregate capacity through December 2024.
Ameren's consolidated debt-to-total-capitalization ratio under its credit agreements was 56%; the ratios were 50% for Ameren Missouri and 44% for Ameren Illinois.
Common dividends paid were $244 million in the first six months of 2020, compared with $233 million in the prior-year period. The quarterly dividend was $0.495 per share, compared with $0.475 in Q2 2019.

Material Changes Versus the Prior Comparable Period

Q2 common-shareholder earnings increased $64 million, or $0.26 per diluted share. The increase primarily reflected the absence of Callaway Energy Center refueling and maintenance outage costs incurred in Q2 2019, lower operating and maintenance expenses, higher Ameren Transmission and Ameren Illinois Natural Gas earnings, and favorable weather.
Year-to-date earnings increased $19 million, or $0.07 per diluted share. Growth from Ameren Transmission and Ameren Illinois Natural Gas was partly offset by lower Ameren Missouri earnings and lower unallocated earnings.
Operating revenues increased $19 million in Q2 but declined $97 million year to date. Year-to-date declines included lower Ameren Missouri electric sales and the absence of $20 million of MEEIA performance-incentive revenue recognized in 2019.
Operating expenses declined $55 million in Q2 and $124 million year to date, primarily due to lower other operations and maintenance expense, partly offset by higher depreciation and amortization.
Operating cash flow declined $185 million year to date, principally because of lower customer collections and higher accounts receivable balances. Capital expenditures increased $103 million.
Ameren Transmission margins increased 25% in Q2 and 16% year to date, supported by rate-base growth and the May 2020 FERC order increasing the allowed MISO base ROE to 10.02% from 9.88%.
Ameren Illinois Electric Distribution earnings were pressured by a lower recognized ROE, although rate-base investment and recoverable expenses supported year-to-date margin growth.
Ameren Illinois received a $350 million capital contribution from Ameren parent during the first six months. Ameren issued $800 million of 3.50% senior unsecured notes due 2031, and Ameren Missouri issued $465 million of 2.95% first mortgage bonds due 2030.

Guidance, Outlook, Risks, and Unusual Items

Management expects Ameren Missouri's net electric sales volumes, excluding weather and energy-efficiency effects, to decline approximately 2.5% for calendar 2020. The projected decline for July through December is expected to reduce diluted EPS by approximately $0.05.
A 1% change in annual Ameren Missouri sales volumes was estimated to affect diluted EPS by approximately $0.03 for residential customers, $0.02 for commercial customers, and $0.005 for industrial customers.
Ameren expects to invest up to $16.6 billion in capital expenditures from 2020 through 2024, including up to $8.4 billion at Ameren Missouri, $8.0 billion at Ameren Illinois, and $0.2 billion at ATXI. Ameren Missouri's Smart Energy Plan contemplated approximately $7.6 billion of investment from 2020 through 2024.
Two Ameren Missouri wind projects, totaling up to 700 megawatts and representing approximately $1.2 billion of capital expenditures, were delayed by supply-chain issues. Most of the projects are expected to be in service by year-end 2020; approximately $100 million of the 300-megawatt project was expected in the first quarter of 2021.
Ameren expects approximately $40 million of maintenance costs for the fall 2020 Callaway refueling outage. These costs are being deferred as a regulatory asset and amortized after the outage.
Ameren Illinois requested a $96 million annual natural-gas delivery revenue increase; ICC staff recommended $67 million. A decision was expected by January 2021, with rates expected in February 2021. Ameren Illinois also filed for an electric distribution rate reduction, with ICC staff recommending a $53 million reduction effective January 2021.
The COVID-19 pandemic reduced sales volumes and customer collections and increased past-due or deferred-payment receivables. At June 30, 2020, such balances represented 26% of Ameren trade receivables, or $132 million, compared with 17%, or $83 million, a year earlier. Ameren Missouri had $42 million and Ameren Illinois had $90 million in such balances.
Customer disconnections and late fees were suspended during the pandemic and resumed at different times during the third quarter. Ameren Missouri lacks a bad-debt recovery rider, leaving its earnings more exposed to customer nonpayment.
The FERC ROE order resulted in $13 million of income for Ameren and $7 million for Ameren Illinois in Q2. Recorded regulatory liabilities for expected refunds, including interest, were $23 million for Ameren and $11 million for Ameren Illinois. The companies appealed related FERC decisions.
A Clean Air Act case involving Rush Island and Labadie energy centers could require approximately $1 billion of Rush Island pollution-control capital expenditures and $30 million to $50 million of annual operating costs. The matter remains under appeal and is stayed.
Ameren Illinois estimated remaining obligations for former manufactured-gas-plant remediation at $121 million to $190 million and recorded a $121 million liability.
Management expects dividend payout to be between 55% and 70% of annual earnings over the next few years. Ameren plans to settle a forward sale agreement for 7.5 million shares by March 31, 2021, potentially generating $540 million to $550 million.

Important Facts for Investors to Verify

Whether COVID-19-related reductions in Ameren Missouri sales volumes, customer collections, bad debt, and deferred-payment arrangements persist or worsen.
The final outcomes of Ameren Illinois rate proceedings, FERC ROE and transmission formula-rate appeals, and related refund obligations.
The timing, cost, and regulatory recovery of the two Ameren Missouri wind projects and the Callaway outage.
The potential cost and rate-recovery implications of the Rush Island and Labadie Clean Air Act litigation and other environmental requirements.
Ameren's ability to fund planned capital expenditures and dividends while operating cash flow remains below investment needs, including the timing and dilution effects of planned equity issuance.
Future credit-market access, credit ratings, interest costs, and liquidity under prolonged economic or capital-market disruption.