Business Context and Reporting Period
Ameren Corporation, together with Union Electric Company (Ameren Missouri) and Ameren Illinois Company, filed a combined unaudited Form 10-Q for the three months ended March 31, 2015. Ameren is a regulated utility holding company with electric generation, transmission, and distribution operations and natural-gas transmission and distribution operations in Missouri and Illinois, including FERC-regulated transmission investments through ATXI.
Financial Performance and Position
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Operating revenues | $1,556 million | $1,594 million | Down $38 million |
| Operating income | $256 million | $246 million | Up $10 million |
| Income from continuing operations | $110 million | $99 million | Up $11 million |
| Net income attributable to Ameren | $108 million | $96 million | Up $12 million |
| Basic EPS from continuing operations | $0.45 | $0.40 | Up $0.05 |
| Operating margin | 16.5% | 15.4% | Improved |
| Operating cash flow | $298 million | $239 million | Up $59 million |
| Capital expenditures and nuclear fuel | $434 million | $452 million | Down $18 million |
| Dividends per common share | $0.41 | $0.40 | Up $0.01 |
Electric revenue increased to $1,143 million from $1,106 million, while gas revenue declined to $413 million from $488 million. Electric margins increased $10 million to $798 million, while natural-gas margins decreased $7 million to $177 million. The filing does not present a consolidated net margin measure; based on net income attributable to Ameren and operating revenues, the approximate net margin was 6.9% in Q1 2015 versus 6.0% in Q1 2014.
- Ameren Missouri net income was $42 million, down from $48 million. Electric margins declined $13 million, primarily because of milder weather and lower sales volumes associated partly with energy-efficiency programs.
- Ameren Illinois net income was $54 million, unchanged from the prior year. Electric margins increased $16 million, but natural-gas margins decreased $7 million.
- Other operations and maintenance expense decreased $17 million, while depreciation and amortization increased $12 million. Interest expense decreased $4 million overall, although it increased at both operating subsidiaries.
- Cash and cash equivalents were $6 million at March 31, 2015, compared with $5 million at December 31, 2014. Total assets were $22.884 billion and total equity was $6.846 billion.
- Long-term debt, including current maturities, was approximately $6.240 billion at March 31, 2015. Consolidated commercial paper outstanding increased to $955 million from $714 million at year-end.
Cash Flow, Debt, and Liquidity
- Continuing-operations operating cash flow increased to $297 million from $239 million, primarily reflecting higher collections of customer commodity costs, receivables, and regulatory reconciliation amounts.
- Cash used in continuing-operations investing activities was $439 million, including $417 million of capital expenditures and $17 million of nuclear fuel expenditures.
- Financing activities provided $142 million, principally from $241 million of net short-term debt issuance, partly offset by $99 million of common dividends.
- The companies had $2.1 billion of aggregate credit capacity under the 2012 credit agreements, of which approximately $1.1 billion was available at March 31, 2015. The companies were in compliance with applicable covenants.
- Ameren expects capital expenditures of up to $9.3 billion during 2015–2019, including up to $3.9 billion for Ameren Missouri, $4.0 billion for Ameren Illinois, and $1.4 billion for ATXI.
Material Changes Versus the Prior Comparable Period
- Ameren’s earnings growth was driven by additional rate-base investment and formula-ratemaking benefits at Ameren Illinois and ATXI, a favorable Ameren Illinois purchased-power reconciliation order, lower non-formula-rate O&M expense, and lower parent-company interest expense.
- Results were adversely affected by milder winter weather, lower demand from energy-efficiency programs, lower recognized returns on equity, higher depreciation and amortization, and higher Ameren Missouri financing costs.
- Ameren Illinois recorded a $15 million increase to electric revenue related to an ICC order resolving cumulative power-usage costs under its purchased-power rider.
- Ameren Missouri received a $224 million capital contribution from Ameren in March 2015 and paid $315 million of dividends to its parent, compared with $77 million in the prior-year quarter.
- Ameren’s asset-retirement obligation increased by $104 million during the quarter, primarily because of a $99 million change in Ameren Missouri’s Callaway decommissioning estimate.
Guidance, Outlook, Risks, and Unusual Items
- In April 2015, the MoPSC approved a $122 million annual Ameren Missouri electric revenue increase, effective May 30, 2015, based on a 9.53% allowed return on equity and a $7.0 billion rate base. Ameren Missouri intends to seek rehearing on aspects of the order.
- Ameren Illinois’ April 2015 electric formula-rate filing would increase its annual revenue requirement by $110 million beginning in January 2016, subject to ICC approval. Its pending natural-gas rate case requests a $53 million annual increase, with a decision expected by December 2015.
- Ameren Missouri proposed investing $135 million in customer energy-efficiency programs during 2016–2018, subject to regulatory approval.
- FERC proceedings could reduce the currently allowed 12.38% MISO transmission return on equity. A 50-basis-point reduction was estimated to reduce 2015 earnings by approximately $4 million for Ameren and $2 million for Ameren Illinois. A separate settlement would require an $8 million transmission-customer refund if approved.
- Environmental regulations, including greenhouse-gas, coal-combustion-residual, air-emissions, and cooling-water rules, could require substantial additional investment. The proposed Clean Power Plan could require approximately $2 billion of additional Ameren Missouri generation investment by 2020 if implemented substantially as proposed.
- Ameren Missouri had $69 million of capitalized costs related to potential additional nuclear generation at Callaway. These costs could be charged to earnings if licensing efforts are abandoned, the suspended license application is not extended, or rate recovery becomes unlikely.
- Ameren Missouri’s $41 million insurance receivable related to the Taum Sauk reservoir breach remains subject to litigation and collection risk.
- Ameren Illinois estimated obligations for remediation of former manufactured-gas-plant sites at $245 million to $314 million and recorded the $245 million minimum estimate.
- Ameren had $105 million of guarantees outstanding and $9 million of letters of credit supporting divested New AER operations; credit-support obligations are generally scheduled to end December 2, 2015.
- In April 2015, Ameren Missouri issued $250 million of 3.65% senior secured notes due 2045. Proceeds were used to repay short-term debt and fund repayment of $114 million of notes maturing April 1, 2015.
Most Important Facts for Investors to Verify
- Implementation and potential rehearing or appeal of the MoPSC’s April 2015 Ameren Missouri rate order.
- Results of the FERC MISO return-on-equity complaint proceedings and approval of the Ameren Illinois transmission-refund settlement.
- ICC decisions on Ameren Illinois’ 2015 natural-gas rate case and 2016 electric formula-rate update.
- Actual capital spending, financing needs, and credit availability relative to the $9.3 billion 2015–2019 investment plan.
- Regulatory recovery and timing of costs associated with environmental compliance, including the Clean Power Plan and CCR requirements.
- Collection of the $41 million Taum Sauk insurance receivable and resolution of related litigation.
- Potential earnings impact from weather, energy-efficiency-driven demand reductions, Treasury yields, commodity prices, and changes in allowed returns on equity.