Ameren Corporation 2014 Q2 Form 10-Q Summary
Business context and reporting period
Combined unaudited quarterly filing for Ameren Corporation, Union Electric Company doing business as Ameren Missouri, and Ameren Illinois Company for the quarter and six months ended June 30, 2014. Ameren operates rate-regulated electric generation, transmission and distribution businesses and natural gas transmission and distribution businesses in Missouri and Illinois. Results exclude divested merchant-generation operations presented as discontinued operations.
Key financial metrics
| Ameren Corporation | Three months ended June 30, 2014 | Three months ended June 30, 2013 | Six months ended June 30, 2014 | Six months ended June 30, 2013 |
|---|---|---|---|---|
| Operating revenues | $1,419 million | $1,403 million | $3,013 million | $2,878 million |
| Operating income | $322 million | $261 million | $568 million | $446 million |
| Net income attributable to Ameren | $149 million | $95 million | $245 million | $(50) million |
| Continuing-operations EPS, basic | $0.62 | $0.44 | $1.02 | $0.66 |
| Basic EPS | $0.61 | $0.39 | $1.01 | $(0.21) |
| Dividends per share | $0.40 | $0.40 | $0.80 | $0.80 |
Operating margin was approximately 22.7% in the second quarter versus 18.6% in the prior-year quarter, and approximately 18.8% for the six months versus 15.5%. Net margin attributable to Ameren was approximately 10.5% in the second quarter versus 6.8% in the prior-year quarter.
- Second-quarter electric margin increased $32 million, or 4%, and natural-gas margin increased $2 million, or 2%.
- Six-month electric margin increased $98 million, or 6%, and natural-gas margin increased $29 million, or 11%.
- Continuing-operations earnings increased by $45 million in the quarter and $88 million for the six months.
- Six-month net cash provided by operating activities was $654 million, including $658 million from continuing operations, versus $768 million and $729 million, respectively, in 2013.
- Six-month capital expenditures were $883 million versus $575 million in 2013; total investing cash outflow was $770 million.
- Cash and cash equivalents were $46 million at June 30, 2014, versus $30 million at December 31, 2013.
Debt and liquidity
- Ameren consolidated short-term debt was $793 million at June 30, 2014, versus $368 million at year-end 2013. Long-term debt, net, was $5.825 billion versus $5.504 billion.
- Ameren had $2.1 billion of committed credit capacity under agreements expiring in November 2017, with approximately $1.3 billion available after commercial paper and letters of credit.
- Debt-to-total-capitalization covenant ratios were 50% for Ameren, 50% for Ameren Missouri, and 45% for Ameren Illinois, below the 65% covenant limit. Ameren’s funds-from-operations-to-interest ratio was 6.0x versus a 2.0x minimum.
- Ameren, Ameren Missouri, and Ameren Illinois were in compliance with applicable credit agreements and other debt covenants. Management stated that liquidity was adequate, although cash from capital expenditures and dividends is expected to exceed operating cash flow over the next several years.
Material changes versus the prior comparable period
- Results benefited from colder winter weather and warmer early-summer weather, the absence of the 2013 Callaway refueling outage, the absence of the 2013 Ameren Missouri FAC prudence-review charge, higher Illinois and transmission rates, lower interest expense, and lower costs associated with the divested merchant-generation business.
- Ameren Missouri operating and maintenance expense decreased $31 million in the quarter and $25 million for the six months, primarily because the 2013 Callaway outage did not recur. The next Callaway outage was scheduled for the fourth quarter of 2014.
- Ameren Illinois’s second-quarter electric margin decreased $10 million, or 3%, because of formula-ratemaking revenue timing and a $4 million reserve for a potential FERC transmission refund. Its six-month electric margin nevertheless increased $29 million, or 6%.
- Ameren Illinois natural-gas margin increased $3 million in the quarter and $29 million for the six months, supported by higher rates and colder weather.
- The prior-year six-month results included a $209 million after-tax loss from discontinued operations, including a $168 million pretax impairment charge related to New AER. The 2014 six-month discontinued-operations loss was $2 million.
- Ameren Missouri issued $350 million of 3.50% senior secured notes due 2024. Ameren Illinois issued $250 million of 4.30% senior secured notes due 2044. Ameren parent repaid $425 million of 8.875% notes at maturity, and Ameren Illinois redeemed $163 million of pollution-control bonds.
Guidance, outlook, risks, and unusual items
- No formal consolidated earnings guidance is provided in the filing. Ameren expects a common-dividend payout ratio of approximately 55% to 70% of earnings over the next few years and declared a quarterly dividend of $0.40 per share payable September 30, 2014.
- Ameren Missouri filed for a $264 million annual electric revenue increase, including recovery of higher net energy costs and infrastructure investment. A regulatory decision was expected by May 2015, with rates potentially effective in June 2015.
- Ameren Illinois’s pending 2015 electric delivery formula-rate filing, as revised, contemplated a $205 million increase in annual revenue requirements beginning January 2015, subject to ICC approval.
- The proposed EPA Clean Power Plan could require new or accelerated investment and higher fuel costs. Ameren Missouri estimated that compliance could require approximately $2 billion of combined-cycle and renewable-generation investment by 2020, although the proposal remained subject to finalization and litigation.
- Environmental compliance investments under existing regulations were estimated at $325 million to $375 million through 2018, excluding the proposed Clean Power Plan.
- Pending regulatory and legal matters include the Ameren Missouri rate and earnings complaints, Illinois rate appeals, potential FERC transmission refunds, a MISO return-on-equity complaint, EPA Clean Air Act litigation, environmental remediation, asbestos litigation, and the Taum Sauk insurance claim.
- Ameren Illinois estimated a maximum pretax exposure of $19 million through December 31, 2014 for a potential FERC transmission refund, before interest. A $4 million reduction to electric revenue was recorded in the quarter.
- Ameren Missouri held a $41 million insurance receivable related to Taum Sauk litigation after receiving a $27 million settlement from other insurers. Collection of the remaining receivable was not assured.
- Ameren had $147 million of unrecorded guarantees supporting New AER and $9 million of related letters of credit. The filing states that payment was not considered probable at June 30, 2014.
- Ameren Missouri had $69 million of capitalized costs related to potential additional nuclear generation at Callaway. These costs could be charged to earnings if the project is abandoned or deemed unlikely to be recoverable in rates.
Important facts for investors to verify
- Whether the requested Ameren Missouri and Ameren Illinois rate increases are approved, at what amounts, and when they become effective.
- The outcome and potential refund exposure from the FERC transmission and MISO return-on-equity proceedings.
- The final form, timing, and cost-recovery treatment of the Clean Power Plan and other environmental rules.
- The timing and earnings impact of the fourth-quarter 2014 Callaway refueling outage.
- Ameren’s ability to fund elevated capital expenditures and dividends while relying increasingly on commercial paper.
- Collection of the $41 million Taum Sauk insurance receivable and the risk associated with New AER guarantees and letters of credit.
- Changes in weather, customer demand, commodity prices, interest rates, credit ratings, and regulatory recovery mechanisms.