AMEREN CORP annual report, FY2011

Ameren Corporation 2011 Form 10-K Summary

Business context and reporting period

Ameren Corporation is a regulated utility holding company with electric and natural-gas operations in Missouri and Illinois, plus merchant generation operations through Ameren Energy Resources. The combined Form 10-K covers the fiscal year ended December 31, 2011, with comparative 2010 and 2009 information. The filing also includes fourth-quarter results, but it is an annual report rather than a quarterly filing.

Ameren Missouri: regulated electric generation, transmission and distribution, and regulated natural-gas operations.
Ameren Illinois: regulated electric and natural-gas transmission and distribution.
Merchant Generation: primarily coal-fired generation in Illinois, exposed to wholesale power prices and environmental-compliance costs.

Key financial metrics

Metric	2011	2010	Change
Operating revenues	$7.531 billion	$7.638 billion	Down $107 million
Operating income	$1.241 billion	$916 million	Up $325 million
Net income attributable to Ameren	$519 million	$139 million	Up $380 million
Basic and diluted EPS	$2.15	$0.58	Up $1.57
Net cash from operating activities	$1.878 billion	$1.823 billion	Up $55 million
Capital expenditures	$1.030 billion	$1.042 billion	Down $12 million
Common dividends paid	$375 million	$368 million	Up $7 million
Long-term debt, excluding current maturities	$6.677 billion	$6.853 billion	Down $176 million

Ameren’s 2011 operating margin was approximately 16.5%, compared with approximately 12.0% in 2010. Net income included $125 million of goodwill, impairment and other charges, compared with $589 million in 2010. The filing does not present a single consolidated EBITDA measure.

Electric operating revenues were $6.530 billion, broadly stable with 2010.
Gas operating revenues declined to $1.001 billion from $1.117 billion, reflecting lower sales volumes and weather effects.
Electric margins declined $95 million, or 2%, primarily because of lower Merchant Generation prices, reduced sales volumes, weaker wholesale sales, and unfavorable mark-to-market activity.
Natural-gas margins declined $17 million, or 4%.
Ameren Missouri generated $1.056 billion of operating cash flow and spent $550 million on capital expenditures.
Ameren Illinois generated $504 million of operating cash flow and spent $351 million on capital expenditures.
Genco generated $215 million of operating cash flow and spent $141 million on capital expenditures.

Liquidity, debt and balance-sheet position

Cash and cash equivalents were $255 million at December 31, 2011, compared with $545 million at year-end 2010.
Available liquidity, including cash and undrawn credit facilities, was approximately $2.2 billion, up approximately $300 million from year-end 2010.
Committed credit agreements provided $2.1 billion of capacity through September 2013; approximately $1.937 billion was available after commercial paper and letters of credit.
Ameren had $148 million of commercial paper outstanding and $15 million of letters of credit outstanding at year-end.
Ameren repaid $581 million of short-term debt and credit-facility borrowings and redeemed $155 million of long-term debt during 2011.
Consolidated contractual obligations totaled approximately $20.8 billion, including debt, interest, leases and other obligations.
The companies reported compliance with applicable debt covenants. Genco’s debt-to-capital ratio was 43%, but management projected that its interest-coverage ratio could fall below the threshold for additional external borrowing by the end of the first quarter of 2013.

Material changes versus the prior comparable period

Net income increased substantially because 2010 included $589 million of impairment and other charges, including $420 million of goodwill impairment in Merchant Generation. The 2011 charge was $125 million.
Ameren Missouri recorded an $89 million pretax charge after the MoPSC disallowed recovery of certain Taum Sauk rebuilding costs.
Genco and Ameren recorded $34 million of charges related to the closure of the Meredosia and Hutsonville energy centers. The closures eliminated 90 positions.
Merchant Generation returned to profitability attributable to Ameren, reporting $45 million of net income in 2011 versus a $409 million loss in 2010, primarily because of the absence of large 2010 impairments. Underlying margins nevertheless declined because of lower power prices and higher fuel costs.
Ameren Missouri’s operating income declined to $609 million from $711 million, and net income available to common stockholders declined to $287 million from $364 million, despite higher electric rates.
Ameren Illinois’ operating income declined to $458 million from $498 million, while net income available to common stockholders declined to $193 million from $248 million.
Operating cash flow improved modestly, helped by recovery of Ameren Missouri’s fuel and purchased-power under-recovery, lower collateral postings and working-capital benefits. Higher pension and postretirement contributions, storm costs and lower margins offset part of the benefit.
The company reduced debt and credit-facility reliance while maintaining capital expenditures near $1 billion.

Guidance, outlook, commentary and unusual items

Management projected 2012–2016 capital expenditures of approximately $6.475 billion to $8.265 billion, including up to $3.625 billion at Ameren Missouri, up to $3.265 billion at Ameren Illinois and up to $450 million in Merchant Generation.
Ameren Illinois elected to participate in Illinois performance-based formula ratemaking. Its initial filing was expected to reduce annual electric delivery revenues by $19 million pending ICC approval, while the framework is intended to improve cost recovery and support infrastructure investment.
Ameren Illinois was required to invest an incremental $625 million from 2012 through 2021 to modernize its electric distribution system, create approximately 450 jobs and make specified nonrecoverable contributions.
Ameren Missouri filed for a $376 million annual electric revenue increase in February 2012 and proposed a three-year, $145 million energy-efficiency program under MEEIA. Decisions were expected in 2012.
Ameren Illinois received a January 2012 order approving a $32 million annual natural-gas delivery revenue increase.
Management expected transmission investment of approximately $1.7 billion during 2012–2016. Three MISO-approved transmission projects were expected to require more than $1.2 billion through 2019.
Forward power prices declined in early 2012 because of lower natural-gas prices and the stay of CSAPR. Genco delayed completion of its Newton scrubber project and AERG removed planned precipitator upgrades from its five-year plan, reducing projected capital needs by approximately $270 million through 2014.
Merchant Generation expected approximately 27 million megawatthours of 2012 generation, compared with 32.5 million megawatthours of available coal-fired generation capacity. Marketing Company had hedged approximately 25 million megawatthours for 2012 at an average price of $44 per megawatthour as of January 31, 2012.
Ameren expected annual pension contributions of $90 million to $150 million over the next five years, with estimated aggregate contributions of $580 million.
Ameren completed the sale of the Medina Valley energy center in February 2012 for $16 million; management did not expect a material effect on 2012 results.

Principal risks, contingencies and unusual items

Regulatory recovery: Rate cases, prudency reviews, appeals and regulatory lag could delay or prevent recovery of costs and investment returns. The filing identified possible additional Ameren Missouri FAC refunds of approximately $25 million.
Taum Sauk: Ameren Missouri had $68 million of remaining liability-insurance claims at year-end, subject to litigation and insurance recovery risk.
Environmental compliance: CSAPR, MATS, CCR, greenhouse-gas rules, Clean Water Act requirements and other regulations could require substantial capital spending, higher operating costs, generation reductions, asset impairments or plant closures.
Environmental litigation: EPA litigation concerning Rush Island and Notices of Violation involving other coal plants could lead to penalties and pollution-control investments; the filing states that loss was reasonably possible but not probable, so no reserve was recorded.
Merchant power exposure: Genco and other Merchant Generation operations remain exposed to volatile power prices, fuel costs, capacity-market design and transmission constraints.
Genco financing: Projected interest-coverage deterioration could restrict Genco’s ability to incur additional external debt and pay dividends.
Pension and postretirement obligations: The consolidated balance sheet reflected $1.344 billion of pension and postretirement liabilities, and funding needs are sensitive to discount rates, investment returns and medical-cost trends.
Other contingencies: The filing discusses nuclear waste disposal, Callaway relicensing, Taum Sauk litigation, asbestos claims, manufactured-gas-plant remediation, tax disputes and counterparty collateral requirements.
Accounting and reporting: The parent-only condensed cash-flow statements for 2010 and 2009 were restated for an intercompany-notes classification error. Genco also corrected its 2010 cash-flow classification; neither correction affected Ameren’s consolidated cash flows.

Most important facts for an investor to verify

Whether Ameren Missouri’s $376 million electric rate request, MEEIA filing and FAC prudency proceedings produced the expected recovery.
Whether Ameren Illinois’ formula-ratemaking filings delivered the anticipated earnings and cash-flow stability without triggering the residential-rate termination provision.
The final resolution and cash recovery of the $68 million Taum Sauk insurance claims and the $89 million regulatory disallowance appeal.
The ultimate form and cost of environmental rules, particularly CSAPR, MATS, CCR and cooling-water requirements, and their effect on coal-plant operations and impairments.
Whether Merchant Generation power prices, hedging results and capacity-market reforms support positive free cash flow.
Genco’s projected interest-coverage ratio, access to external borrowing and restrictions on dividends.
Ameren’s ability to fund projected capital expenditures, pension contributions and debt maturities while maintaining credit ratings and dividend capacity.
The scale and recoverability of regulatory assets, including $1.603 billion of noncurrent regulatory assets at year-end 2011.