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Ameren Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 10, 2012 12:22PM
Ameren Corp. (AEE) filed Quarterly Report for the period ended 2012-03-31.
Highlight of Business Operations:Ameren reported a net loss of $403 million for the first quarter of 2012, compared with net income of $71 million for the first quarter of 2011. The net loss during the first quarter of 2012 was primarily caused by a noncash asset impairment charge related to Merchant Generations Duck Creek energy center, which reduced pretax earnings by $628 million. The asset impairment charge was triggered by a sharp decline during the first quarter of 2012 in the observable market prices for power for delivery in the current year and in future years. Additionally, there was a noncash quarterly reduction in the income tax benefit, recognized in conjunction with the Duck Creek energy center asset impairment, as a result of the combination of seasonally low first quarter earnings and the requirement to recognize income tax expense using the annual estimated effective income tax rate. This reduction in the recognized income tax benefit decreased net income by $85 million in the first quarter of 2012; however, this item is projected to fully reverse over the balance of 2012. Lower regulated utility electric and natural gas sales caused by warmer winter weather, as well as decreased margins at the Merchant Generation segment caused by reduced generation volumes due to lower market prices for power during the first quarter of 2012, also reduced earnings compared to the prior year. Mitigating the impact of these factors in the first quarter of 2012 were increased Ameren Missouri electric rates, increased Ameren Illinois natural gas rates, and lower other operations and maintenance expenses, including reduced major storm-related costs.
Ameren Illinois electric margins increased by $10 million, or 4%, in the three months ended March 31, 2012, compared with the same period in 2011 primarily because of increased revenues due to the estimated adjustment resulting from the reconciliation of the annual revenue requirement, pursuant to the IEIMA, to actual costs, which increased margins by $12 million.
Ameren Illinois natural gas margins decreased by $8 million, or 7%, in the three months ended March 31, 2012, compared with the same period in 2011. Ameren Illinois' natural gas margins were unfavorably affected by weather conditions in 2012 that were mild compared to a somewhat colder-than-normal 2011, as evidenced by a 28% decrease in heating degree-days, which decreased revenues by an estimated $10 million.
margins were favorably affected by higher average sales prices under its power supply agreement (Genco PSA) with Marketing Company due primarily to higher-priced physical sales contracts executed at prices that were at a premium to the spot market representing a greater portion of the generation portfolio of sales in addition to a higher portion of spot sales in 2012 that were financially hedged at prices that represented a premium to the spot market when compared to 2011, which increased revenues by $13 million. The combined impact on Genco of both power supply agreements reduced revenues by $1 million.
Any adverse change in the Ameren Companies credit ratings may reduce access to capital and trigger additional collateral postings and prepayments. Such changes may also increase the cost of borrowing and fuel, power, and natural gas supply, among other things, resulting in a negative impact on earnings. Cash collateral postings and prepayments made with external parties including postings related to exchange-traded contracts at March 31, 2012, were $162 million, $11 million, $114 million, and $- million at Ameren, Ameren Missouri, Ameren Illinois, and Genco, respectively. Cash collateral posted by external counterparties with Ameren, Ameren Missouri, and Ameren Illinois was $12 million, $2 million, and $7 million, respectively, at March 31, 2012. Sub-investment-grade issuer or senior unsecured debt ratings (lower than BBB- or Baa3) at March 31, 2012, could have resulted in Ameren, Ameren Missouri, Ameren Illinois or Genco being required to post additional collateral or other assurances for certain trade obligations amounting to $380 million, $142 million, $111 million, and $61 million, respectively.