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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Transition Period From to
Commission file number 1-14756.
AMEREN CORPORATION
(Exact name of registrant as specified in its charter)
Missouri 43-1723446
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Chouteau Avenue, St. Louis, Missouri 63103
(Address of principal executive offices and Zip Code)
Registrant's telephone number,
including area code: (314) 621-3222
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
--------------- -------------
Shares outstanding of each of registrant's classes of common stock as of August
9, 2002: Common Stock, $.01 par value - 144,946,829
AMEREN CORPORATION
INDEX
Page
----
PART I. Financial Information
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheet at June 30, 2002 and
December 31, 2001......................................... 2
Consolidated Statement of Income for the three and
six months ended June 30, 2002 and 2001................... 3
Consolidated Statement of Cash Flows for the
six months ended June 30, 2002 and 2001................... 4
Consolidated Statement of Common Stockholders' Equity
for the three and six months ended June 30, 2002
and 2001.................................................. 5
Notes to Consolidated Financial Statements................ 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 14
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 23
PART II. Other Information
ITEM 1. Legal Proceedings......................................... 26
ITEM 4. Submission of Matters to a Vote of Security Holders....... 27
ITEM 5. Other Information......................................... 27
ITEM 6. Exhibits and Reports on Form 8-K.......................... 28
SIGNATURE............................................................... 30
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
AMEREN CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited, in millions, except per share amounts)
June 30, December 31,
2002 2001
--------- ------------
ASSETS:
Property and plant, at original cost:
Electric $ 14,093 $ 13,664
Gas 545 532
Other 143 105
-------- --------
14,781 14,301
Less accumulated depreciation and amortization 6,708 6,535
-------- --------
8,073 7,766
Construction work in progress:
Nuclear fuel in process 114 97
Other 437 564
-------- --------
Total property and plant, net 8,624 8,427
-------- --------
Investments and other assets:
Investments 38 39
Nuclear decommissioning trust fund 175 187
Other 160 114
-------- --------
Total investments and other assets 373 340
-------- --------
Current assets:
Cash and cash equivalents 150 67
Accounts receivable - trade (less allowance for
doubtful accounts of $11 and $9, respectively) 272 218
Unbilled revenue 233 171
Other accounts and notes receivable 29 71
Materials and supplies, at average cost -
Fossil fuel 133 159
Other 130 136
Other 29 41
-------- --------
Total current assets 976 863
-------- --------
Regulatory assets:
Deferred income taxes 579 604
Other 158 167
-------- --------
Total regulatory assets 737 771
-------- --------
Total Assets $ 10,710 $ 10,401
======== ========
CAPITAL AND LIABILITIES:
Capitalization:
Common stock, $.01 par value, 400.0 shares
authorized - shares outstanding of 144.8 and
138.0, respectively $ 1 $ 1
Other paid-in capital, principally premium on
common stock 1,826 1,614
Retained earnings 1,725 1,733
Accumulated other comprehensive income 3 5
Other (10) (4)
-------- --------
Total common stockholders' equity 3,545 3,349
-------- --------
Preferred stock not subject to mandatory redemption 235 235
Long-term debt 3,509 2,835
-------- --------
Total capitalization 7,289 6,419
-------- --------
Minority interest in consolidated subsidiaries 13 4
Current liabilities:
Current maturities of long-term debt 185 139
Short-term debt 4 641
Accounts and wages payable 253 392
Accumulated deferred income taxes 56 58
Taxes accrued 239 132
Other 252 219
-------- --------
Total current liabilities 989 1,581
-------- --------
Accumulated deferred income taxes 1,534 1,563
Accumulated deferred investment tax credits 154 158
Regulatory liabilities 170 172
Other deferred credits and liabilities 561 504
-------- --------
Total Capital and Liabilities $ 10,710 $ 10,401
======== ========
See Notes to Consolidated Financial Statements.
AMEREN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited, in millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2002 2001 2002 2001
OPERATING REVENUES:
Electric $ 1,058 $ 1,026 $ 2,042 $ 1,861
Gas 47 29 172 215
Other 6 2 12 5
-------- -------- -------- --------
Total operating revenues 1,111 1,057 2,226 2,081
-------- -------- -------- --------
OPERATING EXPENSES:
Operations
Fuel and purchased power 326 366 766 669
Gas 27 15 112 151
Other 203 179 385 345
-------- -------- -------- --------
556 560 1,263 1,165
Maintenance 103 130 187 218
Depreciation and amortization 106 101 213 199
Income taxes 73 61 111 110
Other taxes 69 60 137 128
-------- -------- -------- --------
Total operating expenses 907 912 1,911 1,820
-------- -------- -------- --------
OPERATING INCOME 204 145 315 261
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction - 2 2 4
Miscellaneous, net -
Miscellaneous income 5 2 8 4
Miscellaneous expense (39) (5) (43) (8)
-------- -------- -------- --------
Total other income and (deductions) (34) (1) (33) -
-------- -------- -------- --------
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest 53 48 105 98
Allowance for borrowed funds used during construction (1) (2) (3) (3)
Preferred dividends of subsidiaries 3 3 6 6
-------- -------- -------- --------
Net interest charges and preferred dividends 55 49 108 101
-------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 115 95 174 160
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, NET OF INCOME TAXES - - - (7)
-------- -------- -------- --------
NET INCOME $ 115 $ 95 $ 174 $ 153
======== ======== ======== ========
EARNINGS PER COMMON SHARE - BASIC AND DILUTED:
Income before cumulative effect of change
in accounting principle $ 0.80 $ 0.69 $ 1.22 $ 1.17
Cumulative effect of change in accounting
principle, net of income taxes -- -- -- (0.05)
-------- -------- -------- --------
Earnings per Common Share - Basic and Diluted $ 0.80 $ 0.69 $ 1.22 $ 1.12
======== ======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING 144.4 137.2 142.1 137.2
See Notes to Consolidated Financial Statements.
3
AMEREN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in millions)
Six Months Ended
June 30,
----------------
2002 2001
Cash Flows From Operating:
Net income $ 174 $ 153
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle - 7
Depreciation and amortization 213 199
Amortization of nuclear fuel 16 12
Amortization of debt issuance costs and
premium/discounts 4 3
Allowance for funds used during construction (5) (7)
Deferred income taxes, net (6) 12
Deferred investment tax credits, net (4) (2)
Other - (12)
Changes in assets and liabilities:
Receivables, net (74) (7)
Materials and supplies 32 (41)
Accounts and wages payable (139) (148)
Taxes accrued 107 78
Assets, other (12) (12)
Liabilities, other 40 (23)
------ ------
Net cash provided by operating activities 346 212
------ ------
Cash Flows From Investing:
Construction expenditures (401) (539)
Allowance for funds used during construction 5 7
Nuclear fuel expenditures (16) (12)
Other 1 -
------ ------
Net cash used in investing activities (411) (544)
------ ------
Cash Flows From Financing:
Dividends on common stock (182) (174)
Capital issuance costs (23) -
Redemptions:
Nuclear fuel lease - (64)
Short-term debt (637) -
Long-term debt (5) (25)
Issuances:
Common stock 269 -
Nuclear fuel lease 6 2
Short-term debt - 244
Long-term debt 720 296
------ ------
Net cash provided by financing activities 148 279
------ ------
Net change in cash and cash equivalents 83 (53)
Cash and cash equivalents at beginning of year 67 126
------ ------
Cash and cash equivalents at end of period $ 150 $ 73
====== ======
Cash paid during the periods:
Interest $ 99 $ 95
Income taxes, net 77 67
See Notes to Consolidated Financial Statements.
4
AMEREN CORPORATION
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
(Unaudited, in millions)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
2002 2001 2002 2001
Common stock $ 1 $ 1 $ 1 $ 1
Other paid-in capital
Beginning balance 1,804 1,581 1,614 1,581
Shares issued (less issuance costs of
$ -, $ -, $9, and $ -, respectively) 23 - 260 -
Contracted stock purchase payment obligations - - (46) -
Employee stock awards (1) - (2) -
-------- -------- -------- --------
1,826 1,581 1,826 1,581
-------- -------- -------- --------
Retained earnings
Beginning balance 1,701 1,585 1,733 1,614
Net income 115 95 174 153
Dividends (91) (87) (182) (174)
-------- -------- -------- --------
1,725 1,593 1,725 1,593
-------- -------- -------- --------
Accumulated other comprehensive income
Beginning balance - (4) 5 -
Change in current period (see below) 3 (2) (2) (6)
-------- -------- -------- --------
3 (6) 3 (6)
-------- -------- -------- --------
Other
Beginning balance (10) (5) (4) -
Restricted stock compensation awards - - (7) (5)
Compensation amortized and mark-to-market adjustments - - 1 -
-------- ------- -------- --------
(10) (5) (10) (5)
-------- ------- -------- --------
Total common stockholders' equity $ 3,545 $ 3,164 $ 3,545 $ 3,164
======== ======== ======== ========
Comprehensive income, net of taxes
Net income $ 115 $ 95 $ 174 $ 153
Unrealized net gain/(loss) on derivative hedging
instruments (net of income taxes of $1, $(2),
$1 and $(2), respectively) 2 (4) 1 (3)
Reclassification adjustments for gains/losses
included in net income (net of income taxes of
$ -, $1, $(2) and $6, respectively) 1 2 (3) 8
Cumulative effect of accounting change, net of
income taxes of $(7) - - - (11)
-------- -------- -------- --------
Total comprehensive income, net of taxes $ 118 $ 93 $ 172 $ 147
======== ======== ======== ========
Common stock shares at beginning of period 144.2 137.2 138.0 137.2
Shares issued for financing purposes - - 5.8 -
Shares issued for dividend reinvestment and stock
purchase plan and 401K plans 0.6 - 1.0 -
-------- -------- -------- --------
Common stock shares at end of period 144.8 137.2 144.8 137.2
======== ======== ======== ========
See Notes to Consolidated Financial Statements.
5
AMEREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2002
NOTE 1 - Summary of Significant Accounting Policies
Basis of Presentation
Our financial statements reflect all adjustments (which include normal,
recurring adjustments) necessary, in our opinion, for a fair presentation of the
interim results. These statements should be read in conjunction with the
financial statements and the notes thereto included in our 2001 Annual Report on
Form 10-K.
When we refer to Ameren, our, we or us, we are referring to Ameren
Corporation on a consolidated basis. In certain circumstances, our subsidiaries
are specifically referenced in order to distinguish among their different
business activities. All dollar amounts are in millions, unless otherwise
indicated.
Earnings Per Share
There was no difference between the basic and diluted earnings per share
amounts for the three and six month periods ended June 30, 2002 and 2001. The
reconciling item in each of the periods was assumed stock option conversions,
which increased the number of shares outstanding in the diluted earnings per
share calculation by 355,420 shares for the three months ended June 30, 2002
(2001 - 401,938) and 353,607 shares for the six months ended June 30, 2002 (2001
- - 366,650).
Accounting Changes
In January 2001, we adopted Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The impact of that adoption resulted in a cumulative effect charge of $7
million, after taxes, to the income statement, and a cumulative effect
adjustment of $11 million after taxes to Accumulated Other Comprehensive Income
(OCI), which reduced common stockholders' equity.
On January 1, 2002, we adopted SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires business
combinations to be accounted for under the purchase method of accounting, which
requires one party in the transaction to be identified as the acquiring
enterprise and for that party to allocate the purchase price to the assets and
liabilities of the acquired enterprise based on fair market value. SFAS 142
requires goodwill and indefinite lived intangible assets recorded in the
financial statements to be tested for impairment at least annually, rather than
amortized over a fixed period, with impairment losses recorded in the income
statement. SFAS 141 and SFAS 142 did not have any effect on our financial
position, results of operations or liquidity upon adoption. SFAS No. 141 and
SFAS No. 142 will be utilized for our acquisition of CILCORP Inc. and AES Medina
Valley (No. 4), L.L.C. See Note 7 - "CILCORP Acquisition."
In July 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. SFAS 143 requires an entity to record a liability and corresponding
asset representing the present value of legal obligations associated with the
retirement of tangible, long-lived assets. SFAS 143 is effective for Ameren on
January 1, 2003. At this time, we are assessing the impact of SFAS 143 on our
financial position, results of operations and liquidity upon adoption. However,
as a result of this new standard we expect significant increases to our reported
assets and liabilities, including those resulting from obligations associated
with our Callaway nuclear plant's decommissioning costs and associated
regulatory rate cost recovery at our regulated subsidiary, Union Electric
Company, known as AmerenUE.
On January 1, 2002 we adopted SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 addresses the financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS 144 retains the guidance related to calculating
and recording impairment losses, but adds guidance on the accounting for
discontinued operations, previously
6
accounted for under Accounting Principles Board Opinion No. 30. We evaluate
long-lived assets for impairment when events or changes in circumstances
indicate that the carrying value of such assets may not be recoverable. The
determination of whether impairment has occurred is based on an estimate of
undiscounted cash flows attributable to the assets, as compared with the
carrying value of the assets. If impairment has occurred, the amount of the
impairment recognized is determined by estimating the fair value of the assets
and recording a provision for loss if the carrying value is greater than the
fair value. SFAS 144 did not have any effect on our financial position, results
of operations or liquidity upon adoption.
Historically, our accounting practice was to present all settled energy
purchase or sale contracts within our power risk management program on a gross
basis in Operating Revenues - Electric and in Operating Expenses - Operations -
Fuel and Purchased Power in our income statement. This means that revenues were
recorded for the notional amount of the power sale contracts with a
corresponding charge to income for the cost of the energy that has been
generated or for the notional amount of a purchased power contract. In June
2002, the Emerging Issues Task Force (or EITF) reached a consensus in Issue
02-03, "Accounting for Contracts Involved in Energy Trading and Risk Management
Activities," that certain energy contracts should be shown on a net basis in the
income statement. The consensus on this issue is applicable to financial
statements for periods ending after July 15, 2002, with a requirement to conform
prior periods to this presentation. As a result of the EITF's accounting
guidance and other factors that exist within our industry, beginning with the
period ending September 30, 2002, we will change our accounting practice to
present, on a net basis in our income statement, all contracts within our power
risk management program that have been net settled. All prior periods included
in our prospective financial statements will be reclassified to reflect this
change in accounting practice. We are still in the process of evaluating the
impact of this change to our income statement, but our revenues and operating
expenses will be reduced in future periods with no impact on our earnings. See
Note 3 - "Derivative Financial Instruments" for additional information.
Interchange Revenues
Interchange revenues included in Operating Revenues - Electric were $174
million for the three months ended June 30, 2002 (2001 - $211 million) and $476
million for the six months ended June 30, 2002 (2001 - $391 million).
Purchased Power
Purchased power included in Operating Expenses, Operations - Fuel and
Purchased Power was $158 million for the three months ended June 30, 2002 (2001
- - $225 million) and $441 million for the six months ended June 30, 2002 (2001 -
$375 million).
Excise Taxes
Excise taxes on Missouri electric and gas, and Illinois gas customer bills
are imposed on us and are recorded gross in Operating Revenues and Other Taxes.
Excise taxes applicable to Illinois electric customer bills are imposed on the
consumer and are recorded as tax collections payable. Excise taxes recorded in
Operating Revenues and Other Taxes for the three and six months ended June 30,
2002 were $30 million (2001- $26 million) and $56 million (2001 - $53 million),
respectively.
NOTE 2 - Rate and Regulatory Matters
Missouri Electric
From July 1, 1995 through June 30, 2001, our subsidiary, AmerenUE, operated
under experimental alternative regulation plans in Missouri that provided for
the sharing of earnings with customers if our regulatory return on equity
exceeded defined threshold levels. After AmerenUE's experimental alternative
regulation plan for its Missouri retail electric customers expired, the Missouri
Public Service Commission (MoPSC) Staff filed an excess earnings complaint
against AmerenUE with the MoPSC in July 2001. In March 2002, the MoPSC Staff
filed a recommendation that AmerenUE reduce its annual Missouri electric
revenues by $246 million to $285 million. The MoPSC Staff's recommendation was
based on a return to
7
traditional cost of service ratemaking, a lowered return on
equity, a reduction in our depreciation rates and other cost of service
adjustments. In May 2002, we filed testimony supporting a rate increase of at
least $150 million and proposed a new alternative regulation plan that included
a rate decrease.
On July 16, 2002, AmerenUE, the MoPSC Staff and all of the other parties to
the proceeding submitted to the MoPSC a stipulation and agreement resolving this
case. On July 24, 2002, the MoPSC held a hearing on the stipulation and
agreement. On July 25, 2002, the MoPSC approved the stipulation and agreement,
and on August 4, 2002, it became effective. The stipulation and agreement
includes the following principal features:
o the phase-in of $110 million of electric rate reductions through April
2004, $50 million of which is retroactively effective as of April 1,
2002, $30 million of which will become effective on April 1, 2003, and
$30 million of which will become effective on April 1, 2004,
o a rate moratorium providing for no requests for changes in AmerenUE's
electric rates as established by the stipulation and agreement before
January 1, 2006 and no resulting changes in rates before June 30,
2006, subject to certain statutory and other exceptions,
o a commitment to contribute as early as September 2002, $14 million to
programs for low income energy assistance and weatherization,
promotion of energy efficiency and economic development in AmerenUE's
service territory, with additional payments of $3 million made
annually on June 30, 2003 through June 30, 2006,
o a commitment to make $2.25 billion to $2.75 billion in critical energy
infrastructure investments from January 1, 2002 through June 30, 2006,
including, among other things, the addition of more than 700 megawatts
of new generation capacity and the replacement of steam generators at
AmerenUE's nuclear power plant. The 700 megawatts of new generation
includes 240 megawatts already added this year and may include the
transfer at book value to AmerenUE of generation assets from our other
non-regulated subsidiaries. The amount of energy infrastructure
investment through June 2006 described in the stipulation and
agreement is consistent with our previously-disclosed estimate of the
construction expenditures we expect to make over the same time period,
o an annual reduction in AmerenUE's depreciation rates by $20 million,
retroactive to April 1, 2002, based on an updated analysis of asset
values, service lives and accumulated depreciation levels, and
o a one-time credit of $40 million to be paid to our Missouri retail
electric customers as early as August 2002 for settlement of the final
sharing period under the alternative regulation plan that expired June
30, 2001. At June 30, 2002, we had accrued $40 million in Current
Liabilities - Other.
In total, the stipulation and agreement is estimated to reduce 2002 net
earnings by $32 million, or 22 cents per share. Net earnings are expected to be
reduced in 2002 due to the rate reduction ($26 million, net of taxes, or 18
cents per share, including $8 million, net of taxes, or 6 cents per share in the
quarter ended June 30, 2002), the expensing in the quarter ended June 30, 2002
of the entire obligation to fund certain programs ($15 million, net of taxes, or
10 cents per share), offset, in part, by the reduction in depreciation expense
($9 million, net of taxes, 6 cents per share, including $3 million, net of
taxes, or 2 cents per share in the quarter ended June 30, 2002). Net earnings
were reduced by $20 million, or 14 cents per share in the quarter ended June 30,
2002 due to the stipulation and agreement. We expect earnings to be reduced by
$9 million (6 cents per share) in the third quarter of 2002 and $3 million (2
cents per share) in the fourth quarter of 2002.
In order to satisfy AmerenUE's regulatory load requirements for 2001,
AmerenUE purchased, under a one year contract, 450 megawatts of capacity and
energy from another of our subsidiaries, AmerenEnergy Marketing Company
(Marketing Company) (the 2001 Marketing Company - AmerenUE agreement). This
agreement was entered into through a competitive bidding process and reflected
market-based rates. For 2002, AmerenUE similarly entered into a one year
contract with Marketing Company for the purchase of 200 megawatts of capacity
and energy (the 2002 Marketing Company - AmerenUE agreement). For the four
summer months of 2002, AmerenUE also entered into contracts with two other power
suppliers for an aggregate 200 megawatts of additional capacity and energy.
In May 2001, the MoPSC filed a complaint with the Securities and Exchange
Commission (SEC) relating to the 2001 Marketing Company - AmerenUE agreement.
The complaint requested an investigation into the contractual relationship
between AmerenUE, Marketing Company and AmerenEnergy Generating Company
(Generating Company), also our subsidiary, in the context of the
8
2001 Marketing Company - AmerenUE agreement and requests that the SEC find that
such relationship violates a provision of the Public Utility Holding Company Act
of 1935 (or PUHCA), which requires state utility commission approval of power
sales contracts between an electric utility company and an affiliated electric
wholesale generator, like Generating Company. We believe that the MoPSC's
approval of the power sales agreement under PUHCA is not required because
Generating Company is not a party to the agreement. As a remedy, the MoPSC
proposes that the SEC require AmerenUE to contract directly with Generating
Company and submit such contract to the MoPSC for review. On May 9, 2002, the
MoPSC filed a similar complaint with the SEC relating to the 2002 Marketing
Company - AmerenUE agreement. The SEC is investigating these matters. Also, with
respect to the 2002 Marketing Company - AmerenUE agreement, on May 31, 2002, the
Federal Energy Regulatory Commission (FERC) accepted the agreement, subject to
refund, and scheduled the matter for a January 2003 hearing to assess the
appropriateness of the rates charged. At this time, management is unable to
predict the outcome of these proceedings or the ultimate impact on our future
financial position, results of operations or liquidity.
Illinois
In December 1997, the Electric Service Customer Choice and Rate Relief Law
of 1997 (the Illinois Law) was enacted providing for electric utility
restructuring in Illinois. This legislation introduced competition into the
retail supply of electric energy in Illinois. Illinois residential customers
were offered choice in suppliers on May 1, 2002. Industrial and commercial
customers were previously offered this choice.
The Illinois Law contained a provision freezing retail bundled electric
rates through January 1, 2005. In 2002, legislation was passed and signed into
law that extended the rate freeze period through January 1, 2007. The offering
of choice to our industrial and commercial customers has not had a material
adverse effect on our business and we do not expect the offering of choice to
our residential customers, or the extension of the rate freeze, to have a
material adverse effect on our business.
Federal - Regional Transmission Organizations
In December 1999, the FERC issued Order 2000 requiring all utilities,
subject to FERC jurisdiction, to state their intentions for joining a regional
transmission organization (RTO). RTOs are independent organizations that will
functionally control the transmission assets of utilities in order to improve
the wholesale power market. Since January 2001, we, along with several other
utilities, were seeking approval from the FERC to participate in an RTO known as
the Alliance RTO. We had previously been a member of the Midwest Independent
System Operator (MISO) and recorded a pretax charge to earnings in 2000 of $25
million ($15 million after taxes) for an exit fee and other costs when we left
that organization. We felt the for-profit Alliance RTO business model was
superior to the not-for-profit MISO business model and provided us with a more
equitable return on our transmission assets.
In late 2001, the FERC issued an order that rejected the formation of the
Alliance RTO and ordered the Alliance RTO companies and the MISO to discuss how
the Alliance RTO business model could be accommodated within the MISO. On April
25, 2002, after the Alliance RTO and MISO failed to reach an agreement, and
after a series of filings by the two parties with the FERC, the FERC issued a
declaratory order setting forth the division of responsibilities between the
MISO and National Grid (the managing member of the transmission company formed
by the Alliance companies) and approved the rate design and the revenue
distribution methodology proposed by the Alliance companies. However, the FERC
denied a request by the Alliance companies and National Grid to purchase certain
services from the MISO at incremental cost rather than MISO's full tariff rates.
The FERC also ordered the MISO to return the exit fee paid by Ameren to leave
the MISO, provided Ameren returns to the MISO and agrees to pay its proportional
share of the startup and ongoing operational expenses of the MISO. Moreover, the
FERC required the Alliance companies to select the RTO in which they will
participate within thirty days of the order.
Since the April 2002 FERC order, Ameren made filings with the FERC
indicating that it would return to the MISO and that membership would be through
a new independent transmission company, GridAmerica LLC, that was agreed to be
formed by our subsidiaries, Central Illinois Public Service Company, known as
AmerenCIPS, and AmerenUE, and subsidiaries of FirstEnergy Corporation and
NiSource Inc. If the FERC approves the definitive agreements establishing
GridAmerica, National Grid
9
will serve as the managing member of GridAmerica and will manage the
transmission assets of the three companies and participate in the MISO on behalf
of GridAmerica. Other Alliance RTO companies announced their intentions to join
the Pennsylvania - Jersey - Maryland (PJM) RTO. On July 25, 2002, the Ameren
companies filed a motion with the FERC requesting that it condition the approval
of the choices of other Illinois utilities to join the PJM RTO on MISO and PJM
entering into an agreement addressing important reliability and rate-barrier
issues. On July 31, 2002, the FERC issued an order accepting the formation of
GridAmerica as an independent transmission company under the MISO subject to
further compliance filings ordered by the FERC. The FERC also issued an order
accepting the elections made by the other Illinois utilities to join the PJM RTO
on the condition PJM and MISO immediately begin a process to address the
reliability and rate-barrier issues raised by us and other market participants
in previous filings.
Until the reliability and rate-barrier issues are resolved as ordered by
the FERC, and the tariffs and other material terms of our participation in
GridAmerica, and GridAmerica's participation in the MISO, are finalized and
approved by the FERC, we are unable to predict whether we will in fact become a
member of GridAmerica or MISO, or the impact that on-going RTO developments will
have on our financial condition, results of operation or liquidity.
NOTE 3 - Derivative Financial Instruments
We utilize derivatives principally to manage the risk of changes in market
prices for natural gas, fuel, electricity and emission credits. Price
fluctuations in natural gas, fuel and electricity cause:
o an unrealized appreciation or depreciation of our firm commitments to
purchase or sell when purchase or sales prices under the firm
commitment are compared with current commodity prices;
o market values of fuel and natural gas inventories or purchased power
to differ from the cost of those commodities in inventory or under the
firm commitment; and
o actual cash outlays for the purchase of these commodities, in certain
circumstances, to differ from anticipated cash outlays.
The derivatives that we use to hedge these risks are dictated by risk
management policies and include forward contracts, futures contracts, options
and swaps. We continually assess our supply and delivery commitment positions
against forward market prices and internal forecasts of forward prices. We
actively manage our exposure to power price risk through our power risk
management program carried out under our risk management guidelines to modify
our exposure to market, credit and operational risk by entering into various
offsetting transactions. In general, we believe these transactions serve to
reduce price risk for us.
In addition, we may purchase additional megawatts, again within risk
management guidelines, in anticipation of future price changes. Certain
derivative contracts we enter into on a regular basis as part of our power risk
management program do not qualify for hedge accounting or the normal purchase,
normal sale exception under SFAS 133. Accordingly, these contracts are recorded
at fair value with changes in the fair value charged or credited to the income
statement in the period in which the change occurred. Contracts we enter into as
part of our power risk management program may be settled by either physical
delivery or net settled with the counterparty. See Note 1 - "Summary of
Significant Accounting Policies."
As of June 30, 2002, we recorded the fair value of derivative financial
instrument assets of $29 million in Other Assets and the fair value of
derivative financial instrument liabilities of $29 million in Other Deferred
Credits and Liabilities.
Cash Flow Hedges
We routinely enter into forward purchase and sales contracts for
electricity based on forecasted levels of economic generation and load
requirements. The relative balance between load and economic generation varies
throughout the year. The contracts typically cover a period of twelve months or
less. The purpose of these contracts is to hedge against possible price
fluctuations in the spot market for the period covered under the contracts. We
formally document all relationships between hedging instruments
10
and hedged items, as well as our risk management objective and strategy for
undertaking various hedge transactions. The mark-to-market value of cash flow
hedges will continue to fluctuate with changes in market prices up to contract
expiration.
The pretax net gain or loss on power forward derivative instruments, which
represented the impact of discontinued cash flow hedges, the ineffective portion
of cash flow hedges, as well as the reversal of amounts previously recorded in
OCI due to transactions going to delivery or settlement, was approximately a $1
million loss for the three months and a $1 million gain for the six months ended
June 30, 2002. For the three and six months ended June 30, 2001, the above
related amounts were a $10 million loss and $0 million, respectively.
As of June 30, 2002, we had hedged a portion of the price exposure related
to the relative balance between load and economic generation for the upcoming
twelve month period. The mark-to-market value accumulated in OCI for the
effective portion of hedges of electricity price exposure is a net loss of
approximately $6 million ($4 million, net of taxes).
As of June 30, 2002, a gain of approximately $6 million ($3 million, net of
taxes) associated with interest rate swaps was included in OCI. The swaps were a
partial hedge of the interest rate on debt that was issued in June 2002. The
swaps covered the first ten years of debt that has a 30-year maturity and the
gain in OCI is being amortized over a ten-year period beginning in June 2002.
We also hold a call option for coal deliverable in 2004 with a supplier.
This option to purchase coal expires October 2003. As of June 30, 2002, the
mark-to-market gain accumulated in OCI was $5 million ($3 million, net of
taxes). The final value of the option will be recognized as a reduction in fuel
costs as the hedged coal is burned.
Other Derivatives
We enter into option transactions to manage our positions in sulfur dioxide
allowances, coal, heating oil, and electricity. Most of these transactions are
treated as non-hedge transactions under SFAS 133. The net change in the market
value of sulfur dioxide options is recorded as Operating Revenues - Electric
Revenues, while the net change in the market value of coal, heating oil, and
electricity options is recorded as Operating Expense - Operations - Fuel and
Purchased Power in the income statement. The net change in the market values of
sulfur dioxide options, coal, heating oil, and electricity options was a gain of
$2 million ($1 million, net of taxes) for the three months ended June 30, 2002
and a gain of $3 million ($2 million, net of taxes) for the six months ended
June 30, 2002. For the three and six months ended June 30, 2001, the above
related items were a loss of $2 million ($1 million, net of taxes) and $0
million, respectively.
NOTE 4 - Debt and Equity Financings
In January 2002, Ameren Corporation issued $100 million of 5.70% notes due
February 1, 2007. The net proceeds were used to reduce short-term borrowings.
Interest is payable semi-annually on February 1 and August 1 of each year,
beginning August 1, 2002. In March 2002, Ameren Corporation entered into
interest rate swaps effectively converting the interest rate associated with
these notes to three month LIBOR plus 43 basis points. At June 30, 2002, the
effective interest rate for these notes was 2.338%.
In March 2002, Ameren Corporation issued $345 million of adjustable
conversion-rate equity security units and $227 million of common stock
(5,000,000 shares at $39.50 per share and 750,000 shares, pursuant to the
exercise of an option granted to the underwriters, at $38.865 per share). The
$25 adjustable conversion-rate equity security units each consisted of an Ameren
Corporation senior unsecured note with a principal amount of $25 and a contract
to purchase, for $25, a fraction of a share of Ameren common stock on May 15,
2005. The senior unsecured notes were recorded at their fair value of $345
million and will mature on May 15, 2007. Total distributions on the equity
security units will be at an annual rate of 9.75%, consisting of quarterly
interest payments on the senior unsecured notes at the initial annual rate of
5.20% and adjustment payments under the stock purchase contracts at the annual
rate of 4.55%. The stock purchase contracts require holders to purchase between
8.7 million and 7.4 million shares of Ameren common stock on May 15, 2005 at the
market price at that time, subject to a minimum share price of
11
$39.50 and a maximum of $46.61. The stock purchase contracts include a pledge of
the senior unsecured notes as collateral for the stock purchase obligation. The
interest rate on the outstanding senior unsecured notes is subject to being
reset by a remarketing agent for quarterly payments after May 15, 2005 until
maturity. We recorded the net present value of the contracted stock purchase
adjustment payments of $46 million as an increase in Other Deferred Credits and
Liabilities to reflect our obligation and a decrease in Other Paid-in Capital to
reflect the fair value of the stock purchase contract. The liability for the
contracted stock purchase adjustment payments will be reduced as such payments
are made through May 15, 2005. We used the net proceeds from these offerings to
repay our short-term indebtedness and for general corporate purposes.
In June 2002, AmerenEnergy Generating Company issued $275 million of 7.95%
Senior Notes due June 1, 2032. Interest is payable semi-annually on June 1 and
December 1 of each year, beginning December 1, 2002. We received net proceeds of
$271 million, after debt discount and underwriters' fees, that were used to
reduce short-term borrowings and for general corporate purposes.
In July 2002, Ameren entered into new credit agreements for $400 million in
revolving credit facilities to be used for general corporate purposes, including
support of our commercial paper programs. The $400 million in new facilities
includes a $270 million 364-day revolving credit facility and a $130 million
3-year revolving credit facility. The 3-year facility has a $50 million
sub-limit for the issuance of letters of credit. These new credit facilities
replaced AmerenUE's existing $300 million revolving credit facility which was to
mature August 15, 2002. At June 30, 2002, all of such borrowing capacity under
this AmerenUE facility was available.
Amortization of debt issuance costs and premium/discount for the three and
six months ending June 30, 2002 of $2 million (2001 - $2 million) and $4 million
(2001 - $3 million) were included in interest expense in the income statement.
NOTE 5 - Miscellaneous, Net
Miscellaneous, net for the three and six months ended June 30, 2002 and
2001 consisted of the following:
Three Months Six Months
-----------------------------------
2002 2001 2002 2001
-----------------------------------
Miscellaneous income:
Interest and dividend income $ 2 $ - $ 2 $ 1
Gain on disposition of property 3 1 3 1
Other - 1 3 2
-----------------------------------
Total miscellaneous income $ 5 $ 2 $ 8 $ 4
-----------------------------------
Minority interest in subsidiary $(10) $ (1) $(11) $ (2)
Loss on disposition of property - (2) - (2)
Donations (26) - (26) (1)
Other (3) (2) (6) (3)
-----------------------------------
Total miscellaneous expense $(39) $ (5) $(43) $ (8)
-----------------------------------
12
NOTE 6 - Segment Information
Segment information for the three and six months ended June 30, 2002 and
2001 was as follows:
- --------------------------------------------------------------------------------
Utility Intercompany
Operations Other Revenues Total
- --------------------------------------------------------------------------------
Three months ended June 30, 2002:
Revenues $1,179 $ 106 $ (174) $1,111
Net income 101 14 - 115
- --------------------------------------------------------------------------------
Three months ended June 30, 2001:
Revenues $1,180 $ 59 $ (182) $1,057
Net income 98 (3) - 95
- --------------------------------------------------------------------------------
Six months ended June 30, 2002:
Revenues $2,415 $ 175 $ (364) $2,226
Net income 159 15 - 174
- --------------------------------------------------------------------------------
Six months ended June 30, 2001:
Revenues $2,333 $ 133 $ (385) $2,081
Net income 152 1 - 153
- --------------------------------------------------------------------------------
Ameren Services Company, who provides shared support services to us and our
subsidiaries, allocates administrative support services to each segment based on
various factors, such as headcount, number of customers, and total assets.
NOTE 7 - CILCORP Acquisition
On April 28, 2002, we entered into an agreement with The AES Corporation to
purchase all of the outstanding stock of CILCORP Inc. CILCORP is the parent
company of Peoria-based Central Illinois Light Company, which operates as CILCO.
We also agreed to acquire AES Medina Valley (No. 4), L.L.C. which indirectly
owns a 40 megawatt, gas-fired electric generation plant. The total purchase
price is approximately $1.4 billion, subject to adjustment for changes in
CILCORP's working capital, and includes the assumption of CILCORP and AES Medina
Valley debt at closing, estimated at approximately $900 million, with the
balance of the purchase price in cash. We expect to finance a significant
portion of the cash component of the purchase price through the issuance of new
common equity.
The purchase will include CILCORP's regulated natural gas and electric
businesses in Illinois serving approximately 205,000 and 200,000 customers,
respectively, of which approximately 150,000 are combination electric and gas
customers. In addition, the purchase includes approximately 1,200 megawatts of
largely coal-fired generating capacity, most of which is expected to be
non-regulated by closing.
Upon completion of the acquisition, expected by March 2003, CILCO will
become an Ameren subsidiary, but will remain a separate utility company,
operating as AmerenCILCO. The transaction is subject to the approval of the
Illinois Commerce Commission, the SEC, the FERC, the expiration of the waiting
period under the Hart-Scott-Rodino Act, the Federal Communications Commission
and other customary closing conditions.
For the period ended December 31, 2001, CILCORP had revenues of $815
million, operating income of $126 million, and net income from continuing
operations of $28 million, and as of December 31, 2001
had total assets of $1.8 billion.
13
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
Ameren Corporation is a holding company registered under the Public Utility
Holding Company Act of 1935 (PUHCA). Our principal business is the generation,
transmission and distribution of electricity, and the distribution of natural
gas to residential, commercial, industrial and wholesale users in the central
United States. Our primary subsidiaries are as follows:
o Union Electric Company, which operates a regulated electric generation,
transmission and distribution business, and a regulated natural gas
distribution business in Missouri and Illinois as AmerenUE.
o Central Illinois Public Service Company, which operates a regulated
electric and natural gas transmission and distribution business in Illinois
as AmerenCIPS.
o AmerenEnergy Resources Company (Resources Company), which consists of
non-regulated operations. Subsidiaries include AmerenEnergy Generating
Company (Generating Company) that operates our non-regulated electric
generation in Missouri and Illinois, AmerenEnergy Marketing Company
(Marketing Company), which markets power for periods over one year, and
AmerenEnergy Fuels and Services Company, which procures fuel and manages
the related risks for our affiliated companies.
o AmerenEnergy, Inc. (AmerenEnergy) which serves as a power marketing and
risk management agent for our affiliated companies for transactions of
primarily less than one year.
o Electric Energy, Inc. (EEI), which owns and/or operates electric generation
and transmission facilities in Illinois. We have a 60% ownership interest
in EEI and consolidate it for financial reporting purposes.
o Ameren Services Company, which provides shared support services to us and
our subsidiaries.
You should read the following discussion and analysis in conjunction with:
o The financial statements and related notes included in this Quarterly
Report on Form 10-Q.
o The audited financial statements and related notes that are incorporated by
reference from our Annual Report to Stockholders in our Annual Report on
Form 10-K for the period ended December 31, 2001.
o Management's Discussion and Analysis of Financial Condition and Results of
Operations that is incorporated by reference from our Annual Report to
Stockholders in our Annual Report on Form 10-K for the period ended
December 31, 2001.
When we refer to Ameren, our, we or us, we are referring to Ameren
Corporation on a consolidated basis. In certain circumstances, our subsidiaries
are specifically referenced in order to distinguish among their different
business activities. All dollar amounts are in millions, unless otherwise
indicated.
Our results of operations and financial position are impacted by many
factors, including both controllable and uncontrollable factors. Weather,
economic conditions, and the actions of key customers or competitors can
significantly impact the demand for our services. Our results are also impacted
by seasonal fluctuations caused by winter heating, and summer cooling, demand.
With approximately 80% of our revenues subject to regulation by various state
and federal agencies, decisions by regulators can have a material impact on the
price we charge for our services. We principally utilize coal, nuclear fuel and
natural gas in our operations. The prices for these commodities can fluctuate
significantly due to the world economic and political environment, weather,
production levels and many other factors. We do not have fuel recovery
mechanisms in Missouri and Illinois, but do have gas cost recovery mechanisms in
each state. We employ various risk management strategies in order to try to
reduce our exposure to commodity risks and other risks inherent in our business.
The reliability of our power plants, and transmission and distribution systems,
and the level of operating and administrative costs, and capital investment are
key factors that we seek to control in order to optimize our results of
operations, cash flows and financial
position.
14
RESULTS OF OPERATIONS
Summary
Our net income increased 21% to $115 million, or 80 cents per share, in the
second quarter of 2002 from $95 million, or 69 cents per share, in the second
quarter of 2001. Earnings for the six months ended June 30, 2002, totaled $174
million, or $1.22 per share, compared to the year-ago earnings of $153 million,
or $1.12 per share. The increase in both periods was primarily due to favorable
weather conditions (second quarter - 12 cents per share; year to date - 3 cents
per share), increased sales of emission credits, including EEI (second quarter -
10 cents per share; year to date - 16 cents per share), and lack of a Callaway
nuclear plant refueling outage to date in 2002 (second quarter - 12 cents per
share; year to date - 14 cents per share). These increases were partially offset
by the impact of the settlement of our Missouri electric rate case (second
quarter and year to date - 14 cents per share) (see below), a reduction of an
accrual in 2001 (second quarter - 10 cents per share; year to date - 4 cents per
share) for expected customer sharing credits under the Missouri experimental
alternative regulation plan that expired in June 2001 (see Note 2 - "Rate and
Regulatory Matters" to our consolidated financial statements) and a decline in
industrial sales due to the continued soft economy. In January 2001, we also
recorded a charge of $7 million, or five cents per share, due to the adoption of
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities."
Recent Developments
Missouri Electric Rate Case
From July 1, 1995 through June 30, 2001, our subsidiary, AmerenUE, operated
under experimental alternative regulation plans in Missouri that provided for
the sharing of earnings with customers if our regulatory return on equity
exceeded defined threshold levels. After AmerenUE's experimental alternative
regulation plan for its Missouri retail electric customers expired, the Missouri
Public Service Commission (MoPSC) Staff filed an excess earnings complaint
against AmerenUE with the MoPSC in July 2001. In March 2002, the MoPSC Staff
filed a recommendation that AmerenUE reduce its annual Missouri electric
revenues by $246 million to $285 million. The MoPSC Staff's recommendation was
based on a return to traditional cost of service ratemaking, a lowered return on
equity, a reduction in our depreciation rates and other cost of service
adjustments. In May 2002, we filed testimony supporting a rate increase of at
least $150 million and proposed a new alternative regulation plan that included
a rate decrease.
On July 16, 2002, AmerenUE, the MoPSC Staff and all of the other parties to
the proceeding submitted to the MoPSC a stipulation and agreement resolving this
case. On July 24, 2002, the MoPSC held a hearing on the stipulation and
agreement. On July 25, 2002, the MoPSC approved the stipulation and agreement,
and on August 4, 2002, it became effective. The stipulation and agreement
includes the following principal features:
o the phase-in of $110 million of electric rate reductions through April
2004, $50 million of which is retroactively effective as of April 1, 2002,
$30 million of which will become effective on April 1, 2003, and $30
million of which will become effective on April 1, 2004, o a rate
moratorium providing for no requests for changes in AmerenUE's electric
rates as established by the stipulation and agreement before January 1,
2006 and no resulting changes in rates before June 30, 2006, subject to
certain statutory and other exceptions, o a commitment to contribute as
early as September 2002, $14 million to programs for low income energy
assistance and weatherization, promotion of energy efficiency and economic
development in AmerenUE's service territory, with additional payments of $3
million made annually on June 30, 2003 through June 30, 2006, o a
commitment to make $2.25 billion to $2.75 billion in critical energy
infrastructure investments from January 1, 2002 through June 30, 2006,
including, among other things, the addition of more than 700 megawatts of
new generation capacity and the replacement of steam generators at
AmerenUE's nuclear power plant. The 700 megawatts of new generation
includes 240 megawatts already added this year and may include the transfer
at book value to AmerenUE of generation assets from our other non-regulated
subsidiaries,
15
o an annual reduction in AmerenUE's depreciation rates by $20 million,
retroactive to April 1, 2002 based on an updated analysis of asset values,
service lives and accumulated depreciation levels, and
o a one-time credit of $40 million to be paid to our Missouri retail electric
customers as early as August 2002 for settlement of the final sharing
period under the alternative regulation plan that expired June 30, 2001. At
June 30, 2002, we had accrued $40 million in Current Liabilities - Other.
In total, the stipulation and agreement is estimated to reduce 2002 net
earnings by $32 million, or 22 cents per share. Net earnings are expected to be
reduced in 2002 due to the rate reduction ($26 million, net of taxes, or 18
cents per share, including $8 million, net of taxes, or 6 cents per share in the
quarter ended, June 30, 2002), the expensing in the quarter ended June 30, 2002
of the entire obligation to fund certain programs ($15 million, net of taxes, or
10 cents per share), offset, in part, by the reduction in depreciation expense
($9 million, net of taxes, 6 cents per share, including $3 million, net of
taxes, or 2 cents per share in the quarter ended June 30, 2002). Net earnings
were reduced by $20 million, or 14 cents per share in the quarter ended June 30,
2002 due to the stipulation and agreement. We expect earnings to be reduced by
$9 million (6 cents per share) in the third quarter of 2002 and $3 million (2
cents per share) in the fourth quarter of 2002.
CILCORP Acquisition
On April 28, 2002, we entered into an agreement with The AES Corporation to
purchase all of the outstanding stock of CILCORP Inc. CILCORP is the parent
company of Peoria-based Central Illinois Light Company, which operates as CILCO.
We also agreed to acquire AES Medina Valley (No. 4), L.L.C. which indirectly
owns a 40 megawatt, gas-fired electric generation plant. The total purchase
price is approximately $1.4 billion, subject to adjustment for changes in
CILCORP's working capital, and includes the assumption of CILCORP and AES Medina
Valley debt at closing, estimated at approximately $900 million, with the
balance of the purchase price in cash. We expect to finance a significant
portion of the cash component of the purchase price through the issuance of new
common equity.
The purchase will include CILCORP's regulated natural gas and electric
businesses in Illinois serving approximately 205,000 and 200,000 customers,
respectively, of which approximately 150,000 are combination electric and gas
customers. In addition, the purchase includes approximately 1,200 megawatts of
largely coal-fired generating capacity, most of which is expected to be
non-regulated by closing.
Upon completion of the acquisition, expected by March 2003, CILCO will
become an Ameren subsidiary, but will remain a separate utility company,
operating as AmerenCILCO. The transaction is subject to the approval of the
Illinois Commerce Commission, the Securities and Exchange Commission (SEC), the
Federal Energy Regulatory Commission (FERC), the expiration of the waiting
period under the Hart-Scott-Rodino Act, the Federal Communications Commission
and other customary closing conditions.
For the period ended December 31, 2001, CILCORP had revenues of $815
million, operating income of $126 million, and net income from continuing
operations of $28 million, and as of December 31, 2001 had total assets of $1.8
billion. Synergies from the acquisition are expected to make the transaction
accretive to earnings per share in the first full year of operation after the
transaction is consummated.
In April 2002, as a result of our then pending Missouri electric earnings
complaint case and the CILCORP transaction and related assumption of debt,
credit rating agencies placed Ameren Corporation's debt under review for
possible downgrade or negative credit watch. Standard & Poor's placed the
ratings of AmerenUE and AmerenCIPS debt on negative credit watch and placed the
ratings of Generating Company's debt on positive credit watch. However, Standard
& Poor's stated they expect the corporate credit ratings of Ameren and its
subsidiaries to be in the "A" rating category following completion of the
acquisition. Moody's Investor Service stated they envisioned a one notch
downgrade of Ameren's issuer, senior unsecured debt and commercial paper
ratings. Ameren's corporate credit rating is A+ at Standard & Poor's and its
issuer rating is A2 at Moody's. In July, AmerenUE settled its electric earnings
complaint case. The rating agencies have not changed the assignment of negative
watch, review for possible downgrade or negative outlook to any of the ratings
nor have the ratings themselves changed. Any adverse change in Ameren's or our
subsidiaries' ratings may reduce our access to capital and/or increase the costs
of borrowings resulting in a negative impact on earnings.
16
Electric Operations
The following table represents the favorable (unfavorable) variation for
the three and six months ended June 30, 2002 from the comparable period in 2001:
- --------------------------------------------------------------------------------
Three Months Six Months
- --------------------------------------------------------------------------------
Operating Revenues:
Effect of abnormal weather (estimate) $ 27 $ 11
Growth and other (estimate) 28 56
Rate reductions (13) (13)
Credit to customers (25) (10)
Interchange revenues (37) 85
EEI 52 52
- --------------------------------------------------------------------------------
32 181
---------------------------
Fuel and Purchased Power:
Fuel:
Generation $ (24) $ (22)
Price 8 8
Generation efficiencies and other 1 1
Purchased power 67 (66)
EEI (12) (18)
- --------------------------------------------------------------------------------
40 (97)
- --------------------------------------------------------------------------------
Change in electric margin $ 72 $ 84
- --------------------------------------------------------------------------------
Electric margin increased $72 million for the three months, and $84 million
for the six months ended June 30, 2002 compared to the year-ago periods,
primarily due to more favorable weather conditions, increased sales of emission
credits, lack of a Callaway nuclear plant refueling outage to date in 2002, and
lower fuel costs. Weather-sensitive residential electric kilowatt-hour sales
increased by 11% in the second quarter and 2% for the year to date, and
commercial electric kilowatt-hour sales increased by 2% in the quarter and 1%
for the year to date. Industrial sales were 8% lower in the second quarter and
7% lower in the first half of 2002 as compared to 2001 due to the impact of the
soft economy. Revenues were reduced by $13 million in the three and six months
ended June 30, 2002 due to the settlement of the Missouri electric rate case.
Revenues in 2001 were increased by $25 million in the second quarter and $10
million in the first six months due to a reduction in the accrual for expected
customer sharing credits under the Missouri experimental alternative regulation
plan that expired in June 2001. Purchased power was also reduced in the second
quarter of 2002 due to the lack of a Callaway refueling. Another refueling
outage at Callaway is scheduled this fall which is estimated to reduce earnings
by 10 cents per share. For the first six months of 2002, interchange sales and
related purchased power increased due to an increase in interchange sales.
However, we realized lower margins on these sales compared to the prior year due
to lower wholesale electricity prices. Contribution to electric margin from EEI
increased in the second quarter and first six months of 2002 principally due to
the sale of $38 million in emission credits.
Gas Operations
Due to favorable weather conditions, our gas margins increased $6 million
in the second quarter of 2002 as compared to the same period in 2001 with
revenues increasing by $18 million and costs increasing by $12 million. However,
the warmer winter weather in 2002, which has a more significant impact on gas
sales, offset the benefit of the favorable second quarter 2002 weather resulting
in margins for the first six months of 2002 being $4 million below the year-ago
period. Gas revenues decreased $43 million, and gas costs decreased $39 million
in the first six months of 2002 as compared to the year-ago period primarily due
to lower natural gas prices and the warmer winter.
Other Operating Expenses
Other operations related to operating expenses increased $24 million in the
second quarter and $40 million in the first half of 2002 compared to the prior
year periods, primarily due to higher employee benefit costs related to the
investment performance of pension plan assets and increasing healthcare costs.
17
Maintenance expenses decreased $27 million in the second quarter of 2002
and $31 million in the first six months of 2002, compared to the prior year
periods, primarily due to the lack of a Callaway refueling outage to date in
2002 and decreased coal power plant maintenance.
Depreciation and amortization expenses increased $5 million in the second
quarter of 2002 and $14 million in the first six months of 2002, compared to the
year-ago periods, primarily due to an increase in depreciable property related
to investment in our coal and combustion turbine electric generating plants,
partially offset by a reduction of depreciation rates based on an updated
analysis of asset values, service lives and accumulated depreciation levels and
agreed to in the stipulation and agreement associated with the Missouri electric
rate case.
Income tax expense increased $12 million in the second quarter of 2002 and
$1 million in the first six months of 2002, compared to the year-ago periods,
primarily due to a higher pretax income.
Other taxes expense increased $9 million in the second quarter of 2002 and
$9 million in the first six months of 2002, compared to the year-ago periods,
primarily due to higher gross receipts taxes resulting from increased electric
sales in 2002 and adjustments related to property tax rates in the prior year.
Other Income and Deductions
Other income and deductions decreased $33 million in the second quarter of
2002 and $33 million in the first six months of 2002, compared to the same
periods last year, primarily due to the commitment to fund certain programs as
part of the settlement of the Missouri electric rate case ($26 million), and an
increase in the minority interest related to EEI's higher contribution. See Note
5 - "Miscellaneous, net" to our consolidated financial statements.
Interest
Interest expense increased $5 million in the second quarter of 2002 and $7
million in the first six months of 2002, compared to the year-ago periods,
primarily due to AmerenCIPS' issuance of $150 million of 6.625% notes in June
2001, Generating Company's issuance of $275 million of 7.95% notes in June 2002,
and our issuances of $150 million of floating rate notes in December 2001, $100
million of 5.70% notes in January 2002, and $345 million of equity security
units in March 2002 (in total $10 million for the quarter and $16 million for
year-to-date). A significant amount of the proceeds from these offerings was
used to repay lower cost short-term borrowings. These increases were partially
offset by lower interest rates on AmerenCIPS' variable rate environmental debt
obligations, as well as lower interest expense associated with a decreased
balance under AmerenUE's nuclear fuel lease and commercial paper (in total $5
million for the quarter and $9 million for year-to date).
LIQUIDITY AND CAPITAL RESOURCES
Operating
Our cash flows provided by operating activities increased $134 million to
$346 million for the six months ended June 30, 2002, compared to the year-ago
period. Cash flow from operations increased principally due to increased
earnings ($20 million) and a net decrease in materials and supplies primarily
associated with decreased coal inventories ($42 million) and gas storage ($26
million). Materials and supplies were higher than normal at December 31, 2001,
due to the warm winter and anticipation of a potential coal supply disruption
that ultimately did not occur.
The tariff-based gross margins of our utility operating companies continue
to be our principal source of cash from operating activities. Our diversified
retail customer mix of residential, commercial and industrial classes and a
commodity mix of gas and electric service provide a reasonably predictable
source of cash flows. We plan to utilize short-term debt to support normal
operations and other temporary capital requirements. Ameren is authorized by the
SEC under PUHCA to have up to an aggregate $2.8 billion of short-term unsecured
debt instruments outstanding at any one time. Short-term borrowings consist of
commercial paper (maturities generally within 1 to 45 days) and bank loans. At
June 30, 2002, Ameren
18
had bank credit agreements, expiring at various dates between 2002 and 2003,
that supported commercial paper programs totaling $830 million, of which $400
million was for the use by us and any of our wholly-owned subsidiaries, and the
remaining $430 million was for the use of our regulated subsidiaries. At June
30, 2002, all $830 million of such borrowing capacity was available, of which
$430 million was available for the use of our regulated subsidiaries. At June
30, 2002, we had committed bank lines of credit aggregating $25 million, all of
which were unused and available at such date.
In July 2002, Ameren entered into new credit agreements for $400 million in
revolving credit facilities to be used for general corporate purposes, including
support of our commercial paper programs. The $400 million in new facilities
includes a $270 million 364-day revolving credit facility and a $130 million
3-year revolving credit facility. The 3-year facility has a $50 million
sub-limit for the issuance of letters of credit. These new credit facilities
replaced AmerenUE's existing $300 million revolving credit facility that was in
place as of June 30, 2002 with a maturity of August 15, 2002. Therefore, as of
July 31, 2002, Ameren had committed bank credit agreements, expiring at various
dates between 2002 and 2005 totaling $930 million. A portion of this liquidity
supports commercial paper programs totaling $830 million, of which $400 million
is for the use by us and our wholly-owned subsidiaries, and the remaining $430
million is for the use of our regulated subsidiaries. The remaining $100 million
of committed credit is available for the use by us and our subsidiaries. We
expect to replace these bank credit agreements prior to their maturity. These
bank facilities make available interim financing at various rates of interest
based on LIBOR, the bank certificate of deposit rate or other options.
AmerenUE also has a lease agreement that provides for the financing of
nuclear fuel. At June 30, 2002, the maximum amount that could be financed under
the agreement was $120 million. At June 30, 2002, $70 million was financed under
the lease.
Our financial agreements include customary default provisions that could
impact the continued availability of credit or result in the acceleration of
repayment. These events include bankruptcy, defaults in payment of other
indebtedness, certain judgments that are not paid or insured, or failure to meet
or maintain covenants. At June 30, 2002, Ameren and its subsidiaries were in
compliance with these provisions.
Investing
Our net cash used in investing activities was $411 million in the first six
months of 2002 compared to $544 million in the first six months of 2001. In the
first six months of 2002, construction expenditures were $113 million (2001 -
$250 million) in our non-regulated operations, primarily related to the
construction of combustion turbine generating units, and $288 million (2001 -
$289 million) in our regulated operations, primarily related to various upgrades
at our coal power plants and further construction of combustion turbine
generating units. In the second quarter of 2002, we placed into service 240
megawatts of combustion turbine electric generation capacity in our regulated
operations. Regulated capital expenditures are expected to approximate $600
million and non-regulated capital expenditures are expected to approximate $200
million in 2002.
As a part of the settlement of the Missouri electric earnings complaint
case (see Note 2 - "Rate and Regulatory Matters" to our consolidated financial
statements), AmerenUE committed to making $2.25 billion to $2.75 billion in
infrastructure investments from January 1, 2002 through June 30, 2006. These
investments include, among other things, the addition of more than 700 megawatts
of new generation capacity and the replacement of steam generators at AmerenUE's
Callaway nuclear power plant. The 700 megawatts of new generation includes 240
megawatts already added this year and may include the transfer at book value to
AmerenUE of generation assets from our other non-regulated subsidiaries. The
amount of energy infrastructure investment through June 2006 described in the
stipulation and agreement is consistent with our previously-disclosed estimate
of the construction expenditures we expect to make over the same time period.
Due to expected increased demand and the need to maintain appropriate power
reserve margins, Ameren believes it will need additional generating capacity in
the future. We have an equipment supply agreement in place at AmerenUE for the
addition of two combustion turbine generating units with a total installed
capacity of 330 megawatts. These units will replace the existing Venice steam
plant generating
19
units which are expected to be retired in 2003. Noncancelable reservation
commitment fees paid of $22 million will be applied to our total cost of these
megawatts pursuant to the agreement.
Ameren continually reviews its generation portfolio and expected electrical
needs, and as a result, we could modify our plan for generation asset purchases,
which could include the timing of when certain assets will be added to, or
removed from our portfolio, the type of generation asset technology that will be
employed, or whether capacity may be purchased, among other things. Any changes
that Ameren may plan to make for future generating needs could result in losses
being incurred, which could be material.
Financing
Our cash flows provided by financing activities totaled $148 million in the
first six months of 2002, compared to $279 million in the year-ago period. Our
principal financing activities for the period included the issuance of long-term
debt, equity security units and common stock, partially offset by the redemption
of short-term debt and the payment of dividends.
In January 2002, Ameren Corporation issued $100 million of 5.70% notes due
February 1, 2007. The net proceeds were used to reduce short-term borrowings.
Interest is payable semi-annually on February 1 and August 1 of each year,
beginning August 1, 2002. In March 2002, Ameren Corporation entered into
interest rate swaps effectively converting the interest rate associated with
these notes to three month LIBOR plus 43 basis points. At June 30, 2002, the
effective interest rate for these notes was 2.338%.
In March 2002, Ameren Corporation issued $345 million of adjustable
conversion-rate equity security units and $227 million of common stock
(5,000,000 shares at $39.50 per share and 750,000 shares, pursuant to the
exercise of an option granted to the underwriters, at $38.865 per share). The
$25 adjustable conversion-rate equity security units each consisted of an Ameren
Corporation senior unsecured note with a principal amount of $25 and a contract
to purchase, for $25, a fraction of a share of Ameren common stock on May 15,
2005. The senior unsecured notes were recorded at their fair value of $345
million and will mature on May 15, 2007. Total distributions on the equity
security units will be at an annual rate of 9.75%, consisting of quarterly
interest payments on the senior unsecured notes at the initial annual rate of
5.20% and adjustment payments under the stock purchase contracts at the annual
rate of 4.55%. The stock purchase contracts require holders to purchase between
8.7 million and 7.4 million shares of Ameren common stock on May 15, 2005 at the
market price at that time, subject to a minimum share price of $39.50 and a
maximum of $46.61. The stock purchase contracts include a pledge of the senior
unsecured notes as collateral for the stock purchase obligation. The interest
rate on the outstanding senior unsecured notes is subject to being reset by a
remarketing agent for quarterly payments after May 15, 2005 until maturity. We
recorded the net present value of the contracted stock purchase payments of $46
million as an increase in Other Deferred Credits and Liabilities to reflect our
obligation and a decrease in Other Paid-in Capital to reflect the fair value of
the stock purchase contract. We used the net proceeds from these offerings to
repay our short-term indebtedness and for general corporate purposes.
In May 2002, AmerenUE filed a shelf registration statement with the SEC on
Form S-3 that upon its effectiveness will allow the offering from time to time
of up to $750 million of various forms of long-term debt and trust preferred
securities to refinance existing debt and preferred stock, and for general
corporate purposes, including the repayment of short-term debt incurred to
finance construction expenditures and other working capital needs.
In June 2002, Ameren Corporation filed a shelf registration statement with
the SEC on Form S-3 that upon its effectiveness will allow the offering from
time to time of up to $1.5 billion of various forms of securities including
long-term debt, trust preferred and equity securities to finance ongoing
construction and maintenance programs, to redeem, repurchase, repay, or retire
outstanding debt, to finance strategic investments, including our pending
acquisition of CILCORP Inc., and for general corporate purposes.
In June 2002, Generating Company issued $275 million of 7.95% Senior Notes
due June 1, 2032. Interest is payable semi-annually on June 1 and December 1 of
each year, beginning December 1, 2002. We received net proceeds of $271 million,
after debt discount and underwriters' fees, that were used to reduce short-term
borrowings and for general corporate purposes.
20
On April 23, 2002, our Board of Directors declared a quarterly common stock
dividend of 63.5 cents per share that was paid on June 28, 2002 to shareholders
of record on June 10, 2002.
In the ordinary course of business, we evaluate several strategies to
enhance our financial position, earnings, and liquidity. These strategies may
include potential acquisitions, divestitures, opportunities to reduce costs or
increase revenues, and other strategic initiatives in order to increase
shareholder value. We are unable to predict which, if any, of these initiatives
will be executed, as well as the impact these initiatives may have on our future
financial position, results of operations or liquidity.
Electric Industry Restructuring
Illinois
See Note 2 - "Rate and Regulatory Matters" to our consolidated financial
statements.
Federal - Regional Transmission Organizations
See Note 2 - "Rate and Regulatory Matters" to our consolidated financial
statements.
ACCOUNTING MATTERS
Critical Accounting Policies
Preparation of the financial statements and related disclosures in
compliance with generally accepted accounting principles requires the
application of appropriate technical accounting rules and guidance, as well as
the use of estimates. Our application of these policies involves judgments
regarding many factors, which, in and of themselves, could materially impact the
financial statements and disclosures. A future change in the assumptions or
judgments applied in determining the following matters, among others, could have
a material impact on future financial results. In the table below, we have
outlined those accounting policies that we believe are most difficult,
subjective or complex:
Accounting Policy Uncertainties Affecting Application
- ----------------- -----------------------------------
Regulatory Mechanisms & Cost Recovery
We defer costs as regulatory assets in o Regulatory environment, external regulatory
accordance with SFAS 71 and make decisions and requirements
investments that we assume we will be able o Anticipated future regulatory decisions and
to collect in future rates their impact
o Impact of deregulation and competition on
ratemaking process and ability to recover costs
Basis for Judgment
We determine that costs are recoverable based on previous rulings by state
regulatory authorities in jurisdictions where we operate, or other factors
that lead us to believe that cost recovery is probable.
Nuclear Plant Decommissioning Costs
In our rates and earnings we assume the o Estimates of future decommissioning costs
Department of Energy will develop a o Availability of facilities for waste disposal
permanent storage site for spent nuclear o Approved methods for waste disposal and
fuel, the Callaway plant will have a useful decommissioning
life of 40 years and estimated costs to o Useful lives of nuclear power plants
dismantle the plant are accurate. See Note
12 to our consolidated financial statements
for the year ended December 31, 2001.
21
Basis for Judgment
We determine that decommissioning costs are reasonable, or require
adjustment, based on third party decommissioning studies that are completed
every three years, the evaluation of our facilities by our engineers and
the monitoring of industry trends.
Environmental Costs
We accrue for all know environmental o Extent of contamination
contamination where remediation can be o Responsible party determination
reasonably estimated, but some of our o Approved methods for cleanup
operations have existed for over 100 years o Present and future legislation and governmental
and previous contamination may be regulations and standards
unknown to us. o Results of ongoing research and development
regarding environmental impacts
Basis for Judgment
We determine the proper amounts to accrue for environmental contamination
based on internal and third party estimates of clean-up costs in the
context of current remediation regulation standards and available
technology.
Unbilled Revenue
At the end of each period, we estimate, o Projecting customer energy usage
based on expected usage, the amount of o Estimating impacts of weather and other
revenue to record for services that have usage-affecting factors for the unbilled period
been provided to customers, but not billed.
This period can be up to one month.
Basis for Judgment
We determine the proper amount of unbilled revenue to accrue each period
based on the volume of energy delivered as valued by a model of billing
cycles and historical usage rates and growth by customer class for our
service area, as adjusted for the modeled impact of seasonal and weather
variations based on historical results.
Benefit Plan Accounting
Based on actuarial calculations, we accrue o Future rate of return on pension and other plan
costs of providing future employee benefits assets
in accordance with SFAS 87, 106 and o Interest rates used in valuing benefit
112. See Note 9 to our consolidated obligations
financial statements for the year ended o Healthcare cost trend rates
December 31, 2001.
Basis for Judgment
We utilize a third party consultant to assist us in evaluating and
recording the proper amount for future employee benefits. Our ultimate
selection of the discount rate, healthcare trend rate and expected rate of
return on pension assets is based on our review of available current,
historical and projected rates, as applicable.
22
Derivative Financial Instruments
We record all derivatives at their fair o Market conditions in the energy industry, especially
market value in accordance with SFAS the effects of price volatility on contractual
133. The identification and classification commodity commitments
of a derivative, and the fair value of such o Regulatory and political environments and
derivative must be determined. See Note 3 requirements
to our consolidated financial statements for o Fair value estimations on longer term contracts
the year ended December 31, 2001 and
Note 3 - "Derivative Financial
Instruments" to our consolidated financial
statements.
Basis for Judgment
We determine whether a transaction is a derivative versus a normal purchase
or sale based on historical practice and our intention at the time we enter
a transaction. We utilize actively quoted prices, prices provided by
external sources, and prices based on internal models, and other valuation
methods to determine the fair market value of derivative financial
instruments.
Impact of Future Accounting Pronouncements
See Note 1 - "Summary of Significant Accounting Policies" to our
consolidated financial statements.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of changes in value of a physical asset or
a financial instrument, derivative or non-derivative, caused by fluctuations in
market variables (e.g., interest rates, etc.). The following discussion of our
risk management activities includes "forward-looking" statements that involve
risks and uncertainties. Actual results could differ materially from those
projected in the "forward-looking" statements. We handle market risks in
accordance with established policies, which may include entering into various
derivative transactions. In the normal course of business, we also face risks
that are either non-financial or non-quantifiable. Such risks principally
include business, legal, and operational risk and are not represented in the
following analysis.
Our risk management objective is to optimize our physical generating assets
within prudent risk parameters. Our risk management policies are set by a Risk
Management Steering Committee, which is comprised of senior-level Ameren
officers.
Interest Rate Risk
We are exposed to market risk through changes in interest rates associated
with the issuance of both long-term and short-term variable-rate debt and
fixed-rate debt, commercial paper, auction-rate long-term debt and auction-rate
preferred stock. We manage our interest rate exposure by controlling the amount
of these instruments we hold within our total capitalization portfolio and by
monitoring the effects of market changes in interest rates.
Utilizing our debt outstanding at June 30, 2002, if interest rates
increased by 1%, our annual interest expense would increase by approximately $8
million and net income would decrease by approximately $5 million. The model
does not consider the effects of the reduced level of potential overall economic
activity that would exist in such an environment. In the event of a significant
change in interest rates, management would likely take actions to further
mitigate our exposure to this market risk. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no change in our financial structure.
23
Fuel Price Risk
100% of the required 2002 supply of coal for our coal power plants has been
acquired at fixed prices. As such, we have minimal coal price risk for 2002. In
addition, approximately 70% of our coal requirements from 2003 through 2006 are
covered by contracts.
Fair Value of Contracts
We utilize derivatives principally to manage the risk of changes in market
prices for natural gas, fuel, electricity and emission credits. Price
fluctuations in natural gas, fuel and electricity cause:
o an unrealized appreciation or depreciation of our firm commitments to
purchase or sell when purchase or sales prices under the firm
commitment are compared with current commodity prices;
o market values of fuel and natural gas inventories or purchased power
to differ from the cost of those commodities in inventory under firm
commitment; and
o actual cash outlays for the purchase of these commodities to differ
from anticipated cash outlays.
The derivatives that we use to hedge these risks are dictated by risk
management policies and include forward contracts, futures contracts, options
and swaps. We continually assess our supply and delivery commitment positions
against forward market prices and internally forecast forward prices and modify
our exposure to market, credit and operational risk by entering into various
offsetting transactions. In general, these transactions serve to reduce our
price risk. See Note 3 - "Derivative Financial Instruments" to our consolidated
financial statements for additional information.
The following summarizes changes in the fair value of all contracts marked
to market during the three and six months ended June 30, 2002:
- -------------------------------------------------------------------------------------------------------------
Three Six
months months
- -------------------------------------------------------------------------------------------------------------
Fair value of contracts at beginning of period, net $ (5) $ (1)
Contracts which were realized or otherwise settled during the three and six (8) (8)
months ended June 30, 2002
Changes in fair values attributable to changes in valuation techniques and - -
assumptions
Fair value of new contracts entered into during the three and six months ended - 1
June 30, 2002
Other changes in fair value 13 8
- --------------------------------------------------------------------------------------------------------------
Fair value of contracts outstanding at June 30, 2002, net $ - $ -
- --------------------------------------------------------------------------------------------------------------
Maturities of contracts as of June 30, 2002 were as follows:
- --------------------------------------------------------------------------------------------------------------
Maturity Maturity in
less than Maturity Maturity excess of 5 Total fair
Sources of fair value 1 year 1-3 years 4-5 years years value (a)
- --------------------------------------------------------------------------------------------------------------
Prices actively quoted $ - $ (2) $ - $ - $ (2)
Prices provided by other external
sources (b) - - - - -
Prices based on models and other
valuation methods (c) (1) 4 (1) - 2
- --------------------------------------------------------------------------------------------------------------
Total $ (1) $ 2 $ (1) $ - $ -
- --------------------------------------------------------------------------------------------------------------
(a) Contracts of approximately 50% were with non-investment-grade rated
counterparties.
(b) Principally power forward values based on NYMEX prices for over-the-counter
contracts.
(c) Principally coal and sulfur dioxide option values based on a Black-Scholes
model that includes information from external sources and our estimates.
24
SAFE HARBOR STATEMENT
Statements made in this report which are not based on historical facts, are
"forward-looking" and, accordingly, involve risks and uncertainties that could
cause actual results to differ materially from those discussed. Although such
"forward-looking" statements have been made in good faith and are based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. These statements include (without limitation) statements as to future
expectations, beliefs, plans, strategies, objectives, events, conditions and
financial performance. In connection with the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we are providing this
cautionary statement to identify important factors that could cause actual
results to differ materially from those anticipated. The following factors, in
addition to those discussed elsewhere in this report and in the Annual Report on
Form 10-K for the year ended December 31, 2001, and in subsequent securities
filings, could cause results to differ materially from management expectations
as suggested by such "forward-looking" statements:
o the effects of the stipulation and agreement relating to the AmerenUE
excess earnings complaint case and other regulatory actions, including
changes in regulatory policy;
o changes in laws and other governmental actions, including monetary and
fiscal policies;
o the impact on us of current regulations related to the opportunity for
customers to choose alternative energy suppliers in Illinois;
o the effects of increased competition in the future due to, among other
things, deregulation of certain aspects of our business at both the state
and federal levels;
o the effects of participation in a FERC approved Regional Transmission
Organization (RTO), including activities associated with the Midwest
Independent System Operator;
o availability and future market prices for fuel and purchased power,
electricity, and natural gas, including the use of financial and derivative
instruments and volatility of changes in market prices;
o average rates for electricity in the Midwest;
o business and economic conditions;
o the impact of the adoption of new accounting standards;
o interest rates and the availability of capital;
o actions of rating agencies and the effects of such actions;
o weather conditions;
o generation plant construction, installation, and performance;
o the effects of strategic initiatives, including acquisitions and
divestitures;
o operation of nuclear power facilities and decommissioning costs;
o the impact of current environmental regulations on utilities and generating
companies and the expectation that more stringent requirements will be
introduced over time, which could potentially have a negative financial
effect;
o future wages and employee benefits costs;
o disruptions of the capital markets or other events making our access to
necessary capital more difficult or costly;
o competition from other generating facilities including new facilities that
may be developed in the future;
o delays in receipt of regulatory approvals for the acquisition of CILCORP or
unexpected adverse conditions or terms of those approvals;
o difficulties in integrating CILCO with Ameren's other businesses;
o changes in the coal markets, environmental laws or regulations or other
factors adversely impacting synergy assumptions in connection with the
CILCORP acquisition;
o cost and availability of transmission capacity for the energy generated by
our generating facilities or required to satisfy energy sales made by
Ameren; and
o legal and administrative proceedings.
25
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On April 26, 2002, our subsidiary, AmerenEnergy Generating Company
(Generating Company) received a notice of violation from the Illinois
Environmental Protection Agency (IEPA) concerning the alleged improper disposal
of bottom ash and slag materials originally from Generating Company's Coffeen
power plant and sold to an off-site facility. Generating Company sold the
material to an independent third party who in turn resold the material to U.S.
Minerals for use in the manufacture of building materials and industrial
abrasives. We believe that the notice of violation is without merit and the
Generating Company's sale and/or use of coal combustion by-products is
specifically authorized under the Illinois Environmental Protection Act. IEPA
also issued a notice of violation to U.S. Minerals alleging the improper
handling, storage and disposal of the coal combustion materials. We believe that
the final disposition of this matter will not have a material adverse effect on
our financial position, results or operation or liquidity.
On July 30, 2002, the Illinois Attorney General's Office advised us that it
would be commencing an enforcement action concerning an inactive waste disposal
site near Coffeen, Illinois, which is the location of a disposal facility
permitted by the IEPA to receive fly ash from the Coffeen power plant. The
Illinois Attorney General also notified the disposal facility's current and
former owners as to the proposed enforcement action. The Attorney General
advised that it may initiate an action under CERCLA to recover past costs
incurred at the site ($322,000) and to obtain a declaratory judgment as to
liability for future costs. Neither AmerenEnergy Generating Company (Generating
Company), the current owner of the Coffeen power plant, nor Central Illinois
Public Service Company, (AmerenCIPS), the prior owner of the Coffeen power
plant, owned or operated the disposal facility. We believe that this matter will
not have a material adverse effect on Ameren's financial position, results of
operations or liquidity.
Reference is made to Item 1. Business - Rates and Regulation -
Environmental Matters in Part I of our Form 10-K for the year-ended December 31,
2001 for a discussion of the lawsuit filed in the Circuit Court of Christian
County, Illinois by Steven and Tina Brannan against our subsidiaries, AmerenCIPS
and Generating Company, and us. This lawsuit alleged that AmerenCIPS and others
were negligent in the manner in which AmerenCIPS' manufactured gas plant site in
Taylorville, Illinois, was remediated, therefore wrongfully causing the death of
the Brannan's minor son. On July 3, 2002, a settlement agreement was entered
into with the Brannans which fully released our subsidiaries and us from all
liabilities claimed in the lawsuit in consideration for payment of an amount,
the disclosure of which is restricted by a confidentiality agreement. The
settlement will not have a material adverse effect on our financial position,
results of operations or liquidity.
Reference is made to Item 3. Legal Proceedings in Part I of our Form 10-K
for the year-ended December 31, 2001 and to Item 1. Legal Proceedings in Part II
of our Form 10-Q for the quarterly period ended March 31, 2002 for a discussion
of a number of lawsuits that name our subsidiaries, AmerenCIPS and Union
Electric Company, operating as AmerenUE, and us (which we refer to as the Ameren
companies), along with numerous other parties, as defendants that have been
filed by plaintiffs claiming varying degrees of injury from asbestos exposure.
Since the filing of our Form 10-Q for the quarterly period ended March 31, 2002,
thirty-four additional lawsuits have been filed against the Ameren companies.
These lawsuits, like the previous cases, were mostly filed in the Circuit Court
of Madison County, Illinois, involve a large number of total defendants and seek
unspecified damages in excess of $50,000, which, if proved, typically would be
shared among the named defendants. Also since our first quarter Form 10-Q
filing, a settlement has been reached in one lawsuit for a monetary amount not
material to the Ameren companies and in one case, the Ameren companies have been
voluntarily dismissed.
To date, a total of seventy-six asbestos-related lawsuits have been filed
against the Ameren companies, of which sixty-two are pending, ten have been
settled and four have been dismissed. We believe that the final disposition of
these proceedings will not have a material adverse effect on our financial
position, results of operations or liquidity.
26
ITEM 4. Submission of Matters To a Vote of Security Holders
At our annual meeting of stockholders held on April 23, 2002, the following
matters were presented to the meeting for a vote and the results of such voting
are as follows:
Item (1) Election of Directors.
Non-Voted
Name For Withheld Brokers
---- --- -------- -----------
William E. Cornelius 113,736,614 2,528,807 0
Clifford L. Greenwalt 113,618,313 2,647,108 0
Thomas A. Hays 113,816,089 2,449,332 0
Thomas H. Jacobsen 113,324,703 2,940,718 0
Richard A. Liddy 113,190,052 3,075,369 0
Gordon R. Lohman 113,805,800 2,459,621 0
Richard A. Lumpkin 113,233,864 3,031,557 0
John Peters MacCarthy 113,838,311 2,427,109 0
Hanne M. Merriman 113,823,430 2,441,991 0
Paul L. Miller, Jr 113,357,081 2,908,339 0
Charles W. Mueller 113,885,096 2,380,325 0
Harvey Saligman 113,265,201 3,000,220 0
James W. Wogsland 113,086,015 3,179,405 0
Item (2) Stockholder Proposal Relating to a Financial Assessment of the Costs of
Decommissioning the Callaway Nuclear Plant.
Non-Voted
For Against Abstain Brokers
--- ------- ------- -----------
6,462,086 106,876,678 3,931,442 19,620,928
Broker shares included in the quorum but not voting on the item.
ITEM 5. Other Information
Mr. Thomas H. Jacobsen, a Director of Ameren Corporation, died on July 20,
2002. No decision has been made as to who, if anyone, will be appointed to
replace Mr. Jacobsen.
Any stockholder proposal intended for inclusion in the proxy material for
our 2003 annual meeting of stockholders must be received by us by November 15,
2002.
In addition, under our By-Laws, stockholders who intend to submit a
proposal in person at an annual meeting, or who intend to nominate a director at
a meeting, must provide advance written notice along with other prescribed
information. In general, such notice must be received by our Secretary not later
than 60 nor earlier than 90 days prior to the first anniversary of the preceding
year's annual meeting. For our 2003 annual meeting of stockholders, written
notice of any in-person stockholder proposal or director nomination must be
received not later than February 22, 2003 or earlier than January 23, 2003.
The Audit Committee of the Board of Directors of Ameren has approved our
independent accountants, PriceWaterhouseCoopers, to perform the following audit
and non-audit services:
o Audits required by the federal, state or local government rules
o Audits of employee pension and benefits plans
o Income tax accounting and consulting projects
o Comfort letters and consents required to complete SEC filings and issue
securities
o Consultation on responses to accounting inquiries by regulatory or other
bodies
o Audit of AmerenEnergy earnings before interest and taxes statement
o Review of stock transfer agent and registrar internal controls
27
o Review of risk management internal controls
o Consultation on the accounting for corporate events and transactions
o Assistance with preparation of testimony for regulatory filings
ITEM 6. Exhibits and Reports on Form 8-K.
(a)(i) Exhibits.
10.1 - Memorandum of Understanding dated May 24, 2002 between
Ameren Services Company, as agent for AmerenUE and
AmerenCIPS, and the Midwest Independent Transmission System
Operator, Inc. (MISO).
10.2 - Participation Agreement dated as of July 3, 2002, by and
among MISO, Ameren Services Company, as agent for AmerenUE
and AmerenCIPS, FirstEnergy Corporation on behalf of
American Transmission Systems, Incorporated, Northern
Indiana Public Service Company and National Grid.
99.1 - Statement of Principal Executive Officer required by SEC
Order No. 4-460 (not filed as a part of this Report on Form
10-Q).
99.2 - Statement of Principal Financial Officer required by SEC
Order No. 4-460 (not filed as a part of this Report on Form
10-Q).
99.3 Certificate of Chief Executive Officer required by Section
906 of the Sarbanes-Oxley Act of 2002 (not filed as a part
of this Report on Form 10-Q).
99.4 Certificate of Chief Financial Officer required by Section
906 of the Sarbanes-Oxley Act of 2002 (not filed as a part
of this Report on Form 10-Q).
(a)(ii) Exhibits Incorporated by Reference.
4.1 - Third Supplemental Indenture dated as of June 1, 2002 to
Indenture dated as of November 1, 2000 from AmerenEnergy
Generating Company to The Bank of New York, as Trustee
relating to AmerenEnergy Generating Company's 7.95% Senior
Notes, Series E due 2032 (including as exhibit the form of
Note) (June 30, 2002 AmerenEnergy Generating Company Form
10-Q, Exhibit 4.1).
4.2 - Registration Rights Agreement, dated June 6, 2002, among
AmerenEnergy Generating Company and the Initial Purchasers
relating to AmerenEnergy Generating Company's 7.95% Senior
Notes, Series E due 2032 (June 30, 2002 AmerenEnergy
Generating Company Form 10-Q, Exhibit 4.2).
99.5 Stipulation and Agreement dated July 15, 2002 in Missouri
Public Service Commission (MoPSC) Case No. EC-2002-1
(earnings complaint case against AmerenUE) (File Nos.
333-87506 and 333-87506-01, Exhibit 99.1).
(b) Reports on Form 8-K. Ameren Corporation filed reports on Form 8-K
as follows: (i) dated April 29, 2002 incorporating a press release
announcing the signing of a definitive agreement with The AES
Corporation for the purchase of the common stock of its subsidiary,
CILCORP Inc.; (ii) dated May 28, 2002 relating to the decision of
AmerenCIPS and AmerenUE to rejoin the MISO; (iii) dated July 12, 2002
incorporating a press release stating that an agreement in principle
had been reached in the earnings complaint case filed by the MoPSC
staff against AmerenUE; (iv) dated July 16, 2002 incorporating a press
release outlining the details of the settlement reached in the MoPSC
earnings complaint case; and (v) dated July 25, 2002 incorporating a
press release stating that the MoPSC had approved the settlement
reached in the earnings complaint case.
28
Note: Reports of Central Illinois Public Service Company on Forms 8-K, 10-Q
and 10-K are on file with the SEC under File Number 1-3672.
Reports of Union Electric Company on Forms 8-K, 10-Q and 10-K are on
file with the SEC under File Number 1-2967.
Reports of AmerenEnergy Generating Company on Forms 8-K, 10-Q and 10-K
are on file with the SEC under the File Number 333-56594.
29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMEREN CORPORATION
(Registrant)
By /s/ Martin J. Lyons
------------------------------
Martin J. Lyons
Controller
(Principal Accounting Officer)
Date: August 14, 2002
30
Exhibit 10.1
Memorandum of Understanding
This Memorandum of Understanding is entered into this 24th day of May 2002
between Ameren Services Company (" Ameren Services"), as agent for Union
Electric Company, d/b/a AmerenUE and Central Illinois Public Service Company,
d/b/a AmerenCIPS, and the Midwest Independent Transmission System Operator, Inc.
("MISO"). Ameren Services and MISO may individually be referred to below as a
"Party" or collectively as "Parties".
Witnesseth:
Whereas Union Electric Company and Central Illinois Public Service Company
(collectively, the "Ameren Operating Companies") are wholly owned subsidiaries
of Ameren Corporation ("Ameren"), a multi-state public utility holding company
system; and
Whereas Ameren Services, as agent for the Ameren Operating Companies,
operates the transmission facilities of the Ameren Operating Companies as a
single system pursuant to Ameren Services' Open Access Transmission Tariff; and
Whereas the transmission facilities operated by Ameren Services are not
currently under the operational control of a Federal Energy Regulatory
Commission ("FERC") approved Regional Transmission Organization ("RTO"); and
Whereas MISO is a FERC approved RTO with an open architecture that
accommodates various forms of participation in its organization including
independent transmission companies; and
Whereas Ameren Services, as agent for the Ameren Operating Companies,
desires to pursue participation in the MISO in a manner that maximizes the value
of the transmission assets that Ameren Services operates; and
Whereas the Parties have entered into negotiations to develop arrangements
that would allow Ameren Services to participate either as a transmission owner
within MISO or as a member of an independent transmission company within MISO;
and
Whereas the Parties desire to set forth the principles and conditions
governing Ameren Services' proposed participation in MISO.
Now therefore, the Parties agree as follows:
1. For purposes of this Memorandum of Understanding, the transmission
facilities proposed to be transferred to MISO's operational control
include all transmission facilities owned by the Ameren Operating
Companies within the control area operated by Ameren Services.
2. Ameren Services, on behalf of the Ameren Operating Companies, will
apply for membership in MISO as an individual transmission owner or,
as part of an Independent Transmission Company, under Appendix I of
the MISO Agreement. Such Independent Transmission Company may be the
Alliance Gridco. Ameren Services will apply for such membership in
MISO within thirty days of execution of this Memorandum of
Understanding. If Ameren Services assumes membership in MISO as an
individual transmission owner, Ameren Services may nonetheless
transfer the transmission facilities of the Ameren Operating Companies
to an Independent Transmission Company operating under Appendix I of
the MISO Agreement at any time. Ameren Services' rights and
obligations under this Memorandum of Understanding will apply whether
Ameren Services joins MISO as an individual transmission owner or as
2
part of an Independent Transmission Company, except that the
withdrawal provisions for an individual transmission owner would apply
if Ameren Services joins and remains as an individual transmission
owner.
3. Ameren Services will remain in MISO through at least December 31,
2004, but has the right to withdraw from MISO at anytime thereafter,
subject to the required regulatory approvals. Except as provided in
paragraphs 6 and 7, Ameren Services will provide MISO with no less
than twelve months written notice of its intent to withdraw from MISO.
While Ameren Services will not be responsible for an exit fee in order
to withdraw, Ameren Services will remain responsible for all financial
obligations it incurs under the applicable MISO agreements and the
MISO Open Access Transmission Tariff (MISO Tariff) before the date of
its withdrawal. It is the intent of the Parties that Ameren Services'
financial obligations to the MISO upon its departure will be limited
to (i) any unamortized Ameren Services integration costs as described
in paragraph 8, (ii) any unamortized Alliance RTO and Alliance
Participants Administrative and Start-Up Activities Company LLC costs
described in paragraph 12, (iii) should the Offer of Settlement in
Docket No. ERO2-111-000 concerning the Schedule 10 to the MISO Tariff
(MISO Schedule 10) be approved by the FERC, Ameren Services'
proportional share of any unamortized settlement credits and
associated financing costs that were applicable in a month when load
served within the Ameren Services zone was paying the MISO Schedule 10
charges and the settlement credits were in force, and (iv) Ameren
Services load ratio share of any unamortized amounts resulting from
the payment pursuant to paragraph 14.
4. MISO will make no assessment or other allocation to Ameren Services or
other MISO transmission owners or Independent Transmission Companies
of capital costs associated with the integration of the Southwest
Power Pool, its transmission owners or members into MISO. The costs
associated with such integration will be recovered under MISO Schedule
10.
3
5. MISO will make no assessment or other allocation to Ameren Services or
other MISO transmission owners or Independent Transmission Companies
of capital costs associated with the development and implementation of
a standard market design. The MISO will file with the FERC a proposal
for deferring and recovering costs associated with the development and
implementation of a standard market design from all market
participants through a user based transaction mechanism similar to
MISO Schedule 10; provided however, MISO will not make such FERC
filing until after MISO has first presented the proposal to its
stakeholders for review and comment.
6. If ownership of all or a substantial portion of the Ameren Operating
Companies transmission facilities is changed as a result of a sale,
merger, or acquisition involving a party other than an affiliate of
the Ameren Operating Companies, then the new owner may withdraw the
applicable Ameren Operating Companies' transmission facilities from
MISO at any time following thirty days written notice to MISO, subject
to applicable regulatory approvals.
7. Subject to FERC approval, Ameren Services, on behalf of the Ameren
Operating Companies, will have the right to withdraw from MISO upon
thirty days written notice if any MISO transmission owners or
Independent Transmission Companies withdraw from MISO and either: a)
the transmission facilities of the Ameren Operating Companies are no
longer directly interconnected with a remaining MISO member; or, b) in
Ameren Services sole discretion, a material portion of the
transmission facilities under MISO's operational control are removed
by the withdrawing member or members.
8. MISO and Ameren Services will incur costs to integrate the
transmission facilities of the Ameren Operating Companies into MISO.
MISO and Ameren Services will agree upon an integration plan and
budget prior to any integration expenditures being made. MISO will
reimburse Ameren Services for its integration costs upon completion of
the integration plan activities. MISO will recover its costs, both
4
those directly incurred and those incurred to reimburse Ameren
Services, exclusively from MISO Schedule 10 revenues. Ameren Services
will not have to pay the MISO membership application fee because of
Ameren's existing MISO membership status. Ameren Services, the Ameren
Operating Companies, Ameren's affiliate companies or their customers,
as applicable, will pay the MISO Schedule 10 charge applicable to load
served within the Ameren Services zone.
9. MISO will support the use of the existing Ameren Services Open Access
Transmission Tariff ("OATT") rates and rate design within the Ameren
Services zone, and will permit Ameren Services, at Ameren Services'
option to convert its existing OATT rate for network integration
transmission service within the Ameren Services zone to a formula
based rate. MISO will support the use of Ameren Services' rate
structure for operations within MISO to the greatest extent possible.
Ameren Services reserves the right to proffer, individually or with
other companies, the Alliance rate design endorsed by the FERC in its
April 25, 2002 Order On Petition For Declaratory Order in Docket Nos.
EL02-65-000 et al (hereinafter the "April 25th Order").
10. MISO will also support the recovery of Ameren Services' lost revenues
resulting from the elimination of multiple zonal transmission rate
charges and corresponding revenue allocation in a manner consistent
with the April 25th Order.
11. MISO will either discount its total charges for Drive-Out and
Drive-Through Service or make a Section 205 application with the FERC
to lower the cap on its total charges for Drive-Out and Drive-Through
Service. The new cap on its total charges for Drive-Out and
Drive-Through Service, whether achieved by discount or filing, will be
formulated to provide flexibility for the MISO to maximize revenue
while minimizing the charges applied to this service.
12. MISO will make a Section 205 application with the FERC to provide for
the recovery, through MISO Schedule 10, of all prudent costs incurred
5
by the Ameren Operating Companies for Alliance RTO development and
start-up activities, including costs of establishing Alliance
Participants Administrative and Start-Up Activities Company LLC.
13. The Parties acknowledge that implementation of these principles and
conditions may be subject to the approval of regulatory authorities.
MISO and Ameren Services agree to cooperate in negotiating and
executing any agreements necessary to reflect the provisions of this
Memorandum of Understanding so that applications for all necessary
regulatory approvals can be filed as soon as possible. It is the
objective of MISO and Ameren Services that Ameren Services begin
operations under MISO no later than four months after receipt of the
last regulatory approval.
14. Within 60 days after final order from FERC is received accepting
Ameren Services participation in MISO on terms consistent with this
Memorandum of Understanding, the MISO agrees to pay to Ameren Services
the $18 million paid to the MISO pursuant to the Settlement Agreement
reached in Docket No.ER01-123-002 plus interest and less credits, if
any, actually received by Ameren Services or its affiliates through
Schedule 10A. The interest rate will be determined monthly using the
average monthly rate the MISO earned on investments from the time the
monies were received by the MISO until the date of the repayment.
15. In the event that a regulatory authority materially modifies any of
the terms and conditions of Ameren Services' participation in MISO,
including its rights under this Memorandum of Understanding, the
Parties agree to negotiate in good faith to establish new terms and
conditions that place the Parties in the same position as bargained
for herein. In the event that the Parties cannot reach an agreement
within thirty days of the regulatory action on new terms and
conditions, or the new terms and conditions are not subsequently
approved by the regulatory authority, Ameren Services may withdraw its
application to join MISO upon thirty days written notice.
6
16. All discussions and information exchanged under this Memorandum of
Understanding are confidential. No information provided by the
disclosing Party to the other Party may be disclosed to third parties
without the consent of the disclosing Party. No Party will issue any
press release or make any public disclosure concerning this Memorandum
of Understanding without the consent of the other Party.
AGREED TO this 24th day of May 2002 by the undersigned representatives of Ameren
Services and MISO.
Midwest Independent Transmission Ameren Services Company
Incorporated as agent for
Union Electric Company d/b/a
AmerenUE and
Central Illinois Public Service
Company d/b/a AmerenCIPS
/s/ James P. Torgerson /s/ David A. Whiteley
- ------------------------------------------ ----------------------------
By: James P. Torgerson By: David A. Whiteley
Title: President & Chief Executive Officer Title: Senior Vice President
7
Exhibit 10.2
PARTICIPATION AGREEMENT
by and among
MIDWEST INDEPENDENT TRANSMISSION SYSTEM OPERATOR, INC.,
AMEREN SERVICES COMPANY
as agent for
Union Electric Company d/b/a AmerenUE and
Central Illinois Public Service Company d/b/a AmerenCIPS,
FIRSTENERGY CORP.
on behalf of
American Transmission Systems, Incorporated,
NORTHERN INDIANA PUBLIC SERVICE COMPANY
and
NATIONAL GRID USA
Dated as of July 3, 2002
ANNEXES
A Definitions
B Notice Information
EXHIBITS
A GridAmerica Letter of Intent and Term Sheet
B Form of Appendix I ITC Agreement
This PARTICIPATION AGREEMENT dated as of July 3, 2002 is made and entered
into by and among MIDWEST INDEPENDENT TRANSMISSION SYSTEM OPERATOR, INC. (the
"Midwest ISO"), AMEREN SERVICES COMPANY, a Missouri corporation, as agent for
Union Electric Company d/b/a AmerenUE and Central Illinois Public Service
Company d/b/a AmerenCIPS, FIRSTENERGY CORP., an Ohio corporation, on behalf of
American Transmission Systems, Incorporated, NORTHERN INDIANA PUBLIC SERVICE
COMPANY, an Indiana corporation, (each of the foregoing companies is referred to
herein as a "GridAmerica Company" and, collectively, as the "GridAmerica
Companies") and NATIONAL GRID USA, a Delaware corporation ("National Grid").
RECITALS
WHEREAS, on April 25, 2002, the United States Federal Energy Regulatory
Commission (together with any successor agency, the "FERC" or the "Commission")
issued an order in Docket No. EL02-65 (99 FERC 61, 105 (2002) encouraging the
formation of an independent transmission company ("ITC") within the Midwest ISO;
WHEREAS, the Midwest ISO is a FERC approved regional transmission
organization ("RTO") with an open architecture that accommodates various forms
of ITC in its operation;
WHEREAS, the GridAmerica Companies wish to comply with Order No. 2000
through the formation of an ITC within the Midwest ISO;
WHEREAS, the GridAmerica Companies and National Grid ("National Grid") have
executed that certain letter of intent dated June 20, 2002, a copy of which is
annexed hereto as Exhibit A, regarding the formation and operation of
GridAmerica LLC ("GridAmerica") as an ITC within the Midwest ISO;
WHEREAS, GridAmerica will sign Operation Agreements with each of the
GridAmerica Companies that will provide GridAmerica with functional control of
the transmission facilities of the GridAmerica Companies that are not currently
under the operational control of a FERC approved RTO; and
WHEREAS, the Midwest ISO, the GridAmerica Companies and National Grid now
desire to enter into this Agreement in order to evidence their desire to execute
and deliver the Appendix I ITC Agreement, a copy of which is attached hereto as
Exhibit B (the "ITC Agreement"), and to consummate the transactions contemplated
hereby and thereby and to evidence their respective obligations as set forth
herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:
ARTICLE I
CLOSING
Section 1.01 Closing.
(a) The closing of the transactions contemplated by this Agreement (the
"Closing") will take place at such place as the parties mutually agree at 10:00
A.M. local time, on a date (the "Closing Date") within five (5) Business Days
after the date on which all of the conditions precedent set forth in Article III
of this Agreement have been satisfied or waived in accordance with the terms of
Article III, or at such other place and time as the Parties mutually agree.
(b) At the Closing: (i) the ITC Agreement and such other agreements,
instruments, certifications and documents as may be necessary or desirable to
effectuate the transactions contemplated by this Agreement and the ITC
Agreement, shall be duly executed and delivered by and to each of the intended
parties thereto and GridAmerica shall complete the transfer functional control
of the transmission facilities of the GridAmerica Companies to the Midwest ISO
as contemplated by the ITC agreement; (ii) in consideration for the Midwest
ISO's ability to have unrestricted use of the capital assets developed by the
Alliance Participants Administrative and Start-up Activities Company LLC
("BridgeCo"), the Midwest ISO shall make (x) a one-time payment equal to the
amount contributed by the GridAmerica Companies and the other Midwest ISO
members to BridgeCo to develop these assets and the costs incurred hereafter to
finish such development and (y) a one-time payment to each GridAmerica Company
to reimburse such GridAmerica Company the costs incurred by it in the
development of Alliance RTO, such unrestricted use and payments to be made
pursuant to an agreement which shall be mutually acceptable to the Parties and
which agreement shall be executed and delivered no later than the Closing Date;
and (iii) the Midwest ISO shall refund to Ameren Service Company, with interest,
the $18,000,000 payment made by Ameren to leave the Midwest ISO pursuant to the
terms of the settlement approved in Illinois Power Co., 95 FERC 61,183, order on
reh'g, 96 FERC 61,206 (2001). ca Company to reimburse such GridAmerica Company
the costs incurred by it in the development of Alliance RTO, such unrestricted
use and payments to be made pursuant to an agreement which shall be mutually
acceptable to the Parties and which agreement shall be executed and delivered no
later than the Closing Date; and (iii) the Midwest ISO shall refund to Ameren
Service Company, with interest, the $18,000,000 payment made by Ameren to leave
the Midwest ISO pursuant to the terms of the settlement approved in Illinois
Power Co., 95 FERC 61,183, order on reh'g, 96 FERC 61,206 (2001) .
Section 1.02 Further Assurances.
Upon the request of a Party, each other Party shall execute and deliver, or
shall cause its respective Affiliate(s) to execute and deliver, such other
agreements, instruments, certifications or other documents and shall take, and
cause its Affiliates to take, such other action as may be reasonably necessary
and desirable to implement the transactions contemplated to be implemented at
the Closing.
ARTICLE II
COVENANTS OF THE PARTIES
Section 2.01 Covenants of GridAmerica Companies.
Each GridAmerica Company covenants to the Midwest ISO and National Grid and
each of the other GridAmerica Companies that, at all times from and after the
date hereof until the Closing Date, it shall comply with each of the following
covenants.
(a) Required Consents.
It shall: (i) take commercially reasonable steps necessary and proceed
diligently and in good faith to obtain all Required Consents required to be
obtained by it to consummate the transactions contemplated hereby; (ii) provide
information which may be requested by Governmental Authorities in connection
therewith; and (iii) cooperate with the Midwest ISO and National Grid and each
other GridAmerica Company in obtaining all Required Consents required of each of
them to consummate the transactions contemplated hereby. It shall provide prompt
notification to the Midwest ISO and National Grid and each other GridAmerica
Company when any Required Consent referred to in clause (i) above is obtained,
taken, made or given, as applicable, and shall advise the Midwest ISO and
National Grid and each other GridAmerica Company of any material, written,
non-confidential communications (and, upon request and unless confidential or
precluded by Law, provide copies of any such material communications which are
in writing) with any Governmental Authority regarding such Required Consents.
(b) Fulfillment of Conditions.
It further covenants that it shall exercise commercially reasonable efforts
and proceed diligently and in good faith to satisfy the conditions to Closing
set forth in Article III upon which the Midwest ISO, National Grid and the other
GridAmerica Companies are entitled to rely and which conditions are within its
control to satisfy, including taking, and causing each of its Affiliates to
take, all reasonable steps necessary or desirable to proceed diligently and in
good faith to satisfy its obligations contained in this Agreement and
refraining, and causing each of its Affiliates to refrain, from taking any
action that could reasonably be expected to result in the non-fulfillment of any
such obligation.
Section 2.02 Covenants of National Grid.
National Grid covenants to the Midwest ISO and each GridAmerica Company
that, at all times from and after the date hereof until the Closing Date, it
shall comply with each of the following covenants.
(a) Required Consents.
It shall: (i) take commercially reasonable steps necessary and proceed
diligently and in good faith to obtain all Required Consents required to be
obtained by it to consummate the transactions contemplated hereby; (ii) provide
information which may be requested by Governmental Authorities in connection
therewith; and (iii) cooperate with the Midwest ISO and each GridAmerica Company
in obtaining all Required Consents required of each of them to consummate the
transactions contemplated hereby. It shall provide prompt notification to the
Midwest ISO and each GridAmerica Company when any Required Consent referred to
in clause (i) above is obtained, taken, made or given, as applicable, and shall
advise the Midwest ISO and each GridAmerica Company of any material, written,
nonconfidential communications (and, upon request and unless confidential or
precluded by Law, provide copies of any such material communications which are
in writing) with any Governmental Authority regarding such Required Consents.
(b) Formation and Business of Initial Member and Company.
Upon the fulfillment of the conditions set forth in Section 3.02, it shall
form GridAmerica and cause GridAmerica to execute and deliver the ITC Agreement
and such other agreements, instruments, certifications and documents as may be
necessary and desirable to effectuate the transactions contemplated by the ITC
Agreement as contemplated by Article I.
(c) Fulfillment of Conditions.
It shall exercise commercially reasonable efforts and proceed diligently
and in good faith to satisfy the conditions to Closing set forth in Article III
upon which the Midwest ISO and the GridAmerica Companies are entitled to rely
and which conditions are within its control to satisfy, including taking, and
causing each of its Affiliates to take, all reasonable steps necessary or
desirable to proceed diligently and in good faith to satisfy its obligations
contained in this Agreement and refraining, and causing each of its Affiliates
to refrain, from taking any action that could reasonably be expected to result
in the non-fulfillment of any such obligation.
Section 2.03 Covenants of the Midwest ISO.
The Midwest ISO covenants to National Grid and each of the GridAmerica
Companies that, at all times from and after the date hereof until the Closing
Date, it shall comply with each of the following covenants.
(a) Required Consents.
It shall: (i) take commercially reasonable steps necessary and proceed
diligently and in good faith to obtain all Required Consents required to be
obtained by it to consummate the transactions contemplated hereby; (ii) provide
information which may be requested by Governmental Authorities in connection
therewith; and (iii) cooperate with National Grid and each GridAmerica Company
in obtaining all Required Consents required of each of them to consummate the
transactions contemplated hereby. It shall provide prompt notification to
National Grid and each GridAmerica Company when any Required Consent referred to
in clause (i) above is obtained, taken, made or given, as applicable, and shall
advise National Grid and each GridAmerica Company of any material, written,
non-confidential communications (and, upon request and unless confidential or
precluded by Law, provide copies of any such material communications which are
in writing) with any Governmental Authority regarding such Required Consents.
(b) Fulfillment of Conditions.
It further covenants that it shall exercise commercially reasonable efforts
and proceed diligently and in good faith to satisfy the conditions to Closing
set forth in Article III upon which National Grid and the GridAmerica Companies
are entitled to rely and which conditions are within its control to satisfy,
including taking, and causing each of its Affiliates to take, all reasonable
steps necessary or desirable to proceed diligently and in good faith to satisfy
its obligations contained in this Agreement and refraining, and causing each of
its Affiliates to refrain, from taking any action that could reasonably be
expected to result in the non-fulfillment of any such obligation.
ARTICLE III
CONDITIONS PRECEDENT TO CLOSING
Section 3.01 Conditions Precedent to Obligations of GridAmerica Companies.
The obligation of each GridAmerica Company to enter into the transactions
to take place at the Closing is subject to the satisfaction, or waiver by such
GridAmerica Company, of each of the following conditions precedent:
(a) Performance.
The Midwest ISO, National Grid and each of the other GridAmerica Companies
shall have performed and complied, in all material respects, with each of its
covenants set forth in this Agreement to be so performed and complied with by it
at or prior to the Closing.
(b) Orders and Laws.
There shall not be in effect on the Closing Date any Order or Law
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of the transactions contemplated by this Agreement, the ITC
Agreement or the ITC Documents, and there shall not be pending or threatened on
the Closing Date any Proceeding in, before or by any Governmental Authority
which could reasonably be expected to result in the issuance of any such Order
or to prohibit any of such transactions.
(c) Required Consents.
The Commission shall have issued a Final Order which is an Approval Order,
and all other Required Consents (including Required Consents to be obtained,
made or given by any federal or state Governmental Authorities) shall: (i) have
been duly obtained, made or given; (ii) be in form and substance which would
not, in its reasonable judgment, and when considered in light of the Final Order
and all other Required Consents (A) cause it to fail to realize any material
benefit which it reasonably anticipates from the transactions contemplated by
the ITC Agreement and the ITC Documents or (B) impose any conditions or
requirements which could reasonably be expected to have a material and adverse
effect on its or any of its Affiliates' current or planned operations or
business activities or its or their prospects; (iii) be in full force and effect
and any waiting periods with respect thereto shall have expired; and (iv) not be
subject to any Proceeding which, if determined adversely, could result in the
loss, amendment or conditioning thereof.
(d) Effectiveness of ITC Documents.
The ITC Documents, including all schedules, exhibits and appendices
thereto, shall have been completed, in form and substance reasonably acceptable
to such GridAmerica Company, and such ITC Documents shall have been executed and
delivered by each of the intended parties thereto and shall have become
effective.
(e) Formation of GridAmerica and Transfer of Functional Control.
GridAmerica shall have been formed and shall have acquired functional
control of the transmission facilities of the GridAmerica Companies which are
the subject of the ITC Agreement.
Section 3.02 Conditions Precedent to Obligations of National Grid.
The obligation of National Grid to enter into the transactions to take
place at the Closing is subject to the satisfaction, or waiver by National Grid,
of each of the following conditions precedent:
(a) Performance.
The Midwest ISO and each GridAmerica Company shall have performed and
complied, in all material respects, with each of its covenants set forth in this
Agreement to be so performed and complied with by it at or prior to the Closing.
(b) Orders and Laws.
There shall not be in effect on the Closing Date any Order or Law
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of the transactions contemplated by this Agreement, the ITC
Agreement or the ITC Documents, and there shall not be pending or threatened on
the Closing Date any Proceeding in, before or by any Governmental Authority
which could reasonably be expected to result in the issuance of any such Order
or to prohibit any of such transactions.
(c) Required Consents.
The Commission shall have issued a Final Order which is an Approval Order,
and all other Required Consents (including Required Consents to be obtained,
made or given by any federal or state Governmental Authorities) shall: (i) have
been duly obtained, made or given; (ii) be in form and substance which would
not, in its reasonable judgment, and when considered in light of the Final Order
and all other Required Consents (A) cause it to fail to realize any material
benefit which it reasonably anticipates from the transactions contemplated by
the ITC Agreement and the ITC Documents or (B) impose any conditions or
requirements which could reasonably be expected to have a material and adverse
effect on its or any of its Affiliates' current or planned operations or
business activities or its or their prospects; (iii) be in full force and effect
and any waiting periods with respect thereto shall have expired; and (iv) not be
subject to any Proceeding which, if determined adversely, could result in the
loss, amendment or conditioning thereof.
(d) Effectiveness of ITC Documents.
The ITC Documents, including all schedules, exhibits and appendices
thereto, shall have been completed, in form and substance reasonably acceptable
to National Grid, and such ITC Documents shall have been executed and delivered
by each of the intended parties thereto and shall have become effective.
(e) Formation of GridAmerica and Transfer of Functional Control.
GridAmerica shall have been formed and shall have acquired functional
control of the transmission facilities of the GridAmerica Companies which are
the subject of the ITC Agreement.
Section 3.03 Conditions Precedent to Obligations of the Midwest ISO.
The obligation of the Midwest ISO to enter into the transactions to take
place at the Closing is subject to the satisfaction, or waiver by the Midwest
ISO, of each of the following conditions precedent:
(a) Performance.
National Grid and each GridAmerica Company shall have performed and
complied, in all material respects, with each of its covenants set forth in this
Agreement to be so performed and complied with by it at or prior to the Closing.
(b) Orders and Laws.
There shall not be in effect on the Closing Date any Order or Law
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of the transactions contemplated by this Agreement, the ITC
Agreement or the ITC Documents but only, in the case of the ITC Documents,
insofar as the ITC Documents purport to alter or otherwise modify the rights and
obligations of the Midwest ISO as set forth in the ITC Agreement, and there
shall not be pending or threatened on the Closing Date any Proceeding in, before
or by any Governmental Authority which could reasonably be expected to result in
the issuance of any such Order or to prohibit any of such transactions.
(c) Required Consents.
The Commission shall have issued a Final Order which is an Approval Order,
and all other Required Consents (including Required Consents to be obtained,
made or given by any federal or state Governmental Authorities) shall: (i) have
been duly obtained, made or given; (ii) be in form and substance which would
not, in its reasonable judgment, and when considered in light of the Final Order
and all other Required Consents (A) cause it to fail to realize any material
benefit which it reasonably anticipates from the transactions contemplated by
the the ITC Agreement or the ITC Documents but only, in the case of the ITC
Documents, insofar as the ITC Documents purport to alter or otherwise modify the
rights and obligations of the Midwest ISO as set forth in the ITC Agreement or
(B) impose any conditions or requirements which could reasonably be expected to
have a material and adverse effect on its or any of its Affiliates' current or
planned operations or business activities or its or their prospects; (iii) be in
full force and effect and any waiting periods with respect thereto shall have
expired; and (iv) not be subject to any Proceeding which, if determined
adversely, could result in the loss, amendment or conditioning thereof.
(d) Effectiveness of ITC Documents.
The ITC Documents, including all schedules, exhibits and appendices
thereto, shall have been completed, and insofar as the ITC Documents purport to
alter or otherwise modify the rights and obligations of the Midwest ISO as set
forth in the ITC Agreement, shall be in form and substance reasonably acceptable
to the Midwest ISO, and such ITC Documents shall have been executed and
delivered by each of the intended parties thereto and shall have become
effective.
(e) Formation of GridAmerica and Transfer of Functional Control.
GridAmerica shall have been formed and shall have acquired functional
control of the transmission facilities of the GridAmerica Companies which are
the subject of the ITC Agreement.
Section 3.04 Limitations.
Notwithstanding anything to the contrary set forth in Sections 3.01, 3.02
and 3.03, no Party shall be relieved of its obligations under this Agreement due
to the failure of any condition if such failure is based on such Party's failure
to perform in accordance with the terms of this Agreement.
ARTICLE IV
TERMINATION; WITHDRAWAL
Section 4.01 Termination.
This Agreement may be terminated prior to Closing:
(a) by written agreement executed by each of the Parties;
(b) by National Grid, upon written notice to each of the other Parties, if
the Closing shall not have occurred on or before December 31, 2002 and the
failure to achieve Closing is not caused by its failure to perform in accordance
with the terms of this Agreement; or
(c) by National Grid upon issuance by the Commission of a Final Order which
is not an Approval Order, provided that National Grid serves notice of
termination to the other Parties no later than 20 days after issuance of such
Final Order.
Section 4.02 Effect of Termination.
If this Agreement is terminated pursuant to Section 4.01, it shall
forthwith become null and void and there shall be no liability or obligation on
the part of any Party (or any of their respective officers, directors,
employees, agents or other representatives or Affiliates), except that
notwithstanding any other provisions in this Agreement to the contrary, upon
termination of this Agreement pursuant to Section 4.01, each Party will remain
liable to each other Party for any willful breach of this Agreement existing at
the time of such termination, and each Party may seek such remedies, including
damages and reasonable fees and expenses of attorneys, against any other Party
with respect to any such breach as are provided in this Agreement or as are
otherwise available at Law or in equity, including the right to demand specific
performance.
Section 4.03 Withdrawal.
At any time prior to Closing, any GridAmerica Company may, in its sole
discretion, withdraw as a Party to this Agreement by delivering written notice
(a "Withdrawal Notice") to each other Party under the following circumstances:
(i) within thirty (30) days after the issuance by the Commission of a Final
Order which is not an Approval Order; (ii) within fifteen (15) days after its
receipt of a Withdrawal Notice issued pursuant to clause (i) hereof by another
GridAmerica Company; (iii) if the Closing shall not have occurred on or before
December 31, 2002, and the failure to achieve Closing is not caused by such
GridAmerica Company's failure to perform in accordance with the terms of this
Agreement; or (iv) if, prior to December 31, 2002, it enters into a definitive
agreement, subject to customary terms and conditions, pursuant to which it will
be acquired by or merged with another company or it is obligated to transfer all
or substantially all of its transmission facilities which are the subject of the
ITC Agreement, in each case whether by merger, consolidation, sale of assets or
otherwise to any Person or Persons other than one or more of its Affiliates,
another GridAmerica Company or National Grid. Upon its withdrawal pursuant to
this Section 4.03, a GridAmerica Company shall cease to have any rights,
obligations or liabilities under this Agreement (other than rights and
obligations as set forth in this Section 4.03 and liabilities that existed prior
to the date of withdrawal).
Section 4.04 Exclusion of Consequential Damages.
Notwithstanding anything contained in this Agreement to the contrary, no
Party shall be liable to any other Party for indirect, consequential, special or
punitive damages on account of any Proceeding brought hereunder or related
hereto.
ARTICLE V
MISCELLANEOUS
Section 5.01 Notices.
Every notice, request, or other statement to be made or delivered to a
Party pursuant to this Agreement shall be directed to such Party's
representative at the address or facsimile number for such Party set forth on
Annex B or to such other address or facsimile number as the Party may designate
by written notice to each other Party from time to time. All notices or other
communications required or permitted to be given pursuant to this Agreement must
be in writing and will be considered as properly given if sent by facsimile
transmission (with confirmation notice sent by first class mail, postage
prepaid), by reputable nationwide overnight delivery service that guarantees
next Business Day delivery, by personal delivery, or, if mailed from within the
United States, by first class United States mail, postage prepaid, registered or
certified with return receipt requested. Any notice hereunder will be deemed to
have been duly given: (i) on the date personally delivered; (ii) when received,
if sent by certified or registered mail, postage prepaid, return receipt
requested or if sent by overnight delivery service; or (iii) if sent by
facsimile transmission, on the date sent, provided confirmation notice is sent
by first-class mail, postage prepaid promptly thereafter.
Section 5.02 Entire Agreement.
This Agreement constitutes the entire agreement among the Parties
pertaining to the subject matter hereof and supersedes all prior agreements,
representations and understandings, written or oral, pertaining thereto but
excluding that certain Non-Disclosure Agreement dated as of June 20, 2002
between the Midwest ISO, the GridAmerica Companies and National Grid USA Service
Company, Inc.
Section 5.03 Expenses.
Except as otherwise expressly provided in this Agreement, each Party will
pay its own costs and expenses incurred in connection with the negotiation,
execution and closing of this Agreement.
Section 5.03 Several Obligations.
Each of the obligations of the GridAmerica Companies or any of them shall
be several and not joint and several.
Section 5.04 Amendment; Waiver.
No amendment to or modification of this Agreement shall be valid unless the
same shall be in writing and signed by the Parties and no waiver of or under any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by the Party to be bound thereby.
Section 5.05 No Third-Party Beneficiary.
This Agreement is intended to be solely for the benefit of the Parties,
their successors and permitted assignees, and is not intended to and shall not
confer any rights or benefits on any Person not a signatory hereto.
Section 5.06 No Assignment; Binding Effect.
Neither this Agreement nor any right, interest or obligation hereunder may
be assigned by any Party without the prior written consent of each other Party,
and any attempt to do so will be void, except for assignments and transfers: (i)
by operation of Law; or (ii) to any Person that acquires any GridAmerica
Company's transmission facilities which are the subject of the ITC Agreement.
Subject to the preceding sentence, this Agreement is binding upon, inures to the
benefit of and is enforceable by the Parties and their respective successors and
assigns.
Section 5.07 Severability.
Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
that prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of that provision
in any other jurisdiction.
Section 5.08 Governing Law; Waiver of Jury Trial.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK EXCLUDING ITS CHOICE OF LAW PRINCIPLES THAT WOULD
REQUIRE THE LAW OF ANOTHER JURISDICTION TO APPLY. EACH OF THE PARTIES
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 5.09 Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument, notwithstanding that all of the Parties are not signatories to the
original or to the same counterpart.
Section 5.10 No Partnership.
This Agreement is not intended and shall not be construed, interpreted or
applied to create a partnership or joint venture among all or any of the
Parties.
Section 5.11 Definitions.
Capitalized terms not otherwise defined herein shall have the meanings
given in Annex A.
Section 5.12 Interpretation.
The following provisions shall be applied wherever appropriate herein:
(a) "herein," "hereby," "hereunder," "hereof," "hereto" and other
equivalent words shall refer to this Agreement as an entirety and not solely to
the particular portion of this Agreement in which any such word is used;
(b) "including" means "including without limitation" and is a term of
illustration and not of limitation;
(c) all definitions set forth herein shall be deemed applicable whether the
words defined are used herein in the singular or the plural;
(d) unless otherwise expressly provided, any term defined in Annex A by
reference to any other document shall be deemed to be amended herein to the
extent that such term is subsequently amended in such document in an amendment
entered into in accordance with such document;
(e) wherever used herein, any pronoun or pronouns shall be deemed to
include both the singular and plural and to cover all genders;
(f) neither this Agreement nor any other agreement, document or instrument
referred to herein or executed and delivered in connection herewith shall be
construed against any Person as the principal draftsperson hereof or thereof;
(g) the section headings appearing in this Agreement are inserted only as a
matter of convenience and in no way define, limit, construe or describe the
scope or extent of such section, or in any way affect this Agreement;
(h) any references herein to a particular Section, Article, Annex, Exhibit
or Schedule means a Section or Article of, or an Annex, Exhibit or Schedule to,
this Agreement unless another agreement is specified; and
(i) the Annexes, Exhibits and Schedules attached hereto are incorporated
herein by reference and shall be
considered part of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed, acknowledged and
delivered by the duly authorized representatives of the Parties as of the date
first written above.
MIDWEST TRANSMISSION SYSTEM OPERATOR, INC.
By: /s/ J. P. Torgerson
----------------------------
Name: J. P. Torgerson
-------------------------
Title: President & CEO
-------------------------
APPROVED this 3rd day of July, 2002.
AMEREN SERVICES COMPANY (on behalf of
Union Electric Company and
Central Illinois Public Service Company)
By: /s/ David A. Whiteley
---------------------------------------------
Name: David A. Whiteley
---------------------------------------------
Title: Senior Vice President
---------------------------------------------
Address: 1901 Chouteau Avenue
---------------------------------------------
P. O. Box 66149, MC10
---------------------------------------------
St. Louis, MO 63166-6149
---------------------------------------------
Attention:
---------------------------------------------
Phone: 314-554-2942
---------------------------------------------
Facsimile: 314-554-3066
---------------------------------------------
APPROVED this 3rd day of July, 2002.
FirstEnergy Corp. (on behalf of American Transmission Systems, Inc.)
By: /s/ Stanley F. Szwed
---------------------------------------------
Name: Stanley F. Szwed
---------------------------------------------
Title: Vice President, Transmission
---------------------------------------------
Address: FirstEnergy Corp.
---------------------------------------------
76 South Main Street
---------------------------------------------
Akron, OH 44308
---------------------------------------------
Attention:
---------------------------------------------
Phone: 330-384-2454
---------------------------------------------
Facsimile: 330-384-4988
---------------------------------------------
APPROVED this 3rd day of July, 2002.
NORTHERN INDIANA PUBLIC SERVICE COMPANY
By: /s/ Frank A. Venhuizen
---------------------------------------------
Name: Frank A. Venhuizen
---------------------------------------------
Title: Director, Electric Transmission
---------------------------------------------
& Market Services
---------------------------------------------
Address: Northern Indiana Public Service Co.
---------------------------------------------
801 East 86th Avenue
---------------------------------------------
Merriville, Indiana 46410
---------------------------------------------
Attention:
---------------------------------------------
Phone: 219-647-5630
---------------------------------------------
Facsimile: 219-647-5663
---------------------------------------------
NATIONAL GRID USA
By: /s/ R. P. Sergel
--------------------------------------
Name: R. P. Sergel
------------------------------------
Title: President & Chief Executive Officer
-----------------------------------
ANNEX A
DEFINITIONS
-----------
The following terms shall have the respective meanings set forth below when
used in this Agreement and grammatical variations of such terms shall have
correlative meanings, unless otherwise expressly specified herein to the
contrary.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly Controlling, Controlled by or under common Control with
such Person. As used in this definition, "Control" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise); provided, however, that
in any event, any Person that owns, directly or indirectly, securities having a
majority of the voting power for the election of directors or other members of
the governing body of a corporation or a majority of the partnership or other
ownership interests (that carry voting power) of any other Person will be deemed
to Control such corporation or other Person.
"Agreement" shall mean this Participation Agreement, as it may be amended,
modified or otherwise supplemented, as in effect from time to time.
"GridAmerica Company" shall have the meaning given in the preamble hereof.
"Approval Order" shall mean a Final Order that approves, without material
modification or condition, the ITC Agreement and such of the ITC Documents as to
which the approval of the Commission is required under applicable law.
"Business Day" shall mean any day other than Saturday, Sunday or other day
on which banks are authorized or required to be closed in New York, New York.
"Closing" shall have the meaning given in Section 1.01.
"Closing Date" shall have the meaning given in Section 1.01.
"Commission" shall have the meaning given in the recitals hereof.
"Company" shall have the meaning given in the recitals hereof.
"Consent" shall mean any authorization, consent, opinion, order, approval,
license, franchise, ruling, permit, tariff, rate, certification, exemption,
filing or registration from, by, or with any Governmental Authority, any Person
or any governing body of any Person.
"Entity" shall mean a corporation, limited liability company, partnership,
limited partnership, trust, firm, association or other organization which has a
legal existence under the Laws of its jurisdiction of formation which is
separate and apart from its owner or owners, and any Governmental Authority.
A-1
"Final Order" shall mean a final order issued by the Commission approving
the ITC Agreement and such of the ITC Documents as to which approval of the
Commission is required under applicable law which is no longer subject to
possible rehearing.
"Governmental Authority" shall mean a federal, state, local or foreign
governmental authority; a state, province, commonwealth, territory or district
thereof; a county or parish; a city, town, township, village or other
municipality; a district, ward or other subdivision of any of the foregoing; any
executive, legislative or other governing body of any of the foregoing; any
agency, authority, board, department, system, service, office, commission,
committee, council or other administrative body of any of the foregoing; any
court or other judicial body and any officer, official or other representative
of any of the foregoing.
"ITC Agreement" shall mean the Appendix I ITC Agreement by and between the
Midwest ISO and GridAmerica, a copy of which is annexed hereto as Exhibit B.
"ITC Documents" shall mean such agreements, instruments, certifications and
documents as may be necessary to evidence the obligations of the intended
parties thereto to implement the transactions contemplated by the Letter of
Intent, including without limitation, one or more operation agreements pursuant
to which each of the GridAmerica Companies transfers functional control over its
transmission facilities which are the subject of the ITC Agreement to
GridAmerica.
"Law" shall mean any applicable constitutional provision, statute, act,
code, law, regulation, rule, ordinance, order, decree, ruling, proclamation,
resolution, judgment, decision, declaration, or interpretive or advisory opinion
of a Governmental Authority.
"Letter of Intent" shall mean that letter agreement dated June 20, 2002
among National Grid, Ameren Corporation, FirstEnergy Corp. and Northern Indiana
Public Service Company. Inc., a copy of which is annexed hereto as Exhibit A
"National Grid" shall mean National Grid USA, a Delaware corporation.
"Non-Disclosure Agreement" shall mean the Non-Disclosure Agreement, dated
as of June 20, 2002, by and among Midwest Transmission System Operator, Inc.,
FirstEnergy Corp., Ameren Services Company, Northern Indiana Public Service
Company and National Grid USA.
"Order" shall mean any writ, judgment, decree, injunction or similar order
of any Governmental Authority (in each such case whether preliminary or final).
"Party" shall mean any party from time to time to this Agreement.
"Person" shall mean any natural person or Entity.
"Proceeding" shall mean any action, suit, proceeding, arbitration or
Governmental Authority investigation or audit.
"Required Consent" shall mean, collectively, each Consent that must be
obtained, satisfied or made to permit the consummation of the transactions
contemplated by this Agreement, the ITC Agreement and the ITC Documents and the
A-2
performance by each of the parties to the ITC Agreement and the ITC Documents of
their respective obligations thereunder, but excluding any Consent which may be
required to perform an obligation which, by the terms of the ITC Agreement and
the ITC Transaction Documents, will not arise and is not required to be
performed except upon the happening of one or more contingencies specified in
the ITC Agreement and the ITC Documents.
"Withdrawal Notice" shall have the meaning given in Section 4.03.
A-3
ANNEX B
NOTICE INFORMATION
Midwest Independent Transmission System Operator, Inc.
Midwest Independent Transmission System Operator, Inc.
701 City Center Drive
Carmel, IN 46032
Attn: James P. Torgerson
President and CEO
Fax: 317-249-5945
Ameren Services Company
Ameren Services Company
One Ameren Plaza
1901 Chouteau Avenue
St. Louis, MO 63103
Attn: David A. Whiteley
Senior Vice President
Fax: 314-554-3066
Ameren Services Company
One Ameren Plaza
1901 Chouteau Avenue
St. Louis, MO 63103
Attn: Steven R. Sullivan
General Counsel
Fax: 314-554-4014
C-1
FirstEnergy Corp.
FirstEnergy Corp.
76 South Main Street
Akron, OH 44308
Attn: Stanley F. Szwed
Fax: 330-384-4988
Northern Indiana Public Service Company
Northern Indiana Public Service Company
801 E. 86th Avenue
Merrillville, IN 46410
Attn: Frank A. Venhuizen
Fax: 219-647-5630
National Grid USA
National Grid USA
25 Research Drive
Westborough, MA 01582
Attn: Nick Winser
Senior Vice President
Fax: 508-366-5498
With a copy to: Lawrence J. Reilly, Esq.
Senior Vice President and General Counsel
Fax: 508-389-2605
C-2
Exhibit 99.1
STATEMENT UNDER OATH
OF PRINCIPAL EXECUTIVE OFFICER
REGARDING FACTS AND CIRCUMSTANCES
RELATING TO EXCHANGE ACT FILINGS
I, Charles W. Mueller, principal executive officer of Ameren Corporation, state
and attest that:
(1) To the best of my knowledge, based upon a review of the covered
reports of Ameren Corporation, and, except as corrected or
supplemented in a subsequent covered report:
o no covered report contained an untrue statement of a material
fact as of the end of the period covered by such report (or in
the case of a report on Form 8-K or definitive proxy materials,
as of the date on which it was filed); and
o no covered report omitted to state a material fact necessary to
make the statements in the covered report, in light of the
circumstances under which they were made, not misleading as of
the end of the period covered by such report (or in the case of a
report on Form 8-K or definitive proxy materials, as of the date
on which it was filed).
(2) I have reviewed the contents of this statement with the Company's
audit committee.
(3) In this statement under oath, each of the following, if filed on or
before the date of this statement, is a "covered report":
o Annual Report on Form 10-K filed with the Commission for fiscal
year ended December 31, 2001 of Ameren Corporation;
o all reports on Form 10-Q, all reports on Form 8-K and all
definitive proxy materials of Ameren Corporation filed with the
Commission subsequent to the filing of the Form 10-K identified
above; and
o any amendments to any of the foregoing.
/s/ C. W. Mueller
- -------------------------------------------
Name: Charles W. Mueller
Chairman and Chief Executive Officer
Date: 8/14/02
Subscribed and sworn to before me this 14th day of August, 2002.
/s/ K. A. Bell
----------------------------------------
Notary Public
My Commission Expires: 10/13/02 K. A. BELL
Notary Public - Notary Seal
STATE OF MISSOURI
St. Louis County
My Commission Expires: October 13, 2002
Exhibit 99.2
STATEMENT UNDER OATH
OF PRINCIPAL FINANCIAL OFFICER
REGARDING FACTS AND CIRCUMSTANCES
RELATING TO EXCHANGE ACT FILINGS
I, Warner L. Baxter, principal financial officer of Ameren Corporation, state
and attest that:
(1) To the best of my knowledge, based upon a review of the covered
reports of Ameren Corporation, and, except as corrected or
supplemented in a subsequent covered report:
o no covered report contained an untrue statement of a material
fact as of the end of the period covered by such report (or in
the case of a report on Form 8-K or definitive proxy materials,
as of the date on which it was filed); and
o no covered report omitted to state a material fact necessary to
make the statements in the covered report, in light of the
circumstances under which they were made, not misleading as of
the end of the period covered by such report (or in the case of a
report on Form 8-K or definitive proxy materials, as of the date
on which it was filed).
(2) I have reviewed the contents of this statement with the Company's
audit committee.
(3) In this statement under oath, each of the following, if filed on or
before the date of this statement, is a "covered report":
o Annual Report on Form 10-K filed with the Commission for fiscal
year ended December 31, 2001 of Ameren Corporation;
o all reports on Form 10-Q, all reports on Form 8-K and all
definitive proxy materials of Ameren Corporation filed with the
Commission subsequent to the filing of the Form 10-K identified
above; and
o any amendments to any of the foregoing.
/s/ Warner L. Baxter
- -------------------------------------------
Name: Warner L. Baxter
Senior Vice President - Finance
Date: 8/14/02
Subscribed and sworn to before me this 14th day of August, 2002.
/s/ K. A. Bell
----------------------------------------
Notary Public
My Commission Expires: 10/13/02 K. A. BELL
Notary Public - Notary Seal
STATE OF MISSOURI
St. Louis County
My Commission Expires: October 13, 2002
Exhibit 99.3
CERTIFICATE
furnished under
Section 906 of the Sarbanes-Oxley Act of 2002.
I, Charles W. Mueller, chief executive officer of Ameren Corporation,
hereby certify that to the best of my knowledge, the accompanying Report of
Ameren Corporation on Form 10-Q for the quarter ended June 30, 2002 fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that information contained in such Report fairly
presents, in all material respects, the financial condition and results of
operations of Ameren Corporation.
/s/ Charles W. Mueller
-----------------------------
Charles W. Mueller
Chief Executive Officer
Date: August 14, 2002
Exhibit 99.4
CERTIFICATE
furnished under
Section 906 of the Sarbanes-Oxley Act of 2002.
I, Warner L. Baxter, chief financial officer of Ameren Corporation, hereby
certify that to the best of my knowledge, the accompanying Report of Ameren
Corporation on Form 10-Q for the quarter ended June 30, 2002 fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that information contained in such Report fairly presents, in all
material respects, the financial condition and results of operations of Ameren
Corporation.
/s/ Warner L. Baxter
----------------------------
Warner L. Baxter
Chief Financial Officer
Date: August 14, 2002