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 the Quarterly Period Ended June 30, 2004
OR
( ) Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the transition period from __________ to __________.
Exact Name of Registrant as specified in its charter;
Commission State of Incorporation; IRS Employer
File Number Address and Telephone Number Identification No.
- ---------- ---------------------------- ------------------
1-14756 Ameren Corporation 43-1723446
(Missouri Corporation)
1901 Chouteau Avenue
St. Louis, Missouri 63103
(314) 621-3222
1-2967 Union Electric Company 43-0559760
(Missouri Corporation)
1901 Chouteau Avenue
St. Louis, Missouri 63103
(314) 621-3222
1-3672 Central Illinois Public Service Company 37-0211380
(Illinois Corporation)
607 East Adams Street
Springfield, Illinois 62739
(217) 523-3600
333-56594 Ameren Energy Generating Company 37-1395586
(Illinois Corporation)
1901 Chouteau Avenue
St. Louis, Missouri 63103
(314) 621-3222
2-95569 CILCORP Inc. 37-1169387
(Illinois Corporation)
300 Liberty Street
Peoria, Illinois 61602
(309) 677-5230
1-2732 Central Illinois Light Company 37-0211050
(Illinois Corporation)
300 Liberty Street
Peoria, Illinois 61602
(309) 677-5230
Indicate by check mark whether the Registrants (1) have 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) have been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark whether each Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Ameren Corporation Yes (X) No ( )
Union Electric Company Yes ( ) No (X)
Central Illinois Public Service Company Yes ( ) No (X)
Ameren Energy Generating Company Yes ( ) No (X)
CILCORP Inc. Yes ( ) No (X)
Central Illinois Light Company Yes ( ) No (X)
The number of shares outstanding of each Registrant's classes of common
stock as of July 30, 2004, was as follows:
Ameren Corporation Common stock, $.01 par value - 194,274,842
Union Electric Company Common stock, $5 par value, held by Ameren Corporation
(parent company of the Registrant) - 102,123,834
Central Illinois Public Service Company Common stock, no par value, held by Ameren Corporation
(parent company of the Registrant) - 25,452,373
Ameren Energy Generating Company Common stock, no par value, held by Ameren Energy
Development Company (parent company of the Registrant
and indirect subsidiary of Ameren Corporation) - 2,000
CILCORP Inc. Common stock, no par value, held by Ameren Corporation
(parent company of the Registrant) - 1,000
Central Illinois Light Company Common stock, no par value, held by CILCORP Inc. (parent
company of the Registrant and subsidiary of Ameren
Corporation) - 13,563,871
This combined Form 10-Q is separately filed by Ameren Corporation, Union
Electric Company, Central Illinois Public Service Company, Ameren Energy
Generating Company, CILCORP Inc. and Central Illinois Light Company. Each
Registrant hereto is filing on its own behalf all of the information contained
in this quarterly report that relates to such Registrant. Each Registrant hereto
is not filing any information that does not relate to such Registrant, and
therefore makes no representation as to any such information.
Prior to the quarterly report on Form 10-Q for the period ended September
30, 2003, separate filings were made by each Registrant, except CILCORP Inc. and
Central Illinois Light Company, which made a combined filing. Ameren Corporation
and its subsidiaries changed to a combined filing in order to improve disclosure
and to simplify administrative processes.
OMISSION OF CERTAIN INFORMATION
Ameren Energy Generating Company and CILCORP Inc. meet the conditions set
forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore
filing this Form 10-Q with the reduced disclosure format allowed under that
General Instruction.
TABLE OF CONTENTS
Page
Glossary of Terms and Abbreviations................................................................................. 5
Forward-looking Statements.......................................................................................... 8
PART I. Financial Information
ITEM 1. Financial Statements (Unaudited)
Ameren Corporation
Consolidated Statement of Income................................................................... 9
Consolidated Balance Sheet......................................................................... 10
Consolidated Statement of Cash Flows............................................................... 11
Union Electric Company
Consolidated Statement of Income................................................................... 12
Consolidated Balance Sheet......................................................................... 13
Consolidated Statement of Cash Flows............................................................... 14
Central Illinois Public Service Company
Statement of Income................................................................................ 15
Balance Sheet...................................................................................... 16
Statement of Cash Flows............................................................................ 17
Ameren Energy Generating Company
Statement of Income................................................................................ 18
Balance Sheet...................................................................................... 19
Statement of Cash Flows............................................................................ 20
CILCORP Inc.
Consolidated Statement of Income................................................................... 21
Consolidated Balance Sheet......................................................................... 22
Consolidated Statement of Cash Flows............................................................... 23
Central Illinois Light Company
Consolidated Statement of Income................................................................... 24
Consolidated Balance Sheet......................................................................... 25
Consolidated Statement of Cash Flows............................................................... 26
3
Combined Notes to Financial Statements............................................................. 27
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 53
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk......................................... 77
ITEM 4. Controls and Procedures............................................................................ 81
PART II. Other Information
ITEM 1. Legal Proceedings.................................................................................. 81
ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities................... 82
ITEM 4. Submission of Matters to a Vote of Security Holders................................................ 82
ITEM 5. Other Information.................................................................................. 84
ITEM 6. Exhibits and Reports on Form 8-K................................................................... 84
SIGNATURES.......................................................................................................... 86
This Form 10-Q contains "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements should be read with the cautionary statements
and important factors included in this Form 10-Q under the heading
Forward-looking Statements. Forward-looking statements are all statements
other than statements of historical fact, including those statements that
are identified by the use of the words "anticipates," "estimates,"
"expects," "intends," "plans," "predicts," "projects" and similar
expressions.
4
GLOSSARY OF TERMS AND ABBREVIATIONS
When we refer to our, we or us, it indicates that the referred information
relates to all Ameren Companies. When we refer to financing or acquisition
activities, we are defining Ameren as the parent holding company. When
appropriate, subsidiaries of Ameren are specifically referenced in order to
distinguish among their different business activities.
AERG - AmerenEnergy Resources Generating Company, a subsidiary of CILCO, which
operates a non rate-regulated electric generation business in Illinois and which
was formerly known as Central Illinois Generation, Inc.
AES - The AES Corporation.
AFS - Ameren Energy Fuels and Services Company, a subsidiary of Resources
Company, which procures fuel and gas and manages the related risks for the
Ameren Companies.
Ameren - Ameren Corporation and its subsidiaries on a consolidated basis. When
referring to financing or acquisition activities, Ameren is defined as Ameren
Corporation, the parent.
Ameren Companies - The individual Registrants within the Ameren consolidated
group.
Ameren Energy - Ameren Energy, Inc., a subsidiary of Ameren Corporation, which
serves as a power marketing and risk management agent for UE and Genco for
transactions of primarily less than one year.
Ameren Services - Ameren Services Company, a subsidiary of Ameren Corporation,
which provides a variety of support services to Ameren and its subsidiaries.
Capacity factor - A measure that indicates the percent of an electric power
generating unit's(s') capacity that was used during a period.
CILCO - Central Illinois Light Company, a subsidiary of CILCORP, which operates
a rate-regulated transmission and distribution business, a primarily non
rate-regulated electric generation business, and a rate-regulated natural gas
distribution business in Illinois as AmerenCILCO. CILCO owns all of the common
stock of AERG.
CILCORP - CILCORP Inc., a subsidiary of Ameren Corporation, which operates as a
holding company for CILCO.
CIPS - Central Illinois Public Service Company, a subsidiary of Ameren
Corporation, which operates a rate-regulated electric and natural gas
transmission and distribution business in Illinois as AmerenCIPS.
Cooling degree days - The summation of positive differences between the mean
daily temperature and the 65 degrees Fahrenheit base. This statistic is useful
as an indicator of demand for electricity for summer space cooling for
residential and commercial customers.
CT - Combustion turbine generation equipment.
Development Company - Ameren Energy Development Company, a subsidiary of
Resources Company and parent of Genco, which develops and constructs generating
facilities for Genco.
DOE - Department of Energy, a governmental agency of the United States of
America.
DOJ - Department of Justice, a governmental agency of the United States of
America.
DRPlus - Ameren Corporation's dividend reinvestment and stock purchase plan.
Dynegy - Dynegy Inc., the indirect parent company of Illinois Power.
5
EEI - Electric Energy, Inc., a 60%-owned subsidiary of Ameren Corporation, which
is 40% owned by UE and 20% owned by Resources Company, and which operates
electric generation and transmission facilities in Illinois.
EPA - Environmental Protection Agency, a governmental agency of the United
States of America.
Equivalent availability factor - A measure that indicates the percent of time an
electric power generating unit(s) was available for service during a period.
ERISA - Employee Retirement Income Security Act of 1974, as amended.
Exchange Act - Securities Exchange Act of 1934, as amended.
FASB - Financial Accounting Standards Board, a rulemaking organization that
establishes financial accounting and reporting standards in the United States of
America.
FCC - Federal Communications Commission, a governmental agency of the United
States of America.
FERC - Federal Energy Regulatory Commission, a governmental agency of the United
States of America that, among other things, regulates interstate transmission
and wholesale sales of electricity and natural gas and related matters and
hydroelectric facilities.
FIN - FASB Interpretation intended to clarify accounting pronouncements
previously issued by the FASB.
Fitch - Fitch Ratings, a credit rating agency.
FTC - Federal Trade Commission, a governmental agency of the United States of
America.
GAAP - Generally accepted accounting principles in the United States of America.
Genco - Ameren Energy Generating Company, a subsidiary of Development Company,
which operates a non rate-regulated electric generation business in Illinois and
Missouri.
GridAmerica Companies - UE, CIPS, American Transmission Systems, Inc., a
subsidiary of FirstEnergy Corp., and Northern Indiana Public Service Company, a
subsidiary of NiSource, Incorporated.
Hart-Scott-Rodino Act - Hart-Scott-Rodino Antitrust Improvements Act of 1976,
which establishes procedures for companies involved in transactions that meet
certain criteria to file a premerger notification with the FTC and the DOJ
Antitrust Division and establishes prescribed time periods for government review
prior to completing their transaction.
Heating degree days - The summation of negative differences between the mean
daily temperature and the 65 degrees Fahrenheit base. This statistic is useful
as an indicator of demand for electricity and natural gas for winter space
heating for residential and commercial customers.
IBEW - International Brotherhood of Electrical Workers.
ICC - Illinois Commerce Commission, a state agency that regulates the Illinois
utility businesses and operations of UE, CIPS, CILCO and Illinois Power.
Illinois Customer Choice Law - Illinois Electric Service Customer Choice and
Rate Relief Law of 1997, which provides for electric utility restructuring and
introduces competition into the retail supply of electric energy in Illinois.
Illinois Power - Illinois Power Company, a wholly owned subsidiary of Illinova
Corporation, which is a subsidiary of Dynegy.
IUOE - International Union of Operating Engineers.
6
MAIN - Mid-America Interconnected Network, Inc., one of the regional electric
reliability councils organized for coordinating the planning and operation of
the nation's bulk power supply.
Marketing Company - Ameren Energy Marketing Company, a subsidiary of Resources
Company, which markets power for periods primarily over one year.
Medina Valley - AmerenEnergy Medina Valley Cogen (No. 4), LLC and its
subsidiaries, which are subsidiaries of Resources Company, which indirectly own
a 40 megawatt, gas-fired electric generation plant.
Midwest ISO - Midwest Independent Transmission System Operator Inc.
Missouri Environmental Authority - State Environmental Improvement and Energy
Resources Authority of the State of Missouri, a governmental instrumentality
that is authorized to finance environmental projects through the issuance of tax
exempt bonds and notes.
Money pool - Borrowing arrangements with and among the Ameren Companies to
coordinate and provide for certain short-term cash and working capital
requirements. Separate money pools are maintained between rate-regulated and non
rate-regulated businesses referred to as the utility money pool and the
non-state regulated subsidiary money pool, respectively.
Moody's - Moody's Investors Service, Inc., a credit rating agency.
MoPSC - Missouri Public Service Commission, a state agency that regulates the
Missouri utility business and operations of UE.
NRC - Nuclear Regulatory Commission, a governmental agency of the United States
of America.
NOx - Nitrogen oxide.
NYMEX - New York Mercantile Exchange.
OATT - Open Access Transmission Tariff.
OCI - Other Comprehensive Income (Loss) as defined by GAAP.
PJM - PJM Interconnection LLC.
PUHCA - Public Utility Holding Company Act of 1935, as amended.
Resources Company - Ameren Energy Resources Company, a subsidiary of Ameren
Corporation, which consists of non rate-regulated operations, including
Development Company, Genco, Marketing Company, AFS and Medina Valley.
RRO - Regional Reliability Organization.
RTO - Regional Transmission Organization.
S&P - Standard and Poor's Inc., a credit rating agency.
SEC - Securities and Exchange Commission, a governmental agency of the United
States of America.
SFAS - Statement of Financial Accounting Standards, the accounting and financial
reporting rules issued by the FASB.
SO2 - Sulfur dioxide.
UE - Union Electric Company, a subsidiary of Ameren Corporation, which operates
a rate-regulated electric generation, transmission and distribution business,
and a rate-regulated natural gas distribution business in Missouri and Illinois
as AmerenUE.
7
FORWARD-LOOKING STATEMENTS
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 past and subsequent
filings with the SEC, could cause actual results to differ materially from
management expectations as suggested by such "forward-looking" statements:
o the closing and timing of Ameren's acquisition of Illinois Power and the
impact of any conditions imposed by regulators in connection with their
approval thereof;
o the effects of the stipulation and agreement relating to the UE Missouri
electric excess earnings complaint case and other regulatory actions,
including changes in regulatory policies;
o changes in laws and other governmental actions, including monetary and
fiscal policies;
o the impact on the company 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 RTO, including activities
associated with the Midwest ISO;
o the availability of fuel for the production of electricity, such as coal
and natural gas, and purchased power and natural gas for distribution, and
the level and volatility of future market prices for such commodities,
including the ability to recover any increased costs;
o the use of financial and derivative instruments;
o average rates for electricity in the Midwest;
o business and economic conditions;
o the impact of the adoption of new accounting standards and the application
of appropriate technical accounting rules and guidance;
o interest rates and the availability of capital;
o actions of ratings agencies and the effects of such actions;
o weather conditions;
o generation plant construction, installation and performance;
o operation of nuclear power facilities, including planned and unplanned
outages, and decommissioning costs;
o the effects of strategic initiatives, including acquisitions and
divestitures;
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, including changes in returns on
benefit plan assets;
o disruptions of the capital markets or other events making the Ameren
Companies' access to necessary capital more difficult or costly;
o competition from other generating facilities, including new facilities that
may be developed;
o difficulties in integrating CILCO and Illinois Power, if consummated, with
Ameren's other businesses;
o changes in the energy markets, environmental laws or regulations, interest
rates or other factors adversely impacting assumptions in connection with
the CILCORP and Illinois Power, if consummated, acquisitions;
o cost and availability of transmission capacity for the energy generated by
the Ameren Companies' generating facilities or required to satisfy energy
sales made by the Ameren Companies; and legal and administrative
proceedings.
Given these uncertainties, undue reliance should not be placed on these
forward-looking statements. Except to the extent required by the federal
securities laws, we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
8
PART I. FINANCIAL INFORMATION
ITEM 1. 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,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ----------- ----------
Operating Revenues:
Electric $ 1,032 $ 968 $ 1,945 $ 1,824
Gas 119 118 420 368
Other 1 2 3 4
---------- ---------- ---------- ----------
Total operating revenues 1,152 1,088 2,368 2,196
---------- ---------- ---------- ----------
Operating Expenses:
Fuel and purchased power 282 239 553 471
Gas purchased for resale 75 83 288 264
Other operations and maintenance 343 307 649 599
Depreciation and amortization 132 132 262 256
Taxes other than income taxes 74 77 154 155
---------- ---------- ---------- ----------
Total operating expenses 906 838 1,906 1,745
---------- ---------- ---------- ----------
Operating Income 246 250 462 451
Other Income and (Deductions):
Miscellaneous income 4 5 12 11
Miscellaneous expense (4) (7) (5) (10)
---------- ---------- ---------- ----------
Total other income and (deductions) - (2) 7 1
---------- ---------- ---------- ----------
Interest Charges and Preferred Dividends:
Interest 66 69 130 135
Preferred dividends of subsidiaries 2 2 5 5
---------- ---------- ---------- ----------
Net interest charges and preferred dividends 68 71 135 140
---------- ---------- ---------- ----------
Income Before Income Taxes and Cumulative Effect of Change
in Accounting Principle 178 177 334 312
Income Taxes 60 67 119 119
---------- ---------- ---------- ----------
Income Before Cumulative Effect of Change in Accounting
Principle 118 110 215 193
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes of $-, $-, $- and $12 - - - 18
---------- ---------- ---------- ----------
Net Income $ 118 $ 110 $ 215 $ 211
========== ========== ========== ==========
Earnings per Common Share - Basic and Diluted:
Income before cumulative effect of change
in accounting principle $ 0.65 $ 0.68 $ 1.20 $ 1.21
Cumulative effect of change in accounting
principle, net of income taxes - - - 0.11
---------- ---------- ---------- ----------
Earnings per Common Share - Basic and Diluted $ 0.65 $ 0.68 $ 1.20 $ 1.32
========== ========== ========== ==========
Dividends per Common Share $ 0.635 $ 0.635 $ 1.27 $ 1.27
Average Common Shares Outstanding 182.7 161.2 178.5 160.1
The accompanying notes are an integral part of these consolidated financial statements.
9
AMEREN CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited) (In millions, except per share amounts)
June 30, December 31,
2004 2003
----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 511 $ 111
Accounts receivables - trade (less allowance for doubtful
accounts of $12 and $13, respectively) 343 326
Unbilled revenue 258 221
Miscellaneous accounts and notes receivable 47 126
Materials and supplies, at average cost 458 487
Other current assets 35 46
------------ ------------
Total current assets 1,652 1,317
------------ ------------
Property and Plant, Net 11,052 10,920
Investments and Other Non-Current Assets:
Investments in leveraged leases 153 164
Nuclear decommissioning trust fund 219 212
Goodwill and other intangibles, net 565 574
Other assets 354 320
------------ ------------
Total investments and other non-current assets 1,291 1,270
------------ ------------
Regulatory Assets 682 729
------------ ------------
TOTAL ASSETS $ 14,677 $ 14,236
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 291 $ 498
Short-term debt 35 161
Accounts and wages payable 273 480
Taxes accrued 220 103
Other current liabilities 215 215
------------ ------------
Total current liabilities 1,034 1,457
------------ ------------
Long-term Debt, Net 4,051 4,070
Preferred Stock of Subsidiary Subject to Mandatory Redemption 21 21
Deferred Credits and Other Non-Current Liabilities:
Accumulated deferred income taxes, net 1,775 1,853
Accumulated deferred investment tax credits 145 151
Regulatory liabilities 862 824
Asset retirement obligations 425 413
Accrued pension liabilities 744 699
Other deferred credits and liabilities 175 190
------------ ------------
Total deferred credits and other non-current liabilities 4,126 4,130
------------ ------------
Preferred Stock of Subsidiaries Not Subject to Mandatory Redemption 182 182
Minority Interest in Consolidated Subsidiaries 25 22
Commitments and Contingencies (Note 9)
Stockholders' Equity:
Common stock, $.01 par value, 400.0 shares authorized -
shares outstanding of 183.3 and 162.9 respectively 2 2
Other paid-in capital, principally premium on common stock 3,456 2,552
Retained earnings 1,835 1,853
Accumulated other comprehensive income (loss) (41) (44)
Other (14) (9)
------------ ------------
Total stockholders' equity 5,238 4,354
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,677 $ 14,236
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
10
AMEREN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Six Months Ended
June 30,
-------------------------
2004 2003
---------- -----------
Cash Flows From Operating Activities:
Net income $ 215 $ 211
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle - (18)
Depreciation and amortization 262 256
Amortization of nuclear fuel 13 16
Amortization of debt issuance costs and premium/discounts 5 5
Deferred income taxes, net (5) (9)
Deferred investment tax credits, net (6) (6)
Coal contract settlement 18 -
Other 1 (11)
Changes in assets and liabilities, excluding the effects of the acquisitions:
Receivables, net (23) 6
Materials and supplies 29 (14)
Accounts and wages payable (162) (149)
Taxes accrued 117 99
Assets, other (57) 17
Liabilities, other 29 27
---------- -----------
Net cash provided by operating activities 436 430
---------- -----------
Cash Flows From Investing Activities:
Construction expenditures (379) (332)
Acquisitions, net of cash acquired - (489)
Nuclear fuel expenditures (5) (1)
Other 17 6
---------- -----------
Net cash used in investing activities (367) (816)
---------- -----------
Cash Flows From Financing Activities:
Dividends on common stock (232) (205)
Capital issuance costs (23) (11)
Redemptions, repurchases, and maturities:
Nuclear fuel lease (67) (20)
Short-term debt (126) (91)
Long-term debt (260) (420)
Issuances:
Common stock 935 308
Long-term debt 104 298
---------- -----------
Net cash provided by (used in) financing activities 331 (141)
---------- -----------
Net change in cash and cash equivalents 400 (527)
Cash and cash equivalents at beginning of year 111 -
---------- -----------
Cash and cash equivalents at end of period $ 511 $ (527)
========== ===========
Cash Paid During the Periods:
Interest $ 145 $ 133
Income taxes, net 71 100
The accompanying notes are an integral part of these consolidated financial statements.
11
UNION ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) (In millions)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Operating Revenues:
Electric $ 658 $ 616 $ 1,206 $ 1,171
Gas 25 20 97 85
------------- ------------- ------------- -------------
Total operating revenues 683 636 1,303 1,256
------------- ------------- ------------- -------------
Operating Expenses:
Fuel and purchased power 139 123 282 265
Gas purchased for resale 14 13 58 52
Other operations and maintenance 207 187 400 372
Depreciation and amortization 74 71 146 141
Taxes other than income taxes 56 54 111 107
------------- ------------- ------------- -------------
Total operating expenses 490 448 997 937
------------- ------------- ------------- -------------
Operating Income 193 188 306 319
Other Income and (Deductions):
Miscellaneous income 4 8 9 9
Miscellaneous expense (4) (2) (5) (3)
------------- ------------- ------------- -------------
Total other income and (deductions) - 6 4 6
------------- ------------- ------------- -------------
Interest Charges 26 26 51 51
------------- ------------- ------------- -------------
Income Before Income Taxes 167 168 259 274
Income Taxes 58 61 92 99
------------- ------------- ------------- -------------
Net Income 109 107 167 175
Preferred Stock Dividends 2 2 3 3
------------- ------------- ------------- -------------
Net Income Available to Common Stockholder $ 107 $ 105 $ 164 $ 172
============= ============= ============= =============
The accompanying notes as they relate to UE are an integral part of these consolidated financial statements.
12
UNION ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited) (In millions, except per share amounts)
June 30, December 31,
2004 2003
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 15 $ 15
Accounts receivable - trade (less allowance for doubtful
accounts of $5 and $6, respectively) 187 172
Unbilled revenue 170 111
Miscellaneous accounts and notes receivable 44 117
Materials and supplies, at average cost 182 175
Other current assets 12 26
------------- -------------
Total current assets 610 616
------------- -------------
Property and Plant, Net 6,904 6,758
Investments and Other Non-Current Assets:
Nuclear decommissioning trust fund 219 212
Other assets 259 246
------------- -------------
Total investments and other non-current assets 478 458
------------- -------------
Regulatory Assets 637 685
------------- -------------
TOTAL ASSETS $ 8,629 $ 8,517
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ 277 $ 344
Short-term debt - 150
Borrowings from money pool 342 -
Accounts and wages payable 175 314
Taxes accrued 181 66
Other current liabilities 98 102
------------- -------------
Total current liabilities 1,073 976
------------- -------------
Long-term Debt, Net 1,762 1,758
Deferred Credits and Other Non-Current Liabilities:
Accumulated deferred income taxes, net 1,214 1,289
Accumulated deferred investment tax credits 111 114
Regulatory liabilities 684 652
Asset retirement obligations 420 408
Accrued pension and other postretirement benefits 339 317
Other deferred credits and liabilities 81 80
------------- -------------
Total deferred credits and other non-current liabilities 2,849 2,860
------------- -------------
Commitments and Contingencies (Note 9)
Stockholder's Equity:
Common stock, $5 par value, 150.0 shares authorized - 102.1 shares outstanding 511 511
Preferred stock not subject to mandatory redemption 113 113
Other paid-in capital, principally premium on common stock 702 702
Retained earnings 1,649 1,630
Accumulated other comprehensive income (loss) (30) (33)
------------- -------------
Total stockholder's equity 2,945 2,923
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 8,629 $ 8,517
============= =============
The accompanying notes as they relate to UE are an integral part of these consolidated financial statements.
13
UNION ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Six Months Ended
June 30,
-----------------------------
2004 2003
------------- -------------
Cash Flows From Operating Activities:
Net income $ 167 $ 175
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 146 141
Amortization of nuclear fuel 13 16
Amortization of debt issuance costs and premium/discounts 2 2
Deferred income taxes, net (8) (16)
Deferred investment tax credits, net (3) (3)
Coal contract settlement 18 -
Other 3 (5)
Changes in assets and liabilities:
Receivables, net (58) (40)
Materials and supplies (7) (1)
Accounts and wages payable (125) (147)
Taxes accrued 115 94
Assets, other 8 (14)
Liabilities, other 7 36
------------- -------------
Net cash provided by operating activities 278 238
------------- -------------
Cash Flows From Investing Activities:
Construction expenditures (253) (226)
Nuclear fuel expenditures (5) (1)
Other - 2
------------- -------------
Net cash used in investing activities (258) (225)
------------- -------------
Cash Flows From Financing Activities:
Dividends on common stock (145) (165)
Dividends on preferred stock (3) (3)
Capital issuance costs (1) (3)
Redemptions, repurchases, and maturities:
Nuclear fuel lease (67) (20)
Short-term debt (150) (73)
Long-term debt (100) (189)
Issuances:
Long-term debt 104 298
Borrowings from money pool 342 154
------------- -------------
Net cash used in financing activities (20) (1)
------------- -------------
Net change in cash and cash equivalents - 12
Cash and cash equivalents at beginning of year 15 9
------------- -------------
Cash and cash equivalents at end of period $ 15 $ 21
============= =============
Cash Paid During the Periods:
Interest $ 50 $ 45
Income taxes, net 41 74
The accompanying notes as they relate to UE are an integral part of these consolidated financial statements.
14
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF INCOME
(Unaudited) (In millions)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Operating Revenues:
Electric $ 139 $ 137 $ 266 $ 269
Gas 28 30 113 107
----------- ----------- ----------- -----------
Total operating revenues 167 167 379 376
----------- ----------- ----------- -----------
Operating Expenses:
Purchased power 79 82 159 168
Gas purchased for resale 16 18 72 71
Other operations and maintenance 35 38 72 80
Depreciation and amortization 13 13 26 26
Taxes other than income taxes 5 7 14 16
----------- ----------- ----------- -----------
Total operating expenses 148 158 343 361
----------- ----------- ----------- -----------
Operating Income 19 9 36 15
Other Income and (Deductions):
Miscellaneous income 6 7 13 14
Miscellaneous expense (1) (1) (1) (2)
----------- ----------- ----------- -----------
Total other income and (deductions) 5 6 12 12
----------- ----------- ----------- -----------
Interest Charges 8 9 16 18
----------- ----------- ----------- -----------
Income Before Income Taxes 16 6 32 9
Income Taxes 8 3 14 4
----------- ----------- ----------- -----------
Net Income 8 3 18 5
Preferred Stock Dividends - - 1 1
----------- ----------- ----------- -----------
Net Income Available to Common Stockholder $ 8 $ 3 $ 17 $ 4
=========== =========== =========== ===========
The accompanying notes as they relate to CIPS are an integral part of these financial statements.
15
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
BALANCE SHEET
(Unaudited) (In millions)
June 30, December 31,
2004 2003
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3 $ 16
Accounts receivable - trade (less allowance for doubtful
accounts of $2 and $1, respectively) 51 48
Unbilled revenue 61 64
Miscellaneous accounts and notes receivable 22 22
Current portion of intercompany note receivable - Genco 324 49
Current portion of intercompany tax receivable - Genco 12 12
Materials and supplies, at average cost 42 51
Other current assets 12 6
------------- -------------
Total current assets 527 268
------------- -------------
Property and Plant, Net 951 955
Investments and Other Non-Current Assets:
Intercompany note receivable - Genco - 324
Intercompany tax receivable - Genco 144 150
Other assets 23 17
------------- -------------
Total investments and other non-current assets 167 491
------------- -------------
Regulatory Assets 31 28
------------- -------------
TOTAL ASSETS $ 1,676 $ 1,742
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts and wages payable $ 74 $ 71
Borrowings from money pool 47 121
Taxes accrued 31 19
Other current liabilities 26 27
------------- -------------
Total current liabilities 178 238
------------- -------------
Long-term Debt, Net 485 485
Deferred Credits and Other Non-Current Liabilities:
Accumulated deferred income taxes, net 269 269
Accumulated deferred investment tax credits 11 11
Regulatory liabilities 146 145
Other deferred credits and liabilities 63 62
------------- -------------
Total deferred credits and other non-current liabilities 489 487
------------- -------------
Commitments and Contingencies (Note 9)
Stockholder's Equity:
Common stock, no par value, 45.0 shares authorized - 25.5 shares outstanding 120 120
Preferred stock not subject to mandatory redemption 50 50
Retained earnings 358 369
Accumulated other comprehensive income (loss) (4) (7)
------------- -------------
Total stockholder's equity 524 532
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,676 $ 1,742
============= =============
The accompanying notes as they relate to CIPS are an integral part of these financial statements.
16
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Six Months Ended
June 30,
--------------------------
2004 2003
------------ -----------
Cash Flows From Operating Activities:
Net income $ 18 $ 5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 26 26
Deferred income taxes, net (12) (11)
Deferred investment tax credits, net - (1)
Other 3 (2)
Changes in assets and liabilities:
Receivables, net - 21
Materials and supplies 9 8
Accounts and wages payable 3 (1)
Taxes accrued 12 -
Assets, other (7) 7
Liabilities, other 10 5
------------ -----------
Net cash provided by operating activities 62 57
------------ -----------
Cash Flows From Investing Activities:
Construction expenditures (21) (22)
Intercompany note receivable - Genco 49 62
------------ -----------
Net cash provided by investing activities 28 40
------------ -----------
Cash Flows From Financing Activities:
Dividends on common stock (28) (39)
Dividends on preferred stock (1) (1)
Repayments to money pool (74) -
Redemptions, repurchases, and maturities:
Long-term debt - (95)
Borrowings from money pool - 39
------------ -----------
Net cash used in financing activities (103) (96)
------------ -----------
Net change in cash and cash equivalents (13) 1
Cash and cash equivalents at beginning of year 16 17
------------ -----------
Cash and cash equivalents at end of period $ 3 $ 18
============ ===========
Cash Paid During the Periods:
Interest $ 16 $ 20
Income taxes, net 15 14
The accompanying notes as they relate to CIPS are an integral part of these financial statements.
17
AMEREN ENERGY GENERATING COMPANY
STATEMENT OF INCOME
(Unaudited) (In millions)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ------------ ------------
Operating Revenues:
Electric $ 208 $ 173 $ 424 $ 379
----------- ----------- ------------ ------------
Total operating revenues 208 173 424 379
----------- ----------- ------------ ------------
Operating Expenses:
Fuel and purchased power 90 72 182 160
Other operations and maintenance 44 35 74 68
Depreciation and amortization 19 19 38 37
Taxes other than income taxes 6 6 11 13
----------- ----------- ------------ ------------
Total operating expenses 159 132 305 278
----------- ----------- ------------ ------------
Operating Income 49 41 119 101
Other Income and (Deductions):
Miscellaneous expense - - (1) -
----------- ----------- ------------ ------------
Total other income and (deductions) - - (1) -
----------- ----------- ------------ ------------
Interest Charges 24 25 47 51
----------- ----------- ------------ ------------
Income Before Income Taxes and Cumulative Effect of Change
in Accounting Principle 25 16 71 50
Income Taxes 8 6 25 19
----------- ----------- ------------ ------------
Income Before Cumulative Effect of Change in Accounting
Principle 17 10 46 31
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes of $-, $-, $- and $12 - - - 18
----------- ----------- ------------ ------------
Net Income $ 17 $ 10 $ 46 $ 49
=========== =========== ============ ============
The accompanying notes as they relate to Genco are an integral part of these financial statements.
18
AMEREN ENERGY GENERATING COMPANY
BALANCE SHEET
(Unaudited) (In millions, except shares)
June 30, December 31,
2004 2003
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ - $ 2
Accounts receivable 79 88
Materials and supplies, at average cost 89 90
Other current assets 2 4
------------ ------------
Total current assets 170 184
Property and Plant, Net 1,753 1,774
Other Non-Current Assets 20 19
------------ ------------
TOTAL ASSETS $ 1,943 $ 1,977
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts and wages payable $ 55 $ 75
Borrowings from money pool 156 124
Current portion of intercompany notes payable - CIPS and Ameren 358 53
Current portion of intercompany tax payable - CIPS 12 12
Taxes accrued 27 30
Other current liabilities 22 23
------------ ------------
Total current liabilities 630 317
------------ ------------
Long-term Debt, Net 698 698
Intercompany Notes Payable - CIPS and Ameren - 358
Deferred Credits and Other Non-Current Liabilities:
Accumulated deferred income taxes, net 104 99
Accumulated deferred investment tax credits 13 13
Intercompany tax payable - CIPS 144 150
Accrued pension and other postretirement benefits 22 19
Other deferred credits and liabilities 2 2
------------ ------------
Total deferred credits and other non-current liabilities 285 283
------------ ------------
Commitments and Contingencies (Note 9)
Stockholder's Equity:
Common stock, no par value, 10,000 shares authorized - 2,000 shares outstanding - -
Other paid-in capital 150 150
Retained earnings 181 170
Accumulated other comprehensive (loss) income (1) 1
------------ ------------
Total stockholder's equity 330 321
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,943 $ 1,977
============ ============
The accompanying notes as they relate to Genco are an integral part of these financial statements.
19
AMEREN ENERGY GENERATING COMPANY
STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Six Months Ended
June 30,
--------------------------
2004 2003
------------ ------------
Cash Flows From Operating Activities:
Net income $ 46 $ 49
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle - (18)
Depreciation and amortization 38 37
Deferred income taxes, net 18 27
Other (2) -
Changes in assets and liabilities:
Accounts receivable 9 (2)
Materials and supplies 1 (15)
Taxes accrued (3) 66
Accounts and wages payable (10) (17)
Assets, other 2 -
Liabilities, other (17) (1)
------------ ------------
Net cash provided by operating activities 82 126
------------ ------------
Cash Flows From Investing Activities:
Construction expenditures (28) (31)
------------ ------------
Net cash used in investing activities (28) (31)
------------ ------------
Cash Flows From Financing Activities:
Dividends on common stock (35) (2)
Redemptions, repurchases, and maturities:
Repayments to money pool - (37)
Intercompany notes payable - CIPS and Ameren (53) (51)
Issuances:
Borrowings from money pool 32 -
------------ ------------
Net cash used in financing activities (56) (90)
------------ ------------
Net change in cash and cash equivalents (2) 5
Cash and cash equivalents at beginning of year 2 3
------------ ------------
Cash and cash equivalents at end of period $ - $ 8
============ ============
Cash Paid During the Periods:
Interest $ 48 $ 49
Income taxes, net paid (refunded) 15 (66)
The accompanying notes as they relate to Genco are an integral part of these financial statements.
20
CILCORP INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) (In millions)
---------------Successor------ ---------Successor--------- | -Predecessor-
Three Three Six Five |
Months Months Months Months |
Ended Ended Ended Ended |
June 30, June 30, June 30, June 30, | January
------------ ------------ ------------ ------------ | ------------
2004 2003 2004 2003 | 2003
------------ ------------ ------------ ------------ | ------------
Operating Revenues: |
Electric $ 89 $ 125 $ 187 $ 205 | $ 47
Gas 50 66 191 169 | 58
Other 1 1 2 2 | -
------------ ------------ ------------ ------------ | ------------
Total operating revenues 140 192 380 376 | 105
------------ ------------ ------------ ------------ | ------------
|
Operating Expenses: |
Fuel and purchased power 33 65 78 107 | 24
Gas purchased for resale 31 51 138 134 | 44
Other operations and maintenance 47 35 90 57 | 14
Depreciation and amortization 17 22 33 36 | 6
Taxes other than income taxes 5 9 14 17 | 4
------------ ------------ ------------ ------------ | ------------
Total operating expenses 133 182 353 351 | 92
------------ ------------ ------------ ------------ | ------------
|
Operating Income 7 10 27 25 | 13
|
Other Income and (Deductions): |
Miscellaneous expense (1) (1) (2) (1) | -
------------ ------------ ------------ ------------ | ------------
Total other income and (deductions) (1) (1) (2) (1) | -
------------ ------------ ------------ ------------ | ------------
|
Interest Charges and Preferred Dividends: |
Interest 14 11 26 20 | 5
Preferred dividends of subsidiaries 1 1 1 1 | -
------------ ------------ ------------ ------------ | ------------
Net interest charges and preferred dividends 15 12 27 21 | 5
------------ ------------ ------------ ------------ | ------------
|
Income Before Income Taxes and Cumulative Effect of |
Change in Accounting Principle (9) (3) (2) 3 | 8
|
Income Taxes (5) (3) (2) - | 3
------------ ------------ ------------ ------------ | ------------
|
Income Before Cumulative Effect of Change in |
Accounting Principle (4) - - 3 | 5
|
Cumulative Effect of Change in Accounting Principle, |
Net of Income Taxes of $-, $-, $-, $- and $2 - - - - | 4
------------ ------------ ------------ ------------ | ------------
|
Net Income $ (4) $ - $ - $ 3 | $ 9
============ ============ ============ ============ | ============
The accompanying notes as they relate to CILCORP are an integral part of these consolidated financial statements.
21
CILCORP INC.
CONSOLIDATED BALANCE SHEET
(Unaudited) (In millions, except shares)
---------Successor---------
June 30, December 31,
2004 2003
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 5 $ 11
Accounts receivables - trade (less allowance for doubtful
accounts of $4 and $6, respectively) 29 59
Unbilled revenue 22 40
Miscellaneous accounts and notes receivable 6 16
Materials and supplies, at average cost 129 154
Other current assets 4 5
------------- -------------
Total current assets 195 285
------------- -------------
Property and Plant, Net 1,154 1,127
Investments and Other Non-Current Assets:
Investments in leveraged leases 127 130
Goodwill and other intangibles, net 558 567
Other assets 18 11
------------- -------------
Total investments and other non-current assets 703 708
------------- -------------
Regulatory Assets 13 16
------------- -------------
TOTAL ASSETS $ 2,065 $ 2,136
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ - $ 100
Borrowings from money pool 232 145
Intercompany note payable - Ameren 57 46
Accounts and wages payable 75 108
Other current liabilities 37 38
------------- -------------
Total current liabilities 401 437
------------- -------------
Long-term Debt, Net 646 669
Preferred Stock of Subsidiary Subject to Mandatory Redemption 21 21
Deferred Credits and Other Non-Current Liabilities:
Accumulated deferred income taxes, net 177 181
Accumulated deferred investment tax credits 11 11
Regulatory liabilities 31 24
Accrued pension and other postretirement benefits 266 259
Other deferred credits and liabilities 29 37
------------- -------------
Total deferred credits and other non-current liabilities 514 512
------------- -------------
Preferred Stock of Subsidiary Not Subject to Mandatory Redemption 19 19
Commitments and Contingencies (Note 9)
Stockholder's Equity:
Common stock, no par value, 10,000 shares authorized - 1,000 shares outstanding - -
Other paid-in capital 490 490
Retained earnings (31) (13)
Accumulated other comprehensive income (loss) 5 1
------------- -------------
Total stockholder's equity 464 478
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,065 $ 2,136
============= =============
The accompanying notes as they relate to CILCORP are an integral part of these consolidated financial statements.
22
CILCORP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
---------Successor--------- | --Predecessor--
Six Five |
Months Months |
Ended Ended |
June 30, June 30, | January
------------- ------------- | --------------
2004 2003 | 2003
------------- ------------- | --------------
Cash Flows From Operating Activities: |
Net income $ - $ 3 | $ 9
Adjustments to reconcile net income to net cash |
provided by operating activities: |
Cumulative effect of change in accounting principle - - | (4)
Depreciation and amortization 33 36 | 6
Deferred income taxes, net 3 (3) | (5)
Deferred investment tax credits, net - (1) | -
Other 7 (17) | -
Changes in assets and liabilities: |
Receivables, net 66 32 | (20)
Materials and supplies 25 (8) | 13
Accounts and wages payable (26) (42) | 20
Taxes accrued 2 (3) | 11
Assets, other (3) 18 | 6
Liabilities, other (4) 4 | (5)
------------- ------------- | --------------
Net cash provided by operating activities 103 19 | 31
------------- ------------- | --------------
|
Cash Flows From Investing Activities: |
Construction expenditures (73) (38) | (16)
Other 4 2 | 1
------------- ------------- | --------------
Net cash used in investing activities (69) (36) | (15)
------------- ------------- | --------------
|
Cash Flows From Financing Activities: |
Dividends on common stock (18) - | -
Redemptions, repurchases, and maturities: |
Short-term debt - - | (10)
Long-term debt (120) (101) | -
Issuances: |
Borrowings from money pool 87 111 | -
Intercompany note payable - Ameren 11 - | -
------------- ------------- | --------------
Net cash provided by (used in) financing activities (40) 10 | (10)
------------- ------------- | --------------
|
Net change in cash and cash equivalents (6) (7) | 6
Cash and cash equivalents at beginning of year 11 38 | 32
------------- ------------- | --------------
Cash and cash equivalents at end of period $ 5 $ 31 | $ 38
============= ============= | ==============
|
Cash Paid During the Periods: |
Interest $ 20 $ 9 | $ 5
Income taxes, net (refunded) paid (4) 9 | -
The accompanying notes as they relate to CILCORP are an integral part of these consolidated financial statements.
23
CENTRAL ILLINOIS LIGHT COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) (In millions)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
2004 2003 2004 2003
---------- ----------- ---------- ----------
Operating Revenues:
Electric $ 89 $ 125 $ 187 $ 252
Gas 45 47 172 166
---------- ---------- ---------- ----------
Total operating revenues 134 172 359 418
---------- ---------- ---------- ----------
Operating Expenses:
Fuel and purchased power 31 62 76 129
Gas purchased for resale 25 31 119 115
Other operations and maintenance 48 39 95 80
Depreciation and amortization 16 19 32 37
Taxes other than income taxes 6 9 14 21
---------- ---------- ---------- ----------
Total operating expenses 126 160 336 382
---------- ---------- ---------- ----------
Operating Income 8 12 23 36
Other Income and (Deductions):
Miscellaneous expense (2) (1) (3) (1)
---------- ---------- ---------- ----------
Total other income and (deductions) (2) (1) (3) (1)
---------- ---------- ---------- ----------
Interest Charges 4 5 7 10
---------- ---------- ---------- ----------
Income Before Income Taxes and Cumulative Effect of Change
in Accounting Principle 2 6 13 25
Income Taxes (1) 1 4 9
---------- ---------- ---------- ----------
Income Before Cumulative Effect of Change in Accounting
Principle 3 5 9 16
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes of $-, $-, $- and $16 - - - 24
---------- ---------- ---------- ----------
Net Income 3 5 9 40
Preferred Stock Dividends 1 1 1 1
---------- ---------- ---------- ----------
Net Income Available to Common Stockholder $ 2 $ 4 $ 8 $ 39
========== ========== ========== ==========
The accompanying notes as they relate to CILCO are an integral part of these consolidated financial statements.
24
CENTRAL ILLINOIS LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited) (In millions)
June 30, December 31,
2004 2003
----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3 $ 8
Accounts receivable - trade (less allowance for doubtful
accounts of $4 and $6, respectively) 28 57
Unbilled revenue 21 35
Miscellaneous accounts and notes receivable 5 14
Materials and supplies, at average cost 52 69
Other current assets 4 5
----------- ------------
Total current assets 113 188
----------- ------------
Property and Plant, Net 1,137 1,101
Other Non-Current Assets 26 19
Regulatory Assets 13 16
----------- ------------
TOTAL ASSETS $ 1,289 $ 1,324
=========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ - $ 100
Borrowings from money pool 233 149
Accounts and wages payable 72 101
Taxes accrued 4 13
Other current liabilities 33 30
----------- ------------
Total current liabilities 342 393
----------- ------------
Long-term Debt, Net 138 138
Preferred Stock Subject to Mandatory Redemption 21 21
Deferred Credits and Other Non-Current Liabilities:
Accumulated deferred income taxes, net 97 101
Accumulated deferred investment tax credits 11 11
Regulatory liabilities 172 167
Accrued pension and other postretirement benefits 145 128
Other deferred credits and liabilities 19 23
----------- ------------
Total deferred credits and other non-current liabilities 444 430
----------- ------------
Commitments and Contingencies (Note 9)
Stockholder's Equity:
Common stock, no par value, 20.0 shares authorized - 13.6 shares outstanding 186 186
Preferred stock not subject to mandatory redemption 19 19
Other paid-in capital 52 52
Retained earnings 93 95
Accumulated other comprehensive income (loss) (6) (10)
----------- -----------
Total stockholder's equity 344 342
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,289 $ 1,324
=========== ============
The accompanying notes as they relate to CILCO are an integral part of these consolidated financial statements.
25
CENTRAL ILLINOIS LIGHT COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Six Months Ended
June 30,
------------------------
2004 2003
----------- -----------
Cash Flows From Operating Activities:
Net income $ 8 $ 39
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle - (24)
Depreciation and amortization 32 37
Deferred income taxes, net 4 (5)
Deferred investment tax credits, net - (1)
Other 7 (2)
Changes in assets and liabilities:
Receivables, net 52 10
Materials and supplies 17 5
Accounts and wages payable (28) 4
Taxes accrued (9) (13)
Assets, other (7) 6
Liabilities, other 18 17
----------- -----------
Net cash provided by operating activities 94 73
----------- -----------
Cash Flows From Investing Activities:
Construction expenditures (73) (54)
Other 1 1
----------- -----------
Net cash used in investing activities (72) (53)
----------- -----------
Cash Flows From Financing Activities:
Dividends on common stock (10) (21)
Dividends on preferred stock (1) (1)
Redemptions, repurchases, and maturities:
Short-term debt - (10)
Long-term debt (100) (101)
Issuances:
Borrowings from money pool 84 99
----------- -----------
Net cash used in financing activities (27) (34)
----------- -----------
Net change in cash and cash equivalents (5) (14)
Cash and cash equivalents at beginning of year 8 22
----------- -----------
Cash and cash equivalents at end of period $ 3 $ 8
=========== ===========
Cash Paid During the Periods:
Interest $ 9 $ 14
Income taxes, net 8 11
The accompanying notes as they relate to CILCO are an integral part of these consolidated financial statements.
26
AMEREN CORPORATION (CONSOLIDATED)
UNION ELECTRIC COMPANY (CONSOLIDATED)
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
AMEREN ENERGY GENERATING COMPANY
CILCORP INC. (CONSOLIDATED)
CENTRAL ILLINOIS LIGHT COMPANY (CONSOLIDATED)
COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2004
NOTE 1 - Summary of Significant Accounting Policies
General
Ameren, headquartered in St. Louis, Missouri, is a public utility holding
company registered with the SEC under the PUHCA. Ameren's primary asset is the
common stock of its subsidiaries. Ameren's subsidiaries operate rate-regulated
electric generation, transmission and distribution businesses, rate-regulated
natural gas distribution businesses and non rate-regulated electric generation
businesses in Missouri and Illinois. Dividends on Ameren's common stock are
dependent on distributions made to it by its subsidiaries. Ameren's principal
operating subsidiaries are listed below. Also see Glossary of Terms and
Abbreviations.
o UE, also known as Union Electric Company, operates a rate-regulated
electric generation, transmission and distribution business, and a
rate-regulated natural gas distribution business in Missouri and Illinois.
UE was incorporated in Missouri in 1922 and is successor to a number of
companies, the oldest of which was organized in 1881. It is the largest
electric utility in the State of Missouri and supplies electric and gas
service to a 24,500 square mile area located in central and eastern
Missouri and west central Illinois. This area has an estimated population
of 3 million and includes the greater St. Louis area. UE supplies electric
service to approximately 1.2 million customers and natural gas service to
approximately 130,000 customers. See Note 3 - Rate and Regulatory Matters
for information regarding the proposed transfer in 2004 of UE's Illinois
electric and natural gas transmission and distribution businesses to CIPS.
o CIPS, also known as Central Illinois Public Service Company, operates a
rate-regulated electric and natural gas transmission and distribution
business in Illinois. CIPS was incorporated in Illinois in 1902. It
supplies electric and gas utility service to portions of central and
southern Illinois having an estimated population of 1 million in an area of
approximately 20,000 square miles. CIPS supplies electric service to
approximately 325,000 customers and natural gas service to approximately
170,000 customers.
o Genco, also known as Ameren Energy Generating Company, operates a non
rate-regulated electric generation business in Illinois and Missouri. Genco
was incorporated in Illinois in March 2000, in conjunction with the
Illinois Customer Choice Law. Genco commenced operations on May 1, 2000,
when CIPS transferred its five coal-fired power plants and related
liabilities to Genco at historical net book value. Genco is a subsidiary of
Development Company, which is a subsidiary of Resources Company, which is a
subsidiary of Ameren. See Note 3 - Rate and Regulatory Matters for
information regarding the proposed transfer in 2004 of Genco's CTs located
in Pinckneyville and Kinmundy, Illinois to UE.
o CILCO, also known as Central Illinois Light Company, is a subsidiary of
CILCORP (a holding company) and operates a rate-regulated electric
transmission and distribution business, a primarily non rate-regulated
electric generation business and a rate-regulated natural gas distribution
business in Illinois. CILCO was incorporated in Illinois in 1913. It
supplies electric and gas utility service to portions of central and east
central Illinois in areas of approximately 3,700 and 4,500 square miles,
respectively, with an estimated population of 1 million. CILCO supplies
electric service to approximately 205,000 customers and natural gas service
to approximately 210,000 customers. In October 2003, CILCO transferred its
coal-fired plants and a CT facility, representing in the aggregate
approximately 1,100 megawatts of electric generating capacity, to a wholly
owned subsidiary, known as AERG, as a contribution in return for all the
outstanding stock of AERG and AERG's assumption of certain liabilities. The
net book value of the transferred assets was approximately $378 million and
no gain or loss was recognized as the
27
transaction was accounted for as a transfer between entities under common
control. The transfer was made in conjunction with the Illinois Customer
Choice Law. CILCORP was incorporated in Illinois in 1985.
Ameren has various other subsidiaries responsible for the short and
long-term marketing of power, procurement of fuel, management of commodity risks
and providing other shared services. Ameren also has a 60% ownership interest in
EEI through UE, which owns 40%, and Resources Company, which owns 20%. Ameren
consolidates EEI for financial reporting purposes, while UE and Resources
Company report EEI under the equity method.
The financial statements of Ameren are prepared on a consolidated basis and
therefore include the accounts of its majority-owned subsidiaries. Results of
CILCORP and CILCO reflected in Ameren's consolidated financial statements
include the period from the acquisition date of January 31, 2003. See Note 2 -
Acquisitions for further information. All significant intercompany transactions
have been eliminated. All tabular dollar amounts are in millions, unless
otherwise indicated.
Our accounting policies conform to GAAP. Our financial statements reflect
all adjustments (which include normal, recurring adjustments) necessary, in our
opinion, for a fair presentation of our results. The preparation of financial
statements in conformity with GAAP requires management to make certain estimates
and assumptions. Such estimates and assumptions affect reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the dates of financial statements and the reported amounts of revenues and
expenses during the reported periods. Actual results could differ from those
estimates. The results of operations of an interim period may not give a true
indication of results for a full year. Certain reclassifications have been made
to prior year's financial statements to conform to 2004 reporting. These
statements should be read in conjunction with the financial statements and the
notes thereto included in the Ameren Companies' combined 2003 Annual Reports on
Form 10-K and first quarter 2004 Quarterly Reports on Form 10-Q.
Earnings Per Share
There were no differences between the basic and diluted earnings per share
amounts for the three and six month periods ended June 30, 2004 and 2003.
Assumed stock option conversions increased the number of shares outstanding in
the diluted earnings per share calculation by 161,665 shares for the three
months ended June 30, 2004 (2003 - 306,389 shares) and 230,999 shares for the
six months ended June 30, 2004 (2003 - 273,136 shares). Ameren's equity security
units had no dilutive effect on earnings per share in 2003 and 2004. As only the
Ameren parent company has publicly held common stock, earnings per share
calculations are not relevant and are not presented for any of the subsidiaries
of Ameren.
Accounting Changes and Other Matters
SFAS No.143 - "Accounting for Asset Retirement Obligations"
We adopted the provisions of SFAS No. 143, effective January 1, 2003. SFAS
No. 143 provides the accounting requirements for asset retirement obligations
associated with tangible, long-lived assets. Upon adoption of the standard,
Ameren and Genco recognized a net after-tax gain of $18 million in the first
quarter of 2003 for the cumulative effect of change in accounting principle.
Prior to Ameren's acquisition of CILCORP, predecessor CILCORP and CILCO
recognized a net after-tax gain upon adoption of SFAS No. 143 in 2003 of $4
million and $24 million, respectively, for the cumulative effect of change in
accounting principle. In addition, in accordance with SFAS No. 143, estimated
future removal costs associated with Ameren's, UE's, CIPS', CILCORP's and
CILCO's rate-regulated operations that had previously been embedded in
accumulated depreciation were reclassified to a regulatory liability.
Asset retirement obligations at Ameren and UE increased by approximately $6
million during the quarter ended, and $12 million during the six months ended,
June 30, 2004, to reflect the accretion of obligations to their present value.
Increases to Genco's, CILCORP's and CILCO's asset retirement obligations were
immaterial during these periods. Substantially all of this accretion was
recorded as an increase to regulatory assets.
In June 2004, the FASB issued an exposure draft on a proposed
interpretation of SFAS No. 143. The comment period on the exposure draft ended
on August 1, 2004. The interpretation would clarify that a legal obligation to
perform an asset retirement activity that is conditional on a future event is
within the scope of SFAS No. 143. Accordingly, an
28
entity would be required to recognize a liability for the fair value of an asset
retirement obligation that is conditional on a future event if the liability's
fair value can be estimated reasonably. The interpretation provides examples of
conditional asset retirement obligations that may need to be recognized under
the provisions of the interpretation, including asbestos removal. This proposed
interpretation could require accrual of additional liabilities by the Ameren
Companies and could result in increased expense, which while not yet
quantifiable, could be material. This proposed interpretation would be effective
for us no later than December 31, 2005.
FIN No. 46 - "Consolidation of Variable Interest Entities"
In January 2003, the FASB issued FIN No. 46, which changed the
consolidation requirements for special purpose entities (SPEs) and non-special
purpose entities (non-SPEs) that meet the criteria for designation as variable
interest entities (VIEs). In December 2003, the FASB revised FIN No. 46 (FIN No.
46R) to clarify certain aspects of FIN No. 46 and modify the effective dates of
the new guidance. FIN No. 46R provides guidance on the accounting for entities
that are controlled through means other than voting rights by another entity.
FIN No. 46R requires a VIE to be consolidated by a company if that company is
designated as the primary beneficiary.
The Ameren Companies do not have any interests in entities that are
considered SPEs. FIN No. 46R was effective on March 31, 2004 for any interests
Ameren holds in non-SPEs. The adoption of FIN No. 46R did not have a material
impact on the consolidated financial statements of the Ameren Companies.
However, in connection with the adoption of FIN No. 46R, we have determined that
the following significant variable interests are held by the Ameren Companies:
o EEI. Ameren has a 60% ownership interest in EEI through UE's 40%
interest and Resources Company's 20% interest. Under the FIN No. 46R
model, Ameren, UE and Resources Company have a variable interest in
EEI, and Ameren is the primary beneficiary. Accordingly, Ameren will
continue to consolidate EEI, and UE will continue to account for its
investment in EEI under the equity method of accounting. The maximum
exposure to loss as a result of these variable interests in EEI is
limited to Ameren's and UE's equity investments in EEI.
o Tolling agreement. CILCO has a significant variable interest in Medina
Valley through a tolling agreement to purchase steam, chilled water
and electricity. We have concluded that CILCO is not the primary
beneficiary of Medina Valley, and accordingly, CILCO does not
consolidate Medina Valley. The maximum exposure to loss as a result of
this variable interest in the tolling agreement is not material.
o Leveraged lease and affordable housing partnership investments.
Ameren, UE and CILCORP have investments in leveraged lease and
affordable housing partnership arrangements that are variable
interests. We have concluded that neither Ameren, UE nor CILCORP are
the primary beneficiary of any of the VIEs related to these
investments. The maximum exposure to loss as a result of these
variable interests is limited to the investments in these
arrangements. At June 30, 2004, Ameren and CILCORP had net investments
in leveraged leases of $153 million and $127 million, respectively. At
June 30, 2004, Ameren, UE and CILCORP had investments in affordable
housing partnerships of $19 million, $7 million and $7 million,
respectively.
FASB Staff Position SFAS No. 106-1 and FASB Staff Position SFAS No. 106-2
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003"
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Prescription Drug Act) was enacted. The
Prescription Drug Act introduced a prescription drug benefit to retirees under
Medicare as well as a federal subsidy to sponsors of retiree healthcare benefit
plans that provide a benefit that is at least actuarially equivalent to the
Medicare prescription drug benefit. Through its postretirement benefit plans,
Ameren provides retirees with prescription drug coverage that we believe is
actuarially equivalent to the Medicare prescription drug benefit. In January
2004, the FASB issued FASB Staff Position SFAS No. 106-1 (FSP SFAS 106-1), which
permitted a plan sponsor of a postretirement healthcare plan that provides a
prescription drug benefit to make a one-time election to defer the accounting
for the effects of the Prescription Drug Act. Ameren made this one-time election
allowed by FSP SFAS 106-1.
In May 2004, the FASB issued FASB Staff Position SFAS No. 106-2 (FSP SFAS
106-2), which superceded FSP SFAS 106-1. FSP SFAS 106-2 provides guidance on
accounting for the effects of the Medicare prescription drug legislation by
employers whose prescription drug benefits are actuarially equivalent to the
drug benefit under Medicare Part D. Ameren elected to adopt FSP SFAS 106-2
during the second quarter ended June 30, 2004, retroactive to January
29
1, 2004. See Note 12 - Pension and other Postretirement Benefits for additional
information on the impact of adoption of FSP SFAS 106-2.
Interchange Revenues
The following table presents the interchange revenues included in Operating
Revenues - Electric for the three months and six months ended June 30, 2004 and
2003. See Note 8 - Related Party Transactions for information on sales among
affiliates.
================================================================================================================
Three Months Six Months
----------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Ameren(a)............................................... $ 81 $ 71 $ 172 $ 185
UE...................................................... 71 65 155 167
CIPS.................................................... 10 10 19 18
Genco................................................... 36 27 75 72
CILCORP(b).............................................. 9 3 21 8
CILCO................................................... 9 3 21 8
================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003; includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) 2003 amounts include January 2003 predecessor information, which was
$3 million. CILCORP consolidates CILCO and therefore includes CILCO
amounts in its balances.
Purchased Power
The following table presents the purchased power expenses included in
Operating Expenses - Fuel and Purchased Power for the three months and six
months ended June 30, 2004 and 2003. See Note 8 - Related Party Transactions for
information on affiliate purchased power transactions.
================================================================================================================
Three Months Six Months
----------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Ameren(a)............................................... $ 80 $ 71 $ 152 $ 123
UE...................................................... 46 37 96 82
CIPS.................................................... 79 82 159 168
Genco................................................... 32 30 70 71
CILCORP(b).............................................. 8 47 30 87
CILCO................................................... 8 44 30 84
================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003; includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) 2003 amounts include January 2003 predecessor information, which was
$12 million. CILCORP consolidates CILCO and therefore includes CILCO
amounts in its balances.
Excise Taxes
Excise taxes reflected on Missouri electric and gas, and Illinois gas,
customer bills are imposed on us and are recorded gross in Operating Revenues
and Taxes Other than Income Taxes. Excise taxes reflected on Illinois electric
customer bills are imposed on the consumer and are recorded as tax collections
payable and included in Taxes Accrued. The following table presents excise taxes
recorded in Operating Revenues and Taxes Other than Income Taxes for the three
months and six months ended June 30, 2004 and 2003:
================================================================================================================
Three Months Six Months
----------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Ameren(a)............................................... $ 31 $ 31 $ 65 $ 62
UE...................................................... 27 25 51 47
CIPS.................................................... 2 3 7 8
Genco................................................... - - - -
CILCORP(b).............................................. 2 3 7 9
CILCO................................................... 2 3 7 9
================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003.
(b) 2003 amounts include January 2003 predecessor information which was $2
million. CILCORP consolidates CILCO and therefore includes CILCO
amounts in its balances.
30
NOTE 2 - Acquisitions
CILCORP and Medina Valley
On January 31, 2003, Ameren completed the acquisition of all of the
outstanding common stock of CILCORP from AES. CILCORP is the parent company of
Peoria, Illinois-based CILCO. With the acquisition, CILCO became an indirect
Ameren subsidiary, but remains a separate utility company, operating as
AmerenCILCO. On February 4, 2003, Ameren also completed the acquisition from AES
of Medina Valley, which indirectly owns a 40 megawatt, gas-fired electric
generation plant. The results of operations for CILCORP and Medina Valley were
included in Ameren's consolidated financial statements effective with the
respective January and February 2003 acquisition dates. See Note 1 - Summary of
Significant Accounting Policies for further information on the presentation of
the results of CILCORP and CILCO in Ameren's consolidated financial statements.
The purchase price allocation for the acquisition of CILCORP and Medina
Valley was finalized in January 2004. As a result, goodwill decreased by $8
million since December 31, 2003, primarily due to January 2004 adjustments to
property and plant, income tax accounts and accrued severance expenses. The
following table presents the final estimated fair values of the assets acquired
and liabilities assumed at the dates of our acquisitions of CILCORP and Medina
Valley.
===================================================================================================
Current assets............................................................. $ 323
Property and plant......................................................... 1,162
Investments and other non-current assets................................... 154
Specifically-identifiable intangible assets................................ 6
Goodwill................................................................... 560
---------------------------------------------------------------------------------------------------
Total assets acquired................................................... 2,205
---------------------------------------------------------------------------------------------------
Current liabilities........................................................ 189
Long-term debt, including current maturities............................... 937
Other non-current liabilities.............................................. 521
---------------------------------------------------------------------------------------------------
Total liabilities assumed............................................... 1,647
---------------------------------------------------------------------------------------------------
Preferred stock assumed.................................................... 41
---------------------------------------------------------------------------------------------------
Net assets acquired..................................................... $ 517
===================================================================================================
Specifically-identifiable intangible assets of $6 million are comprised of
retail customer contracts, which are subject to amortization with an average
life of 10 years. Goodwill of $560 million (CILCORP - $553 million; Medina
Valley - $7 million) was recognized in connection with the CILCORP and Medina
Valley acquisitions. None of this goodwill is expected to be deductible for tax
purposes.
Illinois Power
On February 2, 2004, Ameren entered into an agreement with Dynegy to
purchase the stock of Decatur, Illinois-based Illinois Power and Dynegy's 20%
ownership interest in EEI. Illinois Power operates a rate-regulated electric and
natural gas transmission and distribution business serving approximately 600,000
electric and 415,000 gas customers in areas contiguous to our existing Illinois
utility service territories. The total transaction value is approximately $2.3
billion, including the assumption of approximately $1.8 billion of Illinois
Power debt and preferred stock, with the balance of the purchase price to be
paid in cash at closing. Ameren will place $100 million of the cash portion of
the purchase price in a six-year escrow pending resolution of certain contingent
environmental obligations of Illinois Power and other Dynegy affiliates for
which Ameren has been provided indemnification by Dynegy. In addition, this
transaction includes a firm capacity power supply contract for Illinois Power's
annual purchase of 2,800 megawatts of electricity from a subsidiary of Dynegy.
This contract will extend through 2006 and is expected to supply about 70% of
Illinois Power's customer requirements.
Ameren's financing plan for this transaction includes the issuance of new
Ameren common stock. In February 2004, Ameren issued 19.1 million common shares
that generated net proceeds of $853 million, and in July 2004, Ameren completed
its issuance of common stock for this transaction with the issuance of 10.9
million common shares that generated net proceeds of $445 million. Proceeds from
these sales are expected to be used to finance the cash portion of the purchase
price, to reduce Illinois Power debt assumed as part of this transaction and to
pay any related
31
premiums. Pending such use, and/or if the acquisition is not completed, we plan
to use the net proceeds to reduce present or future indebtedness and/or
repurchase securities of Ameren or our subsidiaries.
Upon completion of the acquisition, expected by the end of 2004, Illinois
Power will become an Ameren subsidiary operating as AmerenIP. The transaction
remains subject to the approval of the ICC and the SEC under the PUHCA and other
customary closing conditions. Ameren has received approval from the FERC and the
FCC, and the waiting period under the Hart-Scott-Rodino Act has expired.
In April 2004, the FCC consented to the transfer of control of FCC licenses
held by Illinois Power to Ameren, and the initial 30 calendar day waiting period
expired without a request by the FTC or DOJ for additional information or
documents under the Hart-Scott-Rodino Act. In July 2004, the FERC issued an
order approving Ameren's acquisition of Illinois Power and Dynegy's interest in
EEI. The principal conditions of the FERC's approval are that Illinois Power
join the Midwest ISO prior to closing the transaction and 125 megawatts of EEI's
power be sold to a nonaffiliate of Ameren.
A procedural schedule has been adopted in the ICC proceeding, which can
permit an order to be issued by the fall of 2004. The ICC Staff and several
intervenors filed testimony in early July expressing various concerns with the
acquisition and objecting to parts of the application filed by Ameren and
Illinois Power in March 2004. In late July, Ameren filed testimony responding to
these concerns and objections. Hearings in the ICC proceeding are scheduled to
be held in August 2004. However, we are unable to predict the ultimate outcome
of the remaining regulatory proceedings or the timing of the final agency
decisions.
According to Illinois Power's Annual Report on Form 10-K for the year ended
December 31, 2003, Illinois Power had revenues of $1.6 billion, operating income
of $166 million, and net income applicable to its common shareholder of $115
million, and at December 31, 2003, had total assets of $2.8 billion, excluding
an intercompany note receivable from its parent company of approximately $2.3
billion. Illinois Power files quarterly, annual and current reports with the SEC
pursuant to the Exchange Act.
NOTE 3 - Rate and Regulatory Matters
Intercompany Transfer of Electric Generating Facilities and Illinois Service
Territory
As a part of the settlement of the Missouri electric rate case in 2002, UE
committed to making certain infrastructure investments from January 1, 2002
through June 30, 2006 of $2.25 billion to $2.75 billion, including the addition
of 700 megawatts of generation capacity. The new capacity requirement is
expected to be satisfied by the additions in 2002 of 240 megawatts and the
proposed transfer from Genco to UE, at net book value (approximately $250
million), of approximately 550 megawatts of CTs at Pinckneyville and Kinmundy,
Illinois. In July 2004, the FERC approved the generation transfer, but the
transfer remains subject to receipt of SEC approval under the PUHCA. Approval by
the ICC is not required contingent upon prior approval and execution of UE's
transfer of its generation Illinois public utility operations to CIPS as
discussed below. Approval by the MoPSC is not required in order for this
transfer to occur. However, the MoPSC has jurisdiction over UE's ability to
recover the cost of the transferred generating facilities from its electric
customers in its rates. As part of the settlement of the Missouri electric rate
case in 2002, UE is subject to a rate moratorium providing for no changes in its
electric rates before June 30, 2006, subject to certain statutory and other
exceptions.
In May 2003, UE announced its plan to limit its public utility operations
to the state of Missouri and to discontinue operating as a public utility
subject to ICC regulation. UE intends to accomplish this plan by transferring
its Illinois-based electric and natural gas businesses, including its
Illinois-based distribution assets and certain of its transmission assets, to
CIPS. In 2003, UE's Illinois electric and gas service territory generated
revenues of $155 million and had a net book value of $122 million at December
31, 2003. UE's electric generating facilities and a certain minor amount of its
electric transmission facilities in Illinois would not be part of the transfer.
The transfer was approved by the FERC in December 2003. The transfer of UE's
Illinois-based utility businesses will also require the approval of the ICC, the
MoPSC and the SEC under the provisions of the PUHCA. In August 2003, UE filed
with the MoPSC, and in October and November 2003, filed with the ICC and the
SEC, respectively, for authority to transfer UE's Illinois-based utility
32
businesses, at net book value, to CIPS. The filing with the ICC seeks approval
to transfer only UE's Illinois-based natural gas utility business since the ICC
authorized the transfer of UE's Illinois-based electric utility business to CIPS
in 2000. UE proposes to transfer approximately one-half of the assets directly
to CIPS in consideration for a CIPS subordinated promissory note, and
approximately one-half of the assets by means of a dividend in kind to Ameren
followed by a capital contribution by Ameren to CIPS. A filing seeking approval
of both the transfer of UE' Illinois-based utility businesses and Genco's CTs
was made with the SEC in October 2003. If completed, the transfers will be
accounted for at book value with no gain or loss recognition, which is
appropriate treatment for transactions of this type by two entities under common
control.
In January 2004, the MoPSC staff and the Missouri Office of Public Counsel
filed rebuttal testimony with the MoPSC expressing concerns that the transfers
of UE's Illinois-based utility businesses may be detrimental to the public in
Missouri and recommended that the transfers be denied. Hearings occurred in late
March and early April 2004 and post-hearing briefs were filed in May and in
early June of 2004. The MoPSC is currently deliberating on this matter. See Note
8 - Related Party Transactions for a discussion of an amendment to the joint
dispatch agreement among UE, Genco and CIPS, which was proposed to address
concerns raised before the MoPSC in this proceeding.
We are unable to predict the ultimate outcome of these regulatory
proceedings or the timing of the final decisions of the various agencies.
Federal - Electric Transmission
Regional Transmission Organization
In December 1999, the FERC issued Order 2000 requiring all utilities
subject to FERC jurisdiction to state their intentions for joining a RTO. The
MoPSC issued an order in early 2004 authorizing UE to participate in the Midwest
ISO for a five year period, with participation after that period subject to
further approvals by the MoPSC. Subsequently, the FERC issued a final order
allowing UE's and CIPS' participation in the Midwest ISO. Under these orders,
the MoPSC continues to set the transmission component of UE's rates to serve its
bundled retail load. CILCO is already a member of the Midwest ISO and previously
transferred functional control of its transmission system to the Midwest ISO.
Genco does not own transmission assets, but pays the Midwest ISO to use the
transmission system to transmit power from the Genco generating plants.
On May 1, 2004, functional control, but not ownership, of the UE and CIPS
transmission systems was transferred to the Midwest ISO through GridAmerica LLC,
or Grid America. The transfer had no accounting impact to UE and CIPS because
they continue to own the transmission system assets. The participation by UE and
CIPS in the Midwest ISO is expected to increase annual costs by $10 million to
$20 million in the aggregate and could result in a decrease in annual revenues
of between $5 million and $10 million in the aggregate. UE and CIPS may also be
required to expand their transmission systems according to decisions made by the
Midwest ISO rather than their internal planning process.
As a part of the transfer of functional control of UE's and CIPS'
transmission systems to the Midwest ISO, Ameren received $26 million, which
represented the refund of the $13 million exit fee paid by UE and the $5 million
exit fee paid by CIPS, which were expensed when they left the Midwest ISO in
2001 plus $1 million interest on the exit fees and the reimbursement of $7
million that was invested in the proposed Alliance RTO. These refunds resulted
in after-tax gains of approximately $11 million, $8 million and $3 million for
Ameren, UE and CIPS, respectively, which were recorded in other operations and
maintenance expenses.
Through orders issued during late 2003 and early 2004, the FERC had ordered
the elimination of regional through-and-out rates assessed by the Midwest ISO
and PJM on transmission service between the Midwest ISO and PJM regions, to be
effective May 1, 2004. However, in March 2004, the FERC accepted an agreement
among affected transmission owners that retains the regional through-and-out
rates until December 1, 2004, and provides for continued negotiations aimed at
developing a long-term transmission pricing structure to eliminate seams between
the PJM and Midwest ISO regions based on specified pricing principles. Until the
long-term transmission pricing structure has been established, UE, CIPS and
CILCO cannot predict the ultimate impact that such structure will have on their
costs and revenues.
In March 2004, the Midwest ISO tendered for filing at the FERC a proposed
Open Access Transmission and Energy Markets Tariff (the "Energy Markets
Tariff"), which is intended to supercede its existing Open Access Transmission
33
Tariff. The Energy Markets Tariff establishes rates, terms and conditions
necessary for implementation of a centralized security-constrained economic
dispatch platform supported by a day-ahead and real-time energy market design,
including Locational Marginal-Cost Pricing and Financial Transmission Rights for
transmission service within the Midwest ISO region. The Energy Markets Tariff
also establishes market monitoring and mitigation procedures and codifies
existing resource adequacy requirements placed on Midwest ISO members by their
states or applicable RRO. The Midwest ISO initially proposed to make the Energy
Markets Tariff effective on December 1, 2004, subject to its ability to
implement the Energy Markets Tariff. However, implementation of the Energy
Markets Tariff is now expected to be effective on March 1, 2005. The Energy
Markets Tariff has not yet been accepted for filing by the FERC. Ameren is
unable to determine the full impact that the Energy Markets Tariff will have
until further information is available regarding the implementation of the
Energy Markets Tariff.
Until UE and CIPS achieve some degree of operational experience
participating in the Midwest ISO through GridAmerica, we are unable to predict
the ultimate impact that such participation or ongoing RTO developments at the
FERC or other regulatory authorities will have on our financial position,
results of operations or liquidity.
New Market Power Analysis Screen Order
In an order issued in April 2004, the FERC replaced the Supply Margin
Assessment Screen previously used to review applications by sellers of
electricity at wholesale for authorization to sell power at market-based rates
with two alternative measures of market power: (a) an uncommitted pivotal
supplier analysis and (b) an uncommitted market share analysis which is to be
prepared on a seasonal basis. If an applicant passes both screens, a rebuttable
presumption will exist that it lacks generation market power. If the applicant
fails either screen, a rebuttable presumption will exist that it has market
power. Under such circumstances, the applicant may either seek to rebut the
presumption by preparing a delivered price test (identifying the amount of
economic capacity from neighboring areas that can be delivered to the control
area) or propose mitigation measures. Unless some other mitigation measure is
adopted, the applicant's authority to sell power at market-based rates in areas
in which it has market power will be revoked, and the applicant will be required
to sell at cost-based rates in those areas.
UE, Genco, CILCO, AERG, Development Company, Marketing Company and Medina
Valley currently have authorization from the FERC to continue to sell power at
market-based rates. However, the FERC indicated in its April order that it would
apply the new market analysis screens to pending and future market-based rate
applications, including three-year market-based rate reviews. All of the
aforementioned Ameren entities currently have three-year market-based rate
reviews pending at the FERC. Until Ameren has evaluated the impact of the FERC's
order with respect to the Ameren system, we are unable to predict the ultimate
impact that the new market power analysis screens will have on Ameren's ability
to sell power at market-based rates.
NOTE 4 - SHORT-TERM BORROWINGS AND LIQUIDITY
Short-term borrowings consist of commercial paper issuances and bank line
of credit drawings with maturities generally within 1 to 45 days. As of June 30,
2004, Ameren had short-term borrowings totaling $35 million, $32 million of
which was borrowed by EEI. The average short-term borrowings at EEI were $10
million for the six months ended June 30, 2004, with a weighted-average interest
rate of 1.7%. Peak short-term borrowings for EEI were $44 million for the six
months June 30, 2004, with a weighted-average interest rate of 1.7%. CIPS,
Genco, CILCORP and CILCO had no external short-term borrowings as of June 30,
2004 and December 31, 2003. At December 31, 2003, Ameren and UE had short-term
borrowings outstanding, which totaled $161 million and $150 million,
respectively.
At June 30, 2004, certain of the Ameren Companies had committed bank credit
facilities totaling $829 million, all of which were available for use by UE,
CIPS, CILCO and Ameren Services through a utility money pool arrangement. In
addition, $600 million of the $829 million was available for use by Ameren
directly, and by most of the non rate-regulated affiliates including, but not
limited to, Resources Company, Genco, Marketing Company, AFS, AERG and Ameren
Energy, through a non state-regulated subsidiary money pool agreement. We have
money pool agreements with and among our subsidiaries to coordinate and provide
for certain short-term cash and working capital requirements. Separate money
pools are maintained between rate-regulated and non rate-regulated businesses.
See Note 8 - Related Party Transactions for a detailed explanation of the money
pool arrangements. The committed bank credit facilities are used to support our
commercial paper programs under which no amounts were outstanding at June 30,
2004 (December
34
31, 2003 - $150 million). Access to our credit facilities for any of Ameren's
subsidiaries is subject to reduction based on use by affiliates.
In July 2004, Ameren entered into two new credit agreements for $700
million in revolving credit facilities to be used for general corporate
purposes, including support of Ameren and UE commercial paper programs. The $700
million in new facilities includes a $350 million three-year revolving credit
facility and a $350 million five-year revolving credit facility. These new
credit facilities replaced Ameren's existing $235 million 364-day revolving
credit facility, which matured on July 14, 2004, and a $130 million multi-year
revolving credit facility, which would have matured in July 2005. An existing
Ameren $235 million multi-year revolving facility, which matures in July 2006,
remains outstanding and available.
In May 2004, UE renewed its 364-day revolving facilities totaling $154
million that were due to expire that month for an additional one-year term.
EEI also has two bank credit agreements totaling $45 million with
maturities through June 2005. At June 30, 2004, $32 million was borrowed and
outstanding under these credit facilities.
Borrowings under Ameren's non state-regulated subsidiary money pool
agreement by Genco, Development Company and Medina Valley, each an "exempt
wholesale generator," are considered investments for purposes of the 50% SEC
aggregate investment limitation. Based on Ameren's aggregate investment in these
"exempt wholesale generators" as of June 30, 2004, the maximum permissible
borrowings under Ameren's non state-regulated subsidiary money pool pursuant to
this limitation for these entities were $705 million.
Indebtedness Provisions and Other Covenants
Certain of the Ameren Companies' bank credit agreements contain provisions
which, among other things, place restrictions on the ability to incur liens,
sell assets and merge with other entities. Certain of these credit agreements
also contain a provision that limits Ameren's, UE's, CIPS' and/or CILCO's total
indebtedness to 60% of total capitalization pursuant to a calculation defined in
the related agreement. As of June 30, 2004, the ratio of total indebtedness to
total capitalization (calculated in accordance with this provision) for Ameren,
UE, CIPS and CILCO was 45%, 45%, 51% and 52%, respectively. In addition, certain
of these credit agreements contain indebtedness cross-default provisions and
material adverse change clauses which could trigger a default under these
facilities in the event that any of Ameren' subsidiaries (subject to the
definition in the underlying credit agreements), other than certain project
finance subsidiaries, defaults in indebtedness in excess of $50 million. The
credit agreements also require us to meet minimum ERISA funding rules.
None of the Ameren Companies' credit agreements or financing agreements
contain credit rating triggers. A $100 million CILCO bank term loan containing a
credit ratings trigger was repaid in February 2004. At June 30, 2004, the Ameren
Companies and EEI were in compliance with their credit agreement provisions and
covenants.
NOTE 5 - LONG-TERM DEBT AND EQUITY FINANCINGS
Ameren
In February 2004, Ameren issued, pursuant to an August 2002 Form S-3 shelf
registration statement, 19.1 million shares of its common stock at $45.90 per
share for net proceeds of $853 million. This issuance substantially depleted all
of the capacity under the August 2002 shelf registration statement. In June
2004, the SEC declared effective a Form S-3 shelf registration statement filed
by Ameren covering the offering from time to time of up to $2 billion of various
forms of securities including long-term debt, trust preferred securities and
equity securities. In July 2004, Ameren issued, pursuant to the June 2004 Form
S-3 shelf registration statement, 10.9 million shares of its common stock at
$42.00 per share for net proceeds of $445 million. The proceeds from these
offerings are expected to provide funds required to pay the cash portion of the
purchase price for our pending acquisition of Illinois Power and Dynegy's 20
percent interest in EEI, and to reduce Illinois Power debt, assumed as a part of
this transaction, and pay related premiums. Pending such use, and/or if the
acquisition is not completed, we plan to use the net proceeds to reduce present
or future indebtedness
35
and/or repurchase securities of Ameren or its subsidiaries. A portion of the net
proceeds may also be temporarily invested in short-term instruments. See Note 2
- - Acquisitions for further information.
In March 2004, the SEC declared effective a Form S-3 registration statement
filed by Ameren in February 2004, authorizing the offering of six million
additional shares of its common stock under DRPlus. Shares of common stock sold
under the DRPlus are, at Ameren's option, newly issued shares or treasury
shares, or shares purchased in the open market or in privately negotiated
transactions. Ameren is currently selling newly issued shares of its common
stock under DRPlus. For the six months ended June 30, 2004, Ameren issued 1.2
million new common shares valued at approximately $60 million under its DRPlus
and its 401(k) plans to be used for general corporate purposes.
UE
UE had a lease agreement, which was scheduled to expire on August 31, 2031,
that provided for the financing of a portion of its nuclear fuel that was
processed for use or was consumed at UE's Callaway nuclear plant. In February
2004, UE terminated this lease with a final payment of $67 million.
In February and March 2004, in connection with the delivery of bond
insurance policies to secure the environmental improvement and pollution control
revenue bonds (Series 1991, 1992, 1998A, 1998B, 1998C, 2000A, 2000B and 2000C)
previously issued by the Missouri Environmental Authority, UE delivered separate
series of its first mortgage bonds (which are subject to fallaway provisions, as
defined in the related financing agreements, similar to those included in its
first mortgage bonds which secure UE's senior secured notes) to secure its
respective obligations under the existing loan agreements with the Missouri
Environmental Authority relating to such environmental improvement and pollution
control revenue bonds. As a result, the environmental improvement and pollution
control revenue bonds were rated Aaa, AAA and AAA by Moody's, S&P's and Fitch's,
respectively.
In May 2004, UE issued, pursuant to a September 2003 Form S-3 shelf
registration statement, $104 million of 5.50% senior secured notes due May 15,
2014, with interest payable semi-annually on May 15 and November 15 of each year
beginning in November 2004. UE received net proceeds of $103 million which were
used to redeem and refinance the $100 million 7.00% first mortgage bonds due
2024. The remaining proceeds were used to pay for a portion of the redemption
premium and issuance costs.
CILCORP and CILCO
In February 2004, CILCO repaid its secured bank term loan totaling $100
million with available cash and borrowings from the utility money pool. In May
2004, CILCORP repurchased, $15 million in principal amount of its 9.375% senior
bonds for approximately $20 million, which included premium and accrued interest
costs. In July 2004, CILCORP repurchased $2 million in principal amount of its
9.375% senior bonds for approximately $3 million which included premium and
accrued interest costs. In July 2004, CILCO redeemed 11,000 shares of its 5.85%
Class A preferred stock at a redemption price of $100 per share plus accrued and
unpaid dividends. The redemption satisfied the Company's mandatory sinking fund
redemption requirement for this series of preferred stock for 2004.
The amortization related to debt fair value adjustments recorded in
connection with the CILCORP acquisition for the three month and six month
periods ended June 30, 2004 was $2 million (2003 - $2 million) and $4 million
(2003 - $3 million), respectively, and was recorded in interest expense in the
Consolidated Statements of Income for Ameren and CILCORP. In conjunction with
the repurchase of CILCORP's 9.375% senior bonds in May 2004, the fair value
adjustment was reduced by $4 million during the second quarter of 2004.
EEI
In June 2004, EEI repaid its $40 million 7.61% bank term loan due 2004 with
proceeds received from EEI's credit
facilities.
36
Amortization of Interest-related Costs
The following table presents the amortization of debt issuance costs and
any premium or discounts included in interest expense for the Ameren Companies
for the three months and six months ended June 30, 2004 and 2003, respectively:
===========================================================================================================
Three Months Six Months
-----------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Ameren(a)(c)........................................ $ 5 $ 5 $ 10 $ 8
UE.................................................. 1 1 2 2
CIPS................................................ - - - -
Genco............................................... 1 1 1 1
CILCORP(b)(c) ...................................... 2 2 4 3
CILCO............................................... - - - -
===========================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003; includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) January 2003 predecessor amounts were zero. CILCORP consolidates CILCO
and therefore includes CILCO amounts in its balances.
(c) In conjunction with the acquisition of CILCORP in 2003, CILCORP's
long-term debt was adjusted to fair value.
Indenture Provisions and Other Covenants
UE
UE's indenture agreements and Articles of Incorporation include covenants
and provisions related to the issuance of first mortgage bonds and preferred
stock. For the issuance of additional first mortgage bonds, earnings coverage of
twice the annual interest charges on first mortgage bonds outstanding and to be
issued is required. For the 12 months ended June 30, 2004, UE had a coverage
ratio of 8.5 times the annual interest charges on the first mortgage bonds
outstanding, which would permit UE to issue an additional $4 billion of first
mortgage bonds at an assumed interest rate of 7%. For the issuance of additional
preferred stock, earnings coverage of at least 2.5 times the annual dividend on
preferred stock outstanding and to be issued is required under UE's Articles of
Incorporation. For the 12 months ended June 30, 2004, UE had a coverage ratio of
73 times the annual dividend requirement on preferred stock outstanding, which
would permit UE to issue an additional $2.4 billion in preferred stock at an
assumed dividend rate of 7%. The ability to issue such securities in the future
will depend on such tests at that time.
In addition, UE's mortgage indenture contains certain provisions which
restrict the amount of common dividends that can be paid by UE. Under this
mortgage indenture, $31 million of total retained earnings was restricted
against the payment of common dividends, except for those dividends payable in
common stock, leaving $1.6 billion of free and unrestricted retained earnings at
June 30, 2004.
CIPS
CIPS' indenture agreements and Articles of Incorporation include covenants
which must be complied with in order to issue first mortgage bonds and preferred
stock. For the issuance of additional first mortgage bonds, earnings coverage of
twice the annual interest charges on first mortgage bonds outstanding and to be
issued is required. For the 12 months ended June 30, 2004, CIPS had a coverage
ratio of 3.6 times the annual interest charges for one year on the aggregate
amount of first mortgage bonds outstanding and, subsequently, the most
restrictive test under the indenture agreements would allow CIPS to issue an
additional $127 million of first mortgage bonds. For the issuance of additional
preferred stock, earnings coverage of 1.5 times annual interest charges on all
long-term debt outstanding and the annual preferred stock dividends is required
under CIPS' Articles of Incorporation. For the 12 months ended June 30, 2004,
CIPS had a coverage ratio of 2.17 times the sum of the annual interest charges
and dividend requirements on all long-term debt and preferred stock outstanding
as of June 30, 2004, and consequently had the availability to issue the maximum
amount of preferred stock allowed, which is $215 million, assuming a dividend
rate of 7%. The ability to issue such securities in the future will depend on
coverage ratios at that time.
37
Genco
Genco's senior note indenture includes provisions that require it to
maintain a senior debt service coverage ratio of at least 1.75 to 1 (for both
the prior four fiscal quarters and projected next succeeding four six-month
periods) in order to pay dividends to Ameren or to make payments of principal or
interest under certain subordinated indebtedness excluding amounts payable under
its intercompany note payable with CIPS. For the 12 months ended June 30, 2004,
this ratio was 4.21 to 1. In addition, the indenture also restricts Genco from
incurring any additional indebtedness, with the exception of certain permitted
indebtedness as defined in the indenture, unless its senior debt service
coverage ratio equals at least 2.5 to 1 for the most recently ended four fiscal
quarters and its senior debt to total capital ratio would not exceed 60%, both
after giving effect to the additional indebtedness on a pro-forma basis. This
debt incurrence requirement is disregarded in the event certain rating agencies
reaffirm the ratings of Genco after considering the additional indebtedness. As
of June 30, 2004, Genco's senior debt to total capital ratio was 55%.
CILCORP
Covenants in CILCORP's indenture governing its $475 million (original
issuance amount) senior notes and bonds require CILCORP to maintain a debt to
capital ratio of no greater than 0.67 to 1 and an interest coverage ratio of at
least 2.2 to 1 in order to make any payment of dividends or intercompany loans
to affiliates other than to its direct and indirect subsidiaries, including
CILCO. However, in the event CILCORP is not in compliance with these tests,
CILCORP may only make such payments of dividends or intercompany loans if its
senior long-term debt rating is at least BB+ from S&P, Baa2 from Moody's and BBB
from Fitch. For the 12 months ended June 30, 2004, CILCORP's debt to capital
ratio was 0.63 to 1 and its interest coverage ratio was 2.5 to 1, calculated in
accordance with related provisions in this indenture. The common stock of CILCO
is pledged as security to the holders of these senior notes and bonds.
Off-Balance Sheet Arrangements
At June 30, 2004, neither Ameren nor any of its subsidiaries had any
off-balance sheet financing arrangements, other than operating leases entered
into in the ordinary course of business. Neither Ameren nor any of its
subsidiaries expects to engage in any significant off-balance sheet financing
arrangements in the near future.
NOTE 6 - Other Income and Deductions
The following table presents Other Income and Deductions for each of the
Ameren Companies for the three months and six months ended June 30, 2004 and
2003:
====================================================================================================================
Three Months Six Months
--------------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Ameren:(a)
Miscellaneous income:
Interest and dividend income.......................... $ 3 $ 1 $ 5 $ 2
Allowance for equity funds used during construction... 1 - 4 -
Other................................................. - 4 3 9
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous income............................... $ 4 $ 5 $ 12 $ 11
-------------------------------------------------------------------------------------------------------------------
Miscellaneous expense:
Minority interest in subsidiary....................... $ (2) $ (4) $ (3) $ (5)
Other................................................. (2) (3) (2) (5)
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous expense.............................. $ (4) $ (7) $ (5) $ (10)
===================================================================================================================
UE:
Miscellaneous income:
Interest and dividend income.......................... $ 1 $ - $ 2 $ -
Equity in earnings of subsidiary...................... 2 4 3 5
Allowance for equity funds used during construction... 1 - 4 -
Other................................................. - 4 - 4
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous income............................... $ 4 $ 8 $ 9 $ 9
-------------------------------------------------------------------------------------------------------------------
Miscellaneous expense:
Other................................................. $ (4) $ (2) $ (5) $ (3)
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous expense.............................. $ (4) $ (2) $ (5) $ (3)
-------------------------------------------------------------------------------------------------------------------
38
-------------------------------------------------------------------------------------------------------------------
Three Months Six Months
-------------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
CIPS:
Miscellaneous income:
Interest and dividend income.......................... $ 6 $ 7 $ 13 $ 14
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous income............................... $ 6 $ 7 $ 13 $ 14
-------------------------------------------------------------------------------------------------------------------
Miscellaneous expense:
Other................................................. $ (1) $ (1) $ (1) $ (2)
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous expense.............................. $ (1) $ (1) $ (1) $ (2)
===================================================================================================================
Genco:
Miscellaneous expense:
Other................................................. $ - $ - $ (1) $ -
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous expense.............................. $ - $ - $ (1) $ -
===================================================================================================================
CILCORP:(b)
Miscellaneous expense:
Other................................................. $ (1) $ (1) $ (2) $ (1)
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous expense.............................. $ (1) $ (1) $ (2) $ (1)
===================================================================================================================
CILCO:
Miscellaneous expense:
Other................................................. $ (2) $ (1) $ (3) $ (1)
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous expense.............................. $ (2) $ (1) $ (3) $ (1)
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003; includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) January 2003 predecessor amounts were zero. CILCORP consolidates CILCO
and therefore includes CILCO amounts in its balances.
NOTE 7 - Derivative Financial Instruments
Cash Flow Hedges
The following table presents balances in certain accounts for cash flow
hedges as of June 30, 2004:
===================================================================================================================
Ameren UE CIPS Genco CILCORP(a) CILCO
-------------------------------------------------------------------------------------------------------------------
Balance Sheet:
Other assets........................... $ 35 $ 8 $ 6 $ 9 $ 12 $ 12
Other deferred credits and liabilities. 11 10 - 1 - -
Accumulated OCI:
Power forwards(b)....................... (1) - - (1) - -
Interest rate swaps(c).................. 5 - - 5 - -
Gas swaps and futures contracts(d)...... 21 4 6 - 11 11
Call options(e)......................... 3 3 - - - -
==================================================================================================================
(a) CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
(b) Represents the mark-to-market loss for the hedged portion of
electricity price exposure for periods generally less than one year.
Certain contracts designated as hedges of electricity price exposure
have terms up to five years.
(c) Represents a gain associated with interest rate swaps at Genco that
were a partial hedge of the interest rate on debt issued in June 2002.
The swaps cover the first 10 years of debt that has a 30-year maturity
and the gain in OCI is amortized over a 10-year period that began in
June 2002.
(d) Represents a gain associated with natural gas swaps and futures
contracts. The swaps are a partial hedge of our natural gas
requirements through October 2007. CILCO amount represents a gain
associated with a partial hedge of natural gas requirements through
October 2007.
(e) Represents the mark-to-market gain of two call options to purchase
coal that are accounted for as cash flow hedges. One of these options
to purchase coal expires in October 2004 and the other option expires
in July 2005.
The pre-tax net gain or loss on power forward derivative instruments
included in Other Income and Deductions at Ameren, UE and Genco, 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 a $2 million gain
for Ameren, $1 million gain for UE and $1 million gain for Genco for the quarter
ended June 30, 2004 (2003 - less than $1 million gain for Ameren, less than $1
million gain for UE, less than $1 million gain for Genco) and was a $2 million
gain for Ameren, $1 million gain for UE and $1 million gain for Genco for the
six
39
months ended June 30, 2004 (2003 - $1 million loss for Ameren, less than $1
million loss for UE, less than $1 million loss for Genco).
Other Derivatives
The following table represents for the three months and six months ended
June 30, 2004 and 2003, the net change in market value of option transactions,
which are used to manage our positions in SO2 allowances, coal, heating oil and
electricity or power. Certain of these transactions are treated as non-hedge
transactions under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The net change in the market value of SO2 options is
recorded in Operating Revenues - Electric, while the net change in the market
value of coal, heating oil and electricity or power options is recorded as
Operating Expenses - Fuel and Purchased Power.
=================================================================================================================
Gains (Losses)(a) Three Months Six Months
-----------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
SO2 options:
Ameren(b)....................................... $ (1) $ - $ (2) $ (1)
UE.............................................. (4) - (7) -
CIPS............................................ - - - -
Genco........................................... 3 - 5 (1)
CILCORP(c)...................................... - - - -
CILCO(c)........................................ - - - -
=================================================================================================================
(a) Coal, power and heating oil option gains and losses were less than $1
million for the periods shown above.
(b) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003; includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(c) January 2003 predecessor amounts were zero.
NOTE 8 - Related Party Transactions
The Ameren Companies have engaged in, and may in the future engage in,
affiliate transactions in the normal course of business. These transactions
primarily consist of gas and power purchases and sales, services received or
rendered, borrowings and lendings. Transactions between affiliates are reported
as intercompany transactions on their financial statements, but are eliminated
in consolidation for Ameren's financial statements. For a discussion of our
material related party agreements, see Note 14 - Related Party Transactions
under Part II, Item 8 of the Ameren Companies' combined Form 10-K for the fiscal
year ended December 31, 2003. Below are updates to several related party
transactions.
Electric Power Supply Agreements
Under two electric power supply agreements, Genco is obligated to supply to
Marketing Company, and Marketing Company, in turn, is obligated to supply to
CIPS, all of the energy and capacity needed by CIPS to offer service for resale
to its native load customers at rates specified by the ICC and to fulfill CIPS'
other obligations under all applicable federal and state tariffs or contracts.
The agreement between CIPS and Marketing Company expires on December 31, 2004.
The agreement between Genco and Marketing Company can be terminated by either
party upon at least one year's notice, but may not be terminated prior to
December 31, 2004. CIPS and Marketing Company filed in July 2004, a request with
the FERC to extend their agreement through December 31, 2006. This extension was
required by the ICC in its order approving Ameren's acquisition of CILCORP.
In October 2003, in conjunction with CILCO's transfer to AERG of
substantially all of its generating assets, AERG entered into an electric power
supply agreement with CILCO to supply CILCO with sufficient power to meet its
native load requirements. This agreement expires on December 31, 2004. AERG and
CILCO have agreed to extend the power supply agreement through December 31,
2006. Unlike the CIPS-Marketing Company agreement, the provisions of the
agreement between CILCO and AERG allow the parties to extend the term of the
agreement, and Ameren believes that no further FERC action is necessary for such
an extension to become effective. The ICC also required this extension in its
order approving Ameren's acquisition of CILCORP.
40
Joint Dispatch Agreement
UE and Genco jointly dispatch electric generation under an amended joint
dispatch agreement. Under the agreement, each affiliate is required to serve its
load requirements from its own generation first, and then allow access to any
available generation to its affiliate. The joint dispatch agreement can be
terminated by either party by giving one year's notice. To address concerns
raised before the MoPSC in the proceeding relating to the transfer of UE's
Illinois-based utility businesses to CIPS (see Note 3 - Rate and Regulatory
Matters), UE offered to seek to amend the joint dispatch agreement so as to
provide UE with a larger share of the margins on short term sales of power from
the combined generation of UE and Genco. In particular, UE offered to use its
best efforts to obtain all required regulatory approvals for such an amendment,
but only if the MoPSC concluded that this was a necessary condition for its
approval of the transfer of UE's Illinois-based utility businesses. If made,
such an amendment is expected to provide to UE additional annual margins ranging
from approximately $7 million to $24 million for UE's share of short term power
sales. Such an amendment is expected to result in a corresponding reduction in
Genco's margins from its share of short term power sales. However, this
reduction is expected to be offset by margins received from additional power
sales by Genco (through Marketing Company) to CIPS to serve the transferred UE
Illinois-based electric utility business. Also as part of the proceeding before
the MoPSC, UE offered to study alternatives to the current use of incremental
costs to price system energy transfers under the joint dispatch agreement
between UE and Genco, if the MoPSC concluded that this was a necessary condition
for its approval. As a result of the foregoing, there is uncertainty as to the
terms of the joint dispatch agreement and also as to its duration. The
termination of the agreement, or modifications to it, could have a material
adverse effect on UE or Genco. Modifications to, or termination of, the
agreement would not have an immediate impact on Ameren due to UE's Missouri
electric rate moratorium, which ends June 30, 2006.
Money Pools
Through the utility money pool, the pool participants can access committed
credit facilities at Ameren, which totaled $600 million at June 30, 2004, and
were increased to $935 million in July 2004. These facilities are in addition to
UE's $154 million, CIPS' $15 million and CILCO's $60 million in committed credit
facilities which are also available to the utility money pool participants. The
total amount available to the pool participants from the utility money pool at
any given time is reduced by the amount of borrowings by their affiliates, but
increased to the extent the pool participants have surplus funds or other
external sources are used to increase the available amounts. The average
interest rate for borrowing under the utility money pool for the three months
ended June 30, 2004 was 1.04% (2003 - 1.19%) and for the six months ended June
30, 2004 was 1.02% (2003 - 1.25%).
At June 30, 2004, $600 million was available through the non
state-regulated subsidiary money pool, excluding additional funds available
through excess cash balances. The average interest rate for borrowing under the
non state-regulated subsidiary money pool for the three months ended June 30,
2004 was 8.84% (2003 - 8.84%) and for the six months ended June 30, 2004 was
8.84% (2003 - 8.84%).
CILCORP has been granted authority by the SEC under the PUHCA to borrow up
to $250 million directly from Ameren in a separate arrangement unrelated to the
money pools.
Intercompany Promissory Notes
Genco has affiliate notes payable of $324 million and $34 million to CIPS
and Ameren, respectively, which, by their current terms, have final payments of
principal and interest due on May 1, 2005. The note payable to CIPS was issued
in conjunction with the transfer of its electric generating assets and related
liabilities to Genco. Genco and CIPS expect to renew or modify the CIPS note to
extend the principal maturity, which could include continued amortization of the
principal amount. Such extension could require regulatory approval. Genco and
Ameren are currently evaluating various alternatives with respect to the note
payable to Ameren. In the event the maturities of these notes are not extended
or restructured, whether due to not obtaining any necessary regulatory approvals
or otherwise, Genco may need to access other financing sources to meet the
maturity obligation to the extent it does not have cash available from its
operating cash flows. Such sources of financing could include borrowings under
the non state-regulated subsidiary money pool, or infusion of equity capital or
new direct borrowings from Ameren, all subject to applicable regulatory
financing authorizations and provisions in Genco's senior note indenture.
41
UE
The following tables present the impact of related party transactions on
UE's Consolidated Statement of Income and Consolidated Balance Sheet, based
primarily on the agreements discussed above and in Note 14 - Related Party
Transactions under Part II, Item 8 of the Ameren Companies' combined Form 10-K
for the year ended December 31, 2003:
===================================================================================================================
Statement of Income Three Months Six Months
-------------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Operating revenues from affiliates:
Power supply agreement with EEI................... $ 2 $ 1 $ 2 $ 1
Joint dispatch agreement with Genco............... 28 24 58 56
Agency agreement with Ameren Energy............... 42 41 95 111
Gas transportation agreement with Genco........... - 1 - 1
-------------------------------------------------------------------------------------------------------------------
Total operating revenues......................... $ 72 $ 67 $ 155 $ 169
-------------------------------------------------------------------------------------------------------------------
Fuel and purchased power expenses from affiliates:
Power supply agreements:
EEI............................................. $ 17 $ 15 $ 33 $ 28
Marketing Company............................... 3 3 5 5
Joint dispatch agreement with Genco............... 12 7 24 18
Agency agreement with Ameren Energy............... 11 11 30 28
-------------------------------------------------------------------------------------------------------------------
Total fuel and purchased power expenses........... $ 43 $ 36 $ 92 $ 79
-------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Support service agreements:
Ameren Services................................. $ 38 $ 41 $ 76 $ 86
Ameren Energy................................... 4 5 7 10
AFS............................................. 1 2 2 4
-------------------------------------------------------------------------------------------------------------------
Total other operating expenses.................... $ 43 $ 48 $ 85 $ 100
-------------------------------------------------------------------------------------------------------------------
Interest expense:
Borrowings (advances) related to money pool....... $ 1 $ 1 $ 1 $ 2
===================================================================================================================
===================================================================================================================
Balance Sheet June 30, 2004 December 31, 2003
-------------------------------------------------------------------------------------------------------------------
Assets:
Miscellaneous accounts and notes receivable...................... $ 11 $ 16
Advances to money pool........................................... 2 12
Liabilities:
Accounts payable and wages payable............................... $ 69 $ 46
Borrowings from money pool....................................... 342 -
===================================================================================================================
CIPS
The following tables present the impact of related party transactions on
CIPS' Statement of Income and Balance Sheet, based primarily on the agreements
discussed above and in Note 14 - Related Party Transactions under Part II, Item
8 of the Ameren Companies' combined Form 10-K for the year ended December 31,
2003:
===================================================================================================================
Statement of Income Three Months Six Months
-------------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Operating revenues from affiliates:
Power supply agreements:
Marketing Company............................... $ 8 $ 8 $ 16 $ 15
CILCO........................................... - 2 - 3
-------------------------------------------------------------------------------------------------------------------
Total operating revenues.......................... $ 8 $ 10 $ 16 $ 18
-------------------------------------------------------------------------------------------------------------------
Fuel and purchased power expenses from affiliates:
Power supply agreements:
Marketing Company............................... $ 71 $ 74 $ 143 $ 153
EEI............................................. 8 8 16 15
-------------------------------------------------------------------------------------------------------------------
Total fuel and purchased power expenses........... $ 79 $ 82 $ 159 $ 168
-------------------------------------------------------------------------------------------------------------------
42
===================================================================================================================
Statement of Income Three Months Six Months
-------------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Other operating expenses:
Support service agreements:
Ameren Services.................................. $ 12 $ 14 $ 24 $ 29
AFS.............................................. - 1 - 1
-------------------------------------------------------------------------------------------------------------------
Total other operating expenses.................... $ 12 $ 15 $ 24 $ 30
-------------------------------------------------------------------------------------------------------------------
Interest income:
Note receivable from Genco........................ $ 6 $ 7 $ 13 $ 14
===================================================================================================================
===================================================================================================================
Balance Sheet June 30, 2004 December 31, 2003
-------------------------------------------------------------------------------------------------------------------
Assets:
Miscellaneous accounts and notes receivable................... $ 10 $ 10
Promissory note receivable from Genco(a)....................... 324 373
Tax receivable from Genco(b)................................... 156 162
Liabilities:
Accounts payable and wages payable............................. $ 47 $ 43
Borrowings from money pool..................................... 47 121
====================================================================================================================
(a) Amount includes current portion of $49 million as of December 31, 2003
and $324 million as of June 30, 2004.
(b) Amount includes current portion of $12 million as of December 31, 2003
and $12 million as of June 30, 2004.
Genco
The following tables present the impact of related party transactions on
Genco's Statement of Income and Balance Sheet, based primarily on the agreements
discussed above and in Note 14 - Related Party Transactions under Part II, Item
8 of the Ameren Companies' combined Form 10-K for the year ended December 31,
2003:
===================================================================================================================
Statement of Income Three Months Six Months
-------------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Operating revenues from affiliates:
Power supply agreements:
Marketing Company.................................... $ 168 $ 143 $ 341 $ 300
EEI.................................................. 1 1 1 1
Joint dispatch agreement with UE....................... 12 7 24 18
Agency agreement with Ameren Energy.................... 22 19 49 54
Operating lease with Development Company............... 2 2 5 5
-------------------------------------------------------------------------------------------------------------------
Total operating revenues .............................. $ 205 $ 172 $ 420 $ 378
-------------------------------------------------------------------------------------------------------------------
Fuel and purchased power expenses from affiliates:
Joint dispatch agreement with UE....................... $ 28 $ 24 $ 58 $ 56
Agency agreement with Ameren Energy.................... 3 6 10 15
Gas transportation agreement with UE................... - 1 - 1
-------------------------------------------------------------------------------------------------------------------
Total fuel and purchased power expenses................ $ 31 $ 31 $ 68 $ 72
-------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Support service agreements:
Ameren Services...................................... $ 4 $ 4 $ 8 $ 9
Ameren Energy........................................ 3 2 4 5
AFS.................................................. 1 - 1 1
-------------------------------------------------------------------------------------------------------------------
Total other operating expenses......................... $ 8 $ 6 $ 13 $ 15
-------------------------------------------------------------------------------------------------------------------
Interest expense:
Borrowings related to money pool....................... $ 3 $ 4 $ 6 $ 9
Note payable to CIPS................................... 6 7 13 14
Note payable to Ameren................................. - - 1 1
===================================================================================================================
43
===================================================================================================================
Balance Sheet June 30, 2004 December 31, 2003
-------------------------------------------------------------------------------------------------------------------
Assets:
Miscellaneous accounts and notes receivable................. $ 73 $ 78
Liabilities:
Accounts payable and wages payable.......................... 23 22
Interest payable............................................ 7 7
Promissory note payable to CIPS(a).......................... 324 373
Promissory note payable to Ameren(b)........................ 34 38
Tax payable to CIPS(c)...................................... 156 162
Borrowings from money pool.................................. 156 124
===================================================================================================================
(a) Amount includes current portion of $49 million as of December 31, 2003
and $324 million as of June 30, 2004.
(b) Amount includes current portion of $4 million as of December 31, 2003
and $34 million as of June 30, 2004.
(c) Amount includes current portion of $12 million as of December 31, 2003
and $12 million as of June 30, 2004.
CILCORP
The following tables present the impact of related party transactions on
CILCORP's Consolidated Statement of Income and Consolidated Balance Sheet, based
primarily on the agreements discussed above and in Note 14 - Related Party
Transactions under Part II, Item 8 of the Ameren Companies' combined Form 10-K
for the year ended December 31, 2003:
==================================================================================================================
Statement of Income(a)(b) Three Months Six Months
------------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Operating revenues from affiliates:
Gas supply and services agreement with Medina
Valley............................................... $ - $ 3 $ - $ 10
------------------------------------------------------------------------------------------------------------------
Total operating revenues............................... $ - $ 3 $ - $ 10
------------------------------------------------------------------------------------------------------------------
Fuel and purchased power expenses from affiliates:
Executory tolling agreement with Medina Valley......... $ 7 $ 6 $ 17 $ 15
Power purchase agreement with CIPS..................... - 2 - 3
------------------------------------------------------------------------------------------------------------------
Total fuel and purchased power expenses................ $ 7 $ 8 $ 17 $ 18
------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Support services agreements:
Ameren Services...................................... $ 12 $ 1 $ 25 $ 1
AFS.................................................. 1 1 1 1
------------------------------------------------------------------------------------------------------------------
Total other operating expenses............................ $ 13 $ 2 $ 26 $ 2
------------------------------------------------------------------------------------------------------------------
Interest expense:
Note payable to Ameren................................. $ 1 $ - $ 2 $ -
Borrowings related to money pool....................... 1 - 2 -
==================================================================================================================
(a) 2003 amounts include January 2003 predecessor information which
included $2 million in operating revenues and $3 million in purchased
power associated with the executory tolling agreement with Medina
Valley.
(b) CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
===================================================================================================================
Balance Sheet(a) June 30, 2004 December 31, 2003
-------------------------------------------------------------------------------------------------------------------
Assets:
Miscellaneous accounts and notes receivable.................... $ 5 $ 8
Liabilities:
Accounts payable............................................... $ 23 $ 16
Note payable to Ameren......................................... 57 46
Borrowings from money pool..................................... 232 145
===================================================================================================================
(a) CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
CILCO
The following tables present the impact of related party transactions on
CILCO's Consolidated Statement of Income and on the Consolidated Balance Sheet,
based primarily on the various agreements discussed above and in Note 14 -
44
Related Party Transactions under Part II, Item 8 of the Ameren Companies'
combined Form 10-K for the year ended December 31, 2003:
===================================================================================================================
Statement of Income Three Months Six Months
----------------------------------------------------------------------------------------------------- -------------
2004 2003 2004 2003
---- ---- ---- ----
Fuel and purchased power expenses from affiliates:
Executory tolling agreement with Medina Valley........ $ 7 $ 6 $ 17 $ 16
Power purchase agreement with CIPS.................... - 2 - 3
-------------------------------------------------------------------------------------------------------------------
Total fuel and purchased power expenses............... $ 7 $ 8 $ 17 $ 19
-------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Support services agreements:
Ameren Services..................................... $ 12 $ 1 $ 24 $ 1
AFS................................................. - 1 - 1
-------------------------------------------------------------------------------------------------------------------
Total other operating expenses........................ $ 12 $ 2 $ 24 $ 2
-------------------------------------------------------------------------------------------------------------------
Interest expense:
Borrowings related to money pool...................... $ 1 $ - $ 2 $ -
===================================================================================================================
===================================================================================================================
Balance Sheet June 30, 2004 December 31, 2003
-------------------------------------------------------------------------------------------------------------------
Assets:
Miscellaneous accounts and notes receivable............... $ 5 $ 6
Liabilities:
Accounts payable ......................................... $ 23 $ 23
Borrowings from money pool................................ 233 149
===================================================================================================================
NOTE 9 - Commitments and Contingencies
Reference is made to Note 15 - Commitments and Contingencies under Part II,
Item 8 of the Ameren Companies' combined Form 10-K for the fiscal year ended
December 31, 2003.
Callaway Nuclear Plant
The following table presents insurance coverage at UE's Callaway nuclear
plant at June 30, 2004:
===================================================================================================================
Maximum Maximum Assessments
Type and Source of Coverage Coverages for Single Incidents
-------------------------------------------------------------------------------------------------------------------
Public liability:
American Nuclear Insurers...................... $ 300 $ -
Pool participation............................. 10,461 101(a)
-------------------------------------------------------------
$ 10,761(b) $ 101
Nuclear worker liability:
American Nuclear Insurers...................... $ 300(c) $ 4
Property damage:
Nuclear Electric Insurance Ltd................. $ 2,750(d) $ 21
Replacement power:
Nuclear Electric Insurance Ltd................. $ 490(e) $ 7
===================================================================================================================
(a) Retrospective premium under the Price-Anderson liability provisions of
the Atomic Energy Act of 1954, as amended (Price-Anderson). This is
subject to retrospective assessment with respect to loss from an
incident at any U.S. reactor, payable at $10 million per year.
Price-Anderson expired in August 2002 and the temporary extension
expired December 31, 2003. Until Price-Anderson is renewed, its
provisions continue to apply to existing nuclear plants.
(b) Limit of liability for each incident under Price-Anderson.
(c) Industry limit for potential liability from workers claiming exposure
to the hazards of nuclear radiation.
(d) Includes premature decommissioning costs.
(e) Weekly indemnity of $3.5 million for 52 weeks, which commences after
the first eight weeks of an outage, plus $2.8 million per week for 110
weeks thereafter.
Price-Anderson limits the liability for claims from an incident involving
any licensed U.S. nuclear facility. The limit is based on the number of licensed
reactors and is adjusted at least every five years based on the Consumer Price
Index. Utilities owning a nuclear reactor cover this exposure through a
combination of private insurance and mandatory participation in a financial
protection pool, as established by Price-Anderson.
45
If losses from a nuclear incident at the Callaway nuclear plant exceed the
limits of, or are not subject to, insurance, or if coverage is not available, we
self-insure the risk. Although we have no reason to anticipate a serious nuclear
incident, if one did occur, it could have a material, but indeterminable,
adverse effect on our financial position, results of operations or liquidity.
Environmental Matters
Clean Air Act
The EPA issued a rule in October 1998 requiring 22 eastern states and the
District of Columbia to reduce emissions of NOx in order to reduce ozone in the
eastern United States. Among other things, the EPA's rule establishes an ozone
season, which runs from May through September, and a NOx emission budget for
each state, including Illinois. The EPA rule requires states to implement
controls sufficient to meet their NOx budget by May 31, 2004. In February 2002,
the EPA proposed similar rules for Missouri. These rules were finalized in the
spring of 2004. The compliance date for the Missouri rules is May 1, 2007. UE
has filed an appeal of these rules with the United States Court of Appeals.
In mid-December 2003, the EPA issued proposed regulations with respect to
SO2 and NOx emissions (the "Clean Air Interstate Rule") and mercury emissions
from coal-fired power plants. The new rules, if adopted, will require
significant additional reductions in these emissions from our power plants in
phases, beginning in 2010. The rules are currently under a public review and
comment period and may change before being issued as final. The following table
presents preliminary estimated capital costs based on current technology on the
Ameren systems to comply with the Clean Air Interstate and mercury rules, as
proposed:
===================================================================================================================
By 2010 2011 - 2015
-------------------------------------------------------------------------------------------------------------------
Ameren...................................... $1.1 billion to $1.4 billion $375 million to $510 million
UE.......................................... $660 million to $860 million $175 million to $230 million
CIPS........................................ - -
Genco....................................... $280 million to $370 million $160 million to $220 million
CILCORP(a).................................. $110 million to $150 million $40 million to $60 million
CILCO....................................... $110 million to $150 million $40 million to $60 million
===================================================================================================================
(a) CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
Emission Credits
Both federal and state laws require significant reductions in SO2 and NOx
emissions that result from burning fossil fuels. The Clean Air Act and NOx
Budget Trading Program created marketable commodities called allowances. Each
allowance gives the owner the right to emit one ton of SO2 or NOx. All existing
generating facilities have been allocated allowances based on past production
and the statutory emission reduction goals. If additional allowances are needed
for new generating facilities, they can be purchased from facilities having
excess allowances or from allowance banks. Our generating facilities comply with
the SO2 limits through the use and purchase of allowances, the use of low sulfur
fuels or through the application of pollution control technology. The NOx Budget
Trading Program limits emissions of NOx during the ozone season (May through
September). The NOx Budget Trading Program applies to all electric generating
units in Illinois beginning in 2004 and in the eastern third of Missouri
beginning in 2007. Our generating facilities are expected to comply with the NOx
limits through the use and purchase of allowances or through the application of
pollution control technology, including low NOx burners, over fire air systems,
combustion optimization and selective catalytic reduction (SCR) systems.
As of June 30, 2004, UE, Genco and CILCO held 1.7 million, 0.5 million and
0.3 million tons, respectively, of SO2 emission allowances for use between 2004
and 2012. Each company possesses additional allowances for use in periods beyond
2012. As of June 30, 2004, UE, Genco and CILCO Illinois facilities expect to
hold 290, 26,200 and 8,300, respectively, of NOx emission allowances with
vintages from 2004 to 2007. The Illinois EPA is still determining some NOx
emission allowances allocations for this period and 2008. UE, Genco and CILCO
expect to use a substantial portion of the SO2 and NOx allowances for ongoing
operations. Allocations of NOx allowances for Missouri facilities are pending
the finalization of rules by Missouri regulators. New environmental regulations,
including the Clean Air
46
Interstate Rule, the timing of the installation of pollution control equipment
and level of operations will have a significant impact on the amount of
allowances actually required for ongoing operations.
Noise-related Matters
On October 28, 2003, Genco filed a rulemaking proceeding before the
Illinois Pollution Control Board (IPCB) seeking site specific noise limitations
for its CTs in Elgin, Illinois. The new limitations would allow Genco to meet
Illinois noise requirements in a newly proposed residential area. On July 22,
2004, the Illinois Pollution Control Board adopted a final rule that establishes
site-specific noise limitations for Genco's CTs in Elgin, Illinois so that Genco
will be able to comply with Illinois noise regulations. No further litigation or
rulemaking action by Genco is necessary.
Asbestos-Related Litigation
Ameren, UE, CIPS, Genco and CILCO have been named, along with numerous
other parties, in a number of lawsuits which have been filed by certain
plaintiffs claiming varying degrees of injury from asbestos exposure. Most have
been filed in the Circuit Court of Madison County, Illinois. The number of total
defendants named in each case is significant with as many as 110 parties named
in a case to as few as six. However, the average number of parties is 60 in the
cases that were pending as of June 30, 2004.
The claims filed against Ameren, UE, CIPS, Genco and CILCO allege injury
from asbestos exposure during the plaintiffs' activities at our electric
generating plants. In the case of CIPS, its former plants are now owned by
Genco, and in the case of CILCO, most of its former plants are now owned by
AERG. As a part of the transfer of ownership of the generating plants, the
transferor (CIPS or CILCO) has contractually agreed to indemnify the transferee
(Genco or AERG) for liabilities associated with asbestos-related claims arising
from activities prior to the transfer. Each lawsuit seeks unspecified damages in
excess of $50,000, which, if proved, typically would be shared among the named
defendants.
From April 1, 2004 through June 30, 2004, seven additional lawsuits were
filed against Ameren, UE and CIPS, mostly in the Circuit Court of Madison
County, Illinois, two lawsuits were dismissed and five were settled. The
following table presents the status as of June 30, 2004 of the asbestos-related
lawsuits that have been filed against the Ameren Companies:
===================================================================================================================
Specifically Named as Defendant
-----------------------------------------------------------------------
Total(a) Ameren UE CIPS Genco CILCO
-------------------------------------------------------------------------------------------------------------------
Filed.......................... 195 | 18 134 77 2 15
Settled........................ 42 | - 31 16 - 1
Dismissed...................... 72 | 3 53 22 - 2
Pending........................ 81 | 15 50 39 2 12
===================================================================================================================
(a) Addition of the numbers in the individual columns does not equal the
total column because some of the lawsuits name multiple Ameren
entities as defendants.
Ameren, UE, CIPS, Genco and CILCO believe that the final disposition of
these proceedings will not have a material adverse effect on their financial
position, results of operations or liquidity.
Other Matters
Enron Litigation Settlement
In May 2001, CILCO and Enron Power Marketing, Inc. (EPMI), a subsidiary of
Enron Corp. (Enron), entered into a master agreement for electric purchases and
sales, which covered energy transactions scheduled for deliveries during the
period of 2001 to 2003. In November 2001, EPMI demanded that CILCO post $28
million in collateral based on mark-to-market exposure of open transactions.
Also in November 2001, CILCO notified EPMI that events of default had occurred
under the master agreement and pursuant to the termination provisions of the
master agreement declared the master agreement terminated effective December 20,
2001. Enron and EPMI filed Chapter 11 bankruptcy petitions in December 2001 in
the U.S. Bankruptcy Court for the Southern District of New York. In December
2002, EPMI filed a complaint against AES, Constellation New Energy, Inc.,
formerly known as AES New Energy Inc., and CILCO in the U.S. Bankruptcy Court
seeking $31 million. As a result of court ordered mediation of this matter, an
agreement in
47
principal was reached among the parties in June 2004, which upon finalization
and approval by the U.S. Bankruptcy Court, will settle the outstanding claim by
requiring CILCO to pay approximately $21 million to Enron or its subsidiary. The
settlement payment is expected to be made during the fourth quarter of 2004. The
payment will also settle an unrelated dispute between CILCO and another Enron
subsidiary, Enron North America Corp. (ENA) over ENA's failure to deliver
natural gas to CILCO pursuant to transactions entered into in May and October
2001. AES, in conjunction with its sale of CILCORP to Ameren in 2003, agreed to
indemnify Ameren against the after-tax cost of all liabilities, which will
include the settlement payment, legal fees and expenses, incurred by CILCO
relating to the Enron claim. Ameren assigned its indemnification rights to
CILCO. As a result, this settlement will have no earnings impact on Ameren,
CILCORP or CILCO.
Labor-related Matters
On June 18, 2003, 20 retirees and surviving spouses of retirees of various
Ameren companies (the plaintiffs) filed a complaint in the U.S. District Court,
Southern District of Illinois, against Ameren, UE, CIPS, Genco and Ameren
Services, and against our Retiree Medical Plan (the defendants). The retirees
were members of various local labor unions of the IBEW and the IUOE. The
complaint, referred to as Barnett, et al. vs Ameren Corporation, et al., alleges
the following:
o the labor organizations which represented the plaintiffs have historically
negotiated retiree medical benefits with the defendants and that pursuant
to the negotiated collective bargaining agreements and other negotiated
documents, the plaintiffs are guaranteed medical benefits at no cost or at
a fixed maximum cost during their retirement;
o Ameren has unilaterally announced that, beginning in 2004, retirees must
pay a portion of their own healthcare premiums and either an increasing
portion of their dependents' premiums or newly imposed dependents'
premiums, and that surviving spouses will be paying increased amounts for
their medical benefits;
o the defendants' actions deprive the plaintiffs of vested benefits and thus
violate ERISA and the Labor Management Relations Act of 1947, and
constitute a breach of the defendants' fiduciary duties; and
o the defendants are estopped from changing the plan benefits. (This
allegation was subsequently dropped from the amended complaints referred to
below).
The plaintiffs filed the complaint on behalf of themselves, other similarly
situated former non-management employees and their surviving spouses who retired
from January 1, 1992 through October 1, 2002, and on behalf of all subsequent
non-management retirees and their surviving spouses whose medical benefits are
reduced or are threatened with reduction. The plaintiffs seek to have this
lawsuit certified as a class action, seek injunctive relief and declaratory
relief, seek actual damages for any amounts they are made to pay as a result of
the defendants' actions, and seek payment of attorney fees and costs. An amended
complaint that added three plaintiffs was filed July 15, 2003. In response to
the Court's ruling on the defendants' motions to dismiss various counts of the
complaint, a second amended complaint was filed on December 15, 2003, clarifying
some of the allegations, adding two and dropping two plaintiffs, and adding the
Ameren Group Medical Plan as a defendant. On April 27, 2004, the Court granted
the defendants' motion to dismiss one of the counts brought in connection with
the amended complaint which alleges the defendants breached their fiduciary
duties under ERISA. In July 2004, the Court denied the plaintiffs' motion to
certify this lawsuit as a class action. However, the plaintiffs requested
reconsideration of the Court's order denying class certification. In August
2004, the defendants filed a motion for summary judgment. We are unable to
predict the outcome of this lawsuit or the impact of the outcome on our
financial position, results of operations or liquidity.
Certain employees of CILCO are represented by the IBEW. These employees
comprise 4% of Ameren's workforce. Labor agreements covering these employees
expire August 29, 2004. Labor agreements covering the remaining UE and CIPS
employees represented by IBEW and the IUOE expire in June 2006 and June 2007.
CILCO has presented its best and final offer and we cannot predict whether
negotiations concerning this offer will be accepted.
Leveraged Leases
Ameren owns interests in assets which have been financed as leveraged
leases. One of these leveraged leases is a $10 million net investment at June
30, 2004, in an aircraft leased to Delta Air Lines. Delta Air Lines reported
significant operating losses and disclosed in its Form 10-Q filing for the three
months ended March 31, 2004, that there is a possibility of filing for
bankruptcy if the company cannot achieve a competitive cost structure, regain
sustained profitability and access the capital markets under acceptable terms.
Ameren could lose all or a portion of its investment
48
in the Delta Air Lines lease in the event of a bankruptcy or default by Delta
Air Lines or any voluntary restructuring of the lease. As of June 30, 2004,
Delta Air Lines was current in its lease payments related to this lease.
NOTE 10 - Callaway Nuclear Plant
Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the
permanent storage and disposal of spent nuclear fuel. The DOE currently charges
one mill, or 1/10 of one cent, per nuclear-generated kilowatthour sold for
future disposal of spent fuel. Pursuant to this Act, UE collects one mill from
its electric customers for each kilowatthour of electricity that it generates
from its Callaway nuclear plant. Electric utility rates charged to customers
provide for recovery of such costs. The DOE is not expected to have its
permanent storage facility for spent fuel available until at least 2015. UE has
sufficient storage capacity at its Callaway nuclear plant until 2019 and has the
capability for additional storage capacity through the licensed life of the
plant. The delayed availability of the DOE's disposal facility is not expected
to adversely affect the continued operation of the Callaway nuclear plant
through its currently licensed life.
Electric utility rates charged to customers provide for the recovery of the
Callaway nuclear plant's decommissioning costs over the life of the plant, based
on an assumed 40-year life, ending with expiration of the plant's operating
license in 2024. The Callaway nuclear plant site is assumed to be decommissioned
based on immediate dismantlement method and removal from service.
Decommissioning costs, including decontamination, dismantling and site
restoration, are estimated to be $536 million in current year dollars and are
expected to escalate approximately 3.5% per year through the end of
decommissioning activity in 2033. Decommissioning costs are charged to cost of
services used to establish electric rates for UE's customers and amounted to
approximately $7 million in each of the years 2003, 2002 and 2001. Every three
years, the MoPSC and ICC require UE to file updated cost studies for
decommissioning its Callaway nuclear plant, and electric rates may be adjusted
at such times to reflect changed estimates. The latest studies were filed in
2002. Costs collected from customers are deposited in an external trust fund to
provide for the Callaway nuclear plant's decommissioning. Fund earnings are
expected to average approximately 8.6% annually through the date of
decommissioning. If the assumed return on trust assets is not earned, we believe
it is probable that any such earnings deficiency will be recovered in rates. The
fair value of the nuclear decommissioning trust fund for UE's Callaway nuclear
plant is reported in Nuclear Decommissioning Trust Fund in Ameren's and UE's
Consolidated Balance Sheets. This amount is legally restricted to fund the costs
of nuclear decommissioning. Changes in the fair value of the trust fund are
recorded as an increase or decrease to the nuclear decommissioning trust fund
and to the regulatory asset recorded in connection with the adoption of SFAS No.
143. Upon the completion of UE's transfer of its Illinois electric and gas
utility businesses to CIPS, which is subject to the receipt of regulatory
approvals, the assets and liabilities related to the Illinois portion of the
decommissioning trust fund will be transferred to Missouri. See Note 3 - Rate
and Regulatory Matters for further information.
NOTE 11 - Stockholders' Equity
Paid-In Capital
Ameren's paid-in capital increased by $904 million as of June 30, 2004
compared to December 31, 2003. Ameren received net proceeds of $853 million from
the issuance of 19.1 million shares of its common stock in February 2004. In
addition, during the six months ended June 30, 2004, Ameren, pursuant to a Form
S-3 registration statement, issued 1.3 million new shares of common stock valued
at $60 million under its DRPlus and its 401(k) plans. Ameren's paid-in capital
decreased $9 million due to the cashless exercise of stock options by its
employees in the first six months of 2004. See Note 5 - Long-term Debt and
Equity Financings for further information.
Other Comprehensive Income
Comprehensive income includes net income as reported on the statements of
income and all other changes in common stockholders' equity, except those
resulting from transactions with common stockholders. A reconciliation of
49
net income to comprehensive income for the three months and six months ended
June 30, 2004 and 2003 is shown below for the Ameren Companies:
=================================================================================================================
Three Months Ended Six Months Ended
-----------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Ameren:(a)
Net income................................................... $ 118 $ 110 $ 215 $ 211
Unrealized gain (loss) on derivative hedging instruments,
net of taxes (benefit) of $3, $(2), $3, $(2)............... 6 (4) 6 (5)
Reclassification adjustments for gains (losses) included in
net income, net of taxes (benefit) of $(1), $-, $(1), $(1) (3) - (3) (2)
-----------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of taxes................ $ 121 $ 106 $ 218 $ 204
=================================================================================================================
UE:
Net income................................................... $ 109 $ 107 $ 167 $ 175
Unrealized gain (loss) on derivative hedging instruments,
net of taxes (benefit) of $-, $(1), $1, $(1)................. 1 (2) 3 (2)
Reclassification adjustments for gains (losses) included in
net income, net of taxes (benefit) of $-, $-, $-, $-......... - - - (1)
-----------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of taxes................ $ 110 $ 105 $ 170 $ 172
=================================================================================================================
CIPS:
Net income................................................... $ 8 $ 3 $ 18 $ 5
Unrealized gain (loss) on derivative hedging instruments,
net of taxes (benefit) of $1, $(1), $2, $(1)................. 1 (2) 4 (2)
Reclassification adjustments for gains (losses) included in
net income, net of taxes (benefit) of $-, $-, $-, $-......... - - (1) -
-----------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of taxes................ $ 9 $ 1 $ 21 $ 3
=================================================================================================================
Genco:
Net income................................................... $ 17 $ 10 $ 46 $ 49
Unrealized gain (loss) on derivative hedging instruments,
net of taxes (benefit) of $-, $-, $(1), $-................... - - (1) -
Reclassification adjustments for gains (losses) included in
net income, net of taxes (benefit) of $-, $-, $-, $-......... (1) - (1) -
-----------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of taxes................ $ 16 $ 10 $ 44 $ 49
=================================================================================================================
CILCORP: (b)
Net income (loss)............................................ $ (4) $ - $ - $ 12
Unrealized gain (loss) on derivative hedging instruments,
net of taxes (benefit) of $1, $-, $2, $(1)................... 3 - 6 (1)
Reclassification adjustments for gains (losses) included in
net income, net of taxes (benefit) of $(1), $-, $(1), $-..... (2) - (2) -
-----------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss), net of taxes......... $ (3) $ - $ 4 $ 11
=================================================================================================================
CILCO:
Net income................................................... $ 3 $ 5 $ 9 $ 40
Unrealized gain (loss) on derivative hedging instruments,
net of taxes (benefit) of $1, $-, $2, $(1)................... 3 - 6 (1)
Reclassification adjustments for gains (losses) included in
net income, net of taxes (benefit) of $(1), $-, $(1), $-..... (2) - (2) -
-----------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of taxes................ $ 4 $ 5 $ 13 $ 39
=================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date of
January 31, 2003 and includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) 2003 amounts include January 2003 predecessor information, which was zero.
CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
50
Outstanding Shares of Common Stock
The following table reconciles the outstanding shares of Ameren common
stock for the three months and six months ended June 30, 2004 and 2003:
================================================================================================================
Three Months Ended Six Months Ended
----------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Shares outstanding at beginning of period............. 182.5 161.1 162.9 154.1
Shares issued......................................... 0.8 0.6 20.4 7.6
----------------------------------------------------------------------------------------------------------------
Shares outstanding at end of period 183.3 161.7 183.3 161.7
================================================================================================================
NOTE 12 - PENSION AND OTHER POSTRETIREMENT BENEFITS
In December 2003, the FASB issued SFAS No. 132 (Revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits (SFAS No. 132R),"
which retains the disclosure requirements in SFAS No. 132 and contains
additional requirements. These additional requirements include disclosures about
a plan sponsor's investment strategies, detailed information of plan assets,
expected future cash flow requirements, and interim disclosures related to
periodic benefit cost. The following table presents Ameren's net periodic
benefit costs (and the components of those costs) for pension and other
postretirement benefits for the three months and six months ended June 30, 2004
and 2003:
==================================================================================================================
Pension Benefits Postretirement Benefits
------------------------------------------------------------------------------------------------------------------
Three Months Six Months Three Months Six Months
------------------------------------------------------------------------
2004 2003 2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ---- ---- ----
Service cost.......................... $ 10 $ 9 $ 21 $ 19 $ 3 $ 3 $ 7 $ 6
Interest cost......................... 31 32 63 66 12 15 28 30
Expected return on plan assets........ (29) (31) (59) (64) (7) (8) (16) (16)
Amortization cost:
Transition obligation............... - - - - 1 1 2 2
Prior service cost.................. 3 2 6 4 (1) (1) (2) (2)
Losses.............................. 6 2 12 4 7 8 17 17
------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost............. 21 14 43 29 15 18 36 37
==================================================================================================================
The total amount of our contributions paid, and expected to be paid, do not
differ significantly from amounts previously disclosed.
Ameren adopted FSP SFAS 106-2 during the second quarter of 2004,
retroactive to January 1, 2004, which resulted in the recognition of a federal
subsidy for postretirement benefit costs related to prescription drug benefits.
See Note 1 - Summary of Significant Accounting Policies. The effect of this
subsidy was a reduction of various components of Ameren's, and principally UE's,
net periodic postretirement benefit costs for the second quarter of 2004.
Interest costs and amortization losses were reduced by $4 million each,
partially offset by a reduction in the expected return on plan assets of $2
million. The subsidy-related reduction in Ameren's, and principally UE's,
accumulated postretirement benefit obligation was $71 million.
UE, CIPS, Genco, CILCORP and CILCO are participants in Ameren's plans and
are responsible for their proportional share of the pension benefit costs. The
following table presents the pension costs incurred for the three months and six
months ended June 30, 2004 and 2003:
===================================================================================================================
Three Months Six Months
-------------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Ameren(a)........................................................ $ 21 $ 14 $ 43 $ 29
UE............................................................... 13 7 26 19
CIPS............................................................. 3 2 6 4
Genco............................................................ 2 1 4 3
CILCORP(b)....................................................... 2 2 4 2
CILCO............................................................ 3 4 8 6
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date of
January 31, 2003; includes amounts for non-registrant Ameren subsidiaries.
(b) CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
51
UE, CIPS, Genco, CILCORP and CILCO are participants in Ameren's plans and
are responsible for their proportional share of the postretirement benefit
costs. The following table presents the postretirement costs incurred for the
three months and six months ended June 30, 2004 and 2003:
==================================================================================================================
Three Months Six Months
------------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Ameren(a)........................................................ $ 15 $ 18 $ 36 $ 37
UE............................................................... 8 14 22 25
CIPS............................................................. 3 2 4 4
Genco............................................................ 1 - 2 2
CILCORP(b)....................................................... 2 2 5 5
CILCO............................................................ 4 4 9 9
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date of
January 31, 2003; includes amounts for non-registrant Ameren subsidiaries.
(b) Includes predecessor information for January 2003. CILCORP consolidates
CILCO and therefore includes CILCO amounts in its balances.
NOTE 13 - Segment Information
As discussed in the Ameren Companies combined Form 10-K for the fiscal year
ended December 31, 2003, Ameren's two reportable segments are: (1) Utility
Operations, which generates electricity and transmits and distributes gas and
electricity; and (2) Other, which is comprised of the parent holding company,
Ameren Corporation.
The table below presents segment information about the reported revenues
and net income of Ameren for the three months and six months ended June 30, 2004
and 2003:
==================================================================================================================
Utility Reconciling
Operations Other Items (a) Total
------------------------------------------------------------------------------------------------------------------
Three months 2004:
Operating revenues....... $ 1,435 $ - $ (283) $ 1,152
Net income............... 115 3 - 118
------------------------------------------------------------------------------------------------------------------
Three months 2003: (b)
Operating revenues....... $ 1,345 $ - $ (257) $ 1,088
Net income............... 114 (4) - 110
------------------------------------------------------------------------------------------------------------------
Six months 2004:
Operating revenues....... $ 2,948 $ - $ (580) $ 2,368
Net income............... 212 3 - 215
------------------------------------------------------------------------------------------------------------------
Six months 2003: (b)
Operating revenues....... $ 2,727 $ - $ (531) $ 2,196
Net income............... 221 (10) - 211
==================================================================================================================
(a) Elimination of intercompany revenues.
(b) Excludes amounts for CILCORP and CILCO prior to the acquisition date of
January 31, 2003; includes amounts for non-registrant Ameren subsidiaries
as well as intercompany eliminations.
52
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Executive Summary
Despite some challenges during the second quarter of 2004, Ameren was able
to once again deliver solid financial results. The second quarter 2004 earnings
were reduced by the incremental costs Ameren incurred in connection with the
scheduled refueling and maintenance outage at its Callaway nuclear plant. A
similar Callaway outage did not occur in 2003. In addition, the second quarter
was negatively impacted by earnings per share dilution principally caused by
Ameren's issuance of common shares to prefund the Illinois Power acquisition.
Despite these factors, second quarter earnings benefited from solid organic
growth, a return to more normal summer weather, stronger power prices, the
refund of a Midwest ISO exit fee and a focus on cost control.
A major effort taking place at Ameren in the first half of 2004 was the
work towards completion of the Illinois Power acquisition. In early July 2004,
Ameren completed the equity financing for the acquisition of Illinois Power and
the additional 20% interest in EEI from Dynegy. Ameren continues to proceed
through the regulatory approval process. As a result of the progress to date in
the regulatory approval process, Ameren believes the Illinois Power acquisition
remains on target to close by the end of this year.
General
Ameren, headquartered in St. Louis, Missouri, is a public utility holding
company registered with the SEC under the PUHCA. Ameren's primary asset is the
common stock of its subsidiaries. Ameren's subsidiaries operate rate-regulated
electric generation, transmission and distribution businesses, rate-regulated
natural gas distribution businesses and non rate-regulated electric generation
businesses in Missouri and Illinois. Dividends on Ameren's common stock are
dependent on distributions made to it by its subsidiaries. See Note 1 - Summary
of Significant Accounting Policies to our financial statements under Part I,
Item 1 of this report for a detailed description of our principal operating
subsidiaries. Also see the Glossary of Terms and Abbreviations.
o UE, also known as Union Electric Company, operates a rate-regulated
electric generation, transmission and distribution business and a
rate-regulated natural gas distribution business in Missouri and Illinois.
o CIPS, also known as Central Illinois Public Service Company, operates a
rate-regulated electric and natural gas transmission and distribution
business in Illinois.
o Genco, also known as Ameren Energy Generating Company, operates a non
rate-regulated electric generation business in Illinois and Missouri.
o CILCO, also known as Central Illinois Light Company, is a subsidiary of
CILCORP (a holding company) and was acquired on January 31, 2003. It
operates a rate-regulated electric transmission and distribution business,
a primarily non rate-regulated electric generation business and a
rate-regulated natural gas distribution business in Illinois.
The financial statements of Ameren are prepared on a consolidated basis and
therefore include the accounts of its majority-owned subsidiaries. Results of
CILCORP and CILCO reflected in Ameren's consolidated financial statements
include the period from the acquisition date of January 31, 2003. See Note 2 -
Acquisitions to our financial statements under Part I, Item 1 of this report for
further information. All significant intercompany transactions have been
eliminated. All tabular dollar amounts are in millions, unless otherwise
indicated.
In addition to presenting results of operations and earnings amounts in
total, certain measures are expressed in cents per share. These amounts reflect
factors that directly impact Ameren's earnings. We believe this per share
information is useful because it enables readers to better understand the impact
of these factors on our earnings. All references in this report of earnings per
share are on the basis of diluted shares.
53
Illinois Power Acquisition
On February 2, 2004, Ameren entered into an agreement with Dynegy to
purchase the stock of Decatur, Illinois-based Illinois Power and Dynegy's 20%
ownership interest in EEI. Illinois Power operates a rate-regulated electric and
natural gas transmission and distribution business serving approximately 600,000
electric and 415,000 gas customers in areas contiguous to our existing Illinois
utility service territories. The total transaction value is approximately $2.3
billion, including the assumption of approximately $1.8 billion of Illinois
Power debt and preferred stock, with the balance of the purchase price to be
paid in cash at closing. Ameren will place $100 million of the cash portion of
the purchase price in a six-year escrow pending resolution of certain contingent
environmental obligations of Illinois Power and other Dynegy affiliates for
which Ameren has been provided indemnification by Dynegy. In addition, this
transaction includes a firm capacity power supply contract for Illinois Power's
annual purchase of 2,800 megawatts of electricity from a subsidiary of Dynegy.
This contract will extend through 2006 and is expected to supply about 70% of
Illinois Power's customer requirements.
In February 2004, Ameren issued 19.1 million common shares that generated
net proceeds of $853 million, and in July 2004, Ameren issued 10.9 million
common shares that generated net proceeds of $445 million. Proceeds from these
sales are expected to be used to finance the cash portion of the purchase price,
to reduce Illinois Power debt assumed as part of this transaction and to pay any
related premiums. Pending such use, and/or if the acquisition is not completed,
Ameren plans to use the net proceeds to reduce present or future indebtedness
and/or repurchase securities of Ameren or its subsidiaries. However, prior to
the closing of the acquisition of Illinois Power, Ameren expects the new common
shares to be dilutive to earnings per share.
Upon completion of the acquisition, expected by the end of 2004, Illinois
Power will become an Ameren subsidiary operating as AmerenIP. The transaction
remains subject to the approval of the ICC and the SEC under the PUHCA and other
customary closing conditions. In April 2004, the FCC consented to the transfer
of control of FCC licenses held by Illinois Power to Ameren, and the initial 30
calendar day waiting period expired without a request by the FTC or DOJ for
additional information or documents under the Hart-Scott-Rodino Act. In July
2004, the FERC issued an order approving Ameren's acquisition of Illinois Power
and Dynegy's interest in EEI. The principal conditions of the FERC's approval
were that Illinois Power join the Midwest ISO prior to closing and 125 megawatts
of EEI's power be sold to a nonaffiliate annually. A procedural schedule has
been adopted in the ICC proceeding, which can permit an order to be issued by
the fall of 2004. The ICC Staff and several intervenors filed testimony in early
July expressing various concerns with the acquisition and objecting to parts of
the application filed by Ameren and Illinois Power in March 2004. Hearings in
the ICC proceeding are scheduled to be held in August 2004. As a result of
progress to date in the regulatory approval processes, we believe the
acquisition remains on target to close by the end of 2004. However, we are
unable to predict the ultimate outcome of the remaining regulatory proceedings
or the timing of the final agency decisions.
According to Illinois Power's Annual Report on Form 10-K for the year ended
December 31, 2003, Illinois Power had revenues of $1.6 billion, operating income
of $166 million, and net income applicable to its common shareholder of $115
million, and at December 31, 2003, had total assets of $2.8 billion, excluding
an intercompany note receivable from its parent company of approximately $2.3
billion. Illinois Power files quarterly, annual and current reports with the SEC
pursuant to the Exchange Act.
Ameren expects the acquisition of Illinois Power to be accretive to
earnings in the first two years of ownership based on a variety of assumptions
related to power prices, interest rates, synergies and regulatory outcomes,
among other things. Although Ameren has entered into fixed price power contracts
for approximately 70% of Illinois Power's energy supply needs, Ameren's
expectations for Illinois Power's earnings through 2006 remain sensitive to
changing energy prices for Illinois Power's entire power supply requirements as
a result of purchase accounting, as well as other assumptions.
54
RESULTS OF OPERATIONS
Earnings Summary
Our results of operations and financial position are affected by many
factors. Weather, economic conditions and the actions of key customers or
competitors can significantly impact the demand for our services. Our results
are also affected by seasonal fluctuations caused by winter heating and summer
cooling demand. With over 90% of Ameren's revenues directly 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. Our non
rate-regulated sales are subject to market conditions for power. We principally
utilize coal, nuclear fuel, natural gas and oil in our operations. The prices
for these commodities can fluctuate significantly due to the world economic and
political environment, weather, supply and demand levels and many other factors.
We do not have fuel or purchased power cost recovery mechanisms in Missouri or
Illinois for our electric utility businesses, but we do have gas cost recovery
mechanisms in each state for our gas delivery businesses. The electric rates for
UE are set through June 2006, and are set for CIPS and CILCO through the end of
2006 such that cost decreases or increases will not be immediately reflected in
rates. In addition, the gas delivery rates for UE in Missouri are set through
June 2006. Fluctuations in interest rates impact our cost of borrowing and
pension and postretirement benefits. 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 purchased power cost,
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.
Ameren's net income increased $8 million to $118 million, or 65 cents per
share, in the second quarter of 2004 from $110 million, or 68 cents per share,
in the second quarter of 2003. The change in net income between 2003 and 2004
was primarily due to organic growth in our service territory, a return to more
normal early summer weather versus the mild weather of 2003 and increased
margins on interchange sales, principally due to higher power prices. In
addition, second quarter net income benefited from a FERC-ordered refund of $18
million in exit fees, previously paid by UE and CIPS to the Midwest ISO in May
2004, upon their re-entry into the Midwest ISO. Partially offsetting these
benefits were increased fuel and purchased power and other operations and
maintenance costs principally as a result of UE's Callaway nuclear plant
refueling and maintenance outage. Net income for Ameren was also reduced by
increased employee benefit costs and decreased sales of emission credits.
Increased common shares outstanding, primarily due to a February 2004 offering
in order to prefund a portion of the equity financing for the Illinois Power
acquisition, reduced earnings per share in the first six months of 2004.
Ameren's net income increased $4 million to $215 million, or $1.20 per
share for the six months ended June 30, 2004 compared to year-ago earnings of
$211 million, or $1.32 per share. In the first six months of 2003, Ameren's net
income included a net cumulative effect after-tax gain of $18 million, or 11
cents per share, associated with the adoption of SFAS No. 143, "Accounting for
Asset Retirement Obligations." The net SFAS No. 143 gain resulted principally
from the elimination of non-legal obligation costs of removal for non
rate-regulated assets from accumulated depreciation.
The following table presents the net cumulative effect after-tax gain
recorded at each of the Ameren Companies upon adoption of SFAS No. 143:
===================================================================================================================
Net Cumulative Effect After-Tax Gain
------------------------------------------------------------------------------------------------------------------
Ameren(a)............................................................................... $ 18
UE...................................................................................... -
CIPS.................................................................................... -
Genco................................................................................... 18
CILCORP(b).............................................................................. 4
CILCO................................................................................... 24
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date of
January 31, 2003; includes amounts for non-registrant Ameren subsidiaries
as well as intercompany eliminations.
(b) Represents predecessor information recorded in January 2003 prior to the
acquisition date of January 31, 2003. CILCORP consolidates CILCO and
therefore includes CILCO amounts in its balances.
Excluding the net cumulative effect after-tax gain discussed above,
Ameren's net income increased $22 million for the first six months of 2004 as
compared to the same period in 2003. The change in net income was primarily due
to
55
organic growth in revenues due to a recovering economy, favorable weather
conditions in the second quarter of the current year, increased sales of
emission credits, the Midwest ISO refund and results of CILCORP being included
for an additional month in 2004. Partially offsetting these benefits were
increased fuel and purchased power and other operations and maintenance costs as
a result of the Callaway nuclear plant outage, and increased employee benefit
costs. Increased common shares outstanding reduced earnings per share for the
first six months of 2004 as compared to the same period in 2003 for Ameren.
As a holding company, Ameren's net income and cash flows are primarily
generated by its principal subsidiaries, UE, CIPS, Genco and CILCORP. The
following table presents the contribution by Ameren's principal subsidiaries to
Ameren's consolidated net income for the three months and six months ended June
30, 2004 and 2003:
===================================================================================================================
Three Months Six Months
------------------------------------------------------------------------------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net income:
UE(a).......................................... $ 107 $ 105 $ 164 $ 172
CIPS........................................... 8 3 17 4
Genco(a)....................................... 17 10 46 49
CILCORP(b)..................................... (4) - - 3
Other(c)....................................... (10) (8) (12) (17)
------------------------------------------------------------------------------------------------------------------
Ameren net income.................................... $ 118 $ 110 $ 215 $ 211
===================================================================================================================
(a) Includes earnings from interchange sales by Ameren Energy that provided
approximately $16 million and $33 million of UE's net income in the three
and six months ended June 30, 2004, respectively, (2003 - second quarter -
$11 million; year-to-date - $33 million) and approximately $8 million and
$18 million of Genco's net income in the three and six months ended June
30, 2004, respectively (2003 - second quarter - $5 million; year-to-date -
$17 million).
(b) Excludes net income prior to the acquisition date of January 31, 2003.
January 2003 predecessor amount was $9 million. CILCORP consolidates CILCO
and therefore includes CILCO amounts in its balances.
(c) Includes corporate general and administrative expenses, transition costs
associated with the CILCORP acquisition, and other non rate-regulated
operations.
Electric Operations
The following table presents the favorable (unfavorable) variations in
electric margins, defined as electric revenues less fuel and purchased power,
for the three months and six months ended June 30, 2004, from the comparable
periods in 2003. We consider electric margin to be a useful measure to analyze
the change in profitability of our electric operations between periods and have
included the below analysis as a complement to our financial information
provided in accordance with GAAP. However, electric margin may not be a
presentation defined under GAAP and may not be comparable to other companies or
more useful than the GAAP information we are providing.
The variation for Ameren reflects the contribution from CILCORP for the
January 2004 period as a separate line item, which allows other margin
components to be comparable year over year as we owned CILCORP for only five
months in the first six months of 2003. The variations in CILCORP and CILCO
electric margins are for the three months and six months ended June 30, 2004, as
compared to the same periods in 2003.
===================================================================================================================
Ameren(a) UE CIPS Genco CILCORP(b) CILCO
------------------------------------------------------------------------------------------------------------------
Three Months
Electric revenue change:
Effect of weather (estimate)......... $ 32 $ 24 $ 2 $ - $ 4 $ 4
Growth and other (estimate).......... 32 22 - 26 (46) (46)
Rate reductions...................... (10) (10) - - - -
Interchange revenues................. 24 6 - 9 6 6
EEI.................................. (14) - - - - -
------------------------------------------------------------------------------------------------------------------
Total .................................. $ 64 $ 42 $ 2 $ 35 $ (36) $ (36)
------------------------------------------------------------------------------------------------------------------
Fuel and purchased power change:
Fuel:
Generation and other............. $ (20) $ 1 $ - $ (14) $ (6) $ (4)
Price............................ (11) (8) - (2) (1) (1)
Purchased power...................... (9) (9) 3 (2) 39 36
EEI ................................. (3) - - - - -
------------------------------------------------------------------------------------------------------------------
Total .................................. $ (43) $ (16) $ 3 $ (18) $ 32 $ 31
------------------------------------------------------------------------------------------------------------------
Net change in electric margins.......... $ 21 $ 26 $ 5 $ 17 $ (4) $ (5)
------------------------------------------------------------------------------------------------------------------
56
------------------------------------------------------------------------------------------------------------------
Ameren(a) UE CIPS Genco CILCORP(b) CILCO
------------------------------------------------------------------------------------------------------------------
Six Months
Electric revenue change:
CILCORP - January 2004............... $ 47 $ - $ - $ - $ - $ -
Effect of weather (estimate)......... 18 14 - - 3 3
Growth and other (estimate).......... 87 50 (4) 42 (81) (81)
Rate reductions...................... (17) (17) - - - -
Interchange revenues................. (1) (12) 1 3 13 13
EEI.................................. (13) - - - - -
------------------------------------------------------------------------------------------------------------------
Total .................................. $ 121 $ 35 $ (3) $ 45 $ (65) $ (65)
------------------------------------------------------------------------------------------------------------------
Fuel and purchased power change:
CILCORP - January 2004............... $ (24) $ - $ - $ - $ - $ -
Fuel:
Generation and other............... (21) 9 - (19) (10) (7)
Price.............................. (16) (12) - (4) 6 6
Purchased power...................... (15) (14) 9 1 57 54
EEI ................................. (6) - - - - -
------------------------------------------------------------------------------------------------------------------
Total .................................. $ (82) $ (17) $ 9 $ (22) $ 53 $ 53
------------------------------------------------------------------------------------------------------------------
Net change in electric margins.......... $ 39 $ 18 $ 6 $ 23 $ (12) $ (12)
==================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date of
January 31, 2003; includes amounts for non-registrant Ameren subsidiaries
as well as intercompany eliminations.
(b) Includes predecessor information for January 2003. CILCORP consolidates
CILCO and therefore includes CILCO amounts in its balances.
Ameren
Ameren's electric margin increased $21 million for the three months and $39
million for the six months ended June 30, 2004, compared to the same periods in
2003. Excluding the additional month of CILCORP results in the current year,
electric margin increased $16 million for the six months ended June 30, 2004.
The increase in electric margin for the six months ended June 30, 2004, was
primarily attributable to organic sales growth. Sales of emission credits
decreased $7 million in the current quarter, but increased $7 million for the
first six months of 2004 as compared to 2003. The second quarter of the current
year also benefited from favorable weather conditions and increased interchange
margins as compared to 2003. The increases to electric margin were partially
offset by electric rate reductions and an increase in fuel and purchased power
primarily due to the Callaway outage and higher fuel prices.
The favorable weather conditions in the second quarter were primarily due
to a return to more normal early summer weather conditions in 2004 versus 2003.
Cooling degree days were approximately 75% higher in the second quarter of 2004
in our overall service territory compared to the same period in 2003 and
approximately 20% higher compared to normal conditions. Residential and
commercial sales rose 15% and 6%, respectively, during the quarter due to the
weather and organic growth. For the six months ended June 30, 2004, the
favorable weather conditions in the second quarter were partially offset by
warmer winter weather in the first quarter of 2004. Heating degree days were
approximately 9% less in the first three months of 2004 in our overall service
territory compared to the same period in 2003 and approximately 6% less compared
to normal conditions.
Rate reductions resulting from the 2002 UE electric rate case settlement in
Missouri negatively impacted electric revenues during the current year periods.
Annual reductions of $50 million, $30 million and $30 million were effective
April 1, 2002, April 1, 2003 and April 1, 2004, respectively.
Interchange margins increased $11 million for the three months, but
decreased $2 million for the six months ended June 30, 2004, compared to the
same periods in 2003. Higher power prices and improved coal-fired plant
generation in the second quarter partially offset decreased availability of
low-cost generation due to the Callaway outage. During the second quarter,
Ameren's base load coal electric generating stations increased their average
capacity factors to 75%, up from 61% in the comparable prior year quarter, and
equivalent availability factors increased to 85% from 77% in the same quarter of
the prior year. Average realized power prices on interchange sales increased to
approximately $35 per megawatthour in the second quarter of 2004 from
approximately $29 per megawatthour in the second quarter of 2003. Average power
prices for the six month periods ended June 30, 2004 and June 30, 2003, were
comparable.
57
Ameren's fuel and purchased power increased $43 million in the quarter
ended June 30, 2004 and $58 million, excluding the additional month of CILCORP,
in the six months ended June 30, 2004, compared to the same periods in 2003.
This increase in both periods was due to increased power purchases necessitated
by the Callaway nuclear plant outage and increased fuel prices. See Operating
Expenses and Other Statement of Income Items below for further discussion of the
Callaway nuclear plant outage.
UE
UE's electric margin increased $26 million for the three months and $18
million for the six months ended June 30, 2004, as compared to the same periods
in 2003. Favorable weather conditions and organic sales growth increased
electric margin in the second quarter and first six months of 2004, as compared
to 2003. Residential and commercial sales increased 15% and 7%, respectively,
during the second quarter due to the weather and organic growth. The second
quarter of 2004 also benefited from increased interchange margins. Interchange
margins increased $7 million for the three months ended June 30, 2004 as
compared to the same period in 2003. Higher power prices and improved
availability of coal-fired plants in the second quarter of 2004 more than offset
decreased availability of generation due to the Callaway nuclear plant outage.
The first half of 2004 also included an increase in sales of emission credits of
$16 million over the prior year primarily resulting from activity in the first
quarter of this year. Partially offsetting these increases to margin were rate
reductions resulting from the 2002 Missouri electric rate case settlement
mentioned above. Lower power prices during the first quarter of 2004 than the
strong first quarter of 2003 primarily contributed to a decrease in interchange
margin for the six month period ended June 30, 2004.
Fuel and purchased power increased $16 million in the second quarter and
$17 million for the first six months of 2004. Purchased power increased due to
the Callaway outage during the second quarter of 2004 as well as an unplanned
outage during the first quarter of 2004. The increase in fuel costs in 2004 was
principally due to weather-driven demand and increased utilization of UE's
coal-fired plants due to outages at the Callaway plant as well as higher fuel
prices.
CIPS
CIPS' electric margin increased $5 million for the three months and $6
million for the six months ended June 30, 2004, compared to the same periods in
2003. Increases in electric margin for the three and six month periods in 2004
were primarily attributable to organic sales growth. Residential and commercial
sales increased 18% and 3%, respectively, during the second quarter due to
organic growth and favorable weather conditions.
Genco
Genco's electric margin increased $17 million for the three months and $23
million in the six months ended June 30, 2004, as compared to the same periods
in 2003. Increases in electric margin were primarily attributable to an increase
in wholesale margins due to sales to new customers coupled with increased use of
lower cost generation available as a result of fewer power plant outages in
2004. The increase in wholesale margin was in addition to an increase in
interchange margins principally due to higher power prices in the second quarter
of 2004. Interchange margins increased $4 million for the three months ended
June 30, 2004, primarily due to higher power prices. However, lower power prices
during the first quarter of 2004, as compared to the strong first quarter of
2003, resulted in interchange margins being comparable for the six months ended
June 30, 2004 to the same period in the prior year.
CILCORP and CILCO
Electric margin decreased $4 million at CILCORP and $5 million at CILCO for
the three months ended June 30, 2004, and decreased $12 million at both CILCORP
and CILCO for the six months ended June 30, 2004, as compared to the same
periods in 2003. Decreases in electric margin were primarily attributable to
reduced revenues of approximately $85 million due to two large CILCO industrial
customers switching to Marketing Company in July and October 2003 and transfers
of other non rate-regulated customers to Marketing Company, partially offset by
favorable weather conditions. Fuel and purchased power also decreased for the
three months and six months ended June 30, 2004, due to customer switching
within the Ameren Companies.
58
Gas Operations
The following table presents the favorable variations in gas margins,
defined as gas revenues less gas purchased for resale, for the three months and
six months ended June 30, 2004, from the comparable periods in 2003. We consider
gas margin to be a useful measure to analyze the change in profitability of our
gas operations between periods and have included the table below as a complement
to our financial information provided in accordance with GAAP. However, gas
margin may not be a presentation defined under GAAP and may not be comparable to
other companies or more useful than the GAAP information we are providing.
===================================================================================================================
Three Months Six Months
-------------------------------------------------------------------------------------------------------------------
Ameren(a)....................................... $ 9 $ 28
UE.............................................. 4 6
CIPS............................................ - 5
Genco........................................... - -
CILCORP(b)...................................... 4 4
CILCO........................................... 4 2
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date of
January 31, 2003; includes amounts for non-registrant Ameren subsidiaries
as well as intercompany eliminations.
(b) Includes predecessor information for January 2003. CILCORP consolidates
CILCO and therefore includes CILCO amounts in its balances.
Gas margins at Ameren, UE, CIPS, CILCORP and CILCO increased during the six
months ended June 30, 2004, primarily due to delivery rate increases, partially
offset by milder winter weather conditions. Ameren's margin also increased $13
million due to the additional month of CILCORP results in the current year.
Excluding the additional month of CILCORP in the current year, Ameren's sales
were down 4% for the six months ended June 30, 2004 as a result of the mild
winter weather conditions.
Increases in the three month period ended June 30, 2004, were due primarily
to rate increases. The following table presents the effect of gas delivery rate
increases on revenues for the three months and six months ended June 30, 2004,
from the comparable periods in 2003:
===================================================================================================================
Three Months Six Months
-------------------------------------------------------------------------------------------------------------------
Ameren.......................................... $ 6 $ 15
UE.............................................. 3 6
CIPS............................................ 1 5
Genco........................................... - -
CILCORP......................................... 2 4
CILCO........................................... 2 4
===================================================================================================================
Operating Expenses and Other Statement of Income Items
The following table presents the favorable (unfavorable) variations in
operating and other expenses for the three months and six months ended June 30,
2004, from the comparable period in 2003:
===================================================================================================================
Ameren(a) UE CIPS Genco CILCORP(b) CILCO
------------------------------------------------------------------------------------------------------------------
Three Months
Other operations and maintenance....... $ (36) $ (20) $ 3 $ (9) $ (12) $ (9)
Depreciation and amortization.......... - (3) - - 5 3
Taxes other than income taxes.......... 3 (2) 2 - 4 3
Other income and deductions............ 2 (6) (1) - - (1)
Interest............................... 3 - 1 1 (3) 1
Income taxes........................... 7 3 (5) (2) 2 2
-------------------------------------------------------------------------------------------------------------------
Six Months
Other operations and maintenance....... $ (50) $ (28) $ 8 $ (6) $ (19) $ (15)
Depreciation and amortization.......... (6) (5) - (1) 9 5
Taxes other than income taxes.......... 1 (4) 2 2 7 7
Other income and deductions............ 6 (2) - (1) (1) (2)
Interest............................... 5 - 2 4 (1) 3
Income taxes........................... - 7 (10) (6) 5 5
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date of
January 31, 2003. Includes amounts for non-registrant Ameren subsidiaries
as well as intercompany eliminations.
(b) Includes predecessor information for January 2003.
59
Other Operations and Maintenance
Ameren's other operations and maintenance expenses increased $36 million
for the three months and $50 million for the six months ended June 30, 2004, as
compared to the same periods in 2003. Excluding the additional month of CILCORP
results in the current year of $15 million, expenses increased $35 million for
the six months ended June 30, 2004.
Expenses at Ameren and UE increased primarily due to increased power plant
maintenance expenses as a result of the outage at UE's Callaway nuclear plant
during the second quarter of 2004. The outage lasted 64 days and resulted in
incremental maintenance costs of approximately $40 million. Refueling outages
occur approximately every 18 months and typically include the replacement of
fuel and the performance of maintenance and inspections. The last refueling
outage occurred in the fall of 2002. In addition to the Callaway outage
expenses, employee benefit costs were higher at Ameren during both the quarter
and the six months ended June 30, 2004. The adoption in the second quarter of
2004, retroactive to January 1, 2004, of FASB Staff Position SFAS No. 106-2
resulted in the recognition of nontaxable federal subsidies expected to be
provided under the Medicare Prescription Drug, Improvement and Modernization
Act, which partially offset employee benefit cost increases in the second
quarter of 2004. See Note 1 - Summary of Significant Accounting Policies and
Note 12 - Pension and Other Postretirement Benefits to our financial statements
under Part I, Item 1 of this report for further information. UE's employee
benefit costs decreased for the second quarter of 2004 as a result of the
recording of the subsidy and were comparable to the prior year amounts for the
six months ended June 30, 2004. Ameren, UE and CIPS benefited during the second
quarter of 2004 from the refund to UE, referenced above, of previously paid exit
fees upon its re-entry into the Midwest ISO.
CIPS' other operations and maintenance expenses decreased in the three
months and six months ended June 30, 2004, as compared to the same periods in
2003, primarily due to CIPS' portion of the Midwest ISO exit fee refund.
Genco's, CILCORP's and CILCO's other operations and maintenance expenses
increased in the three months and six months ended June 30, 2004, as compared to
the same periods in 2003, primarily due to higher employee benefit costs.
Depreciation and Amortization
Ameren's depreciation and amortization expenses were comparable to the
prior year for the three months and six months ended June 30, 2004, excluding
the additional month of CILCORP expenses in the current year ($6 million).
Depreciation and amortization expenses at CIPS and Genco were also comparable in
the second quarter and first six months of 2004 to the same periods in 2003.
UE's depreciation and amortization expenses increased in the second quarter
and for the first six months of 2004, as compared to the same periods in 2003,
primarily due to capital additions.
Depreciation and amortization expenses at CILCORP and CILCO decreased in
the three months and six months ended June 30, 2004, as compared to the same
periods in 2003, primarily due to property retirements exceeding capital
additions.
Taxes Other Than Income Taxes
Taxes other than income taxes decreased at Ameren and CIPS in the three
months and six months ended June 30, 2004, as compared to the same periods in
2003, primarily due to decreased property taxes.
UE's taxes other than income taxes increased in the three months and six
months ended June 30, 2004, as compared to the same periods in 2003, primarily
due to higher gross receipts taxes as a result of increased utility sales in
2004.
Genco's taxes other than income taxes decreased in the first six months of
2004, as compared to 2003, primarily due to favorable property tax assessments
in the current year. Taxes other than income taxes for the second quarter of
2004 were comparable to the same period in the prior year.
60
Taxes other than income taxes decreased at CILCORP and CILCO in the second
quarter and first six months ended June 30, 2004, as compared to 2003, primarily
due to reduced gross receipts taxes as a result of customers switching to
Marketing Company.
Other Income and Deductions
Ameren's other income and deductions increased in the second quarter and
first six months of 2004, as compared to the same periods in 2003, primarily due
to increased interest income as a result of investing the proceeds from the
February 2004 equity offering.
Other income and deductions at UE decreased in the second quarter and first
six months of 2004, as compared to the same periods in 2003, primarily due to a
net decrease in earnings from UE's ownership interest in EEI and donations made
in 2004.
Other income and deductions at CIPS, Genco, CILCORP and CILCO were
comparable in the second quarter and first six months of 2004 to the same
periods in 2003.
Interest
Interest expense decreased at Ameren in the second quarter and first six
months of 2004, as compared to the same periods in 2003, primarily due to the
redemption of Ameren floating rate notes at the end of 2003, as well as
redemptions of long-term debt during 2003 at its subsidiaries as noted below.
Interest expense decreased at CIPS in the second quarter and first six
months of 2004, as compared to the same periods of 2003, primarily due to the
maturity or redemption of first mortgage bonds in the second quarter of 2003.
Genco's interest expense was reduced in the second quarter and first six
months of 2004, as compared to the same periods of 2003, primarily due to a
reduction in principal amounts outstanding on intercompany promissory notes to
CIPS and Ameren along with decreased borrowings from Ameren's non
state-regulated subsidiary money pool.
Interest expense decreased at CILCO in the second quarter and first six
months of 2004, as compared to the same periods of 2003, primarily due to the
redemption of long-term debt in the second quarter of 2003 and the first quarter
of 2004.
Interest expense increased at CILCORP in the second quarter and first six
months of 2004 due to increased non state-regulated subsidiary money pool
borrowings, partially offset by redemptions of debt at CILCO and repurchases of
CILCORP debt.
UE's interest expense was comparable in the second quarter and first six
months of 2004 to the same periods in 2003.
Income Taxes
Income tax expense was flat at Ameren for the first six months of 2004, as
compared to the same period in 2003. Higher pre-tax income was offset by a lower
effective tax rate at Ameren for the second quarter of 2004, as compared to the
same period in 2003, primarily due to the recording of the expected nontaxable
federal Medicare subsidy in the second quarter of 2004 and the exercising of
stock options by our employees in the first six months of 2004, which resulted
in lower taxable income, but no income statement expense.
Income tax expense increased at CIPS and Genco in the second quarter and
first six months of 2004, as compared to the same periods in 2003, primarily due
to higher pre-tax income. Income tax expense decreased at UE, CILCORP and CILCO
primarily due to lower pre-tax income in 2004. UE's effective tax rate was also
impacted by the recording of the expected nontaxable federal Medicare subsidy.
61
LIQUIDITY AND CAPITAL RESOURCES
The tariff-based gross margins of Ameren's rate-regulated utility operating
companies continue to be the principal source of cash from operating activities
for Ameren and its rate-regulated subsidiaries. A diversified retail customer
mix of primarily rate-regulated residential, commercial and industrial classes
and a commodity mix of gas and electric service provide a reasonably predictable
source of cash flows. In addition, we plan to utilize short-term debt to support
normal operations and other capital requirements.
The following table presents net cash provided by (used in) operating,
investing and financing activities for the six months ended June 30, 2004 and
2003:
===================================================================================================================
Net Cash Provided By Net Cash Provided By Net Cash Provided By
(Used In) (Used In) (Used In)
Operating Activities Investing Activities Financing Activities
-------------------------------------------------------------------------------------------------------------------
2004 2003 Variance 2004 2003 Variance 2004 2003 Variance
--------------------------------------------------------------------------------------------------
Ameren(a)........ $ 436 $ 43 $ 6 $ (367) $ (816) $ 449 $ 331 $ (141) $ 472
UE............... 278 238 40 (258) (225) (33) (20) (1) (19)
CIPS............. 62 57 5 28 40 (12) (103) (96) (7)
Genco............ 82 126 (44) (28) (31) 3 (56) (90) 34
CILCORP(b)....... 103 50 53 (69) (51) (18) (40) - (40)
CILCO............ 94 73 21 (72) (53) (19) (27) (34) 7
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date of
January 31, 2003; includes amounts for non-registrant Ameren subsidiaries
as well as intercompany eliminations.
(b) 2003 amounts include January 2003 predecessor information. CILCORP
consolidates CILCO and therefore includes CILCO amounts in its balances.
Cash Flows from Operating Activities
Cash flows provided by operating activities increased for all Ameren
Companies, except Genco, for the six months ended June 30, 2004, as compared to
the same period in 2003. The increase in cash flows provided by operating
activities for Ameren was due to increased earnings resulting from warmer
weather in the second quarter of 2004 compared to the same period in 2003,
stronger power prices that benefited interchange margins, solid organic growth
in Ameren's service territory, partially offset by costs of the Callaway
refueling outage. Ameren's and UE's cash flows from operating activities also
increased due to $18 million of cash received in the first six months of 2004
related to UE's settlement of a dispute over mine reclamation issues with a coal
supplier. In addition, Ameren operating cash flows benefited in 2004 by $18
million (UE - $13 million, CIPS - $5 million) from a refund of exit fees for
costs incurred related to entering an RTO and $8 million from the return of
other amounts (UE - $4 million, CIPS - $2 million).
Increases in cash flows from operating activities in the first six months
of 2004, compared to the same period in 2003, were partially offset by a net use
of cash for changes in working capital requirements. Significant uses of cash
for the period ended June 30, 2004, compared to 2003, included higher accounts
receivables in the current period due to warmer weather in the first six months
of 2004 compared to 2003 and lower accounts payable due to reduced days
outstanding. The net cash used for working capital requirements was partially
offset by lower income taxes paid due to timing differences and decreased
materials and supplies inventories resulting from decreased natural gas volumes
being put into storage during the winter injection period.
Cash flows from operating activities increased for UE, CILCORP and CILCO
for the six months ended June 30, 2004, compared to the same period in 2003,
primarily due to the working capital changes, partially offset by decreased net
earnings. UE's cash from operating activities also benefited from the timing of
income tax payments and the Midwest ISO refund. CIPS' cash flows from operating
activities increased for the first six months of 2004, compared to the same
period in 2003, principally due to increased earnings associated with lower
purchased power costs and the Midwest ISO exit fee refund. These benefits were
partially offset by working capital changes principally due to reduced taxes
paid due to the timing of payments and increased accounts receivable in 2004.
Genco's cash flows from operating activities decreased in the first six months
of 2004, compared to the same period in 2003, due to working capital changes
primarily resulting from reduced taxes paid in the six months ended June 30,
2004, compared to the same period in the prior year.
62
Cash Flows from Investing Activities
Cash flows from investing activities increased for Ameren and Genco and
decreased for UE, CIPS, CILCORP and CILCO for the six months ended June 30, 2004
as compared to the same period in 2003. Ameren's decrease in cash used in
investing activities was primarily due to $489 million in cash paid for the
acquisitions of CILCORP and Medina Valley in early 2003. Excluding the
acquisition costs described above, Ameren's cash flows used in investing
activities increased by approximately $40 million for the six months ended June
30, 2004 compared to the same period in 2003. The increase in investing
activities for Ameren was principally due to higher construction expenditures at
UE, CILCORP and CILCO. UE's construction expenditures for the six months ended
June 30, 2004 primarily included upgrades and replacement of condenser bundles
and low pressure rotor equipment related to the refueling outage in the second
quarter of 2004 at UE's Callaway nuclear plant. In addition, UE's construction
expenditures included upgrades at UE's various other power plants and additional
construction expenditures for new transmission and distribution lines. CILCORP's
and CILCO's construction expenditures were primarily related to power plant
upgrades that were made in order for CILCO's non rate-regulated subsidiary,
AERG, to have more flexibility in fuel supply for power generation in the
future. Cash flows provided by investing activities for CIPS decreased for the
six months ended June 30, 2004, compared to the same period in 2003, primarily
due to lower cash receipts related to CIPS' intercompany note receivable with
Genco in the first six months of 2004, which totaled $49 million compared to $62
million in the first six months of 2003. Genco's decrease in cash flows used in
investing activities primarily resulted from reduced construction expenditures
in the first six months of 2004 compared to the same period in 2003. Genco's
construction expenditures in 2004 included costs primarily associated with the
replacement of a turbine generator at one of its power plants.
We continually review our generation portfolio and expected electrical
needs, and as a result, we could modify our plan for generation capacity, 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 we plan to make for future generating needs could result in significant
capital expenditures or losses being incurred, which could be material.
Cash Flows from Financing Activities
Ameren
Ameren's cash flows from financing activities increased for the six months
ended June 30, 2004, as compared to the same period in 2003. In February 2004,
Ameren received net proceeds of $853 million from the issuance of 19.1 million
common shares. The proceeds are ultimately expected to be utilized to pay the
cash portion of the purchase price for Ameren's acquisition of Illinois Power
and Dynegy's 20% interest in EEI and to reduce Illinois Power debt assumed as
part of this transaction and pay related premiums. During the first six months
of 2004, these proceeds were indirectly used to repay a $100 million bank term
loan at CILCO, repay short term debt of approximately $181 million, and invested
in short-term investments. The common stock proceeds received in the first
quarter of 2003 were used to fund a portion of the acquisitions of CILCORP in
January 2003 and Medina Valley in February 2003. See Note 2 - Acquisitions to
our financial statements under Part I, Item 1 of this report for further
explanation. In addition, Ameren's increase in cash flows from financing
activities was due to the decrease in redemptions, repurchases and maturities of
long-term debt totaling $260 million in the first six months of 2004 compared to
$420 million in the same period in 2003.
The increase in cash flows from financing activities at Ameren described
above was partially offset by an increase in the redemptions, repurchases and
maturities of short-term debt, as well as the termination of UE's nuclear fuel
lease, totaling $193 million in the first six months of 2004, compared to $111
million in the same period in 2003. Due to the increase in number of common
shares outstanding, Ameren's dividend payments on common stock increased during
the six months ended June 30, 2004, compared to the same period in 2003, which
also caused a decrease in Ameren's cash flows from financing activities.
UE
UE's cash flows from financing activities decreased for the six months
ended June 30, 2004, as compared to the same period in 2003. In 2004, cash
provided by borrowings from the utility money pool arrangement of $342 million
was partially offset by the $217 million of cash used for repurchases of
short-term debt and the nuclear fuel lease
63
termination payment. The lease agreement, which was scheduled to expire on
August 31, 2031, provided for the financing of a portion of UE's nuclear fuel
that was processed for use or was consumed at UE's Callaway nuclear plant.
CIPS
CIPS' cash flows from financing activities decreased for the six months
ended June 30, 2004, principally due to $74 million of repayments to the utility
money pool arrangement in 2004 compared to $39 million of borrowings from the
money pool arrangement in 2003. The net decrease in cash provided by the money
pool arrangement in 2004 was partially offset by a decrease in redemptions of
long-term debt in the first six months of 2004, compared to same period in 2003,
and reduced dividend contributions to Ameren, which totaled $28 million in the
first six months of 2004, compared to $39 million in the same period of 2003.
Genco
Genco's cash flows from financing activities increased for the six months
ended June 30, 2004, as compared to the same period in 2003, primarily due to
borrowings from the non state-regulated subsidiary money pool arrangement that
totaled $32 million in 2004 compared to repayments to the money pool arrangement
of $37 million in 2003. The increase in cash flows was offset by an increase in
dividends paid to Ameren, which totaled $35 million in 2004 compared to $2
million in 2003.
Genco has affiliate notes payable of $324 million and $34 million to CIPS
and Ameren, respectively, which, by their current terms, have final payments of
principal and interest due on May 1, 2005. The note payable to CIPS was issued
in conjunction with the transfer of its electric generating assets and related
liabilities to Genco. Genco and CIPS expect to renew or modify the CIPS note to
extend the principal maturity, which could include continued amortization of the
principal amount. However, such extension could require regulatory approval.
Genco and Ameren are currently evaluating various alternatives with respect to
the note payable to Ameren. In the event the maturities of these notes are not
extended or restructured, Genco may need to access other financing sources to
meet the maturity obligation to the extent it does not have cash available from
its operating cash flows. Such sources of financing could include borrowings
under the non state-regulated subsidiary money pool, or infusion of equity
capital or new direct borrowings from Ameren, all subject to applicable
regulatory financing authorizations and provisions in Genco's borrowing
agreements.
CILCORP
CILCORP's cash flows from financing activities decreased for the six months
ended June 30, 2004, as compared to the same period in 2003. The decrease was
primarily due to an increase in repurchases of long-term debt. Borrowings from
the non state-regulated subsidiary money pool arrangement that totaled $87
million in 2004 were the primary source of funds for the repurchase of CILCO's
$100 million secured bank term loan. Dividends of $18 million in 2004 also
contributed to the increase in cash used by financing activities in 2004
compared to 2003.
CILCO
CILCO's cash flows from financing activities increased for the six months
ended June 30, 2004, as compared to the same period in 2003, primarily due to
reduced redemptions and repurchases of short-term debt and reduced dividend
contributions made to CILCORP in 2004 compared to 2003. CILCO's increase in cash
flows from financing activities was offset by reduced borrowings from the
utility money pool arrangement in 2004 compared to the same period in 2003. The
proceeds received by CILCO from the money pool arrangement along with available
cash in the first quarter of 2004 were used to repay CILCO's $100 million bank
term loan facility.
Short-term Borrowings and Liquidity
Short-term borrowings consist of commercial paper issuances and bank line
of credit drawings with maturities generally within 1 to 45 days. As of June 30,
2004, Ameren had short-term borrowings totaling $35 million, of which $32
million was borrowed at EEI. The average short-term borrowings at EEI were $10
million for the six months ended June 30, 2004, with a weighted-average interest
rate of 1.7%. Peak short-term borrowings for EEI were $44 million for the six
months ended June 30, 2004, with a weighted-average interest rate of 1.7%. CIPS,
Genco, CILCORP and CILCO had no short-term borrowings as of June 30, 2004 and
December 31, 2003. At December 31, 2003, Ameren and
64
UE were the only Ameren Companies that had short-term borrowings outstanding,
which totaled $161 million and $150 million, respectively.
In July 2004, Ameren entered into two new credit agreements for $700
million in revolving credit facilities to be used for general corporate
purposes, including support of Ameren and UE commercial paper programs. The $700
million in new facilities includes a $350 million three-year revolving credit
facility and a $350 million five-year revolving credit facility. These new
credit facilities replaced Ameren's existing $235 million 364-day revolving
credit facility, which matured in July 2004, and a $130 million multi-year
revolving credit facility, which would have matured in July 2005. An existing
Ameren $235 million multi-year revolving credit facility, which matures in July
2006, remains outstanding and available.
At July 31, 2004, certain of the Ameren Companies had committed bank credit
facilities that totaled $1.2 billion, all of which were available for use by UE,
CIPS, CILCO and Ameren Services through a utility money pool arrangement. In
addition, $935 million of the $1.2 billion was available for use by Ameren
directly and most of the non rate-regulated affiliates including, but not
limited to, Resources Company, Genco, Marketing Company, AFS, AERG and Ameren
Energy, through a non state-regulated subsidiary money pool agreement. We have
money pool agreements with and among our subsidiaries to coordinate and provide
for certain short-term cash and working capital requirements. Separate money
pools are maintained between rate-regulated and non rate-regulated businesses.
See Note 8 - Related Party Transactions to our financial statements under Part
I, Item 1 of this report for a detailed explanation of the money pool
arrangements. The committed bank credit facilities are used to support our
commercial paper programs under which there were no amounts outstanding at June
30, 2004 (December 31, 2003 - $150 million). Access to our credit facilities for
any of Ameren's subsidiaries is subject to reduction based on use by affiliates.
The following table presents the various committed credit facilities of the
Ameren Companies and EEI as of July 31, 2004:
===================================================================================================================
Credit Facility Expiration Amount Committed Amount Available
-------------------------------------------------------------------------------------------------------------------
Ameren:(a)
Multi-year revolving............ July 2006 $ 235 $ 235
Multi-year revolving............ July 2007 350 350
Multi-year revolving............ July 2009 350 350
-------------------------------------------------------------------------------------------------------------------
UE:
Various 364-day revolving....... through July 2005 154 154
-------------------------------------------------------------------------------------------------------------------
CIPS:
Two 364-day revolving............ through July 2005 15 15
-------------------------------------------------------------------------------------------------------------------
CILCO:
Three 364-day revolving......... through June 2005 60 60
-------------------------------------------------------------------------------------------------------------------
EEI:
Two bank credit facilities...... through June 2005 45 17
-------------------------------------------------------------------------------------------------------------------
Total ........................ $ 1,209 $ 1,181
===================================================================================================================
(a) CILCORP and Genco may access the credit facilities through intercompany
borrowing arrangements.
In addition to committed credit facilities, a further source of liquidity
for the Ameren Companies is available cash and cash equivalents.
Ameren and UE are authorized by the SEC under PUHCA to have up to an
aggregate of $1.5 billion and $1 billion, respectively, of short-term unsecured
debt instruments outstanding at any time. In addition, CIPS, CILCORP and CILCO
each have PUHCA authority to have up to an aggregate of $250 million each of
short-term unsecured debt instruments outstanding at any time. Genco is
authorized by the FERC to have up to $300 million of short-term debt outstanding
at any time.
Long-term Debt and Equity
The following table presents the issuances of common stock and the
issuances, redemptions, repurchases and maturities of long-term debt for the six
months ended June 30, 2004 and 2003. For additional information related to the
65
terms and uses of these issuances and the sources of funds and terms for the
redemptions, see Note 5 - Long-term Debt and Equity Financings to our financial
statements under Part I, Item 1 of this report.
=====================================================================================================================
Six Months
Ended June 30,
Month Issued, Redeemed, --------------------------
Repurchased or Matured 2004 2003
---------------------------------------------------------------------------------------------------------------------
Issuances
Long-term debt
UE:
5.50% Senior secured notes due 2014.................. May $ 104 $ -
4.75% Senior secured notes due 2015.................. April - 114
5.50% Senior secured notes due 2034.................. March - 184
---------------------------------------------------------------------------------------------------------------------
Total Ameren long-term debt issuances.................... $ 104 $ 298
---------------------------------------------------------------------------------------------------------------------
Common stock
Ameren:
6,325,000 Shares at $40.50........................... January $ - $ 256
19,063,181 Shares at $45.90.......................... February 875 -
DRPlus and 401(k)(a)................................. Various 60 52
----------------------------------------------------------------------------------------------------------------------
Total Ameren common stock issuances...................... $ 935 $ 308
----------------------------------------------------------------------------------------------------------------------
Total Ameren long-term debt and common stock issuances... $ 1,039 $ 606
======================================================================================================================
Redemptions, Repurchases and Maturities
Long-term debt
UE:
7.00% First mortgage bonds due 2024.................. June $ 100 $ -
81/4% First mortgage bonds due 2022.................. April - 104
8.00% First mortgage bonds due 2022.................. May - 85
CIPS:
6.99% Series 97-1 first mortgage bonds due 2003...... March $ - $ 5
6 3/8% Series Z first mortgage bonds due 2003........ April - 40
7 1/2% Series X first mortgage bonds due 2003........ April - 50
CILCORP:
9.375% Senior bonds due 2029......................... May 20 -
CILCO:
Secured bank term loan............................... February 100 -
6.82% First mortgage bonds due 2003.................. February - 25
8.20% First mortgage bonds due 2022.................. April - 65
7.80% Two series of first mortgage bonds due 2023.... April - 10
EEI:
2000 Bank term loan, 7.61% due 2004.................. June 40 -
Medina Valley:
Secured term loan due 2019........................... June - 36
----------------------------------------------------------------------------------------------------------------------
Total Ameren long-term debt redemptions,
repurchases and maturities....................... $ 260 $ 420
======================================================================================================================
(a) Includes issuances of common stock of 1.2 million shares in the first six
months of 2004 and 1.3 million shares in the first six months of 2003 under
our DRPlus and in connection with our 401(k) plans.
Ameren
In June 2004, the SEC declared effective a Form S-3 shelf registration
statement filed by Ameren covering the offering from time to time of up to $2
billion of various forms of securities including long-term debt, trust preferred
securities and equity securities. In July 2004, Ameren issued, pursuant to the
June 2004 Form S-3 shelf registration statement, 10.9 million shares of its
common stock at $42.00 per share for net proceeds of $445 million. The proceeds
from these offerings are expected to provide funds required to pay the cash
portion of the purchase price for our pending acquisition of Illinois Power and
Dynegy's 20 percent interest in EEI, and to reduce Illinois Power debt, assumed
as a part of this transaction, and pay related premiums. Pending such use,
and/or if the acquisition is not completed, we plan
66
to use the net proceeds to reduce present or future indebtedness and/or
repurchase securities of Ameren or its subsidiaries. A portion of the net
proceeds may also be temporarily invested in short-term instruments. See Note 2
- - Acquisitions to our financial statements under Part I, Item 1 of this report
for further information.
In March 2004, the SEC declared effective a Form S-3 registration statement
filed by Ameren in February 2004, authorizing the offering of six million
additional shares of its common stock under DRPlus. Shares of common stock sold
under the DRPlus are, at Ameren's option, newly issued shares or treasury
shares, or shares purchased in the open market or in privately negotiated
transactions. Ameren is currently selling newly issued shares of its common
stock under DRPlus. For the six months ended June 30, 2004, Ameren received net
proceeds of approximately $60 million from the issuance of approximately 1.2
million new common shares under its DRPlus and its 401(k) plans to be used for
general corporate purposes.
UE
UE issued securities totaling $104 million in 2004, pursuant to the
September 2003 Form S-3 shelf registration statement with the amount of
securities remaining available for issuance at June 30, 2004, totaling $696
million.
Indebtedness Provisions, Other Covenants and Off Balance Sheet Arrangements
See Note 4 - Short-term Borrowings and Liquidity to our financial
statements under Part I, Item 1 of this report for a discussion of the
indebtedness provisions contained in certain of the Ameren Companies' bank
credit facilities. Also see Note 5 - Long-term Debt and Equity Financings to our
financial statements under Part I, Item 1 of this report for a discussion of
off-balance sheet arrangements and of the covenants and provisions contained in
certain of the Ameren Companies' indenture agreements and Articles of
Incorporation.
At June 30, 2004, the Ameren Companies and EEI were in compliance with the
provisions and covenants of their credit agreements, indentures and Articles of
Incorporation.
We rely on our short-term and long-term capital markets as a significant
source of funding for capital requirements not satisfied by our operating cash
flows. Our inability to raise capital on favorable terms, particularly during
times of uncertainty in the capital markets, could negatively impact our ability
to maintain or grow our businesses. Based on our current credit ratings, we
believe that we will continue to have access to the capital markets. However,
events beyond our control may create uncertainty in the capital markets such
that our cost of capital would increase or our ability to access the capital
markets would be adversely affected. All of the Ameren Companies expect to fund
maturities of long-term debt and contractual obligations through a combination
of cash flow from operations and external financing.
Dividends
The amount and timing of dividends payable on Ameren's common stock are
within the sole discretion of Ameren's Board of Directors. Ameren's Board of
Directors has not set specific targets or payout parameters when declaring
common stock dividends. However, the Board considers various issues including
Ameren's historic earnings and cash flow, projected earnings, cash flow and
potential cash flow requirements, dividend payout rates at other utilities,
return on investments with similar risk characteristics and overall business
considerations. Dividends paid by Ameren to stockholders during the first six
months of 2004 totaled $232 million or $1.27 per share (2003 - $205 million or
$1.27 per share).
UE's Board of Directors' declared quarterly preferred stock dividends
totaling $1 million payable August 15, 2004, to shareholders of record on July
20, 2004. CIPS' Board of Directors' declared quarterly preferred stock dividends
in the amount of $1 million payable September 30, 2004, to shareholders of
record on September 15, 2004. CILCO's Board of Directors' declared quarterly
preferred stock dividends totaling $1 million, which was paid on July 1, 2004,
to shareholders of record on June 4, 2004.
Certain of our financial agreements and corporate organizational documents
contain covenants and conditions that, among other things, provide restrictions
on the Ameren Companies' payment of dividends. Ameren would experience
restrictions on dividend payments if it were to defer contract adjustment
payments on its equity security units. UE would experience restrictions on
dividend payments if it were to extend or defer interest payments on its
subordinated
67
debentures. CIPS has provisions restricting dividend payments based on ratios of
common stock to total capitalization along with provisions related to certain
operating expenses and accumulations of earned surplus. Genco's indenture
includes restrictions which prohibit making any dividend payments if debt
service coverage ratios are below a defined threshold. CILCORP has restrictions
in the event leverage ratio and interest coverage ratio thresholds are not met
or if CILCORP's senior long-term debt does not have specified ratings as
described in its indenture. CILCO has restrictions on dividend payments relative
to the ratio of its balance of retained earnings to the annual dividend
requirement on its preferred stock and amounts to be set aside for any sinking
fund retirement of its 5.85% Series preferred stock.
The following table presents dividends paid directly or indirectly to
Ameren by its subsidiaries for the six months ended June 30, 2004 and 2003:
===================================================================================================================
Six Months Ended June 30,
-------------------------------------------------------------------------------------------------------------------
2004 2003
---- ----
UE.................................................................. $ 145 $ 165
CIPS................................................................ 28 39
Genco............................................................... 35 2
CILCORP (parent company only)(a).................................... - (22)
CILCO............................................................... 10 22
Non-registrants..................................................... 14 (1)
-------------------------------------------------------------------------------------------------------------------
Dividends paid to Ameren............................................ $ 232 $ 205
===================================================================================================================
(a) Indicates funds retained from CILCO dividend.
Credit Ratings
On July 30, 2004, Standard & Poor's Ratings Services affirmed its A-
long-term corporate credit ratings on Ameren, UE, CIPS, Genco, CILCORP and CILCO
and removed the ratings from CreditWatch with negative implications. The A-2
short-term credit for Ameren and UE were not on CreditWatch. The outlook is
negative for the long-term ratings.
On July 8, 2004, Moody's confirmed Ameren's A3 senior unsecured debt and
bank loan ratings along with its A3 issuer rating. Moody's rating outlook for
these ratings was stable. This rating action concluded the review of Ameren's
long-term ratings that was initiated on February 4, 2004 in connection with
Ameren's agreement to purchase Illinois Power from Dynegy. Ameren's Prime-2
rating for short term debt, including commercial paper, was not under review,
and was affirmed.
Any adverse change in the Ameren Companies' credit ratings may reduce their
access to capital and/or increase the costs of borrowings resulting in a
negative impact on earnings. At June 30, 2004, if the Ameren Companies were to
receive a sub-investment grade rating (less than BBB- or Baa3), Ameren, UE,
CIPS, Genco, CILCORP and CILCO could have been required to post collateral for
certain trade obligations amounting to $65 million, $29 million, $1 million, $6
million, $2 million and $2 million, respectively. In addition, the cost of
borrowing under our credit facilities would increase or decrease based on credit
ratings. A credit rating is not a recommendation to buy, sell or hold securities
and should be evaluated independently of any other rating. Ratings are subject
to revision or withdrawal at any time by the assigning rating organization.
OUTLOOK
We expect the following industry-wide trends and company-specific issues to
impact earnings in 2004 and beyond:
o Economic conditions, which principally impact native load demand,
particularly from our industrial customers, were weak for the past few
years, but improved in 2003 and early 2004.
o Ameren, UE and CIPS have historically achieved weather-adjusted growth in
their native electric residential and commercial load of approximately 2%
per year and expect this trend to continue for at least the next few years.
o Electric rates in UE's, CIPS' and CILCO's Illinois service territories are
legislatively fixed through January 1, 2007. An electric rate case
settlement in UE's Missouri service territory has resulted in annual
reductions of $50 million, $30 million and $30 million on April 1, 2002,
April 1, 2003, and April 1, 2004, respectively. In addition, electric rates
in Missouri cannot change prior to July 1, 2006, subject to certain
exclusions outlined in UE's rate settlement.
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o The ICC is currently conducting workshops seeking input from interested
parties on the framework for retail rate determination and the framework
for generation procurement by customers after the current Illinois rate
freeze ends in 2006. We believe the ICC will make a final decision on these
matters in 2005.
o Power prices in the Midwest impact the amount of revenues UE, Genco and
CILCO can generate by marketing any excess power into the interchange
markets. Power prices in the Midwest also impact the cost of power we
purchase in the interchange markets. There continues to be overcapacity in
peaking generation in the Midwest. However, power prices increased in 2004
and 2003 relative to 2002, due in part to higher prices for natural gas.
o Increased expenses associated with rising employee benefit costs and higher
insurance and security costs associated with additional measures UE has
taken, or may have to take, at its Callaway nuclear plant and other
operating plants related to world events.
o UE's Callaway nuclear plant will have a refueling outage in the fall of
2005. Refueling outages occur approximately every 18 months and typically
include the replacement of fuel and the performance of maintenance and
inspections. Routine refueling outages have historically lasted 30 - 35
days. If inspections discover items requiring additional maintenance, the
outage period could be longer, and cost significantly more, than expected.
UE's fall 2005 refueling outage is expected to last 70 - 75 days and is
expected to be higher in cost due to the installation of new steam
generator units.
o In January 2004, the MoPSC approved a settlement with UE authorizing an
annual gas delivery rate increase of approximately $13 million, which went
into effect on February 15, 2004. The settlement provides that gas delivery
rates cannot change prior to July 1, 2006, subject to certain exclusions.
In October 2003, the ICC issued orders awarding CILCO an increase in annual
gas delivery rates of $9 million and awarding CIPS and UE increases in
annual gas delivery rates of $7 million and $2 million, respectively that
went into effect in November 2003.
o In the second quarter of 2004, UE received a refund of $13 million and CIPS
received a refund of $5 million upon entering the Midwest ISO. These
refunds were for fees previously paid to exit the Midwest ISO. However,
Ameren, UE and CIPS will incur higher ongoing operation costs and may lose
some revenue as a result of participating in the Midwest ISO. See Note 3 -
Rate and Regulatory Matters to our financial statements under Part I, Item
1 of this report for additional information.
o Ameren, CILCORP and CILCO expect to realize further CILCORP integration
synergies associated with reduced overhead expenses and lower fuel costs.
o Ameren expects the acquisition of Illinois Power to be accretive to
earnings in the first two years of ownership based on a variety of
assumptions related to power prices, interest rates, expected synergies and
regulatory outcomes, among other things. While Ameren has contractually
fixed the cash outlays for approximately 70% of Illinois Power's energy
supple needs, expectations for Illinois Power earnings remain sensitive to
changing energy prices for Illinois Power's entire power supply
requirements, and other assumptions. In February 2004, Ameren sold 19.1
million shares of new common stock and in July 2004, sold 10.9 million
shares of new Ameren common stock. Proceeds from these sales are expected
to ultimately be used to finance the cash portion of the purchase price of
Illinois Power and Dynegy's 20% interest in EEI and to reduce Illinois
Power debt assumed as part of this transaction and pay any related
premiums. However, prior to the closing of the acquisition of Illinois
Power, Ameren expects the new common shares to be dilutive to earnings per
share.
In the ordinary course of business, we evaluate strategies to enhance our
financial position, results of operations and liquidity. These strategies may
include potential acquisitions, divestitures, and opportunities to reduce costs
or increase revenues, and other strategic initiatives in order to increase
Ameren's 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, however
the impact could be material.
RISK FACTORS
Ameren may not be able to complete its acquisition of Illinois Power. If
Ameren does not complete the acquisition, dilution to its earnings per share
will result unless Ameren is able to otherwise use the proceeds from the common
stock it issued in February and July 2004, so as to avoid or mitigate such
dilution.
On February 2, 2004, Ameren entered into an agreement with Dynegy to
purchase the stock of Illinois Power and Dynegy's 20% ownership interest in EEI.
The total transaction value is approximately $2.3 billion, including the
assumption of approximately $1.8 billion of Illinois Power debt and preferred
stock. Ameren's financing plan for this
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transaction includes the issuance of new Ameren common stock. In February 2004,
Ameren issued 19.1 million common shares that generated net proceeds of $853
million, and in July 2004, Ameren issued 10.9 million common shares that
generated net proceeds of $445 million. Proceeds from these sales are expected
to be used to finance the cash portion of the purchase price, to reduce Illinois
Power debt assumed as part of this transaction and to pay any related premiums.
Pending such use, and /or if the acquisition is not completed, we plan to use
the net proceeds to reduce present or future indebtedness and /or repurchase
securities of Ameren or our subsidiaries. The acquisition is subject to various
regulatory approvals, including the ICC and the SEC and other customary closing
conditions. See Note 3 - Rate and Regulatory Matters to our financial statements
under Part I, Item 1 of this report for information as to the status of these
regulatory proceedings. On April 14, 2004, the FCC consented to the transfer of
control; on April 30, 2004, the initial 30 calendar day waiting period expired
without a request by the FTC or DOJ for additional information or documents
under the Hart-Scott-Rodino Act; and in July 2004, the FERC approved the
acquisition of Illinois Power and Dynegy's 20% ownership interest in EEI by
Ameren. Although Ameren expects to complete the transaction by the end of 2004,
it cannot be certain that all of the required approvals will be obtained, or the
other closing conditions will be satisfied, within that time frame, if at all,
or without terms and conditions that may have a material adverse effect on our
operations. Ameren is also relying on the ability of Dynegy to close the sale of
Illinois Power when the required approvals are received. If Ameren is unable to
complete the acquisition, the issuance of the common stock in February and July
2004, will result in dilution to Ameren's earnings per share unless it is able
to otherwise use the proceeds from the common stock it issued, in a manner that
will avoid or mitigate such dilution.
If Ameren is able to complete its acquisition of Illinois Power, Ameren may
not be able to successfully integrate it into its other businesses or achieve
the benefits it anticipates.
If Ameren completes the acquisition of Illinois Power, it cannot assure you
that it will be able to successfully integrate Illinois Power with its other
businesses. The integration of Illinois Power with its other businesses will
present significant challenges and, as a result, Ameren may not be able to
operate the combined company as effectively as expected. Ameren may also fail to
achieve the anticipated benefits of the acquisition as quickly or as cost
effectively as anticipated or may not be able to achieve those benefits at all.
While Ameren expects that this acquisition will be accretive to earnings per
share in the first full year of operation after the transaction is completed,
this expectation is based on important assumptions, including assumptions
related to expected financing arrangements, interest rates, market prices for
power, synergies and regulatory outcomes, which may ultimately be incorrect. As
a result, if Ameren is unable to integrate its businesses effectively or achieve
the benefits anticipated, our financial position, results of operations and
liquidity may be materially adversely affected.
The electric and gas rates that certain of the Ameren Companies are allowed
to charge in Missouri and Illinois are largely set through 2006. This "rate
freeze," along with other actions of regulators, can significantly affect our
earnings, liquidity and business activities and are largely outside our control.
The rates that certain of the Ameren Companies are allowed to charge for
their services are the single most important item influencing the financial
position, results of operations and liquidity of the Ameren Companies. We are
highly regulated and the regulation of the rates that we charge our customers is
determined, in large part, outside of our control by governmental organizations,
including the MoPSC, the ICC and the FERC. Ameren, UE, CIPS, Genco and CILCORP
are also subject to regulation by the SEC under the PUHCA. Decisions made by
these regulators could have a material impact on our financial position, results
of operations and liquidity.
As a part of the settlement of UE's Missouri electric rate case in 2002, UE
is subject to a rate moratorium providing for no changes in its electric rates
in Missouri before July 1, 2006, subject to limited statutory and other
exceptions. A rate reduction of $30 million went into effect on April 1, 2004,
which is the last portion of the $110 million rate reduction included in the
stipulation entered into as part of the settlement of the Missouri electric rate
case. In addition, as a provision of the Illinois legislation related to the
restructuring of the Illinois electric industry, a rate freeze is in effect in
Illinois through January 1, 2007. This Illinois legislation also contains a
provision requiring that earnings from the Illinois jurisdiction in excess of
certain levels be shared equally with UE's, CIPS' and CILCO's Illinois customers
through 2006. This Illinois legislation is also applicable to Illinois Power.
Furthermore, as part of the settlement of UE's Missouri gas rate case, which was
approved by the MoPSC on January 13, 2004, UE agreed to a rate moratorium
providing for no changes in its gas delivery rates prior to July 1, 2006,
subject to certain exceptions (the increased rates approved as part of the
settlement became effective on February 15, 2004). The ICC is currently
conducting workshops seeking input from interested parties on the framework for
retail rate determination and the framework for generation
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procurement by customers after the current Illinois rate freeze ends in 2006. We
believe the ICC will make a decision on these matters in 2005.
As a part of the settlement of UE's Missouri electric rate case in 2002, UE
also undertook to use commercially reasonable efforts to make critical energy
infrastructure investments of $2.25 billion to $2.75 billion from January 1,
2002 through June 30, 2006, including, among other things, the addition of more
than 700 megawatts of new generation capacity (240 megawatts of which was added
in 2002) and the replacement of steam generators at UE's Callaway nuclear plant.
The amount of energy infrastructure investment through June 2006, described in
the settlement is consistent with UE's previously disclosed estimate of
construction expenditures UE expects to make over the same time period. However,
UE's agreement to a rate moratorium will result in these capital expenditures
not becoming recoverable in rates, or earning a return, before July 1, 2006.
Therefore, UE's undertakings with respect to making energy infrastructure
investments and funding new programs, coupled with the rate reductions and rate
moratorium described above, could result in increased financing requirements for
UE and thus have a material impact on our liquidity.
The Ameren Companies do not have the benefit of a fuel adjustment clause in
either Missouri or Illinois for their electric operations that would allow them
to recover increased fuel and power costs from customers. Therefore, to the
extent that we have not hedged our fuel and power costs, we are exposed to
changes in fuel and power prices to the extent fuel for our electric generating
facilities and power must be purchased on the open market in order for us to
serve our customers.
Steps taken and being considered at the federal and state levels continue
to change the structure of the electric industry and utility regulation. At the
federal level, the FERC has been mandating changes in the regulatory framework
in which transmission-owning public utilities, such as UE, CIPS and CILCO
operate. In Missouri, where a majority of our retail electric revenues are
currently derived, restructuring bills have been introduced in the past, but no
legislation has been passed. Based on historical information in Illinois Power's
Annual Reports on Form 10-K for the year ended December 31, 2003, upon
completion of the acquisition of Illinois Power, over 50% of Ameren's electric
revenues will be derived in Illinois. The Illinois Customer Choice Law provides
for electric utility restructuring and retail direct access. Retail direct
access, which allows customers to choose their electric generation supplier, was
first offered to Illinois residential customers on May 1, 2002. Although retail
direct access in Illinois has not had a negative effect on Ameren's revenues or
liquidity, we expect competitive forces in the electric supply segment of our
business to continue to increase.
The potential negative consequences associated with further electric
industry restructuring in our service territories, if it occurs, could be
significant and could include the impairment and writedown of certain assets,
including generation related plant and net regulatory assets, lower revenues,
reduced profit margins and increased costs of capital and operations expenses.
Increased federal and state environmental regulation could require UE,
Genco and CILCO to incur large capital expenditures and increase operating
costs.
Approximately 65% of Ameren's generating capacity is coal-fired. The
balance is nuclear, gas-fired, hydro and oil-fired. The EPA has recently issued
proposed regulations with respect to SO2, NOx and mercury emissions from
coal-fired power plants. These new rules, if adopted, would require significant
additional reductions in these emissions from our power plants in phases,
beginning in 2010. The rules are currently under a public review and comment
period, and may change before being issued as final late in 2004 or early 2005.
Preliminary estimates of capital costs based on current technology on the Ameren
systems to comply with the SO2 and NOx rules, as proposed, range from $400
million to $600 million by 2010, with an additional $500 million to $800 million
by 2015. The proposed mercury regulations contain a number of options and the
final control requirements are highly uncertain. Ameren anticipates additional
capital costs to comply with the mercury rules could range from $300 million to
$500 million by 2010, with UE incurring approximately half of the costs and
Genco incurring most of the remaining costs. Depending upon the final mercury
rules, additional amounts could be required to comply with mercury rules by
2018.
In addition, Illinois has developed a NOx control regulation for utility
generating plant boilers consistent with an EPA program aimed at reducing ozone
levels in the eastern United States. In February 2002, the EPA proposed similar
rules for Missouri. Ameren currently estimates that the remaining capital
expenditures could range from $210 million to
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$250 million between 2004 and 2008 in order to comply with the final NOx
regulations in Missouri and Illinois. This estimate includes the assumption that
these rules will require the installation of selective catalytic reduction
technology on some units, as well as additional controls.
We are unable to predict the ultimate effect of any new environmental
regulations, guidelines, enforcement initiatives or legislation on our financial
position, results of operations or liquidity. Any of these factors would add
significant pollution control costs to UE's, Genco's and CILCO's generating
assets and therefore, could also increase financing requirements for some of the
Ameren Companies. While costs incurred by UE would be eligible for recovery in
rates, subject to MoPSC or ICC approval, as applicable, there is no similar
mechanism for recovery of costs by Genco or CILCO in Illinois.
UE's and CIPS' participation in a RTO could increase costs, reduce revenues
and reduce UE's and CIPS' control over their transmission assets.
In December 1999, the FERC issued Order 2000 requiring all utilities
subject to FERC jurisdiction to state their intentions for joining a RTO. The
MoPSC issued an order in early 2004 authorizing UE to participate in the Midwest
ISO for a five year period, with participation after that period subject to
further approvals by the MoPSC. Subsequently, the FERC issued a final order
allowing UE's and CIPS' participation in the Midwest ISO. Under these orders,
the MoPSC continues to set the transmission component of UE's rates to serve its
bundled retail load. CILCO is already a member of the Midwest ISO and previously
transferred functional control of its transmission system to the Midwest ISO.
On May 1, 2004, functional control of the UE and CIPS transmission systems
was transferred to the Midwest ISO through GridAmerica LLC, or Grid America. The
participation by UE and CIPS in the Midwest ISO is expected to increase annual
costs by $10 million to $20 million in the aggregate and could result in a
decrease in annual revenues of between $5 million and $10 million in the
aggregate. UE and CIPS may also be required to expand their transmission systems
according to decisions made by a RTO rather than their internal planning
process. In addition, we are unable to determine the full impact of the Energy
Markets Tariff tendered by the Midwest ISO for filing at the FERC in March 2004
(discussed in Note 3 - Rate and Regulatory Matters to our financial statements
under Part I, Item 1 of this report) until further information is available
regarding the implementation of the Energy Markets Tariff.
Until UE and CIPS achieve some degree of operational experience
participating in the Midwest ISO through GridAmerica, we are unable to predict
the ultimate impact that such participation or ongoing RTO developments at the
FERC or other regulatory authorities will have on our financial position,
results of operations or liquidity.
The inability of UE and CIPS to recover "through and out" transmission
revenues could result in a material net revenue reduction.
Through orders issued during late 2003 and early 2004, the FERC had ordered
the elimination of regional through-and-out rates assessed by the Midwest ISO
that involved transmission service between the Midwest ISO and PJM regions to be
effective May 1, 2004. However, on March 19, 2004, the FERC accepted an
agreement among affected transmission owners that retains the regional
through-and-out rates until December 1, 2004, and provides for continued
negotiations aimed at developing a long-term transmission pricing structure to
eliminate seams between the PJM and Midwest ISO regions based on specified
pricing principles. Until the long-term transmission pricing structure has been
established, UE and CIPS cannot predict the ultimate impact that such structure
will have on their costs and revenues.
The substance and implementation of standard market design rules by the
FERC is uncertain and may adversely affect the way in which UE, CIPS and CILCO
operate their transmission assets.
On July 31, 2002, the FERC issued its standard market design NOPR. The NOPR
proposes a number of changes to the way the current wholesale transmission
service and energy markets are operated. Specifically, the NOPR proposes that
all jurisdictional transmission facilities be placed under the control of an
independent transmission provider (similar to a RTO), proposes a new
transmission service tariff that provides a single form of transmission service
for all users of the transmission system including bundled retail load, and
proposes a new energy market and congestion management system that uses
locational marginal pricing as its basis. In our initial comments on the NOPR,
which were filed at the FERC on November 15, 2002, we expressed our concern with
the potential impact of the proposed rules in their current form on the cost and
reliability of service to retail customers. We also proposed that certain
modifications be made to
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the proposed rules in order to protect transmission owners from the possibility
of trapped transmission costs that might not be recoverable from ratepayers as a
result of inconsistent regulatory policies. We filed additional comments on the
remaining sections of the NOPR during the first quarter of 2003.
In April 2003, the FERC issued a "white paper" reflecting comments received
in response to the NOPR. More specifically, the white paper indicated that the
FERC will not assert jurisdiction over the transmission rate component of
bundled retail service and will insure that existing bundled retail customers
retain their existing transmission rights and retain rights for future load
growth in its final rule. Moreover, the white paper acknowledged that the final
rule will provide the states with input on resource adequacy requirements,
allocation of firm transmission rights, and transmission planning. The FERC also
requested input on the flexibility and timing of the final rule's
implementation.
Although issuance of the final rule is uncertain and its implementation
schedule is still unknown, the Midwest ISO was in the process of implementing a
separate market design similar to the proposed market design in the NOPR. In
July 2003, the Midwest ISO filed with the FERC a revised OATT codifying the
terms and conditions under which it will implement the new market design.
Thereafter, on October 17, 2003, the Midwest ISO filed a motion to withdraw its
revised OATT. On October 29, 2003, the FERC issued a series of orders granting
the motion for withdrawal of the revised OATT and providing guidance to be
followed by the Midwest ISO in developing a new energy market design in the
future. In March 2004, the Midwest ISO tendered for filing at the FERC a
proposed Energy Markets Tariff, which is intended to supercede its existing OATT
(see Note 3 - Rate and Regulatory Matters to our financial statements under Item
I, Part 1 of this report). Until the FERC issues a final rule and the Midwest
ISO finalizes its new market design, we are unable to predict the ultimate
impact of the NOPR or the Midwest ISO new market design on our future financial
position, results of operations or liquidity.
The market-based rate authority currently held by UE, Genco, CILCO, AERG,
Development Company, Marketing Company and Medina Valley could be partially
revoked as a result of FERC's new market power analysis screen order.
In an order issued in April 2004, the FERC replaced the Supply Margin
Assessment Screen previously used to review applications by sellers of
electricity at wholesale for authorization to sell power at market-based rates
with two alternative measures of market power: (a) an uncommitted pivotal
supplier analysis and (b) an uncommitted market share analysis which is to be
prepared on a seasonal basis. If an applicant passes both screens, a rebuttable
presumption will exist that it lacks generation market power. If the applicant
fails either screen, a rebuttable presumption will exist that it has market
power. Under such circumstances, the applicant may either seek to rebut the
presumption by preparing a delivered price test (identifying the amount of
economic capacity from neighboring areas that can be delivered to the control
area) or propose mitigation measures. Unless some other mitigation measure is
adopted, the applicant's authority to sell power at market-based rates in areas
in which it has market power will be revoked, and the applicant will be required
to sell at cost-based rates in those areas.
UE, Genco, CILCO, AERG, Development Company, Marketing Company and Medina
Valley currently have authorization from the FERC to continue to sell power at
market-based rates. However, the FERC indicated in its April order that it would
apply the new market analysis screens to pending and future market-based rate
applications, including three-year market-based rate reviews. All of the
aforementioned Ameren entities currently have three-year market-based rate
reviews pending at the FERC. Until Ameren has evaluated the impact of the FERC's
order with respect to the Ameren system, we are unable to predict the ultimate
impact that the new market power analysis screens will have on Ameren's ability
to sell power at market-based rates.
Increasing costs associated with our defined benefit retirement plans,
healthcare plans and other employee related benefits may adversely affect our
results of operations, liquidity and financial position.
The Ameren Companies made cash contributions totaling $25 million and $31
million to defined benefit retirement plans during 2003 and 2002, respectively.
In addition, a minimum pension liability was recorded at December 31, 2002,
which resulted in an after-tax charge to OCI and a reduction in stockholders'
equity for Ameren of $102 million. At December 31, 2003, the minimum pension
liability was reduced, resulting in OCI of $46 million and an increase in
stockholders' equity. The Ameren Companies expect to be required under the ERISA
to fund an average of approximately $115 million annually from 2005 through
2008, in order to maintain minimum funding levels for our pension plans. These
amounts are estimates and may change based on actual stock market performance,
changes in
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interest rates, and any pertinent changes in government regulations, each of
which could also result in a requirement to record an additional minimum pension
liability. Furthermore, if Ameren completes its acquisition of Illinois Power,
we could incur material funding requirements with respect to Illinois Power's
existing defined benefit retirement plans.
In addition to the costs of our retirement plans, the costs to us of
providing healthcare benefits to our employees and retirees have increased
substantially in recent years. We believe that our employee benefit costs,
including costs related to healthcare plans for our employees and former
employees, will continue to rise. The increasing costs and funding requirements
associated with our defined benefit retirement plans, healthcare plans and other
employee benefits may adversely affect our results of operations, liquidity or
financial position.
UE's, Genco's and CILCO's electric generating facilities are subject to
operational risks that could result in unscheduled plant outages, unanticipated
operation and maintenance expenses and increased power purchase costs.
UE, CILCO, Genco, AERG, Medina Valley and EEI own and operate coal,
nuclear, gas-fired, hydro and oil-fired generating facilities constituting
approximately 14,600 megawatts (net) of installed capability. Operation of
electric generating facilities involves certain risks which can adversely affect
energy output and efficiency levels. Included among these risks are:
o increased prices for fuel and fuel transportation as existing contracts
expire,
o facility shutdowns due to a breakdown or failure of equipment or processes,
o longer than anticipated maintenance outages,
o disruptions in the delivery of fuel and lack of adequate inventories,
o labor disputes,
o inability to comply with regulatory or permit requirements,
o disruptions in the delivery of electricity,
o increased capital expenditures requirements, including those due to
environmental regulation,
o operator error, and
o unusual or adverse weather conditions, including catastrophic events such
as fires, explosions, floods or other similar occurrences affecting
electric generating facilities.
A substantial portion of Genco's and AERG's generating capacity is
committed under affiliate contracts which expire over the next several years.
Genco and AERG have several electric power supply agreements under which
Genco and AERG directly or indirectly supply the full requirements of UE, CIPS
and CILCO, including the following:
o Under two electric power supply agreements, Genco is obligated to supply to
Marketing Company, and Marketing Company, in turn, is obligated to supply
to CIPS, all of the energy and capacity needed by CIPS to offer service for
resale to its native load customers and to fulfill CIPS' other obligations
under all applicable federal and state tariffs or contracts. Any power not
used by CIPS is sold by Marketing Company under various long-term wholesale
and retail contracts. The agreement between CIPS and Marketing Company was
originally set to expire on December 31, 2004. The agreement between Genco
and Marketing Company can be terminated by either party upon at least one
year's notice, but may not be terminated prior to December 31, 2004. CIPS
and Marketing Company filed in July 2004, a request with the FERC to extend
their agreement through December 31, 2006. This extension was required by
the ICC in its order approving Ameren's acquisition of CILCORP.
o AERG has an electric power supply agreement with CILCO to supply it
sufficient power to meet its native load requirements. This agreement was
originally set to expire on December 31, 2004. AERG and CILCO have agreed
to extend the power supply agreement through December 31, 2006. Unlike the
CIPS-Marketing Company agreement, the provisions of the agreement between
CILCO and AERG allow the parties to extend the term of the agreement, and
Ameren believes that no further FERC action is necessary for such an
extension to become effective. The ICC required this extension in its order
approving Ameren's acquisition of CILCORP.
Midwest power markets have experienced high levels of new capacity
development over the last several years, which, in part, have contributed to
soft long-term power prices in this region. Owners of generating capacity in the
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Midwest are actively seeking markets for their energy and capacity and have
asked our regulators to closely scrutinize power supply arrangements among our
subsidiaries when we have sought approval to enter into them. It cannot be
predicted whether obtaining extensions on other long-term replacement power sale
contracts for the energy and capacity currently committed under these agreements
when they expire will be successful. To the extent Genco or AERG cannot secure
extensions or other long-term replacement power sale contracts for the energy
and capacity currently committed under these agreements, our generating
subsidiaries and Marketing Company will face competition from other power
suppliers in the Midwest and will be exposed to price risk.
Genco participates with UE in an agreement to jointly dispatch its
generating facilities with those of UE, which thereby produces benefits and
efficiencies for both generating parties. Pending or future federal and state
regulatory proceedings and policies may evolve in ways that could impact Genco's
ability to continue to participate in these affiliate transactions on current
terms. For example, as a result of the pending MoPSC proceeding relating to the
transfer of UE's Illinois-based utility business, there is uncertainty as to the
terms of the joint dispatch agreement and also as to its duration. The
termination of the agreement, or modifications to it, could have a material
adverse effect on UE or Genco.
Genco's and CILCO's electric generating facilities must compete for the
sale of energy and capacity, which exposes them to price risk.
As owners of non rate-regulated electric generating facilities, Genco
(4,800 megawatts) and AERG (1,100 megawatts) will not have any recovery of their
costs or any specified rate of return set by a regulatory body. Of these non
rate-regulated electric generating facilities, approximately 3,500 megawatts are
currently under full requirements contracts with our affiliates, including the
contracts referred to in the immediately preceding risk factor. The remainder of
the generating capacity must compete for the sale of energy and capacity. UE is
currently seeking regulatory approval of the transfer by Genco to it of
approximately 550 megawatts of CTs at Pinckneyville and Kinmundy, Illinois,
which transfer is expected to occur in 2004, with the result that those CTs will
no longer be non rate-regulated.
To the extent electric capacity generated by these facilities is not under
contract to be sold, either now or in the future, the revenues and results of
operations of these non rate-regulated subsidiaries will generally depend on the
prices that they can obtain for energy and capacity in Illinois and adjacent
markets. Among the factors that could influence such prices (all of which are
beyond our control to a significant degree) are:
o the current and future market prices for natural gas, fuel oil and coal,
o current and forward prices for the sale of electricity,
o the extent of additional supplies of electric energy from current
competitors or new market entrants,
o the pace of deregulation in our market area and the slowing expansion of
deregulated markets,
o the regulatory and pricing structures developed for Midwest energy markets
as they continue to evolve and the pace of development of regional markets
for energy and capacity outside of bilateral contracts,
o future pricing for, and availability of, transmission services on
transmission systems, the effect of RTOs, development and export energy
transmission constraints, which could limit the ability to sell energy in
markets adjacent to Illinois,
o the rate of growth in electricity usage as a result of population changes,
regional economic conditions and the implementation of conservation
programs, and
o climate conditions prevailing in the Midwest market from time to time.
UE's ownership and operation of a nuclear generating facility creates
business, financial and waste disposal risks.
UE owns the Callaway nuclear plant, which represents approximately 14% of
UE's generation capability. Therefore, UE is subject to the risks of nuclear
generation, which include the following:
o the potential harmful effects on the environment and human health resulting
from the operation of nuclear facilities and the storage, handling and
disposal of radioactive materials,
o limitations on the amounts and types of insurance commercially available to
cover losses that might arise in connection with UE's nuclear operations or
those of others in the United States,
o uncertainties with respect to contingencies and assessment amounts if
insurance coverage is inadequate,
75
o increased public and governmental concerns over the adequacy of security at
nuclear power plants, and
o uncertainties with respect to the technological and financial aspects of
decommissioning nuclear plants at the end of their licensed lives (UE's
facility operating license for the Callaway nuclear plant expires in 2024),
and
o costly and extended outages from scheduled or unscheduled maintenance.
The NRC has broad authority under federal law to impose licensing and
safety related requirements for the operation of nuclear generation facilities.
In the event of non-compliance, the NRC has the authority to impose fines or
shut down a unit, or both, depending upon its assessment of the severity of the
situation, until compliance is achieved. Revised safety requirements promulgated
by the NRC could necessitate substantial capital expenditures at nuclear plants
such as UE's. In addition, although UE has no reason to anticipate a serious
nuclear incident at its plant, if an incident did occur, it could harm UE's
results of operations or financial position. A major incident at a nuclear
facility anywhere in the world could cause the NRC to limit or prohibit the
operation or licensing of any domestic nuclear unit.
Operating performance at UE's Callaway nuclear plant has recently resulted
in unscheduled plant outages and the extension of Callaway's scheduled refueling
and maintenance outage in 2004. In addition, Ameren and UE have incurred
significant unanticipated replacement power and maintenance costs. As a result,
the operating performance at UE's Callaway nuclear plant has declined as
compared to its past operating performance and the operating performance of
other nuclear plants in the United States. Ameren and UE are actively working to
address factors leading to the decline in Callaway's operating performance,
including management and supervision of operating personnel, equipment
reliability, maintenance worker practices, engineering performance and overall
organizational effectiveness. However, Ameren and UE cannot predict whether such
efforts will result in an overall improvement of operations at Callaway. Efforts
taken are expected to result in incremental operating costs at Callaway.
Further, additional unscheduled or extended outages at Callaway could have a
material effect on the financial position, results of operations and cash flows
of Ameren and UE.
Our energy risk management strategies may not be effective in managing fuel
and electricity pricing risks, which could result in unanticipated liabilities
to us or increased volatility of our earnings.
We are exposed to changes in market prices for natural gas, fuel,
electricity and emission credits. Prices for natural gas, fuel, electricity and
emission credits may fluctuate substantially over relatively short periods of
time and expose us to commodity price risk. We utilize derivatives such as
forward contracts, futures contracts, options and swaps to manage these risks.
We attempt to manage our exposure from these activities through enforcement of
established risk limits and risk management procedures. We cannot assure you
that these strategies will be successful in managing our pricing risk, or that
they will not result in net liabilities to us as a result of future volatility
in these markets.
In addition, although we routinely enter into contracts to offset our
positions (i.e., to hedge our exposure to the risks of demand, market effects of
weather and changes in commodity prices), we do not always hedge the entire
exposure of our operations from commodity price volatility. Furthermore, our
ability to hedge our exposure to commodity price volatility depends on liquid
commodity markets. As a result, to the extent the commodity markets are
illiquid, we may not be able to execute our risk management strategies, which
could result in greater open positions than we would prefer at a given time. To
the extent that open positions exist, fluctuating commodity prices can improve
or diminish our financial results and financial position.
Our businesses are dependent on our ability to successfully access the
capital markets. We may not have access to sufficient capital in the amounts and
at the times needed.
We rely on access to short-term and long-term capital markets as a
significant source of liquidity and funding for capital requirements not
satisfied by our operating cash flows. The inability to raise capital on
favorable terms, particularly during times of uncertainty in the capital
markets, could negatively impact our ability to maintain and grow our
businesses. Based on our current credit ratings, we believe that we will
continue to have access to the capital markets. However, events beyond our
control may create uncertainty in the capital markets such that our cost of
capital would increase or our ability to access the capital markets would be
adversely affected.
76
REGULATORY MATTERS
See Note 2 - Acquisitions, Note 3 - Rate and Regulatory Matters and Note 8
- - Related Party Transactions to our financial statements under Part I, Item 1 of
this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk represents the risk of changes in value of a physical contract
or a financial instrument, derivative or non-derivative, caused by fluctuations
in market variables such as interest rates. 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 risks and are not represented in the following
discussion.
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:
o long-term and short-term variable-rate debt;
o fixed-rate debt;
o commercial paper;
o auction-rate long-term debt; and
o 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.
The following table presents the estimated increase (decrease) in our
annual interest expense and net income if interest rates were to change by 1% on
variable rate debt outstanding at June 30, 2004:
===================================================================================================================
Interest Expense Net Income(a)
-------------------------------------------------------------------------------------------------------------------
Ameren(b)........................................................... $ 5 $ (3)
UE.................................................................. 8 (5)
CIPS................................................................ - -
Genco............................................................... 2 (1)
CILCORP(c).......................................................... 3 (2)
CILCO............................................................... 2 (1)
===================================================================================================================
(a) Calculations are based on an effective tax rate of 36%.
(b) Includes amounts for non-registrant Ameren subsidiaries as well as
intercompany eliminations.
(c) CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
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.
77
Credit Risk
Credit risk represents the loss that would be recognized if counterparties
fail to perform as contracted. NYMEX-traded futures contracts are supported by
the financial and credit quality of the clearing members of the NYMEX and have
nominal credit risk. On all other transactions, we are exposed to credit risk in
the event of nonperformance by the counterparties to the transaction.
Our physical and financial instruments are subject to credit risk
consisting of trade accounts receivables, executory contracts with market risk
exposures and leveraged lease investments. The risk associated with trade
receivables is mitigated by the large number of customers in a broad range of
industry groups comprising our customer base. No non-affiliated customer
represents greater than 10%, in the aggregate, of our accounts receivable.
Ameren's revenues are primarily derived from sales of electricity and natural
gas to customers in Missouri and Illinois. UE and Genco have credit exposure
associated with accounts receivables from nonaffiliated companies for
interchange sales. At June 30, 2004, UE's, Genco's and Marketing Company's
combined credit exposure to non-investment grade counterparties related to
interchange sales was $2 million, net of collateral. We establish credit limits
for these counterparties and monitor the appropriateness of these limits on an
ongoing basis through a credit risk management program, which involves daily
exposure reporting to senior management, master trading and netting agreements,
and credit support such as letters of credit and parental guarantees. We also
analyze each counterparty's financial condition prior to entering into sales,
forwards, swaps, futures or option contracts and monitor counterparty exposure
associated with our leveraged leases.
Equity Price Risk
Our costs of providing non-contributory defined benefit retirement and
postretirement benefit plans are dependent upon a number of factors, such as the
rate of return on plan assets, discount rate, the rate of increase in healthcare
costs and contributions made to the plans. The market value of our plan assets
was affected by declines in the equity market for 2000 through 2002 for the
pension and postretirement plans. As a result, a minimum pension liability was
recorded at December 31, 2002, which resulted in a charge to OCI and a reduction
in stockholders' equity. At December 31, 2003, the minimum pension liability was
reduced resulting in OCI of $46 million and an increase in stockholders' equity.
The minimum pension liability has not changed as of June 30, 2004.
The amount of the pension liability as of June 30, 2004, was the result of
asset returns, interest rates and our contributions to the plans during 2003. In
future years, the liability recorded, the costs reflected in net income or OCI,
or cash contributions to the plans could increase materially without a recovery
in equity markets in excess of our assumed return on plan assets of 8.5%. If the
fair value of the plan assets were to grow and exceed the accumulated benefit
obligations in the future, the recorded liability would then be reduced and a
corresponding amount of equity would be restored, net of taxes.
Commodity Price Risk
The Ameren Companies are exposed to changes in market prices for natural
gas, fuel and electricity to the extent they cannot be recovered through rates.
For a more detailed discussion of our commodity price risk, see Commodity Price
Risk under Part II, Item 7A of the Ameren Companies' combined Form 10-K for the
fiscal year ended December 31, 2003. Below are tables presenting the percentage
of fuel that is price-hedged and the effects a material change in price will
have on our coal costs not currently covered under fixed-price contracts as of
June 30, 2004.
The following table presents the percentages of the required supply of coal
for our coal-fired power plants, nuclear fuel and natural gas for our CTs and
distribution, as appropriate, which are price-hedged for the remainder of 2004
through 2008:
===================================================================================================================
2004 2005 2006 - 2008
-------------------------------------------------------------------------------------------------------------------
Ameren:
Coal..................................................... 100% 92% 60%
Nuclear fuel............................................. 100 100 32
Natural gas for generation............................... 27 16 4
Natural gas for distribution............................. 43 17 5
-------------------------------------------------------------------------------------------------------------------
78
-------------------------------------------------------------------------------------------------------------------
2004 2005 2006 - 2008
-------------------------------------------------------------------------------------------------------------------
UE:
Coal..................................................... 100% 88% 53%
Nuclear fuel............................................. 100 100 32
Natural gas for generation............................... 36 12 4
Natural gas for distribution............................. 41 14 4
===================================================================================================================
CIPS:
Natural gas for distribution............................. 39% 17% 4%
===================================================================================================================
Genco:
Coal..................................................... 100% 100% 82%
Natural gas for generation............................... 14 18 5
===================================================================================================================
CILCORP:(a)
Coal..................................................... 100% 83% 54%
Natural gas for distribution............................. 46 19 6
===================================================================================================================
CILCO:
Coal..................................................... 100% 83% 54%
Natural gas for distribution............................. 46 19 6
===================================================================================================================
(a) CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
The following table presents the estimated increase (decrease) in our total
fuel expense and net income if coal costs were to change by 1% on any
requirements currently not covered by fixed-price contracts for the remainder of
2004 through 2008:
===================================================================================================================
Fuel Expense Net Income(a)
-------------------------------------------------------------------------------------------------------------------
Ameren(b).................................................................. $ 6 $ 3
UE......................................................................... 3 2
CIPS....................................................................... - -
Genco...................................................................... 1 1
CILCORP(c)................................................................. 1 -
CILCO...................................................................... 1 -
===================================================================================================================
(a) Calculations are based on an effective tax rate of 36%.
(b) Includes amounts for non-registrant Ameren subsidiaries.
(c) CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
Fair Value of Contracts
Most of our commodity contracts qualify for treatment as normal purchases
and normal sales. However, 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-forecasted forward prices and
modify our exposure to market, credit and operational risk by entering into
various offsetting transactions. In general, we believe these transactions serve
to reduce our price risk. See Note 7 - Derivative Financial Instruments to our
financial statements under Part I, Item 1 of this report for further
information.
79
The following table presents the favorable (unfavorable) changes in the
fair value of all contracts marked-to-market during the three months and six
months ended June 30, 2004:
===================================================================================================================
Ameren(a) UE CIPS CILCORP(b) CILCO
-------------------------------------------------------------------------------------------------------------------
Three Months
Fair value of contracts at beginning of period, net..... $ 18 $ (2) $ 4 $ 11 $ 11
Contracts realized or otherwise settled during the
period............................................ - - - - -
Changes in fair values attributable to changes in
valuation technique and assumptions - - - - -
Fair value of new contracts entered into during the
period............................................ - - - - -
Other changes in fair value........................... 6 - 2 1 1
-------------------------------------------------------------------------------------------------------------------
Fair value of contracts outstanding at end
of period, net.................................... $ 24 $ (2) $ 6 $ 12 $ 12
===================================================================================================================
Six Months
Fair value of contracts at beginning of period, net..... $ 12 $ (1) $ 1 $ 6 $ 6
Contracts realized or otherwise settled during the
period............................................ (4) 1 (1) (3) (3)
Changes in fair values attributable to changes in
valuation technique and assumptions - - - - -
Fair value of new contracts entered into during the
period............................................ - - - - -
Other changes in fair value........................... 16 (2) 6 9 9
-------------------------------------------------------------------------------------------------------------------
Fair value of contracts outstanding at end
of period, net.................................... $ 24 $ (2) $ 6 $ 12 $ 12
===================================================================================================================
(a) Includes amounts for non-registrant Ameren subsidiaries as well as
intercompany eliminations.
(b) CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
The following table presents maturities of contracts as of June 30, 2004:
===================================================================================================================
Sources Maturity Maturity Maturity Maturity in Total
of Less than 1-3 4-5 Excess of Fair
Fair Value 1 Year Years Years 5 Years Value(a)
-------------------------------------------------------------------------------------------------------------------
Ameren:
Prices actively quoted............... $ 14 $ 9 $ - $ - $ 23
Prices provided by other external
sources(b)........................ 1 - - - 1
Prices based on models and other
valuation methods(c).............. 2 - (2) - -
-------------------------------------------------------------------------------------------------------------------
Total................................ $ 17 $ 9 $ (2) $ - $ 24
===================================================================================================================
UE:
Prices actively quoted............... $ 2 $ 2 $ - $ - $ 4
Prices provided by other external
sources(b)........................ 1 - - - 1
Prices based on models and other
valuation methods(c).............. (6) 1 (2) - (7)
-------------------------------------------------------------------------------------------------------------------
Total................................ $ (3) $ 3 $ (2) $ - $ (2)
===================================================================================================================
CIPS:
Prices actively quoted............... $ 3 $ 3 $ - $ - $ 6
Prices provided by other external
sources(b)........................ - - - - -
Prices based on models and other
valuation methods(c).............. - - - - -
-------------------------------------------------------------------------------------------------------------------
Total................................ $ 3 $ 3 $ - $ - $ 6
-------------------------------------------------------------------------------------------------------------------
80
-------------------------------------------------------------------------------------------------------------------
Sources Maturity Maturity Maturity Maturity in Total
of Less than 1-3 4-5 Excess of Fair
Fair Value 1 Year Years Years 5 Years Value(a)
-------------------------------------------------------------------------------------------------------------------
CILCORP:(d)
Prices actively quoted .............. $ 8 $ 4 $ - $ - $ 12
Prices provided by other external
sources(b)........................ - - - - -
Prices based on models and other
valuation methods(c).............. - - - - -
-------------------------------------------------------------------------------------------------------------------
Total ............................... $ 8 $ 4 $ - $ - $ 12
===================================================================================================================
CILCO:
Prices actively quoted .............. $ 8 $ 4 $ - $ - $ 12
Prices provided by other external
sources(b)........................ - - - - -
Prices based on models and other
valuation methods(c).............. - - - - -
-------------------------------------------------------------------------------------------------------------------
Total ............................... $ 8 $ 4 $ - $ - $ 12
===================================================================================================================
(a) Contracts of less than $8 million were with non-investment-grade rated
counterparties.
(b) Principally power forwards based on a published survey of settled forward
pricing and natural gas swap valuations based on NYMEX prices for
over-the-counter contracts.
(c) Principally coal and SO2 option values based on a Black-Scholes model that
includes information from external sources and our estimates. Also includes
power forward contract values based on our estimates.
(d) CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
ITEM 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
As of June 30, 2004, the principal executive officer and principal
financial officer of each registrant have evaluated the effectiveness of the
design and operation of such registrant's disclosure controls and procedures (as
defined in Rules 13a - 15(e) and 15d - 15(e) of the Exchange Act). Based upon
that evaluation, the principal executive officer and principal financial officer
of each such registrant have concluded that such disclosure controls and
procedures are effective in timely alerting them to any material information
relating to such registrant, which is required to be included in such
registrant's reports filed or submitted with the SEC under the Exchange Act.
(b) Change in Internal Controls
There has been no change in the registrants' internal control over
financial reporting that occurred during their most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, their
internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
Note 2 - Acquisitions, Note 3 - Rate and Regulatory Matters, Note 8 -
Related Party Transactions and Note 9 - Commitments and Contingencies to our
financial statements under Part I, Item 1 of this report contain information on
legal and administrative proceedings which are incorporated by reference under
this item.
81
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
Ameren Corporation's purchases of equity securities reportable under Item
703 of Regulation S-K:
======================================================================================================================
(a)Total (b)Average (c)Total Number of (d)Maximum Number (or
Number of Price Shares (or Units) Approximate Dollar Value) of
Shares Paid per Purchased as Part of Shares (or Units) that May
(or Units) Share Publicly Announced Plans Yet Be Purchased Under the
Period Purchased(a) (or Unit) or Programs Plans or Programs
----------------------------------------------------------------------------------------------------------------------
April 1 -
April 30, 2004........ 1,000 $ 44.21 - -
May 1 -
May 31, 2004.......... 61,382 43.43 - -
June 1 -
June 30, 2004......... 950 44.14 - -
----------------------------------------------------------------------------------------------------------------------
Total 63,332 $ 43.45 - -
----------------------------------------------------------------------------------------------------------------------
(a) These shares of Ameren common stock were purchased by Ameren in open-market
transactions in satisfaction of Ameren's obligations upon the exercise by
employees of options issued under Ameren's Long-term Incentive Plan of
1998. Ameren does not have any publicly announced equity securities
repurchase plans or programs.
None of the other registrants purchased equity securities reportable under
Item 703 of Regulation S-K during the April 1 to June 30, 2004, period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Ameren
At Ameren's annual meeting of shareholders held on April 27, 2004, the
following matters were presented to the meeting for a vote and the results of
such voting are as follows:
Item (1) Election of 12 directors (comprising Ameren's full Board of
Directors) to serve until the next annual meeting of shareholders
in 2005.
===================================================================================================================
Name For Withheld Non-Voted Brokers(a)
-------------------------------------------------------------------------------------------------------------------
Susan S. Elliott 151,719,167 3,971,806 0
Clifford L. Greenwalt 151,468,735 4,222,238 0
Thomas A. Hays 151,678,396 4,012,577 0
Richard A. Liddy 150,385,122 5,305,851 0
Gordon R. Lohman 151,764,063 3,926,910 0
Richard A. Lumpkin 150,526,942 5,164,031 0
John Peters MacCarthy 147,760,462 7,930,511 0
Paul L. Miller, Jr. 150,616,064 5,074,909 0
Charles W. Mueller 151,794,798 3,896,175 0
Douglas R. Oberhelman 141,796,966 13,894,007 0
Gary L. Rainwater 151,353,286 4,337,686 0
Harvey Saligman 150,480,134 5,210,839 0
===================================================================================================================
(a) Broker shares included in the quorum but not voting on the item.
Item (2) Ratification of PricewaterhouseCoopers LLP as Ameren's independent
registered public accounting firm for the fiscal year ending
December 31, 2004.
===================================================================================================================
For Against Abstain Non-Voted Brokers(a)
-------------------------------------------------------------------------------------------------------------------
151,263,408 2,667,991 1,758,182 18,926,816
===================================================================================================================
(a) Broker shares included in the quorum but not voting on the item.
82
Item (3) Shareholder proposal relating to the storage of irradiated fuel
rods at UE's Callaway nuclear plant.
===================================================================================================================
For Against Abstain Non-Voted Brokers(a)
-------------------------------------------------------------------------------------------------------------------
10,155,207 101,417,459 9,541,877 53,501,853
===================================================================================================================
(a) Broker shares included in the quorum but not voting on the item.
UE
At UE's annual meeting of shareholders held on April 27, 2004, the
following matter was presented to the meeting for a vote and the results of such
voting are as follows:
Item (1) Election of six directors (comprising UE's full Board of
Directors) to serve until the next annual meeting ofshareholders
in 2005.
===================================================================================================================
Name For Withheld Non-Voted Brokers(a)
-------------------------------------------------------------------------------------------------------------------
Warner L. Baxter 102,557,609 10,061 0
Gary L. Rainwater 102,557,609 10,061 0
Gary L. Randolph 102,557,009 10,061 0
Steven R. Sullivan 102,557,609 10,061 0
Thomas R. Voss 102,557,509 10,161 0
David A. Whiteley 102,557,009 10,061 0
===================================================================================================================
(a) Broker shares included in the quorum but not voting on the item.
CIPS
At CIPS' annual meeting of shareholders held on April 27, 2004, the
following matter was presented to the meeting for a vote and the results of such
voting are as follows:
Item (1) Election of six directors (comprising CIPS' full Board of
Directors) to serve until the next annual meeting of shareholders
in 2005.
===================================================================================================================
Name For Withheld Non-Voted Brokers(a)
-------------------------------------------------------------------------------------------------------------------
Warner L. Baxter 25,813,624 31,963 0
Daniel F. Cole 25,813,619 31,968 0
Gary L. Rainwater 25,813,614 31,973 0
Steven R. Sullivan 25,813,619 31,968 0
Thomas R. Voss 25,813,616 31,971 0
David A. Whiteley 25,813,624 31,963 0
===================================================================================================================
(a) Broker shares included in the quorum but not voting on the item.
CILCO
At CILCO's annual meeting of shareholders held on April 27, 2004, the
following matter was presented to the meeting for a vote and the results of such
voting are as follows:
Item (1) Election of six directors (comprising CILCO's full Board of
Directors) to serve until the next annual meeting of shareholders
in 2005.
===================================================================================================================
Name For Withheld Non-Voted Brokers(a)
-------------------------------------------------------------------------------------------------------------------
Warner L. Baxter 13,794,566 1,243 0
Scott A. Cisel 13,794,566 1,243 0
Daniel F. Cole 13,794,566 1,243 0
Gary L. Rainwater 13,794,566 1,243 0
Steven R. Sullivan 13,794,566 1,243 0
Thomas R. Voss 13,794,566 1,243 0
===================================================================================================================
(a) Broker shares included in the quorum but not voting on the item.
83
GENCO and CILCORP
The information called for by this item is omitted in reliance on General
Instruction H(1)(a) and (b) of Form 10-Q.
ITEM 5. OTHER INFORMATION.
Reference is made to Item 2. Properties under Part I of the Ameren
Companies' combined Form 10-K for the fiscal year ended December 31, 2003 for a
discussion of UE's, CIPS' and CILCO's written notice to MAIN of their intent to
withdraw from that organization effective January 1, 2005. MAIN is a regional
electric reliability council organized for coordinating the planning and
operation of bulk power supply in the central United States. In July 2004, UE,
CIPS and CILCO further notified MAIN that they agree to delay their withdrawal
to January 1, 2006 provided the configuration of MAIN remains the same. The
right to withdraw effective January 1, 2005, was reserved in the event that
certain utilities elect not to remain as regular MAIN members after December 31,
2004. UE, CIPS and CILCO intend to join another RRO prior to their withdrawal
from MAIN. UE, CIPS and CILCO may withdraw their notice of intent to withdraw
from MAIN at any time.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The documents listed below are being filed on behalf of
Ameren, UE, CIPS, Genco, CILCORP and CILCO (collectively the "Ameren
Companies").
----------------------------------------------------------------------------------------------------------------------------
Exhibit Designation Registrant(s) Nature of Exhibit
----------------------------------------------------------------------------------------------------------------------------
Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
----------------------------------------------------------------------------------------------------------------------------
2.1 Ameren Amendment No. 2, dated as of April 30, 2004, to Stock Purchase Agreement,
Companies dated as of February 2, 2004, by and between Dynegy and certain of its
subsidiaries and Ameren
----------------------------------------------------------------------------------------------------------------------------
Ameren Amendment No. 3, dated as of May 31, 2004, to Stock Purchase Agreement,
2.2 Companies dated as of February 2, 2004, by and between Dynegy and certain of its
subsidiaries and Ameren
----------------------------------------------------------------------------------------------------------------------------
Material Contracts
----------------------------------------------------------------------------------------------------------------------------
10.1 Ameren Three-Year Revolving Credit Agreement dated as of July 14, 2004
----------------------------------------------------------------------------------------------------------------------------
10.2 Ameren Five-Year Revolving Credit Agreement dated as of July 14, 2004
----------------------------------------------------------------------------------------------------------------------------
Ameren Extension of Power Supply between AERG and CILCO
10.3 CILCORP
CILCO
----------------------------------------------------------------------------------------------------------------------------
Code of Ethics
----------------------------------------------------------------------------------------------------------------------------
14.1 Ameren *Code of Ethics amended as of June 11, 2004
Companies
----------------------------------------------------------------------------------------------------------------------------
Rule 13a-14(a) / 15d-14(a) Certifications
----------------------------------------------------------------------------------------------------------------------------
31.1 Ameren Rule13a-14(a)/15d-14(a) Certification of Principal Executive Officer of
Ameren
----------------------------------------------------------------------------------------------------------------------------
31.2 Ameren Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer of
Ameren
----------------------------------------------------------------------------------------------------------------------------
31.3 UE Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer of
UE
----------------------------------------------------------------------------------------------------------------------------
31.4 UE Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer of
UE
----------------------------------------------------------------------------------------------------------------------------
31.5 CIPS Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer of
CIPS
----------------------------------------------------------------------------------------------------------------------------
31.6 CIPS Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer of
CIPS
----------------------------------------------------------------------------------------------------------------------------
31.7 Genco Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer of
Genco
----------------------------------------------------------------------------------------------------------------------------
84
----------------------------------------------------------------------------------------------------------------------------
Exhibit Designation Registrant(s) Nature of Exhibit
----------------------------------------------------------------------------------------------------------------------------
31.8 Genco Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer of
Genco
----------------------------------------------------------------------------------------------------------------------------
31.9 CILCORP Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer of
CILCORP
----------------------------------------------------------------------------------------------------------------------------
31.10 CILCORP Rule13a-14(a)/15d-14(a) Certification of Principal Financial Officer of
CILCORP
----------------------------------------------------------------------------------------------------------------------------
31.11 CILCO Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer of
CILCO
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31.12 CILCO Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer of
CILCO
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Section 1350 Certifications
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32.1 Ameren Section 1350 Certification of Principal Executive Officer of Ameren
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32.2 Ameren Section 1350 Certification of Principal Financial Officer of Ameren
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32.3 UE Section 1350 Certification of Principal Executive Officer of UE
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32.4 UE Section 1350 Certification of Principal Financial Officer of UE
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32.5 CIPS Section 1350 Certification of Principal Executive Officer of CIPS
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32.6 CIPS Section1350 Certification of Principal Financial Officer of CIPS
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32.7 Genco Section 1350 Certification of Principal Executive Officer of Genco
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32.8 Genco Section 1350 Certification of Principal Financial Officer of Genco
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32.9 CILCORP Section 1350 Certification of Principal Executive Officer of CILCORP
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32.10 CILCORP Section 1350 Certification of Principal Financial Officer of CILCORP
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32.11 CILCO Section 1350 Certification of Principal Executive Officer of CILCO
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32.12 CILCO Section 1350 Certification of Principal Financial Officer of CILCO
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* Revisions to the Code of Ethics are also being posted on Ameren's
website within five business days following the date of the revision,
in accordance with SEC regulation.
(b) Reports on Form 8-K. The Ameren Companies filed the following reports
on Form 8-K during the quarterly period ended June 30, 2004:
Date of Report Items Reported Financial Statements Filed
-------------- -------------- --------------------------
Ameren:
April 29, 2004 (a) 12 (b)
May 18, 2004 5, 7 None
UE:
May 18, 2004 5, 7 None
CIPS:
None
Genco:
None
CILCORP:
None
CILCO:
None
(a) This report was furnished pursuant to Item 12 and not deemed "filed"
for purposes of Section 18 of the Exchange Act.
(b) Consolidated operating statistics for three months ended March 31,
2004, and March 31, 2003, unaudited consolidated balance sheet as of
March 31, 2004, and December 31, 2003, unaudited consolidated
statement of income for three months ended March 31, 2004, and March
31, 2003, and unaudited consolidated statement of cash flows for three
months ended March 31, 2004 and March 31, 2003.
85
SIGNATURES
Pursuant to the requirements of the Exchange Act, each Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized. The signature for each undersigned company shall be deemed to relate
only to matters having reference to such company or its subsidiaries.
AMEREN CORPORATION
(Registrant)
/s/ Martin J. Lyons
-------------------------------------------
Martin J. Lyons
Vice President and Controller
(Principal Accounting Officer)
UNION ELECTRIC COMPANY
(Registrant)
/s/ Martin J. Lyons
-------------------------------------------
Martin J. Lyons
Vice President and Controller
(Principal Accounting Officer)
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
(Registrant)
/s/ Martin J. Lyons
-------------------------------------------
Martin J. Lyons
Vice President and Controller
(Principal Accounting Officer)
AMEREN ENERGY GENERATING COMPANY
(Registrant)
/s/ Martin J. Lyons
-------------------------------------------
Martin J. Lyons
Vice President and Controller
(Principal Accounting Officer)
86
CILCORP INC.
(Registrant)
/s/ Martin J. Lyons
-------------------------------------------
Martin J. Lyons
Vice President and Controller
(Principal Accounting Officer)
CENTRAL ILLINOIS LIGHT COMPANY
(Registrant)
/s/ Martin J. Lyons
-------------------------------------------
Martin J. Lyons
Vice President and Controller
(Principal Accounting Officer)
Date: August 9, 2004
87