ML13002A185
Text
AMEREN CORP 10Q Quarterly report pursuant to sections 13 or 15(d)
Filed on 8/8/2012 Filed Period 6/30/2012 to ULNRC-05944
Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended June 30, 2012 OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to.
Commission File Number Exact name of registrant as specified in its charter; State of Incorporation; Address and Telephone Number IRS Employer Identification No.
114756 Ameren Corporation 431723446 (Missouri Corporation) 1901 Chouteau Avenue St. Louis, Missouri 63103 (314) 6213222 12967 Union Electric Company 430559760 (Missouri Corporation) 1901 Chouteau Avenue St. Louis, Missouri 63103 (314) 6213222 13672 Ameren Illinois Company 370211380 (Illinois Corporation) 300 Liberty Street Peoria, Illinois 61602 (309) 6775271 33356594 Ameren Energy Generating Company 371395586 (Illinois Corporation) 1500 Eastport Plaza Drive Collinsville, Illinois 62234 (618) 3437700 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.
Ameren Corporation Yes
No
Union Electric Company Yes
No
Ameren Illinois Company Yes
No
Ameren Energy Generating Company (a)
Yes
No
(a)
Ameren Energy Generating Company is not required to file reports under the Securities Exchange Act of 1934. However, Ameren Energy Generating Company has filed all Exchange Act reports for the preceding 12 months.
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Indicate by check mark whether each registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Ameren Corporation Yes
No
Union Electric Company Yes
No
Ameren Illinois Company Yes
No
Ameren Energy Generating Company Yes
No
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer NonAccelerated Filer Smaller Reporting Company Ameren Corporation
Union Electric Company
Ameren Illinois Company
Ameren Energy Generating Company
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b2 of the Exchange Act).
Ameren Corporation Yes
No
Union Electric Company Yes
No
Ameren Illinois Company Yes
No
Ameren Energy Generating Company Yes
No
The number of shares outstanding of each registrants classes of common stock as of July 31, 2012, was as follows:
Ameren Corporation Common stock, $0.01 par value per share - 242,634,671 Union Electric Company Common stock, $5 par value per share, held by Ameren Corporation (parent company of the registrant) 102,123,834 Ameren Illinois 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 Resources Company, LLC (parent company of the registrant and subsidiary of Ameren Corporation) 2,000 OMISSION OF CERTAIN INFORMATION Ameren Energy Generating Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10Q and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.
This combined Form 10Q is separately filed by Ameren Corporation, Union Electric Company, Ameren Illinois Company and Ameren Energy Generating 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.
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Table of Contents TABLE OF CONTENTS Page Glossary of Terms and Abbreviations 3
Forwardlooking Statements 3
PART I Financial Information Item 1.
Financial Statements (Unaudited)
Ameren Corporation Consolidated Statement of Income (Loss) 5 Consolidated Statement of Comprehensive Income (Loss) 6 Consolidated Balance Sheet 7
Consolidated Statement of Cash Flows 8
Union Electric Company Statement of Income and Comprehensive Income 9
Balance Sheet 10 Statement of Cash Flows 11 Ameren Illinois Company Statement of Income and Comprehensive Income 12 Balance Sheet 13 Statement of Cash Flows 14 Ameren Energy Generating Company Consolidated Statement of Income (Loss) and Comprehensive Income (Loss) 15 Consolidated Balance Sheet 16 Consolidated Statement of Cash Flows 17 Combined Notes to Financial Statements 18 Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations 59 Item 3.
Quantitative and Qualitative Disclosures About Market Risk 88 Item 4.
Controls and Procedures 92 PART II Other Information Item 1.
Legal Proceedings 92 Item 1A.
Risk Factors 93 Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds 93 Item 6.
Exhibits 94 Signatures 96 This Form 10Q contains forwardlooking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Forwardlooking statements should be read with the cautionary statements and important factors included on page 4 of this Form 10Q under the heading Forwardlooking Statements. Forwardlooking 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.
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Table of Contents GLOSSARY OF TERMS AND ABBREVIATIONS We use the words our, we or us with respect to certain information that relates to the individual registrants within the Ameren Corporation consolidated group. When appropriate, subsidiaries of Ameren Corporation are named specifically as their various business activities are discussed. Refer to the Form 10K for a complete listing of glossary terms and abbreviations. Only new or significantly changed terms and abbreviations are included below.
Ameren Illinois or AIC Ameren Illinois Company, an Ameren Corporation subsidiary that operates a rateregulated electric and natural gas transmission and distribution business in Illinois, doing business as Ameren Illinois. Ameren Illinois is also defined as a financial reporting segment consisting of Ameren Illinois rateregulated businesses.
COL Nuclear energy center combined construction and operating license.
Entergy Entergy Arkansas, Inc.
Form 10K The combined Annual Report on Form 10K for the year ended December 31, 2011, filed by the Ameren Companies with the SEC.
Megawatthour or MWh One thousand kilowatthours.
Westinghouse Westinghouse Electric Company.
FORWARDLOOKING STATEMENTS Statements in this report not based on historical facts are considered forwardlooking and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those discussed. Although such forwardlooking 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 under Risk Factors in the Form 10K and elsewhere in this report and in our other filings with the SEC, could cause actual results to differ materially from management expectations suggested in such forwardlooking statements:
regulatory, judicial, or legislative actions, including changes in regulatory policies and ratemaking determinations, such as the outcome of Ameren Missouris and Ameren Illinois electric rate cases filed in 2012; Ameren Missouris FAC prudence review and the related request for an accounting authority order; Ameren Illinois expected request for rehearing of a July 2012 FERC order requiring a refund to transmission services customers; and future regulatory, judicial, or legislative actions that seek to change regulatory recovery mechanisms, such as the IEIMA, which provides for formula ratemaking in Illinois; the effect of Ameren Illinois participating in a new performancebased formula ratemaking process under the IEIMA, the related financial commitments required by the IEIMA and the resulting uncertain impact on the financial condition, results of operations and liquidity of Ameren Illinois; the effects of, or changes to, the Illinois power procurement process; changes in laws and other governmental actions, including monetary, fiscal, and tax policies; changes in laws or regulations that adversely affect the ability of electric distribution companies and other purchasers of wholesale electricity to pay their suppliers, including Ameren Missouri and Marketing Company; 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, and the implementation of deregulation; the effects on demand for our services resulting from technological advances, including advances in energy efficiency and distributed generation sources, which generate electricity at the site of consumption; increasing capital expenditure and operating expense requirements and our ability to recover these costs; the cost and availability of fuel such as coal, natural gas, and enriched uranium used to produce electricity; the cost and availability of purchased power and natural gas for distribution; and the level and volatility of future market prices for such commodities, including the ability to recover the costs for such commodities; the effectiveness of our risk management strategies and the use of financial and derivative instruments; the level and volatility of future prices for power in the Midwest; the development of a capacity market within MISO and the outcomes of MISOs inaugural capacity auction in 2013; business and economic conditions, including their impact on interest rates, bad debt expense, and demand for our products; disruptions of the capital markets, deterioration in credit metrics of the Ameren Companies, or other events that make the Ameren Companies access to necessary capital, including shortterm credit and liquidity, impossible, more difficult, or more costly; our assessment of our liquidity; the impact of the adoption of new accounting guidance and the application of appropriate technical accounting rules and guidance; 3
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Table of Contents actions of credit rating agencies and the effects of such actions; the impact of weather conditions and other natural phenomena on us and our customers; the impact of system outages; generation, transmission, and distribution asset construction, installation, performance, and cost recovery; the effects of our increasing investment in electric transmission projects and uncertainty as to whether we will achieve our expected returns in a timely fashion, if at all; the extent to which Ameren Missouri prevails in its claims against insurers in connection with its Taum Sauk pumpedstorage hydroelectric energy center incident; the extent to which Ameren Missouri is permitted by its regulators to recover in rates the investments it made in connection with a proposed second unit at its Callaway energy center; impairments of longlived assets, intangible assets, or goodwill; operation of Ameren Missouris Callaway energy center, including planned and unplanned outages, decommissioning, costs and potential increased costs because of NRC orders to address nuclear plant readiness as a result of nuclearrelated developments in Japan in 2011; the effects of strategic initiatives, including mergers, acquisitions and divestitures, and any related tax implications; the impact of current environmental regulations on utilities and power generating companies and new, more stringent or changing requirements, including those related to greenhouse gases, other emissions, cooling water intake structures, CCR, and energy efficiency, that are enacted over time and that could limit or terminate the operation of certain of our generating units, increase our costs, result in an impairment of our assets, reduce our customers demand for electricity or natural gas, or otherwise have a negative financial effect; the impact of complying with renewable energy portfolio requirements in Missouri; labor disputes, workforce reductions, future wage and employee benefits costs, including changes in discount rates and returns on benefit plan assets; the inability of our counterparties and affiliates to meet their obligations with respect to contracts, credit facilities, and financial instruments; the cost and availability of transmission capacity for the energy generated by the Ameren Companies energy centers or required to satisfy energy sales made by the Ameren Companies; legal and administrative proceedings; and acts of sabotage, war, terrorism, cybersecurity attacks or intentionally disruptive acts.
Given these uncertainties, undue reliance should not be placed on these forwardlooking statements. Except to the extent required by the federal securities laws, we undertake no obligation to update or revise publicly any forwardlooking statements to reflect new information or future events.
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Table of Contents PART I. FINANCIAL INFORMATION ITEM 1.
FINANCIAL STATEMENTS.
AMEREN CORPORATION CONSOLIDATED STATEMENT OF INCOME (LOSS)
(Unaudited) (In millions, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30, 2012 2011 2012 2011 Operating Revenues:
Electric 1,513 1,614 2,823
$ 3,084 Gas 147 167 495 601 Total operating revenues 1,660 1,781 3,318 3,685 Operating Expenses:
Fuel 346 371 673 750 Purchased power 133 237 296 464 Gas purchased for resale 49 79 264 367 Other operations and maintenance 458 473 885 936 Asset impairments 2
628 2
Depreciation and amortization 195 194 394 389 Taxes other than income taxes 116 109 237 234 Total operating expenses 1,297 1,465 3,377 3,142 Operating Income (Loss) 363 316 (59) 543 Other Income and Expenses:
Miscellaneous income 20 17 37 33 Miscellaneous expense 7
5 22 10 Total other income 13 12 15 23 Interest Charges 112 104 225 223 Income (Loss) Before Income Taxes 264 224 (269) 343 Income Taxes (Benefit) 54 85 (76) 130 Net Income (Loss) 210 139 (193) 213 Less: Net Income (Loss) Attributable to Noncontrolling Interests (1) 1 (1) 4 Net Income (Loss) Attributable to Ameren Corporation 211 138 (192) 209 Earnings (Loss) per Common Share - Basic and Diluted 0.87 0.57 (0.79) 0.87 Dividends per Common Share 0.40 0.385 0.80 0.77 Average Common Shares Outstanding 246.6 241.2 242.6 240.9 The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents AMEREN CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Unaudited) (In millions)
Three Months Ended June 30, Six Months Ended June 30, 2012 2011 2012 2011 Net Income (Loss)
$ 210
$ 139
$(193)
$213 Other Comprehensive Income (Loss), Net of Taxes:
Unrealized net gain (loss) on derivative hedging instruments, net of income taxes (benefit) of
$2, $(5), $9, and $(4), respectively 2
(8) 14 (6)
Reclassification adjustments for derivative (gains) losses included in net income, net of income taxes (benefit) of $(1), $(4), $(2), and $(2), respectively 2
7 4
3 Pension and other postretirement benefit plan activity, net of income taxes (benefit) of $1,
$(1), $1, and $(2), respectively 1
2 (1)
Total other comprehensive income (loss), net of taxes 5
(1) 20 (4)
Comprehensive Income (Loss) 215 138 (173) 209 Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interests (1) 1 (1) 4 Comprehensive Income (Loss) Attributable to Ameren Corporation
$ 216
$ 137
$(172)
$205 The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents AMEREN CORPORATION CONSOLIDATED BALANCE SHEET (Unaudited) (In millions, except per share amounts)
June 30, 2012 December 31, 2011 ASSETS Current Assets:
Cash and cash equivalents 117 255 Accounts receivable - trade (less allowance for doubtful accounts of $24 and $20, respectively) 417 473 Unbilled revenue 374 324 Miscellaneous accounts and notes receivable 69 69 Materials and supplies 686 712 Marktomarket derivative assets 156 115 Current regulatory assets 236 215 Other current assets 99 132 Total current assets 2,154 2,295 Property and Plant, Net 17,690 18,127 Investments and Other Assets:
Nuclear decommissioning trust fund 386 357 Goodwill 411 411 Intangible assets 12 7
Regulatory assets 1,551 1,603 Other assets 776 845 Total investments and other assets 3,136 3,223 TOTAL ASSETS 22,980 23,645 LIABILITIES AND EQUITY Current Liabilities:
Current maturities of longterm debt 179 179 Shortterm debt 30 148 Accounts and wages payable 479 693 Taxes accrued 141 65 Interest accrued 113 101 Customer deposits 97 98 Marktomarket derivative liabilities 198 161 Current regulatory liabilities 145 133 Other current liabilities 221 207 Total current liabilities 1,603 1,785 Longterm Debt, Net 6,678 6,677 Deferred Credits and Other Liabilities:
Accumulated deferred income taxes, net 3,199 3,315 Accumulated deferred investment tax credits 75 79 Regulatory liabilities 1,470 1,502 Asset retirement obligations 440 428 Pension and other postretirement benefits 1,251 1,344 Other deferred credits and liabilities 564 447 Total deferred credits and other liabilities 6,999 7,115 Commitments and Contingencies (Notes 2, 8, 9 and 10)
Ameren Corporation Stockholders Equity:
Common stock, $.01 par value, 400.0 shares authorized - shares outstanding of 242.6 and 242.6, respectively 2
2 Other paidin capital, principally premium on common stock 5,600 5,598 Retained earnings 1,983 2,369 Accumulated other comprehensive loss (30)
(50)
Total Ameren Corporation stockholders equity 7,555 7,919 Noncontrolling Interests 145 149 Total equity 7,700 8,068 TOTAL LIABILITIES AND EQUITY 22,980 23,645 The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents AMEREN CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In millions)
Six Months Ended June 30, 2012 2011 Cash Flows From Operating Activities:
Net income (loss)
$ (193) 213 Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss on asset impairments 628 2
Net gain on sales of properties (9)
(11)
Net marktomarket (gain) loss on derivatives 11 (5)
Depreciation and amortization 373 373 Amortization of nuclear fuel 41 34 Amortization of debt issuance costs and premium/discounts 11 12 Deferred income taxes and investment tax credits, net (100) 143 Allowance for equity funds used during construction (17)
(15)
Other 8
Changes in assets and liabilities:
Receivables (9) 23 Materials and supplies 27 55 Accounts and wages payable (146)
(134)
Taxes accrued 75 76 Assets, other 11 82 Liabilities, other 72 (3)
Pension and other postretirement benefits 24 31 Counterparty collateral, net (2) 23 Net cash provided by operating activities 805 899 Cash Flows From Investing Activities:
Capital expenditures (565)
(507)
Nuclear fuel expenditures (52)
(33)
Purchases of securities - nuclear decommissioning trust fund (206)
(125)
Sales of securities - nuclear decommissioning trust fund 169 113 Proceeds from sales of properties 18 49 Other (2) 9 Net cash used in investing activities (638)
(494)
Cash Flows From Financing Activities:
Dividends on common stock (187)
(186)
Dividends paid to noncontrolling interest holders (3)
(3)
Shortterm debt and credit facility repayments, net (118)
(192)
Maturities of longterm debt (150)
Generator advances received for construction 3
Repayments of generator advances received for construction (73)
Issuances of common stock 32 Net cash used in financing activities (305)
(572)
Net change in cash and cash equivalents (138)
(167)
Cash and cash equivalents at beginning of year 255 545 Cash and cash equivalents at end of period 117 378 Noncash financing activity - dividends on common stock (7)
Noncash investing activity - DOE settlement 9
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents UNION ELECTRIC COMPANY STATEMENT OF INCOME AND COMPREHENSIVE INCOME (Unaudited) (In millions)
Three Months Ended June 30, Six Months Ended June 30, 2012 2011 2012 2011 Operating Revenues:
Electric 822 791
$1,458
$1,493 Gas 21 28 76 97 Other 1
3 1
4 Total operating revenues 844 822 1,535 1,594 Operating Expenses:
Fuel 177 204 357 433 Purchased power
26 20 46 Gas purchased for resale 5
11 37 51 Other operations and maintenance 206 231 408 464 Depreciation and amortization 109 98 217 198 Taxes other than income taxes 78 76 149 149 Total operating expenses 575 646 1,188 1,341 Operating Income 269 176 347 253 Other Income and Expenses:
Miscellaneous income 18 16 33 29 Miscellaneous expense 4
3 7
6 Total other income 14 13 26 23 Interest Charges 56 45 112 99 Income Before Income Taxes 227 144 261 177 Income Taxes 83 53 95 64 Net Income 144 91 166 113 Other Comprehensive Income
Comprehensive Income 144 91 166 113 Net Income 144 91 166 113 Preferred Stock Dividends 1
1 2
2 Net Income Available to Common Stockholder 143 90 164 111 The accompanying notes as they relate to Union Electric Company are an integral part of these financial statements.
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Table of Contents UNION ELECTRIC COMPANY BALANCE SHEET (Unaudited) (In millions, except per share amounts)
June 30, 2012 December 31, 2011 ASSETS Current Assets:
Cash and cash equivalents
201 Accounts receivable - trade (less allowance for doubtful accounts of $7 and $7, respectively) 180 212 Unbilled revenue 224 139 Miscellaneous accounts and notes receivable 46 43 Materials and supplies 388 348 Current regulatory assets 119 109 Other current assets 66 82 Total current assets 1,023 1,134 Property and Plant, Net 10,038 9,958 Investments and Other Assets:
Nuclear decommissioning trust fund 386 357 Intangible assets 11 7
Regulatory assets 775 855 Other assets 447 446 Total investments and other assets 1,619 1,665 TOTAL ASSETS 12,680 12,757 LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities:
Current maturities of longterm debt 178 178 Borrowings from money pool 67
Accounts and wages payable 168 414 Accounts payable - affiliates 62 73 Taxes accrued 103 74 Interest accrued 76 62 Current regulatory liabilities 46 57 Other current liabilities 130 84 Total current liabilities 830 942 Longterm Debt, Net 3,772 3,772 Deferred Credits and Other Liabilities:
Accumulated deferred income taxes, net 2,199 2,132 Accumulated deferred investment tax credits 67 70 Regulatory liabilities 879 836 Asset retirement obligations 337 328 Pension and other postretirement benefits 442 491 Other deferred credits and liabilities 153 149 Total deferred credits and other liabilities 4,077 4,006 Commitments and Contingencies (Notes 2, 8, 9 and 10)
Stockholders Equity:
Common stock, $5 par value, 150.0 shares authorized - 102.1 shares outstanding 511 511 Other paidin capital, principally premium on common stock 1,555 1,555 Preferred stock not subject to mandatory redemption 80 80 Retained earnings 1,855 1,891 Total stockholders equity 4,001 4,037 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 12,680 12,757 The accompanying notes as they relate to Union Electric Company are an integral part of these financial statements.
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Table of Contents UNION ELECTRIC COMPANY STATEMENT OF CASH FLOWS (Unaudited) (In millions)
Six Months Ended June 30, 2012 2011 Cash Flows From Operating Activities:
Net income
$ 166
$ 113 Adjustments to reconcile net income to net cash provided by operating activities:
Net marktomarket loss on derivatives 1
Depreciation and amortization 201 184 Amortization of nuclear fuel 41 34 Amortization of debt issuance costs and premium/discounts 3
3 Deferred income taxes and investment tax credits, net 76 86 Allowance for equity funds used during construction (15)
(14)
Other (5)
Changes in assets and liabilities:
Receivables (65)
(82)
Materials and supplies (43)
(2)
Accounts and wages payable (164)
(137)
Taxes accrued 29 58 Assets, other 12 76 Liabilities, other 68 23 Pension and other postretirement benefits 18 15 Net cash provided by operating activities 327 353 Cash Flows From Investing Activities:
Capital expenditures (299)
(272)
Nuclear fuel expenditures (52)
(33)
Purchases of securities - nuclear decommissioning trust fund (206)
(125)
Sales of securities - nuclear decommissioning trust fund 169 113 Other (5)
(3)
Net cash used in investing activities (393)
(320)
Cash Flows From Financing Activities:
Dividends on common stock (200)
(135)
Dividends on preferred stock (2)
(2)
Money pool borrowings, net 67 Repayments of generator advances received for construction (19)
Net cash used in financing activities (135)
(156)
Net change in cash and cash equivalents (201)
(123)
Cash and cash equivalents at beginning of year 201 202 Cash and cash equivalents at end of period 79 Noncash investing activity - DOE Settlement 9
The accompanying notes as they relate to Union Electric Company are an integral part of these financial statements.
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Table of Contents AMEREN ILLINOIS COMPANY STATEMENT OF INCOME AND COMPREHENSIVE INCOME (Unaudited) (In millions)
Three Months Ended June 30, Six Months Ended June 30, 2012 2011 2012 2011 Operating Revenues:
Electric
$ 437
$ 483
$ 868
$ 925 Gas 127 139 420 505 Other 1
1 Total operating revenues 564 623 1,288 1,431 Operating Expenses:
Purchased power 162 196 352 407 Gas purchased for resale 44 67 227 315 Other operations and maintenance 186 181 354 349 Depreciation and amortization 55 54 110 106 Taxes other than income taxes 31 26 70 67 Total operating expenses 478 524 1,113 1,244 Operating Income 86 99 175 187 Other Income and Expenses:
Miscellaneous income 2
1 3
3 Miscellaneous expense 2
1 13 2
Total other income (expense)
(10) 1 Interest Charges 31 35 64 70 Income Before Income Taxes 55 64 101 118 Income Taxes 22 26 40 46 Net Income 33 38 61 72 Other Comprehensive Loss, Net of Taxes:
Pension and other postretirement benefit plan activity, net of income taxes (benefit) of
$(1), $(1), $(1) and $(1), respectively (1)
(1)
(2)
(2)
Comprehensive Income 32 37 59 70 Net Income 33 38 61 72 Preferred Stock Dividends 1
1 2
2 Net Income Available to Common Stockholder 32 37 59 70 The accompanying notes as they relate to Ameren Illinois Company are an integral part of these financial statements.
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Table of Contents AMEREN ILLINOIS COMPANY BALANCE SHEET (Unaudited) (In millions)
June 30, 2012 December 31, 2011 ASSETS Current Assets:
Cash and cash equivalents 60 21 Advances to money pool 67
Accounts receivable - trade (less allowance for doubtful accounts of $16 and $13, respectively) 175 201 Accounts receivable - affiliates 10 15 Unbilled revenue 118 146 Miscellaneous accounts receivable 9
6 Materials and supplies 137 199 Counterparty collateral asset 45 50 Current regulatory assets 231 306 Current accumulated deferred income taxes, net 44 58 Other current assets 10 15 Total current assets 906 1,017 Property and Plant, Net 4,869 4,770 Investments and Other Assets:
Tax receivable - Genco 49 56 Goodwill 411 411 Regulatory assets 775 748 Other assets 117 211 Total investments and other assets 1,352 1,426 TOTAL ASSETS 7,127 7,213 LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities:
Current maturities of longterm debt 1
1 Accounts and wages payable 171 133 Accounts payable - affiliates 76 103 Taxes accrued 14 15 Customer deposits 75 76 Marktomarket derivative liabilities 97 99 Marktomarket derivative liabilities - affiliates 114 200 Environmental remediation 32 63 Current regulatory liabilities 98 76 Other current liabilities 86 92 Total current liabilities 764 858 Longterm Debt, Net 1,657 1,657 Deferred Credits and Other Liabilities:
Accumulated deferred income taxes, net 941 895 Accumulated deferred investment tax credits 6
7 Regulatory liabilities 591 666 Pension and other postretirement benefits 458 495 Other deferred credits and liabilities 276 183 Total deferred credits and other liabilities 2,272 2,246 Commitments and Contingencies (Notes 2, 8 and 9)
Stockholders Equity:
Common stock, no par value, 45.0 shares authorized - 25.5 shares outstanding
Other paidin capital 1,965 1,965 Preferred stock not subject to mandatory redemption 62 62 Retained earnings 392 408 Accumulated other comprehensive income 15 17 Total stockholders equity 2,434 2,452 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 7,127 7,213 The accompanying notes as they relate to Ameren Illinois Company are an integral part of these financial statements.
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Table of Contents AMEREN ILLINOIS COMPANY STATEMENT OF CASH FLOWS (Unaudited) (In millions)
Six Months Ended June 30, 2012 2011 Cash Flows From Operating Activities:
Net income 61 72 Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 105 102 Amortization of debt issuance costs and premium/discounts 4
4 Deferred income taxes and investment tax credits, net 63 21 Other (5)
(4)
Changes in assets and liabilities:
Receivables 62 110 Materials and supplies 59 53 Accounts and wages payable 13 (3)
Taxes accrued (1) 21 Assets, other (3) 15 Liabilities, other 3
(26)
Pension and other postretirement benefits (5) 14 Counterparty collateral, net 4
22 Net cash provided by operating activities 360 401 Cash Flows From Investing Activities:
Capital expenditures (184)
(174)
Returns of advances from ATXI for construction 49 Money pool advances, net (67)
Other 4
4 Net cash used in investing activities (247)
(121)
Cash Flows From Financing Activities:
Dividends on common stock (75)
(150)
Dividends on preferred stock (2)
(2)
Maturities of longterm debt (150)
Generator advances received for construction 3
Repayments of generator advances received for construction (53)
Capital contribution from parent 6
Net cash used in financing activities (74)
(349)
Net change in cash and cash equivalents 39 (69)
Cash and cash equivalents at beginning of year 21 322 Cash and cash equivalents at end of period 60
$ 253 The accompanying notes as they relate to Ameren Illinois Company are an integral part of these financial statements.
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Table of Contents AMEREN ENERGY GENERATING COMPANY CONSOLIDATED STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(Unaudited) (In millions)
Three Months Ended June 30, Six Months Ended June 30, 2012 2011 2012 2011 Operating Revenues
$ 194
$ 260
$ 388
$ 501 Operating Expenses:
Fuel 125 130 230 241 Purchased power 18 18 Other operations and maintenance 45 45 92 90 Depreciation and amortization 23 25 46 49 Taxes other than income taxes 5
5 11 12 Total operating expenses 198 223 379 410 Operating Income (Loss)
(4) 37 9
91 Interest Charges 12 14 26 31 Income (Loss) Before Income Taxes (16) 23 (17) 60 Income Taxes (Benefit)
(10) 10 (8) 25 Net Income (Loss)
(6) 13 (9) 35 Less: Net Income (Loss) Attributable to Noncontrolling Interest (2)
(4) 1 Net Income (Loss) Attributable to Ameren Energy Generating Company (4) 13
$ (5)
$ 34 Net Income (Loss)
(6) 13
$ (9)
$ 35 Other Comprehensive Income, Net of Taxes:
Pension and other postretirement benefit plan activity, net of income taxes of $3, $1, $3 and
$1, respectively 4
5 1
Total other comprehensive income, net of taxes 4
5 1
Comprehensive Income (Loss)
(2) 13 (4) 36 Less: Comprehensive Income (Loss) Attributable to Noncontrolling Interest (2)
(4) 1 Comprehensive Income Attributable to Ameren Energy Generating Company 13
$ 35 The accompanying notes as they relate to Ameren Energy Generating Company are an integral part of these consolidated financial statements.
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Table of Contents AMEREN ENERGY GENERATING COMPANY CONSOLIDATED BALANCE SHEET (Unaudited) (In millions, except shares)
June 30, 2012 December 31, 2011 ASSETS Current Assets:
Cash and cash equivalents 26 8
Advances to money pool 38 74 Accounts receivable - affiliates 73 89 Miscellaneous accounts receivable 10 13 Materials and supplies 121 122 Other current assets 19 19 Total current assets 287 325 Property and Plant, Net 2,274 2,231 Other assets 14 16 TOTAL ASSETS 2,575 2,572 LIABILITIES AND EQUITY Current Liabilities:
Accounts and wages payable 82 71 Accounts payable - affiliates 11 13 Current portion of tax payable - Ameren Illinois 9
8 Taxes accrued 20 20 Interest accrued 13 13 Other current liabilities 22 17 Total current liabilities 157 142 Longterm Debt, Net 824 824 Deferred Credits and Other Liabilities:
Accumulated deferred income taxes, net 296 304 Accumulated deferred investment tax credits 2
2 Tax payable - Ameren Illinois 49 56 Asset retirement obligations 68 66 Pension and other postretirement benefits 136 141 Other deferred credits and liabilities 21 12 Total deferred credits and other liabilities 572 581 Commitments and Contingencies (Notes 8 and 9)
Ameren Energy Generating Company Stockholders Equity:
Common stock, no par value, 10,000 shares authorized - 2,000 shares outstanding Other paidin capital 654 653 Retained earnings 432 437 Accumulated other comprehensive loss (67)
(72)
Total Ameren Energy Generating Company stockholders equity 1,019 1,018 Noncontrolling Interest 3
7 Total equity 1,022 1,025 TOTAL LIABILITIES AND EQUITY 2,575 2,572 The accompanying notes as they relate to Ameren Energy Generating Company are an integral part of these consolidated financial statements.
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Table of Contents AMEREN ENERGY GENERATING COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In millions)
Six Months Ended June 30, 2012 2011 Cash Flows From Operating Activities:
Net income (loss)
$ (9) 35 Adjustments to reconcile net income (loss) to net cash provided by operating activities:
(Gain) loss on sales of properties 1
(11)
Net marktomarket (gain) loss on derivatives 14 (6)
Depreciation and amortization 46 51 Amortization of debt issuance costs and premium/discounts 1
1 Deferred income taxes and investment tax credits, net (10) 26 Other 6
1 Changes in assets and liabilities:
Receivables 17 (15)
Materials and supplies 7
9 Accounts and wages payable (8) 13 Taxes accrued 1
Assets, other (2)
(2)
Liabilities, other (5)
(12)
Pension and other postretirement benefits 2
(3)
Net cash provided by operating activities 60 88 Cash Flows From Investing Activities:
Capital expenditures (79)
(84)
Proceeds from sales of properties 1
48 Money pool advances, net 36 25 Net cash used in investing activities (42)
(11)
Cash Flows From Financing Activities:
Credit facility repayments, net (100)
Capital contribution from parent 24 Net cash used in financing activities (76)
Net change in cash and cash equivalents 18 1
Cash and cash equivalents at beginning of year 8
6 Cash and cash equivalents at end of period
$ 26 7
The accompanying notes as they relate to Ameren Energy Generating Company are an integral part of these consolidated financial statements.
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Table of Contents AMEREN CORPORATION (Consolidated)
UNION ELECTRIC COMPANY AMEREN ILLINOIS COMPANY AMEREN ENERGY GENERATING COMPANY (Consolidated)
COMBINED NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 2012 NOTE 1
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES General Ameren, headquartered in St. Louis, Missouri, is a public utility holding company under PUHCA 2005, administered by FERC. Amerens primary assets are the common stock of its subsidiaries. Amerens subsidiaries are separate, independent legal entities with separate businesses, assets, and liabilities. These subsidiaries operate, as the case may be, rateregulated electric generation, transmission and distribution businesses, rateregulated natural gas transmission and distribution businesses, and merchant electric generation businesses in Missouri and Illinois. Dividends on Amerens common stock and the payment of expenses by Ameren depend on distributions made to it by its subsidiaries. Amerens principal subsidiaries are listed below. Also see the Glossary of Terms and Abbreviations at the front of this report and in the Form 10K.
Union Electric Company, or Ameren Missouri, operates a rateregulated electric generation, transmission and distribution business, and a rateregulated natural gas transmission and distribution business in Missouri.
Ameren Illinois Company, or Ameren Illinois, operates a rateregulated electric and natural gas transmission and distribution business in Illinois.
AER consists of nonrateregulated operations, including Genco, AERG, and Marketing Company. Genco operates a merchant electric generation business in Illinois and holds an 80% ownership interest in EEI, which it consolidates for financial reporting purposes.
Ameren has various other subsidiaries responsible for activities such as the provision of shared services.
The financial statements of Ameren and Genco are prepared on a consolidated basis. Ameren Missouri and Ameren Illinois have no subsidiaries, and therefore their financial statements are not prepared on a consolidated basis. 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) that are 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 that may be expected for a full year. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Form 10K.
Earnings Per Share There were no material differences between Amerens basic and diluted earnings per share amounts for the three months and six months ended June 30, 2012, and 2011. The number of dilutive restricted stock shares and performance share units had an immaterial impact on earnings per share.
Stockbased Compensation The fair value of each share unit awarded in January 2012 under the 2006 Plan was determined to be $35.68. That amount was based on Amerens closing common share price of $33.13 at December 31, 2011, and lattice simulations. Lattice simulations are used to estimate expected share payout based on Amerens total shareholder return for a threeyear performance period relative to the designated peer group beginning January 1, 2012. The simulations can produce a greater fair value for the share unit than the applicable closing common share price because they include the weighted payout scenarios in which an increase in the share price has occurred. The significant assumptions used to calculate fair value also included a threeyear riskfree rate of 0.41%, volatility of 17% to 31% for the peer group, and Amerens attainment of a threeyear average earnings per share threshold during the performance period.
Accounting Changes Disclosures about Fair Value Measurements In May 2011, FASB issued additional authoritative guidance regarding fair value measurements. The guidance amended the disclosure requirements for fair value measurements in order to align the principles for fair value measurements and the related disclosure requirements under GAAP and International Financial Reporting Standards. The amendments did not affect the Ameren Companies results of operations, financial position, or liquidity, as this guidance only required additional disclosures. The Ameren Companies adopted this guidance in the first quarter of 2012. See Note 7 Fair Value Measurements for the required additional disclosures.
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Table of Contents Presentation of Comprehensive Income In June 2011, FASB amended its guidance on the presentation of comprehensive income in financial statements. The amended guidance changed the presentation of comprehensive income in the financial statements. It required entities to report components of comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements. This guidance was effective for the Ameren Companies beginning in the first quarter of 2012 with retroactive application required. The implementation of the amended guidance did not affect the Ameren Companies results of operations, financial position, or liquidity.
Goodwill and Intangible Assets Goodwill. Goodwill represents the excess of the purchase price of an acquisition over the fair value of the net assets acquired. As of June 30, 2012, Amerens and Ameren Illinois goodwill related to Amerens acquisition of IP in 2004 and CILCORP in 2003. We evaluate goodwill for impairment as of October 31 of each year, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
Intangible Assets. Ameren, Ameren Missouri and Genco classify emission allowances and renewable energy credits as intangible assets. We evaluate intangible assets for impairment if events or changes in circumstances indicate that their carrying amount might be impaired.
At June 30, 2012, Amerens and Ameren Missouris intangible assets consisted of renewable energy credits obtained through wind and solar power purchase agreements. The book value of each of Amerens and Ameren Missouris renewable energy credits was $12 million and $11 million, respectively, at June 30, 2012. The book value of each of Amerens, Ameren Missouris, and Gencos CAIR emission allowances was immaterial at June 30, 2012.
Renewable energy credits and emission allowances are charged to purchased power expense and fuel expense, respectively, as they are used in operations. The amortization expense based on usage of renewable energy credits and emission allowances was less than $1 million for Ameren, Ameren Missouri, Ameren Illinois, and Genco for the three and six months ended June 30, 2012. The amortization expense based on usage of renewable energy credits and emission allowances was $1 million, less than $1 million, and less than $1 million for Ameren, Ameren Illinois, and Genco, respectively, for the three months ended June 30, 2011, and $3 million, $1 million, and $2 million for Ameren, Ameren Illinois, and Genco, respectively, for the six months ended June 30, 2011. Amortization expense based on Ameren Missouris usage of renewable energy credits was deferred as a regulatory asset pending recovery from customers through rates.
During the second quarter of 2011, Ameren and Genco recorded a noncash pretax impairment charge of $2 million and $1 million, respectively.
Ameren Missouri recorded a $1 million impairment of its SO2 emission allowances by reducing a previously established regulatory liability relating to the SO2 emission allowances, which had no impact on earnings. The impairment was triggered by a significant observable decline in the market price of SO 2 and NOx allowances used for CAIR compliance.
Excise Taxes Excise taxes imposed on us are reflected on Ameren Missouri electric and Ameren Missouri and Ameren Illinois natural gas customer bills. They are recorded gross in Operating Revenues Electric, Operating Revenues Gas and Operating Expenses Taxes other than income taxes on the statement of income or the statement of income and comprehensive income. Excise taxes reflected on Ameren Illinois electric customer bills are imposed on the consumer and are therefore not included in revenues and expenses. They are recorded as tax collections payable and included in Taxes accrued on the balance sheet. The following table presents excise taxes recorded in Operating Revenues Electric, Operating Revenues Gas and Operating Expenses Taxes other than income taxes for the three and six months ended June 30, 2012, and 2011:
Three Months Six Months 2012 2011 2012 2011 Ameren Missouri
$ 38
$ 34
$ 65
$ 63 Ameren Illinois 10 10 28 32 Ameren
$ 48
$ 44
$ 93
$ 95 Uncertain Tax Positions The amount of unrecognized tax benefits as of June 30, 2012, was $158 million, $132 million, $11 million, and $11 million for Ameren, Ameren Missouri, Ameren Illinois and Genco, respectively. The amount of unrecognized tax benefits (detriments) as of June 30, 2012, that would impact the effective tax rate, if recognized, was $1 million, $1 million, $(1) million and $1 million for Ameren, Ameren Missouri, Ameren Illinois and Genco, respectively.
Amerens federal income tax returns for the years 2007 through 2010 are before the Appeals Office of the Internal Revenue Service.
State income tax returns are generally subject to examination for a period of three years after filing of the return. The Ameren Companies do not currently have 19 to ULNRC-05944
Table of Contents material state income tax issues under examination, administrative appeals, or litigation. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.
It is expected that a partial settlement may be reached with the Appeals Office of the Internal Revenue Service in the next twelve months for the years 2007 through 2009 that would result in a decrease in uncertain tax liabilities. In addition, it is reasonably possible that events will occur during the next twelve months that would cause the total amount of unrecognized tax benefits for the Ameren Companies to increase or decrease. However, the Ameren Companies do not believe such increases or decreases would be material to their results of operations, financial position or liquidity.
Asset Retirement Obligations AROs at Ameren, Ameren Missouri, Ameren Illinois and Genco increased compared to December 31, 2011, to reflect the accretion of obligations to their fair values. Ameren and Genco also recorded an additional ARO in the amount of $1 million related to the retirement costs for a Genco coal combustion byproduct storage area during the six months ended June 30, 2012.
Noncontrolling Interest Amerens noncontrolling interests comprised the 20% of EEI not owned by Ameren and the preferred stock not subject to mandatory redemption of Amerens subsidiaries. These noncontrolling interests were classified as a component of equity separate from Amerens equity in its consolidated balance sheet. Gencos noncontrolling interest comprised the 20% of EEI not owned by Genco. This noncontrolling interest was classified as a component of equity separate from Gencos equity in its consolidated balance sheet.
A reconciliation of the equity changes attributable to the noncontrolling interests at Ameren and Genco for the three and six months ended June 30, 2012, and 2011, is shown below:
Three Months Six Months 2012 2011 2012 2011 Ameren:
Noncontrolling interests, beginning of period
$147
$155
$149
$154 Net income (loss) attributable to noncontrolling interests (1) 1 (1) 4 Dividends paid to noncontrolling interest holders (1)
(1)
(3)
(3)
Noncontrolling interests, end of period
$145
$155
$145
$155 Genco:
Noncontrolling interest, beginning of period 5
$ 12 7
$ 11 Net income (loss) attributable to noncontrolling interest (2)
(4) 1 Noncontrolling interest, end of period 3
$ 12 3
$ 12 Medina Valley Asset Sale in 2012 In February 2012, Ameren completed the sale of its Medina Valley energy centers net property and plant for cash proceeds of $16 million and an additional $1 million payment at the twoyear anniversary date of the sale if there are no violations of representations and warranties contained in the sale agreement. Ameren recognized a $10 million pretax gain during the first quarter of 2012 from this sale. Medina Valley was included in Amerens Merchant Generation segment results.
EEI Employee Separation In June 2012, EEI announced that it was reducing its workforce by 44 employees, which includes both management and labor union represented employees, in response to lower demand and prices for electricity. Affected employees will be leaving their employment during the third quarter of 2012, and management employees will receive benefits consistent with EEIs standard severance benefits. As a result, Ameren and Genco both recorded a $1 million pretax charge to earnings during the second quarter of 2012 related to the workforce reduction. The charge was recorded to Other Operations and Maintenance expense on Amerens and Gencos consolidated statements of income, and the charge was included in the Merchant Generation segment results.
The announced employee reduction will result in a curtailment of EEIs pension and postretirement benefit plans, which are separate from Amerens pension and postretirement benefit plans. EEI is evaluating whether a curtailment gain or loss will be recognized during the quarter ended September 30, 2012, when the specific employee identification has been completed.
NOTE 2 RATE AND REGULATORY MATTERS Below is a summary of significant regulatory proceedings and related lawsuits. See also Note 2 Rate and Regulatory Matters under Part II, Item 8, of the Form 10K. We are unable to predict the ultimate outcome of these matters, the timing of the final decisions of the various agencies and courts, or the impact on our results of operations, financial position, or liquidity.
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Table of Contents Missouri 2009 Electric Rate Order In November 2011, the Missouri Court of Appeals issued a ruling that upheld the MoPSCs January 2009 electric rate order. In March 2012, the Circuit Court of Stoddard County, Missouri released to Ameren Missouri all of the funds held in its registry relating to the stay, which totaled $21 million, reducing previously recorded trade accounts receivable.
2010 Electric Rate Order In May 2012, the Cole County Circuit Court issued a ruling that upheld the MoPSCs May 2010 electric rate order. In May 2012, the Cole County Circuit Court released to Ameren Missouri all of the funds held in its registry relating to the stay, which totaled $16 million, reducing the previously recorded trade accounts receivable.
2011 Electric Rate Order In July 2011, the MoPSC issued an order approving an increase for Ameren Missouri in annual revenues for electric service of $173 million. The MoPSCs order disallowed the recovery of all costs of enhancements, or costs that would have been incurred absent the breach, related to the rebuilding of the Taum Sauk energy center in excess of amounts recovered from property insurance. In July 2012, the Missouri Court of Appeals, Western District, upheld the MoPSCs July 2011 electric rate order. Ameren Missouri will not seek further appeal of the MoPSCs order.
Pending Electric Rate Case In February 2012, Ameren Missouri filed a request with the MoPSC to increase its annual revenue for electric service by $376 million based on a 10.75% return on equity. The annual increase request included $80 million for recovery of the costs associated with energy efficiency programs under the MEEIA, which are discussed below. As part of its filing, Ameren Missouri requested that the MoPSC approve the implementation of a storm cost tracking mechanism, as well as plantinservice accounting treatment. The plantinservice accounting proposal is designed to reduce the impact of regulatory lag on earnings and future cash flows related to assets placed in service between rate cases by both accruing a return on the assets and deferring depreciation expense from their inservice dates until those capitalized costs are included in rates.
In July 2012, the MoPSC staff responded to the Ameren Missouri request for an electric service rate increase. The MoPSC staff recommended an increase to Ameren Missouris annual revenues of approximately $210 million based on a return on equity of 9%. The MoPSC staff opposed Ameren Missouris request to implement a storm cost tracking mechanism and Ameren Missouris plantinservice accounting proposal. Additionally, the MoPSC staffs recommended increase reflects its position that a refund received in June 2012 from Entergy relating to a power purchase agreement that expired in 2009 be returned to customers through a reduction in base rates over a threeyear period. See below under Federal for additional information about this refund and Ameren Missouris power purchase agreement with Entergy. Other parties also made recommendations through testimony filed in this case.
A decision by the MoPSC in this proceeding is expected in December 2012. Ameren Missouri cannot predict the level of any electric service rate change the MoPSC may approve or whether any rate increase that may eventually be approved will be sufficient for Ameren Missouri to recover its costs and earn a reasonable return on its investments when the increase goes into effect.
MEEIA Filing In August 2012, the MoPSC issued an order that approved a stipulation and agreement between Ameren Missouri, MoPSC staff, and other parties.
The order includes megawatthour savings targets for Ameren Missouris energy efficiency programs as well as associated cost recovery mechanisms and incentive awards. The order provides that, beginning in 2013, Ameren Missouri will invest approximately $147 million over three years for energy efficiency programs. The order allows for Ameren Missouri to collect, over the next three years, its program costs and 90% of its projected lost revenue from customers starting on the expected effective date for the pending electric service rate case, which is expected to be January 2, 2013. The remaining 10% of projected lost revenue is expected to be recovered as part of future rate proceedings.
Additionally, the order provides for an incentive award that would allow Ameren Missouri to earn revenues of approximately $19 million if 100% of its energy efficiency goals are achieved during the threeyear period, with the potential to earn more if Ameren Missouris energy savings exceed those goals. Ameren Missouri must achieve at least 70% of its energy efficiency goals before it earns any incentive award. The recovery of the incentive award from customers, if the energy efficiency goals are achieved, would begin after the threeyear energy efficiency plan is complete and upon the effectiveness of an electric service rate case or potentially with the future adoption of a rider mechanism.
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Table of Contents The MoPSCs order in this proceeding will not affect Ameren Missouri rates until these rates are included in an electric service rate case. The impacts of the MoPSCs decision in this MEEIA filing are expected to be included in rates set under its pending electric service rate case that was filed in February 2012. Ameren Missouris pending electric service rate case includes an annual revenue increase request of $80 million related to its planned portfolio of energy efficiency programs included in its MEEIA filing.
FAC Prudence Review Missouri law requires the MoPSC to complete prudence reviews of Ameren Missouris FAC at least every 18 months. In April 2011, the MoPSC issued an order with respect to its review of Ameren Missouris FAC for the period from March 1, 2009, to September 30, 2009. In this order, the MoPSC ruled that Ameren Missouri should have included in the FAC calculation all revenues and costs associated with certain longterm partial requirements sales that were made by Ameren Missouri because of the loss of Norandas load caused by a severe ice storm in January 2009. As a result of the order, Ameren Missouri recorded a pretax charge to earnings of $18 million, including $1 million for interest, in 2011 for its obligation to refund to Ameren Missouris electric customers the earnings associated with these sales previously recognized by Ameren Missouri during the period from March 1, 2009, to September 30, 2009.
Ameren Missouri disagrees with the MoPSC orders classification of these sales and believes that the terms of its FAC tariff did not provide for the inclusion of these sales in the FAC calculation. In May 2012, upon appeal by Ameren Missouri, the Cole County Circuit Court issued a ruling that reversed the MoPSCs April 2011 order. In June 2012, the MoPSC filed an appeal of the Cole County Circuit Courts ruling to the Missouri Court of Appeals, Western District. Ameren Missouri has not recorded additional revenues as a result of the Cole County Circuit Courts May 2012 ruling, as the MoPSCs appeal to the Missouri Court of Appeals is ongoing and is not expected to be concluded until 2013.
In February 2012, the MoPSC staff issued its FAC review report for the period from October 1, 2009, to May 31, 2011. In its report, the MoPSC staff asked the MoPSC to direct Ameren Missouri to refund to customers the pretax earnings associated with the same longterm partial requirements sales contracts subsequent to September 30, 2009. The MoPSC staff calculated these pretax earnings to be $26 million. We cannot predict whether the MoPSC will approve the MoPSC staffs position. If Ameren Missouri were to determine that these sales were probable of refund to Ameren Missouris electric customers, a charge to earnings would be recorded for the refund in the period in which that determination was made. Ameren Missouri does not currently believe these amounts are probable of refund to customers.
Separately, in July 2011, Ameren Missouri filed a request with the MoPSC for an accounting authority order that would allow Ameren Missouri to defer, as a regulatory asset, fixed costs totaling $36 million that were not recovered from Noranda as a result of the loss of load caused by the severe 2009 ice storm for potential recovery in a future electric rate case. We cannot predict the ultimate outcome of these regulatory or judicial proceedings. If the courts ultimately rule in favor of Ameren Missouris position regarding the classification of the longterm partial requirements sales, Ameren Missouri would not seek to recover from customers the sum that would be covered by the accounting authority order if it is granted.
Illinois IEIMA On January 3, 2012, Ameren Illinois elected to participate in the performancebased formula ratemaking process established pursuant to the IEIMA by filing initial performancebased formula rates with the ICC. The initial filing, based on 2010 recoverable costs and expected net plant additions for 2011 and 2012, will result in new electric delivery service rates in October 2012. Based on the ICCs 2010 electric rate order, Ameren Illinois is currently billing its electric customers based on an annual delivery service revenue requirement of $834 million. In its initial filing, Ameren Illinois calculated its annual electric delivery service revenue requirement to be $814 million, which would result in a decrease of $20 million in its annual electric delivery service revenues. The ICC staff submitted its calculation of the revenue requirement included in Ameren Illinois initial filing and recommended an annual electric delivery service revenue requirement of $785 million, which would result in a decrease of $49 million in Ameren Illinois annual electric delivery service revenues. Other parties also made recommendations through testimony filed in Ameren Illinois initial filing. The ICC deadline to establish the initial rates is September 28, 2012, with the rates becoming effective no later than 30 days after the ICCs decision. The initial rates will be effective from October through the end of 2012.
On April 20, 2012, Ameren Illinois filed a request with the ICC to update its annual electric delivery service revenue requirement based on 2011 recoverable costs and expected net plant additions for 2012. The update filing will result in new electric delivery service rates on January 1, 2013. The update filing, as amended in July 2012, requested an annual revenue requirement of $798 million, which, pending ICC approval, would result in an annual decrease of $16 million in Ameren Illinois revenues for electric delivery service below the amount Ameren Illinois requested in its January 3, 2012 initial filing. The reduction primarily reflects rate base reductions due to increases in accumulated deferred income taxes as well as a lower return on equity due to decreases in the average 30year 22 to ULNRC-05944
Table of Contents United States treasury bond rates. In July 2012, the ICC staff submitted its calculation of the revenue requirement included in Ameren Illinois update filing.
The ICC staff recommended a $776 million electric delivery service revenue requirement, which is $9 million below the amount the ICC staff recommended in the January 3, 2012 initial filing. Other parties also made recommendations through testimony filed in Ameren Illinois update filing.
The ICC staffs positions for both Ameren Illinois initial and update filings reflect positions that were included in the ICCs May 29, 2012 order for Commonwealth Edison Companys initial filing under the IEIMAs performancebased formula ratemaking process. In late June 2012, the ICC voted to rehear certain parts of its May 29, 2012 order, including the use of an average rate base as opposed to a yearend rate base and the method for calculating interest on the revenue requirement reconciliation. ICC decisions in the Commonwealth Edison Companys initial filing, to the extent they are consistent with the facts in Ameren Illinois filing, could also impact Ameren Illinois formula rates.
The IEIMA provides for an annual reconciliation of the revenue requirement necessary to reflect the actual costs incurred in a given year with the revenue requirement that was in effect for that year. Consequently, Ameren Illinois 2012 electric delivery service revenues will be based on its 2012 actual recoverable costs, rate base, and return on common equity as calculated under the IEIMAs performancebased formula ratemaking framework. As a result, throughout the year, Ameren Illinois will estimate the expected future recovery or return of revenue as a regulatory asset or liability. As of June 30, 2012, Ameren Illinois had recorded a regulatory asset of $12 million with a corresponding increase in electric revenues for the estimated 2012 revenue requirement reconciliation adjustment. By the end of 2012, this regulatory asset will represent Ameren Illinois estimate of the probable increase in electric delivery service rates, compared to current and proposed rates, expected to be approved by the ICC to provide Ameren Illinois recovery of all prudently and reasonably incurred costs and an earned rate of return on common equity for 2012. The regulatory asset relating to the 2012 revenue requirement reconciliation will be recovered from customers during 2014.
The IEIMA requires Ameren Illinois to file for ICC approval of its advanced metering infrastructure deployment plan. The advanced metering infrastructure deployment plan outlines how Ameren Illinois will comply with the IEIMA requirement to spend $360 million on smart grid assets over ten years on a costbeneficial basis to its electric customers. In March 2012, Ameren Illinois submitted its advanced metering infrastructure deployment plan to the ICC, and the ICC subsequently denied that plan in May 2012. The ICC ruled that Ameren Illinois plan did not provide enough support to prove that it was cost beneficial for electric customers. Ameren Illinois requested and received a rehearing from the ICC. In its rehearing request, Ameren Illinois submitted a modified advance metering infrastructure deployment plan designed to address the ICCs concerns about the cost justification of the plan.
Ameren Illinois expects to receive an order from the ICC later this year. If approved, the plan targets the second quarter of 2014 to begin installation of smart meters.
Federal Electric Transmission Investment In February 2012, FERC approved ATXIs request for a forwardlooking rate calculation with an annual reconciliation adjustment, as well as ATXIs request for the implementation of the incentives FERC approved in its May 2011 order for the Illinois Rivers project and the Big Muddy River project.
In July 2012, Ameren, on behalf of its transmission affiliates, filed a request with FERC seeking transmission rate incentives for the Spoon River project and the Mark Twain project. Both projects have been approved by MISO. Also in that filing, Ameren requested FERC to authorize Ameren Illinois use of a forwardlooking rate calculation with an annual reconciliation adjustment for its electric transmission projects. This forwardlooking rate calculation is almost identical to the calculation FERC approved in its May 2011 order for ATXI. Ameren expects FERC to issue an order in the third quarter of 2012.
Ameren Missouri Power Purchase Agreement with Entergy Arkansas, Inc.
In May 2012, FERC issued an order upholding its January 2010 ruling that Entergy should not have included additional charges to Ameren Missouri under a 165megawatt power purchase agreement. Ameren Missouri paid Entergy the additional charges from 2007 through the expiration of the power purchase agreement on August 31, 2009. Pursuant to the order, in June 2012, Entergy paid Ameren Missouri $31 million, with $26 million recorded as a reduction to Purchased power expense and $5 million for interest recorded as Miscellaneous income in the statement of income. Ameren Missouri expects to refund to customers approximately $2 million of the funds received from Entergy as such funds relate to the period when the FAC was effective and, therefore, such costs were previously included in customer rates. Consequently, Ameren Missouri recorded a $2 million reduction, representing Ameren Missouris best estimate of its refund to customers, to its FAC underrecovered asset as of June 30, 2012 with a corresponding increase to expense.
As noted above, the MoPSC staff in Ameren Missouris pending electric rate case has recommended that the entire Entergy refund be returned to customers through a reduction in base rates over a threeyear period. In July 2012, Entergy filed an 23 to ULNRC-05944
Table of Contents appeal of FERCs order to the United States Court of Appeals for the District of Columbia. A decision from the court is expected in 2013.
Ameren Illinois Electric Transmission Rate Refund On July 19, 2012, FERC issued an order approving Ameren Illinois accounting for the Ameren Illinois Merger. As part of this order, FERC concluded that Ameren Illinois improperly included acquisition premiums, particularly goodwill, in determining its common equity used in its electric transmission formula rate, thereby inappropriately recovering a higher return on rate base from its electric transmission services customers. FERC directed Ameren Illinois to issue a refund within 30 days of the order to its electric transmission services customers for acquisition premiums inappropriately recovered from those customers. As a result of the order, Ameren Illinois expects to record a pretax charge to earnings of between $10 million and $15 million for its obligation to refund to Ameren Illinois electric transmission customers during the quarter ended September 30, 2012. In August 2012, Ameren Illinois filed a request for an extension of time to complete the refund. Ameren Illinois is studying the impacts of the FERC order and expects to file a request for rehearing at FERC.
2011 Wholesale Distribution Rate Case In January 2011, Ameren Illinois filed a request with FERC to increase its annual revenues for electric delivery service for its wholesale customers by
$11 million. These wholesale distribution revenues are treated as a deduction from Ameren Illinois revenue requirement in retail rate filings with the ICC.
In March 2011, FERC issued an order authorizing the proposed rates to take effect, subject to refund when the final rates are determined. Ameren Illinois has reached an agreement with four of its nine wholesale customers. The impasse with the remaining five wholesale customers has resulted in FERC litigation. An initial decision by the FERC administrative law judge is expected in 2012, and a final FERC decision may be received after 2012. We cannot predict the ultimate outcome of this proceeding, but Ameren Illinois does not expect a material impact to its results of operations, financial position, or liquidity.
Combined Construction and Operating License In 2008, Ameren Missouri filed an application with the NRC for a COL for a new 1,600megawatt nuclear unit at Ameren Missouris existing Callaway County, Missouri, nuclear energy center site. In 2009, Ameren Missouri suspended its efforts to build a new nuclear unit at its existing Missouri nuclear energy center site, and the NRC suspended review of the COL application.
In March 2012, the DOE announced the availability of $452 million of investment funds for the design, engineering, manufacturing, and sale of Americanmade small modular reactors. In April 2012, Ameren Missouri entered into an agreement with Westinghouse to exclusively support Westinghouses application for the DOEs small modular reactor investment funds. The DOE investment funding is intended to support engineering and design certifications and a COL for up to two small modular reactor designs over five years. Westinghouse submitted its application to the DOE in May 2012. The DOE is expected to issue a decision on awarding the investment funds in the third quarter of 2012.
If Westinghouse is awarded DOEs small modular reactor investment funds, Ameren Missouri will seek a COL from the NRC for a Westinghouse small modular reactor or multiple reactors at its Callaway energy center site. A COL is issued by the NRC to permit construction and operation of a nuclear power plant at a specific site in accordance with established laws and regulations. Obtaining a COL from the NRC does not obligate Ameren Missouri to build a small modular reactor at the Callaway site; however, it does preserve the option to move forward in a timely fashion should conditions be right to build a small modular reactor in the future. A COL is valid for at least 40 years.
Ameren Missouri estimates the total cost to obtain the small modular reactor COL will be in the range of $80 million to $100 million. Ameren Missouri expects its incremental investment to obtain the small modular reactor COL to be minimal due to several factors, including the companys capitalized investments in new nuclear energy center development of $69 million as of June 30, 2012, the DOE investment funds that would help support the COL application, and its agreement with Westinghouse. If the DOE does not approve Westinghouses application for the small modular reactor investment funds, Ameren Missouri is not obligated to pursue a COL for the Westinghouse small modular reactor design and may terminate its agreement with Westinghouse.
All of Ameren Missouris costs incurred to license additional nuclear generation at the Callaway site will remain capitalized while management pursues options to maximize the value of its investment in this project. If efforts are permanently abandoned or management concludes it is probable the costs incurred will be disallowed in rates, a charge to earnings would be recognized in the period in which that determination was made.
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Table of Contents NOTE 3 SHORTTERM DEBT AND LIQUIDITY The liquidity needs of the Ameren Companies are typically supported through the use of available cash, shortterm intercompany borrowings, drawings under committed bank credit facilities, or commercial paper issuances.
The following table summarizes the borrowing activity and relevant interest rates under the 2010 Missouri Credit Agreement as of June 30, 2012, and excludes issued letters of credit:
2010 Missouri Credit Agreement ($800 million)
Ameren (Parent)
Ameren Missouri Total Average daily borrowings outstanding during 2012 2
2 Outstanding credit facility borrowings at period end
Weightedaverage interest rate during 2012 4.15%
4.15%
Peak credit facility borrowings during 2012 50 50 Peak interest rate during 2012 4.15%
4.15%
The 2010 Illinois Credit Agreement and the 2010 Genco Credit Agreement were not utilized for borrowings during the six months ended June 30, 2012. Based on letters of credit issued under the 2010 Credit Agreements as of June 30, 2012, as well as commercial paper outstanding as of such date, the aggregate amount of credit capacity available to Ameren (parent), Ameren Missouri, Ameren Illinois and Genco collectively at June 30, 2012, was $2.06 billion.
Commercial Paper At June 30, 2012, Ameren had $30 million of commercial paper outstanding. The average daily commercial paper balances outstanding during the six months ended June 30, 2012, and 2011, were $72 million and $338 million, respectively. The weightedaverage interest rates during the six months ended June 30, 2012, and 2011, were 0.94% and 0.87%, respectively. The peak shortterm commercial paper balances outstanding during the six months ended June 30, 2012, and 2011, were $229 million and $400 million, respectively. The peak interest rates during the six months ended June 30, 2012, and 2011, were 1.25% and 1.46%, respectively.
Indebtedness Provisions and Other Covenants The information below presents a summary of the Ameren Companies compliance with indebtedness provisions and other covenants within the 2010 Credit Agreements. See Note 4 Credit Facility Borrowings and Liquidity in the Form 10K for a detailed description of those provisions.
The 2010 Credit Agreements contain conditions about borrowings and issuances of letters of credit, including the absence of default or unmatured default, material accuracy of representations and warranties (excluding any representation after the closing date as to the absence of material adverse change and material litigation), and obtaining required regulatory authorizations. In addition, solely as it relates to borrowings under the 2010 Illinois Credit Agreement, it is a condition for any such borrowing that, at the time of and after giving effect to such borrowing, the borrower not be in violation of any limitation on its ability to incur unsecured indebtedness contained in its articles of incorporation. The 2010 Credit Agreements also contain nonfinancial covenants, including restrictions on the ability to incur liens, to transact with affiliates, to dispose of assets, to make investments in or transfer assets to its affiliates, and to merge with other entities.
The 2010 Credit Agreements require each of Ameren, Ameren Missouri, Ameren Illinois and Genco to maintain consolidated indebtedness of not more than 65% of its consolidated total capitalization pursuant to a defined calculation set forth in the agreements. As of June 30, 2012, the ratios of consolidated indebtedness to total consolidated capitalization, calculated in accordance with the provisions of the 2010 Credit Agreements, were 48%, 48%,
41% and 45%, for Ameren, Ameren Missouri, Ameren Illinois and Genco, respectively. In addition, under the 2010 Genco Credit Agreement and the 2010 Illinois Credit Agreement, Ameren is required to maintain a ratio of consolidated funds from operations plus interest expense to consolidated interest expense of 2.0 to 1, to be calculated quarterly, as of the end of the most recent four fiscal quarters then ending, in accordance with the 2010 Genco Credit Agreement and the 2010 Illinois Credit Agreement, as applicable. Amerens ratio as of June 30, 2012, was 5.1 to 1. Failure of a borrower to satisfy a financial covenant constitutes an immediate default under the applicable 2010 Credit Agreement.
None of the Ameren Companies credit facilities or financing arrangements contains credit rating triggers that would cause an event of default or acceleration of repayment of outstanding balances. Management believes that the Ameren Companies were in compliance with the provisions and covenants of their credit facilities at June 30, 2012.
Money Pools Ameren has money pool agreements with and among its subsidiaries to coordinate and provide for certain shortterm cash and working capital requirements. Separate money pools are maintained for utility and nonstateregulated entities. Ameren Services is responsible for the operation and administration of the money pool agreements.
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Table of Contents Utility Ameren Missouri, Ameren Illinois and Ameren Services may participate in the utility money pool as both lenders and borrowers. Ameren and AERG may participate in the utility money pool only as lenders. Internal funds are surplus funds contributed to the utility money pool from participants. The primary sources of external funds for the utility money pool are the 2010 Credit Agreements and the commercial paper programs. The total amount available to the pool participants from the utility money pool at any given time is reduced by the amount of borrowings made by participants, but is increased to the extent that the pool participants advance surplus funds to the utility money pool or remit funds from other external sources. The availability of funds is also determined by funding requirement limits established by regulatory authorizations. The utility money pool was established to coordinate and to provide shortterm cash and working capital for the participants. Participants receiving a loan under the utility money pool agreement must repay the principal amount of such loan, together with accrued interest. The rate of interest depends on the composition of internal and external funds in the utility money pool. The average interest rate for borrowing under the utility money pool for the three and six months ended June 30, 2012, was 0.14% and 0.12%,
respectively. There were no utility money pool borrowings during the three and six months ended June 30, 2011.
Nonstateregulated Subsidiaries Ameren, Ameren Services, AER, Genco, AERG, Marketing Company, and other nonstateregulated Ameren subsidiaries have the ability, subject to Ameren parent company and applicable regulatory shortterm borrowing authorizations, to access funding from the 2010 Credit Agreements and the commercial paper programs through a nonstateregulated subsidiary money pool agreement. All participants may borrow from or lend to the nonstateregulated money pool, except for Ameren Services, which may participate only as a borrower. The total amount available to the pool participants from the nonstateregulated subsidiary money pool at any given time is reduced by the amount of borrowings made by participants, but is increased to the extent that the pool participants advance surplus funds to the nonstateregulated subsidiary money pool or remit funds from other external sources. The nonstateregulated subsidiary money pool was established to coordinate and to provide shortterm cash and working capital for the participants.
Participants receiving a loan under the nonstateregulated subsidiary money pool agreement must repay the principal amount of such loan, together with accrued interest. The rate of interest depends on the composition of internal and external funds in the nonstateregulated subsidiary money pool. The average interest rate for borrowing under the nonstateregulated subsidiary money pool for the three and six months ended June 30, 2012, was 0.64% and 0.70%, respectively (2011 0.72% and 0.93%, respectively).
See Note 8 Related Party Transactions for the amount of interest income and expense from the money pool arrangements recorded by the Ameren Companies for the three and six months ended June 30, 2012, and 2011.
NOTE 4 LONGTERM DEBT AND EQUITY FINANCINGS Ameren Illinois On July 30, 2012, Ameren Illinois commenced a tender offer to purchase for cash its outstanding 9.75% senior secured notes due 2018 and its outstanding 6.25% senior secured notes due 2018 for an aggregate purchase price (including principal and premium) of up to $450 million. Any validly tendered 9.75% senior secured notes will have priority over and be accepted for purchase before any validly tendered 6.25% senior secured notes. The tender offer is scheduled to expire on August 24, 2012, unless extended or earlier terminated by Ameren Illinois.
Indenture Provisions and Other Covenants Ameren Missouris and Ameren Illinois indentures and articles of incorporation include covenants and provisions related to issuances of first mortgage bonds and preferred stock. Ameren Missouri and Ameren Illinois are required to meet certain ratios to issue additional first mortgage bonds and preferred stock. However, a failure to achieve these ratios would not result in a default under these covenants and provisions, but would restrict the companies ability to issue bonds or preferred stock. The following table summarizes the required and actual interest coverage ratios for interest charges and dividend coverage ratios and bonds and preferred stock issuable for the 12 months ended June 30, 2012, at an assumed interest rate of 6% and dividend rate of 7%.
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Table of Contents Required Interest Coverage Ratio(a)
Actual Interest Coverage Ratio Bonds Issuable(b)
Required Dividend Coverage Ratio(c)
Actual Dividend Coverage Ratio Preferred Stock Issuable Ameren Missouri
>2.0 3.7 2,780
>2.5 100.3 1,912 Ameren Illinois
>2.0 7.1 3,514(d)
>1.5 3.0 203 (a)
Coverage required on the annual interest charges on first mortgage bonds outstanding and to be issued. Coverage is not required in certain cases when additional first mortgage bonds are issued on the basis of retired bonds.
(b)
Amount of bonds issuable based either on required coverage ratios or unfunded property additions, whichever is more restrictive. The amounts shown also include bonds issuable based on retired bond capacity of $89 million and $765 million at Ameren Missouri and Ameren Illinois, respectively.
(c)
Coverage required on the annual dividend on preferred stock outstanding and to be issued, as required in the respective companys articles of incorporation.
(d)
Amount of bonds issuable by Ameren Illinois based on unfunded property additions and retired bonds solely under the former IP mortgage indenture.
Amerens indenture does not require Ameren to comply with any quantitative financial covenants. The indenture does, however, include certain crossdefault provisions. Specifically, either (1) the failure by Ameren to pay when due and upon expiration of any applicable grace period any portion of any Ameren indebtedness in excess of $25 million or (2) the acceleration upon default of the maturity of any Ameren indebtedness in excess of $25 million under any indebtedness agreement, including the 2010 Credit Agreements, constitutes a default under the indenture, unless such past due or accelerated debt is discharged or the acceleration is rescinded or annulled within a specified period.
Ameren Missouri, Ameren Illinois, Genco and certain other nonregistrant Ameren subsidiaries are subject to Section 305(a) of the Federal Power Act, which makes it unlawful for any officer or director of a public utility, as defined in the Federal Power Act, to participate in the making or paying of any dividend from any funds properly included in capital account. The meaning of this limitation has never been clarified under the Federal Power Act or FERC regulations. However, FERC has consistently interpreted the provision to allow dividends to be paid as long as (1) the source of the dividends is clearly disclosed, (2) the dividends are not excessive, and (3) there is no selfdealing on the part of corporate officials. At a minimum, Ameren believes that dividends can be paid by its subsidiaries that are public utilities from net income and retained earnings. In addition, under Illinois law, Ameren Illinois may not pay any dividend on its stock, unless, among other things, its earnings and earned surplus are sufficient to declare and pay a dividend after provision is made for reasonable and proper reserves, or unless Ameren Illinois has specific authorization from the ICC.
Ameren Illinois articles of incorporation require its dividend payments on common stock to be based on ratios of common stock to total capitalization and other provisions related to certain operating expenses and accumulations of earned surplus. Ameren Illinois committed to FERC to maintain a minimum 30% ratio of common stock equity to total capitalization after the Ameren Illinois Merger and AERG distribution. As of June 30, 2012, Ameren Illinois ratio of common stock equity to total capitalization was 58%.
Gencos indenture includes provisions that require Genco to maintain certain interest coverage and debttocapital ratios in order for Genco to pay dividends, to make principal or interest payments on subordinated borrowings, to make loans to or investments in affiliates, or to incur additional external, third party indebtedness. The following table summarizes these ratios for the 12 months ended and as of June 30, 2012:
Required Interest Coverage Ratio Actual Interest Coverage Ratio Required Debtto Capital Ratio Actual Debtto Capital Ratio Genco
>1.75(a)/2.50(b) 3.39
<60%(b) 43%
(a)A minimum interest coverage ratio of 1.75 is required for Genco to make certain restricted payments, as defined, including specified dividend payments and, principal and interest payments on subordinated borrowings. As of the date of the restricted payment, the minimum ratio must have been achieved for the most recently ended four fiscal quarters and projected by management to be achieved for each of the subsequent four sixmonth periods. Investments in the nonstateregulated subsidiary money pool and repayments of nonstateregulated subsidiary money pool borrowings are not subject to this incurrence test.
(b)A minimum interest coverage ratio of 2.50 for the most recently ended four fiscal quarters and a debttocapital ratio of no greater than 60% are required for Genco to incur additional indebtedness, as defined, other than permitted indebtedness, as defined, for borrowed money. The ratios must be computed on a pro forma basis considering the additional indebtedness to be incurred and the related interest expense. Nonstateregulated subsidiary money pool borrowings are defined as permitted indebtedness and are not subject to these incurrence tests. Credit facility borrowings, including borrowings under the 2010 Genco Credit Agreement, and other borrowings from thirdparty, external sources are included in the definition of indebtedness and are subject to these incurrence tests.
Gencos debt incurrencerelated ratio restrictions under its indenture may be disregarded if both Moodys and S&P reaffirm the ratings of Genco in place at the time of the debt incurrence after considering the additional indebtedness.
Under the provisions of Gencos indenture, Genco may not borrow additional funds from external, thirdparty sources if its interest coverage ratio is less than a specified minimum or its leverage ratio is greater than a specified maximum. Based on projections as of June 30, 2012, of Gencos operating results and cash flows, we expect that, by the end of the first quarter of 2013, Gencos interest coverage ratio will be less than the minimum ratio required for the company to borrow additional funds from external, thirdparty sources.
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Table of Contents Gencos indenture does not restrict intercompany borrowings from Amerens nonstateregulated subsidiary money pool. However, borrowings from the money pool are subject to Amerens control and, if a Genco intercompany financing need were to arise, borrowings from the nonstateregulated subsidiary money pool by Genco would be dependent on consideration by Ameren of the facts and circumstances existing at that time.
In order for the Ameren Companies to issue securities in the future, they will have to comply with all applicable requirements in effect at the time of any such issuances.
OffBalanceSheet Arrangements At June 30, 2012, none of the Ameren Companies had any offbalancesheet financing arrangements, other than operating leases entered into in the ordinary course of business. None of the Ameren Companies expect to engage in any significant offbalancesheet financing arrangements in the near future.
NOTE 5 OTHER INCOME AND EXPENSES The following table presents the components of Other Income and Expenses in Amerens, Ameren Missouris, and Ameren Illinois statement of income (loss) and statements of income and comprehensive income for the three and six months ended June 30, 2012, and 2011:
Three Months Six Months 2012 2011 2012 2011 Ameren:(a)
Miscellaneous income:
Allowance for equity funds used during construction 8
9
$ 17
$ 15 Interest income on industrial development revenue bonds 7
7 14 14 Interest and dividend income(b) 5 1
5 2
Other
1 2
Total miscellaneous income
$ 20
$ 17
$ 37
$ 33 Miscellaneous expense:
Donations(c) 3 1
$ 15 3
Other 4
4 7
7 Total miscellaneous expense 7
5
$ 22
$ 10 Ameren Missouri:
Miscellaneous income:
Allowance for equity funds used during construction 7
8
$ 15
$ 14 Interest income on industrial development revenue bonds 7
7 14 14 Interest and dividend income(b) 4 1
4 1
Total miscellaneous income
$ 18
$ 16
$ 33
$ 29 Miscellaneous expense:
Donations 3
1 5
2 Other 1
2 2
4 Total miscellaneous expense 4
3 7
6 Ameren Illinois:
Miscellaneous income:
Allowance for equity funds used during construction 1
1 2
1 Interest and dividend income
1 Other 1
1 1
Total miscellaneous income 2
1 3
3 Miscellaneous expense:
Donations(c)
$ 10
Other 2
1 3
2 Total miscellaneous expense 2
1
$ 13 2
(a)
Includes amounts for Ameren registrant and nonregistrant subsidiaries and intercompany eliminations.
(b)
Includes interest income relating to a refund of charges included in an expired power purchase agreement with Entergy. See Note 2 Rate and Regulatory Matters for additional information.
(c)
Includes Ameren Illinois onetime $7.5 million donation and $1 million annual donation to the Illinois Science and Energy Innovation Trust and $1 million annual donation for customer assistance programs pursuant to the IEIMA as a result of Ameren Illinois participation in the formula ratemaking process.
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Table of Contents NOTE 6 DERIVATIVE FINANCIAL INSTRUMENTS We use derivatives principally to manage the risk of changes in market prices for natural gas, coal, diesel, electricity, and uranium. Such price fluctuations may cause the following:
an unrealized appreciation or depreciation of our contracted commitments to purchase or sell when purchase or sale prices under the commitments are compared with current commodity prices; market values of coal, natural gas, and uranium inventories that differ from the cost of those commodities in inventory; and actual cash outlays for the purchase of these commodities that differ from anticipated cash outlays.
The derivatives that we use to hedge these risks are governed by our risk management policies for forward contracts, futures, options, and swaps. Our net positions are continually assessed within our structured hedging programs to determine whether new or offsetting transactions are required. The goal of the hedging program is generally to mitigate financial risks while ensuring that sufficient volumes are available to meet our requirements. Contracts we enter into as part of our risk management program may be settled financially, settled by physical delivery, or net settled with the counterparty.
The following table presents open gross derivative volumes by commodity type as of June 30, 2012, and December 31, 2011:
Quantity (in millions, except as indicated)
Commodity NPNS Contracts(a)
Cash Flow Hedges(b)
Other Derivatives(c)
Derivatives That Qualify for Regulatory Deferral(d) 2012 2011 2012 2011 2012 2011 2012 2011 Coal (in tons)
Ameren Missouri 106 116 (e)
(e)
(e)
(e)
(e)
Genco 31 24 (e)
(e) 5 (e)
(e)
(e)
Other(f) 9 7
(e)
(e) 1 (e)
(e)
(e)
Ameren 146 147 (e)
(e) 6 (e)
(e)
(e)
Fuel oils (in gallons)(g)
Ameren Missouri (e)
(e)
(e)
(e)
(e)
(e) 59 53 Genco (e)
(e)
(e)
(e) 43 27 (e)
(e)
Other(f)
(e)
(e)
(e)
(e) 12 9
(e)
(e)
Ameren (e)
(e)
(e)
(e) 55 36 59 53 Natural gas (in mmbtu)
Ameren Missouri 6
8 (e)
(e) 16 9
22 19 Ameren Illinois 27 42 (e)
(e)
(e)
(e) 153 174 Genco (e)
(e)
(e)
(e) 26 7
(e)
(e)
Other(f)
(e)
(e)
(e)
(e) 1 1
(e)
(e)
Ameren 33 50 (e)
(e) 43 17 175 193 Power (in megawatthours)
Ameren Missouri 4
1 (e)
(e) 1 1
13 6
Ameren Illinois 22 11 (e)
(e)
(e)
(e) 19 24 Genco (e)
(e)
(e)
(e)
(e)
(e)
Other(f) 69 61 17 17 56 30 (4)
(9)
Ameren 95 73 17 17 57 31 28 21 Uranium (pounds in thousands)
Ameren Missouri & Ameren 5,361 5,553 (e)
(e)
(e)
(e) 131 148 (a)
Contracts through December 2017, March 2015, September 2035, and October 2024 for coal, natural gas, power, and uranium, respectively, as of June 30, 2012.
(b)
Contracts through December 2016 for power as of June 30, 2012.
(c)
Contracts through December 2014, October 2016, April 2015, and December 2016 for coal, fuel oils, natural gas, and power, respectively, as of June 30, 2012.
(d)
Contracts through October 2014, October 2016, May 2032, and December 2013 for fuel oils, natural gas, power, and uranium, respectively, as of June 30, 2012.
(e)
Not applicable.
(f)
Includes AERG contracts for coal and fuel oils, Marketing Company contracts for natural gas and power, and intercompany eliminations for power.
(g)
Fuel oils consist of heating and crude oil.
Authoritative guidance regarding derivative instruments requires that all contracts considered to be derivative instruments be recorded on the balance sheet at their fair values, unless the NPNS exception applies. See Note 7 Fair Value Measurements for our methods of assessing the fair value of derivative instruments. Many of our physical contracts, such as our coal and purchased power contracts, qualify for the NPNS exception to derivative accounting rules. The revenue or expense on NPNS contracts is recognized at the contract price upon physical delivery.
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Table of Contents If we determine that a contract meets the definition of a derivative and is not eligible for the NPNS exception, we review the contract to determine if it qualifies for hedge accounting. We also consider whether gains or losses resulting from such derivatives qualify for regulatory deferral. Contracts that qualify for cash flow hedge accounting are recorded at fair value with changes in fair value charged or credited to accumulated OCI in the period in which the change occurs, to the extent the hedge is effective. To the extent the hedge is ineffective, the related changes in fair value are charged or credited to the statement of income or the statement of income and comprehensive income in the period in which the change occurs. When the contract is settled or delivered, the net gain or loss is recorded in the statement of income or the statement of income and comprehensive income.
Derivative contracts that qualify for regulatory deferral are recorded at fair value, with changes in fair value recorded as regulatory assets or regulatory liabilities in the period in which the change occurs. Ameren Missouri and Ameren Illinois believe derivative gains and losses deferred as regulatory assets and regulatory liabilities are probable of recovery or refund through future rates charged to customers. Regulatory assets and regulatory liabilities are amortized to operating income as related losses and gains are reflected in rates charged to customers. Therefore, gains and losses on these derivatives have no effect on operating income.
Certain derivative contracts are entered into on a regular basis as part of our risk management program but do not qualify for the NPNS exception, hedge accounting, or regulatory deferral accounting. Such contracts are recorded at fair value, with changes in fair value charged or credited to the statement of income or the statement of income and comprehensive income in the period in which the change occurs.
Authoritative accounting guidance permits companies to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a liability) against fair value amounts recognized for derivative instruments that are executed with the same counterparty under the same master netting arrangement. The Ameren Companies did not elect to adopt this guidance for any eligible financial instruments or other items.
The following table presents the carrying value and balance sheet location of all derivative instruments as of June 30, 2012, and December 31, 2011:
Balance Sheet Location Ameren(a)
Ameren Missouri Ameren Illinois Genco 2012:
Derivative assets designated as hedging instruments Commodity contracts:
Power MTM derivative assets 23 (b)
(b)
(b)
Other assets 31
Total assets 54
Derivative liabilities designated as hedging instruments Commodity contracts:
Power MTM derivative liabilities 1
(b)
(b)
Total liabilities 1
Derivative assets not designated as hedging instruments (c)
Commodity contracts:
Fuel oils MTM derivative assets 13 (b)
(b)
(b)
Other current assets
8
4 Other assets 5
4
1 Natural gas MTM derivative assets 10 (b)
(b)
(b)
Other current assets
2 2
5 Other assets
Power MTM derivative assets 110 (b)
(b)
(b)
Other current assets
39
Other assets 35 2
Total assets 173 55 2
10 Derivative liabilities not designated as hedging instruments (c)
Commodity contracts:
Coal MTM derivative liabilities 4
(b)
(b)
Other current liabilities
4 Other deferred credits and liabilities 6
4 Fuel oils MTM derivative liabilities 5
(b)
(b)
Other current liabilities
2
2 Other deferred credits and liabilities 6
2
3 Natural gas MTM derivative liabilities 91 (b) 78 (b)
Other current liabilities
12
1 Other deferred credits and liabilities 77 11 66
Power MTM derivative liabilities 96 (b) 19 (b)
MTM derivative liabilities affiliates (b)
(b) 114 (b) 30 to ULNRC-05944
Table of Contents Balance Sheet Location Ameren(a)
Ameren Missouri Ameren Illinois Genco Other current liabilities
15
Other deferred credits and liabilities 117 2
88
Uranium MTM derivative liabilities 1
(b)
(b)
Other current liabilities
1
Total liabilities 403 45 365 14 2011:
Derivative assets designated as hedging instruments Commodity contracts:
Power MTM derivative assets 8
(b)
(b)
(b)
Other assets 16
Total assets 24
Derivative liabilities designated as hedging instruments Commodity contracts:
Power Other deferred credits and liabilities 1
Total liabilities 1
Derivative assets not designated as hedging instruments (c)
Commodity contracts:
Fuel oils MTM derivative assets 29 (b)
(b)
(b)
Other current assets
17
10 Other assets 8
6
1 Natural gas MTM derivative assets 6
(b)
(b)
(b)
Other current assets
2 1
2 Other assets
1
Power MTM derivative assets 72 (b)
(b)
(b)
Other current assets
30
Other assets 99
77
Total assets 214 55 79 13 Derivative liabilities not designated as hedging instruments (c)
Commodity contracts:
Fuel oils MTM derivative liabilities 2
(b)
(b)
Other current liabilities
1
1 Natural gas MTM derivative liabilities 106 (b) 90 (b)
Other current liabilities
13
2 Other deferred credits and liabilities 92 13 79
Power MTM derivative liabilities 53 (b) 9 (b)
MTM derivative liabilities affiliates (b)
(b) 200 (b)
Other current liabilities
9
Other deferred credits and liabilities 26
8
Uranium Other deferred credits and liabilities 1
1
Total liabilities 280 37 386 3
(a)
Includes amounts for Ameren registrant and nonregistrant subsidiaries and intercompany eliminations.
(b)
Balance sheet line item not applicable to registrant.
(c)
Includes derivatives subject to regulatory deferral.
The following table presents the cumulative amount of pretax net gains (losses) on all derivative instruments in accumulated OCI and regulatory assets or regulatory liabilities as of June 30, 2012, and December 31, 2011:
Ameren Ameren Missouri Ameren Illinois Genco Other (a) 2012:
Cumulative gains (losses) deferred in accumulated OCI:
Power derivative contracts(b) 45
45 Interest rate derivative contracts(c)(d)
(8)
(8)
Cumulative gains (losses) deferred in regulatory liabilities or assets:
Fuel oils derivative contracts(e) 5 5
Natural gas derivative contracts(f)
(163)
(21)
(142)
Power derivative contracts(g)
(82) 24 (221)
115 Uranium derivative contracts(h)
(1)
(1)
2011:
Cumulative gains (losses) deferred in accumulated OCI:
Power derivative contracts(b) 19
19 Interest rate derivative contracts(c)(d)
(8)
(8)
Cumulative gains (losses) deferred in regulatory liabilities or assets:
Fuel oils derivative contracts(e) 19 19
Natural gas derivative contracts(f)
(191)
(24)
(167)
Power derivative contracts(g) 81 21 (140)
200 Uranium derivative contracts(h)
(1)
(1)
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Table of Contents (a)
Includes amounts for Marketing Company and intercompany eliminations.
(b)
Represents net gains associated with power derivative contracts at Ameren. These contracts are a partial hedge of electricity price exposure through December 2016 as of June 30, 2012. Current gains of $17 million and $5 million were recorded at Ameren as of June 30, 2012, and December 31, 2011, respectively.
(c)
Includes net gains associated with interest rate swaps at Genco that were a partial hedge of the interest rate on debt issued in June 2002. The swaps covered the first 10 years of debt that has a 30year maturity, and the gain in OCI was amortized over a 10year period that began in June 2002. The balance of the gain was fully amortized as of June 30, 2012. The carrying value at December 31, 2011, was less than $1 million.
(d)
Includes net losses associated with interest rate swaps at Genco. The swaps were executed during the fourth quarter of 2007 as a partial hedge of interest rate risks associated with Gencos April 2008 debt issuance. The loss on the interest rate swaps is being amortized over a 10year period that began in April 2008. The carrying value at June 30, 2012, and December 31, 2011, was a loss of $8 million and $9 million, respectively. Over the next twelve months, $1.4 million of the loss will be amortized.
(e)
Represents net gains on fuel oils derivative contracts at Ameren Missouri. These contracts are a partial hedge of Ameren Missouris transportation costs for coal through October 2014 as of June 30, 2012. Current gains deferred as regulatory liabilities include $7 million and $7 million at Ameren and Ameren Missouri as of June 30, 2012, respectively. Current losses deferred as regulatory assets include $2 million and $2 million at Ameren and Ameren Missouri as of June 30, 2012, respectively. Current gains deferred as regulatory liabilities include $16 million and $16 million at Ameren and Ameren Missouri as of December 31, 2011, respectively. Current losses deferred as regulatory assets include $1 million and $1 million at Ameren and Ameren Missouri as of December 31, 2011, respectively.
(f)
Represents net losses associated with natural gas derivative contracts. These contracts are a partial hedge of natural gas requirements through October 2016 at Ameren, Ameren Missouri, and Ameren Illinois, in each case as of June 30, 2012. Current gains deferred as regulatory liabilities include $2 million and $2 million at Ameren and Ameren Illinois, respectively, as of June 30, 2012. Current losses deferred as regulatory assets include $88 million, $10 million, and $78 million at Ameren, Ameren Missouri and Ameren Illinois, respectively, as of June 30, 2012. Current gains deferred as regulatory liabilities include $1 million and $1 million at Ameren and Ameren Illinois, respectively, as of December 31, 2011. Current losses deferred as regulatory assets include $101 million, $11 million, and $90 million at Ameren, Ameren Missouri and Ameren Illinois, respectively, as of December 31, 2011.
(g)
Represents net losses associated with power derivative contracts. These contracts are a partial hedge of power price requirements through May 2032 at Ameren and Ameren Illinois and through December 2015 at Ameren Missouri, in each case as of June 30, 2012. Current gains deferred as regulatory liabilities include $37 million and $37 million at Ameren and Ameren Missouri, respectively, as of June 30, 2012. Current losses deferred as regulatory assets include $33 million, $14 million, and $133 million at Ameren, Ameren Missouri and Ameren Illinois, respectively, as of June 30, 2012. Current gains deferred as regulatory liabilities include $29 million and $29 million at Ameren and Ameren Missouri, respectively, as of December 31, 2011. Current losses deferred as regulatory assets include $17 million, $8 million, and $209 million at Ameren, Ameren Missouri and Ameren Illinois, respectively, as of December 31, 2011.
(h)
Represents net losses on uranium derivative contracts at Ameren Missouri. These contracts are a partial hedge of our uranium requirements through December 2013 as of June 30, 2012. Current losses deferred as regulatory assets include $1 million and $1 million at Ameren and Ameren Missouri as of June 30, 2012, respectively. Current losses deferred as regulatory assets include less than $1 million and less than $1 million at Ameren and Ameren Missouri as of December 31, 2011, respectively.
Derivative instruments are subject to various creditrelated losses in the event of nonperformance by counterparties to the transaction.
Exchangetraded contracts are supported by the financial and credit quality of the clearing members of the respective exchanges and have nominal credit risk. In all other transactions, we are exposed to credit risk. Our credit risk management program involves establishing credit limits and collateral requirements for counterparties, using master trading and netting agreements, and reporting daily exposure to senior management.
We believe that entering into master trading and netting agreements mitigates the level of financial loss that could result from default by allowing net settlement of derivative assets and liabilities. We generally enter into the following master trading and netting agreements: (1) International Swaps and Derivatives Association Agreement, a standardized financial natural gas and electric contract; (2) the Master Power Purchase and Sale Agreement, created by the Edison Electric Institute and the National Energy Marketers Association, a standardized contract for the purchase and sale of wholesale power; and (3) the North American Energy Standards Board Inc. agreement, a standardized contract for the purchase and sale of natural gas. These master trading and netting agreements allow the counterparties to net settle sale and purchase transactions. Further, collateral requirements are calculated at a master trading and netting agreement level by counterparty.
Concentrations of Credit Risk In determining our concentrations of credit risk related to derivative instruments, we review our individual counterparties and categorize each counterparty into one of eight groupings according to the primary business in which each engages. The following table presents the maximum exposure, as of June 30, 2012, and December 31, 2011, if counterparty groups were to completely fail to perform on contracts by grouping. The maximum exposure is based on the gross fair value of financial instruments, including NPNS contracts, which excludes collateral held, and does not consider the legally binding right to net transactions based on master trading and netting agreements.
Affiliates(a)
Coal Producers Commodity Marketing Companies Electric Utilities Financial Companies Municipalities/
Cooperatives Oil and Gas Companies Retail Companies Total 2012:
AMO 1
1 2
6 15 4
29 AIC
1
1
2 32 to ULNRC-05944
Table of Contents Affiliates(a)
Coal Producers Commodity Marketing Companies Electric Utilities Financial Companies Municipalities/
Cooperatives Oil and Gas Companies Retail Companies Total Genco
2
1
3
6 Other(b) 187 10 46 14 18 465(c) 1 103 844 Ameren 188 11 51 20 35 469 4
103
$ 881 2011:
AMO 1
35 1
4 26 4
71 AIC
84
1
85 Genco
1 1
2 6
3
13 Other(b) 275 1
3 10 51 194(c)
87 621 Ameren 276 37 89 16 84 198 3
87
$ 790 (a)
Primarily comprised of Marketing Companys exposure to Ameren Illinois related to financial contracts. The exposure is not eliminated at the consolidated Ameren level for purposes of this disclosure, as it is calculated without regard to the offsetting affiliate counterpartys liability position. See Note 14 Related Party Transactions in the Form 10K for additional information on these financial contracts.
(b)
Includes amounts for Marketing Company, AERG, and AFS.
(c)
Primarily composed of Marketing Companys exposure to NPNS contracts with terms through September 2035.
The potential loss on counterparty exposures is reduced by the application of master trading and netting agreements and collateral held to the extent of reducing the exposure to zero. Collateral includes both cash collateral and other collateral held. The amount of cash collateral held by Ameren and Marketing Company from counterparties and based on the contractual rights under the agreements to seek collateral, as well as the maximum exposure as calculated under the individual master trading and netting agreements, was $2 million from marketing companies at June 30, 2012. Cash collateral held by Ameren and Marketing Company was less than $1 million from retail companies at December 31, 2011. As of June 30, 2012, other collateral used to reduce exposure consisted of letters of credit in the amount of $7 million held by Ameren and Marketing Company. As of December 31, 2011, other collateral used to reduce exposure consisted of letters of credit in the amount of $9 million, $1 million, $1 million, and $7 million held by Ameren, Ameren Missouri, Genco, and Marketing Company, respectively.
The following table presents the potential loss after consideration of collateral and application of master trading and netting agreements as of June 30, 2012, and December 31, 2011:
Affiliates(a)
Coal Producers Commodity Marketing Companies Electric Utilities Financial Companies Municipalities/
Cooperatives Oil and Gas Companies Retail Companies Total 2012:
AMO
2 2
8 4
16 AIC
1
1 Genco
1
1
2 Other(b) 186 5
38 3
13 459(c)
102 806 Ameren 186 5
42 5
21 463 1
102
$ 825 2011:
AMO 1
35 1
3 22 4
66 AIC
84
84 Genco
1 1
2
4 Other(b) 273
3 5
42 187(c)
86 596 Ameren 274 35 88 9
65 191 2
86
$ 750 (a)
Primarily comprised of Marketing Companys exposure to Ameren Illinois related to financial contracts. The exposure is not eliminated at the consolidated Ameren level for purposes of this disclosure, as it is calculated without regard to the offsetting affiliate counterpartys liability position. See Note 14 Related Party Transactions in the Form 10K for additional information on these financial contracts.
(b)
Includes amounts for Marketing Company, AERG, and AFS.
(c)
Primarily composed of Marketing Companys exposure to NPNS contracts with terms through September 2035.
33 to ULNRC-05944
Table of Contents Derivative Instruments with Credit RiskRelated Contingent Features Our commodity contracts contain collateral provisions tied to the Ameren Companies credit ratings. If we were to experience an adverse change in our credit ratings, or if a counterparty with reasonable grounds for uncertainty regarding performance of an obligation requested adequate assurance of performance, additional collateral postings might be required. The following table presents, as of June 30, 2012, and December 31, 2011, the aggregate fair value of all derivative instruments with credit riskrelated contingent features in a gross liability position, the cash collateral posted, and the aggregate amount of additional collateral that could be required to be posted with counterparties. The additional collateral required is the net liability position allowed under the master trading and netting agreements, assuming (1) the credit riskrelated contingent features underlying these agreements were triggered on June 30, 2012, or December 31, 2011, and (2) those counterparties with rights to do so requested collateral:
Aggregate Fair Value of Derivative Liabilities(a)
Cash Collateral Posted Potential Aggregate Amount of Additional Collateral Required(b) 2012:
Ameren Missouri 146 7
125 Ameren Illinois 174 91 106 Genco 48 1
41 Other(c) 86 12 63 Ameren 454 111 335 2011:
Ameren Missouri 102 8
86 Ameren Illinois 220 96 125 Genco 55 1
58 Other(c) 79 11 63 Ameren 456 116 332 (a)
Prior to consideration of master trading and netting agreements and including NPNS contract exposures.
(b)
As collateral requirements with certain counterparties are based on master trading and netting agreements, the aggregate amount of additional collateral required to be posted is after consideration of the effects of such agreements.
(c)
Includes amounts for Marketing Company and Ameren (parent).
Cash Flow Hedges The following table presents the pretax net gain or loss for the three and six months ended June 30, 2012, and 2011, associated with derivative instruments designated as cash flow hedges.
Gain (Loss)
Recognized in OCI(a)
Location of (Gain) Loss Reclassified from OCI into Income(b)
(Gain) Loss Reclassified from OCI into Income(b)
Location of Gain (Loss)
Recognized in Income(c)
Gain (Loss)
Recognized in Income(c)
Three Months 2012:
Ameren:(d)
Power 5
Operating Revenues Electric 2
Operating Revenues Electric (1)
Interest rate(e)
Interest Charges (f)
Interest Charges
Genco:
Interest rate(e)
Interest Charges (f)
Interest Charges
2011:
Ameren:(d)
Power (3)
Operating Revenues Electric 1
Operating Revenues Electric 3
Interest rate(e)
Interest Charges (f)
Interest Charges
Genco:
Interest rate(e)
Interest Charges (f)
Interest Charges
Six Months 2012:
Ameren:(d)
Power 23 Operating Revenues Electric 6
Operating Revenues Electric 1
Interest rate(e)
Interest Charges (f)
Interest Charges
Genco:
Interest rate(e)
Interest Charges (f)
Interest Charges
2011:
Ameren:(d)
Power (7)
Operating Revenues Electric 2
Operating Revenues Electric 2
Interest rate(e)
Interest Charges (f)
Interest Charges
Genco:
Interest rate(e)
Interest Charges (f)
Interest Charges
(a)
Effective portion of gain (loss).
(b)
Effective portion of (gain) loss on settlements.
(c)
Ineffective portion of gain (loss) and amount excluded from effectiveness testing.
(d)
Includes amounts from Ameren registrant and nonregistrant subsidiaries.
(e)
Represents interest rate swaps settled in prior periods. The cumulative gain and loss on the interest rate swaps is being amortized into income over a 10year period.
(f)
Less than $1 million.
34 to ULNRC-05944
Table of Contents Other Derivatives The following table represents the net change in market value for derivatives not designated as hedging instruments for the three and six months ended June 30, 2012 and 2011:
Location of Gain (Loss)
Recognized in Income Gain (Loss)
Recognized in Income Three Months Six Months 2012 2011 2012 2011 Ameren(a)
Coal Operating Expenses Fuel (6)
(10)
Fuel oils Operating Expenses Fuel (18)
(9)
(13) 10 Natural gas (generation)
Operating Expenses Fuel 4
5
Power Operating Revenues Electric 7
(5) 6 (7)
Total (13)
(14)
(12) 3 Ameren Missouri Natural gas (generation)
Operating Expenses Fuel
(1)
Genco Coal Operating Expenses Fuel (5)
(8)
Fuel oils Operating Expenses Fuel (14)
(8)
(10) 7 Natural gas (generation)
Operating Expenses Fuel 4
4
Power Operating Revenues
(1)
(1)
Total (15)
(9)
(14) 6 (a)
Includes amounts for Ameren registrant and nonregistrant subsidiaries and intercompany eliminations.
Derivatives that Qualify for Regulatory Deferral The following table represents the net change in market value for derivatives that qualify for regulatory deferral for the three and six months ended June 30, 2012, and 2011:
Gain (Loss) Recognized in Regulatory Liabilities or Regulatory Assets Three Months Six Months 2012 2011 2012 2011 Ameren(a)
Fuel oils
$ (19)
$ (13)
$ (14)
$ 16 Natural gas 46 3
28 34 Power (1) 88 (163) 90 Uranium
(3)
(4)
Total
$ 26
$ 75
$(149)
$136 Ameren Missouri Fuel oils
$ (19)
$ (13)
$ (14)
$ 16 Natural gas 5
1 3
4 Power 4
23 3
23 Uranium
(3)
(4)
Total
$ (10) 8 (8)
$ 39 Ameren Illinois Natural gas
$ 41 2
25
$ 30 Power 63 121 (81) 148 Total
$104
$123
$ (56)
$178 (a)
Includes amounts for intercompany eliminations.
As part of the 2007 Illinois Electric Settlement Agreement and subsequent Illinois power procurement processes, Ameren Illinois entered into financial contracts with Marketing Company. These financial contracts are derivative instruments. They are accounted for as cash flow hedges by Marketing Company and as derivatives that qualify for regulatory deferral by Ameren Illinois. Consequently, Ameren Illinois and Marketing Company record the fair value of the contracts on their respective balance sheets and the changes to the fair value in regulatory assets or liabilities by Ameren Illinois and OCI by Marketing Company. In Amerens consolidated financial statements, all financial statement effects of the derivative instruments entered into among affiliates were eliminated. The fair value of the financial contracts included in MTM derivative liabilities affiliates on Ameren Illinois balance sheet totaled $114 million and $200 million at June 30, 2012, and December 31, 2011, respectively. See Note 14 Related Party Transactions under Part II, Item 8, of the Form 10K for additional information on these financial contracts.
NOTE 7 FAIR VALUE MEASUREMENTS Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use various methods to determine fair value, including market, income, and cost approaches. With these approaches, we adopt certain assumptions that market participants would use in pricing the asset or liability, including assumptions about market risk or the risks inherent in the inputs to the valuation. Inputs to valuation can be readily observable, marketcorroborated, 35 to ULNRC-05944
Table of Contents or unobservable. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Authoritative accounting guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. All financial assets and liabilities carried at fair value are classified and disclosed in one of the following three hierarchy levels:
Level 1: Inputs based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities are primarily exchangetraded derivatives and assets, including cash and cash equivalents and listed equity securities, such as those held in Ameren Missouris Nuclear Decommissioning Trust Fund.
The market approach is used to measure the fair value of equity securities held in Ameren Missouris Nuclear Decommissioning Trust Fund. Equity securities in this fund are representative of the S&P 500 index, excluding securities of Ameren Corporation, owners and/or operators of nuclear power plants and the trustee and investment managers. The S&P 500 index is comprised of stocks of large capitalization companies.
Level 2: Marketbased inputs corroborated by thirdparty brokers or exchanges based on transacted market data. Level 2 assets and liabilities include certain assets held in Ameren Missouris Nuclear Decommissioning Trust Fund, including corporate bonds and other fixedincome securities, U.S. treasury and agency securities, and certain overthecounter derivative instruments, including natural gas and financial power transactions.
Fixed income securities are valued using prices from independent, industry recognized data vendors who provide values that are either exchange based or matrix based. The fair value measurements of fixed income securities classified as Level 2 are based on inputs other than quoted prices that are observable for the asset or liability. Examples are matrix pricing, market corroborated pricing, and inputs such as yield curves and indices. Level 2 fixed income securities in the Nuclear Decommissioning Trust Fund are comprised primarily of corporate bonds, assetbacked securities and U.S. agency bonds.
Derivative instruments classified as Level 2 are valued by corroborated observable inputs, such as pricing services or prices from similar instruments that trade in liquid markets. Our development and corroboration process entails obtaining multiple quotes or prices from outside sources. To derive our forward view to price our derivative instruments at fair value, we average the midpoints of the bid/ask spreads. To validate forward prices obtained from outside parties, we compare the pricing to recently settled market transactions. Additionally, a review of all sources is performed to identify any anomalies or potential errors. Further, we consider the volume of transactions on certain trading platforms in our reasonableness assessment of the averaged midpoint.
Natural gas derivative contracts are valued based upon exchange closing prices without significant unobservable adjustments. Power derivative contracts are valued based upon the use of multiple forward prices provided by third parties. The prices are averaged and shaped to a monthly profile when needed without significant unobservable adjustments.
Level 3: Unobservable inputs that are not corroborated by market data. Level 3 assets and liabilities are valued by internally developed models and assumptions or methodologies that use significant unobservable inputs. Level 3 assets and liabilities include derivative instruments that trade in less liquid markets, where pricing is largely unobservable, including the financial contracts entered into between Ameren Illinois and Marketing Company as part of the 2007 Illinois Electric Supply Agreement. We value Level 3 instruments by using pricing models with inputs that are often unobservable in the market, as well as certain internal assumptions. Our development and corroboration process entails obtaining multiple quotes or prices from outside sources. As a part of our reasonableness review, an evaluation of all sources is performed to identify any anomalies or potential errors.
We perform an analysis each quarter to determine the appropriate hierarchy level of the assets and liabilities subject to fair value measurements.
Financial assets and liabilities are classified in their entirety according to the lowest level of input that is significant to the fair value measurement. All assets and liabilities whose fair value measurement is based on significant unobservable inputs are classified as Level 3.
36 to ULNRC-05944
Table of Contents The following table describes the valuation techniques and unobservable inputs for the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy for the three months ended June 30, 2012:
Fair Value Valuation Technique(s)
Unobservable Input Range [Weighted Average]
Assets Liabilities Level 3 Derivative asset and liability commodity contracts(a):
Ameren(b)
Fuel oils 6
(2)
Discounted Cash Flow Escalation rate(%)(c) 0.50 0.78 [.72]
Counterparty credit risk(%)(d),(e) 0.12 4 [2]
Ameren credit risk(%)(d),(e) 4 23 [9]
Option model Volatilities(%)(c) 23 33 [26]
Power(f) 182 (192)
Option model Volatilities(%)(d) 17 143 [34]
Average bid/ask consensus peak and offpeak pricing forwards/swaps ($/MWh)(d) 21 44 [36]
Discounted Cash Flow Average bid/ask consensus peak and offpeak pricing forwards/swaps ($/MWh)(d) 18 51 [34]
Estimated auction price for FTRs
($/MW)(c)
(672) 7,200 [138]
Nodal basis ($/MWh)(c)
(6) (0.50) [(3)]
Counterparty credit risk(%)(d),(e) 0.06 12 [4]
Ameren credit risk(%)(d),(e) 4 5 [5]
Fundamental energy production model Estimated future gas prices
($/mmbtu)(c) 4 6 [5]
Contract price allocation Estimated renewable energy credit costs ($/credit)(c) 5 7 [6]
(1)
Discounted Cash Flow Average bid/ask consensus pricing
($/pound)(c) 62 63 [62]
Ameren Missouri Fuel oils 5
(2)
Discounted Cash Flow Escalation rate(%)(c) 0.50 0.75 [.65]
Counterparty credit risk(%)(d),(e) 0.12 2 [2]
Ameren credit risk(%)(d),(e) 5 Option model Volatilities(%)(c) 23 33 [25]
Power(f) 31 (5)
Option model Volatilities(%)(d) 43 143 [76]
Average bid/ask consensus peak and offpeak pricing ($/MWh)(d) 24 32 [27]
Discounted Cash Flow Average bid/ask consensus peak and offpeak pricing forwards/swaps ($/MWh)(d) 21 46 [25]
Estimated auction price for FTRs
($/MW)(c)
(149) 1,851 [140]
Nodal basis ($/MWh)(c)
(3) (0.48) [(2)]
Counterparty credit risk(%)(d),(e) 0.42 12 [7]
Ameren Missouri credit risk(%)(d),(e) 5 Uranium
(1)
Discounted Cash Flow Average bid/ask consensus pricing
($/pound)(c) 62 63 [62]
Ameren Illinois Power(f)
$ (221)
Discounted Cash Flow Average bid/ask consensus peak and offpeak pricing forwards/swaps ($/MWh)(c) 19 45 [26]
Nodal basis ($/MWh)(d)
(4) (1) [(2)]
Ameren Illinois credit risk
(%)(d),(e) 5 Fundamental energy production model Estimated future gas prices
($/mmbtu)(c) 4 6 [5]
Contract price allocation Estimated renewable energy credit costs ($/credit)(c) 5 7 [6]
Genco Fuel oils 1
Discounted Cash Flow Escalation rate(c) 0.50 0.78 [0.71]
Counterparty credit risk (%)(d),(e) 2 Genco credit risk(%)(d),(e) 23 Option model Volatilities (%)(c) 23 33 [24]
(a)
The derivative asset and liability balances are presented net of counterparty credit considerations.
(b)
Includes amounts for Ameren registrant and nonregistrant subsidiaries and intercompany eliminations.
(c)
Generally, significant increases (decreases) in this input in isolation would result in a significantly higher (lower) fair value measurement.
(d)
Generally, significant increases (decreases) in this input in isolation would result in a significantly lower (higher) fair value measurement.
(e)
Counterparty credit risk is only applied to derivative asset balances. Ameren, Ameren Missouri, Ameren Illinois, and Genco credit risk is only applied to derivative liability balances.
37 to ULNRC-05944
Table of Contents (f)
Power valuations utilize visible third party pricing evaluated by month for peak and offpeak through 2015. Valuations beyond 2015 utilize fundamentally modeled pricing by month for peak and offpeak.
In accordance with applicable authoritative accounting guidance, we consider nonperformance risk in our valuation of derivative instruments by analyzing the credit standing of our counterparties and considering any counterparty credit enhancements (e.g., collateral). The guidance also requires that the fair value measurement of liabilities reflect the nonperformance risk of the reporting entity, as applicable. Therefore, we have factored the impact of our credit standing as well as any potential credit enhancements into the fair value measurement of both derivative assets and derivative liabilities. Included in our valuation, and based on current market conditions, is a valuation adjustment for counterparty default derived from market data such as the price of credit default swaps, bond yields, and credit ratings. Ameren recorded losses totaling $2 million and less than $1 million in the first six months of 2012 and 2011, respectively, related to valuation adjustments for counterparty default risk. Genco recorded gains of less than $1 million and losses of less than $1 million in the first six months of 2012 and 2011, respectively, related to valuation adjustments for counterparty default risk. At June 30, 2012, the counterparty default risk (asset)/liability valuation adjustment related to derivative contracts totaled $7 million, less than $1 million, $14 million, and less than $1 million for Ameren, Ameren Missouri, Ameren Illinois and Genco, respectively. At December 31, 2011, the counterparty default risk (asset)/liability valuation adjustment related to derivative contracts totaled $1 million, less than $1 million, $19 million, and less than $(1) million for Ameren, Ameren Missouri, Ameren Illinois and Genco, respectively.
The following table sets forth, by level within the fair value hierarchy, our assets and liabilities measured at fair value on a recurring basis as of June 30, 2012:
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Other Unobservable Inputs (Level 3)
Total Assets:
Ameren(a)
Derivative assets commodity contracts(b):
Fuel oils 12
6 18 Natural gas 5
5
10 Power
17 182 199 Total derivative assets commodity contracts 17 22 188
$ 227 Nuclear Decommissioning Trust Fund(c):
Cash and cash equivalents 4
4 Equity securities:
U.S. large capitalization 247
247 Debt securities:
Corporate bonds
43
43 Municipal bonds
1
1 U.S. treasury and agency securities
87
87 Assetbacked securities
12
12 Other
1
1 Total Nuclear Decommissioning Trust Fund 251 144
$ 395 Total Ameren 268 166 188
$ 622 Ameren Derivative assets commodity contracts(b):
Missouri Fuel oils 7
5 12 Natural gas 2
2 Power
10 31 41 Total derivative assets commodity contracts 9
10 36 55 Nuclear Decommissioning Trust Fund(c):
Cash and cash equivalents 4
4 Equity securities:
U.S. large capitalization 247
247 Debt securities:
Corporate bonds
43
43 Municipal bonds
1
1 U.S. treasury and agency securities
87
87 Assetbacked securities
12
12 Other
1
1 Total Nuclear Decommissioning Trust Fund 251 144
$ 395 Total Ameren Missouri 260 154 36
$ 450 Ameren Derivative assets commodity contracts(b):
Illinois Natural gas
2
2 38 to ULNRC-05944
Table of Contents Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Other Unobservable Inputs (Level 3)
Total Genco Derivative assets commodity contracts(b):
Fuel oils 4
1 5
Natural gas 2
3
5 Total Genco 6
3 1
10 Liabilities:
Ameren(a)
Derivative liabilities commodity contracts(b):
Coal 10
10 Fuel oils 9
2 11 Natural gas 15 153
168 Power
22 192 214 Uranium
1 1
Total Ameren 34 175 195 404 Ameren Derivative liabilities commodity contracts(b):
Missouri Fuel oils 2
2 4
Natural gas 11 12
23 Power
12 5
17 Uranium
1 1
Total Ameren Missouri 13 24 8
45 Ameren Derivative liabilities commodity contracts(b):
Illinois Natural gas 2
142
144 Power
221 221 Total Ameren Illinois 2
142 221 365 Genco Derivative liabilities commodity contracts(b):
Coal 8
8 Fuel oils 5
5 Natural gas 1
1 Total Genco 14
14 (a)
Includes amounts for Ameren registrant and nonregistrant subsidiaries and intercompany eliminations.
(b)
The derivative asset and liability balances are presented net of counterparty credit considerations.
(c)
Balance excludes $(9) million of receivables, payables, and accrued income, net.
The following table sets forth, by level within the fair value hierarchy, our assets and liabilities measured at fair value on a recurring basis as of December 31, 2011:
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Other Unobservable Inputs (Level 3)
Total Assets:
Ameren(a)
Derivative assets commodity contracts(b):
Fuel oils 33
4 37 Natural gas 4
2 6
Power
2 193 195 Total derivative assets commodity contracts 37 2
199 238 Nuclear Decommissioning Trust Fund(c):
Cash and cash equivalents 3
3 Equity securities:
U.S. large capitalization 234
234 Debt securities:
Corporate bonds
44
44 Municipal bonds
1
1 U.S. treasury and agency securities
65
65 Assetbacked securities
10
10 Other
1
1 Total Nuclear Decommissioning Trust Fund 237 121
358 Total Ameren 274 123 199 596 Ameren Derivative assets commodity contracts(b):
Missouri Fuel oils 20
3 23 Natural gas 2
2 Power
1 29 30 Total derivative assets commodity contracts 22 1
32 55 39 to ULNRC-05944
Table of Contents Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)
Significant Other Observable Inputs (Level 2)
Significant Other Unobservable Inputs (Level 3)
Total Nuclear Decommissioning Trust Fund(c):
Cash and cash equivalents 3
3 Equity securities:
U.S. large capitalization 234
234 Debt securities:
Corporate bonds
44
44 Municipal bonds
1
1 U.S. treasury and agency securities
65
65 Assetbacked securities
10
10 Other
1
1 Total Nuclear Decommissioning Trust Fund 237 121
358 Total Ameren Missouri 259 122 32 413 Ameren Derivative assets commodity contracts(b):
Illinois Natural gas
2 2
Power
77 77 Total Ameren Illinois
79 79 Genco Derivative assets commodity contracts(b):
Fuel oils 10
1 11 Natural gas 2
2 Total Genco 12
1 13 Liabilities:
Ameren(a)
Derivative liabilities commodity contracts(b):
Fuel oils 2
2 Natural gas 22
176 198 Power
2 78 80 Uranium
1 1
Total Ameren 24 2
255 281 Ameren Derivative liabilities commodity contracts(b):
Missouri Fuel oils 1
1 Natural gas 12
14 26 Power
1 8
9 Uranium
1 1
Total Ameren Missouri 13 1
23 37 Ameren Derivative liabilities commodity contracts(b):
Illinois Natural gas 7
162 169 Power
217 217 Total Ameren Illinois 7
379 386 Genco Derivative liabilities commodity contracts(b):
Fuel oils 1
1 Natural gas 2
2 Total Genco 3
3 (a)
Includes amounts for Ameren registrant and nonregistrant subsidiaries and intercompany eliminations.
(b)
The derivative asset and liability balances are presented net of counterparty credit considerations.
(c)
Balance excludes $(1) million of receivables, payables, and accrued income, net.
The following table summarizes the changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy for the three months ended June 30, 2012:
Net derivative commodity contracts Three Months Ameren Missouri Ameren Illinois Genco Other(c)
Ameren Fuel oils:
Beginning balance at April 1, 2012 7
(a) 2
9 Realized and unrealized gains (losses):
Included in earnings(b)
(a)
(2)
(2)
Included in regulatory assets/liabilities (4)
(a)
(a)
(a)
(4)
Total realized and unrealized gains (losses)
(4)
(a)
(2)
(6)
Purchases 2
(a) 1
3 Sales (1)
(a)
(1)
Settlements (1)
(a)
(1)
Ending balance at June 30, 2012 3
(a) 1
4 Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2012 (2)
(a)
(2) 40 to ULNRC-05944
Table of Contents Net derivative commodity contracts Three Months Ameren Missouri Ameren Illinois Genco Other(c)
Ameren Power:
Beginning balance at April 1, 2012 20 (284)
240 (24)
Realized and unrealized gains (losses):
Included in earnings(b)
(1)
(1)
Included in OCI
10 10 Included in regulatory assets/liabilities (4)
(1)
(a)
(5)
(10)
Total realized and unrealized gains (losses)
(4)
(1)
4 (1)
Purchases 22
6 28 Sales
6 6
Settlements (11) 64
(73)
(20)
Transfers into Level 3
1 1
Transfers out of Level 3 (1)
1
Ending balance at June 30, 2012 26 (221)
185 (10)
Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2012 (1)
(6)
8 1
Uranium:
Beginning balance at April 1, 2012 (1)
(a)
(a)
(a)
(1)
Realized and unrealized gains (losses):
Included in regulatory assets/liabilities
(a)
(a)
(a)
Total realized and unrealized gains (losses)
(a)
(a)
(a)
Ending balance at June 30, 2012 (1)
(a)
(a)
(a)
(1)
Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2012
(a)
(a)
(a)
(a)
Not applicable.
(b)
Net gains and losses on fuel oils and natural gas derivative commodity contracts are recorded in Operating Expenses Fuel, while net gains and losses on power derivative commodity contracts are recorded in Operating Revenues Electric.
(c)
Includes amounts for Merchant Generation nonregistrant subsidiaries and intercompany eliminations, including the elimination of financial power contracts between Ameren Illinois and Marketing Company.
The following table summarizes the changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy for the three months ended June 30, 2011:
Net derivative commodity contracts Three Months Ameren Missouri Ameren Illinois Genco Other(c)
Ameren Fuel oils:
Beginning balance at April 1, 2011 57 (a) 29 10 96 Realized and unrealized gains (losses):
Included in earnings(b)
(a)
(3)
(2)
(5)
Included in regulatory assets/liabilities (9)
(a)
(a)
(a)
(9)
Total realized and unrealized gains (losses)
(9)
(a)
(3)
(2)
(14)
Purchases 1
(a)
1 Settlements (8)
(a)
(5)
(2)
(15)
Ending balance at June 30, 2011 41 (a) 21 6
68 Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2011 (8)
(a)
(4)
(2)
(14)
Natural gas:
Beginning balance at April 1, 2011 (12)
(108)
(120)
Realized and unrealized gains (losses):
Included in regulatory assets/liabilities (1)
(19)
(a)
(a)
(20)
Total realized and unrealized gains (losses)
(1)
(19)
(20)
Purchases
1
1 Settlements 2
20
22 Ending balance at June 30, 2011 (11)
(106)
(117)
Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2011 (1)
(17)
(18)
Power:
Beginning balance at April 1, 2011 2
(325) 3 351 31 Realized and unrealized gains (losses):
Included in earnings(b)
(1)
(14)
(15)
Included in OCI
5 5
Included in regulatory assets/liabilities (1) 77 (a)
(10) 66 Total realized and unrealized gains (losses)
(1) 77 (1)
(19) 56 41 to ULNRC-05944
Table of Contents Net derivative commodity contracts Three Months Ameren Missouri Ameren Illinois Genco Other(c)
Ameren Purchases 29
21 50 Sales
(7)
(7)
Settlements (6) 44 (1)
(53)
(16)
Transfers into Level 3
1 1
Transfers out of Level 3 1
1 2
Ending balance at June 30, 2011 25 (204) 1 295 117 Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2011 (1) 68 (1)
(7) 59 Uranium:
Beginning balance at April 1, 2011 1
(a)
(a)
(a) 1 Realized and unrealized gains (losses):
Included in regulatory assets/liabilities (3)
(a)
(a)
(a)
(3)
Total realized and unrealized gains (losses)
(3)
(a)
(a)
(a)
(3)
Ending balance at June 30, 2011 (2)
(a)
(a)
(a)
(2)
Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2011 (2)
(a)
(a)
(a)
(2)
(a)
Not applicable.
(b)
Net gains and losses on fuel oils and natural gas derivative commodity contracts are recorded in Operating Expenses Fuel, while net gains and losses on power derivative commodity contracts are recorded in Operating Revenues Electric.
(c)
Includes amounts for Merchant Generation nonregistrant subsidiaries and intercompany eliminations, including the elimination of financial power contracts between Ameren Illinois and Marketing Company.
The following table summarizes the changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy for the six months ended June 30, 2012:
Net derivative commodity contracts Six Months Ameren Missouri Ameren Illinois Genco Other(c)
Ameren Fuel oils:
Beginning balance at January 1, 2012 3
(a) 1
4 Realized and unrealized gains (losses):
Included in earnings(b)
(a)
Included in regulatory assets/liabilities (2)
(a)
(a)
(a)
(2)
Total realized and unrealized gains (losses)
(2)
(a)
(2)
Purchases 2
(a) 1
3 Sales (1)
(a)
(1)
Settlements (1)
(a)
(1)
Transfers into Level 3 2
(a)
2 Transfers out of Level 3
(a)
(1)
(1)
Ending balance at June 30, 2012 3
(a) 1
4 Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2012 (1)
(a)
(1)
Natural gas:
Beginning balance at January 1, 2012 (14)
(160)
(174)
Realized and unrealized gains (losses):
Included in regulatory assets/liabilities (2)
(26)
(a)
(a)
(28)
Total realized and unrealized gains (losses)
(2)
(26)
(28)
Settlements 1
16
17 Transfer out of Level 3 15 170
185 Ending balance at June 30, 2012
Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2012 9
114
123 Power:
Beginning balance at January 1, 2012 21 (140)
234 115 Realized and unrealized gains (losses):
Included in earnings(b)
7 7
Included in OCI
34 34 Included in regulatory assets/liabilities 9
(221)
(a) 44 (168)
Total realized and unrealized gains (losses) 9 (221)
85 (127)
Purchases 22
5 27 Sales
7 7
Settlements (24) 140
(150)
(34)
Transfers into Level 3
1 1
42 to ULNRC-05944
Table of Contents Net derivative commodity contracts Six Months Ameren Missouri Ameren Illinois Genco Other(c)
Ameren Transfers out of Level 3 (2)
3 1
Ending balance at June 30, 2012 26 (221)
185 (10)
Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2012 3
(195)(d)
42 (150)
Uranium:
Beginning balance at January 1, 2012 (1)
(a)
(a)
(a)
(1)
Realized and unrealized gains (losses):
Included in regulatory assets/liabilities
(a)
(a)
(a)
Total realized and unrealized gains (losses)
(a)
(a)
(a)
Ending balance at June 30, 2012 (1)
(a)
(a)
(a)
(1)
Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2012
(a)
(a)
(a)
(a)
Not applicable.
(b)
Net gains and losses on fuel oils and natural gas derivative commodity contracts are recorded in Operating Expenses Fuel, while net gains and losses on power derivative commodity contracts are recorded in Operating Revenues Electric.
(c)
Includes amounts for Merchant Generation nonregistrant subsidiaries and intercompany eliminations, including the elimination of financial power contracts between Ameren Illinois and Marketing Company.
(d)
The change in unrealized losses was due to decreases in longterm power prices applied to 20year Ameren Illinois swap contracts, which expire in May 2032.
The following table summarizes the changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy for the six months ended June 30, 2011:
Net derivative commodity contracts Six Months Ameren Missouri Ameren Illinois Genco Other(c)
Ameren Fuel oils:
Beginning balance at January 1, 2011 30 (a) 17 4
51 Realized and unrealized gains (losses):
Included in earnings(b)
(a) 12 5
17 Included in regulatory assets/liabilities 22 (a)
(a)
(a) 22 Total realized and unrealized gains (losses) 22 (a) 12 5
39 Purchases 2
(a)
2 Settlements (13)
(a)
(8)
(3)
(24)
Ending balance at June 30, 2011 41 (a) 21 6
68 Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2011 18 (a) 9 3
30 Natural gas:
Beginning balance at January 1, 2011 (14)
(134)
(148)
Realized and unrealized gains (losses):
Included in regulatory assets/liabilities (1)
(12)
(a)
(a)
(13)
Total realized and unrealized gains (losses)
(1)
(12)
(13)
Purchases
1
1 Settlements 4
39
43 Ending balance at June 30, 2011 (11)
(106)
(117)
Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2011 1
8
9 Power:
Beginning balance at January 1, 2011 2
(352) 3 383 36 Realized and unrealized gains (losses):
Included in earnings(b)
(1)
(17)
(18)
Included in OCI
5 5
Included in regulatory assets/liabilities 6
47 (a) 11 64 Total realized and unrealized gains (losses) 6 47 (1)
(1) 51 Purchases 29
30 59 Sales
(16)
(16)
Settlements (12) 101 (1)
(104)
(16)
Transfers into Level 3 (1)
2 1
Transfers out of Level 3 1
1 2
Ending balance at June 30, 2011 25 (204) 1 295 117 Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2011
64 (1)
(4) 59 43 to ULNRC-05944
Table of Contents Net derivative commodity contracts Six Months Ameren Missouri Ameren Illinois Genco Other(c)
Ameren Uranium:
Beginning balance at January 1, 2011 2
(a)
(a)
(a) 2 Realized and unrealized gains (losses):
Included in regulatory assets/liabilities (4)
(a)
(a)
(a)
(4)
Total realized and unrealized gains (losses)
(4)
(a)
(a)
(a)
(4)
Ending balance at June 30, 2011 (2)
(a)
(a)
(a)
(2)
Change in unrealized gains (losses) related to assets/liabilities held at June 30, 2011 (2)
(a)
(a)
(a)
(2)
(a)
Not applicable.
(b)
Net gains and losses on fuel oils and natural gas derivative commodity contracts are recorded in Operating Expenses Fuel, while net gains and losses on power derivative commodity contracts are recorded in Operating Revenues Electric.
(c)
Includes amounts for Merchant Generation nonregistrant subsidiaries and intercompany eliminations, including the elimination of financial power contracts between Ameren Illinois and Marketing Company.
Transfers in or out of Level 3 represent either (1) existing assets and liabilities that were previously categorized as a higher level but were recategorized to Level 3 because the inputs to the model became unobservable during the period, or (2) existing assets and liabilities that were previously classified as Level 3 but were recategorized to a higher level because the lowest significant input became observable during the period. Transfers out of Level 3 into Level 2 for natural gas derivatives were due to management previously using broker quotations to estimate the fair value of natural gas contracts and changing to estimates based upon exchange closing prices without significant unobservable adjustments in the first quarter of 2012. Estimates of fair value based on exchange closing prices are deemed to be a more accurate approximation of natural gas prices. Transfers between Level 2 and Level 3 for power derivatives and between Level 1 and Level 3 for fuel oils were primarily caused by changes in availability of financial trades observable on electronic exchanges between the period ended June 30, 2012, and the previous reporting periods ended March 31, 2012 and December 31, 2011. Any reclassifications are reported as transfers out of Level 3 at the fair value measurement reported at the beginning of the period in which the changes occur.
For the three and six months ended June 30, 2012, and 2011, there were no transfers between Level 1 and Level 2 related to derivative commodity contracts.
The following table summarizes all transfers between fair value hierarchy levels related to derivative commodity contracts for the three and six months ended June 30, 2012, and 2011:
Three Months Six Months 2012 2011 2012 2011 Ameren derivative commodity contracts:(a)
Transfers into Level 3 / Transfers out of Level 1 Fuel oils
2
Transfers out of Level 3 / Transfers into Level 1 Fuel oils
(1)
Transfers out of Level 3 / Transfers into Level 2 Natural gas
185
Transfers into Level 3 / Transfers out of Level 2 Power 1
1 1
1 Transfers out of Level 3 / Transfers into Level 2 Power
2 1
2 Net fair value of Level 3 transfers 1
3
$ 188 3
Ameren Missouri derivative commodity contracts:
Transfers into Level 3 / Transfers out of Level 1 Fuel oils
2
Transfers out of Level 3 / Transfers into Level 2 Natural gas
15
Transfers into Level 3 / Transfers out of Level 2 Power
(1)
Transfers out of Level 3 / Transfers into Level 2 Power (1) 1 (2) 1 Net fair value of Level 3 transfers
$ (1) 1 15
Ameren Illinois derivative commodity contracts:
Transfers out of Level 3 / Transfers into Level 2 Natural gas
$ 170
Genco derivative commodity contracts:
Transfers out of Level 3 / Transfers into Level 1 Fuel oils
(1)
(a)
Includes amounts for Ameren registrant and nonregistrant subsidiaries.
The Ameren Companies carrying amounts of cash and cash equivalents approximate fair value because of the shortterm nature of these instruments and are considered to be Level 1 in the fair value hierarchy. Shortterm borrowings, which are composed of Ameren issued commercial paper, also approximate fair value because of their shortterm nature. Shortterm borrowings are considered to be Level 2 in the fair value hierarchy as they are valued based on market rates for similar market transactions. The estimated fair value of longterm debt and preferred stock is based on the quoted market prices for same or similar issuances for companies with similar credit profiles or on the current rates offered to the Ameren Companies for similar financial instruments, which fair value measurement is considered Level 2 in the fair value hierarchy.
44 to ULNRC-05944
Table of Contents The following table presents the carrying amounts and estimated fair values of our longterm debt and capital lease obligations and preferred stock at June 30, 2012, and December 31, 2011:
June 30, 2012 December 31, 2011 Carrying Amount Fair Value Carrying Amount Fair Value Ameren:(a)(b)
Longterm debt and capital lease obligations (including current portion) 6,857
$ 7,766 6,856
$7,800 Preferred stock 142 93 142 92 Ameren Missouri:
Longterm debt and capital lease obligations (including current portion) 3,950
$ 4,619 3,950
$4,541 Preferred stock 80 55 80 55 Ameren Illinois:
Longterm debt (including current portion) 1,658
$ 1,984 1,658
$1,943 Preferred stock 62 38 62 37 Genco:
Longterm debt (including current portion) 824 679 824
$ 839 (a)
Includes amounts for Ameren registrant and nonregistrant subsidiaries and intercompany eliminations.
(b)
Preferred stock not subject to mandatory redemption of the Ameren subsidiaries along with the 20% noncontrolling interest of EEI is recorded in Noncontrolling Interests on the balance sheet.
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 natural gas and power purchases and sales, services received or rendered, and borrowings and lendings.
Transactions between affiliates are reported as intercompany transactions on their financial statements, but are eliminated in consolidation for Amerens financial statements. For a discussion of our material related party agreements, see Note 14 Related Party Transactions under Part II, Item 8, of the Form 10K.
Put Option Agreement and Guaranty On March 28, 2012, Genco entered into a put option agreement with AERG. The put option gives Genco the option to sell to AERG all, but not less than all, of the Grand Tower, the Gibson City, and the Elgin energy centers. If Genco exercises the put option, the purchase price for all three energy centers will be the greater of $100 million or the fair market value of the energy centers, as determined by three thirdparty appraisers in accordance with the terms of the agreement. Upon exercise of the put option, the $100 million minimum purchase price would be payable to Genco within one business day. Genco may exercise the put option at any time from March 28, 2012 through March 28, 2014. The put option may be extended indefinitely for additional oneyear periods by agreement of AERG and Genco. If Genco exercises the put option, the closing of the sale of all three energy centers will be subject to the receipt of all necessary regulatory approvals. In exchange for entering into the put option agreement, Genco paid AERG a put option premium of $2.5 million. The put option premium paid by Genco was recorded as an Other asset on Gencos consolidated balance sheet and is being amortized over two years. The amortization expense is eliminated in the consolidation of Amerens financial statements.
The put option agreement requires AERG to secure and maintain an Ameren guaranty of payment of contingent obligations under the agreement.
Ameren and AERG entered into such a guaranty agreement on March 28, 2012. The guaranty shall remain in effect until either AERG or Ameren satisfies all of the payment obligations under the put option agreement, or the put option agreement is terminated and no further payments are owed by AERG to Genco. As of June 30, 2012, Genco had not exercised the put option.
Intercompany Transfers In June 2012, Genco transferred various assets from the Hutsonville and Meredosia energy centers to AERG. Both of the energy centers were retired in 2011. Genco recorded an intercompany receivable in the amount of less than $1 million at June 30, 2012. The transfer of the assets was accounted for as a transaction between entities under common control; therefore, Genco did not recognize a gain on the transfer, and upon consolidation Ameren recorded the assets at carrying value.
Electric Power Supply Agreements During the second quarter of 2012, Ameren Illinois used a RFP process, administered by the IPA, to contract capacity for the period from June 1, 2012, through May 31, 2015. Both Marketing Company and Ameren Missouri were among the winning suppliers in the capacity RFP process. In April 2012, Marketing Company contracted to supply a portion of Ameren Illinois capacity requirements for less than $1 million and $4 million for the 12 months ending May 31, 2013 and 2015, respectively. In April 2012, Ameren Missouri contracted to supply a portion of Ameren Illinois capacity requirements for $1 million and $3 million for the 12 months ending May 31, 2014 and 2015, respectively.
45 to ULNRC-05944
Table of Contents Collateral Postings Under the terms of the Illinois power procurement agreements entered into through a RFP process administered by the IPA, suppliers must post collateral under certain market conditions to protect Ameren Illinois in the event of nonperformance. The collateral postings are unilateral, meaning that only the suppliers would be required to post collateral. Therefore, Ameren Missouri, as a winning supplier of capacity, and Marketing Company, as a winning supplier of capacity and financial energy swaps, may be required to post collateral. As of December 31, 2011 and June 30, 2012, there were no collateral postings required of Ameren Missouri or Marketing Company related to the Illinois power procurement agreements.
Marketing Company Sale of Trade Receivables to Ameren Illinois In accordance with the Illinois Public Utilities Act, Ameren Illinois is required to purchase alternative retail electric suppliers receivables relating to Ameren Illinois delivery service customers who elected to receive power supply from the alternative retail electric supplier. Beginning in June 2012, Marketing Company sold and Ameren Illinois purchased trade receivables relating to the power supply of residential customers using Marketing Company as their alternative retail electric supplier. Marketing Company has no continuing involvement with or control over the trade receivables after the sale is completed to Ameren Illinois, and neither company has any restrictions on the assets associated with these purchase and sale transactions. As of June 30, 2012, Ameren Illinois payable to Marketing Company for the purchase of trade receivables totaled less than $1 million. For the six months ended June 30, 2012 Ameren Illinois purchased less than $1 million of trade receivables from Marketing Company. Marketing Companys receivable from Ameren Illinois as well as Ameren Illinois payable to Marketing Company are eliminated in the consolidated Ameren Corporations financial statements.
Money Pools See Note 3 Shortterm Debt and Liquidity for a discussion of affiliate borrowing arrangements.
The following table presents the impact on Ameren Missouri, Ameren Illinois and Genco of related party transactions for the three and six months ended June 30, 2012, and 2011. It is based primarily on the agreements discussed above and in Note 14 Related Party Transactions under Part II, Item 8, of the Form 10K, and the money pool arrangements discussed in Note 3 Shortterm Debt and Liquidity of this report.
Three Months Six Months Agreement Income Statement Line Item Ameren Missouri Ameren Illinois Genco Ameren Missouri Ameren Illinois Genco Genco and EEI power supply Operating Revenues 2012 (a)
(a)
$ 193 (a)
(a)
$ 386 agreements with Marketing Company 2011 (a)
(a) 242 (a)
(a) 482 Ameren Missouri and Ameren Illinois Operating Revenues 2012 4
(b)
(a) 8 (b)
(a) rent and facility services 2011 4
(b)
(a) 8 (b)
(a)
Ameren Missouri and Genco gas Operating Revenues 2012 (b)
(a)
(b)
(b)
(a)
(b) transportation agreement 2011 (b)
(a)
(b)
(b)
(a)
(b)
Total Operating Revenues 2012 4
(b)
$ 193 8
(b)
$ 386 2011 4
(b) 242 8
(b) 482 Ameren Illinois power supply Purchased Power 2012 (a) 72 (a)
(a) 160 (a) agreements with Marketing Company 2011 (a) 48 (a)
(a) 94 (a)
EEI power supply agreement with Purchased Power 2012 (a)
(a)
(b)
(a)
(a)
(b)
Marketing Company 2011 (a)
(a) 12 (a)
(a) 12 Total Purchased Power 2012 (a) 72 (b)
(a) 160 (b) 2011 (a) 48 12 (a) 94 12 Ameren Services support services Other Operations 2012 27 22 5
55 45 10 agreement and Maintenance 2011 28 21 4
59 45 10 Insurance premiums(c)
Other Operations 2012 (b)
(a)
(a)
(b)
(a)
(a) and Maintenance 2011 (b)
(a)
(a)
(b)
(a)
(a)
Total Other Operations and 2012 27 22 5
55 45 10 Maintenance Expenses 2011 28 21 4
59 45 10 Money pool borrowings (advances)
Interest Charges 2012
(b)
(b)
(b)
(b) 2011
(b)
(b)
(a)
Not applicable.
(b)
Amount less than $1 million.
(c)
Represents insurance premiums paid to an affiliate for replacement power, property damage and terrorism coverage.
46 to ULNRC-05944
Table of Contents NOTE 9 COMMITMENTS AND CONTINGENCIES We are involved in legal, tax and regulatory proceedings before various courts, regulatory commissions, and governmental agencies with respect to matters that arise in the ordinary course of business, some of which involve substantial amounts of money. We believe that the final disposition of these proceedings, except as otherwise disclosed in the notes to our financial statements, will not have a material adverse effect on our results of operations, financial position, or liquidity.
Reference is made to Note 1 Summary of Significant Accounting Policies, Note 2 Rate and Regulatory Matters, Note 14 Related Party Transactions, and Note 15 Commitments and Contingencies under Part II, Item 8 of the Form 10K. See also Note 1 Summary of Significant Accounting Policies, Note 2 Rate and Regulatory Matters, Note 8 Related Party Transactions and Note 10 Callaway Nuclear Plant in this report.
Callaway Energy Center The following table presents insurance coverage at Ameren Missouris Callaway energy center at June 30, 2012. The property coverage and the nuclear liability coverage must be renewed on April 1 and January 1, respectively, of each year.
Type and Source of Coverage Maximum Coverages Maximum Assessments for Single Incidents Public liability and nuclear worker liability:
American Nuclear Insurers 375
Pool participation 12,219(a) 118(b) 12,594(c) 118 Property damage:
Nuclear Electric Insurance Ltd.
2,750(d) 23 Replacement power:
Nuclear Electric Insurance Ltd 490(e) 9 Energy Risk Assurance Company 64(f)
(a)
Provided through mandatory participation in an industrywide retrospective premium assessment program.
(b)
Retrospective premium under PriceAnderson. This is subject to retrospective assessment with respect to a covered loss in excess of $375 million in the event of an incident at any licensed United States commercial reactor, payable at $17.5 million per year.
(c)
Limit of liability for each incident under the PriceAnderson liability provisions of the Atomic Energy Act of 1954, as amended. A company could be assessed up to $118 million per incident for each licensed reactor it operates with a maximum of $17.5 million per incident to be paid in a calendar year for each reactor. This limit is subject to change to account for the effects of inflation and changes in the number of licensed reactors.
(d)
Provides for $500 million in property damage and decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million primary coverage.
(e)
Provides the replacement power cost insurance in the event of a prolonged accidental outage at our nuclear energy center. Weekly indemnity up to $4.5 million for 52 weeks, which commences after the first eight weeks of an outage, plus up to $3.6 million per week for a minimum of 71 weeks thereafter for a total not exceeding the policy limit of $490 million.
(f)
Provides the replacement power cost insurance in the event of a prolonged accidental outage at our nuclear energy center. The coverage commences after the first 52 weeks of insurance coverage from Nuclear Electric Insurance Ltd. and is for a weekly indemnity of $900,000 for 71 weeks in excess of the $3.6 million per week set forth above. Energy Risk Assurance Company is an affiliate and has reinsured this coverage with thirdparty insurance companies. See Note 8 Related Party Transactions for more information on this affiliate transaction.
The PriceAnderson Act is a federal law that limits the liability for claims from an incident involving any licensed United States commercial nuclear power facility. The limit is based on the number of licensed reactors. The limit of liability and the maximum potential annual payments are adjusted at least every five years for inflation to reflect changes in the Consumer Price Index. The fiveyear inflationary adjustment as prescribed by the most recent PriceAnderson Act renewal was effective October 29, 2008. Owners of a nuclear reactor cover this exposure through a combination of private insurance and mandatory participation in a financial protection pool, as established by PriceAnderson.
Losses resulting from terrorist attacks are covered under Nuclear Electric Insurance Ltd.s policies, subject to an industrywide aggregate policy limit of $3.24 billion within a 12month period for coverage for such terrorist acts.
If losses from a nuclear incident at the Callaway energy center exceed the limits of, or are not covered by, insurance, or if coverage is unavailable, Ameren Missouri is at risk for any uninsured losses. If a serious nuclear incident were to occur, it could have a material adverse effect on Amerens and Ameren Missouris results of operations, financial position, or liquidity.
47 to ULNRC-05944
Table of Contents Other Obligations To supply a portion of the fuel requirements of our generating plants, we have entered into various longterm commitments for the procurement of coal, natural gas, nuclear fuel, and methane gas. We have also entered into various longterm commitments for purchased power and natural gas for distribution. For a complete listing of our obligations and commitments, see Note 15 Commitments and Contingencies under Part II, Item 8 of the Form 10K.
Gencos commitments for the procurement of natural gas have materially increased from amounts previously disclosed as of December 31, 2011. The following table presents our total estimated natural gas commitments at June 30, 2012:
2012 2013 2014 2015 2016 Thereafter Total Ameren
$ 211
$ 367
$ 241
$ 131
$ 53 132
$ 1,135 Genco 16 34 3
2
55 In the second quarter of 2012, Ameren Illinois used a RFP process, administered by the IPA, to contract capacity and energy products for the period from June 1, 2012, through May 31, 2015. Ameren Illinois contracted to purchase approximately 48,000 MWs of capacity for approximately $15 million during this period. Ameren Illinois contracted to purchase approximately 612,000 megawatthours of energy products for approximately $17 million during this period.
Previously, Ameren Illinois entered into an agreement to purchase approximately 15.5 billion cubic feet of synthetic natural gas annually over a 10year period beginning in 2016 for its natural gas customers. The agreement was entered into pursuant to an Illinois law, which became effective August 2, 2011. Ameren Illinois obligations under the agreement were contingent on the counterparty reaching certain milestones during the project development and the construction of the plant that was to produce the synthetic natural gas. The counterparty failed to meet certain milestones during the second quarter of 2012 and, accordingly, the contract was terminated.
Environmental Matters We are subject to various environmental laws and regulations enforced by federal, state, and local authorities. From the beginning phases of siting and development to the ongoing operation of existing or new electric generating, transmission and distribution facilities and natural gas storage, transmission and distribution facilities, our activities involve compliance with diverse environmental laws and regulations. These laws and regulations address emissions, impacts to air, land, and water, noise, protected natural and cultural resources (such as wetlands, endangered species and other protected wildlife, and archeological and historical resources), and chemical and waste handling. Complex and lengthy processes are required to obtain approvals, permits, or licenses for new, existing or modified facilities. Additionally, the use and handling of various chemicals or hazardous materials (including wastes) requires release prevention plans and emergency response procedures.
In addition to existing laws and regulations, including the Illinois MPS that applies to our energy centers in Illinois, the EPA is developing numerous new environmental regulations that will have a significant impact on the electric utility industry. These regulations could be particularly burdensome for certain companies, including Ameren, Ameren Missouri and Genco, that operate coalfired energy centers. Significant new rules proposed or promulgated since the beginning of 2010 include the regulation of greenhouse gas emissions; revised national ambient air quality standards for SO 2 and NO2 emissions; the CSAPR, which requires further reductions of SO2 and NOx emissions from power plants; a regulation governing management of CCR and coal ash impoundments; the MATS, which requires reduction of emissions of mercury, toxic metals, and acid gases from power plants; revised NSPS for particulate matter, SO2, and NOx emissions from new sources; and new regulations under the Clean Water Act that could require significant capital expenditures such as new water intake structures or cooling towers at our energy centers. The EPA has proposed CO 2 limits for new coalfired and natural gasfired combined cycle units and is expected to propose limits for existing units in the future. These new regulations may be litigated, so the timing of their implementation is uncertain, as evidenced by the stay of the CSAPR by the United States Court of Appeals for the District of Columbia on December 30, 2011. Although many details of these future regulations are unknown, the combined effects of the new and proposed environmental regulations may result in significant capital expenditures and/or increased operating costs over the next five to ten years for Ameren, Ameren Missouri and Genco. Actions required to ensure that our facilities and operations are in compliance with environmental laws and regulations could be prohibitively expensive. If they are, these regulations could require us to close or to significantly alter the operation of our energy centers, which could have an adverse effect on our results of operations, financial position, and liquidity, including the impairment of longlived assets. Failure to comply with environmental laws and regulations might also result in the imposition of fines, penalties, and injunctive measures.
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Table of Contents The estimates in the table below contain all of the known capital costs to comply with existing environmental regulations and our assessment of the potential impacts of the EPAs proposed regulation for CCR, the finalized MATS, the stayed CSAPR as currently designed, and the revised national ambient air quality standards for SO2 and NOx emissions as of June 30, 2012. The estimates in the table below assume that CCR will continue to be regarded as nonhazardous. The estimates in the table below do not include the impacts of regulations proposed by the EPA under the Clean Water Act in March 2011 regarding cooling water intake structures as our evaluation of those impacts is ongoing. The estimates shown in the table below could change significantly depending upon a variety of factors including:
additional or modified federal or state requirements; regulation of greenhouse gas emissions; whether AER is granted a variance to extend compliance dates for SO2 emission levels contained within the MPS for five years until December 31, 2020; new national ambient air quality standards or changes to existing standards for ozone, fine particulates, SO2, and NOx emissions; additional rules governing air pollutant transport; finalized regulations under the Clean Water Act; CCR being classified as hazardous; whether the CSAPR is implemented and whether any modifications are made to its existing requirements; new technology; expected power prices; variations in costs of material or labor; and alternative compliance strategies or investment decisions.
2012 2013 2016 2017 2021 Total AMO(a) 55 325
400 845
$ 1,030
$ 1,225
$ 1,485 Genco 150 100
125 245
295 495
570 AERG 5
20
25 80
100 105
130 Ameren
$ 210
$ 445
$ 550
$ 1,170
$ 1,425
$ 1,825
$ 2,185 (a)
Ameren Missouris expenditures are expected to be recoverable from ratepayers.
The decision to make pollution control equipment investments at our Merchant Generation business depends on whether the expected future market price for power reflects the increased cost for environmental compliance. During early 2012, the observable market price for power for delivery in the current year and in future years sharply declined below 2011 levels primarily because of declining natural gas prices, as well as the impact from the stay of the CSAPR. As a result of this sharp decline in the market price for power, as well as uncertain environmental regulations, Genco decelerated the construction of two scrubbers at its Newton energy center. These scrubbers were originally expected to be installed in late 2013 and early 2014. The ultimate installation of these scrubbers, now estimated to occur between 2017 and 2021 in the table above, has been postponed until such time as the incremental investment necessary for completion is justified by visible market conditions. However, Genco will continue to incur capital costs related to the construction of these scrubbers. The table above includes Gencos estimated costs of approximately $150 million in 2012 and approximately $20 million annually, excluding capitalized interest, from 2013 through 2016 for the construction of the two scrubbers. In addition to Gencos reduction in estimated capital expenditures, AERG deferred precipitator upgrades at its E.D. Edwards energy center beyond 2016. Based on current environmental rules and regulations, if Merchant Generation and Genco do not complete these environmental upgrades by the beginning of 2015, Merchant Generation and Genco may need to reduce generation output at their energy centers to meet applicable emissions requirements. To achieve flexibility in its efforts to comply with the MPS by 2015, AER filed a request for a variance with the Illinois Pollution Control Board to extend certain compliance dates as discussed in more detail below. If Merchant Generation is not granted a variance to extend compliance dates for SO 2 emission levels contained within the MPS, it is probable that Merchant Generation will have to mothball two of its unscrubbed coalfired energy centers beginning in 2015.
The following sections describe the more significant environmental rules that affect or could affect our operations.
Clean Air Act Both federal and state laws require significant reductions in SO2 and NOx emissions that result from burning fossil fuels. In March 2005, the EPA issued regulations with respect to SO2 and NOx emissions (the CAIR). The CAIR required generating facilities in 28 states, including Missouri and Illinois, and the District of Columbia, to participate in capandtrade programs to reduce annual SO 2 emissions, annual NOx emissions, and ozone season NOx emissions.
In December 2008, the United States Court of Appeals for the District of Columbia remanded the CAIR to the EPA for further action to remedy the rules flaws, but allowed the CAIRs capandtrade programs to remain effective until they are replaced by the EPA. In July 2011, the EPA issued the CSAPR as the CAIR replacement. The CSAPR was to become effective on January 1, 2012, for SO 2 and annual NOx reductions and on May 1, 2012, for ozone season NOx reductions. In the CSAPR, the EPA developed federal implementation plans for each state covered by this rule; however, each impacted state can develop its own implementation rule starting as early as 2013. The CSAPR establishes emission allowance budgets for each of the states subject to the regulation, including Missouri and Illinois. With the CSAPR, the EPA abandoned CAIRs regional approach to cutting emissions and instead set a pollution budget for each of the impacted states based on the EPAs analysis of each upwind states contribution to air quality in downwind states.
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Table of Contents For Missouri and Illinois, emission reductions were required in two phases beginning in 2012, with further reductions in 2014. With the CSAPR, the EPA adopted a capandtrade approach that allows intrastate and limited interstate trading of emission allowances with other sources within the same program, that is, in the SO2 program, in the annual NOx, and in the ozone season NOx program. Multiple legal challenges were filed requesting to have CSAPR partially or entirely vacated and to stay the implementation of the CSAPR while the court considers the challenges. On December 30, 2011, the United States Court of Appeals for the District of Columbia issued a stay of the CSAPR. The stay does not invalidate the rule, but only delays its implementation until a final court ruling is issued. The United States Court of Appeals for the District of Columbia has expedited its consideration of the challenges to the regulation. The ultimate outcome of the challenges to the regulation is uncertain. The court could uphold CSAPR or remand it back to the EPA for partial or entire revision. Until the CSAPR appeal process is concluded, the EPA will continue to administer the CAIR.
In December 2011, the EPA issued the MATS under the Clean Air Act, which require emission reductions for mercury and other hazardous air pollutants, such as acid gases, toxic metals, and particulate matter by setting emission limits equal to the average emissions of the best performing 12% of existing coal and oilfired electric generating units. Also, the standards require reductions in hydrogen chloride emissions, which were not regulated previously, and they will require continuous monitoring systems that are not currently in place. The MATS do not require a specific control technology to achieve the emission reductions. The MATS will apply to each unit at a coalfired power plant; however, emission compliance can be averaged for the entire power plant. Compliance is required by April 2015 or, with a casebycase extension, by April 2016.
Separately, on June 15, 2012, the EPA proposed to make more stringent the national ambient air quality standard for fine particulate matter. Under the proposed standard, the EPA and states would develop control measures designed to reduce the emission of fine particulate matter below required levels.
Such measures may or may not apply to power plants. The EPA expects to issue a final standard for fine particulate matter by the end of 2012, which would require each state to achieve compliance with the final standard by 2020. In September 2011, the EPA announced that it was implementing the 2008 national ambient air quality standard for ozone. The EPA is required to revisit this standard for ozone again in 2013. The state of Illinois and the state of Missouri will be required to develop separate attainment plans to comply with the new ambient air quality standards for ozone and fine particulate matter.
Ameren, Ameren Missouri and Genco continue to assess the impacts of these new standards.
Ameren Missouris current environmental compliance plan for air emissions from its energy centers includes burning ultralowsulfur coal and installing new or optimizing existing pollution control equipment. In July 2011, Ameren Missouri contracted to procure significantly higher volumes of lowersulfurcontent coal than Ameren Missouris energy centers have historically burned, which will allow Ameren Missouri to eliminate or postpone capital expenditures for pollution control equipment. In 2010, Ameren Missouri completed the installation of two scrubbers at its Sioux energy center to reduce SO2 emissions. Currently, Ameren Missouris compliance plan assumes the installation of two scrubbers within its coalfired fleet during the next 10 years and precipitator upgrades at multiple energy centers. However, Ameren Missouri is currently evaluating its operations and options to determine how to comply with the additional emission reductions required by 2014 under the CSAPR, if ultimately implemented, the MATS, and other recently finalized or proposed EPA regulations.
Genco and AERG expect to install additional, or optimize existing, pollution control equipment, or modify or cease energy center operations to meet new and incremental emission reduction requirements under the MPS, the MATS, and the CSAPR as they become effective. Under the MPS, Illinois generators are required to reduce mercury, SO2, and NOx emissions by 2015. In May 2012, AER filed a request for a variance with the Illinois Pollution Control Board to extend compliance dates for SO2 emission levels contained within the MPS for five years until December 31, 2020. In exchange for delaying compliance with these emission levels through 2020, AER has proposed a plan that restricts its SO 2 emissions through 2014 to levels lower than those required by the existing MPS, offsetting any environmental impact from the variance. AER has indicated to the Illinois Pollution Control Board that if a variance is not granted, or power prices do not materially increase, it is probable that the Merchant Generation segment will have to mothball two of its unscrubbed coalfired energy centers beginning in 2015. AER expects a decision from the Illinois Pollution Control Board by the end of September 2012.
To comply with the existing MPS and other air emissions laws and regulations, Genco and AERG are installing equipment designed to reduce their emissions of mercury, NOx, and SO2. Genco and AERG have installed a total of three scrubbers at two energy centers. Two additional scrubbers are being constructed at Gencos Newton energy center. As discussed above, the timing of the installation of these scrubbers, as well as precipitator upgrades at AERGs E.D. Edwards energy center, has been delayed. Merchant Generation and Genco will continue to review and adjust their compliance plans in light of evolving outlooks for power and capacity prices, delivered fuel costs, environmental standards and compliance technologies, among other factors.
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Table of Contents The completion of Amerens, Ameren Missouris and Gencos review of recently finalized environmental regulations and compliance measures could result in significant increases in capital expenditures and operating costs. The compliance costs could be prohibitive at some of our energy centers as the expected return from these investments, at current market prices for energy and capacity, might not justify the required capital expenditures or their continued operation, which could result in the impairment of longlived assets.
Emission Allowances The Clean Air Act created marketable commodities called emission allowances under the acid rain program, the NO x budget trading program, the CAIR, and the CSAPR. With the CSAPR, the EPA adopted a capandtrade approach that allows intrastate and limited interstate trading of emission allowances with other sources within the same program, that is, either the SO 2, annual NOx, or ozone season NOx programs. As noted above, on December 30, 2011, the United States Court of Appeals for the District of Columbia issued a stay of the CSAPR. Until the CSAPR appeal process is concluded, the EPA will continue to administer the CAIR, including its allowance program.
Environmental regulations including the CAIR and the CSAPR, the timing of the installation of pollution control equipment, fuel mix, and the level of operations, will have a significant impact on the number of allowances required for ongoing operations. The CAIR uses the acid rain programs allowances for SO2 emissions and created annual and ozone season NOx allowances. The CSAPR, however, did not rely upon the acid rain program, the NO x budget trading program, or CAIR allowances for its allowance allocation program. Instead, the EPA issued a new type of emissions allowance for each program under the CSAPR. Any unused SO2 allowances, annual NOx allowances, and ozone season NOx allowances issued under CAIR cannot be used for compliance with CSAPR. Ameren, Ameren Missouri and Genco expect to have adequate CAIR allowances for 2012 to avoid needing to make external purchases.
Ameren, Ameren Missouri and Genco are studying their compliance options to identify additional opportunities that may exist for compliance in an economical fashion should the CSAPR become effective as issued. Ameren, Ameren Missouri and Genco may be required to purchase emission allowances, if available, to install new or optimize existing pollution control equipment, to limit generation, or take other actions to achieve compliance with the CSAPR in future phasein years.
Global Climate Change State and federal authorities, including the United States Congress, have considered initiatives to limit greenhouse gas emissions and to address global climate change. Potential impacts from any climate change legislation or regulation could vary, depending upon proposed CO 2 emission limits, the timing of implementation of those limits, the method of distributing any allowances, the degree to which offsets are allowed and available, and provisions for costcontainment measures, such as a safety valve provision that provides a maximum price for emission allowances. As a result of our fuel portfolio, our emissions of greenhouse gases vary among our energy centers, but coalfired power plants are significant sources of CO 2. The enactment of a climate change law could result in a significant rise in household costs, and rates for electricity could rise significantly. The burden could fall particularly hard on electricity consumers and upon the economy in the Midwest because of the regions reliance on electricity generated by coalfired power plants. Natural gas emits about half as much CO2 as coal when burned to produce electricity. Therefore, climate change regulation could cause the conversion of coalfired power plants to natural gas, or the construction of new natural gas plants to replace coalfired power plants. As a result, economywide shifts to natural gas as a fuel source for electricity generation also could affect the cost of heating for our utility customers and many industrial processes that use natural gas.
In December 2009, the EPA issued its endangerment finding under the Clean Air Act, which stated that greenhouse gas emissions, including CO 2, endanger human health and welfare and that emissions of greenhouse gases from motor vehicles contribute to that endangerment. In March 2010, the EPA issued a determination that greenhouse gas emissions from stationary sources, such as power plants, would be subject to regulation under the Clean Air Act effective the beginning of 2011. As a result of these actions, we are required to consider the emissions of greenhouse gases in any air permit application.
Recognizing the difficulties presented by regulating at once virtually all emitters of greenhouse gases, the EPA finalized the Tailoring Rule, which established new higher thresholds beginning in January 2011, for regulating greenhouse gas emissions from stationary sources, such as power plants. The rule requires any source that already has an operating permit to have greenhousegasspecific provisions added to its permits upon renewal. Currently, all Ameren energy centers have operating permits that, when renewed, may be modified to address greenhouse gas emissions. The Tailoring Rule also provides that if projects performed at major sources result in an increase in emissions of greenhouse gases over an applicable annual threshold, such projects could trigger permitting requirements under the NSR programs and the application of best available control technology, if any, to control greenhouse gas emissions. New major sources are also required to obtain such a permit and to install the best available control technology if their greenhouse gas emissions exceed the applicable emissions threshold.
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Table of Contents The extent to which the Tailoring Rule could have a material impact on our energy centers depends upon how state agencies apply the EPAs guidelines as to what constitutes the best available control technology for greenhouse gas emissions from power plants and whether physical changes or changes in operations subject to the rule occur at our energy centers. In June 2012, the United States Court of Appeals for the District of Columbia upheld the Tailoring Rule.
Separately, on March 27, 2012, the EPA issued the proposed Carbon Pollution Standard for New Power Plants. This proposed NSPS for greenhouse gas emissions would apply only to new fossilfuel fired electric energy centers and therefore does not impact any of Amerens, Ameren Missouris, or Gencos existing energy centers. Ameren anticipates this proposed rule, if enacted, could make the construction of new coalfired energy centers in the United States prohibitively expensive. A final rule is expected in 2012. Any federal climate change legislation that is enacted may preempt the EPAs regulation of greenhouse gas emissions, including the Tailoring Rule and the Carbon Pollution Standard for New Power Plants, particularly as it relates to power plant greenhouse gas emissions.
Future federal and state legislation or regulations that mandate limits on the emission of greenhouse gases would likely result in significant increases in capital expenditures and operating costs, which, in turn, could lead to increased liquidity needs and higher financing costs. Moreover, to the extent Ameren Missouri requests recovery of these costs through rates, its regulators might delay or deny timely recovery of these costs. Excessive costs to comply with future legislation or regulations might force Ameren, Ameren Missouri and Genco as well as other similarly situated electric power generators to close some coalfired facilities earlier than planned, which could lead to possible impairment of assets and reduced revenues. As a result, mandatory limits could have a material adverse impact on Amerens, Ameren Missouris, and Gencos results of operations, financial position, and liquidity.
Recent federal court decisions have considered the application of common law causes of action, such as nuisance, to address damages resulting from global climate change. In March 2012, the United States District Court for the Southern District of Mississippi dismissed the Comer v. Murphy Oil lawsuit, which alleged CO2 emissions from several industrial companies, including Ameren Missouri and Genco, created the atmospheric conditions that intensified Hurricane Katrina, thereby causing property damage. The case has been appealed to the appellate court.
The impact on us of future initiatives related to greenhouse gas emissions and global climate change is unknown. Compliance costs could increase as future federal legislative, federal regulatory, and statesponsored initiatives to control greenhouse gases continue to progress, making it more likely that some form of greenhouse gas emissions control will eventually be required. Since these initiatives continue to evolve, the impact on our coalfired energy centers and our customers costs is unknown, but could result in significant increases in our capital expenditures and operating costs. The compliance costs could be prohibitive at some of our energy centers as the expected return from these investments, at current market prices for energy and capacity, might not justify the required capital expenditures or their continued operation, which could result in the impairment of longlived assets.
NSR and Clean Air Litigation The EPA is engaged in an enforcement initiative to determine whether coalfired power plants failed to comply with the requirements of the NSR and NSPS provisions under the Clean Air Act when the plants implemented modifications. The EPAs inquiries focus on whether projects performed at power plants should have triggered various permitting requirements and the installation of pollution control equipment.
Commencing in 2005, Genco received a series of information requests from the EPA pursuant to Section 114(a) of the Clean Air Act. The requests sought detailed operating and maintenance history data with respect to Gencos Coffeen, Hutsonville, Meredosia, Newton, and Joppa energy centers and AERGs E.D. Edwards and Duck Creek energy centers. In April and June 2012, the EPA issued additional Section 114(a) requests to Genco regarding projects at its Newton and Joppa energy centers. Genco is in the process of responding to the 2012 information requests. In August 2012, Genco received a Notice of Violation from the EPA alleging violations of permitting requirements and of Title V of the Clean Air Act. The EPA contends that projects performed in 1997, 2006, and 2007 at Gencos Newton energy center violated federal law. Genco believes its defenses to the allegations described the Notice of Violation are meritorious. Ameren and Genco are unable to predict the outcome of this matter and whether EPA will address this Notice of Violation administratively or through litigation.
Following the issuance of a Notice of Violation, in January 2011, the Department of Justice on behalf of the EPA filed a complaint against Ameren Missouri in the United States District Court for the Eastern District of Missouri. The EPAs complaint alleges that in performing projects at its Rush Island coalfired energy center, Ameren Missouri violated provisions of the Clean Air Act and Missouri law. In January 2012, the United States District Court granted, in part, Ameren 52 to ULNRC-05944
Table of Contents Missouris motion to dismiss various aspects of the EPAs penalty claims. The EPAs claims for injunctive relief, including to require the installation of pollution control equipment, remain. At present, the complaint does not include Ameren Missouris other coalfired energy centers, but the EPA has issued Notices of Violation under its NSR enforcement initiative against Ameren Missouris Labadie, Meramec, and Sioux coalfired energy centers. Litigation of this matter could take many years to resolve. Ameren Missouri believes its defenses to the allegations described in the complaint as well as the Notices of Violation are meritorious. Ameren Missouri will defend itself vigorously. However, there can be no assurances that it will be successful in its efforts.
Ultimate resolution of these matters could have a material adverse impact on the future results of operations, financial position, and liquidity of Ameren, Ameren Missouri and Genco. A resolution could result in increased capital expenditures for the installation of pollution control equipment, increased operations and maintenance expenses, and penalties. We are unable to predict the ultimate resolution of these matters or the costs that might be incurred.
Clean Water Act In March 2011, the EPA announced a proposed rule applicable to cooling water intake structures at existing power plants that have the ability to withdraw more than 2 million gallons of water per day from a body of water and use at least 25 percent of that water exclusively for cooling. Under the proposed rule, affected facilities would be required either to meet mortality limits for aquatic life impinged on the plants intake screens or to reduce intake velocity to 0.5 feet per second. The proposed rule also requires plants to meet sitespecific entrainment standards or to reduce the cooling water intake flow commensurate with the intake flow of a closedcycle cooling system. The final rule is scheduled to be issued in July 2013, with compliance expected within eight years thereafter. All coalfired, nuclear, and combined cycle energy centers at Ameren, Ameren Missouri and Genco with cooling water systems are subject to this proposed rule. The proposed rule did not mandate cooling towers at existing facilities, as other technology options potentially could meet the sitespecific standards. Ameren, Ameren Missouri and Genco are currently evaluating the proposed rule, and their assessment of the proposed rules impacts is ongoing. Therefore, we cannot predict at this time the capital or operating costs associated with compliance. The proposed rule could have an adverse effect on our results of operations, financial position, and liquidity if its implementation requires the installation of cooling towers at our energy centers.
In September 2009, the EPA announced its plan to revise the effluent guidelines applicable to steam electric generating units under the Clean Water Act. Effluent guidelines are national standards for wastewater discharges to surface water that are based on the effectiveness of available control technology.
The EPA is engaged in information collection and analysis activities in support of this rulemaking. It has indicated that it expects to issue a proposed rule in November 2012 and to finalize the rule in April 2014. We are unable at this time to predict the impact of this development.
Remediation We are involved in a number of remediation actions to clean up hazardous waste sites as required by federal and state law. Such statutes require that responsible parties fund remediation actions regardless of their degree of fault, the legality of original disposal, or the ownership of a disposal site. Ameren Missouri and Ameren Illinois have each been identified by the federal or state governments as a potentially responsible party (PRP) at several contaminated sites. Several of these sites involve facilities that were transferred by our rateregulated utility operations in Illinois to Genco in May 2000 and to AERG in October 2003. As part of each transfer, Ameren Illinois contractually agreed to indemnify Genco and AERG for remediation costs associated with preexisting environmental contamination at the transferred sites.
As of June 30, 2012, Ameren and Ameren Illinois owned or were otherwise responsible for 44 former MGP sites in Illinois. These are in various stages of investigation, evaluation, and remediation. Based on current estimated plans, Ameren and Ameren Illinois could substantially conclude remediation efforts at most of these sites by 2015. The ICC permits Ameren Illinois to recover remediation and litigation costs associated with its former MGP sites from its electric and natural gas utility customers through environmental adjustment rate riders. To be recoverable, such costs must be prudently and properly incurred. Costs are subject to annual review by the ICC.
As of June 30, 2012, Ameren and Ameren Missouri own or are otherwise responsible for 10 MGP sites in Missouri and one site in Iowa. Ameren Missouri does not currently have a rate rider mechanism that permits recovery of remediation costs associated with MGP sites from utility customers.
Ameren Missouri does not have any retail utility operations in Iowa that would provide a source of recovery of these remediation costs.
The following table presents, as of June 30, 2012, the estimated probable obligation to remediate these MGP sites.
Estimate Low High Recorded Liability(a)
Ameren
$ 102
$ 181 102 Ameren Missouri 3
4 3
Ameren Illinois 99 177 99 (a)Recorded liability represents the estimated minimum probable obligations, as no other amount within the range was a better estimate.
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Table of Contents Ameren Illinois is responsible for the cleanup of a former coal ash landfill in Coffeen, Illinois. As of June 30, 2012, Ameren Illinois estimated that obligation at $0.5 million to $6 million. Ameren Illinois recorded a liability of $0.5 million to represent its estimated minimum obligation for this site, as no other amount within the range was a better estimate. Ameren Illinois is also responsible for the cleanup of a landfill, underground storage tanks, and a water treatment plant in Illinois. As of June 30, 2012, Ameren Illinois recorded a liability of $0.8 million to represent its estimate of the obligation for these sites.
Ameren Missouri has responsibility for the investigation and potential cleanup of two waste sites in Missouri as a result of federal agency mandates.
One of the cleanup sites is a former coal tar distillery located in St. Louis, Missouri. In 2008, the EPA issued an administrative order to Ameren Missouri pertaining to this distillery operated by Koppers Company or its predecessor and successor companies. Ameren Missouri is the current owner of the site, but Ameren Missouri did not conduct any of the manufacturing operations involving coal tar or its byproducts. Ameren Missouri, along with two other PRPs, is currently performing a site investigation. As of June 30, 2012, Ameren Missouri estimated its obligation at $2 million to $5 million. Ameren Missouri recorded a liability of $2 million to represent its estimated minimum obligation, as no other amount within the range was a better estimate. Ameren Missouris other active federal agencymandated cleanup site in Missouri is a site in Cape Girardeau. Ameren Missouri was a customer of an electrical equipment repair and disposal company that previously operated a facility at this site. A trust was established in the early 1990s by several businesses and governmental agencies to fund the cleanup of this site, which was completed in 2005. Ameren Missouri anticipates this trust fund will be sufficient to complete the remaining adjacent offsite cleanup and therefore has no recorded liability at June 30, 2012, related to this site.
Ameren Missouri also has a federal agency mandate to complete a site investigation for a site in Illinois. In 2000, the EPA notified Ameren Missouri and numerous other companies, including Solutia, that former landfills and lagoons in Sauget, Illinois, may contain soil and groundwater contamination.
These sites are known as Sauget Area 2. From about 1926 until 1976, Ameren Missouri operated an energy center adjacent to Sauget Area 2. Ameren Missouri currently owns a parcel of property that was once used as a landfill. Under the terms of an Administrative Order on Consent, Ameren Missouri has joined with other PRPs to evaluate the extent of potential contamination with respect to Sauget Area 2.
The Sauget Area 2 investigations overseen by the EPA have been completed. The results have been submitted to the EPA, and a record of decision is expected in 2012. Once the EPA has selected a remedy, if any, it would begin negotiations with various PRPs regarding implementation. Over the last several years, numerous other parties have joined the PRP group. In addition, Pharmacia Corporation and Monsanto Company have agreed to assume the liabilities related to Solutias former chemical waste landfill in the Sauget Area 2. As of June 30, 2012, Ameren Missouri estimated its obligation at $0.3 million to $10 million. Ameren Missouri recorded a liability of $0.3 million to represent its estimated minimum obligation, as no other amount within the range was a better estimate.
Our operations or those of our predecessor companies involve the use of, disposal of, and in appropriate circumstances, the cleanup of substances regulated under environmental protection laws. We are unable to determine whether such practices will result in future environmental commitments or affect our results of operations, financial position, or liquidity.
Ash Management There has been activity at both state and federal levels regarding additional regulation of ash pond facilities and CCR. In May 2010, the EPA announced proposed new regulations regarding the regulatory framework for the management and disposal of CCR, which could affect future disposal and handling costs at our energy centers. Those proposed regulations include two options for managing CCRs under either solid or hazardous waste regulations, but either alternative would allow for some continued beneficial uses, such as recycling of CCR without classifying it as waste. As part of its proposal, the EPA is considering alternative regulatory approaches that require coalfired power plants either to close surface impoundments, such as ash ponds, or to retrofit such facilities with liners. Existing impoundments and landfills used for the disposal of CCR would be subject to groundwater monitoring requirements and requirements related to closure and postclosure care under the proposed regulations. Additionally, in January 2010, EPA announced its intent to develop regulations establishing financial responsibility requirements for the electric generation industry, among other industries, and it specifically discussed CCR as a reason for developing the new requirements. Ameren, Ameren Missouri and Genco are currently evaluating all of the proposed regulations to determine whether current management of CCR, including beneficial reuse, and the use of the ash ponds should be altered. Ameren, Ameren Missouri and Genco also are evaluating the potential costs associated with compliance with the proposed regulation of CCR impoundments and landfills, which could be material, if such regulations are adopted.
Pumpedstorage Hydroelectric Facility Breach In December 2005, there was a breach of the upper reservoir at Ameren Missouris Taum Sauk pumpedstorage 54 to ULNRC-05944
Table of Contents hydroelectric energy center. This resulted in significant flooding in the local area, which damaged a state park. The rebuilt Taum Sauk energy center became fully operational in April 2010.
Ameren Missouri included certain capitalized costs associated with enhancements, or costs that would have been incurred absent the breach, at the rebuilt Taum Sauk energy center not recovered from property insurers in an electric rate case filing. However, in its July 2011 rate order, the MoPSC disallowed all of these capitalized costs associated with the rebuilding of the Taum Sauk energy center. See Note 2 Rate and Regulatory Matters for additional information about the appeal of the MoPSCs July 2011 electric rate order.
Ameren Missouri had liability insurance coverage for the Taum Sauk incident, subject to certain limits and deductibles. As of June 30, 2012, Ameren Missouri had an insurance receivable balance subject to liability coverage of $68 million.
In June 2010, Ameren Missouri sued an insurance company that was providing Ameren Missouri with liability coverage on the date of the Taum Sauk incident. In the litigation, filed in the United States District Court for the Eastern District of Missouri, Ameren Missouri claimed the insurance company breached its duty to indemnify Ameren Missouri for the losses experienced from the incident. In January 2011, the court ruled that the parties must first pursue alternative dispute resolution under the terms of their coverage agreement. In February 2011, Ameren Missouri filed an appeal of the January ruling with the United States Court of Appeals for the Eighth Circuit, seeking the ability to pursue resolution of this dispute outside of a dispute resolution process under the terms of its coverage agreement. The United States Court of Appeals is expected to issue a decision during 2012. Separately, in April 2012, Ameren Missouri sued a different insurance company that was providing Ameren Missouri with liability coverage on the date of the Taum Sauk incident. In the April 2012 litigation, which is pending in the U.S. District Court for the Eastern District of Missouri, Ameren Missouri claimed the insurance company breached its duty to indemnify Ameren Missouri for the losses experienced from the incident.
Until Amerens remaining liability insurance claims and the related litigation are resolved, we are unable to determine the total impact the breach could have on Amerens and Ameren Missouris results of operations, financial position, and liquidity beyond those amounts already recognized.
Asbestosrelated Litigation Ameren, Ameren Missouri, Ameren Illinois and EEI have been named, along with numerous other parties, in a number of lawsuits filed by plaintiffs claiming varying degrees of injury from asbestos exposure. Most have been filed in the Circuit Court of Madison County, Illinois. The total number of defendants named in each case varies, with as many as 272 parties named in some pending cases and as few as two in others. In the cases pending as of June 30, 2012, the average number of parties was 79.
The claims filed against Ameren, Ameren Missouri and Ameren Illinois allege injury from asbestos exposure during the plaintiffs activities at our present or former electric generating plants. Certain former Ameren Illinois energy centers are now owned by either Genco or AERG. As a part of the transfer of energy center ownership in 2000 and 2003, Ameren Illinois contractually agreed to indemnify Genco and AERG, respectively, for liabilities associated with asbestosrelated claims arising from activities prior to each transfer. Each lawsuit seeks unspecified damages that, if awarded at trial, typically would be shared among the various defendants.
The following table presents the pending asbestosrelated lawsuits filed against the Ameren Companies as of June 30, 2012:
Ameren Ameren Missouri Ameren llinois Genco Total(a) 4 69 91 (b) 115 (a)Total does not equal the sum of the subsidiary unit lawsuits because some of the lawsuits name multiple Ameren entities as defendants.
(b)As of June 30, 2012, eight asbestosrelated lawsuits were pending against EEI. The general liability insurance maintained by EEI provides coverage with respect to liabilities arising from asbestosrelated claims.
At June 30, 2012, Ameren, Ameren Missouri, Ameren Illinois and Genco had liabilities of $21 million, $8 million, $13 million, and $ million, respectively, recorded to represent their estimate of their obligations related to asbestos claims.
Ameren Illinois has a tariff rider which permits recovery from customers within IPs historical service territory of asbestosrelated litigation claims that occurred within IPs historical service territory. The rider can recover the costs of asbestosrelated litigation claims, subject to the following terms:
90% of cash expenditures in excess of the amount included in base electric rates are to be recovered from a trust fund that was established when Ameren acquired IP. At June 30, 2012, the trust fund balance was $23 million, including accumulated interest. If cash expenditures are less than the amount in base rates, Ameren Illinois will contribute 90% of the difference to the trust fund. Once the trust fund is depleted, 90% of allowed cash expenditures in excess of base rates will be recovered through charges assessed to customers under the tariff rider.
Illinois Sales and Use Tax Exemptions and Credits In Exelon Corporation v. Department of Revenue, the Illinois Supreme Court decided in 2009 that electricity is tangible personal property for purposes of the Illinois income 55 to ULNRC-05944
Table of Contents tax investment credit. In March 2010, the United States Supreme Court refused to hear an appeal of the case, and the decision became final. During the second quarter of 2010, Genco, including EEI, and AERG began claiming Illinois sales and use tax exemptions and credits for purchase transactions related to their generation operations. The primary basis for those claims is that the determination in the Exelon case that electricity is tangible personal property applies to sales and use tax manufacturing exemptions and credits. On November 2, 2011, EEI received a notice of proposed tax liability, documenting the state of Illinois position that EEI did not qualify for the manufacturing exemption it used during 2010. EEI is challenging the state of Illinois position. In December 2011, EEI filed a request for review by the Informal Conference Board of the Illinois Department of Revenue. Ameren and Genco do not believe that it is probable that the state of Illinois will prevail and therefore have not recorded a charge to earnings for the loss contingency. From the second quarter of 2010 through December 31, 2011, Ameren and Genco claimed manufacturing exemptions and credits of $27 million and $19 million, respectively, which represents the maximum potential tax liability to Ameren and Genco.
Genco, including EEI, and AERG do not anticipate utilizing any additional manufacturing exemptions or credits in 2012, pending discussions with the Illinois Department of Revenue, and therefore will pay use tax on the applicable purchases. Each company, however, is reserving the right to apply for applicable refunds at a later date.
NOTE 10 CALLAWAY ENERGY CENTER Under the NWPA, the DOE is responsible for disposing of spent nuclear fuel from the Callaway energy center and other commercial nuclear power plants. Under the NWPA, Ameren and other utilities who own and operate those plants are responsible for paying the disposal costs. The NWPA established the fee that these utilities pay the federal government for disposing of the spent nuclear fuel at one mill, or onetenth of one cent, for each kilowatt hour generated by those plants and sold. The NWPA also requires the DOE to review the nuclear waste fee against the cost of the nuclear waste disposal program and to propose to the United States Congress any fee adjustment necessary to offset the costs of the program. As required by the NWPA, Ameren and other utilities have entered into standard contracts with the federal government. The government, represented by the DOE, implements these provisions of the NWPA. Consistent with the NWPA and its contract, Ameren Missouri collects one mill from its electric customers for each kilowatt hour of electricity that it generates and sells from its Callaway energy center.
Although both the NWPA and the standard contract stated that the federal government would begin to dispose of spent nuclear fuel by 1998, the federal government has acknowledged since at least 1994 that it would not meet that deadline. The federal government is not currently predicting when it will begin to meet its disposal obligation. Ameren Missouri has sufficient installed capacity at its Callaway energy center to store the spent nuclear fuel generated at Callaway through 2020 and has the capability for additional storage capacity for spent nuclear fuel generated through the end of the energy centers current licensed life.
Until January 2009, the DOE program provided for spent nuclear fuel disposal to take place at a geologic repository to be constructed at Yucca Mountain, Nevada. In January 2009, the Obama administration announced that a repository at Yucca Mountain was unworkable and took steps to terminate the Yucca Mountain program, while acknowledging the federal governments continuing obligation to dispose of utilities spent nuclear fuel. In January 2012, an advisory commission established by the DOE issued its report of recommendations for the storage and disposal of spent nuclear fuel. The recommendations covered topics such as the approach to siting future nuclear waste management facilities, the transport and storage of spent fuel and highlevel waste, options for waste disposal, institutional arrangements for managing spent nuclear fuel and highlevel wastes, and changes needed in the handling of nuclear waste fees and of the Nuclear Waste Fund. Most of these recommendations require action by the DOE and the United States Congress.
In view of the federal governments efforts to terminate the Yucca Mountain program, the Nuclear Energy Institute, a number of individual utilities, and the National Association of Regulatory Utility Commissioners sued the DOE in the United States Court of Appeals for the District of Columbia Circuit seeking the suspension of the one mill nuclear waste fee, alleging that the DOE failed to undertake an appropriate fee adequacy review reflecting the current unsettled state of the nuclear waste program. In a June 1, 2012 decision, the court ruled that DOEs fee adequacy review was legally inadequate and remanded the matter to the DOE. While the court ruled it has the power to direct the DOE to suspend the fee, the court decided that it was premature to do so. Instead, the court ordered the DOE to respond to its remand within six months. The DOEs delay in carrying out its obligation to dispose of spent nuclear fuel from the Callaway energy center is not expected to adversely affect the continued operation of the energy center.
As a result of DOEs failure to build a repository for nuclear waste or otherwise fulfill its contractual obligations, Ameren Missouri and other nuclear power plant owners have also sued DOE to recover costs incurred for ongoing storage of their spent fuel. Ameren Missouri filed a breach of contract lawsuit to recover its costs, which would not have been incurred had DOE performed its contractual obligations. These costs included the reracking of the Callaway energy centers spent fuel pool, as well as certain NRC fees, and Missouri ad valorem taxes. In June 2011, the parties reached 56 to ULNRC-05944
Table of Contents a settlement that included a payment to Ameren Missouri for spent fuel storage and related costs through 2010 and, thereafter, annual payment of such costs after they are incurred through 2013 or any other mutually agreed extension. In March 2012, Ameren Missouri submitted its 2011 costs to the DOE for reimbursement under the settlement agreement. Ameren Missouri expects to receive the 2011 cost reimbursement of $1 million during the third quarter of 2012.
In December 2011, Ameren Missouri filed a license extension application with the NRC to extend its Callaway energy centers operating license from 2024 to 2044. There is no date by which the NRC must act in this application. Among the rules that the NRC has historically relied upon in approving license extensions are rules dealing with the storage of spent nuclear fuel at the reactor site and with the NRCs confidence that permanent disposal of spent nuclear fuel will be available when needed. In a June 8, 2012 decision, the United States Court of Appeals for the District of Columbia Circuit vacated these rules, holding that the NRCs obligations under the National Environmental Policy Act required a more thorough environmental analysis in support of the NRCs waste confidence decision. On June 18, 2012, a number of groups petitioned the NRC to suspend final licensing decisions in certain NRC licensing proceedings, including the Callaway license extension, until the NRC completed its proceedings on the vacated rules. The petition is pending. If the Callaway energy centers license is extended, additional spent fuel storage will be required. Ameren Missouri plans to install a dry spent fuel storage facility at its Callaway energy center and intends to begin transferring spent fuel assemblies to this facility by 2020.
Electric utility rates charged to customers provide for the recovery of the Callaway energy centers decommissioning costs, which include decontamination, dismantling, and site restoration costs, over an assumed 40year life of the nuclear center, ending with the expiration of the energy centers current operating license in 2024. It is assumed that the Callaway energy center site will be decommissioned through the immediate dismantlement method and removed from service. Ameren and Ameren Missouri have recorded an ARO for the Callaway energy center decommissioning costs at fair value, which represents the present value of estimated future cash outflows. Decommissioning costs are included in the costs of service used to establish electric rates for Ameren Missouris customers. These costs amounted to $7 million in each of the years 2011, 2010, and 2009. Every three years, the MoPSC requires Ameren Missouri to file an updated cost study for decommissioning its Callaway energy center. Electric rates may be adjusted at such times to reflect changed estimates. The last cost study was filed with the MoPSC in September 2011. After considering the results of that cost study and associated financial analysis, Ameren Missouri recommended to the MoPSC that the current rate of deposits to the trust fund continues to be appropriate and does not need to be changed. A decision from the MoPSC is still pending. If Ameren Missouris operating license extension application is approved by the NRC, a revised financial analysis will be prepared and the rates charged to customers will be adjusted accordingly to reflect the operating license extension. Amounts collected from customers are deposited in an external trust fund to provide for the Callaway energy centers decommissioning. If the assumed return on trust assets is not earned, we believe that it is probable that any such earnings deficiency will be recovered in rates. The fair value of the nuclear decommissioning trust fund for Ameren Missouris Callaway energy center is reported as Nuclear decommissioning trust fund in Amerens consolidated balance sheet and Ameren Missouris balance sheet. This amount is legally restricted and may be used only 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, with an offsetting adjustment to the related regulatory liability.
See Note 2 Rate and Regulatory Matters for additional information related to the Callaway energy center.
NOTE 11 ASSET IMPAIRMENTS We evaluate longlived assets classified as held and used for impairment when events or changes in circumstances indicate that the carrying value, or book value, of such assets may not be recoverable. Under applicable accounting guidance, whether an impairment has occurred is determined by comparing the estimated undiscounted cash flows attributable to the assets with the carrying value of the assets. If the carrying value exceeds the estimated undiscounted cash flows, we recognize an impairment charge equal to the carrying value of the assets in excess of estimated fair value.
Power prices in the Midwest affect the amount of revenues and cash flows Merchant Generation and Genco can realize by marketing power into the wholesale and retail markets. During the first quarter of 2012, the observable market price for power for delivery in the current year and in future years in the Midwest sharply declined below 2011 levels primarily because of declining natural gas prices and the impact of the stay of the CSAPR. For example, from December 31, 2011, through February 29, 2012, the market price for power at the Indiana Hub for delivery in the current year decreased by 14%. As a result of this sharp decline in the market price of power and the related impact on electric margins, Genco decelerated the construction of two scrubbers at its Newton energy center in February 2012. The sharp decline in the market price of power in the first quarter of 2012 and the related impact on electric margins, as well as the deceleration of construction of Gencos Newton energy center scrubber project, caused Merchant Generation and Genco to evaluate, during the first quarter of 2012, whether the carrying 57 to ULNRC-05944
Table of Contents values of their coalfired energy centers were recoverable. The carrying values of Merchant Generations and Gencos energy centers exceeded their estimated fair values. However, under the applicable accounting guidance, if undiscounted future cash flows from these longlived assets exceed their carrying values, the assets are deemed unimpaired, and no impairment loss is recognized, even if the carrying values of the assets exceed estimated fair values. Only AERGs Duck Creek energy centers carrying value exceeded its estimated undiscounted future cash flows. As a result, Ameren recorded a noncash pretax asset impairment charge of $628 million to reduce the carrying value of AERGs Duck Creek energy center to its estimated fair value during the first quarter of 2012. This impairment charge was included in Amerens results and in the Merchant Generations segment results for the first quarter of 2012 and the six months ended June 30,2012.
Key assumptions used in the determination of estimated undiscounted cash flows of the Merchant Generation and Genco longlived assets tested for impairment included the forward price projections for energy and fuel costs, the expected life of the energy center, environmental compliance costs and strategies, and operating costs. Those same cash flow assumptions, along with a discount rate, were used to estimate the fair value of the longlived assets of the Duck Creek energy center. The fair value estimate of the longlived assets of the Duck Creek energy center was based on the income approach, which considers discounted future cash flows. The fair value estimate was determined using observable inputs and significant unobservable inputs, which are Level 3 inputs as defined by accounting guidance for fair value measurements.
After the impairment of the Duck Creek energy center, Merchant Generation and Genco believed the carrying value of their energy centers exceeded their estimated fair values by an amount significantly in excess of $1 billion. Merchant Generation and Genco will continue to monitor the market price for power and the related impact on electric margin and other events or changes in circumstances that indicate that the carrying value of their energy centers may not be recoverable as compared to their undiscounted cash flows. Merchant Generation and Genco could recognize additional, material longlived asset impairment charges in the future as a result of factors outside their control, such as changes in power or fuel costs, administrative action or inaction by regulatory agencies and new environmental laws and regulations that could reduce the expected useful lives of Merchant Generations and Gencos energy centers, and also as a result of factors that may be within their control, such as a failure to achieve forecasted operating results and cash flows, unfavorable changes in forecasted operating results and cash flows, or decisions to shut down, mothball or sell their energy centers.
The Duck Creek energy center asset impairment charge did not result in a violation of any Ameren debt covenants or counterparty agreements.
See Note 1 Summary of Significant Accounting Policies for information regarding the intangible asset impairment recorded during the second quarter of 2011.
NOTE 12 RETIREMENT BENEFITS Amerens pension and postretirement plans are funded in compliance with income tax regulations and to meet federal funding or regulatory requirements. As a result, Ameren expects to fund its pension plans at a level equal to the greater of the pension expense or the legally required minimum contribution. Considering Amerens assumptions at December 31, 2011, its estimated investment performance through June 30, 2012, and its pension funding policy, Ameren expects to make annual contributions of $80 million to $140 million in each of the next five years, with aggregate estimated contributions of $570 million. These amounts are estimates which may change with actual investment performance, changes in interest rates, any pertinent changes in government regulations, and any voluntary contributions. Our policy for postretirement benefits is primarily to fund the Voluntary Employee Beneficiary Association (VEBA) trusts to match the annual postretirement expense.
The following table presents the components of the net periodic benefit cost for Amerens pension and postretirement benefit plans for the three and six months ended June 30, 2012, and 2011:
Pension Benefits(a)
Postretirement Benefits(a)
Three Months Six Months Three Months Six Months 2012 2011 2012 2011 2012 2011 2012 2011 Service cost
$ 20
$ 18 41 38 6
5
$ 12
$ 11 Interest cost 42 45 85 90 12 14 26 29 Expected return on plan assets (53)
(54)
(107)
(108)
(15)
(13)
(29)
(27)
Amortization of:
Transition obligation
1 1
1 1
Prior service cost (benefit)
(1)
(1)
(1)
(1)
(2)
(2)
(3)
(4)
Actuarial loss 19 10 39 21
1 4
2 Net periodic benefit cost
$ 27
$ 18 57 40 2
6
$ 11
$ 12 (a)
Includes amounts for Ameren registrant and nonregistrant subsidiaries.
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Table of Contents See Note 1 Summary of Significant Accounting Policies for information regarding a pending curtailment gain or loss of EEIs pension and postretirement benefit plans.
Ameren Missouri, Ameren Illinois and Genco are responsible for their share of the pension and postretirement costs. The following table presents the pension costs and the postretirement benefit costs incurred for the three and six months ended June 30, 2012, and 2011:
Pension Costs Postretirement Costs Three Months Six Months Three Months Six Months 2012 2011 2012 2011 2012 2011 2012 2011 Ameren Missouri
$ 16
$ 12
$ 32
$ 26
2 5
5 Ameren Illinois 8
3 18 8
4 2
6 Genco 2
3 5
5 2
4 1
Other 1
2 1
Ameren(a)
$ 27
$ 18
$ 57
$ 40 2
6
$ 11
$ 12 (a)
Includes amounts for Ameren registrant and nonregistrant subsidiaries.
NOTE 13 SEGMENT INFORMATION Ameren has three reportable segments: Ameren Missouri, Ameren Illinois, and Merchant Generation. The Ameren Missouri segment for Ameren and Ameren Missouri includes all the operations of Ameren Missouris business as described in Note 1 Summary of Significant Accounting Policies. The Ameren Illinois segment for Ameren and Ameren Illinois includes all of the operations of Ameren Illinois business as described in Note 1 Summary of Significant Accounting Policies. The Merchant Generation segment for Ameren consists primarily of the operations or activities of Genco, including EEI, AERG, Medina Valley through February 2012, and Marketing Company. The category called Other primarily includes Ameren parent company activities, Ameren Services, and ATXI.
The following table presents information about the revenues and specified items included in Amerens net income for the three and six months ended June 30, 2012, and 2011, and total assets as of June 30, 2012, and December 31, 2011.
Three Months Ameren Missouri Ameren Illinois Merchant Generation Other Intersegment Eliminations Consolidated 2012:
External revenues 838 561 261
1,660 Intersegment revenues 6
3 72 2
(83)
Net income (loss) attributable to Ameren Corporation (a) 143 32 (5) 41
211 2011:
External revenues 814 619 347 1
1,781 Intersegment revenues 8
4 49
(61)
Net income (loss) attributable to Ameren Corporation (a) 90 37 15 (4)
138 Six Months 2012:
External revenues 1,524
$ 1,282 510 2
3,318 Intersegment revenues 11 6
159 2
(178)
Net income (loss) attributable to Ameren Corporation (a) 164 59 (368)
(47)
(192) 2011:
External revenues 1,581
$ 1,424 679 1
3,685 Intersegment revenues 13 7
96 1
(117)
Net income (loss) attributable to Ameren Corporation (a) 111 70 35 (7)
209 As of June 30, 2012:
Total assets
$ 12,680
$ 7,127 3,254
$ 1,196 (1,277) 22,980 As of December 31, 2011:
Total assets
$ 12,757
$ 7,213 3,833
$ 1,211 (1,369) 23,645 (a)
Represents net income (loss) available to common stockholders.
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the financial statements contained in this Form 10Q as well as Managements Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors contained in the Form 10K. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. The discussion also provides information about the financial results of the various segments of our business to provide a 59 to ULNRC-05944
Table of Contents better understanding of how those segments and their results affect the financial condition and results of operations of Ameren as a whole.
Ameren, headquartered in St. Louis, Missouri, is a public utility holding company under PUHCA 2005, administered by FERC. Amerens primary assets are the common stock of its subsidiaries. Amerens subsidiaries are separate, independent legal entities with separate businesses, assets, and liabilities. These subsidiaries operate, as the case may be, rateregulated electric generation, transmission, and distribution businesses, rateregulated natural gas transmission and distribution businesses, and merchant electric generation businesses in Missouri and Illinois. Dividends on Amerens common stock and the payment of expenses by Ameren depend on distributions made to it by its subsidiaries. Amerens principal subsidiaries are listed below.
Ameren Missouri operates a rateregulated electric generation, transmission and distribution business, and a rateregulated natural gas transmission and distribution business in Missouri.
Ameren Illinois operates a rateregulated electric and natural gas transmission and distribution business in Illinois.
AER consists of nonrateregulated operations, including Genco, AERG and Marketing Company. Genco operates a merchant electric generation business in Illinois and holds an 80% ownership interest in EEI.
The financial statements of Ameren are prepared on a consolidated basis and therefore include the accounts of its majorityowned subsidiaries. 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, we present certain information in cents per share. These amounts reflect factors that directly affect Amerens earnings. We believe this per share information helps readers to understand the impact of these factors on Amerens earnings per share.
OVERVIEW Ameren recorded net income of $211 million for the second quarter of 2012 compared with net income of $138 million for the second quarter of 2011, while it recorded a net loss of $192 million for the first six months of 2012, compared with net income of $209 million for the first six months of 2011. The net loss for the first six months of 2012 was primarily caused by a noncash asset impairment charge in the Merchant Generation segment, which reduced pretax earnings by $628 million, and a noncash reduction in the income tax benefit related to the asset impairment.
Amerens earnings for the second quarter and the first six months of 2012 were positively impacted, compared to the yearago periods, by increased earnings from Amerens rateregulated utility operations partially offset by decreased earnings from Amerens Merchant Generation operations. Amerens rateregulated utility earnings during the second quarter benefited from a favorable FERC order related to a disputed Ameren Missouri power purchase agreement that expired in 2009, the absence in 2012 of a 2011 Ameren Missouri charge to earnings related to the FAC, 2011 Ameren Missouri electric and 2012 Ameren Illinois natural gas rate increases, and reduced stormrelated costs. Sales to electric native load customers increased during the second quarter of 2012, compared with the yearago period, because of warmer temperatures; however, mild first quarter weather decreased sales to native load customers unfavorably impacting earnings for the first six months of 2012, compared with the yearago period. Merchant Generation segment earnings were negatively impacted by lower prices for electricity sales.
Ameren continues to believe that modern, constructive regulatory frameworks, which provide timely cash flows and a reasonable opportunity to earn fair returns on investments, are in the best longterm interests of its customers and the states in which it operates. These frameworks support Amerens ability to attract capital on terms which facilitate the timely investment needed to modernize Amerens rateregulated companies aging infrastructure.
Ameren Missouri is seeking to enhance its existing regulatory framework in its electric rate case filed in February 2012. Ameren Missouri is seeking approval of a storm cost tracking mechanism that would provide the opportunity to recover costs to restore service after major storms in a manner that is fair to both customers and investors. Ameren Missouri is also seeking approval of a new plantinservice accounting proposal, which is designed to reduce the impact of regulatory lag on earnings and future cash flows related to assets placed in service between rate cases.
In August 2012, the MoPSC issued an order in Ameren Missouris first MEEIA filing. The order includes megawatthour savings targets for Ameren Missouris energy efficiency programs as well as associated cost recovery mechanisms and incentive awards. As part of the order, beginning in 2013, Ameren Missouri will invest approximately $147 million over three years for energy efficiency programs. The order allows for Ameren Missouri to collect, over the next three years, its program costs and 90% of its projected lost revenue from customers starting on the effective date for the pending electric service rate case, which is expected to be January 2, 2013. The remaining 10% of projected lost revenue is expected to be recovered as part of future rate proceedings. If energy efficiency goals are achieved, Ameren Missouri also has the ability to earn an incentive award to reflect the lost investment opportunities as a result of the energy efficiency programs.
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Table of Contents With the IEIMA regulatory framework in place, Ameren Illinois plans to invest incremental capital in its electric business. Over the next ten years, Ameren Illinois is required to invest an incremental $625 million above spending levels in recent years and create 450 jobs during the peak program year to take advantage of the IEIMA framework. Approximately half of the increase in capital spending is for smart grid equipment and advanced electric meters, which will be installed under Ameren Illinois advanced metering infrastructure deployment plan. In March 2012, Ameren Illinois submitted its original advanced metering infrastructure deployment plan to the ICC, and the ICC subsequently denied that plan in May 2012. The ICC ruled that Ameren Illinois original plan did not provide enough support to prove that it was cost beneficial for electric customers. Ameren Illinois asked for a rehearing and filed a modified deployment plan designed to address the ICCs concerns about cost justification. Ameren Illinois rehearing filing demonstrated a positive net present value for a plan, which provides for the installation of advanced electric meters for 62% of its electric customers within 10 years. The ICC granted the rehearing request and a decision is expected during the fourth quarter of 2012. Assuming ICC approval, Ameren Illinois would begin the construction of infrastructure in the third quarter of 2013, with the first meters to be installed in the second quarter of 2014.
Ameren continues to execute its plan to increase investment in electric transmission assets. Ameren Illinois plans to invest approximately $900 million in transmission projects focused on reliability and local load growth needs over the 2012 through 2016 period. Approximately 75% of these reliability projects do not require regulatory approval because they are improving or rebuilding existing lines. The remaining Ameren Illinois transmission projects do require regulatory approval. ATXI plans to invest approximately $750 million in greenfield regional projects within Illinois and Missouri over the 2012 through 2016 period. ATXI is currently holding public meetings on route design for the Illinois Rivers project. Later this year, ATXI plans to file a certificate of public convenience and necessity with the ICC. Once the ICC approves that certificate, ATXI will begin to acquire right of ways. Preliminary construction may start as early as 2013 with a full range of construction activities in 2014.
In June 2012, FERC issued an order related to the development of the MISO capacity market. FERC approved MISOs request to change the capacity procurement model to an annual, from a monthly, model beginning with the 2013 to 2014 planning year, but rejected MISOs proposal for a mandatory requirement to fill capacity deficiencies. FERCs order also directed its staff to solicit comments on the issue of capacity portability between MISO and PJM. Ameren continues to support the removal of unnecessary barriers to capacity portability across this seam as a means to improve market efficiency.
The Merchant Generation segment seeks to fund its operations internally and therefore seeks not to rely on financing from Ameren or external, thirdparty sources, if available. The Merchant Generation segment continues to seek to defer or reduce capital and operating expenses, sell certain assets, and take other actions as necessary to fund their operations. During 2012, the Merchant Generation segment sold its Medina Valley energy center and also announced a workforce reduction at its Joppa energy center. These actions were taken to improve Merchant Generation results of operations, financial condition, and liquidity. Under the provisions of Gencos indenture, Genco may not borrow additional funds from external, thirdparty sources if certain financial ratios are not achieved. Based on projections as of June 30, 2012, of Gencos operating results and cash flows, we expect that, by the end of the first quarter of 2013, Genco will not achieve the financial ratios and therefore will be restricted from additional borrowings from external, thirdparty sources. Gencos indenture does not restrict intercompany borrowings from Amerens nonstateregulated subsidiary money pool. However, borrowings from the money pool are subject to Amerens control, and if a Genco intercompany financing need were to arise, borrowings from the nonstateregulated subsidiary money pool by Genco would be dependent on consideration by Ameren of the facts and circumstances existing at that time. In March 2012, Genco entered into a put option agreement with AERG, for the potential sale of the Grand Tower, the Gibson City, and the Elgin energy centers, in order to provide an additional source of liquidity, if needed in the future.
RESULTS OF OPERATIONS 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 affect the demand for our services. Our results are also affected by seasonal fluctuations: winter heating and summer cooling demands. The vast majority of Amerens revenues are subject to state or federal regulation. This regulation has a material impact on the price we charge for our services. Merchant Generation sales are also subject to market conditions for power. We principally use coal, nuclear fuel, natural gas, and oil for fuel in our operations. The prices for these commodities can fluctuate significantly due to the global economic and political environment, weather, supply and demand, and many other factors. We have natural gas cost recovery mechanisms for our Illinois and Missouri natural gas delivery service businesses, a purchased power cost recovery mechanism for our Illinois electric delivery service business, and a FAC for our Missouri electric utility business. Ameren Illinois electric delivery service utility business, pursuant to the IEIMA, completes an annual reconciliation of the revenue requirement necessary to reflect the actual costs incurred in a given year with the revenue requirement that was in effect for that year, with recoveries from or refunds to customers in a 61 to ULNRC-05944
Table of Contents subsequent year. Fluctuations in interest rates and conditions in the capital and credit markets affect our cost of borrowing and our pension and postretirement benefits costs. We employ various risk management strategies to reduce our exposure to commodity risk and other risks inherent in our business. The reliability of our energy centers and transmission and distribution systems and the level of purchased power costs, operations and maintenance costs, and capital investment are key factors that we seek to control to optimize our results of operations, financial position, and liquidity.
Earnings Summary Net income attributable to Ameren Corporation increased to $211 million, or 87 cents per share, in the second quarter of 2012, from $138 million, or 57 cents per share, in the second quarter of 2011. Net income attributable to Ameren Corporation in the second quarter of 2012 increased in the Ameren Missouri segment by $53 million from the prioryear period. Net income attributable to Ameren Corporation in the second quarter of 2012 decreased in the Merchant Generation and Ameren Illinois segments by $20 million and $5 million, respectively, from the prioryear period.
Ameren Corporation incurred a net loss of $192 million, or 79 cents per share, in the first six months of 2012 compared to net income of $209 million, or 87 cents per share, in the first six months of 2011. The net loss attributable to Ameren Corporation in the first six months of 2012 was caused by a net loss in the Merchant Generation segment of $368 million compared with net income in the Merchant Generation segment of $35 million in the prioryear period. Net income attributable to Ameren Corporation in the first six months of 2012 decreased in the Ameren Illinois segment by $11 million from the prioryear period and increased in the Ameren Missouri segment by $53 million from the prioryear period.
Earnings were favorably impacted in the second quarter and first six months of 2012, compared with the same periods in 2011, by:
higher utility rates at Ameren Missouri and Ameren Illinois. Ameren Missouris electric rates increased pursuant to an order issued by the MoPSC, which became effective in July 2011. The favorable impact of the Ameren Missouri rate increase on earnings was reduced by the increased regulatory asset amortization directed by the rate order. Ameren Illinois natural gas rates increased pursuant to an order issued by the ICC, which became effective in midJanuary 2012 (9 cents per share and 15 cents per share, respectively);
reduction in operations and maintenance expenses as a result of fewer major storms (4 cents per share and 9 cents per share, respectively);
reduction in Ameren Missouris purchased power expense and an increase in interest income as a result of a refund received in June 2012 from Entergy for a power purchase agreement that expired in 2009 (7 cents per share in both periods);
reduction in operations and maintenance expenses at both Ameren Missouri and Merchant Generation energy centers due to fewer outages and a reduction in employees (5 cents per share and 6 cents per share, respectively); and the absence in 2012 of a reduction to revenues as a result of the MoPSCs April 2011 FAC review order covering the period from March 1, 2009, to September 30, 2009, that resulted in Ameren Missouri recording, in the three and six months ended June 30, 2011, an obligation to refund to its electric customers the earnings associated with certain previously recognized sales (5 cents per share in both periods).
In addition to the above items favorably impacting both periods, earnings were favorably impacted in the second quarter of 2012, compared with the same period in 2011, by:
an increase in income tax benefit as a result of the first quarter 2012 longlived asset impairment discussed above, which partially offset the reduction in the income tax benefit recognized during the first quarter, which is discussed below (18 cents per share); and increased electric demand due to warmer weather conditions (3 cents per share).
Earnings were negatively impacted in the second quarter and first six months of 2012, compared with the same periods in 2011, by lower electric margins in the Merchant Generation segment, largely due to reduced generation volumes caused by lower market prices for power as well as higher fuel and related transportation costs (10 cents per share and 15 cents per share, respectively).
In addition to the above items negatively impacting both periods, earnings were negatively impacted in the first six months of 2012, compared with the same period in 2011, by:
the 2012 longlived asset impairment of Merchant Generations Duck Creek energy center due to the sharp decline in the market price of power in the first quarter of 2012 ($1.55 per share);
a reduction in the income tax benefit recognized because of both the lower projected full year pretax income caused by the longlived asset impairment discussed above and the relatively consistent permanent tax differences as compared to the prior period, which are expected to constitute a larger percentage of pretax income in 2012 than in the prior year (18 cents per share). Authoritative accounting guidance specifies that income tax expense (benefit) should be computed at an 62 to ULNRC-05944
Table of Contents annual effective tax rate. This reduction in the recognized tax benefit is projected to fully reverse over the balance of 2012; and the impact of mild weather conditions, primarily during the first quarter of 2012 on electric and natural gas demand (10 cents per share).
The cents per share information presented above is based on average shares outstanding in the second quarter of 2011. For further details regarding the Ameren Companies results of operations for the second quarter and first six months of 2012 and 2011, including explanations of Margins, Other Operations and Maintenance, Asset Impairments, Depreciation and Amortization, Taxes Other Than Income Taxes, Other Income and Expenses, Interest Charges, and Income Taxes, see the major headings below.
Below is a table of income statement components by segment for the three and six months ended June 30, 2012, and 2011:
Ameren Missouri Ameren Illinois Merchant Generation Other /
Intersegment Eliminations Total Three Months 2012:
Electric margin 645 275 115 (1)
$ 1,034 Natural gas margin 16 83
(1) 98 Other revenues 1
(1)
Other operations and maintenance (206)
(186)
(70) 4 (458)
Depreciation and amortization (109)
(55)
(28)
(3)
(195)
Taxes other than income taxes (78)
(31)
(6)
(1)
(116)
Other income and (expenses) 14
(1) 13 Interest charges (56)
(31)
(23)
(2)
(112)
Income (taxes) benefit (83)
(22) 4 47 (54)
Net income (loss) 144 33 (8) 41 210 Noncontrolling interest and preferred dividends (1)
(1) 3
1 Net income (loss) attributable to Ameren Corporation 143 32 (5) 41 211 Three Months 2011:
Electric margin 561 287 161 (3)
$ 1,006 Natural gas margin 17 72
(1) 88 Other revenues 3
1 1
(5)
Other operations and maintenance (231)
(181)
(74) 13 (473)
Asset impairment
(2)
(2)
Depreciation and amortization (98)
(54)
(37)
(5)
(194)
Taxes other than income taxes (76)
(26)
(5)
(2)
(109)
Other income and (expenses) 13
(1) 12 Interest charges (45)
(35)
(25) 1 (104)
Income taxes (53)
(26)
(4)
(2)
(85)
Net income (loss) 91 38 15 (5) 139 Noncontrolling interest and preferred dividends (1)
(1)
1 (1)
Net income (loss) attributable to Ameren Corporation 90 37 15 (4) 138 Six Months 2012:
Electric margin 1,081 516 261 (4)
$ 1,854 Natural gas margin 39 193
(1) 231 Other revenues 1
(1)
Other operations and maintenance (408)
(354)
(136) 13 (885)
Asset impairment
(628)
(628)
Depreciation and amortization (217)
(110)
(60)
(7)
(394)
Taxes other than income taxes (149)
(70)
(14)
(4)
(237)
Other income and (expenses) 26 (10)
(1) 15 Interest charges (112)
(64)
(48)
(1)
(225)
Income (taxes) benefit (95)
(40) 252 (41) 76 Net income (loss) 166 61 (373)
(47)
(193)
Noncontrolling interest and preferred dividends (2)
(2) 5
1 Net income (loss) attributable to Ameren Corporation 164 59 (368)
(47)
$ (192)
Six Months 2011:
Electric margin 1,014 518 343 (5)
$ 1,870 Natural gas margin 46 190
(2) 234 Other revenues 4
1 2
(7)
Other operations and maintenance (464)
(349)
(145) 22 (936)
Asset impairment
(2)
(2)
Depreciation and amortization (198)
(106)
(73)
(12)
(389)
Taxes other than income taxes (149)
(67)
(13)
(5)
(234)
Other income and (expenses) 23 1
(1) 23 Interest charges (99)
(70)
(53)
(1)
(223)
Income (taxes) benefit (64)
(46)
(23) 3 (130)
Net income (loss) 113 72 36 (8) 213 Noncontrolling interest and preferred dividends (2)
(2)
(1) 1 (4)
Net income (loss) attributable to Ameren Corporation 111 70 35 (7) 209 63 to ULNRC-05944
Table of Contents Margins The following table presents the favorable (unfavorable) variations in the registrants electric and natural gas margins in the three months and six months ended June 30, 2012, compared with the same periods in 2011. Electric margins are defined as electric revenues less fuel and purchased power costs. Natural gas margins are defined as gas revenues less gas purchased for resale. We consider electric and natural gas margins useful measures to analyze the change in profitability of our electric and natural gas operations between periods. We have included the analysis below as a complement to the financial information we provide in accordance with GAAP. However, these margins may not be a presentation defined under GAAP and may not be comparable to other companies presentations or more useful than the GAAP information we provide elsewhere in this report.
Three Months Ameren Missouri Ameren Illinois Genco Other(a)
Ameren Electric revenue change:
Effect of weather (estimate)(b) 15 1
16 Regulated rates:
Base rates (estimate) 42
42 Recovery of FAC underrecovery(c)
(11)
(11)
Offsystem revenues included in base rates (35)
(35)
FAC prudence review disallowance 17
17 Transmission services
(11)
(11)
Illinois passthrough power supply costs
(34)
(24)
(58)
Rateregulated sales (excluding the impact of abnormal weather) 3 (3)
Wholesale revenues (5)
(5)
Merchant Generation sales price changes, including hedge effect
(18)
(14)
(32)
Net unrealized MTM gains
1 7
8 Sales mix and other 5
1 (49) 11 (32)
Total electric revenue change 31 (46)
(66)
(20)
(101)
Fuel and purchased power change:
Fuel:
Merchant Generation production volume and other
19 (2) 17 Fuel, purchased power and transportation costs included in base rates 18
18 Recovery of FAC underrecovery(c) 11
11 Net unrealized MTM losses
(7)
(4)
(11)
Price Merchant Generation
(7)
(1)
(8)
Power purchase agreement settlement 24
24 Merchant Generation purchased power and other
18 2
20 Illinois passthrough power supply costs
34
24 58 Total fuel and purchased power change 53 34 23 19 129 Net change in electric margins 84 (12)
(43)
(1) 28 Natural gas margins change:
Effect of weather (estimate)(b)
(1)
(2)
(3)
Base rates (estimate)
5
5 Energy efficiency programs and environmental remediation cost riders
5
5 Sales (excluding the impact of abnormal weather) and other
3
3 Net change in natural gas margins (1) 11
10 Six Months Electric revenue change:
Effect of weather (estimate)(b)
(25)
(4)
(29)
Regulated rates:
Base rates (estimate) 79
79 Revenue requirement reconciliation adjustment under IEIMA (estimate)
12
12 Recovery of FAC underrecovery(c)
(32)
(32)
Offsystem revenues included in base rates (68)
(68)
FAC prudence review disallowance 17
17 Transmission services
(9)
(9)
Illinois passthrough power supply costs
(55)
(65)
(120)
Rateregulated sales (excluding the impact of abnormal weather)
(3)
(3)
Wholesale revenues (11)
(11) 64 to ULNRC-05944
Table of Contents Six Months Ameren Missouri Ameren Illinois Genco Other(a)
Ameren Merchant Generation sales price changes, including hedge effect
(19)
(9)
(28)
Net unrealized MTM gains 1
1 10 12 Sales mix and other 4
2 (95) 8 (81)
Total electric revenue change (35)
(57)
$ (113)
(56)
(261)
Fuel and purchased power change:
Fuel:
Merchant Generation production volume and other
42 2
44 Fuel, purchased power and transportation costs included in base rates 46
46 Recovery of FAC underrecovery(c) 32
32 Net unrealized MTM losses
(21)
(7)
(28)
PriceMerchant Generation
(10)
(5)
(15)
Power purchase agreement settlement 24
24 Merchant Generation purchased power and other
18 4
22 Illinois passthrough power supply costs
55
65 120 Total fuel and purchased power change 102 55 29 59 245 Net change in electric margins 67 (2)
(84) 3 (16)
Natural gas margins change:
Effect of weather (estimate)(b)
(3)
(12)
(15)
Bad debt rider
(1)
(1)
Base rates (estimate) 1 9
10 Rate redesign (5)
(5)
Energy efficiency programs and environmental remediation cost riders
5
5 Sales (excluding impact of abnormal weather) and other
2
1 3
Net change in natural gas margins (7) 3
1 (3)
(a)
Includes amounts for nonregistrant subsidiaries (largely made up of other Merchant Generation) and intercompany eliminations.
(b)
Represents the estimated margin impact resulting from the effects of changes in cooling and heating degreedays on electric and natural gas demand compared to the prioryear periods based on temperature readings from the National Oceanic and Atmospheric Administration.
(c)
Represents the change in the net recovery of fuel costs under the FAC recovered through customer rates, with corresponding offsets to fuel expense representing the amortization of a previously recorded regulatory asset.
Ameren Amerens electric margins increased by $28 million, or 3%, for the three months ended June 30, 2012, compared with the same period in 2011.
However, electric margins decreased by $16 million, or 1%, for the six months ended June 30, 2012, compared with the same period in 2011. The following items had an unfavorable impact on Amerens electric margins for the three and six months ended June 30, 2012, compared with the yearago periods (except where a specific period is referenced):
Decreased utilization of Merchant Generations energy centers, primarily due to lower spot market prices, resulting in a decline in sales mix and other
($38 million and $87 million, respectively). This decline was mitigated by the resulting decrease in production volume and other costs ($12 million and $36 million, respectively) and a decrease in purchased power and other costs ($20 million and $22 million, respectively.)
Weather conditions in the first quarter of 2012 were mild compared to somewhat colderthannormal conditions in the first quarter of 2011, as evidenced by a 29% decrease in heating degreedays for the six months ended June 30, 2012, compared with the same period in 2011, which decreased revenues by $29 million for the six months ended June 30, 2012.
Net unrealized MTM activity, principally at the Merchant Generation segment and largely related to nonqualifying power hedges and fuelrelated contracts ($3 million and $16 million, respectively).
3% higher fuel prices for the three and six months ended June 30, 2012, compared with the same periods in 2011, in the Merchant Generation segment, primarily due to higher commodity and transportation rates associated with new supply agreements ($8 million and $15 million, respectively).
Lower wholesale sales at Ameren Missouri due to the inclusion of these revenues as an offset to fuel costs in the FAC beginning July 31, 2011 ($5 million and $11 million, respectively).
Lower transmission revenues at Ameren Illinois primarily due to timing of the recovery of prior period expenses and lower FERCregulated transmission rates that became effective June 1, 2012 ($11 million and $9 million, respectively).
The following items had a favorable impact on Amerens electric margins for the three and six months ended June 30, 2012, compared with the yearago periods (except where a specific period is referenced):
Higher electric base rates at Ameren Missouri, effective July 2011 ($42 million and $79 million, respectively), offset by an increase in net base fuel expense ($17 million and $22 million, respectively), which was a result of higher net base fuel cost rates approved in the 2011 MoPSC rate order. Net base fuel expense is the sum of 65 to ULNRC-05944
Table of Contents fuel, purchased power and transportation costs included in base rates (+$18 million and +$46 million, respectively) and offsystem revenues ($35 million and $68 million, respectively) in the above table. See below for additional details regarding the FAC.
Reduced purchased power expense at Ameren Missouri as a result of a refund received in June 2012 from Entergy relating to a power purchase agreement that expired in 2009 ($24 million for both periods). See Note 2 Rate and Regulatory Matters under Part 1, Item 1, for further information.
Absence in 2012 of a reduction in revenues, at Ameren Missouri, recorded in 2011 resulting from the MoPSCs order with respect to its FAC prudence review disallowance for the period from March 1, 2009, to September 30, 2009 ($17 million for both periods). See Note 2 Rate and Regulatory Matters under Part 1, Item 1, for further information.
Weather conditions in the second quarter of 2012 were warmer than the same period in 2011, as evidenced by a 15% increase in cooling degreedays, which increased revenues by $16 million.
Increased revenues at Ameren Illinois for the six months ended June 30, 2012, compared with the same period in 2011, due to an adjustment relating to the annual reconciliation of the revenue requirement, pursuant to the IEIMA, to reflect actual incurred costs and forecasted costs for the remainder of 2012 ($12 million). See below for additional details.
Amerens revenues associated with Illinois passthrough power supply costs decreased because of lower power prices on sales. These revenues were offset by a corresponding net decrease in purchased power expense ($58 million and $120 million, respectively).
Ameren Missouri has a FAC cost recovery mechanism that allows Ameren Missouri to recover, through customer rates, 95% of changes in fuel and purchased power costs, net of offsystem revenues, including MISO costs and revenues, greater or less than the amount set in base rates, without a traditional rate proceeding. Ameren Missouri accrues, as a regulatory asset, fuel and purchased power costs that are greater than the amount set in base rates (FAC underrecovery). Net recovery of the FAC underrecovery decreased $11 million and $32 million for the three and six months ended June 30, 2012, respectively, compared with the same periods in 2011, with corresponding offsets to fuel expense to amortize the previously recognized FAC regulatory asset.
During the first quarter of 2012, Ameren Illinois elected to participate in the performancebased formula ratemaking process established pursuant to the IEIMA. The IEIMA provides for an annual reconciliation of the revenue requirement necessary to reflect the actual costs incurred in a given year with the revenue requirement that was in effect for that year. Consequently, Ameren Illinois 2012 electric delivery service revenues will be based on its 2012 actual recoverable costs, rate base, and return on common equity as calculated under the IEIMAs performancebased formula ratemaking framework. As a result, throughout the year, Ameren Illinois will estimate the future recovery or return of revenue as a regulatory asset or a liability, respectively. Ameren Illinois recorded a regulatory asset of $12 million, during the six months ended June 30, 2012, with a corresponding increase in electric revenues for the estimated portion of the 2012 revenue requirement reconciliation. By the end of 2012, this regulatory asset will represent Ameren Illinois estimate of the probable increase in future electric delivery service rates expected to be approved by the ICC to provide Ameren Illinois recovery of all prudently and reasonably incurred costs in 2012 and an earned rate of return on common equity for 2012. See Note 2 Rate and Regulatory Matters under Part 1, Item 1, for further information regarding the IEIMA.
Amerens natural gas margins increased by $10 million, or 11%, for the three months ended June 30, 2012, compared with the same period in 2011; however, gas margins decreased by $3 million, or 1%, for the six months ended June 30, 2012, compared with the same period in 2011. The following items had an unfavorable impact on Amerens natural gas margins for the three and six months ended June 30, 2012, compared with the yearago periods (except where a specific period is referenced):
Weather conditions in 2012 were mild compared to somewhat colderthannormal conditions in 2011, as evidenced by a decrease in heating degreedays of 29% for the three and six months ended June 30, 2012, respectively, compared with the same periods in 2011 ($3 million and $15 million, respectively).
Rate redesign at Ameren Missouri, as a result of the 2011 natural gas delivery service rate order that was effective February 2011, allowed Ameren Missouri to recover more of its nonPGA residential revenues through a fixed monthly charge, with the remaining amounts recovered based on sales volumes. With these revenues being recovered more evenly throughout the year, revenues decreased $5 million, for the six months ended June 30, 2012, compared with the same period in 2011.
The following items had a favorable impact on Amerens natural gas margins for the three and six months ended June 30, 2012, compared with the yearago periods:
Increase in natural gas rates effective February 2011 at Ameren Missouri and January 2012 at Ameren Illinois ($5 million and $10 million).
Net increased recovery of energy efficiency program costs and environmental remediation costs through 66 to ULNRC-05944
Table of Contents Illinois rateadjusted mechanisms at Ameren Illinois ($5 million for both periods). See Other Operations and Maintenance Expenses in this section for information on a related offsetting increase in energy efficiency and environmental remediation costs.
Ameren Missouri Ameren Missouri has a FAC cost recovery mechanism, which is outlined in the Ameren margin section above.
Ameren Missouris electric margins increased by $84 million, or 15%, and $67 million, or 7%, for the three and six months ended June 30, 2012, respectively, compared with the same periods in 2011. The following items had a favorable impact on Ameren Missouris electric margins for the three and six months ended June 30, 2012, compared with the yearago periods (except where a specific period is referenced):
Higher electric base rates, effective in July 2011 ($42 million and $79 million, respectively), partially offset by an increase in net base fuel expense
($17 million and $22 million, respectively), which was a result of higher net base fuel cost rates approved in the 2011 MoPSC rate order. Net base fuel expense is the sum of fuel, purchased power and transportation costs included in base rates (+$18 million and +$46 million, respectively) and offsystem revenues ($35 million and $68 million, respectively) in the above table.
Reduced purchased power expense as a result of a refund received in June 2012 from Entergy relating to a power purchase agreement that expired in 2009 ($24 million for both periods). See Note 2 Rate and Regulatory Matters under Part 1, Item 1, for further information.
Absence in 2012 of a reduction in revenues in 2011 resulting from the MoPSCs order with respect to its FAC prudence review disallowance for the period from March 1, 2009, to September 30, 2009 ($17 million for both periods). See Note 2 Rate and Regulatory Matters under Part 1, Item 1, for further information.
Weather conditions in the second quarter of 2012 were warmer than the same period in 2011, as evidenced by a 17% increase in cooling degreedays, which increased revenues by $15 million.
The following items had an unfavorable impact on Ameren Missouris electric margins for the three and six months ended June 30, 2012, compared with the yearago periods (except where a specific period is referenced):
Weather conditions in the first quarter of 2012 were mild compared to somewhat colderthannormal conditions in 2011, as evidenced by a 32%
decrease in heating degreedays for the six months ended June 30, 2012, compared with the same period in 2011, which decreased revenues by $25 million for the six months ended June 30, 2012.
Lower wholesale sales due to the inclusion of these revenues as an offset to fuel costs in the FAC beginning July 31, 2011 ($5 million and $11 million, respectively).
Ameren Missouris natural gas margins decreased by $1 million, or 6%, and $7 million, or 15%, for the three and six months ended June 30, 2012, respectively, compared with the same periods in 2011. The following items had an unfavorable impact on Ameren Missouris natural gas margins for the three and six months ended June 30, 2012, compared with the yearago periods (except where a specific period is referenced):
Rate redesign, as a result of the 2011 natural gas delivery service rate order that was effective February 2011, allowed Ameren Missouri to recover more of its nonPGA residential revenues through a fixed monthly charge, with the remaining amounts recovered based on sales volumes. With these revenues being recovered more evenly throughout the year, revenues decreased by $5 million, for the six months ended June 30, 2012, compared with the same period in 2011.
Weather conditions in the first quarter of 2012 were mild compared to somewhat colderthannormal conditions in the first quarter of 2011, as evidenced by a decrease in heating degreedays of 30% and 32%, respectively ($1 million and $3 million, respectively).
Ameren Missouris natural gas margins were favorably impacted for the six months ended June 30, 2012, compared to the same period in 2011, by an increase in natural gas rates effective February 2011 ($1 million).
Ameren Illinois Ameren Illinois has a cost recovery mechanism for power purchased on behalf of its customers. These passthrough power costs do not affect margins; however, the electric revenues and offsetting purchased power expenses may fluctuate, primarily because of customer switching to alternative power providers and usage. Ameren Illinois does not generate earnings based on the resale of power, but rather on the delivery of energy.
67 to ULNRC-05944
Table of Contents Ameren Illinois electric margins decreased by $12 million, or 4%, and $2 million, or less than 1%, for the three and six months ended June 30, 2012, respectively, compared with the same periods in 2011. The following items had an unfavorable impact on Ameren Illinois electric margins for the three and six months ended June 30, 2012, compared with the yearago periods (except where a specific period is referenced):
Lower transmission revenues primarily due to timing of the recovery of prior period expenses and lower FERCregulated transmission rates that became effective June 1, 2012 ($11 million and $9 million, respectively).
Weather conditions in the first quarter of 2012 that were mild compared to somewhat colderthannormal conditions in the first quarter of 2011, as evidenced by a 28% decrease in heating degreedays for the six months ended June 30, 2012, compared with the same period in 2011, which decreased revenues by $4 million.
Excluding the estimated impact of abnormal weather, rateregulated sales volumes increased by 1% driven largely by the lower margin industrial sector; however, margins decreased due to declines in the highermargin residential and commercial sectors ($3 million for both periods).
The following items had a favorable impact on Ameren Illinois electric margins for the three and six months ended June 30, 2012, compared with the yearago periods (except where a specific period is referenced):
Increased revenues for the six months ended June 30, 2012, compared with the same period in 2011, due to the adjustment relating to an annual reconciliation of the revenue requirement, pursuant to the IEIMA, to reflect actual incurred costs and forecasted costs for the remainder of 2012 ($12 million).
Weather conditions in the second quarter of 2012 were warmer than the same period in 2011, as evidenced by a 13% increase in cooling degreedays, which increased revenues by $1 million.
Ameren Illinois natural gas margins increased by $11 million, or 15%, and $3 million, or 2%, for the three and six months ended June 30, 2012, respectively, compared with the same periods in 2011. The following items had a favorable impact on Ameren Illinois natural gas margins for the three and six months ended June 30, 2012, compared with the yearago periods:
Natural gas margins were favorably impacted by an increase in natural gas rates effective January 2012 ($5 million and $9 million, respectively).
Net increased recovery of energy efficiency program costs and environmental remediation costs through Illinois cost recovery mechanisms ($5 million for both periods). See Other Operations and Maintenance Expenses in this section for information on a related offsetting increase in energy efficiency and environmental remediation costs.
Ameren Illinois natural gas margins were unfavorably affected by weather conditions in the first quarter of 2012 that were mild compared to somewhat colderthannormal conditions in the first quarter of 2011, as evidenced by a decrease in heating degreedays of 28% for the three and six months ended June 30, 2012, respectively, compared with the same periods in 2011 ($2 million and $12 million, respectively).
Merchant Generation Merchant Generations electric margins decreased by $46 million, or 29%, and $82 million, or 24%, for the three and six months ended June 30, 2012, respectively, compared with the same periods in 2011. See below for explanations of electric margin variances for the Merchant Generation segment.
Genco Gencos electric margins decreased by $43 million, or 38%, and $84 million, or 35%, for the three and six months ended June 30, 2012, respectively, compared with the same periods in 2011. The following items had an unfavorable impact on electric margins for the three and six months ended June 30, 2012, compared with the yearago periods:
Decreased energy center utilization at Genco, primarily due to lower spot market prices and an EEI contract in 2011 that was not renewed in 2012.
Gencos lower production volume decreased electric revenues ($49 million and $95 million, respectively), which were mitigated by a decline in related production volume and other costs ($19 million and $42 million, respectively) and a decrease in purchased power and other costs ($18 million for both periods). Gencos average capacity factor decreased to 58% and 60%, respectively, in 2012, compared with 65% and 67%, respectively, in 2011, because of lower power prices. Gencos equivalent availability factor decreased to 77% in the second quarter of 2012, compared with 79% in the second quarter of 2011. Gencos equivalent availability factor increased to 83% yeartodate in 2012, compared with 79% yeartodate in 2011.
Net unrealized MTM activity primarily on fuelrelated contracts ($6 million and $20 million, respectively).
Lower revenues under EEIs power supply agreement with Marketing Company (EEI PSA) due to lower spot market prices ($13 million and $27 million, respectively). Gencos electric margins were unfavorably affected under its power supply agreement with Marketing Company (Genco PSA) by lower contract prices for physical hedges in the second quarter of 2012 ($5 million). However, the revenues for the first six months of 2012 were favorably impacted as a higher portion of spot sales were financially hedged at prices that represented a premium to the spot market when compared with the same period in 2011 ($8 million). The combined impact on Genco of both power supply agreements reduced revenues by $18 million and
$19 million, respectively.
68 to ULNRC-05944
Table of Contents 1% and 2% higher fuel prices, respectively, primarily due to higher commodity and transportation rates associated with new supply agreements ($7 million and $10 million, respectively).
Other Merchant Generation Electric margins from Amerens other Merchant Generation operations, primarily AERG and Marketing Company, decreased by $3 million, or 6%,
for the three months ended June 30, 2012, compared with the same period in 2011; however, electric margins increased $2 million, or 2%, for the six months ended June 30, 2012, compared with the same period in 2011. The following items had a favorable impact on electric margins for the three and six months ended June 30, 2012, compared with the yearago periods:
Increased energy center utilization at AERG due to increased availability. AERGs higher production volume increased electric revenues ($11 million and $8 million, respectively), which were offset by an increase in related production volume and other costs ($7 million and $6 million, respectively).
AERGs average capacity factor increased to 75% and 75%, respectively, in 2012, compared to 65% and 70%, respectively, in 2011. AERGs equivalent availability factor increased to 84% and 85%, respectively, in 2012, compared with 72% and 76%, respectively, in 2011.
Reduction in fuel costs due to the sale of the Medina Valley energy center in February 2012 ($2 million and $5 million, respectively).
Net unrealized MTM activity, principally at Marketing Company, largely related to nonqualifying power hedges ($3 million and $3 million, respectively).
The following items had an unfavorable impact on Amerens other Merchant Generation operations electric margins for the three and six months ended June 30, 2012, compared with the yearago periods:
Lower average sales prices under AERGs power supply agreement (AERG PSA) with Marketing Company due to the effect of the 2012 impairment of the Duck Creek energy center on power supply agreement revenue allocations, which was only partially offset by higherpriced physical sales contracts executed at prices that were at a premium to the spot market ($14 million and $9 million, respectively).
12% and 7% higher fuel prices, respectively, primarily due to higher commodity and transportation rates associated with new supply agreements ($1 million and $5 million, respectively).
Operating Expenses and Other Statement of Income Items Other Operations and Maintenance Ameren Corporation Three months Other operations and maintenance expenses were $15 million lower in the second quarter of 2012, as compared with the second quarter of 2011.
The following items reduced other operations and maintenance expenses between periods:
A $16 million decrease in stormrelated repair costs, due to fewer major storms in 2012.
A $9 million decrease in plant maintenance costs, primarily due to a reduction of major boiler outages.
A $5 million reduction in labor costs, due to staff reductions at Ameren Missouri.
A $4 million decrease in other plant maintenance costs due to the December 2011 closure of two coalfired energy centers at the Merchant Generation segment.
A $3 million decrease in total bad debt expense, including adjustments under Ameren Illinois bad debt rider. Expenses recorded under the Ameren Illinois bad debt rider mechanism are recovered through customer billings, and, accordingly, are offset by increased revenues, with no overall effect on net income.
Disciplined cost management efforts to align spending with regulatory outcomes and economic conditions.
The following items increased other operations and maintenance expenses between periods:
An $8 million gain recorded in 2011 related to the sale of the Columbia CT energy center at the Merchant Generation segment.
A $5 million increase in nonstormrelated distribution maintenance expenditures primarily at Ameren Illinois due to favorable weather in 2012 allowing crews to complete more maintenance projects.
A $5 million increase in energy efficiency and environmental remediation costs at Ameren Illinois. These costs are recovered through customer billings and, accordingly, are offset by increased revenues, with no overall impact on net income.
Six months Other operations and maintenance expenses were $51 million lower in the first six months of 2012, as compared with the first six months of 2011.
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Table of Contents The following items reduced other operations and maintenance expenses between periods:
A $35 million decrease in stormrelated repair costs, due to fewer major storms in 2012.
A $14 million decrease in plant maintenance costs, primarily due to a reduction in major boiler outages.
An $11 million reduction in labor costs, because of staff reductions at Ameren Missouri and Merchant Generation, which was partially offset by increased labor costs at Ameren Illinois because of staff additions due to the requirements of the IEIMA.
A $10 million gain on the February 2012 sale of the Medina Valley energy center at the Merchant Generation segment.
An $8 million decrease in total bad debt expense due to a reduction in uncollectible expense at Ameren Missouri and Ameren Illinois and adjustments under Ameren Illinois bad debt rider. Expenses recorded under the Ameren Illinois bad debt rider mechanism are recovered through customer billings, and, accordingly, are offset by increased revenues, with no overall effect on net income.
A $6 million decrease in other plant maintenance costs due to the December 2011 closure of two coalfired energy centers at the Merchant Generation segment.
A $2 million favorable change in unrealized net MTM adjustments between periods, resulting from changes in the market value of investments used to support Amerens deferred compensation plans.
Disciplined cost management efforts to align spending with regulatory outcomes and economic conditions.
The following items increased other operations and maintenance expenses between periods:
An $11 million charge for cancelled projects at the Merchant Generation segment.
An $11 million gain recorded in 2011 related to the sale of the Columbia CT energy center and other property at the Merchant Generation segment.
A $9 million increase in nonstormrelated distribution maintenance expenditures primarily at Ameren Illinois due to favorable weather in 2012 allowing crews to complete more maintenance projects.
A $6 million increase in energy efficiency and environmental remediation costs at Ameren Illinois. These costs are recovered through customer billings and, accordingly, are offset by increased revenues, with no overall impact on net income.
Variations in other operations and maintenance expenses in Amerens business segments and for the Ameren Companies for the three and six months ended June 30, 2012, compared with the same periods in 2011, were as follows:
Ameren Missouri Three months Other operations and maintenance expenses decreased by $25 million.
The following items reduced other operations and maintenance expenses between periods:
A $9 million decrease in stormrelated repair costs, due to fewer major storms in 2012.
A $5 million reduction in labor costs, due to staff reductions.
A $4 million decrease in plant maintenance costs, primarily due to reduced expenditures at the Callaway energy center.
A $4 million decrease in nonstormrelated distribution maintenance expenditures due to the timing of work.
A $2 million decrease in employee benefit costs, primarily because of adjustments under the pension and postretirement benefit cost tracker, which is a regulatory tracking mechanism for the difference between the level of pension and postretirement benefit costs incurred under GAAP and the level of such costs built into electric rates. Accordingly, these costs are offset by changes in revenues, with no overall impact on net income.
Disciplined cost management efforts to align spending with regulatory outcomes and economic conditions.
Six months Other operations and maintenance expenses decreased by $56 million.
The following items reduced other operations and maintenance expenses between periods:
A $20 million decrease in stormrelated repair costs, due to fewer major storms in 2012.
An $11 million reduction in labor costs, primarily because of staff reductions.
A $9 million decrease in plant maintenance costs, primarily due to the timing of major boiler outages and reduction of headcount.
An $8 million decrease in employee benefit costs, primarily because of adjustments in rates under the pension and postretirement benefit cost tracker, which is a regulatory tracking mechanism for the difference between the level of pension and postretirement benefit costs incurred under GAAP and the level of such costs built into electric rates. Accordingly, these costs are offset by changes in revenues, with no overall impact on net income.
A $4 million decrease in nonstormrelated distribution maintenance expenditures due to the timing of work.
Disciplined cost management efforts to align spending with regulatory outcomes and economic conditions.
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Table of Contents Ameren Illinois Three months Other operations and maintenance expenses increased by $5 million.
The following items increased other operations and maintenance expenses between periods:
A $9 million increase in nonstormrelated distribution maintenance expenditures due, in part, to favorable weather in 2012 allowing crews to complete more maintenance projects and increased circuit maintenance.
A $5 million increase in energy efficiency and environmental remediation costs. Energy efficiency program costs are allowed to be recovered from customers through Ameren Illinois energy efficiency rider; environmental remediation costs associated with MPGs are recoverable from customers through Ameren Illinois environmental adjustment rate riders. Accordingly, these costs are offset by increased revenues, with no overall impact on net income.
The following items reduced other operations and maintenance expenses between periods:
A $7 million decrease in stormrelated repair costs, due to fewer major storms in 2012.
A $3 million decrease in total bad debt expense, including adjustments under Ameren Illinois bad debt rider. Expenses recorded under the Ameren Illinois bad debt rider mechanism are recovered through customer billings and, accordingly, are offset by increased revenues, with no overall effect on net income.
Six months Other operations and maintenance expenses increased by $5 million.
The following items increased other operations and maintenance expenses between periods:
A $13 million increase in nonstormrelated distribution maintenance expenditures due, in part, to favorable weather in 2012 allowing crews to complete more maintenance projects and increased circuit maintenance.
A $6 million increase in energy efficiency and environmental remediation costs. Energy efficiency program costs are allowed to be recovered from customers through Ameren Illinois energy efficiency rider; environmental remediation costs associated with MPGs are recoverable from customers through Ameren Illinois environmental adjustment rate riders. Accordingly, these costs are offset by increased revenues, with no overall impact on net income.
A $4 million increase in labor costs, primarily because of staff additions due to the requirements of the IEIMA.
A $3 million increase in employee benefit costs, primarily due to increased pension expense.
The following items reduced other operations and maintenance expenses between periods:
A $15 million decrease in stormrelated repair costs, due to fewer major storms in 2012.
A $6 million decrease in total bad debt expense, including adjustments under Ameren Illinois bad debt rider. Expenses recorded under the Ameren Illinois bad debt rider mechanism are recovered through customer billings and, accordingly, are offset by increased revenues, with no overall effect on net income.
Merchant Generation Three months Other operations and maintenance expenses decreased by $4 million in the Merchant Generation segment, as reduced labor and plant maintenance costs due to the December 2011 closure of two coalfired energy centers and fewer outages partially offset by priorperiod gains from property sales.
Six months Other operations and maintenance expenses decreased by $9 million in the Merchant Generation segment, as reduced labor and plant maintenance costs due to the December 2011 closure of two coalfired energy centers and fewer outages partially offset charges for cancelled projects.
Current period gains from property sales offset prior period gains.
Genco Three months Other operations and maintenance expenses were comparable between periods at Genco.
Six months Other operations and maintenance expenses increased by $2 million at Genco due to charges for cancelled projects and priorperiod gains from property sales more than offsetting reduced labor and plant maintenance costs due to the December 2011 closure of two coalfired energy centers and fewer outages.
Asset Impairments Merchant Generation In the first quarter of 2012, Ameren recognized a noncash pretax impairment charge of $628 million to reduce the carrying value of AERGs Duck Creek energy center to its estimated fair value. During the first quarter of 2012, the observable market price of power for delivery in the current year and in future years in the Midwest declined sharply 71 to ULNRC-05944
Table of Contents below 2011 levels primarily because of declining natural gas prices and the impact of the stay of the CSAPR. As a result of this sharp decline in the market price of power and the related impact on electric margins, Genco decelerated the construction of two scrubbers at its Newton energy center in 2012. The sharp decline in the market price of power in the first quarter of 2012 and the related impact on electric margins, as well as the deceleration of construction of Gencos Newton energy center scrubber project, caused Merchant Generation and Genco to evaluate during the first quarter of 2012 whether the carrying values of their coalfired energy centers were recoverable. See Note 1 Summary of Significant Accounting Policies and Note 11 Asset Impairment to our financial statements under Part I, Item I, of this report for additional information regarding the Duck Creek energy center impairment recorded in 2012 and the emission allowances impairment recorded in 2011.
Depreciation and Amortization Ameren Corporation Three months Depreciation and amortization expenses were comparable in the second quarter of 2012, as compared with the second quarter of 2011, primarily because increases at Ameren Missouri were offset by decreases at Merchant Generation as described below.
Six months Depreciation and amortization expenses were $5 million higher in the first six months of 2012, as compared with the first six months of 2011, primarily because of increases at Ameren Missouri and at Ameren Illinois, which were partially offset by decreases described below at Merchant Generation and by a $5 million reduction in depreciation and amortization expenses at Ameren Services due to the 2011 retirement of computer equipment.
Variations in depreciation and amortization expenses in Amerens business segments and for the Ameren Companies for the three and six months ended June 30, 2012, compared with the same periods in 2011, were as follows:
Ameren Missouri Three and six months Depreciation and amortization expenses increased by $11 million and $19 million, respectively, primarily because of increased depreciation and amortization expense associated with the scrubbers at the Sioux energy center (depreciation expense began with the effective date of the July 2011 electric rate order) and other capital additions.
Ameren Illinois Three months Depreciation and amortization expenses were comparable between periods.
Six months Depreciation and amortization expenses increased by $4 million, primarily due to transmission and distribution infrastructure additions.
Merchant Generation Three months Depreciation and amortization expenses decreased by $9 million as a result of the asset impairment recorded during the first quarter of 2012 causing a reduction in the carrying value of Duck Creek energy centers net plant assets.
Six months Depreciation and amortization expenses decreased by $13 million because of the closure of two coalfired energy centers in December 2011 at Genco and as a result of the asset impairment recorded in 2012 causing a reduction in the carrying value of Duck Creek energy centers net plant assets.
Genco Three and six months Depreciation and amortization expenses decreased by $2 million and $3 million, respectively, due to the closure of two coalfired energy centers in December 2011.
Taxes Other Than Income Taxes Ameren Corporation Three months Taxes other than income taxes increased by $7 million in the second quarter of 2012, as compared with the second quarter of 2011, primarily due to a prioryear electric distribution tax refund that was applied in 2011 and higher local property tax rates for 2012 at Ameren Illinois.
Six months Taxes other than income taxes increased by $3 million in the first six months of 2012, as compared with the first six months of 2011, primarily due to a prioryear electric distribution tax refund that was applied in 2011 and higher local property tax rates for 2012, which more than offset a reduction in gross receipts taxes as a result of decreased sales at Ameren Illinois.
Variations in taxes other than income taxes in Amerens business segments and for the Ameren Companies for the three and six months ended June 30, 2012, compared with the same periods in 2011, were as follows:
Ameren Missouri Three months Taxes other than income taxes increased by $2 million, because an increase in gross receipts taxes as a result of increased sales more than offset lower property taxes, which were the result of lower state and local assessments.
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Table of Contents Six months Taxes other than income taxes were comparable between periods.
Ameren Illinois Three months Taxes other than income taxes increased by $5 million, primarily due to a prioryear electric distribution tax refund that was applied in 2011 and higher local property tax rates for 2012.
Six months Taxes other than income taxes increased by $3 million, primarily due to a prioryear electric distribution tax refund that was applied in 2011 and higher local property tax rates for 2012, which more than offset a reduction in gross receipts taxes as a result of decreased sales.
Merchant Generation and Genco Three and six months Taxes other than income taxes were comparable between periods in the Merchant Generation segment and at Genco.
Other Income and Expenses Ameren Corporation Three months Other income, net of expenses, was comparable in the second quarter of 2012, as compared with the second quarter of 2011.
Six months Other income, net of expenses, decreased by $8 million in the first six months of 2012, as compared with the first six months of 2011.
Donations expense increased by $10 million because of a onetime $7.5 million donation and $1 million annual donation to the Illinois Science and Energy Innovation Trust and $1 million annual donation for customer assistance programs pursuant to the IEIMA as a result of Ameren Illinois participating in the formula ratemaking process.
Variations in other income, net of expenses, in Amerens business segments and for the Ameren Companies for the three and six months ended June 30, 2012, compared with the same periods in 2011, were as follows:
Ameren Missouri Three months Other income, net of expenses, was comparable between periods. An increase in interest income resulting from the interest paid by Entergy on the amount it overcharged Ameren Missouri under a power purchase agreement offset by an increase in donations. See Note 2 Rate and Regulatory Matters under Part I, Item I, for further information.
Six months Other income, net of expenses, increased by $3 million, due to an increase in interest income resulting from the interest paid by Entergy on the amount it overcharged Ameren Missouri under a power purchase agreement.
Ameren Illinois Three months Other income, net of expenses, was comparable between periods.
Six months Ameren Illinois had net other expenses of $10 million in the first six months of 2012, compared with net other income of $1 million in the first six months of 2011. Donations expense increased by $10 million because of a onetime $7.5 million donation and $1 million annual donation to the Illinois Science and Energy Innovation Trust and a $1 million annual donation for customer assistance programs pursuant to the IEIMA as a result of Ameren Illinois participating in the formula ratemaking process.
Merchant Generation and Genco Three and six months Other income, net of expenses, was comparable between periods in the Merchant Generation segment and at Genco.
Interest Charges Ameren Corporation Three months Interest charges increased by $8 million in the second quarter of 2012, as compared with the second quarter of 2011, primarily because of an increase in interest charges associated with uncertain tax positions at Ameren Missouri.
Six months Interest charges increased by $2 million in the first six months of 2012, as compared with the same period in 2011, primarily because of an increase in interest charges associated with uncertain tax positions at Ameren Missouri that were offset, in part, by decreases described below at Ameren Illinois and Merchant Generation and because of reduced credit facility borrowings and commercial paper issuances at Ameren.
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Table of Contents Variations in interest charges in Amerens business segments and for the Ameren Companies for the three and six months ended June 30, 2012, compared with the same periods in 2011, were as follows:
Ameren Missouri Three and six months Interest charges increased by $11 million and $13 million, respectively, primarily because of an increase in interest charges associated with uncertain tax positions.
Ameren Illinois Three and six months Interest charges decreased by $4 million and $6 million, respectively, primarily because of the redemption of $150 million of senior secured notes in June 2011.
Merchant Generation Three and six months Interest charges decreased by $2 million and $5 million, respectively, in the Merchant Generation segment, primarily because of an increase in capitalized interest due to a scrubber project at Genco.
Genco Three months Interest charges decreased by $2 million at Genco, primarily because of an increase in capitalized interest due to a scrubber project.
Six months Interest charges decreased by $5 million at Genco, primarily because of a reduction in credit facility borrowings and an increase in capitalized interest due to a scrubber project.
Income Taxes The following table presents effective income tax rates for the registrants and by segment for the three and six months ended June 30, 2012, and 2011:
Three Months Six Months 2012 2011 2012 2011 Ameren (a) 20%
38%
28%
38%
Ameren Missouri(a) 37 37 36 36 Ameren Illinois(a) 40 41 40 39 Genco(b) 62 43 47 42 Merchant Generation(a) 37 25 40 40 (a)
The provision for income taxes was based on the current estimate of the annual effective tax rate adjusted to reflect the tax impact of items discrete to the relevant period.
(b)
The provision for income taxes for the three and six months ended June 30, 2012 was based on the actual effective tax rate for the interim period. Authoritative accounting guidance provides that the actual effective rate is acceptable for interim periods if a reliable estimate of the annual effective tax rate is not determinable. As a result of the relationship between projected Income Before Income Taxes and Income Taxes for Genco for the year ended December 31, 2012, a reliable estimate of the annual 2012 effective tax rate could not be made.
Ameren Corporation Three months The effective tax rate in the second quarter of 2012 was lower than the second quarter of 2011, primarily due to the partial reversal of the first quarter reduction of the income tax benefit recognized in conjunction with the asset impairment in the Merchant Generation segment, which is described below.
Six months The effective tax rate in the first six months of 2012 was lower than the same period in 2011, primarily due to the reduction in the income tax benefit recognized in conjunction with the asset impairment in the Merchant Generation segment. For interim reporting purposes, authoritative accounting guidance requires that tax expense (or benefit) related to ordinary income (or loss) must be computed using an estimated annual effective tax rate. Amerens projected annual effective tax rate of 28% is lower than the statutory rate primarily as a result of (i.) lower projected full year pretax income due to the large impairment charge recorded in the first quarter of 2012 and (ii.) relatively consistent permanent differences as compared to the prior period, which are expected to be larger in 2012 as a percentage of pretax income than in prior years. This reduction in the recognized tax benefit is projected to fully reverse over the balance of 2012.
This unfavorable reduction in the effective tax rate was partially offset by the impact of investment tax credit amortization and favorable amortization of propertyrelated regulatory assets and liabilities on a pretax book loss in the current year as compared to pretax book income in the same period a year ago.
Variations in effective tax rates in Amerens business segments and for the Ameren Companies for the three and six months ended June 30, 2012, compared with the same periods in 2011, were as follows:
Ameren Missouri Three months The effective tax rate was higher, primarily due to lower favorable net amortization of propertyrelated regulatory assets and liabilities.
Six months The effective tax rate was comparable between periods.
Ameren Illinois Three months The effective tax rate was lower, primarily due to lower unfavorable net amortization of propertyrelated regulatory assets and liabilities in 2012 compared with 2011.
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Table of Contents Six months The effective tax rate was higher, primarily due to the impact of recording the increase in the Illinois statutory income tax rate at the beginning of 2011, which was offset by favorable net amortization of propertyrelated regulatory assets and liabilities in 2012 compared with unfavorable amortization in 2011.
Merchant Generation Three months The effective rate was higher in the Merchant Generation segment, primarily due to the impact of favorable changes in reserves for uncertain tax positions in the prior year, along with the impact of tax credits on a current year pretax book loss compared to pretax book income in the year ago period.
Six months The effective tax rate was comparable between periods. A favorable change in the reserve for uncertain tax positions in the prior year was offset by the unfavorable impact of recording the adjustment to deferred tax liabilities in the prior year due to the Illinois statutory income tax rate increase in 2011.
Genco Three months and six months The effective tax rate was higher primarily due to the impact of tax credits on a pretax book loss in 2012 compared to pretax book income in the yearago period.
LIQUIDITY AND CAPITAL RESOURCES The tariffbased gross margins of Amerens rateregulated utility operating companies continue to be a principal source of cash from operating activities for Ameren and its rateregulated subsidiaries. A diversified retail customer mix of primarily rateregulated residential, commercial, and industrial classes and a commodity mix of natural gas and electric service provide a reasonably predictable source of cash flows for Ameren, Ameren Missouri and Ameren Illinois. For operating cash flows, Genco, through Marketing Company, sells power through primarily marketbased contracts with wholesale and retail customers. In addition to using cash flows from operating activities, the Ameren Companies use available cash, credit facility borrowings, commercial paper issuances, money pool borrowings, or other shortterm borrowings from affiliates to support normal operations and other temporary capital requirements. The Ameren Companies may reduce their credit facility or shortterm borrowings with cash from operations or, at their discretion, with longterm borrowings or, in the case of Ameren subsidiaries, with equity infusions from Ameren. The Ameren Companies expect to incur significant capital expenditures over the next five years as they comply with environmental regulations and make significant investments in their electric and natural gas utility infrastructure to support overall system reliability and other improvements. Ameren intends to finance those capital expenditures and investments with a blend of equity and debt so that it maintains a capital structure in its rateregulated businesses of approximately 50% to 55% equity, assuming constructive regulatory environments. Ameren, Ameren Missouri and Ameren Illinois plan to implement their longterm financing plans for debt, equity, or equitylinked securities in order to finance their operations appropriately, fund scheduled debt maturities, and maintain financial strength and flexibility. Genco and the Merchant Generation segment seek to fund their operations internally and therefore seek not to rely on financing from Ameren or external, thirdparty sources. Genco and the Merchant Generation segment will continue to seek to defer or reduce capital and operating expenses, sell certain assets, and take other actions as necessary to fund their operations internally while maintaining safe and reliable operations. Under its indenture, Genco may not borrow additional funds from external, thirdparty sources if its interest coverage ratio is less than a specified minimum or its leverage ratio is greater than a specified maximum. See Note 4 Longterm Debt and Equity Financings under Part I, Item 1, of this report for additional information on Gencos indenture provisions. Based on projections as of June 30, 2012, of Gencos operating results and cash flows, we expect that, by the end of the first quarter of 2013, Gencos interest coverage ratio will be less than the minimum ratio required for the company to borrow additional funds from external, thirdparty sources. Gencos indenture does not restrict intercompany borrowings from Amerens nonstateregulated subsidiary money pool. However, borrowings from the money pool are subject to Amerens control, and if a Genco intercompany financing need were to arise, borrowings from the nonstateregulated subsidiary money pool by Genco would be dependent on consideration by Ameren of the facts and circumstances existing at that time.
In March 2012, Genco entered into a put option agreement with AERG, for the potential sale of the Grand Tower, the Gibson City, and the Elgin energy centers, in order to provide an additional source of liquidity, if needed in the future. See Note 8 Related Party Transactions, in Part I, Item 1 of this report for additional information regarding the put option agreement and Amerens guaranty of AERGs contingent obligations under the put option agreement.
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Table of Contents The following table presents net cash provided by (used in) operating, investing and financing activities for the six months ended June 30, 2012 and 2011:
Net Cash Provided By Operating Activities Net Cash (Used In)
Investing Activities Net Cash (Used In)
Financing Activities 2012 2011 Variance 2012 2011 Variance 2012 2011 Variance Ameren(a)
$ 805
$ 899 (94)
$ (638)
$ (494)
(144)
$ (305)
$ (572) 267 Ameren Missouri 327 353 (26)
(393)
(320)
(73)
(135)
(156) 21 Ameren Illinois 360 401 (41)
(247)
(121)
(126)
(74)
(349) 275 Genco 60 88 (28)
(42)
(11)
(31)
(76) 76 (a)
Includes amounts for Ameren registrant and nonregistrant subsidiaries and intercompany eliminations.
Cash Flows from Operating Activities Ameren Corporation Amerens cash from operating activities decreased in the first six months of 2012, compared with the first six months of 2011. The following items contributed to the decrease in cash from operating activities during the first six months of 2012, compared with the same period in 2011:
Cash flows associated with Ameren Missouris underrecovered FAC costs decreased by $93 million as recoveries outpaced deferrals in 2011 by $77 million while deferrals outpaced recoveries in 2012 by $16 million.
A $76 million decrease in cash collections from customer receivables, excluding the impacts of the receipt of funds from, and deposits into, court registries discussed separately, primarily caused by milder weather in December 2011, compared with December 2010.
A net $25 million increase in collateral posted with counterparties due primarily to the items discussed at the registrant subsidiaries below and a decrease in collateral returned by Ameren (parent) counterparties of $11 million due to changes in the market prices of power.
During 2012, coal inventory increased by $21 million due to additional tons held in Ameren Missouris inventory because generation levels were below expected levels due to market conditions and milder weather conditions in early 2012.
Electric and natural gas margins, as discussed in Results of Operations, decreased by $15 million, excluding impacts of noncash MTM transactions and Ameren Illinois IEIMA revenue requirement reconciliation adjustment.
Severance payments totaling $32 million were made in 2012 as a result of the voluntary separation offers extended to Ameren Missouri and Ameren Services employees in the fourth quarter of 2011, as well as severance payments associated with the closure of the Meredosia and Hutsonville energy centers. Partially offsetting these severance payments, Ameren Missouri estimates its labor and related benefit payments decreased by $16 million as a result of the staff reductions from the voluntary separation program. Genco estimates its 2012 labor payments decreased by $4 million as a result of its energy center closures. In 2011, Genco made severance payments totaling $2 million for an involuntary separation program.
A $9 million increase in energy efficiency expenditures, primarily for Ameren Illinois customer programs that are recovered through customer billings over time and offset the increase in margins.
A $7 million increase in Callaway energy center scheduled refueling and maintenance outage payments caused primarily by the timing of the 2011 outage, which had unpaid liabilities as of December 31, 2011, that were paid during 2012.
The following items partially offset the decrease in Amerens cash from operating activities during the first six months of 2012, compared with the same period in 2011:
Ameren Missouris receipt of a total of $37 million from the Stoddard County Circuit Courts registry and the Cole County Circuit Courts registry as the MoPSCs 2009 and 2010 electric rate orders were upheld on appeals. Additionally, $13 million fewer Ameren Missouri receivables were paid into the court registries in 2012 in connection with the electric rate order appeals. See Note 2 Rate and Regulatory Matters under Part I, Item 1, of this report for additional information.
A $30 million decrease in major storm restoration costs.
The MISO liability increased $20 million due, in part, to fewer payments required for December 2011 purchases compared to the payments required for December 2010 purchases.
A $15 million decrease in interest payments, primarily due to the Ameren Illinois senior secured note redemption in June 2011 and a $4 million interest reduction associated with Amerens borrowings under its credit facility agreements and issuances under its commercial paper program as fewer borrowings and issuances were made in 2012.
An $8 million decrease in taxes other than income tax payments primarily caused by the timing of property tax payments for Ameren Missouri.
A $7 million decrease in the cost of natural gas held in storage because of lower prices.
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Table of Contents State income tax refunds of $5 million in 2012, compared with state income tax payments of $1 million in 2011. The 2012 refund resulted primarily from a tax credit repurchase agreement. Ameren did not make any federal income tax payments in either period because of accelerated deductions authorized by economic stimulus legislation, use of its net operating loss carryforwards, and other deductions.
The receipt of $5 million for net coal transfers to refiners under agreements, primarily for the Merchant Generation segment, that did not exist during the first six months of 2011. The coal will be purchased back from the refiners in a subsequent period.
Ameren Missouri Ameren Missouris cash from operating activities decreased in the first six months of 2012, compared with the first six months of 2011. The following items contributed to the decrease in cash from operating activities during the first six months of 2012, compared with the same period in 2011:
Cash flows associated with the underrecovered FAC costs decreased by $93 million as recoveries outpaced deferrals in 2011 by $77 million while deferrals outpaced recoveries in 2012 by $16 million.
A $43 million increase in income tax payments primarily due to a reduction in depreciation deductions for tax purposes along with an increase in income from a litigation settlement.
During 2012, coal inventory increased by $21 million primarily due to additional tons held in inventory because generation levels were below expected levels due to market conditions and milder weather conditions in early 2012.
Severance payments totaling $25 million were made in 2012 as a result of the voluntary separation offers extended to employees in the fourth quarter of 2011. As a partial offset to those severance payments, labor and related benefit payments decreased by $16 million as a result of the staff reductions from the voluntary separation program.
A $7 million increase in Callaway energy center scheduled refueling and maintenance outage payments caused primarily by the timing of the 2011 outage, which had unpaid liabilities as of December 31, 2011, that were paid during 2012.
The following items partially offset the decrease in Ameren Missouris cash from operating activities during the first six months of 2012, compared with the same period in 2011:
Electric and natural gas margins, as discussed in Results of Operations, increased by $59 million, excluding impacts of noncash MTM transactions.
Receipt of a total of $37 million from the Stoddard County Circuit Courts registry and the Cole County Circuit Courts registry as the MoPSCs 2009 and 2010 electric rate orders were upheld on appeals. Additionally, $13 million fewer Ameren Missouri receivables were paid into the court registries in 2012 in connection with the electric rate order appeals.
An $18 million decrease in major storm restoration costs.
A $13 million decrease in property tax payments caused primarily by the timing of such property tax payments.
A $5 million reduction in energy efficiency expenditures.
Ameren Illinois Ameren Illinois cash from operating activities decreased in the first six months of 2012 compared with the first six months of 2011. The following items contributed to the decrease in cash from operating activities during the first six months of 2012, compared with the same period in 2011:
A $55 million decrease in cash collections from customer receivables, primarily caused by milder weather in December 2011, compared with December 2010.
A net $18 million decrease in collateral returned from counterparties due, in part, to changes in the market price of natural gas and in contracted volumes.
A $14 million increase in energy efficiency expenditures for customer programs that are recovered through customer billings over time and offset the increase in margins.
Electric and natural gas margins, as discussed in Results of Operations, decreased by $11 million, excluding impacts of noncash MTM transactions and the IEIMAs revenue requirement reconciliation adjustment.
A $6 million decrease in natural gas commodity overrecovered costs under the PGA.
A $5 million increase in taxes other than income tax payments, primarily due to a prior year electricity distribution tax refund that was applied in 2011.
The following items partially offset the decrease in Ameren Illinois cash from operating activities during the first six months of 2012, compared with the same period in 2011:
Income tax refunds of $35 million in 2012, compared with income tax payments of $3 million in 2011. The 2012 refund resulted primarily from an increase in accelerated depreciation deductions authorized by economic stimulus legislation.
A $12 million decrease in major storm restoration costs.
A $10 million decrease in the cost of natural gas held in storage because of lower prices.
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Table of Contents A $9 million decrease in interest payments, primarily due to the redemption of senior secured notes in June 2011.
Genco Gencos cash from operating activities decreased in the first six months of 2012 compared with the first six months of 2011. The following items contributed to the decrease in cash from operating activities during the first six months of 2012, compared with the same period in 2011:
Electric margins, as discussed in Results of Operations, decreased by $64 million, excluding impacts of noncash MTM transactions.
During 2011, Genco reduced the volume of its coal inventory, which resulted in an estimated $12 million cash savings exceeding a smaller inventory reduction in 2012. This decrease was partially offset by the receipt of $3 million in 2012 for net coal transfers to refiners under agreements that did not exist during the first six months of 2011. The coal will be purchased back from refiners in a subsequent period.
A $2.5 million payment to AERG for the put option agreement signed on March 28, 2012. Note 8 Related Party Transactions under Part I, Item 1, of this report for additional information.
The following items partially offset the decrease in Gencos cash from operating activities during the first six months of 2012, compared with the same period in 2011:
A $22 million reduction in accounts receivable from affiliates and miscellaneous accounts receivable caused, in part, by lower market prices for power and reduced generation levels.
A $9 million decrease in income tax payments, primarily due to a reduction in pretax book income partially offset by a reduction in depreciation for tax purposes.
A net $5 million decrease in collateral posted with counterparties due, in part, to a reduction in the market price of natural gas and in contracted volumes.
A $4 million reduction in payments associated with major outages at coalfired energy centers, as fewer outages occurred in 2012.
A $2 million decrease in interest payments, primarily due to fewer borrowings under its credit facility agreements.
A $2 million decrease in pension plan contributions, as EEIs 2012 contribution was lower than the prior year.
Cash Flows from Investing Activities Amerens cash used in investing activities increased in the first six months of 2012, compared with the same period in 2011. Capital expenditures increased $58 million primarily because of increased expenditures for maintenance and reliability, boiler, and turbine projects, which more than offset a decrease in storm restoration costs. Cash flows used in investing activities also increased due to a $19 million increase in nuclear fuel expenditures due to timing of purchases and a $25 million increase in purchases of securities, net of sales of securities, in the nuclear decommissioning trust fund. In 2012, cash flows from investing activities benefited from $16 million in proceeds received from the sale of Medina Valley energy centers net property and plant. In 2011, cash flows from investing activities benefited from property sale proceeds, principally attributable to $45 million of proceeds received from the sale of Gencos interest in its Columbia CT facility.
Ameren Missouris cash used in investing activities increased during the first six months of 2012, compared with the same period in 2011. Capital expenditures increased $27 million primarily because of increased expenditures for maintenance and reliability, boiler, and turbine projects, which more than offset a $23 million decrease in storm restoration costs. Cash flows used in investing activities also increased due to a $19 million increase in nuclear fuel expenditures due to timing of purchases and a $25 million increase in purchases of securities, net of sales of securities, in the nuclear decommissioning trust fund.
Ameren Illinois cash used in investing activities increased during the first six months of 2012, compared with the same period in 2011. Capital expenditures increased $10 million as a result of increased expenditures for maintenance and reliability capital projects, which more than offset a $14 million decrease in storm restoration costs. During the first six months of 2012, Ameren Illinois cash provided by operating activities exceeded capital expenditures by $176 million. Ameren Illinois contributed a portion of this surplus cash to the utility money pool. In 2011, cash flows from investing activities benefited from repayments of advances previously paid to ATXI as a result of the completion of a project under a joint ownership agreement.
Gencos cash used in investing activities increased during the first six months of 2012, compared with the same period in 2011. Capital expenditures decreased by $5 million primarily because of a reduction in maintenance and upgrade project expenditures due to the timing of energy center outages, which more than offset increased expenditures related to the Newton energy center. Additionally, during the first six months of 2012, Gencos capital expenditures exceeded net cash provided by operating activities by $19 million. The cash shortfall was funded by repayments of advances previously paid to the nonstateregulated subsidiaries money pool. In 2012, cash flows from investing activities benefited from the sale of a building for proceeds of $1 million, which resulted in a $1 million pretax loss. In 2011, cash flows from investing activities benefited from property sale proceeds, principally attributable to $45 million received from the sale of Gencos interest in its Columbia CT facility.
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Table of Contents See Note 9 Commitments and Contingencies under Part I, Item 1, of this report for a discussion of future environmental capital expenditure estimates.
We continually review our generation portfolio and expected power needs. As a result, we could modify our plan for generation capacity, which could include changing the times when certain assets will be added to or removed from our portfolio, the type of generation asset technology that will be employed, and whether capacity or power may be purchased, among other things. Additionally, we continually review the reliability of our transmission and distribution systems, expected capacity needs, and opportunities for transmission investments. The timing and amount of investment could vary due to changes in expected capacity, the condition of transmission and distribution systems, and the ability and willingness to pursue transmission investments, among other things. Any changes that we may plan to make for future generation, transmission or distribution needs could result in significant capital expenditures or losses being incurred, which could be material.
Cash Flows from Financing Activities Amerens net cash used in financing activities decreased during the six months ended June 30, 2012, compared with the same period in 2011. Ameren reduced its repayments of net shortterm debt and credit facility borrowings by $74 million and had no maturities of longterm debt during the 2012 period, compared with $150 million of maturities during the 2011 period. Additionally, there was a reduction in refunds of advances previously received from generators of $73 million due to project completion in the first six months of 2011. In 2011, common stock issued for DRPlus and the 401(k) plan increased cash flows from financing activities by $32 million. In 2012, Ameren shares were purchased in the open market for DRPlus and the 401(k) plan, resulting in noncash financing activity of $7 million due to the timing of DRPlus common stock dividend funding.
Ameren Missouris net cash used in financing activities decreased during the six months ended June 30, 2012, compared with the same period in 2011. Ameren Missouri used money pool borrowings to meet working capital and investing requirements as capital and nuclear fuel expenditures for the six months ended June 30, 2012 exceeded net cash provided by operating activities. Additionally, Ameren Missouri had a $65 million increase in common stock dividends. In 2011, refunds of advances previously received from generators decreased cash flows from financing activities by $19 million as a result of project completion.
Ameren Illinois net cash used in financing activities decreased during the six months ended June 30, 2012, compared with the same period in 2011.
In 2012, common stock dividends decreased $75 million. Additionally, there was a reduction in refunds of advances previously received from generators of
$53 million due to project completion in the first six months of 2011. In 2011, Ameren Illinois funded the $150 million maturity of its senior secured notes utilizing cash on hand and operating cash flows.
Gencos net cash from financing activities decreased during the six months ended June 30, 2012, compared with the same period in 2011. In 2012, Genco was able to meet its working capital and investing requirements without utilizing available financing. In 2011, Genco received a $24 million capital contribution from its parent, Resources Company, associated with a tax sharing agreement that benefited cash flows from financing activities and utilized surplus net cash from operating activities to repay $100 million of borrowing obligations.
Credit Facility Borrowings and Liquidity The liquidity needs of the Ameren Companies are typically supported through the use of available cash, shortterm intercompany borrowings, drawings under committed bank credit facilities, or commercial paper issuances. See Note 3 Shortterm Debt and Liquidity under Part I, Item 1, of this report for additional information on credit facilities, shortterm borrowing activity, relevant interest rates, borrowings under Amerens utility and nonstateregulated subsidiary money pool arrangements, and commercial paper issuances.
The following table presents the committed 2010 Credit Agreements of Ameren and the Ameren Companies, and the credit capacity available under such agreements, considering reductions for commercial paper borrowings and letters of credit, as of June 30, 2012:
Expiration Borrowing Capacity Credit Available Ameren and Ameren Missouri:
2010 Missouri Credit Agreement(a)
September 2013 800 800 Ameren and Genco:
2010 Genco Credit Agreement(a)
September 2013 500 500 Ameren and Ameren Illinois:
2010 Illinois Credit Agreement(a)
September 2013 800 800 Ameren:
Less:
Commercial paper outstanding (b)
(30)
Letters of credit (b)
(15)
Total 2,100 2,055 (a)
The Ameren Companies may access these credit facilities through intercompany borrowing arrangements.
(b)
Not applicable.
79 to ULNRC-05944
Table of Contents The 2010 Credit Agreements are used to make cash borrowings, to issue letters of credit, and to support borrowings under Amerens $500 million commercial paper program, Ameren Missouris $500 million commercial paper program, and Ameren Illinois $500 million commercial paper program.
Any of the 2010 Credit Agreements are available to Ameren to support borrowings under Amerens commercial paper program, subject to borrowing sublimits. The 2010 Missouri Credit Agreement is available to support borrowings under Ameren Missouris commercial paper program, and the 2010 Illinois Credit Agreement is available to support borrowings under Ameren Illinois commercial paper program.
The issuance of shortterm debt securities by Amerens utility subsidiaries is subject to approval by FERC under the Federal Power Act. In April 2012, FERC issued an order authorizing the issuance of up to $1 billion of shortterm debt securities for Ameren Missouri. The authorization was effective immediately and terminates on March 31, 2014. On October 1, 2010, FERC authorized Ameren Illinois to issue up to $1 billion of shortterm debt securities. The authorization became effective immediately and terminates on September 30, 2012. In July 2012, Ameren Illinois requested authorization to issue up to $1 billion of shortterm debt securities due to the previous authorization terminating in September. FERC is currently reviewing the request.
Genco has unlimited long and shortterm debt issuance authorization from FERC. EEI has unlimited shortterm debt authorization from FERC.
The issuance of shortterm debt securities by Ameren is not subject to approval by any regulatory body.
The Ameren Companies continually evaluate the adequacy and appropriateness of their liquidity arrangements given changing business conditions.
When business conditions warrant, changes may be made to existing credit facilities or other shortterm borrowing arrangements.
Longterm Debt and Equity The following table presents the issuances of common stock and the maturities of longterm debt for the six months ended June 30, 2012, and 2011, for the Ameren Companies. For additional information, including information regarding Ameren Illinois July 2012 cash tender offer, see Note 4 Longterm Debt and Equity Financings under Part I, Item 1, of this report.
Month Issued or Matured Six Months 2012 2011 Issuances Common stock Ameren:
DRPlus and 401(k)
Various
$ 32 Total common stock issuances
$ 32 Maturities Longterm debt Ameren Illinois:
6.625% Senior secured notes due 2011 June
$150 Total Ameren longterm debt maturities
$150 In June 2012, Ameren, Ameren Missouri and Ameren Illinois filed a Form S3 shelf registration statement registering the issuance of an indeterminate amount of certain types of securities, which expires in June 2015.
The Ameren Companies may sell securities registered under their effective registration statements if market conditions and capital requirements warrant such a sale. Any offer and sale will be made only by means of a prospectus that meets the requirements of the Securities Act of 1933 and the rules and regulations thereunder.
Indebtedness Provisions and Other Covenants See Note 3 Shortterm Debt and Liquidity and Note 4 Longterm Debt and Equity Financings under Part I, Item 1, of this report and Note 4 ShortTerm Debt and Liquidity and Note 5 Longterm Debt and Equity Financings in the Form 10K for a discussion of covenants and provisions (and 80 to ULNRC-05944
Table of Contents applicable crossdefault provisions) contained in our bank credit and term loan agreements and in certain of the Ameren Companies indentures and articles of incorporation.
At June 30, 2012, the Ameren Companies were in compliance with the provisions and covenants contained within their credit agreements, indentures, and articles of incorporation.
We consider access to shortterm and longterm capital markets a significant source of funding for capital requirements not satisfied by our operating cash flows. Inability to raise capital on reasonable terms, particularly during times of uncertainty in the capital markets, could negatively affect our ability to maintain and expand our businesses. After assessing its current operating performance, liquidity, and credit ratings (see Credit Ratings below), Ameren, Ameren Missouri and Ameren Illinois each believes that it will continue to have access to the capital markets. However, events beyond Amerens, Ameren Missouris and Ameren Illinois control may create uncertainty in the capital markets or make access to the capital markets uncertain or limited. Such events could increase our cost of capital and adversely affect our ability to access the capital markets.
Gencos operating results and operating cash flows are significantly affected by changes in market prices for power, which have significantly decreased over the past few years. Under the provisions of Gencos indenture described in Note 4 Longterm Debt and Equity Financings, in Part I, Item 1, of this report, Genco may not borrow additional funds from external, thirdparty sources if its interest coverage ratio is less than a specified minimum or its leverage ratio is greater than a specified maximum. Based on projections as of June 30, 2012, of Gencos operating results and cash flows, we expect that, by the end of the first quarter of 2013, Gencos interest coverage ratio will be less than the minimum ratio required for the company to borrow additional funds from external, thirdparty sources. Gencos indenture does not restrict intercompany borrowings from Amerens nonstateregulated subsidiary money pool. However, borrowings from the money pool are subject to Amerens control, and if a Genco intercompany financing need were to arise, borrowings from the nonstateregulated subsidiary money pool by Genco would be dependent on consideration by Ameren of the facts and circumstances existing at that time.
In March 2012, Genco entered into a put option agreement with AERG, that gives Genco an irrevocable option to sell to AERG the Grand Tower, the Gibson City, and the Elgin energy centers, in order to provide an additional source of liquidity, if needed in the future. See Note 8 Related Party Transactions, in Part I, Item 1, of this report for additional information regarding the put option agreement and Amerens guaranty of AERGs contingent obligations under the put option agreement.
Dividends Ameren declared common stock dividends totaling $194 million, or 80 cents per share, and paid $187 million to its stockholders during the first six months of 2012 (2011 $186 million or 77 cents per share).
Gencos indenture includes restrictions that can prohibit it from making dividend payments on its common stock. Specifically, Genco cannot pay dividends on its common stock unless the companys actual interest coverage ratio for the most recently ended four fiscal quarters and the interest coverage ratios projected by management for each of the subsequent four sixmonth periods are greater than a specified minimum level. Based on projections as of June 30, 2012, of Gencos operating results and cash flows, we do not expect that Genco will achieve the minimum interest coverage ratio necessary to pay dividends on its common stock for the six months ended December 31, 2013, or the six months ended June 30, 2014. As a result, Genco was restricted from paying dividends on its common stock as of June 30, 2012, and we expect Genco will be unable to pay dividends on its common stock through at least June 30, 2015.
See Note 4 Longterm Debt and Equity Financings under Part I, Item 1, of this report and Note 4 Shortterm Debt and Liquidity and Note 5 Longterm Debt and Equity Financings under Part II, Item 8, of the Form 10K for additional discussion of covenants and provisions contained in certain of the Ameren Companies financial agreements and articles of incorporation that would restrict the Ameren Companies payment of dividends in certain circumstances. At June 30, 2012, none of these circumstances existed at Ameren, Ameren Missouri and Ameren Illinois and, as a result, these companies were not restricted from paying dividends.
The following table presents common stock dividends paid by Ameren Corporation to its common stockholders and by Amerens registrant subsidiaries to their parent, Ameren Corporation, for the six months ended June 30, 2012, and 2011:
Six Months 2012 2011 Ameren Missouri
$ 200
$ 135 Ameren Illinois 75 150 Dividends paid by Ameren 187 186 Contractual Obligations For a complete listing of our obligations and commitments, see Contractual Obligations under Part II, Item 7, and Note 15 Commitments and Contingencies under Part II, 81 to ULNRC-05944
Table of Contents Item 8, of the Form 10K, and Other Obligations in Note 9 Commitments and Contingencies under Part I, Item 1, of this report. See Note 12 Retirement Benefits to our financial statements under Part I, Item 1, of this report for information regarding expected minimum funding levels for our pension plan.
At June 30, 2012, total other obligations related to the procurement of coal, natural gas, nuclear fuel, purchased power, methane gas, equipment and meter reading services, and a tax credit obligation, among other agreements, at Ameren, Ameren Missouri, Ameren Illinois and Genco were $9,286 million,
$5,586 million, $2,672 million, and $679 million, respectively. Total unrecognized tax benefits at June 30, 2012, which were not included in the totals above, for Ameren, Ameren Missouri, Ameren Illinois and Genco were $158 million, $132 million, $11 million, and $11 million, respectively.
Credit Ratings The credit ratings of the Ameren Companies affect our liquidity, our access to the capital markets and credit markets, our cost of borrowing under our credit facilities and collateral posting requirements under commodity contracts.
The following table presents the principal credit ratings of the Ameren Companies by Moodys, S&P and Fitch effective on the date of this report:
Moodys S&P Fitch Ameren:
Issuer/corporate credit rating Baa3 BBB BBB Senior unsecured debt Baa3 BB+
BBB Commercial paper P3 A3 F2 Ameren Missouri:
Issuer/corporate credit rating Baa2 BBB BBB+
Secured debt A3 BBB+
A Ameren Illinois:
Issuer/corporate credit rating Baa2 BBB BBB Secured debt A3 BBB/BBB+(a)
BBB+
Senior unsecured debt Baa2 BBB BBB Genco:
Issuer/corporate credit rating BB BB Senior unsecured debt Ba3 BB BB (a)
The BBB+ rating applies to issuances of securities secured by the mortgage associated with the former property of CILCO. The BBB rating applies to issuances of securities secured by the mortgage associated with the former property of IP and CIPS.
The cost of borrowing under our credit facilities can also increase or decrease depending upon the credit ratings of the borrower. A credit rating is not a recommendation to buy, sell, or hold securities. It should be evaluated independently of any other rating. Ratings are subject to revision or withdrawal at any time by the rating organization.
Collateral Postings Any adverse change in the Ameren Companies credit ratings may reduce access to capital and trigger additional collateral postings and prepayments.
Such changes may also increase the cost of borrowing and fuel, power, and natural gas supply, among other things, resulting in a negative impact on earnings. Cash collateral postings and prepayments made with external parties including postings related to exchangetraded contracts at June 30, 2012, were $145 million, $15 million, $94 million, and $1 million at Ameren, Ameren Missouri, Ameren Illinois, and Genco, respectively. Cash collateral posted by external counterparties with Ameren and Ameren Illinois was $4 million and $2 million, respectively, at June 30, 2012. Subinvestmentgrade issuer or senior unsecured debt ratings (lower than BBB or Baa3) at June 30, 2012, could have resulted in Ameren, Ameren Missouri, Ameren Illinois or Genco being required to post additional collateral or other assurances for certain trade obligations amounting to $335 million, $125 million, $106 million, and $41 million, respectively.
Changes in commodity prices could trigger additional collateral postings and prepayments at current credit ratings. If market prices were 15% higher than June 30, 2012, levels in the next 12 months and 20% higher thereafter through the end of the term of the commodity contracts, then Ameren, Ameren Missouri, Ameren Illinois or Genco could be required to post additional collateral or other assurances for certain trade obligations up to approximately $183 million, $15 million, $ million, and $35 million, respectively. If market prices were 15% lower than June 30, 2012, levels in the next 12 months and 20%
lower thereafter through the end of the term of the commodity contracts, then Ameren, Ameren Missouri, Ameren Illinois or Genco could be required to post additional collateral or other assurances for certain trade obligations up to approximately $199 million, $4 million, $40 million, and $53 million, respectively.
OUTLOOK Ameren seeks to earn competitive returns on its investments in its businesses. Ameren Missouri and Ameren Illinois are seeking to improve their regulatory frameworks and cost recovery mechanisms. At the same time, Amerens rateregulated businesses are pursuing constructive regulatory outcomes within existing frameworks and are seeking to align their overall spending, both operating and capital, with economic conditions and cash flows provided by their regulators. Consequently, Amerens rateregulated businesses expect to narrow the historic gap between allowed and earned returns on equity.
Amerens Merchant Generation segment maintains a fleet of competitive coalfired and natural gas generating assets. Amerens merchant generation strategy is to position itself as a lowcost provider and to benefit from an expected future recovery of power prices. Ameren intends to 82 to ULNRC-05944
Table of Contents allocate its capital resources to those business opportunities, including electric and natural gas transmission, that offer the most attractive riskadjusted return potential.
Below are some key trends, events, and uncertainties that are reasonably likely to affect the Ameren Companies results of operations, financial condition, or liquidity, as well as their ability to achieve strategic and financial objectives, for 2012 and beyond.
RateRegulated Operations Amerens strategy for earning competitive returns on its rateregulated investments involves meeting customer energy needs in an efficient fashion, working to enhance regulatory frameworks, making timely and wellsupported rate case filings, and aligning overall spending with those rate case outcomes, economic conditions and return opportunities.
In January 2012, Ameren Illinois filed its initial IEIMA performancebased formula rate filing with the ICC. Delivery service rates from this initial filing, which were based on 2010 recoverable costs and expected net plant additions for 2011 and 2012, would result in a decrease of $20 million in its annual electric delivery service revenues beginning in October 2012, if approved by the ICC. In April 2012, Ameren Illinois filed an update filing based on 2011 costs and expected net plant additions for 2012, which would result in an additional $16 million decrease in annual electric delivery service revenues from the amount requested in its January 2012 initial filing. Pending ICC approval, rates from the update filing are expected to become effective on January 1, 2013. In response to both Ameren Illinois initial and update filings, the ICC staff is recommending larger reductions to Ameren Illinois annual electric delivery service revenues. We believe that our participation in this framework will better enable Ameren Illinois to earn its allowed return on equity for its electric delivery service business because, as discussed below, actual 2012 costs will be recovered as an adjustment to 2014 rates. This framework is expected to give Ameren Illinois the earnings predictability to invest in modernizing its distribution system.
The IEIMA provides for an annual reconciliation of Ameren Illinois revenue requirement necessary to reflect its actual costs incurred in a given year with the revenue requirement that was in effect for that year. Consequently, Ameren Illinois 2012 electric delivery service revenues will be based on its 2012 actual recoverable costs, rate base, and return on common equity as calculated under the IEIMAs performancebased formula ratemaking framework. Ameren Illinois expects recoverable costs in 2012 to exceed costs included in its current and proposed rates. As a result, Ameren Illinois expects to record additional revenue in 2012 and a corresponding regulatory asset to reflect the expected future recovery from customers of these costs as part of the annual revenue requirement reconciliation. Ameren Illinois 2012 return on common equity for the revenue requirement reconciliation will be based on the 2012 monthly average yields of the 30year United States treasury bonds plus 590 basis points. Based on available information, Ameren Illinois anticipates that the calculation of the 2012 return on common equity will be below the return on common equity currently included in its rate structure, which will partially offset the increased revenue resulting from the increase in recoverable costs incurred.
As they continue to experience cost recovery pressures, Ameren Missouri and Ameren Illinois expect to regularly seek electric and natural gas rate increases and timely cost recovery and tracking mechanisms from their regulators. These pressures include lower load growth from a weak economy, customer conservation efforts and the impacts of energy efficiency programs, increased investments and expected future investments for environmental compliance, system reliability improvements, and new baseload capacity, including renewable requirements. Increased investments also result in higher depreciation and financing costs. Increased costs are also expected from rising employee benefit costs, higher property and income taxes, and higher insurance premiums as a result of insurance market conditions and industry loss experience, among other things.
Following recommendations from the NRCs task force on lessons learned from the 2011 reactor accident in Japan, the NRC issued orders in March 2012 requiring United States nuclear plants to enhance nuclear plant readiness to safely manage severe events. These orders concentrated on addressing seismic and flooding risks, emergency planning, spent fuel risks, and severe accidents. Ameren Missouri is conducting an analysis to determine how to comply with the orders. The NRC provided a fouryear compliance period. Such orders are expected to result, and potential future orders may result, in increased costs and capital investments.
In January 2012, the ICC issued an order that authorized a $32 million increase in Ameren Illinois annual natural gas delivery service revenues. This order was based on a future test year of 2012, rather than a historical test year, in order to improve the ability to earn returns allowed by regulators.
The MoPSC issued an order, in April 2011, with respect to its review of Ameren Missouris FAC for the period from March 1, 2009, to September 30, 2009. The order required Ameren Missouri to refund $18 million, including $1 million for interest, to customers related to pretax earnings associated with certain longterm partial requirements sales that were made by Ameren Missouri due to the loss of Norandas load caused by a severe ice 83 to ULNRC-05944
Table of Contents storm in January 2009. Ameren Missouri appealed this decision to the Cole County Circuit Court, which overturned the MoPSCs April 2011 order.
The Cole County Circuit Court decision is being appealed by the MoPSC to the Missouri Court of Appeals. The MoPSC is currently reviewing the FAC for periods after September 2009. It is possible that the MoPSC could order additional refunds of approximately $25 million related to pretax earnings associated with these longterm partial requirements sales in periods after September 2009, and this could result in a charge to earnings in the period in which such an order is received. Separately, Ameren Missouri filed a request with the MoPSC in July 2011 for an accounting authority order that would allow Ameren Missouri to recover fixed costs totaling $36 million that were not recovered as a result of the loss of load caused by the severe 2009 ice storm for potential recovery in a future electric rate case. If the courts ultimately rule in favor of Ameren Missouris position regarding the classification of the longterm partial requirements sales, Ameren Missouri would not seek to recover from customers the sum that would be covered by the accounting authority order if it is granted.
In August 2012, the MoPSC issued an order that approved a stipulation and agreement regarding Ameren Missouris MEEIA filing. The order includes megawatthour savings targets for its energy efficiency programs as well as associated cost recovery mechanisms and incentive awards.
Beginning in 2013, Ameren Missouri expects to invest approximately $147 million over three years for energy efficiency programs. The order also allows for Ameren Missouri to collect, over the next three years, its program costs and 90% of its projected lost revenue from customers starting on January 2, 2013. The remaining 10% of projected lost revenue is expected to be recovered as part of future rate proceedings. Additionally, the order provides for an incentive award that would allow Ameren Missouri to earn revenues of approximately $19 million if 100% of its energy efficiency goals are achieved during the threeyear period, with the potential to earn more if energy savings exceeds those goals. The recovery of the incentive award from customers, if the energy efficiency goals are achieved, would begin after the threeyear energy efficiency plan is complete upon the effectiveness of an electric service rate case or potentially with the future adoption of a rider mechanism.
In February 2012, Ameren Missouri filed a request with the MoPSC to increase its annual revenues for electric service by $376 million. This request includes recovery of the cost of the proposed energy efficiency programs included in the MEEIA filing. The MoPSC staff recommended an increase to Ameren Missouris annual revenues of approximately $210 million. A decision by the MoPSC in this proceeding is expected in December 2012.
Ameren and Ameren Missouri also are pursuing recovery from insurers, through litigation, for reimbursement of unpaid liability insurance claims for a December 2005 breach of the upper reservoir at Ameren Missouris Taum Sauk pumpedstorage hydroelectric energy center.
Approximately 340 employees of Ameren Missouri and Ameren Services accepted voluntary separation offers and left the company as of December 31, 2011. As a result of the voluntary separations, Ameren and Ameren Missouri estimate an annual $20 million reduction in laborrelated operations and maintenance expense in 2012.
Ameren Missouris Callaway energy center completed a scheduled refueling and maintenance outage during the fourth quarter of 2011. The next scheduled refueling and maintenance outage is in the spring of 2013. During a scheduled outage, which occurs every 18 months, maintenance and purchased power costs increase, and the amount of excess power available for sale decreases, versus nonoutage years.
Ameren Missouri continues to evaluate its longerterm needs for new baseload and peaking electric generation capacity. Environmental regulations, as well as future initiatives related to greenhouse gas emissions and global climate change, could result in significant increases in capital expenditures and operating costs. The compliance costs could be prohibitive at some of Ameren Missouris coalfired energy centers, particularly at its Meramec energy center, as the expected return from these investments, at current market prices for energy and capacity, might not justify the required capital expenditures for their continued operation.
Ameren intends to allocate its capital to those investment opportunities with the highest expected riskadjusted returns. Ameren believes that because of its strategic location in the country, electric transmission may provide it with such an opportunity. In December 2011, MISO approved three projects, which will be developed by ATXI. The first project, Illinois Rivers, involves building a 345kilovolt line from western Indiana across the state of Illinois to eastern Missouri. Design and planning work on the first sections of this project have begun with construction scheduled to begin in 2013 after receiving a certificate of public convenience and necessity from the ICC. The first sections of the Illinois Rivers project are expected to be inservice in 2016. The last section of this project is expected to be completed in 2019. The Spoon River project in northwest Illinois and the Mark Twain project in northeast Missouri are the other two projects approved by MISO in its current transmission expansion plan. These two projects are expected to be completed in 2018. The estimated total investment in these three projects is expected to be more than $1.2 billion. FERC, in its order issued in May 2011, approved transmission rate incentives for the Illinois Rivers project as well as for the Big Muddy River project. The Big Muddy River 84 to ULNRC-05944
Table of Contents project, located primarily in southern Illinois, is being evaluated for inclusion in MISOs transmission expansion plans. In July 2012, Ameren, on behalf of its transmission affiliates, filed a request with FERC seeking transmission rate incentives for the Spoon River project and the Mark Twain project. Ameren expects FERC will issue an order in the third quarter of 2012.
In a July 2012 order, FERC concluded that Ameren Illinois improperly included acquisition premiums, particularly goodwill, in determining its common equity used in its electric transmission formula rate, thereby inappropriately recovering a higher return on rate base from its electric transmission services customers. FERC directed Ameren Illinois to issue a refund within 30 days of the order to its transmission services customers for acquisition premiums inappropriately recovered from its customers. As a result of the order, Ameren Illinois expects to record a pretax charge to earnings of between $10 million to $15 million, for its obligation to refund to Ameren Illinois electric transmission customers during the quarter ended September 30, 2012. In August 2012, Ameren Illinois filed a request for an extension of time to complete the refund. Ameren Illinois is studying the impacts of the FERC order and expects to file a request for rehearing at FERC.
Nine contracts between Ameren Illinois and IBEW expired on June 30, 2012; however, those agreements were extended while negotiations continue.
Ameren Illinois is seeking concessions from the union related to certain benefit provisions. Any labor disputes that result in work stoppage could have a material adverse effect on Amerens and Ameren Illinois results of operations, financial position, and liquidity.
In July 2012, weather conditions in the Midwest market and in Ameren Missouris and Ameren Illinois service territories were warmer than normal.
Cooling degreedays in Amerens rateregulated service territories during July 2012 were 57% higher than normal July weather conditions and were 12% higher than July 2011.
For additional information regarding recent rate orders and related appeals, pending requests filed with state and federal regulatory commissions, the FAC prudence review and related appeal, Taum Sauk matters, and separate FERC orders requiring refunds to Ameren Missouri and from Ameren Illinois, see Note 2 Rate and Regulatory Matters, Note 9 Commitments and Contingencies, and Note 10 Callaway Energy Center under Part I, Item 1, of this report and Note 2 Rate and Regulatory Matters under Part II, Item 8, of the Form 10K.
Merchant Generation Operations In this period of historically weak power prices and margins, Ameren is focused on improving and reducing the volatility of operating cash flows within its Merchant Generation business so that cash flows from operations approximate nonoperating cash requirements. The Merchant Generation business has reduced operating costs and sought costefficient methods to comply with significant environmental requirements, and expects to continue to pursue these strategies while positioning itself for an expected future recovery in power prices and margins.
The Merchant Generation segment expects to have available generation from its coalfired energy centers of 32.5 million megawatthours in any given year (Genco 24.5 million). However, based on currently expected power prices, the Merchant Generation segment expects to generate approximately 26.5 million (Genco 19.5 million) megawatthours, which includes generation from noncoalfired energy centers, in 2012.
Merchant Generations generation expectation has increased by approximately 1 million megawatthours from its estimate at the end of the first quarter of 2012 as its generation increased due to the warmerthan normal summer weather and increased utilization of natural gasfired generation assets.
Power prices in the Midwest affect the amount of revenues and cash flows the Merchant Generation business and Genco can realize by marketing power into the wholesale and retail markets. Amerens Merchant Generation segment and Genco are adversely impacted by the declining market price of power for any unhedged generation. Market prices for power have decreased over the past three years. During the first quarter of 2012, the observable market price of power for delivery in the current year and in future years in the Midwest sharply declined below 2011 levels primarily because of declining natural gas prices and the impact of the stay of the CSAPR. Merchant Generation and Genco evaluated this recent sharp price decline, and the related impact on electric margins, as well as the impact of the stay of the CSAPR, and the potential impact these events may have on their operating and capital investment plans. In February 2012, Genco decelerated the construction of two scrubbers at its Newton energy center, and AERG removed from its fiveyear capital expenditure forecast previously planned precipitator upgrades at its E.D. Edwards energy center. In May 2012, AER filed a request for a variance with the Illinois Pollution Control Board to extend compliance dates for SO2 emission levels contained within the MPS for five years until 2020. AER expects a decision from the Illinois Pollution Control 85 to ULNRC-05944
Table of Contents Board by the end of 2012. If Merchant Generation is not granted a variance to extend compliance dates for SO2 emission levels contained within the MPS, it is probable that Merchant Generation will have to mothball two of its unscrubbed coalfired energy centers beginning in 2015.
The sharp decline in the market price of power in the first quarter of 2012 and the related impact on electric margins, as well as the deceleration of construction of Gencos Newton energy center scrubber project, caused Merchant Generation and Genco to evaluate whether the carrying values of their energy centers were recoverable. As a result of this evaluation, Ameren recorded an asset impairment charge to reduce the carrying value of AERGs Duck Creek energy center to its estimated fair value in the first quarter of 2012. See Note 11 Asset Impairment in Part I, Item 1, for additional information. As a result of Duck Creeks reduced net property and plant carrying value, Ameren estimates that annual depreciation expense will be reduced by $25 million.
After the impairment of the Duck Creek energy center in the first quarter of 2012, Merchant Generation and Genco believed the carrying value of their energy centers exceeded their estimated fair values by an amount significantly in excess of $1 billion. However, under the applicable accounting guidance, an asset is not deemed impaired, and no impairment loss is recognized, unless the assets carrying value exceeds the estimated undiscounted future cash flows, even if the carrying value of the asset exceeds estimated fair value. Merchant Generation and Genco could recognize additional, material longlived asset impairment charges in the future if estimated undiscounted cash flows no longer exceed carrying values for longlived assets as a result of factors outside their control, such as changes in market prices of power or fuel costs, administrative action or inaction by regulatory agencies and new environmental laws and regulations that could reduce the expected useful lives of Merchant Generations and Gencos energy centers, and also as a result of factors that may be within their control, such as a failure to achieve forecasted operating results and cash flows, unfavorable changes in forecasted operating results and cash flows, or decisions to shut down, mothball or sell their energy centers. Merchant Generations and Gencos energy centers without pollution control equipment are most exposed to possible impairments resulting from declining power prices as compliance options for environmental laws and regulations could become prohibitively expensive.
To reduce cash flow volatility, Marketing Company, through a mix of physical and financial sales contracts, targets to hedge Merchant Generations expected output by 80% to 90% for the following year, 50% to 70% for two years out, and 30% to 50% for three years out. As of June 30, 2012, Marketing Company had hedged approximately 28 million megawatthours of Merchant Generations expected generation for 2012, at an average price of $43 per megawatthour. The approximately 1.5 million megawatthours of hedging in excess of expected 2012 generation is expected to be settled on a profitable basis using financial instruments. For 2013, Marketing Company had hedged approximately 22.5 million megawatthours of Merchant Generations forecasted generation sales at an average price of $37 per megawatthour. For 2014, Marketing Company had hedged approximately 12.5 million megawatthours of Merchant Generations forecasted generation sales at an average price of $38 per megawatthour. Any unhedged forecasted generation will be exposed to market prices at the time of sale. As a result, any new physical or financial power sales may be at price levels lower than previously experienced and lower than the value of existing hedged sales.
In June 2012, FERC approved MISOs proposal to establish an annual capacity market within the RTO. MISOs inaugural capacity auction will be held in March 2013 for the June 2013 to May 2014 planning year. Participation in MISOs capacity auction is voluntary as load servicing entities will continue to be able to plan to meet all of their resource requirements outside of the auction, including through selfsupply and/or bilateral contracts.
Ameren, Ameren Missouri, Ameren Illinois and Genco are reviewing FERCs order to determine its impact on their results of operations, financial position, and liquidity.
To further reduce cash flow volatility, Merchant Generation seeks to hedge fuel costs consistent with power sales. As of June 30, 2012, for 2012 Merchant Generation had hedged fuel costs for approximately 25 million megawatthours of coal and up to 28 million megawatthours of base transportation at about $24 per megawatthour. For 2013, Merchant Generation had hedged fuel costs for approximately 22 million megawatthours of coal and up to 27 million megawatthours of base transportation at about $23.50 per megawatthour. For 2014, Merchant Generation had hedged fuel costs for approximately 14 million megawatthours of coal and up to 21 million megawatthours of base transportation at about $23.50 per megawatthour. In 2012, Genco and the Merchant Generation segment are targeting a reduction in coal inventories. See Item 3 Quantitative and Qualitative Disclosures About Market Risk of this report for additional information about the percentage of fuel and transportation requirements that are pricehedged for 2012 through 2016.
In June 2012, EEI announced that it was reducing its workforce by 44 employees, which includes both management and labor union represented employees, in response to lower demand and prices for electricity. Affected employees will be leaving their employment during the third quarter of 2012. EEI is evaluating the 86 to ULNRC-05944
Table of Contents impact of this employee reduction on its pension and postretirement plans. Going forward, the workforce reduction is expected to reduce EEIs annual pretax other operations and maintenance expenses by $2 million to $3.5 million.
Liquidity and Capital Resources The Ameren Companies seek to maintain access to the capital markets at commercially attractive rates in order to fund their businesses. The enhancement of regulatory frameworks and returns is expected to improve cash flows, credit metrics, and related access to capital for Amerens rateregulated businesses.
Genco and the Merchant Generation segment seek to fund their operations internally and therefore seek not to rely on financing from Ameren or external, thirdparty sources. Genco and the Merchant Generation segment will continue to seek to defer or reduce capital and operating expenses, sell certain assets, and take other actions as necessary to fund their operations internally while maintaining safe and reliable operations. Consistent with these objectives, in March 2012, Genco entered into a put option agreement with AERG for the potential sale of the Grand Tower, the Gibson City, and the Elgin energy centers, in order to provide an additional source of liquidity, if needed in the future.
Under its indenture, Genco may not borrow additional funds from external, thirdparty sources if its interest coverage ratio is less than a specified minimum or its leverage ratio is greater than a specified maximum. Based on projections as of June 30, 2012, of Gencos operating results and cash flows, we expect that, by the end of the first quarter of 2013, Gencos interest coverage ratio will be less than the minimum ratio required for the company to borrow additional funds from external, thirdparty sources. Gencos indenture does not restrict intercompany borrowings from Amerens nonstateregulated subsidiary money pool. However, borrowings from the money pool are subject to Amerens control, and if a Genco intercompany financing need were to arise, borrowings from the nonstateregulated subsidiary money pool by Genco would be dependent on consideration by Ameren of the facts and circumstances existing at that time. Additionally, Genco cannot pay dividends on its common stock unless the companys actual interest coverage ratio for the most recently ended four fiscal quarters and the interest coverage ratios projected by management for each of the subsequent four sixmonth periods are greater than a specified minimum level. Based on projections as of June 30, 2012, of Gencos operating results and cash flows, we do not expect that Genco will achieve the minimum interest coverage ratio necessary to pay dividends on its common stock for the six months ended December 31, 2013, or the six months ended June 30, 2014. As a result, Genco was restricted from paying dividends on its common stock as of June 30, 2012, and we expect Genco will be unable to pay dividends on its common stock through at least June 30, 2015.
The Ameren Companies have also entered into multiyear credit facility agreements that cumulatively provide $2.1 billion of credit through September 10, 2013. The Ameren Companies believe that their liquidity is adequate given their expected operating cash flows, capital expenditures, and related financing plans. However, there can be no assurance that significant changes in economic conditions, disruptions in the capital and credit markets, or other unforeseen events will not materially affect their ability to execute their expected operating, capital or financing plans.
In September 2012, $173 million of Ameren Missouris 5.25% senior secured notes will mature.
Seeking to reduce the weighted average interest rate and enhance the maturity profile of its debt, on July 30, 2012, Ameren Illinois commenced a tender offer to purchase for cash two of its outstanding series of senior secured notes for an aggregate purchase price (including principal and premium) of up to $450 million. See Note 4 Longterm Debt and Equity Financings under Part I, Item 1, of this report for additional information.
Until the tender offer is complete, Ameren Illinois is unable to predict the impact of this tender offer on its results of operation, financial position, and liquidity.
As of June 30, 2012, Ameren had approximately $750 million in federal income tax net operating loss carryforwards (Ameren Missouri $220 million, Ameren Illinois $275 million, Genco $80 million) and $85 million in federal income tax credit carryforwards (Ameren Missouri $13 million, Ameren Illinois $ million, Genco $1 million). These carryforwards are expected to offset income tax liabilities into 2013 for Ameren Missouri, while Ameren Illinois and Genco will be offset into 2014.
Between 2012 and 2021, Ameren currently expects to invest between $1.8 billion to $2.2 billion to retrofit its coalfired energy centers with pollution control equipment in compliance with environmental laws and regulations. Any pollution control investments will result in decreased energy center availability during construction and significantly higher ongoing operating expenses. Any pollution control investments at Ameren Missouri are expected to be recoverable from ratepayers, subject to prudence reviews. Regulatory lag may materially affect the timing of such recovery and returns on the investments, and therefore affect our cash flows and related financing needs. The recoverability of amounts expended in our Merchant Generation segment will depend on whether market prices for power adjust as a result of market conditions reflecting increased environmental costs for coalfired generators.
87 to ULNRC-05944
Table of Contents In October 2011, Amerens board of directors declared a fourth quarter dividend of 40 cents per common share, a 3.9% increase from the prior quarterly dividend of 38.5 cents per share, resulting in an annualized equivalent dividend of $1.60 per share. Based on the shares outstanding at the end of October 2011, on an annual basis, the dividend increase will result in additional dividends of $15 million.
The above items could have a material impact on our results of operations, financial position, or liquidity. Additionally, in the ordinary course of business, we evaluate strategies to enhance our results of operations, financial position, or liquidity. These strategies may include acquisitions, divestitures, opportunities to reduce costs or increase revenues, and other strategic initiatives to increase Amerens stockholder value. We are unable to predict which, if any, of these initiatives will be executed. The execution of these initiatives may have a material impact on our future results of operations, financial position, or liquidity.
REGULATORY MATTERS See Note 2 Rate and Regulatory Matters under Part I, Item 1, of this report.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of changes in value of a physical asset or a financial instrument, derivative or nonderivative, caused by fluctuations in market variables such as interest rates, commodity prices, and equity security prices. A derivative is a contract whose value is dependent on, or derived from, the value of some underlying asset or index. The following discussion of our risk management activities includes forwardlooking statements that involve risks and uncertainties. Actual results could differ materially from those projected in the forwardlooking 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 nonfinancial or nonquantifiable. Such risks, principally business, legal, and operational risks, are not part of the following discussion.
Our risk management objective is to optimize our physical generating assets and pursue market opportunities within prudent risk parameters. Our risk management policies are set by a risk management steering committee, which is primarily composed of seniorlevel Ameren officers.
Except as discussed below, there have been no material changes to the quantitative and qualitative disclosures about market risk in the Form 10K.
See Item 7A under Part II of the Form 10K for a more detailed discussion of our market risks.
Credit Risk Credit risk represents the loss that would be recognized if counterparties fail to perform as contracted. Exchangetraded contracts are supported by the financial and credit quality of the clearing members of the respective exchanges and have nominal credit risk. In all other transactions, we are exposed to credit risk in the event of nonperformance by the counterparties to the transaction. See Note 6 Derivative Financial Instruments under Part I, Item 1, of this report for information on the potential loss on counterparty exposure as of June 30, 2012.
Our rateregulated revenues are primarily derived from sales or delivery of electricity and natural gas to customers in Missouri and Illinois. Our physical and financial instruments are subject to credit risk consisting of trade accounts receivables and executory contracts with market risk exposures. The risk associated with trade receivables is mitigated by the large number of customers in a broad range of industry groups who make up our customer base. At June 30, 2012, no nonaffiliated customer represented more than 10%, in the aggregate, of our accounts receivable. Additionally, Ameren Illinois has risk associated with the purchase of receivables. The Illinois Public Utilities Act requires Ameren Illinois to establish electric utility consolidated billing and purchase of receivables services. At the option of an alternative retail electric supplier, Ameren Illinois is required to purchase the suppliers receivables relating to Ameren Illinois delivery service customers who elected to receive power supply from the alternative retail electric supplier. If that option is selected, Ameren Illinois produces consolidated bills for the applicable retail customers reflecting charges for electric delivery service and purchased receivables. Beginning in June 2012, Ameren Illinois began purchasing trade receivables relating to the power supply of residential customers using Marketing Company as their alternative retail electric supplier. As of June 30, 2012, Ameren Illinois balance of purchased accounts receivable associated with the utility consolidated billing and purchase of receivables services was $4 million. The risk associated with Ameren Illinois electric and natural gas trade receivables is also mitigated by a rate adjustment mechanism that allows Ameren Illinois to recover the difference between its actual bad debt expense under GAAP and the bad debt expense included in its base rates. Ameren Missouri and Ameren Illinois continue to monitor the impact of increasing rates on customer collections. Ameren Missouri and Ameren Illinois make adjustments to their respective allowance for doubtful accounts as deemed necessary to ensure that such allowances are adequate to cover estimated uncollectible customer account balances.
Ameren, Ameren Missouri, Ameren Illinois and Genco may have credit exposure associated with offsystem or wholesale purchase and sale activity with nonaffiliated 88 to ULNRC-05944
Table of Contents companies. At June 30, 2012, Amerens, Ameren Missouris, Ameren Illinois and Gencos combined credit exposure to nonaffiliated trading counterparties, excluding coal suppliers, deemed below investment grade either through external or internal credit evaluations, was less than $1 million, net of collateral (2011 $50 million). At June 30, 2012, the combined credit exposures to nonaffiliated coal suppliers, deemed below investment grade either through external or internal credit evaluations, net of collateral, was $1 million at Ameren, less than $1 million at Ameren Missouri and less than $1 million at Genco. (2011 $6 million, $5 million, $1 million, respectively).
We establish credit limits for these counterparties and monitor the appropriateness of these limits on an ongoing basis through a credit risk management program. Monitoring 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 counterpartys financial condition before we enter into sales, forwards, swaps, futures or option contracts. We estimate our credit exposure to MISO associated with the MISO Energy and Operating Reserves Market to be $19 million at June 30, 2012 (2011 $39 million).
Equity Price Risk Our costs of providing defined benefit retirement and postretirement benefit plans are dependent upon a number of factors, including the rate of return on plan assets. To the extent the value of plan assets declines, the effect would be reflected in net income and OCI or regulatory assets, and in the amount of cash required to be contributed to the plans.
Commodity Price Risk We are exposed to changes in market prices for power, emission allowances, coal, transportation diesel, natural gas and uranium.
Amerens, Ameren Missouris and Gencos risks of changes in prices for power sales are partially hedged through sales agreements. Merchant Generation also seeks to sell power forward to wholesale, municipal, and industrial customers to limit exposure to changing prices. We also attempt to mitigate financial risks through risk management programs and policies, which include forwardhedging programs, and the use of derivative financial instruments (primarily forward contracts, futures contracts, option contracts, and financial swap contracts). However, a portion of the generation capacity of Ameren, Ameren Missouri and Genco is not contracted through physical or financial hedge arrangements and is therefore exposed to volatility in market prices.
The following table presents how Amerens cumulative net income might decrease if power prices were to decrease by 1% on unhedged economic generation for the remaining two quarters of 2012 through 2016:
Net Income(a)
Ameren(b)(c)
(13)
Ameren Missouri (d)
Genco(c)
(12)
(a)
Calculations are based on an effective tax rate of 39%, 38% and 41% for Ameren, Ameren Missouri and Genco, respectively.
(b)
Includes amounts for Ameren registrant and nonregistrant subsidiaries and intercompany eliminations.
(c)
In May 2012, AER filed a request for a variance with the Illinois Pollution Control Board to extend compliance dates for SO2 emission levels contained within the MPS for five years until 2020. Ameren and Gencos amounts above assume a MPS variance is obtained.
(d)
Less than $1 million.
Ameren, Ameren Missouri and Genco have entered into coal contracts with various suppliers to purchase coal to manage their exposure to fuel prices.
The coal hedging strategy is intended to secure a reliable coal supply while reducing exposure to commodity price volatility. Additionally, the type of coal burned is part of Ameren Missouris environmental compliance strategy. Ameren Missouri has a multiyear agreement to purchase ultralowsulfur coal through 2017 to comply with environmental regulations.
Transportation costs for coal and natural gas can be a significant portion of fuel costs. Ameren, Ameren Missouri and Genco typically hedge coal transportation forward to provide supply certainty and to mitigate transportation price volatility.
In addition, coal and coal transportation costs are sensitive to the price of diesel fuel as a result of rail freight fuel surcharges. We use forward fuel oil contracts (both for heating and crude oil) to mitigate this market price risk as changes in these products are highly correlated to changes in diesel markets. If diesel fuel costs were to increase or decrease by $0.25 a gallon, Amerens fuel expense could increase or decrease by $14 million annually (Ameren Missouri $8 million, Genco $5 million). As of June 30, 2012, Ameren had a price cap for 90% of expected fuel surcharges in 2012.
In the event of a significant change in coal prices, Ameren, Ameren Missouri and Genco would probably take actions to further mitigate their exposure to this market risk. However, due to the uncertainty of the specific actions that would be taken and their possible effects, this sensitivity analysis assumes no change in our financial structure or fuel sources.
With regard to exposure for commodity price risk for nuclear fuel, Ameren Missouri has fixedpriced, basepricewithescalation, and marketpriced agreements. It uses inventories to provide some price hedge to fulfill its Callaway energy centers needs for uranium, conversion, and 89 to ULNRC-05944
Table of Contents enrichment. There is no fuel reloading or planned maintenance outage scheduled for 2012 and 2015. Ameren Missouri has price hedges for approximately 76% of its 2013 to 2016 nuclear fuel requirements.
The electric generating operations for Ameren, Ameren Missouri and Genco are exposed to changes in market prices for natural gas used to run CTs.
Their natural gas procurement strategy is designed to ensure reliable and immediate delivery of natural gas while minimizing costs. We optimize transportation and storage options and price risk by structuring supply agreements to maintain access to multiple gas pools and supply basins.
With regard to Ameren Missouris and Ameren Illinois electric and natural gas distribution businesses, exposure to changing market prices is in large part mitigated by the fact that there are cost recovery mechanisms in place. These cost recovery mechanisms allow Ameren Missouri and Ameren Illinois to pass on to retail customers prudently incurred costs for fuel, purchased power, and gas supply. Ameren Missouris and Ameren Illinois strategy is designed to reduce the effect of market fluctuations for their regulated customers. The effects of price volatility cannot be eliminated. However, procurement strategies involve risk management techniques and instruments similar to those outlined earlier, as well as the management of physical assets.
The following table presents, as of June 30, 2012, the percentages of the projected required supply of coal and coal transportation for our coalfired energy centers, nuclear fuel for Ameren Missouris Callaway energy center, natural gas for our CTs and retail distribution, as appropriate, and purchased power needs of Ameren Illinois, which does not own generation, that are pricehedged over the fiveyear period 2012 through 2016. The projected required supply of these commodities could be significantly affected by changes in our assumptions for such matters as customer demand for our electric generation and our electric and natural gas distribution services, generation output, and inventory levels, among other matters. In May 2012, AER filed a request for a variance with the Illinois Pollution Control Board to extend compliance dates for SO 2 emission levels contained within the MPS for five years until 2020.
Amerens and Gencos percentages for projected required supply for coal and coal transportation in 2015 and 2016 assume a MPS variance is obtained. If the MPS variance is not obtained, Genco may need to reduce generation output at its energy centers to meet applicable emissions requirements.
2012 2013 2014 2016 Ameren(a):
Coal 100%
87%
64%
Coal transportation 100 99 89 Nuclear fuel 100 94 66 Natural gas for generation 50 47
Natural gas for distribution(b) 62 25 8
Purchased power for Ameren Illinois(c) 100 100 42 Ameren Missouri:
Coal 100%
94%
88%
Coal transportation 100 98 98 Nuclear fuel 100 94 66 Natural gas for generation 12 4
Natural gas for distribution(b) 63 24 11 Ameren Illinois:
Natural gas for distribution(b) 62%
26%
8%
Purchased power(c) 100 100 42 Genco:
Coal 100%
65%
30%
Coal transportation 100 100 71 Natural gas for generation 100 69
(a)
Includes amounts for Ameren registrant and nonregistrant subsidiaries and intercompany eliminations.
(b)
Represents the percentage of natural gas price hedged for peak winter season of November through March. The year 2012 represents November 2012 through March 2013. The year 2013 represents November 2013 through March 2014. This continues each successive year through March 2017.
(c)
Represents the percentage of purchased power pricehedged for fixedprice residential and small commercial customers with less than one megawatt of demand.
The following table shows how our total fuel expense might increase and how our net income might decrease if coal and coal transportation costs were to increase by 1% on any requirements not currently covered by fixedprice contracts for the fiveyear period 2012 through 2016.
Coal Coal Transportation Fuel Expense Net Income(a)
Fuel Expense Net Income(a)
Ameren(b)(c) 6 (3) 3 (1)
Ameren Missouri(c)
(d)
(d)
(d)
(d)
Genco 5
(3) 3 (1) 90 to ULNRC-05944
Table of Contents (a)
Calculations are based on an effective tax rate of 39%, 38% and 41% for Ameren, Ameren Missouri, and Genco, respectively.
(b)
Includes amounts for Ameren registrant and nonregistrant subsidiaries.
(c)
Includes the impact of the FAC.
(d)
Less than $1 million.
With regard to our exposure for commodity price risk for construction and maintenance activities, Ameren is exposed to changes in market prices for metal commodities and labor availability.
See Note 9 Commitments and Contingencies under Part I, Item 1, of this report for further information regarding the longterm commitments for the procurement of coal, natural gas, and nuclear fuel.
Fair Value of Contracts Most of our commodity contracts that meet the definition of derivatives qualify for treatment as NPNS. We use derivatives principally to manage the risk of changes in market prices for natural gas, coal, diesel, power, and uranium. The following table presents the favorable (unfavorable) changes in the fair value of all derivative contracts markedtomarket during the three and six months ended June 30, 2012. We use various methods to determine the fair value of our contracts. In accordance with authoritative guidance for fair value hierarchy levels, the sources we used to determine the fair value of these contracts were active quotes (Level 1), inputs corroborated by market data (Level 2), and other modeling and valuation methods that are not corroborated by market data (Level 3). See Note 7 Fair Value Measurements under Part I, Item 1, of this report for further information regarding the methods used to determine the fair value of these contracts.
Three Months Ended June 30, 2012 Ameren(a)
Ameren Missouri Ameren Illinois Genco Other(b)
Fair value of contracts at beginning of period, net (195) 19 (467) 11 242 Contracts realized or otherwise settled during the period 8
(9) 81 (2)
(62)
Changes in fair values attributable to changes in valuation technique and assumptions
Fair value of new contracts entered into during the period 24 18 2
(4) 8 Other changes in fair value (14)
(18) 21 (9)
(8)
Fair value of contracts outstanding at end of period, net (177) 10 (363)
(4) 180 Six Months Ended June 30, 2012 Fair value of contracts at beginning of year, net (43) 18 (307) 10 236 Contracts realized or otherwise settled during the period 18 (21) 165 (4)
(122)
Changes in fair values attributable to changes in valuation technique and assumptions
Fair value of new contracts entered into during the period 20 18 1
(8) 9 Other changes in fair value (172)
(5)
(222)
(2) 57 Fair value of contracts outstanding at end of period, net (177) 10 (363)
(4) 180 (a)
Includes amounts for Ameren registrant and nonregistrant subsidiaries.
(b)
Includes amounts for Merchant Generation nonregistrant subsidiaries and intercompany eliminations.
The following table presents maturities of derivative contracts as of June 30, 2012, based on the hierarchy levels used to determine the fair value of the contracts:
Sources of Fair Value Maturity Less than 1 Year Maturity 13 Years Maturity 45 Years Maturity in Excess of 5 Years Total Fair Value Ameren:
Level 1 (3)
(14)
(17)
Level 2(a)
(82)
(64)
(7)
(153)
Level 3(b) 43 17 (16)
(51)
(7)
Total (42)
(61)
(23)
(51)
(177)
Ameren Missouri:
Level 1 2
(6)
(4)
Level 2(a)
(8)
(5)
(1)
(14)
Level 3(b) 26 2
28 Total 20 (9)
(1)
10 Ameren Illinois:
Level 1 (2)
(2)
Level 2(a)
(75)
(59)
(6)
(140)
Level 3(b)
(133)
(20)
(17)
(51)
(221)
Total (210)
(79)
(23)
(51)
(363) 91 to ULNRC-05944
Table of Contents Sources of Fair Value Maturity Less than 1 Year Maturity 13 Years Maturity 45 Years Maturity in Excess of 5 Years Total Fair Value Genco:
Level 1 (2)
(6)
(8)
Level 2(a) 3
3 Level 3(b) 1
1 Total 2
(6)
(4)
(a)
Principally fixedprice vs. floating overthecounter power swaps, power forwards, and fixedprice vs. floating overthecounter natural gas swaps.
(b)
Principally power forward contract values based on a BlackScholes model that includes information from external sources and our estimates. Level 3 also includes option contract values based on our estimates.
ITEM 4.
CONTROLS AND PROCEDURES.
(a)
Evaluation of Disclosure Controls and Procedures As of June 30, 2012, evaluations were performed under the supervision and with the participation of management, including the principal executive officer and principal financial officer of each of the Ameren Companies, of the effectiveness of the design and operation of such registrants disclosure controls and procedures (as defined in Rules 13a15(e) and 15d15(e) of the Exchange Act). Based upon those evaluations, the principal executive officer and principal financial officer of each of the Ameren Companies concluded that such disclosure controls and procedures are effective to provide assurance that information required to be disclosed in such registrants reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and such information is accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure.
(b)
Change in Internal Controls There has been no change in any of the Ameren Companies internal control over financial reporting during their most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, each of their internal control over financial reporting except for the Ameren Companies implementation of Oracles Hyperion Financial Management (HFM) application. HFM provides the Ameren Companies an automated tool for consolidating financial data from the general ledger. The Ameren Companies consider the implementation of HFM an enhancement to the financial statement preparation process because the implementation reduces the Ameren Companies reliance on manual control procedures in the preparation of financial statements and other financial data.
PART II. OTHER INFORMATION ITEM 1.
LEGAL PROCEEDINGS.
We are involved in legal and administrative proceedings before various courts and agencies with respect to matters that arise in the ordinary course of business, some of which involve substantial amounts of money. We believe that the final disposition of these proceedings, except as otherwise disclosed in this report, will not have a material adverse effect on our results of operations, financial position, or liquidity. Risk of loss is mitigated, in some cases, by insurance or contractual or statutory indemnification. Material legal and administrative proceedings discussed in Note 2 Rate and Regulatory Matters, Note 9 Commitments and Contingencies, and Note 10 Callaway Nuclear Plant under Part I, Item 1, of this report or Note 2 Rate and Regulatory Matters under Part II, Item 8, of the Form 10K and incorporated herein by reference, include the following:
appeal of the MoPSCs April 2011 FAC prudence review order and completion of the current FAC prudence review; electric rate proceedings for Ameren Missouri pending before the MoPSC and for Ameren Illinois pending before the ICC; FERC litigation to determine wholesale distribution revenues for six of Ameren Illinois wholesale customers; Entergy appeal of a FERC May 2012 order requiring Entergy to refund to Ameren Missouri additional charges Ameren Missouri paid under an expired power purchase agreement; Ameren Illinois expected request for rehearing of a July 2012 FERC order requiring a refund to its transmission service customers; the EPAs Clean Air Actrelated litigation filed against Ameren Missouri and NSR investigations at Genco and AERG; remediation matters associated with MGP and waste disposal sites of the Ameren Companies; 92 to ULNRC-05944
Table of Contents litigation associated with the breach of the upper reservoir at Ameren Missouris Taum Sauk pumpedstorage hydroelectric energy center; litigation alleging the CO2 emissions from several industrial companies, including Ameren Missouri and Genco, created the atmospheric conditions that intensified Hurricane Katrina; asbestosrelated litigation associated with Ameren, Ameren Missouri, Ameren Illinois and Genco; Gencos challenge before the Informal Conference Board of the Illinois Department of Revenue regarding the States position that EEI did not qualify for manufacturing tax exemptions for 2010 transactions; and AERs variance request to the Illinois Pollution Control Board to extend compliance dates for SO2 emission levels contained within the MPS until December 31, 2020.
ITEM 1A.
RISK FACTORS.
There have been no material changes to the risk factors disclosed in Part I, Item 1A, Risk Factors in the Form 10K.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following table presents purchases of Ameren Corporations equity securities reportable under Item 703 of Regulation SK:
Period (a) Total Number of Shares (or Units)
Purchased(a)
(b) Average Price Paid per Share (or Unit)
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs April 1 April 31, 2012 1,785 31.69
May 1 May 31, 2012
June 1 June 30, 2012
Total 1,785 31.69
(a)
Included in April were 1,785 shares of Ameren common stock purchased in openmarket transactions pursuant to Amerens 2006 Omnibus Incentive Compensation Plan in satisfaction of Amerens obligations for Ameren board of directors compensation awards. Ameren does not have any publicly announced equity securities repurchase plans or programs.
Ameren Missouri, Ameren Illinois and Genco did not purchase equity securities reportable under Item 703 of Regulation SK during the period from April 1, 2012, to June 30, 2012.
93 to ULNRC-05944
Table of Contents ITEM 6.
EXHIBITS.
The documents listed below are being filed or have previously been filed on behalf of the Ameren Companies and are incorporated herein by reference from the documents indicated and made a part hereof. Exhibits not identified as previously filed are filed herewith.
Exhibit Designation Registrant(s)
Nature of Exhibit Previously Filed as Exhibit to:
Instruments Defining the Rights of Security Holders, Including Indentures 4.1 Ameren Ameren Missouri Supplemental Indenture dated May 15, 2012 to the Ameren Missouri Mortgage Exhibit 4.45, Form S3, File No. 333182258 4.2 Ameren Ameren Missouri First Supplemental Indenture dated as of May 15, 2012 to the Ameren Missouri Indenture Exhibit 4.48, Form S3, File No. 333182258 4.3 Ameren Ameren Illinois Supplemental Indenture dated as of January 15, 2011 to the Ameren Illinois Mortgage Exhibit 4.78, Form S3, File No. 333182258 4.4 Ameren Ameren Illinois Third Supplemental Indenture dated as of May 15, 2012 to the Ameren Illinois Indenture Exhibit 4.83, Form S3, File No. 333182258 Statement re: Computation of Ratios 12.1 Ameren Amerens Statement of Computation of Ratio of Earnings to Fixed Charges 12.2 Ameren Missouri Ameren Missouris Statement of Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividend Requirements 12.3 Ameren Illinois Ameren Illinois Statement of Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividend Requirements 12.4 Genco Gencos Statement of Computation of Ratio of Earnings to Fixed Charges Rule 13a14(a) / 15d14(a) Certifications 31.1 Ameren Rule 13a14(a)/15d14(a) Certification of Principal Executive Officer of Ameren 31.2 Ameren Rule 13a14(a)/15d14(a) Certification of Principal Financial Officer of Ameren 31.3 Ameren Missouri Rule 13a14(a)/15d14(a) Certification of Principal Executive Officer of Ameren Missouri 31.4 Ameren Missouri Rule 13a14(a)/15d14(a) Certification of Principal Financial Officer of Ameren Missouri 31.5 Ameren Illinois Rule 13a14(a)/15d14(a) Certification of Principal Executive Officer of Ameren Illinois 31.6 Ameren Illinois Rule 13a14(a)/15d14(a) Certification of Principal Financial Officer of Ameren Illinois 31.7 Genco Rule 13a14(a)/15d14(a) Certification of Principal Executive Officer of Genco 31.8 Genco Rule 13a14(a)/15d14(a) Certification of Principal Financial Officer of Genco Section 1350 Certifications 32.1 Ameren Section 1350 Certification of Principal Executive Officer and Principal Financial Officer of Ameren 94 to ULNRC-05944
Table of Contents Exhibit Designation Registrant(s)
Nature of Exhibit Previously Filed as Exhibit to:
32.2 Ameren Missouri Section 1350 Certification of Principal Executive Officer and Principal Financial Officer of Ameren Missouri 32.3 Ameren Illinois Section 1350 Certification of Principal Executive Officer and Principal Financial Officer of Ameren Illinois 32.4 Genco Section 1350 Certification of Principal Executive Officer and Principal Financial Officer of Genco XBRL Related Documents 101.INS*
Ameren Companies XBRL Instance Document 101.SCH*
Ameren Companies XBRL Taxonomy Extension Schema Document 101.CAL*
Ameren Companies XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB*
Ameren Companies XBRL Taxonomy Extension Label Linkbase Document 101.PRE*
Ameren Companies XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF*
Ameren Companies XBRL Taxonomy Extension Definition Document Attached as Exhibit 101 to this report is the following financial information from Amerens Quarterly Report on Form 10Q for the quarter ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statement of Income for the three and six months ended June 30, 2012, and 2011, (ii) the Consolidated Statement of Comprehensive Income for the three and six months ended June 30, 2012, and 2011, (iii) the Consolidated Balance Sheet at June 30, 2012, and December 31, 2011, (iv) the Consolidated Statement of Cash Flows for the six months ended June 30, 2012, and 2011, and (v) the Combined Notes to the Financial Statements for the six months ended June 30, 2012. For Ameren Missouri, Ameren Illinois, and Genco, these exhibits are deemed furnished and not filed pursuant to Rule 406T of Regulation ST.
Each registrant hereby undertakes to furnish to the SEC upon request a copy of any longterm debt instrument not listed above that such registrant has not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation SK.
95 to ULNRC-05944
Table of Contents 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, Jr.
Martin J. Lyons, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
UNION ELECTRIC COMPANY (Registrant)
/s/ Martin J. Lyons, Jr.
Martin J. Lyons, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
AMEREN ILLINOIS COMPANY (Registrant)
/s/ Martin J. Lyons, Jr.
Martin J. Lyons, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
AMEREN ENERGY GENERATING COMPANY (Registrant)
/s/ Martin J. Lyons, Jr.
Martin J. Lyons, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
Date: August 8, 2012 96 to ULNRC-05944
Exhibit 12.1 Ameren Corporation Computation of Ratio of Earnings to Fixed Charges (Thousands of Dollars, Except Ratios)
Six Months Ended June 30, 2012 (a)
Year Ended December 31, 2011 (b)
Earnings available for fixed charges, as defined:
Net income (loss) from continuing operations attributable to Ameren Corporation (192,026) 518,945 Net income (loss) attributable to noncontrolling interest (4,688) 1,061 Tax expense (benefit) based on income (loss)
(76,181) 310,110 Fixed charges excluding capitalized interest and preferred stock dividends tax adjustment (c) 240,890 492,058 Amortization of capitalized interest 1,682 3,616 Earnings available for fixed charges, as defined (30,323) 1,325,790 Fixed charges, as defined:
Interest expense on shortterm and longterm debt (d) 227,224 464,522 Capitalized interest (c) 5,438 2,920 Estimated interest cost within rental expense 3,863 8,196 Amortization of net debt premium, discount, and expenses 6,581 13,312 Subsidiary preferred stock dividends 3,222 6,028 Adjust preferred stock dividends to pretax basis 1,300 3,561 Total fixed charges, as defined 247,628 498,539 Ratio of earnings to fixed charges (e) 2.66 (a)
In the first quarter of 2012, Ameren recorded a pretax asset impairment charge of $628 million. See Note 11 Asset Impairment under Part I, Item I of this Form 10Q for additional information.
(b)
During 2011, Ameren Corporation recorded a charge to earnings of $125 million related to a loss on regulatory disallowance, charges related to closure of two energy centers and asset impairments. See Note 17 Goodwill, Impairment and Other Charges under Part II, Item 8 of the 2011 Form 10K for additional information.
(c)
Excludes allowance for funds used during construction (d)
Includes interest expense related to uncertain tax positions (e)
Earnings are inadequate to cover fixed charges by approximately $278 million for the six months ended June 30, 2012. See footnote (a) above for additional information.
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Exhibit 12.2 Union Electric Company Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividend Requirements (Thousands of Dollars, Except Ratios)
Six Months Ended June 30, 2012 Year Ended December 31, 2011 Earnings available for fixed charges, as defined:
Net income from continuing operations 166,068 290,227 Taxes based on income 95,194 160,085 Fixed charges 121,592 237,120 Earnings available for fixed charges, as defined 382,854 687,432 Fixed charges, as defined:
Interest expense on shortterm and longterm debt (a) 116,897 227,165 Estimated interest cost within rental expense 1,617 3,608 Amortization of net debt premium, discount, and expenses 3,078 6,347 Total fixed charges, as defined 121,592 237,120 Ratio of earnings to fixed charges 3.15 2.90 Earnings required for combined fixed charges and preferred stock dividends:
Preferred stock dividends 1,710 3,420 Adjustment to pretax basis 980 1,887 2,690 5,307 Combined fixed charges and preferred stock dividend requirements 124,282 242,427 Ratio of earnings to combined fixed charges and preferred stock dividend requirements 3.08 2.84 (a)
Includes interest expense related to uncertain tax positions to ULNRC-05944
Exhibit 12.3 Ameren Illinois Company Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Stock Dividend Requirements (Thousands of Dollars, Except Ratios)
Six Months Ended June 30, 2012 Year Ended December 31, 2011 Earnings available for fixed charges, as defined:
Net income from continuing operations 60,932 195,731 Taxes based on income 39,875 126,821 Fixed charges 67,270 141,308 Earnings available for fixed charges, as defined 168,077 463,860 Fixed charges, as defined:
Interest expense on shortterm and longterm debt (a) 62,982 132,493 Estimated interest cost within rental expense 1,714 3,581 Amortization of net debt premium, discount, and expenses 2,574 5,234 Total fixed charges, as defined 67,270 141,308 Ratio of earnings to fixed charges 2.50 3.28 Earnings required for combined fixed charges and preferred stock dividends:
Preferred stock dividends 1,512 3,045 Adjustment to pretax basis 989 1,973 2,501 5,018 Combined fixed charges and preferred stock dividend requirements 69,771 146,326 Ratio of earnings to combined fixed charges and preferred stock dividend requirements 2.41 3.17 (a)
Includes interest expense related to uncertain tax positions to ULNRC-05944
Exhibit 12.4 Ameren Energy Generating Company Computation of Ratio of Earnings to Fixed Charges (Thousands of Dollars, Except Ratios)
Six Months Ended June 30, 2012 Year Ended December 31, 2011 (a)
Earnings available for fixed charges, as defined:
Net income (loss) from continuing operations attributable to Ameren Energy Generating Company (4,538) 44,153 Net income (loss) attributable to noncontrolling interest (4,688) 1,061 Taxes based on income (7,711) 32,285 Fixed charges excluding capitalized interest 26,255 61,975 Amortization of capitalized interest 714 1,176 Earnings available for fixed charges, as defined 10,032 140,650 Fixed charges, as defined:
Interest expense on shortterm and longterm debt (b) 25,775 61,020 Capitalized interest 5,843 2,886 Estimated interest cost within rental expense 143 284 Amortization of net debt premium, discount, and expenses 337 671 Total fixed charges, as defined 32,098 64,861 Ratio of earnings to fixed charges (c) 2.17 (a)
During 2011, Genco recorded a charge to earnings of $35 million related to the closure of two energy centers and an asset impairment. See Note 17 Goodwill, Impairment and Other Charges under Part II, Item 8 of the 2011 Form 10K for additional information.
(b)
Includes interest expense related to uncertain tax positions (c)
Earnings are inadequate to cover fixed charges by $22 million for the six months ended June 30, 2012.
to ULNRC-05944
Exhibit 31.1 RULE 13a14(a)/15d14(a) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER OF AMEREN CORPORATION (required by Section 302 of the SarbanesOxley Act of 2002)
I, Thomas R. Voss, certify that:
- 1. I have reviewed this report on Form 10Q for the quarterly period ended June 30, 2012 of Ameren Corporation;
- 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f))
for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
- 5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 8, 2012
/s/ Thomas R. Voss Thomas R. Voss Chairman, President and Chief Executive Officer (Principal Executive Officer) to ULNRC-05944
Exhibit 31.2 RULE 13a14(a)/15d14(a) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER OF AMEREN CORPORATION (required by Section 302 of the SarbanesOxley Act of 2002)
I, Martin J. Lyons, Jr., certify that:
- 1. I have reviewed this report on Form 10Q for the quarterly period ended June 30, 2012 of Ameren Corporation;
- 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f))
for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
- 5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 8, 2012
/s/ Martin J. Lyons, Jr.
Martin J. Lyons, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial Officer) to ULNRC-05944
Exhibit 31.3 RULE 13a14(a)/15d14(a) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER OF UNION ELECTRIC COMPANY (required by Section 302 of the SarbanesOxley Act of 2002)
I, Warner L. Baxter, certify that:
- 1. I have reviewed this report on Form 10Q for the quarterly period ended June 30, 2012 of Union Electric Company;
- 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f))
for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
- 5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 8, 2012
/s/ Warner L. Baxter Warner L. Baxter Chairman, President and Chief Executive Officer (Principal Executive Officer) to ULNRC-05944
Exhibit 31.4 RULE 13a14(a)/15d14(a) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER OF UNION ELECTRIC COMPANY (required by Section 302 of the SarbanesOxley Act of 2002)
I, Martin J. Lyons, Jr., certify that:
- 1. I have reviewed this report on Form 10Q for the quarterly period ended June 30, 2012 of Union Electric Company;
- 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f))
for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
- 5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 8, 2012
/s/ Martin J. Lyons, Jr.
Martin J. Lyons, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial Officer) to ULNRC-05944
Exhibit 31.5 RULE 13a14(a)/15d14(a) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER OF AMEREN ILLINOIS COMPANY (required by Section 302 of the SarbanesOxley Act of 2002)
I, Richard J. Mark, certify that:
- 1. I have reviewed this report on Form 10Q for the quarterly period ended June 30, 2012 of Ameren Illinois Company;
- 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f))
for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
- 5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 8, 2012
/s/ Richard J. Mark Richard J. Mark Chairman, President and Chief Executive Officer (Principal Executive Officer) to ULNRC-05944
Exhibit 31.6 RULE 13a14(a)/15d14(a) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER OF AMEREN ILLINOIS COMPANY (required by Section 302 of the SarbanesOxley Act of 2002)
I, Martin J. Lyons, Jr., certify that:
- 1. I have reviewed this report on Form 10Q for the quarterly period ended June 30, 2012 of Ameren Illinois Company;
- 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f))
for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
- 5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 8, 2012
/s/ Martin J. Lyons, Jr.
Martin J. Lyons, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial Officer) to ULNRC-05944
Exhibit 31.7 RULE 13a14(a)/15d14(a) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER OF AMEREN ENERGY GENERATING COMPANY (required by Section 302 of the SarbanesOxley Act of 2002)
I, Steven R. Sullivan, certify that:
- 1. I have reviewed this report on Form 10Q for the quarterly period ended June 30, 2012 of Ameren Energy Generating Company;
- 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f))
for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
- 5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 8, 2012
/s/ Steven R. Sullivan Steven R. Sullivan Chairman and President (Principal Executive Officer) to ULNRC-05944
Exhibit 31.8 RULE 13a14(a)/15d14(a) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER OF AMEREN ENERGY GENERATING COMPANY (required by Section 302 of the SarbanesOxley Act of 2002)
I, Martin J. Lyons, Jr., certify that:
- 1. I have reviewed this report on Form 10Q for the quarterly period ended June 30, 2012 of Ameren Energy Generating Company;
- 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f))
for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
- 5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 8, 2012
/s/ Martin J. Lyons, Jr.
Martin J. Lyons, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial Officer) to ULNRC-05944
Exhibit 32.1 SECTION 1350 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER AND THE PRINCIPAL FINANCIAL OFFICER OF AMEREN CORPORATION (required by Section 906 of the SarbanesOxley Act of 2002)
In connection with the report on Form 10Q for the quarterly period ended June 30, 2012 of Ameren Corporation (the Registrant) as filed by the Registrant with the Securities and Exchange Commission on the date hereof (the Form 10Q), each undersigned officer of the Registrant does hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the SarbanesOxley Act of 2002, that:
(1)
The Form 10Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
and (2)
The information contained in the Form 10Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: August 8, 2012
/s/ Thomas R. Voss Thomas R. Voss Chairman, President and Chief Executive Officer (Principal Executive Officer)
/s/ Martin J. Lyons, Jr.
Martin J. Lyons, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial Officer) to ULNRC-05944
Exhibit 32.2 SECTION 1350 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER AND THE PRINCIPAL FINANCIAL OFFICER OF UNION ELECTRIC COMPANY (required by Section 906 of the SarbanesOxley Act of 2002)
In connection with the report on Form 10Q for the quarterly period ended June 30, 2012 of Union Electric Company (the Registrant) as filed by the Registrant with the Securities and Exchange Commission on the date hereof (the Form 10Q), each undersigned officer of the Registrant does hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the SarbanesOxley Act of 2002, that:
(1)
The Form 10Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
and (2)
The information contained in the Form 10Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: August 8, 2012
/s/ Warner L. Baxter Warner L. Baxter Chairman, President and Chief Executive Officer (Principal Executive Officer)
/s/ Martin J. Lyons, Jr.
Martin J. Lyons, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial Officer) to ULNRC-05944
Exhibit 32.3 SECTION 1350 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER AND THE PRINCIPAL FINANCIAL OFFICER OF AMEREN ILLINOIS COMPANY (required by Section 906 of the SarbanesOxley Act of 2002)
In connection with the report on Form 10Q for the quarterly period ended June 30, 2012 of Ameren Illinois Company (the Registrant) as filed by the Registrant with the Securities and Exchange Commission on the date hereof (the Form 10Q), each undersigned officer of the Registrant does hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the SarbanesOxley Act of 2002, that:
(1)
The Form 10Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
and (2)
The information contained in the Form 10Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: August 8, 2012
/s/ Richard J. Mark Richard J. Mark Chairman, President and Chief Executive Officer (Principal Executive Officer)
/s/ Martin J. Lyons, Jr.
Martin J. Lyons, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial Officer) to ULNRC-05944
Exhibit 32.4 SECTION 1350 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER AND THE PRINCIPAL FINANCIAL OFFICER OF AMEREN ENERGY GENERATING COMPANY (required by Section 906 of the SarbanesOxley Act of 2002)
In connection with the report on Form 10Q for the quarterly period ended June 30, 2012 of Ameren Energy Generating Company (the Registrant) as filed by the Registrant with the Securities and Exchange Commission on the date hereof (the Form 10Q), each undersigned officer of the Registrant does hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the SarbanesOxley Act of 2002, that:
(1)
The Form 10Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
and (2)
The information contained in the Form 10Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: August 8, 2012
/s/ Steven R. Sullivan Steven R. Sullivan Chairman and President (Principal Executive Officer)
/s/ Martin J. Lyons, Jr.
Martin J. Lyons, Jr.
Senior Vice President and Chief Financial Officer (Principal Financial Officer) to ULNRC-05944