| • FORM 10-Q • COMPUTATION OF RATIO TO FIXED CHARGES • COMPUTATION OF RATIO TO FIXED CHARGES • COMPUTATION OF RATIO TO FIXED CHARGES • COMPUTATION OF RATIO TO FIXED CHARGES • CERTIFICATION • CERTIFICATION • CERTIFICATION • CERTIFICATION • CERTIFICATION • CERTIFICATION • CERTIFICATION • CERTIFICATION • CERTIFICATION • CERTIFICATION • CERTIFICATION • CERTIFICATION • XBRL INSTANCE DOCUMENT • XBRL TAXONOMY EXTENSION SCHEMA • XBRL TAXONOMY EXTENSION CALCULATION LINKBASE • XBRL TAXONOMY EXTENSION DEFINITION LINKBASE • XBRL TAXONOMY EXTENSION LABEL LINKBASE • XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q
for the Quarterly Period Ended March 31, 2012 OR
for the transition period from to .
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.
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 S-T (§ 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).
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares outstanding of each registrant’s classes of common stock as of April 30, 2012, was as follows:
OMISSION OF CERTAIN INFORMATION Ameren Energy Generating Company meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.
This combined Form 10-Q 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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This Form 10-Q contains “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements should be read with the cautionary statements and important factors included on page 3 of this Form 10-Q under the heading “Forward-looking Statements.” Forward-looking statements are all statements other than statements of historical fact, including those statements that are identified by the use of the words “anticipates,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” and similar expressions.
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Table of ContentsGLOSSARY 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 10-K 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 rate-regulated 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' rate-regulated businesses. COL - Nuclear energy center combined construction and operating license. Form 10-K - The combined Annual Report on Form 10-K 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.
Statements in this report not based on historical facts are considered “forward-looking” and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those discussed. Although such forward-looking statements have been made in good faith and are based on reasonable assumptions, there is no assurance that the expected results will be achieved. These statements include (without limitation) statements as to future expectations, beliefs, plans, strategies, objectives, events, conditions, and financial performance. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are providing this cautionary statement to identify important factors that could cause actual results to differ materially from those anticipated. The following factors, in addition to those discussed under Risk Factors in the Form 10-K 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 forward-looking statements:
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Given these uncertainties, undue reliance should not be placed on these forward-looking statements. Except to the extent required by the federal securities laws, we undertake no obligation to update or revise publicly any forward-looking statements to reflect new information or future events.
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CONSOLIDATED STATEMENT OF INCOME (LOSS) (Unaudited) (In millions, except per share amounts)
The accompanying notes are an integral part of these consolidated financial statements.
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Table of ContentsAMEREN CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (In millions)
The accompanying notes are an integral part of these consolidated financial statements.
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Table of ContentsAMEREN CORPORATION (Unaudited) (In millions, except per share amounts)
The accompanying notes are an integral part of these consolidated financial statements.
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Table of ContentsAMEREN CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In millions)
The accompanying notes are an integral part of these consolidated financial statements.
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Table of ContentsSTATEMENT OF INCOME AND COMPREHENSIVE INCOME (Unaudited) (In millions)
The accompanying notes as they relate to Ameren Missouri are an integral part of these financial statements.
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Table of ContentsUNION ELECTRIC COMPANY (Unaudited) (In millions, except per share amounts)
The accompanying notes as they relate to Ameren Missouri are an integral part of these financial statements.
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Table of ContentsUNION ELECTRIC COMPANY (Unaudited) (In millions)
The accompanying notes as they relate to Ameren Missouri are an integral part of these financial statements.
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Table of ContentsSTATEMENT OF INCOME AND COMPREHENSIVE INCOME (Unaudited) (In millions)
The accompanying notes as they relate to Ameren Illinois are an integral part of these consolidated financial statements.
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Table of ContentsAMEREN ILLINOIS COMPANY (Unaudited) (In millions)
The accompanying notes as they relate to Ameren Illinois are an integral part of these consolidated financial statements.
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Table of ContentsAMEREN ILLINOIS COMPANY (Unaudited) (In millions)
The accompanying notes as they relate to Ameren Illinois are an integral part of these consolidated financial statements.
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Table of ContentsAMEREN ENERGY GENERATING COMPANY CONSOLIDATED STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (Unaudited) (In millions)
The accompanying notes as they relate to Genco are an integral part of these consolidated financial statements.
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Table of ContentsAMEREN ENERGY GENERATING COMPANY (Unaudited) (In millions)
The accompanying notes as they relate to Genco are an integral part of these consolidated financial statements.
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Table of ContentsAMEREN ENERGY GENERATING COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In millions)
The accompanying notes as they relate to Genco are an integral part of these consolidated financial statements.
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Table of ContentsAMEREN CORPORATION (Consolidated) UNION ELECTRIC COMPANY AMEREN ILLINOIS COMPANY AMEREN ENERGY GENERATING COMPANY (Consolidated) COMBINED NOTES TO FINANCIAL STATEMENTS (Unaudited) March 31, 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. Ameren’s primary assets are the common stock of its subsidiaries. Ameren’s subsidiaries are separate, independent legal entities with separate businesses, assets, and liabilities. These subsidiaries operate, as the case may be, rate-regulated electric generation, transmission and distribution businesses, rate-regulated natural gas transmission and distribution businesses, and merchant electric generation businesses in Missouri and Illinois. Dividends on Ameren’s common stock and the payment of expenses by Ameren depend on distributions made to it by its subsidiaries. Ameren’s principal subsidiaries are listed below. Also see the Glossary of Terms and Abbreviations at the front of this report and in the Form 10-K.
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 10-K. During the second quarter 2011, Genco identified an error in the cash flow statement classification of a capital contribution from Ameren that affected Genco's three months ended March 31, 2011, consolidated statements of cash flows. For the three months ended March 31, 2011, Genco's previously reported cash flows provided by operating activities were $100 million, and Genco had no reported cash flows from financing activities. As corrected herein, Genco's cash flows provided by operating activities were $76 million and cash flows provided by financing activities were $24 million. The error was corrected in Genco's six months ended June 30, 2011, consolidated statement of cash flows. This correction had no impact on Ameren's reported consolidated statement of cash flows. Earnings Per Share There were no material differences between Ameren’s basic and diluted earnings per share amounts for the three months ended March 31, 2012, and 2011. In the first quarter of 2012, potential issuances of common shares related to stock-based compensation plans were excluded from the quarterly diluted earnings per share calculation because the effect was antidilutive. In 2011, the number of dilutive restricted stock shares and performance share units had an immaterial impact on earnings per share.
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Table of ContentsStock-based Compensation A summary of nonvested shares as of March 31, 2012, and changes during the three months ended March 31, 2012, under the 2006 Omnibus Incentive Compensation Plan (2006 Plan) is presented below:
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 Ameren’s 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 Ameren’s total shareholder return for a three-year 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 three-year risk-free rate of 0.41%, volatility of 17% to 31% for the peer group, and Ameren’s attainment of a three-year average earnings per share threshold during the performance period. Ameren recorded compensation expense of $6 million and a related tax benefit of $2 million for both the three months ended March 31, 2012, and 2011. There were no significant compensation costs capitalized related to the performance share units during the three months ended March 31, 2012, and 2011. As of March 31, 2012, total compensation cost of $32 million related to nonvested awards not yet recognized was expected to be recognized over a weighted-average period of 26 months. Accounting Changes Disclosures about Fair Value Measurements In May 2011, FASB issued additional authoritative guidance regarding fair value measurements. The guidance amends 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 do not affect the Ameren Companies’ results of operations, financial positions, or liquidity, as this guidance only requires additional disclosures. The Ameren Companies adopted this guidance for the first quarter of 2012. See Note 7 - Fair Value Measurements for the required additional disclosures. Presentation of Comprehensive Income In June 2011, FASB amended its guidance on the presentation of comprehensive income in financial statements. The amended guidance changes the presentation of comprehensive income in the financial statements. It requires 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 positions, or liquidity. In December 2011, the FASB amended the guidance to postpone a requirement to present reclassification adjustments by income component until further guidance is issued. 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 March 31, 2012, Ameren’s and Ameren Illinois’ goodwill related to Ameren's 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.
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Table of ContentsAt March 31, 2012, Ameren’s and Ameren Missouri’s intangible assets consisted of renewable energy credits obtained through wind and solar power purchase agreements. The book value of each of Ameren’s and Ameren Missouri’s renewable energy credits was $9 million at March 31, 2012. The book value of each of Ameren's, Ameren Missouri's, and Genco's CAIR emission allowances was immaterial at March 31, 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 months ended March 31, 2012, and $2 million, $1 million, and $1 million for Ameren, Ameren Illinois, and Genco, respectively, for the three months ended March 31, 2011. Amortization expense based on Ameren Missouri's usage of renewable energy credits was deferred as a regulatory asset pending recovery from customers through rates. 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 months ended March 31, 2012, and 2011:
Uncertain Tax Positions The amount of unrecognized tax benefits as of March 31, 2012, was $150 million, $125 million, $11 million, and $10 million for Ameren, Ameren Missouri, Ameren Illinois and Genco, respectively. The amount of unrecognized tax benefits (detriments) as of March 31, 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. Ameren’s federal income tax returns for the years 2007 through 2009 are before the Appeals Office of the Internal Revenue Service. Ameren’s federal income tax return for the year 2010 is currently under examination. In April 2012, Ameren filed a protest to the Appeals Office of the Internal Revenue Service with respect to certain adjustments proposed as a result of the Internal Revenue Service's audit examination of its 2010 federal income tax return. 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 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 will 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. In addition, Ameren and Genco 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 three months ended March 31, 2012. Noncontrolling Interest Ameren’s noncontrolling interests comprised the 20% of EEI not owned by Ameren and the preferred stock not subject to mandatory redemption of Ameren's subsidiaries. These noncontrolling interests were classified as a component of equity separate from Ameren’s equity in its consolidated balance sheet. Genco’s noncontrolling interest comprised the 20% of EEI not owned by Genco. This noncontrolling interest was classified as a component of equity separate from Genco’s equity in its consolidated balance sheet.
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Table of ContentsA reconciliation of the equity changes attributable to the noncontrolling interest at Ameren and Genco for the three months ended March 31, 2012, and 2011, is shown below:
Medina Valley Sale in 2012 In February 2012, Ameren completed the sale of its Medina Valley energy center’s net property and plant for cash proceeds of $16 million and an additional $1 million payment at the two-year 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 Ameren’s Merchant Generation segment results. 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 10-K. 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. Missouri 2009 Electric Rate Order In November 2011, the Missouri Court of Appeals issued a ruling that upheld the MoPSC’s 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 The MIEC and MoOPC appealed certain aspects of the MoPSC’s electric rate order issued in May 2010 to the Cole County Circuit Court. In addition to the MIEC appeal, four industrial customers, who are members of MIEC, also were granted a stay by the Cole County Circuit Court of the 2010 electric rate increase and the 2009 electric rate increase that was also under appeal as it applied specifically to their electric service accounts until the court rendered its decision on the appeals. As of March 31, 2012, the amount held by the Cole County Circuit Court registry relating to the stay was $16 million. This amount was reflected in “Accounts receivable-trade” on Ameren’s and Ameren Missouri's balance sheets at March 31, 2012. With the resolution of the 2009 electric rate order appeal, the amount held by the Cole County Circuit Court exceeded the amount relating to the appealed issues of the MoPSC's 2010 electric rate order. Therefore, in May 2012, Ameren Missouri received $14 million from the Cole Country Circuit Court’s registry. The remaining $2 million in the Cole County Circuit Court’s registry will stay until this proceeding is ultimately resolved. If the MoPSC’s 2010 electric rate order is ultimately upheld, Ameren Missouri will receive all of the remaining funds held in the Cole County Circuit Court’s registry, plus accrued interest. If Ameren Missouri were to conclude that some portion of the rate increase resulting from the 2010 electric rate order was probable of refund to Ameren Missouri’s customers, a charge to earnings would be recorded for the estimated amount of refund in the period in which that determination was made. At this time, Ameren Missouri does not believe any aspect of the 2010 MoPSC’s electric rate order is probable of refund to Ameren Missouri’s customers. Therefore, no reserve has been established. 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 MoPSC 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 August 2011, Ameren Missouri appealed the disallowance of Taum Sauk enhancements to the Missouri Court of Appeals, Western District. A decision is expected by the Missouri Court of Appeals, Western District, in 2012. Ameren Missouri cannot predict the ultimate outcome of its appeal.
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Table of ContentsPending Electric Rate Case On February 3, 2012, Ameren Missouri filed a request with the MoPSC to increase its annual revenue for electric service by $376 million. The annual increase request included $81 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 plant-in-service accounting treatment. 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, when any rate change may go into effect, 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 January 2012, Ameren Missouri made its initial filing with the MoPSC under the MEEIA. This filing proposed a three-year plan that includes a portfolio of energy efficiency programs along with a cost-recovery mechanism. If the proposal is approved, beginning in January 2013, Ameren Missouri plans to invest $145 million over three years for the proposed energy efficiency programs. Ameren Missouri is also seeking recovery of fixed costs that would not otherwise be recovered due to the effects on customer usage from energy efficiency programs in the same year the usage reduction occurs. In April 2012, the MoPSC staff issued a recommendation in response to Ameren Missouri’s MEEIA filing. The MoPSC staff agreed with Ameren Missouri's request for contemporaneous recovery of program costs but rejected Ameren Missouri’s request to recover fixed costs in the same year the energy efficiency related usage reductions occur. Instead, the MoPSC staff recommended that the recovery of the otherwise unrecoverable fixed costs occur beginning on January 1 of the third year after the usage reduction occurs and has been verified by an independent evaluator. A decision by the MoPSC in this proceeding is anticipated in the third quarter of 2012. The MoPSC’s order in this proceeding will not affect Ameren Missouri rates until these rates are included in an electric service rate case. Ameren Missouri anticipates that the impacts of the MoPSC’s decision in this MEEIA filing will be included in rates set under its pending electric service rate case that was filed on February 3, 2012, with a true-up date of July 31, 2012. Ameren Missouri’s pending electric rate case includes an annual revenue increase of $81 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 Missouri’s FAC at least every 18 months. In April 2011, the MoPSC issued an order with respect to its review of Ameren Missouri’s 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 long-term partial requirements sales that were made by Ameren Missouri because of the loss of Noranda's 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 Missouri's 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 expects to have refunded the $18 million by the end of May 2012. Ameren Missouri disagrees with the MoPSC order’s 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 June 2011, Ameren Missouri filed an appeal with the Cole County Circuit Court. A decision is expected from the Cole County Circuit Court in 2012. 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. 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’s position directed Ameren Missouri to refund to customers the pretax earnings associated with the same long-term 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 staff’s position. If Ameren Missouri were to determine that these sales were probable of refund to Ameren Missouri’s 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.
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Table of ContentsIllinois IEIMA On January 3, 2012, Ameren Illinois elected to participate in the performance-based formula ratemaking process established pursuant to the IEIMA by filing initial performance-based 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. In its initial filing, if approved by the ICC, Ameren Illinois’ calculation would result in a decrease of $19 million in its annual electric delivery service revenues. In April 2012, the ICC staff submitted its calculation of Ameren Illinois’ initial filing’s revenue requirement and recommended a decrease of $25 million in Ameren Illinois’ annual electric delivery service revenues. The ICC deadline to approve the initial formula rates is September 28, 2012, with the rates becoming effective no later than 30 days after the ICC’s decision. The rates resulting from the initial filing 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 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. Pending ICC approval, the update filing will result in an annual decrease of $15 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 30-year United States treasury bond 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 IEIMA’s performance-based 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 March 31, 2012, Ameren Illinois recorded a regulatory asset of $12 million with a corresponding increase in electric revenues for the estimated first quarter portion of the 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 in 2012 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. Federal Electric Transmission Investment In February 2012, FERC approved ATXI’s request for a forward-looking rate calculation with an annual reconciliation adjustment as well as ATXI’s request for the implementation of the incentives FERC approved in its May 2011 order for the Illinois Rivers project and the Big Muddy project. 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 reached an agreement with two of its nine wholesale customers in 2011. The impasse with the remaining seven 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 or its impact on Ameren’s or Ameren Illinois’ results of operations, financial position, or liquidity. Regional Transmission Organization Ameren Missouri is a transmission owning member of MISO. In April 2012, the MoPSC authorized Ameren Missouri’s continued participation in MISO through May 31, 2016, subject to certain conditions. By November 2015, Ameren Missouri will have to file an updated cost benefit study with the MoPSC evaluating the costs and benefits of Ameren Missouri’s continued participation in MISO. Combined Construction and Operating License In 2008, Ameren Missouri filed an application with the NRC for a COL for a new 1,600-megawatt nuclear unit at Ameren Missouri’s 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 American-made small modular reactors. In April 2012, Ameren Missouri entered into an agreement with Westinghouse to exclusively support Westinghouse’s application for the DOE’s small modular reactor investment funds. The DOE investment funding is
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Table of Contentsintended to support engineering and design certifications and a COL for up to two small modular reactor designs over five years. Westinghouse expects to submit its application to the DOE in May 2012. The DOE is expected to issue a decision on awarding the investment funds in the summer of 2012. If Westinghouse is awarded DOE’s small modular reactor investment funds, Ameren Missouri will seek a COL from the NRC for a Westinghouse small modular reactor at its Callaway County, Missouri nuclear 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 will be minimal due to several factors, including the company’s capitalized investments of $69 million as of March 31, 2012, in new nuclear energy center development, the DOE investment funds that would help support the COL application, and its agreement with Westinghouse. If the DOE does not approve Westinghouse’s 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 Missouri’s costs incurred to construct a new nuclear unit 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. NOTE 3 - SHORT-TERM DEBT AND LIQUIDITY The liquidity needs of the Ameren Companies are typically supported through the use of available cash, short-term intercompany borrowings, drawings under committed bank credit facilities, or commercial paper issuances. Ameren, Ameren Missouri, Ameren Illinois and Genco had no borrowings under the 2010 Credit Agreements during the three months ended March 31, 2012. Based on letters of credit issued under the 2010 Credit Agreements as of March 31, 2012, as well as commercial paper outstanding as of such date, the aggregate amount of credit capacity available at March 31, 2012, was $1.96 billion. Commercial Paper At March 31, 2012, and December 31, 2011, Ameren had $126 million and $148 million of commercial paper outstanding, respectively. During the three months ended March 31, 2012, and 2011, Ameren had average daily commercial paper balances outstanding of $84 million and $321 million, respectively, with a weighted-average interest rate of 0.94% for both periods. The peak short-term commercial paper balances outstanding during the three months ended March 31, 2012, and 2011, were $186 million and $377 million, respectively. The peak interest rates during the three months ended March 31, 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 10-K 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 March 31, 2012, the ratios of consolidated indebtedness to total consolidated capitalization, calculated in accordance with the provisions of the 2010 Credit Agreements, were 49%, 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
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Table of Contentsaccordance with the 2010 Genco Credit Agreement and the 2010 Illinois Credit Agreement, as applicable. Ameren’s ratio as of March 31, 2012, was 5 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 March 31, 2012. Money Pools Ameren has money pool agreements with and among its subsidiaries to coordinate and provide for certain short-term cash and working capital requirements. Separate money pools are maintained for utility and non-state-regulated entities. Ameren Services is responsible for the operation and administration of the money pool agreements. 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. Ameren Services administers the utility money pool and tracks internal and external funds separately. 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 by participants, but 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 short-term 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 months ended March 31, 2012, was 0.11%. There were no utility money pool borrowings during the three months ended March 31, 2011. Non-state-regulated Subsidiaries Ameren, Ameren Services, AER, Genco, AERG, Marketing Company, and other non-state-regulated Ameren subsidiaries have the ability, subject to Ameren parent company authorization and applicable regulatory short-term borrowing authorizations, to access funding from the 2010 Credit Agreements and the commercial paper programs through a non-state-regulated subsidiary money pool agreement. All participants may borrow from or lend to the non-state-regulated money pool, except for Ameren Services, which may participate only as a borrower. The total amount available to the pool participants 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 non-state-regulated subsidiary money pool or remit funds from other external sources. The non-state-regulated subsidiary money pool was established to coordinate and to provide short-term cash and working capital for the participants. Participants receiving a loan under the non-state-regulated 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 non-state-regulated subsidiary money pool. The average interest rate for borrowing under the non-state-regulated subsidiary money pool for the three months ended March 31, 2012, was 0.76% (2011-1.14%). 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 months ended March 31, 2012, and 2011. NOTE 4 - LONG-TERM DEBT AND EQUITY FINANCINGS Indenture Provisions and Other Covenants Ameren Missouri’s 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 March 31, 2012, at an assumed interest rate of 6% and dividend rate of 7%.
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Ameren’s indenture does not require Ameren to comply with any quantitative financial covenants. The indenture does, however, include certain cross-default 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 self-dealing 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 March 31, 2012, Ameren Illinois’ ratio of common stock equity to total capitalization was 58%. Genco’s indenture includes provisions that require Genco to maintain certain interest coverage and debt-to-capital 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 March 31, 2012:
Genco’s debt incurrence-related ratio restrictions under its indenture may be disregarded if both Moody’s and S&P reaffirm the ratings of Genco in place at the time of the debt incurrence after considering the additional indebtedness. 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. Off-Balance-Sheet Arrangements At March 31, 2012, none of the Ameren Companies had any off-balance-sheet 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 off-balance-sheet financing arrangements in the near future.
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Table of ContentsNOTE 5 - OTHER INCOME AND EXPENSES The following table presents the components of “Other Income and Expenses” in Ameren’s, Ameren Missouri’s, and Ameren Illinois' statement of income (loss) and statements of income and comprehensive income for the three months ended March 31, 2012, and 2011:
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:
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.
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Table of ContentsThe following table presents open gross derivative volumes by commodity type as of March 31, 2012, and December 31, 2011:
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. 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.
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Table of ContentsCertain 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 March 31, 2012, and December 31, 2011:
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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 March 31, 2012, and December 31, 2011:
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Derivative instruments are subject to various credit-related losses in the event of nonperformance by counterparties to the transaction. Exchange-traded 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 March 31, 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.
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