UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarterly Period Ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Transition Period From to
Commission file number 1-2967.
UNION ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Missouri 43-0559760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Chouteau Avenue, St. Louis, Missouri 63103
(Address of principal executive offices and Zip Code)
Registrant's telephone number,
including area code: (314) 621-3222
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X. No .
----- -----
Shares outstanding of each of registrant's classes of common stock as of October
31, 2000: Common Stock, $5 par value, held by Ameren Corporation (parent
company of Registrant) - 102,123,834
Union Electric Company
Index
Page No.
Part I Financial Information (Unaudited)
Management's Discussion and Analysis 2
Quantitative and Qualitative Disclosures
About Market Risk 6
Balance Sheet
- September 30, 2000 and December 31, 1999 8
Statement of Income
- Three months, nine months and 12 months ended
September 30, 2000 and 1999 9
Statement of Cash Flows
- Nine months ended September and 1999 10
Notes to Financial Statements 11
Part II Other Information 14
PART I. FINANCIAL INFORMATION (UNAUDITED)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Union Electric Company (AmerenUE or the Registrant) is a subsidiary of Ameren
Corporation (Ameren), a holding company registered under the Public Utility
Holding Company Act of 1935 (PUHCA). In December 1997, AmerenUE and CIPSCO
Incorporated (CIPSCO) combined to form Ameren, with AmerenUE and CIPSCO's
subsidiaries, Central Illinois Public Service Company (AmerenCIPS) and CIPSCO
Investment Company (CIC), becoming subsidiaries of Ameren (the Merger).
The following discussion and analysis should be read in conjunction with the
Notes to the Financial Statements beginning on page 11, and the Management's
Discussion and Analysis of Financial Condition and Results of Operations (MD&A),
the Audited Financial Statements, and the Notes to the Financial Statements
appearing in the Registrant's 1999 Form 10-K.
RESULTS OF OPERATIONS
Earnings
Third quarter 2000 earnings of $202 million decreased $5 million compared to
1999 third quarter earnings. Earnings for the nine months ended September 30,
2000, increased $7 million from the year ago period to $324 million. Earnings
for the 12 months ended September 30, 2000 were $347 million, a $16 million
increase from the preceding 12-month period. Earnings fluctuated due to many
conditions, primarily: sales growth, weather variations, credits to electric
customers, electric rate reductions, gas rate increases, competitive market
forces, fluctuating operating costs (including Callaway Nuclear Plant refueling
outages), changes in interest expense, changes in income and property taxes, and
a nonrecurring charge for a targeted employee separation plan.
The significant items affecting revenues, costs and earnings during the
three-month, nine-month and 12-month periods ended September 30, 2000 and 1999
are detailed on the following pages.
Electric Operations
Electric Operating Revenues Variations for periods ended September 30, 2000
from comparable prior-year periods
- -----------------------------------------------------------------
(Millions of Dollars) Three Months Nine Months Twelve Months
------------ ----------- ------------
- --------------------------------------------------------------------------------
Rate variations $ - $ - $ 7
Credit to customers (18) (13) (27)
Effect of abnormal weather (7) (23) (25)
Growth and other 8 50 74
Interchange sales (16) 67 80
- --------------------------------------------------------------------------------
$ (33) $ 81 $ 109
- -------------------------------------------------------------------------------
The $33 million decrease in third quarter electric revenues compared to the
year-ago quarter was primarily driven by a decrease in industrial and wholesale
sales of 16 percent and 37 percent, respectively, offset in part by increased
commercial sales of 9 percent. Interchange revenues declined due to lower energy
prices in the third quarter compared to the prior year period. In addition,
revenues declined due to an increase in the estimated credit to Missouri
electric customers (see Note 5 under Notes to Financial Statements for further
information).
Electric revenues for the first nine months of 2000 increased $81 million
compared to the same 1999 period. The increase in revenues was primarily due to
a 50 percent increase in interchange sales due to strong marketing efforts. In
addition, revenues increased due to increased residential and commercial sales,
by 1 percent and 7 percent, respectively. These increases were partially offset
by a 5 percent and 49 percent decline in industrial and wholesale sales,
respectively. In addition, revenues declined due to an increase in the estimated
credit to Missouri electric customers (see Note 5 under Notes to Financial
Statements for further information).
-2-
Electric revenues for the 12 months ended September 30, 2000 and 1999 increased
$109 million compared to the prior 12-month period. The increase in revenues was
primarily due to a 35 percent increase in interchange sales, coupled with a 8
percent increase in commercial sales.
Fuel and Purchased Power Variations for periods ended September 30, 2000
from comparable prior-year periods
- --------------------------------------------------------------------------------
(Millions of Dollars) Three Months Nine Months Twelve Months
------------ ----------- -------------
- --------------------------------------------------------------------------------
Fuel:
Generation $ 5 $ 13 $ 4
Price (7) (16) (10)
Generation efficiencies and other - (4) (7)
Purchased power variation (28) 39 81
- --------------------------------------------------------------------------------
$ (30) $ 32 68
- --------------------------------------------------------------------------------
The $30 million decrease in fuel and purchased power for the three-months ended
September 30, 2000, compared to the year ago period, was driven by decreased
purchased power, coupled with lower fuel and purchased power prices.
The increase in fuel and purchased power costs for the nine-month and 12-month
periods ended September 30, 2000, compared to the year ago comparable periods,
was primarily due to increased purchased power resulting from higher sales
volumes, offset in part by lower fuel prices.
Gas Operations
Gas revenues for the nine-months ended September 30, 2000 increased $3 million
compared to the prior-year period primarily due to higher gas costs.
Gas costs for the three, nine and 12 months ended September 30, 2000 increased
$3 million, $5 million and $6 million, respectively, compared to the year-ago
periods, primarily due to higher gas prices.
Other Operating Expenses
Other operating expense variations reflected recurring factors such as growth,
inflation, labor and benefit increases.
Other operations expenses for the nine-months ended September 30, 2000 increased
$12 million, compared to the same year-ago period primarily due to increased
costs associated with the automated meter reading roll-out and increased
professional services, partially offset by lower employee benefits, resulting
from a change in actuarial assumptions. Other operations expenses decreased $8
million for the 12 months ended September 30, 2000, compared to the same
year-ago period primarily due to the 1998 one-time pretax charge of $18 million
for a targeted separation plan.
Maintenance expenses for the three, nine and 12 months ended September 30, 2000
increased $4 million, $19 million and $33 million, respectively, compared to the
year-ago periods primarily due to increased scheduled power plant maintenance
and tree trimming activity.
Taxes
Income taxes decreased $5 million for the third quarter due to lower pretax
income.
Income taxes increased $4 million and $2 million, for the nine and 12 months
ended September 30, 2000, respectively, due to higher pretax income.
Other Income and Deductions
The variation in miscellaneous, net for the three, nine and 12 months ended
September 30, 2000, compared to the year ago periods is primarily due to prior
period write-offs of certain non-regulated investments.
-3-
Balance Sheet
The $70 million increase in trade accounts receivable and unbilled revenue at
September 30, 2000, compared to the year-end, was due primarily to higher
revenues in August and September 2000 compared to November and December 1999.
Changes in accounts and wages payable and other taxes accrued resulted from the
timing of various payments to taxing authorities and suppliers.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $652 million for the nine months
ended September 30, 2000, compared to $639 million during the same 1999 period.
Cash flows used in investing activities totaled $224 million and $260 million
for the nine months ended September 30, 2000 and 1999, respectively.
Construction expenditures for the nine months ended September 30, 2000, for
constructing new or improving existing facilities were $230 million. In
addition, the Registrant expended $12 million for the acquisition of nuclear
fuel. The Registrant received approval of Ameren's Board of Directors on April
25, 2000 to spend approximately $160 million on capital expenditures relating to
the replacement of four steam generators at its Callaway Nuclear Plant.
Installation is scheduled to be completed in 2005. The impact on anticipated
2000 capital expenditures will be insignificant.
Cash flows used in financing activities totaled $367 million for the nine months
ended September 30, 2000, compared to $149 million during the same 1999 period.
The Registrant's principal financing activities for the period included the
issuance and redemption of long-term debt and the payment of dividends.
The Registrant plans to continue utilizing short-term debt to support normal
operations and other temporary requirements. The Registrant is authorized by the
Securities and Exchange Commission under PUHCA to have up to $1 billion of
short-term unsecured debt instruments outstanding at any one time. Short-term
borrowings consist of bank loans and commercial paper (maturities generally
within 1 to 45 days). At September 30, 2000, the Registrant had committed bank
lines of credit aggregating $150 million (all of which was unused and available
at such date) which make available interim financing at various rates of
interest based on LIBOR, the bank certificate of deposit rate or other options.
The lines of credit are renewable annually at various dates throughout the year.
At September 30, 2000, the Registrant had no outstanding short-term borrowings.
The Registrant also has a bank credit agreement due 2002 which permits the
borrowing of up to $300 million on a long-term basis, all of which was unused
and available at September 30, 2000. In addition, the Registrant has the ability
to borrow up to approximately $525 million from Ameren or AmerenCIPS through a
regulated money pool agreement. The regulated money pool was established to
coordinate and provide for certain short-term cash and working capital
requirements and is administered by Ameren Services Company, another subsidiary
of Ameren. Interest is calculated at varying rates of interest depending on the
composition of internal and external funds in the regulated money pool. As of
September 30, 2000, $59 million was available through the regulated money pool.
Additionally, the Registrant has a lease agreement that provides for the
financing of nuclear fuel. At September 30, 2000, the maximum amount that could
be financed under the agreement was $120 million. Cash used in financing
activities for the nine months ended September 30, 2000, included redemptions
under the lease for nuclear fuel of $8 million, offset by $7 million of
issuances. At September 30, 2000, $116 million was financed under the lease.
The Registrant, in the ordinary course of business, explores opportunities to
reduce its costs in order to remain competitive in the marketplace. Areas where
the Registrant focuses its review include, but are not limited to, labor costs
and fuel supply costs. In the labor area, the Registrant has reached agreements
with some of the Registrant's collective bargaining units which will permit it
to manage its labor costs and practices effectively in the future. The
Registrant also explores alternatives to effectively manage the size of its
workforce. These alternatives include utilizing hiring freezes, outsourcing and
offering employee separation packages. In the fuel supply area, the Registrant
explores alternatives to effectively manage its overall fuel costs. These
alternatives include diversifying
-4-
fuel sources for use at the Registrant's
fossil plants, as well as restructuring or terminating existing contracts with
suppliers.
Certain of these cost reduction alternatives could result in additional
investments being made at the Registrant's power plants in order to utilize
different types of coal, or could require nonrecurring payments of employee
separation benefits or nonrecurring payments to restructure or terminate an
existing fuel contract with a supplier. Management is unable to predict which
(if any), and to what extent, these alternatives to reduce its overall cost
structure will be executed. Management is unable to determine the impact of
these actions on the Registrant's future financial position, results of
operations or liquidity.
RATE MATTERS
On October 17, 2000, the Missouri Public Service Commission (MoPSC) approved a
$4.2 million annual rate increase for natural gas service in AmerenUE's Missouri
jurisdiction. The rate increase became effective on November 1, 2000.
With respect to the Registrant's current electric three-year experimental
alternative regulation plan, in November 2000, the MoPSC approved a stipulation
and agreement of the parties regarding the credit to be paid by the Registrant
to its Missouri electric customers for the plan year ended June 30, 1999. Based
on the provisions of the stipulation and agreement, the credit to be paid to
electric customers for the plan year ended June 30, 1999 will approximate $22
million.
See Note 5 under Notes to Financial Statements for further discussion of Rate
Matters.
In September 2000, the Registrant and its affiliate, AmerenCIPS, filed a request
with the Illinois Commerce Commission (ICC) seeking authorization to transfer
its Illinois-based electric and natural gas business and its Illinois-based
distribution and transmission assets and personnel to AmerenCIPS. The
distribution and transmission assets and related liabilities will be transferred
from AmerenUE to AmerenCIPS at historical net book value of approximately $101
million. In connection with this transaction, the Registrant will receive from
AmerenCIPS an intercompany note receivable of approximately $50 million. The
balance of the assets will be transferred to AmerenCIPS in the form of a capital
contribution. In October 2000, the Registrant filed a request with the MoPSC for
approval of this transfer. The transfer is also subject to regulatory filings
and approvals of the Federal Energy Regulatory Commission (FERC) and the
Securities Exchange Commission.
ELECTRIC INDUSTRY RESTRUCTURING
Certain states are considering proposals or have adopted legislation that will
promote competition at the retail level. In December 1997, the Governor of
Illinois signed the Electric Service Customer Choice and Rate Relief Law of 1997
(the Illinois Law) providing for electric utility restructuring in Illinois.
This legislation introduces competition into the supply of electric energy in
Illinois.
The Illinois Law, among other things, requires the phasing-in through 2002 of
retail direct access, which allows customers to choose their electric generation
supplier. The phase-in of retail direct access began on October 1, 1999, with
large commercial and industrial customers principally comprising the initial
group. The customers in this group represent approximately 6 percent of the
Registrant's total sales. As of September 30, 2000, the impact of retail direct
access on the Registrant's financial condition, results of operations or
liquidity was immaterial. Retail direct access will be offered to the remaining
commercial and industrial customers on December 31, 2000 and to residential
customers on May 1, 2002.
MIDWEST ISO
On November 9, 2000, the Registrant announced its intention to withdraw from the
Midwest Independent System Operator (Midwest ISO) and to become a member of the
Alliance Regional Transmission Organization (Alliance RTO), pending the
necessary regulatory approvals. The Alliance RTO, including its rate structure,
is still subject to approval by the FERC. Accordingly, the Registrant is
currently unable to determine the impact that operation of the Alliance RTO, or
the withdrawal from the Midwest ISO, will have on its financial condition,
results of operations or liquidity.
-5-
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in interest rates and
equity prices. The following discussion of the Registrant's risk management
activities includes "forward-looking" statements that involve risks and
uncertainties. Actual results could differ materially from those projected in
the "forward-looking" statements. The Registrant handles market risks in
accordance with established policies, which may include entering into various
derivative transactions. In the normal course of business, the Registrant also
faces risks that are either non-financial or non-quantifiable. Such risks
principally include business, legal, operational and credit risk and are not
represented in the following analysis.
Interest Rate Risk
The Registrant is exposed to market risk through changes in interest rates
through its issuance of both long-term and short-term variable-rate debt and
commercial paper. The Registrant manages its interest rate exposure by
controlling the amount of these instruments it holds within its total
capitalization portfolio and by monitoring the effects of market changes in
interest rates.
If interest rates increase one percentage point in 2001 as compared to 2000, the
Registrant's interest expense would increase by approximately $6 million and net
income would decrease by approximately $3 million. This amount has been
determined using the assumptions that the Registrant's outstanding variable rate
debt as of September 30, 2000, continued to be outstanding throughout 2001, and
that the average interest rates for these instruments increased one percentage
point over 2000. The model does not consider the effects of the reduced level of
overall economic activity that would exist in such an environment. In the event
of a significant change in interest rates, management would likely take actions
to further mitigate its exposure to this market risk. However, due to the
uncertainty of the specific actions that would be taken and their possible
effects, the sensitivity analysis assumes no change in the Registrant's
financial structure.
Commodity Price Risk
The Registrant is exposed to changes in market prices for natural gas and fuel
and electricity. With regard to its natural gas utility business, the
Registrant's exposure to changing market prices is in large part mitigated by
the fact that the Registrant has Purchased Gas Adjustment Clauses (PGA) in place
in both its Missouri and Illinois jurisdictions. The PGA allows the Registrant
to pass on to its customers its prudently incurred costs of natural gas.
Since the Registrant does not have a provision similar to the PGA for its
electric operations, the Registrant has entered into several long-term contracts
with various suppliers to purchase coal and nuclear fuel to manage its exposure
to fuel prices. With regard to the Registrant's exposure to commodity price risk
for purchased power and excess electricity sales, Ameren has established a
subsidiary, AmerenEnergy, Inc., (AmerenEnergy) whose primary responsibility
includes managing market risks associated with the changing market prices for
electricity purchased and sold on behalf of the Registrant.
AmerenEnergy utilizes several techniques to mitigate its market risk for
electricity, including utilizing derivative financial instruments. A derivative
is a contract whose value is dependent on or derived from the value of some
underlying asset. The derivative financial instruments that AmerenEnergy is
allowed to utilize (which include forward contracts, futures contracts, and
option contracts) are dictated by a risk management policy, which has been
reviewed with the Auditing Committee of Ameren's Board of Directors. Compliance
with the risk management policy is the responsibility of a risk management
steering committee, consisting of Ameren officers and an independent risk
management officer at AmerenEnergy.
As of September 30, 2000, the fair value of derivative financial instruments
exposed to commodity price risk was immaterial.
Equity Price Risk
The Registrant maintains trust funds, as required by the Nuclear Regulatory
Commission and Missouri and Illinois state laws, to fund certain costs of
nuclear decommissioning. As of September 30, 2000, these funds were invested
-6-
primarily in domestic equity securities, fixed-rate, fixed-income securities,
and cash and cash equivalents. By maintaining a portfolio that includes
long-term equity investments, the Registrant is seeking to maximize the returns
to be utilized to fund nuclear decommissioning costs. However, the equity
securities included in the Registrant's portfolio are exposed to price
fluctuations in equity markets, and the fixed-rate, fixed-income securities are
exposed to changes in interest rates. The Registrant actively monitors its
portfolio by benchmarking the performance of its investments against certain
indices and by maintaining, and periodically reviewing, established target
allocation percentages of the assets of its trusts to various investment
options. The Registrant's exposure to equity price market risk is in large part
mitigated due to the fact that the Registrant is currently allowed to recover
its decommissioning costs in its rates.
ACCOUNTING MATTERS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities and requires
recognition of all derivatives as either assets or liabilities on the balance
sheet measured at fair value. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," which delayed the effective date of
SFAS 133 to all fiscal quarters of all fiscal years, beginning after June 15,
2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities -an amendment of FASB
Statement No. 133," which amended certain accounting and reporting standards of
SFAS 133. Management believes that adoption of SFAS 133 will not have a material
impact on the Registrant's financial position or results of operations upon
adoption based on the derivative instruments that existed at September 30, 2000.
However, changing market conditions, and the volume of future transactions which
fall within the scope of SFAS 133, as amended, and the interpretations from the
FASB's Derivative Implementation Group could change management's current
assessment. As a result, SFAS 133, as amended, could increase the volatility of
the Registrant's future earnings and could be material to the Registrant's
financial position and results of operations upon adoption.
SAFE HARBOR STATEMENT
Statements made in this Form 10-Q which are not based on historical facts, are
"forward-looking" and, accordingly, involve risks and uncertainties that could
cause actual results to differ materially from those discussed. Although such
"forward-looking" statements have been made in good faith and are based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. These statements include (without limitation) statements as to future
expectations, beliefs, plans, strategies, objectives, events, conditions and
financial performance. In connection with the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Registrant is providing
this cautionary statement to identify important factors that could cause actual
results to differ materially from those anticipated. The following factors, in
addition to those discussed elsewhere in this report and in the Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, and in subsequent
securities filings, could cause results to differ materially from management
expectations as suggested by such "forward-looking" statements: the effects of
regulatory actions; changes in laws and other governmental actions; the impact
on the Registrant of current regulations related to the phasing-in of the
opportunity for some customers to choose alternative energy suppliers in
Illinois; the effects of increased competition in the future due to, among other
things, deregulation of certain aspects of the Registrant's business at both the
State and Federal levels; future market prices for fuel and purchased power,
electricity, and natural gas, including the use of financial instruments;
average rates for electricity in the Midwest; business and economic conditions;
interest rates; weather conditions; fuel prices and availability; generation
plant performance; the impact of current environmental regulations on utilities
and generating companies and the expectation that more stringent requirements
will be introduced over time, which could potentially have a negative financial
effect; monetary and fiscal policies; future wages and employee benefits costs;
and legal and administrative proceedings.
-7-
UNION ELECTRIC COMPANY
BALANCE SHEET
UNAUDITED
(Thousands of Dollars, Except Shares)
September 30, December 31,
ASSETS 2000 1999
- ------ ------------- ------------
Property and plant, at original cost:
Electric $9,400,524 $9,210,122
Gas 234,148 223,789
Other 37,139 37,156
---------- ----------
9,671,811 9,471,067
Less accumulated depreciation and amortization 4,518,530 4,320,910
---------- ----------
5,153,281 5,150,157
Construction work in progress:
Nuclear fuel in process 100,975 88,830
Other 99,494 92,833
---------- ----------
Total property and plant, net 5,353,750 5,331,820
---------- ----------
Investments and other assets:
Nuclear decommissioning trust fund 194,294 186,760
Other 61,837 59,748
---------- ----------
Total investments and other assets 256,131 246,508
---------- ----------
Current assets:
Cash and cash equivalents 178,786 117,308
Accounts receivable - trade (less allowance for doubtful
accounts of $7,990 and $5,308, respectively) 230,710 151,399
Unbilled revenue 69,146 78,213
Other accounts and notes receivable 39,503 19,803
Intercompany notes receivable 158,050 165,700
Materials and supplies, at average cost -
Fossil fuel 64,012 65,292
Other 81,317 90,921
Other 19,101 19,205
---------- ----------
Total current assets 840,625 707,841
---------- ----------
Regulatory assets:
Deferred income taxes 600,069 600,604
Other 149,825 156,789
---------- ----------
Total regulatory assets 749,894 757,393
---------- ----------
Total Assets $7,200,400 $7,043,562
========== ==========
CAPITAL AND LIABILITIES
Capitalization:
Common stock, $5 par value, 150,000,000 shares authorized -
102,123,834 shares outstanding $ 510,619 $ 510,619
Other paid-in capital, principally premium on
common stock 701,896 701,896
Retained earnings 1,337,505 1,221,167
---------- ----------
Total common stockholder's equity 2,550,020 2,433,682
Preferred stock not subject to mandatory redemption 155,197 155,197
Long-term debt 1,729,845 1,882,601
---------- ----------
Total capitalization 4,435,062 4,471,480
---------- ----------
Current liabilities:
Current maturity of long-term debt 12,653 11,423
Accounts and wages payable 249,251 234,845
Accumulated deferred income taxes 37,963 48,139
Taxes accrued 258,142 119,699
Other 188,731 208,373
---------- ----------
Total current liabilities 746,740 622,479
---------- ----------
Accumulated deferred income taxes 1,309,606 1,248,721
Accumulated deferred investment tax credits 134,337 138,665
Regulatory liability 150,110 154,399
Other deferred credits and liabilities 424,545 407,818
---------- ----------
Total Capital and Liabilities $7,200,400 $7,043,562
========== ==========
See Notes to Financial Statements.
-8-
UNION ELECTRIC COMPANY
STATEMENT OF INCOME
UNAUDITED
(Thousands of Dollars)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
--------------------------- ---------------------------- ------------------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
OPERATING REVENUES:
Electric $ 862,691 $ 895,308 $ 2,046,001 $ 1,964,871 $2,516,147 $2,407,220
Gas 11,173 10,542 71,345 68,246 95,077 94,242
Other -- -- -- 171 -- 199
----------- ----------- ----------- ----------- ---------- ----------
Total operating revenues 873,864 905,850 2,117,346 2,033,288 2,611,224 2,501,661
OPERATING EXPENSES:
Operations
Fuel and purchased power 193,152 223,194 544,766 512,611 688,689 620,826
Gas 10,356 7,779 42,804 38,136 59,137 52,721
Other 124,644 125,041 350,037 338,193 446,300 454,562
----------- ----------- ----------- ----------- ----------- -----------
328,152 356,014 937,607 888,940 1,194,126 1,128,109
Maintenance 56,057 51,887 188,717 170,127 265,725 232,562
Depreciation and amortization 67,715 66,594 201,899 196,917 261,054 262,591
Income taxes 130,989 135,952 220,473 216,854 234,310 232,522
Other taxes 62,826 59,696 160,737 159,564 205,714 205,493
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses 645,739 670,143 1,709,433 1,632,402 2,160,929 2,061,277
OPERATING INCOME 228,125 235,707 407,913 400,886 450,295 440,384
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used
during construction 1,250 1,149 4,079 6,037 5,212 7,652
Miscellaneous, net 4,475 1,933 10,016 4,648 17,016 11,510
----------- ----------- ----------- ----------- ----------- -----------
Total other income and (deductions) 5,725 3,082 14,095 10,685 22,228 19,162
INCOME BEFORE
INTEREST CHARGES 233,850 238,789 422,008 411,571 472,523 459,546
INTEREST CHARGES:
Interest 31,846 31,769 97,860 93,747 124,091 126,135
Allowance for borrowed funds
used during construction (2,083) (1,707) (6,027) (5,315) (7,856) (6,694)
----------- ----------- ----------- ----------- ----------- -----------
Net interest charges 29,763 30,062 91,833 88,432 116,235 119,441
NET INCOME 204,087 208,727 330,175 323,139 356,288 340,105
PREFERRED STOCK DIVIDENDS 2,204 2,204 6,613 6,613 8,817 8,817
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME AFTER PREFERRED
STOCK DIVIDENDS $ 201,883 $ 206,523 $ 323,562 $ 316,526 $ 347,471 $ 331,288
=========== =========== =========== =========== =========== ===========
See Notes to Financial Statements.
-9-
UNION ELECTRIC COMPANY
STATEMENT OF CASH FLOWS
UNAUDITED
(Thousands of Dollars)
Nine Months Ended
September 30,
2000 1999
---- ----
Cash Flows From Operating:
Net income $330,175 $323,139
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 192,937 189,914
Amortization of nuclear fuel 27,714 30,823
Allowance for funds used during construction (10,106) (11,352)
Deferred income taxes, net 6,913 (5,638)
Deferred investment tax credits, net (4,328) (4,158)
Changes in assets and liabilities:
Receivables, net (89,944) (99,984)
Materials and supplies 10,884 (14,990)
Accounts and wages payable 14,406
(41,745)
Taxes accrued 138,443 171,685
Credit to customers (18,507) 36,597
Other, net 53,842 64,650
--------- ---------
Net cash provided by operating activities 652,429 638,941
Cash Flows From Investing:
Construction expenditures (230,023) (173,160)
Allowance for funds used during construction 10,106 11,352
Nuclear fuel expenditures (11,691) (19,662)
Intercompany notes receivable 7,650 (78,800)
--------- ---------
Net cash used in investing activities (223,958) (260,270)
Cash Flows From Financing:
Dividends on common stock (207,224) (191,380)
Dividends on preferred stock (6,613) (6,613)
Redemptions -
Nuclear fuel lease (8,276) (11,332)
Long-term debt (338,650) --
Issuances -
Nuclear fuel lease 7,270 60,045
Long-term debt 186,500 --
--------- ---------
Net cash used in financing activities (366,993) (149,280)
Net change in cash and cash equivalents 61,478 229,391
Cash and cash equivalents at beginning of year 117,308 47,337
--------- ---------
Cash and cash equivalents at end of period $ 178,786 $ 276,728
========= =========
Cash paid during the periods:
Interest (net of amount capitalized) $ 80,537 $ 77,288
Income taxes, net
$ 114,548 $ 120,186
See Notes to Financial Statements.
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UNION ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000
Note 1 - Union Electric Company (AmerenUE or the Registrant) is a subsidiary of
Ameren Corporation (Ameren), which is the parent company of the following
operating companies: the Registrant, Central Illinois Public Service Company
(AmerenCIPS) and AmerenEnergy Generating Company, a wholly owned subsidiary of
AmerenEnergy Resources Company. Ameren is a registered holding company under the
Public Utility Holding Company Act of 1935 (PUHCA) formed in December 1997 upon
the merger of AmerenUE and CIPSCO Incorporated (the Merger). Both Ameren and its
subsidiaries are subject to the regulatory provisions of the PUHCA. The
operating companies are engaged principally in the generation, transmission,
distribution and sale of electric energy and the purchase, distribution,
transportation and sale of natural gas in the states of Missouri and Illinois.
Contracts among the companies--dealing with jointly-owned generating facilities,
interconnecting transmission lines, and the exchange of electric power--are
regulated by the Federal Energy Regulatory Commission (FERC) or the Securities
and Exchange Commission (SEC). Administrative support services are provided to
the Registrant by a separate Ameren subsidiary, Ameren Services Company. The
Registrant serves 1.1 million electric and 124,000 gas customers in a 24,500
square-mile area of Missouri and Illinois, including Metropolitan St. Louis.
The Registrant also has a 40 percent interest in Electric Energy, Inc. (EEI),
which is accounted for under the equity method of accounting. EEI owns and
operates an electric generating and transmission facility in Illinois that
supplies electric power primarily to a uranium enrichment plant located in
Paducah, Kentucky.
Note 2 - Financial statement note disclosures, normally included in financial
statements prepared in conformity with generally accepted accounting principles,
have been omitted in this Form 10-Q pursuant to the Rules and Regulations of the
SEC. However, in the opinion of the Registrant, the disclosures contained in
this Form 10-Q are adequate to make the information presented not misleading.
See Notes to Financial Statements included in the 1999 Form 10-K for information
relevant to the financial statements contained in this Form 10-Q, including
information as to the significant accounting policies of the Registrant.
Note 3 - In the opinion of the Registrant the interim financial statements filed
as part of this Form 10-Q reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
periods presented. The Registrant's financial statements were prepared to permit
the information required in the Financial Data Schedule (FDS), Exhibit 27, to be
directly extracted from the filed statements. The FDS amounts correspond to or
are calculable from the amounts reported in the financial statements or notes
thereto.
Note 4 - Due to the effect of weather on sales and other factors which are
characteristic of public utility operations, financial results for the periods
ended September 30, 2000 and 1999, are not necessarily indicative of trends for
any three-month, nine-month or 12-month period.
Note 5 - In July 1995, the Missouri Public Service Commission (MoPSC) approved
an agreement establishing contractual obligations involving the Registrant's
Missouri retail electric rates. Included was a three-year experimental
alternative regulation plan (the Original Plan) that ran from July 1, 1995
through June 30, 1998, which provided that earnings in those years in excess of
a 12.61% regulatory return on equity (ROE) be shared equally between customers
and stockholders, and earnings above a 14% ROE be credited to customers. The
formula for computing the credit used twelve-month results ending June 30,
rather than calendar year earnings.
The MoPSC staff proposed adjustments to the Registrant's estimated customer
credit for the final year of the Original Plan ended June 30, 1998, which were
the subject of regulatory proceedings before the MoPSC in 1999. In December
1999, the MoPSC issued a Report and Order (Order) concerning these proposed
adjustments. Based on the provisions of that Order, the Registrant revised its
estimated final year credit to $31 million. Subsequently, in December 1999, the
Registrant filed a request for rehearing of the Order with the MoPSC, asking
that it reconsider its decision to adopt certain of the MoPSC staff's
adjustments. The request was denied by the MoPSC and in February 2000, the
Registrant filed a Petition
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for Writ of Review with the Circuit Court of Cole
County, Missouri, requesting that the Order be reversed. The appeal is pending
and the ultimate outcome can not be predicted; however, the final decision is
not expected to materially impact the financial condition, results of operations
or liquidity of the Registrant. A partial stay of the Order was granted by the
Court pending the appeal.
A new three-year experimental alternative regulation plan (the New Plan) was
included in the joint agreement authorized by the MoPSC in its February 1997
order approving the Merger. Like the Original Plan, the New Plan requires that
earnings over a 12.61 percent ROE up to a 14 percent ROE be shared equally
between customers and stockholders. The New Plan also returns to customers 90
percent of all earnings above a 14 percent ROE up to a 16 percent ROE. Earnings
above a 16 percent ROE are credited entirely to customers. The New Plan runs
from July 1, 1998 through June 30, 2001. At September 30, 2000, the Registrant
has recorded estimated credits that the Registrant expects to pay its Missouri
electric customers of $20 million, $35 million and $25 million for the plan
years ended June 30, 2001, June 30, 2000, and June 30, 1999, respectively.
During the three months ended September 30, 2000, the Registrant recorded an
estimated credit of $20 million (8 cents per share) for the plan year ended June
30, 2001. No credits under the New Plan were recorded during the same period
last year. For the nine months ended September 30, 2000, the Registrant recorded
estimated, credits, in total of $35 million (15 cents per share) for plan year
under the New Plan compared to $30 million (12 cents per share) in the prior
period. These credits were reflected as a reduction in electric revenues. The
final amount of the credits will depend on several factors, including the
Registrant's earnings for the respective 12 months ended June 30.
In November 2000, the MoPSC approved a stipulation and agreement of the parties
regarding the credit to be paid by the Registrant to its Missouri electric
customers for the plan year ended June 30, 1999. Based on the provisions of the
stipulation and agreement, the credit to be paid to electric customers for the
plan year ended June 30, 1999 will approximate $22 million.
The joint agreement approved by the MoPSC in its February 1997 Order approving
the Merger also provided for a Missouri electric rate decrease, retroactive to
September 1, 1998, based on the weather-adjusted average annual credits to
customers under the Original Plan. The rate decrease was impacted by the Order
issued by the MoPSC in December 1999 relating to the estimated credit for the
third year of the Original Plan and a settlement reached between the Registrant,
the MoPSC staff and other parties relating to the calculation of the
weather-adjusted credits. Based on those results, the Registrant estimates that
its Missouri electric rate decrease will be $17 million on an annualized basis.
This estimate is subject to the final outcome of the above-referenced court
appeal of the Order.
Note 6 - The Registrant has transactions in the normal course of business with
other Ameren subsidiaries. These transactions are primarily comprised of power
purchases and sales and services received or rendered. Intercompany receivables
included in other accounts and notes receivable were approximately $33 million
and $15 million, respectively, as of September 30, 2000 and December 31, 1999.
Intercompany payables included in accounts and wages payable totaled
approximately $102 million and $25 million, respectively, as of September 30,
2000 and December 31, 1999.
Also, the Registrant has the ability to borrow up to approximately $525 million
from Ameren or AmerenCIPS through a regulated money pool agreement. The
regulated money pool was established to coordinate and provide for certain
short-term cash and working capital requirements and is administered by Ameren
Services Company. Interest is calculated at varying rates of interest depending
on the composition of internal and external funds in the regulated money pool.
At September 30, 2000, the Registrant had outstanding intercompany receivables
of $158 million and $196 million available through the regulated money pool.
Note 7- The Registrant's union employees are represented by the International
Brotherhood of Electrical Workers and the International Union of Operating
Engineers. These employees comprise approximately 65% of the Company's
workforce. New contracts with collective bargaining units representing
approximately 46% of these employees were ratified in 1999 with terms expiring
in 2002. New contracts with collective bargaining units representing
approximately 28% of these employees were ratified in 2000 with terms expiring
in 2003. In August 2000, the remaining collective bargaining units representin
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approximately 26% of the Registrant's union employees, ratified the Registrant's
last, best and final offer for a new contract with a term expiring in 2003.
Note 8- On November 9, 2000, the Registrant announced its intention to withdraw
from the Midwest Independent System Operator and to become a member of the
Alliance Regional Transmission Organization (Alliance RTO), pending the
necessary regulatory approvals. The Alliance RTO, including its rate structure,
is still subject to approval by the FERC. Accordingly, the Registrant is
currently unable to determine the impact that operation of the Alliance RTO, or
the withdrawal from the Midwest ISO, will have on its financial condition,
results of operations or liquidity.
Note 9- In September 2000, the Registrant filed a request with the Illinois
Commerce Commission (ICC) seeking authorization to transfer its Illinois-based
electric and natural gas business and its Illinois-based distribution and
transmission assets and personnel to AmerenCIPS. The distribution and
transmission assets and related liabilities will be transferred from AmerenUE to
AmerenCIPS at historical net book value of approximately $101 million. In
connection with this transaction, the Registrant will receive from AmerenCIPS an
intercompany note receivable of approximately $50 million. The balance of the
assets will be transferred to AmerenCIPS in the form of a capital contribution.
In October 2000, the Registrant filed a request with the MoPSC for approval of
this transfer. The transfer is also subject to regulatory filings and approvals
of the Federal Energy Regulatory Commission (FERC) and the Securities Exchange
Commission.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
On June 23, 2000, the United States Environmental Protection Agency (EPA)
notified the Registrant and numerous other companies that certain properties in
Sauget, Illinois, may contain soil and groundwater contamination. From
approximately 1926 until 1976, the Registrant operated a power generating
facility and currently owns and operates electric transmission facilities in the
area. The Registrant has joined with nine other companies to perform an
investigation of soil and groundwater conditions in the area and is currently
negotiating with the EPA the terms of an Administrative Order on Consent that
provides for the performance of such work. The investigation process should take
approximately two years. At this time, the Registrant is unable to predict the
ultimate impact of the Sauget site on its future financial condition, results of
operations or liquidity.
On September 25, 2000, the United States Department of
Justice was granted leave by the United States District Court - Southern
District of Illinois to add numerous additional parties, including the
Registrant, to a pre-existing lawsuit between the government and Monsanto
Chemical Company and others. The government seeks recovery of response costs
under the Comprehensive Environmental Response Compensation Liability Act of
1980 (commonly known as CERCLA or Superfund), incurred in connection with an
Illinois Superfund site referred to as Dead Creek. The Registrant owns a
transmission line which traverses the creek. The Registrant believes that the
final resolution of this lawsuit will not have a material adverse effect on its
financial position, results of operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements, 12 Months Ended
September 30, 2000.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION ELECTRIC COMPANY
(Registrant)
By /S/ Donald E. Brandt
----------------------
Senior Vice President
Finance and Corporate Services
(Principal Financial Officer)
Date: November 14, 2000
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