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, 2001
[ ] 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
November 13, 2001: 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
Item 1. Financial Statements (Unaudited)
Balance Sheet
- September 30, 2001 and December 31, 2000 11
Statement of Income
- Three months, nine months and 12 months ended
September 30, 2001 and 2000 12
Statement of Cash Flows
- Nine months ended September 30, 2001 and 2000 13
Statement of Common Stockholder's Equity
- Nine months ended September 30, 2001 and 14
12 months ended December 31, 2000.
Notes to Financial Statements 15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 2
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 8
Part II Other Information
Item 1. Legal Proceedings 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
PART I. FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
The unaudited financial statements of Union Electric Company (AmerenUE or the
Registrant) appear on pages 11 through 19 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Registrant is a subsidiary of Ameren Corporation (Ameren), a holding company
registered under the Public Utility Holding Company Act of 1935 (PUHCA). Both
Ameren and its subsidiaries are subject to the regulatory provisions of PUHCA.
The Registrant is a public utility operating company 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. The Registrant serves 1.2 million electric and 125,000
gas customers in a 24,500 square-mile area of Missouri and Illinois, including
Metropolitan St. Louis.
The Registrant's financial statements include charges for services that Ameren
Services Company (Ameren Services), a wholly owned subsidiary of Ameren,
provides to the Registrant. Ameren Services provides shared support services for
all Ameren companies. Charges are based upon the actual costs incurred by Ameren
Services, as required by PUHCA.
The following discussion and analysis should be read in conjunction with the
Notes to the Financial Statements beginning on page 15, 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 2000 Form 10-K.
RESULTS OF OPERATIONS
Earnings
Third quarter 2001 earnings of $201 million were comparable to 2000 third
quarter earnings. Earnings for the nine months ended September 30, 2001,
decreased $7 million from the year ago period to $317 million. Earnings for the
12 months ended September 30, 2001 were $337 million, a $10 million decrease
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), expenses relating to the withdrawal from the electric transmission
related Midwest Independent System Operator (Midwest ISO), adoption of a new
accounting standard, changes in interest expense, and changes in income and
property taxes.
The significant items affecting revenues, costs and earnings during the
three-month, nine-month and 12-month periods ended September 30, 2001 and 2000
are detailed on the following pages.
Electric Operations
Electric Operating Revenues Variations for periods ended September 30, 2001
from comparable prior-year periods
- -------------------------------------------------------------------------------------------------------------------------
(Millions of Dollars) Three Months Nine Months Twelve Months
------------ ----------- -------------
- -------------------------------------------------------------------------------------------------------------------------
Credit to customers $ 20 $ 45 $ 31
Effect of abnormal weather 9 47 77
Growth and other 16 28 28
Interchange sales 126 230 282
- -------------------------------------------------------------------------------------------------------------------------
$ 171 $ 350 $ 418
- -------------------------------------------------------------------------------------------------------------------------
The $171 million increase in third quarter electric revenues compared to the
year-ago quarter was primarily driven by a 19 percent increase in total
kilowatthour sales. Weather-sensitive residential and commercial sales increased
2 percent and 5 percent, respectively, due to warmer summer weather and moderate
growth, compared to the prior year. During the period, interchange sales
increased significantly; however, lower electric margins were realized on
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these sales due to lower energy prices and less low-cost generation available
for sale, resulting primarily from increased demand from native load customers.
These increases were partially offset by decreases in industrial and wholesale
sales. Revenues were also favorably impacted by a reduction in the estimated
credits to Missouri electric customers (see Note 2 under Notes to Financial
Statements for further information). Interchange revenues for each of the three
months ended September 30, 2001 and 2000 included sales to related parties of
$17 million.
Electric revenues for the first nine months of 2001 increased $350 million
compared to the same 2000 period primarily due to a 13 percent increase in total
kilowatthour sales. Interchange sales increased 41 percent, while residential
and commercial sales increased 6 percent and 7 percent, respectively. These
increases were partially offset by decreases in industrial and wholesale sales.
The increase in revenues was also attributed to a reduction in the estimated
credits to Missouri electric customers (see Note 2 under Notes to Financial
Statements for further information). Interchange revenues for the nine-month
periods ended September 30, 2001 and 2000 included sales to related parties of
$57 million and $48 million, respectively.
Electric revenues for the 12 months ended September 30, 2001 increased $418
million compared to the prior 12-month period. The increase in revenues was
primarily due to a 49 percent increase in interchange sales, coupled with a 10
percent and 11 percent increase in weather-sensitive residential and commercial
sales, respectively. These increases were partially offset by a decrease in
industrial and wholesale sales. The increase in revenues was also attributed to
a reduction in the estimated credits to Missouri electric customers (see Note 2
under Notes to Financial Statements for further information). Interchange
revenues for the 12-month periods ended September 30, 2001 and 2000 included
sales to related parties of $81 million and $53, respectively.
Fuel and Purchased Power Variations for periods ended September 30, 2001
from comparable prior-year periods
- ----------------------------------------------------------------------------------------------------------------------
(Millions of Dollars) Three Months Nine Months Twelve Months
------------ ----------- -------------
- ----------------------------------------------------------------------------------------------------------------------
Fuel:
Generation $ - $ (3) $ 19
Price 3 13 7
Generation efficiencies and other (5) (7) (9)
Purchased power variation 187 311 337
- ----------------------------------------------------------------------------------------------------------------------
$ 185 $ 314 $ 354
- ----------------------------------------------------------------------------------------------------------------------
The $185 million increase in fuel and purchased power for the three-month period
ended September 30, 2001 compared to the prior year period was primarily driven
by increased purchased power resulting from higher sales volume and higher fuel
costs. Intercompany power purchases from joint dispatch and other agreements
approximated $78 million and $27 million for the three months ended September
30, 2001 and 2000, respectively.
The increase in fuel and purchased power costs for the nine-month and 12-month
periods ended September 30, 2001, compared to the year ago periods, was
primarily driven by increased purchased power resulting from higher sales
volumes and the Callaway Nuclear Plant refueling, which occurred in the second
quarter of 2001. Intercompany power purchases from joint dispatch and other
agreements approximated $122 million and $82 million for the nine months ended
September 30, 2001 and 2000, respectively. Intercompany power purchases from
joint dispatch and other agreements approximated $138 million and $102 million
for the 12 months ended September 30, 2001 and 2000, respectively.
Gas Operations
Gas revenues for the three months ended September 30, 2001, increased $8 million
compared to the prior year period, primarily due to gas costs recovered through
the Registrant's purchased gas adjustment clause in its Missouri jurisdiction
pursuant to which the Registrant recovers gas costs from its Missouri customers.
Gas revenues for the nine months and 12 months ended September 30, 2001
increased $35 million and $69 million, respectively, compared to the year-ago
periods, primarily due to increases in retail sales resulting from a return to
more normal weather conditions and higher gas costs recovered through the
Registrant's purchased gas adjustment clauses.
Gas costs for the three months ended September 30, 2001 decreased $3 million
compared to the prior year period due to lower gas prices. Gas costs for the
nine and 12 months ended September 30, 2001 increased $22 million and $44
million, respectively, compared to the year-ago periods, primarily due to higher
sales and gas prices.
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Other Operating Expenses
Other operating expenses consist primarily of wages, employee benefits,
professional services and expenses associated with support services provided by
Ameren Services. Other operating expense variations reflected recurring factors
such as growth, inflation, labor and employee benefit cost increases and plant
maintenance outages.
Other operations expenses for the three months ended September 30, 2001 were
comparable to the three months ended September 30, 2000. Other operations
expenses for the nine months ended September 30, 2001 increased $38 million,
compared to the same year-ago period primarily due to higher employee benefit
costs resulting from changes in actuarial assumptions and investment performance
of employee benefit plans' assets as well as increases in professional services.
Other operations expenses for the 12 months ended September 30, 2001 increased
$92 million, compared to the same year-ago period primarily due to higher
employee benefit costs resulting from changes in actuarial assumptions and
investment performance of employee benefit plans' assets as well as increases in
professional services and injuries and damages (due to claims experience). In
addition, a nonrecurring charge of $17 million was recorded in the fourth
quarter of 2000 for the withdrawal from the Midwest ISO.
Support services provided by Ameren Services are based on actual costs incurred.
For each of the three months ended September 30, 2001 and 2000, other operating
expenses provided by Ameren Services totaled $39 million. For the nine months
ended September 30, 2001 and 2000, support services provided by Ameren Services
totaled $129 million and $111 million, respectively.
Maintenance expenses for the three months ended September 30, 2001 were
comparable to the three months ended September 30, 2000. Maintenance expenses
for the nine months ended September 30, 2001 increased $26 million compared to
the prior year period due to a refueling outage at the Registrant's Callaway
Nuclear Plant during the second quarter of 2001. The spring 2001 refueling was
completed in 45 days. There was no refueling in 2000. Maintenance expenses for
the 12 months ended September 30, 2001 increased $10 million primarily resulting
from an increase in the spring 2001 Callaway Nuclear Plant refueling expense
compared to fall 1999, partially offset by a reduction in fossil power plant
maintenance.
Depreciation and amortization expense for the three, nine and 12 months ended
September 30, 2001 increased $2 million, $6 million and $10 million,
respectively, compared to the prior year periods due to an increase in
depreciable property.
Taxes
Income taxes increased $3 million for the third quarter due to higher pretax
income. Income taxes decreased $8 million and $15 million, for the nine and 12
months ended September 30, 2001, respectively, due to lower pretax income.
Other tax expense increased $5 million and $9 million for the nine and 12 months
ended September 30, 2001, respectively, primarily due to increases in gross
receipts tax resulting from increases in electric sales, compared to the
year-ago periods.
Other Income and Deductions
The variation in miscellaneous net for the nine and 12 months ended September
30, 2001, compared to the year-ago periods is primarily due to prior period
write-offs of certain non-regulated investments.
Balance Sheet
The $64 million increase in trade accounts receivable at September 30, 2001,
compared to the previous year-end, was due primarily to higher revenues in
August and September 2001 compared to November and December 2000.
The $165 million decrease in intercompany notes receivable at September 30,
2001, compared to December 31, 2000, reflects changes in funds invested in a
regulated money pool (see "Liquidity and Capital Resources" below and Note 3
under Notes to Financial Statements for further information).
Changes in other accounts and notes receivable, accounts and wages payable and
taxes accrued resulted from the timing of various payments to taxing authorities
and suppliers and receipts from customers, including Ameren Services.
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The decrease in other current liabilities of $50 million is primarily due to the
reduction in the estimated credit that the Registrant expects to pay its
Missouri electric customers (see Note 2 under Notes to Financial Statements for
further information).
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $554 million for the nine months
ended September 30, 2001, compared to $652 million during the same 2000 period.
Cash flows used in investing activities totaled $245 million and $224 million
for the nine months ended September 30, 2001 and 2000, respectively.
Construction expenditures for the nine months ended September 30, 2001, for
constructing new or improving existing facilities were $409 million. In
addition, the Registrant expended $15 million for the acquisition of nuclear
fuel. In the second quarter 2001, the Registrant made commitments to purchase
four combustion turbine generating units totaling 192 megawatts to be located in
Missouri and a 50 megawatt unit to be located at the Venice, Illinois plant that
are expected to be operational by summer 2002. The cost of those units was
approximately $125 million.
Cash flows used in financing activities totaled $270 million for the nine months
ended September 30, 2001, compared to $367 million during the same 2000 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 (SEC) 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 (maturities generally on an overnight basis)
and commercial paper (maturities generally within 1 to 45 days). At September
30, 2001, the Registrant had committed bank lines of credit aggregating $136
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, 2001,
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, all of which was unused and $230 million was
available at September 30, 2001. In addition, the Registrant has the ability to
borrow up to approximately $488 million from Ameren or from two of Ameren's
other subsidiaries, Central Illinois Public Service Company (AmerenCIPS) and
Ameren Services, through a regulated money pool agreement. The total amount
available to the Registrant at any given time from the regulated money pool is
reduced by the amount of borrowings by AmerenCIPS or Ameren Services but
increased to the extent AmerenCIPS or Ameren Services have surplus funds and the
availability of other external borrowing sources. The regulated money pool was
established to coordinate and provide for certain short-term cash and working
capital requirements of the Registrant, AmerenCIPS and Ameren Services and is
administered by Ameren Services. Interest is calculated at varying rates of
interest depending on the composition of internal and external funds in the
regulated money pool. For the three months and nine months ended September 30,
2001, the average interest rate for the regulated money pool was 3.67 percent
and 4.51 percent, respectively. As of September 30, 2001, the Registrant had
loaned $91 million to the regulated money pool and at least $58 million was
available through the regulated money pool subject to reduction for borrowings
by AmerenCIPS or Ameren Services.
Additionally, the Registrant has a lease agreement that provides for the
financing of nuclear fuel. At September 30, 2001, 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, 2001, included redemptions
under the lease for nuclear fuel of $64 million, offset by $3 million of
issuances. At September 30, 2001, $53 million was financed under the lease.
During the course of Ameren's resource planning, several alternatives, in
addition to the Missouri and Venice plant capacity additions described above,
are being considered to satisfy anticipated regulatory load requirements for
2001 and beyond for the Registrant, AmerenCIPS and AmerenEnergy Resources
Company (Resources Company), the Ameren subsidiary which holds its nonregulated
generating operations. The Registrant purchased 500 megawatts of capacity and
energy for the summer of 2001 (450 megawatts from AmerenEnergy Marketing Company
(Marketing Company), a subsidiary of Resources Company). Alternatives being
considered for the summer of 2002 and beyond
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include the purchase of up to 500 megawatts of capacity and energy, among other
things. The Registrant is reviewing four combustion turbine generating units,
which had been planned for commercial operation in 2004 and 2005 by Resources
Company, to determine if they can be used by the Registrant instead of Resources
Company, in order to fulfill the Registrant's generating capacity needs. At this
time, management is unable to predict which course of action it will pursue to
satisfy these requirements and their ultimate impact on the Registrant's
financial position, results of operations or liquidity.
In May 2001, the Missouri Public Service Commission (MoPSC) filed pleadings with
the Federal Energy Regulatory Commission (FERC) and the SEC relating to the
Registrant's agreement to purchase 450 megawatts of capacity and energy from
Marketing Company. The Missouri Office of Public Counsel (OPC) also filed
pleadings with the FERC in this matter. The MoPSC's FERC pleading was filed in a
proceeding initiated by Marketing Company for approval of its power sales
agreement with the Registrant. Such pleading requested the FERC to reject
Marketing Company's proposed market based rates alleging concerns about
affiliate abuse and the overall competitiveness of the market and requested the
FERC to set for hearing the appropriate level of cost-based rates, or in the
alternative, set for hearing whether Marketing Company has demonstrated that its
proposed market-based rates will be just and reasonable. In its pleading, the
OPC submitted similar comments. In June 2001, the FERC issued an order which
accepted the power sales agreement (with minor modifications), without hearing
or suspension, and rejected the pleadings of the MoPSC and the OPC. In July
2001, the MoPSC filed with the FERC a request for clarification of its June 2001
order in the following two respects: (1) that it does not insulate the power
sales agreement from a finding of invalidity by the SEC under PUHCA and (2) that
it does not preempt the MoPSC from inquiring into the reasonableness of the
Registrant's decision to enter into the agreement. On September 14, 2001, the
FERC issued an order granting the MoPSC's request for clarification. Under the
terms of the FERC's June 2001 order, the power sales agreement became effective
June 1, 2001.
The MoPSC's SEC pleading requests an investigation into the contractual
relationship between the Registrant, Marketing Company and AmerenEnergy
Generating Company (Generating Company), another subsidiary of Resources
Company, in the context of the 450 megawatt power sales agreement and requests
that the SEC find that such relationship violates a provision of PUHCA which
requires state utility commission approval of power sales contracts between an
electric utility company and an affiliated exempt wholesale generator, like
Generating Company. In this case, the MoPSC's approval of the power sales
agreement was not requested under PUHCA because Generating Company is not a
party to the agreement. As a remedy, the MoPSC proposes that the SEC require the
Registrant to contract directly with Generating Company and submit such contract
to the MoPSC for review. The SEC has not responded to this matter to date. At
this time, management is unable to predict the outcome of this proceeding or the
ultimate impact on the Registrant's future financial position, results of
operation or liquidity.
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, over the past two years, the
Registrant has reached agreements with all of its major collective bargaining
units which will permit the Registrant 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 fuel
sources for use at the Registrant's fossil power 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 June 30, 2001, the Registrant's experimental alternative regulation plan (the
Plan) for its Missouri electric customers expired (see Note 2 under Notes to
Financial Statements for further information about the Plan). With the Plan's
expiration, on July 2, 2001, the MoPSC staff filed with the MoPSC an excess
earnings complaint against the
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Registrant that proposes to reduce the Registrant's annual electric revenues
ranging from $213 million to $250 million. Factors contributing to the MoPSC
staff's recommendation include return on equity (ROE), revenues and customer
growth, depreciation rates and other cost of service expenses. The ROE
incorporated into the MoPSC staff's recommendation ranges from 9.04 percent to
10.04 percent. The MoPSC has not yet determined a schedule for evidentiary
hearings on the MoPSC staff's recommendation. The MoPSC is not bound by the
MoPSC staff's recommendation. Depending on the outcome of the MoPSC's decision,
further appeals in the courts may be warranted.
In the interim, the Registrant is preparing to vigorously contest the MoPSC
staff's recommendation and expects to continue negotiations with all pertinent
parties with the intent to continue with an incentive regulation plan, similar
in form to the Plan. The Registrant can not predict the outcome of these
negotiations and their impact on the Registrant's financial position, results of
operations or liquidity; however, the impact could be material.
See Note 2 under Notes to Financial Statements for further discussion of Rate
Matters.
ELECTRIC INDUSTRY RESTRUCTURING
Certain states are considering proposals or have adopted legislation that will
promote competition at the retail level. During 2000 and in early 2001,
deregulation laws established in the state of California, coupled with high
energy prices, increasing demands for power by users in that state, transmission
constraints, and limited generation resources, among other things, negatively
impacted several major electric utilities in that state. Federal and state
regulators and legislators have proposed and implemented, in part, different
courses of action to attempt to address these issues. The Registrant does not
maintain utility operations in the state of California, nor does it provide
energy directly to utilities in that state. At this time, the Registrant is
uncertain what impact, if any, changes in deregulation laws will have on future
federal and state deregulation laws (including the state of Missouri), which
could directly impact the Registrant's future financial position, results of
operations or liquidity.
Illinois
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 remaining commercial and industrial customers in Illinois were
offered choice on December 31, 2000. Commercial and industrial customers in
Illinois represent approximately 7 percent of the Registrant's total sales. As
of September 30, 2001, 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 residential customers on May 1, 2002.
Missouri
During the legislative session that ended in May 2001, the Registrant
participated in discussions with the Missouri legislature regarding legislation
that would not restructure the electric industry in Missouri, but would allow
utilities to transfer generation assets to an affiliated generating company. In
addition, the legislation would have allowed the State's largest nonresidential
customers to choose their electric supplier, among other things. No electric
industry legislation was passed during the legislative session.
Midwest ISO and Alliance RTO
In the fourth quarter of 2000, the Registrant announced its intention to
withdraw from the Midwest ISO and to join the Alliance Regional Transmission
Organization (Alliance RTO), and recorded a pretax charge to earnings of $17
million ($10 million after taxes), which related to the Registrant's estimated
obligation under the Midwest ISO agreement for costs incurred by the Midwest
ISO, plus estimated exit costs. During first quarter 2001, the FERC
conditionally approved the formation, including the rate structure, of the
Alliance RTO, and the Registrant announced that it had signed an agreement to
join the Alliance RTO. Also in the first quarter 2001, in a proceeding before
the FERC, the Alliance RTO and the Midwest ISO reached an agreement that would
enable the Registrant to withdraw from the Midwest ISO and to join the Alliance
RTO. In the second quarter of 2001, the settlement agreement was approved by the
FERC. The Registrant's withdrawal from the Midwest ISO remains subject to MoPSC
approval. Additional regulatory approvals of the SEC, FERC, MoPSC and the
Illinois Commerce
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Commission may be required in connection with various transactions involving the
Alliance RTO relating to its organization, capitalization and the possible
transfer of transmission assets. Such approvals, if required, will be sought at
the appropriate times. The Alliance RTO is expected to be operational within
90-120 days after the FERC's approval. At this time, the Registrant is unable to
determine the impact that its withdrawal from the Midwest ISO and its
participation in the Alliance RTO will have on its future financial condition,
results of operations or liquidity.
ACCOUNTING MATTERS
In January 2001, the Registrant implemented Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The impact of that adoption resulted in the Registrant recording a
cumulative effect charge of $5 million after taxes to the income statement, and
a cumulative adjustment of $8 million after income taxes to other comprehensive
income (OCI), which reduced stockholder's equity. (See Note 4 under Notes to
Financial Statements for further information.) In June 2001, the Derivatives
Implementation Group (DIG), a committee of the Financial Accounting Standards
Board (FASB) responsible for providing guidance on the implementation of SFAS
133, reached a conclusion regarding the appropriate accounting treatment of
certain types of energy contracts under SFAS 133. Specifically, the DIG
concluded that power purchase or sales agreements (both forward contracts and
option contracts) may meet an exception for normal purchases and sales
accounting treatment if certain criteria are met. This guidance was effective
beginning July 1, 2001 and did not have a material impact on the Registrant's
financial condition, results of operations or liquidity upon adoption. However,
in October 2001, the DIG revised this guidance, with the revisions effective
January 1, 2002. At this time, the Registrant is evaluating the impact of the
DIG's revisions to determine the effect on the Registrant's future financial
condition, results of operations, or liquidity upon application.
In September 2001, the DIG issued guidance regarding the accounting treatment
for fuel contracts that combine a forward contract and a purchased option
contract. The DIG concluded that contracts containing both a forward contract
and a purchased option contract are not eligible to qualify for the normal
purchases and sales exception under SFAS 133. This guidance is effective in
second quarter 2002. The Registrant is evaluating the impact of this guidance on
its future financial condition, results of operations or liquidity; however, the
impact could be material.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations," SFAS 142,
"Goodwill and Other Intangible Assets," and SFAS 143, "Accounting for Asset
Retirement Obligations." SFAS 141 requires business combinations to be accounted
for under the purchase method of accounting, which requires one party in the
transaction to be identified as the acquiring enterprise and for that party to
record the assets and liabilities of the acquired enterprise at fair market
value rather than historical cost. It prohibits use of the pooling-of-interests
method of accounting for business combinations. SFAS 141 is effective for all
business combinations initiated after June 30, 2001, or transactions completed
using the purchase method after June 30, 2001. SFAS 142 requires goodwill
recorded in the financial statements to be tested for impairment at least
annually, rather than amortized over a fixed period, with impairment losses
recorded in the income statement. SFAS 142 is effective for all fiscal years
beginning after December 15, 2001. SFAS 143 requires an entity to record a
liability and corresponding asset representing the present value of legal
obligations associated with the retirement of tangible, long-lived assets. SFAS
143 is effective for fiscal years beginning after June 15, 2002. SFAS 141 and
SFAS 142 are not expected to have a material effect on the Registrant's
financial position, results of operations or liquidity upon adoption. At this
time, the Registrant is assessing the impact of SFAS 143 on its financial
position, results of operations or liquidity upon adoption.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a physical asset or a
financial instrument, derivative or non-derivative, caused by fluctuations in
market variables (e.g. interest rates, equity prices, commodity prices, etc.).
The following discussion of Ameren's, including 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. Ameren handles market risks in accordance
with established policies, which may include entering into various derivative
transactions. In the normal course of business, Ameren and the Registrant also
face 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.
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Ameren's risk management objective is to optimize its physical generating assets
within prudent risk parameters. Risk management policies are set by a Risk
Management Steering Committee, which is comprised of senior-level Ameren
officers.
Interest Rate Risk
The Registrant is exposed to market risk through changes in interest rates
associated with 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 2002 as compared to 2001, the
Registrant's interest expense would increase by approximately $5 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, 2001, continued to be outstanding throughout 2002, and
that the average interest rates for these instruments increased one percentage
point over 2001. The estimate does not consider the effects of the reduced level
of potential overall economic activity that would exist in such an environment.
In the event of a significant change in interest rates, management would likely
take actions to further mitigate 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, fuel and
electricity. Several techniques are utilized to mitigate the Registrant's risk,
including utilizing derivative financial instruments. A derivative is a contract
that has its value dependent on, or derived from, the value of some underlying
asset. The derivative financial instruments that the Registrant uses (primarily
forward contracts, futures contracts and option contracts) are dictated by risk
management policies.
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 (PGAs) 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.
Ameren has a subsidiary, AmerenEnergy Fuels and Services Company, a wholly owned
subsidiary of Resources Company, which is responsible for providing fuel
procurement and gas supply services on behalf of Ameren's operating
subsidiaries, and for managing fuel and natural gas price risks. Fixed price
forward contracts, as well as futures and options, are all instruments, which
may be used to manage these risks. The majority of the Registrant's fuel supply
contracts are physical forward contracts. 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. All of the required coal
for the Registrant's coal plants has been acquired at fixed prices for 2001. In
addition, at least 80 percent of the coal requirements through 2005 are covered
by long-term contracts. The Registrant has recently experienced some delays in
its coal deliveries due to certain transportation and operating constraints in
the system. The Registrant is working closely with the transportation companies
and monitoring its operating practices in order to maintain adequate levels of
coal inventory for future operating purposes.
With regard to the Registrant's exposure to commodity price risk for purchased
power and excess electricity sales, Ameren has a subsidiary, AmerenEnergy, Inc.
(AmerenEnergy), which has as its primary responsibility managing market risks
associated with the changing market prices for electricity purchased and sold on
behalf of the Registrant.
Although the Registrant cannot completely eliminate the effects of gas price
volatility, its strategy is designed to minimize the effect of market conditions
on the results of operations. The Registrant's gas procurement strategy includes
procuring natural gas under a portfolio of agreements with price structures,
including fixed price, indexed price and embedded price hedges such as caps and
collars. The Registrant's strategy also utilizes physical assets through
storage, operator and balancing agreements to minimize price volatility. The
Registrant's electric marketing strategy is to extract additional value from its
generation facilities by selling energy in excess of needs for term sales and
purchasing energy when the market price is less than the cost of generation. The
-9-
Registrant's primary use of derivatives has been limited to transactions that
are expected to reduce price risk exposure for the Registrant.
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, 2001, these funds were invested
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.
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, 2000, 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, including changes in regulatory policy; 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; the effects of
withdrawal from the Midwest ISO and membership in Alliance RTO; 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;
wholesale pricing for electricity; business and economic conditions; the impact
of the adoption of new accounting standards; interest rates; weather conditions;
fuel availability; generation plant construction, installation and 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;
competition from other generating facilities including new facilities that may
be developed in the future; cost and availability of transmission capacity for
the energy generated by the Registrant's generating facilities or required to
satisfy energy sales made by the Registrant; and legal and administrative
proceedings.
-10-
UNION ELECTRIC COMPANY
BALANCE SHEET
UNAUDITED
(Thousands of Dollars, Except Shares)
September 30, December 31,
ASSETS 2001 2000
- ------ -------------- --------------
Property and plant, at original cost:
Electric $9,672,334 $9,449,275
Gas 250,034 236,139
Other 37,169 37,140
-------------- --------------
9,959,537 9,722,554
Less accumulated depreciation and amortization 4,747,725 4,571,292
-------------- --------------
5,211,812 5,151,262
Construction work in progress:
Nuclear fuel in process 87,171 117,789
Other 292,651 111,527
-------------- --------------
Total property and plant, net 5,591,634 5,380,578
-------------- --------------
Investments and other assets:
Nuclear decommissioning trust fund 174,478 190,625
Other 71,948 65,811
-------------- --------------
Total investments and other assets 246,426 256,436
-------------- --------------
Current assets:
Cash and cash equivalents 58,336 19,960
Accounts receivable - trade (less allowance for doubtful
accounts of $7,315 and $6,251, respectively) 342,195 277,947
Other accounts and notes receivable 45,141 28,216
Intercompany notes receivable 90,860 255,570
Materials and supplies, at average cost -
Fossil fuel 76,016 52,155
Other 85,167 82,161
Other 15,266 16,757
-------------- --------------
Total current assets 712,981 732,766
-------------- --------------
Regulatory assets:
Deferred income taxes 602,353 599,973
Other 137,190 146,373
-------------- --------------
Total regulatory assets 739,543 746,346
-------------- --------------
Total Assets $7,290,584 $7,116,126
============== ==============
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 1,392,277 1,358,137
Accumulated other comprehensive income (1,428) -
-------------- --------------
Total common stockholder's equity 2,603,364 2,570,652
Preferred stock not subject to mandatory redemption 155,197 155,197
Long-term debt 1,710,526 1,760,439
-------------- --------------
Total capitalization 4,469,087 4,486,288
-------------- --------------
Current liabilities:
Accounts and wages payable 281,043 293,511
Accumulated deferred income taxes 27,751 30,325
Taxes accrued 312,044 86,125
Other 146,518 196,127
-------------- --------------
Total current liabilities 767,356 606,088
-------------- --------------
Accumulated deferred income taxes 1,342,214 1,315,109
Accumulated deferred investment tax credits 130,731 132,922
Regulatory liability 140,232 148,643
Other deferred credits and liabilities 440,964 427,076
-------------- --------------
Total Capital and Liabilities $7,290,584 $7,116,126
============== ==============
See Notes to Financial Statements.
-11-
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,
---------------------- ----------------------- -----------------------
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
OPERATING REVENUES:
Electric $1,034,296 $862,918 $2,396,193 $2,046,447 $2,939,742 $2,521,762
Gas 18,915 11,173 106,197 71,345 164,093 95,077
Other 113 - 423 - 423 -
----------- -------- ----------- ----------- ---------- ----------
Total operating revenues 1,053,324 874,091 2,502,813 2,117,792 3,104,258 2,616,839
OPERATING EXPENSES:
Operations
Fuel and purchased power 377,991 193,152 858,630 544,766 1,042,376 688,689
Gas 7,533 10,356 64,531 42,804 103,250 59,137
Other 125,318 124,644 388,052 350,037 538,314 446,300
----------- -------- ----------- ----------- ---------- ----------
510,842 328,152 1,311,213 937,607 1,683,940 1,194,126
Maintenance 55,330 56,057 214,310 188,717 275,623 265,725
Depreciation and amortization 70,176 67,942 208,614 202,345 276,645 266,669
Income taxes 133,600 130,989 212,829 220,473 219,156 234,310
Other taxes 62,637 62,826 165,812 160,737 214,535 205,714
----------- -------- ----------- ----------- ---------- ----------
Total operating expenses 832,585 645,966 2,112,778 1,709,879 2,669,899 2,166,544
OPERATING INCOME 220,739 228,125 390,035 407,913 434,359 450,295
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used
during construction 4,105 1,250 7,928 4,079 9,147 5,212
Miscellaneous, net 4,491 4,475 13,519 10,016 19,949 17,016
----------- -------- ----------- ----------- ---------- ----------
Total other income and (deductions) 8,596 5,725 21,447 14,095 29,096 22,228
INCOME BEFORE
INTEREST CHARGES 229,335 233,850 411,482 422,008 463,455 472,523
INTEREST CHARGES:
Interest 28,500 31,846 88,965 97,860 120,387 124,091
Allowance for borrowed funds used
during construction (1,959) (2,083) (5,784) (6,027) (8,069) (7,856)
----------- -------- ----------- ----------- ---------- ----------
Net interest charges 26,541 29,763 83,181 91,833 112,318 116,235
----------- -------- ----------- ----------- ---------- ----------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 202,794 204,087 328,301 330,175 351,137 356,288
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE, NET
OF INCOME TAXES - - (4,848) - (4,848) -
----------- -------- ----------- ----------- ---------- ----------
NET INCOME 202,794 204,087 323,453 330,175 346,289 356,288
PREFERRED STOCK DIVIDENDS 2,204 2,204 6,613 6,613 8,817 8,817
----------- --------- ----------- ----------- ---------- ----------
NET INCOME AFTER PREFERRED
STOCK DIVIDENDS $200,590 $201,883 $316,840 $323,562 $337,472 $347,471
=========== ========= =========== =========== ========== ==========
See Notes to Financial Statements.
-12-
UNION ELECTRIC COMPANY
STATEMENT OF CASH FLOWS
UNAUDITED
(Thousands of Dollars)
Nine Months Ended
September 30,
---------------------------------
2001 2000
---- ----
Cash Flows From Operating:
Net income $323,453 $330,175
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle 4,848 -
Depreciation and amortization 199,415 193,383
Amortization of nuclear fuel 21,084 27,714
Allowance for funds used during construction (13,712) (10,106)
Deferred income taxes, net 17,094 6,913
Deferred investment tax credits, net (2,191) (4,328)
Changes in assets and liabilities:
Receivables, net (81,173) (89,944)
Materials and supplies (26,867) 10,884
Accounts and wages payable (81,568) 14,406
Taxes accrued 225,919 138,443
Other, net (32,377) 34,889
--------- ---------
Net cash provided by operating activities 553,925 652,429
Cash Flows From Investing:
Construction expenditures (408,610) (230,023)
Allowance for funds used during construction 13,712 10,106
Nuclear fuel expenditures (14,988) (11,691)
Intercompany notes receivable 164,710 7,650
--------- ---------
Net cash used in investing activities (245,176) (223,958)
Cash Flows From Financing:
Dividends on common stock (213,600) (207,224)
Dividends on preferred stock (6,613) (6,613)
Redemptions -
Nuclear fuel lease (64,122) (8,276)
Long-term debt - (338,650)
Issuances -
Nuclear fuel lease 3,062 7,270
Long-term debt 10,900 186,500
--------- ---------
Net cash used in financing activities (270,373) (366,993)
Net change in cash and cash equivalents 38,376 61,478
Cash and cash equivalents at beginning of year 19,960 117,308
--------- ---------
Cash and cash equivalents at end of period $ 58,336 $178,786
========= =========
Cash paid during the periods:
Interest (net of amount capitalized) $ 73,170 $ 80,537
Income taxes, net $ 40,744 $114,548
See Notes to Financial Statements.
-13-
UNION ELECTRIC COMPANY
STATEMENT OF COMMON STOCKHOLDER'S EQUITY
UNAUDITED
(Thousands of Dollars)
Nine Months Ended Year Ended
September 30, 2001 December 31, 2000
--------------------- -------------------
Common stock $ 510,619 $ 510,619
Other paid-in capital 701,896 701,896
Retained earnings
Beginning balance 1,358,137 1,221,167
Net income 323,453 353,011
Common stock dividends (282,700) (207,224)
Preferred stock dividends (6,613) (8,817)
--------------------- -------------------
1,392,277 1,358,137
Accumulated other comprehensive income
Beginning balance - -
Change in current period (1,428) -
--------------------- -------------------
(1,428) -
--------------------- -------------------
Total common stockholder's equity $ 2,603,364 $ 2,570,652
===================== ===================
Comprehensive income, net of tax
Net income $ 323,453 $ 353,011
Cumulative effect of accounting change, net of taxes (7,881) -
Unrealized net gain on derivative hedging instruments 6,453 -
--------------------- -------------------
$ 322,025 $ 353,011
===================== ===================
See Notes to Financial Statements.
-14-
UNION ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2001
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
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). Ameren is the parent company of the
following operating subsidiaries: the Registrant, Central Illinois Public
Service Company (AmerenCIPS), and AmerenEnergy Generating Company, a wholly
owned subsidiary of AmerenEnergy Resources Company. Both Ameren and its
subsidiaries are subject to the regulatory provisions of PUHCA. The Registrant
is a public utility 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 Registrant and other Ameren subsidiaries--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 (Ameren Services). The Registrant
serves 1.2 million electric and 125,000 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/or
operates electric generation and transmission facilities in Illinois that supply
electric power primarily to a uranium enrichment plant located in Paducah,
Kentucky.
Interim Financial Statements
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 2000 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.
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.
Factors Affecting Business
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, 2001 and 2000, are not necessarily indicative of trends for any three-month,
nine-month or 12-month period.
Reclassifications
Certain reclassifications have been made to prior years' financial statements to
conform with 2001 reporting.
Note 2 - Regulatory Matters
Missouri
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 percent regulatory return on equity be shared equally between customers
and stockholders, and earnings above a 14 percent regulatory return
-15-
on equity be credited to customers. The formula for computing the credit used
twelve-month results ending June 30, rather than calendar year earnings.
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 of the Registrant and CIPSCO Incorporated that formed
Ameren. Like the Original Plan, the New Plan required that earnings over a 12.61
percent regulatory return on equity up to a 14 percent regulatory return on
equity be shared equally between customers and stockholders. The New Plan also
returned to customers 90 percent of all earnings above a 14 percent regulatory
return on equity up to a 16 percent regulatory return on equity. Earnings above
a 16 percent regulatory return on equity were credited entirely to customers.
The New Plan ran from July 1, 1998 through June 30, 2001. As of September 30,
2001, the Registrant recorded an estimated credit of $40 million for the plan
year ended June 30, 2001 compared to $35 million in the prior period. These
credits were reflected as a reduction in electric revenues in the periods
accrued. The final amount of the credit will depend on several factors,
including the Registrant's earnings for 12 months ended June 30, 2001.
With the New Plan's expiration on June 30, 2001, on July 2, 2001, the MoPSC
staff filed with the MoPSC an excess earnings complaint against the Registrant
that proposes to reduce the Registrant's annual electric revenues ranging from
$213 million to $250 million. Factors contributing to the MoPSC staff's
recommendation include return on equity (ROE), revenues and customer growth,
depreciation rates and other cost of service expenses. The ROE incorporated into
the MoPSC staff's recommendation ranges from 9.04 percent to 10.04 percent. The
MoPSC has not yet determined a schedule for evidentiary hearings on the MoPSC
staff's recommendation. The MoPSC is not bound by the MoPSC staff's
recommendation. Depending on the outcome of the MoPSC's decision, further
appeals in the courts may be warranted.
In the interim, the Registrant is preparing to vigorously contest the MoPSC
staff's recommendation and expects to continue negotiations with all pertinent
parties with the intent to continue with an incentive regulation plan, similar
to the New Plan. The Registrant can not predict the outcome of these
negotiations and their impact on the Registrant's financial position, results of
operations or liquidity; however, the impact could be material.
Midwest ISO and Alliance RTO
In the fourth quarter of 2000, the Registrant announced its intention to
withdraw from the Midwest Independent System Operator (Midwest ISO) and to join
the Alliance Regional Transmission Organization (Alliance RTO), and recorded a
pretax charge to earnings of $17 million ($10 million after taxes), which
related to the Registrant's estimated obligation under the Midwest ISO agreement
for costs incurred by the Midwest ISO, plus estimated exit costs. During first
quarter 2001, the FERC conditionally approved the formation, including the rate
structure, of the Alliance RTO, and the Registrant announced that it had signed
an agreement to join the Alliance RTO. Also in first quarter 2001, in a
proceeding before the FERC, the Alliance RTO and the Midwest ISO reached an
agreement that would enable the Registrant to withdraw from the Midwest ISO and
to join the Alliance RTO. In the second quarter of 2001, the settlement
agreement was approved by the FERC. The Registrant's withdrawal from the Midwest
ISO remains subject to MoPSC approval. Additional regulatory approvals of the
SEC, FERC, MoPSC and the Illinois Commerce Commission may be required in
connection with various transactions involving the Alliance RTO relating to its
organization, capitalization and the possible transfer of transmission assets.
Such approvals, if required, will be sought at the appropriate times. The
Alliance RTO is expected to be operational within 90-120 days after the FERC's
approval. At this time, the Registrant is unable to determine the impact that
its withdrawal from the Midwest ISO and its participation in the Alliance RTO
will have on its future financial condition, results of operations or liquidity.
Note 3 - Related Party Transactions
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. For the three, nine and
12 months ended September, 30, 2001, intercompany power purchases from joint
-16-
dispatch and other agreements were approximately $78 million, $122 million and
$138 million, respectively, compared to $27 million, $82 million and $102
million for the three, nine and 12 months ended September 30, 2000,
respectively. Intercompany power sales for the three, nine and 12 months ended
September 30, 2001 were approximately $17 million, $57 million and $81 million,
compared to $17 million, $48 million and $53 million for the three, nine and 12
months ended September 30, 2000, respectively. Intercompany receivables included
in other accounts and notes receivable were approximately $32 million and $20
million, respectively, as of September 30, 2001 and December 31, 2000.
Intercompany payables included in accounts and wages payable totaled
approximately $117 million and $27 million, respectively, as of September 30,
2001 and December 31, 2000.
Other operating expenses consist primarily of wages, employee benefits,
professional services and expenses associated with support services provided by
Ameren Services. The support services provided by Ameren Services are based on
actual costs incurred. For each of the three months ended September 30, 2001 and
2000, other operating expenses provided by Ameren Services totaled $39 million.
For the nine months ended September 30, 2001 and 2000, support services provided
by Ameren Services totaled $129 million and $111 million, respectively.
Also, the Registrant has the ability to borrow up to approximately $488 million
from Ameren, AmerenCIPS or Ameren Services through a regulated money pool
agreement. The total amount available to the Registrant at any given time from
the regulated money pool is reduced by the amount of borrowings by AmerenCIPS or
Ameren Services but increased to the extent AmerenCIPS or Ameren Services have
surplus funds and the availability of other external borrowing sources. The
regulated money pool was established to coordinate and provide for certain
short-term cash and working capital requirements of the Registrant, AmerenCIPS
and Ameren Services and is administered by Ameren Services. Interest is
calculated at varying rates of interest depending on the composition of internal
and external funds in the regulated money pool. For the three and nine month
periods ended September 30, 2001, the average interest rate for the regulated
money pool was 3.67 percent and 4.51 percent, respectively. Intercompany
interest income for the quarters ended September 30, 2001 and 2000 was
approximately $1 million and $3 million, respectively. For the nine-month
periods ended September 30, 2001 and 2000, intercompany interest income was
approximately $7 million for each period. For the 12-month periods ended
September 30, 2001 and 2000, intercompany interest income was approximately $10
million and $9 million, respectively. As of September 30, 2001, the Registrant
had outstanding intercompany receivables of $91 million and at least $58 million
was available through the regulated money pool subject to reduction for
borrowings by AmerenCIPS or Ameren Services.
Note 4 - Derivative Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for
Derivative Instruments and Hedging Activities" became effective on January 1,
2001. SFAS 133 established accounting and reporting standards for derivative
financial instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. SFAS 133 requires recognition of
all derivatives as either assets or liabilities on the balance sheet measured at
fair value. The intended use of derivatives and their designation as either a
fair value hedge or a cash flow hedge determines when the gains or losses on the
derivatives are to be reported in earnings and when they are reported as a
component of other comprehensive income (OCI) in stockholder's equity. In
accordance with the transition provisions of SFAS 133, the Registrant recorded a
cumulative effect charge of $5 million after income taxes to the income
statement, comprised of $1 million for ineffective portion of cash flow hedges
and $4 million for discontinued hedges. The Registrant also recorded a
cumulative effect adjustment of $8 million after income taxes, representing the
effective portion of designated cash flow hedges, to OCI, which reduced
stockholder's equity. Gains and losses on derivatives that arose prior to the
initial application of SFAS 133 and that were previously deferred as adjustments
of the carrying amount of hedged items were not adjusted and were not included
in the transition adjustments described above.
All derivatives are recognized on the balance sheet at their fair value. On the
date that the Registrant enters into a derivative contract, it designates the
derivative as (1) a hedge of the fair value of a recognized asset or liability
or an unrecognized firm commitment (a "fair value" hedge); (2) a hedge of a
forecasted
-17-
transaction or the variability of cash flows that are to be received or paid in
connection with a recognized asset or liability (a "cash flow" hedge); or (3) an
instrument that is held for trading or non-hedging purposes (a "non-hedging"
instrument). The Registrant reevaluates its classification of individual
derivative transactions daily. The Registrant designates or de-designates
derivative transactions as hedges based on many factors including changes in
expectations of economic generation availability and changes in projected sales
commitments. Changes in the fair value of derivatives are captured and reported
based on the anticipated use of the derivative. If a derivative is designated as
a cash flow hedge, the effective portion will not be reflected in the income
statement. If the derivative is subsequently designated as a non-hedging
instrument, any further change in fair value will be reflected in the income
statement, with any previously deferred change in fair value remaining in
accumulated OCI until the indicated delivery period. If, on the other hand, the
derivative had been designated as a non-hedging transaction and subsequently
designated as a cash flow hedge, the initial change in fair value between the
transaction date and the hedge designation date will be recorded in income, and
the effective portion of any further change will be deferred in OCI. Changes in
the fair value of derivatives designated as fair value hedges and changes in the
fair value of the hedged asset or liability that are attributable to the hedged
risk (including changes that reflect losses or gains on firm commitments) are
recorded in current-period earnings. Any hedge ineffectiveness (which represents
the amount by which the changes in the fair value of the derivative exceed the
changes in the fair value of the hedged item) is recorded in current-period
earnings. Changes in the fair value of derivative trading and non-hedging
instruments are reported in current-period earnings.
The Registrant utilizes derivatives principally to manage the risk of changes in
market prices for natural gas, fuel, electricity and emission credits. The
Registrant's risk management objective is to optimize the return from its
physical generating assets, while managing exposures to volatile energy
commodity prices and emission allowances within prudent risk management
policies, which are established by a Risk Management Steering Committee (RMSC)
comprised of senior-level Ameren officers. Price fluctuations in natural gas,
fuel and electricity cause (1) an unrealized appreciation or depreciation of the
Registrant's firm commitments to purchase when purchase prices under the firm
commitment are compared with current commodity prices; (2) market values of fuel
and natural gas inventories or purchased power to differ from the cost of those
commodities under the firm commitment; and (3) actual cash outlays for the
purchase of these commodities to differ from anticipated cash outlays. The
derivatives that the Registrant uses to hedge these risks are dictated by risk
management policies and include forward contracts, futures contracts, options
and swaps. Ameren primarily uses derivatives to optimize the value of its
physical and contractual positions. Ameren continually assesses its supply and
delivery commitment positions against forward market prices and internally
forecasts forward prices and modifies its exposure to market, credit and
operational risk by entering into various offsetting transactions. In general
these transactions serve to reduce price risk for the Registrant. Additionally,
the Registrant is authorized to engage in certain transactions that serve to
increase the organization's exposure to price, credit and operational risk for
expected gains. All transactions are continuously monitored and valued by the
RMSC to assure compliance with Ameren policies. The RMSC employs a variety of
risk measurement techniques and position limits including value at risk, credit
value at risk, stress testing, effectiveness testing along with qualitative
measures to establish transaction parameters and measure transaction compliance.
By using derivative financial instruments, the Registrant is exposed to credit
risk and market risk. Credit risk is the risk that the counterparty might fail
to fulfill its performance obligations under contractual terms. Credit risk
management is based upon consideration and measurement of four factors: (1)
accounts receivable; (2) mark to market; (3) probability of default; and (4) the
recovery rate of the defaulted position that is likely to be recovered. The
Registrant manages its credit (or repayment) risk in derivative instruments by
(1) using both portfolio limits, i.e. no more than prescribed dollar amounts
exposed to companies within various credit categories as well as limiting
exposures to individual companies; (2) monitoring the financial condition of its
counterparties; and (3) enhancing credit quality through contractual terms such
as netting, required collateral postings, letters of credit and parental
guaranties.
Market risk is the risk that the value of a financial instrument might be
adversely affected by a change in commodity prices. The Registrant manages this
risk by establishing and monitoring parameters that limit the types and degree
of market risk that may be undertaken as mentioned above.
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The following is a summary of the Registrant's risk management strategies and
the effect of these strategies on the Registrant's financial statements.
Cash Flow Hedges
The Registrant routinely enters into forward purchase and sales contracts for
electricity based on forecasted levels of excess economic generation. The amount
of excess economic generation varies throughout the year and is monitored by the
RMSC. The contracts typically cover a period of twelve months or less. The
purpose of these contracts is to hedge against possible price fluctuations in
the spot market for the period covered under the contracts. The Registrant
formally documents all relationships between hedging instruments and hedged
items, as well as its risk-management objective and strategy for undertaking
various hedge transactions. This process includes linking all derivatives
designated as cash flow hedges to specific forecasted transactions. The
Registrant also formally assesses (both at hedge's inception and on an ongoing
basis) whether the derivatives used in hedging transactions have historically
been highly effective in offsetting changes in the cash flows of hedged items
and whether those derivatives are expected to remain highly effective in future
periods.
For the three months ended September 30, 2001, the net gain which represented
the impact of discontinued cash flow hedges, the ineffective portion of cash
flow hedges, as well as the reversal of amounts previously recorded in the
transition adjustment due to transactions going to delivery, was immaterial. For
the nine months ended September 30, 2001, the net gain which represented the
impact of the discontinued cash flow hedges, the ineffective portion of the cash
flow hedges, as well as the reversal of amounts previously recorded in the
transition adjustment due to transactions going to delivery, was $5 million. All
components of each derivative's gain or loss were included in the assessment of
hedge effectiveness.
As of September 30, 2001, the entire deferred net loss on derivative instruments
accumulated in other comprehensive income was immaterial and is expected to be
reversed during the next twelve months. The derivative losses will be reversed
upon delivery of the commodity being hedged.
Other Derivatives
The Registrant enters into option transactions to manage the Registrant's
positions in sulfur dioxide (SO2) allowances. In addition, the Registrant enters
into option transactions to manage the Registrant's coal purchasing prices and
to manage the cost of electricity by selling puts at prices below the marginal
cost of generation. These transactions are treated as non-hedge transactions
under SFAS 133; therefore, the net change in the market value of SO2 options is
recorded as electric revenues and the net change in the market value of coal
options is recorded as fuel and purchased power in the statement of income.
Other
As of September 30, 2001, the Registrant has recorded the fair value of
derivative financial instrument assets of $9 million in Other Assets and
derivative financial instrument liabilities of $20 million in Other Deferred
Credits and Liabilities.
The Registrant has entered into fixed-price forward contracts for the purchase
of coal and natural gas. While these contracts meet the definition of a
derivative under SFAS 133, the Registrant records these transactions as normal
purchases and normal sales because the contracts are expected to result in
physical delivery. The Registrant is currently reevaluating the accounting for
these transactions as a result of recent guidance issued by the Derivatives
Implementation Group of the Financial Accounting Standards Board (see Accounting
Matters under Management's Discussion and Analysis of Financial Condition and
Results of Operations for further discussion).
-19-
Exhibit 3(ii)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to Note 12 - Commitments and Contingencies to the
"Notes to Financial Statements" in the Registrant's Form 10-K for the year ended
December 31, 2000, for a discussion of the involvement of the Registrant with a
contaminated site in Sauget, Illinois. On September 13, 2001, the United States
Environmental Protection Agency (EPA) proposed that the Sauget Area 1 and Sauget
Area 2 sites be listed on the National Priorities List (NPL). If successful, the
listing of these sites on the NPL would permit the EPA to access funds
designated under the Comprehensive Environmental Response Compensation Liability
Act of 1980 (commonly known as CERCLA or Superfund) to remediate the sites.
ITEM 5. OTHER INFORMATION.
The following material organizational changes have been made to senior
management by the Board of Directors:
o Gary L. Rainwater was elected President and Chief Operating
Officer, effective August 30, 2001, reporting to Charles W.
Mueller, who became Chairman, while retaining his title of Chief
Executive Officer.
o Warner L. Baxter was elected Senior Vice President, Finance,
effective August 30, 2001, replacing Donald E. Brandt, who
resigned.
o Jerre E. Birdsong was elected Vice President and Treasurer,
effective October 12, 2001.
o Martin J. Lyons was appointed Controller, effective October 22,
2001, replacing Warner L. Baxter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)(i) Exhibits.
3(ii) - By-Laws of the Company as amended to August 23, 2001.
12 - Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividend Requirements, 12 months
Ended September 30, 2001.
(a)(ii) Exhibits Incorporated by Reference.
10.1 - Power Sales Agreement between AmerenEnergy Marketing
Company and Union Electric Company (September 30,
2001 AmerenEnergy Generating Company Form 10-Q,
Exhibit 10.1).
(b) Reports on Form 8-K. The Registrant filed a report on Form 8-K
dated July 2, 2001 reporting that the Missouri Public Service
Commission (MoPSC) staff filed with the MoPSC an excess
earnings complaint against the Registrant that proposes
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to reduce the Registrant's annual electric revenues ranging from
$213 million to $250 million.
Note: Reports of Ameren Corporation on Forms 8-K, 10-Q and 10-K are on
file with the SEC under File Number 1-14756.
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/ Warner L. Baxter
---------------------------
Warner L. Baxter
Senior Vice President, Finance
(Principal Financial Officer)
Date: November 14, 2001
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UNION ELECTRIC COMPANY
B Y - L A W S
As Amended to August 23, 2001
ARTICLE I.
-----------
Stockholders
Section 1. The annual meeting of the stockholders of the Company
shall be held on the fourth Tuesday of April in each year (or if said day be a
legal holiday, then on the next succeeding day not a legal holiday), at the
registered office of the Company in the City of St. Louis, State of Missouri, or
at such other place within or without the State of Missouri as may be stated in
the notice of meeting, for the purpose of electing directors and of transacting
such other business as may properly be brought before the meeting.
Section 2. Special meetings of the stockholders may be called by
the Chief Executive Officer or by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Company would have if there were no vacancies.
Section 3. Written or printed notice of each meeting of
stockholders stating the place, day and hour of the meeting and, in case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be delivered or given not less than ten nor more than seventy days before the
date of the meeting, either personally or by mail, to each stockholder of record
entitled to vote thereat, at his address as it appears, if at all, on the
records of the Company. Such further notice shall be given by mail, publication
or otherwise as may be required by law. Meetings may be held without notice if
all the stockholders entitled to vote thereat are present or represented at the
meeting, or if notice is waived by those not present or represented.
Section 4. The holders of record of a majority of the shares of
the capital stock of the Company issued and outstanding, entitled to vote
thereat, present in person or represented by proxy, shall, except as otherwise
provided by law, constitute a quorum at all meetings of the stockholders. If at
any meeting there be no such quorum, such holders of a majority of the shares so
present or represented may successively adjourn the meeting to a specified date
not longer
-1-
than ninety days after such adjournment, without notice other than
announcement at the meeting, until such quorum shall have been obtained, when
any business may be transacted which might have been transacted at the meeting
as originally notified. The chairman of the meeting or a majority of shares so
represented may adjourn the meeting from time to time, whether or not there is
such a quorum.
Section 5. Meetings of the stockholders shall be presided over
by the Chief Executive Officer or, if he is not present, by the Chairman of the
Board of Directors or by the President or, if neither the Chairman nor the
President is present, by such other officer of the Company as shall be selected
for such purpose by the Board of Directors. The Secretary of the Company or, if
he is not present, an Assistant Secretary of the Company or, if neither the
Secretary nor an Assistant Secretary is present, a secretary pro tem to be
designated by the presiding officer shall act as secretary of the meeting.
Section 6. At all meetings of the stockholders every holder of
record of the shares of the capital stock of the Company, entitled to vote
thereat, may vote either in person or by proxy.
Section 7. At all elections for directors the voting shall be by
written ballot. If the object of any meeting be to elect directors or to take a
vote of the stockholders on any proposition of which notice shall have been
given in the notice of the meeting, the person presiding at such meeting shall
appoint not less than two persons, who are not directors, inspectors to receive
and canvass the votes given at such meeting. Any inspector, before he shall
enter on the duties of his office, shall take and subscribe an oath, in the
manner provided by law, that he will execute the duties of inspector at such
meeting with strict impartiality and according to the best of his ability. The
inspectors shall take charge of the polls and after the balloting shall make a
certificate of the result of the vote taken.
Section 8. (a) (1) Nominations of persons for election to the
Board of Directors of the Company and the proposal of business to be considered
by the stockholders may be made at an annual meeting of stockholders (a)
pursuant to the Company's notice of meeting, (b) by or at the direction of the
Board of Directors or (c) by any stockholder of the Company who was a
stockholder of record at the time of giving of notice provided for in this
By-Law, who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this By-Law.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(a) (1) of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the Company and such other business must otherwise
be a proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Company not later than the close of business on the 60th day nor earlier than
the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 90th day prior to such
annual meeting and not later than the close of business on the later of the 60th
day prior to such annual
-2-
meeting or the 10th day following the day on which public announcement of the
date of such meeting is first made by the Company. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Company's books, and of such
beneficial owner and (ii) the class and number of shares of the Company which
are owned beneficially and of record by such stockholder and such beneficial
owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a) (2) of this By-Law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Company is increased
and there is no public announcement by the Company naming all of the nominees
for director or specifying the size of the increased Board of Directors at least
70 days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this By-Law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Company not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Company.
(b) Only such business shall be conducted at a special meeting
of stockholders as shall have been brought before the meeting pursuant to the
Company's notice of meeting. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Company's notice of meeting (1) by or at the
direction of the Board of Directors or (2) provided that the Board of Directors
has determined that directors shall be elected at such meeting, by any
stockholder of the Company who is a stockholder of record at the time of giving
of notice provided for in this By-Law, who shall be entitled to vote at the
meeting and who complies with the notice procedures set forth in this By-Law. In
the event the Company calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Company's notice of meeting, if the
stockholder's notice required by paragraph (a) (2) of this By-Law shall be
delivered to the Secretary at the principal executive offices of the Company not
earlier than the close of business on the 90th day prior to such special meeting
and not later than the close of business on the later of the 60th day prior to
such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting
-3-
and of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(c) (1) Only such persons who are nominated in accordance with
the procedures set forth in this By-Law shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this By-Law. Except as otherwise provided by law, the Articles of
Incorporation or these By-Laws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights (a) of stockholders to request inclusion of proposals in the Company's
proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) of the
holders of any series of Preferred Stock to elect directors under specified
circumstances.
ARTICLE II.
--------------
Directors
Section 1. The property and business of the Company shall be
controlled and managed by its Board of Directors. The number of directors to
constitute the Board of Directors shall be five; provided, however, that such
number may be fixed by the Board of Directors, from time to time, at not less
than a minimum of three nor more than a maximum of fourteen (subject to the
rights of the holders of Preferred Stock as set forth in the Articles of
Incorporation of the Company, as amended). Any such change shall be reported to
the Secretary of State of the State of Missouri within thirty (30) calendar days
of such change. Not less than one member of the Board of Directors shall be a
bona fide citizen of the State of Missouri. Except as otherwise provided in the
Articles of Incorporation of the Company, as amended, the directors shall hold
office until the next annual election and until their successors shall be
elected and qualified. A majority of the members of the Board of Directors shall
constitute a quorum for the transaction of business, but if at any meeting of
the Board there shall be less than a quorum present, a majority of the directors
present may adjourn the meeting from time to time, without notice other
-4-
than announcement at the meeting, until such quorum shall have been obtained,
when any business may be transacted which might have been transacted at the
original meeting had a quorum been present.
Section 2. Vacancies in the Board of Directors, including
vacancies created by newly created directorships, shall be filled in the manner
provided in the Articles of Incorporation of the Company, as amended, and,
except as otherwise provided therein, the directors so elected shall hold office
until their successors shall be elected and qualified.
Section 3. Meetings of the Board of Directors shall be held at
such time and place within or without the State of Missouri as may from time to
time be fixed by resolution of the Board, or as may be stated in the notice of
any meeting. Regular meetings of the Board shall be held at such time as may
from time to time be fixed by resolution of the Board, and notice of such
meetings need not be given. Special meetings of the Board may be held at any
time upon call of the Chief Executive Officer or the Executive Committee, by
oral, telegraphic or written notice, duly given or sent or mailed to each
director not less than two (2) days before any such meeting. The notice of any
meeting of the Board need not specify the purposes thereof except as may be
otherwise required by law. Meetings may be held at any time without notice if
all of the directors are present or if those not present waive notice of the
meeting, in writing.
Section 4. The Board of Directors, by the affirmative vote of a
majority of the whole Board may appoint an Executive Committee, to consist of
two or more directors, one of whom shall be a bona fide citizen of the State of
Missouri, as the Board may from time to time determine. The Executive Committee
shall have and may exercise to the extent permitted by law, when the Board is
not in session, all of the powers vested in the Board, except the power to fill
vacancies in the Board, the power to fill vacancies in or to change the
membership of said Committee, and the power to make or amend By-Laws of the
Company. The Board shall have the power at any time to fill vacancies in, to
change the membership of, or to dissolve, the Executive Committee. The Executive
Committee may make rules for the conduct of its business and may appoint such
committees and assistants as it shall from time to time deem necessary. A
majority of the members of the Executive Committee shall constitute a quorum.
Section 5. The Board of Directors may also appoint one or more
other committees to consist of such number of the directors and to have such
powers as the Board may from time to time determine. The Board shall have the
power at any time to fill vacancies in, to change the membership of, or to
dissolve, any such committee. A majority of any such committee may determine its
action and fix the time and place of its meetings, unless the Board of Directors
shall otherwise provide.
ARTICLE III.
-------------
Officers
Section 1. As soon as is practicable after the election of
directors at the annual meeting of stockholders, the Board of Directors shall
elect one of its members President of the
-5-
Company, and shall elect a Secretary. The Board may also elect from its members
a Chairman of the Board of Directors (which office may be held by the President)
and one or more Vice Chairman of the Board of Directors. The Board shall
designate either the Chairman, if any, or the President as the Chief Executive
Officer of the Company. In addition, the Board may elect one or more Vice
Presidents (any one or more of whom may be designated as Senior or Executive
Vice Presidents), and a Treasurer, and from time to time may appoint such
Assistant Secretaries, Assistant Treasurers and other officers, agents, and
employees as it may deem proper. The offices of Secretary and Treasurer may be
held by the same person, and a Vice President of the Company may also be either
the Secretary or the Treasurer.
Section 2. Between annual elections of officers, the Board of
Directors may effect such changes in Company offices as it deems necessary or
proper.
Section 3. Subject to such limitations as the Board of Directors
may from time to time prescribe, the officers of the Company shall each have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as from time to time may be conferred by the Board of
Directors or the Executive Committee. The Treasurer and the Assistant Treasurers
may be required to give bond for the faithful discharge of their duties, in such
sum and of such character as the Board of Directors may from time to time
prescribe.
ARTICLE IV.
------------
Indemnification
Each person who now is or hereafter becomes a director (which
term as used in this Article shall include an advisor to the Board of
Directors), officer, employee or agent of the Company, or who now is or
hereafter becomes a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise at the request of the
Company, shall be entitled to indemnification as provided by law. Such right of
indemnification shall include, but not be limited to, the following:
Section 1. (a) The Company may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative, other than an action by or in the right of the Company, by
reason of the fact that he is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and
-6-
in a manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Company may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Company to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including attorneys' fees,
and amounts paid in settlement actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company; except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Company unless and only to the extent that the court in which the
action or suit was brought determines upon application that, despite the
adjudication of liability and in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
(c) To the extent that a director, officer, employee or agent of
the Company has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in subsections (a) and (b) above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection with the action, suit, or proceeding.
(d) Any indemnification under subsections (a) and (b) above,
unless ordered by a court, shall be made by the Company only as authorized in
the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in this Section. The determination
shall be made by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the action, suit, or proceeding,
or if such a quorum is not obtainable, or even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or by the stockholders.
Section 2. (a) In addition to the indemnity authorized or
contemplated under other Sections of this Article, the Company shall further
indemnify to the maximum extent permitted by law, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding (including appeals), whether civil,
criminal, investigative (including private Company investigations), or
administrative, including an action by or in the right of the Company, by reason
of the fact that the person is or was a director, officer, or employee of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan, for and against any and all expenses incurred by such person, including,
but not limited to, attorneys' fees, judgments, fines (including any excise
taxes or penalties assessed on a person with respect to an
-7-
employee benefit plan), and amounts paid in settlement actually or reasonably
incurred by him in connection with such action, suit or proceeding, provided
that the Company shall not indemnify any person from or on account of such
person's conduct which was finally adjudged to have been knowingly fraudulent,
deliberately dishonest or willful misconduct.
(b) Where full and complete indemnification is prohibited by law
or public policy, any person referred to in subsection (a) above who would
otherwise be entitled to indemnification nevertheless shall be entitled to
partial indemnification to the extent permitted by law and public policy.
Furthermore, where full and complete indemnification is prohibited by law or
public policy, any person referred to in subsection (a) above who would
otherwise be entitled to indemnification nevertheless shall have a right of
contribution to the extent permitted by law and public policy in cases where
said party is held jointly liable with the Company.
Section 3. The indemnification provided by Sections 1 and 2
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under the articles of incorporation or bylaws or
any agreement, vote of stockholders or disinterested directors or otherwise both
as to action in his official capacity and as to action in another capacity while
holding such office, and the Company is hereby specifically authorized to
provide such indemnification by any agreement, vote of stockholders or
disinterested directors or otherwise. The indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 4. The Company is authorized to purchase and maintain
insurance on behalf of, or provide another method or methods of assuring payment
to, any person who is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any capacity, or arising out of his status as such, whether
or not the Company would have the power to indemnify him against such liability
under the provisions of this Article.
Section 5. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Company in advance of the final
disposition of the action, suit, or proceeding as authorized by the Board of
Directors in the specific case upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the Company as
authorized in this Article.
Section 6. This Article may be hereafter amended or repealed;
provided, however, that no amendment or repeal shall reduce, terminate or
otherwise adversely affect the right of a person who is or was a director,
officer, employee or agent to obtain indemnification with respect to an action,
suit, or proceeding that pertains to or arises out of actions or omissions that
occur prior to the effective date of such amendment or repeal.
-8-
ARTICLE V.
-----------
Certificates of Stock
Section 1. The interest of each stockholder shall be evidenced
by certificates for shares of stock of the Company, in such form as the Board of
Directors may from time to time prescribe. The certificates for shares of stock
of the Company shall be signed by the Chairman, if any, or the President or a
Vice President (including Senior or Executive Vice Presidents) and by the
Secretary or Treasurer or an Assistant Secretary or an Assistant Treasurer of
the Company and sealed with the seal of the Company and shall be countersigned
and registered in such manner, if any, as the Board of Directors may from time
to time prescribe. Any or all the signatures on the certificate may be facsimile
and the seal may be facsimile, engraved or printed. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, the certificate may nevertheless
be issued by the Company with the same effect as if the person were an officer,
transfer agent or registrar at the date of issue.
Section 2. The shares of stock of the Company shall be
transferable only on the books of the Company by the holders thereof in person
or by duly authorized attorney, upon surrender for cancellation of certificates
for the same number of shares of the same class of stock, with an assignment and
power of transfer endorsed thereon or attached thereto, duly executed, and with
such proof of the authenticity of the signatures as the Company or its agents
may reasonably require.
Section 3. No certificate for shares of stock of the Company
shall be issued in place of any certificate alleged to have been lost, stolen or
destroyed, except upon production of such evidence of such loss, theft or
destruction, and upon the Company being indemnified to such extent and in such
manner as the Board of Directors in its discretion may require.
ARTICLE VI.
------------
Closing of Stock Transfer Books or
Fixing Record Date
The Board of Directors shall have power to close the stock
transfer books of the Company for a period not exceeding seventy days preceding
the date of any meeting of stockholders or the date of payment of any dividend
or the date for the allotment of rights or the date when any change or
conversion or exchange of shares shall go into effect; provided, however, that
in lieu of closing the stock transfer books as aforesaid, the Board of Directors
may fix in advance a date, not exceeding seventy days preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of shares shall go into effect, as a record date for the determination
of the stockholders entitled to notice of, and to vote at, any such meeting, and
any adjournment thereof, or entitled to receive payment of any such dividend, or
entitled to any such allotment of rights, or entitled to exercise the rights in
respect of any such
-9-
change, conversion or exchange of shares. In such case such stockholders and
only such stockholders as shall be stockholders of record on the date of closing
the stock transfer books or on the record date so fixed shall be entitled to
notice of, and to vote at, such meeting, and any adjournments thereof, or to
receive payment of such dividend, or to receive such allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Company after such date of closing of the transfer
books or such record date fixed as aforesaid.
ARTICLE VII.
-------------
Checks, Notes, etc.
All checks and drafts on the Company's bank accounts and all
bills of exchange and promissory notes, and all acceptances, obligations and
other instruments for the payment of money, shall be signed by such officer or
officers or agent or agents as shall be thereunto authorized from time to time
by the Board of Directors. The Board of Directors may authorize any such officer
or agent to sign and, when the Company's seal is on the instrument, to attest
any of the foregoing instruments by the use of a facsimile signature, engraved
or printed or otherwise affixed thereto. In case any officer or agent who has
signed or whose facsimile signature has been placed upon any such instrument for
the payment of money shall have ceased to be such officer or agent before such
instrument is issued, such instrument may nevertheless be issued by the Company
with the same effect as if such officer or agent had not ceased to be such
officer or agent at the date of its issue.
ARTICLE VIII.
--------------
Fiscal Year
The fiscal year of the Company shall begin on the first day of
January in each year and shall end on the thirty-first day of December following
until otherwise changed by resolution of the Board, and the Board is authorized
at any time by resolution to adopt and fix a different fiscal year for the
Company.
ARTICLE IX.
------------
Corporate Seal
The corporate seal shall have inscribed thereon the name of the
Company and the words "Corporate Seal, Missouri".
-10-
ARTICLE X.
-----------
Amendments
The By-Laws of the Company may be made, altered, amended, or
repealed by the Board of Directors.
-11-
Exhibit 12
UNION ELECTRIC COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS
12 Months
Ended
Year Ended December 31, September 30,
--------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------
Thousands of Dollars Except Ratios
Net Income $304,876 $301,655 $320,070 $349,252 $353,011 $346,289
Add- Extraordinary items net of tax - 26,967 - - - -
---------- --------- --------- --------- --------- ---------------
Net income from continuing operations 304,876 328,622 320,070 349,252 353,011 346,289
---------- --------- --------- --------- --------- ---------------
Taxes based on income 196,210 199,763 212,554 226,696 224,149 219,089
---------- --------- --------- --------- --------- ---------------
--------- ---------------
Net income before income taxes 501,086 528,385 532,624 575,948 577,160 565,378
---------- --------- --------- --------- --------- ---------------
Add- fixed charges:
Interest on long term debt 120,547 125,705 124,766 117,899 121,763 112,693
Other interest 7,828 9,299 1,660 (1,342) 4,219 4,412
Rentals 3,458 3,727 3,416 3,899 3,928 3,511
Amortization of net debt premium, discount,
expenses and losses 4,269 3,672 3,522 3,421 3,300 3,282
--------- -------- -------- -------- -------- --------------
Total fixed charges 136,102 142,403 133,364 123,877 133,210 123,898
--------- -------- -------- -------- -------- --------------
Earnings available for fixed charges 637,188 670,788 665,988 699,825 710,370 689,276
========= ======== ======== ======== ======== ==============
Ratio of earnings to fixed charges 4.68 4.71 4.99 5.64 5.33 5.56
========= ======== ======== ======== ======== ==============
Earnings required for preferred dividends:
Preferred stock dividends 13,249 8,817 8,817 8,817 8,817 8,817
Adjustment to pre-tax basis 7,363 4,257 4,649 4,544 4,439 4,432
--------- -------- -------- -------- -------- --------------
20,612 13,074 13,466 13,361 13,256 13,249
Fixed charges plus preferred stock dividend
requirements 156,714 155,477 146,830 137,238 146,466 137,147
========= ======== ======== ======== ======== ==============
Ratio of earnings to fixed charges plus
preferred stock dividend requirements 4.06 4.31 4.53 5.09 4.85 5.02
========= ======== ======== ======== ======== ===============