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AEE > SEC Filings for AEE > Form 10-Q on 10-May-2013All Recent SEC Filings

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Form 10-Q for AMEREN CORP


10-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the financial statements contained in this Form 10-Q as well as Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors contained in the Form 10-K. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. The discussion also provides information about the financial results of the various segments of our business to provide a better understanding of how those segments and their results affect the financial condition and results of operations of Ameren as a whole. Ameren, headquartered in St. Louis, Missouri, is a public utility holding company under PUHCA 2005, administered by FERC. Ameren's primary assets are its equity interests in its subsidiaries. Ameren's subsidiaries are separate, independent legal entities with separate businesses, assets, and liabilities. These subsidiaries operate, as the case may be, rate-regulated electric generation, transmission and distribution businesses, rate-regulated natural gas transmission and distribution businesses, and merchant electric generation businesses. Dividends on Ameren's common stock and the payment of expenses by Ameren depend on distributions made to it by its subsidiaries. Ameren's principal subsidiaries are listed below.
Ameren Missouri operates a rate-regulated electric generation, transmission and distribution business, and a rate-regulated natural gas transmission and distribution business in Missouri.

Ameren Illinois operates a rate-regulated electric and natural gas transmission and distribution business in Illinois.

AER consists of non-rate-regulated operations, including Genco, AERG, and Marketing Company, and, through

Genco, an 80% ownership interest in EEI, which Ameren consolidates for financial reporting purposes.
Ameren has various other subsidiaries responsible for activities such as the provision of shared services.
On March 14, 2013, Ameren entered into a transaction agreement to divest New AER to IPH. Immediately prior to Ameren's entry into the transaction agreement with IPH, on March 14, 2013, Genco exercised its option under the amended put option agreement with Medina Valley and received an initial payment of $100 million for the pending sale of its Elgin, Gibson City, and Grand Tower gas-fired energy centers to Medina Valley, which is subject to FERC approval. Ameren has commenced a sale process for these three gas-fired energy centers and expects a third-party sale to be completed during 2013. See Note 2 - Divestiture Transactions and Discontinued Operations for additional information regarding these divestitures. As a result of the transaction agreement with IPH and Ameren's plan to sell its Elgin, Gibson City, and Grand Tower gas-fired energy centers, Ameren determined that New AER and the Elgin, Gibson City, and Grand Tower gas-fired energy centers qualified for discontinued operations presentation. Therefore, Ameren has segregated New AER's and the Elgin, Gibson City, and Grand Tower gas-fired energy centers' operating results, assets, and liabilities and presented them separately as discontinued operations for all periods presented in this report. Unless otherwise noted, the following sections of Management's Discussion and Analysis of Financial Condition and Results of Operations have been revised to exclude discontinued operations for all periods presented. See Note 2 - Divestiture Transactions and Discontinued Operations under Part I, Item 1 for additional information regarding that presentation. The financial statements of Ameren are prepared on a consolidated basis and therefore include the accounts of its majority-owned subsidiaries. All significant intercompany transactions have been eliminated. All tabular dollar amounts are in millions, unless otherwise indicated.


In addition to presenting results of operations and earnings amounts in total, we present certain information in cents per share. These amounts reflect factors that directly affect Ameren's earnings. We believe this per share information helps readers to understand the impact of these factors on Ameren's earnings per share.
OVERVIEW
Ameren reported a net loss attributable to Ameren Corporation of $145 million for the first quarter of 2013, compared with a net loss attributable to Ameren Corporation of $403 million for the first quarter of 2012. Net income attributable to Ameren Corporation from continuing operations increased to $54 million in the first quarter of 2013, from $37 million in the first quarter of 2012. The increase in first quarter 2013 earnings, compared to first quarter 2012, reflected improved earnings from Ameren Missouri and Ameren Illinois. Colder winter temperatures, which drove higher electric and natural gas sales volumes; new rates for Ameren Missouri electric and Ameren Illinois transmission service, both effective in January 2013; and the absence in 2013 of a required donation associated with the implementation of formula rates in Illinois, all benefited 2013 earnings comparisons. These favorable factors were partially offset by a reduction in Ameren Illinois electric delivery service revenues as a result of variation in the timing and amount of expected full-year recoverable costs under formula ratemaking and by higher Ameren Missouri non-fuel operations and maintenance expenses.
Ameren seeks to earn competitive returns on its investments in its businesses. Ameren Missouri and Ameren Illinois are seeking to improve their regulatory frameworks and cost recovery mechanisms and simultaneously pursuing constructive regulatory outcomes within existing frameworks and are seeking to align their overall spending, both operating and capital, with economic conditions and cash flows provided by their regulators. Consequently, Ameren's rate-regulated businesses are focused on minimizing the gap between allowed and earned returns on equity.
On March 14, 2013, Ameren entered into a transaction agreement to divest New AER to IPH. Immediately prior to Ameren's entry into the transaction agreement with IPH, on March 14, 2013, Genco exercised its option under the amended put option agreement with Medina Valley and received an initial payment of $100 million for the pending sale of its Elgin, Gibson City, and Grand Tower gas-fired energy centers to Medina Valley, which is subject to FERC approval. Ameren has commenced a sale process for these three gas-fired energy centers and expects a third-party sale to be completed during 2013. These divestitures will position Ameren to focus exclusively on its rate-regulated electric, natural gas and transmission operations, clarifying Ameren's strategic direction. Ameren intends to allocate its capital resources to those business opportunities which offer the most attractive risk-adjusted return potential.
In January 2013, Ameren Illinois filed a request with the ICC to increase its annual revenues for natural gas delivery service by

$50 million. In an attempt to reduce regulatory lag, Ameren Illinois used a future test year, 2014, in this proceeding. A decision in this proceeding is required by December 2013.
On March 14, 2013, the Illinois General Assembly passed legislation, which, if enacted, would result in certain amendments to the IEIMA that would modify its implementation. The passed legislation, Senate Bill 9, clarifies the provisions in the IEIMA that require the year-end rate base be used to calculate the revenue requirement reconciliation and that the interest applied to the revenue requirement reconciliation and return on equity collar adjustments would be consistent with the company's weighted average return calculated under the formula rate. Additionally, the legislation specifies the use of year-end capital structure for both the revenue requirement and the revenue requirement reconciliation. On May 5, 2013, the Illinois Governor vetoed this legislation. If this legislation is ultimately enacted through a legislative override in 2013, Ameren Illinois will submit revisions to its April 19, 2013 update filing based on the new law.
Ameren continues its plans to invest in electric transmission. MISO has approved three electric transmission projects to be developed by ATXI. The first project, Illinois Rivers, involves the building of a 345-kilovolt line from western Indiana across the state of Illinois to eastern Missouri. Design and planning work on the first sections of this project have begun and right-of-way acquisitions are scheduled to commence in late 2013 after receipt of a certificate of public convenience and necessity, which ATXI requested from the ICC in November 2012. Construction is expected to begin in 2014. The first sections of the Illinois Rivers project are expected to be in service in 2016. The last section of this project is expected to be completed in 2019. The Spoon River project in northwest Illinois and the Mark Twain project in northeast Missouri are the other two projects approved by MISO in its transmission expansion plan. These two projects are expected to be completed in 2018. The estimated total investment in these three projects is expected to be more than $1.3 billion through 2019. FERC has approved transmission rate incentives for the three MISO-approved projects. Separate from the ATXI projects discussed above, Ameren Illinois expects to invest approximately $1 billion in electric transmission assets over the next five years to address load growth and reliability requirements.
RESULTS OF OPERATIONS
Our results of operations and financial position are affected by many factors. Weather, economic conditions, and the actions of key customers or competitors can significantly affect the demand for our services. Our results are also affected by seasonal fluctuations: winter heating and summer cooling demands. The vast majority of Ameren's revenues are subject to state or federal regulation. This regulation has a material impact on the price we charge for our services. We principally use coal, nuclear fuel, natural gas, and oil for fuel in our operations. The prices for these commodities can fluctuate significantly due to the global economic and political environment, weather, supply and demand, and many other factors. We have natural gas cost recovery mechanisms for our Illinois and Missouri natural gas


delivery service businesses, a purchased power cost recovery mechanism for our Illinois electric delivery service business, and a FAC for our Missouri electric utility business. Ameren Illinois' electric delivery service utility business, pursuant to the IEIMA, conducts an annual reconciliation of the revenue requirement necessary to reflect the actual costs incurred in a given year with the revenue requirement that was in effect for that year, with recoveries from or refunds to customers in a subsequent year. Included in Ameren's Illinois' revenue requirement reconciliation is a formula for the return on equity, which is equal to the average for the applicable calendar year of the monthly average yields of 30-year United States Treasury bonds plus 580 basis points. Therefore, Ameren Illinois' annual return on equity will be directly correlated to yields on United States Treasury bonds. Fluctuations in interest rates and conditions in the capital and credit markets also affect our cost of borrowing and our pension and postretirement benefits costs. We employ various risk management strategies to reduce our exposure to commodity risk and other risks inherent in our business. The reliability of our energy centers and transmission and distribution systems and the level of purchased power costs, operations and maintenance costs, and capital investment are key factors that we seek to control to optimize our results of operations, financial position, and liquidity.
Earnings Summary
The net loss attributable to Ameren Corporation decreased to $145 million, or a loss of $0.60 per share, in the first quarter of 2013, from $403 million, or a loss of $1.66 per share, in the first quarter of 2012. Net income attributable to Ameren Corporation from continuing operations increased to $54 million, or $0.22 per share, in the first quarter of 2013, from $37 million, or $0.15 per share, in the first quarter of 2012. Net income attributable to Ameren Corporation increased in the first quarter of 2013 in the Ameren Missouri segment and in the Ameren Illinois segment by

$19 million and $4 million, respectively, from the prior-year period. Net income from continuing operations was favorably impacted in the first quarter of 2013, compared with the same period in 2012, by:
the impact of colder winter weather conditions on electric and gas demand (estimated at 10 cents per share);

increased transmission rates at Ameren Illinois (3 cents per share); and

higher utility rates at Ameren Missouri pursuant to an order issued by the MoPSC, which became effective in January 2013, partially offset by increased regulatory asset amortization directed by the rate order (2 cents per share).

Net income from continuing operations was negatively impacted in the first quarter of 2013, compared with the same period in 2012, by a decrease in Ameren Illinois' electric earnings driven by a reduction in electric delivery services revenues as a result of the variation in the timing and amount of expected full-year recoverable costs under formula ratemaking, partially offset by lower required donations pursuant to the IEIMA (6 cents per share).
The cents per share information presented above is based on average shares outstanding in the first quarter of 2012. For further details regarding the Ameren Companies' results of operations for the first quarter of 2013, including explanations of Margins, Other Operations and Maintenance Expenses, Depreciation and Amortization, Taxes Other Than Income Taxes, Other Income and Expenses, Interest Charges, Income Taxes, and Loss from Discontinued Operations, Net of Tax, see the major headings below.


Below is a table of income statement components by segment for the three months ended March 31, 2013, and 2012:

                                                                     Other /
                                    Ameren          Ameren         Intersegment
                                   Missouri        Illinois        Eliminations       Total
Three Months 2013:
Electric margin                  $       493     $       233      $        (2 )           724
Natural gas margin                        27             131               (1 )           157
Other operations and maintenance        (221 )          (176 )             (2 )          (399 )
Depreciation and amortization           (111 )           (61 )             (3 )          (175 )
Taxes other than income taxes            (77 )           (42 )             (3 )          (122 )
Other income and (expenses)                9              (2 )              -               7
Interest charges                         (60 )           (31 )            (10 )          (101 )
Income (taxes) benefit                   (19 )           (20 )              4             (35 )
Income (loss) from continuing
operations                                41              32              (17 )            56
Loss from discontinued
operations, net of tax                     -               -             (199 )          (199 )
Net income (loss)                         41              32             (216 )          (143 )
Noncontrolling interest and
preferred dividends                       (1 )            (1 )              -              (2 )
Net income (loss) attributable
to Ameren Corporation            $        40     $        31      $      (216 )          (145 )
Three Months 2012:
Electric margin                  $       436     $       241      $        (3 )    $      674
Natural gas margin                        23             110                -             133
Other operations and maintenance        (202 )          (168 )              1            (369 )
Depreciation and amortization           (108 )           (55 )             (4 )          (167 )
Taxes other than income taxes            (71 )           (39 )             (3 )          (113 )
Other income and (expenses)               12             (10 )              -               2
Interest charges                         (56 )           (33 )             (9 )           (98 )
Income (taxes) benefit                   (12 )           (18 )              7             (23 )
Income (loss) from continuing
operations                                22              28              (11 )            39
Loss from discontinued
operations, net of tax                     -               -             (442 )          (442 )
Net income (loss)                         22              28             (453 )          (403 )
Noncontrolling interest and
preferred dividends                       (1 )            (1 )              2               -
Net income (loss) attributable
to Ameren Corporation            $        21     $        27      $      (451 )    $     (403 )

Margins
The following table presents the favorable (unfavorable) variations by segment for electric and natural gas margins in the three months ended March 31, 2013, compared with the same period in 2012. Electric margins are defined as electric revenues less fuel and purchased power costs. Natural gas margins are defined as gas revenues less gas purchased for resale. We consider electric and natural gas margins useful measures to analyze the change in profitability of our electric and natural gas operations between periods. We have included the analysis below as a complement to the financial information we provide in accordance with GAAP. However, these margins may not be a presentation defined under GAAP and may not be comparable to other companies' presentations or more useful than the GAAP information we provide elsewhere in this report.


                                                Ameren        Ameren
                Three Months                   Missouri      Illinois       Other(a)       Ameren
Electric revenue change:
Effect of weather (estimate)(b)               $      31     $       5     $       -      $      36
Regulated rates:
Base rates (estimate)                                35           (16 )           -             19
Recovery of FAC under-recovery(c)                    18             -             -             18
Off-system (reduction in base rates)                (19 )           -            (1 )          (20 )
MEEIA (energy efficiency)                             7             -             -              7
Transmission services                                 2             9             1             12
Gross receipts tax                                    5             -             -              5
Illinois pass-through power supply costs              -           (63 )           -            (63 )
Rate-regulated sales volume (excluding the
impact of abnormal weather)                          13            (1 )           -             12
Other                                                 4            (5 )          (1 )           (2 )
Total electric revenue change                 $      96     $     (71 )   $      (1 )    $      24
Fuel and purchased power change:
Fuel:
Fuel, purchased power and transportation
costs included in base rates                  $     (21 )   $       -     $       -      $     (21 )
Recovery of FAC under-recovery(c)                   (18 )           -             -            (18 )
Illinois pass-through power supply costs and
other                                                 -            63             2             65
Total fuel and purchased power change         $     (39 )   $      63     $       2      $      26
Net change in electric margins                $      57     $      (8 )   $       1      $      50
Natural gas margins change:
Effect of weather (estimate)(b)               $       2     $       8     $       -      $      10
Base rates (estimate)                                 -             2             -              2
Energy efficiency programs and environmental
remediation cost riders                               -             5             -              5
Gross receipts tax                                    1             4             -              5
Sales (excluding the impact of abnormal
weather) and other                                    1             2            (1 )            2
Net change in natural gas margins             $       4     $      21     $      (1 )    $      24

(a) Includes amounts for nonregistrant subsidiaries and intercompany eliminations.

(b) Represents the estimated margin impact resulting from the effects of changes in cooling and heating degree-days on electric and natural gas demand compared with the prior-year period based on temperature readings from the National Oceanic and Atmospheric Administration weather stations at local airports in our service territories.

(c) Represents the change in the net fuel costs recovered under the FAC through customer rates, with corresponding offsets to fuel expense due to amortization of a previously recorded regulatory asset.

Ameren Corporation
Ameren's electric margins increased by $50 million, or 7%, for the three months ended March 31, 2013, compared with the same period in 2012. The following items had a favorable impact on Ameren's electric margins:
Weather conditions in 2013 were normal compared to warmer-than-normal conditions in 2012, as evidenced by a 40% increase in heating degree-days compared to the same period in 2012, which increased revenues by $36 million.

Higher electric base rates at Ameren Missouri, effective January 2013, which increased revenues by $35 million, offset by an increase in net base fuel expense of $31 million, which was a result of higher net base fuel cost rates approved in the 2012 MoPSC rate order. Net base fuel expense is the sum of fuel, purchased power and transportation costs included in base rates ($21 million), off-system revenues ($19 million), and beginning in 2013, transmission services revenues ($9 million). Transmission services revenues of $7 million for 2012 were not included in the FAC. The $2 million increase in transmission services

revenues between 2013 and 2012 is included in the above table. See below for additional details regarding the FAC.
Excluding the estimated impact of abnormal weather, rate-regulated sales volumes were flat; however, margins increased due to growth in the residential and commercial sectors at Ameren Missouri, which increased revenues by $12 million.

Higher transmission margins, primarily at Ameren Illinois, due to the forward-looking rate calculation for 2013, which increased margins by $12 million pursuant to a 2012 FERC order. On January 1, 2013, Ameren Illinois adjusted its electric transmission rates to reflect an increase in its transmission revenue requirement, which is subject to a periodic revenue requirement reconciliation.

Higher revenues associated with Ameren Missouri's MEEIA energy efficiency program cost recovery ($5 million) and lost revenue recovery ($2 million), effective January 2013, which increased revenues by a combined $7 million. The program cost recovery was offset by increased program cost expenses, with no overall impact on net income. See Other Operations and Maintenance Expenses in this section for


information on a related offsetting increase in energy efficiency program costs. The lost revenue recovery is expected to recover 90% of the projected lost revenue over three years beginning in 2013. See Note 3 - Rate and Regulatory Matters under Part 1, Item 1, for further information regarding MEEIA.
Increased gross receipts tax collections at Ameren Missouri due to higher sales as a result of colder winter weather in 2013, compared with 2012, which increased revenues by $5 million. See Taxes Other Than Income Taxes in this section for information on a related offsetting increase to gross receipts taxes.

Ameren's electric margins were unfavorably impacted by electric delivery formula ratemaking adjustments at Ameren Illinois resulting from the annual reconciliation of the revenue requirement pursuant to the IEIMA, which decreased revenues by $16 million. The reduction in revenues during the first quarter of 2013 was primarily a result of the variation in the timing and amount of expected full-year recoverable costs under formula ratemaking.
Ameren Illinois' revenues associated with Illinois pass-through power supply costs decreased $63 million because of lower power prices on sales and customers switching to alternative retail electric suppliers. This decrease in revenues was offset by a corresponding net decrease in purchased power expense. Ameren Missouri has a FAC cost recovery mechanism that allows Ameren Missouri to recover, through customer rates, 95% of changes in fuel, emission allowances, purchased power costs, transmission costs and MISO costs and revenues, net of off-system revenues, greater or less than the amount set in base rates without a traditional rate proceeding, subject to MoPSC prudency reviews. The MoPSC's December 2012 order authorized the inclusion of fuel additive costs and transmission revenues in the FAC starting in 2013. Ameren Missouri accrues, as a regulatory asset, fuel and purchased power costs that are greater than the amount set in base rates (FAC under-recovery). Net recovery of fuel costs under the FAC through customer rates increased by $18 million, for the three months ended March 31, 2013, compared with the same period in 2012, with corresponding offsets to fuel expense to reduce the previously recognized FAC regulatory asset.
Ameren's natural gas margins increased by $24 million, or 18%, for the three months ended March 31, 2013, compared with the same period in 2012. The following items had a favorable impact on Ameren's natural gas margins:
Weather conditions in 2013 were normal compared to warmer-than-normal conditions in 2012, as evidenced by an increase in heating degree-days of 40% in the first quarter of 2013 compared to the same period in 2012, which increased margins by $10 million.

Net increased recovery of energy efficiency program costs and environmental remediation costs through rate-adjustment mechanisms at Ameren Illinois, which increased

revenues by $5 million. See Other Operations and Maintenance Expenses in this section for information on a related offsetting increase in energy efficiency and environmental remediation costs.
Increased gross receipts tax collections, primarily at Ameren Illinois, due to higher sales as a result of colder winter weather in 2013 compared with 2012, which increased revenues by $5 million. See Taxes Other Than Income Taxes in this section for information on a related offsetting increase to gross receipts taxes.

Excluding the estimated impact of abnormal weather, retail sales volumes increased 1%, primarily at Ameren Illinois, driven largely by residential customers, which increased revenues by $2 million.

Increased natural gas rates effective in late January 2012, at Ameren Illinois, which increased revenues by $2 million.

Ameren Missouri
Ameren Missouri's electric margins increased by $57 million, or 13%, for the three months ended March 31, 2013, compared with the same period in 2012. The following items had a favorable impact on Ameren Missouri's electric margins:
Higher electric base rates, effective in January 2013, which increased revenues by $35 million, offset by an increase in net base fuel expense of $31 million, which was a result of higher net base fuel cost rates approved in the 2012 MoPSC rate order. Net base fuel expense is the sum of fuel, . . .

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