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AEE > SEC Filings for AEE > Form 10-K on 3-Mar-2014All Recent SEC Filings

Show all filings for AMEREN CORP

Form 10-K for AMEREN CORP


3-Mar-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. Dividends on Ameren's common stock and the payment of other expenses by Ameren depend on distributions made to it by its subsidiaries.
Below is a summary description of Ameren Missouri and Ameren Illinois. A more detailed description can be found in Note 1 - Summary of Significant Accounting Policies under Part II, Item 8, of this report.
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.

Ameren has various other subsidiaries responsible for activities such as the provision of shared services. Ameren also has a subsidiary, ATXI, that operates a FERC rate-regulated electric transmission business and is developing the Illinois Rivers project. The Illinois Rivers project is a MISO-approved project to build a 345-kilovolt line from western Indiana across the state of Illinois to eastern Missouri at an estimated cost of $1.1 billion.
On March 14, 2013, Ameren entered into a transaction agreement to divest New AER to IPH. On December 2, 2013, Ameren completed the divestiture of New AER to IPH. On January 31, 2014, Medina Valley completed its sale of the Elgin, Gibson City, and Grand Tower gas-fired energy centers to Rockland Capital. See Note 16 - Divestiture Transactions and Discontinued Operations under Part II, Item 8, of this report for additional information. These divestitures position Ameren to focus exclusively on its rate-regulated electric, natural gas, and transmission operations.
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 gas-fired energy centers qualified for discontinued operations presentation beginning March 14, 2013. In addition, as of December 2, 2013, Ameren abandoned the Meredosia and Hutsonville energy centers upon the completion of the divestiture of New AER to IPH. Ameren is prohibited from operating these energy centers through December 31, 2020, as a provision of the Illinois Pollution Control Board's November 2013 order granting IPH a variance of the MPS. As a result, Ameren determined that the Meredosia and Hutsonville energy centers qualified for discontinued operations presentation as of December 2, 2013. The Meredosia and Hutsonville energy centers ceased operations at December 31, 2011, and therefore 2011 was the last year those energy centers had a material effect on Ameren's

consolidated financial statements. As a result of these events, Ameren has segregated New AER's and the Elgin, Gibson City, Grand Tower, Meredosia, and Hutsonville energy centers' operating results, assets, and liabilities and presented them separately as discontinued operations for all periods presented in this report. Unless otherwise stated, the following sections of Management's Discussion and Analysis of Financial Condition and Results of Operations exclude discontinued operations for all periods presented. See Note 16 - Divestiture Transactions and Discontinued Operations under Part II, Item 8, of this report 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. Ameren Missouri and Ameren Illinois have no subsidiaries, and therefore their financial statements are not prepared on a consolidated basis. All significant intercompany transactions have been eliminated. All tabular dollar amounts are in millions, unless otherwise indicated.
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 that this per share information helps readers to understand the impact of these factors on Ameren's earnings per share. All references in this report to earnings per share are based on average diluted common shares outstanding.
OVERVIEW
With its exit from the merchant generation business complete, Ameren is focused exclusively on its rate-regulated utilities. Ameren plans to invest in and operate its utilities in a manner consistent with existing regulatory frameworks, optimizing operating and capital spending within these frameworks, including managing costs in a disciplined manner. As a result, Ameren intends to allocate significant and increasing amounts of discretionary capital to FERC-regulated electric transmission service and Illinois electric delivery service projects because these services operate under formulaic and constructive regulatory frameworks.
Ameren Missouri expects to file an electric service rate case in July 2014. The rate case is expected to include the costs associated with the completion of two significant capital projects, which projects are the replacement of the nuclear reactor head at Ameren Missouri's Callaway energy center and upgrades to precipitators at Ameren Missouri's coal-fired Labadie energy center. Both of these projects are scheduled for completion during the fourth quarter of 2014. The timing of the rate case filing is designed to minimize, to the extent possible under the existing regulatory framework, the regulatory lag on these two important capital investments.
Ameren Missouri continues to seek a regulatory framework with reduced regulatory lag, which provides timely cash flows and a reasonable opportunity to earn fair returns on investments that are in the best long-term interest of its customers. An enhanced


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regulatory framework would increase Ameren Missouri's ability to reinvest discretionary capital in aging energy infrastructure.
Ameren Illinois continues to participate in the IEIMA's performance-based formula ratemaking framework for electric delivery service. Under this framework, the ICC issued an order in December 2013 which approved a net $45 million reduction in Ameren Illinois' electric delivery service rates used for 2014 customer billings, compared with 2013. The reduction was primarily caused by a $68 million refund due to customers in 2014 as a result of the 2012 revenue requirement reconciliation, partially offset by a $23 million increase in recoverable costs. These rates will affect Ameren Illinois' cash flows during 2014, but not its operating revenues, which will instead be determined by the IEIMA's 2014 revenue requirement reconciliation. In 2013, Illinois enacted into law certain amendments to the IEIMA that modified its implementation, which were consistent with Ameren Illinois' view of the IEIMA's performance-based formula rate framework.
In December 2013, the ICC issued a rate order that approved an increase in revenues for natural gas delivery service of $32 million, based on a 2014 future test year, with rates that became effective January 1, 2014. Also in 2013, Illinois enacted legislation that encourages Illinois natural gas utilities to accelerate modernization of the state's natural gas infrastructure and provides for additional ICC oversight of natural gas utility performance. The law provides for a rate rider mechanism to recover costs of certain natural gas infrastructure investments made between rate cases. Ameren Illinois expects to begin including investments under this regulatory framework in 2015. Over the next five years, Ameren plans to invest $2.25 billion in FERC-regulated electric transmission projects (ATXI - $1.4 billion; Ameren Illinois - $850 million). In 2013, ATXI obtained a certificate of public convenience and necessity from the ICC approving portions of its Illinois Rivers transmission project. In February 2014, the ICC issued a final order on rehearing approving the remaining substations and routes of the project. The Illinois Rivers project has an estimated total project cost of $1.1 billion. A full range of construction activities for the Illinois Rivers project is scheduled in 2014. The Ameren Illinois transmission investments are local reliability projects. Earnings
Ameren reported net income of $289 million, or $1.18 per diluted share, for 2013, compared with net loss of $974 million, or a loss of $4.01 per diluted share, in 2012. Net income attributable to Ameren Corporation from continuing operations was $512 million, or $2.10 per diluted share, for 2013, and $516 million, or $2.13 per diluted share, for 2012. Ameren's earnings from continuing operations decreased in 2013, compared with 2012, in part, because of reduced earnings at Ameren Missouri due to the costs of the Callaway energy center's 2013 scheduled refueling and maintenance outage, compared with 2012 when there was no refueling outage, a reduction in revenues resulting from a MoPSC order related to the FAC, and the absence in 2013 of a 2012 benefit from a FERC-ordered refund from Entergy.

Additionally, earnings from continuing operations were unfavorably affected by decreased electric demand resulting from 2013 summer temperatures that were cooler than warmer-than-normal 2012 temperatures partially offset by increased electric and natural gas demand resulting from winter temperatures in 2013 that were colder than winter temperatures in 2012. Earnings from continuing operations were also unfavorably affected by the ICC's December 2013 order that resulted in a charge to earnings for the ICC's disallowance of a portion of debt premium costs. Net income from continuing operations at Ameren was favorably affected in 2013, compared with 2012, by rate increases for Ameren Missouri electric and Ameren Illinois transmission services, both effective in January 2013, as well as higher Ameren Illinois electric delivery service earnings. The latter reflected the absence, in 2013, of a 2012 required IEIMA contribution to the Illinois Science and Energy Innovation Trust, as well as increased rate base and a higher allowed return on equity due to higher 30-year United States Treasury bond yields under formula ratemaking. During 2013, Ameren Missouri and Ameren Illinois continued to align spending with regulatory outcomes, policies, and economic conditions.
Liquidity
Cash flows from operations associated with continuing operations of $1.6 billion and available cash on hand were used to pay dividends to common stockholders of $388 million and to fund capital expenditures of $1.4 billion. At December 31, 2013, Ameren, on a consolidated basis, had available liquidity, in the form of cash on hand and amounts available under existing credit agreements, of approximately $1.7 billion.
Capital Spending
In 2013, Ameren made significant investments in its utilities and expects that trend to continue into the foreseeable future. From 2014 through 2018, Ameren's cumulative capital spending is projected to range between $8 billion and nearly $9 billion. The spending includes approximately $1.4 billion for ATXI's investment in its electric transmission assets.
RESULTS OF OPERATIONS
Our results of operations and financial position are affected by many factors. Weather, economic conditions, and the actions of key customers 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 prices we charge for our services. We principally use coal, nuclear fuel, natural gas, methane gas, and oil for fuel in our operations. The prices for these commodities can fluctuate significantly because of 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,


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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 made in a subsequent year. Included in Ameren Illinois' revenue requirement reconciliation is a formula for the return on equity, which is equal to the average of the monthly 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 following table presents a summary of Ameren's earnings for the years ended December 31, 2013, 2012, and 2011:

                                             2013              2012             2011
Net income (loss) attributable to
Ameren Corporation                      $         289     $       (974 )   $         519
Earnings (loss) per common share -
diluted                                          1.18            (4.01 )            2.15

Net income attributable to Ameren
Corporation - continuing operations               512              516               431
Earnings per common share - diluted -
continuing operations                            2.10             2.13              1.79

2013 versus 2012
Net income attributable to Ameren Corporation from continuing operations in 2013 decreased $4 million, or $0.03 per diluted share, from 2012. Net income attributable to Ameren Corporation decreased in the Ameren Missouri segment by $21 million, partially offset by an increase in the Ameren Illinois segment of $19 million.
Compared with 2012 earnings per share from continuing operations, 2013 earnings per share from continuing operations were unfavorably affected by:
the cost of the Callaway energy center's scheduled refueling and maintenance outage in 2013. There was no Callaway refueling and maintenance outage in 2012 (10 cents per share);

a reduction in Ameren Missouri revenues resulting from a July 2013 MoPSC order that required a refund to customers for the earnings associated with certain long-term partial requirements sales recognized from October 1, 2009, to May 31, 2011 (7 cents per share);

the absence in 2013 of a reduction in Ameren Missouri's purchased power expense and an increase in interest

income, each as a result of a FERC-ordered refund received in 2012 from Entergy for a power purchase agreement that expired in 2009 (7 cents per share);
decreased electric demand resulting from summer temperatures in 2013 that were cooler than the warmer-than-normal temperatures in 2012, partially offset by increased electric and natural gas demand resulting from winter temperatures in 2013 that were colder than winter temperatures in 2012 (6 cents per share);

the ICC's December 2013 orders disallowing recovery from customers of a portion of the premium paid by Ameren Illinois for a tender offer in August 2012 to repurchase outstanding senior secured notes (4 cents per share); and

increased depreciation primarily due to infrastructure additions at Ameren Missouri and Ameren Illinois and Ameren Illinois' new electric depreciation rates (3 cents per share).

Compared with 2012 earnings per share from continuing operations, 2013 earnings per share from continuing operations were favorably affected by:
higher Ameren Missouri utility rates pursuant to an order issued by the MoPSC, which became effective in January 2013, partially offset by increased regulatory asset amortization as directed by the rate order. This excludes MEEIA impacts, which are discussed separately below (12 cents per share);

higher revenues associated with Ameren Missouri's MEEIA program cost and projected lost revenue recovery mechanism (9 cents per share), which were partially offset by lower revenues resulting from reduced demand due to energy efficiency programs;

higher electric transmission rates at Ameren Illinois and ATXI (8 cents per share); and

an increase in Ameren Illinois' electric delivery service earnings under formula ratemaking, favorably affected primarily by an increased rate base, a higher allowed return on equity, and lower required contributions pursuant to the IEIMA (8 cents per share).

The cents per share information presented above is based on diluted average shares outstanding in 2012.
2012 versus 2011
Net income attributable to Ameren Corporation from continuing operations in 2012 increased $85 million, or $0.34 per diluted share, from 2011. Net income attributable to Ameren Corporation increased in the Ameren Missouri segment by $129 million, which was partially offset by a decrease in the Ameren Illinois segment of $52 million.
Compared with 2011 earnings per share from continuing operations, 2012 earnings per share from continuing operations were favorably affected by:
the absence in 2012 of a 2011 charge for the MoPSC's July 2011 disallowance of costs of enhancements relating to the rebuilding of Ameren Missouri's Taum Sauk energy center in


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excess of amounts recovered from property insurance (23 cents per share);
higher utility rates at Ameren Missouri and Ameren Illinois. Ameren Missouri's electric rates increased pursuant to an order issued by the MoPSC, which became effective in July 2011. The favorable impact of the Ameren Missouri rate increase on earnings was reduced by the increased regulatory asset amortization directed by the rate order. Ameren Illinois' natural gas rates increased pursuant to an order issued by the ICC, which became effective in mid-January 2012 (22 cents per share);

the absence in 2012 of a Callaway energy center refueling and maintenance outage (11 cents per share);

the impact of fewer major storms on operations and maintenance expenses (9 cents per share);

a reduction in Ameren Missouri's purchased power expense and an increase in interest income, each as a result of a FERC-ordered refund received in 2012 from Entergy for a power purchase agreement that expired in 2009 (7 cents per share);

the absence in 2012 of a 2011 charge associated with voluntary separation offers to eligible Ameren Missouri and Ameren Services employees (7 cents per share);

the absence in 2012 of a reduction in Ameren Missouri's revenues as a result of the MoPSC's April 2011 FAC prudence review order covering March 1, 2009, to September 30, 2009, which caused Ameren Missouri to record an obligation to refund to its electric customers the earnings associated with certain previously recognized sales (5 cents per share); and

a reduction in labor costs because of staff reductions at Ameren Missouri, primarily resulting from the 2011 voluntary separation plan. The favorable effect at Ameren Missouri

was partially offset by increased labor costs at Ameren Illinois due to staff additions to comply with the requirements of the IEIMA (2 cents per share). Compared with 2011 earnings from continuing operations, 2012 earnings from continuing operations were unfavorably affected by:
a reduction in Ameren Illinois' electric earnings primarily caused by a lower allowed return on equity under electric delivery service formula ratemaking and required donations pursuant to the IEIMA (17 cents per share);

an increase in Ameren Missouri depreciation and amortization expense caused primarily by the installation of scrubbers at the Sioux energy center (8 cents per share);

reduced electric and natural gas demand as a result of warmer 2012 winter temperatures (estimated at 7 cents per share); and

reduced rate-regulated retail sales volumes, excluding the effects of abnormal weather, as sales volumes declined due to continued economic pressure, energy efficiency measures, and customer conservation efforts, among other items (2 cents per share).

The cents per share information presented above is based on diluted average shares outstanding in 2011.
For additional details regarding the Ameren Companies' results of operations, including explanations of Margins, Other Operations and Maintenance Expenses, Taum Sauk Regulatory Disallowance, Depreciation and Amortization, Taxes Other Than Income Taxes, Other Income and Expenses, Interest Charges, Income Taxes and Income (Loss) from Discontinued Operations, Net of Taxes, see the major headings below.


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Below is a table of income statement components by segment for the years ended December 31, 2013, 2012, and 2011:

                                                                      Other /
                                     Ameren           Ameren        Intersegment
              2013                  Missouri         Illinois       Eliminations        Total
Electric margins                 $      2,407     $      1,081     $         (3 )   $     3,485
Natural gas margins                        83              399               (2 )           480
Other revenues                              1                3               (4 )             -
Other operations and maintenance         (915 )           (693 )             (9 )        (1,617 )
Depreciation and amortization            (454 )           (243 )             (9 )          (706 )
Taxes other than income taxes            (319 )           (132 )             (7 )          (458 )
Other income and (expenses)                47                1               (5 )            43
Interest charges                         (210 )           (143 )            (45 )          (398 )
Income (taxes) benefit                   (242 )           (110 )             41            (311 )
Income (loss) from continuing
operations                                398              163              (43 )           518
Loss from discontinued
operations, net of taxes                    -                -             (223 )          (223 )
Net income (loss)                         398              163             (266 )           295
Net income attributable to
noncontrolling interests -
continuing operations                      (3 )             (3 )              -              (6 )
Net income (loss) attributable
to Ameren Corporation            $        395     $        160     $       (266 )   $       289
              2012
Electric margins                 $      2,340     $      1,034     $        (11 )   $     3,363
Natural gas margins                        75              378               (1 )           452
Other revenues                              1                -               (1 )             -
Other operations and maintenance         (827 )           (684 )              -          (1,511 )
Depreciation and amortization            (440 )           (221 )            (12 )          (673 )
Taxes other than income taxes            (304 )           (130 )             (9 )          (443 )
Other income and (expenses)                49              (10 )             (6 )            33
Interest charges                         (223 )           (129 )            (40 )          (392 )
Income (taxes) benefit                   (252 )            (94 )             39            (307 )
Income (loss) from continuing
operations                                419              144              (41 )           522
Loss from discontinued
operations, net of taxes                    -                -           (1,496 )        (1,496 )
Net income (loss)                         419              144           (1,537 )          (974 )
Net income attributable to
noncontrolling interests -
continuing operations                      (3 )             (3 )              -              (6 )
Net loss attributable to
noncontrolling interests -
discontinued operations                     -                -                6               6
Net income (loss) attributable
to Ameren Corporation            $        416     $        141     $     (1,531 )   $      (974 )
              2011
Electric margins                 $      2,252     $      1,087     $        (10 )   $     3,329
Natural gas margins                        79              354               (2 )           431
Other revenues                              5                1               (6 )             -
Other operations and maintenance         (934 )           (640 )             12          (1,562 )
Taum Sauk regulatory
disallowance                              (89 )              -                -             (89 )
Depreciation and amortization            (408 )           (215 )            (20 )          (643 )
Taxes other than income taxes            (296 )           (129 )             (8 )          (433 )
Other income and (expenses)                51                1               (7 )            45
Interest charges                         (209 )           (136 )            (42 )          (387 )
Income (taxes) benefit                   (161 )           (127 )             34            (254 )
Income (loss) from continuing
operations                                290              196              (49 )           437
Income from discontinued
operations, net of taxes                    -                -               89              89
Net income                                290              196               40             526
Net income attributable to
noncontrolling interests -
continuing operations                      (3 )             (3 )              -              (6 )
Net income attributable to
noncontrolling interests -
discontinued operations                     -                -               (1 )            (1 )
Net income attributable to
Ameren Corporation               $        287     $        193     $         39     $       519


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Margins
The following table presents the favorable (unfavorable) variations by segment for electric and natural gas margins from the previous year. 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. The table covers the years ended December 31, 2013, 2012, and 2011. 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
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