AEE

Ameren Corporation 10-Q Summary: Period Ended September 30, 2000

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2000, for Ameren Corporation, a holding company registered under the Public Utility Holding Company Act of 1935. Ameren operates primarily through its regulated utility subsidiaries, AmerenUE (Missouri) and AmerenCIPS (Illinois), serving approximately 1.5 million electric and 300,000 natural gas customers. The company also maintains nonregulated subsidiaries for energy marketing, development, and generation operations.

Key Financial Metrics

Material Changes vs. Prior Period

• Earnings Growth: Third-quarter earnings increased $6 million (3%) year-over-year. Nine-month earnings rose $40 million (10%) compared to the prior year.
• Revenue Drivers: Electric revenues for the nine months increased $153 million, driven by a 7% rise in total kilowatthour sales, particularly in interchange sales (+50%) and commercial sales (+6%). This was partially offset by customer credits and abnormal weather effects.
• Cost Variations: Fuel and purchased power costs increased $52 million for the nine months due to higher generation volumes, despite lower fuel prices. A $52 million one-time charge for coal contract termination payments impacted the 12-month period.
• Balance Sheet: Short-term debt increased by $390 million to finance the acquisition of new combustion turbine generators. Trade accounts receivable increased $80 million due to higher revenues in late summer.

Guidance, Outlook, and Risks

• Earnings Guidance: Management estimates full-year 2000 EPS between $3.25 and $3.35. For 2001, EPS is projected between $3.30 and $3.45.
• Capital Expenditures: Construction expenditures for the nine months totaled $658 million. The company received approval to spend approximately $160 million on replacing steam generators at the Callaway Nuclear Plant, with completion scheduled for 2005.
• Debt Issuance: On November 1, 2000, the company issued $425 million in Senior Notes ($225 million due 2005 at 7.75% and $200 million due 2010 at 8.35%) to pay down short-term borrowings and fund capital projects.
• Regulatory and Market Risks:
  • Illinois Restructuring: Retail direct access is phasing in, allowing customers to choose suppliers. As of September 30, 2000, the financial impact was immaterial.
  • Rate Matters: A $22 million customer credit for the plan year ended June 30, 1999, was approved by the Missouri Public Service Commission. A $4.2 million annual gas rate increase in Missouri became effective November 1, 2000.
  • Legal Proceedings: Ongoing environmental investigations (Sauget site, Dead Creek Superfund) and litigation regarding the Taylorville manufactured gas plant. Management believes these will not have a material adverse effect.
  • Market Risk: Exposure to interest rate and commodity price fluctuations. A 1% increase in interest rates would reduce net income by approximately $7 million.

Investor Verification Checklist

• Verify the final outcome of the Missouri Public Service Commission appeal regarding the $31 million customer credit for the Original Plan year ended June 30, 1998.
• Monitor the impact of the Illinois Electric Service Customer Choice and Rate Relief Law as retail direct access expands to remaining commercial and residential customers.
• Track the execution of the $160 million Callaway Nuclear Plant steam generator replacement project and its impact on future capital expenditures.
• Review the status of the proposed transfer of AmerenUE's Illinois-based assets to AmerenCIPS, pending regulatory approvals from the ICC, MoPSC, FERC, and SEC.
• Assess the potential financial impact of the Midwest ISO withdrawal and transition to the Alliance Regional Transmission Organization.