(As filed December 21, 2000)
File No. 70-[ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
APPLICATION OR DECLARATION
ON
FORM U-1
under
The Public Utility Holding Company Act of 1935
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AMEREN CORPORATION CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
UNION ELECTRIC COMPANY 607 East Adams Street
1901 Chouteau Avenue Springfield, Illinois 62739
St. Louis, Missouri 63103
(Name of company or companies filing this statement
and address of principal executive offices)
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AMEREN CORPORATION
(Name of top registered holding company parent
of each applicant or declarant)
----------------------------------------
Steven R. Sullivan, Vice President,
General Counsel and Secretary
Ameren Services Company
1901 Chouteau Avenue
St. Louis, Missouri 63103
(Name and address of agent for service)
----------------------------------------
The Commission is requested to mail signed copies of
all orders, notices and communications to:
James J. Cook, Esq. William T. Baker, Jr., Esq.
Ameren Services Company Thelen Reid & Priest LLP
1901 Chouteau Avenue 40 West 57th Street
St. Louis, Missouri 63103 New York, New York 10019-4097
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
-----------------------------------
1.1. Introduction.
------------
Ameren Corporation ("Ameren"), whose principal business address is at 1901
Chouteau Avenue, St. Louis, Missouri 63103, is a registered holding company
under the Public Utility Holding Company Act of 1935, as amended (the "Act").1
Ameren owns all of the issued and outstanding common stock of Union Electric
Company ("AmerenUE") and Central Illinois Public Service Company ("AmerenCIPS"),
each of which is an electric and gas utility company. Together, AmerenUE and
AmerenCIPS provide retail and wholesale electric service to approximately 1.5
million customers and retail natural gas service to approximately 300,000
customers in a 24,500 square-mile area of Missouri and Illinois. For the year
ended December 31, 1999, Ameren reported total operating revenues of
$3,523,631,000, of which approximately 93.3% were derived from electric
operations and 6.5% from gas operations. AmerenUE and AmerenCIPS own 40% and 20%
respectively of the outstanding common stock of Electric Energy, Inc., an
"exempt wholesale generator" ("EWG") within the meaning of Section 32 of the
Act.2
In addition to its two public utility subsidiaries, Ameren owns directly
all of the issued and outstanding common stock of five non-utility subsidiary
companies, as follows:
(1) Ameren Services Company, a subsidiary service company.
(2) CIPSCO Investment Company, which manages various non-utility
investments.
(3) Ameren Energy, Inc., an "energy-related company" within the meaning of
Rule 58 that engages in marketing of electricity and other energy commodities
and which also acts as agent for AmerenUE and Ameren Energy Generating Company
("Ameren GenCo") in connection with the marketing of electricity and other
energy commodities.3
(4) Ameren Development Company, an intermediate non-utility holding company
that was formed to acquire and hold the securities of other exempt and
authorized non-utility subsidiaries and investments.4
(5) Ameren Energy Resources Company ("Ameren Resources"), which is
------------------------
1 See Ameren Corporation, et al., Holding Co. Act Release No. 26809 (Dec. 30,
1997) (the "Merger Order").
2 See Electric Energy, Inc., 92 FERC P. 62,079 (2000).
3 See Ameren Corporation, et al., Holding Co. Act Release No. 27053 (July 23,
1999).
4 Id.
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also an intermediate non-utility holding company that directly and indirectly
holds the securities of other exempt and authorized non-utility companies,
including Ameren GenCo, which is an EWG.5 Ameren GenCo was formed to acquire
all of the generating assets of AmerenCIPS, which occurred in May 2000, and, in
addition, is the vehicle through which Ameren intends to acquire, own and
operate approximately 3000 MW of new gas-fired generation in the Midwest.
1.2 Requested Approvals.
-------------------
As discussed below, authorization is sought herein for certain transactions
(the "Asset Transfer") that will result in the acquisition by AmerenCIPS of
AmerenUE's electric transmission assets in Illinois other than those associated
with AmerenUE's Venice, Illinois generating plant and AmerenUE's electric
distribution assets in Illinois (the "T&D Assets"), and AmerenUE's retail gas
distribution facilities in Illinois (the assets to be acquired by AmerenCIPS are
identified collectively herein as the "Acquired Assets"). In connection with the
Asset Transfer, AmerenCIPS will assume certain obligations of AmerenUE that are
associated with the Acquired Assets.
Approximately one-half of the Acquired Assets (designated as "Transferred
Assets") will be transferred by AmerenUE directly to AmerenCIPS in return for a
promissory note to be issued by AmerenCIPS, and approximately one-half of the
Acquired Assets (designated as "Dividend Assets") will be transferred by a
dividend from AmerenUE to Ameren and the subsequent contribution of those assets
by Ameren to AmerenCIPS.6 The transactions for which authorization is requested
herein will be consummated in accordance with an Asset Transfer Agreement, the
form of which is filed herewith as Exhibit B-1. Accordingly:
o AmerenUE requests authorization to transfer all of the Transferred
Assets directly to AmerenCIPS.
o AmerenUE requests authorization to transfer the Dividend Assets to
Ameren by making an in-kind dividend on its common stock.
o Ameren requests authorization to contribute all of the Dividend Assets
to AmerenCIPS by making a capital contribution to AmerenCIPS.
------------------------
5 See Ameren Energy Generating Company, 92 FERC P. 62,023 (July 14, 2000). On
October 31, 2000, Ameren GenCo filed a new application with the Federal
Energy Regulatory Commission ("FERC") in Docket No. EG01-14-000 for
determination of continued EWG status following its acquisition of title to
additional generation resources.
6 The Asset Transfer Agreement provides for AmerenUE to prepare a schedule to
be delivered at the time of closing which specifically enumerates the
assets, properties and rights to be acquired by AmerenCIPS. The schedule
will further designate whether such specific assets are to be conveyed as
Dividend Assets or Transferred Assets. The percentages of Acquired Assets
that are to be conveyed as Transferred Assets and as Dividend Assets,
respectively, will be determined by Ameren immediately prior to the
closing.
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o AmerenCIPS requests authorization to acquire the Acquired Assets.
o AmerenCIPS requests authorization to assume certain liabilities of
AmerenUE that are associated with the Acquired Assets, and to issue a
subordinated promissory note in an amount equal to the book value of
the Transferred Assets (estimated to be approximately $51 million) to
AmerenUE as payment for the Transferred Assets.
o AmerenUE requests authorization to acquire and hold the promissory
note to be issued by AmerenCIPS.
Various elements of the Asset Transfer are subject to approval by the
Missouri and Illinois public utilities commissions, the FERC and the Federal
Communications Commission.
1.3 Reasons for Asset Transfer Agreement.
------------------------------------
The Asset Transfer will realign the retail electric and gas utility
operations of Ameren so that AmerenUE will be regulated as a public utility only
in Missouri. Although AmerenUE's principal retail service areas are in Missouri,
AmerenUE also provides retail electric and gas service to the public in that
portion of the St. Louis metropolitan area located in Illinois ("Metro East").
The effect of the proposed Asset Transfer is to transfer to AmerenCIPS
responsibility for serving electric and gas customers in Metro East that are
currently served by AmerenUE and thereby to consolidate the utility operations
of Ameren in Illinois in a single entity. Upon the transfer of AmerenUE's retail
electric and gas assets in Illinois, AmerenCIPS will succeed to AmerenUE's
retail utility operations in Illinois and will provide the retail electric and
gas services currently provided by AmerenUE pursuant to the tariffs currently in
effect for AmerenUE.
By consolidating all of Ameren's Illinois regulated operations in a single
entity, AmerenCIPS, Ameren will be able to reduce duplicative administrative
costs associated with regulatory matters in Illinois. Because AmerenUE will not
be a utility in Illinois, it will not be required to make regulatory filings in
Illinois. Instead, only AmerenCIPS will make such filings. Moreover, AmerenCIPS
will be the single point of contact of the Illinois Commerce Commission with
respect to regulatory matters affecting Ameren in Illinois.
The Asset Transfer also will alleviate AmerenUE's projected electric
generation capacity deficit in a manner beneficial to its Missouri retail
electric service customers. As a regulated electric utility, it is incumbent
upon AmerenUE to have or to acquire sufficient generating capacity with which to
serve the forecasted demands of its electric service customers and to maintain
an adequate reserve margin. AmerenUE's forecast of peak demands shows that it
will require an additional supply of power and energy through 2004 and beyond in
order to provide for its Missouri and Illinois customers' needs and to maintain
a reserve margin of 15% to 18%. Based on a minimum 15% reserve margin, AmerenUE
forecasts a generation capacity deficit of 327 MW in 2001, 410 MW in 2002, 462
MW in 2003, and 583 MW in 2004. In the absence of other changes, AmerenUE would
need to meet these deficits by purchasing power and energy at market prices, by
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building new generating capacity by AmerenUE, or by some combination
thereof.
The Asset Transfer is the lowest cost alternative available to enable
AmerenUE to supply its capacity and energy needs through 2004. The transfer to
AmerenCIPS of the electric service territory in Illinois that currently is
served by AmerenUE includes the transfer of 520 MW of firm electric load. The
reduction of projected loads of AmerenUE resulting from transfer of
responsibility for serving such loads to AmerenCIPS will enable AmerenUE to
serve its electric service customers in Missouri with its existing generation
capacity. The relief of AmerenUE's generation capacity shortfall by shifting
firm electric load from AmerenUE to AmerenCIPS will enable AmerenUE to serve its
Missouri ratepayers at capacity and energy costs that are lower than they would
have been if additional resources had been required. Moreover, as discussed more
fully below, this relief will be provided to AmerenUE without affecting either
existing customers of AmerenCIPS or those customers that are to be acquired by
AmerenCIPS as a result of the Asset Transfer.
1.4 Asset Transfer-Overview
-----------------------
Pursuant to the Asset Transfer Agreement, AmerenUE will transfer its
electric transmission and distribution and gas distribution assets and
associated general plant assets and related liabilities in Metro East to
AmerenCIPS. AmerenUE will also assign all related obligations to AmerenCIPS,
including without limitation, the certificates of public convenience and
necessity granted by the Illinois Commerce Commission authorizing AmerenUE to
provide electric utility service and gas utility service in Illinois,
environmental permits and obligations, all municipal and county franchises,
labor agreements (as applicable), and any other relevant agreements that exist
as of the transfer date. After the Asset Transfer has been consummated,
employees of AmerenUE that have been responsible for operation and maintenance
of the Acquired Assets may continue to operate and maintain the Acquired Assets
for AmerenCIPS.7
The Asset Transfer is planned to be accomplished in the following manner:
1. AmerenUE will transfer approximately 50% of the Acquired Assets to
AmerenCIPS in exchange for a subordinated promissory note in an amount
equal to approximately 50% of the total net book value of such
Acquired Assets net of liabilities, which is estimated to be
approximately $51 million.8
------------------------
7 The Commission recognized in the Merger Order that AmerenUE may provide
services to AmerenCIPS that are incidental to its utility business. These
services will be provided at cost in accordance with the standards of the
Act and the Commission's rules and regulations under the Act. See Merger
Order, 66 SEC Docket at 488.
8 Preliminary listings of the assets to be transferred to AmerenCIPS and the
associated liabilities to be assumed by AmerenCIPS and the related journal
accounting entries are contained in Exhibit B-2 and Exhibit B-3 hereto.
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2. AmerenUE will hold the note and receive payments including interest
from AmerenCIPS.
3. AmerenUE will declare an "in kind" dividend to Ameren equal to the
remaining balance (approximately 50%) of the net book value of the
Acquired Assets net of liabilities, estimated to be approximately $51
million.
4. Ameren will then contribute the Dividend Assets and associated
liabilities to AmerenCIPS.
Because different statutory provisions are involved, separate filings have
been made with the Illinois Commerce Commission relating to transfer of the T&D
Assets and to transfer of the gas distribution properties. It is therefore
possible that the transfers may not coincide. In the event that the T&D Assets
and the gas distribution properties are transferred separately, the same process
will be followed. However, the promissory note associated with transfer of T&D
Assets only will be approximately $46 million and the dividend would be
approximately $46 million. Conversely, the promissory note associated with
transfer of the gas distribution assets only would be approximately $5 million
and the related dividend would be approximately $5 million.
As determined by the Commission in the Merger Order, the existing electric
transmission and distribution facilities of AmerenCIPS and AmerenUE are
physically interconnected and operated as a single integrated electric utility
system. Likewise, the Commission held in the Merger Order that the combined gas
utility properties of AmerenUE and AmerenCIPS constitute an integrated gas
utility system. The Asset Transfer will not affect the coordinated operation of
any electric transmission or distribution plant, which will continue to be
operated in the same manner, by the same personnel, and with the same degree of
safety and reliability, as they are today. Similarly, the transfer of the gas
distribution assets of AmerenUE will not affect the coordinated operation of the
existing gas utility properties of AmerenUE and AmerenCIPS.
In accordance with the Customer Choice Law, all of the generation assets
previously owned by AmerenCIPS were transferred to Ameren GenCo in May 2000. As
a result, AmerenCIPS is a wires-only company. All of the power required by
AmerenCIPS to serve retail electric service customers in Illinois is purchased
by AmerenCIPS from Ameren Energy Marketing Company ("Marketing Co."), which has
sufficient generation capacity available not only to supply the existing
requirements of AmerenCIPS but also to supply the additional loads to be
transferred by AmerenUE. The capacity and energy charges for power sold by
Marketing Co. to AmerenCIPS are fixed and are not subject to change prior to
December 31, 2004. Thereafter, all retail customers of AmerenCIPS will have the
full opportunity to purchase electric service either from AmerenCIPS or from
competing suppliers at market-based rates.
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ITEM 2. FEES, COMMISSIONS AND EXPENSES.
------------------------------
The estimated amount of fees, commissions and expenses incurred or to be
incurred in connection with the transactions proposed herein will be supplied by
amendment.
ITEM 3. APPLICABLE STATUTORY PROVISIONS.
-------------------------------
The following sections of the Act and the Commission's rules thereunder are
or may be directly or indirectly applicable to the proposed transfer of utility
assets from AmerenUE to AmerenCIPS and related transactions:
--------------------------------- ----------------------------------------------
Sections of the Act Transactions to which section or rule may be
------------------- applicable
----------
--------------------------------- ----------------------------------------------
6(a), 7, and 12(b) Issuance of a promissory note by AmerenCIPS
in connection with the acquisition of the
Transferred Assets
--------------------------------- ----------------------------------------------
9(a)(1), 10 Acquisition of Acquired Assets by AmerenCIPS
--------------------------------- ----------------------------------------------
9(a)(1), 10 Acquisition by AmerenUE of promissory note to
be issued by AmerenCIPS
--------------------------------- ----------------------------------------------
12(c) In-kind distribution of Dividend Assets by
AmerenUE to Ameren
--------------------------------- ----------------------------------------------
12(b) Contribution of Dividend Assets by Ameren to
AmerenCIPS
--------------------------------- ----------------------------------------------
12(d), 12(f) Sale of Transferred Assets by AmerenUE to
AmerenCIPS
--------------------------------- ----------------------------------------------
Rules
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--------------------------------- ----------------------------------------------
43, 44 Sale of Transferred Assets by AmerenUE to
AmerenCIPS
--------------------------------- ----------------------------------------------
45 Contribution of Dividend Assets by Ameren to
AmerenCIPS and assumption by AmerenCIPS of
liabilities of AmerenUE
--------------------------------- ----------------------------------------------
46 In-kind distribution of Dividend Assets by
AmerenUE to Ameren
--------------------------------- ----------------------------------------------
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Section 32 of the Act and Rule 54 thereunder are also generally applicable
to each of the transactions described above. To the extent that other sections
of the Act or the Commission's rules thereunder are deemed to be applicable to
the Asset Transfer, such sections and rules should be considered to be set forth
in this Item 3.
Section 6(a) of the Act provides that it is unlawful for any registered
holding company or subsidiary thereof "to issue or sell any security of such
company" except in accordance with an order of the Commission issued pursuant to
Section 7 of the Act. Correspondingly, Section 12(b) of the Act requires
Commission authorization for a registered public utility holding company or
subsidiary thereof "to lend or in any manner extend its credit to or indemnify
any company in the same holding-company system." As a result, the issuance of a
promissory note by AmerenCIPS to AmerenUE and the assumption by AmerenCIPS of
certain obligations of AmerenUE relating to the Acquired Assets require prior
Commission approval under Sections 6, 7, and 12(b) of the Act.
Section 9(a)(1) of the Act declares that it shall be unlawful for any
registered holding company or subsidiary thereof to acquire any utility assets
or any securities unless the acquisition of such assets or securities has been
approved by the Commission pursuant to Section 10 of the Act.
Section 12(c) of the Act declares that it shall be unlawful for any
registered holding company or subsidiary thereof to declare or pay any dividend
on any security except in accordance with such rules and regulations or orders
as the Commission may adopt with respect to issuance of dividends. The
applicable standards for declaration and payment of dividends are set forth in
Rule 46.
Section 12(d) of the Act states that it is unlawful for a registered
holding company to sell any utility assets in contravention of rules and
regulations or orders as the Commission shall adopt. Section 12(f) of the Act
requires Commission approval for a subsidiary of a registered holding company to
sell utility assets to any affiliate or associate company.
As set forth below, the Asset Transfer complies with all of the applicable
provisions of the Act and should be approved by the Commission.
A. Section 6(a)
------------
In conjunction with the Asset Transfer, AmerenCIPS is proposing to issue a
promissory note in an amount equal to the book value net of liabilities of the
Transferred Assets, which is estimated to be $51 million. The promissory note
will have a market rate of interest based on interest rates charged for
generally-comparable unsecured five-year notes issued by companies whose credit
quality and bond ratings are comparable to those of AmerenCIPS. Although the
initial term of the promissory note will be five years, payments of amounts due
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under the promissory note will be based on a ten-year amortization schedule.
Accordingly, a balloon payment will become due at the end of the fifth year
unless the note's term is extended for an additional five years by agreement of
the parties. The promissory note will be unsecured and will be subordinate to
all other debt of AmerenCIPS, whether incurred currently or in the future,
except indebtedness which, by its terms, provides that such indebtedness is not
superior in right of payment of principal of or interest on the promissory note
or that such indebtedness is subordinated to all other indebtedness of
AmerenCIPS.
In addition, AmerenCIPS will assume all obligations of AmerenUE relating to
its business of transmitting and distributing electricity and natural gas in
Illinois. As shown in Exhibit B-2 and Exhibit B-3 hereto, these obligations
include trade payables relating to such businesses, accounts payable, accrued
payroll, accrued vacation liabilities, customer liabilities, environmental
liabilities and taxes. AmerenCIPS will also assume all maintenance and labor
agreements (as applicable) and any similar agreements relating to the Acquired
Assets as those agreements exist on the transfer date.
Section 6(a) requires the issuance of an order of the Commission pursuant
to Section 7 of the Act before a registered holding company or subsidiary
thereof may issue any security. Section 7(c)(2)(B) of the Act provides that the
Commission shall not permit a declaration regarding the issue or sale of any
security to become effective unless it finds, inter alia, that "such security is
to be issued or sold solely...for the purpose of financing the business of the
declarant as a public utility company." Section 7(d) further provides that if
the requirements of Section 7(c) and Section 7(g) of the Act are satisfied:
The Commission shall permit a declaration regarding the issue or sale
of a security to become effective unless the Commission finds that--
(1) the security is not reasonably adapted to the security
structure of the declarant and other companies in the same
holding company system;
(2) the security is not reasonably adapted to the earning
power of the declarant.
(3) financing by the issue and sale of the particular
security is not necessary or appropriate to the economical and
efficient operation of a business in which the applicant lawfully
is engaged or has an interest;
(4) the fees, commissions, or other remuneration, to
whomsoever paid, directly or indirectly, in connection with the
issue, sale or distribution of the security are not reasonable.
(5) in the case of a security that is a guaranty of, or
assumption of liability on, a security of another company, the
circumstances are such as to constitute the making of such
guaranty or the assumption of such liability an improper risk for
the declarant.
(6) the terms and conditions of the issue or sale of the
security are detrimental to the public interest or the interest
of investors or consumers.
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AmerenCIPS currently provides electric service to approximately 320,000
customers and gas service to approximately 170,000 customers, all in the State
of Illinois. AmerenUE has approximately 62,000 electric and 18,000 gas customers
in Illinois. The promissory note to be issued by AmerenCIPS is to be used for
the purpose of financing expansion of its business as a public utility company
in Illinois by acquiring the electric utility and gas utility operations of
AmerenUE in Illinois.
Pursuant to the Asset Transfer Agreement, AmerenCIPS will acquire not only
the T&D Assets, but also AmerenUE's retail electric business in Illinois,
including the certificates of public convenience and necessity granted by the
Illinois Commerce Commission authorizing AmerenUE to provide retail electric
service in Illinois, environmental permits, all municipal and county franchises,
and any other relevant agreements. Additionally, AmerenCIPS will acquire both
AmerenUE's gas assets in Illinois and all related obligations, including the
certificates of public convenience and necessity granted by the Illinois
Commerce Commission authorizing AmerenUE to provide gas utility service in
Illinois, environmental permits, all municipal and county franchises, and any
other relevant agreements. As noted above, the Asset Transfer is being financed
in part by the issuance of the promissory note by AmerenCIPS. It is therefore
evident that issuance of the promissory note by AmerenCIPS is consistent with
Section 7(c)(2)(B) of the Act.
The issuance of the promissory note is also consistent with the criteria
established in Section 7(d) of the Act. As of September 30, 2000, the total
capitalization of AmerenCIPS is $1,253,797,000, of which 50% is long and
short-term debt, 6% is preferred stock, and 44% is common equity capital. The
acquisition of assets by AmerenCIPS from AmerenUE is being financed in
approximately equal parts by the promissory note to be issued by AmerenCIPS and
by a capital contribution by Ameren. Because debt and equity of AmerenCIPS will
increase in the same amount, the capital structure of AmerenCIPS after the Asset
Transfer will be substantially the same as its present capital structure. Thus,
pro forma financial statements reflecting the Asset Transfer show that after the
Asset Transfer, the capitalization of AmerenCIPS will be approximately 49% debt,
6% preferred stock, and 45% common equity.
Further, the promissory note is reasonably adapted to the earning power of
AmerenCIPS and is appropriate to the economical and efficient operation of
AmerenCIPS as a public utility company. The 50% debt and 50% equity nature of
the financing of the Asset Transfer helps to maintain the rate of return on
equity of AmerenCIPS, after the transfer, at approximately the same level as
before the transfer. Based on recent market conditions, principal and interest
payments by AmerenCIPS pursuant to the promissory note (excluding the final
balloon principal payment) will be approximately $7,430,000 annually. The
average annual net earnings of AmerenCIPS for the five year period 2001 through
2005 are expected to be approximately $1,432,000 greater after the Asset
Transfer than they would have been if the Asset Transfer did not occur. It is
thus evident that the Asset Transfer and the issuance of the associated
promissory note by CIPS is consistent with the earning power of AmerenCIPS.
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Moreover, the combination of the utility assets of AmerenUE in Illinois
with the utility assets of AmerenCIPS will result in efficiencies and economies
through elimination of duplicative regulatory burdens, and will thereby produce
savings for the benefit of the public and consumers and investors of AmerenCIPS.
The amount of estimated fees and expenses associated with the Asset
Transfer will be provided by amendment to this application (see, Item 2 - Fees,
Commissions and Expenses). The Applicants believe that the estimated fees and
expenses in this matter bear a fair relation to the book value of the assets
being transferred and the benefits to be achieved by AmerenUE and AmerenCIPS as
a result of the Asset Transfer. The total estimated fees and expenses of
approximately $ represent approximately % of the book value of the assets
--- ---
being transferred, which is reasonable in relation to the size and complexity of
the Asset Transfer and the regulatory approvals that must be obtained
(percentages to be filed by amendment).
To the extent that AmerenCIPS is assuming liabilities of AmerenUE that are
associated with the Acquired Assets, the assumption of such liabilities is not
an improper risk for AmerenCIPS. The Acquired Assets represent a part of a going
concern and are capable of generating revenues sufficient to meet the
obligations being assumed by AmerenCIPS. It is therefore reasonable for
AmerenCIPS to assume the risks associated with the Acquired Assets.
Finally, the terms and conditions of the promissory note as described above
are not detrimental to the public interest or the interest of investors or
consumers. The promissory note will carry a market rate of interest, will have a
relatively short term, and will be subordinated to most other debt of
AmerenCIPS.
B. Section 12(b)
-------------
Section 12(b) of the Act states that it is unlawful for any registered
holding company or subsidiary thereof "to lend or in any manner extend its
credit to or indemnify any company in the same holding-company system" in
violation of rules and regulations or orders adopted by the Commission. Rule 45
requires, with certain exceptions not here relevant, that Commission approval be
obtained for any such extension of credit.
As noted above, the promissory note will carry a market-based rate of
interest. The 50% note and 50% dividend structure of the transaction will
maintain a capital structure at AmerenUE that is substantially the same after
the Asset Transfer as it is at the present time. The capital structure of
AmerenUE as of September 30, 2000 and the pro forma capital structure of
AmerenUE after the Asset Transfer are as follows:
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Security Ratio As of Ratio
-------- Sept. 30, 2000 After Transfer
-------------- --------------
Long and Short-
Term Debt 39% 40%
Preferred Stock 4% 3%
Common Equity 57% 57%
---- ----
Total 100% 100%
Further, the rate of return on common equity realized by AmerenUE after the
Asset Transfer is expected to be maintained at approximately the same level as
it is before the transfer. It is therefore evident that the acquisition of the
promissory note by AmerenUE is consistent with the interests of investors and
consumers.
C. Section 9(a)(1)
---------------
Section (9)(a)(1) of the Act requires the approval of the Commission
pursuant to Section 10 of the Act before a registered holding company or
subsidiary thereof may acquire utility assets or any securities. Section 10(b)
provides that, if the requirements of Section 10(f) are satisfied, the
Commission shall approve an acquisition under Section 9(a) unless the Commission
finds that:
(1) such acquisition will tend towards interlocking relations or the
concentration of control of public-utility companies, of a kind or to
an extent detrimental to the public interest or the interests of
investors or consumers;
(2) in case of the acquisition of securities or utility assets, the
consideration, including all fees, commissions, and other
remuneration, to whomsoever paid, to be given, directly or indirectly,
in connection with such acquisition is not reasonable or does not bear
a fair relation to the sums invested in or the earning capacity of the
utility assets to be acquired or the utility assets underlying the
securities to be acquired; or
(3) such acquisition will unduly complicate the capital structure of the
holding-company system of the applicant or will be detrimental to the
public interest or the interests of investors or consumers or the
proper functioning of such holding-company system.
Clearly, in this case, the acquisition of the Acquired Assets by AmerenCIPS
will not contribute to an undue concentration of control of public utility
assets. Both AmerenCIPS and AmerenUE are subsidiaries of Ameren, which,
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as their corporate parent, has ultimate control over both subsidiaries and their
public utility assets. Ameren's control over these assets will not be affected
by the proposed Asset Transfer.
The amounts to be paid by AmerenCIPS bear a fair relation to the sums
invested in and the earning capacity of the Acquired Assets. The Acquired Assets
are being transferred at their book value net of liabilities. It is estimated
that as of December 31, 2000, the net book value of the T&D Assets to be
acquired by AmerenCIPS net of liabilities will be $91,013,179, and the net book
value of the gas assets to be acquired by AmerenCIPS net of liabilities will be
$11,482,383. The rates for electric and natural gas service provided by AmerenUE
in Illinois are cost-based rates that are predicated in part on the book value
of these assets. It is thus evident that amount to be paid by AmerenCIPS is
consistent with Section 10(b)(2) of the Act.
As noted above, the acquisition of the Acquired Assets by AmerenCIPS will
not unduly complicate its capital structure. Approximately one-half of the
Acquired Assets will be transferred to AmerenCIPS through distribution by
AmerenUE to Ameren followed by contribution of such assets to AmerenCIPS, and
the remainder will be transferred to AmerenCIPS in return for a promissory note.
As a result, the transaction will not have a significant effect on the capital
structure of AmerenCIPS.
The acquisition of the Acquired Assets by AmerenCIPS will not have an
adverse effect on the interests of consumers of either AmerenUE or AmerenCIPS.
Existing and new retail electric service customers of AmerenCIPS will
continue to be served in accordance with tariffs that have previously been
approved by the Illinois Commerce Commission. Rates of captive retail electric
service customers currently served by AmerenCIPS are not subject to change prior
to December 31, 2004, when the transition to full retail customer choice in
Illinois will be completed.
AmerenCIPS has an electricity supply agreement with Marketing Co. pursuant
to which it purchases its full requirements for electricity at demand and energy
charges that are fixed and not subject to modification prior to December 31,
2004. Marketing Co. has sufficient generation capacity available to be able to
accommodate the additional load being transferred to AmerenCIPS. The stability
provided by this contract will insulate retail electric service customers in
Illinois that transfer from AmerenUE to AmerenCIPS from any meaningful risk of a
rate increase during the term of that electricity supply agreement. Thereafter,
AmerenCIPS will purchase electricity needed to serve all of its customers under
competitive market conditions.
As noted above, AmerenUE faces a potential shortfall in generation capacity
needed to provide reliable electric service during the next few years. The Asset
Transfer is expected to alleviate AmerenUE's generation capacity shortfall at a
cost to AmerenUE and its Missouri ratepayers that is lower than the projected
cost of either constructing new gas-fired generating capacity or of purchasing
capacity and energy at market-based prices.
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The average cost of capacity owned by AmerenUE, a portion of which is
currently used to serve customers in Illinois, is approximately $350/kW. The
transfer to AmerenCIPS of 520 MW of load in Illinois currently served by
AmerenUE increases the amount of generating capacity owned by AmerenUE that it
can use to serve its retail electric service customers in Missouri at a cost of
only $350/kW. In contrast, the estimated cost to AmerenUE of constructing
additional gas-fired generation to serve its Missouri retail customers is
$420/kW. Based on a load transfer of 520 MW and a 16.39% carrying cost, the
capacity cost savings to AmerenUE's retail customers in Missouri as a result of
the Asset Transfer will be approximately $6 million annually.
Similarly, with the 520 MW of demand on AmerenUE's system being transferred
to AmerenCIPS, regulated Missouri customers will enjoy (1) lower average
production costs and (2) fewer energy purchases during periods of peak demand.
For example, average variable production costs of AmerenUE plants are
approximately $16 per MWh. This is much less costly than variable production
costs of gas-fired generating capacity, which are estimated (based on a cost of
natural gas of $4.89/mmbtu) to be more than $50 per MWh, or market purchases,
which are estimated to be approximately $38 per MWH.
Finally, AmerenCIPS and AmerenUE have integrated their gas utility
operations and rely extensively on support services provided by Ameren Services
Company.9 Moreover, AmerenCIPS will adopt the service classifications and rates
in AmerenUE's retail tariffs for natural gas service in Illinois and will assume
the obligations of AmerenUE under certificates of public convenience and
necessity granted by the Illinois Commerce Commission and all municipal and
county franchises authorizing AmerenUE to provide gas utility service in
Illinois. Therefore, insofar as the natural gas service customers of AmerenUE in
Illinois are concerned, the Asset Transfer will simply result in a change in
name of their service provider without having any impact on the quality or cost
of service provided.
D. Section 10(c)
-------------
Section 10(c) of the Act provides that, notwithstanding the provisions of
Section 10(b), the Commission shall not approve:
(1) an acquisition of securities or utility assets, or of any other
interest, which is unlawful under the provisions of section 8 or is
detrimental to the carrying out of the provisions under section 11; or
------------------------
9 On October 18, 2000, Ameren filed an application on Form U-1 in File No.
70-9775 for authorization for Ameren Energy Fuels and Services Company
("Ameren Fuels") to provide fuel procurement and gas supply services to
AmerenUE and AmerenCIPS. Upon receipt of all necessary regulatory
approvals, such services will be provided by Ameren Fuels rather than
Ameren Services.
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<PAGE>
(2) the acquisition of securities or utility assets of a public utility or
public utility holding company unless the Commission finds that such
acquisition will serve the public interest by tending towards the
economical and the efficient development of an integrated public
utility system.
The Commission approved the formation of Ameren and its acquisition of
AmerenUE and AmerenCIPS in 1997. The Commission concluded at that time that the
combined electric properties of AmerenUE and AmerenCIPS would be an integrated
electric system and that "the proposed acquisition by Ameren of this electric
integrated system will `ten[d] towards the economical and efficient development
of an integrated public-utility system,' and so satisfy the requirements of
section 10(c)(2) of the Act."10 The Commission further concluded that the gas
properties of AmerenUE and AmerenCIPS "constitute a gas integrated system within
the meaning of section 2(a)(29)(B) of the Act."11 The transfer of the Acquired
Assets from AmerenUE to AmerenCIPS will not affect the integrated operation of
these facilities. It is thus evident that Section 10(c) of the Act does not
preclude issuance of a Commission order authorizing acquisition of the Acquired
Assets by AmerenCIPS.
E. Section 12(c)
-------------
The Dividend Assets are to be transferred through distribution of an
in-kind dividend by AmerenUE to Ameren, and a capital contribution by Ameren to
AmerenCIPS. Section 12(c) of the Act precludes the declaration or payment of a
dividend by a registered holding company or subsidiary thereof:
...in contravention of such rules and regulations or orders as the
Commission deems necessary or appropriate to protect the financial
integrity of companies in holding-company systems, to safeguard the
working capital of public-utility companies, to prevent the payment of
dividends out of capital or unearned surplus, or to prevent the
circumvention of the provisions of this title or the rules,
regulations, or orders thereunder.
The only relevant rule adopted by the Commission relating to declaration or
payment of dividends by a subsidiary company of a registered public utility
holding company is Rule 46(a), which precludes payment of a dividend "out of
capital or unearned surplus, except pursuant to a declaration notifying the
Commission of the proposed transaction, which has become effective in accordance
with the procedure specified in ss.250.23." As of September 30, 2000, AmerenUE
had retained earnings in excess of $1.3 billion. The distribution of the
Dividend Assets will result in a charge against retained earnings of AmerenUE of
approximately $51 million. It is therefore evident that AmerenUE has sufficient
retained earnings in which to make an in-kind dividend to Ameren for the purpose
of implementing the Asset Transfer.
------------------------
10 See Merger Order, 66 SEC Docket at 490, fn. 17.
11 Id. at 491.
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F. Rule 54
-------
The transactions proposed herein are also subject to Section 32(h)(4) of
the Act and Rule 54 thereunder. Rule 54 provides that, in determining whether to
approve any transaction that does not relate to an EWG or "foreign utility
company" ("FUCO"), the Commission shall not consider the effect of the
capitalization or earnings of any subsidiary which is an EWG or FUCO upon the
registered holding company system if paragraphs (a), (b) and (c) are satisfied.
Ameren has complied or will comply with the record-keeping requirements of
Rule 53(a)(2), the limitation under Rule 53(a)(3) on the use of the Ameren
system's domestic public-utility company personnel to render services to EWGs
and FUCOs, and the requirements of Rule 53(a)(4) concerning the submission of
copies of certain filings under the Act to retail regulatory commissions.
Further, none of the circumstances described in Rule 53(b) has occurred or is
continuing. Rule 53(c) is inapplicable by its terms because the proposals
contained herein do not involve the issue and sale of securities (including any
guarantees) to finance an acquisition of an EWG or FUCO.
Rule 53(a)(1) limits a registered holding company's financing of
investments in EWGs if such holding company's "aggregate investment" in EWGs and
FUCOs exceed 50% of its "consolidated retained earnings." Ameren's "aggregate
investment"(as defined in Rule 53(a)(1)(i)) in all EWGs and FUCOs is currently
equal to 22.5% of Ameren's "consolidated retained earnings" (as defined in Rule
53(a)(1)(ii)) for the four quarters ended September 30, 2000.
ITEM 4. REGULATORY APPROVALS.
--------------------
Applications with respect to transactions contemplated in the Asset
Transfer Agreement have been or will be filed with the Illinois Commerce
Commission, the Missouri Public Service Commission, the FERC, and the Federal
Communications Commission. No other state commission, and no other federal
commission, other than the Commission, has jurisdiction over the proposed
transactions.
ITEM 5. PROCEDURE.
---------
The Commission is requested to publish a notice under Rule 23 with respect
to the filing of this Application or Declaration as soon as practicable. The
Applicants request that the Commission's Order be issued as soon as the rules
allow, and that there should not be a 30-day waiting period between issuance of
the Commission's order and the date on which the order is to become effective.
The Applicants hereby waive a recommended decision by a hearing officer or any
other responsible officer of the Commission and consents that the Division of
Investment Management may assist in the preparation of the Commission's decision
and/or order, unless the Division opposes the matters proposed herein.
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ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
---------------------------------
A. Exhibits.
--------
A None.
B-1 Form of Asset Transfer Agreement among Union Electric Company,
Central Illinois Public Service Company, and Ameren Corporation,
dated as of .
-----
B-2 Preliminary Listing of Electric Assets and Liabilities Being
Transferred from Union Electric Company to Central Illinois
Public Service Company.
B-3 Preliminary Listing of Gas Assets and Liabilities Being
Transferred from Union Electric Company to Central Illinois
Public Service Company.
B-4 Form of Promissory Note to be issued to AmerenUE by AmerenCIPS.
C None.
D-1 Notice to Illinois Commerce Commission of transfer of Electric
Distribution and Transmission Assets and Retail Electric
Business.
D-2 Petition to Illinois Commerce Commission for authorization to
transfer certificates of public convenience and necessity issued
to AmerenUE to provide retail electric service in Illinois.
D-3 Petition to Illinois Commerce Commission for authorization to
transfer gas system assets and gas public utility business.
D-4 Order of Illinois Commerce Commission relating to transfer of
Electric Distribution and Transmission Assets and Retail Electric
Business. (To be filed by amendment).
D-5 Order of Illinois Commerce Commission relating to transfer of
certificates of public convenience and necessity issued to
AmerenUE to provide retail electric service in Illinois. (To be
filed by amendment).
D-6 Order of Illinois Commerce Commission relating to transfer of gas
system assets and gas public utility business. (To be filed by
amendment).
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D-7 Application to Missouri Public Service Commission and Amendment
thereto for authorization to transfer assets and related
contracts.
D-8 Order of Missouri Public Service Commission (to be filed by
amendment).
D-9 Application to FERC pursuant to Section 203 of Federal Power Act
to transfer FERC-jurisdictional assets (to be filed by
amendment).
D-10 Order of FERC (to be filed by amendment).
E Map of combined service areas of AmerenUE and AmerenCIPS (Paper
format - Form SE).
F Opinion of Counsel. (To be filed by amendment).
G Proposed Form of Federal Register Notice.
B. Financial Statements.
--------------------
FS-1 Balance Sheet of Ameren and consolidated subsidiaries, as of
Sept. 30, 2000 (incorporated by reference to the Quarterly Report
on Form 10-Q of Ameren for the quarter ended Sept. 30, 2000)
(File No. 001-14756).
FS-2 Statements of Income of Ameren and consolidated subsidiaries for
the three, nine and twelve-month periods ended Sept. 30, 2000
(incorporated by reference to the Quarterly Report on Form 10-Q
of Ameren for the quarter ended Sept. 30, 2000) (File No.
001-14756).
FS-3 Balance Sheet of AmerenUE as of Sept. 30, 2000 (incorporated by
reference to the Quarterly Report on Form 10-Q of AmerenUE for
the quarter ended Sept. 30, 2000) (File No. 001-02967).
FS-4 Statements of Income of AmerenUE for the three, nine and
twelve-month periods ended Sept. 30, 2000 (incorporated by
reference to the Quarterly Report on Form 10-Q of AmerenUE for
the quarter ended Sept. 30, 2000) (File No. 001-02967).
FS-5 Balance Sheet of AmerenCIPS as of Sept. 30, 2000 (incorporated by
reference to the Quarterly Report on Form 10-Q of AmerenCIPS for
the quarter ended Sept. 30, 2000) (File No. 001-03672).
18
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FS-6 Statements of Income of AmerenCIPS and consolidated subsidiaries
for the three, nine and twelve-month periods ended Sept. 30, 2000
(incorporated by reference to the Quarterly Report on Form 10-Q
of AmerenCIPS for the quarter ended Sept. 30, 2000) (File No.
001-03672).
FS-7 Pro Forma Balance Sheet of AmerenUE as of Dec. 31, 2000 (to be
filed by amendment).
FS-8 Pro Forma Balance Sheet of AmerenCIPS as of Dec. 31, 2000 (to be
filed by amendment).
FS-9 Preliminary Accounting Entries for Transfer of Electric Assets
and Liabilities from AmerenUE to AmerenCIPS estimated at December
31, 2000.
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
---------------------------------------
None of the matters that are the subject of this Application or Declaration
involve a "major federal action" nor do they "significantly affect the quality
of the human environment" as those terms are used in section 102(2)(C) of the
National Environmental Policy Act. The transactions that are the subject of this
Application or Declaration will not result in changes in the operation of the
Applicants that will have an impact on the environment. The Applicants are not
aware of any federal agency that has prepared or is preparing an environmental
impact statement with respect to the transactions that are the subject of this
Application or Declaration.
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, as amended, the undersigned companies have duly caused this Application or
Declaration filed herein to be signed on their behalf by the undersigned
thereunto duly authorized.
AMEREN CORPORATION
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
UNION ELECTRIC COMPANY
By: /s/ Steven R. Sullivan
------------------------
Name: Steven R. Sullivan
Title: Vice President, General Counsel
and Secretary
Date: December 21, 2000
19
