EXHIBIT D-1
STATE OF ILLINOIS
ILLINOIS COMMERCE COMMISSION
Union Electric Company d/b/a AmerenUE )
)
Notice of transfer of distribution and )
transmission assets and retail electric )
business to an affiliate and entry into ) Docket No.
various agreements pursuant to )
Section 16-111(g) of the Illinois Public )
Utilities Act. )
--------------------------------------------------------------------------------
NOTICE OF TRANSFER OF ELECTRIC DISTRIBUTION AND
TRANSMISSION ASSETS AND RETAIL ELECTRIC BUSINESS
AND ENTRY IN VARIOUS AGREEMENTS PURSUANT TO
SECTION 16-111(G) OF THE ILLINOIS PUBLIC UTILITIES ACT
--------------------------------------------------------------------------------
James J. Cook Christopher W. Flynn
Ameren Services Company Jones, Day, Reavis & Pogue
One Ameren Plaza 77 West Wacker
1901 Chouteau Avenue Suite 3500
P.O. Box 66149 Chicago, Illinois 60601-1692
St. Louis, Missouri 63166-6149 (312) 782-3939 (voice)
(314) 554-2237 (voice) (312) 782-8585 (fax)
(314) 554-4014 (fax) [email protected]
[email protected]
-----------------
<PAGE>
Pursuant to Section 16-111(g) of the Illinois Public Utilities Act ("Act"),
220 ILCS 5/16-111(g), Union Electric Company d/b/a Ameren UE ("AmerenUE") hereby
gives the Commission notice of AmerenUE's intent to transfer all of its Illinois
distribution assets and all Illinois transmission assets other than associated
with AmerenUE's Venice, Illinois generating plant ("T&D Assets") and associated
liabilities and its Illinois retail electric business, to an affiliate, Central
Illinois Public Service Company d/b/a Ameren CIPS ("AmerenCIPS"). (AmerenUE and
AmerenCIPS shall be referred to jointly as the "Ameren Companies".) Concurrently
with this Notice, AmerenUE and AmerenCIPS are filing a petition requesting that
the Commission authorize AmerenUE to transfer its Illinois retail gas assets and
associated liabilities and business to AmerenCIPS.
INTRODUCTION
------------
The principal purposes of the transfers of the electric and gas properties
and businesses relate to the restructuring of the Illinois operations of the
Ameren Corporation ("Ameren"), the parent of both AmerenUE and AmerenCIPS.
Ameren is a registered holding company subject to regulation by the Securities
and Exchange Commission under the Public Utility Holding Company Act of 1935
("PUHCA"). AmerenUE provides retail electric and gas service to the public in
that portion of the St. Louis metropolitan area located in the State of Illinois
("Metro East"). AmerenUE also provides retail electric and gas service in the
State of Missouri. AmerenCIPS provides electric and gas service in the State of
Illinois.
Ameren previously restructured AmerenCIPS' operations by means of a sale of
all of AmerenCIPS' generating assets to an affiliate and by having a separate
affiliate assume all of AmerenCIPS' marketing responsibilities. AmerenCIPS now
operates as a pure "wires" business.
1
<PAGE>
Ameren now seeks to: i) separate all Illinois regulated utility operations
from the electric generation and marketing functions; and ii) consolidate all of
Ameren's Illinois regulated operations in a single entity, AmerenCIPS. Upon the
transfer of AmerenUE's retail electric and gas assets and businesses in
Illinois, AmerenCIPS will succeed to AmerenUE's retail utility operations, and
will provide the retail electric and gas services currently provided by AmerenUE
pursuant to the tariffs currently in effect for AmerenUE. For its part, AmerenUE
will cease to operate as a public utility in this State.
AmerenUE will transfer its T&D Assets and liabilities, as well as its gas
assets and liabilities, to AmerenCIPS by two means: i) approximately half will
be transferred in the form of a dividend; and ii) approximately half will be
transferred in exchange for a promissory note in the amount of approximately $51
million. These two components will be referred to jointly as the "Transfer".
"AmerenUE will retain ownership of the Venice generating plant.
The Transfer will not adversely affect either the reliability of electric
service provided to Metro East retail electric customers or the rates that those
customers are charged during the mandatory transition period under the Illinois
Customer Choice Law and Rate Relief Law of 1997 ("Customer Choice Law"). 220
ILCS 5/16-111(g) (1999). AmerenCIPS will obtain the generating supply necessary
to serve the Metro East electric load under AmerenCIPS' existing power supply
agreement ("PSA") with Ameren Energy Marketing Company ("AEMC") After the
Transfer, Metro East electric customers will continue to pay the rates they are
currently charged under AmerenUE's retail tariffs, through at least December 31,
2004, when the retail rate freeze expires, and until such time as the Commission
approves a change in those rates.
2
<PAGE>
THE TRANSFER IS CONSISTENT WITH MARKET RESTRUCTURING
----------------------------------------------------
The Customer Choice Law implemented a comprehensive restructuring of the
electric industry in Illinois. The restructuring package includes mandatory rate
cuts for residential consumers and phases in the opportunity for all consumers
to choose their electric supplier. Other parts of the package provide utilities
the opportunity to quickly and efficiently restructure, reorganize and transfer
assets in order to adjust to the competitive market. The proposal to transfer
AmerenUE's T&D Assets and associated liabilities to AmerenCIPS, and thereby
separate the Metro East delivery operations from generation and marketing, is
fully authorized and, indeed, encouraged by the Customer Choice Law, as well as
by previous statements and actions of the Commission.
The Commission and others in the state have expressed the belief that
competition would be enhanced where competitive generation and related marketing
functions were physically or functionally separated from the utility
transmission and distribution system. For example, in the Commission's "Report
------
to the Senate President: Analysis of Electric Restructuring with Particular
---------------------------------------------------------------------------
Emphasis on S. B. 55," dated August 15, 1997, the Commission observed that
---------------------
spin-off of generation assets would be one manner in which to address market
power concerns. (Id., pp. 9-14). Likewise, in its Order implementing affiliate
--
transaction rules, the Commission noted its preference that the unregulated
generation and marketing function be separated from the utility transmission and
distribution functions. (Order, Rulemaking on Non-Discrimination in Affiliate
----------------------------------------------------
Transactions for Electric Utilities, Docket Nos. 98-0013 and 98-0035 cons.)
-----------------------------------
(September 14, 1998, pp. 8-9).
The pace of change and restructuring in the Illinois energy market has
greatly accelerated. In addition to approving the transfer of AmerenCIPS'
generating assets to Ameren Energy Generating Company ("Ameren Generating"), the
Commission also has approved the sale or transfer of Illinois Power's generating
3
<PAGE>
assets to an affiliate; the sale of IP's Clinton unit to an unaffiliated entity;
the sale of Commonwealth Edison's fossil plants to Edison Mission Energy; and
the transfer of ComEd's nuclear units to an affiliated generating company.
As demonstrated herein, and as shown in the accompanying data, the Transfer
will not threaten the provision of safe and reliable electric service within
Metro East, nor will it cause the Metro East customers to be subject to a
request for a rate increase in Metro East pursuant to the provisions of Section
16-111(d) of the Act. Accordingly, the requirements established by Illinois law
necessary to transfer the assets in question have been fully satisfied and the
Transfer should be approved without the need for a hearing.
STATUTORY BASIS FOR NOTICE
--------------------------
Sectionl6-111(g) provides, in relevant part, that:
During the mandatory transition period, an electric utility may,
without obtaining any approval of the Commission other than that
provided for in this subsection and notwithstanding any other
provision of this Act or any rule or regulation of the Commission that
would require such approval:
sell, assign, lease or otherwise transfer assets to an affiliated. . .
entity, and as part of such transaction enter into service agreements,
power purchase agreements, or other agreements with the transferee;
provided, however, that the prices, terms and conditions of any power
purchase agreement must be approved or allowed into effect by the
[FERC]. . . .
DESCRIPTION OF THE PARTIES TO THE PROPOSED TRANSFER
---------------------------------------------------
AMERENUE. AmerenUE is a subsidiary of Ameren. AmerenUE provides electric
--------
service to over 1 million customers and gas service to 130,000 customers in
Missouri and Illinois. AmerenUE has approximately 62,000 electric and 18,000 gas
customers in Illinois; its principal service area is in Missouri.
4
<PAGE>
AMERENCIPS. AmerenCIPS also is a subsidiary of Ameren. AmerenCIPS provides
----------
electric service to approximately 320,000 customers and gas service to
approximately 170,000 customers, all in the State of Illinois. AmerenCIPS'
principal source of supply of electric power and energy is the PSA that it has
with AEMC.
AEMC. AEMC is a wholly-owned subsidiary of Ameren Energy Resources Company
----
("Resources"), which is a first-tier subsidiary of Ameren. AEMC markets power
and energy at wholesale as a power marketer and at retail as an alternative
retail electric supplier ("ARES") in Illinois. AEMC obtains power and energy
from Ameren Generating at wholesale under a contract approved by the FERC, and
supplies power and energy to AmerenCIPS and other customers at wholesale and
retail. AEMC also assumed AmerenCIPS' energy entitlement under its power supply
agreement with Electric Energy Inc.
AMEREN GENERATING. Ameren Generating is also a wholly-owned subsidiary of
-----------------
Resources. Ameren Generating acquired, with the Commission's approval, all of
the generating capacity of AmerenCIPS. Ameren Generating has also acquired, and
is in the process of acquiring, additional regional generating resources. Ameren
Generating supplies AEMC with AEMC's full requirements (including the AmerenCIPS
load) under a power supply agreement.
DESCRIPTION OF THE PROPOSED TRANSFER
------------------------------------
ASSETS AND OBLIGATIONS TO BE TRANSFERRED
----------------------------------------
AmerenUE will transfer the T&D Assets, and its retail electric business,
including its various certificates, franchises and licenses authorizing it to
provide retail electric service in Illinois, to AmerenCIPS. The transmission
facilities will continue to be managed by its affiliate, Ameren Services
Company. AmerenUE will also assign various obligations to AmerenCIPS, including
all of the maintenance and labor agreements (as applicable), as those agreements
exist as of the Transfer Date, and any other similar agreements that exist as of
5
<PAGE>
the Transfer Date. The specific assets and obligations to be transferred are
described in the Asset Transfer Agreement that accompanies this Notice as
Appendix A, and are set further in the proposed accounting entries included at
Appendix C.
MECHANICS OF THE TRANSFER
-------------------------
The transfer of the combined electric and gas assets is planned to be
accomplished in the following manner:
1. AmerenUE will transfer approximately 50% of the combined assets net of
liabilities to AmerenCIPS in exchange for a promissory note in an
amount equal to approximately 50 percent of the total net book value,
estimated to be approximately $51 million.
2. AmerenUE will hold the note and receive payments including interest
from AmerenCIPS.
3. AmerenUE also will declare an "in kind" dividend to Ameren equal to
the remaining balance (approximately 50 percent) of the net book value
of the combined assets net of liabilities, estimated to be
approximately $51 million.
4. Ameren will then transfer the dividended assets and liabilities to
AmerenCIPS as a capital contribution.
6
<PAGE>
RESULT OF THE TRANSFER
----------------------
The effect of the various components of the transaction is that, as of the
Transfer Date, AmerenUE will no longer provide retail electric service in
Illinois. AmerenCIPS will own all of the T&D Assets that AmerenUE possesses as
of the Transfer Date, and will supply the former AmerenUE Illinois load pursuant
to the existing AmerenCIPS-AEMC PSA.
DESCRIPTION OF SUPPLY AND SERVICE AGREEMENTS
--------------------------------------------
As indicated above, there are two new and one existing agreement that will
be involved or affected in the transfer of AmerenUE's retail electric business
to AmerenCIPS.
AMERENUE/AMERENCIPS/AMEREN CORPORATION ASSET TRANSFER AGREEMENT
---------------------------------------------------------------
Under this agreement, AmerenUE will transfer to AmerenCIPS the assets and
liabilities discussed herein. As noted, a copy of the form of this agreement is
attached as Appendix A.
AMERENUE/AMERENCIPS PROMISSORY NOTE
-----------------------------------
Under this note, AmerenCIPS will pay AmerenUE approximately 50% of the net
book value of the transferred assets. A copy of a form of promissory note is
attached as Appendix B.
AMERENCIPS/AEMC PSA
-------------------
As noted, this is the existing agreement under which AmerenCIPS would
obtain power and energy to serve the Metro East load. Until the PSA expires on
December 31, 2004, AEMC must provide AmerenCIPS with its full requirements
(including planning and operating reserve requirements and ancillary service
generation products). Commencing January 1, 2005, AmerenCIPS would obtain its
full requirements from market sources. "Market sources" could include AEMC,
Ameren Generating or another affiliate, if any of these entities offered the
most economic source of power and energy. There should be ample capacity to
supply Metro East's future needs at a reasonable, competitive cost.
7
<PAGE>
Under the PSA, AmerenCIPS pays fixed demand and energy charges, based on
AmerenCIPS' actual usage, for bundled load. The effect of setting the demand and
energy charges for bundled service load requirements in this way is to insulate
Metro East retail customers from risk that those charges could escalate. Even
if, for example, a unit were lost and purchased power costs were to increase, or
if maintenance or fuel costs were to increase for any one of numerous reasons,
the same, fixed demand and energy rates would apply.
Pricing for capacity and energy used to provide unbundled generation
services differs. AmerenCIPS (like AmerenUE), offers certain unbundled electric
power products. Specifically, AmerenCIPS offers a "Power Purchase Option"
("PPO") pursuant to Section 16-110 of the Act, "Partial Requirements Power
Service" ("PRPS") pursuant to Section 16-104(f), and a "No Notice Power Service"
("NNPS"), which is a default service for customers who suddenly find themselves
without a supplier. Under the PPO, PRPS and NNPS tariffs, AmerenCIPS may charge
customers a "market value." Under these tariffs, the market value would be
established in advance of the time that service is provided. Hence, there is a
risk that the projected "market value" could be inadequate to cover the actual
cost of serving these customers. Under the PSA, AEMC charges AmerenCIPS for
power and energy supplied to serve these customers an amount equal to the charge
that AmerenCIPS charges these customers under the PPO, PRPS and NNPS tariffs.
Accordingly, the effect of these sales on AmerenCIPS is revenue-neutral, and
AEMC assumes the risk that the "market value" charge is adequate to cover the
cost of serving these customers.
The PSA is subject to the jurisdiction of, and has been approved by, FERC.
8
<PAGE>
SATISFACTION OF NOTICE REQUIREMENTS
-----------------------------------
Section 16-111(g) provides that an electric utility intending to transfer
assets to an affiliated entity and, as part of that transaction, enter into
various agreements, must provide the Commission with at least 30 days notice of
the transaction, which must include certain information. The information
required under Section 16-111(g) is provided as follows:
(i) A COMPLETE STATEMENT OF THE ENTRIES THAT THE ELECTRIC UTILITY
WILL MAKE ON ITS BOOKS AND RECORDS OF ACCOUNT TO IMPLEMENT THE
PROPOSED TRANSACTION TOGETHER WITH A CERTIFICATION FROM AN INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT THAT SUCH ENTRIES ARE IN ACCORD WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The statement of entries and required certification are attached as
Appendices C and D, respectively.
(ii) A CERTIFICATION FROM THE CHIEF ACCOUNTING OFFICER OF THE
UTILITY THAT THE ACCOUNTING ENTITIES ARE IN ACCORD WITH COST
ALLOCATION GUIDELINES PREVIOUSLY APPROVED BY THE COMMISSION FOR
AMERENUE AND ITS AFFILIATES
The required certification is attached hereto as Appendix E.
(iii) A DESCRIPTION OF HOW THE ELECTRIC UTILITY WILL USE THE
PROCEEDS OF ANY SALE, ASSIGNMENT, LEASE OR TRANSFER TO RETIRE DEBT OR
OTHERWISE REDUCE OR RECOVER THE COST OF SERVICES PROVIDED BY SUCH
ELECTRIC UTILITY
There will be no gain on the transfer.
(iv) A LIST OF ALL FEDERAL APPROVALS OR APPROVALS REQUIRED FROM
DEPARTMENTS AND AGENCIES OF THIS STATE, OTHER THAN THE COMMISSION,
THAT THE ELECTRIC UTILITY HAS OR WILL OBTAIN BEFORE IMPLEMENTING THE
TRANSACTION
The following approvals are required: i) from FERC, approval for the
transfer of jurisdictional (i.e., transmission) assets under Section 203 of the
Federal Power Act; ii) from the Missouri Public Service Commission, approval for
a disposition of assets by a Missouri public utility; and iii) from the SEC,
approval under Sections 9(a)(1) and 12(b) of PUHCA.
9
<PAGE>
(v) AN IRREVOCABLE COMMITMENT BY THE ELECTRIC UTILITY THAT IT
WILL NOT, AS A RESULT OF THE TRANSACTION, IMPOSE ANY STRANDED COST
CHARGES THAT IT MIGHT OTHERWISE BE ALLOWED TO CHARGE RETAIL CUSTOMERS
UNDER FEDERAL LAW OR INCREASE THE TRANSITION CHARGES THAT IT IS
OTHERWISE ENTITLED TO COLLECT UNDER ARTICLE XVI
AmerenUE and its successor service provider in Metro East, AmerenCIPS,
irrevocably commit that they will not as a result of the transaction, impose any
stranded cost charges that they might otherwise be allowed to charge retail
customers under federal law or increase the transition charges that they are
otherwise entitled to collect under Article XVI.
(vi) ELIMINATION OF ELECTRIC FUEL ADJUSTMENT CLAUSE
AmerenUE eliminated the Metro East retail electric fuel clause on
May 1, 1999
(vii)(A) AND(B) A DESCRIPTION OF HOW SERVICE OBLIGATIONS UNDER
THE ACT WILL BE IN A SAFE AND RELIABLE MANNER AND PROJECTED RETURNS ON
EQUITY THROUGH DECEMBER 31, 2004, WITH AND WITHOUT THE PROPOSED
TRANSFER
As discussed above, AmerenCIPS has a reliable source of supply in the PSA.
Upon termination of the PSA at the end of the mandatory transition period,
AmerenCIPS will enter into appropriate supply contracts in the wholesale market.
Accordingly, AmerenCIPS will have full access to all market power supply
options.
Post-Transfer projected returns on equity, with and without the Transfer,
are set forth in Appendix F to this Notice. Those projections establish that
there is no strong likelihood that AmerenCIPS' ratepayers would be subject to a
request for an electric rate increase.
THE TRANSFER SHOULD BE APPROVED
-------------------------------
Under Section 16-111(g), the Commission may reject the Transfer only if it
finds that the Transfer will render an electric utility unable to provide
tariffed services in a safe and reliable manner and/or that there is a "strong
likelihood" that the proposed transaction will render an electric utility being
10
<PAGE>
entitled to request an increase in its base rates during the mandatory
transition period pursuant to Section 16-111(d).
There is no basis on which to reject the Transfer. As explained above,
after the transaction, AmerenCIPS will provide safe and reliable utility
service. The PSA, initially, and later the wholesale market, will provide
AmerenCIPS with a safe and reliable source of electric supply. Moreover, the
Transfer will not affect the operation of any transmission or distribution
plant, which will continue to be operated in the same manner, and with the same
degree of safety and reliability, as today.
Further, the projected returns on equity provided in Appendix F amply
demonstrate that there is very little risk that AmerenCIPS would be entitled to
request a base rate increase under Section 16-111(d). That subsection authorizes
a utility to seek a base rate increase where it can demonstrate that the
two-year average of its return on equity is below the average of the monthly
yields of 30 year Treasury bonds for the same period. Treasury bond yields have
averaged approximately 5.79% for the two year period ending June, 2000. By
contrast, and based on very conservative assumptions, the lowest annual
projected return on equity, with the transaction, shown on Appendix F is
significantly above that level.
As explained in the accompanying testimony of Mr. Craig Nelson, Vice
President - Corporate Planning of Ameren Services Company, if AmerenUE maintains
the Metro East operations, it would have to contract for additional capacity,
and would be susceptible to significant changes in market prices, an increase in
the cost of fuel or operations, or a significant loss of customer base that
would lower returns significantly. However, as explained above, the PSA
guarantees that generation-related costs cannot increase before January 1, 2005,
and are frozen at their current level. Hence, there is very little risk - and
11
<PAGE>
certainly "no strong likelihood" - that Metro East customers would be subject to
a rate increase during the transition period as a result of the Transfer.
WHEREFORE, for all the reasons set forth herein, AmerenUE respectfully
gives the Commission notice of its intent to transfer its Illinois electric
transmission and distribution assets and its Illinois retail electric business
to AmerenCIPS and to enter into certain agreements in connection therewith.
Respectfully submitted,
Union Electric Company
d/b/a AmerenUE
By:
------------------------------------
One of its attorneys
James J. Cook
Ameren Services Company
One Ameren Plaza
1901 Chouteau Avenue
P.O. Box 66149
St. Louis, Missouri 63166-6149
(314) 554-2237 (voice)
(314) 554-4014 (fax)
[email protected]
Christopher W. Flynn
Jones, Day, Reavis & Pogue
77 West Wacker
Suite 3500
Chicago, Illinois 60601-1692
(312) 782-3939 (voice)
(312) 782-8585 (fax)
[email protected]
12
<PAGE>
VERIFICATION
Warner L. Baxter, Vice President and Controller of Union Electric Company,
being first duly sworn, states that he has read the foregoing Notice, that he is
familiar with the statements therein, and that the statements therein are true
and correct to the best of his knowledge.
----------------------------------
Warner L. Baxter
Subscribed and sworn to
before me this day
----
of September, 2000.
----------------------------------
Notary Public
<PAGE>
VERIFICATION
Craig D. Nelson, Vice President of Central Illinois Public Service Company,
being first duly sworn, states that he has read the foregoing Notice, that he is
familiar with the statements therein, and that the statements therein are true
and correct to the best of his knowledge.
----------------------------------
Craig D. Nelson
Subscribed and sworn to
before me this day
----
of September, 2000.
<PAGE>
LIST OF APPENDICES
Title Appendix
----- --------
Form of Asset Transfer Agreement. . . . . . A
Form of Promissory Note. . . . . . . B
Statement of Accounting Entries. . . . . . C
Statement of Certified Public Accountant. . . . . D
Statement of Chief Financial Officer . . . . E
Return on Equity Analysis (Confidential). . . . . F
Direct Testimony of Craig D. Nelson. . . . . G
Direct Testimony of Robert J. Mill . . . . . H
Metro East Bundled Electric Service Tariffs . . . . I
Metro East Delivery Services Tariffs. . . . . J
Load Resource Plan (Confidential) . . . . . K
