UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported):
December 16, 1997
UNION ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Missouri 1-2967 43-0559760
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1901 Chouteau Avenue, St. Louis, Missouri 63103
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (314) 621-3222
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ITEM 5. OTHER EVENTS
Reference is made to Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations under the caption
"Industry Restructuring" in the Registrant's 1996 Annual Report incorporated by
reference in the Registrant's 1996 Form 10-K and to Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the caption "Industry Restructuring" in the Registrant's Form 10-Q for the
quarter ended September 30, 1997, for discussions of proposals for utility
deregulation legislation in Illinois. On December 16, 1997, the Governor of
Illinois signed the Electric Service Customer Choice and Rate Relief Law of 1997
(the "Act") providing for utility restructuring in Illinois. This legislation
introduces price-based competition into the supply of electric energy in
Illinois and will provide a less regulated structure for Illinois electric
utilities.
The Act includes a 5% residential electric rate decrease for
the Registrant's Illinois electric customers, effective August 1, 1998. The
Registrant may be subject to additional 5% residential electric rate decreases
in each of 2000 and 2002 to the extent its rates exceed the Midwest utility
average at that time. The Registrant's rates are currently below the Midwest
utility average. The Registrant estimates that the initial 5% rate decrease will
result in a decrease in annual electric revenues of about $3 million, based on
estimated levels of sales and assuming normal weather conditions.
Retail direct access, which allows customers to choose their
electric generation supplier, will be phased in over several years. Access for
commercial and industrial customers will occur over a period from October 1999
to December 2000, and access for residential customers will occur after May 1,
2002.
The Act also relieves the Registrant of the requirement in the
Illinois Commerce Commission's Order of September 17, 1997 (which approved the
merger between the Registrant and CIPSCO Incorporated), requiring the Registrant
to file an electric rate case or alternative regulatory plan in Illinois
following consummation of the merger to reflect the effects of net merger
savings.
Other provisions of the Act include (1) potential recovery of
a portion of a utility's stranded costs through a transition charge collected
from customers who choose another electric supplier, (2) the option for certain
utilities, including the Registrant, to eliminate the fuel adjustment clause
applicable to their rates and to roll into base rates a historical level of
fuel expense and (3) a mechanism to securitize certain future revenues
related to stranded costs.
The Registrant's accounting policies and financial statements
conform to generally accepted accounting principles (GAAP) applicable to
rate-regulated enterprises and reflect the effects of the ratemaking process in
accordance with SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation." Such effects concern mainly the time at which various items enter
into the determination of net income in order to follow the principle of
matching costs and revenues (SFAS 71). For example, SFAS 71 allows the
Registrant to record certain assets and liabilities ("regulatory assets" and
"regulatory liabilities") which are expected to be recovered or settled in
future rates and would not be recorded under GAAP for nonregulated entities. In
addition, reporting under SFAS 71 allows companies whose service obligations and
prices are regulated to maintain assets on their balance sheets representing
costs they reasonably expect to recover from customers, through inclusion of
such costs in their future rates. SFAS 101, "Accounting for the Discontinuance
of Application of FASB Statement No. 71," specifies how an enterprise that
ceases to meet the criteria for application of SFAS 71 for all or part of its
operations should report that event in its financial statements. In general,
SFAS 101 requires that the enterprise report the discontinuation of SFAS 71 by
eliminating from its balance sheet all "regulatory assets and liabilities"
related to the applicable portion of the business. At its July 24, 1997
meeting, the Emerging Issues Task Force of the Financial Accounting Standards
Board (EITF) concluded that application of SFAS 71 accounting should be
discontinued once sufficiently detailed deregulation legislation is issued for a
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separable portion of a business for which a plan of deregulation has been
established. However, the EITF further concluded that "regulatory assets"
associated with the deregulated portion of the business, which will be recovered
through tariffs charged to customers of a regulated portion of the business,
should be associated with the regulated portion of the business from which
future cash recovery is expected (not the portion of the business from which the
costs originated), and can therefore continue to be carried on the regulated
entity's balance sheet to the extent such assets are recovered. In addition,
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which was adopted in January 1996, establishes
accounting standards for the impairment of long-lived assets (i.e., determining
whether the costs of such assets are recoverable in future revenues.) SFAS 121
also requires that regulatory assets, which are no longer probable of recovery
through future revenue, be written off through a charge to earnings.
Due to the enactment of the Act, prices for the supply of
electric generation are expected to transition from cost-based, regulated rates
to rates determined by competitive market forces in the state of Illinois. As a
result, the Registrant will discontinue application of SFAS 71 for the Illinois
portion of its generating business (i.e., the portion of the Registrant's
business related to the supply of electric energy in Illinois) in the fourth
quarter of 1997. At this time, the Registrant is assessing the impact that the
Act will have on its operations. The potential negative consequences resulting
from the Act could be significant and include the impairment and writedown of
certain assets, including generation-related plant and "regulatory assets,"
related to the Registrant's Illinois jurisdictional assets. At September 30,
1997, the Registrant's net investment in generation facilities related to its
Illinois jurisdiction was $236 million and was included in electric plant in
service on the Registrant's balance sheet. In addition, at September 30, 1997,
the Registrant's Illinois generation-related net "regulatory assets"
approximated $38 million. The provisions of the Act could also result in lower
revenues, reduced profit margins and increased costs of capital. At this time,
the Registrant is unable to determine the impact of the Act on the Registrant's
future financial condition, results of operations or liquidity.
The foregoing estimates of the annual reduction in electric
revenues resulting from the Act and the potential negative consequences of the
Act are forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements involve risks and uncertainties
that could cause actual results to differ materially from those discussed
herein. Among the factors that could affect actual results are: (1) future
market prices for electric energy, (2) load growth, (3) demand levels in the
Registrant's service territory, (4) average rates for electricity in the
Midwest, (5) further changes in laws and governmental or regulatory actions
interpreting those laws, and (6) other matters detailed in Exhibit 99.03,
Cautionary Statements, to the 1996 Annual Report on Form 10-K of the Registrant,
incorporated herein by reference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
UNION ELECTRIC COMPANY
(Registrant)
By /s/ James C. Thompson
James C. Thompson
Secretary
Date: December 23, 1997
