<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarterly Period Ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Transition Period From to
Commission file number 1-2967.
UNION ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Missouri 43-0559760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
----- ----
Shares outstanding of each of registrant's classes of common stock as of July
31, 2000: Common Stock, $5 par value, held by Ameren Corporation (parent
company of Registrant) - 102,123,834
<PAGE>
Union Electric Company
Index
Page No.
Part I Financial Information (Unaudited)
Management's Discussion and Analysis 2
Quantitative and Qualitative Disclosures
About Market Risk 5
Balance Sheet
- June 30, 2000 and December 31, 1999 8
Statement of Income
- Three months, six months and 12 months ended
June 30, 2000 and 1999 9
Statement of Cash Flows
- Six months ended June 30, 2000 and 1999 10
Notes to Financial Statements 11
Part II Other Information 14
<PAGE>
PART I. FINANCIAL INFORMATION (UNAUDITED)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Union Electric Company (AmerenUE or the Registrant) is a subsidiary of Ameren
Corporation (Ameren), a holding company registered under the Public Utility
Holding Company Act of 1935 (PUHCA). In December 1997, AmerenUE and CIPSCO
Incorporated (CIPSCO) combined to form Ameren, with AmerenUE and CIPSCO's
subsidiaries, Central Illinois Public Service Company (AmerenCIPS) and CIPSCO
Investment Company (CIC), becoming subsidiaries of Ameren (the Merger).
The following discussion and analysis should be read in conjunction with the
Notes to the Financial Statements beginning on page 11, and the Management's
Discussion and Analysis of Financial Condition and Results of Operations (MD&A),
the Audited Financial Statements, and the Notes to the Financial Statements
appearing in the Registrant's 1999 Form 10-K.
RESULTS OF OPERATIONS
Earnings
Second quarter 2000 earnings of $85 million increased $17 million compared to
1999 second quarter earnings. Earnings for the six months ended June 30, 2000,
increased $12 million from the year ago period to $122 million. Earnings for the
12 months ended June 30, 2000 were $352 million, a $23 million increase from the
preceding 12-month period. Earnings fluctuated due to many conditions,
primarily: weather variations, credits to electric customers, electric rate
reductions, gas rate increases, competitive market forces, sales growth,
fluctuating operating costs (including Callaway Nuclear Plant refueling
outages), changes in interest expense, changes in income and property taxes, and
a nonrecurring charge for a targeted employee separation plan.
The significant items affecting revenues, costs and earnings during the
three-month, six-month and 12-month periods ended June 30, 2000 and 1999 are
detailed on the following pages.
Electric Operations
Electric Operating Revenues Variations for periods ended June 30, 2000
from comparable prior-year periods
--------------------------------------------------------------------------------
(Millions of Dollars) Three Months Six Months Twelve Months
------------ ---------- -------------
--------------------------------------------------------------------------------
Rate variations $ - $ - $ 2
Credit to customers (5) 5 (11)
Effect of abnormal weather (6) (16) (33)
Growth and other 39 42 91
Interchange sales 28 83 151
--------------------------------------------------------------------------------
$ 56 $ 114 $ 200
--------------------------------------------------------------------------------
The $56 million increase in second quarter electric revenues compared to the
year-ago quarter was primarily driven by a 30 percent increase in interchange
sales due to strong marketing efforts. In addition, revenues increased due to
increased residential, commercial and industrial sales, by 2 percent, 8 percent
and 2 percent, respectively, offset in part by lower wholesale sales and an
increase in the estimated credit to Missouri electric customers (see Note 5
under Notes to Financial Statements for further information).
Electric revenues for the first six months of 2000 increased $114 million
compared to the same 1999 period. The increase in revenues was primarily due to
a 60 percent increase in interchange sales due to strong marketing efforts and a
decrease in the estimated credit to Missouri electric customers (see Note 5
under Notes to Financial Statements for further information). In addition,
revenues increased due to increased residential, commercial and industrial
sales, by 2 percent, 6 percent and 1 percent, respectively.
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Electric revenues for the 12 months ended June 30, 2000 and 1999 increased $200
million compared to the prior 12-month period. The increase in revenues was
primarily due to a 35 percent increase in interchange sales, coupled with a 3
percent increase in commercial sales.
Fuel and Purchased Power Variations for periods ended June 30, 2000
from comparable prior-year periods
--------------------------------------------------------------------------------
(Millions of Dollars) Three Months Six Months Twelve Months
------------ ---------- -------------
--------------------------------------------------------------------------------
Fuel:
Generation $ 2 $ 7 $ (7)
Price (5) (8) 1
Generation efficiencies and other (2) (5) (8)
Purchased power variation 15 68 160
--------------------------------------------------------------------------------
$ 10 $ 62 $146
--------------------------------------------------------------------------------
The increase in fuel and purchased power costs for the three month, six month
and 12 month periods ended June 30, 2000, compared to the year ago comparable
periods, was primarily due to increased purchased power resulting from higher
sales volumes.
Gas Operations
Gas revenues for the quarter ended June 30, 2000 increased $5 million compared
to the prior-year period primarily due to a 37 percent increase in sales to
ultimate consumers.
Gas costs for the 12 months ended June 30, 2000 increased $5 million compared to
the year-ago period, primarily due to higher gas prices.
Other Operating Expenses
Other operating expense variations reflected recurring factors such as growth,
inflation, labor and benefit increases.
Other operations expenses for the three and six months ended June 30, 2000
increased $5 million and $12 million, respectively, compared to the same
year-ago periods primarily due to increased costs associated with the automated
meter reading roll-out and professional services. Other operations expenses
decreased $8 million for the 12 months ended June 30, 2000, compared to the same
year-ago period primarily due to the 1998 one-time pretax charge of $18 million
for a targeted separation plan.
Maintenance expenses for the three, six and 12 months ended June 30, 2000
increased $13 million, $14 million and $36 million, respectively, compared to
the year-ago periods primarily due to increased power plant maintenance and tree
trimming activity.
Taxes
Income taxes increased $11 million, $9 million and $11 million, for the three,
six and 12 months ended June 30, 2000, respectively, due to higher pretax
income.
Other tax expense decreased $8 million for the 12 months ended June 30, 2000 due
primarily to a decrease in gross receipts taxes related to the Registrant's
Illinois jurisdiction. This decrease is the result of the restructuring of the
Illinois public utility tax whereby gross receipts taxes are no longer recorded
as electric revenues and gross receipts tax expense.
Balance Sheet
The $58 million increase in trade accounts receivable and unbilled revenue at
June 30, 2000, compared to the year-end, was due primarily to higher revenues in
May and June 2000 compared to November and December 1999.
Changes in accounts and wages payable and other taxes accrued resulted from the
timing of various payments to taxing authorities and suppliers.
-3-
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LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $161 million for the six months
ended June 30, 2000, compared to $266 million during the same 1999 period.
Cash flows used in investing activities totaled $171 million and $277 million
for the six months ended June 30, 2000 and 1999, respectively. Construction
expenditures for the six months ended June 30, 2000, for constructing new or
improving existing facilities were $166 million. In addition, the Registrant
expended $8 million for the acquisition of nuclear fuel. The Registrant received
Board of Directors approval on April 25, 2000 to spend approximately $160
million on capital expenditures relating to the replacement of four steam
generators at its Callaway Nuclear Plant. Installation is scheduled to be
completed in 2005. The impact on anticipated 2000 capital expenditures will be
insignificant.
Cash flows used in financing activities totaled $106 million for the six months
ended June 30, 2000, compared to $23 million during the same 1999 period. The
Registrant's principal financing activities for the period included the issuance
and redemption of long-term debt and the payment of dividends.
The Registrant plans to continue utilizing short-term debt to support normal
operations and other temporary requirements. The Registrant is authorized by the
Securities and Exchange Commission under PUHCA to have up to $1 billion of
short-term unsecured debt instruments outstanding at any one time. Short-term
borrowings consist of bank loans (maturities generally on an overnight basis)
and commercial paper (maturities generally within 1 to 45 days). At June 30,
2000, the Registrant had committed bank lines of credit aggregating $150 million
(all of which was unused and available at such date) which make available
interim financing at various rates of interest based on LIBOR, the bank
certificate of deposit rate or other options. The lines of credit are renewable
annually at various dates throughout the year. At June 30, 2000, the Registrant
had no outstanding short-term borrowings.
The Registrant also has a bank credit agreement due 2002 which permits the
borrowing of up to $300 million on a long-term basis, all of which was unused,
and $113 was available at June 30, 2000. In addition, the Registrant has the
ability to borrow up to approximately $525 million from Ameren or AmerenCIPS
through a regulated money pool agreement. The regulated money pool was
established to coordinate and provide for certain short-term cash and working
capital requirements and is administered by Ameren Services Company, another
subsidiary of Ameren. Interest is calculated at varying rates of interest
depending on the composition of internal and external funds in the regulated
money pool. As of June 30, 2000, $196 million was available through the
regulated money pool.
Additionally, the Registrant has a lease agreement that provides for the
financing of nuclear fuel. At June 30, 2000, the maximum amount that could be
financed under the agreement was $120 million. Cash used in financing activities
for the six months ended June 30, 2000, included redemptions under the lease for
nuclear fuel of $4 million, offset by $6 million of issuances. At June 30, 2000,
$119 million was financed under the lease.
The Registrant, in the ordinary course of business, explores opportunities to
reduce its costs in order to remain competitive in the marketplace. Areas where
the Registrant focuses its review include, but are not limited to, labor costs
and fuel supply costs. In the labor area, the Registrant has reached agreements
with some of the Registrant's collective bargaining units which will permit it
to manage its labor costs and practices effectively in the future. The
Registrant also explores alternatives to effectively manage the size of its
workforce. These alternatives include utilizing hiring freezes, outsourcing and
offering employee separation packages. In the fuel supply area, the Registrant
explores alternatives to effectively manage its overall fuel costs. These
alternatives include diversifying fuel sources for use at the Registrant's
fossil plants, as well as restructuring or terminating existing contracts with
suppliers.
Certain of these cost reduction alternatives could result in additional
investments being made at the Registrant's power plants in order to utilize
different types of coal, or could require nonrecurring payments of employee
separation benefits or nonrecurring payments to restructure or terminate an
existing fuel contract with a supplier. Management is unable to predict which
(if any), and to what extent, these alternatives to reduce its overall cost
structure will be executed. Management is unable to determine the impact of
these actions on the Registrant's future financial position, results of
operations or liquidity.
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RATE MATTERS
In February 2000, the Registrant filed a request with the Missouri Public
Service Commission (MoPSC) to increase rates approximately $12 million annually
for natural gas service in the Missouri jurisdiction. The MoPSC has until
January 2001 to render a decision.
See Note 5 under Notes to Financial Statements for further discussion of Rate
Matters.
ELECTRIC INDUSTRY RESTRUCTURING
Certain states are considering proposals or have adopted legislation that will
promote competition at the retail level. In December 1997, the Governor of
Illinois signed the Electric Service Customer Choice and Rate Relief Law of 1997
(the Illinois Law) providing for electric utility restructuring in Illinois.
This legislation introduces competition into the supply of electric energy in
Illinois.
The Illinois Law, among other things, requires the phasing-in through 2002 of
retail direct access, which allows customers to choose their electric generation
supplier. The phase-in of retail direct access began on October 1, 1999, with
large commercial and industrial customers principally comprising the initial
group. The customers in this group represent approximately 6 percent of the
Registrant's total sales. As of June 30, 2000, the impact of retail direct
access on the Registrant's financial condition, results of operations or
liquidity was immaterial. Retail direct access will be offered to the remaining
commercial and industrial customers on December 31, 2000 and to residential
customers on May 1, 2002.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in interest rates and
equity prices. The following discussion of the Registrant's risk management
activities includes "forward-looking" statements that involve risks and
uncertainties. Actual results could differ materially from those projected in
the "forward-looking" statements. The Registrant handles market risks in
accordance with established policies, which may include entering into various
derivative transactions. In the normal course of business, the Registrant also
faces risks that are either non-financial or non-quantifiable. Such risks
principally include business, legal, operational and credit risk and are not
represented in the following analysis.
Interest Rate Risk
The Registrant is exposed to market risk through changes in interest rates
through its issuance of both long-term and short-term variable-rate debt and
commercial paper. The Registrant manages its interest rate exposure by
controlling the amount of these instruments it holds within its total
capitalization portfolio and by monitoring the effects of market changes in
interest rates.
If interest rates increase one percentage point in 2001 as compared to 2000, the
Registrant's interest expense would increase by approximately $7 million and net
income would decrease by approximately $4 million. This amount has been
determined using the assumptions that the Registrant's outstanding variable rate
debt as of June 30, 2000, continued to be outstanding throughout 2001, and that
the average interest rates for these instruments increased one percentage point
over 2000. The model does not consider the effects of the reduced level of
overall economic activity that would exist in such an environment. In the event
of a significant change in interest rates, management would likely take actions
to further mitigate its exposure to this market risk. However, due to the
uncertainty of the specific actions that would be taken and their possible
effects, the sensitivity analysis assumes no change in the Registrant's
financial structure.
Commodity Price Risk
The Registrant is exposed to changes in market prices for natural gas and fuel
and electricity. With regard to its natural gas utility business, the
Registrant's exposure to changing market prices is in large part mitigated by
the fact that Registrant has Purchased Gas Adjustment Clauses (PGA) in place in
both its Missouri and Illinois jurisdictions. The PGA allows the Registrant to
pass on to its customers its prudently incurred costs of natural gas.
-5-
<PAGE>
Since the Registrant does not have a provision similar to the PGA for its
electric operations, the Registrant has entered into several long-term contracts
with various suppliers to purchase coal and nuclear fuel to manage its exposure
to fuel prices. With regard to the Registrant's exposure to commodity price risk
for purchased power and excess electricity sales, Ameren has established a
subsidiary, AmerenEnergy, Inc., (AmerenEnergy) whose primary responsibility
includes managing market risks associated with the changing market prices for
electricity purchased and sold on behalf of the Registrant.
AmerenEnergy utilizes several techniques to mitigate its market risk for
electricity, including utilizing derivative financial instruments. A derivative
is a contract whose value is dependent on or derived from the value of some
underlying asset. The derivative financial instruments that AmerenEnergy is
allowed to utilize (which include forward contracts, futures contracts, and
option contracts) are dictated by a risk management policy, which has been
reviewed with the Auditing Committee of Ameren's Board of Directors. Compliance
with the risk management policy is the responsibility of a risk management
steering committee, consisting of Ameren officers and an independent risk
management officer at AmerenEnergy.
As of June 30, 2000, the fair value of derivative financial instruments exposed
to commodity price risk was immaterial.
Equity Price Risk
The Registrant maintains trust funds, as required by the Nuclear Regulatory
Commission and Missouri and Illinois state laws, to fund certain costs of
nuclear decommissioning. As of June 30, 2000, these funds were invested
primarily in domestic equity securities, fixed-rate, fixed-income securities,
and cash and cash equivalents. By maintaining a portfolio that includes
long-term equity investments, the Registrant is seeking to maximize the returns
to be utilized to fund nuclear decommissioning costs. However, the equity
securities included in the Registrant's portfolio are exposed to price
fluctuations in equity markets, and the fixed-rate, fixed-income securities are
exposed to changes in interest rates. The Registrant actively monitors its
portfolio by benchmarking the performance of its investments against certain
indices and by maintaining, and periodically reviewing, established target
allocation percentages of the assets of its trusts to various investment
options. The Registrant's exposure to equity price market risk is in large part
mitigated due to the fact that the Registrant is currently allowed to recover
its decommissioning costs in its rates.
ACCOUNTING MATTERS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities and requires
recognition of all derivatives as either assets or liabilities on the balance
sheet measured at fair value. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," which delayed the effective date of
SFAS 133 to all fiscal quarters of all fiscal years, beginning after June 15,
2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities -an amendment of FASB
Statement No. 133," which amended certain accounting and reporting standards of
SFAS 133. Management believes that adoption of SFAS 133 will not have a material
impact on the Registrant's financial position or results of operations upon
adoption based on the derivative instruments that existed at June 30, 2000.
However, changing market conditions, and the volume of future transactions which
fall within the scope of SFAS 133, as amended, and the interpretations from the
FASB's Derivative Implementation Group could change management's current
assessment. As a result, SFAS 133, as amended, could increase the volatility of
the Registrant's future earnings and could be material to the Registrant's
financial position and results of operations upon adoption.
SAFE HARBOR STATEMENT
Statements made in this Form 10-Q which are not based on historical facts, are
"forward-looking" and, accordingly, involve risks and uncertainties that could
cause actual results to differ materially from those discussed. Although such
"forward-looking" statements have been made in good faith and are based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. These statements include (without limitation) statements as
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to future expectations, beliefs, plans, strategies, objectives, events,
conditions, financial performance and the Year 2000 Issue. In connection with
the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of
1995, the Registrant is providing this cautionary statement to identify
important factors that could cause actual results to differ materially from
those anticipated. The following factors, in addition to those discussed
elsewhere in this report and in the Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, and in subsequent securities filings, could cause
results to differ materially from management expectations as suggested by such
"forward-looking" statements: the effects of regulatory actions; changes in laws
and other governmental actions; the impact on the Registrant of current
regulations related to the phasing-in of the opportunity for some customers to
choose alternative energy suppliers in Illinois; the effects of increased
competition in the future due to, among other things, deregulation of certain
aspects of the Registrant's business at both the State and Federal levels;
future market prices for fuel and purchased power, electricity, and natural gas,
including the use of financial instruments; average rates for electricity in the
Midwest; business and economic conditions; interest rates; weather conditions;
fuel prices and availability; generation plant performance; the impact of
current environmental regulations on utilities and generating companies and the
expectation that more stringent requirements will be introduced over time, which
could potentially have a negative financial effect; monetary and fiscal
policies; future wages and employee benefits costs; and legal and administrative
proceedings.
-7-
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<TABLE>
<CAPTION>
UNION ELECTRIC COMPANY
BALANCE SHEET
UNAUDITED
(Thousands of Dollars, Except Shares)
June 30, December 31,
ASSETS 2000 1999
------ ---------- ------------
<S> <C> <C>
Property and plant, at original cost:
Electric $9,331,165 $9,210,122
Gas 230,897 223,789
Other 37,156 37,156
---------- ----------
9,599,218 9,471,067
Less accumulated depreciation and amortization 4,445,047 4,320,910
---------- ----------
5,154,171 5,150,157
Construction work in progress:
Nuclear fuel in process 97,635 88,830
Other 108,360 92,833
---------- ----------
Total property and plant, net 5,360,166 5,331,820
---------- ----------
Investments and other assets:
Nuclear decommissioning trust fund 191,687 186,760
Other 61,396 59,748
---------- ----------
Total investments and other assets 253,083 246,508
---------- ----------
Current assets:
Cash and cash equivalents 1,602 117,308
Accounts receivable - trade (less allowance for doubtful
accounts of $7,872 and $5,308, respectively) 176,017 151,399
Unbilled revenue 111,788 78,213
Other accounts and notes receivable 51,545 19,803
Intercompany notes receivable 169,120 165,700
Materials and supplies, at average cost -
Fossil fuel 61,154 65,292
Other 79,597 90,921
Other 19,639 19,205
---------- ----------
Total current assets 670,462 707,841
---------- ----------
Regulatory assets:
Deferred income taxes 600,343 600,604
Other 153,105 156,789
---------- ----------
Total regulatory assets 753,448 757,393
---------- ----------
Total Assets $7,037,159 $7,043,562
========== ==========
CAPITAL AND LIABILITIES
Capitalization:
Common stock, $5 par value, 150,000,000 shares authorized -
102,123,834 shares outstanding $ 510,619 $ 510,619
Other paid-in capital, principally premium on
common stock 701,896 701,896
Retained earnings 1,204,696 1,221,167
---------- ----------
Total common stockholder's equity 2,417,211 2,433,682
Preferred stock not subject to mandatory redemption 155,197 155,197
Long-term debt 1,919,662 1,882,601
---------- ----------
Total capitalization 4,492,070 4,471,480
---------- ----------
Current liabilities:
Current maturity of long-term debt 12,782 11,423
Accounts and wages payable 188,721 234,845
Accumulated deferred income taxes 45,607 48,139
Taxes accrued 179,355 119,699
Other 165,217 208,373
---------- ----------
Total current liabilities 591,682 622,479
---------- ----------
Accumulated deferred income taxes 1,260,723 1,248,721
Accumulated deferred investment tax credits 135,740 138,665
Regulatory liability 151,578 154,399
Other deferred credits and liabilities 405,366 407,818
---------- ----------
Total Capital and Liabilities $7,037,159 $7,043,562
========== ==========
</TABLE>
See Notes to Financial Statements.
-8-
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<TABLE>
<CAPTION>
UNION ELECTRIC COMPANY
STATEMENT OF INCOME
UNAUDITED
(Thousands of Dollars)
Three Months Ended Six Months Ended Twelve MonthsEnded
June 30, June 30, June 30,
--------------------- --------------------- ----------------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Electric $ 664,197 $ 608,429 $ 1,183,310 $ 1,069,563 $ 2,548,764 $ 2,348,810
Gas 18,095 12,787 60,172 57,704 94,446 93,164
Other -- 151 -- 171 -- 274
----------- ----------- ----------- ----------- ----------- ------------
Total operating revenues 682,292 621,367 1,243,482 1,127,438 2,643,210 2,442,248
OPERATING EXPENSES:
Operations
Fuel and purchased power 179,176 168,842 351,614 289,417 718,731 572,242
Gas 9,849 8,557 32,448 30,357 56,560 51,418
Other 120,668 115,228 225,393 213,152 446,697 454,842
----------- ----------- ----------- ----------- ----------- ------------
309,693 292,627 609,455 532,926 1,221,988 1,078,502
Maintenance 80,400 67,617 132,660 118,240 261,555 225,360
Depreciation and amortization 67,118 64,918 134,184 130,323 259,933 261,335
Income taxes 60,872 49,647 89,484 80,902 239,273 228,024
Other taxes 50,196 50,266 97,911 99,868 202,584 210,612
----------- ----------- ----------- ----------- ----------- ------------
Total operating expenses 568,279 525,075 1,063,694 962,259 2,185,333 2,003,833
OPERATING INCOME 114,013 96,292 179,788 165,179 457,877 438,415
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used
during construction 1,600 2,219 2,829 4,888 5,111 7,655
Miscellaneous, net 2,662 1,387 5,541 2,715 14,474 12,729
----------- ----------- ----------- ----------- ----------- ------------
Total other income and (deductions) 4,262 3,606 8,370 7,603 19,585 20,384
INCOME BEFORE
INTEREST CHARGES 118,275 99,898 188,158 172,782 477,462 458,799
INTEREST CHARGES:
Interest 33,548 31,055 66,014 61,978 124,014 127,105
Allowance for borrowed funds
used during construction (2,125) (1,826) (3,944) (3,608) (7,480) (6,235)
----------- ----------- ----------- ----------- ----------- ------------
Net interest charges 31,423 29,229 62,070 58,370 116,534 120,870
NET INCOME 86,852 70,669 126,088 114,412 360,928 337,929
PREFERRED STOCK DIVIDENDS 2,205 2,205 4,409 4,409 8,817 8,817
----------- ----------- ----------- ----------- ----------- ------------
NET INCOME AFTER PREFERRED
STOCK DIVIDENDS $ 84,647 $ 68,464 $ 121,679 $ 110,003 $ 352,111 $ 329,112
=========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
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<TABLE>
<CAPTION>
UNION ELECTRIC COMPANY
STATEMENT OF CASH FLOWS
UNAUDITED
(Thousands of Dollars)
Six Months Ended
June 30,
2000 1999
---- ----
Cash Flows From Operating:
<S> <C> <C>
Net income $ 126,088 $ 114,412
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 128,210 125,655
Amortization of nuclear fuel 18,342 21,025
Allowance for funds used during construction (6,773) (8,496)
Deferred income taxes, net 6,725 (2,153)
Deferred investment tax credits, net (2,925) (2,772)
Changes in assets and liabilities:
Receivables, net (89,935) (39,729)
Materials and supplies 15,462 (18,532)
Accounts and wages payable (46,124) (59,123)
Taxes accrued 59,656 71,859
Other, net (47,367) 63,718
--------- ---------
Net cash provided by operating activities 161,359 265,864
Cash Flows From Investing:
Construction expenditures (166,283) (120,658)
Allowance for funds used during construction 6,773 8,496
Nuclear fuel expenditures (8,449) (19,313)
Intercompany notes receivable (3,420) (145,500)
--------- ---------
Net cash used in investing activities (171,379) (276,975)
Cash Flows From Financing:
Dividends on common
stock (138,150) (123,161)
Dividends on preferred stock (4,409) (4,409)
Redemptions -
Nuclear fuel lease (3,933) (7,427)
Long-term debt (186,500) -
Issuances -
Nuclear fuel lease 5,656 38,430
Long-term debt 221,650 73,900
--------- ---------
Net cash used in financing activities (105,686) (22,667)
Net change in cash and cash equivalents (115,706) (33,778)
Cash and cash equivalents at beginning of year 117,308 47,337
--------- ---------
Cash and cash equivalents at end of period $ 1,602 $ 13,559
========= =========
Cash paid during the periods:
Interest (net of amount capitalized) $ 58,958 $ 58,025
Income taxes, net $ 69,868 $ 58,426
</TABLE>
See Notes to Financial Statements.
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UNION ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2000
Note 1 - Union Electric Company (AmerenUE or the Registrant) is a subsidiary of
Ameren Corporation (Ameren), which is the parent company of the following
operating companies: the Registrant, Central Illinois Public Service Company
(AmerenCIPS) and AmerenEnergy Generating Company, a wholly owned subsidiary of
AmerenEnergy Resources Company. Ameren is a registered holding company under the
Public Utility Holding Company Act of 1935 (PUHCA) formed in December 1997 upon
the merger of AmerenUE and CIPSCO Incorporated (the Merger). Both Ameren and its
subsidiaries are subject to the regulatory provisions of the PUHCA. The
operating companies are engaged principally in the generation, transmission,
distribution and sale of electric energy and the purchase, distribution,
transportation and sale of natural gas in the states of Missouri and Illinois.
Contracts among the companies--dealing with jointly-owned generating facilities,
interconnecting transmission lines, and the exchange of electric power--are
regulated by the Federal Energy Regulatory Commission (FERC) or the Securities
and Exchange Commission (SEC). Administrative support services are provided to
the Registrant by a separate Ameren subsidiary, Ameren Services Company. The
Registrant serves 1.1 million electric and 124,000 gas customers in a 24,500
square-mile area of Missouri and Illinois, including Metropolitan St. Louis.
The Registrant also has a 40 percent interest in Electric Energy, Inc. (EEI),
which is accounted for under the equity method of accounting. EEI owns and
operates an electric generating and transmission facility in Illinois that
supplies electric power primarily to a uranium enrichment plant located in
Paducah, Kentucky.
Note 2 - Financial statement note disclosures, normally included in financial
statements prepared in conformity with generally accepted accounting principles,
have been omitted in this Form 10-Q pursuant to the Rules and Regulations of the
SEC. However, in the opinion of the Registrant, the disclosures contained in
this Form 10-Q are adequate to make the information presented not misleading.
See Notes to Financial Statements included in the 1999 Form 10-K for information
relevant to the financial statements contained in this Form 10-Q, including
information as to the significant accounting policies of the Registrant.
Note 3 - In the opinion of the Registrant the interim financial statements filed
as part of this Form 10-Q reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
periods presented. Registrant's financial statements were prepared to permit the
information required in the Financial Data Schedule (FDS), Exhibit 27, to be
directly extracted from the filed statements. The FDS amounts correspond to or
are calculable from the amounts reported in the financial statements or notes
thereto.
Note 4 - Due to the effect of weather on sales and other factors which are
characteristic of public utility operations, financial results for the periods
ended June 30, 2000 and 1999, are not necessarily indicative of trends for any
three-month, six-month or 12-month period.
Note 5 - In July 1995, the Missouri Public Service Commission (MoPSC) approved
an agreement establishing contractual obligations involving the Registrant's
Missouri retail electric rates. Included was a three-year experimental
alternative regulation plan (the Original Plan) that ran from July 1, 1995
through June 30, 1998, which provided that earnings in those years in excess of
a 12.61% regulatory return on equity (ROE) be shared equally between customers
and stockholders, and earnings above a 14% ROE be credited to customers. The
formula for computing the credit used twelve-month results ending June 30,
rather than calendar year earnings.
The MoPSC staff proposed adjustments to the Registrant's estimated customer
credit for the final year of the Original Plan ended June 30, 1998, which were
the subject of regulatory proceedings before the MoPSC in 1999. In December
1999, the MoPSC issued a Report and Order (Order) concerning these proposed
adjustments. Based on the provisions of that Order, the Registrant revised its
estimated final year credit to $31 million. Subsequently, in December 1999, the
Registrant filed a request for rehearing of the Order with the MoPSC, asking
that it reconsider its decision to adopt certain of the MoPSC staff's
adjustments. The request was denied by the MoPSC and in February 2000, the
Registrant filed a Petition
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for Writ of Review with the Circuit Court of Cole County, Missouri, requesting
that the Order be reversed. The appeal is pending and the ultimate outcome can
not be predicted; however, the final decision is not expected to materially
impact the financial condition, results of operations or liquidity of the
Registrant. A partial stay of the Order was granted by the Court pending the
appeal.
A new three-year experimental alternative regulation plan (the New Plan) was
included in the joint agreement authorized by the MoPSC in its February 1997
order approving the Merger. Like the Original Plan, the New Plan requires that
earnings over a 12.61 percent ROE up to a 14 percent ROE be shared equally
between customers and stockholders. The New Plan also returns to customers 90
percent of all earnings above a 14 percent ROE up to a 16 percent ROE. Earnings
above a 16 percent ROE are credited entirely to customers. The New Plan runs
from July 1, 1998 through June 30, 2001. During the three months ended June 30,
2000, the Registrant recorded an estimated $5 million credit (2 cents per share)
for the plan year ended June 30, 2000 that the Registrant expects to pay its
Missouri electric customers. In total, the Registrant has recorded an estimated
credit of $35 million (15 cents per share) as of June 30, 2000 for the plan year
ended June 30, 2000, compared to an estimated $20 million credit recorded over
the same period last year. These credits were reflected as a reduction in
electric revenues. The final amount of the credit will depend on several
factors, including the Registrant's earnings for 12 months ended June 30, 2000.
As of June 30, 2000, the Registrant has also reflected an estimated $25 million
credit it expects to pay its Missouri electric customers for the plan year ended
June 30, 1999. The Registrant's proposed credit is still under review by the
MoPSC staff and the Office of the Public Counsel.
The joint agreement approved by the MoPSC in its February 1997 Order approving
the Merger also provided for a Missouri electric rate decrease, retroactive to
September 1, 1998, based on the weather-adjusted average annual credits to
customers under the Original Plan. The rate decrease was impacted by the Order
issued by the MoPSC in December 1999 relating to the estimated credit for the
third year of the Original Plan and a settlement reached between the Registrant,
the MoPSC staff and other parties relating to the calculation of the
weather-adjusted credits. Based on those results, the Registrant estimates that
its Missouri electric rate decrease will be $17 million on an annualized basis.
This estimate is subject to the final outcome of the above-referenced court
appeal of the Order.
Note 6 - The Registrant has transactions in the normal course of business with
other Ameren subsidiaries. These transactions are primarily comprised of power
purchases and sales and services received or rendered. Intercompany receivables
included in other accounts and notes receivable were approximately $46 million
and $15 million, respectively, as of June 30, 2000 and December 31, 1999.
Intercompany payables included in accounts and wages payable totaled
approximately $43 million and $25 million, respectively, as of June 30, 2000 and
December 31, 1999.
Also, the Registrant has the ability to borrow up to approximately $525 million
from Ameren or AmerenCIPS through a regulated money pool agreement. The
regulated money pool was established to coordinate and provide for certain
short-term cash and working capital requirements and is administered by Ameren
Services Company. Interest is calculated at varying rates of interest depending
on the composition of internal and external funds in the regulated money pool.
At June 30, 2000, the Registrant had outstanding intercompany receivables of
$169 million and $196 million available through the regulated money pool.
Note 7- The Company's union employees are represented by the International
Brotherhood of Electrical Workers and the International Union of Operating
Engineers. These employees comprise approximately 65% of the Company's
workforce. New contracts with collective bargaining unit representing
approximately 46% of these employees was ratified in 1999 with terms expiring in
2002. New contracts with collective bargaining units representing approximately
28% of these employees were ratified in 2000 with terms expiring in 2003. On
July 27, 2000, after engaging in extensive good-faith bargaining with collective
bargaining units representing approximately 26% of the Registrant's union
employees, the Registrant submitted a last, best and final offer to the
bargaining unit representing most of these employees for a new contract with a
term expiring in 2003. The bargaining unit has until August 25, 2000 to notify
the Registrant on whether the offer has been ratified by its membership. The
Registrant is unable to predict whether the offer will be ratified or what
action, if any, the collective bargaining unit will take in the event
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it is not ratified or the response of the Registrant's other union represented
employees to any action by its employees. The Registrant is also unable to
determine what, if any impact these labor matters could have on its future
financial condition, results of operations or liquidity.
Note 8- In 1998, the Registrant joined a group of companies that support the
formation of the Midwest Independent System Operator (Midwest ISO). An ISO
operates, but does not own, electric transmission systems and maintains system
reliability and security while alleviating certain pricing issues. The FERC
conditionally approved the formation of the Midwest ISO. The Registrant is
evaluating certain issues which are outstanding related to the start-up of
operations of the Midwest ISO, including the final determination of revenue
distribution among the Midwest ISO members. Further, the Registrant is
evaluating alternatives to membership in the Midwest ISO. At this time,
management has not decided its course of action relative to its transmission
business and accordingly is unable to determine the impact that operation of the
Midwest ISO or other alternatives will have on its financial condition, results
of operations or liquidity.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Reference is made to Note 2 - Regulatory Matters (Illinois Electric
Restructuring) in the Notes to Financial Statements of the Registrant's Form
10-K for the year ended December 31, 1999, for information relating to a
transmission system rate case filed by the Registrant with the Federal Energy
Regulatory Commission (FERC) in August 1999. This filing was primarily designed
to implement rates, terms and conditions for electric transmission service for
those retail customers in Illinois who choose other suppliers as allowed under
the Electric Service Customer Choice and Rate Relief Law of 1997. On May 17,
2000, the FERC issued a letter order approving a settlement of this case reached
with the FERC trial staff and other interested parties.
Reference is made to Item 1. Legal Proceedings in Part II of the
Registrant's Form 10-Q for the quarterly period ended March 31, 2000, for
information relating to the National Ambient Air Quality Standards for ozone and
particulate matter litigation. On May 22, 2000, the United States Supreme Court
granted certiorari and agreed to review the United States Court of Appeals for
the District of Columbia Circuit's decision to remand the ambient air quality
standard regulations to the United States Environmental Protection Agency for
reconsideration. At this time, the Registrant is unable to predict the ultimate
impact of those revised air quality standards on its future financial condition,
results of operation or liquidity.
ITEM 5. OTHER INFORMATION
-----------------
Any stockholder proposal intended for inclusion in the proxy material for
the Registrant's 2001 annual meeting of stockholders must be received by the
Registrant by November 30, 2000.
In addition, under the Registrant's By-Laws, stockholders who intend to
submit a proposal in person at an annual meeting, or who intend to nominate a
director at a meeting, must provide advance written notice along with other
prescribed information. In general, such notice must be received by the
Secretary of the Registrant not later than 60 nor earlier than 90 days prior to
the first anniversary of the preceding year's annual meeting. For the
Registrant's 2001 annual meeting of stockholders, written notice of any
in-person stockholder proposal or director nomination must be received not later
than February 24, 2001 or earlier than January 25, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividend Requirements, 12 Months Ended June 30, 2000.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. None.
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SIGNATURES
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/ Donald E. Brandt
------------------------------
Donald E. Brandt
Senior Vice President
Finance and Corporate Services
(Principal Financial Officer)
Date: August 14, 2000
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