filings.toolsItem 1. BUSINESS
60K characters. Original on sec.gov ·
Item 1. BUSINESS
GENERAL
Ameren, headquartered in St. Louis, Missouri, is a public utility holding company under PUHCA 2005. Ameren was formed in 1997 by the merger of Ameren Missouri and CIPSCO Inc., which was the parent company of CIPS. Ameren acquired CILCORP Inc., which was the parent company of CILCO, in 2003 and IP in 2004. CIPS, CILCO, and IP were merged to form Ameren Illinois in 2010. Ameren’s primary assets are its equity interests in its subsidiaries, including Ameren Missouri and Ameren Illinois. Ameren’s subsidiaries are separate, independent legal entities with separate businesses, assets, and liabilities. Dividends on Ameren’s common stock and the payment of expenses by Ameren depend on distributions made to it by its subsidiaries.
Below is a summary description of Ameren Missouri and Ameren Illinois. A more detailed description can be found in Note 1 – Summary of Significant Accounting Policies under Part II, Item 8, of this report.
| • | Ameren Missouri operates a rate-regulated electric generation, transmission, and distribution business and a rate-regulated natural gas transmission and distribution business in Missouri. |
| • | Ameren Illinois operates rate-regulated electric and natural gas transmission and distribution businesses in Illinois. |
Ameren has various other subsidiaries that conduct activities such as the provision of shared services. Ameren also has a subsidiary, ATXI, that operates a FERC rate-regulated electric transmission business. ATXI is developing MISO-approved electric transmission projects, including the Illinois
Rivers, Spoon River, and Mark Twain projects. Ameren is also pursuing projects to improve electric transmission system reliability within Ameren Missouri's and Ameren Illinois' service territories as well as competitive electric transmission investment opportunities outside of these territories, including investments outside of MISO.
In December 2013, Ameren completed the divestiture of New AER to IPH. In January 2014, Medina Valley completed its sale of the Elgin, Gibson City, and Grand Tower gas-fired energy centers to Rockland Capital. In addition, in 2013, Ameren abandoned the Meredosia and Hutsonville energy centers upon the completion of the divestiture of New AER to IPH. Ameren is demolishing the Hutsonville energy center and expects to demolish the Meredosia energy center beginning in 2016. As a result of these events, Ameren has segregated the operating results, assets, and liabilities for New AER and for the Elgin, Gibson City, Grand Tower, Meredosia, and Hutsonville energy centers and presented them separately as discontinued operations for all periods presented in this report. Unless otherwise stated, the following information presented in Part I, Item 1, of this report excludes discontinued operations for all periods presented. See Note 16 – Divestiture Transactions and Discontinued Operations under Part II, Item 8, of this report for additional information.
The following table presents our total employees at December 31, 2015:
| Ameren Missouri | 3,773 | |
| Ameren Illinois | 3,305 | |
| Ameren Services | 1,449 | |
| Ameren | 8,527 |
At December 31, 2015, the IBEW, the IUOE, the LIUNA, and the UA labor unions collectively represented about 54% of Ameren’s total employees. They represented 63% and 59% of the employees at Ameren Missouri and Ameren Illinois, respectively. The collective bargaining agreements have terms ranging from two to six years and expire between 2016 and 2018.
For additional information about the development of our businesses, our business operations, and factors affecting our operations and financial position, see Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part II, Item 7, of this report and Note 1 – Summary of Significant Accounting Policies under Part II, Item 8, of this report.
BUSINESS SEGMENTS
Ameren has two reportable segments: Ameren Missouri and Ameren Illinois. Ameren Missouri and Ameren Illinois each have one reportable segment. The Ameren Missouri segment for both Ameren and Ameren Missouri includes all the operations of Ameren Missouri. The Ameren Illinois segment for both Ameren and Ameren Illinois consists of all of the operations of Ameren Illinois. See Note 1 – Summary of Significant Accounting Policies and Note 17 – Segment Information under Part II, Item 8, of this report for additional information on reporting segments.
RATES AND REGULATION
Rates
The rates that Ameren Missouri, Ameren Illinois, and ATXI are allowed to charge for their utility services significantly influence the results of operations, financial position, and liquidity of these companies and Ameren. The electric and natural gas utility industry is highly regulated. The utility rates charged to customers are determined by governmental entities, including the MoPSC, the ICC, and the FERC. Decisions by these entities are influenced by many factors, including the cost of providing service, the prudency of expenditures, the quality of service, regulatory staff knowledge and experience, customer intervention, and economic conditions, as well as social and political views. Decisions made by these governmental entities regarding rates are largely outside of our control. These decisions, as well as the regulatory lag involved in filing and getting new rates approved, could have a material adverse effect on the results of operations, financial position, and liquidity of the Ameren Companies. The extent of the regulatory lag varies for each of Ameren's electric and natural gas jurisdictions, with the FERC-regulated electric transmission and Illinois electric distribution jurisdictions experiencing the least amount of regulatory lag. Depending on the jurisdiction, the effects of regulatory lag are mitigated through a variety of means, including the use of a future test year, the implementation of trackers and riders, the level and timing of expenditures, and by regulatory frameworks that include annual revenue requirement reconciliations.
The MoPSC regulates rates and other matters for Ameren Missouri. The ICC regulates rates and other matters for Ameren Illinois, as well as non-rate utility matters for ATXI. ATXI does not have retail distribution customers; therefore, the ICC does not have authority to regulate its rates. The FERC regulates Ameren Missouri's, Ameren Illinois', and ATXI's cost-based rates for the wholesale distribution and transmission of energy in interstate commerce and various other matters discussed below under General Regulatory Matters.
The following table summarizes, by rate jurisdiction, the key terms of the rate orders in effect for customer billings for each of Ameren's rate-regulated utilities as of January 1, 2016:
| Regulator | Allowed Return on Equity | Percent of Common Equity | Rate Base (in billions) | Portion of Ameren's 2015 Operating Revenues(a) | |
| Ameren Missouri | |||||
| Electric service(b)(c) | MoPSC | 9.53% | 51.8% | $7.0 | 56% |
| Natural gas delivery service(d) | MoPSC | (d) | 52.9% | $0.2 | 2% |
| Ameren Illinois | |||||
| Electric distribution delivery service(e) | ICC | 9.14% | 50.0% | $2.5 | 25% |
| Natural gas delivery service(f) | ICC | 9.60% | 50.0% | $1.2 | 13% |
| Electric transmission delivery service(g) | FERC | 12.38% | 51.9% | $1.2 | 3% |
| ATXI | |||||
| Electric transmission delivery service(g) | FERC | 12.38% | 56.1% | $0.9 | 1% |
| (a) | Includes pass-through costs recovered from customers, such as purchased power for electric distribution delivery service and gas purchased for resale for natural gas delivery service, and intercompany eliminations. |
| (b) | Ameren Missouri's electric generation, transmission, and delivery service rates are bundled together and charged to retail customers under a combined electric service rate. |
| (c) | Based on the MoPSC's April 2015 rate order. |
| (d) | Based on the MoPSC's January 2011 rate order. This rate order did not specify the allowed return on equity. It includes the impacts on rate base and operating revenues relating to the ISRS for investments after the January 2011 rate order. |
| (e) | Based on the ICC's December 2015 rate order. Ameren Illinois electric distribution delivery service rates are updated annually and become effective each January. The December 2015 rate order was based on 2014 recoverable costs, expected net plant additions for 2015, and the monthly yields during 2014 of the 30-year United States Treasury bonds plus 580 basis points. Ameren Illinois' 2016 electric distribution delivery service revenues will be based on its 2016 actual recoverable costs, rate base, and return on common equity, as calculated under the IEIMA's performance-based formula ratemaking framework. |
| (f) | Based on the ICC's December 2015 rate order. The rate order was based on a 2016 future test year and established the VBA. |
| (g) | Transmission rates are updated annually and become effective each January. They are determined by a company-specific, forward-looking rate formula based on each year's forecasted information. The 12.38% return is the subject of two FERC complaint proceedings that are challenging the allowed return on common equity for MISO transmission owners and would require customer refunds to be issued. |
Ameren Missouri
Electric
Ameren Missouri’s electric operating revenues are subject to regulation by the MoPSC. If certain criteria are met, Ameren Missouri’s electric rates may be adjusted without a traditional rate proceeding. For example, all of Ameren Missouri's MEEIA customer energy efficiency program costs, net shared benefits or throughput disincentive, and any performance incentive, are recoverable through a rider that may be adjusted without a traditional rate proceeding. Likewise, the FAC permits Ameren Missouri to recover or refund, through customer rates, 95% of changes in net energy costs greater than or less than the amount set in base rates without a traditional rate proceeding, subject to MoPSC prudence reviews. Net energy costs, as defined in the FAC, include fuel and purchased power costs, including transportation, net of off-system sales. As of May 30, 2015, transmission revenues and substantially all transmission charges are excluded from net energy costs as a result of the April 2015 MoPSC electric rate order. Under certain conditions, a provision of the FAC allows Ameren Missouri to retain a portion of the revenues from any off-system sales it makes as a result of reduced sales to Noranda.
In addition to the FAC and the MEEIA recovery mechanisms, Ameren Missouri employs other cost recovery mechanisms, including a pension and postretirement benefit cost tracker, an uncertain tax position tracker, a renewable energy standards cost tracker, and a solar rebate program tracker. Each of these trackers allows Ameren Missouri to record the difference between the level of incurred costs under GAAP and the level of such costs included in rates as a regulatory asset or regulatory liability, which will be included in base rates in a future MoPSC rate order.
Ameren Missouri is a member of MISO, and its transmission rate is calculated in accordance with the MISO OATT. The FERC regulates the rates charged and the terms and conditions for electric transmission delivery service. The transmission rate is updated each June based on Ameren Missouri’s filings with the FERC. This rate is not directly charged to Missouri retail customers because, in Missouri, the MoPSC includes transmission-related costs and revenues in bundled retail rates.
Natural Gas
Ameren Missouri’s natural gas operating revenues are subject to regulation by the MoPSC. If certain criteria are met, Ameren Missouri’s natural gas rates may be adjusted without a traditional rate proceeding. PGA clauses permit prudently incurred natural gas supply costs to be passed directly to customers. The ISRS also permits certain prudently incurred natural gas infrastructure replacement costs to be recovered from customers on a more timely basis between rate cases. The return on equity currently used by Ameren Missouri for purposes of the ISRS tariff is 10%.
Ameren Illinois
Electric
Ameren Illinois' electric distribution delivery service operating revenues are regulated by the ICC, while its electric transmission delivery service operating revenues are regulated by the FERC. In 2015, Ameren Illinois' electric distribution delivery service accounted for 91% of its total electric operating revenues. The remainder related to electric transmission delivery service.
Ameren Illinois participates in the performance-based formula ratemaking process established pursuant to the IEIMA. The IEIMA was designed to provide for the recovery of actual costs of electric delivery service that are prudently incurred and to reflect the utility's actual regulated capital structure through a formula for calculating the return on equity component of the cost of capital. The return on equity component of the formula rate is equal to the average for the calendar year of the monthly yields of the 30-year United States Treasury bonds plus 580 basis points. Ameren Illinois' actual return on equity relating to electric delivery service is subject to a collar adjustment on earnings in excess of 50 basis points greater or less than its allowed return. The IEIMA provides for an annual reconciliation of the revenue requirement necessary to reflect the actual costs incurred in a given year with the revenue requirement included in customer rates for that year, including an allowed return on equity. This annual revenue requirement reconciliation adjustment, along with the collar adjustment, if necessary, will be collected from or refunded to customers within the next two years.
Ameren Illinois is also subject to performance standards under the IEIMA. Failure to achieve the standards would result in a reduction in the company's allowed return on equity calculated under the formula. The performance standards include improvements in service reliability to reduce both the frequency
and duration of outages, reduction in the number of estimated bills, reduction of consumption on inactive meters, and a reduction in uncollectible accounts expense. The IEIMA provides for return on equity penalties totaling up to 34 basis points in 2016 through 2018 and 38 basis points in 2019 through 2022 if the performance standards are not met. The current formula ratemaking process is effective until the end of 2019, with a further extension possible through 2022.
Under the IEIMA, Ameren Illinois is also subject to capital spending levels. Between 2012 and 2021, Ameren Illinois is required to invest $625 million incremental to its average electric delivery service capital project investments of $228 million for calendar years 2008 through 2010, on capital projects to modernize its distribution system. Through 2015, Ameren Illinois has invested $277 million in IEIMA capital projects toward its $625 million requirement. As required by the IEIMA, Ameren Illinois met the job creation requirements during the peak program year.
Ameren Illinois employs cost recovery mechanisms for power procurement, customer energy efficiency programs, certain environmental costs, and bad debt expense not recovered in base rates. Ameren Illinois also has a tariff rider to recover the costs of certain asbestos-related claims.
Ameren Illinois is a member of MISO and its transmission rate is calculated in accordance with the MISO OATT. Currently, the FERC-allowed return on common equity in the ratemaking formula for MISO transmission owners is 12.38%. However, the 12.38% return is subject to a November 2013 complaint case and a February 2015 complaint case that challenge the allowed return on common equity for MISO transmission owners. In December 2015, an administrative law judge issued an initial decision in the November 2013 complaint case that would lower the allowed base return on common equity to 10.32% and would require customer refunds to be issued for the 15-month period ending in February 2015. Ameren Illinois has received FERC approval to use a company-specific, forward-looking rate formula framework in setting its transmission rates. These forward-looking rates are updated each January with forecasted information. A reconciliation during the year, which adjusts for the actual revenue requirement and actual sales volumes, is used to adjust billing rates in a subsequent year. In Illinois, the AMIL pricing zone transmission rate is charged directly to wholesale customers and to alternative retail electric suppliers, which serve unbundled retail load. The AMIL pricing zone transmission rate and other MISO-related costs are collected through a rider mechanism in Ameren Illinois' retail distribution tariffs from retail customers who have not chosen an alternative retail electric supplier.
Natural Gas
Ameren Illinois’ natural gas operating revenues are subject to regulation by the ICC. In December 2015, the ICC issued a rate order that approved an increase in revenues for Ameren Illinois' natural gas delivery service that was based on a 2016 future test year. In addition, the rate order approved the VBA for
residential and small nonresidential customers. If certain criteria are met, then Ameren Illinois’ natural gas rates may be adjusted without a traditional rate proceeding. PGA clauses permit prudently incurred natural gas costs to be passed directly to customers. Also, Ameren Illinois employs cost recovery mechanisms for customer energy efficiency programs, certain environmental costs, and bad debt expenses not recovered in base rates.
In July 2013, a state law was enacted, which encourages Illinois natural gas utilities to accelerate modernization of the state's natural gas infrastructure. The law allows natural gas utilities to file for a QIP rider. A QIP rider allows a surcharge to be added to customers' bills to recover depreciation expenses and to earn a return on qualifying natural gas investments that were not previously included in base rates. Recovery begins two months after the natural gas investments are placed in service and continues until the investments are included in base rates in a future natural gas rate order. Ameren Illinois received ICC approval for its QIP rider in January 2015 and subsequently began including qualified investments and recording revenue under this regulatory framework.
ATXI
ATXI is a member of MISO, and its transmission rate is calculated in accordance with the MISO OATT. Accordingly, like Ameren Illinois, ATXI's transmission rate is subject to the November 2013 and February 2015 complaint cases that challenge the allowed return on common equity for MISO transmission owners. ATXI has received FERC approval to use a company-specific, forward-looking rate formula framework in setting its transmission rates. These forward-looking rates are updated each January with forecasted information. A reconciliation during the year, which adjusts for the actual revenue requirement and actual sales volumes, is used to adjust billing rates in a subsequent year. Additionally, the FERC has approved transmission rate incentives relating to the three MISO-approved multi-value projects discussed below, which allow construction work in progress to be included in rate base, thereby improving the timeliness of cash recovery.
The three MISO-approved multi-value projects being developed by ATXI are the Illinois Rivers, Spoon River, and Mark Twain projects. The first project, Illinois Rivers, involves the construction of a 345-kilovolt line from western Indiana across the state of Illinois to eastern Missouri. ATXI has obtained a certificate of public convenience and necessity and project approval from the ICC and the MoPSC for each state's portion of the Illinois Rivers project. The last section of this project is expected to be completed in 2019. The Spoon River project is located in northwest Illinois, and the Mark Twain project is located in northeast Missouri; each of these projects involves the construction of 345-kilovolt lines and one new substation. In September 2015, the ICC granted ATXI a certificate of public convenience and necessity and project approval for the Spoon River project. In June 2015, ATXI made a filing with the MoPSC requesting a certificate of public convenience and necessity for the Mark Twain project. A decision is expected from the MoPSC
in 2016. These two projects are expected to be completed in 2018. The total investment by ATXI in all three projects is expected to be more than $1.6 billion.
For additional information on Ameren Missouri, Ameren Illinois, and ATXI rate matters, including the MoPSC's February 2016 MEEIA order, Noranda's usage reduction and bankruptcy filing, and the FERC complaint cases challenging the allowed return on common equity for MISO transmission owners, see Results of Operations and Outlook in Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part II, Item 7, Quantitative and Qualitative Disclosures About Market Risk under Part II, Item 7A, and Note 2 – Rate and Regulatory Matters under Part II, Item 8, of this report.
General Regulatory Matters
Ameren Missouri, Ameren Illinois, and ATXI must receive FERC approval to enter into various transactions, such as issuing short-term debt securities and conducting certain acquisitions, mergers, and consolidations involving electric utility holding companies. In addition, Ameren Missouri, Ameren Illinois, and ATXI must receive authorization from the applicable state public utility regulatory agency to issue stock and long-term debt securities (with maturities of more than 12 months) and to conduct mergers, affiliate transactions, and various other activities.
Ameren Missouri, Ameren Illinois, and ATXI are also subject to mandatory reliability standards, including cybersecurity standards adopted by the FERC, to ensure the reliability of the bulk power electric system. These standards are developed and enforced by NERC pursuant to authority delegated to it by the FERC. If Ameren Missouri, Ameren Illinois, or ATXI are determined not to be in compliance with any of these mandatory reliability standards, they could incur substantial monetary penalties and other sanctions.
Under PUHCA 2005, the FERC and any state public utility regulatory agency may access books and records of Ameren and its subsidiaries that are determined to be relevant to costs incurred by Ameren’s rate-regulated subsidiaries that may affect jurisdictional rates. PUHCA 2005 also permits the MoPSC and the ICC to request that the FERC review cost allocations by Ameren Services to other Ameren companies.
Operation of Ameren Missouri’s Callaway energy center is subject to regulation by the NRC. In March 2015, the NRC extended the Callaway energy center's operating license from 2024 to 2044. Ameren Missouri’s Osage hydroelectric energy center and Taum Sauk pumped-storage hydroelectric energy center, as licensed projects under the Federal Power Act, are subject to FERC regulations affecting, among other aspects, the general operation and maintenance of the projects. The license for the Osage hydroelectric energy center expires in 2047. The license for the Taum Sauk pumped-storage hydroelectric energy center expires in 2044. Ameren Missouri’s Keokuk energy center and its dam in the Mississippi River between Hamilton, Illinois, and Keokuk, Iowa, are operated under authority granted by an Act of Congress in 1905.
For additional information on regulatory matters, see Note 2 – Rate and Regulatory Matters, Note 10 – Callaway Energy Center, and Note 15 – Commitments and Contingencies under Part II, Item 8, of this report.
Environmental Matters
Certain of our operations are subject to federal, state, and local environmental statutes and regulations relating to the safety and health of personnel, the public, and the environment. These environmental statutes and regulations include requirements relating to identification, generation, storage, handling, transportation, disposal, recordkeeping, labeling, reporting, and emergency response in connection with hazardous and toxic materials; safety and health standards; and environmental protection requirements, including standards and limitations relating to the discharge of air and water pollutants and the management of waste and byproduct materials. Failure to comply with these statutes or regulations could have material adverse effects on us. We could be subject to criminal or civil penalties by regulatory agencies or we could be ordered by the courts to pay private parties. Except as indicated in this report, we believe that we are in material compliance with existing statutes and regulations that currently apply to our operations.
The EPA has promulgated several environmental regulations that will have a significant impact on the electric utility industry. Over time, compliance with these regulations could be costly for certain companies, including Ameren Missouri, that operate coal-fired power plants. Significant new rules include the regulation of CO2 emissions from existing power plants through the Clean Power Plan and from new power plants through the revised NSPS; the CSAPR, which requires further reductions of SO2 emissions and NOx emissions from power plants; a regulation governing management and storage of CCR; the MATS, which require reduction of emissions of mercury, toxic metals, and acid gases from power plants; revised NSPS for particulate matter, SO2, and NOx emissions from new sources; new effluent standards applicable to wastewater discharges from power plants and new regulations under the Clean Water Act that could require significant capital expenditures, such as modifications to water intake structures or new cooling towers at Ameren Missouri’s energy centers. The EPA also periodically reviews and revises national ambient air quality standards, including those standards associated with emissions from power plants, such as particulate matter, ozone, SO2 and NOx. Certain of these new regulations are being or are likely to be challenged through litigation, so their ultimate implementation, as well as the timing of any such implementation, is uncertain. Although many details of future regulations are unknown, individually or the combined effects of new environmental regulations could result in significant capital expenditures and increased operating costs for Ameren and Ameren Missouri. Compliance with all of these environmental laws and regulations could be prohibitively expensive, result in the closure or alteration of the operation of some of Ameren Missouri’s energy centers, or require capital investment. Ameren and Ameren Missouri expect that these costs would be recoverable through rates, subject to MoPSC prudence review, but the nature and timing of costs could result in
regulatory lag. These new and proposed environmental regulations could also impact the availability, cost of, and demand for power and natural gas, which is acquired for Ameren Missouri's natural gas customers and Ameren Illinois' electric and natural gas customers.
For additional discussion of environmental matters, including NOx, SO2, and mercury emission reduction requirements, reductions to CO2 emissions, wastewater discharge standards, remediation efforts, CCR management regulations, and a discussion of the EPA’s allegations of violations of the Clean Air Act and Missouri law in connection with projects at Ameren Missouri's Rush Island energy center, see Note 15 – Commitments and Contingencies under Part II, Item 8, of this report.
TRANSMISSION AND SUPPLY OF ELECTRIC POWER
Ameren owns an integrated transmission system that is comprised of the transmission assets of Ameren Missouri, Ameren Illinois, and ATXI. Ameren also operates two balancing authority areas: AMMO and AMIL. During 2015, the peak demand was 8,071 megawatts in AMMO and 8,642 megawatts in AMIL. The Ameren transmission system directly connects with 15 other balancing authority areas for the exchange of electric energy.
Ameren Missouri, Ameren Illinois, and ATXI are transmission-owning members of MISO. Ameren Missouri is authorized by the MoPSC to participate in MISO through May 2018. Ameren Missouri is required to file a study with the MoPSC in November 2017, as it has done periodically since it began participating in MISO, that evaluates the costs and benefits of Ameren Missouri's continued participation in MISO beyond May 2018.
The Ameren Companies are members of the SERC. The SERC is responsible for the bulk electric power system in all or portions of 16 central and southeastern states. Owners and operators, including the Ameren Companies, of the bulk electric power system are subject to mandatory reliability standards promulgated by the NERC and its regional entities, such as the SERC, which are all enforced by the FERC.
Ameren Missouri
Ameren Missouri’s electric supply is primarily generated from its energy centers. Factors that could cause Ameren Missouri to purchase power include, among other things, absence of sufficient owned generation, energy center outages, the fulfillment of renewable energy portfolio requirements, the failure of suppliers to meet their power supply obligations, extreme weather conditions, and the availability of power at a cost lower than its generation cost.
Ameren Missouri continues to evaluate its longer-term needs for new generating capacity. The potential need for new energy center construction is dependent on several key factors,
including continuation of, and customer participation in, energy efficiency programs, load growth, and more stringent environmental regulation of coal-fired power plants, which could lead to the retirement of current baseload assets or alterations in the manner in which those assets operate. Because of the significant time required to plan, acquire permits for, and build a baseload energy center, Ameren Missouri continues to study alternatives and it is taking steps to preserve options to meet future demand. Steps include evaluating the potential for additional customer energy efficiency programs and options for renewable energy generation, and potential sites for natural-gas-fired generation to further diversify its generation portfolio. During 2015, Ameren Missouri discontinued its efforts to license and build a second nuclear unit at its existing Callaway site and has withdrawn its COL application with the NRC.
Ameren Missouri filed its nonbinding integrated resource plan with the MoPSC in October 2014, prior to the issuance of the Clean Power Plan. The integrated resource plan is a 20-year plan that supports a more fuel-diverse energy portfolio in Missouri, including coal, solar, wind, hydro, natural gas and nuclear power. The plan includes expanding renewable generation, retiring coal-fired generation as energy centers reach the end of their useful lives, continuation and expansion of the then-existing energy efficiency programs, and adding natural-gas-fired combined cycle generation.
See also Outlook in Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part II, Item 7, Note 2 – Rate and Regulatory Matters, Note 10 – Callaway Energy Center, and Note 15 – Commitments and Contingencies under Part II, Item 8, of this report.
Ameren Illinois
In Illinois, electric transmission and distribution service rates are regulated but power supply prices are not regulated. Although electric customers are allowed to purchase power from an alternative retail electric supplier, Ameren Illinois is required to serve as the provider of last resort for its electric customers. In 2015, Ameren Illinois supplied power for approximately 26% of its kilowatthour sales. Power purchased by Ameren Illinois for its retail customers comes either through procurement processes conducted by the IPA or through markets operated by MISO. The IPA administers an RFP process through which Ameren Illinois procures its expected supply obligation. The power and related procurement costs incurred by Ameren Illinois are passed directly to its customers through a cost recovery mechanism. Ameren Illinois charges transmission and distribution service rates to customers who purchase electricity from alternative retail electric suppliers.
See Note 14 – Related Party Transactions and Note 15 – Commitments and Contingencies under Part II, Item 8, of this report for additional information on power procurement in Illinois.
POWER GENERATION
The following table presents the source of Ameren's and Ameren Missouri's electric generation, excluding purchased power, for the years ended December 31, 2015, 2014, and 2013:
| Coal | Nuclear | Natural Gas/Oil | Renewables(a) | ||||
| 2015 | 71% | 25% | (b) | 4% | |||
| 2014 | 76 | 21 | (b) | 3 | |||
| 2013 | 77 | 20 | (b) | 3 |
| (a) | Renewable power generation includes production from Ameren Missouri's hydroelectric, methane gas, and solar energy centers, but it excludes purchased renewable energy credits. |
| (b) | Less than 1% of total fuel supply. |
The following table presents the cost of fuels for electric generation for the years ended December 31, 2015, 2014, and 2013:
| Cost of Fuels (dollars per mmbtu) | 2015 | 2014 | 2013 | ||||||||
| Coal(a) | $ | 2.193 | $ | 2.151 | $ | 2.050 | |||||
| Nuclear(b) | 0.928 | 0.918 | 0.942 | ||||||||
| Natural gas(c) | 7.422 | 11.226 | 7.907 | ||||||||
| Weighted average – all fuels(d) | $ | 1.910 | $ | 1.936 | $ | 1.874 |
| (a) | The cost of coal and the costs for transportation, which include hedges for railroad diesel fuel surcharges. |
| (b) | The cost of uranium and its processing to become nuclear fuel. |
| (c) | The cost of natural gas and fixed and variable costs for transportation, storage, balancing, and fuel losses for delivery to the energy center. |
| (d) | All costs, including transportation, for fuels used in our energy centers, including coal, nuclear, natural gas, methane gas, and oil. Methane gas and oil are not individually listed in this table because their use is minimal. |
Coal
Ameren Missouri has an ongoing need for coal for generation, so it pursues a price-hedging strategy consistent with this requirement. Ameren Missouri has agreements in place to purchase coal and to transport it to energy centers. Most of Ameren Missouri's coal supply agreements expire at the end of 2017, and its existing coal transport agreements expire at the end of 2019. Ameren Missouri has additional coal supply contracts in place to provide a portion of its coal supply in 2018. Ameren Missouri has coal transport agreements with Union Pacific Railroad and Burlington Northern Santa Fe Railway. As of December 31, 2015, Ameren Missouri had price-hedged 100% of its expected coal supply and coal transportation requirements for generation in 2016. Ameren Missouri burned 18 million tons of coal in 2015.
About 98% of Ameren Missouri’s coal is purchased from the Powder River Basin in Wyoming. The remaining coal is typically purchased from the Illinois Basin. Inventory may be adjusted because of generation levels or uncertainties of supply due to potential work stoppages, delays in coal deliveries, equipment breakdowns, and other factors. Deliveries from the Powder River Basin have occasionally been restricted because of rail congestion and maintenance, derailments, and weather. As of December 31, 2015, coal inventories for Ameren Missouri were near targeted levels. Disruptions in coal deliveries could cause Ameren Missouri to pursue a strategy that could include reducing sales of power during low-margin periods, buying higher-cost fuels to generate required electricity, and purchasing power from other sources.
Nuclear
The production of nuclear fuel involves the mining and milling of uranium ore to produce uranium concentrates, the conversion of uranium concentrates to uranium hexafluoride gas, the enrichment of that gas, the conversion of the enriched uranium hexafluoride gas into uranium dioxide fuel pellets, and the fabrication into usable fuel assemblies. Ameren Missouri has entered into uranium, uranium conversion, uranium enrichment, and fabrication contracts to procure the fuel supply for its Callaway nuclear energy center.
The Callaway energy center requires refueling at 18-month intervals. The last refueling was completed in November 2014. The next refuelings are scheduled for the spring of 2016 and the fall of 2017. As of December 31, 2015, Ameren Missouri has agreements or inventories to price-hedge 100% of Callaway's 2016 spring refueling requirements. Ameren Missouri has uranium (concentrate and hexafluoride) inventories and supply contracts sufficient to meet all of its uranium and conversion requirements at least through 2018. Ameren Missouri has enriched uranium inventories and enrichment supply contracts sufficient to satisfy enrichment requirements through at least 2020 and fuel fabrication service contracts through at least 2022.
Natural Gas Supply for Generation
To maintain deliveries to natural-gas-fired energy centers throughout the year, especially during the summer peak demand, Ameren Missouri’s portfolio of natural gas supply resources includes firm transportation capacity and firm no-notice storage capacity leased from interstate pipelines. Ameren Missouri primarily uses the interstate pipeline systems of Panhandle Eastern Pipe Line Company, Trunkline Gas Company, Natural Gas Pipeline Company of America, and Mississippi River Transmission Corporation to transport natural gas to energy centers. In addition to physical transactions, Ameren Missouri uses financial instruments, including some in the NYMEX futures market and some in the OTC financial markets, to hedge the price paid for natural gas.
Ameren Missouri’s natural gas procurement strategy is designed to ensure reliable and immediate delivery of natural gas to its energy centers. This strategy is accomplished by optimizing transportation and storage options and by minimizing cost and price risk through various supply and price-hedging agreements that allow access to multiple gas pools, supply basins, and storage services. As of December 31, 2015, Ameren Missouri had price-hedged about 22% of its expected natural gas supply requirements for generation in 2016.
Renewable Energy
The states of Illinois and Missouri have enacted laws requiring electric utilities to include renewable energy resources in their portfolios. Illinois required renewable energy resources to equal or exceed 2% of the total electricity that Ameren Illinois supplied to its eligible retail customers as of June 1, 2008, with that percentage increasing to 11.5% by June 1, 2016, and to 25% by June 1, 2025. For the 2015 plan year, Ameren Illinois met its requirement that 10% of its total electricity for eligible retail customers be procured from renewable energy resources. Approximately 77% of the 2016 plan year renewable energy requirement is expected to be met through long-term agreements that Ameren Illinois has entered into to obtain renewable energy credits through 2032. The remaining requirement will be met through previous IPA procurements of additional renewable energy credits and an IPA procurement scheduled for spring 2016.
In Missouri, utilities are required to purchase or generate electricity equal to at least 2% of native load sales from renewable sources, with that percentage increasing to at least 15% by 2021, subject to a 1% annual limit on customer rate impacts. At least 2% of each renewable energy portfolio requirement must be derived from solar energy. In 2015, Ameren Missouri met its requirement to purchase or generate at least 5% of its native load sales from renewable energy resources. Ameren Missouri expects to satisfy the nonsolar requirement into 2018 with its Keokuk energy center, its Maryland Heights energy center, and through a 102-megawatt power purchase agreement with a wind farm operator. The Maryland Heights energy center generates electricity by burning methane gas collected from a landfill. Ameren Missouri is meeting the solar energy requirement
through the purchase of solar-generated renewable energy credits from customer-installed systems and from its own solar generation from the O'Fallon energy center and its headquarters building.
Under the same Missouri statute that requires utilities to purchase or generate electricity from renewable sources, Ameren Missouri was required to offer a rebate program to provide an incentive for customers to install solar generation on their premises. In accordance with the statute and a 2013 MoPSC order, Ameren Missouri was required to provide $92 million of solar rebates by 2020, which has been substantially fulfilled. In its 2013 order, the MoPSC also authorized Ameren Missouri to employ a tracker to record the costs it incurred under its solar rebate program as a regulatory asset. Ameren Missouri is recovering the costs of these rebates, along with the estimated $9 million in carrying cost of the regulatory asset, over a three-year period beginning in June 2015.
Energy Efficiency
Ameren Missouri and Ameren Illinois have implemented energy efficiency programs to educate and help their customers become more efficient users of energy. In Missouri, the MEEIA established a regulatory framework that, among other things, allows electric utilities to recover costs related to MoPSC-approved customer energy efficiency programs. The law requires the MoPSC to ensure that a utility’s financial incentives are aligned to help customers use energy more efficiently, to provide timely cost recovery, and to provide earnings opportunities associated with cost-effective energy efficiency programs. Missouri does not have a law mandating energy efficiency standards.
In August 2012, the MoPSC approved Ameren Missouri’s customer energy efficiency programs, net shared benefits, and performance incentive for 2013 through 2015. From 2013 through 2015, Ameren Missouri invested $134 million in customer energy efficiency programs and realized $174 million of net shared benefits. The MoPSC also established a performance incentive that would give Ameren Missouri the potential to earn additional revenues by achieving certain customer energy efficiency goals, including $19 million if 100% of the goals were achieved during the three-year period, with the potential to earn a larger performance incentive if Ameren Missouri's energy savings exceeded those goals.
In June 2015, the MoPSC staff filed a complaint case with the MoPSC regarding the method and inputs used in calculating the performance incentive for 2014 and 2015. In November 2015, the MoPSC issued an order that adopted the MoPSC staff’s method and inputs used in calculating the performance incentive for 2014 and 2015. Ameren Missouri filed an appeal of the order with the Missouri Court of Appeals, Western District. If the Missouri Court of Appeals upholds the MoPSC order, the performance incentive from the 2014 and 2015 MEEIA programs will be significantly less than the performance incentive calculated using Ameren Missouri’s interpretation.
In February 2016, the MoPSC issued an order approving
Ameren Missouri's March 2016 to February 2019 MEEIA plan. See Note 2 – Rate and Regulatory Matters under Part II, Item 8, of this report for additional information.
State law requires Ameren Illinois to offer customer energy efficiency programs. The law also allows for recovery of the programs’ costs. The ICC has issued orders approving Ameren Illinois’ electric and natural gas energy efficiency plans as well as mechanisms by which program costs can be recovered from customers. Additionally, as part of its IEIMA capital project investments, Ameren Illinois expects to invest $360 million in smart grid infrastructure from 2012 to 2021, including smart meters that enable customers to improve their energy efficiency.
NATURAL GAS SUPPLY FOR DISTRIBUTION
Ameren Missouri and Ameren Illinois are responsible for the purchase and delivery of natural gas to their utility customers. Ameren Missouri and Ameren Illinois each develop and manage a portfolio of natural gas supply resources. These resources include firm gas supply under term agreements with producers, interstate and intrastate firm transportation capacity, firm no-notice storage capacity leased from interstate pipelines, and on-system storage facilities to maintain natural gas deliveries to customers throughout the year, and especially during peak demand periods. Ameren Missouri and Ameren Illinois primarily use Panhandle Eastern Pipe Line Company, Trunkline Gas Company, Natural Gas Pipeline Company of America, Mississippi River Transmission Corporation, Northern Border Pipeline Company, and Texas Eastern Transmission Corporation interstate pipeline systems to transport natural gas to their systems. In addition to transactions requiring physical delivery, certain financial instruments, including those entered into in the NYMEX futures market and in the OTC financial markets, are used to hedge the price paid for natural gas. Natural gas purchase costs are passed on to customers of Ameren Missouri and Ameren Illinois under PGA clauses, subject to prudence reviews by the MoPSC and the ICC. As of December 31, 2015, Ameren Missouri had price-hedged 75% and Ameren Illinois had price-hedged 97% of their expected 2016 natural gas supply requirements.
For additional information on our fuel and purchased power supply, see Results of Operations and Liquidity and Capital Resources in Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part II, Item 7, of this report. Also see Note 1 – Summary of Significant Accounting Policies, Note 7 – Derivative Financial Instruments, Note 14 – Related Party Transactions, and Note 15 – Commitments and Contingencies under Part II, Item 8 of this report.
INDUSTRY ISSUES
We are facing issues common to the electric and natural gas utility industry. These issues include:
| • | political, regulatory, and customer resistance to higher rates; |
| • | the potential for changes in laws, regulations, and policies at the state and federal levels; |
| • | corporate tax law changes that accelerate depreciation deductions, which reduce current tax payments and improve cash flow, but also result in rate base reductions and limit the ability to claim other deductions and use carryforward tax benefits; |
| • | cybersecurity risks, including loss of operational control of energy centers and electric and natural gas transmission and distribution systems and/or loss of data, such as utility customer data and account information; |
| • | the potential for more intense competition in generation, supply, and distribution, including new technologies and their declining costs; |
| • | net metering rules and other changes in existing regulatory frameworks and recovery mechanisms to address the allocation of costs to customers who own generation resources that enable those customers to both sell power to and to purchase power from us through the use of our distribution and transmission assets; |
| • | pressure on customer growth and usage in light of economic conditions and energy efficiency initiatives; |
| • | changes in the structure of the industry as a result of changes in federal and state laws, including the formation and growth of independent transmission entities; |
| • | the likely reduction in the allowed return on common equity on FERC-regulated electric transmission assets; |
| • | the availability of fuel and fluctuations in fuel prices; |
| • | the availability of qualified labor and material, and rising costs; |
| • | the availability of a skilled workforce, including retaining the specialized skills of those who are nearing retirement; |
| • | regulatory lag; |
| • | the influence of macroeconomic factors, such as yields on United States Treasury securities and allowed rates of return on equity provided by regulators; |
| • | higher levels of infrastructure investments that are expected to result in negative or decreased free cash flows, defined as cash flows from operating activities less cash flows from investing activities and dividends paid; |
| • | public concern about the siting of new facilities; |
| • | complex new and proposed environmental laws, regulations, and requirements, including air and water quality standards, mercury emissions standards, CCR management requirements, and CO2 limitations, which may reduce the frequency that electric generating units are dispatched based upon their CO2 emissions; |
| • | public concern about the potential impacts to the environment from the combustion of fossil fuels; |
| • | aging infrastructure and the need to construct new power generation, transmission, and distribution facilities, which have long time frames for completion, with little long-term ability to predict power and commodity prices and regulatory requirements; |
| • | legislation or proposals for programs to encourage or mandate energy efficiency and renewable sources of power, such as solar, and the debate over who should pay for those programs; |
| • | public concern about nuclear generation, decommissioning and the disposal of nuclear waste; and |
| • | consolidation of electric and natural gas utility companies. |
We are monitoring these issues. Except as otherwise noted in this report, we are unable to predict what impact, if any, these issues will have on our results of operations, financial position, or liquidity. For additional information, see Risk Factors under Part I, Item 1A, Outlook in Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part II, Item 7, Note 2 – Rate and Regulatory Matters, Note 10 – Callaway Energy Center, and Note 15 – Commitments and Contingencies under Part II, Item 8, of this report.
OPERATING STATISTICS
The following tables present key electric and natural gas operating statistics for Ameren for the past three years:
| Electric Operating Statistics – Year Ended December 31, | 2015 | 2014 | 2013 | ||||||||
| Electric Sales – kilowatthours (in millions): | |||||||||||
| Ameren Missouri: | |||||||||||
| Residential | 12,903 | 13,649 | 13,562 | ||||||||
| Commercial | 14,574 | 14,649 | 14,634 | ||||||||
| Industrial | 8,273 | 8,600 | 8,709 | ||||||||
| Off-system | 7,380 | 6,170 | 6,128 | ||||||||
| Other | 126 | 124 | 125 | ||||||||
| Ameren Missouri total | 43,256 | 43,192 | 43,158 | ||||||||
| Ameren Illinois: | |||||||||||
| Residential | |||||||||||
| Power supply and delivery service | 4,797 | 4,662 | 5,474 | ||||||||
| Delivery service only | 6,757 | 7,222 | 6,310 | ||||||||
| Commercial | |||||||||||
| Power supply and delivery service | 2,837 | 2,535 | 2,606 | ||||||||
| Delivery service only | 9,443 | 9,643 | 9,541 | ||||||||
| Industrial | |||||||||||
| Power supply and delivery service | 1,589 | 1,674 | 1,613 | ||||||||
| Delivery service only | 10,274 | 10,576 | 10,861 | ||||||||
| Other | 524 | 518 | 522 | ||||||||
| Ameren Illinois total | 36,221 | 36,830 | 36,927 | ||||||||
| Eliminate affiliate sales | (385 | ) | (67 | ) | (82 | ) | |||||
| Ameren total | 79,092 | 79,955 | 80,003 | ||||||||
| Electric Operating Revenues (in millions): | |||||||||||
| Ameren Missouri: | |||||||||||
| Residential | $ | 1,464 | $ | 1,417 | $ | 1,428 | |||||
| Commercial | 1,258 | 1,203 | 1,216 | ||||||||
| Industrial | 469 | 475 | 491 | ||||||||
| Off-system | 195 | 173 | 183 | ||||||||
| Other | 84 | 120 | 61 | ||||||||
| Ameren Missouri total | $ | 3,470 | $ | 3,388 | $ | 3,379 | |||||
| Ameren Illinois: | |||||||||||
| Residential | |||||||||||
| Power supply and delivery service | $ | 495 | $ | 468 | $ | 501 | |||||
| Delivery service only | 363 | 308 | 282 | ||||||||
| Commercial | |||||||||||
| Power supply and delivery service | 247 | 233 | 215 | ||||||||
| Delivery service only | 227 | 185 | 184 | ||||||||
| Industrial | |||||||||||
| Power supply and delivery service | 71 | 87 | 68 | ||||||||
| Delivery service only | 53 | 42 | 44 | ||||||||
| Other | 227 | 199 | 167 | ||||||||
| Ameren Illinois total | $ | 1,683 | $ | 1,522 | $ | 1,461 | |||||
| ATXI: | |||||||||||
| Transmission services | $ | 70 | $ | 33 | $ | 19 | |||||
| Other and intercompany eliminations | (43 | ) | (30 | ) | (27 | ) | |||||
| Ameren total | $ | 5,180 | $ | 4,913 | $ | 4,832 |
| Electric Operating Statistics – Year Ended December 31, | 2015 | 2014 | 2013 | ||||||||
| Electric Generation – Ameren Missouri – kilowatthours (in millions) | 42,424 | 43,474 | 43,213 | ||||||||
| Price per ton of delivered coal (average) – Ameren Missouri | $ | 37.88 | $ | 37.36 | $ | 36.19 | |||||
| Source of Ameren Missouri energy supply: | |||||||||||
| Coal | 67.1 | % | 73.5 | % | 74.1 | % | |||||
| Nuclear | 23.3 | 20.6 | 18.6 | ||||||||
| Hydroelectric | 3.6 | 2.2 | 2.9 | ||||||||
| Natural gas | 0.3 | 0.2 | 0.4 | ||||||||
| Methane gas and solar | 0.2 | 0.1 | 0.1 | ||||||||
| Purchased – Wind | 0.7 | 0.8 | 0.7 | ||||||||
| Purchased – Other | 4.8 | 2.6 | 3.2 | ||||||||
| 100.0 | % | 100.0 | % | 100.0 | % |
| Gas Operating Statistics – Year Ended December 31, | 2015 | 2014 | 2013 | ||||||||
| Natural Gas Sales – dekatherms (in millions): | |||||||||||
| Ameren Missouri: | |||||||||||
| Residential | 7 | 8 | 8 | ||||||||
| Commercial | 3 | 4 | 4 | ||||||||
| Industrial | 1 | 1 | 1 | ||||||||
| Transport | 7 | 7 | 6 | ||||||||
| Ameren Missouri total | 18 | 20 | 19 | ||||||||
| Ameren Illinois: | |||||||||||
| Residential | 55 | 66 | 62 | ||||||||
| Commercial | 18 | 23 | 21 | ||||||||
| Industrial | 3 | 3 | 6 | ||||||||
| Transport | 89 | 91 | 87 | ||||||||
| Ameren Illinois total | 165 | 183 | 176 | ||||||||
| Ameren total | 183 | 203 | 195 | ||||||||
| Natural Gas Operating Revenues (in millions): | |||||||||||
| Ameren Missouri: | |||||||||||
| Residential | $ | 84 | $ | 102 | $ | 102 | |||||
| Commercial | 34 | 40 | 42 | ||||||||
| Industrial | 5 | 7 | 8 | ||||||||
| Transport and other | 14 | 15 | 9 | ||||||||
| Ameren Missouri total | $ | 137 | $ | 164 | $ | 161 | |||||
| Ameren Illinois: | |||||||||||
| Residential | $ | 550 | $ | 675 | $ | 611 | |||||
| Commercial | 163 | 208 | 185 | ||||||||
| Industrial | 13 | 23 | 26 | ||||||||
| Transport and other | 57 | 70 | 25 | ||||||||
| Ameren Illinois total | $ | 783 | $ | 976 | $ | 847 | |||||
| Other and intercompany eliminations | (2 | ) | — | (2 | ) | ||||||
| Ameren total | $ | 918 | $ | 1,140 | $ | 1,006 |
AVAILABLE INFORMATION
The Ameren Companies make available free of charge through Ameren’s website (www.ameren.com) their annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, eXtensible Business Reporting Language (XBRL) documents, and any amendments to those reports filed with or furnished to pursuant to Sections 13(a) or 15(d) of the Exchange Act as soon as reasonably possible after such reports are electronically filed with, or furnished to, the SEC. These documents are also available through an Internet website maintained by the SEC (www.sec.gov). Ameren also uses its website as a channel of distribution for material information about the Ameren Companies. Financial and other material information regarding the Ameren Companies is routinely posted to and accessible at Ameren’s website.
The Ameren Companies also make available free of charge through Ameren’s website the charters of Ameren’s board of directors’ audit and risk committee, human resources committee, nominating and corporate governance committee, finance committee, and nuclear oversight and environmental committee; the corporate governance guidelines; a policy regarding communications to the board of directors; a policy and procedures with respect to related-person transactions; a code of ethics for principal executive and senior financial officers; a code of business conduct applicable to all directors, officers and employees; and a director nomination policy that applies to the Ameren Companies. The information on Ameren’s website, or any other website referenced in this report, is not incorporated by reference into this report.
Previous: Cover and table of contents · Next: Item 1A. RISK FACTORS