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AMEREN ILLINOIS CO - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion should be read in conjunction with the financial statements contained in this Form 10-Q as well as Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors contained in the Form 10-K. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. The discussion also provides information about the financial results of our business segments to provide a better understanding of how those segments and their results affect the financial condition and results of operations of Ameren as a whole. Also see the Glossary of Terms and Abbreviations at the front of this report and in the Form 10-K. Ameren, headquartered in St. Louis, Missouri, is a public utility holding company under PUHCA 2005, administered by FERC. Ameren's primary assets are its equity interests in its subsidiaries. Ameren's subsidiaries are separate, independent legal entities with separate businesses, assets, and liabilities. Dividends on Ameren's common stock and the payment of parent company expenses by Ameren depend on distributions made to it by its subsidiaries. Ameren's principal subsidiaries are listed below. • Union Electric Company, doing business as 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 Company, doing business as Ameren Illinois, operates a rate-regulated electric and natural gas transmission and distribution business in Illinois. Ameren has various other subsidiaries responsible for activities, such as the provision of shared services. Ameren also has a subsidiary, ATXI, that operates a FERC rate-regulated electric transmission business and is constructing the Illinois Rivers project. The operating results, assets, and liabilities for New AER and the Elgin, Gibson City, Grand Tower, Meredosia, and Hutsonville energy centers have been presented separately as discontinued operations for all periods presented in this report. Unless otherwise stated, the following sections of Management's Discussion and Analysis of Financial Condition and Results of Operations exclude discontinued operations for all periods presented. On January 31, 2014, Medina Valley completed its sale of the Elgin, Gibson City, and Grand Tower gas-fired energy centers to Rockland Capital. See Note 12 - Divestiture Transactions and Discontinued Operations under Part I, Item 1, of this report for additional information regarding the discontinued operations presentation. See Note 16 - Divestiture Transactions and Discontinued Operations under Part II, Item 8, of the Form 10-K for additional information regarding the divestiture transactions. The financial statements of Ameren are prepared on a consolidated basis, and therefore include the accounts of its majority-owned subsidiaries. All significant intercompany transactions have been eliminated. Ameren Missouri and Ameren Illinois have no subsidiaries, and therefore their financial statements are not prepared on a consolidated basis. All tabular dollar amounts are in millions, unless otherwise indicated. In addition to presenting results of operations and earnings amounts in total, we present certain information in cents per share. These amounts reflect factors that directly affect Ameren's earnings. We believe this per share information helps readers to understand the effect of these factors on Ameren's earnings per share. OVERVIEW Net income attributable to Ameren Corporation was $293 million in the third quarter of 2014, compared with $302 million in the third quarter of 2013. Net income attributable to Ameren Corporation from continuing operations was $294 million in the third quarter of 2014, compared with $305 million in the third quarter of 2013. Net income attributable to Ameren Corporation was $538 million in the first nine months of 2014, compared with $252 million in the first nine months of 2013. Net income attributable to Ameren Corporation from continuing operations was $541 million in the first nine months of 2014, compared with $464 million in the first nine months of 2013. Net income from continuing operations at Ameren was unfavorably affected in the third quarter of 2014, compared with the same period in 2013, by milder summer temperatures, which reduced electric sales volumes. Additionally, earnings decreased in the third quarter and the first nine months of 2014, compared with the same periods in 2013, as a result of higher effective income tax rates and increased depreciation and amortization expenses. Net income from continuing operations was favorably affected in the third quarter and the first nine months of 2014, compared with the same periods in 2013, by increased rates for Ameren Illinois and ATXI electric transmission service and for Ameren Illinois natural gas delivery service, each effective January 1, 2014, as well as decreased interest expense. Net income from continuing operations was also favorably affected in the first nine months of 2014, compared with the same period in 2013, by the absence in 2014 of a reduction in 2013 revenues resulting from the FAC prudence review charge and the timing of the Callaway energy center's refueling and maintenance outages. The 2013 outage occurred during the second quarter while the 2014 outage began in October. Ameren's strategic plan includes investing in and operating its utilities in a manner consistent with existing regulatory frameworks, as well as working to enhance those frameworks and advocating for responsible energy policies at both the federal and state level. Ameren is focused on creating and capitalizing on opportunities to invest in its rate-regulated businesses for the benefit of its customers and shareholders. Consistent with 50 -------------------------------------------------------------------------------- Ameren's strategy, Ameren is investing significant and growing amounts of discretionary capital in Ameren Illinois and ATXI electric transmission service projects and Ameren Illinois energy and natural gas delivery services, because these investments can improve the reliability, safety, and sustainability of the services provided to customers and because these services operate under modern, constructive regulatory frameworks. As a part of the strategic plan, Ameren Missouri is focused on completing the following three key capital projects: replacing the nuclear reactor vessel head at the Callaway energy center during its current refueling and maintenance outage; installing additional environmental controls at the coal-fired Labadie energy center; and placing into service the O'Fallon solar energy center. These projects are expected to be completed by the end of 2014 so that they, along with two recently completed substations, can meet Ameren Missouri customers' energy needs and expectations as well as be included in the rate base used to compute the revenue requirement in Ameren Missouri's current electric service rate case. Ameren Illinois continues to implement its electric and natural gas distribution system modernization action plan, including the installation of advanced electric meters and natural gas meter modules. Ameren Illinois and ATXI continue to invest in FERC-regulated electric transmission projects as a key area of earnings growth for the company, with approximately $375 million invested in the first nine months of 2014. With respect to ATXI's Illinois Rivers project, construction has started on seven of the ten substations and foundation work on one line segment has begun. Execution of Ameren's strategic plan requires successfully managing rate cases to recover and earn fair returns on the investments Ameren makes to benefit its customers, as well as addressing other regulatory matters. Ameren Missouri is focused on achieving a constructive conclusion to the $264 million electric service rate increase request filed in July 2014, which reflects the key capital projects discussed above, among other things. Based on the administrative law judges' recommendation, Ameren Illinois expects a constructive outcome in its April 2014 ICC annual electric delivery service formula rate update filing, as revised in July 2014. To mitigate rate increases for customers and to maximize value for shareholders, Ameren also remains focused on operational improvement and disciplined cost management. In November 2013, a customer group filed a complaint case with FERC seeking a reduction in the allowed base return on common equity for FERC-regulated MISO transmission rate base, as well as a limit on the common equity ratio, under the MISO tariff. Currently, the FERC-allowed base return on common equity for MISO transmission owners is 12.38%. In October 2014, FERC issued an order establishing settlement procedures and, if necessary, hearing procedures regarding the allowed base return on common equity and denied all other aspects of the MISO complaint case. This complaint case could result in a reduction to Ameren Illinois' and ATXI's allowed base return on common equity, which would result in a refund for transmission service revenues earned back to the effective refund date of November 12, 2013. In November 2014, we filed a request with FERC to include an incentive adder of up to 50 basis points for participation in an RTO on the allowed base return on common equity. Ameren Missouri continues to evaluate its longer-term needs for new baseload and peaking electric generation capacity. Ameren Missouri files a non-binding integrated resource plan with the MoPSC every three years. Ameren Missouri filed a 20-year integrated resource plan with the MoPSC in October 2014. The plan presents a long-term approach to transition Ameren Missouri's generation fleet to a more fuel-diverse portfolio, including the use of solar, wind, natural gas, and nuclear power. The plan includes expanding renewable generation, retiring coal-fired generating capacity as energy centers reach the end of their useful lives, and adding natural gas-fired combined cycle generation. Ameren Missouri continues to study future alternatives, including additional customer energy efficiency programs that could help defer new energy center construction. Ameren Missouri's integrated resource plan is projected to achieve the carbon emissions reductions proposed in the EPA's Clean Power Plan by 2035, rather than the EPA's final target date of 2030, or its interim target dates beginning in 2020, at an anticipated cost that is lower than that which would be incurred to meet the EPA's target dates. This plan allows for operational flexibility to address changes in customer energy demand, changes in technology, and new regulations, among other things. Additionally, Ameren Missouri's approach is expected to mitigate potential regional reliability risks. Based on the reduced costs to its customers, the reduced reliability risk, and the flexibility provided, Ameren Missouri is actively advocating for energy policies at both the federal and state levels which support the implementation of its integrated resource plan. RESULTS OF OPERATIONS Our results of operations and financial position are affected by many factors. Weather, economic conditions, the effects of customer energy efficiency programs, and the actions of key customers can significantly affect the demand for our services. Our results are also affected by seasonal fluctuations: winter heating and summer cooling demands. The vast majority of Ameren's revenues are subject to state or federal regulation. This regulation has a material impact on the prices we charge for our services. We principally use coal, enriched uranium, natural gas, methane gas, and oil for fuel in our operations. The prices for these commodities can fluctuate significantly due to the global economic and political environment, weather, supply and demand, and many other factors. We have natural gas cost recovery mechanisms for our Illinois and Missouri natural gas delivery service businesses, a purchased power cost recovery mechanism for our Illinois electric delivery service business, and a FAC for our Missouri electric utility business. Ameren Illinois' electric delivery service utility business, pursuant to the IEIMA, conducts an annual reconciliation of the revenue requirement necessary to reflect the actual costs incurred in a given year with the revenue requirement that was in effect for that year, with recoveries from or refunds to customers made in a subsequent year. Included in Ameren Illinois' revenue requirement reconciliation is a formula for the return on equity, which is equal 51 -------------------------------------------------------------------------------- to the average of the monthly yields of 30-year United States Treasury bonds plus 580 basis points. Therefore, Ameren Illinois' annual return on equity is directly correlated to yields on United States Treasury bonds. Fluctuations in interest rates and conditions in the capital and credit markets also affect our cost of borrowing and our pension and postretirement benefits costs. We employ various risk management strategies to reduce our exposure to commodity risk and other risks inherent in our businesses. The reliability of our energy centers and transmission and distribution systems and the level of purchased power costs, operations and maintenance costs, and capital investment are key factors that we seek to control to optimize our results of operations, financial position, and liquidity. Earnings Summary The following table presents a summary of Ameren's earnings for the three and nine months ended September 30, 2014, and 2013: Three Months Nine Months 2014 2013 2014 2013 Net income attributable to Ameren Corporation $ 293 $ 302 $ 538 $ 252 Earnings per common share - diluted 1.20 1.24 2.20 1.03 Net income attributable to Ameren Corporation - continuing operations 294 305 541 464 Earnings per common share - diluted - continuing operations 1.20 1.25 2.21 1.91 Net income attributable to Ameren Corporation from continuing operations decreased $11 million, or 5 cents per diluted share, in the third quarter of 2014 compared with the third quarter of 2013. The decrease in net income attributable to Ameren Corporation from continuing operations between periods was due to a $16 million decrease in net income from the Ameren Missouri segment and a $2 million decrease in net income from the Ameren Illinois segment offset by a $7 million decrease in net loss from Ameren (parent) and nonregistrant subsidiaries. Net income attributable to Ameren Corporation from continuing operations increased $77 million, or 30 cents per diluted share, in the first nine months of 2014 compared with the same period in 2013. The increase in net income attributable to Ameren Corporation from continuing operations between periods was due to a $33 million increase in net income from the Ameren Missouri segment, a $17 million increase in net income from the Ameren Illinois segment, and a $27 million decrease in net loss from Ameren (parent) and nonregistrant subsidiaries. Net income from continuing operations at Ameren was favorably affected in the third quarter and the first nine months of 2014, respectively, compared with the same periods in 2013 (except where a specific period is referenced), by: • the timing of the Callaway energy center's refueling and maintenance outages. The 2013 outage occurred during the second quarter while the 2014 outage began in October (9 cents per share for the nine months ended September 30, 2014); • an increase in electric transmission earnings under formula ratemaking at Ameren Illinois and ATXI primarily due to additional rate base investment (5 cents per share and 9 cents per share, respectively); • decreased other operations and maintenance expenses at Ameren (parent) and nonregistrant subsidiaries primarily resulting from the substantial elimination of costs previously incurred in support of the divested merchant generation business (4 cents per share and 7 cents per share, respectively); • decreased interest expense, primarily due to maturity of higher-cost debt (2 cents per share and 7 cents per share, respectively); • the absence in 2014 of a reduction in 2013 revenues at Ameren Missouri resulting from the FAC prudence review charge for the estimated obligation to refund to customers amounts associated with sales recognized for the period from October 1, 2009, to May 31, 2011 (1 cent per share and 7 cents per share, respectively); • higher natural gas rates at Ameren Illinois pursuant to a December 2013 order (1 cent per share and 6 cents per share, respectively); and • increased electric and natural gas demand in the first nine months of 2014 primarily resulting from colder winter temperatures and warmer early summer temperatures (estimated at 4 cents per share for the nine months ended September 30, 2014). Net income from continuing operations at Ameren was unfavorably affected in the third quarter and the first nine months of 2014, respectively, compared with the same periods in 2013 (except where a specific period is referenced), by: • decreased electric demand resulting from milder summer temperatures in the third quarter (estimated at 6 cents per share for the three months ended September 30, 2014); • an increase in the effective tax rate (4 cents per share and 5 cents per share, respectively); • increased depreciation and amortization expense primarily resulting from electric distribution capital additions at Ameren Missouri and Ameren Illinois (2 cents per share and 3 cents per share, respectively); and • increased other operations and maintenance expenses related to Ameren Illinois natural gas delivery service (3 cents per share for the nine months ended September 30, 2014). The cents per share information presented in the explanations above is based on the diluted average shares outstanding in the third quarter and first nine months of 2013. For 52 -------------------------------------------------------------------------------- additional details regarding the Ameren Companies' results of operations, including explanations of Margins, Other Operations and Maintenance Expenses, Depreciation and Amortization, Taxes Other Than Income Taxes, Other Income and Expenses, Interest Charges, Income Taxes and Loss from Discontinued Operations, Net of Taxes, see the major headings below. 53 --------------------------------------------------------------------------------Below is a table of income statement components by segment for the three and nine months ended September 30, 2014, and 2013: Other / Ameren Ameren Intersegment Missouri Illinois Eliminations Ameren Three Months 2014: Electric margins $ 815 $ 356 $ 4 $ 1,175 Natural gas margins 14 84 - 98 Other operations and maintenance (228 ) (185 ) 9 (404 ) Depreciation and amortization (118 ) (66 ) (3 ) (187 ) Taxes other than income taxes (89 ) (31 ) (1 ) (121 ) Other income (expense) 11 2 1 14 Interest charges (53 ) (31 ) (1 ) (85 ) Income (taxes) benefit (129 ) (54 ) (11 ) (194 ) Income (loss) from continuing operations 223 75 (2 ) 296 Loss from discontinued operations, net of tax - - (1 ) (1 ) Net income (loss) 223 75 (3 ) 295 Preferred dividends (1 ) - (1 ) (2 ) Net income (loss) attributable to Ameren Corporation $ 222 $ 75 $ (4 ) $ 293 Three Months 2013: Electric margins $ 820 $ 336 $ 1 $ 1,157 Natural gas margins 13 77 (1 ) 89 Other revenues 1 - (1 ) - Other operations and maintenance (212 ) (166 ) (5 ) (383 ) Depreciation and amortization (114 ) (59 ) (2 ) (175 ) Taxes other than income taxes (91 ) (30 ) - (121 ) Other income (expense) 14 1 - 15 Interest charges (43 ) (31 ) (14 ) (88 ) Income (taxes) benefit (149 ) (51 ) 13 (187 ) Income (loss) from continuing operations 239 77 (9 ) 307 Loss from discontinued operations, net of tax - - (3 ) (3 ) Net income (loss) 239 77 (12 ) 304 Noncontrolling interests and preferred dividends (1 ) - (1 ) (2 ) Net income (loss) attributable to Ameren Corporation $ 238 $ 77 $ (13 ) $ 302 Nine Months 2014: Electric margins $ 1,972 $ 906 $ 13 $ 2,891 Natural gas margins 59 329 (1 ) 387 Other revenues 1 - (1 ) - Other operations and maintenance (677 ) (580 ) 21 (1,236 ) Depreciation and amortization (351 ) (193 ) (7 ) (551 ) Taxes other than income taxes (248 ) (109 ) (5 ) (362 ) Other income (expense) 35 5 - 40 Interest charges (159 ) (90 ) (17 ) (266 ) Income (taxes) benefit (234 ) (110 ) (13 ) (357 ) Income (loss) from continuing operations 398 158 (10 ) 546 Loss from discontinued operations, net of tax - - (3 ) (3 ) Net income (loss) 398 158 (13 ) 543 Preferred dividends (3 ) (2 ) - (5 ) Net income (loss) attributable to Ameren Corporation $ 395 $ 156 $ (13 ) $ 538 Nine Months 2013: Electric margins $ 1,919 $ 857 $ (1 ) $ 2,775 Natural gas margins 58 293 (2 ) 349 Other revenues 1 2 (3 ) - Other operations and maintenance (686 ) (538 ) (5 ) (1,229 ) Depreciation and amortization (338 ) (182 ) (8 ) (528 ) Taxes other than income taxes (247 ) (102 ) (5 ) (354 ) Other income (expense) 34 - (1 ) 33 Interest charges (159 ) (96 ) (34 ) (289 ) Income (taxes) benefit (217 ) (93 ) 22 (288 ) Income (loss) from continuing operations 365 141 (37 ) 469 Loss from discontinued operations, net of tax - - (212 ) (212 ) Net income (loss) 365 141 (249 ) 257 Noncontrolling interests and preferred dividends (3 ) (2 ) - (5 ) Net income (loss) attributable to Ameren Corporation $ 362 $ 139 $ (249 ) $ 252 54--------------------------------------------------------------------------------Margins The following table presents the favorable (unfavorable) variations by segment for electric and natural gas margins in the three and nine months ended September 30, 2014, compared with the same periods in 2013. Electric margins are defined as electric revenues less fuel and purchased power costs. Natural gas margins are defined as gas revenues less gas purchased for resale. We consider electric and natural gas margins useful measures to analyze the change in profitability of our electric and natural gas operations between periods. We have included the analysis below as a complement to the financial information we provide in accordance with GAAP. However, these margins may not be a presentation defined under GAAP and may not be comparable to other companies' presentations or more useful than the GAAP information we provide elsewhere in this report. Ameren Ameren Three Months Missouri Illinois Other(a) Ameren Electric revenue change: Effect of weather (estimate)(b) $ (18 ) $ (8 ) $ - $ (26 ) Base rates (estimate) - 13 - 13 Recovery of FAC under-recovery(c) (7 ) - - (7 ) Off-system sales and transmission services revenues (included in base rates) 21 - - 21 MEEIA (energy efficiency) 5 - - 5 Transmission services revenues - 8 5 13 FAC prudence review charge in 2013 3 - - 3 Bad debt, energy efficiency programs and environmental remediation cost riders - 3 - 3 Sales volume (excluding the estimated effect of abnormal weather) (8 ) - - (8 ) Other 5 (3 ) (3 ) (1 ) Total electric revenue change $ 1 $ 13 $ 2 $ 16 Fuel and purchased power change: Energy costs included in base rates and other $ (13 ) $ - $ 1 $ (12 ) Recovery of FAC under-recovery(c) 7 - - 7 Transmission services expenses - 7 - 7 Total fuel and purchased power change $ (6 ) $ 7 $ 1 $ 2 Net change in electric margins $ (5 ) $ 20 $ 3 $ 18 Natural gas margins change: Base rates (estimate) $ - $ 5 $ - $ 5 Gross receipts tax - (1 ) - (1 ) Other 1 3 1 5 Net change in natural gas margins $ 1 $ 7 $ 1 $ 9 Ameren Ameren Nine Months Missouri Illinois Other(a) Ameren Electric revenue change: Effect of weather (estimate)(b) $ 19 $ (3 ) $ - $ 16 Base rates (estimate) - 36 - 36 Recovery of FAC under-recovery(c) (20 ) - - (20 ) Off-system sales and transmission services revenues (included in base rates) (6 ) - - (6 ) MEEIA (energy efficiency) 25 - - 25 Transmission services revenues - 24 14 38 FAC prudence review charge in 2013 25 - - 25 Bad debt, energy efficiency programs and environmental remediation cost riders - 6 - 6 Illinois pass-through power supply costs - (46 ) - (46 ) Reserve for potential transmission refund - (4 ) - (4 ) Sales volume (excluding the estimated effect of abnormal weather) (15 ) - - (15 ) Other 1 (11 ) (4 ) (14 ) Total electric revenue change $ 29 $ 2 $ 10 $ 41 55-------------------------------------------------------------------------------- Ameren Ameren Missouri Illinois Other(a) Ameren Fuel and purchased power change: Energy costs included in base rates and other $ 4 $ - $ 4 $ 8 Recovery of FAC under-recovery(c) 20 - - 20 Transmission services expenses - 1 - 1 Illinois pass-through power supply costs - 46 - 46 Total fuel and purchased power change $ 24 $ 47 $ 4 $ 75 Net change in electric margins $ 53 $ 49 $ 14 $ 116 Natural gas margins change: Effect of weather (estimate)(b) $ 1 $ 5 $ - $ 6 Base rates (estimate) - 24 - 24 Gross receipts tax - 3 - 3Bad debt, energy efficiency programs and environmental remediation cost riders - 1 - 1 Other - 3 1 4 Net change in natural gas margins $ 1 $ 36 $ 1 $ 38 (a) Primarily includes amounts for ATXI and intercompany eliminations. (b) Represents the estimated margin impact resulting primarily from the effects of changes in cooling and heating degree-days on electric and natural gas demand compared with the prior-year period; this is based on temperature readings from the National Oceanic and Atmospheric Administration weather stations at local airports in our service territories. (c) Represents the change in the net energy costs recovered under the FAC through customer rates, with corresponding offsets to fuel expense due to amortization of a previously recorded regulatory asset. Ameren Corporation Ameren's electric margins increased by $18 million, or 2%, and $116 million, or 4%, for the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013. Ameren's natural gas margins increased by $9 million, or 10%, and $38 million, or 11%, for the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013. These results were primarily driven by Ameren Missouri and Ameren Illinois results, as discussed below. Ameren's electric margins also reflected the results of operations of ATXI. ATXI's transmission revenues increased by $5 million and $14 million for the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013, reflecting increased rate base investment and recoverable costs under forward-looking formula ratemaking. Ameren Missouri Ameren Missouri has a FAC cost recovery mechanism that allows Ameren Missouri to recover, through customer rates, 95% of changes in net energy costs greater or less than the amount set in base rates without a traditional rate proceeding, subject to MoPSC prudence review. Net energy costs include fuel and purchased power costs, including transportation charges and revenues, net of off-system sales. Ameren Missouri accrues, as a regulatory asset, net energy costs that exceed the amount set in base rates (FAC under-recovery). Net recovery of these costs under the FAC through customer rates decreased $7 million and $20 million for the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013, with a corresponding offset to fuel expense to reduce the previously recognized FAC regulatory asset. Ameren Missouri's electric margins decreased by $5 million, or 1%, for the three months ended September 30, 2014, compared with the same period in 2013. Ameren Missouri's electric margins increased by $53 million, or 3%, for the nine months ended September 30, 2014, compared with the same period in 2013. The following items had a favorable effect on Ameren Missouri's electric margins for the three and nine months ended September 30, 2014, compared with the same periods in 2013 (except where a specific period is referenced): • The absence in 2014 of a reduction in revenues resulting from a July 2013 MoPSC prudence review order. Ameren Missouri recorded a FAC prudence review charge in 2013 for its estimated obligation to refund to its electric customers the earnings associated with sales recognized by Ameren Missouri from October 1, 2009, to May 31, 2011 ($3 million and $25 million, respectively). • Higher revenues associated with the customer MEEIA energy efficiency program cost recovery mechanism ($1 million and $8 million, respectively) and lost revenue recovery mechanism ($4 million and $17 million, respectively), which increased revenues by a combined $5 million and $25 million, respectively. The higher revenues were driven by greater customer participation in the second year of the MEEIA program, which led to higher recovery of lost revenues. The lost revenue recovery mechanism helps compensate Ameren Missouri for lower sales from energy efficiency-related volume reductions in current and future periods. See Other Operations and Maintenance Expenses in this section for information on a related offsetting increase in energy efficiency program costs. • Winter temperatures in 2014 were colder compared to 2013 as heating degree-days increased 12%, for the nine months ended September 30, 2014, compared with the same period in 2013, which resulted in higher sales volumes and an estimated $19 million increase in revenues. Higher sales volumes led to an increase in net energy costs of $2 million. The change in net energy costs is the sum of the change in energy costs included in base rates (+$4 million) and the change in off-system sales and transmission services revenues (-$6 million) in the above table. 56--------------------------------------------------------------------------------The following items had an unfavorable effect on Ameren Missouri's electric margins for the three and nine months ended September 30, 2014, compared with the same periods in 2013 (except where a specific period is referenced): • Summer temperatures for the three months ended September 30, 2014 were milder as cooling degree-days decreased 7%, compared with the same period in 2013, which resulted in reduced sales volumes and an estimated $18 million decrease in revenues. Reduced sales volumes led to a decrease in net energy costs of $8 million. The change in net energy costs is the sum of the change in energy costs included in base rates (-$13 million) and the change in off-system sales and transmission services revenues (+$21 million) in the above table. • Lower sales volumes primarily caused by the MEEIA programs. Excluding the estimated effect of abnormal weather, total retail sales volumes decreased 1% for both the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013, which decreased revenues by an estimated $8 million and $15 million, respectively. Ameren Missouri's natural gas margins increased $1 million, or 8%, and $1 million, or 2%, for the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013. Ameren Missouri's natural gas margins were favorably affected by winter temperatures that were colder in 2014 compared to 2013 as heating degree-days increased by 12%, for the nine months ended September 30, 2014, compared with the same period in 2013, which increased revenues by an estimated $1 million. Ameren Illinois Ameren Illinois has a cost recovery mechanism for power purchased on behalf of its electric customers. These pass-through power supply costs do not affect Ameren Illinois' electric margins as they are offset by a corresponding amount in revenues. Ameren Illinois participates in the performance-based formula ratemaking framework pursuant to the IEIMA. The IEIMA provides for an annual reconciliation of Ameren Illinois' electric delivery service revenue requirement. As of each balance sheet date, Ameren Illinois records its estimate of the electric delivery service revenue effect resulting from the reconciliation of the revenue requirement necessary to reflect the actual recoverable costs incurred for that year with the revenue requirement that was in effect for that year. See Operations and Maintenance Expenses in this section for additional information regarding the revenue requirement. If the current year's revenue requirement is greater than the revenue requirement upon which customer rates were based, an increase to electric operating revenues with an offset to a regulatory asset is recorded to reflect the expected recovery of those additional costs from customers within the next two years. If the current year's revenue requirement is less than the revenue requirement upon which customer rates were based, a reduction to electric operating revenues with an offset to a regulatory liability is recorded to reflect the expected refund to customers within the next two years. See Note 2 - Rate and Regulatory Matters under Part I, Item 1, of this report for information regarding Ameren Illinois' revenue requirement reconciliation pursuant to the IEIMA. Ameren Illinois' electric margins increased by $20 million, or 6%, and $49 million, or 6%, for the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013. The following items had a favorable effect on Ameren Illinois' electric margins for the three and nine months ended September 30, 2014, compared with the same periods in 2013: • Electric delivery service formula ratemaking adjustments resulting from the reconciliation of the revenue requirement pursuant to the IEIMA, which increased revenues by an estimated $13 million and $36 million, respectively. The adjustments were primarily caused by increased rate base, and higher recoverable costs. • Transmission services margin increased $15 million and $25 million, respectively, largely due to a higher transmission services revenue requirement driven primarily by increased rate base investment. The change in transmission services margin is the sum of the change in transmission services revenues (+$8 million and +$24 million, respectively) and the change in transmission services expenses (+$7 million and +$1 million, respectively) in the above table. • A net increase in recovery of bad debt charge-offs, customer energy efficiency program costs and environmental remediation costs through rate-adjustment mechanisms, which increased revenues by $3 million and $6 million, respectively. See Other Operations and Maintenance Expenses in this section for information on a related offsetting net increase in customer energy efficiency and environmental remediation costs. The following items had an unfavorable effect on Ameren Illinois' electric margins for the three and nine months ended September 30, 2014, compared with the same periods in 2013 (except where a specific period is referenced): • The establishment of a reserve for a potential transmission refund based on a June 2014 FERC order, which decreased revenues by $4 million for the nine months ended September 30, 2014, compared with the same period in 2013. See Note 2 - Rate and Regulatory Matters under Part I, Item 1, of this report for additional information. • Summer temperatures in 2014 were milder compared to 2013, as cooling degree-days decreased 14% and 3%, respectively, which decreased revenues by an estimated $8 million and $3 million, respectively. Ameren Illinois' natural gas margins increased by $7 million, or 9%, and $36 million, or 12%, for the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013. The following items had a favorable effect on Ameren Illinois' natural gas margins for the three and nine months ended September 30, 2014, compared with the same periods in 2013 (except where a specific period is referenced): 57 --------------------------------------------------------------------------------• Higher natural gas delivery service rates effective January 2014, which increased revenues by an estimated $5 million and $24 million, respectively. • Winter temperatures in 2014 were colder compared to 2013 as heating degree-days increased 14% for the nine months ended September 30, 2014, compared with the same period in 2013, which increased revenues by an estimated $5 million. • Increased gross receipts taxes due primarily to higher natural gas rates and higher sales volumes as a result of colder winter temperatures in 2014, which increased revenues by $3 million for the nine months ended September 30, 2014, compared with the same period in 2013. See Taxes Other Than Income Taxes in this section for information on a related offsetting increase to gross receipts taxes. • A net increase in recovery of bad debt charge-offs, customer energy efficiency program costs and environmental remediation costs through rate-adjustment mechanisms, which increased revenues by $1 million for the nine months ended September 30, 2014, compared with the same period in 2013. See Other Operations and Maintenance Expenses in this section for information on a related offsetting net increase in customer energy efficiency and environmental remediation costs. Other Operations and Maintenance Expenses Ameren Corporation Other operations and maintenance expenses were $21 million higher in the third quarter of 2014 and $7 million higher in the first nine months of 2014, as compared with the same periods in 2013. Other operations and maintenance expenses increased $16 million at Ameren Missouri and $19 million at Ameren Illinois in the third quarter of 2014, as compared with the third quarter of 2013. Other operations and maintenance expenses decreased $9 million at Ameren Missouri, but were $42 million higher at Ameren Illinois in the first nine months of 2014, as compared with the first nine months of 2013. In addition to the changes at Ameren Missouri and Ameren Illinois, other corporate operations and maintenance expenses decreased $14 million in the third quarter of 2014 and $26 million in the first nine months of 2014, as compared with the same periods of 2013, primarily due to the substantial elimination of business and administrative costs previously incurred in support of the divested merchant generation business. Ameren Missouri Other operations and maintenance expenses were $16 million higher in the third quarter of 2014, as compared with the third quarter of 2013, but were $9 million lower in the first nine months of 2014, as compared with the first nine months of 2013. The following items increased other operations and maintenance expenses for the three and nine months ended September 30, 2014, compared with the year-ago periods (except where a specific period is referenced): • Higher litigation costs due, in part, to cases discussed in Note 2 - Rate and Regulatory Matters under Part I, Item 1, of this report ($5 million and $11 million, respectively). • An increase in accrued disposal costs of low-level radioactive nuclear waste at the Callaway energy center ($8 million for the nine months ended September 30, 2014). • An increase in customer energy efficiency program costs due to MEEIA requirements ($1 million and $8 million, respectively). These costs were offset by increased electric revenues from customer billings, with no overall effect on net income. • Higher labor costs, primarily because of wage increases ($1 million and $8 million, respectively). • An increase in bad debt expense due to a decreased rate of customer collections ($2 million for the nine months ended September 30, 2014). • An unfavorable change in unrealized net MTM gains, resulting from changes in the market value of investments used to support Ameren's deferred compensation plans ($3 million and $2 million, respectively). • An increase in electric distribution maintenance expenditures, primarily related to system repair work ($2 million and $1 million, respectively). The following items decreased other operations and maintenance expenses for the three and nine months ended September 30, 2014, compared with the year-ago periods (except where a specific period is referenced): • A reduction in refueling and maintenance costs at the Callaway energy center, primarily due to the timing of outages, as the 2013 outage occurred during the second quarter while the 2014 outage began in October ($34 million for the nine months ended September 30, 2014). The 2013 outage resulted in refueling and maintenance costs of $38 million, as compared with costs of $4 million incurred in the third quarter of 2014 in preparation for the October outage. • A reduction in energy center costs related to refined coal use ($4 million and $14 million, respectively). • A decrease in storm-related costs, due to fewer major storms in 2014 ($5 million for the nine months ended September 30, 2014). Ameren Illinois Pursuant to the provisions of the IEIMA, recoverable electric delivery service costs incurred during the year that are not recovered through riders are included in Ameren Illinois' revenue requirement reconciliation, which results in a corresponding adjustment to electric operating revenues, with no overall effect 58-------------------------------------------------------------------------------- on net income. These recoverable electric delivery service costs include other operations and maintenance expenses, depreciation and amortization, taxes other than income taxes, interest charges, and income taxes. Other operations and maintenance expenses were $19 million higher in the third quarter and $42 million higher in the first nine months of 2014, as compared with the same periods in 2013. The following items increased other operations and maintenance expenses for the three and nine months ended September 30, 2014, compared with the year-ago periods (except where a specific period is referenced): • Higher labor costs, primarily because of wage increases and staff additions to meet enhanced reliability standards and customer service goals ($5 million and $14 million, respectively). • An increase in electric distribution maintenance expenditures, primarily related to increased system repair and vegetation management work ($3 million and $11 million, respectively). • Higher expenses related to asbestos claims ($2 million and $7 million, respectively). • An increase in information technology fees, partially related to the IEIMA ($2 million and $7 million, respectively). • An increase in customer energy efficiency and environmental remediation costs ($1 million and $6 million, respectively). • Higher natural gas pipeline integrity compliance expenses ($3 million in both periods). • An increase in bad debt expense due to the timing of customer collections ($4 million for the third quarter of 2014). Other operations and maintenance expenses decreased for the three and nine months ended September 30, 2014, compared with the year-ago periods, because of a reduction in employee benefit costs, primarily due to lower pension and postretirement expenses caused by changes in actuarial assumptions and the performance of plan assets ($6 million and $11 million, respectively). Depreciation and Amortization Ameren Corporation Depreciation and amortization expenses increased by $12 million in the third quarter of 2014, as compared with the third quarter of 2013, and increased by $23 million in the first nine months of 2014, as compared with the first nine months of 2013, primarily due to increased expenses at Ameren Missouri and Ameren Illinois as discussed below. Ameren Missouri Depreciation and amortization expenses increased by $4 million and $13 million in the third quarter and the first nine months of 2014, respectively, as compared with the same periods in 2013, primarily because of electric distribution capital additions. Ameren Illinois Depreciation and amortization expenses increased by $7 million and $11 million in the third quarter and the first nine months of 2014, respectively, as compared with the same periods in 2013, primarily because of electric distribution capital additions. Taxes Other Than Income Taxes Ameren Corporation Taxes other than income taxes were comparable in the third quarter of 2014 with the third quarter of 2013. Taxes other than income taxes increased by $8 million in the first nine months of 2014, as compared with the first nine months of 2013, primarily due to increased expenses at Ameren Illinois as discussed below. Ameren Missouri Taxes other than income taxes decreased by $2 million in the third quarter of 2014, as compared with the third quarter of 2013, primarily due to a decrease in gross receipts taxes as a result of decreased electric sales. These decreased gross receipts taxes were offset by decreased gross receipts tax revenues, with no overall effect on net income. See Excise Taxes in Note 1 - Summary of Significant Accounting Policies under Part I, Item 1, of this report for additional information. Taxes other than income taxes were comparable in the first nine months of 2014 with the first nine months of 2013. Ameren Illinois Taxes other than income taxes were comparable in the third quarter of 2014 with the third quarter of 2013. Taxes other than income taxes increased by $7 million in the first nine months of 2014, as compared with the first nine months of 2013, primarily due to an increase in gross receipts taxes as a result of higher natural gas rates and higher sales volumes and a reduction in the electric distribution tax refund between periods. These increased gross receipts taxes were offset by increased gross receipts tax revenues, with no overall effect on net income. Other Income and Expenses Ameren Corporation Other income, net of expenses, was comparable in the third quarter of 2014 with the third quarter of 2013, and increased by $7 million in the first nine months of 2014, as compared with the first nine months of 2013, primarily due to items at Ameren Missouri and Ameren Illinois as discussed below. See Note 5 - Other Income and Expenses under Part I, Item 1, of this report for additional information. Ameren Missouri Other income, net of expenses, decreased by $3 million in the third quarter of 2014, as compared with the third quarter of 2013, primarily due to increased donations. Other income, net of expenses, was comparable in the first nine months of 2014 with 59 -------------------------------------------------------------------------------- the first nine months of 2013. Ameren Illinois Other income, net of expenses, was comparable in the third quarter of 2014 with the third quarter of 2013. Other income, net of expenses, increased by $5 million in the first nine months of 2014, as compared with the first nine months of 2013, primarily due to increased income from customer-requested construction receipts and increased interest income on both the IEIMA 2013 and 2014 revenue requirement reconciliation regulatory assets. A decrease in allowance for equity funds used during construction due to lower interest rates reduced the favorable effect of the above items. Interest Charges Ameren Corporation Interest charges decreased by $3 million in the third quarter of 2014, as compared with the third quarter of 2013, primarily due to a $12 million reduction in interest charges at Ameren (parent), as a result of the maturity of $425 million of 8.875% senior unsecured notes in May 2014, and a decrease in interest charges associated with uncertain tax positions on potential tax liabilities. Partially offsetting these decreases were increased interest charges at Ameren Missouri as discussed below. Interest charges decreased by $23 million in the first nine months of 2014, as compared with the first nine months of 2013, primarily due to a $16 million reduction in interest charges at Ameren (parent) as discussed above, and decreased interest charges at Ameren Illinois as discussed below. Ameren Missouri Interest charges increased by $10 million in the third quarter of 2014, as compared with the third quarter of 2013, primarily due to an increase in interest charges reflecting the absence in 2014 of a 2013 reduction to interest charges associated with uncertain tax positions that became certain when the IRS issued additional guidance. Interest charges were comparable in the first nine months of 2014 with the first nine months of 2013, as increased interest charges reflecting the absence in 2014 of a 2013 reduction to interest charges associated with uncertain tax positions that became certain when the IRS issued additional guidance was partially offset by lower interest charges from the October 2013 retirement of $200 million of 4.65% senior secured notes and redemption of $44 million of 5.45% pollution control revenue bonds. This debt was repaid with proceeds from commercial paper issuances with lower interest rates. Ameren Illinois Interest charges were comparable in the third quarter of 2014 with the third quarter of 2013. Interest charges decreased by $6 million in the first nine months of 2014, as compared with the first nine months of 2013. The absence in 2014 of interest applied in 2013 to the regulatory liability for the IEIMA 2012 revenue requirement reconciliation resulted in lower interest charges. The IEIMA 2013 and 2014 revenue requirement reconciliations were both regulatory assets which resulted in no interest charges. Additionally, the January 2014 redemption of $163 million of pollution control revenue bonds, with various interest rates, decreased interest charges. This debt was repaid with proceeds from commercial paper issuances with lower interest rates. Income Taxes The following table presents effective income tax rates for the three and nine months ended September 30, 2014, and 2013: Three Months Nine Months 2014 2013 2014 2013 Ameren(a) 40 % 38 % 40 % 38 % Ameren Missouri(a) 37 % 38 % 37 % 37 % Ameren Illinois(a) 42 % 40 % 41 % 40 % (a) Based on the current estimate of the annual effective tax rate adjusted to reflect the tax effect of items discrete to the relevant period. Ameren Corporation The effective tax rate was higher in the third quarter of 2014, as compared with the third quarter of 2013, primarily due to additional tax expense related to stock-based compensation, lower current year tax benefits from company-owned life insurance, and higher state income taxes. Additionally, the effective tax rate was higher between periods due to lower current year tax benefits from certain property-related temporary differences primarily attributable to the tax treatment of allowance for equity funds used during construction at Ameren Illinois for which deferred tax expense is not recognized in the income statement. The effective tax rate was higher in the first nine months of 2014, as compared with the first nine months of 2013, primarily due to additional tax expense related to stock-based compensation. This tax rate increase was mitigated by the absence in 2014 of items that increased the effective tax rate in 2013, which included the creation of valuation allowances for charitable contributions and state tax credits, and changes that increased Ameren (parent)'s reserve for uncertain tax positions. Ameren Missouri The effective tax rate was lower in the third quarter of 2014, as compared with the third quarter of 2013, primarily due to benefits from tax credits and changes in reserves for uncertain tax positions. The effective tax rate was comparable in the first nine months of 2014 with the first nine months of 2013. Ameren Illinois The effective tax rate was higher in the third quarter and the first nine months of 2014, as compared with the same periods in 2013, primarily because of changes in reserves for uncertain tax positions and lower current year tax benefits from certain 60-------------------------------------------------------------------------------- property-related temporary differences primarily attributable to the allowance for equity funds used during construction for which deferred tax expense is not recognized in the income statement. Loss from Discontinued Operations, Net of Taxes During the three and nine months ended September 30, 2013, the loss from discontinued operations, net of taxes, was primarily related to the impairment loss and related income tax effects associated with the then-pending sale of New AER. No material activity was recorded in either 2014 period. See Note 12 - Divestiture Transactions and Discontinued Operations under Part I, Item 1, of this report for additional information. LIQUIDITY AND CAPITAL RESOURCES Our tariff-based gross margins are our principal source of cash from operating activities. A diversified retail customer mix primarily of rate-regulated residential, commercial, and industrial customers provides us with a reasonably predictable source of cash. In addition to using cash from operating activities, we use available cash, credit agreement borrowings, commercial paper issuances, money pool borrowings, or other short-term borrowings from affiliates to support normal operations and temporary capital requirements. We may repay our short-term borrowings with cash from operations or, at our discretion, with long-term borrowings, or, in the case of Ameren Missouri and Ameren Illinois, with equity infusions from Ameren (parent). We expect to make significant capital expenditures through 2018 as we invest in our electric and natural gas utility infrastructure to support overall system reliability, environmental compliance, and other improvements. We intend to finance those capital expenditures with a blend of equity and debt so that we maintain an equity ratio around 50%, assuming constructive regulatory environments. We plan to implement our long-term financing plans for debt, equity, or equity-linked securities to finance our operations appropriately, to fund scheduled debt maturities, and to maintain financial strength and flexibility. The use of cash from operating activities and short-term borrowings to fund capital expenditures and other long-term investments may periodically result in a working capital deficit, defined as current liabilities exceeding current assets, as was the case at September 30, 2014. The working capital deficit as of September 30, 2014, was primarily the result of our decision to utilize commercial paper issuances, as opposed to long-term debt. With the 2012 Credit Agreements, Ameren has access to $2.1 billion of credit capacity of which $1.3 billion was available at September 30, 2014. The following table presents net cash provided by (used in) operating, investing and financing activities for the nine months ended September 30, 2014, and 2013: Net Cash Provided By (Used In) Net Cash Provided by (Used In) Net Cash Provided by (Used In) Operating Activities Investing Activities Financing Activities 2014 2013 Variance 2014 2013 Variance 2014 2013 Variance Ameren(a) - continuing operations $ 1,208 $ 1,215 $ (7 ) $ (1,351 ) $ (991 ) $ (360 ) $ (8 ) $ (296 ) $ 288 Ameren(a) - discontinued operations (5 ) 99 (104 ) 139 (42 ) 181 - - - Ameren Missouri 660 781 (121 ) (593 ) (506 ) (87 ) (67 ) (323 ) 256 Ameren Illinois 396 507 (111 ) (627 ) (456 ) (171 ) 231 (50 ) 281 (a) Includes amounts for Ameren registrant and nonregistrant subsidiaries and intercompany eliminations. Cash Flows from Operating Activities Ameren Corporation Ameren's cash from operating activities associated with continuing operations decreased in the first nine months of 2014, compared with the first nine months of 2013. The following items contributed to the decrease in cash from operating activities associated with continuing operations during the first nine months of 2014, compared with the same period in 2013: • An $80 million decrease in cash associated with Ameren Missouri's under-recovered FAC costs. Deferrals and refunds exceeded recoveries in 2014 by $44 million, while recoveries exceeded deferrals in 2013 by $36 million. • The 2014 refunds to Ameren Illinois customers of $53 million as required under the provisions of the IEIMA for the 2012 revenue requirement reconciliation adjustment, as compared with no refunds in the first nine months of 2013. • A $46 million increase in rebate payments provided for customer-installed solar generation at Ameren Missouri. • A $36 million decrease in natural gas commodity costs collected from customers under the PGAs, primarily related to Ameren Illinois. • A $32 million decrease caused by changes in Ameren Missouri's coal inventory levels due to 2013 delivery disruptions from flooding as well as increased coal prices. • The absence in 2014 of $26 million received in 2013 at Ameren Missouri and Ameren Illinois for storm restoration assistance provided to nonaffiliated utilities primarily in response to Hurricane Sandy. • A $22 million increase in payments associated with stock-based compensation awards in accordance with the provisions of the 2006 Incentive Plan. • A $19 million increase in the cost of natural gas held in storage at Ameren Illinois because of increased market prices and timing of injections. • A net $14 million decrease in returns of collateral posted with counterparties due to changes discussed at Ameren Missouri and Ameren Illinois below. 61--------------------------------------------------------------------------------• A $14 million increase in labor costs at Ameren Illinois, primarily because of wage increases and staff additions to meet enhanced reliability and customer service goals. • A $13 million decrease in previously deferred transmission service costs collected from Ameren Illinois customers. • An $8 million increase in property tax payments at Ameren Missouri caused by higher assessed property tax values and increased property tax rates. • A $6 million increase in payments to contractors at Ameren Illinois for additional reliability, maintenance, and IEIMA projects. The following items partially offset the decrease in Ameren's cash from operating activities associated with continuing operations during the first nine months of 2014 compared with the same period in 2013: • Income tax refunds of $5 million in 2014, compared with income tax payments of $122 million in 2013. Ameren's net operating loss carryforwards resulted in no consolidated federal income tax payments in 2014 or 2013. However, Ameren's continuing operations paid amounts to Ameren's discontinued operations based on the tax allocation agreement. • Electric and natural gas margins, as discussed in Results of Operations excluding certain noncash items, increased by $97 million. The noncash items were the FAC prudence review charge in 2013, the reserve for potential transmission refund in 2014, and the IEIMA revenue requirement reconciliation adjustments for 2014 and 2013, as the collections from customers for the IEIMA adjustments will occur in a subsequent year. • A $66 million increase in the collection of customer receivable balances compared to the prior year driven by the timing and amount of revenues in each period. • A $53 million decrease in pension and postretirement benefit plan contributions resulting from changes in actuarial assumptions and the performance of plan assets. • A $27 million insurance receipt at Ameren Missouri related to the Taum Sauk incident. • A $26 million decrease in payments caused by the timing of the Callaway nuclear refueling and maintenance outages at Ameren Missouri. Ameren's cash from operating activities associated with discontinued operations decreased in the first nine months of 2014, compared with the first nine months of 2013. The 2013 activity related to the disposed New AER and the Elgin, Gibson City and Grand Tower energy centers. The 2014 activity related to transaction costs and tax payments associated with the Elgin, Gibson City and Grand Tower energy centers. Ameren Missouri Ameren Missouri's cash from operating activities decreased in the first nine months of 2014, compared with the first nine months of 2013. The following items contributed to the decrease in cash from operating activities during the first nine months of 2014, compared with the same period in 2013: • A $114 million increase in income tax payments resulting primarily from a 2014 payment related to reduced deductions for capitalized expenditures for the 2013 tax year offset by the use of net operating loss carryforwards. • An $80 million decrease in cash associated with under-recovered FAC costs. Deferrals and refunds exceeded recoveries in 2014 by $44 million, while recoveries exceeded deferrals in 2013 by $36 million. • A $46 million increase in rebate payments provided for customer-installed solar generation. • A $32 million decrease caused by changes in coal inventory levels due to 2013 delivery disruptions from flooding as well as increased coal prices. • An $11 million decrease in natural gas commodity costs collected from customers under the PGA. • The absence in 2014 of $10 million received in 2013 for storm restoration assistance provided to nonaffiliated utilities primarily in response to Hurricane Sandy. • An $8 million increase in property tax payments caused by higher assessed property tax values and increased property tax rates. The following items partially offset the decrease in Ameren Missouri's cash from operating activities during the first nine months of 2014, compared with the same period in 2013: • A $79 million increase in the collection of customer receivable balances compared to the prior year driven by the timing and amount of revenues in each period. • Electric and natural gas margins, as discussed in Results of Operations excluding the noncash FAC prudence review charge in 2013, increased by $29 million. • A $27 million insurance receipt related to the Taum Sauk incident. • A $26 million decrease in payments caused by the timing of the Callaway nuclear refueling and maintenance outages. • A $23 million decrease in pension and postretirement benefit plan contributions resulting from changes in actuarial assumptions and the performance of plan assets. • A net $6 million increase in returns of collateral posted predominately to support exchange activity, primarily resulting from changes in the market prices of power and natural gas and in contracted commodity volumes as well as the effect of credit rating upgrades. Ameren Illinois Ameren Illinois' cash from operating activities decreased in the first nine months of 2014, compared with the first nine months of 2013. The following items contributed to the decrease in cash from operating activities during the first nine months of 2014, compared with the same period in 2013: 62 --------------------------------------------------------------------------------• The 2014 refunds to customers of $53 million as required under the provisions of the IEIMA for the 2012 revenue requirement reconciliation adjustment, as compared with no refunds in the first nine months of 2013. • A $25 million decrease in natural gas commodity costs collected from customers under the PGA. • A net $20 million decrease in returns of collateral posted with counterparties primarily due to changes in the market prices of power and natural gas and in contracted commodity volumes, partially offset by the effect of credit rating upgrades. • A $19 million increase in the cost of natural gas held in storage because of increased market prices and timing of injections. • The absence in 2014 of $16 million received in 2013 for storm restoration assistance provided to nonaffiliated utilities primarily in response to Hurricane Sandy. • A $15 million decrease in the collection of customer receivable balances compared to the prior year driven by the timing and amount of revenues in each period. • A $14 million increase in labor costs, primarily because of wage increases and staff additions to meet enhanced reliability and customer service goals. • A $13 million decrease in previously deferred transmission service costs collected from customers. • A $6 million increase in payments to contractors for additional reliability, maintenance, and IEIMA projects. The following items partially offset the decrease in Ameren Illinois' cash from operating activities during the first nine months of 2014, compared with the same period in 2013: • Electric and natural gas margins, as discussed in Results of Operations excluding certain noncash items, increased by $53 million. The noncash items were the reserve for potential transmission refund in 2014 and the IEIMA revenue requirement reconciliation adjustments for 2014 and 2013, as the collections from customers for those adjustments will occur in a subsequent year. • A $16 million increase in income tax refunds resulting primarily from reduced accelerated depreciation deductions and the use of net operating loss carryforwards. • A $15 million decrease in pension and postretirement benefit plan contributions resulting from changes in actuarial assumptions and the performance of plan assets. Cash Flows from Investing Activities Ameren's cash used in investing activities associated with continuing operations increased in the first nine months of 2014, compared with the same period in 2013. Capital expenditures increased $367 million as a result of both the activity at the registrant subsidiaries discussed below and a $96 million increase at ATXI related to the Illinois Rivers project. In addition, cash used in investing activities increased by a net $5 million for payments related to collateral support provided to Marketing Company in the form of a note receivable. This cash collateral support is part of Ameren's obligation to provide certain limited credit support to New AER until December 2, 2015. See Note 12 - Divestiture Transactions and Discontinued Operations in Part I, Item 1, of this report for additional information. Ameren's cash provided by investing activities associated with discontinued operations consisted of $152 million received from Rockland Capital for the sale of the Elgin, Gibson City, and Grand Tower gas-fired energy centers in January 2014, offset by payment of $13 million to IPH for the final working capital adjustment and a portion of certain contingent liabilities associated with the New AER divestiture. The net proceeds were available to fund continuing operations. During the first nine months of 2013, Ameren's cash used in investing activities associated with discontinued operations was for capital expenditures. Ameren Missouri's cash used in investing activities increased during the first nine months of 2014, compared with the same period in 2013, due to increased capital expenditures of $68 million primarily for reliability and energy center projects, including the Callaway nuclear reactor vessel head replacement project, the Labadie electrostatic precipitator upgrades, and the O'Fallon solar energy center project, offset by a reduction in storm restoration expenditures. In addition, cash used in investing activities increased $24 million due to the absence in 2014 of money pool advance repayments that were received in 2013. Ameren Illinois' cash used in investing activities increased during the first nine months of 2014, compared with the same period in 2013, due to an increase in capital expenditures of $171 million primarily for transmission, reliability, and IEIMA projects. We continually review Ameren Missouri's generation portfolio and expected power needs. As a result, Ameren Missouri could modify its plan for generation capacity, the type of generation asset technology that will be employed, and whether capacity or power may be purchased, among other things. Additionally, we continually review the reliability of our transmission and distribution systems, expected capacity needs, and opportunities for transmission investments. The timing and amount of investments could vary because of changes in expected capacity, the condition of transmission and distribution systems, and our ability and willingness to pursue transmission investments, among other things. Any changes in future generation, transmission, or distribution needs could result in significant capital expenditures or material losses. Compliance with environmental regulations could also have significant impacts on the level of capital expenditures. See Note 9 - Commitments and Contingencies in Part I, Item 1, of this report for additional information. 63 -------------------------------------------------------------------------------- Cash Flows from Financing Activities In the first nine months of 2014, Ameren (parent), Ameren Missouri, and Ameren Illinois utilized lower-cost commercial paper issuances to repay or redeem, in part, higher cost long-term indebtedness and reduce interest expense. Ameren Missouri and Ameren Illinois also reduced interest expense by repaying or redeeming existing long-term indebtedness with higher interest rates, in part, with net proceeds from the issuance of long-term debt with lower interest rates. Ameren's financing activities associated with continuing operations used net cash of $8 million during the first nine months of 2014, compared to $296 million during the first nine months of 2013. Ameren utilized net proceeds from net commercial paper issuances of $385 million and long-term debt issuances of $598 million from registrant subsidiaries to repay existing Ameren (parent) long-term indebtedness of $425 million, and to fund the redemption and/or repayment of existing registrant subsidiary long-term indebtedness described below, and to fund, in part, investing activities. In comparison, Ameren had no debt financing activity during the same period in 2013. Dividends paid during the first nine months of 2014 were comparable to dividends paid during the first nine months of 2013. Cash from financing activities was not necessary to meet the working capital and investing activity needs of our discontinued operations during the first nine months of 2014 and 2013. Ameren Missouri's financing activities used cash of $67 million during the first nine months of 2014, compared to $323 million during the first nine months of 2013. In the first nine months of 2014, Ameren Missouri used net proceeds from net commercial paper issuances of $65 million and the issuance of $350 million of senior secured notes to repay at maturity long-term indebtedness of $104 million, repay net money pool borrowings of $105 million, and to fund, in part, investing activities. Ameren Missouri also paid common stock dividends of $268 million in the first nine months of 2014. In comparison, Ameren Missouri paid common stock dividends of $320 million and had no debt financing activity during the same period in 2013. Ameren Illinois' financing activities provided net cash of $231 million during the first nine months of 2014, compared with the first nine months of 2013, when financing activities used cash of $50 million. During the first nine months of 2014, Ameren Illinois used net proceeds from net commercial paper issuances of $189 million and the issuance of $250 million of senior secured notes to redeem existing long-term indebtedness of $163 million and repay money pool borrowings. In comparison, Ameren Illinois had minimal debt financing activity during the first nine months of 2013. Ameren Illinois did not pay common stock dividends during the nine months ended September 30, 2014, compared to dividend payments of $45 million during the same period in 2013. Credit Facility Borrowings and Liquidity The liquidity needs of Ameren, Ameren Missouri and Ameren Illinois are typically supported through the use of available cash, short-term intercompany borrowings, drawings under committed credit agreements or commercial paper issuances. See Note 3 - Short-term Debt and Liquidity under Part I, Item 1, of this report for additional information on credit agreements, short-term borrowing activity, commercial paper issuances, relevant interest rates, and borrowings under Ameren's money pool arrangements. The following table presents the committed 2012 Credit Agreements of Ameren, Ameren Missouri and Ameren Illinois and the credit capacity available under such agreements, considering reductions for letters of credit and commercial paper issuances, as of September 30, 2014: Expiration Borrowing Capacity Credit Available Ameren and Ameren Missouri: 2012 Missouri Credit Agreement November 2017 $ 1,000 $ 1,000 Ameren and Ameren Illinois: 2012 Illinois Credit Agreement November 2017 1,100 1,100 Ameren: Less: Commercial paper outstanding (b) (753 ) Less: Letters of credit(a) (b) (13 ) Total $ 2,100 $ 1,334 (a) As of September 30, 2014, $9 million of the letters of credit relate to Ameren's credit support obligations to New AER. See Note 12 - Divestiture Transactions and Discontinued Operations under Part I, Item 1, of this report for additional information. (b) Not applicable. The 2012 Credit Agreements are used to borrow cash, to issue letters of credit, and to support issuances under Ameren's, Ameren Missouri's and Ameren Illinois' commercial paper programs. Either of the 2012 Credit Agreements are available to Ameren to support issuances under Ameren's commercial paper program, subject to borrowing sublimits. The 2012 Missouri Credit Agreement is available to support issuances under Ameren Missouri's commercial paper program. The 2012 Illinois Credit Agreement is available to support issuances under Ameren Illinois' commercial paper program. During 2014, issuances under 64 -------------------------------------------------------------------------------- the Ameren, Ameren Missouri and Ameren Illinois commercial paper programs were available at lower interest rates than the interest rates available under the 2012 Credit Agreements. As such, commercial paper issuances were a preferred source of third-party short-term debt relative to credit facility borrowings. The issuance of short-term debt securities by Ameren's utility subsidiaries is subject to approval by FERC under the Federal Power Act. In February 2014, FERC issued an order authorizing Ameren Missouri to issue up to $1 billion of short-term debt securities through March 16, 2016. In September 2014, FERC issued an order authorizing Ameren Illinois to issue up to $1 billion of short-term debt securities through September 15, 2016. The issuance of short-term debt securities by Ameren is not subject to approval by any regulatory body. The Ameren Companies continually evaluate the adequacy and appropriateness of their liquidity arrangements given changing business conditions. When business conditions warrant, changes may be made to existing credit agreements or to other short-term borrowing arrangements. Long-term Debt and Equity The following table presents the issuances (net of any issuance discounts), redemptions, or maturities of long-term debt for the Ameren Companies for the nine months ended September 30, 2014, and 2013. The Ameren Companies did not have any issuances of common stock during the first nine months of 2014 or 2013. For additional information, see Note 4 - Long-term Debt under Part I, Item 1, of this report. Nine Months Month Issued, Redeemed or Matured 2014 2013 Issuances Long-term debt Ameren Missouri: 3.50% Senior secured notes due 2024 April $ 350 $ - Ameren Illinois: 4.30% Senior secured notes due 2044 June 248 - Total Ameren long-term debt issuances $ 598 $ - Redemptions and Maturities Long-term debt Ameren (parent): 8.875% Senior unsecured notes due 2014 May 425 - Ameren Missouri: 5.50% Senior secured notes due 2014 May 104 - Ameren Illinois: 5.90% Series 1993 due 2023(a) January 32 - 5.70% 1994A Series due 2024(a) January 36 - 5.95% 1993 Series C-1 due 2026 January 35 - 5.70% 1993 Series C-2 due 2026 January 8 - 5.40% 1998A Series due 2028 January 19 - 5.40% 1998B Series due 2028 January 33 - Total Ameren long-term debt redemptions and maturities $ 692 $ - (a)Less than $1 million principal amount of the bonds remain outstanding after redemption. The Ameren Companies may sell securities registered under their effective registration statements if market conditions and capital requirements warrant such sales. Any offer and sale will be made only by means of a prospectus that meets the requirements of the Securities Act of 1933 and the rules and regulations thereunder. Indebtedness Provisions and Other Covenants See Note 3 - Short-term Debt and Liquidity and Note 4 - Long-term Debt under Part I, Item 1, of this report and Note 4 - Short-term Debt and Liquidity and Note 5 - Long-term Debt and Equity Financings under Part II, Item 8, of the Form 10-K for a discussion of covenants and provisions (and applicable cross-default provisions) contained in our credit agreements and in certain of the Ameren Companies' indentures and articles of incorporation. At September 30, 2014, the Ameren Companies were in compliance with the provisions and covenants contained within their credit agreements, indentures, and articles of incorporation. We consider access to short-term and long-term capital markets a significant source of funding for capital requirements not satisfied by cash generated from our operating activities. Inability to raise capital on reasonable terms, particularly during 65 -------------------------------------------------------------------------------- times of uncertainty in the capital markets, could negatively affect our ability to maintain and expand our businesses. After assessing its current operating performance, liquidity, and credit ratings (see Credit Ratings below), Ameren, Ameren Missouri and Ameren Illinois each believes that it will continue to have access to the capital markets. However, events beyond Ameren's, Ameren Missouri's and Ameren Illinois' control may create uncertainty in the capital markets or make access to the capital markets uncertain or limited. Such events could increase our cost of capital and adversely affect our ability to access the capital markets. Dividends Ameren declared, and paid to its stockholders, common stock dividends totaling $291 million, or $1.20 per share, during the first nine months of 2014 and 2013. The amount and timing of dividends payable on Ameren's common stock are within the sole discretion of Ameren's board of directors. The board of directors has not set specific targets or payout parameters when declaring common stock dividends but considers various factors, including Ameren's overall payout ratio, payout ratios of our peers, projected cash flow and potential future cash flow requirements, historical earnings and cash flow, projected earnings, impacts of regulatory orders or legislation, and other key business considerations. Ameren expects its dividend payout ratio to be between 55% and 70% of earnings over the next few years. On October 10, 2014, Ameren's board of directors declared a quarterly common stock dividend of 41 cents per share payable on December 31, 2014, to stockholders of record at the close of business on December 10, 2014, resulting in an annualized equivalent dividend rate of $1.64 per share. The previous annualized equivalent dividend rate was $1.60 per share. See Note 4 - Short-term Debt and Liquidity and Note 5 - Long-term Debt and Equity Financings under Part II, Item 8, of the Form 10-K for additional discussion of covenants and provisions contained in certain of the Ameren Companies' financial agreements and articles of incorporation that would restrict the Ameren Companies' payment of dividends in certain circumstances. At September 30, 2014, none of these circumstances existed at Ameren, Ameren Missouri and Ameren Illinois and, as a result, these companies were not restricted from paying dividends. The following table presents common stock dividends paid by Ameren Corporation to its common stockholders and by Ameren Missouri and Ameren Illinois to their parent, Ameren Corporation, for the nine months ended September 30, 2014, and 2013: Nine Months 2014 2013 Ameren Missouri $ 268 $ 320 Ameren Illinois - 45 Ameren 291 291 Ameren (parent) funds common stock dividends through its available liquidity. Contractual Obligations For a complete listing of our obligations and commitments, see Other Obligations in Note 9 - Commitments and Contingencies under Part I, Item 1, of this report. See Note 11 - Retirement Benefits under Part I, Item 1, of this report for information regarding expected minimum funding levels for our pension plan. At September 30, 2014, total other obligations related to commitments for coal, natural gas, nuclear fuel, purchased power, methane gas, equipment, customer energy efficiency program expenditures and meter reading services, among other agreements, at Ameren, Ameren Missouri and Ameren Illinois were $5,507 million, $3,725 million, and $1,732 million, respectively. Off-Balance-Sheet Arrangements At September 30, 2014, none of the Ameren Companies had any off-balance-sheet financing arrangements, other than operating leases entered into in the ordinary course of business. None of the Ameren Companies expect to engage in any significant off-balance-sheet financing arrangements in the near future. See Note 12 - Divestiture Transactions and Discontinued Operations under Part I, Item 1, of this report for Ameren (parent) guarantees and letters of credit issued to support New AER based on the transaction agreement with IPH. Credit Ratings The credit ratings of the Ameren Companies affect our liquidity, our access to the capital markets and credit markets, our cost of borrowing under our credit facilities and collateral posting requirements under commodity contracts. The following table presents the principal credit ratings of the Ameren Companies by Moody's, S&P and Fitch effective on the date of this report: Moody's S&P Fitch Ameren: Issuer/corporate credit rating Baa2 BBB+ BBB+ Senior unsecured debt Baa2 BBB BBB+ Commercial paper P-2 A-2 F2 Ameren Missouri: Issuer/corporate credit rating Baa1 BBB+ BBB+ Secured debt A2 A A Senior unsecured debt Baa1 BBB+ A- Commercial paper P-2 A-2 F2 Ameren Illinois: Issuer/corporate credit rating Baa1 BBB+ BBB Secured debt A2 A A- Senior unsecured debt Baa1 BBB+ BBB+ Commercial paper P-2 A-2 F2 66-------------------------------------------------------------------------------- A credit rating is not a recommendation to buy, sell, or hold securities. It should be evaluated independently of any other rating. Ratings are subject to revision or withdrawal at any time by the rating organization. Collateral Postings Any adverse changes in the Ameren Companies' credit ratings may reduce access to capital and trigger additional collateral postings and prepayments. Such changes may also increase the cost of borrowing and negatively impact earnings. Cash collateral postings and prepayments with external parties, including postings related to exchange-traded contracts, at September 30, 2014, were $10 million, $10 million, and $- million at Ameren, Ameren Missouri and Ameren Illinois, respectively. Cash collateral posted by external counterparties with Ameren and Ameren Illinois was $2 million and $2 million, respectively, at September 30, 2014. Sub-investment-grade issuer or senior unsecured debt ratings (lower than "BBB-" or "Baa3") at September 30, 2014, could have resulted in Ameren, Ameren Missouri or Ameren Illinois being required to post additional collateral or other assurances for certain trade obligations amounting to $113 million, $57 million, and $56 million, respectively. Changes in commodity prices could trigger additional collateral postings and prepayments at current credit ratings. If market prices were 15% higher than September 30, 2014 levels in the next 12 months and 20% higher thereafter through the end of the term of the commodity contracts, then Ameren, Ameren Missouri or Ameren Illinois would not be required to post additional collateral or other assurances for certain trade obligations. If market prices were 15% lower than September 30, 2014 levels in the next 12 months and 20% lower thereafter through the end of the term of the commodity contracts, then Ameren, Ameren Missouri or Ameren Illinois could be required to post additional collateral or other assurances for certain trade obligations up to $9 million, $1 million, and $8 million, respectively. The balance of Marketing Company's note payable to Ameren for cash collateral requirements was $23 million at September 30, 2014. This balance will vary until December 2, 2015, as cash collateral requirements for New AER will change. Ameren's obligation to provide credit support on behalf of New AER will cease on December 2, 2015. Changes in commodity prices could trigger additional collateral postings and prepayments for New AER and thus affect the balance of the note. If market prices were 15% higher than September 30, 2014 levels in the next 12 months and 20% higher thereafter through the end of the term of the commodity contracts, then Ameren could be required to provide additional credit support to IPH up to $85 million. If market prices were 15% lower than September 30, 2014 levels in the next 12 months and 20% lower thereafter through the end of the term of the commodity contracts, then Ameren could be required to provide IPH with additional credit support up to $25 million. In addition, as of September 30, 2014, and using market prices as of that date, if Ameren's credit ratings had been below investment grade, Ameren could have been required to post additional cash collateral in support of New AER in the amount of $23 million. See Note 12 - Divestiture Transactions and Discontinued Operations under Part I, Item 1, of this report for information regarding Ameren (parent) guarantees. OUTLOOK Ameren seeks to earn competitive returns on its investments in its businesses. Ameren Missouri and Ameren Illinois are seeking to improve their regulatory frameworks and cost recovery mechanisms and simultaneously pursuing constructive regulatory outcomes within existing frameworks. Ameren Missouri and Ameren Illinois are seeking to align their overall spending, both operating and capital, with economic conditions and cash flows provided by their regulators. Consequently, Ameren's rate-regulated businesses are focused on minimizing the gap between allowed and earned returns on equity. Ameren intends to allocate its capital resources to those business opportunities that offer the most attractive risk-adjusted return potential. Below are some key trends, events, and uncertainties that are reasonably likely to affect the Ameren Companies' results of operations, financial condition, or liquidity, as well as their ability to achieve strategic and financial objectives, for 2014 and beyond. Operations • Ameren's strategy for earning competitive returns on its rate-regulated investments involves meeting customer energy needs in an efficient fashion, working to enhance regulatory frameworks, making timely and well-supported rate case filings, and aligning overall spending with those rate case outcomes, economic conditions, and return opportunities. • Ameren continues to pursue its plans to invest in FERC-regulated electric transmission. MISO has approved three electric transmission projects to be developed by ATXI. 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 obtained a certificate of public convenience and necessity and project approval from the ICC for the Illinois Rivers project. ATXI is in the early stages of construction on the Illinois Rivers project. The first sections of the Illinois Rivers project are expected to be completed in 2016. The last section of this project is expected to be completed by 2019. The Spoon River project in northwest Illinois and the Mark Twain project in northeast Missouri are the other two projects ATXI is pursuing that have been approved by MISO. These two projects are expected to be completed in 2018. In the third quarter of 2014, ATXI filed a request for a certificate of public convenience and necessity and project approval from the ICC for the Spoon River project. An ICC decision on this filing is expected in 2015. The total investment in these three projects is expected to be $1.4 billion through 2019. In early 2015, ATXI expects to update the estimated cost of the Illinois Rivers project incorporating the final route approved by the ICC, which is longer than originally proposed. 67 -------------------------------------------------------------------------------- Separate from the ATXI projects discussed above, Ameren Illinois expects to invest approximately $850 million in electric transmission assets through 2018 to address load growth and reliability requirements. This Ameren Illinois estimate could also be impacted by the final route of the Illinois Rivers project. • In July 2013, Illinois enacted the Natural Gas Consumer, Safety and Reliability Act, which encourages Illinois natural gas utilities to accelerate modernization of the state's natural gas infrastructure and provides additional ICC oversight of natural gas utility performance. The law allows natural gas utilities the option to file for a rate rider mechanism to recover costs of certain natural gas infrastructure investments made between rate cases. The law does not require a minimum level of investment. In September 2014, Ameren Illinois filed for approval from the ICC to utilize the rate rider mechanism. A decision from the ICC is expected in 2014. Ameren Illinois expects to begin including investments under this regulatory framework in 2015. • 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 that was in effect for customer billings for that year. Consequently, Ameren Illinois' 2014 electric delivery service revenues will be based on its 2014 actual recoverable costs, rate base, and return on common equity as calculated under the IEIMA's performance-based formula ratemaking framework. The 2014 revenue requirement is expected to be higher than the 2013 revenue requirement, due to an expected increase in recoverable costs and rate base growth. • In December 2013, the ICC issued an order with respect to Ameren Illinois' annual update IEIMA filing. The ICC approved a net $45 million decrease in Ameren Illinois' electric delivery service rates. The ICC decision issued in December 2013 established new rates that became effective January 1, 2014. These rates have affected, and will continue to affect, Ameren Illinois' cash receipts during 2014, but not its operating revenues, which will instead be determined by the IEIMA's 2014 revenue requirement reconciliation. The 2014 revenue requirement reconciliation is reflected as a regulatory asset and will be collected from customers in 2016. • In April 2014, Ameren Illinois filed with the ICC its annual electric delivery service formula rate update to establish the revenue requirement used to set rates for 2015. Pending ICC approval, Ameren Illinois' update filing, as revised in July 2014, will result in a $205 million increase in Ameren Illinois' electric delivery service revenue requirement beginning in January 2015. This update reflects an increase to the annual formula rate based on 2013 actual costs and expected net plant additions for 2014, an increase to include the annual reconciliation of the revenue requirement in effect for 2013 to the actual costs incurred in that year, and an increase resulting from the conclusion of a refund to customers in 2014 for the 2012 revenue requirement reconciliation. In August 2014, the ICC staff submitted its revised calculation of the revenue requirement included in Ameren Illinois' update filling. The ICC staff recommended a $205 million increase in Ameren Illinois' electric delivery service revenue requirement. Other intervenors requested an electric delivery service revenue requirement up to $7 million lower than the revenue requirement recommended by the ICC staff. In October 2014, the administrative law judges issued a proposed order that reflected an increase to Ameren Illinois' electric delivery service revenue requirement of $204 million. A final ICC decision in this April 2014 filing is expected by December 2014 and will establish rates for 2015. These rates will affect Ameren Illinois' cash receipts during 2015. • In December 2013, the ICC issued an order that authorized a $32 million increase in Ameren Illinois' annual natural gas delivery service revenues. This request was based on a future test year of 2014, which improves the ability to earn returns allowed by regulators. The new rates became effective January 1, 2014. • In July 2014, Ameren Missouri filed a request with the MoPSC seeking approval to increase its annual revenues for electric service by $264 million. The rate request seeks recovery of increased net energy costs and rebates provided for customer-installed solar generation, as well as recovery of and a return on additional electric infrastructure investments made for the benefit of Ameren Missouri's customers. Plant additions to rate base since the last electric rate order are expected to total approximately $1.4 billion through the true-up date in this rate case and include electric infrastructure investments for upgrades to the electrostatic precipitators at the coal-fired Labadie energy center, the replacement of the nuclear reactor vessel head at the Callaway energy center, two new substations in St. Louis, and the O'Fallon solar energy center, among other additions. Approximately $127 million of the request relates to an increase in net energy costs above the current levels included in base rates previously authorized by the MoPSC in its December 2012 electric rate order, 95% of which, absent initiation of this general rate proceeding, would have been reflected in rate adjustments implemented under Ameren Missouri's existing FAC. The electric rate increase request is based on a 10.4% return on common equity, a capital structure composed of 51.6% common equity, an electric rate base for Ameren Missouri of $7.3 billion, and a test year ended March 31, 2014, with certain pro-forma adjustments expected through the true-up date of December 31, 2014. The MoPSC proceeding relating to the proposed electric service rate changes will take place over a period of up to 11 months and a decision by the MoPSC in such proceeding is expected by May 2015, with rates effective by June 2015. • As we continue to experience cost increases and make infrastructure investments, Ameren Missouri and Ameren Illinois expect to seek regular electric and natural gas rate increases and timely cost recovery and tracking mechanisms from their regulators. Ameren Missouri and Ameren Illinois will also seek, as necessary, legislative solutions to address cost recovery pressures and to support investment in their energy infrastructure. These pressures include limited economic growth in their service territories, customer conservation efforts, the impacts of additional 68-------------------------------------------------------------------------------- customer energy efficiency programs, increased investments and expected future investments for environmental compliance, system reliability improvements, and new generation capacity, including renewable energy requirements. Increased investments also result in higher depreciation and financing costs. Increased costs are also expected from rising employee benefit costs and higher property and income taxes, among other things. • Ameren and Ameren Missouri also are pursuing recovery from an insurer, through litigation, for reimbursement of unpaid liability insurance claims for a December 2005 breach of the upper reservoir at Ameren Missouri's Taum Sauk pumped-storage hydroelectric energy center. Ameren's and Ameren Missouri's results of operations, financial position, and liquidity could be adversely affected if Ameren Missouri's remaining liability insurance claim of $41 million as of September 30, 2014, is not paid. • Ameren Missouri's scheduled refueling and maintenance outage at its Callaway energy center began on October 11, 2014. During a scheduled outage, which occurs every 18 months, maintenance expenses increase relative to non-outage years. Additionally, depending on the availability of its other generation sources and the market prices for power, Ameren Missouri's purchased power costs may increase and the amount of excess power available for sale may decrease versus non-outage years. Changes in purchased power costs and excess power available for sale are included in the FAC, resulting in limited impacts to earnings. Additional maintenance costs incurred during the outage will not be fully recovered in 2014, because revenues relating to the additional maintenance costs are recovered over 18 months. Ameren Missouri expects to incur maintenance costs of $35 million to $40 million relating to the fall 2014 refueling and maintenance outage. • Ameren Missouri continues to evaluate its longer-term needs for new baseload and peaking electric generation capacity. Ameren Missouri files a non-binding integrated resource plan with the MoPSC every three years. Ameren Missouri's integrated resource plan filed with the MoPSC in October 2014 is a 20-year plan that supports a more fuel-diverse energy portfolio in Missouri, including solar, wind, natural gas and nuclear power. The plan includes expanding renewable generation, retiring coal-fired generating capacity as energy centers reach the end of their useful lives, and adding natural gas-fired combined cycle generation. Ameren Missouri continues to study future alternatives, including additional customer energy efficiency programs that could help defer new energy center construction. Ameren Missouri's integrated resource plan is projected to achieve the carbon emissions reductions proposed in the EPA's Clean Power Plan by 2035, rather than the EPA's final target date of 2030 or its interim target dates beginning in 2020. • Ameren Missouri continues to evaluate its potential compliance plans for the proposed Clean Power Plan. Based on preliminary studies, if the proposed rules were to be made final, Ameren Missouri anticipates new or accelerated capital expenditures and increased fuel costs would be required to achieve compliance. As proposed, the Clean Power Plan would require the states, including Missouri and Illinois, to submit compliance plans as early as 2016. The states' compliance plans may require Ameren Missouri to construct combined cycle gas-fired and renewable energy centers, currently estimated to cost approximately $2 billion by 2020, that Ameren Missouri believes would otherwise not be necessary to meet the energy needs of its customers. Additionally, Missouri's implementation of the proposed rules, if adopted, could result in the closure or alteration of the operation of some of Ameren Missouri's coal and gas-fired energy centers. • Environmental regulations, as well as future initiatives, including those related to greenhouse gas emissions, or other actions taken by the EPA, could result in significant increases in capital expenditures and operating costs. These expenses could be prohibitive at some of Ameren Missouri's coal-fired energy centers. Ameren Missouri's capital expenditures are subject to MoPSC prudence reviews, which could result in cost disallowances as well as prolonged periods before recovery of these investments occur. Ameren's and Ameren Missouri's earnings may benefit from increased investment to comply with environmental regulations if those investments are reflected and recovered timely in rates. • As of September 30, 2014, Ameren Missouri had capitalized $69 million of costs incurred to license additional nuclear generation at its Callaway energy site. If efforts are abandoned or management concludes it is probable the costs incurred will be disallowed in rates, a charge to earnings would be recognized in the period in which that determination is made. • Both Ameren Illinois and ATXI have FERC authorization to employ a forward-looking rate calculation with an annual revenue requirement reconciliation for each company's electric transmission business. Based on the projected rates that will become effective on January 1, 2015, Ameren Illinois' 2015 revenue requirement for its electric transmission business is expected to increase by $40 million over the 2014 revenue requirement due to rate base growth. Ameren Illinois' transmission revenue requirement was based on a 12.38% return on equity, a capital structure composed of approximately 54% common equity, and a rate base of $890 million. Based on the projected rates that become effective on January 1, 2015, ATXI's 2015 revenue requirement for its electric transmission business is expected to increase by $46 million over the 2014 revenue requirement due to rate base growth, primarily relating to the Illinois Rivers project. ATXI's transmission revenue requirement was based on a 12.38% return on equity, a capital structure composed of approximately 56% common equity, and a rate base of $536 million. • In November 2013, a customer group filed a complaint case with FERC seeking a reduction in the allowed base return on common equity to 9.15%, as well as a limit on the common equity ratio, under the MISO tariff. Currently, the FERC-allowed base return on common equity for MISO transmission owners is 12.38%. In October 2014, FERC issued an order establishing settlement procedures and, if necessary, hearing procedures regarding the allowed base return on common equity and denied all other aspects of the 69-------------------------------------------------------------------------------- MISO complaint case. This complaint case could result in a reduction to Ameren Illinois' and ATXI's allowed base return on common equity, which would result in a refund for transmission service revenues earned back to the effective refund date of November 12, 2013. In October 2014, FERC issued an order which confirmed its June 2014 order reducing the allowed base return on common equity for New England transmission owners from 11.14% to 10.57%, with rate incentives allowed up to 11.74%. If our allowed base return on equity was lowered to 10.57%, as established in the New England transmission owners' case, with no additional rate incentives, the required refund for Ameren and Ameren Illinois would be $14 million and $11 million, respectively, from the refund effective date of November 12, 2013 through September 30, 2014. The estimated annual reduction in revenues if the MISO allowed base return on common equity was 10.57% for Ameren and Ameren Illinois would be $16 million and $12 million, respectively. Ameren Missouri would not expect that a reduction in the FERC-allowed base return on common equity for MISO transmission owners would be material to its results of operations, financial position or liquidity. • The civil unrest that occurred during the third quarter of 2014 in Ferguson, Missouri, which is located in Ameren Missouri's territory, had a very minor impact on operations and no material impact on our financial condition or results of operations. We are unable to predict if any further civil unrest will have an impact on our financial condition or results of operations. • For additional information regarding recent rate orders and related appeals, pending requests filed with state and federal regulatory commissions, and Taum Sauk matters, see Note 2 - Rate and Regulatory Matters, Note 9 - Commitments and Contingencies, and Note 10 - Callaway Energy Center under Part I, Item 1, of this report and Note 2 - Rate and Regulatory Matters under Part II, Item 8, of the Form 10-K. Liquidity and Capital Resources • We seek to maintain access to the capital markets at commercially attractive rates in order to fund our businesses. We seek to enhance regulatory frameworks and returns in order to improve liquidity, credit metrics, and related access to capital. • The use of cash from operating activities and short-term borrowings to fund capital expenditures and other long-term investments may periodically result in a working capital deficit, defined as current liabilities exceeding current assets, as was the case for Ameren and Ameren Illinois at September 30, 2014. The working capital deficit as of September 30, 2014, was primarily the result of Ameren's decision to utilize commercial paper issuances, as opposed to long-term debt. With the 2012 Credit Agreements, Ameren has access to $2.1 billion of credit capacity of which $1.3 billion was available at September 30, 2014. • Ameren Illinois expects to issue long-term debt during the fourth quarter of 2014, to reduce commercial paper borrowings. • Ameren expects its cash used for capital expenditures and dividends to exceed cash provided by operating activities over the next few years. • As of September 30, 2014, Ameren had $292 million in tax benefits from federal and state net operating loss carryforwards (Ameren Missouri - $3 million and Ameren Illinois - $58 million) and $110 million in federal and state income tax credit carryforwards (Ameren Missouri - $12 million and Ameren Illinois - none). Consistent with the tax allocation agreement between Ameren and its subsidiaries, these carryforwards are expected to partially offset income tax liabilities in 2014 for Ameren Missouri and for Ameren and Ameren Illinois into 2016. In addition, Ameren has $85 million of expected income tax refunds and state overpayments that will offset income tax liabilities into 2016. These tax benefits, primarily at the Ameren (parent) level, when realized, will be available to finance electric transmission investments, specifically ATXI's Illinois Rivers project. These tax benefits are projected to help reduce or eliminate Ameren's need to issue additional equity to fund these investments through 2018. • Ameren has entered into an agreement with a buyer to sell the Meredosia energy center in 2015, provided certain closing conditions are met, for $25 million and the assumption of certain liabilities. Any proceeds received or gain recognized in connection with a sale would be reflected in discontinued operations. • We have multiyear credit agreements that cumulatively provide $2.1 billion of credit through November 14, 2017. See Note 3 - Short-term Debt and Liquidity under Part I, Item 1, of this report for additional information regarding the 2012 Credit Agreements. We expect to extend the term of our multiyear credit agreements to 2019. We believe that our liquidity is adequate given their expected cash from operating activities, capital expenditures, and related financing plans. However, there can be no assurance that significant changes in economic conditions, disruptions in the capital and credit markets, or other unforeseen events will not materially affect our ability to execute our expected operating, capital, or financing plans. The above items could have a material impact on our results of operations, financial position, or liquidity. Additionally, in the ordinary course of business, we evaluate strategies to enhance our results of operations, financial position, or liquidity. These strategies may include acquisitions, divestitures, and opportunities to reduce costs or increase revenues, and other strategic initiatives to increase Ameren's stockholder value. We are unable to predict which, if any, of these initiatives will be executed. The execution of these initiatives may have a material impact on our future results of operations, financial position, or liquidity. REGULATORY MATTERS See Note 2 - Rate and Regulatory Matters under Part I, Item 1, of this report. |