(As filed on September 27, 2004)
File No. 70-10220
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------------
FORM U-1/A
AMENDMENT NO. 2
TO
APPLICATION OR DECLARATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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AMEREN CORPORATION
AMEREN ENERGY FUELS AND SERVICES COMPANY
1901 Chouteau Avenue
St. Louis, Missouri 63103
ILLINOIS POWER COMPANY
500 South 27th Street
Decatur, Illinois 62521
(Names of companies filing this statement and
addresses of principal executive offices)
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AMEREN CORPORATION
(Name of top registered holding company parent)
-------------------------------------
Steven R. Sullivan
Senior Vice President Governmental/Regulatory Policy,
General Counsel and Secretary
Ameren Corporation
1901 Chouteau Avenue
St. Louis, Missouri 63103
(Name and address of agent for service)
--------------------------------------------------------
The Commission is requested to send copies of all notices, orders and
other communications in connection with this Application/Declaration to:
Joseph H. Raybuck, Managing William T. Baker, Jr., Esq.
Associate General Counsel Thelen Reid & Priest LLP
Ameren Services Company 875 Third Avenue
1901 Chouteau Avenue New York, New York 10022
St. Louis, Missouri 63103
Joseph L. Lakshmanan, Senior C.M. (Mike) Naeve, Esq.
Corporate Counsel & Chief Legal William C. Weeden
Officer Skadden, Arps, Slate, Meagher
Illinois Power Company & Flom LLP
500 South 27th Street 1440 New York Avenue, N.W.
Decatur, Illinois 62521 Washington, D.C. 20005
Alisa B. Johnson, Esq., William J. Harmon, Esq.
Group General Counsel - Jones Day
Regulatory Affairs 77 West Wacker Drive
Dynegy Inc. Chicago, Illinois 60601-1692
1000 Louisiana St., Suite 5800
Houston, Texas 77002
ii
TABLE OF CONTENTS
PAGE
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ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION...................................1
1.1 Introduction.....................................................1
1.2 Description of Ameren and Its Subsidiaries.......................2
a. Ameren's Public-Utility Subsidiaries........................2
b. Direct Non-Utility Subsidiaries of Ameren...................4
c. Direct Non-Utility Subsidiaries of AmerenUE.................5
d. Direct Non-Utility Subsidiaries of CILCORP..................5
e. Direct Non-Utility Subsidiaries of AmerenCILCO..............6
f. Capitalization of Ameren....................................6
1.3 Description of Illinois Power...................................7
a. Electric Utility Operations.................................7
b. Gas Utility Operations......................................8
c. Regulation of Illinois Power................................9
d. Non-Utility Subsidiaries of Illinois Power..................9
e. Capitalization of Illinois Power...........................10
1.4 Principal Terms of Amended Stock Purchase Agreement............11
1.5 Recapitalization of Illinois Power.............................13
1.6 Operation of the Combined System Following the Acquisition.....13
1.7 Financing the Purchase Price...................................14
1.8 Affiliate Transactions.........................................14
a. Ameren Services............................................14
b. Ameren Fuels...............................................14
1.9 Financing by Illinois Power....................................15
a. External Short-term Debt...................................15
b. Participation in Utility Money Pool........................17
c. Interest Rate Hedging Transactions.........................17
1.10 Organization and Acquisition of Financing Subsidiaries.........19
1.11 Accounting Treatment for the Transaction; Impact on Rates......20
1.12 Reports Pursuant to Rule 24....................................21
ITEM 2. FEES, COMMISSIONS AND EXPENSES.......................................22
iii
ITEM 3. APPLICABLE STATUTORY PROVISIONS......................................22
3.1 General Overview of Applicable Statutory Provisions............22
3.2 Compliance with Section 10(b)..................................24
a. Section 10(b)(1)...........................................24
b. Section 10(b)(2)...........................................27
c. Section 10(b)(3)...........................................28
3.3 Section 10(c)..................................................30
a. Section 10(c)(1)...........................................31
(a) The Transaction will be lawful under Section 8........31
(b) The Transaction will not be detrimental to carrying
out the provisions of Section 11......................31
(i) Integration of Electric Operations..............32
A. Interconnection.............................32
B. Coordination................................32
C. Single Area or Region.......................34
D. Size........................................34
(ii) Integration of Gas Operations...................35
A. Coordination................................35
B. Single Area or Region.......................36
C. Size........................................36
(c) Retention of Combined Gas System......................36
(i) Loss of Economies...............................37
(ii) Same State or Adjoining States..................38
(iii) Size............................................39
(d) Retention of Illinois Power's Non-Utility
Subsidiaries and Investments..........................39
b. Section 10(c)(2)...........................................40
3.4 Section 10(f)..................................................41
3.5 Intra-system Transactions......................................42
3.6 Rule 54 Analysis...............................................42
ITEM 4. REGULATORY APPROVALS.................................................43
4.1 Illinois Commerce Commission...................................43
4.2 Federal Energy Regulatory Commission...........................44
iv
4.3 HSR Act........................................................44
4.4 Federal Communications Commission..............................44
ITEM 5. PROCEDURE................................. ..........................45
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS....................................45
a. Exhibits...................................................45
b. Financial Statements.......................................47
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS..............................48
v
The Application/Declaration filed in this proceeding on March 31, 2004, as
amended and restated in its entirety by Amendment No. 1, filed on June 25, 2004,
is hereby further amended and restated in its entirety to read as follows:
ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.
1.1 Introduction. Ameren Corporation ("Ameren"), a Missouri corporation and
a registered holding company under the Public Utility Holding Company Act of
1935, as amended (the "Act"),/1/ whose principal business address is at 1901
Chouteau Avenue, St. Louis, Missouri 63103, Ameren Energy Fuels and Services
Company ("Ameren Fuels"), an indirect wholly-owned non-utility subsidiary of
Ameren, of the same address, and Illinois Power Company ("Illinois Power"), an
electric and gas utility company operating in the State of Illinois, whose
principal business address is at 500 South 27th Street, Decatur, Illinois,
62521, are filing this Application/Declaration pursuant to Sections 6(a), 7, 8,
9(a), 10, 11(b), 12(b), 12(f) and 13(b) of the Act and Rules 43, 45, 51, 54, 87
and 90-91 thereunder. Ameren, Ameren Fuels, and Illinois Power are herein
referred to collectively as the "Applicants."
As described in greater detail below, Ameren has entered into an agreement
to purchase all of the issued and outstanding common stock (the "Common Shares")
of Illinois Power from Illinova Corporation ("Illinova"), an exempt holding
company under Section 3(a)(1) of the Act, which is itself a wholly-owned
subsidiary of Dynegy Inc. ("Dynegy"),/2/ and the issued and outstanding shares
of preferred stock of Illinois Power that are held by Illinova (the "Preferred
Shares"), and the 20% interest in the common stock of Electric Energy, Inc.
("EEInc"), an "exempt wholesale generator" ("EWG") under Section 32 of the Act,
that is held by Illinova Generating Company ("IGC"),/3/ an indirect subsidiary
of Dynegy (the "EEInc Shares," and together with the Common Shares and the
Preferred Shares, the "Shares"), for an aggregate purchase price of
$2,300,000,000, subject to certain adjustments as described below (the
"Transaction"). Ameren intends to acquire and hold the Common Shares and
Preferred Shares of Illinois Power directly, and to acquire the EEInc Shares
through its non-utility subsidiary, Ameren Energy Resources Company ("Ameren
Energy Resources"), pursuant to Section 32 of the Act. Illinois Power will also
enter into a firm power purchase agreement (the "New PPA") with Dynegy Power
Marketing, Inc. ("DYPM"), a power marketing affiliate of Dynegy, pursuant to
which Illinois Power will purchase up to 2,800 MW of capacity and energy
commencing with the later of the date the Transaction closes or January 1, 2005
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1 See Ameren Corporation, Holding Co. Act Release No. 26809 (Dec. 30, 1997)
(the "1997 Merger Order").
2 Dynegy claims an exemption under Section 3(a)(1) of the Act pursuant to
Rule 2. See Statement on Form --- U-3A-2, filed February 27, 2004, in File No.
69-483. Illinova is an exempt holding company pursuant to an order issued under
Section 3(a)(1) of the Act. See Illinova Corporation, Holding Co. Act Release
No. 26054 (May 18, 1994).
3 IGC owns 12,400 shares of common stock of EEInc, $100 par value per share,
representing 20% of the total number outstanding. EEInc is an EWG under Section
32 of the Act. See Electric Energy, Inc., 92 FERC P. 62,079 (2000).
1
through December 31, 2006, as well as certain other ancillary agreements.
The Transaction is subject to, among other usual and customary conditions
precedent, receipt by the parties of required state and federal regulatory
approvals and filing of pre-merger notification statements under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act"),
and the expiration or termination of the statutory waiting period thereunder.
(See Item 4 - Regulatory Approvals). The boards of directors of Ameren and
Dynegy have approved the proposed Transaction. The Transaction does not require
any approval by the shareholders of Ameren or Dynegy.
In addition to authorization of the jurisdictional aspects of the
Transaction, the Applicants are requesting authorization herein, once the
Transaction closes, for: (i) Illinois Power to issue and sell from time to time
from the closing of the Transaction through June 30, 2007 (the "Authorization
Period") short-term debt securities, to become a participant in the Ameren
System Utility Money Pool Arrangement ("Utility Money Pool"), to enter into
interest rate hedging transactions, and to engage in certain other related
transactions; (ii) Ameren to acquire, from time to time during the Authorization
Period, outstanding long-term debt securities and/or shares of preferred stock
of Illinois Power or any subsidiary of Illinois Power that are held by
unaffiliated third parties in open market purchases, through invitations for
tenders and/or through negotiated purchases; and (iii) Ameren Fuels to provide
gas management services to Illinois Power pursuant to a fuel supply management
agreement that is substantially identical to agreements between Ameren Fuels and
Ameren's current public-utility subsidiaries.
1.2 Description of Ameren and Its Subsidiaries.
a. Ameren's Public-Utility Subsidiaries.
Ameren directly owns all of the issued and outstanding common stock of
Union Electric Company d/b/a AmerenUE ("AmerenUE") and Central Illinois Public
Service Company d/b/a AmerenCIPS ("AmerenCIPS") and indirectly through CILCORP
Inc. ("CILCORP"), an intermediate holding company, owns all of the issued and
outstanding common stock of Central Illinois Light Company d/b/a AmerenCILCO
("AmerenCILCO"). Together, AmerenUE, AmerenCIPS and AmerenCILCO provide retail
and wholesale electric service to approximately 1.7 million customers and retail
natural gas service to approximately 500,000 customers in a 49,000 square-mile
area of Missouri and Illinois, including the St. Louis, Missouri and Peoria and
Springfield, Illinois metropolitan areas.
In addition to the foregoing, AmerenCILCO owns all of the issued and
outstanding common stock of AmerenEnergy Resources Generating Company (f/k/a
Central Illinois Generation, Inc.) ("AERG"), a generating subsidiary company.
AERG was formed by AmerenCILCO in November 2001 in order to facilitate the
restructuring of AmerenCILCO in accordance with the Illinois Electric Service
Customer Choice and Rate Relief Law of 1997 ("Customer Choice Law"). In October
2003, AmerenCILCO transferred substantially all of its generating assets
2
representing in the aggregate approximately 1,130 megawatts (MW) of electric
generating capacity to AERG./4/
As of December 31, 2003, AmerenUE, AmerenCILCO and AERG together owned and
operated approximately 9,186 MW of electric generating capacity, all of which is
located in Missouri and Illinois, and AmerenUE, AmerenCIPS and AmerenCILCO
together owned approximately 5,433 circuit miles of primary electric
transmission lines, substantially all of which are located in Missouri and
Illinois./5/ In addition, as of December 31, 2003, AmerenUE, AmerenCIPS and
AmerenCILCO owned and operated approximately 11,700 miles of natural gas
transmission lines and distribution mains, all located in Missouri and Illinois,
and leased or owned natural gas storage capacity providing a total of 468,000
MMBtu of storage deliverability to meet peak day requirements and total storage
capacity of 28.85 billion cubic feet to meet winter season demand.
AmerenUE, AmerenCIPS and AmerenCILCO are subject to regulation by the
Illinois Commerce Commission ("ICC"), and AmerenUE is also subject to regulation
by the Missouri Public Service Commission ("MoPSC"), as to rates, service,
issuance of equity securities, issuance of debt having a maturity of more than
twelve months, mergers, affiliate transactions, and various other matters.
AmerenUE, AmerenCIPS and AmerenCILCO are also subject to regulation by the
Federal Energy Regulatory Commission ("FERC") as to rates and charges in
connection with the wholesale sale of energy and transmission in interstate
commerce, mergers, affiliate transactions, and certain other matters.
AmerenUE, AmerenCIPS and AmerenCILCO are members of the Mid-American
Interconnected Network ("MAIN"), which is one of the ten regional electric
reliability councils organized for coordinating the planning and operation of
the nation's bulk power supply. MAIN operates in Illinois and portions of
Michigan, Wisconsin, Iowa, Minnesota and Missouri. AmerenUE, AmerenCIPS and
AmerenCILCO provided formal written notice to the MAIN Board of Directors in
June 2003 of their intent to withdraw from MAIN effective January 1, 2005. In
July 2004, however, AmerenUE, AmerenCIPS and AmerenCILCO further notified MAIN
that they would agree to delay their withdrawal to January 1, 2006, provided
that the configuration of MAIN remains the same. The right to withdraw from MAIN
effective January 1, 2005, was reserved in the event that certain utilities
elect not to remain as regular MAIN members after December 31, 2004. AmerenUE,
AmerenCIPS and AmerenCILCO intend to join another regional electric reliability
organization prior to their withdrawal from MAIN becoming effective. Until their
withdrawal is effective, they will continue to honor all of their obligations as
members of MAIN. If they do not join another regional electric reliability
organization, they may withdraw their notice of intent to withdraw from MAIN.
----------
4 AmerenCILCO retained ownership of approximately 36 MW (net summer
capability) of generation capacity at three sites in Illinois.
5 AmerenCIPS does not own any electric generation facilities. Ameren owns
interconnecting electric transmission facilities in southeastern Iowa but does
not serve any customers in Iowa.
3
AmerenUE and AmerenCIPS also participate in the Midwest Independent
Transmission System Operator ("MISO"), a FERC-approved regional transmission
organization. Effective May 1, 2004, AmerenUE and AmerenCIPS transferred
functional control of their transmission assets to the MISO. AmerenCILCO is
already a member of the MISO and has also transferred functional control of its
transmission system to the MISO.
In its order approving Ameren's acquisition of CILCORP, which was completed
on January 31, 2003, the Commission determined that the electric generation,
transmission and distribution facilities of AmerenUE, AmerenCIPS, AmerenCILCO
and AERG together constitute an integrated electric utility system, as defined
in Section 2(a)(29)(A) of the Act, and that the gas utility properties of
AmerenUE, AmerenCIPS and AmerenCILCO together constitute an integrated gas
utility system, as defined in Section 2(a)(29)(B) of the Act./6/
b. Direct Non-Utility Subsidiaries of Ameren.
Ameren has five direct wholly-owned non-utility subsidiaries (in
addition to CILCORP, the direct parent of AmerenCILCO), as follows:
Ameren Services Company ("Ameren Services"), a service company subsidiary,
which provides administrative, management and technical services to Ameren and
its associate companies in the Ameren system;
Ameren Development Company, an intermediate non-utility holding company,
which directly owns all of the outstanding common stock of Ameren ERC, Inc.
("Ameren ERC"), an "energy-related company" under Rule 58 that provides energy
management services. Ameren ERC in turn owns all of the outstanding common stock
of Missouri Central Railroad Company, a fuel transportation subsidiary, and an
89.1% interest in Gateway Energy Systems, L.C., which in turn owns Gateway
Energy WGK Project, L.L.C., which together are developing thermal energy
projects. These entities are also "energy-related companies" under Rule 58.
Ameren Development also directly owns all of the outstanding common stock of
Ameren Energy Communications, Inc., an "exempt telecommunications company" under
Section 34 of the Act;
Ameren Energy Resources, an intermediate non-utility holding company, which
directly holds all of the outstanding voting securities of the following
subsidiaries: (1) Ameren Energy Development Company, an EWG which, in turn, owns
all of the outstanding common stock of Ameren Energy Generating Company ("Ameren
GenCo"), also an EWG; (2) Ameren Energy Marketing Company, an "energy-related
company" under Rule 58; (3) Ameren Energy Fuels and Services Company, also an
"energy-related company" under Rule 58, which directly and through AFS
Development Company, L.L.C., a wholly-owned subsidiary, and Cowboy Railroad
----------
6 See Ameren Corporation, et al., Holding Company Act Release No. 27645 (Jan.
29, 2003) (the "CILCORP Order"). The Commission also determined that the
integrated gas utility system is retainable by Ameren as an additional system
under the standards of the "A-B-C" clauses of Section 11(b)(1).
4
Development Co., L.L.C., a 71%-owned subsidiary, makes investments in and
engages in operating activities related to fuel procurement, handling,
transportation and storage facilities and provides related fuel management
services to associate and nonassociate companies; (4) Illinois Materials Supply
Co., which is a registered retailer of goods, material and equipment to Ameren
Energy Development Company and other non-utility associate companies; and (5)
AmerenEnergy Medina Valley Cogen (No. 4), L.L.C., an intermediate non-utility
holding company that indirectly through AmerenEnergy Medina Valley Cogen (No.
2), L.L.C., holds all of the membership interests in AmerenEnergy Medina Valley
Cogen, L.L.C., an EWG, and directly holds all of the membership interests in
AmerenEnergy Medina Valley Operations, L.L.C. Ameren Energy Resources also
directly holds 20% of the outstanding common stock of EEInc, which owns and
operates a six-unit coal-fired generating facility with a capacity of
approximately 1,014 MW located in Joppa, Illinois. Through a subsidiary, Midwest
Electric Power Inc., which is also an EWG,/7/ EEInc owns and operates two
combustion turbines with a summer net capability of approximately 72 MW, located
at the Joppa plant site;
Ameren Energy, Inc., an "energy-related company" under Rule 58 that
primarily serves as the short-term energy trading and marketing agent for
AmerenUE and Ameren GenCo and provides a range of energy and risk management
services; and
CIPSCO Investment Company, which holds various nonregulated and passive
investments, including passive investments in affordable housing projects that
qualify for federal income tax credits and investments in equipment leases.
c. Direct Non-Utility Subsidiaries of AmerenUE.
AmerenUE has one direct wholly-owned non-utility subsidiary, Union
Electric Development Corporation, which holds investments in affordable housing
projects that qualify for federal income tax credits and other passive
investments. AmerenUE also directly holds 40% of the outstanding common stock of
EEInc./8/
d. Direct Non-Utility Subsidiaries of CILCORP.
CILCORP directly owns all of the common stock of three non-utility
subsidiaries, as follows:/9/
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7 See Midwest Electric Power Inc., Letter Order in Docket No. EG00-149-000,
July 21, 2000.
8 As previously indicated, as part of the Transaction, Ameren has also agreed
to purchase IGC's 20% interest in EEInc, which, upon closing, will increase the
aggregate ownership of EEInc by Ameren system companies from 60% to 80%. The
remaining 20% interest in EEInc will continue to be held by an unaffiliated
utility.
9 Under the CILCORP Order, supra n. 6, the Commission reserved jurisdiction
over Ameren's retention of certain nonutility subsidiaries and investments of
CILCORP (the "CILCORP Investments"). On April 15, 2004, the Commission issued a
supplemental order directing Ameren to take the appropriate actions to cause
CILCORP Investment Management Inc. and CILCORP Ventures Inc. to sell or
otherwise dispose of certain of the CILCORP Investments not later than January
31, 2006. See Ameren Corporation, et al., Holding Co. Act Release No. 27835
(Apr. 15, 2004).
5
CILCORP Investment Management Inc., which, through subsidiaries, manages
CILCORP's investments in equipment leases, affordable housing projects that
qualify for federal income tax credits, non-regulated independent power
projects, and other passive investments;
CILCORP Ventures Inc., which, through a wholly-owned subsidiary, CILCORP
Energy Services, Inc., provides energy-related products and services, including
gas management services for gas management customers; and
QST Enterprises Inc., which, through subsidiaries, provides energy and
related services in non-regulated retail and wholesale markets, including
predictive and preventive testing and maintenance for industrial customers and
affiliated companies, and formerly held interests in environmentally distressed
parcels of real estate acquired for resale.
e. Direct Non-Utility Subsidiaries of AmerenCILCO.
AmerenCILCO directly owns all of the issued and outstanding common
stock of two non-utility subsidiaries, neither of which conducts any significant
business at this time:
CILCO Exploration and Development Company, which previously engaged in the
exploration and development of gas, oil, coal and other mineral resources; and
CILCO Energy Corporation, which was formed to research and develop new
sources of energy, including the conversion of coal and other minerals into gas.
For the twelve months ended December 31, 2003, Ameren reported total
operating revenues of $4,593,000,000, operating income of $1,090,000,000, and
net income of $524,000,000, and for the six months ended June 30, 2004, Ameren
reported total operating revenues of $2,368,000,000, operating income of
$462,000,000, and net income of $215,000,000. On a consolidated basis,
approximately 85.7% of Ameren's 2003 operating revenues were derived from sales
of electricity (inclusive of sales by Ameren GenCo), 14.1% from sales of gas and
gas transportation service, and 0.2% from other sources. At June 30, 2004,
Ameren had $14,677,000,000 in total assets, including net property and plant of
$11,052,000,000.
f. Capitalization of Ameren.
Under its Restated Articles of Incorporation, as amended (Exhibits A-1
and A-2 hereto), Ameren is authorized to issue 500,000,000 shares of capital
stock consisting of 400,000,000 shares of common stock, $.01 par value, and
100,000,000 shares of preferred stock, $.01 par value. At June 30, 2004, Ameren
had issued and outstanding 183,266,254 shares of common stock; it did not have
6
any outstanding preferred stock./10/ In addition, at June 30, 2004, Ameren had
issued and outstanding $445 million principal amount of senior unsecured debt
securities that mature in 2007. At June 30, 2004, Ameren did not have any
outstanding short-term debt. Ameren's common stock is listed and traded on the
New York Stock Exchange.
As of June 30, 2004, Ameren's capitalization on a consolidated basis was as
follows:
-------------------------- ----------------------- -----------------------
Common equity $ 5,238,000,000 53.4%
-------------------------- ----------------------- -----------------------
Preferred equity of $ 182,000,000 1.8%
subsidiaries
-------------------------- ----------------------- -----------------------
Long-term debt* $ 4,072,000,000 41.5%
-------------------------- ----------------------- -----------------------
Short-term debt** $ 326,000,000 3.3%
-------------------------- ----------------------- -----------------------
Total $ 9,818,000,000 100.0%
-------------------------- ----------------------- -----------------------
* Includes mandatorily redeemable preferred stock
** Includes current portion of long-term debt
Ameren's senior unsecured debt securities are currently rated BBB+ by
Standard & Poor's Inc. ("S&P") and A3 by Moody's Investors Service ("Moody's").
Ameren's commercial paper is rated A-2 by S&P and P-2 by Moody's.
1.3 Description of Illinois Power.
Illinois Power is engaged in the transmission, distribution and sale of
electric energy and the distribution, transportation and sale of natural gas in
substantial portions of northern, central and southern Illinois. Its service
area includes 11 cities with a population greater than 30,000 (including the
cities of Decatur, Bloomington, and Champaign-Urbana) and 37 cities with a
population greater than 10,000 based on 2000 census data. Illinois Power also
provides electric transmission service to other utilities, electric
cooperatives, municipalities and marketers.
a. Electric Utility Operations.
Illinois Power provides electric service to approximately 600,000 customers
in 313 incorporated municipalities, adjacent suburban and rural areas and
numerous unincorporated communities, all in Illinois. Illinois Power's electric
transmission and distribution system includes 1,672 circuit miles of electric
transmission lines and 37,765 circuit miles of overhead and underground
distribution lines. Illinois Power owns virtually no generation./11/ Illinois
Power currently purchases the vast majority of its electric power requirements
under contracts with Dynegy Midwest Generation, Inc. ("DMG"), an indirect
----------
10 In July 2004, Ameren completed the sale of approximately 10.9 million
additional shares of common stock for net proceeds of approximately $445
million. As a result, at July 30, 2004, Ameren had issued and outstanding
194,274,842 shares of common stock.
11 Illinois Power is joint owner with a large commercial customer of three
diesel generators having a total capacity of 5.25 MW. The units, which are
located on or near the customer's headquarters in Bloomington, Illinois, are
available for on-site emergency back-up power and at other times are dispatched
by Illinois Power to serve system load.
7
subsidiary of Dynegy, AmerGen Energy Company, L.L.C. ("AmerGen"), and EEInc./12/
The existing contract with AmerGen will expire at the end of 2004. The existing
contract with DMG will also expire by its terms on December 31, 2004,/13/ and
will be replaced by the New PPA./14/ The EEInc contract expires at the end of
2005.
A map of the electric utility service areas of Ameren and Illinois Power is
filed herewith as Exhibit E-1.
Illinois Power is directly interconnected with AmerenUE, AmerenCIPS and
AmerenCILCO at numerous locations. Exhibit K hereto lists and describes these
existing interconnections. Illinois Power also participates, together with
AmerenUE and AmerenCIPS, in the Illinois-Missouri Power Pool, which operates
under a transmission interconnection agreement. Illinois Power is currently a
member of MAIN, although its continued membership in MAIN beyond December 31,
2004 will depend on whether the Transaction is consummated. As explained below,
Illinois Power committed in its application to the FERC for approval of the
Transaction (Exhibit D-3 hereto) that it will join the MISO within a reasonable
time after the FERC issues an order approving the Transaction and transfer of
functional control of Illinois Power's transmission assets to the MISO without
conditions that are unacceptable to the applicants, but prior to closing of the
Transaction. On July 29, 2004, the FERC approved the Transaction, conditioned on
Illinois Power joining the MISO prior to closing. (See Item 4 and Exhibit D-4
hereto.)
b. Gas Utility Operations.
Illinois Power provides retail gas service to approximately 415,000
customers in 258 incorporated municipalities and adjacent areas in northern,
central and southern Illinois, including the cities of Decatur, Champaign-Urbana
and East St. Louis. Illinois Power owns 763 miles of "Hinshaw" natural gas
transportation pipeline and 7,669 miles of natural gas distribution pipeline.
Illinois Power also owns seven on-system underground natural gas storage fields
with a total capacity of approximately 11.6 billion cubic feet and total
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12 The power purchase agreement between DMG and Illinois Power was entered
into in October 1999 concurrently with the sale of Illinois Power's generating
assets to Illinova, which Illinova then transferred to DMG. The agreement with
AmerGen was entered into in connection with the sale by Illinois Power of the
Clinton nuclear generation facility to AmerGen in December 1999.
13 In the event the Transaction closes before December 31, 2004, Illinois
Power and DMG will enter into an Interim PPA Rider that will modify the terms of
the existing contract with DMG only insofar as to divest Illinois Power of
dispatch control over DMG's generation units (except under very limited
circumstances). The limited change is necessary so that, post closing, Ameren's
aggregate generating capacity (owned or controlled) does not increase and, thus,
possibly give rise to market power concerns. The Interim PPA Rider will, by its
terms, terminate along with the existing DMG contract on December 31, 2004.
14 If the Transaction does not close by January 1, 2005, Illinois Power and
DYPM will enter into an interim power purchase agreement that is virtually
identical to the New PPA. In such event, the interim agreement would be replaced
by the New PPA upon closing of the Transaction.
8
deliverability on a peak day of approximately 339 million cubic feet. To
supplement the capacity of these underground storage facilities, Illinois Power
has contracted with natural gas pipelines for an additional 5.4 billion cubic
feet of underground storage capacity, representing additional total
deliverability on a peak day of approximately 93 million cubic feet.
A map of the gas utility service areas of Ameren and Illinois Power is
filed herewith as Exhibit E-2.
c. Regulation of Illinois Power.
Illinois Power is regulated by the ICC with respect to retail electric
and gas rates and service, classification of accounts, the issuance of stock and
evidences of indebtedness (other than indebtedness with a final maturity of less
than one year and renewable for a period of not more than two years), contracts
with any affiliated interest, and other matters, and by the FERC with respect to
transmission service and wholesale electric rates.
d. Non-Utility Subsidiaries of Illinois Power.
Illinois Power's non-utility subsidiaries are as follows:
IP Gas Supply Company ("Illinois Gas Supply"), an Illinois corporation,
which was formed for the purpose of acquiring interests in oil and gas leases.
There is little activity in this subsidiary;
Illinois Power Securitization Limited Liability Company, a Delaware limited
liability company that is the sole beneficial owner of Illinois Power Special
Purpose Trust ("IPSPT"), a Delaware business trust that was formed in 1998 to
issue transitional funding trust notes as allowed under the Illinois Electric
Utility Transition Funding Law to securitize the revenue stream associated with
future recovery of a portion of revenues received from retail ratepayers;/15/
Illinois Power Transmission Company, LLC, a Delaware limited liability
company, was formed in 2002 for the purpose of acquiring and holding Illinois
Power's transmission assets, but is currently inactive;
Illinois Power Financing I, a Delaware statutory trust, is a financing
subsidiary through which Illinois Power issued $100 million of trust originated
preferred securities ("TOPrS") in January 1996. These securities were redeemed
in 2001 and this entity is now inactive; and
Illinois Power Financing II, also a Delaware special purpose trust, is a
financing subsidiary that was created for a potential shelf registration in
2002. It is not currently active.
----------
15 With the adoption of FIN 46R (FASB Interpretation No. 46R, "Consolidation
of Variable Interest Entities"), at December 31, 2003, this variable interest
entity is no longer consolidated with Illinois Power.
9
For the twelve months ended December 31, 2003, Illinois Power reported
total operating revenues of $1,567,800,000, operating income of $166,200,000,
and net income applicable to common shareholder of $114,700,000, and for the six
months ended June 30, 2004, Illinois Power reported total operating revenues of
$781,000,000, operating income of $78,000,000, and net income applicable to
common stock of $60,000,000. Approximately 70.3% of Illinois Power's 2003
operating revenues was derived from electric utility operations and
approximately 29.7% was derived from gas utility operations. At June 30, 2004,
Illinois Power had $5,020,000,000 in total assets, including net utility plant
of $2,107,000,000 and an intercompany receivable from Illinova with a principal
balance of $2,271,000,000 (the "Intercompany Note") that was issued by Illinova
in consideration for the purchase of Illinois Power's fossil-fuel generating
plants and other generation-related assets in 1999.
e. Capitalization of Illinois Power.
Under its Amended and Restated Articles of Incorporation (Exhibit A-3
hereto), Illinois Power is authorized to issue 100,000,000 shares of common
stock, no par value, 5,000,000 shares of serial preferred stock, $50 par value,
5,000,000 shares of serial preferred stock, no par value, and 5,000,000 shares
of preference stock, no par value. As of June 30, 2004, Illinois Power had
issued and outstanding 62,892,213 shares of common stock, no par value, all of
which are held by Illinova, and six series of cumulative preferred stock, $50
par value, having an aggregate stated amount of approximately $46,000,000.
Illinova holds 662,924 shares of Illinois Power's outstanding preferred stock,
representing approximately 73% of the total number outstanding. In addition, as
of June 30, 2004, Illinois Power had outstanding $1,444,600,000 principal amount
of first mortgage bonds having maturities through 2032, certain series of which
are pledged to secure obligations under pollution control revenue obligations,
and $374,000,000 principal amount of transitional funding trust notes with
maturities through 2008. Exhibit I hereto lists and describes Illinois Power's
outstanding long-term debt and preferred stock as of December 31, 2003. Illinois
Power does not have any outstanding short-term debt (other than the current
portion of long-term debt).
As of June 30, 2004, Illinois Power's capitalization on a consolidated
basis was as follows:
-------------------------- ----------------------- -----------------------
Common equity $1,545,000,000 44.4%
-------------------------- ----------------------- -----------------------
Preferred equity $ 46,000,000 1.3%
-------------------------- ----------------------- -----------------------
Long-term debt* $1,668,000,000 48.0%
-------------------------- ----------------------- -----------------------
Current portion of $ 220,000,000 6.3%
long-term debt**
-------------------------- ----------------------- -----------------------
Total $3,479,000,000 100.0%
-------------------------- ----------------------- -----------------------
* Includes $302,000,000 of transitional funding trust notes issued by IPSPT.
** Includes $72,000,000 of transitional funding trust notes issued by IPSPT
and $77,000,000 capital lease obligation classified as current.
10
Illinois Power's senior secured debt is currently rated B by S&P and Ba3 by
Moody's. Illinois Power's preferred stock is rated CCC by S&P and B3 by
Moody's./16/ Ameren expects that, as a result of the consummation of the
Transaction and related recapitalization of Illinois Power, as described in Item
1.5 below, Illinois Power will receive an investment grade rating for its
long-term debt from at least one of the major statistical rating organizations.
1.4 Principal Terms of Amended Stock Purchase Agreement.
Ameren, Dynegy, Illinova, and IGC have entered into a Stock Purchase
Agreement, dated as of February 2, 2004 (the "Original Agreement") (Exhibit B-1
hereto), as amended by Amendment No. 1, dated as of March 23, 2004 (Exhibit
B-1(a) hereto), Amendment No. 2, dated April 30, 2004 (Exhibit B-1(b) hereto),
Amendment No. 3, dated May 31, 2004 (Exhibit B-1(c) hereto), and Amendment No.
4, dated as of September 24, 2004 (Exhibit B-1(d) hereto) (the Original
Agreement, as so amended, being referred to as the "Amended SPA"). The Amended
SPA provides that, subject to the receipt of all necessary regulatory approvals
and the satisfaction of other conditions precedent, Ameren will purchase the
Common Shares and the Preferred Shares of Illinois Power from Illinova and the
EEInc Shares from IGC for an aggregate purchase price of $2,300,000,000, less an
amount equal to the "Existing IPC Obligations" (as described below), plus (or
minus) the amount by which actual contributions made by Dynegy or any of its
affiliates prior to the closing date for plan year 2004 with respect to certain
pension plans exceeds (or is less than) $17,500,000, and plus or minus the
change in adjusted working capital between September 30, 2003 and the closing
date, as determined in accordance with the procedures set forth in the Amended
SPA (such aggregate amount being the "Purchase Price"). The Amended SPA
allocates $125,000,000 of the Purchase Price to the EEInc Shares and the balance
($2,175,000,000, subject to the adjustments described above) to the Common
Shares and the Preferred Shares.
The term "Existing IPC Obligations" is defined in the Amended SPA to mean
an amount equal to the sum of (a) the unpaid principal amount of all short-term
and long-term indebtedness (including current portion) for borrowed money of
Illinois Power and any subsidiary of Illinois Power, (b) the total liquidation
preference of the 249,751 shares of preferred stock, $50 par value, of Illinois
Power that are not owned by Illinova, (c) any accrued and unpaid dividends on
such shares of preferred stock, to the extent that dividends are in arrears, and
(d) any capital lease obligations of Illinois Power or any subsidiary of
Illinois Power, in each case as of the date of closing, subject to certain
adjustments related to the Transitional Funding Trust Notes, Series 1998-1, in
the original amount of $864,000,000, issued by Illinois Power Special Purpose
Trust. The Existing IPC Obligations as of September 30, 2003, totaled
$1,909,508,000.
At closing, Ameren will pay $2,300,000,000 in cash, minus the sum of (a) an
amount equal to the Existing IPC Obligations and (b) $100,000,000, which,
subject to certain exceptions, will be deposited in escrow to secure certain
indemnities from Dynegy under the Amended SPA relating to potential liabilities
----------
16 Illinois Power's senior secured debt and preferred stock ratings reflect
upgrades by Moody's following announcement of the Transaction.
11
that Illinois Power faces, principally due to its former ownership of generating
facilities now owned by DMG.
The Amended SPA provides that, no more than two days prior to closing,
Dynegy and Illinova will cause the unpaid principal balance of and all accrued
and unpaid interest on the Intercompany Note to be eliminated pursuant to the
following steps, which will be part of the total recapitalization of Illinois
Power (further described in Item 1.5 below): first, the principal amount of the
Intercompany Note will be reduced or offset by (i) the amount of certain
payables owed by Illinois Power to Illinova or other affiliates of Dynegy and
(ii) the amount of interest that has been paid by Illinova to Illinois Power on
the Intercompany Note that has not been earned, i.e., prepaid interest; and
second, Dynegy and Illinova will, and Illinova will cause Illinois Power to,
immediately following such reduction, eliminate or reduce the remaining
Intercompany Note to zero, which elimination or reduction may occur (in whole or
in part) through one or more of the following: (i) distribution of the
Intercompany Note (net of any prepaid interest) to Dynegy or Illinova; (ii) a
repurchase of common equity by Illinois Power from Illinova; (iii) the
assignment of the Intercompany Note by Illinois Power, after the balance thereof
has been reduced by the amount of any prepaid interest thereon theretofore paid
by Illinova, to Dynegy or one of its affiliates and subsequent elimination of
the Intercompany Note; (iv) a release of Illinova by Illinois Power from
Illinova's remaining obligations under the Intercompany Note; or (v) other means
reasonably acceptable to Dynegy and Ameren. The elimination of the Intercompany
Note through these measures requires approval by the ICC.
Also at closing, Illinois Power and DYPM will enter into the New PPA. The
New PPA requires DYPM to sell capacity and energy and to provide ancillary
services to Illinois Power for the period from the later of the date the
Transaction closes or January 1, 2005 through December 31, 2006. The total
monthly capacity committed under the New PPA to Illinois Power will range from
2,300 MW in the non-summer months (October through April) to 2,800 MW in the
summer months (May through September). DYPM is responsible under the New PPA for
obtaining and/or providing firm transmission service and ancillary services to
points of delivery on Illinois Power's transmission system. Illinois Power may
utilize energy purchased under the New PPA only to serve its retail load and
provide ancillary services and, except under limited circumstances, may not
resell to other customers any energy, capacity or ancillary services provided by
DYPM. Illinois Power and DYPM will also enter into the "Negotiated Tier 2
Memorandum," pursuant to which DYPM will sell to Illinois Power an additional
300 MW of firm capacity in 2005 and 150 MW of firm capacity in 2006, at a fixed
price. Illinois Power will have an option to purchase energy associated with
this capacity at a price based on the Power Markets Week's index for energy at
the Cinergy hub.
The Amended SPA also obligates Illinois Power to submit an application to
FERC to join the MISO, conditioned on the closing of the Transaction. As part of
the joint application filed with FERC (Exhibit D-3 hereto), Illinois Power
requested, and, on July 29, 2004, received all necessary authorizations from
FERC to transfer functional control over its transmission facilities to the
MISO. As previously indicated, FERC conditioned its approval of the Transaction
on Illinois Power transferring functional control over its transmission
facilities to the MISO prior to the closing.
12
The obligations of the parties under the Amended SPA are subject to
conditions precedent that are usual and customary for a transaction of this
nature, including the receipt of required regulatory approvals from this
Commission, the FERC and the ICC. The Amended SPA may be terminated by Dynegy or
Ameren if the closing shall not have occurred on or before December 31, 2004.
1.5 Recapitalization of Illinois Power.
After the Transaction closes, Ameren intends to complete the
recapitalization of Illinois Power by infusing substantial equity into Illinois
Power, the proceeds of which will be used by Illinois Power to retire debt,
including $550 million principal amount of 11 1/2% first mortgage bonds. Ameren
believes that these intercompany financing transactions will be exempt under
Rules 45(b)(4) and 52(a), as applicable. The Amended SPA obligates Ameren to
commit to the ICC that it will eliminate at least $750 million of Illinois
Power's debt and that Ameren will cause Illinois Power's common equity to total
capitalization ratio to be between 50% and 60% by December 31, 2006. As
previously noted, Ameren expects that the recapitalized Illinois Power will
receive an investment grade rating for its long-term debt from at least one of
the major statistical rating organizations.
In addition, Ameren requests authorization to acquire, from time to time
during the Authorization Period, up to $300 million principal or face amount of
the outstanding long-term debt securities and/or shares of preferred stock of
Illinois Power or any subsidiary of Illinois Power. All such securities would be
purchased in open-market purchases, through invitations for tenders and/or
through direct negotiations with the holders of such securities. Any such
securities that are acquired by Ameren may be held by Ameren until they mature
or are called, or, at Ameren's option, may be contributed to and canceled on the
books of Illinois Power or its subsidiary, as the case may be. Such securities
would not be reissued or resold by Ameren.
1.6 Operation of the Combined System Following the Acquisition.
Following the acquisition of Illinois Power, Illinois Power will maintain
its headquarters in Decatur for a period of at least five years and will
maintain a local management team and adequate staffing levels to operate its
utility system. Although Illinois Power will maintain its separate corporate
existence and will continue to operate as its own control area, its electric
utility operations will be fully integrated with those of AmerenUE, AmerenCIPS
and AmerenCILCO. Importantly, AmerenUE, AmerenCIPS and AmerenCILCO have already
transferred functional control over their respective transmission facilities to
the MISO, and, as indicated, Illinois Power will transfer functional control
over its transmission facilities to the MISO prior to closing. Likewise, the gas
utility operations of Illinois Power will also be fully integrated with those of
AmerenUE, AmerenCIPS and AmerenCILCO following completion of the Transaction. A
fuller description of Ameren's plans to integrate Illinois Power's operations
with those of its existing subsidiaries and estimates of merger savings are set
out in Item 3.3 below.
13
1.7 Financing the Purchase Price.
Ameren will finance the cash portion of the Purchase Price and subsequent
equity infusions in Illinois Power using the proceeds of common stock and other
securities issued and to be issued pursuant to its existing authorization in
File No. 70-10206 or as authorized in a separate proceeding./17/ On April 7,
2004, Ameren filed a "shelf" Registration Statement on Form S-3 (Exhibit C
hereto) with respect to offering an aggregate of $2 billion of common stock and
other long-term securities. The "shelf" Registration Statement became effective
in June 2004.
1.8 Affiliate Transactions.
a. Ameren Services.
Under the 1997 Merger Order, the Commission authorized Ameren to
organize and capitalize Ameren Services as a service company subsidiary, and
authorized Ameren Services to provide AmerenUE, AmerenCIPS and other companies
in the Ameren system with administrative, management, engineering, construction,
environmental, and other support services pursuant to a General Services
Agreement ("GSA"). Ameren Services has entered into substantially identical GSAs
with Ameren, AmerenUE, AmerenCIPS, AmerenCILCO and certain of Ameren's
non-utility subsidiaries. Under the 1997 Merger Order, Ameren Services is
required to give written notice to the Commission at least 60 days prior to
implementing any change in the type and character of the companies receiving
services, the methods of allocating costs to associate companies, or the scope
or character of services to be rendered.
Ameren Services intends to enter into a substantially identical GSA with
Illinois Power following completion of the Transaction. Thus, after the
Transaction closes, Ameren Services will provide to Illinois Power
administrative, management, and technical services substantially similar to
those that it now provides to other Ameren system companies under the GSA,
utilizing the same work order procedures and the same methods of allocating
costs that are specified in the GSA. Subject to Ameren's commitment to the ICC
regarding workforce reductions, certain employees of Illinois Power and its
subsidiaries may be transferred to and become employees of Ameren Services.
b. Ameren Fuels.
By order dated April 5, 2001 in File No. 70-9775,/18/ the Commission
authorized Ameren Fuels to provide AmerenUE and AmerenCIPS fuel management
services pursuant to the terms of a Fuel and Natural Gas Services Agreement
----------
17 See Ameren Corporation, Holding Co. Act Release No. 27860 (June 18, 2004)
(the "2004 Financing Order"). Ameren is authorized under the 2004 Financing
Order to issue and sell from time to time through June 30, 2007 up to $2.5
billion at any time outstanding of common stock, unsecured long-term debt
securities, and other preferred or equity-linked securities and up to $1.5
billion of short-term debt securities at any time outstanding.
18 See Ameren Energy Fuels and Services Company, Holding Co. Act Release No.
27374.
14
("Fuel Services Agreement")./19/ Ameren Fuels was authorized to provide
AmerenCILCO with similar services under the CILCORP Order, supra n. 6. Under the
Fuel Services Agreement (Exhibit B-3 hereto), Ameren Fuels, as agent for its
associate companies, manages all aspects of procurement, storage, transportation
and handling of coal, natural gas, and other fuels. Such services include
negotiating contracts with third parties, contract administration, regulatory
reporting and ash management services, among others. For the services rendered,
Ameren Fuels is reimbursed for all costs properly chargeable or allocable
thereto, as controlled through a work order procedure. Costs are computed in
accordance with Rule 90 and 91. Ameren Fuels is authorized under the Fuel
Services Agreement to take title to and resell fuel to its associate companies,
but solely in an agency capacity.
In conjunction with the Transaction, Ameren Fuels proposes to enter into a
separate Fuel Services Agreement with Illinois Power pursuant to which Ameren
Fuels will manage gas supply resources for Illinois Power. These services will
be provided at cost, in accordance with Rule 90 and 91.
1.9 Financing by Illinois Power.
The existing equity and long-term debt securities of Illinois Power, as
described in Item 1.3 above, will remain outstanding after the Transaction
closes. In general, all securities issuances by Illinois Power, other than
indebtedness with a final maturity of less than one year, renewable for a period
of not more than two years, must be approved by the ICC. In addition, the ICC
must approve borrowings by Illinois Power from any affiliated company.
Accordingly, after Illinois Power becomes a subsidiary of Ameren, Rule 52(a)
will exempt from Sections 6(a) and 7 of the Act (i) all external securities
issued by Illinois Power, other than short-term indebtedness, and (ii) all
intercompany borrowings by Illinois Power. Illinois Power is herein requesting
authorization to issue and sell from time to time during the Authorization
Period short-term debt securities to unaffiliated lenders, to enter into
interest rate hedging transactions, and to become a participant in the Utility
Money Pool, all as described below. Illinois Power will not engage in any
financing transactions for which approval is sought herein unless, on a pro
forma basis to take into account the amount and types of such financing and the
application of the proceeds thereof, common equity as a percentage of
capitalization (including short-term debt and current maturities of long-term
debt) is at least 30%.
a. External Short-term Debt. Illinois Power does not currently have
any outstanding short-term debt (other than the current portion of long-term
debt) or maintain any credit lines./20/ After becoming a subsidiary of Ameren,
however, Illinois Power wishes to have the flexibility to establish credit lines
and make short-term borrowings as needed to finance its operations and support
----------
19 Following the transfer of AmerenCIPS' generating assets to Ameren GenCo,
Ameren Fuels entered into an identical agreement with Ameren Energy Resources,
the indirect parent of Ameren GenCo.
20 Currently, Illinois Power satisfies its working capital requirements in
part from interest income received from Illinova under the Intercompany Note. As
described in Item 1.4, prior to closing of the Transaction, Dynegy and Illinova
will take steps to eliminate the Intercompany Note.
15
working capital needs. Accordingly, Illinois Power requests authorization to
issue commercial paper and/or establish and make secured or unsecured short-term
borrowings (i.e., maturities less than one year) under credit lines with banks
or other institutional lenders from time to time during the Authorization
Period, provided that the aggregate principal amount of commercial paper and
short-term borrowings by Illinois Power at any time outstanding under credit
facilities, when added to the aggregate amount of borrowings at any time by
Illinois Power under the Utility Money Pool (see Item 1.9(b) below) and direct
borrowings at any time by Illinois Power from Ameren, will not exceed $500
million. Subject to such limitation, Illinois Power requests authority to sell
commercial paper, from time to time, in established domestic or foreign
commercial paper markets. Such commercial paper would typically be sold to
dealers at the discount rate per annum prevailing at the date of issuance for
commercial paper of comparable quality and maturities sold to commercial paper
dealers generally. It is expected that the dealers acquiring such commercial
paper will reoffer it at a discount to corporate, institutional and, with
respect to European commercial paper, individual investors. It is anticipated
that such commercial paper will be reoffered to investors such as commercial
banks, insurance companies, pension funds, investment trusts, foundations,
colleges and universities, finance companies and nonfinancial corporations.
Illinois Power also proposes to establish credit lines with banks or other
institutional lenders and other credit arrangements and/or borrowing facilities
generally available to borrowers with comparable credit ratings as it deems
appropriate in light of its needs and existing market conditions providing for
revolving credit or other loans and having commitment periods not longer than
the Authorization Period. Only the amounts drawn and outstanding under these
agreements and facilities will be counted against the proposed limit on
short-term debt. The effective cost of money on all external short-term
borrowings by Illinois Power will not exceed at the time of issuance the greater
of (i) 300 basis points over the six-month London Interbank Offered Rate
("LIBOR"), or (ii) a gross spread over LIBOR that is consistent with similar
securities of comparable credit quality and maturities issued by other
companies.
The issuance of secured short-term debt by Illinois Power would be limited
to those circumstances in which Illinois Power can expect a savings in costs
over the issuance of unsecured short-term debt or in which unsecured credit is
unavailable. Illinois Power anticipates that the collateral offered as security
for short-term debt would generally be limited to short-term assets, such as
inventory and/or accounts receivable.
Illinois Power represents that, except for securities issued for the
purpose of funding Utility Money Pool operations (see below), it will not issue
any short-term debt securities in reliance upon the authorization granted by the
Commission pursuant to this Application/Declaration, unless (i) the security to
be issued, if rated, is rated investment grade; (ii) all outstanding securities
of Illinois Power that are rated are rated investment grade; and (iii) all
outstanding securities of Ameren that are rated are rated investment grade. For
purposes of this provision, a security will be deemed to be rated "investment
grade" if it is rated investment grade by at least one "nationally recognized
statistical rating organization," as that term is used in paragraphs
(c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the Securities Exchange Act of
1934, as amended. Illinois Power requests that the Commission reserve
16
jurisdiction over the issuance of any short-term debt securities that are rated
below investment grade.
b. Participation in Utility Money Pool.
By order dated February 27, 2003 in File No. 70-10106 (Holding Co. Act
Release No. 27655), as supplemented by order dated September 15, 2003 (Holding
Co. Act Release No. 27721) (the "Money Pool Order"), Ameren is authorized to
fund loans to AmerenUE, AmerenCIPS, AmerenCILCO and Ameren Services through the
Utility Money Pool in order to provide for the short-term cash and working
capital needs of these companies./21/ Further, to the extent not exempt under
Rule 52, AmerenUE, AmerenCIPS, AmerenCILCO and Ameren Services are authorized to
make unsecured short-term borrowings from the Utility Money Pool, to contribute
surplus funds to the Utility Money Pool, and to lend and extend credit to (and
acquire promissory notes from) one another through the Utility Money Pool./22/
Ameren may not make borrowings under the Utility Money Pool. If surplus funds
made available by the participants in the Utility Money Pool (i.e., "Internal
Funds") are used to fund loans to eligible borrowers, the interest rate
applicable to such loans is equal to the CD yield equivalent of the 30-day
Federal Reserve "AA" Non-Financial commercial paper composite rate. If proceeds
from external borrowings by any participant in the Utility Money Pool (i.e.,
"External Funds") are used to fund loans to eligible borrowers, the interest
rate is equal to the lending company's cost of borrowing. In cases where both
Internal Funds and External Funds are used to fund loans to eligible borrowers,
the applicable interest rate is a composite rate equal to the weighted average
of the Internal Funds and External Funds.
Illinois Power requests authorization herein to become a party to the
Utility Money Pool Agreement (Exhibit B-2 hereto) after the closing of the
Transaction on the same basis as AmerenUE, AmerenCIPS and AmerenCILCO.
Borrowings by Illinois Power under the Utility Money Pool have been approved by
the ICC (see Item 4 below) and therefore will be exempt pursuant to Rule
52(a)./23/
c. Interest Rate Hedging Transactions. To the extent not exempt under
Rule 52(a), Illinois Power requests authorization to enter into interest rate
hedging transactions with respect to outstanding long-term and short-term
indebtedness ("Interest Rate Hedges"), subject to certain limitations and
restrictions, in order to reduce or manage its effective interest rate cost.
----------
21 The authorization period under the February 27, 2003 order extends through
March 31, 2006.
22 Borrowings by AmerenCIPS and AmerenCILCO under the Utility Money
Pool have been approved by ICC and are therefore exempt under Rule 52(a).
Borrowings by Ameren Services are exempt under Rule 52(b).
23 The ICC has authorized Illinois Power to make borrowings under the
Utility Money Pool and direct short-term borrowings from Ameren in an aggregate
amount at any time outstanding not to exceed $500 million. (See Exhibit D-2.)
Under the ICC order, Illinois Power's authority to make loans to the Utility
Money Pool is subject to certain limitations, as discussed in Item 4.1 below.
17
Illinois Power would employ interest rate derivatives as a means of prudently
managing the risk associated with any of its outstanding debt issued pursuant to
this authorization or an applicable exemption by, in effect, synthetically (i)
converting variable rate debt to fixed rate debt, (ii) converting fixed rate
debt to variable rate debt, and (iii) limiting the impact of changes in interest
rates resulting from variable rate debt. In no case will the notional principal
amount of any interest rate swap exceed the face value of the underlying debt
instrument and related interest rate exposure. Transactions will be entered into
for a fixed or determinable period. Thus, Illinois Power will not engage in
speculative transactions. Interest Rate Hedges (other than exchange-traded
interest rate futures contracts) would only be entered into with counterparties
("Approved Counterparties") whose senior debt ratings, or the senior debt
ratings of any credit support providers who have guaranteed the obligations of
such counterparties, as published by S&P, are equal to or greater than BBB, or
an equivalent rating from Moody's or Fitch, Inc.
Interest Rate Hedges will involve the use of financial instruments commonly
used in today's capital markets, such as exchange-traded interest rate futures
contracts and over-the-counter interest rate swaps, caps, collars, floors,
swaptions and structured notes (i.e., a debt instrument in which the principal
and/or interest payments are indirectly linked to the value of an underlying
asset or index), or transactions involving the purchase or sale, including short
sales, of U.S. Treasury or U.S. governmental (e.g., Fannie Mae) obligations, or
LIBOR-based swap instruments. Fees, commissions and other amounts payable to the
counterparty or exchange (excluding, however, the swap or option payments) in
connection with an Interest Rate Hedge will not exceed those generally
obtainable in competitive markets for parties of comparable credit quality.
In addition, Illinois Power requests authorization to enter into interest
rate hedging transactions with respect to anticipated debt offerings (the
"Anticipatory Hedges"), subject to certain limitations and restrictions. Such
Anticipatory Hedges (other than exchange-traded interest rate futures contracts)
would only be entered into with Approved Counterparties, and would be utilized
to fix the interest rate and/or limit the interest rate risk associated with any
new issuance through (i) a forward sale of exchange-traded U.S. Treasury futures
contracts, U.S. Treasury securities and/or a forward swap (each a "Forward
Sale"), (ii) the purchase of put options on U.S. Treasury securities (a "Put
Options Purchase"), (iii) a Put Options Purchase in combination with the sale of
call options on U.S. Treasury securities (a "Zero Cost Collar"), (iv)
transactions involving the purchase or sale, including short sales, of U.S.
Treasury securities, or (v) some combination of a Forward Sale, Put Options
Purchase, Zero Cost Collar and/or other derivative or cash transactions,
including, but not limited to, structured notes, caps and collars, appropriate
for the Anticipatory Hedges. Anticipatory Hedges may be executed on-exchange
("On-Exchange Trades") with brokers through the opening of futures and/or
options positions traded on the Chicago Board of Trade or other financial
exchange, the opening of over-the-counter positions with one or more
counterparties ("Off-Exchange Trades"), or a combination of On-Exchange Trades
and Off-Exchange Trades. Illinois Power will determine the optimal structure of
each Anticipatory Hedge transaction at the time of execution.
Each Interest Rate Hedge and Anticipatory Hedge will qualify for hedge
accounting treatment under the current Financial Accounting Standards Board
("FASB") guidelines in effect and as determined at the time entered into.
18
Further, Illinois Power will comply with the Statement of Financial Accounting
Standards ("SFAS") 133 ("Accounting for Derivatives Instruments and Hedging
Activities") and SFAS 138 ("Accounting for Certain Derivative Instruments and
Certain Hedging Activities") or other standards relating to accounting for
derivative transactions as are adopted and implemented by the FASB./24/
1.10 Organization and Acquisition of Financing Subsidiaries.
In connection with the issuance of long-term debt and preferred securities,
Illinois Power requests authorization to acquire, directly or indirectly, the
common stock or other equity securities of one or more entities (each a
"Financing Subsidiary") formed exclusively for the purpose of facilitating the
issuance of such long-term debt and/or preferred securities and for the loan or
other transfer of the proceeds thereof to Illinois Power. In connection with any
such financing transactions, Illinois Power may enter into one or more
guarantees or other credit support agreements in favor of its Financing
Subsidiary./25/ Illinois Power also requests authorization to enter into an
expense agreement with any Financing Subsidiary, pursuant to which it would
agree to pay all expenses of such Financing Subsidiary.
Any Financing Subsidiary organized pursuant to the authority granted by the
Commission in this proceeding shall be organized only if, in management's
opinion, the creation and utilization of such Financing Subsidiary will likely
result in tax efficiencies, increased access to capital markets and/or lower
cost of capital for Illinois Power. No Financing Subsidiary shall acquire or
dispose of, directly or indirectly, any interest in any "utility asset," as that
term is defined under the Act.
Illinois Power also requests authorization to issue to any Financing
Subsidiary, at any time or from time to time in one or more series, unsecured
debentures, unsecured promissory notes or other unsecured debt instruments
(individually, a "Note" and, collectively, the "Notes") governed by an indenture
or indentures or other documents, and the Financing Subsidiary will apply the
proceeds of any external financing by such Financing Subsidiary plus the amount
of any equity contribution made to it from time to time to purchase the Notes.
The terms (e.g., interest rate, maturity, amortization, prepayment terms,
default provisions, etc.) of any such Notes would generally be designed to
parallel the terms of the securities issued by the Financing Subsidiary to which
the Notes relate./26/
----------
24 The authority sought for interest rate hedging transactions in this
Application/Declaration is identical to the authorization previously granted to
AmerenUE and AmerenCIPS in File No. 70-10106 by order dated February 27, 2003
(Holding Co. Act Release No. 27655) and to AmerenCILCO under the CILCORP Order,
supra n. 6.
25 Guarantees or other credit support provided by Illinois Power with
respect to securities issued by any Financing Subsidiary will be exempt under
Rules 52(a) and 45(b)(7) if the conditions of such rules are satisfied.
26 "Mirror image" Notes issued by Illinois Power to any Financing
Subsidiary will be exempt under Rule 52(a) if the conditions of Rule 52(a) are
satisfied.
19
In cases where it is necessary or desirable to ensure legal separation for
purposes of isolating a Financing Subsidiary from its parent for bankruptcy
purposes, the ratings agencies may require that any expense agreement whereby
the parent provides services related to the financing to the Financing
Subsidiary be at a price, not to exceed a market price, consistent with similar
services for parties with comparable credit quality and terms entered into by
other companies so that a successor service provider could assume the duties of
the parent in the event of the bankruptcy of the parent without interruption or
an increase of fees. Therefore, Illinois Power requests approval under Section
13(b) of the Act and Rules 87 and 90 to provide the services described in this
paragraph at a fee not to exceed a market price but only for so long as such
expense agreement established by the Financing Subsidiary is in place./27/
1.11 Accounting Treatment for the Transaction; Impact on Rates.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
141, "Business Combinations," Ameren will use the purchase method of accounting
for the Transaction. Under this method of accounting, the total cost of
acquiring Illinois Power will be assigned to the tangible and identifiable
intangible assets acquired and liabilities assumed in the Transaction on the
basis of their fair values on the date of the acquisition. Any premium (i.e.,
the excess of the cost over the fair values of the net assets acquired) will be
recorded as goodwill./28/ In this case, Ameren intends to "push down" the
purchase accounting and establish a new basis of accounting for the stand-alone
financial statements of Illinois Power./29/ It is expected that, for accounting
purposes, the goodwill recorded on Illinois Power's books as a result of the
Transaction will generally remain unchanged, but it will be reviewed for
potential impairment on a regular basis in accordance with SFAS No. 141 and SFAS
No. 142 , "Goodwill and Other Intangible Assets."
In its September 22, 2004 order (Exh. D-2 hereto), the ICC approved the
Transaction, subject to the condition that Illinois Power will reverse the
effects of push-down accounting for ratemaking purposes, and will not reflect
push-down adjustments for debt or preferred stock in its annual reports to the
----------
27 The Commission has previously granted exemptions under Section
13(b) in these circumstances. See e.g., Exelon Corporation, et al., Holding Co.
Act Release No. 27830 (Apr. 1, 2004).
28 Ameren estimates that the total cost of acquiring Illinois Power
will be approximately $2.36 billion, consisting of the portion of the Purchase
Price allocated to the Common Shares and the Preferred Shares ($2.175 billion),
stock issuance costs of approximately $35 million, transaction costs of
approximately $25 million, integration costs of approximately $10 million,
severance costs of approximately $9 million, and debt redemption premiums of
approximately $100 million.
29 Staff Accounting Bulletin (SAB) Topic 5-J does not require Ameren
to "push down" the purchase accounting to Illinois Power since Illinois Power
has substantial amounts of publicly-held debt. Nevertheless, if the purchase
accounting is not "pushed-down" to Illinois Power, the accounting adjustments
required in connection with the elimination of the Intercompany Note, as
described in Item 1.4 above, would leave Illinois Power with negative retained
earnings, a result that is not acceptable to Ameren since it would impair
Illinois Power's ability to pay dividends.
20
ICC. Illinois Power will reflect the reversal of the impact of the push-down
accounting in Account 114 (Plant Acquisition Adjustments) for all Illinois
regulatory purposes. The ICC also authorized Ameren to reflect up to $67 million
of the costs of accomplishing the reorganization of Illinois Power on Illinois
Power's books, as a regulatory asset, to be amortized ratably over the period
2007 - 2010.
1.12 Reports Pursuant to Rule 24.
Ameren will file certificates of notification pursuant to Rule 24 within 10
days following closing of the Transaction. In addition, Ameren and Illinois
Power propose to file certificates of notification pursuant to Rule 24 that
report each of the financing transactions carried out in accordance with the
terms and conditions of and for the purposes represented in Items 1.9 and 1.10
of this Application/Declaration. Such certificates of notification would be
filed within 60 days after the end of each of the first three calendar quarters,
and 90 days after the end of the last calendar quarter, in which transactions
occur. The Rule 24 certificates will contain the following information for the
reporting period:
(a) the principal amount, type (e.g., commercial paper, bank notes, etc.)
and material terms (e.g., interest rate and maturity) of any short-term debt
securities issued by Illinois Power to lenders other than Ameren and the
principal amount outstanding at the end of the reporting period;
(b) the principal amount and material terms (e.g., interest rate and
maturity) of any short-term note issued by Illinois Power to Ameren;/30/
(c) the notional amount and principal terms of any Interest Rate Hedge or
Anticipatory Hedge entered into by Illinois Power during the quarter and the
identity of the parties to such instruments (or the exchange in the case of an
exchange-traded futures contract) which also shall separately show the
outstanding amount of Interest Rate Hedges or Anticipatory Hedges at the end of
the reporting period;
(d) with respect to each Financing Subsidiary that has been formed, a
representation that the financial statements of Illinois Power shall account for
the Financing Subsidiary in accordance with generally accepted accounting
principles and further, with respect to each such entity, (i) the name of the
Financing Subsidiary, (ii) the amount invested by Illinois Power in such
Financing Subsidiary; and (iii) the amount and terms of any securities issued by
any Financing Subsidiary during the reporting period which shall also separately
show the outstanding balance of all securities issued by such Financing
Subsidiaries during the Authorization Period;
(e) if any Financing Subsidiaries are "Variable Interest Entities"
("VIEs"), as that term is used in FASB Interpretation 46R, "Consolidation of
Variable Interest Entities," a description of any financing transactions
conducted during the reporting period that were used to fund such VIEs, and, if
----------
30 For convenience, it is proposed to combine information on borrowing
and lending activity by Illinois Power under the Utility Money Pool with the
information on such activity provided for Ameren's other utility subsidiaries in
reports under Rule 24 filed in File No. 70-10106.
21
any financing proceeds are used for VIEs, a description of the accounting for
such transaction under FASB Interpretation 46R; and
(f) the consolidated balance sheet of Illinois Power as of the end of the
calendar quarter, which may be incorporated by reference to annual, quarterly
and other reports filed by Illinois Power under the Securities Act of 1933 or
Securities Exchange Act of 1934.
ITEM 2. FEES, COMMISSIONS AND EXPENSES.
It is estimated that the fees, commissions and expenses paid or incurred,
or to be paid or incurred, directly or indirectly, by Ameren in connection with
the Transaction will not exceed $25 million, assuming that the Transaction
closes, as follows:
Investment bankers fees and expenses.................................$15,000,000
Consultants fees and expenses.........................................$2,000,000
Accountants fees......................................................$2,000,000
Legal fees and expenses...............................................$5,000,000
Other.................................................................$1,000,000
----------
TOTAL....................................................$25,000,000
Total fees, commissions and expenses incurred or to be incurred by Illinois
Power in connection with the issuance of short-term debt securities to any
non-associate company, including dealer discounts, commitment fees, compensating
balances, fees for obtaining letters of credit, rating agency fees, and other
fees and costs customarily incurred in connection with the issuance of such
securities or obtaining third-party credit support, will not exceed 6% of the
amount of any specific financing transaction./31/
ITEM 3 APPLICABLE STATUTORY PROVISIONS.
3.1 General Overview of Applicable Statutory Provisions. The following
sections of the Act and the Commission's rules thereunder are or may be directly
or indirectly applicable to the proposed Transaction and related transactions:
APPLICABLE SECTIONS OF THE ACT AND RULES. DESCRIPTION OF TRANSACTION.
Sections 6(a), 7, 9(a), 10, 12(b) Issuance of short-term debt
and 12(f); Rules 45 and 52(a) securities by Illinois Power to
Ameren and to unaffiliated lenders
and borrowings pursuant to Utility
Money Pool
----------
31 This is the same limitation on fees, commissions and expenses
approved by the Commission under the 2004 Financing Order, supra n. 17, in
connection the issuance of equity and debt securities by Ameren.
22
Sections 8, 9(a), 10, and 11(b)(1); Acquisition by Ameren of Common
Rule 51 Shares and Preferred Shares of
Illinois Power
Sections 9(a), 10 and 12(b) Acquisition of common stock or other
equity securities of Financing
Subsidiaries by Illinois Power;
acquisition of outstanding senior
securities of Illinois Power by
Ameren and contribution thereof to
Illinois Power
Sections 8 and 11(b)(1) Retention by Ameren of the gas
utility properties of Illinois
Power as part of additional public
utility system; retention of
non-utility subsidiaries and
investments of Illinois Power
Section 13(b); Rules 87, 90 - 91 Approval of the services to be
provided at cost by Ameren Fuel to
Illinois Power; and exemption from
at cost standard for any services
provided by Illinois Power to
any Financing Subsidiary
Section 32(h); Rule 54 Generally applicable to all of the
above transactions.
As set forth more fully below, the Transaction complies with all of the
applicable provisions of Section 10 of the Act and should be approved by the
Commission. Specifically, the Commission should find that:
o the consideration to be paid in the Transaction is fair and
reasonable;
o the Transaction will not create detrimental interlocking relations or
concentration of control;
o the Transaction will not result in an unduly complicated capital
structure for the Ameren system;
o the Transaction is in the public interest and the interests of
investors and consumers;
o the Transaction is consistent with Section 8 of the Act and not
detrimental to carrying out the provisions of Section 11;
o the Transaction will tend toward the economical and efficient
development of an integrated electric utility system; and
o the Transaction will comply with all applicable state laws.
23
3.2 Compliance with Section 10(b).
Section 10(b) provides that, if the requirements of Section 10(f) are
satisfied, the Commission shall approve an acquisition under Section 9(a) unless
the Commission finds that:
(1) such acquisition will tend towards interlocking relations or the
concentration of control of public-utility companies, of a kind or to
an extent detrimental to the public interest or the interests of
investors or consumers;
(2) in case of the acquisition of securities or utility assets, the
consideration, including all fees, commissions, and other
remuneration, to whomsoever paid, to be given, directly or indirectly,
in connection with such acquisition is not reasonable or does not bear
a fair relation to the sums invested in or the earning capacity of the
utility assets to be acquired or the utility assets underlying the
securities to be acquired; or
(3) such acquisition will unduly complicate the capital structure of the
holding-company system of the applicant or will be detrimental to the
public interest or the interests of investors or consumers or the
proper functioning of such holding-company system.
a. Section 10(b)(1).
The standards of Section 10(b)(1) are satisfied because the proposed
Transaction will not "tend towards interlocking relations or the concentration
of control of public-utility companies, of a kind or to an extent detrimental to
the public interest or the interests of investors or consumers." By its nature,
any merger results in new links between previously unrelated companies. The
Commission has recognized, however, that such interlocking relationships are
permissible in the interest of efficiencies and economies. See Northeast
Utilities, 50 S.E.C. 427, 443 (1990) ("Northeast Utilities"), as modified, 50
S.E.C. 511 (1991), aff'd sub nom. City of Holyoke v. SEC, 972 F.2d 358 (D.C.
Cir. 1992) (finding that interlocking relationships are necessary to integrate
the two merging entities). The links that will be established as a result of the
Transaction are not the types of interlocking relationships targeted by Section
10(b)(1), which was primarily aimed at preventing utility mergers unrelated to
operating economies./32/ As described elsewhere in this Application/Declaration,
the Transaction will achieve various operating synergies. Among other things,
Illinois Power will enter into contractual arrangements with other Ameren system
companies under which various administrative and management services will be
provided. Because substantial benefits will accrue to the public, investors and
consumers from the affiliation of Ameren and Illinois Power, whatever
interlocking relationships may arise from the combination are not detrimental.
----------
32 See Section 1(b)(4) of the Act (finding that the public interest and
interests of consumers and investors are adversely affected "when the growth and
extension of holding companies bears no relation to the economy of management
and operation or the integration and coordination of related operating
properties . . ..").
24
In applying Section 10(b)(1) to a utility acquisition, the Commission must
further determine whether such acquisition will result in "the type of
structures and combinations at which the Act was specifically directed." Vermont
Yankee Nuclear Power Corp., 43 S.E.C. 693, 700 (1968). The Transaction will not
create a "huge, complex and irrational system" but, rather, will afford the
opportunity to achieve economies of scale and efficiencies for the benefit of
investors and consumers. See American Electric Power Company, Inc., 46 S.E.C.
1299, 1307 (1978) ("AEP"). The Transaction will combine the strengths of the
companies, enabling them to offer customers a broader array of energy products
and services more efficiently and cost-effectively than either could alone, and
at the same time create a larger and more diverse asset and customer base with
enhanced opportunities for operating efficiencies and risk diversification.
Illinois Power serves approximately 600,000 retail electric customers and
approximately 415,000 retail gas customers. If the Transaction is approved, the
Ameren system will serve approximately 2.3 million electric customers and
approximately 915,000 retail gas customers in parts of Missouri and Illinois. On
a pro forma basis, as of June 30, 2004, Ameren will have consolidated assets of
about $17.4 billion, including net utility plant of approximately $13 billion.
For the twelve months ended December 31, 2003, pro forma operating revenues will
total approximately $6.1 billion.
The following table compares Ameren after the Transaction to other
registered holding company systems that compete with Ameren in the midwest and
central U.S. power markets in terms of total assets, operating revenues and
electric and (where applicable) retail gas customers (total assets of Ameren as
of June 30, 2004, all other data as of and for the year ended December 31,
2003):
Utility Customers -
System Total Assets Operating Revenues Electric (E)/Gas (G)
------ ------------ ------------------ --------------------
Exelon Corp. $41,941,000,000 $15,812,000,000 E - 5.1 million
G - .46 million
American $36,744,000,000 $14,545,000,000 E - 5.0 million
Electric Power
Co.
FirstEnergy $32,910,000,000 $12,307,000,000 E - 4.4 million
Entergy Corp. $28,554,000,000 $ 9,195,000,000 E - 2.6 million
G - .24 million
Xcel Corp. $20,205,000,000 $ 7,938,000,000 E - 3.2 million
G - 1.7 million
Cinergy Corp. $14,119,000,000 $ 4,416,000,000 E - 1.5 million
G - .5 million
25
Ameren (pro $17,415,000,000 $ 6,108,000,000 E - 2.3 million
forma) G - .92 million
As the foregoing table shows, following the acquisition of Illinois Power,
the Ameren system will be substantially smaller than Exelon Corporation
("Exelon"), which is the largest utility, by far, in Illinois, as well as
American Electric Power Company, Xcel Corp., FirstEnergy and Entergy Corp.,
which operate in contiguous regions. In any case, the Commission has rejected an
interpretation of Section 10(b)(1) that would impose per se limits on the
post-merger size of a registered holding company. Instead, the Commission
assesses the size of the resulting system with reference to the economic
efficiencies that can be achieved through the integration and coordination of
utility operations. In AEP, the Commission noted that, although the framers of
the Act were concerned about "the evils of bigness, they were also aware that
the combination of isolated local utilities into an integrated system afforded
opportunities for economies of scale, the elimination of duplicate facilities
and activities, the sharing of production capacity and reserves and generally
more efficient operations... [and] [t]hey wished to preserve these
opportunities." AEP, 46 S.E.C. at 1309. By virtue of the Transaction, Ameren
will be in a position to realize precisely these types of benefits. Among other
things, the Transaction is expected to yield operating cost savings, corporate
and administrative savings and purchasing savings, among others. These expected
economies and efficiencies from the combined utility operations are described in
greater detail in Item 3.3 below.
Finally, Section 10(b)(1) also requires the Commission to consider possible
anticompetitive effects of a proposed combination. See Municipal Electric
Association of Massachusetts v. SEC, 413 F.2d 1052 (D.C. Cir. 1969). As the
Commission noted in Northeast Utilities, the "antitrust ramifications of an
acquisition must be considered in light of the fact that public utilities are
regulated monopolies and that federal and state administrative agencies regulate
the rates charged to customers." Northeast Utilities, 50 S.E.C. at 445 (citing
AEP, 46 S.E.C. at 1324 - 25). In this case, Ameren and Dynegy have filed
Notification and Report Forms with the Department of Justice ("DOJ") and the
Federal Trade Commission ("FTC") pursuant to the HSR Act describing the effects
of the Transaction on competition in the relevant market, and the statutory
waiting period has expired.
The competitive impact of the Transaction on wholesale power markets was
also considered by the FERC in light of the criteria set forth in FERC's Order
No. 592 (hereinafter, the "Merger Policy Statement")/33/ and Order No. 642./34/
Specifically, the FERC considered the effects of combining Ameren's and Illinois
Power's generation assets (horizontal market power), the effects of combining
generation and transmission assets (one aspect of vertical market power), and
----------
33 See Inquiry Concerning Merger Policy under the Federal Power Act: Policy
Statement, Order No. 592, FERC Stats. & Regs. [Regs. Preambles 1996 - 2000] P.
31,044 (1996), reconsideration denied, Order No. 592-A, 79 FERC P. 61,321 (1997)
(codified at 18 C.F.R. ss. 2.26).
34 See Revised Filing Requirements Under Part 33 of the Commission's
Regulations, Order No. 642, FERC Stats. & Regs. [Regs. Preambles July 1996 -
December 2000] P. 31,111 (2000), reh'g denied, Order No. 642-A, 94 FERC P.
61,289 (2001).
26
the effects of combining electric and natural gas assets. On July 29, 2004, the
FERC approved the Transaction, finding that, as conditioned on Illinois Power
joining the MISO prior to closing and Ameren selling 125 MW of power produced by
EEInc's Joppa plant to non-affiliates, the Transaction will not harm
competition. (See Item 4 and Exhibit D-4 hereto.) The Commission has found, and
the courts have agreed, that it may appropriately rely upon the FERC with
respect to such matters. See City of Holyoke v. SEC, 972 F.2d at 363-64, quoting
Wisconsin's Environmental Decade v. SEC, 882 F.2d 523, 527 (D.C. Cir. 1989).
The ICC also considered the effect of the Transaction on competition in
Illinois. In its September 22, 2004 order approving the Transaction (Exh. D-2
hereto), the ICC found that the Transaction is not likely to have a significant
adverse effect on competition in those markets over which the ICC has
jurisdiction, which finding was conditioned on Ameren's commitment to increase,
via transmission projects or upgrades, competitive access into AmerenCIPS'
delivery market by 300 MW and into Illinois Power's delivery market by 200 MW.
Pending completion of such projects or upgrades, Ameren will continue its power
sales offer to unaffiliated entities from the 125 MW share of EEInc's Joppa
plant to be acquired from Dynegy.
b. Section 10(b)(2).
Section 10(b)(2) of the Act precludes approval of an acquisition if
the consideration to be paid in connection with the transaction, including all
fees, commissions and other remuneration, is "not reasonable or does not bear a
fair relation to the sums invested in or the earning capacity of the utility
assets to be acquired or the utility assets underlying the securities to be
acquired." The Commission has found "persuasive evidence" that the standards of
Section 10(b)(2) are satisfied where, as here, the agreed consideration for an
acquisition is the result of arms-length negotiations between the managements of
the companies involved, supported by an opinion of a financial advisor. See
Entergy Corp., 51 S.E.C. 869 at 879 (1993); Southern Company, Holding Co. Act
Release No. 24579 (Feb. 12, 1988).
There is no basis for the Commission to question the fairness of the
consideration to be paid to Dynegy for Illinois Power's common stock. Dynegy
solicited and received non-binding expressions of interest for the purchase of
Illinois Power from several potential purchasers, including Ameren. After
evaluating these expressions of interest, Dynegy and Exelon entered into a
purchase agreement on October 31, 2003, pursuant to which Exelon, through a new
subsidiary, agreed to acquire substantially all of Illinois Power's assets and
liabilities. That agreement was terminated by the parties on November 22, 2003,
and, on December 5, 2003, Dynegy and Ameren announced that they were engaged in
exclusive discussions regarding the sale of Illinois Power to Ameren. The
Original Agreement was entered into on February 2, 2004, following intense
negotiations between the parties, in which each was assisted by a financial
advisor, and completion of substantial due diligence by Ameren.
There is also no basis for the Commission to conclude that the
consideration to be paid for Illinois Power does not bear a fair relation to the
earning capacity of Illinois Power's utility assets. In this case, Ameren
requested its financial advisor, Goldman, Sachs & Co. ("Goldman Sachs"), to
provide an opinion as to the fairness from a financial point of view to Ameren
27
of the consideration to be paid for Illinois Power (as well as for IGC's 20%
interest in EEInc). On February 2, 2004, Goldman Sachs provided its opinion
addressed to the Board of Directors of Ameren to the effect that, as of that
date and based upon and subject to the matters and assumptions set forth
therein, the Aggregate Purchase Price (as defined in the opinion) to be paid by
Ameren for Illinois Power (and for IGC's 20% interest in EEInc) pursuant to the
relevant agreements "is fair from a financial point of view to [Ameren]."
Goldman Sachs' fairness opinion is filed herewith as Exhibit J.
Another consideration under Section 10(b)(2) is the overall fees,
commissions and expenses to be incurred in connection with the Transaction.
Ameren believes that the Transaction costs are reasonable and fair in light of
the size and complexity of the proposed Transaction, and that the anticipated
benefits of the Transaction to the public, investors and consumers are
consistent with recent precedents and meet the standards of Section 10(b)(2).
The total estimated fees and expenses of the Transaction paid or incurred by
Ameren, approximately $25 million (see Item 2 - Fees, Commissions and Expenses),
are less than 1% of the Purchase Price. This is consistent with (and in fact
generally lower than) percentages previously approved by the Commission. See,
e.g., Entergy Corp., 51 S.E.C. at 881, n. 63 (fees and expenses of $38 million,
representing approximately 2% of the value of the consideration paid to the
shareholders of Gulf States Utilities); Northeast Utilities, Holding Co. Act
Release No. 25548 (June 3, 1992) (fees and expenses of approximately 2% of the
value of the assets to be acquired); and American Electric Power Company, Inc.,
et al., Holding Company Act Release No. 27186 (June 14, 2000), n. 40 (total
fees, commissions and expenses of approximately $72.7 million, representing 1.1%
of the value of the total consideration paid by American Electric Power to the
shareholders of Central and South West Corp.).
c. Section 10(b)(3).
Section 10(b)(3) requires the Commission to determine whether the
Transaction will "unduly complicate the capital structure" or be "detrimental to
the public interest or the interest of investors or consumers or the proper
functioning" of the Ameren system.
The capital structure of the Ameren system will not change materially as a
result of the Transaction. In the Transaction, Ameren will acquire 100% of the
issued and outstanding common stock of Illinois Power. Hence, the Transaction
will not create any publicly-held minority stock interest in the voting
securities of any public utility company. The outstanding debt securities and
preferred stock of Illinois Power will also remain as outstanding obligations of
Illinois Power and will not be recourse to Ameren or any other company in the
Ameren system.
Set forth below are summaries of the capital structures of Ameren and
Illinois Power as of June 30, 2004, and the pro forma consolidated capital
structure of Ameren, assuming the Transaction had been consummated on June 30,
2004, and reflecting various pro forma adjustments (including, among others,
elimination of the Intercompany Note, Ameren's issuance of 10.9 million shares
of common stock in July 2004, and Illinois Power's termination of a $77 million
28
capital lease, also in July 2004) which are set forth in the Notes to the
unaudited pro forma financial statements filed herewith as Exhibit FS-3
hereto):
Ameren and Illinois Power Historical Consolidated Capital Structures
Ameren Illinois Power
------ --------------
Common stock equity $5,238,000,000 53.4% $1,545,000,000 44.4%
Preferred securities $ 182,000,000 1.8% $ 46,000,000 1.3%
Long-term debt * $4,072,000,000 41.5% $1,668,000,000 48.0%
Short-term debt ** $ 326,000,000 3.3% $ 220,000,000 6.3%
-------------- ------- -------------- -------
Total $9,818,000,000 100.0% $3,479,000,000 100.0%
Ameren Pro Forma Consolidated Capital Structure
(dollars in millions) (unaudited)
Common stock equity $ 5,669,000,000 46.4%
Preferred securities $ 228,000,000 1.9%
Long-term debt $ 5,840,000,000 47.9%
Short-term debt $ 469,000,000 3.8%
---------------- -----
Total $12,206,000,0000 100.0%
* Includes mandatorily redeemable preferred stock. Also, in the case of
Illinois Power, includes $302,000,000 of transitional funding trust notes
issued by IPSPT.
** In the case of Illinois Power, includes $72,000,000 of transitional
funding trust notes issued by IPSPT.
As the foregoing shows, Ameren's pro forma consolidated common equity to
total capitalization ratio of 46.4% will comfortably exceed the "traditionally
acceptable 30% level." See Northeast Utilities, 50 S.E.C. at 440, n. 47. As a
result of the Transaction and related recapitalization of Illinois Power, the
Intercompany Note will be retired and approximately $1 billion of accumulated
deferred income taxes will be removed from Illinois Power's balance sheet.
Ameren has made a commitment to increase common equity as a percentage of
29
Illinois Power's total capitalization (including short-term debt) to 50-60% by
December 31, 2006./35/ The Transaction will have no effect on the capitalization
of AmerenUE, AmerenCIPS, AmerenCILCO, or AERG, Ameren's other public-utility
subsidiaries. Common equity as a percentage of capitalization of each of these
companies is and will remain well over 30%.
Section 10(b)(3) also requires the Commission to determine whether the
proposed combination will be detrimental to the public interest, the interests
of investors or consumers or the proper functioning of the combined Ameren
system. The proposed combination of Ameren and Illinois Power is entirely
consistent with the proper functioning of a registered holding company system.
Ameren's and Illinois Power's electric utility operations are contiguous and
interconnected and will be operated as a single interconnected and coordinated
system following the Transaction. Likewise, Ameren's existing gas utility
operations and Illinois Power's gas operations, which serve adjoining areas of
Illinois and Missouri, will be coordinated following the Transaction.
The Transaction will result in substantial, and otherwise unavailable,
savings and benefits to the public and to consumers and investors of both
companies. Moreover, the Transaction must be approved by both the ICC and the
FERC, which ensures that the interests of customers will be adequately
protected. Among other things, both of those agencies will review the proposed
Transaction for its possible adverse effects on competition in relevant markets.
For these reasons, Ameren believes that the Transaction will be in the public
interest and the interest of investors and consumers and will not be detrimental
to the proper functioning of the resulting holding company system.
3.3 Section 10(c).
Section 10(c) of the Act provides that, notwithstanding the provisions
of Section 10(b), the Commission shall not approve:
(1) an acquisition of securities or utility assets, or of any other
interest, which is unlawful under the provisions of section 8 or is
detrimental to the carrying out of the provisions of section 11; or
(2) the acquisition of securities or utility assets of a public utility or
holding company unless the Commission finds that such acquisition will
serve the public interest by tending towards the economical and the
efficient development of an integrated public utility system.
----------
35 Assuming that the Transaction had closed on June 30, 2004 and that the
recapitalization of Illinois Power, as described above in Item 1.5, was also
completed as of June 30, 2004, common equity would represent about 51% of
Illinois Power's consolidated capitalization. See pro forma financial statements
of Illinois Power filed confidentially pursuant to Rule 104 as Exhibit FS-6
hereto. The $750 million debt reduction assumed in these pro forma statements
may not be completed until December 2006.
30
a. Section 10(c)(1).
(a) The Transaction will be lawful under Section 8.
Section 10(c)(1) first requires that the Transaction be lawful
under Section 8. That section was intended to prevent holding companies, by the
use of separate subsidiaries, from circumventing state restrictions on common
ownership of gas and electric operations. The Transaction will not result in any
new situation of common ownership of so-called "combination" systems within a
given state. Illinois Power already provides electric and gas service in
overlapping areas of Illinois. Moreover, the ICC has jurisdiction over the
Transaction. Accordingly, the Transaction does not raise any issue under Section
8.
(b) The Transaction will not be detrimental to carrying out the
provisions of Section 11.
Section 10(c)(1) also requires that the Transaction not
be "detrimental to the carrying out of the provisions of section 11." Section
11(b)(1), in turn, directs the Commission generally to limit a registered
holding company "to a single integrated public-utility system," either electric
or gas. An exception to this requirement, as discussed below, is provided in
Section 11(b)(1)(A) - (C) (the "ABC clauses"), which permits a registered
holding company to retain one or more additional (i.e., secondary) integrated
public-utility systems if the system satisfies the criteria of the ABC clauses.
In the 1997 Merger Order, the Commission determined that Ameren's primary
system, comprised of the electric utility facilities of AmerenUE and AmerenCIPS,
constitutes an integrated electric utility system; and that the gas utility
properties of AmerenUE and AmerenCIPS together constitute an integrated gas
utility system that is retainable under the standards of the ABC clauses.
Likewise, in the CILCORP Order, the Commission determined that AmerenCILCO's
electric utility assets and Ameren's primary electric utility system together
comprises an integrated electric utility system, and that AmerenCILCO's gas
utility properties, when added to Ameren's existing gas utility system,
constitutes an integrated gas utility system that is retainable under the
standards of the ABC clauses. At issue in this proceeding is whether Ameren's
acquisition of Illinois Power, which also operates as both an electric and gas
utility in substantially the same areas of Illinois, will result in a system
that is "detrimental to the carrying out of the provisions of section 11."
As explained more fully below, the combination of the electric utility
operations of AmerenUE, AmerenCIPS, AmerenCILCO (including the generating assets
of AmerenCILCO now held by AERG) and Illinois Power will result in a single,
integrated electric utility system. In addition, the combination of Illinois
Power's gas utility properties with those of AmerenUE, AmerenCIPS and
AmerenCILCO will comprise an integrated gas utility system that may be retained
by Ameren as an additional system under the ABC clauses of Section 11(b)(1).
These standards are addressed below.
31
(i) Integration of Electric Operations.
The threshold question is whether the electric utility properties
of Illinois Power can be combined with those of AmerenUE, AmerenCIPS,
AmerenCILCO and AERG to form a single "integrated public-utility system," which,
as applied to electric utility companies, is defined in Section 2(a)(29)(A) to
mean:
a system consisting of one or more units of generating plants and/or
transmission lines and/or distributing facilities, whose utility assets,
whether owned by one or more electric utility companies, are physically
interconnected or capable of physical interconnection and which under
normal conditions may be economically operated as a single interconnected
and coordinated system confined in its operations to a single area or
region, in one or more States, not so large as to impair (considering the
state of the art and the area or region affected) the advantages of
localized management, efficient operation, and the effectiveness of
regulation.
Reading the statutory definition closely, there are four distinct and
separate components of integration, as applied to an electric system: physical
interconnection; coordination; limitation to a single area or region; and no
impairment of localized management, efficient operation, and the effectiveness
of regulation. See National Rural Electric Cooperative Association v. Securities
and Exchange Commission, 276 F.3d 609 at 611 (D.C. Cir. 2002). The Transaction
satisfies each of these tests.
A. Interconnection...The first requirement for an integrated
electric utility system is that the electric generation and/or transmission
and/or distribution facilities comprising the system be "physically
interconnected or capable of physical interconnection." As previously noted, the
electric service areas of AmerenUE, AmerenCIPS, AmerenCILCO and Illinois Power
in Illinois are adjacent and their facilities are physically interconnected at
numerous points (see Exhibit K). Under traditional analysis, this fact alone
satisfies the interconnection requirement. See e.g., Energy East, et al.,
Holding Company Act Release No. 27546 (June 27, 2002).
B. Coordination. Historically, the Commission has
interpreted the requirement that an integrated electric system be economically
operated under normal conditions as a single interconnected and coordinated
system "to refer to the physical operation of utility assets as a system in
which, among other things, the generation and/or flow of current within the
system may be centrally controlled and allocated as need or economy directs."
See, e.g., Conectiv, Inc., Holding Co. Act Release No. 26832 (Feb. 25, 1998),
citing The North American Company, 11 S.E.C. 194, 242 (1942), aff'd, 133 F.2d
148 (2d Cir. 1943), aff'd on constitutional issues, 327 U.S. 686 (1946). The
Commission has noted that, through this standard, "Congress intended that the
utility properties be so connected and operated that there is coordination among
all parts, and that those parts bear an integral operating relationship to one
another." See Cities Service Co., 14 S.E.C. 28 at 55 (1943). Traditionally, the
most obvious indicia of "coordinated operations" was the ability to jointly
32
dispatch all system generating units automatically on an economic basis in order
to achieve the lowest overall cost of electricity. However, in recent cases, the
Commission has recognized that joint economic dispatch is not per se a
requirement for a finding of coordinated operations. See e.g., American Electric
Power Company, Inc., Holding Co. Act Release No. 27186 (June 14, 2000); Exelon
Corporation, Holding Co. Act Release No. 27256 (Oct. 19, 2000); and CP&L Energy,
Inc., Holding Co. Act Release No. 27284 (Nov. 27, 2000).
Since Illinois Power does not own any material generating assets, the
coordination of electric utility operations between Illinois Power and Ameren's
other utility subsidiaries will not be achieved through joint dispatch of
generating facilities. Notwithstanding, after the Transaction closes, there will
be a high degree of coordination in both energy supply and energy delivery
functions of the two companies. For example, the actual management and staffing
of many of the separate control area functions of Ameren and Illinois Power will
be centralized in Ameren Services' Energy Supply department, which will manage
the day-to-day operations of the combined transmission systems of AmerenUE,
AmerenCIPS, AmerenCILCO and Illinois Power. Ameren's and Illinois Power's
respective Energy Delivery groups will also be combined for reporting purposes
under a single manager within Ameren Services. The Energy Delivery groups will
jointly manage transmission and distribution construction, maintenance programs
and emergency restoration services, will have access to each other's electric
and gas training facilities, and will share certain existing information
systems. Illinois Power will also benefit from having greater access to
supplemental equipment and critical spare parts used in responding to emergency
conditions.
Finally, because AmerenUE, AmerenCIPS, AmerenCILCO and Illinois Power are
directly or indirectly, members of MISO, their transmission assets will be under
common day-to-day control and management. Thus, there will be a high degree of
coordination of their respective transmission facilities.
Under Section 2(a)(29)(A), the Commission must also find that the resulting
interconnected and coordinated system may be "economically operated." This calls
for a determination that coordinated operation of the combined company's
facilities is likely to produce economies and efficiencies. The question of
whether a combined system will be economically operated under Section 10(c)(2)
and Section 2(a)(29)(A) was recently addressed by the U.S. Court of Appeals in
Madison Gas and Electric Company v. SEC, 168 F.3d 1337 (D.C. Cir. 1999). In that
case, the court determined that in analyzing whether a system will be
economically coordinated, the focus must be on whether the acquisition "as a
whole" will "tend toward efficiency and economy." Id. at 1341. As discussed
below, the Transaction will meet this standard.
In short, all aspects of the combined system will be centrally directed and
efficiently planned and coordinated. As with other utility combinations approved
by the Commission, the combined system will be capable of being economically
operated as a single interconnected and coordinated system as demonstrated by
the variety of means through which its operations will be coordinated and the
efficiencies and economies expected to be realized by the proposed transaction.
33
C. Single Area or Region. As required by Section
2(a)(29)(A), the operations of Ameren following the Transaction will be confined
to a "single area or region in one or more States." The retail service area of
the Ameren system will continue to be confined to the two adjoining states
(Missouri and Illinois) in which Ameren already operates. Moreover, as
indicated, subject to receiving regulatory approvals, AmerenUE, AmerenCIPS,
AmerenCILCO and Illinois Power all intend to transfer functional control over
their transmission systems to the MISO.
D. Size. The final clause of Section 2(a)(29)(A) requires
the Commission to look to the size of the combined system (considering the state
of the art and the area or region affected) and its effect upon localized
management, efficient operation, and the effectiveness of regulation. In the
instant matter, these standards are easily met. The size of the Ameren electric
system will not impair the advantages of localized management, efficient
operation or the effectiveness of regulation. Instead, the proposed Transaction
will actually increase the efficiency of operations.
Localized Management -- Although Illinois Power will necessarily come under
new management as a result of the Transaction, it will continue to exist as a
separate legal entity and will continue to operate through regional offices with
local service centers and line crews available to respond to customers' needs.
This operational structure, which is similar to that currently in place at
AmerenUE, AmerenCIPS, and AmerenCILCO, will permit the local, district and
regional management teams of Illinois Power to budget for operation of the
electric distribution system and to schedule work forces in order to provide the
same (or better) quality of service to customers of Illinois Power.36 In short,
Illinois Power will continue to be managed on a day-to-day basis at a local
level, particularly in areas that must be responsive to local needs.
Accordingly, the advantages of localized management will not be impaired.
Efficient Operation -- As discussed below in the analysis of Section
10(c)(2), the Transaction will result in greater economies and efficiencies.
Operations will be more efficiently performed on a centralized basis because of
economies of scale, standardized operating and maintenance practices and closer
coordination of system-wide matters.
Effective Regulation -- The Transaction will not impair the effectiveness
of regulation at either the state or federal level. Illinois Power will continue
to be regulated by the ICC with respect to retail rates, service, securities
issuances and other matters, and by FERC with respect to interstate electric
sales for resale and transmission services.
----------
36 In the ICC application (Exh. D-1 hereto), Illinois Power and Ameren have
committed, among other things, to maintain Illinois Power's headquarters in
Decatur for at least five years after the Transaction closes and to limit
workforce reductions to not more than 25 employees for a period of four years
after closing, other than workforce reductions that occur through attrition and
voluntary separation programs.
34
(ii) Integration of Gas Operations.
The gas utility properties of Illinois Power, when added to those
owned by AmerenUE, AmerenCIPS, and AmerenCILCO, will form an "integrated
gas-utility system," which is defined in Section 2(a)(29)(B) to mean:
a system consisting of one or more gas utility companies which are so
located and related that substantial economies may be effectuated by being
operated as a single coordinated system confined in its operations to a
single area or region, in one or more States, not so large as to impair
(considering the state of the art and the area or region affected) the
advantages of localized management, efficient operation, and the
effectiveness of regulation: Provided, That gas utility companies deriving
natural gas from a common source of supply may be deemed to be included in
a single area or region.
Thus, the definition of an integrated gas-utility system has three distinct
parts, each of which will be satisfied in this case.
A. Coordination.In order to find coordination among the
gas-utility companies in the same holding company system, the Commission has
historically focused primarily on the operating economies that may be
effectuated through coordinated management of gas supply portfolios (i.e., gas
purchase arrangements, transportation agreements, and storage assets), the
access of the gas-utility companies in the same holding company system to common
market and supply-area hubs, the functional merger of separate gas supply
departments under common management, and sharing of data management software
systems. See NIPSCO Industries, Inc., 53 S.E.C. 1296 at 1306 - 1309 (1999); New
Century Enterprises, Inc., Holding Co. Act Release No. 27212 (Aug. 16, 2000).
The Commission has also recognized that substantial operating economies can be
achieved through access to the resources of an affiliated gas marketer. See
Sempra Energy, 53 S.E.C. 1242 at 1251 - 1252 (1999).
AmerenUE, AmerenCIPS, AmerenCILCO and Illinois Power currently manage
similar physical properties and contractual assets: natural gas supply and
transportation contracts and owned and leased storage capacity. Following the
acquisition of Illinois Power, Ameren Fuels will enter into a fuel services
agreement with Illinois Power that is substantially identical to the existing
Fuel Services Agreements between Ameren Fuels and AmerenUE, AmerenCIPS, and
AmerenCILCO. Under these agreements, personnel of Ameren Fuels will manage all
of the natural gas supply, transportation and storage activities on behalf of
the four utility companies. This will include procuring natural gas supply,
transportation services and storage capacity; negotiating agreements; nominating
and scheduling gas deliveries; balancing system demand and supply; and
performing state and federal regulatory responsibilities, in each case as agent
for the three companies. In order to perform these functions, Ameren Fuels
personnel will utilize both Ameren's and Illinois Power's existing Supervisory
Control and Data Acquisition ("SCADA") systems, which are connected, through
dedicated communications links, to hundreds of locations where gas measurement,
pressure regulation, and odorization are monitored. The SCADA systems will also
be used to monitor and control injections and withdrawals from all on-system
storage fields.
35
Other areas in which the gas operations of Ameren's current utilities and
Illinois Power will likely be coordinated include centralized management of gas
price hedging activities, monitoring compliance with pipeline safety regulations
(including inspection and maintenance programs), and training programs.
B. Single Area or Region......The combined gas system of
AmerenUE, AmerenCIPS, AmerenCILCO and Illinois Power will also be confined to
Missouri and Illinois. The areas served in Illinois are mostly contiguous. The
high pressure distribution and transmission systems currently operated by Ameren
are connected to eight interstate pipelines: Panhandle Eastern Pipe Line Company
("Panhandle"), Trunkline Gas Company ("Trunkline"), Texas Eastern Transmission
Corporation, Natural Gas Pipeline Company of America, Inc. ("NGPL"), Texas Gas
Transmission Corporation, Midwestern Gas Transmission Corporation, ANR Pipeline
Company ("ANR") and Mississippi River Transmission Corporation ("MRT"). The high
pressure distribution and transmission systems currently operated by Illinois
Power are connected to five of these interstate pipelines: Panhandle, Trunkline,
MRT, NGPL and ANR. These common pipelines will give all of Ameren's utility
subsidiaries access to gas supplies produced in the Mid-Continent region (Kansas
and the Texas/Oklahoma Panhandle) and Gulf Coast onshore and offshore (Louisiana
and Texas) producing areas and, to a lesser extent, the Rocky Mountain and
western Canada producing basins. Thus, the four utilities will share a "common
source of supply."
C. Size. For the same reasons given above in connection with
the discussion of impacts of the Transaction on the combined electric system,
localized management, efficient operation, and the effectiveness of regulation
will not be impaired by the resulting size of the integrated gas utility system.
(c) Retention of Combined Gas System.
As indicated, under the "ABC clauses" of Section 11(b)(1), a
registered holding company can own "one or more" additional integrated public
utility systems if certain conditions are met. Specifically, the Commission must
find that (A) the additional system "cannot be operated as an independent system
without the loss of substantial economies which can be secured by the retention
of control by such holding company of such system," (B) the additional system is
located in one state or adjoining states, and (C) the combination of systems
under the control of a single holding company is "not so large . . . as to
impair the advantages of localized management, efficient operation, or the
effectiveness of regulation."
(i) Loss of Economies.
Clause A requires a showing that each additional integrated
system (in this case, the integrated gas utility system formed by combining the
operations of AmerenUE, AmerenCIPS, AmerenCILCO and Illinois Power) cannot be
operated as an independent system without the loss of substantial economies
which can be secured by the retention of control by a holding company of such
system. Historically, the Commission has considered four ratios as a "guide" to
determining whether lost economies would be "substantial" under Section
36
11(b)(1)(A). Specifically, the Commission has considered the estimated loss of
economies expressed in terms of the ratio of increased expenses to the system's
total operating revenues, operating revenue deductions, gross income and net
income. See Engineers Public Service Co., 12 SEC 41 (1942), rev'd on other
grounds and remanded, 138 F. 2d 936 (DC Cir. 1943), vacated as moot, 332 US 788
(1947) ("Engineers"), and New England Electric System, 41 S.E.C. 888, 893 - 899
(1964). In Engineers, the Commission suggested that cost increases resulting in
a 6.78% loss of operating revenues, a 9.72% increase in operating revenue
deductions, a 25.44% loss of gross income, and 42.46% loss of net income would
afford an "impressive basis for finding a loss of substantial economies"
associated with a divestiture. 12 SEC at 59. More recently, the Commission has
indicated that it will no longer require a comparison of resulting loss ratios
to those in earlier cases. See CP&L Energy, Inc., Holding Co. Act Release No.
27284 (Nov. 27, 2000), fn. 40.
In its early decisions, the Commission considered the increases in
operational expenses that were anticipated upon divestiture, but also took into
account, as offsetting benefits, the significant competitive advantages that
were perceived to flow from a separation of gas and electric operations. The
Commission's assumption was that a combination of gas and electric operations is
typically disadvantageous to the gas operations and, hence, the public interest
and the interests of investors and consumers would be benefited by a separation
of gas from the electric operations. In more recent cases, however, the
Commission has recognized that these assumptions are outdated and that the
historical ratios do not provide an adequate indication of the substantial loss
of economies that may occur by forcing a separation of electric and gas.
Specifically, beginning with its decision in New Century Energies, Inc., 53
S.E.C. 54 (1997), the Commission took notice of the changing circumstances in
today's electric and gas industries, notably the increasing convergence of the
electric and gas industries. The Commission concluded that, "in these
circumstances, separation of gas and electric businesses may cause the separated
entities to be weaker competitors than they would be together. This factor adds
to the quantifiable loss of economies caused by increased costs." 53 S.E.C. at
76. This view was repeated in subsequent cases, including the 1997 Merger Order
and WPL Holdings, Inc., 53 S.E.C. 501 (1997). The Commission has also recognized
that revenue enhancement opportunities and other benefits likely to be realized
from a "convergence" merger would be diminished or lost if the Commission forced
a divestiture of the additional system. See SCANA Corp., Holding Co. Act Release
No. 27133 (Feb. 9, 2000); and Northeast Utilities, Holding Co. Act Release No.
27127 (Jan. 31, 2000).
Ameren has prepared an analysis (the "Divestiture Study") that quantifies
the estimated economic impact of a divestiture of the combined gas operations of
AmerenUE, AmerenCIPS, AmerenCILCO and Illinois Power into a new, stand-alone
company ("New Gasco"). The Divestiture Study (Exh. H hereto), which uses data
for the twelve months ended December 31, 2003, shows that a divestiture of the
combined gas operations would result in an increase in annual operating costs
(excluding income taxes) of approximately $54,150,000,/37/ which is equal to
----------
37 It is estimated that a spin off of New Gasco to the public following
Ameren's acquisition of Illinois Power would result in federal and state income
taxes of approximately $73 million (based on data as of December 31, 2003, and
assuming that the fair market value of the assets is the same as their net book
value).
37
approximately 5.04% of gas operating revenues, 5.42% of gas operating revenue
deductions, 72.21% of gross gas income and 101.68% of net gas income./38/ These
increased operating costs would result primarily from additional capital costs
(including an estimated $23.2 million increase in costs for information services
required by New Gasco), additional annual operating and maintenance costs in
several categories (e.g., labor, insurance, office and crew facilities,
transportation equipment, and costs associated with various new service
functions that would duplicate those of AmerenUE, AmerenCIPS, AmerenCILCO and
Illinois Power), and transition costs (estimated at $49 million, amortized over
ten years) associated with establishing New Gasco as a separate corporate
entity. These lost economies would be offset only in part by the quantifiable
benefits (estimated at approximately $2.3 million in the first year) expected to
be derived from a combination of the gas operations.
The Divestiture Study also indicates that in order to recover these lost
economies, New Gasco would need to increase customer rates by about 10.04%
($107.8 million per year) in order to provide an 8.14% rate of return on rate
base, which is based on the weighted average cost of capital of AmerenUE,
AmerenCIPS, AmerenCILCO and Illinois Power as of December 31, 2003. In the
absence of rate relief, return on rate base would be only 1.32%.
Finally, in its analysis of clause A, the Commission has also taken into
account the historical association of the electric and gas operations and the
views of the interested state commissions. New Century Energies, 53 S.E.C. at
78. As in that case, the electric and gas assets of both Illinois Power and
Ameren's current utility subsidiaries have been under common control for many
years, and the Transaction will not alter the status quo. Further, the Missouri
Public Service Commission, which has jurisdiction over AmerenUE, and the ICC,
which has jurisdiction over both AmerenUE and AmerenCIPS, did not object at the
time that the Ameren system was formed to the continued ownership of both
electric and gas utility operations in a single system. The ICC had the
opportunity to reconsider this issue in connection with its approval of Ameren's
acquisition of both CILCORP and Illinois Power.
(ii) Same State or Adjoining States.
The proposed Transaction does not raise any issue under Section
11(b)(1)(B) of the Act, as the gas utility properties of New Gasco are located
and operate exclusively in Illinois and Missouri, the same two States in which
AmerenUE, AmerenCIPS, AmerenCILCO and Illinois Power already operate as electric
utilities. Thus, the requirement that each additional system be located in one
State or adjoining States is satisfied.
----------
38 While the resulting loss of operating revenues and increase in operating
revenues deductions percentages are somewhat lower than found acceptable in
Engineers, the loss of gross gas income and loss of net income percentages are
much higher. In any event, as previously indicated, the Commission has stated
that it will no longer require a comparison of resulting loss ratios to those of
earlier precedent. CP&L Energy, Inc., Holding Co. Act Release No. 27284 (Nov.
27, 2000), fn. 40.
38
(iii) Size.
Further, retention of the combined gas utility business does not
raise any issues under Section 11(b)(1)(C) of the Act. The combination of both
electric and gas utility systems under the control of a single holding company
will be "not so large ... as to impair the advantages of localized management,
efficient operation, or the effectiveness of regulation." As the Commission has
recognized, the determinative consideration is not size alone or size in an
absolute sense, either big or small, but size in relation to its effect, if any,
on localized management, efficient operation and effective regulation. From
these perspectives, it is clear that the continued ownership of the combined gas
system by Ameren is not too large.
As of December 31, 2003, and giving effect to the Transaction, the
operations of New Gasco would represent only about 7% of Ameren's
post-Transaction gross utility plant, and only about 18% of Ameren's
post-Transaction net operating revenues.
As indicated, the gas procurement functions of Illinois Power, AmerenUE,
AmerenCIPS, and AmerenCILCO will be centralized in Ameren Fuels. Ameren Fuels
will administer the combined portfolios of natural gas supply, transportation
and storage contracts as agent for all four companies. In most other respects,
the local operations of Illinois Power will continue to be handled from Illinois
Power's local and regional operations centers, with supplemental support
provided by other Ameren system companies with personnel and other resources in
close proximity. Thus, the advantages of localized management will be preserved.
(d) Retention of Illinois Power's Non-Utility Subsidiaries and
Investments.
Section 11(b)(1) permits a registered holding company to retain
"such other businesses as are reasonably incidental, or economically necessary
or appropriate, to the operations of [an] integrated public utility system." The
Commission has historically interpreted this provision to require an operating
or "functional" relationship between the non-utility activity and the system's
core utility business. See, e.g. Michigan Consolidated Gas Co., 44 S.E.C. 361
(1970), aff'd, 444 F.2d 913 (D.C. Cir. 1971); United Light and Railways Co., 35
S.E.C. 516 (1954); CSW Credit, Inc., 51 S.E.C. 984 (Mar. 2, 1994); and Jersey
Central Power and Light Co., Holding Co. Act Release No. 24348 (Mar. 18, 1987).
In addition, the Commission has permitted new registered holding companies to
retain passive investments which, although not meeting the functional
relationship test, could nevertheless be acquired under the standards of Section
9(c)(3) of the Act.
As described in Item 1.3, Illinois Gas Supply was formed for the purpose of
acquiring interests in oil and gas leases./39/ Illinois Power's other
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39 The Commission has authorized other registered electric utility holding
companies to acquire or retain interests in companies engaged in natural gas
exploration, production, gathering, processing and storage. See e.g.,
Progress Energy, Inc., Holding Co. Act Release No. 27673 (May 5, 2003); Cinergy
Corp., Holding Co. Act Release No. 27717 (Aug. 29, 2003).
39
non-utility subsidiaries are special purpose financing subsidiaries,/40/ or
entities that are inactive (and in some cases in the process of liquidation).
Thus, all of Illinois Power's non-utility subsidiaries are retainable under the
standards of Section 11(b)(1).
b. Section 10(c)(2).
The Commission and the courts have interpreted Section 10(c)(2) of the
Act to require that, in addition to satisfying the four single-integrated-system
requirements of Section 2(a)(29)(A), a proposed acquisition of an electric
utility company must also produce net efficiencies and economies. National Rural
Electric Cooperative Association, 276 F.3rd at 611 (citing Wisconsin's
Environmental Decade, Inc. v. SEC, 882 F.2d 523, 528 (D.C. Cir. 1989). In this
case, the Transaction will "serve the public interest by tending toward the
economical and efficient development of an integrated public utility system,"
and therefore will satisfy the requirements of Section 10(c)(2) of the Act.
The Transaction will produce economies and efficiencies that are sufficient
(given the size of the Transaction) to satisfy the standards of Section 10(c)(2)
of the Act. Although some of the anticipated economies and efficiencies will be
fully realized only in the longer term, they are properly considered in
determining whether the standards of Section 10(c)(2) have been met. See AEP, 46
S.E.C. at 1320 - 1321. Some potential benefits cannot be precisely estimated;
nevertheless, they too are entitled to be considered. As the Commission has
observed, "[s]pecific dollar forecasts of future savings are not necessarily
required; a demonstrated potential for economies will suffice even when these
are not precisely quantifiable." Centerior Energy Corp., 49 S.E.C. at 480.
The Transaction will benefit Illinois Power's customers in several
important respects. Presently, Illinois Power has below investment grade
ratings, which has prevented Illinois Power from accessing lower cost sources of
capital. The Transaction and subsequent recapitalization of Illinois Power will
result in significant improvement of Illinois Power's credit ratings, enhance
its access to capital, and lower its capital costs for the long term./41/ It is
expected that one of the major ratings agencies will rate Illinois Power's
long-term debt investment grade subsequent to closing. These benefits will be
passed on to consumers.
The integration of Illinois Power into the Ameren system will also allow
Illinois Power, and therefore its customers, to benefit from economies of scale
associated with a larger energy procurement function and delivery system. In
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40 The Commission has also authorized registered holding companies to
acquire the securities of companies organized exclusively for the purpose of
facilitating the issuance of securities. See e.g., Ameren Corporation, et al.,
Holding Co. Act Release No.10159 (Dec. 18, 2003).
41 As previously described, Illinois Power currently does not have a
facility in place to access working capital through short-term borrowings.
Further, additional long-term debt financing has been made available to Illinois
Power only at relatively high interest rates with restrictive covenants.
Following the Transaction, Illinois Power will have the ability to access the
capital markets on more reasonable terms, as well as the ability to borrow under
the Utility Money Pool and/or directly from Ameren.
this regard, Ameren has committed to make additional investments in Illinois
Power's infrastructure. Specifically, Ameren has committed that Illinois Power
will make capital expenditures of at least $275 million to $325 million in its
system in the first two years after the Transaction closes.
The Transaction is also expected to produce cost savings through purchasing
economies, elimination of duplicate energy delivery services (such as
transmission and distribution system maintenance programs, call center
operations, customer services, etc.) and limited staff reductions. Ameren
estimates that ongoing pre-tax savings associated with non-fuel operations and
maintenance expenses will be approximately $33 million per year.
Ameren estimates that, in order to achieve the projected level of savings,
approximately $19 million in one-time transition expenses will be incurred.
These expenditures are required principally to enable Illinois Power to utilize
Ameren's systems and to pay for relocation and severance costs and facilities
integration.
Although these quantifiable savings are modest in relation to savings that
have been projected in other recent merger cases approved by the Commission,
they are nevertheless meaningful in relation to the overall Transaction size.
Moreover, Ameren expects that the aggregate of all potential savings, as
described above, will exceed the cost to achieve such savings and that the
Transaction will be accretive to earnings by 5 to 10 cents per share in the
first year after the Transaction is completed.
3.4 Section 10(f).
Section 10(f) provides that:
The Commission shall not approve any acquisition as to which an application
is made under this section unless it appears to the satisfaction of the
Commission that such State laws as may apply in respect of such acquisition
have been complied with, except where the Commission finds that compliance
with such State laws would be detrimental to the carrying out of the
provisions of section 11.
As previously indicated, the Transaction has been approved by the ICC. In
addition, closing conditions under the Amended SPA are designed to assure
compliance with all other applicable State laws.
3.5 Intra-system Transactions.
The sale of goods and services to Illinois Power and its subsidiaries
following the effective date of the Transaction pursuant to the Service
Agreement and the Fuel Services Agreement will be carried out in accordance with
the requirements and provisions of Section 13(b) of the Act and Rules 87, 90 and
91 and the agreements that have been previously filed with the Commission.
41
The acquisition of Illinois Power will not necessitate any change in the
organization of Ameren Services, the type and character of the companies to be
served, the methods of allocating costs to associate companies, or the scope or
character of the services to be rendered. However, subject to Ameren's
commitment to the ICC regarding work force reductions, it is contemplated that
certain employees of Illinois Power may be transferred to and become employees
of Ameren Services after the Transaction closes.
3.6 Rule 54 Analysis.
Rule 54 provides that the Commission shall not consider the effect of the
capitalization or earnings of any EWG or "foreign utility company" ("FUCO"), as
defined in Sections 32 and 33, respectively, in which a registered holding
company holds an interest in determining whether to approve any transaction
unrelated to any EWG or FUCO if the requirements of Rule 53 (a), (b) and (c) are
satisfied. These standards are met.
Rule 53(a)(1): Ameren's "aggregate investment" (as defined in Rule
53(a)(1)) in EWGs as of June 30, 2004 was $440,567,725, or approximately 23.7%
of Ameren's "consolidated retained earnings" (also as defined in Rule 53(a)(1))
for the four quarters ended June 30, 2004 ($1,860,246,642). On a pro forma
basis, to take into account Ameren's acquisition of IGC's 20% interest in EEInc,
Ameren's "aggregate investment" would be $565,567,725, or about 30.4% of
"consolidated retained earnings" for the four quarters ended June 30, 2004.
Ameren does not currently hold an interest in any FUCO.
Rule 53(a)(2): Ameren will maintain books and records enabling it to
identify investments in and earnings from each such EWG and FUCO in which it
directly or indirectly acquires and holds an interest. Ameren will cause each
domestic EWG in which it acquires and holds an interest, and each foreign EWG
and FUCO that is a majority-owned subsidiary, to maintain its books and records
and prepare its financial statements in conformity with U.S. generally accepted
accounting principles ("GAAP"). All of such books and records and financial
statements will be made available to the Commission, in English, upon request.
Rule 53(a)(3): No more than 2% of the employees of Ameren's domestic public
utility subsidiaries (including Illinois Power and AERG) will, at any one time,
directly or indirectly, render services to EWGs and FUCOs.
Rule 53(a) (4): Ameren will submit a copy of each Application or
Declaration, and each amendment thereto, relating to any EWG or FUCO, and will
submit copies of any Rule 24 certificates required thereunder, as well as a copy
of the relevant portions of Ameren's Form U5S, to each of the public service
commissions having jurisdiction over the retail rates of Ameren's domestic
public utility subsidiaries.
In addition, Ameren states that the provisions of Rule 53(a) are not made
inapplicable to the authorization herein requested by reason of the occurrence
or continuance of any of the circumstances specified in Rule 53(b). Rule 53(c)
is inapplicable by its terms.
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ITEM 4. REGULATORY APPROVALS.
4.1 Illinois Commerce Commission.
On September 22, 2004, the ICC approved the Transaction and certain other
related transactions, subject to certain conditions. In accordance with the
requirements of Section 7-204 of the Illinois Public Utilities Act, the ICC
found that: (a) the Transaction will not diminish Illinois Power's ability to
provide adequate, reliable, efficient, safe and least-cost public utility
service; (b) the Transaction will not result in the unjustified subsidization of
non-utility activities by Illinois Power or its customers; (c) the costs and
facilities of Illinois Power are fairly and reasonably allocated between utility
and non-utility activities in a manner such that the ICC may identify those
costs and facilities which are properly included by the utility for ratemaking
purposes; (d) the Transaction will not significantly impair Illinois Power's
ability to raise necessary capital on reasonable terms or to maintain a
reasonable capital structure; (e) Illinois Power will remain subject to all
applicable laws, regulations, rules, decisions and policies governing the
regulation of Illinois public utilities; (f) the Transaction is not likely to
have a significant adverse effect on competition in those markets over which the
ICC has jurisdiction; and (g) the Transaction is not likely to result in any
adverse rate impacts on retail customers.
The ICC further approved Illinois Power's request to enter into the Fuel
and Natural Gas Services Agreement, the GSA, and the Ameren system tax
allocation agreement, to make direct short-term borrowings from Ameren, and to
eliminate the Intercompany Note. The ICC also approved Illinois Power's request
to participate in the Utility Money Pool, subject to the condition that, until
Illinois Power achieves investment grade ratings from both S&P and Moody's, (i)
loans by Illinois Power to the Utility Money Pool shall not exceed the lesser of
$100 million or 90% of cash on hand, and (ii) all affiliates making borrowings
under the Utility Money Pool that consist of funds loaned by Illinois Power must
meet certain credit standards that would otherwise apply only to non-utility
borrowers under applicable provisions of the Illinois Administrative Code. Once
Illinois Power achieves investment grade ratings from both S&P and Moody's,
Illinois Power may participate in the Utility Money Pool subject to the same
restrictions under the Illinois Administrartive Code that apply to AmerenUE,
AmerenCIPS and AmerenCILCO.
A copy of the ICC's order, including, as Appendix A, certain conditions of
approval, is filed herewith as Exhibit D-2.
The approval of the ICC may be required in order for Illinois Power to
acquire the equity securities of any Financing Subsidiary. Such approval, if
required, will be obtained at the time Illinois Power seeks ICC approval to
issue securities through any Financing Subsidiary. Illinois Power requests that
the Commission reserve jurisdiction over the acquisition of the securities of
any Financing Subsidiary pending the receipt of any required ICC authorization
and the filing of such authorization as a supplement to the record in this
proceeding and the issuance of a supplemental order of the Commission approving
any such state-jurisdictional acquisition.
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4.2 Federal Energy Regulatory Commission.
Under Section 203 of the Federal Power Act, the FERC is directed to approve
a merger if it finds such merger consistent with the public interest. In
reviewing transactions under the standards of Section 203, the FERC generally
evaluates: whether the merger will adversely affect competition; whether the
merger will adversely affect rates; and whether the merger will impair the
effectiveness of regulation. A copy of the joint application filed with the FERC
seeking approval of the Transaction (and of the related acquisition of IGC's 20%
interest in EEInc) under the Federal Power Act is filed herewith as Exhibit D-3.
On July 29, 2004, the FERC approved Ameren's acquisition of the stock of
Illinois Power held by Illinova and IGC's 20% interest in EEInc. The FERC also
approved the New PPA and certain other related agreements, and also granted
necessary authorizations for Illinois Power to transfer functional control of
its transmission facilities to the MISO. The order is conditioned on Illinois
Power joining the MISO before the Transaction closes. Also, the FERC accepted,
as a mitigation measure intended to address asserted harm to competition,
Ameren's commitment to sell, for an indeterminate period, 125 MW of the capacity
and energy associated with EEInc's Joppa plant to an entity or entities not
affiliated with Ameren.
A copy of the FERC's order is filed herewith as Exhibit D-4.
4.3 HSR Act.
Under the HSR Act, and the rules promulgated thereunder by the FTC, the
Transaction may not be consummated until Ameren and Dynegy file notifications
and provide certain information to the FTC and the DOJ and specified waiting
period requirements are satisfied. Even after the HSR Act waiting period expires
or terminates, the FTC or the DOJ may later challenge the Transaction on
antitrust grounds. If the Transaction is not completed within 12 months after
the expiration or earlier termination of the initial HSR Act waiting period, the
parties would be required to submit new information under the HSR Act and a new
waiting period would begin. Ameren and Dynegy have filed the required
notification statements with the FTC and DOJ and the statutory waiting period
has expired.
4.4 Federal Communications Commission.
In connection with the Transaction, the Federal Communications Commission
("FCC") must authorize Illinois Power to transfer various communications
licenses that it holds. A copy of the application filed with the FCC to request
such authorization is filed herewith as Exhibit D-5. On April 14, 2004, the FCC
issued a notice indicating that the transfer of the licenses had been approved.
Except as described above, no other state or federal commission, other than
this Commission, has jurisdiction over the proposed Transaction or other related
transactions.
44
ITEM 5. PROCEDURE.
The Commission has issued a notice under Rule 23 with respect to the filing
of this Application/Declaration (Holding Co. Act Release No. 27862), and no
request for hearing has been made. The Applicants respectfully request that the
Commission issue an order approving the Application/Declaration as soon as its
rules permit. The Applicants request that there should not be a 30-day waiting
period between issuance of the Commission's order and the date on which the
order is to become effective; waive a recommended decision by a hearing officer
or other responsible officer of the Commission; and consent to the participation
by the Division of Investment Management in the preparation of the Commission's
decision and/or order, unless the Division of Investment Management opposes the
matters proposed herein.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.
a. Exhibits.
A-1 Restated Articles of Incorporation of Ameren Corporation
(incorporated by reference to Annex F to Ameren's Registration
Statement on Form S-4 in File No. 33-64165)
A-2 Certificate of Amendment to the Restated Articles of
Incorporation of Ameren Corporation, as filed with the Secretary
of State of the State of Missouri on December 14, 1998
(incorporated by reference to Exhibit 3(i) to Ameren's Annual
Report on Form 10-K for the year ended December 31, 1998 in File
No. 1-14756)
A-3 Amended and Restated Articles of Incorporation of Illinois Power
Company, dated September 7, 1994 (incorporated by reference to
Exhibit 3(a) to Illinois Power's Current Report on Form 8-K dated
September 7, 1994 (File No. 1-3004))
A-4 Amendment to the Articles of Incorporation of Illinois Power
Company (incorporated by reference to Exhibit 4.1(ii) to Illinois
Power's Registration Statement on Form S-3/A, dated April 12,
2002, in File No. 333-84808)
A-5 Bylaws of Illinois Power Company (incorporated by reference to
Exhibit 3(b)(1) to the Illinois Power's Annual Report on Form
10-K for the year ended December 31, 1994 (File No. 1-3004))
B-1 Stock Purchase Agreement, dated as of February 2, 2004, among
Ameren Corporation, Illinova Corporation, Illinova Generating
Company, and Dynegy Inc. (certain Exhibits and Schedules filed
confidentially pursuant to Rule 104) (previously filed)
45
B-1(a) Amendment No. 1 to Stock Purchase Agreement, dated as of March
23, 2004, by and among Ameren Corporation, Illinova
Corporation, Illinova Generating Company, and Dynegy Inc.
(previously filed)
B-1(b) Amendment No. 2 to Stock Purchase Agreement, dated as of April
30, 2004, by and among Ameren Corporation, Illinova
Corporation, Illinova Generating Company, and Dynegy Inc.
(previously filed)
B-1(c) Amendment No. 3 to Stock Purchase Agreement, dated as of May
31, 2004, by and among Ameren Corporation, Illinova
Corporation, Illinova Generating Company, and Dynegy Inc.
(previously filed)
B-1(d) Amendment No. 4 to Stock Purchase Agreement, dated as of
September 24, 2004, by and among Ameren Corporation, Illinova
Corporation, Illinova Generating Company, and Dynegy Inc.
(filed herewith)
B-2 Ameren System Utility Money Pool Agreement (incorporated by
reference to Exhibit B to Form U-1 Application/Declaration,
dated November 25, 1998, in File No. 70-9423)
B-3 Form of Fuel and Natural Gas Services Agreement between Ameren
Fuels and Illinois Power (previously filed)
C Registration Statement on Form S-3 ("shelf" registration)
(incorporated by reference to File Nos. 333-114274,
333-114274-01, and 333-114274-02)
D-1 Application to the Illinois Commerce Commission for Approval of
Transaction (previously filed)
D-2 Order of the Illinois Commerce Commission Approving Transaction
(filed herewith)
D-3 Joint Application to the Federal Energy Regulatory Commission
for Approval of Transaction (previously filed)
D-4 Order of the Federal Energy Regulatory Commission (filed
herewith)
D-5 Application to the Federal Communications Commission (Form SE -
Continuing Hardship Exemption) (previously filed)
D-6 Public Notice of Action by the Federal Communications
Commission Approving Assignment of Communications Licenses
(available on FCC online Universal Licensing System,
Report dated April 21, 2004 (http://wireless/fcc.gov/uls))
46
E-1 Map of Electric Service Areas of Ameren and Illinois Power
(Form SE - Required paper format filing) (previously filed)
E-2 Map of Gas Service Areas of Ameren and Illinois Power
(Form SE - Required paper format filing) (previously filed)
F-1 Opinion of counsel to Ameren Corporation (filed herewith)
F-2 Opinion of Wachtell, Lipton, Rosen & Katz, special New York
counsel to Ameren Corporation (filed herewith)
F-3 Opinion of Jones Day, special Illinois counsel to Ameren
Corporation (filed herewith)
F-4 Opinion of counsel to Illinois Power Company (filed herewith)
F-5 Opinion of O'Melveny & Myers LLP, special New York counsel to
Illinois Power Company (filed herewith)
G Proposed form of Federal Register notice (previously filed)
H Analysis of the Economic Impact of a Divestiture of the Gas
Operations of AmerenUE, AmerenCIPS, AmerenCILCO and Illinois
Power (filed herewith)
I List and description of outstanding long-term debt securities
and preferred stock of Illinois Power Company as of December
31, 2003 (previously filed)
J Fairness Opinion of Goldman Sachs (previously filed)
K List and description of existing electrical interconnection
points between Illinois Power and Ameren system companies
(previously filed)
b. Financial Statements.
FS-1 Consolidated Balance Sheet and Statement of Income of
Ameren Corporation as of and for the year ended
December 31, 2003 (incorporated by reference to the
Annual Report on Form 10-K of Ameren Corporation for
the year ended December 31, 2003, in File No.
1-14756)
47
FS-2 Consolidated Balance Sheet and Statement of Income of
Illinois Power Company as of and for the year ended
December 31, 2003 (incorporated by reference to the
Annual Report on Form 10-K of Illinois Power Company
for the year ended December 31, 2003, in File No.
1-3004)
FS-3 Unaudited Pro Forma Combined Condensed Financial Statements
of Ameren Corporation (filed herewith)
FS-4 Consolidated Balance Sheet and Statement of Income of
Ameren Corporation as of and for the six months ended
June 30, 2004 (incorporated by reference to the
Quarterly Report on Form 10-Q of Ameren Corporation
for the period ended June 30, 2004, in File No.
1-14756)
FS-5 Consolidated Balance Sheet and Statement of Income of
Illinois Power Company as of and for the six months
ended June 30, 2004 (incorporated by reference to the
Quarterly Report on Form 10-Q of Illinois Power
Company for the period ended June 30, 2004, in File
No. 1-3004)
FS-6 Unaudited Pro Forma Condensed Financial Statements of
Illinois Power (filed herewith confidentially pursuant to
Rule 104)
ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.
The Transaction and other related transactions do not involve a "major
federal action" nor will they "significantly affect the quality of the human
environment" as those terms are used in section 102(2)(C) of the National
Environmental Policy Act. The Transaction and other related transactions will
not result in changes in the operation of the Applicants or their subsidiaries
that will have an impact on the environment. The Applicants are not aware of any
federal agency that has prepared or is preparing an environmental impact
statement with respect to the Transaction and other related transactions.
48
SIGNATURES
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, as amended, the undersigned companies have duly caused this amended and
restated Application/Declaration to be signed on their behalves by the
undersigned thereunto duly authorized.
AMEREN CORPORATION
AMEREN ENERGY FUELS AND SERVICES COMPANY
By: /s/ Steven R. Sullivan
-----------------------
Name: Steven R. Sullivan
Title: Senior Vice President
Governmental/Regulatory
Policy,
General Counsel and Secretary
ILLINOIS POWER COMPANY
By: /s/ Alisa B. Johnson
---------------------
Name: Alisa B. Johnson
Title: Senior Vice President
Date: September 27, 2004
49