[Federal Register: July 1, 2004 (Volume 69, Number 126)]
[Notices]
[Page 39981-39988]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01jy04-164]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 35-27862]
Filings Under the Public Utility Holding Company Act of 1935, as
Amended (``Act'')
June 25, 2004.
Notice is hereby given that the following filing(s) has/have been
made with the Commission pursuant to provisions of the Act and rules
promulgated under the Act. All interested persons are referred to the
application(s) and/or declaration(s) for complete statements of the
proposed transaction(s) summarized below. The application(s) and/or
declaration(s) and any amendment(s) is/are available for public
inspection through the Commission's Branch of Public Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in
writing by July 20, 2004, to the Secretary, Securities and Exchange
Commission, Washington, DC 20549-0609, and serve a copy on the relevant
applicant(s) and/or declarant(s) at the address(es) specified below.
Proof of service (by affidavit or, in the case of an attorney at law,
by certificate) should be filed with the request. Any request for
hearing should identify specifically the issues of facts or law that
are disputed. A person who so requests will be notified of any hearing,
if ordered, and will receive a copy of any notice or order issued in
the matter. After July 20, 2004, the application(s) and/or
declaration(s), as filed or as amended, may be granted and/or permitted
to become effective.
Ameren Corporation, et al. (70-10220)
Ameren Corporation (``Ameren''), a Missouri corporation and a
registered holding company under the Act; Ameren Energy Fuels and
Services Company (``Ameren Fuels''), an indirect, wholly-owned,
nonutility subsidiary of Ameren, both located at 1901 Chouteau Avenue,
St. Louis, Missouri 63103; and Illinois Power Company (``Illinois
Power,'' and together ``Applicants''), an electric and gas utility
company, 500 South 27th Street, Decatur, Illinois, 62521, have filed an
application/declaration (``Application'') under sections 6(a), 7, 9(a),
10, 11(b), 12(b), 12(f), and 13(b) of the Act and rules 43, 45, 54, 87,
90, and 91 under the Act.
I. Introduction
Ameren proposes to purchase all of the issued and outstanding
common stock (``Common Shares'') of Illinois Power from Illinova
Corporation (``Illinova''), an exempt holding company under section
3(a)(1) of the Act,\1\ which is itself a wholly-owned subsidiary of
Dynegy Inc. (``Dynegy''), also an exempt holding company under the
Act.\2\ Ameren also proposes to acquire the issued and outstanding
shares of preferred stock of Illinois Power that are held by Illinova
(``Preferred Shares''), and the 20% interest in the common stock of
Electric Energy, Inc. (``EEInc''), an ``exempt wholesale generator''
(``EWG'') as that term is defined under section 32 of the Act, that is
held by Illinova Generating Company (``IGC''), an indirect subsidiary
of Dynegy (``EEInc Shares,'' and together with the Common Shares and
the Preferred Shares, the ``Shares''), for an aggregate purchase price
(``Purchase Price'') of $2,300,000,000, subject to certain adjustments
as described below (``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 nonutility subsidiary,
Ameren Energy Resources Company (``Ameren Energy Resources''), under
the exemption provided by section 32 of the Act.
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\1\ See HCAR No. 26450 (May 18, 1994).
\2\ Dynegy has filed for a 3(a)(1) exemption by rule 2 of the
Act.
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Applicants also request authorization, once the Transaction closes,
for:
1.Illinois Power to: (i) Issue and sell from time to time from the
closing of the Transaction through June 30, 2007 (``Authorization
Period'') short-term debt securities, (ii) to become a participant in
the Ameren System Utility Money Pool Arrangement (``Utility Money
Pool''), (iii) to enter into interest rate hedging transactions, and
(iv) to engage in certain other related transactions;
2. 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
3. Ameren Fuels to provide gas management services to Illinois
Power under a fuel supply management agreement that is substantially
identical to agreements between Ameren Fuels and Ameren's current
public utility subsidiaries.
II. Description of Ameren System
The Ameren holding company system (``Ameren System'') consists of
both utility subsidiaries (``Utility Subsidiaries'') and nonutility
subsidiaries (``Nonutility Subsidiaries'').
A. Ameren's Public Utility Subsidiaries
Ameren states that it directly owns all of the issued and
outstanding common stock of the following Utility Subsidiaries: (i)
Union Electric Company d/b/a AmerenUE (``AmerenUE'') and (ii) Central
Illinois Public Service Company d/b/a AmerenCIPS (``AmerenCIPS'').
Ameren further states that, indirectly through its intermediate holding
company, CILCORP Inc. (``CILCORP''), Ameren owns all of the issued and
outstanding common stock of the public utility 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.
Ameren states that AmerenCILCO owns all of the issued and
outstanding common stock of AmerenEnergy Resources Generating Company
(f/k/a Central Illinois Generation, Inc.)
[[Page 39982]]
(``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 representing in the aggregate approximately 1,130
megawatts (MW) of electric generating capacity to AERG.
Ameren states that 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.
Ameren further states that 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. 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.
Ameren states that 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.
Ameren states that 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.\3\ AmerenUE and AmerenCIPS have also
agreed to participate, through GridAmerica, LLC (``GridAmerica''), an
independent transmission company, in the Midwest Independent System
Operator (``MISO''), a FERC-approved regional transmission
organization, but have not yet transferred functional control of their
transmission assets to the MISO. Ameren states that, 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 transferred functional control of its transmission system
to the MISO.
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\3\ Applicants state that AmerenUE, AmerenCIPS and AmerenCILCO
provided formal written notice to the MAIN Board of Directors on
June 23, 2003 of their intent to withdraw from MAIN effective
January 1, 2005. Applicants state that these companies 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. Applicants further state that if
they do not join another regional electric reliability organization,
they may withdraw their notice of intent to withdraw from MAIN.
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B. Ameren Nonutility Subsidiaries
Ameren states that it has five direct wholly owned Nonutility
Subsidiaries (in addition to CILCORP, the direct parent of
AmerenCILCO), as follows:
1. 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;
2. Ameren Development Company, an intermediate nonutility holding
company, which directly owns all of the outstanding common stock of
Ameren ERC, Inc. (``Ameren ERC''), an ``energy-related company'' under
rule 58 under the Act 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 (``Rule 58 Companies''). Ameren Development
also directly owns all of the outstanding common stock of Ameren Energy
Communications, Inc., an ``exempt telecommunications company''
(``ETC'') as that term is defined under section 34 of the Act;
3. Ameren Energy Resources, an intermediate Nonutility Subsidiary
holding company, which directly holds all of the outstanding voting
securities of the following Nonutility Subsidiaries:
(a) 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;
(b) Ameren Energy Marketing Company, a Rule 58 Company;
(c) Ameren Energy Fuels and Services Company, also a Rule 58
Company, which directly and through AFS Development Company, L.L.C., a
wholly-owned subsidiary, and Cowboy Railroad 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;
(d) Illinois Materials Supply Co., which is a registered retailer
of goods, material and equipment to Ameren Energy Development Company
and other associate Nonutility Subsidiaries; and
(e) AmerenEnergy Medina Valley Cogen (No. 4), L.L.C., an
intermediate Nonutility Subsidiary 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, EEInc owns and operates two combustion turbines
with a summer net capability of approximately 72 MW, located at the
Joppa plant site;
4. Ameren Energy, Inc., a Rule 58 Company 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
5. 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.
[[Page 39983]]
C. Direct Nonutility Subsidiaries of AmerenUE
AmerenUE has one direct wholly-owned Nonutility Subsidiary, Union
Electric Development Corporation, which holds investments in affordable
housing projects that qualify for federal income tax credits and other
passive investments.\4\ AmerenUE also directly holds 40% of the
outstanding common stock of EEInc.
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\4\ The Commission authorized Ameren to acquire Union Electric
Development Corporation by order dated December 30, 1997 (HCAR No.
26809.)
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D. Direct Nonutility Subsidiaries of CILCORP
CILCORP directly owns all of the common stock of three Nonutility
Subsidiaries, as follows:
1. 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; \5\
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\5\ The Commission authorized Ameren to acquire CILCORP
Investment Management Inc. by order dated January 29, 2003 (HCAR No.
27645).
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2. 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
3. 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 Nonutility Subsidiaries of AmerenCILCO
AmerenCILCO directly owns all of the issued and outstanding common
stock of two Nonutility Subsidiaries, neither of which conducts any
significant business at this time:
1. CILCO Exploration and Development Company, which previously
engaged in the exploration and development of gas, oil, coal and other
mineral resources and
2. CILCO Energy Corporation, which was formed to research and
develop new sources of energy, including the conversion of coal and
other minerals into gas.
III. Ameren Financial Condition
A. Revenues and Income
Ameren states that 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. 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 December 31, 2003, Ameren had
$14,233,000,000 in total assets, including net property and plant of
$10,917,000,000.
B. Capitalization of Ameren
Under its Restated Articles of Incorporation, as amended, Ameren
states that it 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 December
31, 2003, Ameren states that it had issued and outstanding 162,861,662
shares of common stock and it did not have any outstanding preferred
stock. In addition, at December 31, 2003, Ameren had issued and
outstanding $445 million principal amount of senior unsecured debt
securities having maturities through 2007. At December 31, 2003, 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 December 31, 2003, Ameren's capitalization on a consolidated
basis was as follows:
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
Common equity.......................... $4,354,000,000 46.9
Preferred equity....................... 182,000,000 1.9
Long-term debt *....................... 4,091,000,000 44.1
Short-term debt **..................... 659,000,000 7.1
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Total............................ 9,286,000,000 100.00
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* Includes mandatorily redeemable preferred stock.
** Includes current portion of long-term debt.
Ameren states that its 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.
IV. Illinois Power
Illinois Power states that it 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. Illinois Power's 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. Illinois Power Utility Operations
1. Electric Utility Operations
Illinois Power states that it provides electric service to
approximately 600,000 customers in 313 incorporated municipalities,
adjacent suburban and rural areas, and numerous unincorporated
communities 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 states that it owns virtually no
generation. Illinois Power states that it currently purchases the vast
majority of its electric power requirements under contracts with Dynegy
Midwest Generation, Inc. (``DMG''), an indirect subsidiary of Dynegy,
AmerGen Energy Company, L.L.C. (``AmerGen''), and EEInc.
Illinois Power states that it is directly interconnected with
AmerenUE, AmerenCIPS, and AmerenCILCO at
[[Page 39984]]
numerous locations. 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 has committed in its
application to the FERC for approval of the Transaction 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.
2. Gas Utility Operations
Illinois Power states that it 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
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.
3. State Jurisdiction
Illinois Power states that it 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.
B. Illinois Power Nonutility Subsidiaries
Illinois Power states that its nonutility subsidiaries (``Illinois
Power Nonutility Subsidiaries'') are as follows:
1. IP Gas Supply Company, an Illinois corporation, which was formed
for the purpose of acquiring interests in oil and gas leases. There is
little activity in this subsidiary;
2. 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;
3. 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;
4. 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.
Illinois Power states that these securities were redeemed in 2001 and
this entity is now inactive; and
5. Illinois Power Financing II, also a Delaware special purpose
trust, is a financing subsidiary that was created for a potential shelf
registration in 2002. Illinois Power states that this company is not
currently active.
C. Illinois Power Financial Condition
1. Income and Revenues
For the twelve months ended December 31, 2003, Illinois Power
states that it reported total operating revenues of $1,567,800,000,
operating income of $166,100,000, and net income applicable to common
shareholder of $114,700,000. 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
December 31, 2003, Illinois Power states that it had $5,059,200,000 in
total assets, including net utility plant of $2,083,000,000 and an
intercompany receivable from Illinova with a principal balance of
$2,271,400,000 (``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.
2. Capitalization
Illinois Power states that under its Amended and Restated Articles
of Incorporation, 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 December 31, 2003, 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 $45,800,000.
Illinova holds 662,924 shares of Illinois Power's outstanding preferred
stock, representing approximately 73% of the total number outstanding.
In addition, as of December 31, 2003, 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
$419,900,000 principal amount of transitional funding trust notes with
maturities through 2008.
As of December 31, 2003, Illinois Power states that its
capitalization on a consolidated basis was as follows:
------------------------------------------------------------------------
Percent
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Common equity.......................... $1,484,000,000 43.0
Preferred equity....................... 45,800,000 1.3
Long-term debt *....................... 1,780,200,000 51.5
Current portion of long-term debt...... 145,000,000 4.2
--------------------
Total............................ 3,455,900,000 100.00
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* Includes $345,600,000 of transitional funding trust issued by IPSPT.
Illinois Power states that its senior secured debt is currently
rated B by S&P and B1 by Moody's. Illinois Power's preferred stock is
rated CCC by S&P and Caa2 by Moody's. Applicants state that they expect
that, as a result of the
[[Page 39985]]
consummation of the Transaction and related recapitalization of
Illinois Power, as described in below, Illinois Power will receive an
investment grade rating for its long-term debt from at least one of the
major statistical rating organizations.
V. The Transaction
A. Principal Terms of Amended Stock Purchase Agreement
Applicants state that Ameren, Dynegy, Illinova, and IGC have
entered into a Stock Purchase Agreement, dated as of February 2, 2004,
as amended by Amendment No. 1 thereto, dated March 23, 2004 (``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 (the 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.
Applicants state that the term ``Existing IPC Obligations'' is
defined in the Amended SPA to mean an amount equal to the sum of: (i)
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; (ii) the total liquidation
preference of the 249,751 shares of preferred stock, $50 par value, of
Illinois Power that are not owned by Illinova; (iii) any accrued and
unpaid dividends on such shares of preferred stock, to the extent that
dividends are in arrears; and (iv) 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.
Applicants state that 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: (i) an amount equal to the Existing IPC Obligations and (ii)
$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 that Illinois Power faces,
principally due to its former ownership of generating facilities now
owned by Dynegy Midwest Generation, Inc.
Applicants state that 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,
described below:
1. 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
2. Dynegy and Illinova will, and Illinova will cause Illinois Power
to, immediately following the reduction, eliminate or reduce the
remaining Intercompany Note to zero, which Applicants state 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 has been reduced
by the amount of any prepaid interest 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.
Applicants state that the elimination of the Intercompany Note
through these measures requires approval by the ICC.
Applicants state that 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, Illinois Power is requesting all necessary authorizations from
FERC to transfer functional control over its transmission facilities to
the MISO. Applicants state that, notwithstanding the language of the
Amended SPA conditioning Illinois Power's joining the MISO on closing
of the Transaction, Illinois Power has committed in the FERC
application that it will transfer functional control over its
transmission facilities to the MISO within a reasonable time after the
FERC issues the requested orders without conditions that are
unacceptable to the applicants, but prior to the closing. Applicants
state that 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.
VI. Recapitalization of Illinois Power
Applicants state that, 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 states that it expects
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. Ameren states that these securities would be purchased in open-
market purchases, through invitations for tenders, and/or through
direct negotiations with the holders of the securities. Any securities
that are acquired by Ameren may be held by Ameren until they mature or
are
[[Page 39986]]
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 and
would not be reissued or resold by Ameren.
VII. Financing the Purchase Price
Ameren intends to finance the cash portion of the Purchase Price
and subsequent equity infusions in Illinois Power by issuing common
stock and other securities under existing financing authority granted
by order dated October 5, 2001 (HCAR No. 27449) (``October 2001
Order'') or as authorized in a separate proceeding. Ameren has filed a
``shelf'' Registration Statement on Form S-3 covering common stock and
other long-term securities of Ameren that may be issued in accordance
with its authorization in the October 2001 Order, and intends to file a
new ``shelf'' Registration Statement in the near future.
VIII. Affiliate Transactions
A. Ameren Services
By order dated December 30, 1997 (HCAR No. 26809) (``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 under a General
Services Agreement (``GSA''). Ameren Services has entered into
substantially identical GSAs with Ameren, AmerenUE, AmerenCIPS,
AmerenCILCO, and certain of Ameren's Nonutility Subsidiaries. Under the
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. Applicants
state that 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 (HCAR No. 27374), the Commission
authorized Ameren Fuels to provide AmerenUE and AmerenCIPS fuel
management services under the terms of a fuel and natural gas services
agreement (``Fuel Services Agreement''). Ameren Fuels was authorized to
provide AmerenCILCO with similar services by order dated Jan. 29, 2003
(HCAR No. 27645). Under the Fuel Services Agreement, Ameren Fuels, as
agent for its associate companies, manages all aspects of procurement,
storage, transportation, and handling of coal, natural gas, and other
fuels. Applicants state that these services include negotiating
contracts with third parties, contract administration, regulatory
reporting, and ash management services, among others. Applicants state
that Ameren Fuels is reimbursed for all costs properly chargeable or
allocable thereto, through a work order procedure and that this
procedure complies with rules 90 and 91. Applicants state that 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 under which
Ameren Fuels will manage gas supply resources for Illinois Power.
Applicants state that these services will be provided at cost, in
accordance with rules 90 and 91.
IX. Financing by Illinois Power
Applicants state that the existing equity and long-term debt
securities of Illinois Power, as described above, will remain
outstanding after the Transaction closes. Applicants state that, 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. Applicants state that 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.
Applicants request authority for Illinois Power 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 Ameren System utility
money pool (``Utility Money Pool''). Applicants state that Illinois
Power will not engage in any financing transactions requested in this
Application unless, on a pro forma basis taking into account the amount
and types of the 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
Applicants state that 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. 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 working capital needs. Accordingly,
Illinois Power requests authorization through 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 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, described
below, and direct borrowings at any time by Illinois Power from Ameren,
will not exceed $500 million (``Short-Term Limit''). Subject to the
Short-Term Limit, Illinois Power requests authority to sell commercial
paper, from time to time, in established domestic or foreign commercial
paper markets. Illinois Power states that the 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 the commercial paper will reoffer it at a
discount to corporate, institutional and, with respect to European
commercial paper, individual investors. Illinois Power anticipates that
the commercial paper will be reoffered to investors such as commercial
banks, insurance companies, pension funds, investment trusts,
foundations, colleges
[[Page 39987]]
and universities, finance companies, and nonfinancial corporations.
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, except at a higher cost than
secured short-term debt. 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 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. Illinois Power states that only the amounts drawn and
outstanding under these agreements and facilities will be counted
against the Short-Term Limit. 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.
Illinois Power represents that, except for securities issued for
the purpose of funding Utility Money Pool operations, it will not issue
any short-term debt securities in reliance upon the authorization
granted by the Commission under this Application, 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 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 (HCAR No. 27655), as
supplemented by order dated September 15, 2003 (HCAR No. 27721)
(``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. In addition, Applicants state that 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. 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 to become a party to the
Utility Money Pool Agreement after the closing of the Transaction on
the same basis as AmerenUE, AmerenCIPS, and AmerenCILCO. Applicants
state that borrowings by Illinois Power under the Utility Money Pool
must be approved by the ICC and therefore will be exempt under rule
52(a).
C. Interest Rate Hedging Transactions
Illinois Power requests authorization to enter into interest rate
hedging transactions (``Interest Rate Hedges'') with respect to
outstanding long-term and short-term indebtedness, subject to certain
limitations and restrictions, in order to reduce or manage its
effective interest rate cost. 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. Illinois Power states
that in no case will the notional principal amount of the underlying
debt instrument 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. Illinois Power
states that 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. The transactions would be
for fixed periods and stated notional amounts. 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 (``Anticipatory Hedges''), subject to certain limitations and
restrictions. Illinois Power states that 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
[[Page 39988]]
securities and/or a forward swap (each a ``Forward Sale''), (ii) the
purchase of put options on U.S. Treasury securities (``Put Options
Purchase''), (iii) a Put Options Purchase in combination with the sale
of call options on U.S. Treasury securities (``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.
Illinois Power states that 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. Further, Illinois
Power states that it 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.
D. Organization and Acquisition of Financing Subsidiaries
Illinois Power requests authorization to acquire, directly or
indirectly, the common stock or other equity securities of one or more
entities (``Financing Subsidiaries'') formed exclusively for the
purpose of facilitating the issuance of 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 proposes to enter into one or more guarantees or other
credit support agreements in favor of its Financing Subsidiary.
Illinois Power also requests authorization to enter into an expense
agreement (``Expense Agreement'') with any Financing Subsidiary, under
which it would agree to pay all expenses of Financing Subsidiary. 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 the Expense Agreement established by the Financing
Subsidiary is in place.
Illinois Power states that any Financing Subsidiary organized under
the authority granted 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. Illinois Power proposes that 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 Notes would generally be designed to parallel the terms of the
securities issued by the Financing Subsidiary to which the Notes
relate.
X. Accounting Treatment for the Transaction; Impact on Rates
In accordance with Statement of Financial Accounting Standards
(``SFAS'') No. 141, ``Business Combinations,'' Ameren states that it
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. 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. Ameren
expects 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.''
Ameren states that, in the ICC application, Ameren has committed to
reverse the balance sheet and income statement impacts of the purchase
accounting entries ``pushed down'' to the financial statements of
Illinois Power so that there will be no impact on Illinois Power's rate
base, cost of service or any other factor upon which Illinois Power's
rates will be determined in future ICC proceedings, with the exception
that Illinois Power is requesting ICC authorization to amortize ratably
over the period 2005 `` 2010 no less than $100 million of costs
incurred to carry out the Transaction, and to recover the unamortized
portion over the period 2007 `` 2010. Under the Amended SPA, it is a
condition precedent to Ameren's obligation to consummate the
Transaction that the ICC approve the ``push down'' of the purchase
accounting entries to the financial statements of Illinois Power,
subject to the foregoing commitments regarding rate impacts.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-14970 Filed 6-30-04; 8:45 am]
BILLING CODE 8010-01-P