Ameren Illinois Co: Form 10-Q for the period ended Jun 30, 2020

The following discussion should be read in conjunction with the financial statements and Risk Factors contained in this Form 10-Q, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors contained in the Form 10-K. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. The discussion also provides information about the financial results of our business segments to provide a better understanding of how those segments and their results affect the financial condition and results of operations of Ameren as a whole. Also see the Glossary of Terms and Abbreviations at the front of this report and in the Form 10-K.

Ameren, headquartered in St. Louis, Missouri, is a public utility holding company whose primary assets are its equity interests in its subsidiaries. Ameren’s subsidiaries are separate, independent legal entities with separate businesses, assets, and liabilities. Dividends on Ameren’s common stock and the payment of expenses by Ameren depend on distributions made to it by its subsidiaries. Ameren’s principal subsidiaries are listed below. Ameren has other subsidiaries that conduct other activities, such as providing shared services.

• Union Electric Company, doing business as Ameren Missouri, operates a rate-regulated electric generation, transmission, and distribution business and a rate-regulated natural gas distribution business in Missouri.
• Ameren Illinois Company, doing business as Ameren Illinois, operates rate-regulated electric transmission, electric distribution, and natural gas distribution businesses in Illinois.
• ATXI operates a FERC rate-regulated electric transmission business in the MISO.

Ameren’s financial statements are prepared on a consolidated basis and therefore include the accounts of its majority-owned subsidiaries. All intercompany transactions have been eliminated. Ameren Missouri and Ameren Illinois have no subsidiaries. All tabular dollar amounts are in millions, unless otherwise indicated.

In addition to presenting results of operations and earnings amounts in total, we present certain information in cents per share. These amounts reflect factors that directly affect Ameren’s earnings. We believe this per share information helps readers to understand the impact of these factors on Ameren’s earnings per share.

OVERVIEW

Net income attributable to Ameren common shareholders in the three months ended June 30, 2020, was $243 million, or $0.98 per diluted share, compared with $179 million, or $0.72 per diluted share, in the year-ago period. Net income attributable to Ameren common shareholders in the six months ended June 30, 2020, was $389 million, or $1.57 per diluted share, compared with $370 million, or $1.50 per diluted share, in the year-ago period. Net income for the three and six months ended June 30, 2020, compared to the year-ago periods, was favorably affected by the absence in 2020 of expenses related to the Callaway Energy Center’s 2019 scheduled refueling and maintenance outage; infrastructure investments that drove higher earnings at Ameren Transmission and Ameren Illinois Electric Distribution, each of which utilizes formula ratemaking; a lower base level of expenses, partially offset by lower base rates, at Ameren Missouri pursuant to the MoPSC’s March 2020 electric rate order; and increased Ameren Transmission earnings resulting from the May 2020 FERC order addressing the allowed base ROE. Net income for the three and six months ended June 30, 2020, compared to the year-ago periods, was unfavorably affected by a lower recognized ROE at Ameren Illinois Electric Distribution. Excluding the absence of the Callaway Energy Center’s scheduled refueling and maintenance outage costs, earnings for the three months ended June 30, 2020, compared to the year-ago period, were favorably affected by lower other operations and maintenance expenses not subject to riders or regulatory tracking mechanisms, primarily due to lower electric system infrastructure maintenance expenses as a result of decreased system load, disciplined cost management, and the deferral of projects to future periods. Earnings for the three months ended June 30, 2020, were also favorably affected by weather, which was offset by decreased electric retail sales not attributable to weather due, in part, to the COVID-19 pandemic. Earnings for the six months ended June 30, 2020, compared to the year-ago period, were unfavorably affected by lower revenues due to the absence of MEEIA performance incentives recognition in 2020, decreased electric retail sales at Ameren Missouri due, in part, to the COVID-19 pandemic, and decreased income tax benefits at Ameren (parent) related to stock-based compensation.

Ameren’s strategic plan includes investing and operating its utilities in a manner consistent with existing regulatory frameworks, enhancing those frameworks, and advocating for responsible energy and economic policies, as well as creating and capitalizing on opportunities for investment for the benefit of its customers and shareholders. Ameren remains focused on disciplined cost management and strategic capital allocation. Ameren believes it has constructive regulatory frameworks for investment at all of its utility businesses and invested $1.2 billion in those businesses in the six months ended June 30, 2020.

The COVID-19 pandemic continues to be a rapidly evolving situation. In the first six months of 2020, we experienced a net decrease in our sales volumes, an increase in our accounts receivable balances that were past due or that were a part of a deferred payment arrangement, and a decline in our cash collections from customers. The continued effect of the COVID-19 pandemic on our results of operations, financial position, and liquidity in subsequent periods will depend on its severity and longevity, future regulatory or legislative actions with respect thereto, and the resulting impact on business, economic, and capital market conditions. Shelter-in-place orders began taking effect in our service territories in mid-March 2020. These orders generally required individuals to remain at home and precluded or limited the operation of businesses that were deemed nonessential. In early 2020, Ameren began implementing its business continuity plans, and continues to implement measures to mitigate the risk of COVID-19 transmission. Actions included restricting travel for employees, implementing work-from-home policies, securing and supplying personal protective equipment, and implementing work practices to ensure the safety of our employees and customers, while maintaining social distancing. While our business operations were deemed essential and were not directly impacted by the shelter-in-place orders, approximately 65% of our workforce transitioned to remote working arrangements in mid-March. In early June, a small portion of our workforce began the process of returning to our work locations under a phased approach. In mid-May 2020, shelter-in-place orders effective in our service territories began to be relaxed, with fewer restrictions on social activities and nonessential businesses beginning to reopen. However, certain restrictions remain in place that limit individual activities and the operation of nonessential businesses. Additional restrictions may be imposed in the future. We continue to monitor the impacts the pandemic is having on our businesses, including impacts on electric and natural gas sales volumes, liquidity, bad debt expense, and supply chain operations. For further discussion of these and other matters, see Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report, and Management’s Discussion and Analysis of Results of Operations, Liquidity and Capital Resources, and Outlook sections below. In addition, for information regarding Ameren Missouri’s and Ameren Illinois’ suspension and subsequent reinstatement of customer disconnections and late fee charges for nonpayment, see Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report.

In February 2020, Ameren Missouri filed an update to its Smart Energy Plan with the MoPSC, which includes a five-year capital investment overview with a detailed one-year plan for 2020. The plan is designed to upgrade Ameren Missouri’s electric infrastructure and includes investments that will upgrade the grid and accommodate more renewable energy. Investments under the plan are expected to total approximately $7.6 billion over the five-year period from 2020 through 2024, with expenditures largely recoverable under the PISA and the RESRAM. The planned investments in 2024 included in the five-year range above are based on the assumption that Ameren Missouri requests and receives MoPSC approval of an extension of the PISA through December 2028.

In March 2020, the MoPSC issued an order in Ameren Missouri’s July 2019 electric service regulatory rate review, approving nonunanimous stipulation and agreements. The order resulted in a decrease of $32 million to Ameren Missouri's annual revenue requirement for electric retail service. The order also provided for the continued use of the FAC and trackers for pension and postretirement benefits, uncertain income tax positions, and certain excess deferred income taxes that the MoPSC previously authorized in earlier electric rate orders. In addition, the order required Ameren Missouri to donate $8 million to low-income assistance programs, which was reflected in results of operations in the first quarter of 2020. The new rates became effective on April 1, 2020. In April 2020, the MoPSC issued another order in Ameren Missouri’s July 2019 electric service regulatory rate review, reaffirming the existing percentage of net energy cost variances allowed to be recovered or refunded under the FAC. See Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report for more information regarding Ameren Missouri’s March and April 2020 electric service regulatory rate orders.

Construction on the new wind generation facilities continues to progress. Delays to the original construction schedule have occurred in 2020 as a result of changes in supply and construction activities. Ameren Missouri and the developers continue to monitor the impact to each project schedule. Ameren Missouri expects the up-to 400-megawatt project and a majority of the up-to 300 megawatt project to be placed in-service by the end of 2020. Based on an updated schedule from the developer, Ameren Missouri expects a portion of the up-to 300-megawatt project, representing approximately $100 million of investment, to be placed in-service in the first quarter of 2021. In May 2020, the IRS issued guidance that extended the in-service date criteria to December 31, 2021, for qualifying for production tax credits. As a result of this extension, Ameren does not anticipate that delays in the completion of the wind generation facilities will affect Ameren’s ability to realize anticipated federal production tax credits. See Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report for information regarding Ameren Missouri wind generation facilities.

In February 2020, the MoPSC issued an order approving a stipulation and agreement allowing Ameren Missouri to defer and amortize maintenance expenses related to scheduled refueling and maintenance outages at its Callaway Energy Center. Maintenance expenses associated with the fall 2020 refueling and maintenance outage are being deferred, as incurred, as a regulatory asset, and will be amortized after completion of the outage. Maintenance expenses will be amortized over the period between refueling and maintenance outages, which is approximately 18 months. Deferring and amortizing these expenses allows the timing of expense recognition to more closely align with revenues and mitigates future earnings volatility between outage and non-outage years.

In February 2020, Ameren Illinois filed a request with the ICC seeking approval to increase its annual revenues for natural gas delivery service. In July 2020, Ameren Illinois filed a revised request seeking to increase its annual revenues for natural gas delivery service by $96 million, which includes an estimated $46 million of annual revenues that would otherwise be recovered under the QIP and other riders. The request is based on a 10.5% allowed ROE, a capital structure composed of 54.1% common equity, and a rate base of $2.1 billion. Ameren Illinois used a 2021 future test year in this proceeding. In June 2020, the ICC staff recommended an increase to annual revenues for natural gas delivery service of $67 million, based on a 9.3% ROE, a capital structure composed of 50.4% common equity, and a rate base of $2.1 billion. A decision by the ICC in this proceeding is required by January 2021, with new rates expected to be effective in February 2021. Ameren Illinois cannot predict the level of any delivery service rate change the ICC may approve, nor whether any rate change that may eventually be approved will be sufficient to enable Ameren Illinois to earn a reasonable return on investments when the rate changes go into effect.

In April 2020, Ameren Illinois filed its annual electric distribution service formula rate update to reduce its rates by $45 million with the ICC. This update reflects a decrease to the annual formula rate based on 2019 actual costs, a decrease to include the 2019 revenue requirement reconciliation adjustment, and a decrease for the conclusion of the 2018 revenue requirement reconciliation adjustment, which will be fully collected from customers in 2020, consistent with the ICC’s December 2019 annual update filing order. It also reflects an increase based on expected net plant additions for 2020. In June 2020, the ICC staff submitted its calculation of the revenue requirement included in

Ameren Illinois’ update filing, recommending a $53 million decrease in Ameren Illinois’ electric distribution service rates. An ICC decision in this proceeding is expected by December 2020, with new rates effective January 2021.

RESULTS OF OPERATIONS

Our results of operations and financial position are affected by many factors. Economic conditions, including those resulting from the COVID-19 pandemic discussed below, energy-efficiency investments by our customers and by us, technological advances, distributed generation, and the actions of key customers can significantly affect the demand for our services. Ameren and Ameren Missouri results are also affected by seasonal fluctuations in winter heating and summer cooling demands, as well as by nuclear refueling and other energy center maintenance outages. Additionally, fluctuations in interest rates and conditions in the capital and credit markets affect our cost of borrowing, and our pension and postretirement benefits costs. Almost all of Ameren’s revenues are subject to state or federal regulation. This regulation has a material impact on the rates we charge customers for our services. Our results of operations, financial position, and liquidity are affected by our ability to align our overall spending, both operating and capital, with the frameworks established by our regulators. See Note 2 – Rate and Regulatory Matters, under Part I, Item 1, of this report and the Business Section under Part I, Item 1, of the Form 10-K for additional information regarding Ameren Missouri’s, Ameren Illinois’, and ATXI’s regulatory mechanisms.

We continue to monitor the impacts of the COVID-19 pandemic on our businesses, including impacts on electric and natural gas sales volumes, supply chain operations, and bad debt expense. Ameren Missouri and Ameren Illinois suspended customer disconnections and late fee charges for nonpayment in mid-March 2020 and began to resume these activities in the third quarter of 2020. For additional information, see Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report. Regarding bad debt expense, Ameren Illinois' electric distribution and natural gas distribution businesses have bad debt riders, which provide for recovery of bad debt write-offs, net of any subsequent recoveries. In 2020, Ameren Illinois’ electric bad debt rider provides for the recovery of bad debt expense. However, Ameren Missouri does not have a bad debt rider or regulatory tracking mechanism and its earnings are exposed to increases in bad debt expense, which could result in higher bad debt write-offs. As of June 30, 2020, accounts receivable balances that were 30 days or greater past due or that were a part of a deferred payment arrangement represented 26%, 19%, and 33%, or $132 million, $42 million, and $90 million, of Ameren’s, Ameren Missouri’s, and Ameren Illinois’ "Accounts receivable – trade" before allowance for doubtful accounts, respectively. As of June 30, 2019, these percentages were 17%, 11%, and 25%, or $83 million, $24 million, and $59 million, for Ameren, Ameren Missouri, and Ameren Illinois, respectively. Ameren Missouri's electric sales volumes have been, and continue to be, affected by the COVID-19 pandemic. In the three and six months ended June 30, 2020, compared to the same periods in 2019, Ameren Missouri experienced a reduction in commercial and industrial electric sales volumes, partially offset by increased electric sales volumes to higher margin residential customers, excluding the estimated effects of weather and customer energy-efficiency programs. While the impacts of the COVID-19 pandemic are difficult to predict, Ameren Missouri expects the net reduction in sales volumes, excluding the estimated effects of weather and customer energy-efficiency programs, to continue in the July through December 2020 period, compared to the same period in 2019. The COVID-19 pandemic may continue to affect Ameren Missouri’s total electric sales volumes and sales volumes by customer class beyond 2020. Assuming a ratable change in Ameren Missouri's electric sales volumes by month, a 1% change for the calendar year 2020 to residential, commercial, and industrial customers would affect earnings per diluted share by approximately 3 cents, 2 cents, and a half-cent, respectively. The actual change in earnings per diluted share will be affected by the timing of sales volume changes due to seasonal customer rates. Based on Ameren Missouri's current projections, the net decline in electric sales volumes for July 1 through December 31, 2020, compared to the same period in 2019, excluding the estimated effects of weather and customer energy-efficiency programs, is expected to result in a decline in earnings per diluted share of approximately 5 cents. The following table provides the increases and (decreases) in Ameren Missouri electric sales volumes by customer class for the three and six months ended June 30, 2020, and the estimated changes for the calendar year 2020, compared to the same periods in 2019, excluding the estimated effects of weather and customer energy-efficiency programs:

(a) Based on actual results from January 1 through June 30, 2020, and Ameren Missouri’s projection for July 1 through December 31, 2020, compared to the same period in 2019.

Ameren Illinois also experienced decreases in electric and natural gas sales volumes in the three and six months ended June 30, 2020. However, Ameren Illinois’ electric distribution and transmission businesses have formula ratemaking frameworks, which provide for recovery of their revenue requirements independent of sales volumes, and Ameren Illinois' natural gas distribution business has a VBA, which provides for recovery of the natural gas distribution service revenue requirement associated with sales volumes for residential and small nonresidential customers. Additionally, ATXI’s electric transmission business has a formula ratemaking framework, which provides for recovery of its revenue requirement independent of sales volumes. None of Ameren’s businesses have experienced significant disruptions to their supply chain operations. However, see Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report for information regarding the impact of supply chain disruptions related to Ameren Missouri’s acquisition of an up-to 300-megawatt wind generation facility.

Ameren Missouri principally uses coal and enriched uranium for fuel in its electric operations and purchases natural gas for its customers. Ameren Illinois purchases power and natural gas for its customers. The prices for these commodities can fluctuate significantly because of the global economic and political environment, weather, supply, demand, and many other factors. We have natural gas cost recovery mechanisms for our Illinois and Missouri natural gas distribution businesses, a purchased power cost recovery mechanism for Ameren Illinois’ electric distribution business, and a FAC for Ameren Missouri’s electric business.

We employ various risk management strategies to reduce our exposure to commodity risk and other risks inherent in our business. The reliability of Ameren Missouri’s energy centers and our transmission and distribution systems, and the level and timing of operations and maintenance costs and capital investment, are key factors that we seek to manage in order to optimize our results of operations, financial position, and liquidity.

Earnings Summary

The following table presents a summary of Ameren’s earnings for the three and six months ended June 30, 2020 and 2019:

Net income attributable to Ameren common shareholders increased $64 million, or 26 cents per diluted share, in the three months ended June 30, 2020, compared with the year-ago period. The increase was due to net income increases of $45 million, $17 million and $8 million at Ameren Missouri, Ameren Transmission, and Ameren Illinois Natural Gas, respectively. These increases were partially offset by a $5 million increase in the net loss for activity not reported as part of a segment, primarily at Ameren (parent), and a $1 million decrease in net income at Ameren Illinois Electric Distribution.

Net income attributable to Ameren common shareholders increased $19 million, or 7 cents per diluted share, in the six months ended June 30, 2020, compared with the year-ago period. The increase was due to net income increases of $20 million and $6 million at Ameren Transmission and Ameren Illinois Natural Gas, respectively. These increases were partially offset by net income decreases of $4 million and $3 million at Ameren Missouri and from activity not reported as part of a segment, primarily at Ameren (parent), respectively.

Earnings per diluted share were favorably affected in the three and six months ended June 30, 2020, compared to the year-ago periods (except where a specific period is referenced), by:

• decreased other operations and maintenance expenses related to the absence of a scheduled refueling and maintenance outage at the Callaway Energy Center, which last occurred in the second quarter of 2019 and which costs previously were expensed as incurred, as compared with the deferral of expenses for the fall 2020 refueling and maintenance outage under the February 2020 MoPSC order (8 cents and 10 cents per share, respectively);
• lower base level of expenses, partially offset by lower base rates, net of recovery for amounts associated with the reduction in sales volumes resulting from MEEIA programs and recoverable depreciation under the PISA, at Ameren Missouri pursuant to the MoPSC’s March 2020 electric rate order as discussed in Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report (7 cents per share for both periods);
• increased Ameren Transmission and Ameren Illinois Electric Distribution earnings under formula ratemaking because of additional rate base investments (4 cents and 7 cents per share, respectively);
• increased electric retail sales at Ameren Missouri for the three months ended June 30, 2020, due to weather resulting from warmer early summer temperatures experienced in 2020 (estimated at 5 cents per share for the three months ended June 30, 2020);
• increased Ameren Transmission earnings resulting from the May 2020 FERC order addressing the allowed base ROE for FERC regulated transmission rate base under the MISO tariff (4 cents per share for both periods);
• increased Ameren Illinois Natural Gas earnings from investments in qualifying infrastructure recovered under the QIP rider (1 cent and 2 cents per share, respectively); and
• decreased other operations and maintenance expenses not subject to riders or regulatory tracking mechanisms, excluding decreased costs associated with the Callaway Energy Center’s scheduled refueling and maintenance outage, primarily due to lower electric system infrastructure maintenance expenses as a result of decreased system load, disciplined cost management, and the deferral of projects to future periods, and changes in the cash surrender value of company-owned life insurance, which increased in the three months ended June 30, 2020, but decreased in the six months ended June 30, 2020 (9 cents and 1 cent per share, respectively).

Earnings per diluted share were unfavorably affected in the three and six months ended June 30, 2020, compared to the year-ago periods (except where a specific period is referenced), by:

• the absence in 2020 of MEEIA 2013 and MEEIA 2016 performance incentives at Ameren Missouri recognized in the first quarter of 2019 (6 cents per share for the six months ended June 30, 2020);
• decreased electric retail sales, excluding the estimated effects of weather, at Ameren Missouri due to decreased demand from commercial and industrial customers, partially offset by increased demand from higher margin residential customers. Demand was affected, in part, by the COVID-19 pandemic (estimated at 5 cents per share for both periods);
• decreased Ameren Illinois Electric Distribution earnings under formula ratemaking because of a lower recognized ROE (2 cents and 4 cents per share, respectively);
• decreased income tax benefits at Ameren (parent) related to stock-based compensation (3 cents per share for the six months ended June 30, 2020);
• increased net financing costs primarily at Ameren (parent), because of its April 2020 debt issuance (3 cents and 2 cents per share, respectively);
• increased charitable donations at Ameren Missouri pursuant to its March 2020 electric rate order (2 cents per share for the six months ended June 30, 2020);
• decreased electric sales at Ameren Missouri, primarily due to milder winter temperatures experienced in 2020 (1 cent per share for the six months ended June 30, 2020); and
• increased weighted-average basic common shares outstanding (1 cent per share for both periods).

The cents per share information presented is based on the weighted-average basic common shares outstanding in the three and six months ended June 30, 2019, and does not reflect any change in earnings per share resulting from dilution, unless otherwise noted. Amounts other than variances related to income taxes have been presented net of income taxes using Ameren’s 2020 statutory tax rate of 26%. For additional details regarding the Ameren Companies’ results of operations, including explanations of Electric and Natural Gas Margins, Other Operations and Maintenance Expenses, Depreciation and Amortization, Taxes Other Than Income Taxes, Other Income, Net, Interest Charges, and Income Taxes, see the major headings below.

Below is Ameren’s table of income statement components by segment for the three and six months ended June 30, 2020 and 2019:

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Below is Ameren Illinois’ table of income statement components by segment for the three and six months ended June 30, 2020 and 2019:

Electric and Natural Gas Margins

Electric margins are defined as electric revenues less fuel and purchased power costs. Natural gas margins are defined as natural gas revenues less natural gas purchased for resale. We consider electric and natural gas margins useful measures to analyze the change in profitability of our electric and natural gas operations between periods. We have included the analysis below to complement the financial information we provide in accordance with GAAP. However, these margins may not be a presentation defined under GAAP, and they may not be comparable to other companies’ presentations or more useful than the GAAP information we provide elsewhere in this report.

Electric Margins

(a) Includes other/intersegment eliminations of $(6) million and $(7) million in the three months ended June 30, 2020, and 2019, respectively. Also includes other/intersegment eliminations of $(15) million and $(15) million in the six months ended June 30, 2020, and 2019, respectively.

Ameren Missouri Ameren Illinois Electric Distribution Ameren Transmission Other/Intersegment Eliminations

Natural Gas Margins

Ameren Missouri Ameren Illinois Natural Gas

The following tables present the favorable (unfavorable) variations by Ameren segment for electric and natural gas margins for the three and six months ended June 30, 2020, compared with the year-ago periods.

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(a) Includes an increase in transmission margins of $21 million and $25 million at Ameren Illinois for the three and six months ended June 30, 2020, compared with the year-ago periods.

(b) Represents the estimated variation resulting primarily from changes in cooling and heating degree-days on electric and natural gas demand compared with the year-ago periods; this variation is based on temperature readings from the National Oceanic and Atmospheric Administration weather stations at local airports in our service territories.

(c) For Ameren Illinois Electric Distribution and Ameren Transmission, base rates include increases or decreases to operating revenues related to the revenue requirement reconciliation adjustment under formula rates. For Ameren Missouri, base rates exclude an increase of $12 million for the recovery of lost electric margins for the three and six months ended June 30, 2020, compared with the year-ago periods, resulting from the MEEIA 2016 and 2019 customer energy-efficiency programs. This amount is included in the “sales volumes and changes in customer usage patterns (excluding the estimated effects of weather and MEEIA)” line item.

(d) Electric and natural gas revenue changes are offset by corresponding changes in “Fuel,” “Purchased power,” and “Natural gas purchased for resale” on the statement of income, resulting in no change to electric and natural gas margins.

(e) Offsetting expense increases or decreases are reflected in “Other operations and maintenance,” “Depreciation and amortization,” or in “Taxes other than income taxes,” within the “Operating Expenses” section of the statement of income. These items have no overall impact on earnings.

Ameren

Ameren’s electric margins increased $29 million, or 3%, for the three months ended June 30, 2020, compared with the year-ago period, primarily because of increased margins at Ameren Transmission. Ameren’s electric margins increased $9 million, or less than 1%, for the six months ended June 30, 2020, compared with the year-ago period, primarily because of increased margins at Ameren Transmission and Ameren Illinois Electric Distribution, partially offset by decreased margins at Ameren Missouri, as discussed below.

Ameren’s natural gas margins were comparable between periods, as discussed below.

Ameren Transmission

Ameren Transmission’s margins increased $27 million, or 25%, and $36 million, or 16%, for the three and six months ended June 30, 2020, respectively, compared with the year-ago periods. Margins were favorably affected by increased capital investment, as evidenced by a 13% increase in rate base used to calculate the revenue requirement, and the result of a May 2020 FERC order, which increased the ROE related to the November 2013 complaint case, compared with the ROE set by a November 2019 FERC order, and dismissed the February 2015 complaint case. See Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report for additional information regarding the FERC complaint cases.

Ameren Missouri

Ameren Missouri’s electric margins increased $4 million, or 1%, and decreased $37 million, or 3%, for the three and six months ended June 30, 2020, respectively, compared with the year-ago periods.

The following items had an unfavorable effect on Ameren Missouri’s electric margins for the three and six months ended June 30, 2020, compared with the year-ago periods (except when a specific period is referenced):

• Excluding the estimated effects of weather and the MEEIA 2016 and 2019 customer energy-efficiency programs, electric revenues decreased an estimated $25 million and $24 million, respectively. The decrease was primarily due to a decrease in sales volumes (-$17 million and -$18 million, respectively), which were unfavorably affected by the COVID-19 pandemic, and a decrease in the average retail price per kilowatthour due to changes in customer usage patterns and shifts in commercial and industrial usage between rate classes (-$8 million and -$6 million, respectively). While the MEEIA 2016 and 2019 customer energy-efficiency programs reduced retail sales volumes, the recovery of lost electric margins under the MEEIA ensured that electric margins were not affected.
• The absence of revenues associated with MEEIA 2013 and 2016 performance incentives in 2020, which were recognized in the first quarter of 2019, decreased revenues $20 million for the six months ended June 30, 2020. See Note 2 – Rate and Regulatory Matters under Part I, Item 1 of this report for information regarding the MEEIA 2013 and MEEIA 2016 performance incentives.

The following items had a favorable effect on Ameren Missouri’s electric margins for the three and six months ended June 30, 2020, compared with the year-ago periods (except when a specific period is referenced):

• Summer temperatures were warmer as cooling degree days increased 5% and spring temperatures were colder as heating degree days increased 48% for the three months ended June 30, 2020. The aggregate effect of weather increased margins an estimated $17 million. The change in margins due to weather is the sum of the effect of weather (estimate) on electric revenues (+$21 million) and the effect of weather (estimate) on fuel and purchased power (-$4 million) in the table above.
• Lower net energy costs included in base rates partially offset by lower electric base rates as a result of the March 2020 electric rate order (effective April 1st) increased margins $11 million for the three months ended June 30, 2020. The change in electric base rates is the sum of the change in base rates (estimate) (-$18 million) and the effect of lower net energy costs included in base rates (+$29 million) in the table above.
• Net energy costs increased margins $6 million and $8 million, respectively, as a result of decreased sales volumes, which were reduced by the COVID-19 pandemic. The change in net energy costs is the sum of the effect of revenue change in off-system sales (+$21 million and -$1 million, respectively), and the effect of the change in energy costs (-$15 million and $9 million, respectively) in the table above.

Ameren Missouri’s natural gas margins were comparable between periods.

Ameren Illinois

Ameren Illinois’ electric margins increased $18 million, or 5%, and $35 million, or 5%, for the three and six months ended June 30, 2020, respectively, compared with the year-ago periods, driven by increased margins at Ameren Illinois Transmission in both periods and increased margins at Ameren Illinois Electric Distribution in the six months ended June 30, 2020. Ameren Illinois Natural Gas’ margins increased $4 million, or 4%, for the three months ended June 30, 2020, compared with the year-ago period. Ameren Illinois Natural Gas’ margins were comparable between the six months ended June 30, 2020 and 2019.

Ameren Illinois Electric Distribution

Ameren Illinois Electric Distribution’s margins decreased $3 million, or 1%, and increased $10 million, or 2%, for the three and six months ended June 30, 2020, respectively, compared with the year-ago periods.

The following items had a favorable effect on Ameren Illinois Electric Distribution’s margins for the three and six months ended June 30, 2020, compared with the year-ago periods (except when a specific period is referenced):

• Margins increased due to higher recoverable non-purchased power expenses (+$9 million) and increased capital investment (+$5 million), as evidenced by a 7% increase in rate base, partially offset by a lower recognized ROE (-$10 million), as evidenced by a decrease of 118 basis points in the estimated annual average of the monthly yields of the 30-year United States Treasury bonds under formula ratemaking for the six months ended June 30, 2020. The sum of these changes collectively increased margins $4 million for the six months ended June 30, 2020.
• Revenues increased $3 million and $6 million, respectively, due to increased energy-efficiency program investments under formula ratemaking.

Ameren Illinois Electric Distribution’s margins decreased for the three months ended June 30, 2020, compared with the year-ago period due to lower recoverable non-purchased power expenses (-$5 million) and a lower recognized ROE (-$4 million), partially offset by increased capital investment (+$2 million) under performance-based formula ratemaking. The sum of these changes collectively decreased margins $7 million.

Ameren Illinois Natural Gas

Ameren Illinois Natural Gas’ margins increased $4 million, or 4%, for the three months ended June 30, 2020, compared with the year-ago period. Revenues increased from QIP recoveries due to additional investment in qualified natural gas infrastructure. Ameren Illinois Natural Gas’ margins were comparable between the six months ended June 30, 2020 and 2019.

Ameren Illinois Transmission

Ameren Illinois Transmission’s margins increased $21 million, or 32%, and $25 million, or 18%, for the three and six months ended June 30, 2020, respectively, compared with the year-ago periods. Margins were favorably affected by increased capital investment, as evidenced by a 19% increase in rate base used to calculate the revenue requirement, and the result of a May 2020 FERC order, which increased the ROE related to the November 2013 complaint case, compared with the ROE set by a November 2019 FERC order, and dismissed the February 2015 complaint case. See Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report for additional information regarding the FERC complaint cases.

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Other Operations and Maintenance Expenses

(a) Includes other/intersegment eliminations of $(3) million and $(3) million in the three months ended June 30, 2020, and 2019, respectively. Also includes other/intersegment eliminations of $(5) million and $(3) million in the six months ended June 30, 2020, and 2019, respectively.

Ameren

Other operations and maintenance expenses decreased $66 million and $45 million in the three and six months ended June 30, 2020, respectively, compared with the year-ago periods, due to changes discussed below.

Ameren Transmission

Other operations and maintenance expenses were comparable between periods.

Ameren Missouri

Other operations and maintenance expenses decreased $52 million and $37 million in the three and six months ended June 30, 2020, respectively, compared with the year-ago periods. The following items decreased other operations and maintenance expenses in the three and six months ended June 30, 2020, compared with the year-ago periods (except where a specific period is referenced):

• Callaway Energy Center refueling operations and maintenance costs decreased $25 million and $32 million, respectively, primarily because of the refueling and maintenance outage that was completed in May 2019. The 2019 outage costs were expensed as incurred. Costs for the current year’s fall refueling and maintenance outage are deferred as a regulatory asset pursuant to the February 2020 MoPSC order.
• Non-Callaway Energy Center maintenance costs decreased $13 million and $15 million, respectively, primarily due to lower electric system infrastructure maintenance expenses as a result of decreased system load, disciplined cost management, and the deferral of projects to future periods.
• The cash surrender value of company-owned life insurance increased $6 million in the three months ended June 30, 2020, because of increased favorable market returns in the current-year period compared with the year-ago period.
• Transmission and distribution expenditures decreased $6 million and $5 million, respectively, primarily due to storms in the second quarter of 2019.
• Amortization of solar rebate costs decreased $4 million in both periods as a result of the March 2020 MoPSC electric rate order.

The following items partially offset the above decreases in other operations and maintenance expenses in the three and six months ended June 30, 2020, compared with the year-ago periods (except where a specific period is referenced):

• The cash surrender value of company-owned life insurance decreased $9 million in the six months ended June 30, 2020, because of favorable market returns in the year-ago period.
• Customer energy-efficiency program costs increased $5 million in the three months ended June 30, 2020, because of lower participation in the MEEIA 2019 programs in the second quarter of 2019 as programs had just begun.
• Technology-related expenditures increased $5 million in the six months ended June 30, 2020, primarily due to costs associated with the implementation of cloud computing technology.

Ameren Illinois

Other operations and maintenance expenses decreased $14 million and $6 million in the three and six months ended June 30, 2020, respectively, compared with the year-ago periods, as discussed below. Other operations and maintenance expenses were comparable between periods at Ameren Illinois Transmission.

Ameren Illinois Electric Distribution

Other operations and maintenance expenses decreased $8 million in the three months ended June 30, 2020, compared with the year-ago period, primarily due to a $3 million increase in the cash surrender value of company-owned life insurance, resulting from increased favorable market returns in the current-year period compared with the year-ago period, and a $2 million decrease in labor and benefit costs, primarily due to lower medical costs. Additionally, meter reading costs decreased by $2 million due to increased automated meter deployment. Other operations and maintenance expenses increased $3 million in the six months ended June 30, 2020, compared with the year-ago period, primarily due to a $4 million decrease in the cash surrender value of company-owned life insurance because of favorable market returns in the year-ago period and a $4 million increase in amortization of regulatory assets associated with energy-efficiency program investments under performance-based formula ratemaking. These increases were partially offset by a $3 million decrease in meter reading costs and a $2 million decrease in injury claims.

Ameren Illinois Natural Gas

Other operations and maintenance expenses decreased $7 million in the three months ended June 30, 2020, compared with the year-ago period, primarily due to a $2 million increase in the cash surrender value of company-owned life insurance because of increased favorable market returns in the current-year period compared with the year-ago period, and insignificant decreases in various other operations and maintenance expenses, including reductions in medical benefit costs, meter reading costs, and energy-efficiency rider costs. Other operations and maintenance expenses decreased $9 million in the six months ended June 30, 2020, compared with the year-ago period, primarily due to a $5 million reduction in energy-efficiency and environmental remediation rider costs and a $3 million reduction in meter reading costs due to increased automated meter deployment.

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Depreciation and Amortization Expenses

(a) Includes other/intersegment eliminations of $2 million and $2 million in the three months ended June 30, 2020, and 2019, respectively. Also includes other/intersegment eliminations of $2 million and $2 million in the six months ended June 30, 2020, and 2019, respectively.

Depreciation and amortization expenses increased $22 million, $16 million, and $6 million in the three months ended June 30, 2020, and $29 million, $15 million, and $12 million in the six months ended June 30, 2020 compared with the year-ago periods, at Ameren, Ameren Missouri, and Ameren Illinois, respectively, primarily because of additional property, plant, and equipment investments across their respective segments. Ameren’s and Ameren Missouri’s depreciation and amortization expenses include a deferral to a regulatory asset of depreciation and amortization expenses pursuant to the PISA. As a result of the March 2020 MoPSC electric rate order, the deferral to a regulatory asset of depreciation and amortization expenses related to PISA-eligible assets placed in-service through December 31, 2019, ceased as of April 1, 2020, as the associated depreciation and amortization expenses were then reflected in customer rates. The PISA deferral of depreciation and amortization expenses was $1 million and $4 million for the three months ended June 30, 2020 and 2019, respectively, and $14 million and $7 million for the six months ended June 30, 2020 and 2019, respectively.

55

Taxes Other Than Income Taxes

(a) Includes $2 million, $1 million, $4 million, and $2 million at Ameren Transmission in the three months ended June 30, 2020, the three months ended June 30, 2019, the six months ended June 30, 2020, and the six months ended June 30, 2019, respectively, and other/intersegment eliminations of $2 million, $2 million, $5 million, and $6 million, in the three months ended June 30, 2020, the three months ended June 30, 2019, the six months ended June 30, 2020, and the six months ended June 30, 2019, respectively.

Taxes other than income taxes were comparable between periods at Ameren, Ameren Missouri, Ameren Illinois, and their respective segments.

56

Other Income, Net

Other income, net, increased $12 million in the three months ended June 30, 2020, compared with the year-ago period, primarily due to a $9 million increase in the non-service cost components of net periodic benefit income at Ameren Missouri, partially due to changes in the base level of pension and postretirement costs as a result of the March 2020 MoPSC electric rate order. Other income, net, increased $4 million in the six months ended June 30, 2020, compared with the year-ago period. An increase of $10 million in the non-service cost components of net periodic benefit income at Ameren Missouri was partially offset by a $7 million increase in donations, primarily due to charitable donations made pursuant to the March 2020 MoPSC electric rate order. Additionally, other income, net, increased due to insignificant activity across the other Ameren segments. See Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report for additional information regarding the Ameren Missouri 2019 electric service regulatory rate review.

See Note 5 – Other Income, Net under Part I, Item 1, of this report for additional information.

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Interest Charges

Interest charges increased $11 million and $7 million in the three and six months ended June 30, 2020, respectively, compared with the year-ago periods. Interest charges at Ameren and Ameren Missouri include a deferral to a regulatory asset of interest charges pursuant to the PISA. As a result of the March 2020 MoPSC electric rate order, the deferral to a regulatory asset of amounts related to PISA-eligible assets placed in-service through December 31, 2019, ceased as of April 1, 2020, as the return on those PISA assets was then reflected in customer rates. The PISA deferral of interest charges was less than $1 million and $3 million for the three months ended June 30, 2020 and 2019, respectively, and $9 million and $5 million for the six months ended June 30, 2020 and 2019, respectively. The increase in interest charges in the three months ended June 30, 2020, was primarily due to a long-term debt issuance at Ameren (parent) in April 2020 and the lower PISA deferral at Ameren Missouri. The increase in interest charges in the six months ended June 30, 2020, was primarily due to increased interest charges at Ameren (parent), resulting from its April 2020 long-term debt issuance.

Income Taxes

The following table presents effective income tax rates for the three and six months ended June 30, 2020 and 2019:

(a) Estimate of the annual effective income tax rate adjusted to reflect the tax effect of items discrete to the three and six months ended June 30, 2020 and 2019.

See Note 12 – Income Taxes under Part I, Item 1, of this report for a reconciliation of the federal statutory corporate income tax rate to the effective income tax rate for the Ameren Companies.

The effective income tax rate was higher at Ameren Illinois Electric Distribution and Ameren Illinois Natural Gas in the three months ended June 30, 2020, compared with the year-ago period, primarily because of lower amortization of excess deferred taxes and lower tax benefits from certain depreciation differences on property-related items largely attributable to the allowance for equity funds used during construction. The effective income tax rate was higher at Ameren Illinois Electric Distribution and Ameren Illinois Natural Gas in the six months ended June 30, 2020, compared with the year-ago period, primarily because of lower amortization of excess deferred taxes.

LIQUIDITY AND CAPITAL RESOURCES

Collections from our tariff-based revenues are our principal source of cash provided by operating activities. A diversified retail customer mix, primarily consisting of rate-regulated residential, commercial, and industrial customers, provides us with a reasonably predictable source of cash. In addition to using cash provided by operating activities, we use available cash, drawings under committed credit agreements, commercial paper issuances, and/or, in the case of Ameren Missouri and Ameren Illinois, short-term affiliate borrowings to support normal operations and temporary capital requirements. We may reduce our short-term borrowings with cash provided by operations or, at our discretion, with long-term borrowings, or, in the case of Ameren Missouri and Ameren Illinois, with capital contributions from Ameren (parent). We expect to make significant capital expenditures over the next five years as we invest in our electric and natural gas utility infrastructure to support overall system reliability, grid modernization, renewable energy requirements, environmental compliance, and other improvements. As part of its plan to fund these cash flow requirements, Ameren is using newly issued shares of common stock, rather than market-purchased shares, to satisfy requirements under the DRPlus and employee benefit plans and expects to continue to do so through at least 2024. Ameren expects these issuances to provide equity of about $100 million annually. Ameren also plans to issue incremental common equity to fund a portion of Ameren Missouri’s wind generation investments through the physical settlement of the forward sale agreement entered into in August 2019 relating to 7.5 million shares of common stock. Additionally, Ameren plans to issue incremental equity of about $150 million annually from 2021 to 2024. For additional information about the forward sale agreement, see Note 4 – Long-Term Debt and Equity Financings under Part I, Item 1, of this report. Ameren expects its equity to total capitalization to be about 45% through the period ending December 2024, with the long-term intent to support solid investment-grade credit ratings.

The use of cash provided by operating activities and short-term borrowings to fund capital expenditures and other long-term investments at the Ameren Companies frequently results in a working capital deficit, defined as current liabilities exceeding current assets, as was the case at June 30, 2020, for Ameren and Ameren Illinois. With the credit capacity available under the Credit Agreements, and cash and cash equivalents, the Ameren Companies had net available liquidity of $2.2 billion at June 30, 2020. As a result of capital market volatility due, in part, to the COVID-19 pandemic, and to increase net available liquidity, Ameren (parent) accelerated a debt issuance to April 2020, which had been planned for later in 2020. Additionally, Ameren expects to receive between $540 million and $550 million upon settlement of the forward sale agreement, which can be settled at Ameren’s discretion on or prior to March 31, 2021. See Credit Facility Borrowings and Liquidity and Long-term Debt and Equity below for additional information.

The following table presents net cash provided by (used in) operating, investing, and financing activities for the six months ended June 30, 2020 and 2019:

Cash Flows from Operating Activities

Our cash provided by operating activities is affected by fluctuations of trade accounts receivable, inventories, and accounts and wages payable, among other things, as well as the unique regulatory environment for each of our businesses. Substantially all expenditures related to fuel, purchased power, and natural gas purchased for resale are recovered from customers through rate adjustment mechanisms, which may be adjusted without a traditional rate proceeding. Similar regulatory mechanisms exist for certain other operating expenses that can also affect the timing of cash provided by operating activities. The timing of cash payments for costs recoverable under our regulatory mechanisms differs from the recovery period of those costs. Additionally, the seasonality of our electric and natural gas businesses, primarily caused by changes in customer demand due to weather, significantly affects the amount and timing of our cash provided by operating activities.

Our customers’ payment for our services has been adversely affected by the COVID-19 pandemic, resulting in a decrease to our cash flow from operations. For information regarding Ameren Missouri’s and Ameren Illinois’ suspension and subsequent reinstatement of customer disconnections and late fee charges for nonpayment, see Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report. In addition, see Results of Operations above for more information on Ameren’s, Ameren Missouri’s, and Ameren Illinois’ accounts receivable balances that were 30 days or greater past due or that were a part of a deferred payment arrangement.

Ameren

Ameren’s cash provided by operating activities decreased $185 million in the first six months of 2020, compared with the year-ago period. The following items contributed to the decrease:

• A $156 million decrease resulting from decreased customer collections, primarily due to an increase in accounts receivable balances, which was affected by an increase in amounts that were 30 days or greater past due or that were a part of a deferred payment arrangement, and a decrease in sales volumes at Ameren Missouri, partially offset by decreased fuel and purchased power costs at Ameren Missouri, decreased purchased power costs and volumes and natural gas costs at Ameren Illinois, and a net increase attributable to regulatory recovery mechanisms.
• A $32 million decrease, primarily resulting from increased coal inventory levels as less coal was purchased in 2019 due to delivery disruptions that occurred from flooding.
• A $21 million increase in payments to settle ARO liabilities, primarily related to Ameren Missouri’s CCR storage facilities.
• A net $20 million decrease in collateral received from counterparties, primarily resulting from changes in the market prices of power and natural gas, changes in contracted commodity volumes, and decreases resulting from Ameren Illinois’ renewable energy contracts entered into pursuant to the FEJA.
• A $14 million increase in property tax payments at Ameren Missouri due to higher property tax values in 2019, compared with 2018. Property tax payments in a given year are based on the preceding year’s property tax values.

The following items partially offset the decrease in Ameren’s cash from operating activities between periods:

• A $27 million decrease in payments for nuclear refueling and maintenance outages at Ameren Missouri’s Callaway Energy Center. There was no refueling and maintenance outage in the first half of 2020.
• A $17 million decrease in non-Callaway Energy Center maintenance costs at Ameren Missouri, primarily due to lower electric system infrastructure maintenance expenses as a result of decreased system load, disciplined cost management, the deferral of projects to future periods, and lower storm costs.
• A $12 million decrease in payments for the employer portion of Social Security taxes as a result of a payment deferral allowed under the Coronavirus Aid, Relief, and Economic Security Act. The deferred amounts will be paid over two years beginning in 2021.

Ameren Missouri

Ameren Missouri’s cash provided by operating activities decreased $69 million in the first six months of 2020, compared with the year-ago period. The following items contributed to the decrease:

• An $89 million decrease resulting from decreased customer collections, primarily due to an increase in accounts receivable balances and a decrease in sales volumes, partially offset by decreased fuel and purchased power costs and a net increase attributable to regulatory recovery mechanisms.
• A $32 million decrease, primarily resulting from increased coal inventory levels as less coal was purchased in 2019 due to delivery disruptions that occurred from flooding in 2019.
• A $21 million increase in payments to settle ARO liabilities, primarily related to CCR storage facilities.
• A net $14 million decrease in collateral received from counterparties, primarily resulting from changes in the market prices of power and natural gas and changes in contracted commodity volumes.
• A $14 million increase in property tax payments due to higher property tax values in 2019, compared with 2018. Property tax payments in a given year are based on the preceding year’s property tax values.

The following items partially offset the decrease in Ameren Missouri’s cash from operating activities between periods:

• A $57 million decrease in income tax payments to Ameren (parent) pursuant to the tax allocation agreement, primarily due to the timing of payments and lower taxable income in 2020.
• A $27 million decrease in payments for nuclear refueling and maintenance outages at the Callaway Energy Center. There was no refueling and maintenance outage in the first half of 2020.
• A $17 million decrease in non-Callaway Energy Center maintenance costs, primarily due to lower electric system infrastructure maintenance expenses as a result of decreased system load, disciplined cost management, the deferral of projects to future periods, and lower storm costs.
• A $6 million decrease in payments for the employer portion of Social Security taxes as a result of a payment deferral allowed under the Coronavirus Aid, Relief, and Economic Security Act. The deferred amounts will be paid over two years beginning in 2021.

Ameren Illinois

Ameren Illinois’ cash provided by operating activities decreased $112 million in the first six months of 2020, compared with the year-ago period. The following items contributed to the decrease:

• A $67 million decrease resulting from decreased customer collections, primarily due to an increase in accounts receivable balances that were 30 days or greater past due or that were a part of a deferred payment arrangement and a net decrease attributable to regulatory recovery mechanisms, partially offset by decreased purchased power costs and volumes and natural gas costs.
• A $31 million increase in income tax payments to Ameren (parent) pursuant to the tax allocation agreement, primarily due to the timing.
• A net $6 million decrease in collateral received from counterparties, primarily resulting from changes in the market prices of power and natural gas, changes in contracted commodity volumes, and decreases resulting from renewable energy contracts entered into pursuant to the FEJA.

The decrease in Ameren Illinois’ cash from operating activities between periods was partially offset by a $5 million decrease in payments for the employer portion of Social Security taxes as a result of a payment deferral allowed under the Coronavirus Aid, Relief, and Economic Security Act. The deferred amounts will be paid over two years beginning in 2021.

Cash Flows from Investing Activities

Ameren’s cash used in investing activities increased $161 million in the first six months of 2020, compared with the year-ago period, primarily as a result of a $103 million increase in capital expenditures. Partially offsetting capital expenditure increases at Ameren Missouri and Ameren Illinois discussed below, Ameren’s capital expenditures decreased due to a $25 million decrease at ATXI. ATXI’s capital expenditures decreased as a result of decreased expenditures on the Mark Twain project compared to the year-ago period. Cash used in investing activities also increased $31 million due to the timing of nuclear fuel expenditures and $31 million due to net investment activity in the nuclear decommissioning trust fund at Ameren Missouri in the first six months of 2020, compared with the year-ago period.

Ameren Missouri’s cash used in investing activities increased $83 million in the first six months of 2020, compared with the year-ago period, primarily as a result of a $31 million increase due to the timing of nuclear fuel expenditures and a $31 million net increase in investment activity in the nuclear decommissioning trust fund. Ameren Missouri also had a $21 million increase in capital expenditures compared with the year-ago period, primarily related to electric delivery infrastructure upgrades and electric transmission system reliability projects.

Ameren Illinois’ cash used in investing activities increased $101 million in the first six months of 2020, compared with the year-ago period, primarily due to a $105 million increase in capital expenditures primarily related to electric transmission system reliability projects and upgrades to electric delivery and natural gas infrastructure.

Cash Flows from Financing Activities

Cash provided by, or used in, financing activities is a result of our financing needs, which depend on the level of cash provided by operating activities, the level of cash used in investing activities, the level of dividends, and our long-term debt maturities, among other things.

Ameren’s cash provided by financing activities increased $318 million during the first six months of 2020, compared with the year-ago period. During the first six months of 2020, Ameren utilized proceeds from the issuance of $1,263 million of long-term debt for general corporate purposes, including to repay then-outstanding short-term debt, including short-term debt incurred in connection with the repayment at maturity of long-term debt of $85 million, and to fund, in part, investing activities. During the first six months of 2020, Ameren repaid net short-term debt of $320 million. In comparison, during the first six months of 2019, Ameren utilized proceeds of $851 million from a long-term debt issuance and net commercial paper issuances to repay $329 million of higher-cost long-term debt and to fund, in part, investing activities. During the first six months of 2020, Ameren paid common stock dividends of $244 million, compared with $233 million in dividend payments in the year-ago period.

Ameren Missouri’s cash provided by financing activities increased $119 million during the first six months of 2020, compared with the year-ago period. During the first six months of 2020, Ameren Missouri utilized net proceeds from the issuance of $465 million of long-term debt to repay then-outstanding short-term debt, including short-term debt incurred in connection with the repayment at maturity of long-term debt of $85 million. During the first six months of 2020, Ameren Missouri repaid net short-term debt of $155 million, borrowed $65 million from the money pool, and used cash provided by financing activities to fund, in part, investing activities. In comparison, during the first six months of 2019, Ameren Missouri utilized net proceeds from the issuance of $450 million in long-term debt to repay then-outstanding commercial paper issuances, including short-term debt incurred in connection with the repayment at maturity of long-term debt of $329 million, and net commercial paper issuances of $150 million to fund, in part, investing activities. During the first six months of 2020, Ameren Missouri did not pay common stock dividends, compared with $100 million in dividend payments in the year-ago period.

Ameren Illinois’ cash provided by financing activities increased $211 million during the first six months of 2020, compared with the year-ago period. During the first six months of 2020, Ameren Illinois received $350 million in capital contributions from Ameren (parent), repaid net short-term debt of $12 million, and used cash provided by financing activities to fund, in part, investing activities. In comparison, during the first six months of 2019, Ameren Illinois utilized net proceeds from commercial paper issuances of $127 million to fund, in part, investing activities.

See Long-term Debt and Equity in this section for additional information on maturities and issuances of long-term debt.

Credit Facility Borrowings and Liquidity

The liquidity needs of the Ameren Companies are typically supported through the use of available cash, drawings under committed credit agreements, commercial paper issuances, and/or, in the case of Ameren Missouri and Ameren Illinois, short-term affiliate borrowings. See Note 3 – Short-term Debt and Liquidity under Part I, Item 1, of this report for additional information on credit agreements, commercial paper issuances, Ameren’s money pool arrangements and related borrowings, and relevant interest rates.

The following table presents Ameren’s consolidated liquidity as of June 30, 2020:

The Credit Agreements, among other things, provide $2.3 billion of credit until maturity in December 2024. See Note 3 – Short-term Debt and Liquidity under Part I, Item 1, of this report for additional information on the Credit Agreements. During the six months ended June 30, 2020, Ameren (parent), Ameren Missouri, and Ameren Illinois each borrowed under the Credit Agreements and issued commercial paper. Borrowings under the Credit Agreements and commercial paper issuances are based upon available interest rates at that time of the borrowing or issuance. As a result of volatility in the capital markets, the Ameren Companies borrowed under the Credit Agreements in certain instances in the first quarter of 2020 rather than issuing commercial paper.

Ameren has a money pool agreement with and among its utility subsidiaries to coordinate and to provide for certain short-term cash and working capital requirements. As short-term capital needs arise, and based on availability of funding sources, Ameren Missouri and Ameren Illinois will access funds from the utility money pool, the Credit Agreements, or the commercial paper programs depending on which option has the lowest interest rates.

The issuance of short-term debt securities by Ameren’s utility subsidiaries is subject to FERC approval under the Federal Power Act. In March 2020, the FERC issued an order authorizing Ameren Missouri to issue up to $1 billion of short-term debt securities, which expires in March 2022. In 2018, the FERC issued an order authorizing Ameren Illinois to issue up to $1 billion of short-term debt securities, which expires in September 2020. In July 2019, the FERC issued an order authorizing ATXI to issue up to $300 million of short-term debt securities, which expires in July 2021.

The Ameren Companies continually evaluate the adequacy and appropriateness of their liquidity arrangements for changing business conditions. When business conditions warrant, changes may be made to existing credit agreements or to other borrowing arrangements, or other arrangements may be made.

Long-term Debt and Equity

The following table presents Ameren’s issuances (net of any issuance premiums or discounts) of long-term debt and equity, as well as redemptions and maturities of long-term debt for the six months ended June 30, 2020 and 2019:

(a) Ameren issued a total of 0.4 million and 0.5 million shares of common stock under its DRPlus and 401(k) plan in the six months ended June 30, 2020 and 2019, respectively.

(b) Excludes 0.5 million and 0.8 million shares of common stock valued at $38 million and $54 million issued for no cash consideration in connection with stock-based compensation for the six months ended June 30, 2020 and 2019, respectively.

See Note 4 – Long-Term Debt and Equity Financings under Part I, Item 1, of this report for additional information, including proceeds from issuances of long-term debt, the use of those proceeds, Ameren’s forward equity sale agreement relating to 7.5 million shares of common stock, and Ameren (parent)’s capital contributions to Ameren Illinois.

Indebtedness Provisions and Other Covenants

See Note 3 – Short-term Debt and Liquidity under Part I, Item 1, of this report and Note 4 – Short-term Debt and Liquidity and Note 5 – Long-term Debt and Equity Financings under Part II, Item 8, of the Form 10-K for a discussion of provisions (and applicable cross-default provisions) and covenants contained in our credit agreements, in ATXI’s note purchase agreement, and in certain of the Ameren Companies’ indentures and articles of incorporation.

At June 30, 2020, the Ameren Companies were in compliance with the provisions and covenants contained in their credit agreements, indentures, and articles of incorporation, as applicable, and ATXI was in compliance with the provisions and covenants contained in its note purchase agreement.

We consider access to short-term and long-term capital markets to be a significant source of funding for capital requirements not satisfied by cash provided by our operating activities. Inability to raise capital on reasonable terms, particularly during times of uncertainty in the capital markets, could negatively affect our ability to maintain and expand our businesses. After assessing its current operating performance, liquidity, and credit ratings (see Credit Ratings below), Ameren, Ameren Missouri, and Ameren Illinois each believes that it will continue to have access to the capital markets on reasonable terms. However, events beyond Ameren’s, Ameren Missouri’s, and Ameren Illinois’ control may create uncertainty in the capital markets or make access to the capital markets uncertain or limited. Such events could increase our cost of capital and adversely affect our ability to access the capital markets.

Dividends

The amount and timing of dividends payable on Ameren’s common stock are within the sole discretion of Ameren’s board of directors. Ameren’s board of directors has not set specific targets or payout parameters when declaring common stock dividends, but it considers various factors, including Ameren’s overall payout ratio, payout ratios of our peers, projected cash flow and potential future cash flow requirements, historical earnings and cash flow, projected earnings, impacts of regulatory orders or legislation, and other key business considerations. Ameren expects its dividend payout ratio to be between 55% and 70% of annual earnings over the next few years.

See Note 4 – Short-term Debt and Liquidity and Note 5 – Long-term Debt and Equity Financings under Part II, Item 8, of the Form 10-K for additional discussion of covenants and provisions contained in certain of the Ameren Companies’ financial agreements and articles of incorporation that would restrict the Ameren Companies’ payment of dividends in certain circumstances. At June 30, 2020, none of these circumstances existed at Ameren, Ameren Missouri, or Ameren Illinois and, as a result, these companies were not restricted from paying dividends.

The following table presents common stock dividends declared and paid by Ameren Corporation to its common shareholders and by Ameren subsidiaries to their parent, Ameren Corporation, for the six months ended June 30, 2020 and 2019:

Commitments

For a listing of our obligations and commitments, see Other Obligations in Note 9 – Commitments and Contingencies under Part I, Item 1, of this report. See Note 10 – Retirement Benefits under Part II, Item 8, of the Form 10-K for information regarding expected minimum funding levels for our pension plan.

Off-balance-sheet Arrangements

At June 30, 2020, none of the Ameren Companies had any significant off-balance-sheet financing arrangements, other than the forward sale agreement relating to common stock, variable interest entities, letters of credit, and Ameren (parent) guarantee arrangements on behalf of its subsidiaries. See Note 1 – Summary of Significant Accounting Policies under Part I, Item 1, of this report for further detail concerning variable interest entities. See Note 5 – Long-Term Debt and Equity under Part II, Item 8, of the Form 10-K for further detail concerning the forward sale agreement relating to common stock.

Credit Ratings

Our credit ratings affect our liquidity, our access to the capital markets and credit markets, our cost of borrowing under our credit facilities and our commercial paper programs, and our collateral posting requirements under commodity contracts.

The following table presents the principal credit ratings by Moody’s and S&P, as applicable, effective on the date of this report:

A credit rating is not a recommendation to buy, sell, or hold securities. It should be evaluated independently of any other rating. Ratings are subject to revision or withdrawal at any time by the rating organization.

Collateral Postings

Any weakening of our credit ratings may reduce access to capital and trigger additional collateral postings and prepayments. Such changes may also increase the cost of borrowing, resulting in an adverse effect on earnings. Cash collateral postings and prepayments made with external parties, including postings related to exchange-traded contracts, and cash collateral posted by external parties were immaterial at June 30, 2020. A sub-investment-grade issuer or senior unsecured debt rating (below “Baa3” from Moody’s or below “BBB-” from S&P) at June 30, 2020, could have resulted in Ameren, Ameren Missouri, or Ameren Illinois being required to post additional collateral or other assurances for certain trade obligations amounting to $170 million, $144 million, and $26 million, respectively.

Changes in commodity prices could trigger additional collateral postings and prepayments. Based on credit ratings at June 30, 2020, if market prices were 15% higher or lower than June 30, 2020 levels in the next 12 months and 20% higher or lower thereafter through the end of the term of the commodity contracts, then Ameren, Ameren Missouri, or Ameren Illinois could be required to post an immaterial amount, compared to each company’s liquidity, of collateral or other assurances for certain trade obligations.

OUTLOOK

Below are some key trends, events, and uncertainties that may reasonably affect our results of operations, financial condition, or liquidity, as well as our ability to achieve strategic and financial objectives, for 2020 and beyond. The continued effect of the COVID-19 pandemic on our results of operations, financial position, and liquidity in subsequent periods will depend on its severity and longevity, future regulatory or legislative actions with respect thereto, and the resulting impact on business, economic, and capital market conditions. We continue to monitor the impacts the pandemic is having on our businesses, including but not limited to potential impacts on our liquidity and financing plans; demand for residential, commercial, and industrial electric and natural gas services; extended deferred payment arrangements and additional financial assistance programs for customers; bad debt expense; supply chain operations; the availability of our employees and contractors; counterparty credit; capital construction; infrastructure operations and maintenance; energy efficiency programs; and pension valuations. For additional information regarding recent rate orders, lawsuits, and pending requests filed with state and federal regulatory commissions, including those discussed below, see Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report and Note 2 – Rate and Regulatory Matters under Part II, Item 8, of the Form 10-K.

Operations

• In the first six months of 2020, we have experienced a net decrease in our sales volumes, which have been, and continue to be, affected by the COVID-19 pandemic, among other things. Further, our customers' payment for services has been adversely affected by the COVID-19 pandemic, which has led to an increase in our accounts receivable balances that are past due or that are a part of a deferred payment arrangement. Because of Ameren Illinois' and ATXI's regulatory frameworks, revenues are largely decoupled from changes in sales volumes. Additionally, bad debt write-offs, net of any subsequent recoveries, at Ameren Illinois' electric distribution and natural gas distribution businesses are recoverable through regulatory mechanisms. In 2020, Ameren Illinois' electric bad debt rider provides for the recovery of bad debt expense. However, earnings at Ameren Missouri are exposed to sales volume changes and increases in bad debt expense, which could result in higher bad debt write-offs. See the Results of Operations section above for additional information on our accounts receivable balances and changes in Ameren Missouri's sales volumes in 2020, compared to 2019. Additionally, see Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report for information on our reinstatement of customer disconnection and late fee charges for non-payment, as well as a June 2020 ICC order in a service disconnection moratorium proceeding, which required Ameren Illinois to implement more flexible credit and collection practices and allowed for recovery of costs incurred related to the COVID-19 pandemic and forgone late fees.
• The PISA permits Ameren Missouri to defer and recover 85% of the depreciation expense and a return at the applicable WACC on investments in certain property, plant, and equipment placed in service after September 1, 2018, and not included in base rates. The regulatory asset for accumulated PISA deferrals also earns a return at the applicable WACC, with all approved PISA deferrals added to rate base prospectively and recovered over a period of 20 years following a regulatory rate review. Additionally, under the RESRAM, Ameren Missouri is permitted to recover the 15% of depreciation expense and a return at the applicable WACC for investments in renewable generation plant placed in service and not recovered under the PISA. Accumulated RESRAM deferrals earn carrying costs at short-term interest rates. The PISA and the RESRAM mitigate the effects of regulatory lag between regulatory rate reviews. Those investments not eligible for recovery under the PISA and the remaining 15% of certain property, plant, and equipment placed in service, unless eligible for recovery under the RESRAM, remain subject to regulatory lag. Ameren Missouri recognizes the cost of debt on PISA deferrals in revenue, instead of using the applicable WACC, with the difference recognized in revenues when recovery of such deferrals is reflected in customer rates. As a result of the PISA election, additional provisions of the law apply to Ameren Missouri, including limitations on electric customer rate increases. Both the rate increase limitation and the PISA are effective through December 2023, unless Ameren Missouri requests and the MoPSC approves an extension through December 2028.
• In February 2020, Ameren Missouri filed an update to its Smart Energy Plan with the MoPSC, which includes a five-year capital investment overview with a detailed one-year plan for 2020. The plan is designed to upgrade Ameren Missouri’s electric infrastructure

and includes investments that will upgrade the grid and accommodate more renewable energy. Investments under the plan are expected to total approximately $7.6 billion over the five-year period from 2020 through 2024, with expenditures largely recoverable under the PISA and the RESRAM. The planned investments in 2024 included in the five-year range above are based on the assumption that Ameren Missouri requests and receives MoPSC approval of an extension of the PISA through December 2028. As a part of its Smart Energy Plan, Ameren Missouri expects to build solar generation facilities, including utility scale facilities and nonresidential customer site facilities. In September 2019, Ameren Missouri filed for certificates of convenience and necessity with the MoPSC to build three solar-plus-storage facilities. In June 2020, Ameren Missouri withdrew its application for the certificates of convenience and necessity following intervenor feedback. Ameren Missouri is evaluating new solar generation facilities as a part of its integrated resource plan, which is expected to be filed in September 2020. Also in 2019, the MoPSC approved Ameren Missouri’s Charge Ahead program, which provides incentives for the development of over 1,000 electric vehicle charging stations along highways and at various locations in communities throughout Ameren Missouri’s service territory. The purpose of the program is to promote the development of electric vehicle charging infrastructure that will enable long-distance electric vehicle travel and encourage electrification of the transportation sector.

• In 2018, the MoPSC issued an order approving Ameren Missouri’s MEEIA 2019 plan. The initial plan included a portfolio of customer energy-efficiency programs through December 2021 and low-income customer energy-efficiency programs through December 2024, along with a rate-adjustment mechanism. Ameren Missouri intends to invest $226 million over the life of the plan, including $65 million per year through 2021 and $70 million in 2022. The plan includes the continued use of the MEEIA rider, which allows Ameren Missouri to collect from, or refund to, customers any difference in actual MEEIA program costs and related lost electric margins and the amounts collected from customers. In addition, the plan includes a performance incentive that provides Ameren Missouri an opportunity to earn additional revenues by achieving certain customer energy-efficiency goals. In August 2020, the MoPSC issued an order approving a unanimous stipulation and agreement establishing performance incentives for the 2022 program year. The order also approved Ameren Missouri’s energy savings results for the first year of the MEEIA 2019 program. As a result of this order and in accordance with revenue recognition guidance, Ameren Missouri will recognize revenues of $6 million in the third quarter of 2020. If the target goals are achieved for 2020, 2021, and 2022, additional revenues of $10 million, $13 million, and $11 million would be recognized in 2021, 2022, and 2023, respectively. Incremental additional revenues of $3 million, $3 million, and $1 million may be earned for 2020, 2021, and 2022, respectively, and would be recognized in the respective following year if Ameren Missouri exceeds its targeted energy savings goals. Ameren Missouri’s ability to achieve and/or exceed targeted energy savings goals could be affected by the COVID-19 pandemic. Ameren Missouri recognized $28 million, $11 million, and $37 million in revenues related to MEEIA performance incentives in 2016, 2018, and 2019, respectively.
• In March 2020, the MoPSC issued an order in Ameren Missouri’s July 2019 electric service regulatory rate review, resulting in a decrease of $32 million to Ameren Missouri's annual revenue requirement for electric retail service. The order reduced the annualized base level of net energy costs pursuant to the FAC by approximately $115 million from the base level established in the MoPSC’s March 2017 electric rate order. The order also changed the annualized regulatory asset and liability amortization amounts and the base level of expenses for regulatory tracking mechanisms. On an annualized basis, these changes reflect approximately $20 million of increased revenues and approximate decreases in purchased power expenses of $15 million, other operating and maintenance expenses of $60 million, and income tax expenses of $20 million. Additionally, the annual revenue requirement incorporated increases of approximately $50 million for the reduction in sales volumes resulting from MEEIA programs and approximately $50 million of depreciation and amortization expense for amounts previously deferred under PISA. The increase in the annual revenue requirement related to the MEEIA programs is seasonally weighted to the summer. One of the stipulation and agreements approved by the MoPSC’s March 2020 order states that the net impact of the revenue and expense changes noted above reflects a 9.4% to 9.8% ROE on an unspecified percent of common equity applicable to rate base. The new rates, base level of expenses, and amortizations became effective on April 1, 2020. In April 2020, the MoPSC issued another order in Ameren Missouri’s July 2019 electric service regulatory rate review, reaffirming the existing percentage of net energy cost variances allowed to be recovered or refunded under the FAC.
• Ameren Illinois and ATXI use a forward-looking rate calculation with an annual revenue requirement reconciliation for each company’s electric transmission business. Based on expected rate base growth and the currently allowed 10.52% ROE, the revenue requirements included in 2020 rates for Ameren Illinois’ and ATXI’s electric transmission businesses are $313 million and $192 million, respectively. These revenue requirements represent an increase in Ameren Illinois’ and ATXI’s revenue requirements of $16 million and $15 million, respectively, from the revenue requirements reflected in 2019 rates, primarily due to expected rate base growth. These rates will affect Ameren Illinois’ and ATXI’s cash receipts during 2020, but will not determine their respective electric transmission service operating revenues, which will instead be based on 2020 actual recoverable costs, rate base, and a return on rate base at the applicable WACC as calculated under the FERC formula ratemaking framework.
• In May 2020, the FERC issued an order in a complaint case filed in November 2013, which set the allowed base ROE for MISO transmission owners, including Ameren Illinois and ATXI, at 10.02%, superseding the 9.88% previously ordered, and required refunds, with interest, for the periods November 2013 to February 2015 and from late September 2016 forward. As a result of this order, Ameren and Ameren Illinois expect to pay total refunds of approximately $28 million and $16 million. In June 2020, various parties filed requests for rehearing with the FERC, challenging the new ROE methodology established by the May 2020 order. In July 2020, Ameren Missouri,

Ameren Illinois, and ATXI filed an appeal of the May 2020 order to the United States Court of Appeals for the District of Columbia Circuit challenging the refunds required for the period from September 2016 to May 2020. The court is under no deadline to address the appeal. The allowed ROE may also be affected by the FERC’s Notice of Inquiry regarding its allowed base ROE policy issued in 2019, or the FERC’s Notice of Proposed Rulemaking on its transmission incentives policy issued in March 2020. A 50 basis point change in the FERC-allowed base ROE would affect Ameren’s and Ameren Illinois’ annual net income by an estimated $10 million and $6 million, respectively, based on each company’s 2020 projected rate base.

• Ameren Illinois’ electric distribution service performance-based formula ratemaking framework allows Ameren Illinois to reconcile electric distribution service rates to its actual revenue requirement on an annual basis. If a given year’s revenue requirement varies from the amount collected from customers, an adjustment is made to electric operating revenues with an offset to a regulatory asset or liability to reflect that year’s actual revenue requirement, independent of actual sales volumes. The regulatory balance is then collected from, or refunded to, customers within two years from the end of the year. Unless extended, the formula ratemaking framework expires at the end of 2022. If not extended, Ameren Illinois would then be required to establish future rates through a traditional regulatory rate review with the ICC. The decoupling provisions extend beyond the end of the formula ratemaking by law, which ensures that Ameren Illinois’ electric distribution revenues authorized in a regulatory rate review are not affected by changes in sales volumes.
• In 2019, the ICC issued an order in Ameren Illinois’ annual update filing that approved a $7 million decrease in Ameren Illinois’ electric distribution service rates beginning in January 2020. Illinois law provides for an annual reconciliation of the electric distribution revenue requirement as is necessary to reflect the actual costs incurred and a return at the applicable WACC on year-end rate base in a given year with the revenue requirement that was reflected in customer rates for that year. Consequently, Ameren Illinois’ 2020 electric distribution service revenues will be based on its 2020 actual recoverable costs, 2020 year-end rate base, and a return at the applicable WACC as calculated under the Illinois performance-based formula ratemaking framework. As of June 30, 2020, Ameren Illinois expects its 2020 year-end rate base to be $3.4 billion. The 2020 revenue requirement reconciliation will be collected from, or refunded to, customers in 2022. A 50 basis point change in the annual average of the monthly yields of the 30-year United States Treasury bonds would result in an estimated $9 million change in Ameren’s and Ameren Illinois’ annual net income, based on Ameren Illinois’ 2020 projected year-end rate base. Ameren Illinois’ allowed ROE for the first half of 2020 and 2019 was based on an expected annual average of the monthly yields of the 30-year United States Treasury bonds of 1.6% and 2.8%, respectively.
• In April 2020, Ameren Illinois filed its annual electric distribution service formula rate update to reduce its rates by $45 million with the ICC. An ICC decision in this proceeding is expected by December 2020, with new rates effective January 2021. These rates will affect Ameren Illinois' cash receipts during 2021, but will not affect electric distribution service revenues, which will be based on 2021 actual recoverable costs, 2021 year-end rate base, and a return at the applicable WACC as calculated under the Illinois performance-based formula ratemaking framework.
• In July 2020, Ameren Illinois filed a revised request seeking to increase its annual revenues for natural gas delivery service by $96 million, which includes an estimated $46 million of annual revenues that would otherwise be recovered under the QIP and other riders. A decision by the ICC in this proceeding is required by January 2021, with new rates expected to be effective in February 2021. Ameren Illinois cannot predict the level of any delivery service rate change the ICC may approve, nor whether any rate change that may eventually be approved will be sufficient to enable Ameren Illinois to earn a reasonable return on investments when the rate changes go into effect.
• Ameren Illinois earns a return at the applicable WACC on its electric energy-efficiency program investments. Ameren Illinois’ electric energy-efficiency investments are deferred as a regulatory asset and earn a return at the applicable WACC, with the ROE based on the annual average of the monthly yields of the 30-year United States Treasury bonds plus 580 basis points. The allowed ROE on electric energy-efficiency investments can be increased or decreased by up to 200 basis points, depending on the achievement of annual energy savings goals, which may be affected by the COVID-19 pandemic. Pursuant to the FEJA, Ameren Illinois plans to invest up to approximately $100 million per year in electric energy-efficiency programs through 2024, and will earn a return on those investments. While the ICC has approved a plan consistent with this spending level through 2021, the ICC has the ability to reduce the amount of electric energy-efficiency savings goals in future plan program years if there are insufficient cost-effective programs available, which could reduce the investments in electric energy-efficiency programs. The electric energy-efficiency program investments and the return on those investments are collected from customers through a rider and are not included in the electric distribution service performance-based formula ratemaking framework.
• In February 2020, the MoPSC issued an order approving a stipulation and agreement allowing Ameren Missouri to defer and amortize maintenance expenses related to scheduled refueling and maintenance outages at its Callaway Energy Center. Maintenance expenses associated with the fall 2020 refueling and maintenance outage are being deferred, as incurred, as a regulatory asset, and will be amortized after completion of the outage. Maintenance expenses will be amortized over the period between refueling and maintenance outages, which is approximately 18 months. Ameren Missouri expects to incur approximately $40 million in maintenance expenses related to the fall 2020 outage. During a scheduled outage, depending on the availability of its other generation sources and the market

prices for power, Ameren Missouri’s purchased power costs may increase and the amount of excess power available for sale may decrease versus non-outage years. Changes in purchased power costs and excess power available for sale are included in the FAC, which results in limited impacts to earnings. Prior to 2020, maintenance expenses for refueling and maintenance outages were expensed as incurred.

• Ameren Missouri and Ameren Illinois continue to make infrastructure investments and expect to seek increases to electric and natural gas rates to recover the cost of investments and earn an adequate return. Ameren Missouri and Ameren Illinois will also seek new, or to maintain existing, legislative solutions to address regulatory lag and to support investment in their utility infrastructure for the benefit of their customers. Ameren Missouri and Ameren Illinois continue to face cost recovery pressures, including limited economic growth in their service territories, economic impacts of COVID-19, customer conservation efforts, the impacts of additional customer energy-efficiency programs, and increased customer use of increasingly cost-effective technological advances, including private generation and energy storage. However, over the long-term, we expect the decreased demand to be partially offset by increased demand resulting from increased electrification of the economy for efficiencies and as a means to address economywide CO2 emission concerns. Increased investments, including expected future investments for environmental compliance, system reliability improvements, and potential new generation sources, result in rate base and revenue growth but also higher depreciation and financing costs.

Liquidity and Capital Resources

• Our customers’ payment for our services has been adversely affected by the COVID-19 pandemic, resulting in a decrease to our cash flow from operations. See the Results of Operations section above for additional information on our accounts receivable balances. Further, our liquidity and our capital expenditure plans could be adversely affected by other impacts resulting from the COVID-19 pandemic, including but not limited to potential impacts on our ability to access the capital markets on reasonable terms and when needed, Ameren Missouri’s expected wind generation acquisitions, and the timing of tax payments and the utilization of tax credits. We expect to make significant capital expenditures to improve our electric and natural gas utility infrastructure, however, disruptions to the capital markets and the ability of our suppliers and contractors to perform as required under their contracts could impact the execution of our capital investment strategy. For further discussion on the impacts to our ability to access the capital markets, Ameren Missouri’s expected wind generation acquisitions, and the timing of tax payments and the utilization of tax credits, see below.
• Ameren Missouri’s 2017 IRP targets cleaner and more diverse sources of energy generation, including solar, wind, natural gas, hydro, and nuclear power. It also includes expanding renewable sources by adding 700 megawatts of wind generation by the end of 2020 in Missouri and adding 100 megawatts of solar generation by 2027. These new renewable energy sources would support Ameren Missouri’s compliance with the state of Missouri’s requirement of achieving 15% of native load sales from renewable energy sources by 2021, subject to customer rate increase limitations. Based on current and projected market prices for energy and for wind and solar generation technologies, among other factors, Ameren Missouri expects its ownership of these renewable resources would represent the lowest-cost option for customers. The plan also provides for the expected implementation of continued customer energy-efficiency programs. Ameren Missouri’s plan for the addition of renewable resources could be affected by, among other factors: Ameren Missouri’s ability to obtain a certificate of convenience and necessity from the MoPSC, and any other required project approvals; the ability of developers to meet contractual commitments and timely complete projects, which is dependent upon the availability of necessary materials and equipment, including those that are affected by the disruptions in the global supply chain caused by the COVID-19 pandemic, among other things; the availability of federal production and investment tax credits related to renewable energy and Ameren Missouri’s ability to use such credits; the cost of wind and solar generation technologies; energy prices; and Ameren Missouri’s ability to obtain timely interconnection agreements with the MISO or other RTOs at an acceptable cost. Ameren Missouri expects to file its next integrated resource plan in September 2020. Ameren Missouri will seek stakeholder feedback and assess different scenarios to meet future energy needs, which will be used to create an updated plan for its current generation portfolio and ongoing transition to cleaner sources of energy.
• In connection with the 2017 IRP filing, Ameren Missouri established a goal of reducing CO2 emissions 80% by 2050 from a 2005 base level. Ameren Missouri is also targeting a 35% CO2 emission reduction by 2030 and a 50% reduction by 2040 from the 2005 level. In order to meet these goals, among other things, Ameren Missouri expects to retire its coal-fired generation at the end of each energy center’s useful life. As indicated in the 2017 IRP, the Meramec, Sioux, Labadie, and Rush Island energy centers are expected to be retired in 2022, 2033, 2042, and 2045, respectively. The next integrated resource plan is expected to be filed in September 2020.
• Consistent with its 2017 IRP filing, Ameren Missouri entered into build-transfer agreements to acquire, after construction, an up-to 300-megawatt wind generation facility and an up-to 400-megawatt wind generation facility in 2019 and 2018, respectively. Delays to the original construction schedule have occurred in 2020 as a result of changes in supply and construction activities. Ameren Missouri and the developers continue to monitor the impact to each project schedule. Ameren Missouri and the developers continue to monitor the impact to each project schedule. Ameren Missouri expects the up-to 400-megawatt project and a majority of the up-to 300 megawatt project to be placed in-service by the end of 2020. However, at this time, due to manufacturing, shipping, and other supply chain issues, and based on an updated schedule from the developer, Ameren Missouri expects a portion of the up-to 300-megawatt project,

representing approximately $100 million of investment, to be placed in-service in the first quarter of 2021. See discussion below related to production tax credits.

• Through 2024, we expect to make significant capital expenditures to improve our electric and natural gas utility infrastructure, with a major portion directed to our transmission and distribution systems. We estimate that we will invest up to $16.6 billion (Ameren Missouri – up to $8.4 billion; Ameren Illinois – up to $8.0 billion; ATXI – up to $0.2 billion) of capital expenditures during the period from 2020 through 2024. Ameren’s and Ameren Missouri’s estimates exclude any capital expenditures related to pollution control equipment that may be required as a result of the NSR and Clean Air Act litigation discussed in Note 9 – Commitments and Contingencies under Part I, Item 1, of this report.
• Environmental regulations, including those related to CO2 emissions, or other actions taken by the EPA, could result in significant increases in capital expenditures and operating costs. Certain of these regulations are being challenged through litigation, or reviewed or recommended for repeal by the EPA, or new replacement or alternative regulations are being contemplated, proposed, or adopted by the EPA and state regulators. The ultimate implementation of any of these regulations, as well as the timing of any such implementation, is uncertain. However, the individual or combined effects of existing and new environmental regulations could result in significant capital expenditures, increased operating costs, or the closure or alteration of some of Ameren Missouri’s coal-fired energy centers. Ameren Missouri’s capital expenditures are subject to MoPSC prudence reviews, which could result in cost disallowances as well as regulatory lag. The cost of Ameren Illinois’ purchased power and natural gas purchased for resale could increase. However, Ameren Illinois expects that these costs would be recovered from customers with no material adverse effect on its results of operations, financial position, or liquidity. Ameren’s and Ameren Missouri’s earnings could benefit from increased investment to comply with environmental regulations if those investments are reflected and recovered on a timely basis in customer rates.
• The Ameren Companies have multiyear credit agreements that cumulatively provide $2.3 billion of credit through December 2024, subject to a 364-day repayment term for Ameren Missouri and Ameren Illinois, with the option to seek incremental commitments to increase the cumulative credit provided to $2.7 billion. See Note 3 – Short-term Debt and Liquidity under Part I, Item 1, of this report for additional information regarding the Credit Agreements. Ameren (parent)’s $350 million of senior unsecured notes mature in November 2020, and are expected to be repaid using a portion of the proceeds from Ameren (parent)’s April 2020 issuance of $800 million of senior unsecured notes. The Ameren Companies have no additional maturities of long-term debt until 2022. With the recently completed Ameren Missouri and Ameren (parent) debt issuances and availability under the Credit Agreements, as well as anticipated proceeds from the settlement of the forward sale agreement discussed below, Ameren, Ameren Missouri, and Ameren Illinois believe that their liquidity is adequate given their expected operating cash flows, capital expenditures, including the expected wind generation acquisitions, and financing plans. The Ameren Companies continue to monitor the effect of the COVID-19 pandemic on their liquidity, including as a result of decreased sales and increased customer nonpayment. To date, the Ameren Companies have been able to access the capital markets on reasonable terms when needed. However, there can be no assurance that significant changes in economic conditions, disruptions in the capital and credit markets, or other unforeseen events will not materially affect their ability to execute their expected operating, capital, or financing plans.
• Ameren expects its cash used for currently planned capital expenditures and dividends to exceed cash provided by operating activities over the next several years. As part of its plan to fund these cash flow requirements, Ameren is using newly issued shares of common stock, rather than market-purchased shares, to satisfy requirements under the DRPlus and employee benefit plans and expects to continue to do so through at least 2024. Ameren expects these issuances to provide equity of about $100 million annually. Ameren also plans to issue incremental common equity to fund a portion of Ameren Missouri’s wind generation investments through the physical settlement of the forward sale agreement discussed below. Additionally, Ameren plans to issue incremental equity of about $150 million annually from 2021 to 2024. Ameren expects its equity to total capitalization to be about 45% through the period ending December 2024, with the long-term intent to support solid investment-grade credit ratings. Ameren Missouri and Ameren Illinois expect to fund cash flow needs through debt issuances, adjustments of dividends to Ameren (parent), and/or capital contributions from Ameren (parent).
• In August 2019, Ameren entered into a forward sale agreement with a counterparty relating to 7.5 million shares of common stock. The forward sale agreement can be settled at Ameren’s discretion on or prior to March 31, 2021. On a settlement date or dates, if Ameren elects to physically settle the forward sale agreement, Ameren will issue shares of common stock to the counterparty at the then-applicable forward sale price. The forward sale agreement will be physically settled unless Ameren elects to settle in cash or to net share settle. If physically settled, Ameren expects to receive between $540 million and $550 million upon settlement. See Note 5 – Long-Term Debt and Equity Financings under Part II, Item 8, of the Form 10-K for additional information.
• As of June 30, 2020, Ameren had $99 million in tax benefits related to federal and state income tax credit carryforwards and $6 million in outstanding income tax refunds. Future expected income tax payments and refunds are based on expected taxable income, available income tax credits, and current tax law. Expected taxable income is affected by expected capital expenditures, when property, plant, and equipment is placed in-service or retired, and the timing of regulatory reviews, among other things. In the case of Ameren Missouri and Ameren Illinois, future expected income tax payments and refunds are consistent with the tax allocation agreement between Ameren

(parent) and its subsidiaries. Ameren expects to make income tax payments between $5 million and $75 million in each year from 2020 to 2024, totaling $150 million to $200 million for the five-year period. Ameren Missouri expects to make income tax payments to Ameren (parent) between $20 million and $30 million in 2020. Additionally, Ameren Missouri expects to receive refunds from Ameren (parent) in each year from 2021 to 2024, totaling $60 million to $100 million for the four-year period, primarily due to the expected utilization of federal production tax credits to be generated from its wind generation acquisitions. Ameren Illinois expects to make income tax payments to Ameren (parent) between $20 million and $30 million in 2020 and between $50 million and $90 million in each year from 2021 to 2024, totaling $260 million to $310 million for the five-year period.

• Ameren Missouri expects its wind generation acquisitions to generate federal production tax credits between $65 million and $70 million in each year from 2021 to 2030. Ameren expects to utilize approximately $140 million of these federal production tax credits from 2021 to 2024. In May 2020, the IRS issued guidance that extended the in-service date criteria to December 31, 2021, for qualifying for federal production tax credits. As a result of this extension, Ameren does not anticipate that delays in the completion of the wind generation facilities will affect Ameren’s ability to realize anticipated federal production tax credits.
• The Coronavirus Aid, Relief, and Economic Security Act is a federal law enacted in March 2020. Provisions in the act include temporary changes to the utilization of net operating losses, deferral of the payment of the employer portion of Social Security taxes, and additional funding for customer energy assistance, among other things. Ameren has implemented certain provisions of the act, and is currently evaluating other provisions of the act. As of June 30, 2020, there was no material impact to Ameren’s, Ameren Missouri’s, and Ameren Illinois’ financial statements as a result of the act.
• In 2018, legislation modifying Missouri tax law was enacted to decrease the state’s corporate income tax rate from 6.25% to 4%, effective January 1, 2020. The effect of this tax decrease is reflected in Ameren Missouri’s electric service rates that became effective on April 1, 2020. Ameren and Ameren Missouri do not expect this income tax decrease to have a material impact on net income.

The above items could have a material impact on our results of operations, financial position, and liquidity. Additionally, in the ordinary course of business, we evaluate strategies to enhance our results of operations, financial position, and liquidity. These strategies may include acquisitions, divestitures, opportunities to reduce costs or increase revenues, and other strategic initiatives to increase Ameren’s shareholder value. We are unable to predict which, if any, of these initiatives will be executed. The execution of these initiatives may have a material impact on our future results of operations, financial position, or liquidity.

REGULATORY MATTERS

See Note 2 – Rate and Regulatory Matters under Part I, Item 1, of this report.

There have been no material changes to the quantitative and qualitative disclosures about interest rate risk, credit risk, investment price risk, commodity price risk, and commodity supplier risk included in the Form 10-K. See Item 7A under Part II of the Form 10-K for a more detailed discussion of our market risk.

(a) Evaluation of Disclosure Controls and Procedures

As of June 30, 2020, evaluations were performed under the supervision and with the participation of management, including the principal executive officer and the principal financial officer of each of the Ameren Companies, of the effectiveness of the design and operation of such registrant’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on those evaluations, as of June 30, 2020, the principal executive officer and the principal financial officer of each of the Ameren Companies concluded that such disclosure controls and procedures are effective to provide assurance that information required to be disclosed in such registrant’s reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to its management, including its principal executive officer and its principal financial officer, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls over Financial Reporting

There has been no change in any of the Ameren Companies’ internal control over financial reporting during their most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, each of their internal control over financial reporting.

The Form 10-K includes a detailed discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in the Form 10-K.

Our results of operations, financial position, and liquidity have been and are expected to continue to be adversely affected by the international public health emergency associated with the COVID-19 pandemic.

The COVID-19 pandemic continues to be a rapidly evolving situation. In the first six months of 2020, we experienced a net decrease in our sales volumes, an increase in our accounts receivable balances that were past due or that were a part of a deferred payment arrangement, and a decline in our cash collections from customers. The continued effect of the COVID-19 pandemic on our results of operations, financial position, and liquidity in subsequent periods will depend on its severity and longevity, future regulatory or legislative actions with respect thereto, and the resulting impact on business, economic, and capital market conditions. It may also affect Ameren Missouri’s ability to recover any lost revenues or incremental costs. As a result of the COVID-19 pandemic, measures have been taken by local, state, and federal governments, such as travel bans, quarantines, and shelter-in place orders. Shelter-in-place orders began taking effect in our service territories in mid-March 2020. These orders generally required individuals to remain at home and precluded or limited the operation of businesses that were deemed nonessential. In mid-May 2020, shelter-in-place orders effective in our service territories began to be relaxed, with individuals allowed to leave their homes and nonessential businesses allowed to begin reopening. However, certain restrictions remain in place that limit individual activities and the operation of nonessential businesses. Additional restrictions may be imposed in the future. Ameren's business operations are deemed essential and are not directly impacted by the shelter-in-place orders. As a result of the COVID-19 pandemic, economic activity has been disrupted in the service territories of Ameren Missouri and Ameren Illinois. It has also caused disruptions in the capital markets, which could adversely affect our ability to access these markets on reasonable terms and when needed. These disruptions could continue for a prolonged period of time or become more severe.

We rely on the issuance of short-term and long-term debt and equity as significant sources of liquidity and funding for capital requirements not satisfied by our operating cash flow, as well as to refinance existing long-term debt. Disruptions to the capital markets as a result of the COVID-19 pandemic could negatively affect our ability to maintain and to expand our businesses. In addition, our credit ratings may be impacted by the economic conditions of the COVID-19 pandemic. The COVID-19 pandemic could lead to events beyond our control, such as further depressed economic conditions or extreme volatility in the debt, equity, or credit markets, and might create uncertainty that could increase our cost of capital or impair or eliminate our ability to access the debt, equity, or credit markets, including our ability to draw on bank credit facilities or issue commercial paper.

As a result of the COVID-19 pandemic, we have experienced and expect to continue to experience changes to our sales volumes. In the three and six months ended June 30, 2020, compared to the same periods in 2019, Ameren Missouri experienced a reduction in commercial and industrial electric sales volumes, partially offset by increased electric sales volumes to higher margin residential customers, excluding the estimated effects of weather and customer energy-efficiency programs. While the impacts of the COVID-19 pandemic are difficult to predict, Ameren Missouri expects the net reduction in sales volumes, excluding the estimated effects of weather and customer energy-efficiency programs, to continue in the July through December 2020 period, compared to the same period in 2019. The COVID-19 pandemic may continue to affect Ameren Missouri’s total electric sales volumes and sales volumes by customer class beyond 2020. Assuming a ratable change in Ameren Missouri's electric sales volumes by month, a 1% change for the calendar year 2020 to residential, commercial, and industrial customers would affect earnings per diluted share by approximately 3 cents, 2 cents, and a half-cent, respectively. The actual change in earnings per diluted share will be affected by the timing of sales volume changes due to seasonal customer rates. Pursuant to the PISA, Ameren Missouri’s electric rates are limited to a 2.85% compound annual growth rate cap. Continued long-term declines in sales volumes, along with increased capital investments and operating costs, could result in Ameren Missouri’s inability to recover amounts exceeding the rate cap. Ameren Illinois also experienced decreases in electric and natural gas sales volumes in the three and six months ended June 30, 2020. While the revenues from Ameren Illinois’ electric distribution business, residential and small nonresidential customers of Ameren Illinois’ natural gas distribution business, and Ameren Illinois’ and ATXI’s electric transmission businesses are decoupled from changes in sales volumes, earnings at Ameren Missouri and, with respect to large nonresidential natural gas customers, at Ameren Illinois, are exposed to such changes.

Our customers’ payment for our services has been adversely affected by the COVID-19 pandemic, resulting in a decrease to our cash flow from operations. Ameren Missouri resumed charging late fees to commercial and industrial customers and disconnecting those customers for nonpayment in mid-July 2020, while it resumed those activities for residential customers in early August 2020, following the suspension of both disconnections and late fees for all customers in mid-March 2020. Ameren Illinois expects to resume disconnecting commercial and industrial customers and residential customers for nonpayment in mid-August 2020 and early September 2020, respectively, while it resumed charging late fees to all customers in late July 2020, following the suspension of both disconnections and late fees for all customers in mid-March 2020. However, future regulatory or legislative action could require suspension of customer disconnections and/or late fees, among other things, for an extended period of time. As of June 30, 2020, accounts receivable balances that were 30 days or greater past due or that were a part of a deferred payment arrangement represented 26%, 19%, and 33%, or $132 million, $42 million, and $90 million, of Ameren’s, Ameren Missouri’s, and Ameren Illinois’ "Accounts receivable – trade" before allowance for doubtful accounts, respectively. As of June 30, 2019, these percentages were 17%, 11%, and 25%, or $83 million, $24 million, and $59 million, for Ameren, Ameren Missouri, and Ameren Illinois, respectively. Ameren Illinois' electric distribution and natural gas distribution businesses have bad debt riders, which provide for recovery of bad debt write-offs, net of any subsequent recoveries. In 2020, Ameren Illinois’ electric bad debt rider provides for the recovery of bad debt expense. However, Ameren Missouri does not have a bad debt rider or regulatory tracking mechanism and its earnings are exposed to increases in bad debt expense, which could result in higher bad debt write-offs. If Ameren Missouri seeks recovery of certain COVID-19 pandemic related costs, it could be unsuccessful in obtaining regulatory approval to recover them, which may adversely affect Ameren and Ameren Missouri’s results of operations.

In addition, suppliers and contractors may not perform as provided under their contracts. This could cause delays in construction projects, including additional delays related to Ameren Missouri’s expected acquisition of two wind generation facilities, or the performance of necessary maintenance to our electric and natural gas infrastructure, which could lead to failures of equipment that can result in unanticipated liabilities or unplanned outages. Delays in our construction projects could also result in reduced planned capital expenditures and decreased rate base growth.

Also, our businesses depend on skilled professional and technical employees. Our operations could be adversely affected if a large portion of our employees contracted COVID-19 or became quarantined at the same time. This could lead to facility shutdowns and disruptions in the delivery of electricity and natural gas to our customers. In addition, remote working arrangements increase our data security risks, including loss of data related to sensitive customer, employee, financial, and operating system information, through insider or outsider actions.

Ameren cannot predict the extent or duration of the COVID-19 pandemic or its effects on the global, national, or local economy, the capital markets, or its customers, suppliers, business continuity plans, results of operations, financial position, liquidity, planned rate base growth, or sales volumes.