NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTS

We use derivatives to manage the risk of changes in market prices for natural gas, power, and uranium, as well as the risk of changes in rail transportation surcharges through fuel oil hedges. Such price fluctuations may cause the following:


•	an unrealized appreciation or depreciation of our contracted commitments to purchase or sell when purchase or sale prices under the commitments are compared with current commodity prices;


•	market values of natural gas and uranium inventories that differ from the cost of those commodities in inventory; and


•	actual cash outlays for the purchase of these commodities that differ from anticipated cash outlays.

The derivatives that we use to hedge these risks are governed by our risk management policies for forward contracts, futures, options, and swaps. Our net positions are continually assessed within our structured hedging programs to determine whether new or offsetting transactions are required. The goal of the hedging program is generally to mitigate financial risks while ensuring that sufficient volumes are available to meet our requirements. Contracts we enter into as part of our risk management program may be settled financially, settled by physical delivery, or net settled with the counterparty.

The following table presents open gross commodity contract volumes by commodity type for derivative assets and liabilities as of June 30, 2016, and December 31, 2015. As of June 30, 2016, these contracts extended through October 2018, March 2021, May 2032, and January 2019 for fuel oils, natural gas, power, and uranium, respectively.



	Quantity (in millions, except as indicated)
	2016			2015
Commodity	Ameren Missouri	Ameren Illinois	Ameren	Ameren Missouri	Ameren Illinois	Ameren
Fuel oils (in gallons)^(a)	24	(b)	24	35	(b)	35
Natural gas (in mmbtu)	30	131	161	30	151	181
Power (in megawatthours)	1	10	11	1	10	11
Uranium (pounds in thousands)	395	(b)	395	494	(b)	494


(a)	Consists of ultra-low-sulfur diesel products.


(b)	Not applicable.

Authoritative accounting guidance regarding derivative instruments requires that all contracts considered to be derivative instruments be recorded on the balance sheet at their fair values, unless the NPNS exception applies. See Note 7 – Fair Value Measurements for a discussion of our methods of assessing the fair value of derivative instruments. Many of our physical contracts, such as our purchased power contracts, qualify for the NPNS exception to derivative accounting rules. The revenue or expense on NPNS contracts is recognized at the contract price upon physical delivery.

If we determine that a contract meets the definition of a derivative and is not eligible for the NPNS exception, we review the contract to determine whether the resulting gains or losses qualify for regulatory deferral. Derivative contracts that qualify for regulatory deferral are recorded at fair value, with changes in fair value recorded as regulatory assets or liabilities in the period in which the change occurs. We believe derivative losses and gains deferred as regulatory assets and liabilities are probable of recovery or refund through future rates charged to customers. Regulatory assets and liabilities are amortized to operating income as related losses and gains are reflected in rates charged to customers. Therefore, gains and losses on these derivatives have no effect on operating income. As of June 30, 2016, and December 31, 2015, all contracts received regulatory deferral.

Authoritative accounting guidance permits companies to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a liability) against fair value amounts recognized for derivative instruments that are executed with the same counterparty under a master netting arrangement or similar agreement. The Ameren Companies did not elect to adopt this guidance for any eligible derivative instruments.

The following table presents the carrying value and balance sheet location of all derivative commodity contracts, none of which were designated as hedging instruments, as of June 30, 2016, and December 31, 2015:



	Balance Sheet Location	Ameren Missouri		Ameren Illinois		Ameren
2016
Natural gas	Other current assets	$	—	$	2	$	2
	Other assets	1		3		4
Power	Other current assets	15		—		15
	Total assets ^(a)	$	16	$	5	$	21
Fuel oils	Other current liabilities	$	12	$	—	$	12
	Other deferred credits and liabilities	2		—		2
Natural gas	MTM derivative liabilities	(b)		11		(b)
	Other current liabilities	3		—		14
	Other deferred credits and liabilities	6		6		12
Power	MTM derivative liabilities	(b)		12		(b)
	Other current liabilities	1		—		13
	Other deferred credits and liabilities	—		157		157
Uranium	Other current liabilities	1		—		1
	Other deferred credits and liabilities	3		—		3
	Total liabilities ^(c)	$	28	$	186	$	214
2015
Natural gas	Other current assets	$	—	$	1	$	1
	Other assets	1		—		1
Power	Other current assets	16		—		16
	Total assets ^(a)	$	17	$	1	$	18
Fuel oils	Other current liabilities	$	22	$	—	$	22
	Other deferred credits and liabilities	7		—		7
Natural gas	MTM derivative liabilities	(b)		32		(b)
	Other current liabilities	6		—		38
	Other deferred credits and liabilities	8		18		26
Power	MTM derivative liabilities	(b)		13		(b)
	Other current liabilities	—		—		13
	Other deferred credits and liabilities	—		157		157
Uranium	Other current liabilities	1		—		1
	Total liabilities ^(c)	$	44	$	220	$	264


(a)	Because all contracts qualifying for hedge accounting receive regulatory deferral, the cumulative amount of pretax net gains on all derivative instruments is deferred as a regulatory liability.


(b)	Balance sheet line item not applicable to registrant.


(c)	Because all contracts qualifying for hedge accounting receive regulatory deferral, the cumulative amount of pretax net losses on all derivative instruments is deferred as a regulatory asset.

Derivative instruments are subject to various credit-related losses in the event of nonperformance by counterparties to the transaction. Exchange-traded contracts are supported by the financial and credit quality of the clearing members of the respective exchanges and have nominal credit risk. In all other transactions, we are exposed to credit risk. Our credit risk management program involves establishing credit limits and collateral requirements for counterparties, using master netting arrangements or similar agreements, and reporting daily exposure to senior management.

We believe that entering into master netting arrangements or similar agreements mitigates the level of financial loss that could result from default by allowing net settlement of derivative assets and liabilities. These master netting arrangements allow the counterparties to net settle sale and purchase transactions. Further, collateral requirements are calculated at the master netting arrangement or similar agreement level by counterparty.

The following table provides the recognized gross derivative balances and the net amounts of those derivatives subject to an enforceable master netting arrangement or similar agreement as of June 30, 2016, and December 31, 2015:



			Gross Amounts Not Offset in the Balance Sheet
Commodity Contracts Eligible to be Offset	Gross Amounts Recognized in the Balance Sheet		Derivative Instruments		Cash Collateral Received/Posted^(a)		Net Amount
2016
Assets:
Ameren Missouri	$	16	$	2	$	—	$	14
Ameren Illinois	5		4		—		1
Ameren	$	21	$	6	$	—	$	15
Liabilities:
Ameren Missouri	$	28	$	2	$	4	$	22
Ameren Illinois	186		4		—		182
Ameren	$	214	$	6	$	4	$	204
2015
Assets:
Ameren Missouri	$	17	$	1	$	—	$	16
Ameren Illinois	1		—		—		1
Ameren	$	18	$	1	$	—	$	17
Liabilities:
Ameren Missouri	$	44	$	1	$	8	$	35
Ameren Illinois	220		—		3		217
Ameren	$	264	$	1	$	11	$	252


(a)	Cash collateral received reduces gross asset balances and is included in “Other current liabilities” and “Other deferred credits and liabilities” on the balance sheet. Cash collateral posted reduces gross liability balances and is included in “Other current assets” and “Other assets” on the balance sheet.

Concentrations of Credit Risk

In determining our concentrations of credit risk related to derivative instruments, we review our individual counterparties and categorize each counterparty into groupings according to the primary business in which each engages. We calculate maximum exposures based on the gross fair value of financial instruments, including NPNS and other accrual contracts. These exposures are calculated on a gross basis, which include affiliate exposure not eliminated at the consolidated Ameren level. The potential loss on counterparty exposures may be reduced or eliminated by the application of master netting arrangements or similar agreements and collateral held. As of June 30, 2016, if counterparty groups were to fail completely to perform on contracts, the Ameren Companies’ maximum exposure would have been immaterial with or without consideration of the application of master netting arrangements or similar agreements and collateral held.

Derivative Instruments with Credit Risk-Related Contingent Features

Our commodity contracts contain collateral provisions tied to the Ameren Companies’ credit ratings. If we were to experience an adverse change in our credit ratings, or if a counterparty with reasonable grounds for uncertainty regarding our ability to satisfy an obligation requested adequate assurance of performance, additional collateral postings might be required. The following table presents, as of June 30, 2016, the aggregate fair value of all derivative instruments with credit risk-related contingent features in a gross liability position, the cash collateral posted, and the aggregate amount of additional collateral that counterparties could require. The additional collateral required is the net liability position allowed under the master netting arrangements or similar agreements, assuming (1) the credit risk-related contingent features underlying these arrangements were triggered on June 30, 2016, and (2) those counterparties with rights to do so requested collateral.



	Aggregate Fair Value of Derivative Liabilities^(a)		Cash Collateral Posted		Potential Aggregate Amount of Additional Collateral Required^(b)
2016
Ameren Missouri	$	74	$	2	$	66
Ameren Illinois	50		—		41
Ameren	$	124	$	2	$	107


(a)	Before consideration of master netting arrangements or similar agreements and including NPNS and other accrual contract exposures.


(b)	As collateral requirements with certain counterparties are based on master netting arrangements or similar agreements, the aggregate amount of additional collateral required to be posted is determined after consideration of the effects of such arrangements.