10-KPeriod: FY2005

AMEREN CORP Annual Report, Year Ended Dec 31, 2005

Filed March 7, 2006For Securities:AEE

Summary

Ameren Corporation's 2005 10-K filing highlights a year of operational improvements and strategic integration, particularly following the acquisition of Illinois Power Company (IP) in late 2004. The company reported improved earnings per share, driven by warmer weather, successful integration of IP, and operational efficiencies at its nuclear power plant. However, the company faced challenges including disruptions in coal deliveries due to rail issues and increased operating costs associated with the MISO Day Two Energy Market. Looking ahead, Ameren anticipates continued economic growth in its service territories but faces significant regulatory uncertainty in Illinois. Key concerns include the expiration of electric rate freezes and affiliate power supply contracts at the end of 2006, with potential new procurement auctions and rate adjustments being subject to regulatory and legislative review. The company also faces substantial capital expenditure requirements, estimated between $2.1 billion and $2.9 billion by 2016, to comply with new federal environmental regulations for its coal-fired power plants. The breach at UE's Taum Sauk pumped-storage hydroelectric plant in December 2005 also introduces a significant operational and financial uncertainty.

Key Highlights

  • 1Ameren reported improved earnings per share for 2005 compared to 2004, driven by the successful integration of Illinois Power and favorable weather conditions.
  • 2The company faced challenges with coal deliveries due to rail disruptions, impacting inventory levels and leading to the use of higher-cost coal.
  • 3UE's Callaway nuclear plant completed a major refueling and maintenance outage efficiently, with significant upgrades expected to improve reliability and capacity.
  • 4The breach at UE's Taum Sauk pumped-storage hydroelectric facility in December 2005 resulted in an operational outage and potential significant financial impact, with the future of the facility uncertain.
  • 5Ameren expects significant capital expenditures ($2.1B - $2.9B by 2016) for environmental compliance at its coal-fired plants to meet new EPA emission regulations.
  • 6Significant regulatory uncertainty exists in Illinois due to the expiration of electric rate freezes and affiliate power supply contracts at the end of 2006, with potential impacts on future revenues and credit ratings.
  • 7Ameren's credit ratings were placed under review and subsequently downgraded by Moody's and S&P, largely due to adverse regulatory actions in Illinois impacting future Illinois electric rates.

Frequently Asked Questions

Key drivers included the successful integration of Illinois Power, contributing positively to earnings, and favorable weather conditions which boosted demand. Operational efficiencies, such as the successful completion of the Callaway nuclear plant's refueling outage, also contributed. However, these were partially offset by increased fuel and purchased power costs, particularly related to operating in the MISO Day Two Energy Market, and disruptions in coal deliveries.

Ameren faces significant regulatory uncertainty in Illinois regarding the expiration of electric rate freezes and power supply contracts at the end of 2006, with potential impacts on revenue recovery and credit ratings. Operationally, the company must invest heavily ($2.1B - $2.9B) to comply with new environmental regulations for its coal-fired plants. Additionally, the breach at UE's Taum Sauk facility introduces operational uncertainty and potential financial impacts, and the company is closely monitoring the developing MISO Day Two Energy Market costs.

Ameren anticipates significant capital expenditures between $2.1 billion and $2.9 billion by 2016 to retrofit its coal-fired power plants to comply with new EPA regulations for SO2, NOx, and mercury emissions. Approximately 55-60% of this investment will be in its regulated UE operations, which is expected to be recoverable over time from ratepayers. The recoverability of costs for non-regulated operations will depend on market prices adjusting for these industry-wide investments.