10-QPeriod: Q1 FY2006

AMEREN CORP Quarterly Report for Q1 Ended Mar 31, 2006

Filed May 10, 2006For Securities:AEE

Summary

Ameren Corporation's first quarter 2006 results showed a decline in net income to $70 million ($0.34 per share) from $121 million ($0.62 per share) in the prior year's quarter. This decrease was primarily attributed to milder winter weather impacting both electric and gas margins, higher fuel and purchased power costs driven by increased coal and transportation expenses, and incremental costs associated with operating in the MISO Day Two Energy Market. Additionally, increases in other operating expenses, including higher gross receipts taxes and bad debt expenses, contributed to the earnings shortfall. Despite these challenges, Ameren's regulated utility operations continue to be the primary source of cash flow. The company is actively managing various regulatory matters, including rate filings in Missouri and Illinois. Significant attention is focused on Illinois, where rate freezes are set to expire, and new power procurement auction frameworks are being implemented, though facing potential legislative and legal challenges. Ameren is also evaluating opportunities for securitization to manage potential increases in customer energy costs. Capital expenditures remained significant, with Ameren investing in new gas-fired CT facilities to enhance generating capacity and flexibility. The company's liquidity remains supported by committed credit facilities and operating cash flows. Ameren remains focused on navigating the evolving regulatory landscape and managing operational costs to maintain financial health.

Key Highlights

  • 1Net income decreased to $70 million in Q1 2006 from $121 million in Q1 2005, with EPS falling to $0.34 from $0.62.
  • 2Mild winter weather, higher fuel costs (coal and transportation), and MISO Day Two Energy Market costs negatively impacted earnings.
  • 3Ameren completed the purchase of three gas-fired CT facilities for $292 million to increase generating capacity.
  • 4Significant regulatory activity is ongoing in Illinois concerning power procurement auctions and delivery service rate increases post-2006, with potential legislative action being closely watched.
  • 5UE expects to file for a rate increase in Missouri by July 10, 2006.
  • 6The company is managing its financial exposure through various hedging strategies for commodity prices and interest rates.
  • 7Liquidity is supported by $1.5 billion in committed credit facilities and $29 million in cash and cash equivalents as of March 31, 2006.

Frequently Asked Questions

The primary drivers for the decrease in net income were milder winter weather conditions leading to lower electric and gas margins, increased fuel and purchased power costs due to higher coal and transportation expenses, and incremental costs from operating in the MISO Day Two Energy Market. Additionally, higher other operating expenses, including increased taxes and bad debt expenses, contributed to the decline.

In Illinois, CIPS, CILCO, and IP filed for electric delivery service rate increases effective January 2, 2007, with a decision expected by November 2006. Regulatory and legislative bodies are also addressing power procurement post-2006, with ongoing discussions and potential legislative action regarding rate freezes and securitization. In Missouri, UE expects to file for an electric rate adjustment by July 10, 2006.

Ameren employs structured risk management programs and policies, including the use of derivative financial instruments such as forward contracts, futures contracts, option contracts, and financial swap contracts, to mitigate financial risks associated with changes in market prices for natural gas, fuel, electricity, and emission credits. The company also utilizes hedging strategies for a significant portion of its projected fuel and transportation requirements.

In March 2006, Ameren subsidiary UE purchased three gas-fired CT facilities totaling nearly 1,500 megawatts for $292 million. These acquisitions are intended to meet UE's increased generating capacity needs and enhance its flexibility in planning future baseload and peaking generation capacity additions.