10-QPeriod: Q1 FY2007

AMEREN CORP Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 10, 2007For Securities:AEE

Summary

Ameren Corporation reported a net income of $123 million ($0.59 per diluted share) for the first quarter of 2007, a significant increase from $70 million ($0.34 per diluted share) in the same period of 2006. This improvement was driven by several factors, including higher electric margins from non-rate-regulated generation due to new, higher-priced power sales contracts, improved weather conditions leading to increased heating demand, and higher electric delivery service rates in Illinois that took effect in January 2007. However, the company's earnings were partially offset by higher fuel and transportation costs, increased labor and benefit expenses, and greater depreciation and financing costs. Additionally, the company incurred significant storm-related costs in early 2007. A key concern for investors is the ongoing legislative situation in Illinois, where proposed legislation to roll back and freeze electric rates could materially impact the financial health of Ameren's Illinois utilities, potentially leading to insolvency and bankruptcy if enacted without sufficient legal intervention. The company's credit ratings have been impacted by these developments.

Key Highlights

  • 1Ameren Corporation's net income rose to $123 million ($0.59/share) in Q1 2007 from $70 million ($0.34/share) in Q1 2006, a substantial year-over-year increase.
  • 2Improved earnings were driven by higher electric margins in non-rate-regulated generation, the impact of favorable weather, and new Illinois electric delivery service rates.
  • 3Higher fuel, transportation, labor, depreciation, and financing costs, along with significant storm-related expenses, partially offset the positive earnings trend.
  • 4The company is closely monitoring proposed Illinois legislation to roll back and freeze electric rates, which poses a material risk to its Illinois utilities, potentially leading to financial insolvency and bankruptcy.
  • 5Credit ratings for several Ameren subsidiaries were downgraded in March and April 2007 due to concerns about the Illinois regulatory and legislative environment.
  • 6Union Electric Company (UE) is awaiting a Missouri Public Service Commission decision on its electric rate increase request, with potential outcomes ranging from a rate reduction to a significant increase.
  • 7Capital expenditures are planned to increase, particularly for environmental compliance retrofits at power plants, with an estimated $3.5 billion to $4.5 billion investment required between 2007 and 2016.

Frequently Asked Questions

Ameren's earnings growth was primarily driven by higher electric margins in its non-rate-regulated generation business due to new, higher-priced power sales contracts, improved weather conditions boosting demand for electricity and gas, and the implementation of new electric delivery service rates in Illinois. Favorable outcomes from its Missouri electric rate case and a reversal of a customer assistance accrual also contributed.

The most significant risk is the potential enactment of Illinois legislation that would roll back electric rates to 2006 levels and freeze them. This, combined with the inability to fully recover purchased power costs, could lead to material adverse consequences, including significant credit rating downgrades, reduced access to capital, and ultimately, financial insolvency and bankruptcy for its Illinois utilities (CIPS, CILCORP, CILCO, and IP).

Union Electric Company (UE) filed for an electric rate increase in July 2006. While initially seeking a substantial increase, revised testimony in April 2007 reflected a reduced request of $245 million, countered by MoPSC staff recommendations for a rate reduction of $39 million to $75 million. A decision from the MoPSC is expected by June 2007. In March 2007, an agreement was approved for a $6 million increase in natural gas delivery revenues.