10-QPeriod: Q2 FY2007

AMEREN CORP Quarterly Report for Q2 Ended Jun 30, 2007

Filed August 9, 2007For Securities:AEE

Summary

Ameren Corporation reported increased net income for the second quarter and first half of 2007 compared to the prior year. This improvement was driven by higher earnings from its non-rate-regulated electric generation segment, primarily due to replacement of below-market power contracts with higher-priced market-based ones. Favorable weather conditions also boosted margins in the regulated segments in Missouri and Illinois. However, these positive impacts were partially offset by planned maintenance at the Callaway nuclear plant, increased fuel costs, and higher operating and capital expenditures in the regulated businesses. The company also detailed significant regulatory developments, particularly in Illinois, where a comprehensive rate relief and customer assistance program was agreed upon to address customer concerns over rate increases. This agreement, subject to legislative approval, includes substantial contributions from Ameren affiliates and is expected to bring greater regulatory and legal certainty. In Missouri, UE received mixed results from its electric rate case, with certain key requests being denied, leading to expectations of more frequent rate filings. Overall, while the company navigates a complex regulatory environment and faces rising costs, strategic initiatives and favorable market conditions in certain segments have contributed to improved financial performance for the period.

Key Highlights

  • 1Net income increased in Q2 and H1 2007 due to higher non-regulated generation margins and favorable weather, partially offset by higher costs and planned nuclear plant maintenance.
  • 2Ameren Illinois Utilities, Genco, and AERG agreed to contribute $150 million over four years as part of a comprehensive Illinois rate relief program, subject to legislative enactment.
  • 3UE's Missouri electric rate case resulted in a $43 million increase but denied a fuel and purchased power cost recovery mechanism, leading to a lower-than-expected return on equity.
  • 4Higher coal and transportation costs are anticipated to impact earnings, with a projected 15-20% increase for 2007 over 2006.
  • 5Significant capital expenditures are planned for environmental compliance, with estimates of $3.5 billion to $4.5 billion between 2007 and 2016.
  • 6Credit ratings were negatively impacted by Illinois regulatory actions, though a recent settlement aims to mitigate these concerns.
  • 7Ameren is studying future nuclear power plant alternatives, including the preparation of a license application, but no final decision has been made to build a plant.

Frequently Asked Questions

Ameren's net income increased primarily due to higher margins in its non-rate-regulated electric generation segment, driven by the replacement of below-market power sales contracts with higher-priced market-based ones. Additionally, favorable weather conditions in Missouri and Illinois positively impacted margins in the regulated segments.

In Illinois, a comprehensive rate relief and customer assistance program was agreed upon by key stakeholders, including Ameren affiliates. This program, subject to legislative approval, involves contributions from Ameren companies and aims to address customer concerns about rate increases and stabilize the power procurement process. In Missouri, Ameren's utility (UE) received a $43 million electric rate increase, but its request for a fuel and purchased power cost recovery mechanism was denied, which is expected to affect future returns.

Ameren anticipates increased costs related to fuel, transportation, employee benefits, and environmental compliance. Significant capital expenditures are planned for environmental retrofits, estimated between $3.5 billion and $4.5 billion from 2007 to 2016. These factors, combined with regulatory challenges, are key considerations for the company's future financial performance and liquidity.

Credit rating agencies downgraded Ameren and its subsidiaries due to regulatory uncertainties in Illinois, particularly regarding rate freezes and purchased power cost recovery. The recent settlement agreement in Illinois is expected to significantly reduce these uncertainties and mitigate the risk of further downgrades. The company continues to monitor its financial position and capital market access.