10-QPeriod: Q3 FY2007

AMEREN CORP Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 9, 2007For Securities:AEE

Summary

Ameren Corporation's (AEE) third quarter and first nine months of 2007 results showed a decrease in net income compared to the prior year, primarily impacted by costs associated with the Illinois electric settlement agreement and increased operating expenses in its regulated segments. These negative factors more than offset improvements in the non-regulated generation business and favorable weather conditions. The Illinois electric settlement agreement, enacted in August 2007, provides significant bill credits and refunds to Ameren's Illinois customers, funded partially by Ameren, its subsidiaries, and other generators. While this agreement is expected to stabilize the regulatory environment in Illinois, it will reduce Ameren's earnings per share by an estimated $0.45 over four years, with $0.26 recognized in 2007. The company also faces the challenge of recovering rising fuel, purchased power, labor, and environmental compliance costs through rate increases, with regulatory lag impacting timely recovery.

Key Highlights

  • 1Net income for the first nine months of 2007 was $510 million, or $2.46 per share, a slight increase from $486 million, or $2.37 per share, in the same period of 2006.
  • 2The Illinois electric settlement agreement will reduce Ameren's earnings by an estimated $0.45 per share over four years, with $0.26 recognized in 2007, impacting third-quarter results.
  • 3Missouri Regulated segment earnings increased due to a rate increase for Union Electric Company (UE) and favorable weather, while Illinois Regulated segment earnings declined significantly due to insufficient rates to cover costs.
  • 4Non-rate-regulated Generation segment performance improved, driven by higher market-based power sales contracts replacing expiring below-market agreements.
  • 5Capital expenditures increased significantly in 2007, driven by storm repairs, power plant scrubber projects, and reliability upgrades, with further significant investments expected for environmental compliance.
  • 6Credit ratings were downgraded in early 2007 due to Illinois legislative actions and the regulatory environment in Missouri, but outlooks improved in August and September 2007 following the Illinois settlement agreement.
  • 7Ameren filed for a combined $247 million increase in electric and gas delivery service rates in Illinois in November 2007 to address cost recovery and low returns on equity.

Frequently Asked Questions

The Illinois electric settlement agreement, enacted in August 2007, provides approximately $488 million in bill credits and refunds to Ameren's Illinois customers over a four-year period. Ameren and its subsidiaries are contributing $150 million to this program. This is expected to reduce Ameren's earnings per share by an estimated $0.45 over four years, with $0.26 per share recognized in 2007, primarily impacting the Illinois Regulated segment.

The Missouri Regulated segment saw increased earnings due to a rate increase for Union Electric Company and favorable weather. The Non-rate-regulated Generation segment improved due to higher market-based power sales. However, the Illinois Regulated segment experienced a significant earnings decline due to insufficient rates to cover costs, exacerbated by regulatory lag and settlement agreement contributions.

Ameren anticipates significant capital expenditures over the next five years, primarily for environmental compliance (retrofitting coal-fired plants with pollution control equipment, estimated at $3.5 billion to $4.5 billion), improving electric and gas infrastructure reliability, and potentially investing in new baseload generation capacity, possibly nuclear. These investments are expected to be funded with debt.

Ameren's credit ratings were downgraded in early 2007 due to regulatory and legislative uncertainties in Illinois and the challenging regulatory environment in Missouri. However, following the Illinois electric settlement agreement, credit rating agencies revised their outlooks to stable or positive for several Ameren entities, reflecting reduced regulatory risk.