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AMEREN CORP 8-K Report, Agreement Terminated (Jul 7, 2006)

Filed July 7, 2006For Securities:AEE

Summary

Ameren Corporation (AEE) and its subsidiaries have announced the mutual termination of their Joint Dispatch Agreement (JDA) with Union Electric Company (UE), Ameren CIPS (CIPS), and Ameren Energy Generating Company (Genco), effective December 31, 2006. This decision, driven by changes in wholesale energy markets, Midwest Independent Transmission System Operator (MISO) dispatching, and the Illinois regulatory framework, allows the companies to pursue independent operational and market strategies. The termination is expected to impact Ameren's earnings as UE has simultaneously filed for a $361 million electric rate increase with the Missouri Public Service Commission (MoPSC), which incorporates a decrease in revenue requirement related to the JDA termination. Additionally, the expiration of power supply contracts, including one between AERG and CILCO, at year-end 2006 will lead to all remaining power being sold at prevailing market prices, potentially at higher average prices than under previous agreements.

Key Highlights

  • 1Mutual termination of the Joint Dispatch Agreement (JDA) between UE, CIPS, and Genco, effective December 31, 2006.
  • 2The termination is attributed to evolving wholesale energy markets, MISO dispatching, and regulatory changes.
  • 3UE has filed a request for a $361 million electric rate increase with the MoPSC, which accounts for revenue requirement changes from the JDA termination.
  • 4Genco expects to sell its generation at potentially higher average market prices in 2007 as existing contracts expire.
  • 5AERG's power supply contract with CILCO expires December 31, 2006, with AERG's generation to be sold at market prices.
  • 6The expiration of power supply agreements with Electric Energy, Inc. (EEI) has also led to increased costs for UE, Genco, and IP.
  • 7Control areas for transmission facilities are intended to be restructured into separate Missouri and Illinois control areas for operational efficiencies.

Frequently Asked Questions

The JDA was an agreement among Union Electric Company (UE), CIPS, and Genco that allowed for joint dispatching of electric generation. It provided options for affiliates to serve their load from their own generation first, then access any remaining affiliate generation at incremental cost. The agreement is being terminated by mutual consent because the benefits have diminished due to the emergence of transparent wholesale markets, centralized dispatching by MISO, and changes in the Illinois regulatory framework. The companies believe independent operations will be more beneficial.

The termination is expected to impact Ameren's earnings. Union Electric (UE) has filed for a $361 million electric rate increase with the Missouri Public Service Commission, which includes a decrease in its revenue requirement related to the JDA termination. For Genco, the termination means it will no longer receive margins from sales supplied with UE's power but expects to sell its own generation at potentially higher market prices starting in 2007 as other contracts expire.

Several power supply contracts are expiring at the end of 2006, including the contract for Ameren Energy Resources Generating Company (AERG) to supply CILCO, and agreements with Electric Energy, Inc. (EEI). This means that power previously supplied under these contracts will be sold at prevailing market prices in 2007. While this could lead to higher selling prices for some generation, it also means that power previously sourced at lower cost-based rates will be replaced by higher-cost generation or market purchases for some entities.

Yes, in conjunction with terminating the JDA, Ameren's transmission-owning entities intend to restructure their control areas. This means creating one control area for UE's transmission facilities in Missouri and another in Illinois for the transmission facilities of CIPS, CILCO, and IP. This restructuring is aimed at improving operational efficiencies, particularly for Genco to participate in the Illinois power procurement auction.