8-KOther Events

AMEREN CORP 8-K Report, Corporate Update (Mar 15, 2007)

Filed March 15, 2007For Securities:AEE

Summary

Ameren Corporation and its subsidiaries are reporting significant credit rating downgrades by Moody's Investors Service on March 12, 2007. These downgrades, affecting Ameren, Union Electric Company (AmerenUE), Central Illinois Public Service Company (AmerenCIPS), CILCORP Inc., Central Illinois Light Company (AmerenCILCO), and Illinois Power Company (AmerenIP), were primarily triggered by the potential passage of rate freeze legislation in Illinois. Moody's indicated that if this legislation is enacted, the Illinois-based utilities could be further downgraded into speculative (junk) grade, potentially impacting their ability to access capital and increasing borrowing costs. In response to these downgrades, particularly to below investment grade for AmerenCIPS, AmerenCILCO, and AmerenIP, these Illinois utilities have informed the Illinois Commerce Commission (ICC) that they cannot proceed with previously proposed customer bill credits and a voluntary $15 million contribution to energy assistance programs. The company stated the need to marshal resources for ongoing utility operations. Additionally, Standard & Poor's also issued a report indicating potential immediate downgrades to "BB+" for the Illinois utilities if the rate freeze legislation passes. These events highlight significant regulatory and financial risks facing Ameren's Illinois operations. Investors should monitor the outcome of the Illinois rate freeze legislation closely, as it directly impacts the creditworthiness and operational flexibility of these subsidiaries, and potentially Ameren Corporation as a whole. The company also noted that AmerenUE's downgrade was due to higher costs, lower financial metrics, and a challenging Missouri regulatory environment.

Key Highlights

  • 1Moody's Investors Service downgraded the credit ratings of Ameren Corporation and several of its subsidiaries on March 12, 2007, citing concerns over potential Illinois rate freeze legislation.
  • 2The Illinois utilities (AmerenCIPS, AmerenCILCO, AmerenIP) had their ratings lowered to below investment grade (junk status) by Moody's.
  • 3Standard & Poor's also indicated that it would immediately lower the issuer credit ratings on the Ameren Illinois utilities to "BB+" if the proposed Illinois rate freeze legislation passes the Senate.
  • 4As a result of the below investment grade ratings, Ameren's Illinois utilities have withdrawn previously proposed customer bill credits and a $15 million contribution to energy assistance programs.
  • 5The downgrades and potential further downgrades create significant financial risks, including reduced access to capital, increased borrowing costs, and higher costs for fuel and power supply for the Illinois subsidiaries.
  • 6AmerenUE (Union Electric Company) was also downgraded by Moody's due to higher costs, lower financial metrics, and a challenging Missouri regulatory environment.

Frequently Asked Questions

The primary driver for the credit rating downgrades by Moody's was the passage of rate freeze legislation by the Illinois House of Representatives and the Environment and Energy Committee of the Illinois Senate. This legislation, if enacted, could freeze electric rates at 2006 levels, threatening the financial solvency and power procurement capabilities of Ameren's Illinois utilities.

As a direct result of their credit ratings falling below investment grade, Ameren's Illinois utilities (AmerenCIPS, AmerenCILCO, and AmerenIP) have informed the Illinois Commerce Commission that they can no longer offer a $20 million one-time customer bill credit and a proposed customer elect phase-in plan. They also will not make a $15 million voluntary contribution to fund energy assistance and efficiency initiatives, as they need to conserve resources for ongoing utility operations.

Moody's indicated that if the rate freeze legislation is passed and enacted in Illinois, the Ameren Illinois utilities could be downgraded further into speculative (junk) grade. This could lead to reduced access to capital, increased borrowing costs, and higher costs for fuel, power, and gas supply, negatively impacting earnings. Suppliers may also require prepayments for goods and services.

Yes, Union Electric Company (AmerenUE), Ameren's Missouri utility, was also downgraded by Moody's. This was attributed to higher costs, lower financial metrics, and a challenging regulatory environment in Missouri. Moody's also noted the potential for Ameren to rely more heavily on AmerenUE for dividends if the Illinois rate freeze legislation passes.