8-KOther Events

AMEREN CORP 8-K Report, Corporate Update (Apr 20, 2007)

Filed April 20, 2007For Securities:AEE

Summary

This 8-K filing from Ameren Corporation (AEE) on April 20, 2007, details a significant regulatory development in Illinois concerning proposed rate freeze legislation (Senate Bill 1592). The legislation, if enacted, would mandate a rollback of electric rates for Ameren's Illinois utilities (CIPS, CILCO, and IP) to levels in effect before January 2, 2007, and would prevent rate changes for one year. This would substantially impair the utilities' ability to recover purchased power and delivery costs, leading to potential undercollections and required refunds to customers. The company views this legislation as unlawful and unconstitutional, intending to pursue all legal avenues, including seeking immediate injunctive relief to prevent its implementation. However, Ameren acknowledges that even the enactment of such legislation, regardless of immediate injunction success, would likely result in material adverse consequences. These include significant credit rating downgrades, reduced access to capital markets, higher borrowing costs, and potential disruptions to service, ultimately threatening financial insolvency for the affected subsidiaries.

Key Highlights

  • 1Illinois Senate approved Senate Bill 1592, proposing to freeze electric rates for Ameren's Illinois utilities (CIPS, CILCO, IP) at pre-January 2, 2007 levels for one year.
  • 2The proposed legislation would prevent utilities from recovering substantial portions of purchased power costs and delivery service costs from retail customers.
  • 3Ameren and its Illinois subsidiaries consider the legislation unlawful and unconstitutional and plan to vigorously pursue legal challenges, including seeking injunctive relief.
  • 4Enactment of the legislation, even if implementation is temporarily enjoined, is expected to lead to material adverse financial consequences, including significant credit rating downgrades to speculative grade.
  • 5Potential consequences of enactment include reduced access to capital markets, higher borrowing costs, inability to make timely infrastructure investments, and potential disruption of service.
  • 6Credit rating agencies (S&P, Moody's, Fitch) have already indicated negative rating actions or outlooks in response to the potential for rate freeze legislation.
  • 7Ameren may be required to record substantial goodwill impairment charges if the legislation is enacted, and there's a risk of ceasing to apply SFAS No. 71, potentially leading to significant extraordinary charges.

Frequently Asked Questions

The primary concern is the potential enactment of Illinois Senate Bill 1592, which proposes to freeze electric rates for Ameren's Illinois subsidiaries (CIPS, CILCO, IP) at levels below current costs for at least one year, significantly impacting their financial health and operational ability.

If enacted, the legislation could lead to significant credit rating downgrades to speculative grade, severely limit access to capital markets, increase borrowing costs, hinder infrastructure investments, and potentially result in service disruptions and even insolvency for the affected Illinois utilities. Ameren itself could also face material adverse consequences and potential goodwill impairment charges.

Ameren believes the legislation is unlawful and unconstitutional and intends to pursue all available legal actions and strategies, including seeking immediate injunctive relief to prevent its implementation and ultimately invalidate it.

Yes, credit rating agencies have already taken action or issued warnings. Standard & Poor's indicated ratings would be lowered to 'BB+' if the bill passed the Senate and could be lowered further. Moody's suggested downgrades into speculative grade, and Fitch already downgraded Ameren and its Illinois utilities, citing regulatory risk.