8-KOther Events

AMEREN CORP 8-K Report, Corporate Update (Jan 3, 2012)

Filed January 3, 2012For Securities:AEE

Summary

This Form 8-K filing from Ameren Corporation (AEE) and its subsidiary Ameren Illinois Company, dated January 3, 2012, announces Ameren Illinois' decision to participate in Illinois' new Energy Infrastructure Modernization Act. This participation initiates a performance-based formula ratemaking process, shifting from traditional rate cases to a system where annual rate adjustments will be based on prudently incurred costs and pre-defined performance standards. Key implications for investors include a mandated increase in capital expenditures by Ameren Illinois, estimated at $625 million over the period 2012-2021, aimed at modernizing its distribution system. The new framework also includes specific provisions for Ameren Illinois' allowed return on equity, tied to U.S. Treasury bond yields, and potential penalties for failing to meet performance standards. The filing also notes Ameren Illinois' withdrawal of its February 2011 electric delivery service rate case, while its natural gas rate case will proceed as the Act does not apply to natural gas utilities.

Key Highlights

  • 1Ameren Illinois has elected to participate in Illinois' Energy Infrastructure Modernization Act's performance-based formula ratemaking process.
  • 2This transition means annual rate adjustments will be based on actual costs and performance metrics, replacing traditional rate case filings for electric delivery services.
  • 3Ameren Illinois is committed to investing an estimated $625 million in capital expenditures from 2012 through 2021 to modernize its distribution system, incremental to previous spending.
  • 4The Act establishes a formula for Ameren Illinois' allowed return on equity, linked to the average yield of 30-year U.S. Treasury bonds plus a specified basis point spread.
  • 5The company may face penalties if performance standards are not met, with the severity increasing over time.
  • 6Ameren Illinois has withdrawn its February 2011 electric delivery service rate case in conjunction with this election.
  • 7The new ratemaking process is effective through 2017, with a potential extension to 2022, and requires annual contributions to customer assistance programs and the Illinois Science and Energy Innovation Trust.

Frequently Asked Questions

The primary impact is a shift to a performance-based formula ratemaking process for Ameren Illinois' electric delivery services. This means that rates will be adjusted annually based on prudently incurred costs and performance standards, rather than through traditional rate case filings. It also mandates significant capital investment for system modernization.

Ameren Illinois' allowed return on equity will be determined by a formula tied to the average yield of 30-year U.S. Treasury bonds for the calendar year, plus 590 basis points for 2012 and 580 basis points for subsequent years. This provides a more predictable framework for investor returns, though it includes potential penalties for underperformance.

Ameren Illinois is committed to investing approximately $625 million in capital expenditures for distribution system modernization between 2012 and 2021. Additionally, the company must make annual contributions to customer assistance programs (up to $10 million total) and the Illinois Science and Energy Innovation Trust ($1 million annually, plus a one-time $7.5 million donation).

No, the Energy Infrastructure Modernization Act and its associated performance-based formula ratemaking process do not apply to Ameren Illinois' natural gas delivery services. The company's pending natural gas delivery rate case will continue to proceed separately.