阿莫林 (AEE) 2002 Q4 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Ameren earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are on a listen-only mode. At the request of the company, we will open up the conference for questions and answers after the presentation.

I will now turn the conference over to Mr. Steinke. Please go ahead, sir.

Thank you, Janine (ph), and good morning. I'm Bruce Steinke, Manager of Investor Relations here at Ameren Corporation. Here with me today with our Chairman and CEO, Chuck Mueller; our President and Chief Operating Officer, Gary Rainwater; our SVP of Finance and CFO, Warner Baxter; our Controller, Marty Lyons (ph); and our Treasurer, Jerry Birdstall (ph).

Before we begin, let me cover a few housekeeping details. This hour-long call is available to anyone who wishes to hear it for one week by dialing a playback number. The announcement you received carries instructions on replaying the call by telephone. In addition, we'd like to welcome everyone listening to the call on the Internet. The Webcast will be available for one week on www.ameren.com, our Web site.

This call contains time-sensitive data that is accurate only as of the date of today's live broadcast. Redistribution of this broadcast is prohibited.

I also need to let you know that comments made on this conference call may contain statements that are commonly referred to as forward-looking statements. Such statements include those about future expectations, beliefs, plans, strategies, objectives, and financial performance. We caution you that there are various factors that could cause actual results to differ materially from those projected in the forward-looking statements. For additional information concerning these factors, we ask you read the Safe Harbor statement in the release we issued today and in our filings with the SEC.

Again, let me thank you for joining us. We will be brief in our remarks today to give you an opportunity to ask questions. Chuck will begin the call with an overview of 2002. Gary will provide an update on some operating matters and our perspective on 2003 and beyond, and Warner will follow with a more detailed financial review.

Here's Chuck.

Thanks, Bruce. Good morning, and thank you for joining us.

This morning we reported ongoing 2002 earnings of $3.01 per share, in line with our previous guidance. As you all know, 2002 presented challenges for Ameren and most other companies in the energy sector as a weak economy and soft energy markets hurt operating margins.

Others in the industry dealt with major liquidity problems, debt defaults, and a host of other issues which ultimately caused, among other things, major changes in strategic direction. At Ameren, not only did we weather these difficult operating conditions, but we distinguished ourselves in the sector by delivering on our promises and achieving major milestones for the company. We have consistently promised our stakeholders that we would seek performance leadership by pursuing a consistent, long-term strategy that is focused on our core business of producing and delivering energy while staying true to our core values.

In 2002, we delivered on this promise in many ways. We earned national recognition for superior customer service in environmental stewardship. We entered into a constructive settlement with the Missouri Public Service Commission in the largest rate case in the company's history. That settlement gives us the ability to earn solid returns in the future, while at the same time providing us with the financial flexibility to make critical energy infrastructure investments.

We further strengthened our balance sheet through the issuance of new common stock, demonstrating our continuing commitment to financial strength and flexibility. Today, our debt to capital ratio approximates 50%, and our credit ratings are among the best in the industry. We announced the acquisition of CILCORP, a high quality integrated utility that will significantly enhance our long-term growth prospects. As you all know, we just recently completed this acquisition.

We provided solid total returns for our shareholders as we continue to pay a dividend which currently yields approximately 6%, and our total returns significantly outperformed the S&P 500 and the Dow Jones utility indexes. We accomplished all of these things because we were focused on our core energy strategy.

Over the past year, many utilities have announced back to basics strategies. Our strategy has always been to focus on the basics and execute on those basics better than most. Simply put, our mission was accomplished in 2002.

At this point I'd like to turn the discussion over to Gary so he can provide with you a forward-looking perspective on 2003 and beyond, as well as brief you on some operational matters -- Gary.

Thanks, Chuck. Let me start by reemphasizing a few points that Chuck just discussed.

First, 2002 was indeed a very successful year for Ameren. Second, Ameren will continue to focus on its core energy strategy. That strategy includes executing our business plan and optimizing our assets in a superior fashion. It includes a commitment to maintaining overall financial strength and flexibility. It includes providing our investors with solid total returns. Those returns will come through maintaining our existing dividends, which today yields in excess of 6%, as well as growing our business.

Our business will grow through organic growth in our service territory, unrelenting focus on cost control, and through investment opportunities like CILCORP.

While on the subject of CILCORP, we were very pleased that we were able to complete this acquisition at the end of January. Completing an acquisition of this nature and size in less than 10 months is extraordinary for our industry, and will give us the ability to begin realizing synergies at least two months earlier than we expected. We have already begun making necessary organizational changes, integrating computer systems and putting our operating policies and procedures in place.

In short, our entire organization is focused on the smooth integration of CILCORP and the execution of our strategic plan associated with this acquisition. Consistent with our earlier guidance, this acquisition is expected to be accretive to earnings up to 5 cents in 2003.

In the fourth quarter, we also successfully completed a refueling and maintenance outage at our Callaway (ph) nuclear plant. The refueling was completed on time, but the cost was somewhat higher than expected due to more extensive maintenance being completed. Our next refueling outage is scheduled for the spring of 2004.

We also completed the offering of a voluntary retirement program to certain management and union employees at the end of 2002. 550 employees accepted our offer, which was better than we had expected. Annually, we expect to realize approximately $40 million in cost savings due to this program. The vast majority of employees who accepted this package will leave by the end of this month.

Looking ahead, we continue to see certain challenges in 2003 and beyond in our sector. As outlined in the October and December releases and calls, we expect the economy top continue to be weak, and while we have recently seen some better pricing in the energy markets, we continue to expect those markets to remain somewhat soft in 2003. We also expect to see continuing increases in employee benefit cost, as well as insurance and security costs.

In December, we outlined numerous actions we were taking to mitigate the challenges. The actions include the voluntary retirement program, the retirement or mothballing of 1940s era generating plants, the management wage freeze, and a reduction in capital spending.

As I said before, we will maintain an unrelenting focus on cost control. Consistent with that focus, we are considering changes to active employee medical benefits. We will aggressively manage employee headcount, look to optimize maintenance schedules at the power plants, and will look to accelerate cost reduction opportunities at CILCORP. With many of our union contracts expiring by the end of this June, we're also looking forward to constructive discussions with our bargaining units to address some of these important matters.

On the revenue side of the equation, we have gas rate cases pending in Illinois, which we have requested annual revenue increases of approximately $35 million. We're also actively considering the filing of a gas rate case in the state of Missouri, and we will continue to focus on optimizing our generation assets in both the short-term and long-term energy markets.

With all of this being said, it's also important to remember that we have a diverse and stable revenue base, with nearly 95% of our earnings coming from primarily rate-regulated operations. With the recent rate settlement in Missouri and the change in law in Illinois, our regulated operations have regulatory certainty through 2006. We're also in the process of transferring 550 megawatts of unregulated generation to our Missouri regulated operation to meet capacity needs.

For 2003, our unregulated generation capacity is nearly 100% hedge, and we're already over 90% hedged for 2004. Bottom line is that we remain committed to efficiently producing and delivering reliable energy, maintaining our financial strength and flexibility, and providing solid, long-term returns to our shareholders.

With that, I'd like to turn the discussion over to Warner.

Thanks, Gary. Now I want to go into a more detailed discussion of earnings results and related financial matters.

In 2002, we reported net earnings of $382 million or $2.61 per share compared to 2001 earnings of $469 million or $3.41 per share. Excluding nonrecurring charges that I will discuss in a moment, we reported ongoing 2002 earnings of $440 million or $3.01 per share compared to 2001 ongoing earnings of $476 million, or $3.46 per share.

In the fourth quarter of 2002, we recorded an after-tax charge of $58 million or 40 cents per share related to our previously announced employee voluntary retirement program and restructuring charges for our disclosure of our Venice (ph) plant and mothballing of two units at our Meridocha (ph) plant. A nonrecurring charge of 40 cents per share for these two items is consistent with amounts previously reported to you. Together, these actions will increase earnings approximately 16 cents per share in 2003, and 18 cents in 2004.

Reported earnings for 2001 included a one-time after-tax charge of $7 million or 5 cents per share resulting from the required adoption in January 2001 of a new accounting standard related to derivative financial instruments. During 2002, net income was favorably impacted by an increase in electric margin. The increase in electric margin was driven by increased sales of 7% and 2% respectively to weather-sensitive residential and commercial customers. These increases were offset in part by a 5% decrease in industrial sales due to weak economic conditions.

For the year, warmer summer weather increased earnings 24 cents compared to 2001. In addition, earnings were favorably impacted by 10 cents per share due to increased sales of emission allowances, principally from EEI (ph), a 60% owned subsidiary of the company.

These increases in earnings were offset by several factors. One factor was the impact of the Missouri electric rate settlement. Combined, the annualized $50 million electric rate decrease, the funding of various customer-related and economic programs, and the lowering of depreciation rates had the effect of lowering 2002 earnings by 26 cents per share.

In addition, margins on interchange sales were lower in 2002 due to the soft pricing in the energy markets and less low-cost generation available for sale due to higher (inaudible) demand and an unexpected outage occurring at one of our low-cost coal plants during the summer.

In 2002, Ameren Energy, our short-term energy marketer, contributed 20 cents per share to earnings. In 2001, Ameren Energy contributed 23 cents per share to earnings. Ameren Energy continues to carry out the company's asset optimization strategy while employing conservative risk-management principles. Their objective is to sell our economically-available excess physical generation, as well as effectively access the energy markets to meet our fiscal (ph) needs.

At December 31, Ameren Energy's value at risk was below $1 million, and the mark to market impact of the operations was about 1 cent per share in 2002.

Before I move on to discuss 2002 operating expenses, I would also like to point out that, in the fourth quarter, we early adopted the additional guidance related to EITF 02-03. You will recall, in the third quarter we adopted EITF 02-03, which resulted in a reduction in revenues and purchase power for certain interchange sales with no impact on net income. In the fourth quarter, the EITF rescinded EITF 98-10 and provided additional guidance on accounting for certain energy contracts accounted for under FAS 133. Adoption of this guidance resulted in an additional reduction to revenues and purchase power. Again, adoption of this guidance did not any impact on net earnings.

Earnings were also unfavorably impacted by an increase in other operations and maintenance expenses in 2002 compared to 2001. Those increases were largely due to higher employee benefits expenses. Employee benefit costs have been increasing due to rising medical costs, as well as due to increased pension costs resulting from the impact of the poor stock market performance on the company's benefit plan assets and lower discount rates.

In 2002, employee benefit costs rose 15 cents per share. Maintenance expenses also rose in 2002 due to an unscheduled outage at one of our coal plants, which lowered earnings about 4 cents per share. We also had a refueling outage at our Callaway nuclear plant in the fourth quarter. That outage lasted 34 days.

After factoring in all maintenance and fuel and purchase power replacement expenses, the Callaway outage negatively impacted fourth quarter earnings by 13 cents, which in total was comparable to 2001 outage expenses.

In 2002, Callaway does not have a scheduled refueling outage. As a result, the company expects to incur lower maintenance and purchase power costs. At the same time, Callaway is expected to incur higher security costs and will be initiating several new compliance programs in 2003, driven in part by increasing oversight and regulation of nuclear plants. These factors will partially offset the expected savings from the lack of a Callaway refueling outage. As a result, the company expects to realize lower net Callaway-related costs of about 7 cents per share in 2003 when compared to 2002.

Earnings were also unfavorably impacted in 2002 by increased depreciation and financing costs resulting from capital additions over the past year. Depreciation expenses, excluding the impact of the Missouri rate settlement discussed previously, increased 17 cents per share, and related interest expenses rose 9 cents compared to 2001.

As many of you know, we have proactively accessed the capital markets during 2002, issuing almost $1 billion of equity and equity linked securities. Our financing activities stem from our commitment to remain a financially strong company and maintain our financial flexibility in order to effectively pursue our business strategy, which in the past year included the acquisition of CILCORP.

The dilution resulting from our new equity issuances reduced 2002 earnings per share by about 20 cents compared to 2001.

This completes my discussion of the main factors impacting 2002 earnings. Today we also affirmed our 2003 earnings guidance of $2.80 to $3.05 per share that we came out with in December. This guidance incorporates our January equity offering and the closing of the CILCORP acquisition.

Looking ahead to 2004, we continue to expect earnings growth of 2% to 3% over 2003 levels. Of course, these estimates are subject to, among other things, weather conditions and changing energy markets and economic conditions.

Before we move on to questions, I would also like to address a few other financial matters. As many of you may know, we sold $5.5 million shares of common stock in January to complete the financing program associated with our acquisition of CILCORP, which we just recently closed. Consistent with our previous estimates, we assumed debt and preferred stock of approximately $900 million and paid about $500 million in cash for CILCORP. The final purchase price is subject to certain adjustments for working capital and other changes pending the finalization of CILCORP's closing balance sheet, which should be completed within a few months.

Upon completion of the acquisition, both Standard & Poor's and Moody's have lowered Ameren's corporate credit rates to A-minus and AAA respectively. The actions were consistent with the rating agency's previous disclosures subsequent to the original announcement of the CILCORP acquisition last April. As a result of the actions, our ratings outlook are now classified at stable. The bottom line is our credit ratings still are among the best in the energy sector.

As Chuck stated earlier, our debt to capital ratio now approximates 50% post the CILCORP acquisition. This does not factor in any equity credit associated with the equity linked securities we issued last March. The assumption of some level of equity credit for these securities would drive our debt to capital ratio even lower. As a result, we see no further need for any meaningful equity capital in the near-term, absent any major new strategic investment. We do plan to continue to issue new common shares under our dividend reinvestment, stock purchase, and employee savings investment programs in 2003. Historically, these programs have resulted in the issuance of shares valued at approximately $75 million per year.

Finally, I'd like to give a brief update on our pension funding status, obviously a hot topic. As discussed on earlier calls, we proactively make contributions of $30 million to our pension trust in 2003 so that it will remain prudently funded. As a result, Ameren has no funding obligations to the pension trust for its pension plans for 2003 or 2004. However, we expect CILCORP, based upon current assumptions, to have minimum pension funding requirements of approximately $1 million and $5 million 2003 and 2004 respectively.

Given current assumptions, we expect to be required to fund a total of $150 million to $175 million annually for all of the pension plans from 2005 to 2007. At December 31st, 2002, we recorded a minimum pension liability to other comprehensive income of approximately $100 million, as the pension plan was underfunded by $528 million. Keep in mind that, just two years ago, our pension plan was fully funded.

We also made some modifications to our pension assumptions, reducing the discount rate to 6.75% from 7.25% and the assumed increase in future compensation from 4.25% to 3.75%, and we maintained our expected return on plan assets at 8.5%.

This completes the prepared comments. We will now be happy to take your questions.

Thank you. The question and answer session will begin at this time. If you are using a speakerphone, pick up the handset before pressing any numbers. Should you have a question, please press star 1 on your push button telephone. If you wish to withdraw your question, press star 2. The questions will be taken in the order they are received.

Stand by for the first question.

Thank you. The first question comes from Andy Levy (ph) from Bear Wagner. Please state your question.

Hi. How are you doing?

Hi, Andy. How are you?

I'm doing all right. A quick question on -- with CILCORP done, what's kind of the plan over the next year or two as far as assets buying, selling, whatever it may be?

Well, we -- this is Chuck Mueller. We're very focused, frankly, on the successful integration of CILCORP. We have a lot of work to do. We're very focused on doing that right.

Having said that, as opportunities arise in the future, we'll certainly pursue them with the same financial rigor and diligence that we did in the past as far as the Silco (ph) acquisition and even the SIPS (ph) acquisition several years ago. We will say that any acquisition would be consistent with our core energy business and our tight regional focus and would definitely have to be accretive of earnings. So we are open to opportunities, but we are focused, as I said, on the CILCORP work that we have to do.

Thank you very much. Good luck this year.

Thank you, Andy.

Thank you. Our next question comes from Devin Gagin (ph) from Luminous (ph) Capital. Please state your question.

Hi. Thanks for the time, and congratulations on a good year again.

Thank you.

I saw in (inaudible) yesterday the announcement of the proposed acquisition of 540 megawatts from the unreg (ph) business. Can you just give me a little color on sort of how the commission is viewing that, if you can, and when you think that transaction might take place?

Sure, Devon. This Warner Baxter. We did start the application process to transfer 550 megawatts of our unregulated generating capacity to our regulated operations. That's simply just to meet generated capacity needs in our regulated operations in Missouri.

With regard to that process, we hope to have that completed by this summer. We have made applications, and -- from an approval standpoint, both the FERC and the ICC have to approve that, and Missouri does not. But we have been working very closely with the Missouri staff in dealing with our resource capacity needs.

So we are going through the process. Again, we -- it's still in the very early stages, but we feel confident that we'll be able to try to get that done by the summer of '03.

Now, is that the same transaction as the one - I thought I read in "Platt's" (ph) yesterday that would have you guys paying, I think, 161 for Pinkneyville (ph) and 97 for Kinmundy (ph)?

That's the same transaction. We say paid -- of course, keep in mind that is from our regulated operation, Union Electric, that would pay our unregulated operation, Ameren Energy Resources Generating Company. So those are not external funds.

Absolutely.

Also keep in mind that that the transfer satisfies our generating capacity requirement under our Missouri Electric rate case settlement. That is really killing two birds with one stone here.

Absolutely. One last question. Do you have any plans for the -- I think it's $100 million or $200 million in proceeds at the unreg affiliate. Do you know what you would do with those yet?

What we plan to do is pay down existing debt with those additional proceeds.

Sounds great. Thank you very much.

Welcome.

Thank you. Our next question comes from David Frank from Zimmer Lucas Partners. Please state your question.

Hi. Good afternoon.

Hi, David.

I just wanted to ask, Warner, could you say, for '05 to '07, you gave funding requirements, I think, related to the pension of $100 million some?

Yes, it was $150 million to $175 million annually that we would expect to fund annually for pension.

My last question is regarding Missouri and the potential for filing a gas rate case you mentioned there. Can you tell us approximately what you rate base is in Missouri and what type of return, approximately, are you realizing there?

David, I guess I would have to -- let me see if I can get the gas rate base. I do not have that in front of me. With regard to the overall returns that we're earning in Missouri, they're currently less than 10% in the gas business. So we would look to try to get to more reasonable levels of return in that filing.

Again, keep in mind that our gas business in the state of Missouri is a very modest gas business. So we wouldn't expect any significant rate increase request if we would actually pursue that. Probably something less than $30 million in total. But again, we're just looking at that right now and trying to get, ultimately, the nuances associated with that rate case and see if we do indeed want to file that.

Sure. Every little bit helps.

That's right. That's exactly the point. Especially when we look ahead and if we would look to file that rate case, certainly as we look head to 2004, every little bit, indeed, does help.

Congratulations on a good year.

Great. Thanks, David.

Thank you. Our next question comes from Paul Ridzon from McDonald. Please state your question.

I have two questions. I was wondering what embedded in your guidance is your expectation for Ameren Energy for 2003 and maybe some expectations for '04. Secondly, in Missouri, with regards to putting the peakers into a rate base, do you think that that proceeding will involve maybe putting out an RFP to see what you are shooting against?

Let me try to address both those questions. Let me start with the latter one first. Obviously our rate case in Missouri will come sometime likely in the 2006 time frame. So it's hard to speculate today whether that would be a comparison to market-based rates. I will say, though, in our settlement that we had in Missouri, we talked about satisfying some capacity requirement needs through the transfer of unregulated generation. And we're very explicit in saying that would be net book value. In part, that might alleviate it, but we are still several years away from that.

With regard to Ameren Energy, our expectation, as we discussed in September, is that Ameren Energy would contribute 20 cents to 25 cents per share in total for 2003.

Any trends that would you like to forecast for '04, or is it too early?

I think it's too early with regard to '04 to discuss that. But think it's probably a good thing to discuss with regard to Ameren Energy. Now, however, with regard to '03, some of the things we are seeing in the marketplace. We have seen, as we discussed in December - and we were expecting some very, very modest price increases, which was driving some of the increases in Ameren Energy. And we're basically, at that point in time, looking at $2 to $5 per megawatt hour over the period of time. That's looking at a typical 5 by 16 product in the synergy hub.

Now, what we have seen at the front half of this year, at least in the first month or two, is some strengthening in the overall energy marketplace prices, due in part to, really, rising gas costs. What we have seen is that what used to be a $2 to $5 per megawatt increase has gone up to somewhere around $7 to $10 per megawatt hour over the course of the year, certainly with the front half of the year being fairly solid. We have even seen some trades being executed in the $60 to $80 range.

So we have seen some strengthening. And rising gas prices, from our perspective, actually is a very good thing. As you all know, or at least many of you know, that our fleet is complemented primarily with coal-based and nuclear. So the spark spread with regard to the gas peakers really doesn't have as much of an effect on us. The rising in the gas prices and increases in the forward curve certainly help our overall operations, especially on the asset optimization strategy that Ameren Energy employs.

Thank you very much.

Welcome, Paul.

Thank you. The next question comes from Carrie Stevens (ph) with Morgan Stanley. Please state your question.

Hi, good morning.

Hi, Carrie.

Just curious -- you still have a fairly wide range set for 2003. Now that the equity issuance has been completed, I was just wondering if you could elaborate on why you are still maintaining such a wide range. What are some of the variances that could -- we need to look for, look -- watch during the year?

Sure, Carrie. I think, number one, we are still comfortable with that so-called wide range, even though we have the equity issuance behind us. Obviously, we're still at the very front part of the year. And so we're really not looking to try to either narrow that guidance or certainly lengthen it in any way.

With regard to issues -- of course, with regard to 2003, you have to be -- keep in mind the existing energy markets, as I just discussed a little bit some of the volatility there. But certainly economic conditions. When we met with many of you in December at our December conference call, we went through a number of different factors. In fact, we put out on our Web site some guidance with regard to 2003 in the various sensitivities to certain factors over the course of the year. Those things included, obviously, things like sales growth, which obviously (inaudible) economic conditions and changes in the energy markets, but also impacts associated with the CILCORP acquisition, as Gary said, we expect it to be up to 5 cents per share, as well as other items, including employee benefits and the like.

So, essentially, when you look at the guidance that we provided back at the end of December and some of the specifics that we put out on the Web site, we really still feel that that is a good place to be at this point in time. And as the year progresses, if we think it's appropriate to do so, we will narrow that guidance.

Can I just follow-up with one question? I guess two things that have changed since December would be, one closed two months earlier than expected, correct?

That is correct.

That would be a positive. And then the equity was issued maybe earlier than kind of expected, so that may be a slight negative just because of the dilution for the greater part of the year?

I understand. I think that's not an unfair assessment, depending upon when everyone had their expectations of the equity issuance. But certainly the equity at the front half of the year would have an impact on the overall (inaudible) estimates for CILCORP.

Okay.

And bottom line, because of the additional two months coupled with - of owning that asset, I think as importantly - and this is just the synergy opportunity, but it really gives us the ability to run that business effectively for all of 2003 and make the changes that we want to earlier in the year.

Right.

Those things are very helpful from our perspective.

Right. And then first quarter weather, I'm assuming, has got to be a positive relative to expectations as well?

Well, that -- you bring up a very good point. We have seen very solid demand so far. We have had some solid weather, stronger than normal weather in our service territory, and certainly our gas business has benefited from that.

Great. Okay. Thanks a lot.

Thank you. Our next question comes from Paul Patterson (ph) with Glen Rock Associates. Please state your question.

I wanted to -- you may have already answered this, but I missed it. What was the total weather impact in 2002 versus normal?

It was essentially 24 cents compared to the prior year, and really, for all practical purposes, it was 24 cents compared to normal. 2001, when all told (ph) together, when you look at the electric and gas business together, it was generally pretty normal.

Secondly, with respect to EITF 02-03, you mentioned the net revenue versus the gross revenue impact, but I am afraid I missed the impact that the reversal of 98-10 will have with respect to any charge to earnings if there is one, and going forward, any accrual versus mark to market change that you might have.

This is Warner Baxter. I'll say one thing - I'll let Marty give you the reclassification. There is no impact on earnings associated with what we have done. All we have simply done is offset some of our fuel and purchase power costs with our revenues. And Marty, if you can give the numbers that we actually reclassified.

Sure. Yes, just to echo what Warner said, the rescission (ph) of 98-10 didn't impact our accounting for any of our contracts whatsoever. So we have had no changes in our mark to market accounting, nor are we going to have any charges from any such changes. What we were required to do was go ahead and net down some of our purchase power costs against our revenues. At the foot of the income statement we put out with the press release, you will see a quantification of that. But for 2002, we netted down approximately $711 million worth of purchase power contracts, and for 2001, $648 million worth of purchase power contracts.

Great. Thanks for the clarification.

Welcome.

Thank you. Our next question comes from Scott Angstrom (ph) with Hamilton Investment Management. Please state your question.

Good morning. Just wondering, Warner, maybe if you could provide the reporting entities, UE (ph), SIPS, and generating just big picture - their net income number that will show up in the K.

Yes, I will be happy to do that. With regard to 2002, we expect UE to report earnings of approximately $336 million, SIPS to report earnings of $23 million, and Ameren Energy Generating Company to report earnings of approximately $32 million, with some other miscellaneous things and about $9 million or $10 million that ultimately comes to the $382 million that we reported in 2002.

So that does or does not include the nonrecurring items?

That number does include the nonrecurring items. I do not have at my disposal how that has been broken down between the various entities.

Do you have a sense of the CILCORP number for the year, even a ballpark of what the '02 number?

I have somewhat of a sense, but it isn't appropriate for me to disclose that information at this point in time because of AES's (ph) ownership of that, so ...

Sure.

I'll leave it at that.

The funding of the transfer from non-reg to UE, will UE be able to pay that out of cash flow, or will it have to issue debt?

UE will issue debt for that additional generating capacity.

Thanks very much.

You're welcome.

Thank you. Our next question comes from David Dickens (ph) with Deep Haven Capital Management. State your question.

Hi. Can you talk about -- now that you have closed the acquisition, about your views on synergy opportunities and timing of realizing those synergies?

Sure. Of course, we have just closed on the acquisition within the last couple of weeks, but as we have said all along, we have done a great deal of due diligence around the opportunity, and before we actually bid on it, and certainly throughout 2002. The bottom line is that we continue to be very comfortable with the synergy opportunities that we have outlined. Basically in the first 12 months, we believe that there's synergy opportunities of about $15 million, in year two, approximately $25 million, and in year three, $35 million, with many of those opportunities coming in the form of coal management opportunities.

Everything that we have seen so far, we basically we continue to believe very strongly in those synergy opportunities. As I said a little bit earlier, the fact that, in 2003, we have actually acquired CILCORP a couple of months earlier will only give us the ability to capitalize on those synergy opportunities even better in 2003.

All right. Thank you.

You're welcome.

Thank you. Our next question comes from Matt Brighter (ph) with Millennium Partners.

I was wondering if you guys could give us more detail on assumptions for commission credit sales next year and all the way past maybe 2005, when the regulations change?

Sure. With regard to emission credits, as you may recall, in 2002, there are basically two sources of emission credit sales. One came from EEI, our 60% owned subsidiary. Those sales generated incremental income of about 10 cents per share. They didn't sell out their entire emission allowance balance, but nonetheless, we certainly would not expect in 2003 to have that same level of emission allowances coming forward.

We did have some sales of emission allowances in the regulated business, principally UE. We would expect that those emission allowance sales probably were to the tune of $20 million, roughly. We would expect similar types of levels in 2003, if maybe not up a little bit. But again, we have to be mindful when we go into accessing those markets of our overall compliance strategy, but we certainly use many of these allowances for overall compliance strategy and we have to be mindful of market conditions.

What total amounts in cents per share you are guys estimating for '03 for ...

I guess with regard to '03, we would expect those emission sales probably to range about 9 cents to 10 cents per share.

Thank you.

Thank you. Our next question comes from Pat Moore (ph) with American Century. Please state your question.

Hi, guys. I just wondered if, now that you have the CILCORP deal completed, if you could talk about your capital spending needs in both the regulated businesses as well as the unregulated businesses.

Sure. I will be happy to do that, Scott. I guess with regard to the total capital expenditures that we expect to see in 2003, we expect those expenditures to approximate $675 million, with approximately $545 million, $550 million roughly of that being for the regulated business. We would expect then going forward to have similar levels of cap ex, and in probably those same proportionate levels for the next three to four years going out.

And also, the same type of trend for the unregulated business, that sort of stability?

Yes. Oh, that's right. I was commenting in total with regard to Ameren. I would expect the same stability for the unregulated business. We certainly do not have any expansion plans for our unregulated generation business. Right now, we basically would be working there with the maintenance cap ex and complying with the environmental expenditures.

Okay. Thanks.

You're welcome.

Thank you. Our next question comes from Daniele Seitz (ph) with Salomon Smith Barney. Please state your question.

Hi. Would you happen to have any -- is there any impact from FAS 143 that you see longer term?

Danielle, this is Marty Lyons. We haven't yet quantified the full impact of FAS 143, which we'll be adopting here in the first quarter. However, we do expect that it will result in a gain upon adoption.

Any sense of an order of magnitude? A few pennies?

We're not prepared to discuss that at this time.

Okay.

But I will say, Danielle, that that has not been included in the guidance that we have provided for '03. That would be separate and -- from that guidance.

Okay. And you anticipate to be able to give it to us sometime after the first quarter?

That is correct.

Okay. The other thing I was wondering -- and I apologize if you have to repeat that -- but did you give any sense of the change in profit gross margins that you could generate from the transfer of the 550 megawatts of capacity?

Danielle, this is Warner Baxter. I don't know if there's really any change in operating margins that we would generate. Essentially, we operate our units on a -- basically jointly dispatch the units. And so, essentially, how we actually manage and take those excess generation to market, we're really indifferent of whether it's ultimately in the regulated or unregulated generation fleet. So there is really no change in how we manage that ...

So there is no -- aside from the fact that it's a natural hedge, it doesn't really change. You are pretty much going to charge the open market rate?

Yes, to the extent it's available. Of course, we use some of that generation to cover native load needs whenever we ultimately need it. But essentially, the big advantage of us doing this is, obviously, we have to satisfy regulatory capacity needs, and we're able to do that without utilizing any external funding or incurring additional cap ex by employing this strategy.

So, eventually, it is possible that you will be automatically -- because your refuel adjustment or purchase power adjustment clause, so you have that kind of also safety, additional safety?

Well, I guess that -- Danielle, with regard to the purchase power adjustment clause, we do not have a fuel adjustment clause in either the state of Illinois or Missouri for fuel. But we do have one for gas, but not for a fuel adjustment clause.

Okay. So, that makes no difference either.

No.

I was just wondering if there was a major advantage.

I think -- again, it's -- I think I pointed out one of the major advantages. I think that, again, we will operate the fleet in much the same way as we have. I think a metric that I think is notable as well is that we are essentially 100% hedged for our unregulated generation in 2003 and over 90% in 2004, as a result of not only just the transfer, but just the other contracts that we have in place, including the long-term contract that we have back to our native load (ph) customers or SIPS and ultimately will be for CILCORP. So all those factors, I think, work to our advantage.

Thanks.

Thank you. Our next question comes from Devin Gagin with Luminous Management.

Just a conceptual question for the synergy region, in terms of synergy. In terms of ancillary services, is there any way for me to get a handle on what the potential for that is? I'm not even sure if you guys are going after those sorts of revenues.

I guess -- Devon, this is Warner again, I don't -- we do try to engage in some of the ancillary services, but again, we don't go into the levels specifically - to the extent we have opportunities, we love to capitalize on them, but I wouldn't suggest those are huge numbers for us.

So nothing that's substantial enough to even discuss, really?

I think that's fair.

Just one quick question off that. In terms of that market, is it more of a bilateral market like SIRC, or is there a ready platform run by the ISOs?

This is Gary Rainwater. It is currently adjusted bilateral (inaudible).

That helps a lot. Thanks so much, guys.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1 at this time.

Thank you. Our next question comes from Doug Fischer (ph) with AG Edwards and Sons. Please state your question.

Thank you, and congratulations on a solid year, given the many issues that you faced. Would you address -- I guess there's a proposal in the Missouri legislature to look at some kind of perhaps fuel and purchase power adjustment. And I understand that it would not impact you during the moratorium period as the legislation is currently drafted. But maybe you could talk about that and what you think its prospects might be looking, you know, in the longer-term future.

Doug, it's -- this is Gary Rainwater. It's hard to speculate on what the prospects are. If you followed the Missouri legislature recently, you know that similar legislation was passed last year and was vetoed by the governor. The prospects, I guess, are not -- are not really high that that would be done.

So, you're pessimistic about it, given the governor's continued apparent opposition, despite the change in the legislature to Republican for both houses?

I don't know if I -- if I would say pessimistic. Historically, that legislation has been in front of the governor, and he has chose to veto it. Obviously there have been modifications, I think, to this one. It's hard to predict ultimately. There has been changes, obviously, in the Senate and House which could change the overall dynamic. It's hard to speculate.

Thank you, Warner.

Sure.

Thank you. If there are no further questions, I will turn the conference back to Mr. Baxter to conclude.

Great. Thank you all for participating in this call. Let me remind you again, this call is available through February 18 on playback and through the Internet. The announcement carries instructions on listening to the playback. The Webcast will be available for five days. You can also call the contacts listed on our news release. For those on the call who are financial analysts, please call Bruce Steinke. Media should call Tim Fox. Numbers for both are on the news release. Again, thanks for dialing in.

Ladies and gentlemen, this concludes the conference for today. Thank you all for participating. Have a nice day. All parties may now disconnect