阿莫林 (AEE) 2003 Q3 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Ameren Corporation third quarter earnings release conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Mr. Bruce Steinke, Manager of Investor Relations. Please go ahead, sir.

Thank you and good morning, everyone. I am Bruce Steinke, Manager of Investor Relations at Ameren Corporation. Here with me today is our President and Chief Operation Office, Gary Rainwater. As many of you already, on October 10th, we announced that Gary will be succeeding Chuck Mueller as Chairman and CEO of Ameren, effective with Chuck's retirement on December 31. Also with me today is our Executive Vice President and CFO, Warner Baxter; our Vice President and Treasurer, Jerre Birdsong; and our Vice President and Controller, Marty Lyons.

Before we begin, let me cover a few housekeeping details. This hour-long call is available for one week to anyone who wishes to hear it by dialing a play-back number. The announcement you received carries instructions on replaying the call by telephone. In addition, we would like to welcome everyone listening to this call on the Internet. The Webcast will be available for one year on our Website, www.ameren.com. 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 anticipated in the forward-looking statements. For additional information concerning these factors, we ask you to read the forward-looking statement section in the release we issued today, and in our filings with the SEC. Gary will begin this call with an overview of our third quarter results and some operating matters, and Warner will follow with a more detailed financial review. We will then open it up for questions. Here's Gary.

Thanks, Bruce. Good morning and thank you for joining us. This morning, we reported net income of $1.70 per share for the third quarter of 2003, compared to $1.63 per share in the third quarter of 2002. I should note that the $1.70 per share for the current quarter includes a gain of 19 cents per share related to the settlement of a dispute over certain coal mine reclamation issues with a supplier. Excluding this item, we earning $1.51 per share in the third quarter of 2003, reflecting very solid ongoing operating performance. These results stem from our focus on asset optimization and effective cost control. Weather conditions were near normal during the quarter, but considerably cooler than 2002, which reduced our earnings 25 to 30 cents per share compared to last year. In addition, the second phase of electric rate reductions in our Missouri service territory reduced third quarter 2003 earnings by about 5 cents per share compared to last year.

These factors were offset in large part by the first-rate performance of our generating plants, higher power prices, lower operating costs in our pre-Cilcorp operations and organic growth. Our low-cost generating units ran very well, as evidenced by the fact that our average net capacity factor rose nearly 6 percent during the quarter. This additional low-cost power, when combined with higher power prices in the energy markets, resulted in higher margins on sales of excess power into the interchange markets, which increased earnings by 4 cents per share in the third quarter of 2003 as compared to last year. Overall native load demand in our preacquisition territory went down 5 percent during the third quarter due to cooler summer weather. However, we continue to experience solid organic growth and we are beginning to see signs of economic recovery in our service territory. In fact, in August we achieved a record peak load on our preacquisition system of 12,050 megawatts, exceeding our previous record of 11,710 megawatts. Finally, we (indiscernible) execute an effective cost control program. Excluding operating expenses associated with Cilcorp, other operations and maintenance expenses in the third quarter of 2003 were $15 million lower than 2002, as we realized benefits from our voluntary employee retirement program and lower maintenance costs.

Warner will discuss earnings in more detail, so I will turn now to some other items of note for the quarter. We remain very focused on the timely integration of AmerenCILCO. In August, we achieved a milestone by completing the integration of Ameren and AmerenCILCO financial systems. We expect the integration of all operational systems to be completed by the end of the year. The integration of these systems will allow us to fully achieve the administrative savings we expected. We are also taking steps to achieve our expected fuel savings, which will result in the largest synergies of the acquisition. In early October, we completed the transfer of substantially all of AmerenCILCO generating plants to its unregulated subsidiary. This action to allow us to retain fuel savings for the long-term. Consistent with our plans, we expect to begin achieving more meaningful synergies in this area next year, with incremental savings being realized thereafter. And we continue to believe the acquisition will be accretive to earnings in our first full year of operations, assuming normal weather conditions.

Our two other asset transfer proposals continue to progress. In the third and fourth quarters, we filed with the Missouri Public Service Commission and the SEC regarding the transfer of AmerenUE's Illinois gas and electric service territory to our AmerenCIPS subsidiary. The Illinois Commerce Commission previously approved the transfer of the electric service territory in 2000. By the end of November, we anticipate making filings with the ICC on the transfer of the gas service territory and with the FERC associated with the transfer of AmerenUE electric and gas service territory. You will recall this transfer simplifies our jurisdictional structure and facilitates the transfer of 550 megawatts of unregulated generating assets into our regulated AmerenUE subsidiary. This 550 MW generation transfer is consistent with our Missouri electric rate case settlement. In addition, this generation transfer has been strongly endorsed by the Missouri Public Service Commission. As a result of the AmerenUE service territory transfer, the generation transfer will no longer require Illinois Commerce Commission approval. However, FERC and the SEC approvals are required for the generation transaction. At FERC, hearings on the generation transfer were completed this week. In filed testimony, the FERC staff supported the transfer of these generating units. Ending the outcome of these regulatory proceedings, we expect these two initiatives to be completed by next summer. As we have stated before, the delay in the transfer of the generating assets and service territory will have no financial impact on the Company due to the fact that electric rates are frozen in Missouri and Illinois through 2006.

With regard to turning over functional control of our transmission system to the Midwest Independent System Operator, or MISO, through our participation in Grid America, regulatory proceedings are still pending before the Missouri Public Service Commission. Of course, there has been a lot of attention placed on the reliability of our nation's transmission system after the August 14th blackout, as well as on issues surrounding regional transmission organizations, or RTOs. In September, I testified before the governor of Illinois' special task force on the condition and future of the Illinois energy infrastructure regarding the impact of that August 14th blackout had on Ameren, as well as overall system reliability issues. In my testimony, I made it clear that Ameren has always focused on maintaining a strong, reliable transmission system and that we continue to make significant investments in that system. I also stated that to encourage transmission system growth and reliability, regulators must provide for solid returns on investment.

Also in September, the FERC called for a special hearing to discuss the status of RTO selection by the former alliance RTO members. At this hearing, Ameren stated that we continue to move forward in joining MISO as quickly as possible and that progress is being made at resolving issues with the Missouri Public Service Commission staff and other interested parties. We encouraged FERC to let those constructive discussions continue so that adequate long-term solutions can be developed. At this same hearing, Excelon announced that it would be its intent to transfer functional control of Illinois Power's transmission assets into the PGAM (ph) RTO, should it acquire Illinois Power. In response to Excelon's announcement, we advised the FERC that this reversal of Illinois Power's stated intention to join MISO, when coupled with other key open issues associated with the coordination between PGAM and MISO would cause Ameren to reevaluate our RTO choice, due to reliability concerns.

Finally, the FERC recently delayed indefinitely the implementation of its July order that we discussed in our second quarter conference call. This order could have potentially eliminated Ameren's, as well as other utilities, through and out revenues effective November 1, 2003. The FERC order explicitly permitted companies participating in an RTO to seek collection of lost revenues through other rate mechanisms, and we intend to pursue this and other methods of recovery under the principles outlined by FERC if the July order is ultimately implemented.

On the labor front, union contracts representing over 70 percent of our union workforce expired in the second quarter of 2003. I am pleased to report that we have reached constructive new contracts with all affected unions. These contracts took affect September 30, 2003. The new four-year agreements will include no wage increase for year one of the agreements, 3.5 percent increases for both years two and three, and an increase of 3.25 percent for year four. In addition, the agreements include a pension supplement, productivity enhancing work rule (ph) changes, and a modification to employee medical benefits. That modification will result in employees paying a greater portion of future benefit cost increases. As a result of these agreements, all of our unions are now under contract for the next three to four years.

Finally I am pleased with the confidence the Board has shown in me by electing me Chairman and CEO following Chuck Miller's retirement at the end of this year. I am very fortunate to have an experienced management team to help me take the Company forward. Rest assured we will not stray from our consistent strategic focus on achieving performance leadership in the generation and delivery of energy. In summary, we had a good quarter. Earnings and Cilcorp are on target; we are focused on the successful resolution of our current regulatory matters; and we have an experienced management team in place to continue delivering value for all of our stakeholders. With that, I will now turn this discussion over to Warner.

Now on to a more detailed discussion of earnings results and other financial matters. In the third quarter of 2003, we reported net income of $275 million, or $1.70 per share, compared to 2002 third quarter net income of $240 million, or $1.63 per share fully diluted. Net income for the first nine months of 2003 was $486 million, or $3.02 per share, compared to $414 million, or $2.87 per share fully diluted, for the first nine months of 2002. Excluding the gains that I will discuss in a moment, net income was $1.51 per share for the third quarter and $2.72 per share fully diluted for the first nine months of 2003.

We recorded a gain of 19 cents per share in the third quarter of 2003 related to the settlement of a dispute over certain coal mine reclamation issues with a coal supplier. Under our contract that originally commenced in the early 1970s, a portion of our coal costs were accumulated by a coal supplier for future reclamation of a coal mine that was principally supplying our AmerenUE subsidiary. This mine is now closed and all major reclamation activities are nearing completion. As a result, in the third quarter, we entered into an agreement with the coal supplier to return approximately $50 million of funds, which are expected to be in excess of any remaining reclamation costs at this time. These monies are being paid ratably (ph) to Ameren through December of 2004.

We also previously recorded a gain of 11 cents per share in the first quarter of 2003 upon the adoption of Statement of Financial Accounting Standards Number 143. Excluding the coal supplier settlement, our net income decreased 12 cents per share in the third quarter of 2003 from a very hot third quarter of 2002. As Gary discussed earlier, weather reduced that income by 25 to 30 cents per share in the third quarter of 2003 versus the prior period. For the quarter, cooling degree days in our service territory were 17 percent below 2002 but were near normal. As a result, in Ameren's preacquisition service territory, weather sensitive residential and commercial electric kilowatt hour sales decreased by 7 percent in the third quarter of 2003 compared to the third quarter of 2002. These decreases were offset in part by higher industrial sales as they rose 1 percent during the quarter.

In April, we instituted a $30 million annual electric rate reduction in our Missouri service territory resulting from our rate case settlement last year. This reduced third quarter earnings by 5 cents per share versus 2002. Earnings per share was also reduced by about 6 cents in the third quarter of 2003 as a result of increased depreciation and financing costs, as well as due to additional common shares outstanding, excluding those shares issued in connection with the Cilcorp acquisition. We also continued to experience higher employee benefit costs in the third quarter of 2003, which reduced earnings by 3 cents per share.

However, during the quarter, there were several factors which positively impacted earnings. First, we realized solid organic growth in our service territory, which contributed an incremental 14 cents per share to earnings. Better plant operations led to lower maintenance costs and reduced purchased power costs for our native load customers, which benefited net income by 6 cents per share. These improved operations also allowed us to optimize our low-cost generating plants during a period of higher power prices through our interchange power sales by AmerenEnergy on behalf of AmerenUE and AmerenEnergy Generation Company. Earnings in the third quarter of 2003 increased by 4 cents per share over the third quarter of 2002 and were 10 cents per share on an absolute basis. Our average realized interchange power sales price increased approximately 6 percent in the quarter.

(indiscernible) a contribution of 41 cents per share to date in 2003, we are maintaining our estimated contribution to earnings from AmerenEnergy of (ph) 45 to 55 cents per share for 2003. We also sold some emission credits in the third quarter, which benefited earnings by 2 cents per share. No emission credits were sold during last year's third quarter. Finally, the Cilcorp acquisition was accretive to earnings by approximately 2 cents per share in the third quarter of 2003, in line with our expectations. For the first eight months of its operations, the Cilcorp acquisition has diluted earnings by approximately 3 cents per share, also consistent with our expectations. As we complete the conversion of information systems and synergy realization accelerates, (indiscernible) beginning to the winter heating season with AmerenCILCO's significant gas business, we still fully expect Cilcorp to be accretive to earnings in the first full year of operation under our ownership, assuming normal weather. This completes my discussion on the main factors impacting our third quarter 2003 earnings. (technical difficulty) this call, we will put on our website a reconciliation of our earnings between last year and this year that includes the points I just discussed.

Looking ahead now to the fourth quarter, we have been seeking several gas rate increases in Missouri and Illinois. In Illinois, the commission late last week approved an annual gas rate increase of $9 million for AmerenCILCO. This week, the Illinois Commerce Commission approved an annual gas rate increase of $9 million for AmerenCIPS and AmerenUE. These rate changes are expected to be effective in November. We have also filed a $27 million gas rate increase request in the state of Missouri for AmerenUE. In our request, we offer to phase in half of the increase beginning on December 1st of this year and half beginning on November 1st of 2004, along with agreeing to make incremental contributions to low income energy assistance programs. We expect the Missouri Public Service Commission staff and other parties to file testimony on this matter later today. We fully expect the staff and other parties to raise various issues in this case, and we will address those issues in later testimony. Consistent with our past practice in Missouri, once the staff and other parties file their testimony, we will seek to find common ground on these issues and potentially settle the case. If there is no settlement, a hearing would be held in January with the decision required by the Missouri Public Service Commission in April of 2004.

During the fourth quarter, we will also conduct several maintenance outages at our fossil plants, especially in light of the fact that we will not have a refueling outage at our Callaway nuclear plant. Earlier this week, however, we did take the Callaway plant down to correct an instrumentation problem. We began restarting the plant early this morning and expect to be on-line later today. We expect this outage to have little impact on earnings, since this is a period of low demand. During the fourth quarter of 2002, we had a scheduled refueling outage at our Callaway nuclear plant. Due to the 18-month refueling cycle at Callaway, we will not have another refueling outage at Callaway until the spring of 2004. We estimate that the lack of a Callaway refueling outage in the fourth quarter of 2003 will benefit earnings by approximately 7 cents per share.

Taking these and other factors into consideration, we estimate 2003 ongoing earnings will range between $2.90 and $3 per share (ph). This guidance is towards the upper end of our original guidance range of $2.80 to $3.05 per share. This guidance excludes the gains of 11 cents per share related to the adoption of FAS 143, and 19 cents per share related to the coal mine reclamation settlement. In all cases, our guidance is subject to, among other things, plant operations, timely integration of AmerenCILCO, weather conditions, energy market and economic conditions, and other risks and uncertainties outlined in our forward-looking statements. Based on past practice, we expect to provide 2004 guidance later this year after we have completed our internal budgeting process, or perhaps early next year. However, you may recall that we previously stated that we expected to 2 to 3 percent growth for 2004 off a normalized 2003 earnings base. At this time, our view has not changed.

Finally, we did make a voluntary pension fund contribution of $25 million in the third quarter. While Ameren does not have any minimum ERISA pension funding requirements until 2005, this funding will serve to reduce pension costs. This completes our prepared remarks. We will now be happy to take your questions.

(OPERATOR INSTRUCTIONS) Greg Gordon from Smith Barney.

My mind was wandering off a little bit when you were talking about the pension stuff. Did you say you put 225 million into the pension this quarter?

There is one extra two in there -- it was 25 million this quarter.

Thanks. That is embarrassing. Next question, you said that -- as I look at your numbers, it looks basically like you took your low-cost capacity that wasn't being utilized, sort of your retail load, and were able to sell that into the market. And so where you obviously lost 20 to 25 cents of retail sales, you gained sort of 10 cents at AmerenEnergy by being able to resell that power. Is that a fair synopsis?

I think in part. Keep in mind that they were up a little bit from last year. On an absolute basis, we are up -- we're at 10 cents, but we gained 4 cents. So clearly, in part, that was due to more native load, but I think clearly, in part, it was due to the excellent plant operations that we had. So I think it was a combination of those factors. And we did have a slight bump up in power prices, about 6 percent. So all of those factors really kind of weight into that.

And you said utilization rates were 6 percent higher quarter-over-quarter?

That is correct.

What was your average utilization rate in the quarter?

If you give me a moment, I will be able to grab that. I believe -- our net capacity factor during the quarter was right around 82, 83 percent. That compares to about 76, 77 percent last year.

Do you think there is a systematic ability to continue to improve that, or given the age of your fleet, is that about as good as you could expect it to run?

I would expect that we will continue to improve that over the next several years. The number you're looking at there is capacity factor, which reflects how well the plants performed in terms of availability, but also reflects how much in the money they are, and availability of the plants was also up about 5 percent. We are at a level now that is in the high 80s, but I would think that in time we can get that number into the low 90s, at least. So there is a little room for improvement.

So availability is a measure of your potential and capacity utilization is a measure of how much you actually are in the money and able to run and generate positive revenue?

That is right. And in time -- another thing that is happening in the markets is that more and more often in the Midwest the market is driven by natural gas prices and those low-cost cooling units are in the money almost all of the time and will run almost all of the time that they are available.

So AmerenEnergy's potential opportunities grow over time -- they don't decrease?

They are increasing.

You talked about O&M savings in the quarter. What specifically -- what areas did you see those savings? And then longer-term, how do these union contracts effect your ability to manage your overall O&M growth over the next couple of years?

During the quarter, we saw savings in really a couple of areas. One continued to be in maintenance costs. Our maintenance costs at our power plants were down because of our effective management, not only of the plant operations there, but just in general, the efficient running of those plants. Last year during this time, too, we had an unscheduled outage at one of our low-cost fossil fuel plants and so we were able to obtain savings there. Other savings also include the VRP. What we call the VRP is the voluntary retirement plan that we instituted at the beginning -- we announced at the end of last year. But basically, had 550 employees leave during -- right around the first quarter this year. So we had about a 3 cents per share pickup there.

Also keep in mind that last year we shut down one of our operations at our Venice plant and that too contributed earnings, probably -- over the year, probably about 2 or 3 cents, so clearly a piece of that was in there. So it is a combination of several of those factors, Greg, that really drove O&M down.

And then as we think about our financial models and what type of growth we ought to assume you guys have in O&M costs, how does the -- this last -- all these contract negotiations, how do they affect your ability to manage that O&M pressures?

It helps us manage it in a couple of ways. The first reason is that we have no wage increase in '04, and then some moderate wage increase (technical difficulty) following three years of the contract. But more importantly, we have gotten significant productivity improvements in these contracts, probably more so than any contract change we have ever made in the past. In the line crew areas, we have the ability to move our crews more throughout our service territory than we have ever had before. We have got the ability to do things like glove (ph) up to 15 KV lines throughout our service territory. In the power plants, we have reduced the number of job classifications. We have made changes that will allow operators to perform some maintenance. All of those things in time mean that we will be able to operate with fewer employees.

Another significant area is in the medical benefits. We actually achieved some cost sharing of medical benefits with the employees. In the past, the Company has paid for those benefits entirely. Going forward, the employees will share in those.

So when we think about your year-over-year growth in O&M over the next couple of years, these are clearly mitigating factors and -- I mean, are we still looking at sort of an inflationary growth profile or does this give you the flexibility to sort of hold the line on costs?

I think what it does, it gives us the ability to do the best we can and hold the line on costs. As I said before, we are really not in the position to give specific guidance with regard to 2004, any specific line item. But clearly, Gary has pointed out some items in this labor contract that will certainly continue to give us the ability to effectively manage our cost structure. But that is not the only places that we look at. We've talked about outage management a little bit before. We will expect to achieve some incremental savings as a result of the VRP. But also, in some of the organizational changes that Gary announced and some of the other activities we have, we really think there is still some meaningful opportunities to streamline our operations and work on the supply chain side of our business. All of those things are currently in the mix, and when we get ready and we do announce 2004 earnings, these are some of the factors that we will talk about.

Fuel costs were up just a little bit in the quarter, but one of the things that we are seeing out west and in Appalachia is (indiscernible) coal prices are up pretty significantly. Are you guys short coal? Do you need to be filling up your coal piles now going into the winter? More importantly, how does that affect your ability to negotiate and execute the cost savings that you're counting on when it comes to Cilcorp fuel costs?

A fair question. I will tell you, the increase during the quarter in fuel costs is virtually 100 percent due to Cilcorp. Our baseline operations have not changed, and as we talked about before, Cilcorp's fuel costs are inherently higher and that is one of our opportunities that we will execute on in getting some meaningful synergies out of that. So they continue to proceed, as we said in our talking points, that we have transferred those units down to an unregulated subsidiary and we do plan to continue to work in driving those fuel cost savings through either capitalizing on our purchasing power or looking at modifications to the plant to potentially burn other forms of coal. That still is under consideration.

Secondly, with regard to our coal position, we are virtually 100 hedged, not only for 2003 but all of 2004, consistent with our practice. Even going out to 2005, we have already begun sufficient hedging for that already.

Great, thanks.

Justin Dawkins (ph) from McDonald Investments.

I have two quick questions. First of all, with the lower maintenance costs at the generating plants, is that going to continue into the fourth quarter, do you think?

That's a good question, Justin. One thing that will happen as a result, and we pointed that out in part of our discussion, is that we will not have a Callaoway nuclear refueling outage in the fourth quarter. So what typically we do when that is going to be up running 100 percent, we will do incremental maintenance at our fossil plants, as that plant will be up and running. Similarly, when Callaway's down, we will run all of our fossil plants to make sure we have the lowest cost generation out there. So we do expect to have some incremental fossil plant maintenance in the fourth quarter as planned. So the run rate that you might see through the first nine months will likely get into a little bit here in the fourth quarter.

Okay, thank you. The second question is on your emission credit sales, do you -- what is your outlook for the full year for how much do you plan to pick up on that?

Typically, what we do with our emission credits historically over the last several years, we have usually realized about $20 million in emission credits sales from AmerenUE. That is our regulated subsidiary. Last year we had a bit of an aberration that EEI, our 60 percent owned subsidiary sold about 10 cents per share of emission credits. That was more of a onetime situation as opposed to an ongoing situation. Year-to-date for UE, we have sold about $10 million of emission credits. We would expect then here in the fourth quarter to have another 5 to $10 million of emission credit sales assuming, appropriate market conditions and keeping an eye on our compliance strategy.

Okay, thank you very much.

Zachary Schreiber (ph) from Duquesne (ph) Capital.

Just a question in terms of, when you say your normalized base for 2003 as the appropriate base for the 2 to 3 percent growth for 2004? What exactly -- what kind of adjustments do you make to the $2.90 to $3 dollars to get to that normalized base? I think weather's been obviously a negative year-to-date, but you have been able to offset that at AmerenEnergy. So do you take away the negative from weather or (ph) take away the positive from AmerenEnergy to end up at roughly the same place? Just kind of struggling with that a little bit.

I understand. That is a good question. Certainly, when you look at sort of a normalized base, you look at reported earnings, we would clearly factor out the favorable impact of FAS 143. We would factor out the favorable impact from the coal contract settlement. (indiscernible) we historically have looked at, we would look at weather and would obviously try to normalize that. And then with regard to AmerenEnergy, we would have to look at AmerenEnergy's operations, but also keep in mind some of the energy market conditions that we found, especially in the first quarter of this year where we found the energy markets being significantly higher as gas prices were meaningfully higher in the first quarter. Time will tell to see exactly what the forward price curve will look like in the first quarter of next year. I will tell you that it is not at the same levels today than they were, say, last year during the first quarter. But that is because it's still before the winter heating season and gas prices are still pretty modest, certainly compared to where they were. So when we talk about 2004 ultimately and we look at really where 2003 is at, we will have to try and factor some of those issues into our thinking. But that's the principal -- those are probably the principal factors we would consider.

How about this, if your were to sort of normalize the nine months, how would it compare to the 272 operating?

Again, with regard to weather, I can probably say that weather is probably unfavorable to the Company about a dime, roughly speaking, 10 cents. With regard to the effect on how AmerenEnergy's operations may have changed plus or minus, keep in mind we started the year with AmerenEnergy's expectation to be around 20 to 25 cents per share. Now we are expecting 45 to 55 cents per share. But I will tell you, as we have said before, that is not all being driven by the higher power prices. We certainly benefited from that, but a lot of very hard work and a lot of good efforts were being done in our generating plants, and I think Greg mentioned a little bit earlier about some of the increases in our capacity factors. And I think that we would hope to continue to do some of those things and improve on that even next year. Not trying to dodge the question to say exactly what 272 what look like, those are some of the things that we would have to factor in ultimately.

You made an interesting point -- maybe it was Gary -- just about gas decreasingly (ph) on the margin in the Midwest and raising the overall pricing umbrella, increasing the value for your coal and nuc. Is there any way to put any more numbers around that? How many more hours a day or percent of the time is gas on the margin, and even though -- where does sort of gas -- people were bearish on gas -- how low does gas have to go before that phenomenon of gas being on the margin changes sort of the impact on power prices? You see where I'm going with that? I'm just trying to understand -- there is a structural shift here.

Zach, I really can't put a number on it for you. But what has changed in the market is that a few years ago, gas would have been on the margin primarily only during the summer months. Now it seems to be on the margin almost all months of the year during the on-peak periods. And we look at the on-peak periods as the 5 by 16s, basically half the hours of the week. And the other half, the marginal price is typically still set by coal units. We're moving toward a market where about half the hours of the year, gas is on the margin.

Having said that too, keep in mind as we said before, what we take -- I guess people call it this dark spread -- we take the low-cost -- our low-cost coal units that we really take into the markets, as opposed to having gas, which really we have much thinner margins. We have much better margins by taking our lower-cost coal units when gas is still setting the prices. Those are some of the benefits that we are seeing, because clearly in our marketplace, gas has been predominantly setting the prices.

And on Greg's question about the coal hedging for CILCO, if I recall, a lot of the savings were coming not just on the commodities side but actually on the transportation side. And we are seeing higher shipping costs. Are you still comfortable with that in light of these upward pressure in coal prices, upward pressure in shipping, that the fuel cost savings, I think $15 to $20 million a year, are eminently attainable?

The simple answer to that is yes, we are still comfortable. We recognize there are some pressures. But one of the things that we have been successful in over time is managing those transportation costs. We have historically been successful in creating appropriate levels of competition from the suppliers and have saved literally tens of millions of dollars by doing so. And so, in executing our strategy, in general, we would look to those types of things, among others, to really continue to keep those transportation costs down.

Gary, you made a comment about the economy, that maybe it is starting to turn in your service territory or you're seeing some hopeful signs. Could you elaborate on what you are seeing, and are you seeing it more in the UE service territory or more in the CIP service territory or CILCO or across the board, and which kind of segments of the large (indiscernible) customers?

I would say it is across the board, but it is a little stronger in the UE service territory than in Illinois. The kind of things that we are seeing in residential markets, for example, housing starts up somewhat compared to last year. Organic sales growth of around 2 per cent compared to last year, I think our organic sales growth was really flat for the last couple of years. Positive growth in industrial where the last two years it has been negative -- we're seeing about 1 percent growth in industrial, and I can't give you the specific sectors out of that. But just some early indicators that lead me to believe that '04 could see a solid recovery. We're really not seeing a solid recovery but just we're seeing early signs that the economy is improving.

On the gas rate increases, on a year-over-year basis, what do you think that is in '04 versus '03?

On annualized basis, if you just look at the -- what we've gotten in Illinois will be $18 million. They'll go into effect as early as November. You will get a little bit here. So in total, it's something less than that. I don't have a specific number, but my guess anywhere from 14 to $15 (ph) million incremental, and that is just kind of winging it. If you think about it, you only have November and December, recognizing it is the winter -- the start of the winter season, that is probably a reasonable starting point. And then of course to the extent we will have then in Missouri a gas rate increase request that it will be pending and decided upon by April, that too will add to that number.

How big is that again?

That is $27 million is our request. Our request is phasing that in over two years. Ultimately -- where that ultimately is decided upon will depend upon the regulatory process and/or potential settlement with the Missouri staff and office of public counsel and other intervenors (ph).

Thanks for being patient with me. Thank you.

Scott Engstrom (ph) from Hamilton Investment Management.

I was wondering if you guys have available at this time, either with you or off-line, net income by reporting segment -- SEC reporting segment, meaning UE, CIP, CILCO, Ameren Generating?

The simple answer is yes we do. Let me give it to you for the third quarter. What we have for 2003 for UE, they earned $224 million. CIPS earned $25 million. CILCORP earned $11 million. CILCO standalone was $14 million, and then our generating company from AmerenEnergyResources, that was $17 million.

Where was the gain then among those segments?

We have seen gains in a couple of areas. Clearly at UE we saw gains of about $20 million. CIPS we would find to be somewhat flat, and CILCO, on a comparative basis, looks to be down. But then again, you have to keep in mind because of some of the way we have handled CILCO and integrated into it our operation, some of those gains are being seen in other aspects of our operations, including some of these synergies and the general administrative synergies are being shared among all of our segments.

I was speaking specifically of the 19 cents related to the coal supplier.

I'm sorry. I misunderstood. That is all at UE.

So the 224 includes that gain of 31 million?

That is correct.

Thank you very much.

Greg Oral (ph) from Lehman Brothers.

Warner, I was wondering if you could elaborate a little bit on what you are seeing for 2004 forward prices, power prices?

Sure. I can give you some color around that. I think that in general, what we are seeing with regard to 2004 forward prices, there is kind of a range in the first quarter which is a little bit different than what we have seen historically this past year. What we will see going into the first quarter, at least at this point, are prices which are ranging somewhere between 30 and $35 -- that is divided by 16 for synergy comparative (ph). So then looking ahead, the price stays pretty flat -- metrics between 30 and 35 in the second quarter. Third quarter probably ranges anywhere from 30 to $45, and then the last quarter, probably anywhere from 25 to 30 at this point in time. Again, that is probably data which is maybe several days old, but we don't expect the forward prices have changed really that significantly since then.

Okay. Not to beat a dead horse, but on AmerenEnergy, you're looking for 45 to 55 cents this year. What are your thoughts about being able to return to that level next year?

I think -- it would be premature for me to give specific metrics on that. I think we have given some color around that. Certainly we would expect to benefit from improved plant operations, but those factors will be somewhat offset by what we, at least at this time, forward prices, which would be -- especially in the first quarter-- somewhat lower. Frankly, if you look at the forward prices for '04 compared to '03, they are generally pretty consistent in the second, third and fourth quarters. But the first quarter they are off probably I would say 20 to 25 percent, based upon the existing forward curve.

But then again, I think we have some -- it would not take much I don't think to bump up gas prices in there for those forward curves during that first quarter. Having said that, the other factor which will weight into it, obviously, we will have a Callaway refueling outage in the spring next year, so that will take some of our low-cost generating units off-line. But then again, we will enhance that in part by having some of our fossil plants back online. I am not trying to not give you specifics, but it is a little bit premature at this point in time to say a specific number. We would hope to achieve similar levels, but it is just too early to say.

I appreciate that. Thanks a lot.

Justin Dawkins from McDonald Investments.

You said that the $27 million rate request at Missouri might start fourth quarter this year, right?

That is correct. That is possible should a settlement be reached.

Is that in your guidance right now?

No, it is not. No.

Thank you.

Jessica Rutledge (ph) from Lazard Asset Management.

On the emissions credits, curious about the seasonal pattern of selling the emissions. Do you normally sell half of them in the fourth quarter or are we sort of shifting the typical pattern of emission sales back into last half of the year? If so, what is your level of confidence that you will actually be able to book that full 5 to 10 million?

I would suggest that there is no systematic pattern in how we look at it. A lot of it depends upon our compliance strategy and end market conditions. But having said that, I will say that last year in the fourth quarter we sold approximately $5 million of emissions sales, which generated about 2 cents. To say to do 5 to 10 in the fourth quarter, all things being equal, would not be uncommon.

Excellent. Just for an update, where do you stand now with hedging the output of your nonregulated plants?

We are 100 percent hedged for 2004 and very close to 100 percent for 2005.

Excellent. How many of those contracts were renegotiated or re-signed this last quarter or this last year?

We have about six or eight major contracts that were either renegotiated or added over the last year. Two substantial contracts -- and I won't name parties -- but two substantial contracts that expired that totaled about 4 to 500 megawatts, which were renegotiated and extended for multiple year sales.

And how did the terms of pricing change under the renegotiations, if at all?

The pricing improved slightly.

Okay. Excellent. And then just to close with a totally trivial question, have there been any changes in your base tax rate this quarter? I was sort of messing with the numbers and it looks like it might be down a little bit.

Yes, in fact, they did change. I wouldn't say it was an ongoing change. This quarter, our effective tax rate went down a percent or two. We did have a settlement of a state tax issue in Illinois during the quarter. But that will not be an ongoing type of thing.

Perfect. Thank you much.

(OPERATOR INSTRUCTIONS) Teresa Ho from Salomon.

I just had a question regarding the pension. You mentioned that you're expecting pension expenses to come down, given the fact that you just voluntarily contributed to the pension. And then you also mentioned that the union contracts, that there was a pension supplement. Could you just sort of discuss those two items and how those two would offset each other going forward?

I think that with regard to the pension costs, the $25 million voluntary contribution, or proactive contribution, it will modify pension costs but I wouldn't say it is meaningful. We are talking in the very low millions and probably less than a penny per share. But that is why we ultimately did that, because we still wanted to save that money because we ultimately will likely have to fund the pension plan in 2005. With regard to the changes in active medical benefits, Gary had mentioned some of the things that we did with our contract workforce -- excuse me, our bargaining unit workforce. We're doing those same activities for management. So we do expect to achieve anywhere from 5 to $10 million of reductions for active medical benefits -- now I'm not talking about pensions, but active medical benefits -- between this year and next year as a result of some of those changes. All in all, though, we do expect to continue to see employee benefit costs in total continue to go up next year compared to this year, which is consistent with what we've said in the past, and I'm sure consistent with what many other companies are going to experience.

Okay, thank you.

Mishar Khan (ph) from Forsyte (ph) Investments.

I just wanted to ask, Gary, are you in any -- or will you in the future give us a long-term growth rate which you project -- say, a five-year growth rate as you stand from this year's normalized earnings, what you might anticipate as part of your financial plan?

We haven't put fine numbers on that. The only growth rate we have talked about is in the short-term, 2 to 3 percent. But if you look at the fundamentals of the industry that we are in, looking long-term, I guess the growth comes primarily from organic growth in our industry, things like cost reductions. While we can keep those in the short-term and currently we are in very favorable position in that regard because we have rate freezes in effect through 2006, ultimately those kind of cost reductions flow back to customers. So don't take this as a projection, but I guess I am thinking in terms of 3 percent growth long-term is what is achievable in our industry.

Okay, thank you.

Doug Fisher from A.G. Edwards.

As you look at the first quarter of next year and the opportunity for interchange sales, would you be looking to sell those forward based on current prices or would you be -- is your normal strategy to just only do that when you get spikes above the kind of levels we are seeing right now? Secondly, can you give us any kind of rough idea what kind of margin change we would have for AmerenEnergy if -- remind us what your average price realized on those sales was a year ago versus what the market is giving you now?

Let me try and answer that in a couple of fashions. I guess one, would we sell a bunch of this stuff ahead? Keep in mind we have a very tight risk management policy that we run here with regard to selling things forward -- not to say that we don't sell things forward, because we indeed do. But we're not going to try and hit home runs in the next quarter because we think that that is appropriate. We look very closely what is economically available and then have parameters around that.

Secondly, with regard to the types of prices that we have seen, I would say -- during the first quarter of this year, we saw prices which ranged somewhere between 45 and $60, and that is the 5 by 16. Next year, the types of prices that we see in today's market probably range during the same period around 35 to 40. When I talked about some of the decreases that you see in the publicly visible market, that is why we are seeing. So it is maybe 20, 25 percent, something like that down, at least at this point in time. Keep in mind too that probably at this very same time last year, we probably saw forward prices going into the first quarter of this year that were between 25 and 30. So again, the gas prices on (indiscernible) -- we don't bet on just sort of a forward curve that is going to deliver our earnings. That is typically not how we would do it and not how we will do it.

But we do recognize that there is volatility in the gas prices which will drive the forward curve, and to the extent that you begin seeing some very cold early winter weather, looking at also the storage situation, we could see some of those very same volatile prices taking place, with us having very limited exposure, frankly, because we're not out there trying to buy gas on the margin to supply that native load. We're able to take it in there with the coal.

But as you get spikes, if they were to occur, that is likely when you would at least do some limited selling forward?

Certainly, to the extent that we're within our risk management policy, we would be opportunistic, absolutely.

Have you provided -- I mean you are giving me a range. Have you provided an average price that you realized on the wholesale --like for the first quarter of last year, you gave me a range of 45 to 60. Do the publicly available documents or have you somewhere else provided an average number?

Doug, all you need to do is --

Just divide?

Yes, if you take our stats (ph) page that we send out, divide the revenues for interchange divided by the sales for interchange, that interchange sales number is now clean, since that EITF 02-03 (ph) went into place.

If I have a calculator that will --

For example, if you'd do the year-to-date 2002, I think you'll get a number like $24 -- if you do for nine months. If you do nine months '03, you'll get a number probably around $34.

So what was the first-quarter number?

That is what -- we don't -- I don't have in front of me, Doug, that first quarter stats page. (multiple speakers) But I just don't have that in front of me.

Doug, I think it was -- we actually (indiscernible) -- I think it was 42 versus 22.

That was compared to the prior year. We had said early on that this year's first quarter was going to be -- was up indeed about 90 percent from last year. But that is not the comparison you're asking for. But we realized it sounds like around 42, and so the numbers that I just gave you with regard to the range are a little bit less than that, based upon the existing forward price -- 35 to 40 -- it isn't off a great deal, but it is off some.

That is very helpful. Thanks, Warner.

There are no further questions. I will turn the conference back to Mr. Baxter to conclude.

Thank you.

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