阿莫林 (AEE) 2003 Q4 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the 2003 Ameren earnings 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. Please go ahead, sir.

Thank you, Chris. Good morning, everyone. I'm Bruce Steinke, Manager of Investor Relations at Ameren Corporation. Here with me today is our Chairman and Chief Executive Officer, Mr. Gary Rainwater, our Executive Vice President and CFO, Warner Baxter and our Vice President and Treasurer, Jerre Birdsong.

Before we begin, let me cover a few housekeeping details. This hour long call is available for one week to any one who wishes to hear it by dialing a play back number. The announcement you received carries instructions for the replay of the call by telephone. In addition, we would like to welcome everyone listening on 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 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 statements section in the release we issued today and in our filings with the S.E.C.

To assist in our call this morning we have made a slide presentation available on our website that reconciles the earnings between 2003 and 2002 and our updated earnings guidance for 2004 with 2003 earnings. To access this presentation, simply follow the link for the webcast and then click on the link for the presentation which is provided in a PDF form mat.

Gary will begin the call with an overview of the 2003 results and some operating matters and Warner will follow with a more detailed financial review. We will then open it up for questions. Here is Gary.

Thanks, Bruce. Good morning and thank you for joining us. This morning we reported net income of $3.25 per share for 2003 which compares to $2.61 per share in 2002.

Excluding unusual items in both years that Warner will discuss in more detail, we reported ongoing earnings of $2.95 per share in 2003 as compared to ongoing earnings of $3.01 per share in 2002. Despite many significant challenges in 2003, we again delivered solid returns to our shareholders and reliable service to our customers.

As we began 2003, we were faced with a weak economy and energy market, electric rate reductions in our Missouri service territory and rising employee benefit costs. To tackle these challenges, we initiated a voluntary retirement program that reduced staffing levels by over 500 people. we closed inefficient generating units and took steps to reduce employee benefit costs while still maintaining our position as an employer of choice. While decisions to undertake these initiatives were difficult, they were certainly required to deliver the solid returns our investors expect and to position our company for future success which benefits all of our stakeholders.

In 2003, we also seamlessly completed the acquisition and integration of CILCORP and realized our anticipated synergies. Going into 2003, we expected the CILCORP transaction to be accretive to earnings by 1 to 5 cents per share and we delivered, adding 4 cents per share to our earnings and we are well on our way to realizing the additional synergies we expected. In addition to our cost containment measures, our excellent operational performance during 2003 put us in a position to offset reduced sales due to milder than normal summer weather and to take advantage of better than expected power prices.

In 2003, our generating plant performance was simply superb as our fleet produced more electricity in a single year than ever before. Capacity factors in 2003 increased nearly 5% over 2002 to 75% and our plants equivalent availability rose to 86% from 82% in 2002. Our strong plant operating performance combined with strong power prices in the energy markets resulted in AmerenEnergy contributing 55 cents per share to earnings in 2003, up from its 20 cents per share contribution in 2002. Clearly, our focus on improving the performance of our low cost generating units continues to deliver solid returns.

As I mentioned earlier, Ameren sales in 2003 were negatively impacted by milder than normal summer weather in 2003 and even more so, when compared to the hot summer of 2002. While we anticipate that weather reduced earnings by 10 to 15 cents per share versus normal and 40 to 50 cents per share versus 2002. Warner will discuss earnings in more details so I will turn now to some other items of note.

In the spring of 2003, we experienced the worst series of storms and tornadoes in our history, yet our crews quickly restored service to our customers under very trying conditions. Following the outages, our customer service and satisfaction ratings actually increased, a testament to the hard work and positive impression our crews made with customers. On the regulatory front, the Missouri Public Service Commission approved a $13 million annual gas rate increase in January 2004 which follows the approval last fall of $18 million of annual gas rate increases by the Illinois Commerce Commission. The Illinois gas rate increases went into effect in November and the Missouri gas rate increase will go into effect later this month.

We continue to have two asset transfer requests, pending regulatory approvals. One is the proposed transfer of AmerenUE's Illinois Gas and Electric service territory to our AmerenCIPS subsidiary and the other is to propose transfer of 550 megawatts of unregulated generation assets into our regulated AmerenUE subsidiary. You may recall that the service territory transfer simplifies our jurisdictional structure and facilitates the transfer of the generating assets to our AmerenUE subsidiary which needs the capacity. The service territory transfer was approved by the FERC in December of 2003. Hearings on the service territory transfer are currently scheduled before the Missouri Public Service Commission and the Illinois Commerce Commission in March. Decisions are expected by later this year.

The FERC held a hearing last fall on our proposed generation asset transfer and last Thursday, the administrative law judge hearing the case issued a preliminary order recommending that the transfer be approved. We are encouraged by the ALJ's full support of the transfer but, of course, this order is subject to approval by the full commission. A decision is expected later this year. Keep in mind that the delay of the transfers of our generating assets and service territory have no immediate impact on our financial results since electric rates are frozen in our Missouri and Illinois jurisdictions through 2006.

On another topic, our entry into the Midwest Independent System Operator or MISO, through our participation in Grid America is currently pending before the FERC and the Missouri Public Service Commission. A settlement agreement between the Missouri Public Service Commission staff and Ameren was filed last Friday with the Missouri Public Service Commission. When the final approvals by the FERC and Missouri Public Service Commission are ultimately received, we could enter MISO later this spring.

Finally, I want to reiterate how pleased we were to announce last week that we've entered into a definitive agreement to acquire Illinois Power and an additional 20% interest in Electric Energy, Inc. from Dynergy. From a strategic point of view, Illinois Power is an excellent fit with our core transmission and distribution business and our additional interest in EEI will bring more value to our already low cost generation fleet. Financially, we expect the transaction to be accretive to earnings by 5 to 10 cents per share in the first 12 months after closing and to provide solid long-term earnings growth. We are focused on getting through the regulatory approval process expeditiously and expect to close this transaction by December 31, 2004.

In closing, 2003 was a very good year for Ameren and its stakeholders. We continued to deliver reliable, low cost service to our customers. Their satisfaction is seen through improvements to our already strong customer service ratings. We continued to manage the regulatory process effectively, we remained focused on our earnings growth objectives through prudent cost containment measures, the integration of CILCORP and the recent announcement of the proprosed acquisition of IP and a greater interest in EEI. Through these actions, we continue to meet our commitment of delivering solid returns to our shareholders. We look forward to delivering on those same commitments in 2004 and beyond.

With that, I would like to turn this discussion over to Warner.

Thanks, Gary. Now, on to a more detailed discussion of earnings results and other financial matters.

At this point, I will refer you to our website. As Bruce mentioned earlier, we have posted slides reconciling our financial results and earnings guidance. In 2003, we reported net income of $524 million, or $3.25 per share compared to 2002 earnings of $382 million or $2.61 per share. Net income in 2003 included a third quarter after-tax gain of $31 million or 19 cents per share related to the settlement of a dispute over certain mine reclamation issues with a coal supplier and a first quarter after-tax gain of $18 million or 11 cents per share due to the adoption of a new accounting standard related to asset retirement obligations.

Net income in 2002 included a fourth quarter after-tax charge of $58 million or 40 cents per share which primarily related to a voluntary retirement program and restructuring charges associated with the retirement of our Venice, Illinois plant. Excluding these unusual items, we reported ongoing 2003 earnings of $475 million, or $2.95 per share compared to 2002 ongoing earnings of $440 million or $3.01 per share.

In the fourth quarter of 2003, we reported net income of $38 million, or 24 cents per share compared to a 2002 fourth quarter net loss of $32 million or 20 cents per share. Excluding the restructuring charge, earnings were 18 cents per share for the fourth quarter of 2002.

As Gary indicated, we delivered solid returns in 2003 despite numerous challenges. Increased sales margins from our pre CILCORP operations benefited earnings by approximately 41 cents per share. This included solid organic growth in our service territory which contributed and incremental 13 cents per share to earnings in 2003.

Industrial sales rose approximately 2% in 2003 versus the prior year period as the economy in our service territory continued to show signs of improvement. The improved operations in our generating plants allow us to have more power available for sale throughout the year and importantly, during the period of very strong power prices in the early spring of 2003. As a result, interchange power sales by AmerenEnergy, on behalf of AmerenUE and AmerenEnergy Generating Company, produced earnings of 55 cents per share, which is 35 cents per share more than 2002. The sales of emission credits decreased in 2003 compared to 2002 due to the unusually large amounts of emission sales from EEI in the prior year. For the year, lower sales of emission credits reduced earnings by 7 cents per share.

Of course, an analysis of sales margins can't exclude a discussion about the impact of weather. As Gary stated earlier, in 2003 we experienced a milder than normal summer compared to a very hot summer in 2002. Cooling degree days in our service territory were 25% below 2002 and 10% below normal. As a result, weather sensitive residential and commercial sales decreased 4% and 2% respectively. Consequently, we estimate weather reduced earnings in 2003 by 10 to 15 cents per share versus normal and by 40 to 50 cents per share versus the prior year period period. Outstanding plant operations and the lack of a refueling outage at our Calloway Nuclear Plant during 2003 led to lower maintenance costs which benefited net income year-over-year by approximately 22 cents per share.

While I'm talking about Calloway, during our call last week, we indicated that our Calloway Nuclear Plant had gone offline on Tuesday morning. We believe we have identified the source of the problem to be a faulty feed water pump and relay. We are currently in the process of making the necessary repairs to the plant. Once these repairs are fully tested, we will begin making preparations to restart the plant.

As Gary mentioned, over 500 employees accepted a voluntary retirement plan and left the company during 2003. This reduced labor cost improved earnings by approximately 11 cents per share. As we completed the integration of CILCORP in 2003, we realized the acquisition synergies that we expected. As a result, the CILCORP acquisition was accretive to earnings by approximately 4 cents per share in 2003, in line with our expectations. After one year of ownership, we remain convinced that we will realize even greater synergies this coming year and down the road.

In 2003, we incurred higher financing costs for incremental capital additions. In addition, we had a greater number of common shares outstanding resulting from common equity issuances in 2002 and 2003 to maintain our strong credit profile and financial flexibility. Together, these incremental financing costs and common shares outstanding reduced earnings by 18 cents per share. Higher employee benefits costs in 2003 reduced earnings by 8 cents per share as we continued to experience the effect of higher medical costs, low interest rates and the prior year's poor stock performance on our pension costs.

Earnings per share were also reduced by about 9 cents in 2003 as a result of increased depreciation cost due to capital additions. And finally, there were various other items that netted to approximately 3 cents per share. This completes my discussion of the main factors impacting our 2003 earnings.

On Tuesday, February 3rd, we announced the signing of a definitive agreement to purchase the stock of Illinois Power and Dynergy's 20% interest in EEI. At that time, we also announced that our financing plan for the transaction would include the issuance of new Ameren common stock which in total is expected to equal at least 50% of the $2.3 billion transaction value. Last week, we sold approximately 19.1 million shares of common stock that generated gross proceeds of $875 million which are expected to be ultimately used for this planned acquisition. Our swift entry into the capital markets exhibits our confidence in obtaining the requisite regulatory approvals for this transaction, our conservative approach to funding acquisitions, our commitment to maintaining the strong Ameren credit profile and our commitment to improve Illinois Power's capital structure.

We value, and we believe our investors value, our strong credit profile and conservative approach to financing acquisitions. In this regard, we were pleased by the enthusiastic reception our investors gave this offering last week, which was well over subscribed. We view our planned acquisition of Illinois Power and the incremental ownership interest in EEI, as a strategic long-term investment which calls for a financing plan consistent with this long-term perspective. We expect this proposed acquisition to be accretive to earnings by 5 to 10 cents per share in each of the first two years after closing and to provide significant long-term value for our shareholders. However, we expect last week's issuance of common stock to be dilutive prior to the closing of the acquisition and, therefore, reduced 2004 earnings per share by approximately 15 to 18 cents, assuming the year end closing of the transaction.

Prior to the acquisition, the proceeds will be used to eliminate or defer expected 2004 Ameren borrowings or invested in short-term securities. The expected benefit of this interim use of proceeds is included in our estimate of near term dilution. As a result of this issuance of new common shares, we announced this morning that we now expect our 2004 earnings per share to range between $2.75 and $2.95 per share. This revised guidance is on the second page of the presentation we posted on our website.

This reconciliation of our 2004 earnings guidance from our actual 2003 earnings is largely similar to the reconciliation we provided last Tuesday, except we have now incorporated the impact of the recent common stock issuance on 2004 earnings and our actual 2003 earnings. Our 2004 estimate excludes any potential earnings impact of the planned IP acquisition or potential further common stock issuances prior to the closing of the acquisition. Our guidance is subject to, among other things, plant operations, weather conditions, energy market and economic conditions, unusual or otherwise unexpected gains or losses and other risks and uncertainties outlined in the company's forward-looking statements section of our news release.

I should point out that last Tuesday's offering utilized the remaining amount of our authorized shelf capacity in Ameren. As such, in the next month or so, we expect to initiate with the S.E.C. the processes necessary to gain additional capacity to offer securities. This completes our 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 speaker phone, please pick up the hand before pressing any numbers. Should you have a question, please press star one on your push button telephone. If you wish to withdraw your question, please press star two. Your questions will be taken in the order they are received. Please stand by for your first question. Our first question comes from Paul Ridzon from McDonald Investments. Please state your question.

Good morning, can you hear me?

Yeah, Paul, we can hear you fine, this is Warner.

Just wondering in your 2004 guidance, which direction you expect AmerenEnergy earnings to go?

Yeah, Paul. We probably should have restated that. In our call last Tuesday, we said that we expected AmerenEnergy's earnings to range between 35 and 50 cents per share in 2004.

Thank you very much.

You're welcome.

Thank you. Our next question comes from Paul Patterson from Glenrocks Associates. Please state your question.

Hi, good morning. Can you hear me?

We can hear you fine.

The five -- the capacity factor increase and the availability increase that you guys mentioned, is that pre CILCORP or is is that after CILCORP and you know could you elaborate on that a little bit?

Those factors exclude CILCORP. They are really pre CILCORP numbers so we can have a good comparison from year-to-year.

Okay. So do you see any increase in this going forward, I mean, you know, I mean, I assume this is sustainable? Do you see this as being something that could go forward with the IP plants and what have you? I'm sorry I wasn't on the call before for the Illinois Power merger.

Sure, I think a couple things to consider. One, in terms of going forward, we certainly believe that the capacity factors and equipment availability can continue to be repeated and sustainable. And secondly, the CILCORP plants that we acquired this year were actually out for a fair amount during the spring to take care of some environmental work that had to be done so, we are hopeful they will have a better operating performance this year and, of course, all that work that they did was certainly as planned. With regard to IP, I think it is certainly we can't really comment on any IP plants because we're not acquiring any of the IP plants, we are just doing the T&D business.

That makes sense. Sorry about that. And then also, in terms of the the accretion of 5 to 10 cents, is that off of the previous guidance, I mean I assume that includes the cost of financing and what have you, would that be off of the $2.75 to $2.95 or off of the $2.90 to $3.10?

I think the best way to look at that is, number one, last week when we did our call for Illinois Power, we announced our earnings per share guidance would range between $2.90 and $3.10 per share and, at that point, we said accretion would be 5 to 10 cents per share versus for the IP transaction. Of course, since then we now announced this new common equity issuance which is prior to the acquisition and therefore, the earnings being factored in. So, while we are not giving specific '05 guidance here, I think that if you recognize the fact that we had already announced the $2.90 to $3.10 and 5 to 10 cents per share off that, that is basically the baseline from which we are working with.

Okay and then, finally, with Calloway, the 11 to 16 cents, when we are looking at '05, are we -- in terms of refueling and what have you and obviously you had certain unusual events just recently, what should we expect there?

Well, keep in mind with regard to Calloway a couple of things; they have refueling outages every 18 months, so what happened in 2003 was part of the normal course of operations that they would not have a refueling, so, once every three years there is no refueling outage and so this year what you are seeing in 2004, is just a reinstatement of a normal refueling cycle for Calloway. This outage, this year, will be about 40 day. Typically, that outage is a range between 30 and 35 days. Next year, Calloway will have a more extensive outage that will range up to about 70 days to take care of some of the steam generator replacements, among other things.

And so, you will see, I guess the point is, you will see yet again a Calloway outage next year and likely see some incremental maintenance costs as a result of the extended outage next year and then again, post '05 and beginning in '06 then, you will not find a refueling outage for Calloway.

Right, but that is 70 days versus the 40 days this year, is that roughly proportional in terms of the expense there, the 11 to 16 cents?

Well, it is hard to say if it's roughly proportional at this point because part of the work they will do isn't simply just maintenance, some will be capital expenditures that won't necessarily go to the bottom line. So, at this point, we do expect there would be incremental earnings hit but I would suggest, at least in this point in time, that it would be proportional. We will give more guidance further along in the year as we finalize our plan in 2005.

Okay, thanks a lot, guys.

You're welcome.

Thank you. Our next question comes from Andy Levy from Bear Wagner. Please state your question.

Hey guys, just two questions left. First, when is that outage supposed to start for Calloway?

The outage for 2004?

Yes.

It would be in the spring.

Springtime. You had no set date or set date --

I don't know the specifics. It will be in April.

Early April.

Early April. It will be done before the summer. So it will be in April.

Okay and then can you give us the same type of idea, I assume you have to do ?oar stock offering, right, I think that is what you talked about, the timing on that? Do you wait until the deal closes on IP, how do you think you will handle that?

Sure, I think. Andy, what we said at the outset at our call last week and we reiterated here is that at least 50% of the overall transaction value will result in new common equity issuances and obviously, we took about 8 to 900 million off the table just last week. We simply have the flexibility and the option to access the capital markets, you know, prior to closing of the transaction and frankly, for a short period of time thereafter. Things that we will obviously continue to be mindful of, will be obviously the regulatory process continues to move forward but probably more importantly, market conditions.

Secondly, as I said before, we do have to file the necessary documents with the S.E.C. to increase our shelf. That will probably happen sometime in the near future and that process in and of itself can maybe take anywhere from, you know, one to several months depending upon whether the S.E.C. staff decides to review our filing in the normal course. But, simply put, we have the option to access the markets anywhere between now and frankly, the end of the year and even sometime thereafter to complete the last traunch of equity for this transaction.

Thank you very much.

You're welcome.

Thank you, our next question comes from Doug Fischer from A. G. Edwards. Please state your question.

Thank you. Two quick questions. I noticed in the table on your updated '04 guidance that in addition to increased dilution from the share offering, you widened the range for that last item reduced O&M and other. Any commentary on why that widened, why that range widened?

Yeah, Doug. I think it is probably just a function of how the table is put together. I mean, obviously, we had a range that we started with last week between $2.90 and $3.00, now, we have a pinpoint number of $2.95. Basically, we took our guidance down 15 cents from where we were before, I think it is really, simply math. Obviously, we feel very confident that, you know, that will be on the positive side versus the negative side with the opportunity to get additional CILCORP synergies with some of strategic sourcing initiatives and our continuing head count management. So, nothing else other than probably more than just simple math to make the the table kind of hold together.

Okay and then with regard to capacity factor in '04, obviously you will have less days of Calloway running. Will you be able to fully offset that with increased output from the 6 coal plants in terms of megawatt hours generated, provided the markets are there to sell?

Doug, our goal is to increase capacity factor through better performance of our coal units which requires the coal units to step it up a couple more percent to offset Calloway but we are expecting to achieve a slightly higher capacity factor.

Do you care to put a number on that?

Doug, I don't remember the exact number.

I think, you know, at the end of the year we are right around 75% and, I mean, we'd certainly be looking for something comparable, if not slightly north of that, as Gary said, a percent or two.

Thanks.

You are welcome.

Just as a reminder ladies and gentlemen if you have a question, press star one even your telephone at this time. Our next question comes from Scott Engstrom from Hamilton Investment Management. Please state your question.

Good morning. I was wondering if you had net income available for the reporting subs; UE, CIPS, CILCO, Generating?

Sure. Yeah, this is Warner Baxter again. We do, let me run that down for you very quickly. For Union Electric, you have net income of $441 million, this is for 2003, of course, for CIPS, $26 million, for GenCo, which is the subsidiary of AmerenEnergy Generating, which is our reported subsidiary, $75 million, for CILCORP you have $14 million and then you have a negative $32 million of transaction costs that are being held at Ameren Company level.

I'm sorry, what was the negative?

I'm sorry.

Where was the negative 32?

Those are transaction costs associated with the CILCORP acquisition which are maintained at the Ameren Corp. level in other G&A expenses. You reconcile down to your $524 million of Ameren net income.

So, $14 million was CILCO, not CILCORP?

CILCORP. That's correct.

Do you have CILCO?

I do not have that in front of me, I apologize.

Alright. And did you give a figure, I apologize if I missed it, what sort of you claimed was AmerenEnergy's earnings for the year?

Yes, they were 55 cents per share for 2003.

Okay. And then just to make sure on the -- I understand not that I want to get wrapped up in the accretion that you talked about for CILCO but just to understand, is you're guiding for IP, in the table you give CILCO accretion, CILCORP accretion, excuse me, and then you also have a line on dilution and financing. Does the CILCORP include all of the essentially equity that was issued in relation to that or is some of that in the dilution and financing? The reason I ask, is that the way you are approaching the IP when you talk about accretion on that.

The CILCORP accretion estimates reflect all the equity directly related to the CILCORP acquisition.

Okay.

As we did some incremental equity in 2002 and 2003, that was not used for the CILCORP acquisition, that is what is flowing down into the dilution of financing slide, or piece of that puzzle. Now, for IP then, the equity we just issued last week, obviously in 2004 that will show up as dilution for 2004. We expect then all that equity then will be utilized for the IP acquisition which will be accretive 5 to 10 cents per share for each of the first two years after the transaction closes.

Very good. The last question is, assumptions in the '04 guidance with respect to through and out revenues, are you making an assumption about joining MISO that would sort of make that a nonfactor or is there any comments along those lines?

With regards to the through and out revenues, our assumption is, number one, we will join MISO. We believe that with the recent settlement that we have entered into with the Missouri staff, there is a realistic possibility we will join MISO by this spring if not, sometime this fall and then, two, we do believe we will be able to recover our through and out revenues. Because, as a result of that order, the FERC order, even though there has been some discussion as to whether they were recoverable, they were clear that there were other methods of recovery for those through and out revenues, so we are not assuming any loss associated with those.

So, it's a net neutral, essentially?

That's right.

Great, thanks very much.

You're welcome.

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

Hi, good morning.

Good morning, David.

Warner, Gary, maybe talk a little bit about what you see longer term for the Illinois market post 2006 when it comes to supplying electricity to the utilities? Do you expect that to go to a competitive auction and generally, would you see power prices for full requirements, power being higher than perhaps where the utility tariffs are today?

David, I think what is most likely is that we will go to some sort of auction process. Just to point out where we are on that, is that no one really knows exactly how the process will work, the Illinois Commerce Commission has just initiated a series of meetings which will determine how the bidding process works. But, to answer your second part of that, if we look at where the market is likely to be relative to the price that our company is currently selling power for, we're selling power at a price that I think is at or below where the market will be. So, there is very little, likely to be very little competitive impact on us when we move into that market post '06.

So, will you, I guess, with IP's large appetite for power will you be in a position in 2006 to sort of direct your electrons to where they are most profitable among your utilities if certain regions are better than others?

I think, David, the way, I mean I think essentially, as Gary said, it will be part of the bidding process. Obviously we have the choice as to what we want to bid out generation into. Although, in many respects because of transmission constraints, much of our generation which resides in Illinois will likely serve much of the Illinois service territory whether it be IP, CILCORP, CIPS or potentially even ex-longs, potentially we can get there. I think that is a likely outcome for a good piece, if not the majority of our generation going forward.

And as far as wholesale, are you able now to wheel power or send power from the CILCORP gen or the Ameren generating assets up into IP's to serve IP's load if you have available power to sell?

Yeah, David, we can already move it that far. In fact, we move power, you know, pretty much as far north as the Canadian border all the way to the Gulf Coast and almost a thousand miles east and west of our system but reaching into the IP system is not a problem.

Okay. Have you, in your accretion guidance, have you made any assumptions for higher levels of wholesale sales for next year perhaps, higher revenues from wholesale sales which would otherwise be sold in the spot market but perhaps can fetch a higher return from selling to a utility?

In general, in the accretion guidance, no, I mean I think obviously, we reflect our overall wholesale sales as part of our overall Ameren guidance but in terms of Illinois Power in that accretion guidance, that is not reflected in there.

Okay. Thanks guys, good luck.

Your welcome, David.

Thank you, our next question comes from Paul Patterson. Please state your question and your company, please.

Hi, guys. Paul Patterson at Glenrock. Just, and I'm sorry if I missed this because I got disconnected, but exposure to coal prices have you guys reviewed that at all on this call?

No, we have not reviewed the specific exposure to coal prices but, in terms of that, we are 100% hedged for our coal, for all practical purposes, through 2004. And, post 2004, then usually what you see is almost like a 15 to 20% increment in terms of hedging each year thereafter. So, that would suggest in 2005, we are probably somewhere close to the 80% hedged and, thereafter, 60%. Through 2008, we are approximately 60% hedged for all of our coal needs. So, we have some exposure but in terms of near term exposure to coal prices, it is absolutely minimal because we are 100% hedged.

Okay, thank you very much.

Yes, our next question comes from James Gallagher from CILCAP. Please state your question.

Yes, good morning.

Good morning, James.

Just a real quick question from a clarification standpoint, when you announced the IP deal you had talked about a 5 to 10 cents accretion for the deal in the first full year post close and now, I guess, you're kind of extending that to the first two years. Should I just assume that that 5 to 10 cents is kind of flat or is the 5 to 10 cents in the second year incremental?

I think, that is a good question, it is 5 to 10 cents in totals, so you should not just add another 5 to 10 cents on the first year in terms of accretion. Whether it is flat or not, I mean I think that we -- as time moves on and history has shown, in the first year we start realizing some of the synergies and expect to realize even greater synergies in the second year. So, I wouldn't suggest that it would be flat, but we have given a broad guidance of 5 to 10 cents per share.

Right, and I guess the second question is in the unlikely event that this deal is not able to be consummated, you issued, obviously, quite a lot of stock, what is the kind of your fall back position?

Well, I think certainly, we have several alternatives. We can certainly continue to use some of that cash for the Ameren system in terms of reducing some borrowings we may need in terms of future cap ex and the like and, of course, we always have the option to purchase back stock if it ultimately would be something that would be in our shareholders' best interest.

Great. Thank you very much.

Sure.

Thank you. Our next question comes again from Andy Levy from Bear Wagner, please state your question.

Hi, just two more questions. Just first, on the employee benefits, any idea in 2005 what that may be looking like, do you see any incremental decline in earnings from that or kind of does it flatten out as far as the third part?

Sure, I think looking ahead to 2005, it is probably still somewhat early. I think, obviously, employee benefits are driven really by two things. What we provide in the employee benefits are pensions, post retirement medical costs and then there are your ongoing active medical costs. With regard to pensions and OPEBS, those costs are driven by return overall on your assets but probably more importantly, the overall discount rate and obviously, the discount rate this year you have seen some of the incremental piece go up because of the discount rate falling from our perspective from 6 3/4% as an assumption, down to 6 1/4%. Whether that repeats itself or actually goes up the following year, can make a meaningful difference in the employee benefits costs. In terms of just active medical costs, we don't see the trend really subsiding in that we do expect to continue to see increases in sort of active medical costs just as we have seen virtually across the country. So, those factors will ultimately weigh in as to where 2005 will be as to whether they will be flat or up incrementally.

And as far as IP is concerned, have you had a chance to look at kind of what their situation is in that area and how they stand?

Yes. Certainly, during the due diligence process we spent a fair amount of time looking at their employee benefit plans and I would liken their benefit plans not to be too dissimilar to the plans we have today. What we have done in the past, certainly with CILCORP and CIPS, is that they will continue to have their own plans, say, for a year or two and then we would roll them in to the overall Ameren plan should we be able to do that from an administrative standpoint. But certainly, in terms of our guidance that we provided for the 5 to 10 cents per share accretion that has been completely factored in there.

Okay. So them being with Dynegy didn't really affect what what they were doing operations wise in that area that left them, you know, more in a deficit than most companies?

Yeah, no, I think that has been fully vetted in our guidance and how we reflected the earnings for that.

Perfect. One last question kind of goes what Paul Patterson was asking on coal prices. The 15 or 20%, the dropoff next year, can you give us an idea as far as I don't know if you want to tell us pricing but maybe kind of when those contracts were signed that are dropping off so we can get an idea of what, if any, impact there is?

Paul, we typically have five year contracts so if you look at coal price movement over the last five years, you would see that on the very low cost contracts there will be upward pressure on price. But, I would say that overall, we still have some ability to reduce coal prices and that is partly because we haven't gotten the full cost reductions at CIPS that we can get, we are still making reductions there and we are making substantial reductions on the CILCO system so that overall total fuel prices should still come down.

I would say, too, Paul, just one final thing to keep in mind if these prices should continue to rise, while we don't have a fuel adjustment clause in either Missouri or Illinois we will be entering into rate cases sometime in the 2006 time period so we will not have to incur the additional -- we will be able to reflect some of those additional costs as part of our base rates in both Missouri and Illinois and I think I called you Paul, Andy, I can't keep track of all the people on the phone. I apologize for that.

I have been called worse before.

Thanks, Andy.

Thanks.

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