阿莫林 (AEE) 2004 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to Ameren Corporation's second quarter 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 up the conference for questions and answers after the presentation.

I will now turn the call over to Mr. Bruce Steinke, Manager of Investor Relations. Please go ahead, sir.

Thank you, Anna, and good morning, everyone.

I'm Bruce Steinke, Manager of Investor Relations here at Ameren Corporation. Here with me today is our Chairman, Chief Executive Officer, and President Gary Rainwater; our Executive Vice President and CFO, Warner Baxter; our Vice President and Controller, Marty Lyons; and our Assistant Treasurer, Lee Nickloy.

Before we begin, let me cover a few administrative details. This hour-long call is available for week for anyone who wishes to hear it by dialing a play-back number. The announcement you received in our news release carry 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 statements section in the news release we issued today and the forward-looking statements and risk factor sections in our filings with the SEC.

To assist in our call this morning, we have made a slide presentation available on our website that reconciles our earnings per share between the second quarter and first six months of 2004 and the same periods in 2003. We have also included an updated 2004 earnings guidance slide that reconciles full-year 2003 earnings to our updated earnings guidance range for 2004. To access the presentation, simply follow the links for the webcast and then click on the link for the presentation, which is provided in a PDF format.

Gary will begin this call with an overview of our second quarter 2004 results and some operating and regulatory 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 earnings of 65 cents per share for the second quarter of 2004 as compared to 68 cents per share for last year's second quarter.

Earnings in the first six months of last year included an after-tax gain of 11 cents per share due to the adoption of an accounting standard related to asset retirement obligations. Excluding last year's unusual gain, earnings for the first six months of 2004 were $1.20 per share, as compared to $1.21 per share earned in the first six months of 2003. Once again, we delivered solid financial results during this quarter.

Earnings for the quarter were only modestly below last year, despite incurring significant incremental costs from our scheduled Callaway nuclear refueling and maintenance outage and experiencing earnings dilution from greater common shares outstanding, principally due to the pre-funding of our Illinois Power acquisition earlier this year.

Solid organic growth in our service territory returned to more normal summer weather this quarter. Stronger power prices that benefited interchange margins, refund of exit fees from MISO and our continued focus on cost control largely offset the Callaway outage costs in earnings dilution this quarter.

By far, our biggest operating challenge during the second quarter was the completion of the scheduled refueling and maintenance outage at our Callaway Nuclear Plant. During the Callaway outage, we not only completed the refueling and performed the typical inspections and maintenance activities but we also replaced the condenser bundles in advance of the replacement of steam generators scheduled to occur during next year's outage. This outage was a massive project that included over 12,000 work activities. That's almost twice the work we do in a normal refueling.

Importantly, our inspections did not identify any major operating issues, and as a result of this year's work, Callaway's overall capacity was increased by 5 megawatts. Unfortunately, we under estimated the time it would take to replace the condenser bundles, which is a fairly new procedure for nuclear plants. In addition, we had some unexpected piping vibration on start-up that needed to be resolved. As a result, the outage was extended to 64 days as opposed to an original schedule of 40 to 45 days.

We estimate that the outage reduced earnings by 22 cents per share in the second quarter of 2004 as compared to 2003. While we experienced our share of challenges during the Callaway outage, our full-fired plants continued to make strong improvements in their operations.

During the quarter, our base load coal fleet increased its average capacity factors to 75%, up from 61% last year. Equivalent availability factors increased to 85% from 77% last year.

Another major effort taking place at Ameren is our work towards completion of the Illinois Power acquisition. In early July we completed the equity financing for our acquisition of Illinois Power and the additional 20% interest in Electric Energy Incorporated rated from Dynegy. We also continue to proceed through the regulatory approval process for this acquisition.

Earlier this year the Federal Communications Commission consented to the transfer of control of SEC licenses held by Illinois Power to Ameren, and the waiting period under the Hart-Scott-Rodino Act expired.

Yesterday we received approval for the acquisition from the Federal Energy Regulatory Commission. This is a significant milestone for us. Our remaining two required regulatory approvals are from the Illinois Commerce Commission and the Securities and Exchange Commission under the Public Utility Holding Company Act. Testimony has been filed by all parties involved in the Illinois Commerce Commission case. We continue to work with the Commission staff and various interveners in an effort to resolve outstanding issues.

Hearings in this case are scheduled for late August. In current with our ICC efforts, we've continued to work closely with the SEC [INAUDIBLE] staff. We would expect the SEC to complete its review some time soon after the ICC issues its order in this case. As a result of the progress to date, we believe the acquisition remains on target to close by the end of this year, if not sooner.

Other matters on the regulatory front include two asset transfer requests that have been awaiting approval. Yesterday we were pleased to receive approval from the Federal Energy Regulatory Commission for the transfer of 550 megawatts of unregulated generating assets from Ameren Energy Generating Company into our regulated Ameren UE subsidiary. The value of the net assets transferred is approximately $250 million. SEC approval is also required under the Public Utility Holding Company Act and we would expect to receive an order on this matter in the near future.

In addition, our proposed transfer of Ameren UE's Illinois Gas & Electric service territory to our Ameren CIPS subsidiary is pending approval by the Missouri Public Service Commission, the SEC and with respect to the gas service territory only by the ICC. The net asset value of this distribution service territory transfer is approximately $125 million. We expect decisions by the Missouri Public Service Commission, the SEC and the ICC over the next few months.

Importantly, we anticipate completion of both of these transfers in time for their inclusion in rate bases for our anticipated post-2006 rate cases in Missouri and Illinois. Otherwise, the timing of these transfers does not have an immediate financial impact on Ameren, since electric rates are currently frozen in these jurisdictions.

In early July we also made a filing with the Federal Energy Regulatory Commission to extend through December 31, 2006 the electric supply contract between our Ameren CIPS distribution business and our non-regulated marketing subsidiary. We also officially extended the electric supply contract between Ameren CILCO and its non-regulated generation subsidiary through December 31, 2006. These extensions were previously ordered by the Illinois Commerce Commission.

On May 1st, we also joined the Midwest Independent Transmission System Operator regional transmission organization. We were pleased that our transition into day 1 operations of MISO went very smoothly. We continue to prepare internally and coordinate our efforts with MISO and its member organizations for day 2 marketplace, which is expected to commence on March 1st, 2005.

One final note on the regulatory front: The ICC continues to conduct its workshops, seeking input from interested parties on the frame work for retail rate determination and the frame work for generation procurement by customers after the current Illinois rate freeze ends in 2006. We have actively participated in these workshops. In these workshops, we've supported a frame work that would have all regulated Illinois electric transmission and distribution companies bid out their native load requirements for generation in a New Jersey-type auction process. We've also supported a structure that provides for the recovery of the generation costs resulting from that auction. There is still much work to do by all interested parties. As a result, we do not believe the ICC will make final decisions on these matters until some time in 2005.

While many alternatives are still under consideration, we continue to believe Ameren is well positioned to effectively operate in the post 2006 environment in Illinois.

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

Thanks, Gary.

At this point, I will refer you to our website as I provide a more detailed discussion of earnings results and other financial matters. As Bruce mentioned earlier, we have posted a slide presentation on our website that reconciles our earnings per share between the second quarter and first six months of 2003 and the same periods in 2004. We have also included an updated 2004 earnings guidance slide that reconciles full-year 2003 earnings to our updated guidance range for 2004.

In the second quarter of 2004, we reported net income of $118 million or 65 cents per share, compared to second quarter 2003 net income of $110 million or 68 cents per share.

In the first six months of 2004, we reported net income of $215 million or $1.20 per share compared to net income in the first six months of 2003 of $211 million or $1.32 per share.

Net income in the first six months of last year included an 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. Excluding this gain, net income in the first six months of 2003 was $193 million or $1.21 per share.

During the second quarter of 2004, our earnings benefited primarily from improved electric margins, the refund of MISO exit fees and continued focus on cost control. These factors and others combined to nearly offset the costs of the Callaway plant outage and increase dilution in financing costs.

During the second quarter of 2004, we realized increased electric margins. This increase was principally due to organic sales growth, which improved earnings by an estimated 10 cents per share. Electric margins also benefited from a return to more normal summer weather patterns. We estimate weather improved earnings by approximately 11 cents per share during the second quarter of 2004, as compared to 2003.

Cooling degree days in Ameren service territory during the second quarter of 2004 were approximately 75% greater in the same period a year ago, due primarily to the unusually-cool June weather in 2003. As a result of the organic growth and improved weather, residential electric sales increased by 15% and commercial electric sales increased by 6% in the second quarter, as compared to 2003.

Second quarter, 2004 electric margins also improved, due to the higher contribution to earnings from Ameren Energy as agent for Ameren UE and Ameren Energy generating company.

Ameren Energy produced second quarter 2004 earnings of 15 cents per share, which was 5 cents per share higher than the second quarter of 2003. Energy market conditions were very solid in the quarter, as our realized interchange sales averaged $35 per megawatt hour, versus $20 million per megawatt hour in last year's second quarter.

The increased power prices accounted for nearly all the increase in margins from interchange sales as the Callaway plant outage reduced the amount of low-cost generation that we had available for sale into the spot market. The lost generation was largely made up through the excellent performance from our coal plants that Gary referenced earlier.

Due largely to improved energy market conditions, we now expect Ameren Energy to contribute 40 to 55 cents per share to earnings in 2004. Earlier in the year we expected Ameren Energy to contribute 35 to 50 cents per share to earnings in 2004.

Electric margins were negatively impacted by lower emission credit sales, which were $7 million less than last year's second quarter, principally at our subsidiary, EEI. As we have stated in the past, we utilized the majority of our emission credits for on going environmental compliance. At this time, we continue to expect to realize $25 to $35 million in emission credit sales in 2004.

On April 1st, we implemented the final $30 million tronage of the 2002 Missouri Electric rate case reductions. The net impact of this electric rate reduction, which was partially offset by increases to our gas rates in Missouri and Illinois in the second quarter, was a negative 1 cent per share year-over-year.

As Gary mentioned, the most significant item that impacted the quarter was the refueling and maintenance outage at our Callaway nuclear plant. Due to the fact that there was no refueling and maintenance outage at Callaway in 2003, fuel and purchase power costs and other operations and maintenance expenses increased significantly year-over-year.

We estimate maintenance and purchase power costs associated with the outage reduced 2004's second quarter earnings by approximately 22 cents per share compared to last year. During the quarter we continue to incur higher employee benefit costs that reduced earnings by 2 cents per share in the second quarter of 2004 as compared to the second quarter of 2003. This variance was the result of rising medical costs, and the impact of low interest rates on the cost of our retirement plans.

However, in the second quarter we began recognizing the benefit of anticipated post-retirement medical subsidiaries provided by last year's Medicare Prescription Drug legislation, which mitigated some of the increase in employee benefit costs in the quarter.

As most of you know, we have been seeking for many years approval to enter a regional transmission organization. As Gary stated earlier, in May we completed that journey and officially joined the Midwest Independent Transmission System Operator or MISO. We expect that transmission cost will increase by $10 to $20 million annually, due to the impart of MISO. Upon entry, we recovered exit fees we paid MISO when we left that organization several years ago. This recovery benefited earnings by 6 cents per share in the second quarter of 2004.

Looking at other expenses, we continue to focus on managing our operating costs and we're able to achieve lower labor costs of about 2 cents per share by effectively managing our head count levels.

Finally, increased common shares outstanding and changes in other financing costs reduced earnings per share by approximately 6 cents per share during the second quarter of 2004. The majority of this impact is the result of the sale of common stock in early February. We expect to use the proceeds from that offering to partially fund the Illinois Power acquisition, which we expect to close by the end of this year.

In July we completed our equity financing for the Illinois Power transaction. We accomplished this through the sale of approximately 11 million common shares that generated proceeds of $445 million. Subsequent to the completion of this offering, Moody's investor service removed its negative credit watch on Ameren. This offering had no impact on earnings in the current quarter, but will be dilutive to earnings by approximately 8 cents per share for the balance of the year, assuming we complete the Illinois Power acquisition on December 31st, 2004.

When we announced the Illinois Power acquisition, we indicated that we expected the 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 all of our stake-holders. As you might expect, our accretion estimate included a host of assumptions related to expected financing plans, synergies, market prices for power and regulatory outcomes, among other things.

Since we announced the acquisition, a great deal of work has been done to further refine our original assumptions and estimates. We have had our integration teams sharpen their estimates on expected synergies and integration costs. We have had further discussions with the rating agencies and other advisors to further refine our financing plan to fund this acquisition as well as our plans to recapitalize Illinois Power. We have met with the staffs of the regulatory commissions and the various interveners in their approval proceedings to further refine our expectations of the regulatory impacts of this transaction. And we're mindful of the change in energy prices and their potential impact on our supply costs and are accounting for the cost through the end of the Illinois rate freeze.

While we have contractly fixed the cash outlays for approximately 70% of Illinois Power's energy supply needs, our accretion assumptions remain sensitive to changing market prices for Illinois Power's entire power supply requirements.

Bottom line is that we continue to believe that the Illinois Power acquisition will be accretive to earnings by 5 to 10 cents per share in each of the first two years after closing, and will provide significant long-term value for all of our stake-holders. Of course our estimates will continue to be refined as our integration work proceeds. The regulatory approval process continues, and as we assess how market conditions may affect our future recapitalization plans for Illinois Power in the accounting for its supply costs.

We also announced today we are adjusting our 2004 guidance for earnings to be between $2.70 and $2.90 per share. Reason for the adjustment is our issuance of additional common shares in early July to pre-fund the Illinois Power acquisition, which were not included in our previous guidance.

As I stated previously, we estimate this offering will reduce earnings by approximately 8 cents per share in 2004, assuming that the Illinois Power transaction is completed on December 31st, 2004.

On the slide, we have posted on our website, we have also made some adjustments to other line items of our guidance, from that which we have provided earlier in the year. Notable changes include that we have increased our estimates for sales growth to increase earnings by 30 to 45 cents per share, up from our original estimate of 15 to 30 cents per share. This increase is being driven primarily by better-than-expected organic growth and improved earnings expectations from Ameren Energy.

We have also revised our estimate of the impact of the Callaway outage to 22 cents per share, up from our previous estimate of 11 to 16 cents per share as the outage was 64 days versus our original estimate of 40 to 45 days.

In addition, we revised our estimate of dilution and financing to reduce earnings per share by 28 to 38 cents per share, compared to our previous estimate of 19 to 21 cents due to our equity offering in July. And finally, we updated our estimate of cash flows for dividends in 2004 due to the recent equity offering as well.

Our 2004 guidance continues to exclude any potential earnings impact resulting from the Illinois Power acquisition and remains 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 forward-looking statements of our release and the risk factors sections in our filings with the SEC.

One final point before we move onto your questions. In July, we successfully closed on $700 million in revolving credit facilities. After such capacity having a 3-year term and the other half having a 5-year term. These facilities replaced a $235 million facility that was set to expire this month and a $130 million facility that was set to expire next year.

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're using a speaker phone, please pick up the hand set before pressing any numbers. Should you have a question please press star, 1on your push button telephone. If you wish to withdraw your question please press star, 2. Your question will be taken in the order it is received. Please stand by for your first question.

The first question comes from David Frank with Zimmer Lucas Partners. Please state your question.

Yeah hi, good morning, guys.

Good morning, David. How are you?

Okay.

Good.

I just want to ask you Warner, you mentioned, I think you said you hedged 70% of Illinois Power' anticipated supply needs? Can you just elaborate on that?

That's correct, David.

As you recall, when we entered into our transaction with Dynegy, we had entered into a power supply agreement with DMG for 2800 megawatts for 2005 and 2006. Illinois Power basically has the requirements of about 3500 megawatts.

So when you do the math, and you're thinking in terms of megawatt hours needed to be supplied we have basically hedged our cash supply needs to that DMG contract, which is approximately 70% of Illinois Power's requirements. With the other 30%, are going be subject to an RFP, which Illinois Power is in the process of conducting now to serve the other 700 megawatts. That was under a contract with Amergen that is set to expire December 31st, 2004.

So between the Dynegy plants and Clinton, that more than covers 100%, but it's just a question of where that contract gets finalized with Amergen?

I'm not sure if I understand your question.

Certainly we have to make sure that we complete that RFP by the end of the year due to cover our cash flow needs associated with the power supply agreements. But in terms of the income statements, which is what I mentioned in the call, what we will ultimately reflect in the income statement in 2005 and 2006, our power supply expenses will be based on market prices for those existing products at the date we close, which may not necessarily be at the same price that we contracted for with both DMG or the other parties for the other 30% of the power supply requirements.

Okay but the 2800 megawatts that excludes Clinton, is that correct?

That is correct.

Okay. And the other question I wanted to ask you was, where do you anticipate capacity factors for the fossil fleet being for full-year 2004?

David this is Gary Rainwater, so far this year the plants have performed very well. We're up from 77% last year to about 85%, that availability.

And I think the other thing David, is that is for the year, including Callaway, we expect our total capacity factors to probably range around 74%, roughly. The forecast is 74. I would say we're doing better than that so far, so we could beat that. David I think that's notable. That's basically flat from where we're at last year, and that obviously excludes the the extended Callaway outage in those numbers.

Right, but when you said 85% that was availability factor?

That is availability, that is correct.

If you had to estimate, do you have a number for just the stand-alone fossil fleet for this year? What the actual capacity factor, not availability factor might be, roughly?

Well, through the first six months they were at approximately 72% in terms of capacity factor. In terms of the rest of the maintenance outage for the rest of the year, we would expect to improve because they have fewer maintenance outages in the second half of the year than we've had in the prior year.

Okay. So something in the low to mid-70s for fossil. Do you think that's a good target going forward that you could maintain those types of levels of capacity factors on the fossil fleet and you know, the years coming?

David, over time we could expect those numbers to increase, and we have some plants now that operate at capacity factors of above 90%, and in theory, they could all operate at that level.

Just a question of getting the availability up to the right level and a question of market prices and with gas prices going where they are, and that's supporting the market, I would expect to see continued improved capacity factors for the next several years.

Okay, great.

And my last question on that fleet, can you just remind us again how much of your coal supply is from the west and where your hedging stands on that?

Sure.

Basically, in terms of coal supply, 85% of our coal supply comes from the west with the remaining 15% coming from Illinois. We are not exposed to any eastern coal markets in our overall fleet.

In terms of hedging, we are fully hedged in 2004. In 2005 we're over 90% hedged. And in 2006, we're approximately 75% hedged for our coal supply needs.

Okay, great. Well, thanks, guys. Congratulations on a good quarter.

Thanks, David.

Thank you. Your next question comes from Paul Ridzon with Key McDonald. Please state your question.

Can you update us where you are year-to-date with your Ameren Energy earnings and your emissions credit sales?

Sure, Paul. Happy to do that.

Year-to-date, Ameren Energy has earnings of 32 cents per share, has contributed 32 cents per share. That's compared to 31 cents per share in the prior year.

And in terms of emission credits, we have earned through the first half of this year 8 cents per share versus approximately 5 cents per share in the prior year.

And what did you do in the back half of the year last year on each of those?

In the back half of last year Ameren Energy earned approximately 24 to 25 cents per share in the second half, and for emission credits, that number was approximately 6 cents per share.

And with the return of Callaway and thus far no barn-burners with regards to weather, against the backdrop of $35 wholesale prices, do you see some upside here?

Well, certainly as we pointed out, and even as we've stated in our guidance, we have moved up our contribution from Ameren Energy up 5 cents per share from what we had originally started at the beginning of the year, so clearly that's factored into there.

I think the other thing which is factored in, as you've seen in our guidance, that we've moved up our organic growth from where we were before, and again that is due to again to solid economic conditions as much as anything else. So yeah, I think in terms of those two factors standing alone, I think are positive factors in terms of the second half of the year.

And your expectation of 25 to 30 million of emissions credits, that's an after-tax net income number?

No, that is not. That is a pre-tax sales number.

Basically, I would characterize our emission credits year-over-year to be generally flat compared to the prior year. In the prior year, keep in mind that Electric Energy Inc. had some emission sales of about $10 to $11 million. Those sales may or may not actually come to fruition this year at those same levels, so therefore our expectations for the year in terms of total credit emission sales, and this is a pre-tax number, is now $25 to $30 million.

And volumetrically, how should we think of that?

[INAUDIBLE] You should think about prices are generally up from where they were last year. So volumetrically, we would expect to have less sales in volume. Obviously the overall prices are being [INAUDIBLE] by the stronger emission credit prices that we're seeing in the marketplace today.

And then lastly, your guidance explicitly excludes impacts from IP. Can you give more on what the thought process is there and if this were to close in the fourth quarter, what the revenue stream looks like at that business?

I think two things.

One, what we did in terms of our guidance. As we came out earlier in the year, we assumed that Illinois Power would close when we did our first equity offering, and so as we've done the second one, we've maintained a consistent assumption with the second equity offering being 8 cents diluted when we moved our earnings per share guidance down a nickel.

We have every hope that we can close that Illinois Power acquisition before the end of the year, but clearly our guidance says that by December 31st, 2004. It wouldn't be appropriate in terms for me to talk about interim financial results for Illinois Power. Should we close that, at any time prior to that?

We do believe it will be some time in the fourth quarter, but if you look at our overall earnings guidance range, the 20-cent per share range, we believe if we would close prior to the end of the year, that that guidance range would still accommodate the closing of Illinois Power, and therefore the earnings input that Illinois Power would give to our overall operations.

It would be accretive no matter when it closed in the year?

Well, as we've said before, at this time we continue to expect Illinois Power to be 5 to 10 cents per share accretive to earnings in the first 12 months after closing. Now, when you get into the specific months, it's impossible for me to say how that would actually affect the overall earnings results, that that's not what we're seeing at this point.

To the extent we've taken the full hit for the equity, it would be additive to cover that.

We have fully reflected the entire equity in our guidance so any income technically, would go to mitigate that dilutive effect.

And it will, as we've said. Our expectations based on current assumptions it will be 5 to 10 cents per share accretive to earnings, or the first two years post closing.

And lastly since it's the flavor of the week. Can you review your dividend policy?

I think our dividend policy, we currently stated 2054 cents per share and we're very comfortable at that level of dividend. We're very focused on maintaining our overall dividend level. Today that dividend level stands at a very solid 5 1/2 to 6%. That's where it's been historically. So at this point in time, we're very comfortable with maintaining our overall dividend level. And as we continue to enhance our cash flows down the road, we continue to look at our overall dividend policy and will make appropriate changes as we deem fit.

Okay, thank you very much.

You're welcome.

Thank you. Our next question comes from Doug Fischer with A.G. Edwards. Please state your question.

Yes, good morning.

Good morning, Doug.

Good morning. Warner, could you elaborate on the transmission costs of MISO? And do I understand correct, you said I guess 10 to 20 million of additional cost. Is there any rate adjustment on the transmissions side to offset that? Is that an annual number? Then I have a follow-up.

Sure, with regard to the overall transmission costs, as we're sort of in a rate freeze period through 2006, those would be incremental costs that we would, for all practical purposes, absorb during those couple years. At some point, we do believe we will then therefore be able to recover these incremental costs, but it wouldn't be here in the short-term.

So those additional costs are likely going to be incremental to our existing operations and maintenance expenses at this time. At least that is our expectation at this time.

Are those FERC costs or are those state jurisdictional costs?

They're primarily FERC costs, but some of those costs could indeed be reflected in the overall state jurisdictional costs as well, as you know.

So the flow-through of them at the state level is what the freeze impacts?

That is correct.

Okay, and that's 10 to 20 pre-tax expense?

That is correct.

Annually?

That is correct.

And that's in your '04 guidance, partial year of that?

It is, indeed.

And then the 18 million refund from MISO, I assume that's in your guidance as well?

Yes, that is correct.

Okay, what should we apply just to adjust for that, about a 40% tax rate?

It's about 6 cents per share, Doug.

Okay. All righty.

And have you made any adjustment in your guidance for whether you know, it was hotter than normal in the second quarter, but so far July has been very mild. Should we assume that the guidance for the year assumes normal weather for the year or have you made any adjustments for that?

You should assume that our weather guidance that we've reflected out there assumes normal weather for the remaining portion of the year.

And yes, you're right, we have seen some mild weather here in St. Louis, but you know, it's still too early for us to be changing any weather guidance in any meaningful way at this point in time.

Okay, fair enough. Thank you.

You're welcome.

Thank you. Our next question comes from Matt Brighter with Millennium Partners. Please state your question.

Hi guys. Quick question just to follow up on the coal issue. I got the hedge positions. Can you give us an idea of what kind of price increases we should expect?

Well, in general we've seen -- and this is on the PRB side -- what we've seen is probably about a 10% increase in overall coal prices. Now, keep in mind for us that's probably around 75 cents, roughly in terms of where coal prices are at today. We're not talking about the significant increase you're seeing in the eastern coal markets.

So in terms of pricing, we've seen about 10%. And of course the other piece of that is the transportation costs, which come with that. And we're seeing some pressures on that, upward pressures as well, but again, nothing in terms of the 20, 30, 40% types of increases you're seeing in other markets.

Would that be like a run rate then from '05 to '06 also, where we'd see another step up of about the same magnitude?

I think it's too premature to say that, especially with 2006, while we've got 70% or so out, we've still got the remainder coming. I don't have that specific metric where we would see that kind of run rate.

Okay, great, thank you.

You're welcome.

Thank you. The next question comes from Scott Engstrom with Hamilton Investment Management. Please state your question.

Good morning. I hate to be so predictable, but do you have results by SEC reporting sub for UE, CIPS, GENCO and CILCORP?

I certainly do, if you give me a moment I'll be able get my hands on those. Are you looking for basically the six months? Is that what you're looking for?

Either one, six months or for the quarter.

I have them for the six months.

That's fine.

And so at UE they're $164 million, for CIPS they're $17 million. For GENCO, Ameren Energy Generating Company is $47 million. CILCORP is basically flat and at the corporate level about a negative $13 million that gets you down to our $215 million number.

Very good, thank you very much.

You're welcome.

The next question comes from Ted Hind with Smith Barney. Please state your question.

Hi, how are you guys doing?

Great, how are you doing, Ted?

Not bad.

I just wanted to clarify the Callaway outage. The original 65-day outage was scheduled for fourth quarter, '05, and now you've done that maintenance in this quarter. So we can expect a shorter outage time next year?

I think that's not true. Let me try and clarify. Number one, Callaway did their outage as scheduled this particular quarter. It turned out to be a 64-day outage versus what they had originally planned to be a 40 to 45-day outage. Remember Callaway has an outage every 18 months, so they had one in the spring this year and will have yet another one next year in the fall.

That outage at this time is expected to be approximately 70 to 75 days because we are replacing the steam generators for Callaway. And so that will be an outage that will be slightly higher than the overall outage that we had this year.

Again, I wouldn't necessarily in terms of your analysis of how you may look at O&M and replacement power costs. I wouldn't say it's linear compared to this year to next, because a lot of the stuff next year will still be capital. But at the end of the day, Callaway will have a refueling outage again next year and in 2006 there is no scheduled refueling outage because it would not take place then until frankly the spring of '07 would be the next scheduled outage.

Okay, so we should assume a 70 to 75-day outage next year.

That is correct.

Okay. And then you talked about your 5 to 10-cent accretion number for IP. Said that you had refined some of your synergy and financing assumptions. Do you have anymore color on kinda' what you guys are dialing down to on those?

I think in terms of the overall assumptions, you know, obviously there are a host of assumptions that go into them, but there are probably three of those assumptions that probably had some meaningful movement one way or the other.

One, it was obviously synergies. We do expect as we kick the tires and have looked harder and we continue to work harder, we do expect to have greater levels of synergies. And frankly, our overall financing for the acquisition came in better than expected. In terms of the overall number of shares that we thought we would have to issue.

Those two factors were offset by higher power supply costs that we've had to factor into our assumptions because of the change in market prices for power. So, basically it was those three items and you put them all together, you basically come out flattish, talking about 5 to 10 cents.

You get back to where you were about about before?

That's right.

And the last question, you mentioned the supply contracts for CILCORP and CIPS.

Yes.

What was the final numbers on those? I think you were saying at 38 and 34.50 or something like that?

Yeah, the numbers for the CIPS contract are at 38.50 and the number for CILCORP is at $34. Those are the same prices we've had for the last couple of years, and those, we're simply extending those contracts at the same prices through 2006.

Okay. Great! That's it, thanks a lot.

Sure.

Thank you. The next question comes from Daniele Seitz with Maxcor Financial. Please state your question.

Could you let us know what type of financing schedule you visualize over the next 12 months?

Are you talking, Daniele in terms of what our overall financing plans might be over the next 12 months?

Yes. Yes, please.

I'll look to Lee to give you a little bit more of the color. But in general what you'll find is simply refinancing of existing debt in terms of accessing the capital marketplace.

Now, that's exclusive of things that we would do in terms of the recapitalization of Illinois Power, of course, but in general, that would be the case.

Lee, I don't know if you have anymore color to that particular--

No, that's right on point.

We have some maturities at UE, first mortgage bonds that will mature through the balance of this year. We would refinance those and we could have short-term debt we could accrue there and look to refinance permanently.

And there's a was a term loan at CILCORP that we took out earlier this year with some of the equity proceeds from the February offering and we look to permanently refinance that some time around the closing of IP.

In general, I would say that in terms of maturities that nothing terribly significant over the next 12 months in terms of what we've seen in the past. It's pretty much on a normal run rate.

Okay, and could you remind me of the type of CapEx that you anticipate for this year and next year?

This year our capital expenditures is going to be approximately around $700 million. If you look at our 2004 guidance slide, Daniele, that says $710 million.

Next year we would expect we don't have sort of the specifics, but over the next five years it probably will range anywhere from 3 to $3 1/2 billion in terms of CapEx. We'll give more specific guidance on CapEx for 2005 when we talk more about 2005 later this year or early next year, which is the normal course, after we complete our budget process.

Thank you.

You're welcome.

Thank you. Once again ladies and gentlemen, should you have a question, please press star, 1 on your push-button telephone at this time.

The next question comes from Eric Beaumont with Copia Capital, please state your question.

Good morning, congratulations on the quarter.

Just a quick question.

You know, the organic growth has been very strong this year. Are there any drivers you can point to and expectations going forward there?

Well, I'll let Gary maybe talk a little bit about the overall economic condition. But you know, I think part of it is indeed Ameren Energy, which is obviously about 5 cents of the sales growth.

In terms of organic growth, we just continue to see strong sales figures through the first six months.

Residential sales and this is exclusive of January '04 of CILCORP. Remember we had the additional month of CILCORP operations this year. Exclude those, I'll just give you some statistics.

Residential sales are up 6%, commercial sales were up 5%, industrial sales were up 6%, wholesale sales were up 7%.

Obviously, residential and commercial sales are a little bit more weather-sensitive than others, but you still are seeing some fairly solid growth in the industrial sector and I'll let Gary talk about the economy.

I think Warner really has summed it up.

If we look at industrial more than anything else as an indicator of where the economy is going and 6% is very solid. In a normal year, we would see about 1% industrial growth. We see fairly slow industrial growth, but some of our large customers like heavy metals and refining, which slowed down during the recession now, are coming back, and I think we will still see some more of that happening over the next year.

Okay, great. Thanks and congratulations again on the quarter.

Thanks, Eric.

Thank you. As a final reminder, ladies and gentlemen, should you have a question, please press star, 1 on your push-button telephone at this time.

Gentlemen, I'm receiving no further questions.

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