阿莫林 (AEE) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Ameren Corporation second quarter 2006 earnings conference call. At this time all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder, this conference is being recorded today, Thursday, August 3rd, of 2006. I would now like to turn the conference over to Bruce Steinke, please go ahead, sir.

Thank you, Marcie, and good morning, everyone. I am 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 other members of Ameren's senior management team. Before we begin, let me cover a few administrative details. This hour-long call is available by telephone for one week to anyone who wishes to hear it by dialing a playback number. The announcement you received in our news release carry instructions on replaying the call by telephone. This call is also being broadcast live on the internet and 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 various factors 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 news release we issued today and the forward-looking statements and risk factor sections in our filings with the SEC.

To assist with our call this morning we have made a slide presentation available on our website that reconciles our earnings per share for the second quarter and first six months of 2006 to our earnings per share for the second quarter and first six months of 2005 on a comparable share basis. In addition, this presentation includes a slide that compares our updated 2006 earnings per share guidance to full-year 2005 earnings per share on a comparable share basis. To access this presentation, you may look in the investor section of our website under presentations or follow the link for the webcast. Gary will begin this call with an overview of our second quarter 2006 results and some key operating and regulatory matters. Warner will then follow with a further update on regulatory matters and a more detailed review of our second quarter results. 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 second quarter 2006 earnings of $0.60 per share, which compared to last year's second quarter earnings of $0.93 per share. For the first six months of 2006, Ameren reported earnings of $0.94 cents per share compared to earnings of $1.55 per share in the prior year period. Several factors contributed to Ameren's decreased earnings in the second quarter as compared to last year. These factors include higher fuel and related transportation costs, decreased power plant availability, including an unplanned outage at the Callaway Nuclear Power Plant, costs associated with Taum Sauk incident and milder weather. Of course, we're disappointed with our earnings results through the first half of 2006.

Several unfortunate, and in some cases unusual events transpired that negatively impacted earnings, including the Taum Sauk incident, severe spring storms, unscheduled plant outages, and milder winter weather. While we expect meaningful improvements in many aspects of our operations in the second half of 2006, these factors coupled with lower than anticipated prices for interchange sales have caused us to lower our earnings guidance for 2006. The Company now expects non-GAAP 2006 earnings to range between $2.75 and $3 per share. Our updated 2006 non-GAAP guidance excludes any impact of the July 2006 storms that I'll discuss in a moment.

As we look ahead to 2007, we're hopeful that many of the events that negatively impacted earnings in 2006 will be behind us. We'll also be working hard to get appropriate recovery of our higher operating costs and infrastructure investments in our pending rate cases in Missouri and Illinois. In addition, we'll remain focused on optimizing the value of our low-cost unregulated generation in Illinois as below market power supply agreements will expire at the end of 2006. Warner will go through the drivers of our 2006 earnings in a few minutes and our updated earnings guidance, so I will turn to a discussion of some key operating matters.

As I mentioned, a key factor behind our lower second quarter 2006 earnings was reduced power plant availability. Our Callaway nuclear plant was offline for 20 days in May and June. You may recall that late last year the turbine rotors were replaced. As a result of the manufacturer's defect in the new high pressure turbine, an unscheduled maintenance outage was required to make repairs. Temporary repairs were made under warranty, and permanent repairs will be made under warranty during the next refueling and maintenance outage. However, we did lose over 400,000 megawatt hours of power as a result of the outage. In addition, the availability of our coal fired fleet was only 81% in the second quarter of 2006 versus 85% in the prior year period. Capacity factors dropped similarly from 76% in the second quarter 2005 to 72% in 2006. Availability decreased because of some significant planned outages and some unplanned outages. Of course, the lack of availability of our Taum Sauk pump storage hydroelectric plant and related costs due to the breach of the upper reservoir also negatively impacted financial results in the quarter.

In late May 2006, the Federal Energy Regulatory Commission released a report by an Independent Panel of Consultants on the technical reasons for the December breach. The report cited the primary cause of the Taum Sauk breach as over-topping of the upper reservoir dam due to improperly maintained and installed water level monitors and emergency backup sensors. A secondary cause the report said were defects in the original construction of the plant. These findings were largely similar to those from the consultant we hired and reported to you in our last call. We continue to work with state and federal authorities on liability matters related to the incident and to determine how and whether to rebuild the facility. All of this is expected to happen by the end of this year. We believe liability resulting from the Taum Sauk incident and repair or replacement of the Taum Sauk facility is substantially covered by insurance. Should the decision be made to rebuild the Taum Sauk plant, we would expect it to be out of service through most, if not all, of 2008.

On the coal inventory front, we continue to maintain adequate inventory levels at all of our coal-fired power plants. While deliveries are still a bit lower than expectations, our inventory deliveries remain satisfactory as milder winter weather reduced our operating needs. At this time we continue to expect railroad maintenance in 2006 to be less disruptive to coal deliveries than it was last year. Consequently, we do not plan on implementing any coal conservation measures in 2006.

On the environmental front, we recently agreed to a settlement with the Illinois EPA related to the implementation of SO2, Knox, and Mercury regulations in the state. This settlement while reducing emissions more than the Federal Clean Air Interstate Rule and Clean Air Mercury Rule, limits the Illinois EPA from requiring further emissions reductions if St. Louis and Chicago continue to be non-attainment zones. Importantly, this settlement gives us a great deal of flexibility in meeting these environmental requirements in the future while providing us the opportunity to maintain the operations at our Illinois coal plants. We believe this settlement is a constructive solution to addressing the need to reduce emissions, while at the same time proceeding in a more measured fashion compared to the rules originally proposed by the Illinois EPA. The Illinois settlement will result in an estimated $600 million of incremental expenditures being incurred through 2016. The majority of these expenditures would have been incurred through 2018 or will replace expected operating expenses during this period. As a result of this settlement, we now expect expenditures to comply with the clean air interstate rule and the clean air mercury rule to result in capital costs ranging from $2.7 billion to $3.4 billion over the next 11 years. It's important to remember that based on the current estimates, we believe about 50% of these costs would be recoverable through regulated rates in Missouri.

Moving to regulatory matters,in early July, we filed requests for increases in base rates for electric and gas service with the Missouri Public Service Commission. If approved, it would mark the first electric rate increase for AmerenUE in almost 20 years. The Company's electric filing includes a proposed average increase on electric rates of 17.7% or $361 million. The Company is also proposing to limit the increase on residential electric rates in Missouri to 10%, allocating the revenue amounts above that level to other customer classes. The primary drivers of the requested electric increase were significant investments in critical energy infrastructure as well as significantly higher operating costs. Our filing includes a requested return on equity of 12% and a rate base of approximately $5.8 billion, with a capital structure including about 52% of equity.

We've also requested fuel, purchased power, and environmental cost recovery mechanisms under the provisions of a Missouri state law enacted in 2005, and we have proposed a mechanism for sharing off-system sales margins with customers. In addition, we are also seeking an increase in our depreciation rates. Our proposal also includes a commitment to renewable energy, including the addition of 100 megawatts of renewable energy by 2010 and commitments to offer even more low income energy assistance and energy conservation programs. In addition, costs related to the December 2005 failure of the Taum Sauk pumped storage hydroelectric plant for the clean up of a nearby park, reimbursement of state costs and resolution of individuals' claims were excluded from the revenue increase request. In conjunction with the filing of our electric rate case in Missouri, Ameren UE, Ameren CIPS, and Ameren Energy Generating Company mutually agreed to terminate their dispatch agreement on December 31st, 2006. It's important to note that the electric rate increase filing we made in July reflects our estimated decrease in Ameren UE's revenue requirement resulting from increased interchange sales margins expected to result from the termination of the JDA. For further information regarding the termination of the JDA, you should refer to the 8-K filing we made on July 7th.

Ameren UE's natural gas rate filing includes a proposed $11 million increase on natural gas delivery rates. Since delivery rates account for only about one-third of customers' total natural gas bills, Ameren UE's proposed increase in delivery rates would result in an increase in total gas revenues of about 6.4%. We expect the decision from the Missouri Public Service Commission on both filings by June 2007.

On the Illinois side of the river, we are moving into a critical stage as the scheduled September 2006 power procurement auction approaches, the delivery service rate cases come to a close, and the fall legislative session begins in November. Constructive, forward-thinking solutions that consider the long-term impact on all stakeholders must be carefully considered. At Ameren, we remain committed to working with key stakeholders to develop a rate increase phase in plan, that will reduce the impact of expected rate increases on our Illinois residential customers. These increases would be due largely to higher power supply costs. As Moody's actions last week to downgrade the credit ratings of some of our utilities clearly highlight, any solution in Illinois must incorporate full and timely recovery of our costs and support solid investment grade credit ratings for our Illinois utilities. We are convinced that this path is the best -- in the best interest of our customers, investors, employees, and the State of Illinois.

Finally, on July 19th and again on July 21st, our service territory was hit by severe storms, which included several tornadoes. These storms were the most damaging in the Company's history and resulted in the loss of power to approximately 700,000 of our customers. We immediately dispatched crews from our four utilities to begin repairing the extensive damage in our Missouri and Illinois service territories and we requested assistance from neighboring utilities. Through the dedication of a force of 5,200, including our employees, contractors, and utility workers from 13 states, we restored service to all of our customers within nine days. While the full financial impact of these storms has not yet been determined, we have incurred unanticipated costs and the loss of electric margins as a result of these devastating storms. At this point, I'll now turn to Warner to discuss in more detail certain regulatory matters, our second quarter earnings and our updated 2006 earnings guidance.

Thanks, Gary. Continuing on the regulatory front, as Gary stated earlier, we expect that Illinois customers will experience significant increases in their electric rates beginning in 2007 due to the exploration of both below market affiliate power supply contracts and the rate freeze at the end of 2006. Of course, the amount of the increase will depend on the outcomes for CIPS’, CILCO’s and IP’s electric delivery services rate cases and power supply costs that result from the proposed Illinois power procurement auction among other things. As we have stated before, we are focused on lessening the impact of rate increases of our residential customers through a rate increase phase-in plan. In June, we filed a proposal with the Illinois Commerce Commission for a rate increase phase-in and revenue securitization plan for residential customers to mitigate the impact of these potential increases. Our proposal was similar to the securitization legislation that was introduced in the spring session. The securitization plan would allow special purpose vehicles to issue debt securities. Proceeds would be used to pay the utilities for the power costs not recovered from customers during a phase-in deferral period, 2007 and 2008. The specific level of deferral would be set after we know the results from the power procurement auction and on delivery services cases. Legislation would still be needed for this plan to go into effect.

The Illinois Attorney General has opposed our proposed phase-in plan. In addition, the Illinois Attorney General filed a petition in June 2006 with the Supreme Court of Illinois seeking an expedited review of appeals filed by various parties with the ICC's January 2006 quarter that approved the Illinois power procurement auction. The Illinois Attorney General also requested a stay on implementation of the ICC's order. In addition, the Citizen's Utility Board made a similar filing. In their petition, the Illinois Attorney General raised similar arguments to those previously raised. The matter is still pending. In addition, certain parties in a Commonwealth Edison preceding petitioned the ICC to delay the auction from September to November. The administrative law judge dismissed their filing, and no further matters are currently pending in that regard.

Meanwhile, the delivery services rate cases filed in late December for our Illinois distribution utilities continue to progress. In our initial delivery services rate filings, we requested a total combined annual electric revenue increase of approximately $200 million. Our filings also included a two-year phase-in plan of this increase for residential customers of Ameren CILCO and AmerenIP with no deferral of uncollected revenues. In June of 2006, the ICC staff filed rebuttal testimony recommending increases in revenues for electric delivery services for the Ameren Illinois utilities aggregating $120 million. We estimate the Illinois Attorney General's rebuttal testimony would result in a revenue increase aggregating approximately $100 million. The principal differences between the parties relates to the recommended return on equity, which range from 8 to 10%, versus the Company's request of 11% and the disallowance of certain administrative and general expenses and rate pay citings among other things. Hearings in this case were held last week, a preliminary administrative law judge order should be issued in October and we expect a decision from the ICC in November.

I would like to now refer you our website as I provide a more detailed discussion of earnings for the second quarter and first six months of 2006. As Bruce mentioned earlier, to assist in our call this morning, we have made a slide presentation available on our website that reconciles our earnings per share for the second quarter and six months of 2005 to our earnings per share for the second quarter and first six months of 2006 on a comparable share basis. In addition, this presentation includes a slide that compares our updated 2006 earnings per share guidance to full-year 2005 earnings per share on a comparable share basis.

For the second quarter of 2006, we reported net income of $123 million, or $0.60 per share, compared to net income for the second quarter of 2005 of $185 million, or $0.93 per share. For the first six months of 2006, we reported net income of $193 million, or $0.94 per share, compared to net income in the first six months of 2005 of $306 million, or $1.55 per share. As Gary mentioned earlier, electric margins were lower during the quarter due to higher fuel and related transportation costs, lower power plant availability including an unplanned outage at our Callaway nuclear plant, costs associated with the Taum Sauk incident and milder weather. Electric margins, including interchange sales, were $0.10 per share lower during the second quarter compared to the year ago period. Higher fuel and related transportation costs reduced electric margins by an estimated $0.06 per share. For the quarter, our coal and transportation prices rose 14% consistent with our expectations. In addition, higher purchased power costs reduced electric margins by $0.11 per share due primarily to lower coal fired power plant availability and the expiration at the end of last year of a cost-based affiliate power supply contract from the Company's 80% owned unregulated generation subsidiary, Electric Energy Inc., or EEI.

These higher fuel and purchased power costs were offset, in part, by organic growth, which contributed an estimated $0.03 per share to second quarter earnings and higher interchange margins. Net interchange margins increased by an estimated $0.03 per share, primarily because of increased sales by EEI. EEI's interchange sales rose as a result of the December 31st, 2005 expiration of the cost-based long-term sales contract with our regulated affiliates for power. That power is now available for sale in the interchange markets. The benefit of the increased margins on EEI's interchange sales was largely offset by lower, non-EEI interchange sales margins, due principally to decreased plant availability and higher fuel and purchase power costs. Cooling degree days in the second quarter of 2006 were approximately 20% above normal but approximately 8% below the second quarter of 2005 according to the National Weather Service. As a result, weather sensitive residential electric megawatt hour sales in the second quarter of 2006 fell almost 4% and commercial electric sales decreased 1% below the prior year period. The effective weather is estimated to a reduce second quarter 2006 earnings by $0.04 per share versus the same period in 2005 but was favorable by $0.03 per share versus normal weather conditions.

Incremental costs of the December 2005 Taum Sauk plant incident negatively impacted second quarter 2006 earnings by $0.06 per share. As Gary mentioned earlier, there was an unplanned outage at our Callaway nuclear plant during the second quarter of 2006 and this reduced second quarter 2006 earnings by $0.07 per share. The costs of operating in the MISO Day 2 Energy Market were generally flat during the quarter and in line with our expectations. Since uncollectible accounts were lower than anticipated as a result of the milder winter weather, bad debt expense was reduced during the quarter favorably impacting earnings by $0.02 per share. Higher depreciation and amortization expenses reduced earnings by $0.02 per share in the second quarter of 2006 compared to the year ago period, primarily because of capital additions. Net dilution and financing costs reduced earning by $0.03 per share in the second quarter of 2006 for the same period a year ago. Dilution resulting from the issuance of 7.4 million of our common shares as a result of the settlement for the stock purchased obligations in our adjustable conversion equity secured units in May 2005 primarily drove the variance. Other items netted to a negative $0.02 per share during the second quarter.

As Gary mentioned, this morning, we also announced that we have lowered our expectations in 2006 non-GAAP earnings to a range between $2.75 and $3 per share from our previous guidance of $2.95 to $3.15 per share. Our current guidance excludes any impact of the July 2006 storms as we are not yet able to estimate that impact. Earnings per share guidance was reduced primarily because of reduced power plant availability in the second quarter of 2006, the incremental cost of the Taum Sauk incident, milder winter weather and lower than expected prices on interchange sales. While the first half of 2006 was challenging, we anticipate improved operating results in the second half of 2006. It is important to note that our Callaway nuclear plant had an extended schedule refueling outage last year in the third and fourth quarters that will not take place this year. The lack of a refueling outage is expected to benefit 2006 earnings by $0.17 per share compared to last year.

In addition, we expect fewer outages and improved operating performance from our coal fired plants in the second half of 2006 as compared to the second half of last year. In particular, you will recall that in 2005 we experienced unscheduled outages at certain of our coal fire plants during July and August, which resulted in higher fuel and purchased power costs last year. We also do not plan to employ any coal conservation strategies, similar to those that we employed in the second half of 2005 based on our current inventory levels and our expectation that railroad maintenance in 2006 will be less disruptive to coal deliveries than it was last year. These factors should improve electric margins and lower expenses on a comparative basis.

In addition, we expect to see lower MISO Day 2 costs in the second half of this year compared to 2005. You may recall that the MISO Day 2 Energy Markets began in earnest around June 1st last year and we experienced higher than expected costs due to the infancy of that marketplace and significant volatility in summer weather patterns. We believe that these factors will more than offset higher expected coal and related transportation costs and lower anticipated interchange prices in the second half of 2006. Ameren's guidance assumes normal weather for the rest of 2006, excludes any impact of the July 2006 storms, and is subject to, among other things, plant operations, energy market and economic conditions, unusual or otherwise unexpected gains or losses and other risks and uncertainties outlined in Ameren's forward-looking statements. This completes our prepared comments. We will now be happy to take your questions.

Thank you, sir. (OPERATOR INSTRUCTIONS) And the first question is from Andrew Levi with Bear Wagner. Please go ahead.

Wow, I never ask questions. Man, I'm the first guy. I guess everybody else is on vacation.

Morning, Andy, how are you doing?

Good. How are you guys doing?

I'm well, thanks.

Just wanted to get a quick comment obviously with the ComEd rate case as far as the distribution case not going. Having not turned out so well. And I know I think you guys have a distribution case going on in Illinois right about 40 million or something --

Hey, Andy, we're having a hard time hearing you.

I'm sorry. I'm sorry. I just say with the -- with the ComEd case, with the negative treatment that they got from the commission, if I'm not mistaken, you have a distribution case going on, as well. And I think it's about 40 million or something, but just if there's any difference between what they were asking for and what you were asking for and whether you see any different treatment, better treatment than how ComEd was treated.

Sure, Andy, this is Warner. Let me comment first, we -- we have three rate cases actually pending in Illinois and in total they -- they sum up to $200 million of our -- of our overall rate increase request. And to date, the staff has -- has recommended in the proposed increase of $120 million and -- and we estimate that the Attorney General based upon the rebuttal testimony that they filed as well is around 100 million in a proposed rate increase. And with regard to the Common Edison ruling and how we might fare, of course, we can't predict what the Illinois Commerce Commission would ultimately rule on, but -- but we would say that the results of the Commonwealth Edison case are not necessarily indicative of what may result in our case, because in particular there -- there were a couple of issues that were in the Commonwealth Edison case that we're aware of that were, I would say, meaningfully different from issues that we have in our case. One of those issues relates to a pension asset that they were seeking recovery of in their particular case. And they also had some issues associated with their cap structure related to some mergers and acquisitions that they've done in the past. Those issues are really not similar to the issues that we have in our case. We did have -- we do have some similar A&G types of issues in both of our cases. But -- but the issues that were raised haven't been fully reflected in the staff's rebuttal testimony in the numbers I just gave you a moment ago. So, while we can't predict ultimately the outcome of this case before the Illinois Commerce Commission, there are some meaningful differences between our two cases.

That's great, guys, I appreciate it. Have a good rest of your summer.

Thank you.

Thank you, our next question is from Phyllis Gray with Dwight Asset Management. Please go ahead.

Yes, good morning.

Good morning.

Is there an update to your 2006 cash flow guidance?

With regard to the 2006 cash flow guidance, we're not updating that in particular at this point in time. In part due to the impact on our cash flows that may result from the July 2006 storms, which Gary mentioned as part of our -- our -- our talking points a little bit earlier. As we get beyond that storm, we'll be able to update a little bit later this year what our expected cash flows to be for the -- for the rest of this year.

Okay, and could you, I think I might have missed the discussion of how you seek storm cost recovery.

Sure. You know, again, it'd be a bit premature to say just exactly how that would -- would ultimately work. But certainly, we're in -- we're in the process now of gathering all the costs related to our storm. That would both be internal and frankly quite a bit of external costs from neighboring utilities and contractors which assisted us in the cleanup efforts. With regard to regulatory treatment to the extent that -- that -- that we -- we have a storm, we don't exi -- we don't have a storm clause or a recovery mechanism in our -- in Missouri or certainly Illinois to recover that directly from customers. Having said that, we're -- we're in the middle of a rate case and this -- this -- this storm occurred principally in our Missouri service territory but also effected our Illinois customers, as well. Now we're in the middle of a rate case in Missouri where we might have an opportunity to recover certain of these storm-related costs. We haven't determined how we would do that, but certain of those costs may be capital related. And those may actually be recoverable in -- in the regulated framework. But again, it's premature to say specifically how that may work. We haven't made that assessment or certainly made any requests with the -- either the Missouri Public Service Commission or the Illinois Commerce Commission at this time.

And as the storm cost component of your revenue requirement, is that typically put in at some sort of multi-year average? Or is it the test year amount that -- that's put in when you make a rate request?

Typically when we do the rate request, it -- it's probably a combination of what we had in the test year, and it may be updated for certain items historically. We -- we typically do have some storms every year. But certainly to the extent that the one that we just experienced now, as Gary mentioned it was unprecedented in our history.

Sure.

So, there is some level of storm related recovery costs in our pending rate cases, but certainly would not be to the level that we would expect to incur in this one.

And could you say a little bit more about the -- the nuclear problem that you've had and what the warranty covers? Is it just the cost of repair? Or is there any lost revenue component to the rep -- to the warranty?

Phyllis, the nuclear problem was a problem with the high pressure steam turbine that we replaced during our last refueling outage. And what happened, cover plates that really are installed in the -- in the turbine as a safety device came loose and they were ingested by the turbine and did some damage to the turbine, and that -- that work was done under warranty as I said a while ago, and we will repair the turbine completely during the next refueling under -- under warranty, as well. As far as cost, Warner, I don't believe that we've disclosed the total cost. But a rule of thumb I use is every day of outage is about $1 million, and this was a 21-day outage.

I think just to expand on that, if you -- if you look in our -- in our second quarter guidance, you see the Callaway unplanned outage of $0.07 per share. That was principally due to higher purchase power or fuel and generating costs as this was under warranty, many of the operating costs were -- were going to be recovered under warranty, but not necessarily all of them. So it's a combination of all of those, but the impact for this 20 to 30-day outage, excuse me, this 20-day outage, excuse me, is reflected in that $0.07 per share that we talked about in the second quarter.

An then the permanent repair, can that be accomplished within the normal time of a refueling outage? Or will it extend the refueling outage?

It'll be done within the normal outage.

Thank you very much.

Thank you, our next question is from Scott Engstrom with Satellite Asset Management. Please go ahead.

Morning.

Good morning, Scott, how are you?

Good, thank you. Same old boring question, do you have net income by operating sub?

Scott, we missed you during the first quarter, we were wondering where the question was. So, we're ready for you. Let me -- let me give it to you for the -- the three months end of June 2006 by sub. For Union Electric their net income was $90 million for CIPS it is $15 million, for -- for GenCo, it was $2 million, for CILCORP it was $1 million, and for Illinois Power it was $16 million. And that approximates $123 million of operating net income.

Okay. So pretty much the weakness in the quarter was -- was basically all UE, then fair to say?

Yes, certainly with regard to operating results, UE's net income for the three months ended for this quarter were down about $40 million.

Okay.

Of course, GenCo also, their operating earnings are down. Last year they were 31 million to this quarter they're at $2 million.

Okay, if I was thinking about life in a -- in a fuel recovery clause world in Missouri, would that have been substantially different for UE's results this quarter?

Well, substantially sort of beauty in the eye of the beholder, but certainly we -- we are experiencing higher coal and related transportation costs and are reflecting that in our -- in our results this period. And in fact, this in 2006, that means we looked at 2007, the majority of those cost increases that we were talking about are coming in our regulated Missouri operations.

All right, great, thanks guys.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS) And the next question is from Gregg Orrill with Lehman Brothers. Please go ahead.

Hello, Greg.

Hi, how are you doing?

Well, and you?

Good. I was wondering if you could comment on the timing of the Illinois auction and whether you, you know, the confidence level that it will occur in September?

Well, you know, I think as we said, there was a petition put forth before the ICC to try and move that from September to November. The ALJ struck that down and to the best of our knowledge, there really isn't anything pending before the ICC. There's been sort of an another request made by parties for the ICC to take up another docket. But to date we haven't seen any action by the ICC. So, from our perspective, we're more -- we're moving full speed ahead in preparation for the September auction. A lot of people here, and I'm sure a lot of other suppliers, are working very hard in preparing for that. And that's where we're focused. How to gauge whether that may be moved from September to November it's just impossible to say. But we're laser focused and are prepared to move forward with the September auction.

Okay. Thank you.

Thank you, our next question is from Doug Fischer with A.G. Edwards. Please go ahead.

Good morning.

Good morning, Doug.

Good morning, Warner. Couple of questions. The damage to the turbine at Callaway, has that diminished the output capability materially, and will that be an issue until the next refueling?

Doug, this is Gary. No it did not reduce the -- the output, the turbine is still capable of full power. It is operating at somewhat reduced efficiency, which will mean we burn a little bit more nuclear fuel. But then the plant was shut down for 20 days so we're really burning fuel we didn't burn during that 20 days. So it essentially has no impact.

Okay. And then on another topic, can you shed any color on how quickly the Supreme Court typically acts on requests for stays such as the AG has asked for? Is the fact that we haven't gotten anything to date something we should consider a positive with regard to the auction, et cetera?

Sure. Doug, this is Warner. I don't know if there's really a rule of thumb in terms of how the Supreme Court addresses these particular stays. The Supreme Court isn't currently in session and they don't come back -- they're away from their summer session now and I don't believe they -- they come back until sometime late August early September. But of course that doesn't mean they couldn't act in the interim. I don't know if I would interpret it one way or the other, honestly. I think that -- so I -- whether it's positive or negative, we feel very strongly about the arguments we've continued to make in terms of the -- the legality of the auction, and so we -- we feel as -- because of that we're confident in terms of what may or ultimately happen there. But at the same time, we really can't predict how the Supreme Court -- whether they will even take action. They may not even take the case. We just can't predict that.

Okay, and when did they -- when did they go on -- begin their summer vacation recess? Do you know?

No, I don't know when they began it, Doug. I do know, it's my understanding that they come back right around the 1st of September. But again, it's my understanding, speaking with council that -- that doesn't necessarily preclude them from taking action here doing this recess.

Okay. Thank you.

Thank you, our next question is from Michael Lapides with Goldman Sachs. Please go ahead.

Hey, guys. If I -- I've kind of run through Warner's executive summary in the Union Electric rate case. And one of the things that confuses me, love some clarity on it. If I compare what the implied earnings are out of your request in the UE rate case versus let's say your '05 earnings at the UE rate case, what do you kind of view as the -- what's the incremental contribution to earnings if you were to get your requested results in this rate case?

Let me see if I can answer that in a couple different ways. Our requests for our rate -- and you talk about earnings, our -- our -- our request is 3 -- on the electric side $361 million and then 11 million on the gas side. One component of our rate case request is an increase in depreciation rates, which is about $80 million. So, that's obviously a cash flow item as opposed to an -- an -- an earnings item. But obviously very important that we -- that we have adequate cash flows for our investments there. That's probably the biggest difference that you might see. I think when you look back and you look back at the -- the regulated ROE, I think that we have imbedded in our case, I think it's somewhere around 8.5% or something like that when you do all the adjustments. Interestingly, when you look at our financial ROE here for the 12 months ended June of '06 for UE and you do so at the regulated piece of our financial ROE, that -- that is right around -- just right below 9% or right around 8.9%. Again, other factors, Michael, that you would have to look at that are reflected certainly in our -- in our current case compared to say 2005 earnings, we are also seeking to recover meaningful increases in coal and related transportation costs because we've reflected those increases for those incu -- due costs effective 1/1/07. Those are significant increases from '05 to '07. So those issues coupled with the infrastructure investments that we've continued to make post '05, which would include the CTs that we just concluded on in March. Those are all part of those numbers. A lot of moving parts, but -- but that gives you some color perhaps that might help you in your analysis.

Okay, thanks, guys.

Sure.

Thank you. Our next question is from Ted Hine with Citigroup. Please go ahead.

Good morning.

Good morning.

Had a quick question on your guys -- your earnings -- earnings guidance walk and how it's changed relative to the last -- when you put out in the first quarter. Just on the employee benefits bad debt expense, looks like those have been revised upwards about $0.05 and $0.03, respectively. And also the -- the other net on the top end could be $0.03 better. Could you just maybe give a little color on what you're changing views on -- on those kind of line items are for the rest of the year?

I think simply with employee benefits it's just generally in terms of experience and claims that we're seeing more favorable experience here during the first half of this year compared to what we originally expected. And so, we -- that's always a tough one, and we have pensions and OPEBs and those types of things are reflected in there. And they, of course, they reflect changing assumptions throughout there. I wouldn't say assumptions, but experience too. and we update those throughout the year. So, that's probably what's driving part of the employee benefit line item. Frankly with the other net, I'll look to Bruce, I think it's just the number of cats and dogs that -- that -- that really sort of get to that. I don't know if we have any specific color. There are probably a host of things -

Yes, nothing specifically.

Maybe, Bruce, if there's certain things that offline you can do that. But I think that there's -- there's nothing significant I would point to down there to change that guidance.

And bad debt.

Yes, certainly bad debts and we reflected that already. We -- we do believe our -- our bad debt experience will be more favorable than originally expected due to the milder weather we experienced in the first half of this year. And so as a result, we believe our bad debt expense will be a little bit lower than we originally expected. And that's reflected in our guidance. And we've discussed that a few moments ago.

Great. Thank you very much.

Sure.

Thank you. (OPERATOR INSTRUCTIONS) And gentlemen, there are no further questions at this time. Please continue with any closing remarks you may have.

Great, thank you. And thank you everyone for participating in this call. Let me remind you, again that this call is available through August 10th on playback and for one year on our website. The announcement carries instructions on listening to the playback. You can also call the contacts listed on our news release. Those on the call who are financial analysts, please call Bruce Steinke. For media issue call Tim Fox. Numbers for both are on the news release. Again, thanks for dialing in.

Thank you. Ladies and gentlemen, this concludes the Ameren Corporation second quarter 2006 earnings conference call. If you would like to listen to the replay of today's conference call, please dial 303-590-3000 or 800-405-2236 with access code 11065832 followed by the pound sign. Once again if you would like to listen to a replay of today's conference call, please dial 303-590-3000 or 800-405-2236 with access code 11065832 followed by the pound sign. You may now disconnect and thank you for using AT&T teleconferencing.