阿莫林 (AEE) 2009 Q3 法說會逐字稿

Greetings and welcome to the Ameren third quarter conference call.

(Operator Instructions)

It is now my pleasure to introduce your host Doug Fischer Director of IR for Ameren. You may begin.

I'm Doug Fischer, Director of Investor Relations for Ameren Corporation. On the call with me today is our President and Chief Executive Officer, Tom Voss, our senior Vice President and Chief Financial Officer Marty Lyons, and other members of the management team. Before we begin let me cover a few administrative details. This call will be available by telephone for one week to anyone who wishes to hear it by dialing a play back number. The announcement you received in our news release contain 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.

To assist in our call this morning, we have posted presentation slides on our website that we will refer to during this call. To access this presentation,you may look in the Investor's section of our website under Presentations and follow the appropriate link. Turning to Slide 2 of our presentation, I need to let you know that comments made on this conference call may contain statements that is are commonly referred to as forward-looking statements. Such statements include those about future expectations, beliefs, plans, strategies, objective, events, conditions 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 statements section in the news release we issued today, and the forward-looking statements and risk factors section in our periodic filings with the SEC. Tom will begin this call with an overview of third quarter 2009 earnings and 2009 earnings guidance, followed by a brief business update. Marty will follow with a more detailed discussion of our third quarter 2009 financial results, our 2009 earnings guidance, and a financial update. We will then open the call for questions. Here's Tom.

Thanks, Doug. Good morning, and thank you for joining us. Moving to slide 3 of the presentation on our website, I am pleased to report that this morning we released third quarter 2009 non-GAAP or core earnings per share of $1.16. That is just $0.01 less than our core earnings in the third quarter of 2008, despite much cooler summer weather and the weak economy. Factors favorably effecting core third quarter 2009 earnings per share reverses year ago results, included utility rate adjustments in Illinois and Missouri, lower operations and maintenance expenses, and the revenue leveling effect of natural gas rate re-design in Illinois. Offsetting factors included lower electricity sales and a regulated utilities, and lower margins in the merchant generations segment, due to much cooler summer weather and economic conditions. Higher interest expense and increase in average common shares outstanding also impacted comparative results.

Turning now to slide 4, with our most significant earnings quarters behind us, we are narrowing our 2009 core earnings per share guidance range to $2.70 to $2.90, from our prior range of $2.70 to $3.05. Our new core guidance reflects reduced sales due to much cooler than normal third quarter weather, and continued weak economic conditions, as well as dilution from our September 2009 common equity offering. The impact of these factors is offset by reduced operating and interest expenses, as compared to our prior guidance. Marty will provide more details on third quarter earnings in our updated 2009 guidance in his remarks. But before I turn the call over to him, I would like to provide a brief business update.

Looking now at slide 5, you will note a break down of regulated electricity sales and revenue levels. This is a topic of great interest in the current economic environment. In the third quarter of 2009, at our regulated utility, much cooler summer weather and the economic slow down led to a 10% decrease in kilowatt hour sales to residential customers, and a 3% decrease in kilowatt hour sales to commercial customers, compared to the year ago quarter. These sales changes were more modest on a weather normalized basis, with residential sales declining an estimated 2%, and commercial sales declining an estimated 1%. Cooling degree days in the 2009 third quarter were 18% below the 2008 third quarter, and 23% below normal. The weak economy continued to effect the level of electric sales by our regulated utilities to industrial customers.

These sales declined 13% from the year ago quarter, excluding the impact of reduced demand from Ameren UE's largest customer, the Noranda Aluminum Inc. smelter plant in New Madrid, Missouri. You will recall that Noranda's plant sustained damage because of a power interruption on non-ameren owned power lines during a severe January 2009 ice storm. Including Noranda. electrical sales of regulated utilities to industrial customers declined 18% in the third quarter of 2009 as compared to the year ago quarter. We were pleased that Noranda announced they have recently initiated steps to return operations to full effective capacity. These steps including restarting the third of it's three production lines. We expect it will take some time for the third production line to be repaired and return to full capacity. The improved Noranda outlook is a good launching point for comments on our overall outlook for electricity sales at our regulated utilities for the balance of 2009 and 2010.

In Illinois, we are seeing signs of a potential recovery in industrial sales, including increased load associated with an oil refinery, a new ethanol plant which began operation the middle of this year, and several other projects expected in the future. We expect full-year 2009 electricity sales to industrial customers of our regulated utilities to be down approximately 11%, excluding Noranda. We currently think sales declines associated with industrial customers are slowing, and expect growth in 2010, though at a pace less than what is typical coming out of a recession. On a weather-normalized basis we expect full year 2009 sales to residential and commercial customers to be down approximately 1% to 2% as compared to 2008. In to 2010 we currently expect a resumption of growth in residential and commercial sales. This expectation assumes a moderate economic recovery.

On the plant operations front, our Ameren UE base load generating units posted strong third quarter 2009 equivalent availability of 94%, up from an also strong 92% in the same period in 2008. Our merchant generation base load fleet had solid equivalent availability of 85% for the 2009 third quarter. This was down from 89% in the year ago period, reflecting plant outages, including a September transformer fire at Newton Unit 2 that resulted in both Units 1 and 2 being out of service for a period of time. Due to the hard work of our plant personnel and availability of a spare transformer at our Coffene plant, both Newton units are back online. The outages however contributing to a reduction in our expected 2009 merchant generation output. We now estimate that output will be approximately 27 million megawatt hours, down from our prior estimate of 28 million megawatt hours.

On the regulatory front, we have rate cases pending in both our Illinois and Missouri jurisdiction. We are seeking revenue levels that reflect a significant investments we have made in electric and gas utility infrastructure to improve reliability, increases and costs essential to generating and delivering electricity, higher financing costs, and in Missouri rising net fuel costs. At our Ameren Illinois utilities, we originally requested a $226 million annual increase in electric and natural gas delivery rates. On October 23rd, we filed rebuttal testimony with the Illinois Commerce Commission updating our requests. On a comparable basis, our revised requests is for a revenue increase of $181 million annually. This includes a $162 million base rate increase request, and a $19 million related to 2009 and 2010 Illinois Commerce Commission, Reliability Audit Expenditures that we proposed be recovered via a rider. If approved, the rider it would recover post- 2010 Reliability Audit Expenditures as well. The change in the revenue request, primarily reflects updated cost of capital and expense numbers. Our requested returns on equity range from 10.8% to 11.7% versus a prior range of 11.25% to 12.25%. The Illinois Commerce Commission is expected to issue an order in time for new rates to be effective in early May 2010.

At Ameren UE, we have filed with the Missouri for an annual electric rate increase of $402 million. More than half of the request is for anticipated increases in normalized net fuel costs. These increased net fuel costs would have been eligible for recovery through the fuel adjustment clause, absence this filing. As part of it's overall request, Ameren UE has asked for interim rate relief of $37 million, subject to refund with interest. The amount of this interim request reflects the revenue requirement for rate base additions, made between October 2008 and May 2009. The commission recently established a schedule for considering an interim increase request , and a hearing is set for December 7th. In the overall rate case, new rates are expected to be effective in late June 2010. As we have previously stated, we are very aware that the prospect of higher utility rates is difficult for our customers in this tough economy.

We are very focused on controlling cost, to moderate our need for higher rates. Our entire management team is also keenly focused on laying a foundation on which we can build and deliver shareholder value in the years to come. In that regard we have taken several steps over the past months to position the Company for future success. In early August we communicated that on a regulated businesses we expect 2010 nonfuel operating and maintenance or O&M costs to be at a level close of that of 20608. Further at our regulated utilities, we identified and are carefully evaluating for possible elimination or deferral $1 billion of capital expenditures scheduled for the 2010 through 2013 period. In August, we stated that we expect merchant generation nonfuel O&M expenses will decline by 5% to 10% in 2010, as compared to the 2008 level. We also reported that we have eliminated approximately $1 billion in merchant generation capital expenditures from the 010 through 2013, as compared to prior plans.

In our merchant generation business, we have taken action to align both our staffing and generating fleet with the current market commodity environment. We have eliminated a total of 145 positions, including management, support and plant staffing. These alignment efforts include retiring the Meredosia 1 and 2 coal-fired generating units, which had a combined capacity of 105 megawatts, and limiting operation of the Grand Tower gas-fired combustion turbines to the profitable summer months. Meredosia 1 and 2 net generation was only about 255,00 megawatts in 2008, and only about 7,000 megawatts over the first nine months of 2009.

To achieve the operating cost targets we outlined in August, for both our regulated utility and merchant generation businesses, we initiated a voluntary employee separation program in September. And we will follow it with an involuntary separation program in early November across our organization. As I discussed we are seeking to recover increased costs in our regulated businesses to narrow the gap between our earned and allowed returns. I believe Ameren common shares provide investors with an attractive and sustainable dividend, supported by our rate regulated utility earnings. In addition, we expect our earnings per share to grow over the long term, as a result of narrowing the gap between our earned and allowed returns, investing in our regulated utilities, and benefiting from recovery and power prices from our merchant generation business. We are laying a solid foundation for future success. I will now turn the call over to Marty to walk you through the details of our third quarter 2009 earnings, review our narrowed full year 2009 earnings guidance, and provide a financial

Thank, Tom. Turning to Slide 6, I would like to direct you to the Q3 column, which reconciles third quarter 2008 earnings to third quarter 2009 earnings. Third quarter 2009 net income in accordance with Generally Accepted Accounting Principles was $227 million or $1.04 per share, compared to third quarter 2008 GAAP net income of $204 million or $0.97 per share. Excluding certain items in each year, Ameren recorded third quarter 2009 core net income of $255 million or $1.16 per share, compared with third quarter 2008 core net income of $246 million or $1.17 per share. There are three items in this third quarter of 2009 that we have excluded from our core earnings. These items are the net costs associated with the Illinois Comprehensive Electric Rate Relief and Customer Assistance Settlement Agreement reached in 2007, which reduced third quarter 2009 GAAP earnings by $0.02 per share.

The net effects of mark-to-market activities which decreased third quarter 2009 GAAP earnings by $0.04 per share, and the cost of employee separation programs, and the retirement of two generating units at the Meredosia power plant, which reduced third quarter 2009 GAAP earnings by $0.06 per share. Cost of the Illinois Electric Rate Relief Settlement Agreement and the net effects of mark-to-market were also excluded from core earnings in the year ago quarter. Continuing with the third quarter reconciliation on slide 6, the Missouri Electric Rate Increase which took effect March 1, 2009 raised third quarter 2009 earnings by $0.16 per share, net of amortization compared to the third quarter of 2008. The net increase in Illinois electric and natural gas delivery service rates effective October 1, 2008 boosted third quarter 2009 earnings by $0.14 per share, compared to the year ago quarter.

The effect of seasonally redesigned gas distribution rates in Illinois which we have discussed with you in previous quarters, increased earnings by $0.04 per share compared to the prior year period. The redesign which was effective October 1, 2008 reduces the sensitivity of our Ameren Illinois utilities gas margins to volumetric changes. It is expected to have no net impact on full-year 2009 results, with the first quarter 2009 earnings decline offset by higher earnings in the second and third quarters of 2009. We estimate cooler summer weather reduced earnings by $0.12 per share, compared to the year ago quarter, and by $0.16 compared to normal.

Moving on to the next line in our third quarters earnings reconciliation, reduced sales to Noranda Aluminum lowered third quarter 2009 earnings by $0.03 per share versus the year ago quarter. Other electric and gas margins for regulated utility operations excluding the impact of rate adjustments, weather and the lost Noranda sales, decreased earnings by $0.03 per share. Other electric margins for the merchant generation business decreased by $0.07 per share the third quarter of 2009. This decline was the result of weaker power prices, and higher fuel and related transportation prices. The next three lines on our reconciliation combined to reduce third quarter earnings by $0.02 per share, primarily reflecting higher depreciation and amortization as a result of net additions to plant. Financing costs and dilution reduced third quarter 2009 earnings by a combined $0.12 per share as compared to the third quarter of 2008. Of the $0.12, $0.08 of the reduction was due to higher financing costs, and $0.04 was the result of an increased average number of common shares outstanding.

Shifting now to the other taxes line on the reconciliation, higher property taxes reduced third quarter 2009 earnings per share by $0.02 versus the year ago period. Finally, the net impact of other items including lower bad debt expenses, and lower other operations and maintenance expenses, increased third quarter 2009 earnings per share by $0.06 per share as compared to the third quarter of 2008. Moving on to our 2009 earnings guidance reconciliation, on slide 7. As Tom stated, we are narrowing our 2009 core earnings guidance range to $2.70 to $2.90 from our prior range of $2.70 to $3.05 per share. Our new core earnings guidance reflects the effects of much cooler than normal third quarter weather, reduced sales expectations due to continued weak economic conditions, reduced merchant generation margins, and dilution from our September 2009 common equity offering. The impact of these factors is partially offset by reduced operating and interest expenses as compared to our prior guidance.

As we have said previously, the earnings guidance reconciliation line items are not meant to be pinpoint estimates of the noted earnings drivers. Instead actual results are expected to be in a range around these estimates. Our 2009 GAAP earnings guidance includes an estimated $0.07 per share negative impact of the Illinois Comprehensive Electric Rate Relief and Customer Assistance Settlement Agreement and an estimated $0.06 per share negative impact from the cost of employee separation programs, and generating unit retirements which were recorded in the third quarter. Any net unrealized mark-to-market gains or losses will affect GAAP earnings, but are excluded from 2009 GAAP and core earnings guidance, because the Company is unable to reasonably estimate the impact of any such gains or losses. We expect our 2009 GAAP earnings will be in the range of $2.57 to $2.77 per share, as compared to the prior range of $2.63 to $2.98.

Ameren's earnings guidance for 2009 assumes normal weather for the balance of the year, and is subject to among other things regulatory decisions and legislative action, plant operations, energy and capital and credit market conditions, economic conditions, severe storms, unusual or otherwise unexpected gains or losses, and other risks and uncertainties outlined or referred to in the forward-looking statements section of our press release. At Ameren we have demonstrated our commitment to maintaining and enhancing our financial strength, liquidity position and earnings with the a series of specific and proactive actions. A recent action on this front is the September public issue of common shares, raising net proceeds of $535 million. The entire proceeds from this equity issuance were invested in our regulated utilities in late September, with $436 million going into AmerenUE, $13 million into AmerenCIPS, $25 million going into AmerenCILCO and $61 million going into AmerenIP. These equity infusions support our credit metrics, rating objectives, and operational goals. The funds are expected to earn regulated returns as they are recognized in rates. As Tom stated, our management team is focused on narrowing the gap between our earned and allowed returns at our regulated utilities, and positioning our merchant generation business to weather current market conditions, and benefit from an expected, eventual recovery. We look forward to meeting with many of you at the EEI Financial conference in Florida next week. This completes our prepared remarks. We will now be happy to take your questions.

Thank you.

(Operator Instructions).

Our first question comes from Michael Lapides with Goldman Sachs. Please state your question.

Hey guys, can you talk about coming in in the fourth quarter, back in the year fourth quarter guidance, can you talk about the rate, how the rate redesign items impact fourth quarter of '09 versus fourth quarter of '08?

Sure, Michael. This is Marty. I think if you take a look at our year-to-date results, as well as the guidance that we have provided. And take a look at the balance of the year, I think you will find that as compared to last year's, say, core earnings we expect to be down about, about $0.10 versus the prior year core net. This is driven by positive impacts of the Missouri rate case which happened in March, as well as the lack of Callaway refueling outage, which is having a positive impact year-over-year in the fourth quarter, both in terms of O&M costs which are reduced, as well as on our net fuel costs.

You will recall last year we cannot have a fuel adjustment clause in Missouri which meant that when the Callaway plant went down, we had fewer megawatt hours to sell, and therefore higher fuel costs and less off system sales. This year what we will recognize in our cost of fuel, will be the net base fuel cost that is are reflected in the fuel adjustment clause we received earlier this year. So that is expected to have a net positive in the fourth quarter. We think this those positives will be offset by higher distribution system expenses, higher taxes in the fourth quarter, as well as lower merchant margins and higher financing costs including dilution. So that's sort of a summary of what were expecting in the fourth quarter versus last year.

Got it. Okay. And one thing, what are you seeing, and what kind of changes on the merchant side are you seeing, between basis differentials between your plants and kind of the MISO hub.

Sure, Michael. I think what we saw earlier this year was that we were seeing basis differentials that were sort of in the, I would say, in the 4% to 7% range between our generation and Cin hub. We saw sort of those trend higher in the summer, and then kind of drop off a little bit as we got into July and August. In September, they rose a bit again, and frankly as a result of that, we reflected a little higher basis differential in the forecast for the remainder of the year. But it really as you think about that, the basis differential only really impacts us in a bit of a limited way. Depending upon which of our plants you are looking at for example, our EEI Joppa plant, the basis differential there between there and synergy is lower than you would see, with our other generation. And then our other generation depending upon how it is hedged we may not see as much. For example if the hedge has a settlement at a node that is on top of our generation, then you are not going to see a basis differential. It is only if you have a hedge for that generation at that Cin hub. So I would keep that in mind, as you think about the basis differentials.

Got it. Okay. Thank you.

Our next question comes from Dan Jenkins with State of Wisconsin Investment Board. Please state your question.

Hi. Good morning.

Morning.

Just wondering have you gotten the staff positions yet on Illinois and Missouri cases?

We have received staff position on -- in Illinois, but staff position in the Missouri case is not due until December.

Okay. So what's -- in Illinois, what's their position and what are the primary drivers of the difference between your request and what they're recommending?

Yes. Sure. The staff position in Illinois came in at $45 million and there are a number of drivers to that. One of which is return on equity, where they recommended lower returns on equity. They have also normalized a number of expense items, and lowered those. As well as suggested that certain of the pro forma additions and costs that we recommended be included in rates, be excluded from the overall rate increase.

How much is due to the lower ROE?

The lower ROE versus, versus our rebuttal case is about $35 million of the overall difference.

Okay. I was curious on the, the voluntary and involuntary separations. How many positions are you looking for in total, and how much, how is that versus what you've are seen so far in the voluntary program?

Well, in terms of the voluntary program, that program has been completed. We offered it to over 300 employee, and we had about 100 employees accept that program. As Tom mentioned, we have also reduced positions in our merchant business between 140 and 150 positions. And as Tom mentioned in the early November time frame, we will be also implementing some involuntary reduction measures as well.

And what is the total amount you are looking to save through those programs?

We really, the target is really more about the involuntary, about making our organization better and more effective. And it will be probably somewhere between 50 and 100 reductions.

Okay. Thank you. That's all I have.

Thank you.

Ladies and gentlemen, there are no further questions at this time. I will turn the conference back to management for closing comments. Thank you.

Thank you for, this is Doug Fischer. Thank you for participating in this call. Let me remind you again, that this call will be available through November 6th on playback, and for one year on our website. The announcement carries instructions on listening to the playback. You may also call the contacts listed on our news release. financial analysts, inquiries should be directed to me, Doug Fischer. Media should contact Suzanne Gallagher. My number and Suzanne's contact numbers are on the news release. Again, thanks for your interest in Ameren.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.