ameren MorganStanley_040108

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investing for our future. 1 Morgan Stanley Energy & Electricity Conference April 2008

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Transcript of ameren MorganStanley_040108

  • 1. Morgan Stanley Energy & Electricity Conference April 2008 investing for our future. 1

2. Warner Baxter Executive Vice President & Chief Financial Officer investing for our future.2 3. Cautionary Statements All forecasted numbers in this presentation are issued and effective as of January 17, 2008Regulation G Statement Ameren has presented certain information in this presentation on a diluted cents per share basis. These diluted per share amounts reflect certain factors that directly impact Amerens total earnings per share. The non-GAAP earnings per share and non-GAAP earnings per share guidance excludes one or more of the following: costs related to severe January 2007 storms, abnormal weather, the earnings impact of the settlement agreement among parties in Illinois for comprehensive electric rate relief and customer assistance, the reversal of accruals made in 2006 for low-income energy assistance and energy efficiency program funding commitments in Illinois and a March 2007 FERC order, which retroactively adjusted prior years regional transmission organization costs. Ameren believes this information is useful because it enables readers to better understand the impact of these factors on Amerens results of operations and earnings per share. In providing non-GAAP earnings guidance and a non-GAAP earnings growth forecast, there could be differences between non-GAAP earnings and earnings prepared in accordance with Generally Accepted Accounting Principles (GAAP) for unusual items, such as the 2007 Illinois electric settlement and the impact of abnormal weather. Except for the Illinois settlement, Ameren is not able to estimate the impact, if any, on future GAAP earnings of these items. Therefore, Ameren is not able to provide a corresponding GAAP equivalent for its earnings growth rate forecast.Forward-looking Statements Amerens consolidated and segment earnings guidance excludes one or more of the following: costs related to severe January 2007 storms, abnormal weather, the earnings impact of the settlement agreement among parties in Illinois for comprehensive electric rate relief and customer assistance, the reversal of accruals made in 2006 for low-income energy assistance and energy efficiency program funding commitments in Illinois and a March 2007 FERC order, which retroactively adjusted prior years regional transmission organization costs. Amerens earnings guidance assumes normal weather and is subject to, among other things, regulatory and legislative decisions, plant operations, energy market and economic conditions, severe storms, unusual or otherwise unexpected gains or losses and other risks and uncertainties outlined in Amerens Forward-looking Statements in its news release issued today and in the Forward- looking Statements and Risk Factors sections in its periodic filings with the Securities and Exchange Commission. investing for our future. 3 4. Ameren Introduction Regional electric and gas utility Missouri regulated generation, transmission and delivery businessCILCO Illinois regulated transmission and delivery businesses CIPS UE Non-rate-regulatedIP generation business NYSE-listed under AEE Market cap. ~ $9 billion Component of the S&P 500 investing for our future. 4 5. Investment Highlights Focused on the Basics - the generation of electricity, and the delivery of electricity and natural gas Strong EPS growth prospects Strong, sustainable dividend Current yield of ~6% Focused on future dividend growth Commitment to conservative financial management Attractive, risk-adjusted long-term total return potential Strong underlying value/straight-forward strategy to deliver shareholder valueinvesting for our future. 5 6. Amerens Business Plan Achieve operational excellence in allMeaningful aspects of our businessinvestment in serving Improve our customer service, customers satisfaction and image Demonstrate environmentalFair leadershipreturnHigh quality onservice Improve regulatory frameworks and investment returns Optimize non-rate-regulated High generation business customersatisfaction Maximize the value of our shareholders investment investing for our future. 6 7. Financial Outlook Near-term regulatory lag Rising cost environment (O&M and capital) Fuel Reliability projects Environmental projects Depreciation Finance costs No significant rate adjustments until late 2008 and early 2009 Significant longer-term earnings growth opportunities investing for our future. 7 8. Fuel CostsFuel Costs per MWh(a) Fuel costs expected to continue to increase Estimates include all fuel costs $23 $21 $19 (coal, nuclear, natural gas, $17 $15 $14diesel, emission allowances and transportation) 2008 20092010 Regulated costs are assumed toEstimated Costs Hedged be recoverable through a cost recovery mechanism beginning in 2009 94% 98% 86%72% 54% 16%2008 20092010 (a) Includes contracted and estimated cost increase Regulated MissouriNon-Rate-Regulated investing for our future. 8 9. Financial Outlook Near-term regulatory lag Rising cost environment (O&M and capital) Fuel Reliability projects Environmental projects Depreciation Finance costs No significant rate adjustments until late 2008 and early 2009 Significant longer-term earnings growth opportunities investing for our future. 9 10. Financial Outlook OpportunitiesRegulated Businesses Significant longer-term earnings growth Regulated rates reflecting more current costs Rate cases filed and to be filed Increasing rate base investment Earning fair returns in regulated operations investing for our future. 10 11. Current Regulated ReturnsSupport Earnings Growth Missouri Regulated Operations(a) 2007 non-GAAP ROE = 9% Estimated 2008 non-GAAP ROE = 7% Allowed return in last rate case was 10.2%. Every 1% equals approximately $50 million of revenues Illinois Regulated Operations(b)2007 non-GAAP ROE = 5%Estimated 2008 non-GAAP ROE = 5% Allowed return in last rate case was 10%. Every 1% equals approximately $27 million of revenues Based on actual and projected financial results excluding non-GAAP items (a)Based on actual and projected financial results excluding non-GAAP items and (b)impact of goodwill associated with CILCORP and Illinois Power acquisitions investing for our future. 11 12. Regulated Investment PlansSupport Earnings GrowthRate Base Growth($ in Millions) $9,000Missouri Rate Base $8,000 $7,000 Missouri(a) $6,000 Electric $5,744 $5,000Gas 218 $4,000Subtotal $5,962 $3,000 $2,000 $1,000 Illinois(b)$0 Distribution $2,120 20062007 2008 2009 2010 2011 2012 $4,500 Transmission245Illinois $4,000 Gas 928 $3,500 Subtotal $3,293 $3,000 $2,500 $2,000 TOTAL$9,255 $1,500 $1,000(a)At December 31, 2007$500(b)At December 31, 2006, $0as submitted in current rate case filings20062007 2008 2009 2010 2011 2012 investing for our future. 12 13. Illinois Rate Filings Illinois electric and gas delivery service rate cases filed November 2,2007 Decision by end of September 2008 Requested revenue increase of $247 million($180 million electric, $67 million gas) 11% ROE; 51% to 53% equity Requested rider rate-making mechanisms for electric infrastructureinvestment, gas decoupling and bad debt expenses ICC staff revenue increase recommendation of $48 million One step in a multi-step process 10.7% ROE recommended. Modifications to capital structure Recommended disallowances include certain A&G costs, plant additions,storm and post-test year reliability expenditures Rider mechanism recommendations investing for our future. 13 14. Missouri Rate Case Filing Expect to file next electric rate case in early Q2 2008 Rate case process in Missouri is typically an 11-month process, butcan be settled earlier Increase driven by higher costs and increased investment Expect to seek implementation of fuel cost recovery mechanismin this rate case Will not pursue environmental cost recovery mechanism in this ratecase Expect changes to recently adopted rules to be considered by MoPSC Gas infrastructure cost recovery mechanism currently in placeinvesting for our future. 14 15. Financial Outlook OpportunitiesNon-rate-regulated Generation Position non-rate-regulated business for earnings growth Improved plant performance Effective marketing, trading and hedging EPS contribution expected to be relatively flat through 2010 Expectations could change meaningfully depending upon futurepower, capacity and fuel prices Greater prospects for tightening power markets Ancillary and capacity market developmentinvesting for our future. 15 16. Non-rate-regulated GenerationPositioned for Earnings Growth Baseload GenerationBaseload Capacity and(Megawatthours)Availability Factors40,000 100%Net Capacity Factor Forecasted35,000Equivalent Availability Factor Actual 90%30,00025,000 80% 20,000 70%15,00010,000 60%5,000050% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20072008 2009 2010investing for our future. 16 17. Solid Market Fundamentals Generation hedging policy designed Hedged Power Salesto reduce risk, but allow for market(excludes capacity-only revenues)86%upside Target Energy prices 60%Ran ATC forward curve for 2008 to 2010 ge45%ranged from $48/MWh to $54/MWh $54at time of January 17, 2008 $52$50MWhMWhguidanceMWh Fundamentals support energy 20082009 2010prices strengtheningHedged Capacity Sales Expect continued development andtightening of MISO capacity market28% Targeting to sell ~75% 18%of capacity through 201037%10% 22% MISO prices are well below PJM 10%200820092010 Embedded in Full Requirements Contract Capacity Only investing for our future. 17 18. Financial Objectives Targeting 4% to 6% average non-GAAP EPS growth fromnormalized 2007 base to 2010 Driven primarily by regulated business growth Goal of ~$4 per share by 2011 and higher in 2012 Overall percentage of earnings contribution by regulated businesssegments forecasted to increase and approximate current annualdividend by the end of 2010 Focused on providing a strong, sustainable dividend Current yield of ~6% Cash flows do not support near-term change Focus on future dividend growth Targeting long-term total annual shareholder return of ~10%Bottom line: strong underlying value Straight-forward strategy to deliver valueinvesting for our future. 18 19. Long-Range EPS Expectations>$4.00~$3.70Non-GAAPNon-GAAP$3.34 $2.80 - $3.20 Weather-Normalized$3.24GAAP$2.98GAAP$2.68 - $3.082007 20082009 2010 2011 2012 GAAP Non-GAAPinvesting for our future. 19 20. Q&A investing for our future. 20 21. Appendix investing for our future. 21 22. Ameren Segmentsinvesting for our future.22 23. Missouri Regulated2007 Electric Revenue Mix 1.2 million electric and127,000 gas customers18% Diverse electric revenue mix44% 10,000 MW generation38% Low-cost 7,000 MW baseloadcoal-fired and nuclear fleetResidential CommercialIndustrial 24,000 square milesAverage Residential Electricity 2,900 miles of electricPrices (2006)0.1919transmission lines0.1717150.15 32,000 miles of electric130.13distribution lines110.11 3,300 employees90.09 San FranciscoNew York City 7 Los Angeles Residential rates approximately 40% 0.07 PhiladelphiaClevelandWash DCSt.Louis*HoustonChicago 5BostonSeattleAtlantaDetroit0.05DallasMiamibelow national average 30.03 Source: Bureau of Labor statistics Assumes UEs 2007 rate increase was in effect in 2006 investing for our future. 23 24. Ameren Illinois Utilities2007 Margin Mix Regulated transmission anddistribution company 29%Electric Owns no generationGas 71% 1.2 million electric and830,000 gas customers 44,000 square miles 4,490 miles of electric transmission lines 45,000 miles of electric distribution linesCILCO 17,900 miles of natural gas mains 2,300 employees CIPS Current bundled electric rates approximateIPnational averageinvesting for our future. 24 25. Non-Rate-Regulated Generation Operate power plants Edwards CTGs Three legal entities 745 MW1,140 MWCoal 1960 Gas 2000-01 Market power and HutsonvilleDuck Creek related products150 MW 330 MW Coal 1953Coal 1976 6,300 MW generation Low-cost 4,500 MW baseloadcoal-fired fleetCoffeen Meredosia900 MW445 MW 1,100 employeesCoal 1965 Coal/Oil 1948 Newton1,210 MWGrand Tower CTG Coal 1977510 MW Gas 2001Joppa 80% 1,000 MWCoal 1953investing for our future. 25 26. Earnings Guidance investing for our future. 26 27. Major 2008 AssumptionsMissouri Regulated Segment Electric rate case expected to be filed Q2-2008 No impact on 2008 earnings/regulatory lag Rising cost environment continues Labor, materials, etc. Fuel Depreciation and financing costs Increased investment in rate base and operating expenses toimprove reliability and environmental compliance Generation output of 51 million MWh (capacity factor ~83%) Callaway nuclear plant refueling in Fall 2008 (25-30 days) Normal weather and organic growth investing for our future. 27 28. Major 2008 AssumptionsIllinois Regulated Segment Electric and gas rate orders effective October 2008 Requested 11% ROE Bad debt expense, electric infrastructure investment and gas decoupling ratemechanisms approved Rising cost environment continues Labor, materials, etc. Depreciation and financing costs Increased investment in rate base and operating expenses to improvereliability Impact of Illinois electric settlement (5 cents per share) excluded fromguidance Normal weather and organic growthinvesting for our future. 28 29. Major 2008 AssumptionsNon-Rate-Regulated Generation Improved plant operations Generation output of 33 million MWh vs. 31 million MWh in 2007 Generation capacity factor of 79% vs. 74% in 2007 Hedged approximately 86% of output at December 31, 2007 Expected realized prices of $53.50/MWh vs. $54.50/MWh in 2007(including energy and capacity sales) Ancillary services market revenues of approximately $15 million(vs. ~$5 million in 2007) Capacity market revenues of approximately $40 million(vs. ~$25 million in 2007) Rising cost environment Labor, materials, etc. Fuel Depreciation and financing costs Impact of Illinois electric settlement (7 cents per share)excluded from guidance Illinois Monterey coal mine closureinvesting for our future. 29 30. Major 2008 AssumptionsCorporate No new equity issuances planned outside ofDRIP/401k plans (hybrids under consideration) Significant levels of debt financings No increase in dividendinvesting for our future. 30 31. 2008 Non-GAAP Earnings Guidance2007 GAAP Earnings per Share Guidance$2.982007 Severe storm-related costs 0.09IL electric rate relief settlement, net 0.21FERC order MISO charges 0.062007 Non-GAAP Earnings per Share Guidance$3.34Missouri 2007 rate case (margin and expense)0.09Other electric and gas margins0.69Weather (estimate) (0.10)Fuel prices(0.40)Callaway refueling and maintenance outage 0.06Plant operations and maintenance (0.19)Distribution system reliability(0.22)Other labor and employee benefits(0.06)Depreciation and amortization(0.03)Dilution and financing, net(0.06)Other taxes(0.05)Other, net (0.07)2008 Non-GAAP EPS Guidance Range $2.80 $3.20Illinois electric rate relief settlement(0.12)2008 GAAP EPS Guidance Range $2.68 $3.08investing for our future. 31 32. 2008 Non-GAAP Segment GuidanceContribution to Earnings per Share20072008 Missouri Regulated$1.47 $1.20 $1.30 Illinois Regulated 0.380.35 0.45 Non-Rate-Regulated Generation1.451.25 1.45 Other0.04 Non-GAAP EPS Guidance Range(a)$3.34 $2.80 $3.20(a) The 12 cents per share earnings impact of the settlement agreement among parties in Illinois for comprehensive electric rate relief and customer assistance are excluded from non-GAAP guidance. investing for our future. 32 33. Capital Expenditure Summary ($ in Millions)Capital Expenditures 65% to 70% of totalcapital expenditures in the$2,235regulated businesssegments Target Range: 735 Approximately 70% of $1,600 to $2,100 per yearnon-rate-regulated$1,395generation capital 400expenditures due to 425 Non-Rate-Regulated GenerationenvironmentalIllinois Regulatedcompliance310 Does not include anyMissouri Regulated1030potential expendituresOther/Corporaterelated to climate620legislation7040200720082009 20102011 2012 investing for our future. 33 34. Expected Cash Flow($ in Millions) 2008 Funds From Operations $1,340 Capital Expenditures(2,235) Dividends (530) EEI Dividends(30) Free Cash Flow ($1,455) Negative free cash flow for foreseeable future, an industry-widephenomenon Cash flow needs expected to be primarily financed with debt andproceeds from DRIP/401k plan issuancesinvesting for our future. 34 35. 2008 Illinois Electric Rate Redesign Illinois electric rateredesign will resultin quarterly changes 18in earnings pershare, but no annualchange2713Q1Q2 Q3Q4investing for our future. 35 36. Post-2008 Commentary Rising cost environment continues (e.g. labor, materials, fuel,depreciation, financing) Regulatory lag will persist, but will be less significant over time Rate cases Will be more frequent Proposed recovery mechanisms will be granted Granted fair ROEs No Callaway refueling in 2009 and 2012 New baseload plant decision for Missouri regulated operationswill need to be made Constructive regulatory framework will need to be in placeinvesting for our future. 36 37. Post-2008 Commentary Improved non-rate-regulated generation plant performance 2 million MWhs of below-market wholesale contracts at ~$33/MWhexpire in late 2008 Fundamentals point to more robust energy and capacity pricescompared to current forward curves No impact from climate legislation No new equity issuances currently planned through 2010, excludingDRIP/401k plans (hybrids under consideration) Focused on strong, sustainable dividend and growing dividend inthe futureinvesting for our future. 37 38. Illinois Settlementinvesting for our future.38 39. Illinois Electric Settlement Constructively resolved significant legislative, regulatory and legaluncertainties All major parties participated in settlement Provides stability to Illinois electric market and provides agreed path forpower procurement Significant disincentives for additional legislative action Rate relief programs would terminate Financial swap agreements could be terminated or renegotiated Strong legal position No prohibition on ability to file for delivery servicerate increasesinvesting for our future. 39 40. Illinois Electric Settlement Costs($ in Millions, Except Per Share Amounts)2007200820092010 Total Ameren Illinois Customers Benefit $231.6 $150.4 $100.5 $5.5 $488.0 Contributions of Ameren Companies Non-rate-regulated Generation48.224.915.81.089.9 Illinois Regulated 30.718.010.70.760.1 Total Funding $78.9 $42.9 $26.5 $1.7 $150.0 EPS impact$0.26 $0.12 $0.06 $0.01$0.45investing for our future. 40 41. Illinois Electric Settlement - SwapAmeren Illinois utilities entered into swap agreements with an affiliate to lock-in prices for a portion of power requirements from 2008 through 2012 at relevant market prices Period VolumePrice per MWh 6/1/08 to 12/31/08400 MW $47.45 1/1/09 to 05/31/09400 MW $49.47 6/1/09 to 12/31/09800 MW $49.47 1/1/10 to 5/31/10 800 MW $51.09 6/1/10 to 12/31/101,000 MW $51.09 1/1/11 to 12/31/111,000 MW $52.06 1/1/12 to 12/31/121,000 MW $53.08If any of the following events occur, negotiations may be undertaken so as to preserve the economic benefits of the swap agreements. If unable to negotiate a settlement, the swap agreements may be terminated in 60 to 90 days after the event occurs A state tax is enacted on electric generation A state or federal tax is enacted on or regulation is imposed on greenhousegas emissions A state law is enacted that eliminates retail electric supplier choice for residentialand small commercial customersinvesting for our future. 41 42. Power Procurement Procurement for June 2008 to New Illinois Power Agency (IPA)May 2009 is in progress. to procure power for Illinois utilitiesEnergy component completed beginning June 2009 Process based on acquiring20 standard market products Contracted Power Supply18 (e.g., 7x24 and 5x16 blocks16 of energy)MWh (in millions)14 RFP process with benchmarks12 Third party administrator hired108 by IPA6 ICC review and approval4 Results of IPA procurement2process deemed prudent0 20082009 2010 20112012Auction Financial Swap Contractsinvesting for our future. 42 43. Referencesinvesting for our future.43 44. Ameren CalendarIllinois Ameren rebuttal filed April 14, 2008 ICC Staff and intervenor rebuttal May 13, 2008 Ameren surrebuttalMay 27, 2008 Written prehearing motionsMay 29, 2008 Evidentiary hearingsJune 9-13, 2008 BriefsJuly 2008 Proposed delivery service order August 2008 (estimate) Final delivery service order issued September 2008Missouri File electric rate case Q2 2008Investor Relations Q1 2008 quiet periodBegins April 7, 2008 Q1 Earnings release May 2, 2008 (tentative) Q2 2008 quiet periodBegins July 7, 2008 Q3 2008 quiet periodBegins October 7, 2008investing for our future. 44 45. Major Regulatory Proceedings Illinois Web site www.icc.illinois.gov/e-docket Case # 07-0527 Interim procurement plan Case # 07-0585, 07-0586, 07-0587 Electric delivery services rate cases Case #07-0588, 07-0589, 07-0590 Gas delivery services rate cases Missouri Web site www.efis.psc.mo.gov/mpsc/DocketSheet.htmlinvesting for our future. 45 46. Investor Relations Contacts Bruce Steinke314-554-2574 Vice President & Controller [email protected] Manager Investor Relations Theresa Nistendirk 314-206-0693 Managing [email protected] Investor Relations investing for our future. 46