Business Context and Reporting Period
This Form 8-K is a current report filed by Ameren Corporation and its subsidiary, Union Electric Company (AmerenUE), on September 3, 2010. The filing details a regulatory event where AmerenUE submitted a request to the Missouri Public Service Commission (MoPSC) for an increase in annual electric service revenues.
Key Financial Metrics and Request Details
- Revenue Increase Request: Approximately $263 million in annual revenue.
- Rate Base: Aggregate electric rate base of $6.8 billion.
- Return on Equity (ROE): Requested at 10.9 percent.
- Capital Structure: Proposed at 50.9 percent equity.
- Test Year: Ended March 2010, with pro-forma adjustments through February 28, 2011.
- Specific Cost Components:
- Approximately $110 million for recovery of $600 million in costs for two scrubbers at the Sioux plant.
- Approximately $70 million for anticipated increases in normalized net fuel costs.
Material Changes and Regulatory Mechanisms
The filing represents a material change in the company's regulatory posture, seeking approval for new cost recovery mechanisms alongside the rate increase:
- Infrastructure Investment Tracking: A request to defer depreciation expenses for certain projects and record an allowance for funds used during construction, recoverable in future rate cases.
- Energy Efficiency Cost Recovery: A proposal to recover investments in energy efficiency programs over three years instead of six, including offsets for under-recovered fixed costs.
- Fuel and Purchased Power Cost Recovery (FAC): A request to continue the existing mechanism allowing periodic rate adjustments for 95 percent of changes in fuel and purchased power costs.
Outlook, Risks, and Management Commentary
The MoPSC proceeding is expected to last up to 11 months, with a decision required by August 2011. Management explicitly states that they cannot predict the level of any approved rate change, the effective date, or whether the eventual increase will be sufficient to recover costs and earn a reasonable return. The filing notes that the $70 million fuel cost increase would otherwise be reflected in rate adjustments under the existing FAC mechanism if this general rate proceeding were not initiated.
Investor Verification Checklist
- Verify the final decision and effective date of the MoPSC ruling expected by August 2011.
- Confirm the approved amount of the $263 million revenue increase request.
- Monitor the approval status of the new infrastructure investment tracking and energy efficiency cost recovery mechanisms.
- Assess the impact of the $600 million Sioux plant scrubber investment on future capital expenditures and cash flow.
- Review subsequent filings for any changes to the 10.9 percent ROE or 50.9 percent equity capital structure assumptions.