Ameren Corp & Union Electric Company: 8-K Summary
Business Context and Reporting Period
This Form 8-K, dated May 28, 2010, reports a significant regulatory event for Ameren Corporation and its subsidiary, Union Electric Company (AmerenUE). The filing details the Missouri Public Service Commission's (MoPSC) order regarding AmerenUE's request to increase annual revenues for electric service.
Key Financial Metrics and Regulatory Outcome
The MoPSC approved an increase in AmerenUE's annual revenues for electric service of $226.3 million. This amount includes $118 million specifically allocated to cover higher fuel costs and lower revenues from sales outside the system. The approved rate increase is based on the following parameters:
- Return on Equity: 10.1% (down from the requested 10.8%).
- Capital Structure: 51.26% common equity.
- Rate Base: Approximately $6.0 billion.
The filing does not provide specific consolidated revenue, profit, cash flow, or debt figures for the reporting period, as this document focuses solely on the regulatory rate order.
Material Changes and Operational Adjustments
Compared to the original request filed in July 2009 (seeking $402 million) and the amended request in April 2010 (seeking $287 million), the approved increase of $226.3 million represents a reduction in the requested revenue recovery. Key operational changes approved include:
- Fuel Adjustment Clause (FAC): Continued use approved, allowing for three annual adjustments passing through 95% of fuel and purchased power cost changes.
- Depreciation: Increased annual depreciation rates approved due to the adoption of the life span depreciation methodology for non-nuclear power plants.
- Trackers: Vegetation management and infrastructure cost tracker approved; storm restoration cost tracker denied.
- Environmental Costs: AmerenUE agreed to withdraw its request for an environmental cost recovery mechanism in exchange for continuing to record an allowance for funds used during construction and deferring depreciation costs for pollution control equipment until January 2012 or when placed in rates.
- Noranda Aluminum Mechanism: A new mechanism approved to address lost revenues from operational issues at the Noranda Aluminum smelter, allowing AmerenUE to sell unused power and retain proceeds necessary to offset revenue losses, with excess refunded to customers.
Outlook, Risks, and Contingencies
Rate changes consistent with the order are expected to become effective on or before June 21, 2010, pending the filing and acceptance of conforming tariffs. AmerenUE is evaluating the order and has not yet decided whether to seek a rehearing or appeal. Similarly, the Missouri Office of Public Counsel and intervenor parties may seek rehearing or appeal.
The filing includes extensive forward-looking statements identifying risks that could cause actual results to differ from expectations, including:
- Regulatory or legislative actions limiting rate increases.
- Volatility in fuel costs (coal, natural gas, uranium) and purchased power.
- Impact of environmental regulations and greenhouse gas requirements.
- Operational risks related to nuclear facilities and the Taum Sauk pumped-storage hydroelectric plant.
- Capital market disruptions affecting liquidity and access to credit.
Investor Verification Checklist
- Verify the effective date of the new rates (expected by June 21, 2010) and the filing of conforming tariffs.
- Monitor for any announcements regarding AmerenUE's decision to seek a rehearing or appeal of the MoPSC order.
- Review subsequent filings for updates on the implementation of the Noranda Aluminum revenue protection mechanism.
- Track the impact of the approved depreciation rate changes on future earnings and cash flow.
- Assess the potential financial impact of the denied storm restoration cost tracker on future capital recovery.