Business Context and Reporting Period
This Form 8-K Current Report is filed by Ameren Corporation and its subsidiary Union Electric Company (Ameren Missouri) on July 13, 2011. The filing addresses a regulatory order issued by the Missouri Public Service Commission (MoPSC) regarding electric service rates and cost recovery for the Taum Sauk plant.
Key Financial Metrics and Regulatory Outcomes
- Revenue Increase: The MoPSC approved an increase in annual revenues for electric service of $172 million.
- Fuel Cost Adjustment: The revenue increase includes $52 million related to anticipated increases in normalized net fuel costs.
- Rate Base and Return: The order is based on a rate base of approximately $6.6 billion and a return on equity of 10.2% (down from the requested 10.7%).
- Material Impairment Charge: Ameren expects to record a pre-tax charge of $90 million in the third quarter of 2011.
- Cost Recovery: Full recovery was allowed for Sioux plant scrubbers and related property taxes for Sioux and Taum Sauk plants. However, recovery for Taum Sauk rebuilding enhancements exceeding insurance proceeds was disallowed.
Material Changes Versus Prior Period
The filing details a significant deviation from Ameren Missouri's original rate request filed in September 2010 and amended in April 2011. The company originally sought a $210 million annual revenue increase based on a 10.7% return on equity and a $6.7 billion rate base. The MoPSC order reduced the approved revenue increase to $172 million and lowered the authorized return on equity to 10.2%. Additionally, the disallowance of unrecovered Taum Sauk enhancement costs represents a material negative change, resulting in the anticipated $90 million impairment charge.
Guidance, Outlook, and Risks
Management Commentary and Outlook: Rate changes are expected to become effective on or before July 31, 2011. Ameren Missouri is evaluating the order and has not yet decided whether to seek a rehearing or appeal. The company notes that intervenor parties may also seek rehearing or appeal, and the outcome of such actions is unpredictable.
Risks and Contingencies: The filing highlights numerous forward-looking risks, including:
- Regulatory, judicial, or legislative actions affecting ratemaking and cost recovery.
- Uncertainty regarding the extent of Taum Sauk rebuild cost recovery not covered by insurance.
- Volatility in fuel costs (coal, natural gas, uranium) and power prices.
- Environmental regulations and renewable energy portfolio requirements.
- Operational risks related to nuclear facilities and system outages.
Important Facts for Investor Verification
- Verify the timing and magnitude of the $90 million pre-tax charge in the Q3 2011 financial statements.
- Monitor the effective date of the new rates (expected by July 31, 2011) and the implementation of the $172 million revenue increase.
- Track any announcements regarding Ameren Missouri's decision to appeal the MoPSC order or seek rehearing.
- Review the impact of the reduced return on equity (10.2%) on future earnings projections compared to the company's original 10.7% request.
- Assess the status of insurance claims and the final determination of unrecovered Taum Sauk costs.