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Ameren Corporation (NYSE:AEE)

March 14, 2013 11:00 am ET

Executives

Douglas Fischer

Thomas R. Voss - Chairman, Chief Executive Officer and President

Martin J. Lyons - Chief Financial Officer and Executive Vice President

Analysts

Stephen Byrd - Morgan Stanley, Research Division

Paul Patterson - Glenrock Associates LLC

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Terry Shu

George Joachim Sebastian Schultze - Schultze Asset Management, LLC

Ashar Khan

Dan Jenkins

Joseph DeSapri - Morningstar Inc., Research Division

Tom Rebinoff

Jonathan Cohen - ISI Group Inc., Research Division

Operator

Good day, and welcome to Ameren's Business Strategy Update Conference Call. Please note that today's call is 30 minutes and will be recorded. It is now my pleasure to introduce your host, Doug Fischer, Senior Director of Investor Relations for Ameren Corporation. Thank you. Mr. Fischer, you may begin.

Douglas Fischer

Good morning, and thank you for joining us. We appreciate your attention on short notice. On today's call, we will discuss our agreement to divest our merchant generation business and our future business strategy. With me today are Tom Voss, our Chairman, President and Chief Executive Officer; Marty Lyons, our Executive Vice President and Chief Financial Officer; and other members of the Ameren management team.

First, I need to cover a few housekeeping items. This call is being broadcast live on the Internet, and the webcast will be available for 1 year at ameren.com. Also, the Investors Webcast and Presentation section of our website contains the presentation that will be referenced during this call.

Turning to Page 2 of the presentation, I need to inform you that comments made this -- during this conference call may contain statements that are commonly referred to as forward-looking statements. Such statements include those about future expectations, beliefs, plans, strategies, objectives, events, conditions and financial performance.

We caution you that various factors could cause actual results to differ materially from those anticipated and described in the forward-looking statements. For additional information concerning these factors, please read the Forward-looking Statement section in the news release we issued today and the Forward-looking Statements and Risk Factors section in our filings with the SEC.

Tom and Marty will provide comments on the transaction we announced this morning and our strategy for growing our rate-regulated utility businesses, then we will open the call for questions. I would now like to turn the call over to Tom, who will start on Page 3 of the presentation.

Thomas R. Voss

Thanks, Doug. Good morning, everyone, and thank you for joining us. As we announced this morning, we've reached a definitive agreement to divest our merchant generation business. The business will be acquired by Illinois Power Holdings, an affiliate of Dynegy Inc. Today marks a positive transition for Ameren and Ameren Energy Resources, or AER, our merchant generation subsidiary. As we mentioned on our February earnings call, Ameren no longer considers merchant generation to be a core component of our future business strategy.

The volatility of earnings and cash flows of the merchant generation business, as well as the uncertainty regarding future returns on incremental capital invested, are not in alignment with the value proposition associated with our rate-regulated businesses. The shift to an all rate-regulated business model will reduce Ameren Corporation's business risk and is expected to substantially improve the predictability of future earnings and cash flows. Cash flow predictability will help ensure that we meet our expectation of growing rate base at an estimated 7% compound annual growth rate over the next 5 years and our investor's expectation of a strong dividend.

As you know, we've been minimizing investment in AER and instead have directed our growth capital to our rate-regulated businesses, where we believe we can earn fair returns either today or with proposed enhancements to our regulatory frameworks. This transaction will allow Ameren to focus exclusively on our rate-regulated electric, natural gas and transmission businesses, clarifying our strategic direction and value proposition to investors. It will not impact the electric and natural gas utility service provided by Ameren's rate-regulated utility businesses, Ameren Illinois and Ameren Missouri. The agreement is the result of competitive negotiations. The total value benefits to Ameren associated with the divestiture are estimated at approximately $900 million, including the net present value of tax benefits. We anticipate that closing will occur in the fourth quarter of 2013.

Before handing the call over to Marty to address the transaction terms and further financial impacts, I would like to make a few comments about our merchant generation employees. This decision is in no way a reflection on the employees of AER. Our employees have done a tremendous job of operating our generating facility safely and efficiently and managing the organization to adapt to current and future market environments. Specifically, the AER team has proactively addressed the environmental and market challenges it has faced, and I'd like to thank the employees for their hard work and professionalism. Under the agreement, the buyer will honor collective bargain agreements for AER union employees and provide those AER management employees who continue to work for the buyer with competitive pay and benefits. With the new owner will come new opportunities for AER, and we will work to make the transition as smooth as possible.

With that, I will turn the call over to Marty.

Martin J. Lyons

Thanks, Tom, and good morning, everyone. On Slide 4, we provide an overview of the transaction terms. As Tom mentioned, we reached a definitive agreement to divest our merchant generation business to Illinois Power Holdings, an affiliate of Dynegy.

The merchant generation business consists of Ameren Energy Resources Company, including its subsidiaries: Ameren Energy Generating Company, or Genco; AmerenEnergy Resources Generating Company, or AERG; and Ameren Energy Marketing Company. Excluding 3 gas-fired energy centers to be retained by Ameren, Genco and AERG have approximately 4,350 megawatts of Illinois-based non-rate-regulated coal and natural gas-fired generation capacity, which is marketed by Ameren Energy Marketing. The transaction also includes Ameren Energy Marketing's load, service, supply contracts, energy hedging portfolio and Homefield Energy.

Key terms of the transaction are as follows. Total value benefits to Ameren are approximately $900 million. This includes the removal of $825 million principal amount of Genco senior notes from Ameren's consolidated balance sheet and an estimated $180 million net present value of tax benefits expected to be substantially realized in 2015. These benefits are partially offset by transaction-related costs and liabilities retained by Ameren. Genco's senior notes, with an aggregate principal amount of $825 million, will remain outstanding. Prior to entering into the divestiture agreement, the March 2012 Genco put option agreement was amended and the put option was exercised. As a result, an affiliate of Ameren, that is not a member of the divested group, will acquire 3 gas-fired energy centers, totaling 1,166 megawatts prior to completion of the divestiture transaction, subject to approval by the Federal Energy Regulatory Commission, or FERC. This Ameren affiliate will pay Genco the greater of $133 million or the appraised value of the assets. Should these assets be sold within 2 years from the closing of the transaction, the after tax proceeds realized in excess of the initial amount paid will be due to Genco. Ameren plans to put the 3 gas-fired energy centers up for sale as soon as reasonably practical.

In addition, Ameren Corporation will: retain certain AER pension and OPEB liabilities, which are estimated approximately $75 million pretax; provide guarantees and collateral support for existing AER power and coal contracts for up to 24 months, with the support secured by certain AER Energy centers and a $25 million Dynegy guarantee; and retain Genco's Meredosia and Hutsonville energy centers, which are no longer in operation and related obligations.

As Tom noted, we expect to close the divestiture transaction in the fourth quarter of 2013. The transaction is subject to FERC approval, Illinois Pollution Control Board approval of the transfer of the September 2012 variance AER received related to the Illinois Multi-Pollutant Standard and other customary conditions.

On Slide 5, we show the strategic rationale and key financial implications of the divestiture. The shift to an all rate-regulated business model will reduce Ameren Corporation's business risks and is expected to substantially improve the predictability of future earnings and cash flows. As a result of reduced volatility of earnings and cash flows, our credit profile is expected to improve. All of this supports our commitment to our dividend, a key value component for our shareholders.

As a result of the divestiture, AER is expected to be classified as held for sale and reported as discontinued operations in Ameren's consolidated financial statements beginning in the first quarter of 2013. Ameren also expects to record an after tax charge to earnings estimated to be in the range of $300 million to write down the carrying value of the divested business and expensed transaction costs.

Parent company interest and operations and maintenance expenses previously allocated to the merchant generation segment are expected to negatively impact earnings by approximately $0.10 per share in 2014 but will diminish over time. These costs include interest expense on existing Ameren Corporation long-term debt, namely $425 million of 8.875% Ameren Corporation senior notes, which are due in May of 2014. Based on prevailing market conditions, we anticipate that these notes can be refinanced in 2014 at a cost well below the current coupon. In addition, variable operating expenses historically allocated to the merchant segment are expected to be eliminated as quickly as possible.

I'll now hand the call back to Tom.

Thomas R. Voss

Thanks. As I stated earlier, we believe this transaction provides significant financial benefits to Ameren Corporation and its shareholders. As we turn our full attention to our regulated operations, we see exciting opportunities ahead.

As shown on Slide 6, and as we discussed in our February earnings call, Ameren plans to invest $8.1 billion over the 2013 through 2017 period in our rate-regulated infrastructure. We plan to allocate a growing and substantial portion of our investment dollars to utility businesses operating under constructive, formula-based regulatory frameworks. Nearly 30% of our planned 5-year $8.1 billion of regulated utility investment is slated for FERC-regulated transmission projects at Ameren Illinois and ATXI. Another 30% of planned investments for the 5-year period is for our Illinois electric and gas delivery services. We're also making meaningful ongoing investments in our Missouri utility operations, but these investments are expected to grow at a much slower rate than those in the FERC-regulated transmission and Illinois electric delivery businesses, reflecting limitations of the current Missouri regulatory framework.

Turning to Slide 7. We show that these aggregated regulated capital investment plans translate into expected rate base growth of approximately 7% annually from 2013 through 2017. With this growth most rapid in regulatory jurisdictions with constructive formula rate making, we believe we are on a path that will enhance our ability to earn fair returns on a growing level of utility investment.

Turning to Slide 8. Let me summarize. Divesting the merchant business clarifies Ameren's investment story. We consider this story attractive, giving our strong utility franchises, our commitment to earnings fair returns on our utility investments and our significant opportunities for strategic utility investments that enhance service to customers. We are managing our financial affairs in a proactive and disciplined manner. Our aggressive operating cost management efforts have significantly closed the gap between our earned and allowed returns. We have a solid liquidity position and have significant opportunities to invest in our rate-regulated businesses. We will continue to focus investment on those projects with the highest expected risk-adjusted returns. We believe all this adds up to attractive, long-term, total return potential for investors, including our current annualized dividend of $1.60 per share.

Thank you for your interest in Ameren, and we'll now take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Steve Byrd with Morgan Stanley.

Stephen Byrd - Morgan Stanley, Research Division

I wondered if you could talk about the timeline and mechanics of the put option exercise relative to the sale process for those assets, just so we can sort of think about timing and the process steps you need to go through for that.

Martin J. Lyons

Yes, sure, Stephen. The -- so the put option was exercised, and Ameren will then begin to market those assets. We expect that we'll begin the marketing of those assets as soon as practical, as we talked about on the call. We would expect that to do a full and comprehensive marketing of those gas-fired assets to generate the highest price. But we would expect that we would be able to get that marketing process done and be able to close on that by year end, subject to regulatory approvals.

Stephen Byrd - Morgan Stanley, Research Division

Okay. And just on that, the timeline for the appraisal of the put option and the determination of the price on the put, when does that occur?

Martin J. Lyons

Yes. So sure, let me resummarize what we talked about in the call. So Genco will receive a minimum of $133 million, which is based on recent appraisals of the assets. However, as we go through the marketing process, we will also -- the appraisals will be refreshed as part of the put option agreement. To the extent the appraisals come in higher than the $133 million, Genco would receive that increment, and, ultimately, we would market the assets and to get the highest value for them. The transaction, obviously -- and when I talked about regulatory approvals, it would be subject to FERC approval. But again, we would hope to be able to market those and get those closed by year end, but it would be subject to FERC approval.

Stephen Byrd - Morgan Stanley, Research Division

Okay. And if I could have just a follow-up on AERG. Those assets are unencumbered. Can you talk about the rationale for including all of the assets in this one transaction versus looking to sell the AERG assets separately?

Martin J. Lyons

Sure, Stephen. Look, there were various options for potentially exiting the business, which was our strategic imperative. And we considered all of those options and each option you look at has different aspects in terms of timing, risks, rewards, et cetera. Ultimately, we did run a competitive process relative to this transaction, and felt like this transaction now provided the best overall value to Ameren.

Operator

Our next question comes from Paul Patterson with Glenrock Associates.

Paul Patterson - Glenrock Associates LLC

I guess since you're discontinuing these operations and you guys gave guidance for the utility about $225 million and you sort of suggested about $0.10 sort of hit on a runway, why not sort of give guidance now? Or is -- how should we think about that? Do you follow me? It would seem to me that like the math would be pretty simple, but maybe I'm wrong.

Martin J. Lyons

Well, Paul, let me -- yes, let me expand on that, and certainly, we'll provide updates as we move through time. But this transaction has no impact on our rate-regulated operations as we discussed on the call. And so in terms of our guidance with respect to the rate-regulated operations for 2013, certainly, no change. As we work to move this to discontinued operations, from, I'll call it, a GAAP accounting standpoint, we will have some of the historic AER financial impacts and discontinued operations. But also when you go through that accounting, you'll end up with certain of the costs maybe previously allocated to AER that will stay in continuing operations. We thought it best then, Paul, to just go ahead and focus on 2014 and to highlight what we would expect to be the ongoing impact of the interest that's retained up at Ameren, as well as any kind of, I'll call them, stranded O&M costs, which were about $0.10. So we thought that might be the cleanest way to provide the guidance. I'm sure you and others have modeled what you expect to be the growth in our regulated earnings, and we thought we'd provide that -- what we expected in 2014 to be the remaining sort of costs.

Paul Patterson - Glenrock Associates LLC

Okay. With respect to the $900 million, just to make sure I understand this, it says total value. And it looks like there's a $75 million impact from pension and the OPEB and the $25 million Dynegy guarantee. I just want to make sure, is that $900 million a net number? And are there any environmental liabilities or anything that we should be thinking about that you guys are potentially on the hook for?

Martin J. Lyons

Yes. So let me -- Paul, the $900 million, what you're looking at there is the debt that moves off of our balance sheet at closing, which would be the $825 million, plus the tax benefits that we do expect to realize primarily in 2015, which is about $180 million on a present value basis, less cash that we will pay this year relative to the transaction. So that's what that $900 million is. Now I think in terms of other liabilities, we are assuming, as we talked about on the call, certain pension obligations of AER, which we estimate on a pretax basis today to be about $75 million. We also talked on the call about Meredosia and Hutsonville, that we are retaining those energy centers, which are both no longer in operation. They do have certain ash ponds. We estimate the pretax obligation associated with those to be about $15 million today. And so those are some of the liabilities that are being retained.

Paul Patterson - Glenrock Associates LLC

So the net number should be, I guess, $900 million minus these -- the $75 million, the $25 million and the $15 million that you mentioned. Anything else? I mean, just sort of what's the net number we should be thinking about?

Martin J. Lyons

Well, again, Paul, that $900 million is sort of the net number to be thinking about.

Paul Patterson - Glenrock Associates LLC

It is.

Martin J. Lyons

Yes, because you're talking about the $825 million, plus the $180 million of...

Paul Patterson - Glenrock Associates LLC

That's $1 billion.

Martin J. Lyons

Yes, less the liabilities.

Paul Patterson - Glenrock Associates LLC

Okay. That brings you -- so it is a net number, okay.

Operator

Our next question comes from Julien Smith with UBS.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

So first question on market power. I'd just be curious, have you guys thought about filing any mitigation plans, or how are you thinking about addressing those kind of concerns?

Martin J. Lyons

Yes, Julien. No, we feel actually good about the market power issues and don't feel like there are mitigation plans really required here.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Okay, got you. And then as it relates to -- as you were talking about the payments or what have you, it looks like Dynegy is saying there's a cash contribution of $60 million to AERG and Genco. So that's from Ameren parent, just to be clear. So -- and that's not in that $900 million that you just talked about, right?

Martin J. Lyons

Well, Julien, yes. Let's talk about that.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Sorry.

Martin J. Lyons

No, no, that's okay. With respect to the amounts that are going to be at Genco at closing, a portion of that comes from the put obligation or -- and AER overall, a portion of that comes from the put monies that are going to go into AER. Then, also, it would be money that was on the balance sheet of AER. They're left within AER. And lastly, any -- after that, any contributions that may be required from Ameren. Maybe to give you an idea, we've just went through some of the numbers. But I think as we look forward to the end of this year, on a pro forma basis, after this transaction, we would expect that there might be about $70 million of incremental short-term borrowings as a result of the transaction, which, as I said earlier in answer to Paul's question, we would expect to be more than offset by the cash tax benefits we would get, primarily in 2015. So that if -- as you look at it over the 3-year period, we expect this to be a cash flow accretive transaction for us. And the other thing I would say pro forma, again, for this transaction, we would expect our debt-to-equity ratio at year end to be right around 50-50, which is what we talked about in our February call. And again, I'm just I guess adding on, but expect this to be certainly accretive from a credit profile.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Great. So just to summarize, the cash contribution is really in some sense is kind of -- for the pro forma funding needs for this year. Is that kind of a good way to proxy that?

Martin J. Lyons

I'm not sure what you mean by pro forma funding needs. I guess I was trying to get at this how much cash is going to be there at AER at closing and trying to break down some of those components for you.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Okay. And then lastly here, just on the environment to just be clear. What is your expectation as it stands today on the beneficial reuse and disposal of coal ash, I suppose you guys have liabilities of above $30 million, if I understand it right?

Martin J. Lyons

Yes. And you mean in terms of the transaction, we would indemnify for costs associated with that. Look, we today -- we have historically used coal ash for beneficial purposes. However, there are no claims or -- asserted associated with any of those use of beneficial coal ash, and we have no liabilities on our books today accrued relative to that beneficial use.

Operator

Our next question comes from Terry Shu with Pioneer Investments.

Terry Shu

Now that you have put this behind you, going forward, I know in all of your presentations today, you talked about offering a very attractive dividend, but you have not talked about longer-term dividend growth. Now, again, you're a clean utility with good rate-base growth, as well as earnings growth prospects going forward, I would assume, at some point, you will readdress the dividend issue, having -- with Ameren shareholders, over the last many years, having suffered from the big cut and then only one increase since that time. Maybe you can talk broadly, Tom, about the dividend issue and Marty?

Thomas R. Voss

Terry. Thank you for your call. Yes, we think this puts us in a better position. And we've said all along that this management team was focused on growing the earnings of the rate -- of the regulated businesses, in growing the rate base, growing the earnings and, ultimately, growing the dividend. And we're still very much focused on that. We think this puts us in a better position than before, and we intend to take a look at that very seriously this year.

Terry Shu

Right, right. But I am right that much of the uncertainties are now behind you, so you can really start looking at, as you said, this year. So maybe towards the end of this year you'll be thinking about it, is that right?

Thomas R. Voss

We -- we'll be thinking about it all-year long.

Terry Shu

Right, right. Sorry, I didn't mean to mince words, but I just wanted to get a sense of the timing. Okay, Tom.

Operator

Our next question comes from George Schultze with Schultze.

George Joachim Sebastian Schultze - Schultze Asset Management, LLC

The question I have is, what is the current run rate of EBITDA for the assets you're divesting and selling off to Dynegy?

Martin J. Lyons

I wish I had that in front of me. I don't have sort of the EBITDA run rate. The other thing about sort of EBITDA run rate, one of the things about this business, as you know, is given the falling power prices that have occurred over the past few years and as hedges have rolled off, it's certainly difficult to pinpoint what a run rate is for EBITDA for the business.

George Joachim Sebastian Schultze - Schultze Asset Management, LLC

Okay. I was on Dynegy's call earlier today. And they were saying that this transaction will be accretive to them, and now you said it will be accretive to you on a cash flow basis. So who's right? And is it possible that it's accretive to both entities?

Martin J. Lyons

I certainly think it very well could be. It certainly is accretive to us on a cash flow basis, given what I've outlined in terms of cash costs of the transaction being more than offset by the cash tax benefit that we expect to realize primarily in 2015. But in terms of a transaction with Dynegy, they certainly have other generating assets around the country, but also in Illinois, and we would expect that, certainly, they could achieve meaningful synergies with respect to the platform that they have.

George Joachim Sebastian Schultze - Schultze Asset Management, LLC

Okay. And you said you can't -- you don't know what EBITDA is for the company that you're divesting. Could you give me a sense for what operating income is for the company you're divesting?

Martin J. Lyons

Let me see if we could pull that out. I think as you look at our guidance for this year, what we had provided in terms of our guidance was a merchant and other segment loss of about $0.15 per share is what we provided. And as I mentioned earlier, I think some of that has been due to the allocation of parent company interest, which is something that we would go ahead and retain going forward.

Operator

Our next question comes from Ashar Khan with YC [ph].

Ashar Khan

Could you just -- Tom, I forget, do you have a payout ratio target or no?

Martin J. Lyons

No, Ashar, this is Marty. Yes, what we have talked about on prior calls is about payout ratio of regulated earnings of about 55% to 70% as a target range over time. And based on the guidance we have for this year, we're right about that 70% payout.

Ashar Khan

Okay, okay. Okay, fair enough. And then can I just ask, Marty, how should we look at -- it seems like the cash flow benefit's accretive, credit accretive. But what should we look at going forward with this plan in terms of DRIP needs or going forward?

Martin J. Lyons

Well, I think one is -- Ashar, I think the important thing about this transaction is that it really improves the predictability of our earnings and cash flows over time as we move to a fully rate-regulated platform. When we think that, certainly, it improves the predictability then of our cash flows, their use for both investment in a rate-regulated operations, as well as supports the dividend. As I talked about on the call, we certainly expect the pro forma for this deal, our cap structure at year end would be right around 50-50, which is where we've been targeting. We have ambitious, as you know, capital expenditure plans going forward. To grow rate base is a real focus on FERC-rate-regulated transmission buildout. As we deploy that capital and build that rate base, we are going to target to keep those cap structures in alignment with that 50-50 goal we've talked about in our regulated utilities, 50% to 53% equity. And as I talked about on the call, while we have no plans to issue stock this year, as we move forward into 2014 and beyond, certainly, in order to keep those cap structures in alignment and build out that CapEx, certainly then issuing stock under the DRIP and 401(k) is something we're going to have to consider on a year-by-year basis.

Ashar Khan

And any indication on what that amount could be, like $40 million or $50 million or so?

Martin J. Lyons

Yes, historically, with the DRIP and 401(k), it was more on the order of $75 million to $100 million.

Operator

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

Dan Jenkins

Just expanding a little bit, you've talked about the pieces of the financing plan and how they might be affected. But I was wondering if you could give maybe a little more comprehensive -- you talked a little bit about some short-term debt and maybe refinancing some parent debt. But how does this transaction change your financing plan for, say, this year and next year?

Martin J. Lyons

Yes. Dan, fair question. It really doesn't impact our financing plan for this year. As you know, the negative free cash flow we expected to have this year is really being driven by the rate-regulated businesses and the expenditures and investments we're making there. On our year-end call, we talked about some of the potential financing plans for those rate-regulated utilities, which are certainly unaffected by this transaction. The incremental debt that I talked about this year at the parent company, as I said earlier, we expect to be more than offset by cash flows that we would get in 2014 and 2015. So that I don't think either really affects our financing plans for this year or next. With respect to next year, we do have the $425 million of parent company debt that matures in the May timeframe, and we'll be taking a look at our options with respect to that, whether to refinance that in whole or in part, given the cash flow outlook that we have post this transaction, as well as we think about our transmission invested -- investment buildout and how best to finance that transmission expansion going forward.

Dan Jenkins

Okay. And then the other thing I was curious, if you could give us a little more information on the 3 natural gas plants that you're going to be retaining and marketing, in terms of how often they run. I assume they're peaker units, some background, so we kind of get a sense for how marketable those plants are.

Martin J. Lyons

Sure. Well, I think -- and we've got the disclosures that are out there and available. They are the Elgin plant, which is a 460-megawatt peaking plant. It's important to note that, that Elgin plant is up near the Chicago area and is in the PJM market, and so it's important to know about that. There's also the Gibson City peaking facility, which is a 220-megawatt unit that is in MISO. And the last one is Grand Tower, and the Grand Tower plant is a 478 million -- 478-megawatt plant, also within MISO. And that last one, the Grand Tower, is a combined cycle plant, where the other 2 are peakers.

Operator

Our next question comes from Joe DeSapri with Morningstar.

Joseph DeSapri - Morningstar Inc., Research Division

I wanted to ask you what the -- your conviction level is around the Illinois Pollution Control Board approving the transfer of the variance to Dynegy and the expected timeline for receiving that approval. And furthermore, is there -- is this transaction predicated on successfully receiving that approval?

Martin J. Lyons

Sure, good question. Yes, the transfer of AER's variance from the Pollution Control Board is a condition of closing. That said, Dynegy is ready and willing to step into Ameren's and AER's commitments associated with that variance, and so we have really no reason to believe that, that variance won't be transferred. We will begin that -- Dynegy, I should say, is expected to begin that process within the next 45 days. And our experience with past variance requests is it's been up to maybe a 6-month process. And our experience, like I said, overall, we and Dynegy expect that the transaction would close, overall, by fourth quarter of this year.

Operator

Our next question comes from Tom Rebinoff with Fore Research.

Tom Rebinoff

I have 2 quick questions. I guess the first one, you talked about making a $60 million payment to Genco related to tax benefits. I'm guessing you would still be making that payments this year, given that the transaction would not close before the end of the year?

Martin J. Lyons

Yes. Genco -- I'm not sure about the reference to the $60 million. I don't think I referenced that earlier on the call. That said, yes, that we would expect that the Genco would continue to participate in the Ameren tax allocation agreement through close.

Tom Rebinoff

Yes. I think you had talked about that on the earnings call. And just to be clear, there is nothing unique about Genco and Ameren Corp. such that once Dynegy acquires Genco, they would not be able to use a similar structure if they wanted to, correct?

Martin J. Lyons

I can't speak for them and what structure they may or may not...

Tom Rebinoff

Right, okay. And I guess the other question, you mentioned that market power would not be an issue. I'm just kind of curious if you can just provide a little bit more color on that. I guess what the -- what exactly gives you comfort? Because it does seem like the combined portfolio will be pretty sizable and kind of in the same region, like I don't know if the regulators would look at Illinois on a stand-alone basis or if they kind of look at the broader MISO market. What is the right way for us to think about that?

Thomas R. Voss

Well, this is Tom Voss. So we -- I think you'd have to look at it as part of MISO now. And actually, Union Electric -- Ameren, I should say, has more assets than -- well, currently than Dynegy will have after this transaction's completed. And Ameren had more -- had -- was able to have market power. So -- or not have market power. So I just don't believe that this'll be a problem at all.

Operator

Our next question comes from Jon Cohen with ISI Group.

Jonathan Cohen - ISI Group Inc., Research Division

Just a couple of clarifications. So on the Dynegy call, they said that cash at the Ameren subs was expected to be $226 million at closing, which presumably includes the $133 million proceeds from the put option. So there's $93 million of cash that Ameren is sort of guaranteeing is going to be there upon closing. What is the cash balance now, and what do you expect the negative free cash flow through 2013 to be?

Martin J. Lyons

Sure, Jon. You're right, the $226 million is -- part of it is the $133 million from the put. You may recall on our year-end call that we talked about Genco having cash on hand of $25 million, plus it also had, in addition, advances to the money pool. So it has more than that $25 million of assets. So the money pool -- any money pool advances that Genco has, it will certainly get those in cash. So those are a couple of the components. And then as I said earlier, we would expect to be making some contribution to Genco as part of the closing for retained pensions and employee benefits at Genco. And so as I talked about earlier, we would expect that with respect to both those contributions, as well as transaction costs, that at year end, we'd have about an incremental $70 million of outstanding short-term debt.

Jonathan Cohen - ISI Group Inc., Research Division

Okay. And then on your Page 5, this $0.10 impact, that's basically the earnings of the regulated -- the opcos of the regulated utilities is going to be reduced by $0.10 for all of the parent expenses.

Martin J. Lyons

Yes. That's a -- Jon, I guess that's a way of looking at it, because that's exactly right. What that is, is in 2014, we would expect that at the Ameren parent level, the interest on the outstanding debt, as well as any, I'll call them, dis-synergies associated with stranded O&M costs add up to about $0.10. And as we say on the slide, we would expect that to diminish over time.

Jonathan Cohen - ISI Group Inc., Research Division

Okay. Are there any positive impacts? Because if I do the sort of after tax interest expense over your share count, I get to about $0.10 just on the parent interest.

Martin J. Lyons

Well I think -- no, a couple of things. Number one, we -- you got to look forward to what you expect the earnings of that merchant business to be going forward, as we talked about earlier this year. This year, it was expected to be a negative $0.15 impact on earnings. And so as we look at 2014, we actually see this transaction as being accretive to our expectations of earnings, excluding this transaction. In what we expect with respect to that $0.10 is that, that would diminish over time as we refinance the debt, which matures next year, at an expectation of a much lower rate. And then we would also reduce the -- and eliminate, as we talked about on year-end call, any kind of dis-synergies associated with the business. The other thing I'd mentioned then, too, is that that's before -- as we look at '14, that's before the benefits we get -- the cash benefits we get from taxes, which, again, that $180 million on a present value basis we actually begin to realize primarily in 2015. So that the benefits of that cash, again, which will reduce other financing needs, provides incremental benefit.

Jonathan Cohen - ISI Group Inc., Research Division

Okay. And then last question is, does Dynegy have any involvement in the sale process on the gas plants, since it seems like they kind of retain 100% of the economic impact of any uplift in value there? So do they -- can they advise on that sale process?

Martin J. Lyons

No, no. They will not be advising on the sale process. Ameren will retain those assets in the event that there isn't a sale. But it is our intention to sell those assets.

Jonathan Cohen - ISI Group Inc., Research Division

Okay. And if they are sold after 2 years, then Dynegy gets no benefit from that. Is that correct?

Martin J. Lyons

Then Genco would get no benefit from that. That said, we are planning to begin actively marketing those and, as I said before, would expect to close on that transaction by year end, subject to regulatory approvals.

Operator

There are no further questions at this time. I would like to turn the floor back over to Tom.

Thomas R. Voss

Thank you, all, for participating on the call today. I anticipate a bright future for Ameren Corporation. Operating regulated utilities has been our foundation for more than a century, and we will now be focused exclusively on that business.

Thanks again for your time today.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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