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Ameren Corporation (NYSE:AEE)

Q1 2009 Earnings Call

May 1, 2009; 10:00 am ET

Executives

Tom Voss - Chief Executive Officer

Marty Lyons - Senior Vice President and Chief Financial Officer

Jerre Birdsong - Vice President and Treasurer

Bruce Steinke - Vice President and Controller

Doug Fischer - Director of Investor Relations

Analysts

Paul Ridzon - Keybanc

Paul Patterson - Glenrock Associates

Daniele Seitz - Seitz Research

Reza Hatefi - Decade

Yiktat Fung - Zimmer Lucas Partners

Cary St-Louis - Sidoti

Steve Gambuzza - Longbow Capital

Gregg Orrill - Barclays Capital

Michael Lapides - Goldman Sachs

Phyllis Gray - Dwight Asset Management

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Ameren Corporation 2009 earnings conference call. At this time all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session and instructions will be given at that time (Operator Instructions) As a reminder this call is being recorded today, Friday, May 1, 2009.

Now I’ll turn the conference over to Mr. Doug Fischer, Director of Investor Relations

Doug Fischer

Thank you and good morning. I’m Doug Fischer, Director of Investor Relations for Ameren Corporation. On the call with me today is our President and Chief Executive Officer, Tom Voss; our Senior Vice President and Chief Financial Officer, Marty Lyons, our Vice President and Treasurer, Jerre Birdsong, our Vice President and Controller, Bruce Steinke and other members of the Ameren management team.

Before we begin, let me cover a few administrative details. This call will be available by telephone for one week to anyone who wishes to hear it by dialing a playback number. The announcement you received in our news release carry instructions on replaying the call by telephone. This call is also being broadcast live on the Internet and the webcast will be available for one year on our website www.ameren.com.

This call contains time sensitive data that is accurate only as of the date, of today’s live broadcast. Redistribution of this broadcast is prohibited. I also need to let you know that comments made on 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 and financial performance.

We caution you that various factors could cause actual results to differ materially from those anticipated in the forward-looking statements. For additional information concerning these factors, we ask you to read the forward-looking statements section in the news release we issued today and the forward-looking statements and risk factors sections in our periodic filings with the SEC.

To assist in our call this morning, we have posted presentation slides on our website that we will refer to during this call. To access this presentation, you may look in the investors’ section of our website under “presentations” and follow the links for the webcast. In March, Ameren’s Board of Directors announced several changes in Executive Management, all of which became effective today.

Tom Voss has succeeded Gary Rainwater as Ameren’s President and CEO. Gary remains at Ameren as Executive Chairman; Warner Baxter who was Executive Vice President and CFO has replaced Tom as AmerenUE President and CEO, and Marty Lyons who was Senior Vice President and Chief Accounting Officer is now Senior Vice President and Chief Financial Officer.

Tom brings 40 years of experience of the company to the position of President and Chief Executive Officer. Prior to serving as President and CEO of AmerenUE, Tom served as President of a generation segment that included all non-nuclear generation in addition to energy marketing, and fuels and transportation procurement. He also previously served as Senior Vice President over the design, construction, operation and maintenance of all gas and electric delivery systems and also of all customer care activities for Ameren utility companies.

Tom will begin this call with an overview of key first quarter 2009 activities and Marty will follow with a more detailed discussion of our first quarter 2009 financial results and updated 2009 earnings guidance. We will then open the call for questions. Here’s Tom.

Tom Voss

Thanks, Doug. Good morning and thank you for joining us. I am pleased to eager this morning as Doug indicated I’ve been working at this company in my entire career. It’s a great company with excellent people focused on providing customers with outstanding service and a safe reliable, efficient and environmentally responsible manner. I believe that by maintaining that focus we can deliver solid and long term shareholder value.

This morning we reported non-GAAP or core earnings per share of $0.54 in the first quarter of 2009, down from the $0.64 we earned in the same period in 2008. The decline in core earnings in the first quarter of 2009 versus the same period in 2008 was principally due to lower electric and gas sales, higher fuel and related transportation prices, the impact of a severe winter ice storm and the effect of gas rate redesign in the Illinois regulated utility segment.

These items more than offset the benefit to earnings of the new utility service rates in Illinois, effective October 1, 2008 and in Missouri, effective March 1, 2009 and other positive factors. Milder weather and the absence of a leap day in 2009 contributed to a 6% decline in kilowatthour sales to residential customers and a 2% decline in kilowatthour sales to commercial customers. Absent these factors, we estimate that first quarter residential and commercial kilowatthour sales each declined a more modest 1% versus the year ago period.

The weak economy significantly impacted industrial electric sales. They declined 13% from the year-ago quarter, excluding the impact of the operating capacity at AmerenUE’s largest customer and Noranda Aluminum, smelter plant in New Madrid, Missouri. This decline is certainly significant, but it is important to keep in mind that sales to industrial customers are only 16% of AmerenUE’s and always 6% of the Ameren Illinois Utilities made of load electric revenues in 2008.

Turning to full year 2009 expectations, we have updated our core earnings guidance range and now include the effects of the severe January winter ice storm. This includes an estimate of the related full year impact of the reduced electric margins, due to the loss of operating capacity at our customers Noranda Aluminum, which were excluded from our original guidance.

Our revised core earnings guidance for 2009 is $2.70 to $3.05 per shares, down from our prior range of $2.75 to $3.15 per share issued in mid-February. Marty will provide more details, on our updated earnings guidance in his remarks.

From an operational and regulatory perspective, there were several significant developments affecting our business in the first quarter of this year. On the plant operations front, AmerenUE’s equivalent availability for its coal-fired generating units was a solid 90% in the first quarter of 2009.

AmerenUE’s Callaway nuclear unit experienced a 12 day unplanned outage in late February. At our non-regulated generation operations equivalent availability for our coal-fired units was 81% for the quarter, compared to 85% in the same period a year ago. This decline reflects a planned outage to complete insulation of a multi-pollutant control system and major maintenance at the Duck Creek power plant.

The outage was very well managed, meeting our outage duration safety and cost coals. This planned outage as well as lower market prices for power and reduced generation at another of our plants due to MISO system transmission congestion issues drove year-over-year decline in generation. During the first quarter of 2009, our non-rate-regulated segment generated approximately 6.8 million megawatthours, down from the 8.2 million megawatthours produced in the year ago quarter.

That said though, we continue to believe we are on target to generate approximately 30 million megawatthours during 2009. While non-rate-regulated generation volumes were down in the quarter, our electric margin was only down slightly due to proactive forward sales of 2009 generation made in prior years at higher than current market prices.

Turning now to the energy delivery portion of our operations, in January 2009 our Southeast Missouri and Southern Illinois service territories were hit by a severe ice storm that caused devastating damage to our electric distribution systems. We poured substantial resources into the restoration of service, resulting in capital expenditures across our regulated utilities of approximately $75 million, as well as expenses were about $14 million.

The first quarter results are active on the regulatory and legislative front beyond the Missouri radar that we discussed with you on our February 17 call. As many of you indubitably know, AmerenUE has been investing in a nuclear combined construction and operating license application, and heavy forgings for a possible second nuclear unit at our Callaway site.

We have been doing this to preserve a nuclear option for meeting our customers future energy needs towards the end of the next decade. Last week, we suspended those efforts because proposed legislation that would have allowed utilities to recover financing cost from customers, while building a new plant had been stripped of the provisions we needed most to move forward.

AmerenUE will consider all available generation options to meet future customer requirements as part of an integrated resource plan that EU will file with the Missouri Public Service Commission by June 2010. In meantime, we are assessing all options to maximize the value of our investment in this project.

On a regulatory front in Missouri on April 22, the Public Service Commission approved the Environmental Cost Recovery Mechanism or ECRM rules. These rules provide utilities in Missouri like AmerenUE, the opportunity to request in the context of a rate case, the ability to adjust rates between rate cases for changes in cost to comply with environmental rules or laws.

We expect these rules to become effective in July and to request the use of them in our next Missouri rate case. In another regulatory matter, the Illinois Power Agency or IPA is administering the 2009 power procurement for the residential and small commercial customers of our Illinois electric delivery utilities. This is being done for the three year period from June 1, 2009, to May 31, 2012 through a request for proposal or RFP process.

The IPA has announced the winning bids for electric capacity and we’ll shortly be receiving bids for energy and renewable energy credits for Illinois Utilities. On April 15, the Illinois Commerce Commission approved and made public the average winning capacity bid prices. As a result of this capacity RFP, Ameren Energy marketing company contracted to supply capacity to the Ameren Illinois Utilities that will generate revenue of $21 million for the three years ending May 31, 2012. AmerenUE also contracted to sell capacity as part of this RFP. The energy bids are due May 5, and renewal energy credit bids are due May 18.

Moving now to our Non-rate-regulated Generation business and executing on our strategy of optimizing the assets in a segment, we are exploring the possible sale of three of our smaller Non-rate-regulated Generating assets. The coal-fire Meredosia and Hudsonville plants and the Green Tower combined cycle natural gas plan. We have only begun the marketing and bidding process and cannot predict the outcome.

Finally, I would like to update you on our request that the Illinois Pollution Control Board approved revisions to the Multi-Flute and Standard that impact our Non-rate-regulated Generating plants. In preparing this request, we work with the Illinois EPA to make the variance proposal environmentally neutral.

In April, 2009, the Illinois Pollution Control Board approved our requested revisions within a rule making dealing with Mercury Regulations. This rule making must now be reviewed and approved by the Illinois Joint Committee on Administrative Rules or JCAR a committee comprised of General Assembly members with equal representation from each Party.

This JCAR review is expected in the second quarter of 2009. This rule amendment will allow us to defer an estimated $300 million of environmental capital expenditures at our Non-rate-regulated operations from the 2011 timeframe to later periods. As I close my formal comments, I want to share you that I am focused on delivering solid long term value to our shareholders.

I believe the best way to deliver that value is the continued implementation of our strategy of prudently investing in our regulated businesses to meet our customers’ needs and expectations, achieving constructive regulatory frameworks in returns and optimizing our Non-rate-regulated Generating assets.

I will now turn it over to Marty, to walk you through our first quarter 2009 earnings and full-year 2009 earnings guidance.

Marty Lyons

Thanks, Tom. I’d now like to refer you to the slide presentation on our website that Doug mentioned as I provide a more detailed discussion of our first quarter 2009 earnings. Turning first to page three of our slide presentation, today we announced first quarter 2009 net income in accordance with Generally Accepted Accounting Principles of $141 million or $0.66 per share, compared to first quarter 2008 GAAP net income of $138 million or $0.66 per share.

Excluding certain items in each year, Ameren recorded first quarter 2009 core net income of $114 million or $0.54 per share compared with first quarter 2008 core net income of $134 million or $0.64 per share. There are two items in the first quarter of 2009 that we have excluded from our core earnings.

These items are the net costs associated with the Illinois comprehensive electric rate relief and customer assistance settlement agreement, which reached in 2007, which reduced first quarter 2009 GAAP earnings by $0.02 per share and net effects of mark to market activities which increased first quarter 2009 GAAP earnings by $0.14 per share.

Continuing with slide three of the presentation and focusing on the more significant items, Missouri electric rate increase which took effect March 1, 2009, raised first quarter 2009 earnings by $0.03 per share net of amortizations. The net increase in the Illinois electric and natural gas delivery rates effective October 1, 2008, boosted first quarter 2009 earnings by $0.12 per share. Effective seasonally redesign gas distribution rates in Illinois reduced earnings by $0.05 per share compared to the prior year period.

You may recall that in its 2008 rate order, the Illinois commerce commission approved an adjustment in the monthly charge for gas residential customers such that our Illinois utilities now recover 80% of fixed delivery service costs through the monthly charge versus the prior 53%. The remainder is recovered through volume based charges. The redesign gas distribution rates will result in a redistribution of earnings during 2009 and this is highlighted on slide four.

The redesign reduces the sensitivity of our Ameren Illinois utilities gas margins to volume metric changes and is expected to have no net impact on full year 2009 results, but the first quarter decline offset by higher earnings of $0.01 per share in the second quarter and $0.04 per share in the third quarter. Returning to slide three, we estimate milder weather reduced earnings by $0.03 per share compare to the year ago quarter and one by $0.01 per share versus normal.

Moving to the next line in our first quarter earnings reconciliation, the January 2009 severe ice storm in southeast Missouri resulted in lower sales to Noranda aluminum reducing earnings by $0.03 per share compared to the first quarter of 2008. We recall on January 28, a devastating ice storm knocked on service to Noranda aluminum, New Madrid Missouri smelter resulting in significant damage to their plant and the expectation of a prolong period of reduced electricity demand.

Noranda’s power outage was related to the failure of non-AmerenUE lines delivering power to the substations serving the plant. You will also recall that we previously we excluded the impacts of the storm including this impact on Noranda from our original 2009 guidance because we were unable to reasonably estimate the impact on earnings.

Other electric and gas margins for regulated utility operations excluding the impact of weather and loss Noranda sales decreased earnings by $0.17 per share in the first quarter of 2009 compared to the prior year period.

This decrease in margins for the regulated businesses was primarily a as a result of lower electric and gas sales volumes, which reduced earnings by $0.12 per share. As Tom mentioned earlier we experienced a significant decrease in sales to our industrial sector. It is important to note as Tom also discussed that the 2009 first quarter 13% decline in electric sales to industrial customers excluding Noranda only reduced industrial margins by $5 million as compared to the year ago period.

The balance of $0.17 per share decreased attributed to the other regulated electric and gas margin was due to higher net fuel costs prior to implementation of the FAC on March 1. These higher costs included the effect of the unplanned Callaway outage in the first quarter of 2009. Other electric margins from non-regulated operations rose modestly versus the prior year as a result of higher realized revenue per megawatt hour, partially offset by higher fuel and related transportation costs.

While the market price for power fell materially in the quarter, our non-regulated segment earnings were not materially impacted due to proactive forward physical and financial hedges of 2009 generation in prior years at higher than current market prices. Distribution system reliability costs were higher when compared to the 2008 quarter, reflecting the previously mentioned ice storm, which primarily impacted our Missouri regulated operations.

Cost for storms in our Illinois regulated operations, were actually lower compared to year ago quarter, because of significant storm activity in the 2008 period. Pension and employee benefits expenses, as well as depreciation and amortization expense and other taxes all varied modestly from the year ago quarter.

Dilution in financing cost reduced earnings by $0.04 per share compared to the year ago period reflecting the refinancing of long term debt and the issuance of additional long term debt to reduce short term debt and to enhance liquidity, both at higher rates. The $0.05 per share improvement in the other net line primarily reflects lower bad debt and decreased plant operations and maintenance expenses over year ago levels.

Before moving on to full year earnings guidance, I would like to note that in the first quarter of 2009 our CILCORP subsidiary recorded a non-cash impairment charge of $462 million. Ameren at the consolidated level was not required to reflect this impairment charge in its financial statements because of aggregation of its reporting units.

Moving on to our 2009 guidance on slide five; Tom mentioned that we have updated our core earnings guidance range for 2009 of $2.70 to $3.05 per share from our mid-February guidance range of $2.75 to $3.15 per share. The updated 2009 core earnings guidance now includes the effects of the January 2009 severe winter storm, including an estimate of the full year impact of reduced electric margins, due to the loss of operating capacity at the Noranda Aluminum smelter plant.

Prior earnings guidance had excluded these storm related impacts. The addition to incorporating the severe storm costs, including the impact on electric margins of the related Noranda outage, revised earnings guidance also incorporates the expected effects, lower sales to industrial customers and lower power prices, including capacity and ancillary services on a regulated and non-rate-regulated generation margins.

The updated earnings guidance also includes higher expected financing costs for renewed credit facilities. These negatives are offset in part by higher expected long term sales for resale. Our GAAP earnings guidance includes the estimated $0.07 per share negative impact of the Illinois comprehensive electric rate relief and customer assistance settlement agreement.

Any net unrealized mark-to-market activity will impact GAAP earning, but is excluded from our GAAP in core earnings guidance, because the company is unable to reasonably estimate the impact of any such gains or losses due to the volatility of markets. We expect our 2009 GAAP earnings to be in the range of $2.63 to $2.98 per share.

On slide six of our slide presentation, we have also updated our core earnings guidance by segment. We now expect the Missouri Regulated segment core earnings to be in the range of $1.15 to $1.25 per share down from the prior guidance of $1.25 to $1.35 per share. Earnings guidance for the Illinois Regulated segment is unchanged, while the lower end of the guidance range for non-rate-regulated generation has been increased by $0.05 per share.

Ameren’s earnings guidance for 2009 assumes normal weather and is subject to among other things, regulatory decisions and legislative actions, plant operations, energy and capital and credit market conditions, economic conditions, severe storms, unusual or otherwise unexpected gains or losses and other risks and uncertainties outlined and referred to you in the forward-looking statements section of the press release we issued today and the forward looking statements and risk factor sections in our periodic filings with the SEC.

Slide seven summarizes our solid available liquidity of approximately $1.7 billion at March 31, 2009. This consists of cash-on-hand as well as available borrowing capacity under our $2.15 billion of revolving credit facilities. As you know, we have taken aggressive and prudent actions to manage our available liquidity position since late last year, including significantly reducing our planned capital and operating expenditures in 2008 and 2009, as well as reducing our common dividend. These actions are designed to reduce the level of reliance on more costly external financing.

Moving on to slide eight, you will note that we have modest debt maturities over the next three years. As we look ahead in 2009, we will focus on $250 million of long term debt to be refinanced at Illinois Power Company as well as they are issuing $500 million at our non-rate-regulated generation subsidiaries and $425 million at Ameren Corporation.

Our plans may change depending on conditions in the capital markets in business and operational factors. We are also taking steps to extend or replace our $2.15 billion of credit facility that expire in 2010.

While we will be seeking full extension or replacement of our bank facilities on reasonable terms, we anticipate the possibility that we could reduce the amount of our facilities due to challenging credit markets and our expectations that the facilities will be more costly. Given this uncertainty, we plan to continue aggressively terming out our short term borrowings under such facilities.

To conclude, we remain committed to our straight forward long term business strategy of investing in our Missouri and Illinois regulated businesses in order to delivery safer liable and affordable energy to our customers. Tom and I look forward to meeting with many of you at the American Gas Association Financial Forum in Las Vegas, May 3 through May 5.

We will now be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions)Your first question comes from Paul Ridzon - Keybanc.

Paul Ridzon - Keybanc

Actually, the question has been answered in the commentary. Thank you.

Operator

Your next question comes from Paul Patterson - Glenrock Associates.

Paul Patterson - Glenrock Associates

The $0.06 of other, I’m sorry if I just had drop off a little bit. What caused that in the quarter?

Marty Lyons

Paul, could you repeat the question? You broke up a little bit.

Paul Patterson - Glenrock Associates

I’m sorry, the $0.06 for other net in the reconciliation between 2008 and 2009, for the first quarter?

Marty Lyons

Paul, you’re talking about the variance?

Paul Patterson - Glenrock Associates

Yes.

Marty Lyons

A big part of that was lower bad debt expense and some lower plant O&M.

Tom Voss

Paul, you may recall that last year that our bad debt expenses, particularly in our Illinois service territory were unusual high. So, we did see a bit of a decline versus last year sort of higher than normal levels.

Paul Patterson - Glenrock Associates

Okay. With respect to 2010 and beyond, last quarter I asked you guys about sort of the outlook there and at that time you guys sort of were indicating that maybe at the spring meeting, we’d get a little bit more flavor for hedging prices and what have you. I know we’re not going to have a spring meeting, but I was wondering if you could update a little bit in terms of how the hedging, I think you guys were about 60% for 2010.

Has that changed and can you give us a little bit more flavor on prices and what have you?

Marty Lyons

We did not end up, obviously scheduling a spring meeting and we are certainly going to be looking to, late in the year to potentially have another Analysts Day to provide more guidance. In terms of our hedging, not much changes. In terms of 2010, we’re still about 60% hedged on the power side, as we disclosed in our 10-K, those hedges that are about $51 per megawatthour.

As we look ahead, the Illinois procurement agency is going to have a RFP process here and certainly our non-rate-regulated generational look to participate in that process, certainly wouldn’t say at what price level or how many megawatts, but I think that will provide us more transparency into the prices going out into ‘10 and ‘11.

What they’re looking to procure there, the IPA is both on peak and off-peak energy for the periods June ‘09 through May ‘10 and then again for June ‘10 to May ‘11. So, that will provide us an opportunity for some price transparency.

Paul Patterson - Glenrock Associates

You said regarded to my, what you guys think about the capacity option and what the potential impact of that might be, if you have any commentary on that?

I guess it’s a recap here, other than what you guys provided from the 10-K there really haven’t been much of a change in terms of hedging activity. I assume that’s because the price and look all that attractive I guess right now, but that might change substantially when we depending where the auction results are, I guess for energy and what have you?

Can you give us a sort o flavor as to what you think it might come in at? Maybe you don’t want to, but whatever if you can just give us a little more sort of your outlook on the energy market and then the capacity--?

Marty Lyons

Yes, Paul I wouldn’t comment on what it might come in at. I think in terms of the capacity prices that they realized as part of the IPA process, as you know the balance of ‘09 prices came in around $30, but increased due in 2011 about $60 per megawatt day; and of course, those prices are a little bit softer, maybe more than a little bit softer than what we were seeing summer of last year, but they due start kind of low reflecting I think current soft pricing, but ramp up over the three year period.

In terms of power prices right now that we’re seeing around-the-clock when you look at the up pricing, which we often refer to. Pricing right now that you’re seeing for 2010 is in the low-to-mid 30s type of range and in 2011, getting more up into the high $30 is to $40 per range on around-the-clock. So, that’s what we’re seeing right now out there in the market. I would note that especially when you get out to 2011 and 2012 that the market is just not deep in terms of transactions in that time period.

Paul Patterson - Glenrock Associates

I know you don’t want to specifically comment on exactly what you expect out of the early, but it sounds like if you’re thinking that there’s an opportunity to hedge here in that auction that you expect that it maybe giving you a better price? Is that correct?

Tom Voss

I wasn’t saying that now again, I wouldn’t say again in this RFP process again, how much we might offer in or at what price. As you know, our hedge programs that we have in place, our risk management policies do provide us flexibility to either put hedges on when we look at prices and believe they’re good prices to transact at, or give us the flexibility to differ out on our hedging, I’ll share that.

In terms of 2009 of course, I’d remind you that we are 100% hedged for this year. We’ll be looking out into the future and making decisions about when we think it’s prudent to put hedges on for ‘10 and ‘11.

Operator

Your next question comes from Daniele Seitz - Seitz Research

Daniele Seitz - Seitz Research

I was wondering when do you anticipate to file in Missouri and how much of your environmental expenditures have not being rate based yet?

Marty Lyons

Danielle, this is Marty. In terms of the UE rate case, we have not still determined when we might file another rate case as we mentioned on our last call, that we would anticipate filing sometime before the end of 2009. Danielle, I am sorry at the top of my head, I don’t have the amount that we have invested in environmental construction work in process, that’s not yet being raised. I’m sorry.

Daniele Seitz - Seitz Research

The last rate case was based on what year, so just as a recourse so that I can--?

Marty Lyons

It would have been updated through sometime kind of last year, September of last year.

Operator

Your next question comes from Reza Hatefi - Decade.

Reza Hatefi - Decade

What is your current expectation for total generation in 2009 and 2010?

Marty Lyons

I suppose you’re speaking about the Non-rate-regulated generation? Despite the fact that our generation was lower in the first quarter as Tom mentioned in his talking points that, much of that was due to a planned outage. So as far as the year end estimates go, we still believe we’re on track to generate about 30 million megawatthours.

Reza Hatefi - Decade

I think if I’m not mistaken on your last call you expected a little higher in 2010. Is that still the expectation?

Marty Lyons

No, I wouldn’t at this point comment on expected 2010 generation levels.

Reza Hatefi - Decade

I think on the last call you had talked about potential debt financings at the unregulated segments, something like $500 million. Is that still the expectation at some point this year you’ll issue something like $500 million at the unregulated segment?

Marty Lyons

That is correct. Right now, we are looking $500 million at the non-regulated segment. Haven’t disclosed exactly which subsidiary we would be looking to issue that from.

Operator

Your next question comes from David Frank - Catapult.

David Frank - Catapult

I was just wondering if you guys could comment or may be update the guidance, longer term growth guidance you gave on the fourth quarter. I mean I know we’ve seen power markets obviously come in a lot. Are your still standing behind this at least 5% long term growth?

Marty Lyons

The 5% is a long term objective or target of ours, but certainly couldn’t comment given the state of the economy as well as the power prices that we’re facing, in terms of a near term growth.

David Frank - Catapult

I guess just on the financing, you guys have done some fairly costly debt financing recently and I’m sure if you improve your balance sheet that is likely to get better for future offerings I would think. Is this sale of the coal plants, is that going to be enough to you think improve or help you credit quality, help the cost of financings?

Do you envision potentially having to issue equity or what are your plans now as far as dealing with the cost of financing going forward?

Marty Lyons

I think, when you look at our overall plans, obviously you look at some of the actions we’ve taken this past year to enhance our financial strength and flexibility, both the capital reductions, the operating expense reductions, the reduction in our dividend, all of those things were done to enhance the financial flexibility and strength of the organization.

As we look ahead, and as we talked about in the last call, we don’t currently have plans for equity or hybrid equity issuances in 2009, but we do remain committed to having that strong balance sheet and financial flexibility and over time we are going to target having capital structures and our regulated business with 50$ to 55% equity, as a percentage of the total capital structure.

As you know, we’re going to be focused on having more frequent rate cases to try to close the gap between our earned ROE and our allowed ROE which we also believe will again help to strengthen our financial position and in our credit metric. So, as you look out, while we are working at taking a look at potentially selling these power plants, I would say that’s just, one element to sort of a broader plan for how to improve credit metrics.

Operator

Your next question comes from Yiktat Fung - Zimmer Lucas Partners.

Yiktat Fung - Zimmer Lucas Partners

My first question pertains to the Illinois power authority, RFP that’s coming up. I was wondering if the bidders in to this RFP just gets around the energy price or do they also get a low shipping premium on top of that?

Marty Lyons

I think what you recall is that when we went through the auction a couple years ago, it was more of a vertical slice of the system. It was more of a load following kind of a product. As part of the IPA process, what you actually bid on is more horizontal slices of requirements, so it’s more of a building blocks approach where people would be bidding on those elements that were required.

Yiktat Fung - Zimmer Lucas Partners

Then the IPA, I guess does the shaping --?

Marty Lyons

That’s correct.

Yiktat Fung - Zimmer Lucas Partners

In terms of these customer loads in Missouri and Illinois, can you kind of break down what the trends are for especial commercial and industrial in both states?

Marty Lyons

Sure. I’ll talk about that a little bit. On the call we mentioned that industrial sales were down about 13% and that holds true pretty much in both states, Missouri and Illinois. Missouri is down about 13%, and Illinois is down about 14% and we expect these kinds of weak demand conditions to exist really through the end of the third quarter and we’re looking to see some improvements hopefully in the fourth quarter of this year.

Overall, our assumption is that industrial could end up down as much as 10% at the end of the year versus prior year levels. I think, what you’ll see is that the comparisons in the early part of the year, this year to last year will look weak and as we get into the second half, we’ll see some improvement in those comparisons because of course in the second half of last year, we began to see weakness in the industrial sector and particularly in the fourth quarter, industrial demand dropped off.

That’s kind of what we’re looking at potentially happening in terms of the industrial load. When it comes to residential and commercial sales, we’re a bit more optimistic. We’re not seeing what we consider to be meaningful negative trends in those categories and so we expect residential and commercial sales to either be flat with the prior year potentially even up as much as a percent or so overall.

Yiktat Fung - Zimmer Lucas Partners

Would you mind giving us the impact of Noranda, on industrial load?

Tom Voss

Well, what we’ve actually we can broken out in our guidance.

Yiktat Fung - Zimmer Lucas Partners

Is the $0.10, you already broken out the earnings impact?

Tom Voss

Let me say, what we’ve done there, is what we’ve assumed there is that Noranda would sort of ratably ramp up their use of electricity between now and the end of the year. So, that’s an assumption that we’ve made and certain actual results could come out different, but that’s what mentioning that the assumption is baked into our estimate.

Yiktat Fung - Zimmer Lucas Partners

So, it’s likely that Noranda would comeback online by the beginning of next year?

Marty Lyons

I wouldn’t really comment on whether it’s likely or not. What we’ve done is, we’ve gone back and looked at their public disclosures and their public disclosures have indicated that it might be back on by the end of 2009, so we’ve just sort of assumed a ratable progression.

Yiktat Fung - Zimmer Lucas Partners

Could you just give us some color as to timing of when we’ll share about the generation asset sales?

Marty Lyons

I think that probably by late end of summer, we’d have something to announce on that.

Yiktat Fung - Zimmer Lucas Partners

Last question, with regards to the [Silk Corp] debt maturity in 2009, how will the company refinance that? Would that be at the parent or would that at Silk Corp?

Marty Lyons

That will be done at the Ameren parent level and that was included in the anticipated long term debt issuances that I spoke it about earlier.

Yiktat Fung - Zimmer Lucas Partners

Does the company still intend to tender for 2029 bonds at Silk Corp?

Marty Lyons

We are preserving that option at this time.

Operator

Your next question comes from [Cary St-Louis] - Sidoti.

Cary St-Louis – Sidoti

I wanted to kind of go back to Tom Voss’s comments regarding with respect to enhancing shareholder value. As a large bondholder, one thing that I have been concerned about is the -- I know you’ve taken steps to preserve liquidity, but clearly the company is in a challenging situation, especially with the bank line being up for renewal

I believe that Marty, you answered the question about the equity issuance. So, I was curious to hear Tom’s views on potential equity issuance, and also to hear what your view is regarding the sale of the coal assets.

From my perspective, it doesn’t seem like these coal assets are tremendously valuable.

So I can’t imagine that they’re going to raise a tremendous amount of capital, but maybe on I’m mistaken. So, could you talk to me about, what is the goal of the coal asset sale, is that for cash proceeds or is to reduce business risk or is that a combination of the two?

Tom Voss

I think, Marty outlined our position on equity issuance. The conditions we’ve taken so far we think for us in a strong position right now with cash as far as reducing the dividend and cutting back capital expenditures and things, so we don’t see a need for that this year.

Cary St-Louis – Sidoti

Well, could I ask you specifically with respect your investment grade rating? I mean you do have a below investment grade rating already as apparent. How much more credit deterioration are you willing to sacrifice?

Marty Lyons

This is Marty. I mean, as you know one of the targets we’ve had in terms of Ameren issuer rating is to have some of the BBB flat kind of ratings and we recognize that we’re not there right now, but that is a target of ours in something that overtime, we would seek to work towards.

Cary St-Louis – Sidoti

Okay, but what I guess what I’m saying is if there is more pressure on results and agencies get concerned, is equity issuance a tool that would be used to defend the investment grade rating or the current rating process?

Marty Lyons

Cary, I think that as we look ahead, we’re going to be looking at all portions of our business. Both the expenditures that we have, the capital expenditures that were required as well as our financings and working again towards that target in terms of credit ratings.

We’ve been looking at all aspects of our business with the operations in the financing side to manage towards that. Certainly, equity is a tool we’ve recognized that and as we’ve said in the past, one of our goals that we think aligns with our credit rating objectives is having strong balance sheets.

We’ve talked about the regulated business, as I did earlier overtime seeking to have that equity content as a percentage of total cap at 50% to 55%. Now the dividend reduction that we made does help to build the equity content of the balance sheet, but as we look at those capital expenditures to the extent we’ve going to go out and finance those capital expenditure, we are certainly going to do that with a blend of debt and equity financing and again, we’ll be looking that to target cap structures as I have indicated.

Cary St-Louis – Sidoti

With respect tot eh asset sales, so is it a cash driver or business risk reducer? What is the goal there?

Marty Lyons

I think it’s really a blend of both, Cary. I think what we’re looking to do overtime is to focus on growth of earnings coming from our regulated business. I think in terms of these plant assets, it certainly decreases a little bit, our Non-rate-regulated footprint. It would also provide us with cash as you indicate which would help to fund some of the investments we’re making in some of our other core Non-rate-regulated Generation assets.

Cary St-Louis – Sidoti

Could you give us a more specific update on the bank line renegotiation? It was notable yesterday that DTE Energy had made significant progress on their bank line renegotiation, which is highly commendable considering the situation in Detroit and I’m curious how far along your guys are?

Marty Lyons

Yes, sure Cary we’re encouraged by DTE’s announcement as well and we have been in discussions with our lead banks as well as other banks that are in our facilities or that might be our new lenders as we go to renew those credit facilities. We are actively in those discussions, seeking to renew the $2.15 billion of revolving credit facilities that we have today.

We’re frankly encouraged by the discussions we’re having. We’re optimistic that we’re going to be able to successfully renew the facilities, both in terms of amounts and in terms and conditions that are acceptable to us. So we’re optimistic, one of the things that we’re looking to do is to get into multi-year facilities, two year term type facilities and again we think we are optimistic that we’ll be able to get facilities that would be adequate for our needs.

Cary St-Louis – Sidoti

Do you think that this would be contemplated being regard in the second quarter?

Marty Lyons

Yes, I think so, Cary. Again we’re in discussions with the lead banks, but I would imagine by the end of the second quarter we should be there.

Cary St-Louis – Sidoti

Okay and then I am assuming that the financing would come after that?

Marty Lyons

Yes, I wouldn’t really comment on whether it would be before that or after that.

Operator

Your next question comes from Steve Gambuzza - Longbow Capital.

Steve Gambuzza - Longbow Capital

I think on the last call you mentioned that you’d be providing some updates on your coal prices for 2010 towards this time of year. I was wondering if you might be able to share that with us now, for the unregulated generation. You provide an estimate for the coal cost review in 2009, but not 2010.

Marty Lyons

Yes, Steve I don’t have that to share it here at this time. Sorry.

Steve Gambuzza - Longbow Capital

When do you think you will be in a position to share that?

Marty Lyons

I think that Steve, I don’t have a specific date. I think we’ll be taking a look at our overall thoughts about 2010 at some point coming out with guidance in terms of overall 2010 expectations.

Steve Gambuzza - Longbow Capital

Sorry if you have covered this earlier, but when do you expect to file distribution rate cases in Illinois?

Marty Lyons

We hadn’t covered that yet and consistent with what we said on our last call, we would expect to be doing that late here in the second quarter or early in the third quarter.

Steve Gambuzza - Longbow Capital

It seems that there’s quite a bit of debt financing that needs to take place this year still and given the huge window that’s opened up in the capital markets and the number of financings you need do, I guess I’m surprised that we haven’t seen any activity yet. Can you just talk about some of the things you’re evaluating and timing the financings?

Marty Lyons

Well, I think that notably we did issue debt at our union electric subsidiary in the first quarter and then of course right now we’re in a bit of a blackout period until we get our 10-Q filed, but as we look ahead to next quarter we both got the maturity at Illinois Power as well as maturity of a term loan at the Ameren Corp level.

Steve Gambuzza - Longbow Capital

I guess reflecting at some of the commentary in the previous discussion, do you expect the credit profile of the company to improve in 2010, absent equity issuance?

Marty Lyons

Again, we’re not really commenting. I think right now in terms of 2010 guidance in any way. Again, I’d go back to my earlier statement that overtime, we’re targeting those BBB flat kind of issue with credit ratings at Ameren Corpand we’ll be working to it.

Steve Gambuzza - Longbow Capital

Then finally, this Illinois power auction that’s going to happen. Would you anticipate filling out a piece of your 2010 and 2011 open position or how far out does the procurement extend, does it go beyond 2011?

Marty Lyons

Well, what it does is it’s for two MISO planning years, and so it does actually extend out to the first half of 2011, but again I wouldn’t comment again on either how many megawatt hours or at what price we’d offer in for those planning years.

Steve Gambuzza - Longbow Capital

So, but you have the opportunity to lock in some of your position for the first half of 2011, but not the second half of 2011?

Marty Lyons

That is correct.

Steve Gambuzza - Longbow Capital

Can you remind us what your open position for 2011 is?

Tom Voss

The major significant hedges we have out there Steven is the swap that we’re done as part of the settlements which was about 8.8 million megawatt hours.

Operator

Your next question comes from [John Cowan] - Citi.

John Cowan - Citi

I just had a question about your environmental spending in Illinois. Specifically, what was requested from the ICB and what is left to spend?

Tom Voss

John, you are breaking up, could you…

John Cowan - Citi

The request of ICB, what was approved and what is left to spend in order for you to comply with the combined pollutant standard in Illinois?

Tom Voss

John, repeat the question. I think you’re asking what’s -- something about the Illinois MPS

John Cowan - Citi

So, 300 is deferred. What is left to spend in order to be in compliance with the MPS?

Tom Voss

I guess I’d point you to the 10-K and then our 10-Q which will be filed in a week or so here, we’ll have the numbers related to our environmental expenditure. We have a separate table in both by legal entity. So those numbers are pretty current, they do include the amount that we, to the extent we’re successful. The variance were requesting that we be able to remove those numbers from those estimate, but the 10-K numbers, I would again refer you back to those and hopefully we’ll be able to take, as Marty mentioned 300 million out of that for the variance request.

Operator

Your next question comes from Gregg Orrill - Barclays Capital.

Gregg Orrill - Barclays Capital

In the event, the sale of the Illinois coal plant went well. Would it be in your strategy to continue to look at divesting out of unregulated generation? Or is that not really the approach here?

Tom Voss

Gregg, we wouldn’t generally comment on potential sales or purchases of assets. We wouldn’t answer that question.

Gregg Orrill - Barclays Capital

Okay. Related to those assets, how much was in your environmental CapEx budget that you could potentially be divesting?

Marty Lyons

I think the answer to that is it’s probably a minimal amount. I don’t have the numbers right in front of me, but I think it’s a minimal amount.

Operator

Your next question comes from Michael Lapides – Goldman Sachs

Michael Lapides – Goldman Sachs

What are you seeing in terms of coal to gas switching in the Midwest right now?

Tom Voss

In what respect, I’m not really sure you of the question. Right now gasses are at a very low level and it looks like it’s going to stay at a low level, so I certainly thin we’ll be on the margin more than has been in the past, but other than that all the commodities are dropping right now. So, I really couldn’t speculate how much switching there would be.

Michael Lapides – Goldman Sachs

I’m just curious whether you’re seeing reduced capacity factors out of your non-rate regulated coal plants.

Tom Voss

I think we are assume reduced capacity factors, I think the that’s due to a lot of, it’s not necessarily all due to gas switching. Some of it is just due to less loads that we are seeing on the system and generally people taking less units out for maintenance activities because of the economic conditions right now.

Operator

Your next question comes from Phyllis Gray – Dwight Asset Management

Phyllis Gray – Dwight Asset Management

The Noranda plant that has been down, do you know if the repairs have been made such that the plant could be online if they chose to ramp up?

Tom Voss

This is Tom. I guess it’s hard to comment exactly what they’re doing, but they are making repairs. We are seeing improvements in their load as time goes on incrementally month-by-month. How far they go and how quickly they go, we have no control over that we are just watching what they’re doing, but they are continuing to grow their load as we speak.

Phyllis Gray – Dwight Asset Management

So they are able to take power.

Tom Voss

They’ve been taking power through the whole process. It’s just that it’s been a reduced level and then they started ramping up from the reduced level incrementally, day-by-day, week-by-week.

Phyllis Gray – Dwight Asset Management

I had seen in the press that they had opposed that bill in Missouri and wondered if there was any economic connection between the delay and them starting back up again.

Tom Voss

It is correct, they have opposed that bill in Missouri, and they were very active in opposing it. Since really none one of the costs from that would have taken effect until way out in 2013 to 15 timeframes we don’t think it should have any relationship the current economic conditions, but otherwise the reasons for opposing it, you’d have to ask them, I really don’t know.

They’re lines by the way were made up of a lot of little pods they have three major lines and about a 100 pods in each line and one line wasn’t damaged and one line was partially damaged and one line was badly damaged. So that’s kind of how they’re moving things back.

Phyllis Gray – Dwight Asset Management

You mentioned during the prepared remarks, or someone mentioned during the prepared remarks about impairment. Could you expand on what that was non-cash impairment?

Bruce Steinke

We had an impairment of goodwill of $462 million and of course, that’s non-cash and typically the review process for that is an annual process, but at year end we indicated in our 10-K that the fair value of those was only nominally exceeding the carrying value.

So we continue to monitor a possible impairment triggers and in the first quarter we determined with falling stock prices and falling power prices that we needed to take another look at it. So CILCORP level we did determine that both CILCORP Illinois regulated and competitive generation segment goodwill was impaired.

We fully impaired that competitive generation segment and partially impaired the Illinois regulated segment.

Doug Fischer

I just want to thank everyone for participating in this call. Let me remind you again that this call is available through May 7 on playback if for one year on our website. The announcement carries instructions on listening to the playback.

You will also call the contacts listed on our news releases; financial analysts can call me Doug Fischer, Media should call Susan Gallagher. Our number are on the press release that we issued today.

Once again, I want to thank you and we look forward to seeing a number of you at the AGA financial forum. Thank you.

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.

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Source: Ameren Corporation Q1 2009 Earnings Call Transcript
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