Utility officials discuss second rate increase

Thursday, February 19, 2009

AmerenUE hasn't begun collecting the latest rate increase approved by Missouri regulators, but top officials at the company are already talking about needing more.

In a conference call with investment analysts Tuesday, top officials of Ameren Corp., AmerenUE's parent company, said rising operating and financing costs will force the move, but they could not say when the rate increase would be requested.

The Missouri Public Service Commission today is expected to dispose of the last items from Ameren's most recent rate increase. The commission's agenda includes a denial of Ameren's request for a revision of a complicated mechanism that gives ratepayers the benefit of profits from unregulated power sales and a request from Noranda Aluminum to reconsider the rate increase awarded Jan. 27.

On that day, the PSC voted 3-2 to allow AmerenUE to increase electric rates by 8.1 percent, adding $163 milion to the utility's revenue stream. Ameren sought the revision to what is known as the fuel adjustment clause after the severe ice storm shut down Noranda, the utility's biggest customer, and left Ameren with 3.2 million megawatts of excess capacity. Under the original fuel adjustment clause, 95 percent of the profits from the sale of that power would be credited to ratepayers, which Ameren vice president Mary Lyons said will cut $73 million from the company's earnings.

In the same conference call, Ameren officials said they will seek a rate increase for Illinois customers in the late spring or early summer. Illinois regulators allowed a rate increase in September.

Ameren officials didn't say how much of a rate increase they would seek in either state.

"I can assure that it's going to be a small amount," spokesman Leigh Morris told the Associated Press.

Missouri law does not impose any waiting period or other mechanism for delaying a new request for higher rates after a rate case is settled, said Kevin Kelly, spokesman for the PSC. Once a rate increase request has been filed, the PSC has 11 months to make a decision, he said.

When the PSC acts on its agenda items today, the Ameren rate case will be over unless one or more parties appeals the commission's rulings in circuit court, Kelly said.

The rate increase approved Jan. 27 will take effect March 1. The average residential customer will pay about $70 more a year for electricity.

In the latest round of rate hearings, the PSC allowed Ameren to receive a 10.7 percent return on investment. But spending on infrastructure, rising operating costs and financing costs mean the utility only expects to earn 8 percent, Warner Baxter, senior vice president and chief accounting officer, said during the conference call.

Ameren recently cut its annual dividend to stockholders by 39 percent, to $1.54 per share from $2.54. The measure will cut costs by $215 million, which the company said comes on top of plans to reduce capital and operating expenses by $800 million.

One of the biggest issues facing the company is the lag when the company faces increased costs and when regulators recognize those costs and build them into the rates, Gary Rainwater, Ameren chairman and chief exectuive officer, said during the conference call. Recent rate increases are an encouraging sign, he said, but the company needs more help.

"We will be filing rate cases more frequently in the future to minimize regulatory lag, as well as to make any bill increases more manageable for customers," Rainwater said.

In the call, Rainwater also noted that the company has spent large sums to increase reliability, including burying 100 miles of power lines, trimming trees along 6,500 miles of lines, testing more than 100,000 wooden poles and inspecting 8,000 miles of lines.

rkeller@semissourian.com

388-3642

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