This new plan will help residential customers by reducing the initial impact of expected electric price increases. At the same time, the plan will give the Ameren Illinois electric utilities a cost effective way to finance the purchase of power through the Illinois Commerce Commission-approved procurement process. The companies filed the proposal with the ICC today.
"Our customers have told us they are concerned about the effect higher electricity rates will have on them," said Ameren Illinois President Scott Cisel. "We care about our customers and have listened to them in crafting a plan that will effectively lessen the impact of higher electricity costs in 2007. Favorable action by the ICC and the state legislature on the Ameren proposal will allow us to continue to work to keep power costs as low as possible for our residential customers in 2007, at the same time enabling us to continue to economically finance system improvements and expansion."
Artificially low electric rates will end for Illinois residential customers on Dec. 31, 2006, with the expiration of power supply contracts and the end of a nearly decade-long residential electric rate freeze. Beginning Jan. 1, 2007, electricity for Ameren Illinois utility customers must be purchased from the competitive wholesale energy market. For Ameren Illinois residential customers on bundled rates, the last increase was nearly 15 to 25 years ago \- in 1982 for AmerenCILCO, and 1992 for AmerenIP and AmerenCIPS. Since 1997, depending on the utility, these rates were also reduced by 5 to 20 percent. Also since that time, residential rates in neighboring states have risen by as much as 15 percent due to cost pressures \- meanwhile average residential rates for Ameren Illinois residential customers remain 23 percent below the national average.
The proposal filed today \- along with required legislation \- offers a constructive approach that for customers would spread the impact of projected electricity price increases over a period of up to 10 years. Legislation is required to enable the Ameren Illinois utilities to defer and later recover purchased power costs. These costs would be financed through the sale of special long-term bonds. The legislation would also permit Ameren Illinois utilities to charge customers less than the actual cost of power supply during the initial years of a phase-in plan and to recover that deferred amount in subsequent years as a separate charge on customers' bills. The separate charge would be collected over the life of those bonds. The legislation must also ensure that over time, the collection from customers would essentially be equivalent to the amount of the deferred power costs, to ensure sufficient revenue to fully service the bonds in a full and timely manner. Known as "securitization," this special, low-interest financing approach is used frequently by other industries, including other electric utilities.
"This filing is just a first step that will allow us to provide a proposal regulators can analyze \- setting the stage for their eventual review once the legislature passes a law that would enable the ICC to approve deferral and later recovery of power supply costs and securitization. Clearly, before the ICC can act on this issue, the legislature must adopt a bill this year that would allow utilities to defer and securitize certain power supply costs to ease the transition to new rates," said Cisel.
Cisel added that the securitization plan is expected to help Ameren Illinois utilities maintain their financial integrity by allowing them to recover costs from customers over a longer term. By protecting their ability to finance infrastructure improvements, Ameren's Illinois utilities would be able to make the needed investments to deliver electricity in a safe and reliable manner.
Today's proposal also includes a range of consumer protections and regulatory oversight provisions to ensure that the use of securitization results in lower overall net costs to the consumer. The amount of the rate increases will not be known until after the power procurement auction is conducted and until after the ICC rules on delivery service rate increases that are expected to be final in November.
Ameren Illinois utilities have been diligently working with key stakeholders for several months to develop a constructive rate increase phase-in plan. In addition, Ameren Illinois utilities plan to offer assistance programs for low income consumers. The programs are being developed and details will be announced soon.
"While any cost increase is difficult for all, it's important to recognize that Ameren Illinois utility residential customers will have saved nearly $1 billion through the end of 2006 because of industry restructuring," says Cisel. "In addition, Ameren and our investors have bought two struggling Illinois utilities in the past three years, investing nearly $1.5 billion of equity in the AmerenIP and AmerenCILCO distribution businesses."
He added that while bolstering the financial strength of its Illinois companies, Ameren has also worked to improve service reliability for both AmerenCILCO and AmerenIP. In fact, all three Ameren Illinois utilities have invested approximately $1.9 billion in infrastructure improvements since 1998, when the Customer Choice Law was established to create competitive energy markets in Illinois.
Ameren serves approximately 2.4 million electric customers and nearly one million natural gas customers in a 64,000 square mile area of Missouri and Illinois.
Statements in this release not based on historical facts are considered "forward-looking" and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those discussed. Although such forward-looking statements have been made in good faith and are based on reasonable assumptions, there is no assurance that the expected results will be achieved. These statements include (without limitation) statements as to future expectations, beliefs, plans, strategies, objectives, events, conditions, and financial performance. In connection with the "safe harbor" provi?sions of the Private Securities Litigation Reform Act of 1995, we are providing this cautionary statement to identify important factors that could cause actual results to differ materially from those anticipated. The following factors, in addition to those discussed elsewhere in this release and in our filings with the Securities and Exchange Commission (SEC), could cause actual results to differ materially from management expectations as suggested by such forward-looking statements:
• regulatory actions, including changes in regulatory policies and ratemaking determinations;
• the impact of changes to the joint dispatch agreement;
• changes in laws and other governmental actions, including monetary and fiscal policies;
• the effects of increased competition in the future due to, among other things, deregulation of certain aspects of our business at both the state and federal levels, and the implementation of deregulation, such as when the current electric rate freeze and current power supply contracts expire in Illinois at the end of 2006;
• the effects of participation in the Midwest Independent Transmission System Operator (MISO);
• the availability of fuel such as coal, natural gas and enriched uranium used to produce electricity; the availability of purchased power and natural gas for distribution; and the level and volatility of future market prices for such commodities, including the ability to recover the costs for such commodities;
• the effectiveness of our risk management strategies and the use of financial and derivative instruments;
• prices for power in the Midwest;
• business and economic conditions, including their impact on interest rates;
• disruptions of the capital markets or other events that make access to necessary capital more difficult or costly;
• the impact of the adoption of new accounting standards and the application of appropriate technical accounting rules and guidance;
• actions of credit rating agencies and the effects of such actions;
• weather conditions and other natural phenomena;
• generation plant construction, installation and performance, including costs associated with the Taum Sauk pumped-storage hydroelectric plant incident and its future operation;
• operation of the Callaway nuclear power facility, including planned and unplanned outages, and decommissioning costs;
• the effects of strategic initiatives, including acquisitions and divestitures;
• the impact of current environmental regulations on utilities and power generating companies and the expectation that more stringent requirements will be introduced over time, which could have a negative financial effect;
• labor disputes and future wage and employee benefits costs, including changes in returns on benefit plan assets;
• changes in the energy markets, environmental laws or regulations, interest rates, or other factors that could adversely affect assumptions in connection with the Illinois Power (IP) acquisition;
• the impact of conditions imposed by regulators in connection with their approval of Ameren's acquisition of IP;
• the inability of our counterparties to meet their obligations with respect to contracts and financial instruments;
• the cost and availability of transmission capacity for the energy generated by Ameren generating facilities or required to satisfy energy sales;
• legal and administrative proceedings; and
• acts of sabotage, war, terrorism or intentionally disruptive acts.
Given these uncertainties, undue reliance should not be placed on these forward- looking statements. Except to the extent required by the federal securities laws, we undertake no obligation to publicly update or revise any forward- looking statements to reflect new information, future events, or otherwise.
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