Ameren Corp. _AEE_ by dfhdhdhdhjr

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									Ameren Corp. (AEE)

  Matt Thompson
  Steve Proffer
  Chris Ehley Presented April 3, 2007
Overview
    Ameren was formed in 1997 by the merger of UE and CIPSCO,
     the former parent company of CIPS. Ameren’s primary assets are
     the common stock of its subsidiaries, including UE, CIPS, Genco,
     CILCORP and IP. Ameren’s primary assets are the common
     stock of its subsidiaries. Ameren’s subsidiaries, which are
     separate, independent legal entities, operate rate-regulated
     electric generation, transmission and distribution businesses,
     rate-regulated natural gas transmission and distribution
     businesses, and non-rate-regulated electric generation
     businesses in Missouri and Illinois. Dividends on Ameren’s
     common stock depend upon distributions made to it by its
     subsidiaries.
Overview
    Ameren’s primary assets are the common
     stock of its subsidiaries. Ameren’s subsidiaries,
     which are separate, independent legal entities,
     operate rate-regulated electric generation,
     transmission and distribution businesses, rate-
     regulated natural gas transmission and
     distribution businesses, and non-rate-
     regulated electric generation businesses in
     Missouri and Illinois. Dividends on Ameren’s
     common stock depend upon distributions
     made to it by its subsidiaries.
Customer Base

  AmerenUE serves 1.2 million electric
   and 125,000 natural gas customers
   across Missouri.
  Ameren, through its subsidiaries, serves
   2.4 million electric and nearly one million
   natural gas customers in a 64,000-
   square- mile area of Illinois and Missouri.
Three business segments

    Missouri regulated:
        Union Electric (UE)
    Illinois regulated:
        Central Illinois Public Service Company (CIPS)
        Central Illinois Light Company (CILCO)
        Illinois Power Company (IP)
    Non-rate-regulated generation:
        American Generating Energy Company (Genco)
        CILCO (AERG)
Operating income by company
(subject to Illinois regulation)
     UE – 56.1%
     IP – 12.8% (12.8%)
     CILCORP – 5.9% (5.6%)
     CILCO – 7.2% (6.8%)
     GENCO – 12%
     CIPS – 6% (6%)
     Total % of operating income regulated by state
      of Illinois = 31.2%
Risk

 •Increased Competition
       “On Feb. 7, Great Plains Energy Inc. (NYSE: GXP - News), agreed to buy
       Aquila's Missouri electric utility assets for $1.7 billion and assume $1 billion
       of Aquila's debt.1




   •If rate freeze does occur, it will eliminate any price
   competition.
          •Only way to stay profitable, increase internal
          efficiencies
          •Beneficial after rate freeze is removed
Risk

•Rate freeze/Rollbacks
   •Will hurt electric margins
   •Maintained profitability prior to 1997 deregulation
   •Current talks of rate freeze extension would expire in
   1 - 3 years – our investment horizon is approximately
   10 years
Risk

    Rising input costs (coal, gas)
      Hedged natural gas prices using derivatives
       and contracts with suppliers
      Coal and related transportation costs are
       expected to increase by 15% to 20% in
       2007 and another 5% to 10% in 2008  2


      Buy from lowest priced region in country
       (Powder Region Basin (PRB))
      Gas, although volatile, only makes up 1%
       percent of inputs to produce electricity
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070322:MTFH63886_2007-03-22_19-16-42_N22366490&type=comktNews&rpc=44
http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html
Comparables

   EXELON CORPORATION(EXC)
        Largest electricity provider (based on customers) in Illinois
        Distributor of gas
        Facing same legislation as Ameren
   Great Plains Energy
        Electricity provider in western Missouri
        Does business in Kansas
        Does not face same Illinois legislation as Illinois


    Comparables also “direct competitors” - Most useful because of the current
    Legislative battle.
Comparables - 1 Year
Comparables – 5 Years
Sensitivity Analysis
              2.25%       2.50%       2.85%       3.00%       3.15%

  6.00%   $   49.10   $   50.65   $   53.23   $   54.51   $   55.94

  6.25%   $   47.27   $   48.60   $   50.81   $   51.89   $   53.09

  6.50%   $   45.62   $   46.79   $   48.69   $   49.62   $   50.63

  6.75%   $   44.14   $   45.16   $   46.82   $   47.62   $   48.49

  7.00%   $   42.79   $   43.70   $   45.15   $   45.85   $   46.60

  7.25%   $   41.56   $   42.37   $   43.65   $   44.26   $   44.92

  7.50%   $   40.43   $   41.15   $   42.29   $   42.83   $   43.41
WACC Calculations
Portfolio Fit

                Correlation Matrix
RCMP Position
   Transaction History                                          WAG
                                                                  7%
                                                                           AE E
                                                                           6%
                                                    S RZ
      April 27, 2006                                7%
                                                                                        AE O       AE E
                                      S RCL
         Bought 400 shares @           5%
                                                                                        19%
                                                                                                   AE O

           $50.03                   MV S N
                                     1%
                                                                                                   CPRT
                                                                                                   FR
      Last Trade as of March                                                                      FR
                                        MS
       26, 2007, 4:04 PM ET:            9%
                                                                                                   J K HY
                                                                                            CPRT   JPM
       $50.63                                                                                9%
                                                                                                   K MB
                                             K MB                                                  MS
                                              6%                                                   MV S N
                                                                                       FR
       MV of holding: $20,252                                                         7%          S RCL
                                                           JPM                    FR               S RZ
                                                                       J K HY
       BV of holding: $20,012                             14%
                                                                         3%
                                                                                  7%
                                                                                                   WAG


       Realized Capital Gain: $0
       Unrealized Capital Gain:
        $240
Recent News
  In November 2006, Ameren received an
   oreder to increase their electric delivery
   service rates by $97 million. This order
   authorized a 10% return on equity, but was
   significantly less than the Ameren Illinois
   Utilities’ request for approximately a
   $200 million increase
  The timing and amount of additional electric
   delivery services rate increase requests in
   Illinois is expected to be voted on in
   Springfield in May 20072
Recent News

    March 7:
      Illinois House approves electric rate freeze
      Ameren spokesman Leigh Morris said a rate
       freeze would have "dire financial
       consequences."
      "Ameren Illinois utilities are spending up to
       $1 billion more for electricity than we did in
       2006," Morris said. "We need to be able to
       recover those costs through our rate
       structure "
                .3
Recent News
    March 28:
        Regulatory Research Associates report cited rumors of
         progress in the discussions between Exelon's and Ameren's
         utilities, power suppliers, legislators, consumer groups and
         others.
        An agreement would forestall legislation rolling back electricity
         rates to 2006 levels and freezing rates at those prices for a
         year.
        "It appears that the deal currently being considered would
         include contributions by the utilities and power marketers
         aggregating to as much as $150 million to be distributed as
         credits to customers that were 'hardest hit' by the price
         increases," RRA said.4
Recent News
    March 30
        Even if a short-term agreement can be struck that
         forestalls the rate rollback, House Speaker Michael
         Madigan will keep pushing to cut rates for all
         residential customers in Illinois.
        Mr. Madigan provided a glimpse into his thinking
         last week by introducing a bill to establish a non-
         profit state power authority with the ability to float
         bonds, negotiate deals with power generators and
         build power plants. His spokesman says the
         authority, composed of five members appointed by
         the governor, would foster price competition in state
         power markets.5
Recent News

    March 30:
        Other solutions include restoring regulation allowing
         ComEd and Ameren's regulated utilities to own
         power plants, as they did before the market was
         deregulated in 1997, or allowing utilities to buy
         power directly from generators over multiyear
         terms, with the contracts subject to state oversight.
        Attorney General Lisa Madigan is asking state
         regulators to force Ameren Corp. to address
         "troubling questions" about its relationship with
         credit rating agencies6
Recommendation

    HOLD position

    Reasons
      phase in for rate increase likely
      Approximately 1/3 of operating income
       influenced by Illinois legislators
Sources
   1.   Assoc. Press “Kansas agency OKs Aquila's sale to Mid-Kansas
        Electric.” Kansas City Business Journal. 26 Feb 2007
        http://biz.yahoo.com/bizj/070226/1423680.html?.v=1
   2.   Ameren 2006 10-K
   3.   Keith, Ryan. “Ill. House OKs Electric Rate Freeze.” Associated
        Press. 7 Mar 2007
        http://biz.yahoo.com/ap/070328/exelon_mover.html?.v=1
   4.   Assoc. Press “Exelon shares rise on possible rate compromise.”
        Reuters. 28 Mar 2007
        http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:new
        sml:reuters.com:20070328:MTFH07455_2007-03-28_18-38-
        56_N28383293&type=comktNews&rpc=44
   5.   Keith, Ryan. “AG Wants Help on Ameren Credit Probe.”
        Associated Press. 30 Mar 2007
        http://biz.yahoo.com/ap/070330/il_electric_rates.html?.v=1
   6.   Daniels, Steve. “Power struggle: Pols eye rate fix.” Crains Chicago
        Business. 2 Apr 2007 http://chicagobusiness.com/cgi-
        bin/mag/article.pl?article_id=27502&bt=ameren&arc=n&searchTyp
        e=all

								
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