Bloomberg News

Ameren Illinois Utility Head Proposes Re-Regulation

March 19, 2007

Ameren Corp. (AEE:US), the second-biggest owner of electric utilities in Illinois, said it's willing to negotiate an end to market-based power prices to avert a rate cut that may send its state distribution units into bankruptcy.

Lawmakers and utility regulators should enter talks to limit rate increases, perhaps returning to cost-based, rather than market-based rates for power generation, Scott Cisel, chief executive officer of the company's Illinois utilities, said in a 625-word statement published by some area newspapers March 18.

The Illinois Senate this week may vote on a bill rolling back Ameren's state power rates to 2006 levels, before customers began paying higher prices in January. The state House of Representatives has twice approved legislation rolling back rates for homes and small-to-medium sized businesses.

``The sudden increase in electricity prices has created an economic hardship for many across downstate Illinois,'' Cisel said in the statement. ``New rates and above normal winter usage have resulted in utility bills higher than anyone expected.''

Cisel is scheduled to hold a conference call with the media at 4 p.m. New York time today, Ameren said in a statement. Re- regulation ``will not be simple, it will take some time to accomplish and it will not likely result in immediate rate reductions,'' he said.

Political Risk

The article appeared in Sunday papers less than a week after Ameren's three Illinois utilities were cut to Ba1, one level below investment grade, by Moody's Investors Service. Moody's cited political risk as the reason for the downgrade.

Chicago-based Exelon Corp. (EXC:US) is the biggest owner of Illinois utilities. Exelon's Chicago utility, Commonwealth Edison, is not a target of the Senate legislation.

Shares of Ameren rose 49 cents, or 1 percent, to $49.23 as of 2:15 p.m. in New York Stock Exchange composite trading.

This year's higher power rates resulted from a state- supervised auction in September that was intended to complete a 10-year transition to competitive, market-based rates. Illinois was among a group of primarily Midwestern and Northeastern states that took steps to end utility monopolies in the 1990s on expectations that competition would improve efficiency.

Sharply higher bills for January electricity broadened legislative support for a rate freeze, which both Ameren and Exelon have said would bankrupt their Illinois utilities.

Electric Apex

The Illinois power market may represent the high-water market in U.S. retail electric competition, said James Halloran, who manages $33 billion at National City Private Client Group in Cleveland, including shares of Ameren and Exelon.

``There are too many problems with it and delivery to residential customers is too difficult,'' said Halloran. ``Utilities now need some certainty about what their rates are going to be to build more power plants. When we started this de- regulation, most utilities had capacity and now we're on the verge of using that up.''

Virginia's legislature in February voted to re-regulate the state's electric utilities to avoid a surge in rates similar to those in Illinois, Maryland, and Delaware. Governor Tim Kaine must decide by March 26 whether to sign the legislation, which would end a planned switch to market-based rates in 2010.

Dow Jones Newswires reported earlier today that Ameren had proposed re-regulating the Illinois power market.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net; Christopher Martin in New York at cmartin11@bloomberg.net.

To contact the editor responsible for this story: Robert Dieterich at rdieterich@bloomberg.net.


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Companies Mentioned

  • AEE
    (Ameren Corp)
    • $44.96 USD
    • -0.05
    • -0.11%
  • EXC
    (Exelon Corp)
    • $37.36 USD
    • -0.17
    • -0.46%
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