Wednesday, November 12, 2008 3:21 PM CST
In tough economy, Ameren looks to keep customers happy but raise rates again
By TONY REID, Staff Writer
PHOENIX — Ameren Corp. says the economy is suffering a power failure and the company is responding by hitting the kill switch on expenses, charging up its cash reserves and getting ready to increase customer bills.
Ameren, parent of utilities AmerenIP, AmerenCIPS and AmerenCILCO, is slashing its budget by $1 billion in 2009 as it cuts back on big-ticket capital spending projects and operations.
But there was no mention of job losses and Ameren said it would be careful to avoid cuts jeopardizing the reliability or improvement of systems directly tied to keeping the lights on.
Speaking at a power industry financial conference in Phoenix, Ariz., Ameren officials said customer contentment is part of the company’s long-term financial strategy to boost the bottom line whatever the economic conditions. The company believes happy consumers make for a relaxed Illinois Commerce Commission, the power system regulators who sign off on rate hikes.
“That is part of basic strategy to invest in the business, serve customers better and grow the rate base through earnings,” said Gary Rainwater, Ameren’s president, chairman, and chief executive officer. “So the long-term strategy is intact and unchanged.”
The company is now eyeing the right time to go back before the commission with another rate request, even though the latest increase in electricity and natural gas delivery fees — worth $162 million — only took effect in October.
But Ameren says 2008 has turned into an ever-more expensive and tough year. Financial markets where it goes to borrow money are turbulent and costly while fuel costs have been rising as growth prospects dim and the economy looks to be in a recession.
The St. Louis-based company has responded by charging up its cash reserves — it now has $1.45 billion available to meet financing needs — and plans to put off going cap in hand to Wall Street for as long as it can.
“Certainly, we are seeing weak economic conditions,” said Warner Baxter, Ameren’s chief financial officer. “And we expect the economy will continue with weak conditions going into 2009.”
Baxter predicted growth in his business would crawl along at a thin 1¼-percent rate next year.
One area that is growing, however, is the number of bad debts in Illinois as more and more customers can’t, or won’t, pay their power bills. Baxter says making up for those bad debts is another reason why the company needs more frequent bill increases from everybody else. “Our costs continue to rise,” he added.
And if misery loves company, Ameren found plenty of friends at the financial conference hosted by the Edison Electric Institute, an industry group. The recession, tight credit markets, global warming and higher costs for everything from fuel to wires were all hot topics.
“The economy has moved to front and center,” said Bruce Williamson, chairman, president and chief executive of Houston-based power producer Dynegy.
The government said the nation’s gross domestic product fell 0.3 percent in the third quarter, and analysts figure the slowdown will get much steeper in the fourth quarter and into 2009 with the nation at risk of its most serious recession since the early 1980s.
That can mean flat or lower sales for power utilities, which generated about $300 billion a year in revenue and made up about 3 percent of the country’s gross domestic product in 2005, according to EEI.
And then there is the matter of climate change and what an Obama administration may seek to do to limit greenhouse gas emissions from power plants as part of the U.S. plan to address global warming. Who pays for all of that is unclear.
Ameren, meanwhile, says it’s too risky to build new power plants in the current financial climate but plans to extract the most from existing ones by cutting expenses and putting the pedal to the metal to boost electricity output. It doesn’t think anyone else will be building power plants anytime soon and that makes existing ones more valuable in the face of rising demand.
“(For) companies that have iron on the ground at relatively low cost, as our plants are… then the fundamentals of supply and demand are pretty good for long-term pricing in that market,” said Rainwater.
The Associated Press contributed
to this report.
Contact Tony Reid at 421-7977 or treid@herald-review.com.
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Rotty wrote on Nov 12, 2008 12:50 AM:
Someone needs to seriously kick some of the hineys of the ignoramuses who keep approving these idiots & let them do what they want to do, anytime they want.
Tell me, is Ameren in cahoots with health insurance companies? "