Press Release: Oct 3, 2005 (6:26 am)
Approximately $2.3 Billion of Debt Securities On Review for Possible Downgrade
New York - Moody's Investors Service placed the long term debt ratings of Ameren Corporation (Ameren, A3 senior unsecured); Central Illinois Public Service Company (d/b/a AmerenCIPS, A2 senior unsecured); CILCORP Inc. (Baa2 senior unsecured); Central Illinois Light Company (d/b/a AmerenCILCO, A3 senior unsecured); and Illinois Power Company (d/b/a AmerenIP, Baa2 senior unsecured) under review for possible downgrade. Ameren's Prime-2 short term rating for commercial paper is not under review. The ratings of Union Electric Company (d/b/a AmerenUE) and Ameren Energy Generating Company are unaffected.
The rating action reflects the increasingly contentious political and regulatory environment in Illinois at a time when Ameren's three operating utilities in the state are seeking to implement a transitional plan for power procurement that could result in electric rate increases of between 20% and 35% beginning in 2007. Both the Attorney General (AG) and the Governor of the State of Illinois have strongly opposed Ameren's power procurement plan for its Illinois utilities, with the AG filing suit against the Illinois Commerce Commission (ICC) to stop the procurement proceedings. The Governor also took the extraordinary step of removing the Chairman of the ICC in order to name a candidate who was head of the largest state consumer advocate group, which has previously filed testimony in opposition to the utilities' procurement plans.
Under the terms of the current regulatory arrangement, in place until December 31, 2006, rates for electric supply at Ameren's Illinois utilities are capped at below-market rates through contracts with both affiliated and unaffiliated generation companies. Under electric restructuring legislation passed in the state, electric generation rates are expected to transition to market-based rates beginning on January 1, 2007. Market prices for wholesale electricity are significantly above the contract level price due in large part to higher fuel costs, particularly natural gas.
The review of parent company Ameren's ratings reflects the importance of the three Illinois utility businesses to its consolidated financial profile, particularly since the acquisition of Illinois Power last year. The Illinois utilities now make up nearly half of Ameren's total utility business. Ameren's Union Electric utility subsidiary's ratings are not directly affected by the developments in Illinois as it operates solely in the state of Missouri and continues to maintain strong, stable financial ratios. The ratings of Ameren Energy Generating Company are also unaffected, reflecting its competitive, low cost generating portfolio; upside potential beyond January 1, 2007 when contracts to sell power expire and the company potentially may benefit from higher market prices; and plans to reduce leverage by retiring $225 million of the company's long-term debt on November 1, 2005.
Although utilities are usually allowed to recover prudently incurred costs and an eventual settlement on rates is expected, recent actions and statements by state government officials suggest an increased risk of a serious dispute over reasonable recovery. Ameren has expressed a willingness to consider a rate increase phase-in plan for its Illinois utilities to mitigate rate shock for customers. If Ameren is able to negotiate a settlement on the power procurement issue, Moody's believes that the credit quality of its Illinois utilities may weaken over the intermediate term as power costs are deferred to future years. A lengthy deferral would result in increased debt balances and raise concerns about the ultimate full recovery of costs.
The review will focus on the prospects for a resolution of the dispute over the transitional plan for power procurement, related rate increases, and the timely recovery of the utilities' increased costs and investment outlays.
Ratings under review for possible downgrade include:
Ameren's A3 senior unsecured debt and Issuer Rating;
Central Illinois Public Service Company's A1 senior secured, A2 senior unsecured and Issuer Rating, Baa1 preferred stock, and the VMIG-1 short-term rating for its tax-exempt debt;
CILCORP, Inc.'s Baa2 senior unsecured;
Central Illinois Light Company's A2 senior secured; A3 Issuer Rating; and Baa2 preferred stock;
Illinois Power Company's Baa1 senior secured;
Baa2 Issuer Rating, and Ba1 preferred stock;
and the (P)Baa1 rating for the trust preferred securities issued by Ameren Capital Trust I and II.
Ameren Corporation is a public utility holding company headquartered in St. Louis, Missouri. It is the parent company of Union Electric Company (d/b/a AmerenUE), Central Illinois Public Service Company (d/b/a AmerenCIPS), CILCORP Inc., Central Illinois Light Company (d/b/a AmerenCILCO), Illinois Power Company (d/b/a AmerenIP), and Ameren Energy Generating Company.
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Michael G. Haggarty
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
