Missouri Energy Development Association

1
Timely Recovery of Infrastructure Investment

• Missouri Energy Development Association
• June 22, 2009
• Steve Kidwell
• Vice President, Regulatory Affairs Energy
  Efficiency
• AmerenUE

2
The publics perception of rates is not always
aligned with reality
Many of our customers felt that their rates were
increasing every year, when, in fact, from
2000-2008 Missouri was the only state to lower
electric rates.
Today, AmerenUE rates are more than 40 below the
national average
Higher bills were instead the result of higher
usage.
Source Business Week, July 24, 2008
3
Regulatory lag impacts the companys credit
metrics and ratings
In todays challenging economic climate, there is
a greater focus being placed on cash flows and
credit metrics
LowerReturns Earnings
Less Cash In


Depressed economy (Lower sales/revenue)
Increased Costs (OM, interest)
More borrowing to fund investment
Increased Investment
More Cash Out
Decreased Free Cash Flow
Recovered through rates
Higher Debt to Total Capitalization
As increased investment and costs outpace
recovery through rates, regulatory lag
increases... ... and the greater the regulatory
lag, the greater the impact on credit metrics,
borrowing costs and, ultimately, costs to
customers
4
Bond market spreads have increased significantly
Lower credit ratings, or adverse changes in
credit ratings will likely...

• Reduce access to capital
• Trigger collateral postings and prepayments
• Increase the cost of borrowing and fuel, power
  and gas supply, among other things, resulting in
  a negative impact on earnings
• Increase customers rates
• Impact ability to make timely infrastructure
  investments

5
Common tools to mitigate regulatory lag

• Forecasted Test Year
• Interim Rates
• Shorter Rate Case Cycles
• CWIP in Rate Base
• Riders / Trackers
• Fuel Adjustment Clause

In a ranking of all 50 states based on the
implementation of these regulatory lag mitigating
tools, Missouri ranked 49th only New Hampshire
ranked lower
Source Brattle Group
6
Reducing the impact of regulatory lag benefits
all parties
The degree of regulatory lag built into the
regulatory framework is determined by regulatory
policy decisions.

• Reducing regulatory lag...
• Allows utilities to make timely investments
  (reliability, environmental, energy efficiency)
• Improves utility returns
• Improves cash flow
• Improves credit metrics
• Lowers borrowing costs
• Sends customers the proper price signals
• Lowers customer rates in the long term

A financially strong utility is good for
customers and good for the State.