BEFORE THE ILLINOIS POLLUTION CONTROL BOARD
IN THE MATTER OF:
AMENDMENTS TO 35 ILL.ADM.CODE 225:
CONTROL OF EMISSIONS FROM LARGE
COMBUSIONS SOURCES (MERCURY
MONITORING)
)
)
)
)
)
)
)
)
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NOTICE OF FILING
To:
R09-10
(Rule making - Air)
John Therriault, Assistant Clerk
Illinois
Pollution Control Board
James
R. Thompson Center
Suite 11-500
Persons
on the Attached Service List
100 West Randolph
Chicago, Illinois
6060 I
PLEASE TAKE NOTICE that we have today electronically filed with the Office of the
Clerk
of the Pollution Control Board Ameren Energy Generating Company's Motion to File
Test"
6:Z5.;;'h
Instanter,
copies of which are herewith served upon you.
Joshua
R. More
Dated: February
5, 2009
Joshua R. More
SCHIFF HARDIN, LLP
6600 Sears
Tower
233
South Wacker Drive
Chicago, Illinois
60606
312-258-5500
CERTIFICATE OF SERVICE
I, the undersigned, certifY that on this 5th day of February, 2009, I have served
electronically the attached
Ameren Energy Generating Company's Motion to File Testimony
of Gary M. Rygh
Instanter,
upon the following persons:
John Therriault, Assistant Clerk
Illinois Pollution Control Board
James
R.
Thompson Center
Suite 11-500
100 West Randolph
Chicago, Illinois
60601
and electronically and by first class mail, postage affixed, upon persons on the attached Service
List.
Joshua R. More
SCHIFF HARDIN,
LLP
6600 Sears Tower
233 South Wacker Drive
Chicago, Illinois
60606
312-258-5500
Joshua R. More
2
SERVICE LIST
(R09-10)
Timothy Fox
Hearing
Officer
Illinois Pollution Control Board
100 West Randolph, Suite 11-500
Chicago, Illinois 6060 I
foxt@ipcb.state.il.us
S. David Farris, Manager, Environmental,
Health and
Safety
City of Springfield, City Water Light
&
Power
201 East Lake Shore Drive
Springfield, Illinois 62757
dfarris@cwlp.com
Kathleen Bassi
Steve Bonebrake
Schiff Hardin LLP
6600 Sears
Tower
Chicago, Illinois
60606
kbassi@schiffhardin.com
sbonebrake@schiffhardin.com
3
JohnJ. Kim
Charles
E. Matoesian
Dana Vetterhoffer
Division
of Legal Counsel
Illinois Environmental Protection Agency
1021 North Grand Avenue, East
P.O. Box 19276
Springfield, Illinois 62794-9276
john.j.kim@iIIinois.gov
charles.matoesian@illinois.gov
dana.vetterhoffer@iIIinois.gov
David Rieser
McGuireWoods
LLP
77 W. Wacker Drive, Suite 4100
Chicago, Illinois 60601
drieser@mcguirewoods.com
BEFORE THE ILLINOIS POLLUTION CONTROL BOARD
IN THE MATTER OF:
AMENDMENTS TO 35 ILL.ADM.CODE 225:
CONTROL OF EMISSIONS FROM LARGE
COMB US IONS
SOURCES (MERCURY
MONITORING)
)
)
)
)
)
)
)
)
)
R09-10
(Rulemaking - Air)
AMEREN
ENERGY GENERATING COMPANY'S
MOTION TO
FILE TESTIMONY OF GARY M. RYGH
INSTANTER
Pursuant to 35
Ill.
Adm. Code 101.500 and 101.628(b), Ameren Energy Generating
Company, Amerenenergy Resources Generating Company, and Electric Energy, Inc
(collectively,
"Ameren") respectfully move to file Gary M. Rygh's testimony
instanter.
In
support
of this Motion, Ameren states as follows:
I.
Pursuant to the December 23, 2008 Hearing Officer Order, Michael Menne pre-
filed testimony on behalf
of Ameren.
2.
Mr. Menne's pre-filed testimony indicates that he conferred with several
individuals, including Gary
M. Rygh, and that those individuals would be available to answer
questions regarding the testimony. Mr. Menne's pre-filed testimony was intended to synthesize
the testimonies
of each of Ameren's witnesses and to provide the Board and other interested
parties with a clear and concise statement about Ameren's proposed amendment and its position
and analyses in support
of the proposed amendment.
3.
Since the filing of Mr. Menne's pre-filed testimony, Mr. Rygh has developed
written testimony in support
of Ameren's proposed amendment, which will allow the Board and
4
Electronc Filing - Received, Clerk's Office, February 5, 2009
other interested parties to more fully understand the economic conditions that have triggered
Ameren's request to amend the rule.
4.
Under Board rules:
Any participant may submit written statements relevant
to the subject matter at
any time prior
to hearing or at hearing. Participants submitting such a statement
will
be subject to cross-examination by any party.
35
Ill.
Adm. Code 101.628(a)
5.
Mr. Rygh's pre-filed testimony consists of five double space pages and is being
submitted three days following the February 2,
2008 deadline to pre-file testimony. Mr. Rygh's
pre-filed testimony is attached hereto as Attachment A. Considering the short length of the
testimony and the fact that all parties will have at least
4 days to prepare questions for Mr. Rygh,
there is sufficient time to allow Ameren to file Mr. Rygh's testimony
instanter.
WHEREFORE, Ameren respectfully requests that the Board grant Ameren's request to
file Mr. Rygh's testimony
instanter.
Dated: February 5, 2009
SCHIFF HARDIN, LLP
6600 Sears Tower
233 South Wacker Drive
Chicago, I\linois 60606
312-258-5500
Fax: 312-258-2600
by:
AMEREN ENERGY GENERATING
COMPANY, AMERENENERGY RESOURCES
GENERATING COMPANY, and ELECTRIC
ENERGY, INC.,
Joshua
R. More
5
Electronc Filing - Received, Clerk's Office, February 5, 2009
Attachment A
Electronc Filing - Received, Clerk's Office, February 5, 2009
BEFORE THE ILLINOIS POLLUTION CONTROL BOARD
IN THE MATTER OF:
AMENDMENTS TO
35 ILL.ADM.CODE 225:
CONTROL OF EMISSIONS FROM LARGE
COMBUSTION SOURCES (MERCURY
MONITORING)
)
)
)
)
)
)
R09-10
(Rulemaking - Air)
TESTIMONY OF GARY M. RYGH
I.
BACKGROUND AND QUALIFICATIONS
My name is Gary M. Rygh. My business address is 745 Seventh Avenue - 25
th
Floor,
New
York, New York 10019-6801. I am employed by Barclays Capital Inc. as a Senior
Vice President. Barclays Capital Inc. ("Barclays Capital") is the investment banking division
of Barclays Bank PLC, a leading global financial institution with over $2.5 trillion of total
assets. I have been employed by Barclays Capital since July
of 2007. Prior to joining
Barclays Capital I served in a similar role at Morgan
Stanley beginning in 1998.
I
am currently a Managing Director in the Global Power and Utility Group. Our
group is responsible for the corporate finance related analysis and strategic and capital
markets transactions in the utility and power sectors. I have been in the utility, power and
energy investment banking business for over
13 years. I have worked extensively on
strategic merger and acquisition assignments, debt and equity capital markets transactions
and other corporate finance related assignments in the electric, water and gas utility sectors.
II.
SUMMARY OF TESTIMONY
I would like to address the following issues:
• The
current state of, and outlook for, the financial markets as it pertains to Ameren's
unregulated generating companies
l
(referred to collectively as "Ameren") ability to
access capital on a cost competitive and reliable basis over the next several years.
•
In
Illinois, Ameren operates in an unregulated environment and therefore is unable to
absorb capital expenditures into a regulated rate-based recovery mechanism.
Ameren's ability
to earn a reasonable rate of return on capital employed is subject to
highly volatile market forces as opposed to utility regulation. This uncertainty is
highly detrimental when Ameren seeks external financing
to fund its capital plan.
In
addition, the credit ratings of Ameren's only rated entity, Ameren Energy Generating
Company
("Genco"), place it at the low-end of investment grade which negatively
impacts its ability
to attract financing on a reasonably priced basis. Accordingly,
Ameren faces considerable challenges in procuring reasonably priced capital from
investors (both equity and debt), particularly given the state
of the capital markets
today and for the foreseeable future.
•
Financing becomes more challenging for companies like Ameren which shares a
higher risk profile than traditional regulated power companies. The capital markets
are effectively not accessible for companies similar to Ameren at this time.
•
Energy companies, including Ameren, have extremely large capital needs given the
requirement for environmental compliance. These companies will be competing for
the capital they need in difficult capital markets.
I
"Ameren" has been defined to include Ameren Energy Generating Company ("Genco"), Ameren Energy
Resources Generating Company ("AERG"), and Electric Energy Inc. ("EEl"). Only Genco has credit ratings.
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III.
AMEREN'S ACCESS TO EXTERNAL CAPITAL IS CHALLENGED
•
Both the credit and equity markets have been extremely volatile over the last eighteen
months with sharply increasing risk premiums. The cost
of capital has risen
dramatically in many sectors and access
to capital and credit has been severely
limited. Even investment grade companies have not been immune from broader
financial market issues and turmoil. The robust credit markets that had prevailed
until the summer
of 2007 will likely not be experienced for some time (if ever again).
•
Against this backdrop, Ameren has a significant need for external financing to fund
its capital programs.
In total and over the next ten years, Ameren will spend between
$2.2 and $2.8 billion
to support environmental construction projects.
In these difficult times where access
to capital is highly challenged, companies such
as Ameren need to strategically manage their capital expenditures and carefully control
expenses. Ameren's current austerity measures include hiring freezes in all but essential
jobs, reductions in the consultant workforce and the cancellation
of all discretionary
spending.
IV.
GENCO's CREDIT RANKING
Long-term financing of environmental expenditures for the Illinois generation
business segment
is dependent on the creditworthiness of Ameren, including Genco. The
summary below shows the relative placement
of Genco in the ratings scale used by both S&P
and Moody's for investment grade rankings.
3
Electronc Filing - Received, Clerk's Office, February 5, 2009
Genco's Credit Ratings
(Standard and Poor's and Moody's)
Standard and Poor's
Moody's
Senior Unsecured
Senior Unsecured
Credit Ratings
Credit Ratings
AAA
Aaa
AA+
Aal
AA
Aa2
AA-
Aa3
A+
Al
A
A2
A-
A3
BBB+
Baal
BBB
Baa2
BBB-
Genco
Baa3
Genco
Junk Bond Status
Genco's lowest investment grade rating places it in a higher risk profile in relation to
other investment ranked companies. Because Genco will compete with more highly- rated
companies for access
to capital, Ameren can expect significant difficulty in accessing
available capital and, assuming such capital is available, pricing costs associated with any
such financings will be significantly higher than precedent financings. In addition, the power
sector and the associated volatility
of its earnings, which are tied to commodity pricing has
been especially difficult for investors recently.
Due to the significant rise estimated in capital expenditures over the next several
years, almost every company in the energy sector is in need
of external financing. With the
considerable spread concession
of new issues in the past several months, the market will
likely continue
to have a difficult time absorbing the new issue supply that is expected in the
near future.
4
VI.
POWER PRICES ARE DROPPING AT THE SAME TIME COSTS ARE
INCREASING
Sales of power from Ameren generating units and the associated power prices are the
source
of cash flow and earnings for Ameren's unregulated generation. These power prices
began a precipitous drop in July
2008 and have continued to fall. At the same time, coal
prices which are the major fuel expense for Genco have increased significantly compared
to
the 2006 to 2007 period when the MPS was forged. The combined effect of this is to lower
predicted operating margins and reduce cash flow available
to cover operating costs of
infrastructure development.
Investors' willingness to provide long-term, permanent financing
to unregulated
power producers such as Ameren
is based in large part on future power price expectations
and estimates
of financial performance. In recent months, future power prices have moved
down sharply. The deteriorating economy will likely exacerbate these conditions. The
detrimental impacts
of this downturn can be seen given the dearth of long-term, permanent
financings
of unregulated generating entities since the summer of2008.
VII.
CONCLUSION
The combination of severe economIC downturn, significantly constrained credit
markets, rising material and labor costs and the extreme competition for what little financing
is available speaks
to the economic pressures facing Ameren. Granting the relief would
allow Ameren to defer a small portion
of its overall environmental capital commitment
during a period when even stable companies, like Arneren, face severe constraints on its
ability
to finance ongoing operations. This deferral will allow Ameren to maintain its
financial health and be better positioned to comply with its environmental obligations in the
future.
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