Ameren's wholesale power-generating subsidiary, which weighed down the company's earnings in the fourth quarter, has been downgraded to junk-bond status by Moody's. (Note: Registration required). The credit-rating service says Ameren Energy Generating suffers from "particularly low" power prices in the Midwest. It also says the unit has been a disappointment for its parent:
While Ameren Genco was originally envisioned as a potentially robust source of dividends and cash flow for the parent company after below market contracts with its affiliate utilities expired several years ago, continued low power prices and poor economic conditions have largely changed this dynamic. With the prospect of several years of low natural gas prices, a slow and uncertain economic recovery, and new environmental compliance requirements, the ability of Ameren Genco to provide significant cash flow to the parent company and help mitigate the organization's above average level of regulatory risk will be severely constrained.
Moody's maintained the parent Ameren rating at Baa3, the lowest investment-grade level, and says the outlook is stable. For a primer why the wholesale power business is so problematic, see the in-depth piece that my colleague Jeffrey Tomich wrote last spring.