) was barred from transferring pollution variance to
) − required for the proposed divestiture of Ameren's merchant
generation business, Ameren Energy Resources Company or AER and
its subsidiaries, to a Dynergy subsidiary.
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The Illinois Pollution Control Board has rejected a request by
Ameren to transfer a pollution-control waiver at five Illinois
coal-fired plants to the Dynergy unit. The regulators voted 4-0
reflecting denial of the request from Ameren as well as Dynegy
and indicated that Dynegy must make its own move for a request of
In Mar 2013, Ameren announced its intention to divest its
merchant generation business, AER, to an affiliate of Dynegy. AER
consists primarily of Ameren Energy Generating Company or Genco,
including Genco's 80% ownership interest in Electric Energy,
Inc.; AmerenEnergy Resources Generating Company or AERG; and
Ameren Energy Marketing Company. The transaction is subject to
regulatory approvals, including transfer of the variance. The
transaction is expected to close in the fourth quarter.
Illinois pollution controlling measures from coal-fired power
plants were established back in 2006. This required Ameren to
invest $1.6 billion to check emissions of mercury, sulfur dioxide
and nitrogen oxides to levels below the required federal
Although Ameren agreed to step up reductions of the other
pollutants, including sulfur dioxide, or soot, the company needed
additional time to meet the mercury limits. However, after
spending roughly $230 million in the venture to meet the sulfur
dioxide limits by installing equipment at its largest Illinois
coal plant - the 1,186-megawatt Newton plant - Ameren conveyed
its inability to finish the project due to declining power prices
and an ailing economy.
The pollution regulators thus granted Ameren the variance in
September last year. This gave Ameren another five-year respite,
lasting until 2020, to install equipment to control smog. The
company had initially agreed to do it by 2015.
In spite of the denial from the Pollution Control Board, Ameren
and Dynegy are committed to completing the transfer and will file
a new request for a variance soon.
We believe Ameren's stable and regulated electric power
operations in the Midwest generate a relatively steady and
growing earnings stream. However, our cautious stance on Ameren
takes into account its significant fossil fuel based generating
units and uncertainty about the rate of recovery of the economy.
To comply with state and federal regulations, the company has to
invest a significant chunk to reduce emissions from its
generation assets, including installation of selective catalytic
reduction and overfire air to control nitrogen oxide emissions
and the use of activated carbon injection to control mercury
The company presently retains a short-term Zacks Rank #3 (Hold).
There are other stocks in the energy space that are worth
considering now. These include Zacks Ranked #1 (Strong Buy)
CPFL Energia S.A.
Companhia Paranaense de Energia