NEW YORK, May 8 (Reuters) - Ameren Corp (AEE.N: Quote, Profile, Research) will reduce rates for its 1.2 million Illinois power customers beginning June 1 due to a sharp decline in the wholesale price of electricity as the weak economy has reduced demand for all forms of energy, the company said in a release Friday.

The company estimated a typical residential customer who uses 10,000 kilowatt-hours (kWh) of electricity a year will save about $100, or about 8 percent, a year.

In 2007, Illinois created the Illinois Power Agency to procure power through a competitive process on behalf of the state's investor-owned utilities, including Ameren and Exelon Corp's Commonwealth Edison Co.

This new process operates under the oversight of the Illinois Commerce Commission (ICC).

Through the Power Agency, Ameren contracted enough electricity to meet about a third of its needs for the next 12 months. Electricity supply contracts run for three years and about a third of the total supply is procured annually to minimize the impact of possible wholesale price volatility.

The wholesale price of power is not regulated, but is based on market conditions caused by supply and demand. Ameren passes the cost of electric supply on to customers without any markup in price.

About two-thirds of a typical residential bill is from the electric supply charge.

Ameren, of St. Louis, Missouri, owns and operates more than 14,000 MW of generating capacity, markets energy commodities, and transmits and distributes electricity (2.4 million customers) and natural gas (1 million) to customers in Illinois and Missouri. (Reporting by Scott DiSavino; editing by Jim Marshall)