UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Transition Period From to
Commission file number 1-3672.
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Illinois 37-0211380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
607 East Adams Street, Springfield, Illinois 62739
(Address of principal executive offices and Zip Code)
Registrant's telephone number,
including area code: (217) 523-3600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
------------- ------------
Shares outstanding of each of registrant's classes of common stock as of May 10,
2002: Common Stock, no par value, held by Ameren Corporation (parent company
of Registrant) - 25,452,373
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
INDEX
Page
----
PART I Financial Information
ITEM 1. Financial Statements
Balance Sheet at March 31, 2002 and December 31, 2001......... 2
Statement of Income for the three months ended
March 31, 2002 and 2001....................................... 3
Statement of Cash Flows for the three months ended
March 31, 2002 and 2001....................................... 4
Statement of Common Stockholder's Equity for the three months
ended March 31, 2002 and 2001................................. 5
Notes to Financial Statements................................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 9
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.... 13
PART II Other Information
ITEM 1. Legal Proceedings............................................. 16
ITEM 6. Exhibits and Reports on Form 8-K.............................. 16
SIGNATURE.................................................................. 17
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
BALANCE SHEET
(In Millions, Except Per Share Amounts)
March 31, December 31,
2002 2001
--------- ------------
(Unaudited)
ASSETS:
Property and plant, at original cost:
Electric $1,233 $1,224
Gas 282 280
------ ------
1,515 1,504
Less accumulated depreciation and amortization 704 693
------ ------
811 811
Construction work in progress 10 11
------ ------
Total property and plant, net 821 822
------ ------
Investments and other assets:
Intercompany notes receivable 419 419
Intercompany tax receivable 173 177
Other assets 18 17
------ ------
Total investments and other assets 610 613
------ ------
Current assets:
Cash and cash equivalents 22 26
Accounts receivable - trade (less allowance for
doubtful accounts of $2 and $1, respectively) 126 119
Other accounts and notes receivable 31 61
Intercompany notes receivable 43 43
Intercompany tax receivable 14 18
Materials and supplies, at average cost -
Fossil fuel 14 33
Other 10 9
Other 7 7
------ ------
Total current assets 267 316
------ ------
Regulatory assets 31 32
------ ------
Total Assets $1,729 $1,783
====== ======
CAPITAL AND LIABILITIES:
Capitalization:
Common stock, no par value, 45.0 shares
authorized - 25.5 shares outstanding $ 120 $ 120
Retained earnings 430 444
------ ------
Total common stockholder's equity 550 564
Preferred stock not subject to mandatory
redemption 80 80
Long-term debt 574 579
------ ------
Total capitalization 1,204 1,223
------ ------
Current liabilities:
Current maturity of long-term debt 33 33
Accounts and wages payable 72 114
Accumulated deferred income taxes 20 20
Taxes accrued 29 23
Other 37 31
------ ------
Total current liabilities 191 221
------ ------
Accumulated deferred income taxes 250 255
Accumulated deferred investment tax credits 12 12
Regulatory liabilities 36 36
Other deferred credits and liabilities 36 36
------ ------
Total Capital and Liabilities $1,729 $1,783
====== ======
See Notes to Financial Statements.
2
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF INCOME
UNAUDITED
(In Millions)
Three Months Ended
March 31,
------------------
2002 2001
---- ----
OPERATING REVENUES:
Electric $150 $156
Gas 65 106
---- ----
Total operating revenues 215 262
OPERATING EXPENSES:
Operations
Fuel and purchased power 105 108
Gas 44 80
Other 33 30
---- ----
182 218
Maintenance 8 7
Depreciation and amortization 12 12
Income taxes 1 5
Other taxes 9 9
---- ----
Total operating expenses 212 251
---- ----
OPERATING INCOME 3 11
Miscellaneous, net 9 10
INCOME BEFORE INTEREST CHARGES 12 21
INTEREST CHARGES 10 10
---- ----
NET INCOME 2 11
PREFERRED STOCK DIVIDENDS 1 1
---- ----
NET INCOME AFTER PREFERRED STOCK DIVIDENDS $ 1 $ 10
==== ====
See Notes to Financial Statements.
3
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF CASH FLOWS
UNAUDITED
(In Millions)
Three Months Ended
March 31,
-------------------
2002 2001
---- ----
Cash Flows From Operating:
Net income $ 2 $ 11
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12 12
Deferred income taxes, net (5) (5)
Changes in assets and liabilities:
Receivables, net 23 (7)
Materials and supplies 18 13
Accounts and wages payable (42) (10)
Taxes accrued 6 9
Other, net 15 15
----- -----
Net cash provided by operating activities 29 38
Cash Flows From Investing:
Construction expenditures (12) (9)
----- -----
Net cash used in investing activities (12) (9)
Cash Flows From Financing:
Dividends on common stock (15) -
Dividends on preferred stock (1) (1)
Redemptions:
Long-term debt (5) (5)
Intercompany notes payable - (20)
----- -----
Net cash used in financing activities (21) (26)
----- -----
Net change in cash and cash equivalents (4) 3
Cash and cash equivalents at beginning of year 26 30
----- -----
Cash and cash equivalents at end of period $ 22 $ 33
===== =====
Cash paid during the periods:
Interest (net of amount capitalized) $ 6 $ 9
Income taxes, net $ - $ -
See Notes to Financial Statements.
4
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF COMMON STOCKHOLDER'S EQUITY
UNAUDITED
(In Millions)
Three Months Ended
March 31,
---------------------
2002 2001
---- ----
Common stock $ 120 $ 120
Retained earnings
Beginning balance 444 435
Net income 2 11
Common stock dividends (15) -
Preferred stock dividends (1) (1)
------ ------
430 445
Total common stockholder's equity $ 550 $ 565
====== ======
See Notes to Financial Statements.
5
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2002
NOTE 1 - Summary of Significant Accounting Policies
Basis of Presentation
Our financial statements reflect all adjustments (which include normal,
recurring adjustments) necessary, in our opinion, for a fair presentation of the
interim results. These statements should be read in conjunction with the
financial statements and the notes thereto included in our 2001 Annual Report on
Form 10-K.
When we refer to AmerenCIPS, our, we or us, we are referring to Central Illinois
Public Service Company. All dollar amounts are in millions, unless otherwise
indicated.
Accounting Changes
In January 2001, we adopted Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The impact of that adoption was immaterial to us.
On January 1, 2002, we adopted SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires business
combinations to be accounted for under the purchase method of accounting, which
requires one party in the transaction to be identified as the acquiring
enterprise and for that party to allocate the purchase price to the assets and
liabilities of the acquired enterprise based on fair market value. SFAS 142
requires goodwill and indefinite-lived intangible assets recorded in the
financial statements to be tested for impairment at least annually, rather than
amortized over a fixed period, with impairment losses recorded in the income
statement. SFAS 141 and SFAS 142 did not have any effect on our financial
position, results of operations or liquidity upon adoption.
In July 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. SFAS 143 requires an entity to record a liability and corresponding
asset representing the present value of legal obligations associated with the
retirement of tangible, long-lived assets. SFAS 143 is effective for us on
January 1, 2003. At this time, we are assessing the impact of SFAS 143 on our
financial position, results of operations or liquidity upon adoption.
On January 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 addresses the financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS 144 retains the guidance related to calculating
and recording impairment losses, but adds guidance on the accounting for
discontinued operations, previously accounted for under Accounting Principles
Board Opinion No. 30. SFAS 144 did not have any effect on our financial
position, results of operations or liquidity upon adoption.
NOTE 2 - Rate and Regulatory Matters
Illinois
In December 1997, the Governor of Illinois signed the Electric Service
Customer Choice and Rate Relief Law of 1997 (the Illinois Law) providing for
electric utility restructuring in Illinois. This legislation introduced
competition into the retail supply of electric energy in Illinois. Illinois
residential customers were offered choice in suppliers on May 1, 2002.
Industrial and commercial customers were already offered this choice. The
offering of choice to our industrial and commercial customers has not had a
material adverse effect on our business and we do not expect the offering of
choice to our residential customers to have a material adverse effect on our
business either.
In addition, the Illinois Law contains a provision freezing residential
electric rates through January 1, 2005. Legislation has been introduced in the
6
Illinois House of Representatives and Senate that would extend the rate freeze
to December 31, 2006. At this time, we cannot predict whether that legislation
will ultimately be passed.
Federal - Midwest ISO and Alliance RTO
In December 1999, the Federal Energy Regulatory Commission (FERC) issued
Order 2000 requiring all utilities, subject to FERC jurisdiction, to state their
intentions for joining a regional transmission organization (RTO). RTOs are
independent organizations that will functionally control the transmission assets
of utilities in order to improve the wholesale power market. Since January 2001,
we along with several other utilities have been seeking approval from the FERC
to participate in an RTO known as the Alliance RTO. We had previously been a
member of the Midwest Independent System Operator (MISO) and recorded a pretax
charge to earnings in 2000 of $8 million ($5 million after taxes) for an exit
fee and other costs when we left that organization. We felt the for-profit
Alliance RTO business model was superior to the not-for-profit MISO business
model and provided us with a more equitable return on our transmission assets.
In late 2001, the FERC issued an order that rejected the formation of the
Alliance RTO and ordered the Alliance RTO companies and the MISO to discuss how
the Alliance RTO business model could be accommodated within the MISO. On April
25, 2002, after the Alliance RTO and MISO failed to reach an agreement, and
after a series of filings by the two parties with the FERC, the FERC issued a
declaratory order setting forth the division of responsibilities between the
MISO and the National Grid (the managing member of the transmission company
formed by the Alliance companies) and approved the rate design and the revenue
distribution methodology proposed by the Alliance companies. However, the FERC
denied a request by the Alliance companies and the National Grid to purchase
certain services from the MISO at incremental cost rather than MISO's full
tariff rates. The FERC also ordered the MISO to return the exit fee paid by
Ameren to leave the MISO, provided Ameren returns to the MISO and agrees to pay
its proportional share of the startup and ongoing operational expenses of the
MISO. Moreover, the FERC required the Alliance companies to select the RTO in
which they will participate within thirty days of the order. At this time, we
continue to evaluate our alternatives and are in the process of determining the
impact that the FERC's April 2002 ruling will have on our future financial
condition, results of operations or liquidity.
NOTE 3 - Related Party Transactions
Our Company has transactions in the normal course of business with Ameren
Corporation, our parent company, and its subsidiaries. These transactions are
primarily comprised of power purchases and sales, including power purchases
derived under an electric power supply agreement between our Company and
AmerenEnergy Marketing Company (Marketing Company), and services received or
rendered. An electric power supply agreement was entered into between
AmerenEnergy Generating Company (Generating Company) and its nonregulated
affiliate, Marketing Company, also a wholly-owned subsidiary of AmerenEnergy
Resources Company (Resources Company). In addition, Marketing Company entered
into a separate power supply agreement with our Company to supply us sufficient
energy and capacity to meet our obligations as a public utility through December
31, 2004 (Power Supply Agreement). A portion of the capacity and energy supplied
by Generating Company to Marketing Company will be resold to our Company for
resale to native load customers at rates specified by the Illinois Commerce
Commission (ICC), which approximate the historical regulatory rates for
generation, or to retail customers allowed choice of an electric supplier under
state law at market-based prices. In turn, we will bill these customers at rates
which approximate the costs we incur for our capacity and energy supplied by
Marketing Company. Through the Power Supply Agreement we purchased $98 million
of power for the three months ended March 31, 2002 (March 31, 2001 - $101
million).
Intercompany power purchases totaled $105 million for the three months
ended March 31, 2002 (March 31, 2001 - $107 million). Intercompany power sales
totaled $7 million for the three months ended March 31, 2002 (March 31, 2001 -
$6 million). As of March 31, 2002, intercompany receivables included in other
accounts and notes receivable were approximately $20 million (December 31, 2001
- - $22 million). As of March 31, 2002, intercompany payables included in accounts
and wages payables totaled approximately $53 million (December 31, 2001 - $87
million).
We have the ability to borrow up to approximately $831 million from Ameren
or Union Electric Company (AmerenUE), an affiliate, through a regulated money
pool agreement. The total amount available to us at any given time from the
regulated money pool is reduced by the amount of borrowings by AmerenUE or
7
Ameren Services Company, an affiliate, but increased to the extent Ameren,
AmerenUE or Ameren Services have surplus funds and the availability of other
external borrowing sources. Our Company, AmerenUE and Ameren Services rely on
the regulated money pool to coordinate and provide for certain short-term cash
and working capital requirements. Ameren Services administers the regulated
money pool. Interest is calculated at varying rates of interest depending on the
composition of internal and external funds in the regulated money pool. For the
three months ended March 31, 2002 the average interest rate for the regulated
money pool was 1.79% (March 31, 2001 - 5.50%). For the three months ended March
31, 2002, the Company had no intercompany receivables outstanding (December 31,
2001 - $24 million) and $762 million available through the regulated money pool.
Support services provided by Ameren Services are based on actual costs
incurred. For the three months ended March 31, 2002, Other Operating Expenses
provided by Ameren Services totaled $16 million (March 31, 2001 - $13 million).
We incurred a deferred intercompany tax gain, which resulted in an
additional deferred tax liability when we transferred our electric generating
assets and liabilities, at historical net book value, to Generating Company, a
subsidiary of Resources Company in May 2000. An intercompany tax receivable with
Generating Company was established for the deferred tax liability. This asset
and liability will be amortized over twenty years. At March 31, 2002, our
deferred tax liability and intercompany tax receivable was $187 million
(December 31, 2001 - $195 million) including the current portion of $14 million
(December 31, 2001 - $18 million).
Our intercompany note receivable from Generating Company totaled
approximately $462 million including the current portion of $43 million as of
March 31, 2002 and December 31, 2001. Our intercompany interest income recorded
in Miscellaneous, net for the three months ended March 31, 2002, totaled
approximately $8 million (March 31, 2001 - $10 million).
NOTE 4 - Segment Information
Segment information for the three months ended March 31, 2002 and 2001 was as
follows:
- --------------------------------------------------------------------------------
Three months ended March 31, 2002: Electric Gas Total
- --------------------------------------------------------------------------------
Revenues $150 $65 $215
Operating Income (1) 4 3
- --------------------------------------------------------------------------------
Three months ended March 31, 2001:
- --------------------------------------------------------------------------------
Revenues $156 $106 $262
Operating Income 3 8 11
- --------------------------------------------------------------------------------
NOTE 5 - Subsequent Event
On April 28, 2002, Ameren entered into an agreement with The AES
Corporation to purchase all of the outstanding stock of CILCORP Inc. CILCORP is
the parent company of Peoria-based Central Illinois Light Company, which
operates as CILCO. Ameren also agreed to acquire AES Medina Valley (No. 4),
L.L.C. which indirectly owns a 40 megawatt, gas-fired electric generation plant.
The total purchase price is approximately $1.4 billion, subject to adjustment
for changes in CILCORP's working capital, and includes the assumption of CILCORP
and AES Medina Valley debt at closing, estimated at approximately $900 million,
with the balance of the purchase price in cash. Ameren currently expects to
finance a significant portion of the cash component of the purchase price
through the issuance of new common equity.
The purchase will include CILCORP's regulated natural gas and electric
businesses in Illinois serving approximately 200,000 and 205,000 customers,
respectively, of which 150,000 are combination electric or gas customers.
CILCO's territory is contiguous to our service territory. In addition, the
purchase includes approximately 1,200 megawatts of largely coal-fired generating
capacity most of which is expected to be nonregulated by closing.
Upon completion of the acquisition, expected within 12 months, CILCO will
become an Ameren subsidiary, but will remain a separate utility company, known
as AmerenCILCO. The transaction is subject to the approval of the ICC, the
Securities and Exchange Commission, the FERC, the expiration of the waiting
period under the Hart-Scott-Rodino Act and other customary closing conditions.
For the period ended December 31, 2001, CILCORP had revenues of $815
million, operating income of $126 million, and net income from continuing
operations of $28 million, and as of December 31, 2001 had total assets of $1.8
billion.
8
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
OVERVIEW
Central Illinois Public Service Company operates as AmerenCIPS and is a
wholly-owned subsidiary of Ameren Corporation. Our principal business is the
regulated transmission and distribution of electricity and the distribution of
natural gas to residential, commercial, industrial, and wholesale users in
Illinois. Ameren is a holding company registered under the Public Utility
Holding Company Act of 1935 (PUHCA). Ameren's principal business is the
generation, transmission and distribution of electricity, and the distribution
of natural gas to residential, commercial, industrial and wholesale users in the
central United States. In addition to us, Ameren's principal operating
subsidiaries and our affiliates are as follows:
o Union Electric Company, which operates a regulated electric generation,
transmission and distribution business, and a regulated natural gas
distribution business in Missouri and Illinois as AmerenUE.
o AmerenEnergy Resources Company (Resources Company), which consists of
nonregulated operations. Subsidiaries include AmerenEnergy Generating
Company (Generating Company) that operates Ameren's nonregulated electric
generation in Missouri and Illinois, AmerenEnergy Marketing Company
(Marketing Company), which markets power for periods over one year, and
AmerenEnergy Fuels and Services Company, which procures fuel and manages
the related risks for Ameren-affiliated companies. Generating Company
supplies electric power to Marketing Company which, in turn, supplies us
with power under a power supply agreement (Power Supply Agreement).
o Ameren Energy, Inc. which serves as a power marketing and risk management
agent for Ameren-affiliated companies for transactions of primarily less
than one year.
o Electric Energy, Inc. (EEI), which owns and/or operates electric generation
and transmission facilities in Illinois. On April 30, 2002, we transferred
our 20% common stock interest in EEI to Ameren in the form of a dividend of
common stock in EEI. The value of our investment in EEI was $1.8 million.
Subsequently, Ameren contributed such stock to Resources Company.
o Ameren Services Company, which provides shared support services to Ameren
and its subsidiaries, including us. Charges are based upon the actual costs
incurred by Ameren Services, as required by PUHCA.
You should read the following discussion and analysis in conjunction with:
o The financial statements and related notes included in this Quarterly
Report on Form 10-Q.
o Management's Discussion and Analysis of Financial Condition and Results of
Operations that is included in our Annual Report on Form 10-K for the
period ended December 31, 2001.
o The audited financial statements and related notes that are included in our
Annual Report on Form 10-K for the period ended December 31, 2001.
When we refer to AmerenCIPS, our, we or us, we are referring to Central
Illinois Public Service Company. All dollar amounts are in millions, unless
otherwise indicated.
Our results of operations and financial position are impacted by many
factors, including both controllable and uncontrollable factors. Weather,
economic conditions, and the actions of key customers or competitors can
significantly impact the demand for our services. Our results are also impacted
by seasonal fluctuations caused by winter heating and summer cooling demand.
With nearly all of our revenues subject to regulation by various state and
federal agencies, decisions by regulators can have a material impact on the
price we charge for our services. We principally utilize electric power and
natural gas in our operations. The prices for these commodities can fluctuate
significantly due to the world economic and political environment, weather and
many other factors. We do not have a fuel recovery mechanism in Illinois, but do
have a gas cost recovery mechanism. We employ various risk management strategies
in order to try to reduce our exposure to commodity risks and other risks
inherent in our business. The reliability of our transmission and distribution
systems, and the level of operating and administrative costs and capital
investment are key factors that we seek to control in order to optimize our
results of operations, cash flows and financial position.
RESULTS OF OPERATIONS
Our net income decreased to $2 million in the first quarter of 2002 from
$11 million in first quarter of 2001 primarily due to the extremely mild winter
weather in our service territory and higher operating expenses. According to
National Weather Service data, there were approximately 12% fewer heating
degree-days in our service territory in the first quarter of 2002 as compared to
2001 and normal weather conditions. As a result, weather-sensitive residential
9
electric kilowatt-hour sales decreased by 8% and gas sales decreased by 16% in
the first quarter of 2002 compared to 2001. In addition, industrial electric
kilowatt-hour sales decreased 4% due to the continued soft economy.
Recent Developments
On April 28, 2002, Ameren entered into an agreement with The AES
Corporation to purchase all of the outstanding stock of CILCORP Inc. CILCORP is
the parent company of Peoria-based Central Illinois Light Company, which
operates as CILCO. Ameren also agreed to acquire AES Medina Valley (No. 4),
L.L.C. which indirectly owns a 40 megawatt gas-fired electric generation plant.
The total purchase price is approximately $1.4 billion, subject to adjustment
for changes in CILCORP's working capital, and includes the assumption of CILCORP
and AES Medina Valley debt at closing, estimated at approximately $900 million,
with the balance of the purchase price in cash. Ameren currently expects to
finance a significant portion of the cash component of the purchase price
through the issuance of new common equity.
The purchase will include CILCORP's regulated natural gas and electric
businesses in Illinois serving approximately 200,000 and 205,000 customers,
respectively, of which 150,000 are combination electric and gas customers.
CILCO's service territory is contiguous to our service territory. In addition,
the purchase includes approximately 1,200 megawatts of largely coal-fired
generating capacity most of which is expected to be nonregulated by closing.
Upon completion of the acquisition, expected within 12 months, CILCO will
become an Ameren subsidiary, but will remain a separate utility company,
operating as AmerenCILCO. The transaction is subject to the approval of the
Illinois Commerce Commission, the Securities and Exchange Commission (SEC), the
Federal Energy Regulatory Commission (FERC), the expiration of the waiting
period under the Hart-Scott-Rodino Act and other customary closing conditions.
For the period ended December 31, 2001, CILCORP had revenues of $815
million, operating income of $126 million, and net income from continuing
operations of $28 million, and as of December 31, 2001 had total assets of $1.8
billion.
As a result of the continuing uncertainty associated with AmerenUE's
pending Missouri electric rate case, and the CILCORP transaction and related
assumption of debt, credit rating agencies placed Ameren Corporation's debt
under review for possible downgrade or negative credit watch. Standard & Poor's
placed the ratings of our debt and AmerenUE's debt on negative credit watch and
placed the ratings of Generating Company's debt on positive credit watch.
However, Standard & Poor's stated they expect the corporate credit ratings of
Ameren and its subsidiaries to be in the "A" rating category following
completion of the acquisition. Moody's Investor Service stated they envisioned a
one notch downgrade of Ameren's issuer, senior unsecured debt and commercial
paper ratings. Currently, Ameren's corporate credit rating is A+ at Standard &
Poor's and A2 at Moody's. If the ratings of AmerenUE's first mortgage bonds fall
below investment grade, lenders under AmerenUE's $300 million revolving credit
facility may elect not to make advances and/or declare outstanding borrowings
due and payable. In addition, a decrease in Ameren's ratings may indirectly
reduce our access to capital and/or increase the costs of borrowings resulting
in a negative impact on earnings.
Electric Operations
The following table represents the favorable (unfavorable) variations for
the three months ended March 31, 2002 from the comparable period in 2001.
- --------------------------------------------------------------------------------
Three Months
- --------------------------------------------------------------------------------
Operating Revenues:
Effect of abnormal weather (estimate) $(4)
Growth and other (estimate) -
Wholesale sales (1)
Interchange sales (1)
- --------------------------------------------------------------------------------
(6)
Purchased Power: $(3)
- --------------------------------------------------------------------------------
(3)
- --------------------------------------------------------------------------------
Change in electric margin $(3)
- --------------------------------------------------------------------------------
10
Electric margins decreased $3 million and electric revenues decreased 4% in
the first three months of 2002 compared to the year-ago quarter. Electric
revenues were negatively impacted by the previously-mentioned warmer winter
weather and the decrease in industrial sales resulting from the continued soft
economy in our service territory. Interchange and wholesale sales also decreased
for the quarter. Purchased power costs decreased $3 million for the three months
ended March 31, 2002 compared to the same period in 2001 due to the lower energy
prices and reduced native load demand.
Gas Operations
Our gas revenues decreased $41 million and our gas costs decreased $36
million, in the first quarter 2002 as compared to the year-ago quarter primarily
due to a 16% reduction in sales caused by the milder winter weather and lower
natural gas prices. As a result, our gas margins decreased by $5 million in the
first quarter of 2002 as compared to the same period a year ago.
Other Operating Expenses
Other operating expenses increased $3 million in the first quarter of 2002
compared to the year-ago period, primarily due to higher costs related to
hardware and software maintenance upgrades for several computer systems,
increases in employee benefits costs related to the investment performance of
pension plan assets and increasing healthcare costs. Ameren Services provided
services to us for the three months ended March 31, 2002 of approximately $16
million (March 31, 2001 - $13 million) that were included in other operating
expenses. See Note 3 - "Related Party Transactions" to the financial statements.
Maintenance expenses increased $1 million in the first quarter of 2002
compared to the year-ago period, primarily due to higher tree-trimming expenses,
which were accelerated, in part, to take advantage of the mild weather.
Taxes
Income tax expense decreased $4 million in the first quarter of 2002
compared to the year-ago period, primarily due to lower operating income.
Other Income and Deductions
Other income and deductions decreased $1 million in the first quarter of
2002 compared to the year-ago period primarily due to less intercompany interest
received on the Generating Company subordinated promissory note due to a lower
amount outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Operating
Our cash flows provided by operating activities decreased $9 million to $29
million in the first quarter of 2002 compared to the year-ago period, primarily
due to a decrease in net income coupled with the timing of receipt of payments
from our affiliates offset by a decrease in accounts payable as the cash
received was used to reduce outstanding liabilities.
The tariff-based gross margins of our operations continue to be our
principal source of cash from operating activities. Our diversified retail
customer mix of residential, commercial and industrial classes and a commodity
mix of gas and electric service provide a reasonably predictable source of cash
flows. We plan to utilize short-term debt to support normal operations and other
temporary capital requirements. We are authorized by the SEC under PUHCA to have
up to $250 million of short-term unsecured debt instruments outstanding at any
one time. External short-term borrowings consist of commercial paper with
maturities generally within 1 to 45 days.
At March 31, 2002, we had committed bank lines of credit aggregating $25
million, all of which were unused and available at such date. These lines make
available interim financing at various rates of interest based on LIBOR, the
bank certificate of deposit rate or other options. The lines of credit are
renewable annually at various dates throughout the year. Ameren expects to
11
replace these lines of credit prior to their maturity. For the three months
ended March 31, 2002, our Company had no outstanding short-term borrowings.
Our Company has the ability to borrow up to approximately $831 million from
Ameren or AmerenUE, through a regulated money pool agreement. The total amount
available to us at any given time from the regulated money pool is reduced by
the amount of borrowings by AmerenUE or Ameren Services, but increased to the
extent Ameren, AmerenUE or Ameren Services have surplus funds or the
availability of other external borrowing sources. Our Company, AmerenUE and
Ameren Services rely on the regulated money pool to coordinate and provide for
certain short-term cash and working capital requirements. Ameren Services
administers the regulated money pool. Interest is calculated at varying rates of
interest depending on the composition of internal and external funds in the
regulated money pool. For the three months ended March 31, 2002, the average
interest rate for the regulated money pool was 1.79% (2001 - 5.50%). For the
three months ended March 31, 2002, the Company had no intercompany receivables
outstanding (December 31, 2001 - $24 million) and $762 million available through
the regulated money pool.
Our and our affiliates' short-term financial agreements include customary
default provisions that could impact the continued availability of credit or
result in the acceleration of repayment. These events include bankruptcy,
defaults in payment of other indebtedness, certain judgments that are not paid
or insured, or failure to meet or maintain covenants. At March 31, 2002, we and
our affiliates were in compliance with these provisions.
Investing
Our net cash used in investing activities was $12 million in the first
quarter of 2002 (2001 - $9 million) representing construction expenditures
primarily related to various transmission and distribution line upgrades,
rebuilding of existing line structures, and network facility upgrades. Capital
expenditures are expected to approximate $59 million in 2002.
Financing
Our net cash flows used in financing activities totaled $21 million in the
first quarter of 2002 compared to $26 million in the year-ago period. Our
principal financing activities for the period included the payment of dividends
and the redemption of long-term debt. Prior year dividends were effected by the
timing of the dividend payments.
In the ordinary course of business, we evaluate several strategies to
enhance our financial position, earnings, and liquidity. These strategies may
include potential acquisitions, divestitures, opportunities to reduce costs or
increase revenues, and other strategic initiatives in order to increase
shareholder value. We are unable to predict which, if any, of these initiatives
will be executed, as well as, the impact these initiatives may have on our
future financial position, results of operations or liquidity.
Electric Industry Restructuring
Illinois
See Note 2 - "Rate and Regulatory Matters" to the financial statements.
Federal - Midwest ISO and Alliance RTO
See Note 2 - "Rate and Regulatory Matters" to the financial statements.
ACCOUNTING MATTERS
Critical Accounting Policies
Preparation of the financial statements and related disclosures in
compliance with generally accepted accounting principles requires the
application of appropriate technical accounting rules and guidance, as well as
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the use of estimates. Our application of these policies involves judgments
regarding many factors, which, in and of themselves, could materially impact the
financial statements and disclosures. A future change in the assumptions or
judgments applied in determining the following matters, among others, could have
a material impact on future financial results. In the table below, we have
outlined those accounting policies that we believe are most difficult,
subjective or complex:
Accounting Policies Judgments/Uncertainties Affecting Application
- ------------------- ---------------------------------------------
Regulatory Mechanisms & Cost Recovery
o Regulatory environment, external regulatory
We defer costs as regulatory assets in decisions and requirements
accordance with SFAS 71 and make o Anticipated future regulatory decisions and their
investments that we assume we will be able impact
to collect in future rates. o Impact of deregulation and competition on
ratemaking process and ability to recover costs
Environmental Costs
o Extent of contamination
We accrue for all known environmental o Responsible party determination
contamination, where remediation can be o Approved methods for cleanup
reasonably estimated, but some of our o Present and future legislation and governmental
operations have existed for over 100 years regulations and standards
and previous contamination may be o Results of ongoing research and development
unknown to us. regarding environmental impacts
Unbilled Revenue
At the end of each period, we estimate, o Projecting customer energy usage
based on expected usage, the amount of o Estimating impacts of weather and other usage-
of revenue to record for services that have affecting factors for the unbilled period
provided to customers, but not billed. This
period can be up to one month.
Benefit Plan Accounting
Based on actuarial calculations, we accrue o Future rate of return on pension and other plan assets
costs of providing future employee o Interest rates used in valuing benefit obligation
benefits in accordance with SFAS 87, o Healthcare costs trend rates
106, and 112. See Note 9 to our financial
statements for the year ended December 31,
2001.
Impact of Future Accounting Pronouncements
See Note 1 - "Summary of Significant Accounting Policies" to the financial
statements.
ITEM 3. Quantitative And Qualitative Disclosures About Market Risk
Market risk represents the risk of changes in value of a physical asset or
a financial instrument, derivative or non-derivative, caused by fluctuations in
market variables (e.g., interest rates, etc.). The following discussion of
Ameren's, including our Company's, risk management activities includes
"forward-looking" statements that involve risks and uncertainties. Actual
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results could differ materially from those projected in the "forward-looking"
statements. Ameren manages market risks in accordance with established policies,
which may include entering into various derivative transactions. In the normal
course of business, Ameren and our Company also face risks that are either
non-financial or non-quantifiable. Such risks principally include business,
legal, and operational risk and are not represented in the following analysis.
Ameren's risk management objective is to optimize its physical generating
assets within prudent risk parameters. Risk management policies are set by a
Risk Management Steering Committee, which is comprised of senior-level Ameren
officers.
Interest Rate Risk
We are exposed to market risk through changes in interest rates associated
with the issuance of both long-term and short-term variable-rate debt and
fixed-rate debt, commercial paper and auction-rate long-term debt and preferred
stock. We manage our interest rate exposure by controlling the amount of these
instruments we hold within our total capitalization portfolio and by monitoring
the effects of market changes in interest rates.
Utilizing our debt outstanding at March 31, 2002, if interest rates
increased by 1%, our annual interest expense would increase by $0.3 million and
net income would decrease by $0.3 million. The model does not consider the
effects of the reduced level of potential overall economic activity that would
exist in such an environment. In the event of a significant change in interest
rates, management would likely take actions to further mitigate our exposure to
this market risk. However, due to the uncertainty of the specific actions that
would be taken and their possible effects, the sensitivity analysis assumes no
change in our Company's financial structure.
Safe Harbor Statement
Statements made in this report which are not based on historical facts, are
"forward-looking" and, accordingly, involve risks and uncertainties that could
cause actual results to differ materially from those discussed. Although such
"forward-looking" statements have been made in good faith and are based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. These statements include (without limitation) statements as to future
expectations, beliefs, plans, strategies, objectives, events, conditions and
financial performance. In connection with the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we are providing this
cautionary statement to identify important factors that could cause actual
results to differ materially from those anticipated. The following factors, in
addition to those discussed elsewhere in this report and in the Annual Report on
Form 10-K for the year ended December 31, 2001, and in subsequent securities
filings, could cause results to differ materially from management expectations
as suggested by such "forward-looking" statements:
o the effects of the pending AmerenUE excess earnings complaint case and
regulatory actions, including changes in regulatory policy;
o changes in laws and other governmental actions, including monetary and
fiscal policies;
o the impact on us of current regulations related to the opportunity for
customers to choose alternative energy suppliers in Illinois;
o the effects of increased competition in the future due to, among other
things, deregulation of certain aspects of the Company's business at both
the state and federal levels;
o the effects of participation in a FERC-approved Regional Transmission
Organization (RTO), including activities associated with the Midwest
Independent System Operator and the Alliance RTO;
o availability and future market prices for purchased power, electricity and
natural gas, including the use of financial and derivative instruments and
volatility of changes in market prices;
o average rates for electricity in the Midwest;
o business and economic conditions;
o the impact of the adoption of new accounting standards;
o interest rates and the availability of capital;
o actions of rating agencies and the effects of such actions;
o weather conditions;
o the effects of strategic initiatives, including acquisitions and
divestitures;
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o the impact of current environmental regulations on utilities and the
expectation that more stringent requirements will be introduced over time,
which could potentially have a negative financial effect;
o future wages and employee benefits costs;
o delays in receipt of regulatory approvals for the acquisition of CILCORP or
unexpected adverse conditions or terms of those approvals;
o difficulties in integrating CILCO with Ameren's other businesses;
o changes in the coal markets, environmental laws or regulations or other
factors adversely impacting synergy assumptions in connection with the
CILCORP acquisition;
o disruptions of the capital markets or other events making AmerenCIPS'
access to necessary capital more difficult or costly;
o cost and availability of transmission capacity required to satisfy energy
sales made by the Company; and
o legal and administrative proceedings.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Reference is made to Item 1. Business-Rates and Regulation - Environmental
Matters in Part I of our Annual Report on Form 10-K for the year ended December
31, 2001 for a discussion of the February 2002 Illinois Supreme Court decision
which affirmed the Illinois Appellate Court's decision upholding the $3.2
million plaintiffs' verdict against us in the lawsuit styled as Zachary
Donaldson, et al. v. Central Illinois Public Service Company, et al. This
lawsuit, which was filed in December 1995, alleged that, as a result of exposure
to carcinogens contained in coal tar at our former Taylorville manufactured gas
plant site, plaintiffs' children had suffered from a rare form of childhood
cancer known as "neuroblastoma". On April 1, 2002, the Illinois Supreme Court
denied our petition for a rehearing of its February 2002 decision. This action
leaves us with no further appeals and finalizes the $3.2 million plaintiffs'
verdict. The amount was fully accrued.
Reference is made to Item 3. Legal Proceedings in Part I of our Annual
Report on Form 10-K for the year ended December 31, 2001 for a discussion of a
number of lawsuits that name our affiliate, AmerenUE, our parent, Ameren
Corporation, and us (which we refer to as the Ameren companies), along with
numerous other parties, as defendants that have been filed by plaintiffs
claiming varying degrees of injury from asbestos exposure. With respect to nine
of those lawsuits, the Ameren companies have reached settlements with the
plaintiffs for monetary amounts not material to the Ameren companies and in
three cases, the Ameren companies have been voluntarily dismissed.
Twenty-two additional lawsuits claiming injury from asbestos exposure have
been filed against the Ameren companies since year-end 2001. These lawsuits,
like the previous cases, were mostly filed in the Circuit Court of Madison
County, Illinois, involve a large number of total defendants (over one hundred
in many cases) and seek unspecified damages in excess of $50,000, which, if
proved, typically would be shared among the named defendants. Currently, thirty
asbestos-related lawsuits are pending against the Ameren companies. We believe
that the final disposition of these proceedings will not have a material adverse
effect on our financial position, results of operations or liquidity.
ITEM 6. Exhibits And Reports On Form 8-K
(a) Exhibits.
(b) Reports on Form 8-K. None.
Note: Reports of Ameren Corporation on Forms 8-K, 10-Q and 10-K are on
file with the SEC under File Number 1-14756.
Reports of AmerenUE on Forms 8-K, 10-Q and 10-K are on file
with the SEC under File Number 1-2967.
Information regarding AmerenEnergy Generating Company on Forms
8-K, 10-Q, and 10-K are on file with the SEC under File Number
333-56594.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL ILLINOIS PUBLIC
SERVICE COMPANY
(Registrant)
By /s/ Martin J. Lyons
-------------------------------------
Martin J. Lyons
Controller
(Principal Accounting Officer)
Date: May 15, 2002
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