UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
Of THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to ........
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-10628 CIPSCO INCORPORATED 37-1260920
(An Illinois Corporation)
607 East Adams Street
Springfield, Illinois 62739
217-523-3600
1-3672 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 37-0211380
(An Illinois Corporation)
607 East Adams Street
Springfield, Illinois 62739
217-523-3600
Indicate by check mark whether the Registrants (1) have 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 Registrants were required to
file such reports), and (2) have been subject to such filing
requirements for the past 90 days.
Yes X No
_______ _______
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of the latest practicable date:
CIPSCO INCORPORATED Common stock, no par value, 34,107,706
shares outstanding at July 31, 1994
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Common stock no par value, 25,452,373
shares outstanding and held by
CIPSCO INCORPORATED at July 31, 1994
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CIPSCO INCORPORATED
AND
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1994
CONTENTS
PART I. FINANCIAL INFORMATION Page No.
Item 1: Financial Statements
CIPSCO INCORPORATED
Consolidated Statements of Income 4- 5
Consolidated Balance Sheets 6- 7
Consolidated Statements of Cash Flows 8- 9
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Statements of Income 10-11
Balance Sheets 12-13
Statements of Cash Flows 14-15
Condensed Notes to Financial Statements of
CIPSCO Incorporated and Central Illinois
Public Service Company 16-20
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations
CIPSCO Incorporated and Central Illinois
Public Service Company 21-25
PART II. OTHER INFORMATION
Item 5: Other Information 26
Item 6: Exhibits and Reports on Form 8-K 26
Signatures 27-28
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The unaudited interim financial statements presented herein
include the consolidated statements of CIPSCO Incorporated and
Subsidiaries ("Company") as well as separate financial statements
for Central Illinois Public Service Company ("CIPS"). The
unaudited statements have been prepared by the Company and CIPS,
respectively, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations, although the Company and CIPS believe the
disclosures are adequate to make the information presented not
misleading. The Company consolidated financial statements should
be read in conjunction with the financial statements and notes
thereto included in the Annual Report on Form 10-K of CIPSCO
Incorporated for the year ended December 31, 1993 (the "CIPSCO
10-K"); and the CIPS financial statements should be read in
conjunction with the financial statements and notes thereto
included in the Annual Report on Form 10-K of CIPS for the year
ended December 31, 1993 (the "CIPS 10-K").
In the opinion of the Company and CIPS, their respective interim
financial statements filed as part of this Form 10-Q reflect all
adjustments necessary to present fairly the results for the
respective periods. Due to the effect of weather and other
factors which are characteristic of CIPS' utility operations,
financial results for the periods ended June 30, 1994 and 1993
are not necessarily indicative of trends for any twelve-month
period.
This financial and other information is not given in connection
with any sale or offer to buy any security.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CIPSCO INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
For the Periods Ended June 30, 1994 and 1993
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
___________________ ___________________
1994 1993 1994 1993
_________ _________ _________ _________
Operating Revenues:
Electric......................... $178,914 $169,006 $338,246 $314,460
Gas.............................. 21,484 18,370 85,578 82,456
Investment....................... 2,107 1,915 4,303 3,679
________ ________ ________ ________
Total operating revenues...... 202,505 189,291 428,127 400,595
________ ________ ________ ________
Operating Expenses:
Fuel for electric generation..... 50,256 45,743 103,934 90,797
Purchased power.................. 16,152 18,822 26,100 25,810
Gas purchased.................... 12,011 9,529 54,613 53,447
Other operation.................. 35,193 37,352 73,061 70,035
Maintenance...................... 16,409 17,059 31,003 28,983
Depreciation and amortization.... 20,037 19,535 40,449 39,051
Taxes other than income taxes.... 12,948 12,887 29,178 28,489
________ ________ ________ ________
Total operating expenses...... 163,006 160,927 358,338 336,612
________ ________ ________ ________
Operating Income................... 39,499 28,364 69,789 63,983
________ ________ ________ ________
Interest and Other Charges:
Interest on long-term debt of
subsidiary....................... 8,215 8,692 16,567 17,597
Other interest charges........... 17 60 (3) 418
Allowance for funds used during
construction..................... (461) (528) (485) (1,041)
Preferred stock dividends of
subsidiary....................... 851 981 1,679 1,935
Miscellaneous, net............... (671) (752) (1,791) (1,559)
________ ________ ________ ________
Total interest and other
charges....................... 7,951 8,453 15,967 17,350
________ ________ ________ ________
-4-
Income Before Income Taxes......... 31,548 19,911 53,822 46,633
________ ________ ________ ________
Income Taxes....................... 12,003 7,241 20,518 17,301
________ ________ ________ ________
Net Income......................... $ 19,545 $ 12,670 $ 33,304 $ 29,332
======== ======== ======== ========
Average Shares of Common Stock
Outstanding........................ 34,108 34,108 34,108 34,108
Earnings per Average Share of
Common Stock....................... .57 .37 .98 .86
The accompanying condensed notes to financial statements are an integral
part of these statements.
-5-
CIPSCO INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1994 and December 31, 1993
(in thousands)
June 30, December 31,
1994 1993
___________ ____________
(unaudited)
ASSETS
Utility Plant, at original cost:
Electric............................. $2,217,905 $2,172,578
Gas.................................. 213,169 208,208
__________ __________
2,431,074 2,380,786
Less-Accumulated depreciation........ 1,053,082 1,020,416
__________ __________
1,377,992 1,360,370
Construction work in progress........ 44,586 61,104
__________ __________
1,422,578 1,421,474
__________ __________
Current Assets:
Cash................................. 3,905 4,630
Temporary investments, at cost which
approximates market.................. 7,480 5,527
Accounts receivable, net............. 70,686 61,445
Accrued unbilled revenues............ 28,797 38,774
Materials and supplies, at average
cost................................. 42,808 40,824
Fuel for electric generation, at
average cost......................... 29,178 26,046
Gas stored underground, at average
cost................................. 9,431 14,335
Prepayments.......................... 9,668 10,142
__________ __________
201,953 201,723
__________ __________
Investments and Other Assets:
Investment in marketable
securities........................... 43,342 42,703
Investment in leveraged leases....... 43,969 42,216
Other................................ 44,995 49,634
__________ __________
132,306 134,553
__________ __________
$1,756,837 $1,757,750
========== ==========
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CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders' equity.......... $ 633,737 $ 634,252
Unrealized investment losses, net.... (737) -
Preferred stock of subsidiary........ 80,000 80,000
Long-term debt of subsidiary......... 459,468 474,323
__________ __________
1,172,468 1,188,575
__________ __________
Current Liabilities:
Long-term debt of subsidiary due
within one year...................... 15,000 20,000
Accounts payable..................... 51,467 56,039
Accrued wages........................ 13,077 12,775
Accrued taxes........................ 23,946 12,973
Accrued interest..................... 9,047 9,204
Other................................ 45,140 34,902
__________ __________
157,677 145,893
__________ __________
Deferred Credits:
Accumulated deferred income taxes.... 300,326 294,732
Investment tax credits............... 57,278 58,962
Regulatory liability, net............ 69,088 69,588
__________ __________
426,692 423,282
__________ __________
$1,756,837 $1,757,750
========== ==========
The accompanying condensed notes to financial statements are an
integral part of these statements.
-7-
CIPSCO INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Periods Ended June 30, 1994 and 1993
(in thousands)
(unaudited)
Six Months Ended
June 30,
______________________
1994 1993
__________ __________
Operating Activities:
Net income.............................. $ 33,304 $ 29,332
Adjustments to reconcile net income
to net cash provided:
Depreciation and amortization......... 40,449 39,051
Allowance for equity funds used during
construction (AFUDC).................. (332) (673)
Deferred income taxes, net............ 4,851 6,995
Investment tax credit amortization.... (1,684) (1,683)
Cash flows impacted by changes in assets
and liabilities:
Accounts receivable and unbilled
revenues.............................. 736 (2,473)
Fuel for electric generation.......... (3,132) 2,155
Other inventories..................... 2,920 (582)
Prepayments........................... 474 4,045
Other assets.......................... 4,639 1,726
Accounts payable and other............ 5,666 7,114
Accrued wages, taxes and interest..... 11,118 5,984
Other................................... (774) 4,719
_________ _________
Net cash provided by operating
activities............................ 98,235 95,710
_________ _________
Investing Activities:
Utility construction expenditures,
excluding AFUDC......................... (39,969) (36,288)
Allowance for borrowed funds used
during construction..................... (153) (369)
Change in temporary investments......... (1,953) (3,709)
Long-term investment in marketable
securities.............................. (1,376) (1,608)
Long-term investment in leveraged
leases.................................. (1,753) 725
_________ _________
Net cash used in investing activities. (45,204) (41,249)
_________ _________
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Financing Activities:
Common stock dividends paid............. (33,767) (33,084)
Proceeds from issuance of long-term
debt of subsidiary...................... - 135,000
Repayment of long-term debt of
subsidiary.............................. (20,000) (145,000)
Repayment of short-term borrowings...... - (21,393)
Proceeds from issuance of preferred
stock of subsidiary..................... - 30,000
Redemption of preferred stock of
subsidiary.............................. - (15,000)
Issuance expense, discount and premium.. 11 (5,392)
_________ _________
Net cash used in financing activities. (53,756) (54,869)
_________ _________
Net decrease in cash.................... (725) (408)
Cash at beginning of period............. 4,630 1,534
_________ _________
Cash at end of period................... $ 3,905 $ 1,126
========= =========
Supplemental Disclosures of Cash Flow
Information
Cash paid during the period for:
Interest, net of amount capitalized... $ 15,605 $ 13,159
Income taxes.......................... 11,053 14,013
The accompanying condensed notes to financial statements are an
integral part of these statements.
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CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Statements of Income
For the Periods Ended June 30, 1994 and 1993
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
___________________ ___________________
1994 1993 1994 1993
_________ _________ _________ _________
Operating Revenues:
Electric......................... $178,920 $169,013 $338,261 $314,474
Gas.............................. 21,486 18,372 85,581 82,459
________ ________ ________ ________
Total operating revenues...... 200,406 187,385 423,842 396,933
________ ________ ________ ________
Operating Expenses:
Fuel for electric generation..... 50,256 45,743 103,934 90,797
Purchased power.................. 16,152 18,822 26,100 25,810
Gas purchased.................... 12,011 9,529 54,613 53,447
Other operation.................. 34,902 37,002 72,385 69,363
Maintenance...................... 16,408 17,059 31,001 28,982
Depreciation and amortization.... 19,878 19,432 40,185 38,845
Taxes other than income taxes.... 12,940 12,865 29,156 28,447
Income taxes:
Current........................ 11,526 5,619 19,936 14,542
Deferred, net.................. 887 2,063 1,262 3,564
Deferred investment tax
credits, net................... (842) (842) (1,683) (1,683)
________ ________ ________ ________
Total operating expenses...... 174,118 167,292 376,889 352,114
________ ________ ________ ________
Operating Income................... 26,288 20,093 46,953 44,819
________ ________ ________ ________
Other Income and Deductions:
Allowance for equity funds used
during construction.............. 316 341 332 673
Nonoperating income taxes........ (173) (124) (487) (245)
Miscellaneous, net............... 818 830 2,150 1,661
________ ________ _________ ________
Total other income and
deductions.................... 961 1,047 1,995 2,089
________ ________ ________ ________
-10-
Income Before Interest Charges..... 27,249 21,140 48,948 46,908
________ ________ ________ ________
Interest Charges:
Long-term debt................... 8,215 8,692 16,567 17,597
Other interest charges........... 21 44 4 362
Allowance for borrowed funds used
during construction.............. (145) (187) (153) (369)
________ ________ ________ ________
Total interest charges....... 8,091 8,549 16,418 17,590
________ ________ ________ ________
Net Income......................... 19,158 12,591 32,530 29,318
Preferred Dividends................ 851 981 1,679 1,935
________ ________ ________ ________
Earnings for Common Stock.......... $ 18,307 $ 11,610 $ 30,851 $ 27,383
======== ======== ======== ========
The accompanying condensed notes to financial statements are an integral
part of these statements.
-11-
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Balance Sheets
June 30, 1994 and December 31, 1993
(in thousands)
June 30, December 31,
1994 1993
___________ ____________
(unaudited)
ASSETS
Utility Plant, at original cost:
Electric............................. $2,217,905 $2,172,578
Gas.................................. 213,169 208,208
__________ __________
2,431,074 2,380,786
Less-Accumulated depreciation........ 1,053,082 1,020,416
__________ __________
1,377,992 1,360,370
Construction work in progress........ 44,586 61,104
__________ __________
1,422,578 1,421,474
__________ __________
Current Assets:
Cash................................. 449 4,038
Temporary investments, at cost which
approximates market.................. 3,780 2,734
Accounts receivable, net............. 70,795 61,591
Accrued unbilled revenues............ 28,797 38,774
Materials and supplies, at average
cost................................. 42,808 40,824
Fuel for electric generation, at
average cost......................... 29,178 26,046
Gas stored underground, at average
cost................................. 9,431 14,335
Prepayments.......................... 9,629 9,847
__________ __________
194,867 198,189
__________ __________
Other Assets........................... 44,362 48,799
__________ __________
$1,661,807 $1,668,462
========== ==========
-12-
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders' equity.......... $ 561,622 $ 565,023
Preferred stock...................... 80,000 80,000
Long-term debt....................... 459,468 474,323
__________ __________
1,101,090 1,119,346
__________ __________
Current Liabilities:
Long-term debt due within one year... 15,000 20,000
Accounts payable..................... 50,913 55,931
Accrued wages........................ 13,077 12,720
Accrued taxes........................ 22,876 13,391
Accrued interest..................... 9,047 9,204
Other................................ 45,140 34,895
__________ __________
156,053 146,141
__________ __________
Deferred Credits:
Accumulated deferred income taxes.... 278,298 274,425
Investment tax credits............... 57,278 58,962
Regulatory liability, net............ 69,088 69,588
__________ __________
404,664 402,975
__________ __________
$1,661,807 $1,668,462
========== ==========
The accompanying condensed notes to financial statements are an
integral part of these statements.
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Central Illinois Public Service Company
Statements of Cash Flows
For the Periods Ended June 30, 1994 and 1993
(in thousands)
(unaudited)
Six Months Ended
June 30,
______________________
1994 1993
__________ __________
Operating Activities:
Net income.............................. $ 32,530 $ 29,318
Adjustments to reconcile net income
to net cash provided:
Depreciation and amortization......... 40,185 38,845
Allowance for equity funds used during
construction (AFUDC).................. (332) (673)
Deferred income taxes, net............ 3,131 4,261
Income tax credit amortization........ (1,684) (1,683)
Cash flows impacted by changes in assets
and liabilities:
Accounts receivable and accrued
unbilled revenues..................... 773 (2,499)
Fuel for electric generation.......... (3,132) 2,155
Other inventories..................... 2,920 (582)
Prepayments........................... 218 3,346
Other assets.......................... 4,437 3,272
Accounts payable and other............ 5,227 7,238
Accrued wages, taxes and interest..... 9,685 1,946
Other................................... (511) 4,925
_________ _________
Net cash provided by operating
activities............................ 93,447 89,869
_________ _________
Investing Activities:
Construction expenditures, excluding
AFUDC................................... (39,969) (36,288)
Allowance for borrowed funds used during
construction............................ (153) (369)
Changes in temporary investments........ (1,046) (109)
_________ _________
Net cash used in investing activities. (41,168) (36,766)
_________ _________
-14-
Financing Activities:
Repurchase of common stock.............. - (33,250)
Proceeds from issuance of long-term debt - 135,000
Repayment of long-term debt............. (20,000) (145,000)
Repayment of short-term borrowings...... - (17,393)
Proceeds from issuance of preferred
stock................................... - 30,000
Redemption of preferred stock........... - (15,000)
Dividends paid:
Preferred stock....................... (1,679) (1,935)
Common stock.......................... (34,200) -
Issuance expense, discount and premium.. 11 (5,392)
_________ _________
Net cash used in financing activities. (55,868) (52,970)
_________ _________
Net increase (decrease) in cash......... (3,589) 133
Cash at beginning of period............. 4,038 480
_________ _________
Cash at end of period................... $ 449 $ 613
========= =========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest, net of amount capitalized... $ 15,605 $ 13,100
Income taxes.......................... 14,047 19,066
The accompanying condensed notes to financial statements are an
integral part of these statements.
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CIPSCO INCORPORATED AND SUBSIDIARIES
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994
(unaudited)
Note 1. GENERAL
________________
The consolidated financial statements presented herein include
the accounts of CIPSCO INCORPORATED (CIPSCO), CENTRAL ILLINOIS
PUBLIC SERVICE COMPANY (CIPS), and CIPSCO INVESTMENT COMPANY AND
SUBSIDIARIES (CIC). CIPSCO and Subsidiaries are referred to as
the "Company." CIPSCO has two first-tier subsidiaries: CIC, an
investment subsidiary, and CIPS, an electric and gas public
utility. Prior year amounts have been reclassified on a basis
consistent with the June 30, 1994 presentation.
The financial statements of CIPS, a subsidiary of CIPSCO, include
only the accounts of CIPS. Prior year amounts have been
reclassified on a basis consistent with the June 30, 1994
presentation.
Previously, CIPSCO and CIPS have filed separate reports on Form
10-Q.
Note 2. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL REMEDIATION COSTS - CIPS and certain of its
predecessors and other affiliates operated facilities in the past
for manufacturing gas from coal. In connection with
manufacturing gas, various by-products were produced, some of
which remain on sites where the facilities were located. CIPS
has identified 13 of these former manufactured gas plant sites
(environmental remediation sites) which contain potentially
harmful materials. Under directives from the Illinois
Environmental Protection Agency (IEPA), CIPS has incurred costs
and associated legal expenses related to the investigation and
remediation of the sites.
One site was added to the United States Environmental Protection
Agency (USEPA) Superfund list on August 30, 1990. On September
30, 1992 the IEPA, in consultation with the USEPA, decided that
the long-term remedial plan for this site should consist of a
ground water pump-and-treat program. The IEPA and CIPS entered
into an agreement, which received approval by the court on March
14, 1994, for CIPS to carry out the remedial action with the IEPA
providing oversight. It is not known at this time what specific
remedial action will be required at the other 12 sites.
In 1987, CIPS filed a lawsuit against a number of insurance
carriers seeking full indemnification for all costs in connection
with certain environmental sites. CIPS has now settled the
lawsuit with substantially all of the insurance carriers.
-16-
The estimated incurred costs related to studies and remediation
at these 13 sites and associated legal expenses are being accrued
and deferred rather than expensed currently, pending recovery
through rates, from insurance carriers or from other parties.
The total amount deferred represents costs incurred and estimates
for costs of completing studies at various sites and an estimate
of remediation costs at the Superfund site. At June 30, 1994 the
amounts recovered have exceeded the aggregate amount deferred.
In 1992, the Illinois Commerce Commission (the "Illinois
commission") issued an Order (the "Generic Order") in its
consolidated generic proceeding initiated on March 6, 1991,
regarding appropriate ratemaking treatment of cleanup costs
incurred by Illinois utilities with respect to environmental
remediation sites. The Generic Order indicates that allowed
cleanup costs may include prudently incurred costs of
investigation, assessment and cleanup of environmental
remediation sites, as well as litigation costs including those
involved in insurance recovery claims. The Generic Order
authorizes utilities, including CIPS, to propose a mechanism to
recover cleanup costs which is consistent with the provisions of
the order. Such a mechanism must, among other things, provide
for (1) recovery of cleanup costs over a five-year period,
excluding carrying costs associated with the unrecovered balance
of cleanup costs from the time that the recovery mechanism
becomes effective; (2) a return to ratepayers over a five-year
amortization period of any reimbursement of cleanup costs
received from insurance carriers or other parties; and (3) a
prudence review of each utility's expenditures. The Generic Order
was upheld on appeal by the Third District Illinois Appellate
Court. That decision held that a rate rider mechanism is an
appropriate means for utilities to recover cleanup costs. The
case has been appealed to the Illinois Supreme Court by an
intervenor that maintains that no recovery of cleanup costs
should be allowed and that, if allowed, a rate rider mechanism is
not the proper means of providing recovery. CIPS and other
utilities have also appealed to the Illinois Supreme Court
seeking to include the unrecovered carrying charges in the rate
rider. The Illinois Supreme Court has granted both appeals and
is expected to hear the appeals during 1994. CIPS cannot predict
what action the Illinois Supreme Court will take in this matter.
On March 26, 1993 the Illinois commission approved CIPS' proposed
environmental cost-recovery rate riders, effective with April
1993 billings to customers. Known as the electric environmental
adjustment clause and the gas environmental adjustment clause,
the riders are designed to enable CIPS to recover from its
customers costs associated with cleanup of the environmental
remediation sites, along with associated legal expenses, over a
five year period on terms consistent with the Generic Order. The
environmental adjustment clause riders provide for an annual
review of amounts recovered through the riders. Amounts found to
have been incorrectly included would be subject to refund.
Through December 31, 1993, CIPS had collected $2.9 million
including interest from its customers pursuant to the riders.
Pursuant to monthly filings made by CIPS under the riders, no
additional amounts have been collected from customers under the
riders since January 1994. On April 6, 1994, the Illinois
-17-
commission initiated a reconciliation proceeding to review CIPS
environmental remediation activities and determine whether the
level of revenues collected by the riders is consistent with the
amount of remediation costs prudently incurred and whether all
amounts collected were correctly included in the riders. CIPS
has filed testimony and provided data to the Illinois commission
regarding the reconciliation proceeding. A status hearing is
scheduled for January 1995.
Total cost to be incurred for the cleanup of these sites or the
possible recovery from insurance carriers and other parties
cannot be estimated. Management believes that any costs incurred
in connection with the sites that are not recovered from
insurance carriers or other parties will be recovered through
utility rates. Accordingly, management believes that costs
incurred in connection with these sites will not have a material
adverse effect on the financial position or results of operations
of the Company or CIPS.
FERC ORDER 636 - During 1992, the Federal Energy Regulatory
Commission ("FERC") issued a series of orders that require
substantial restructuring of the service obligations of
interstate pipeline suppliers. These orders (together called
Order 636) required mandatory unbundling of existing pipeline gas
sales services. Mandatory unbundling requires pipelines to sell
separately the various components previously included with gas
sales services (i.e., storage, transport, capacity sales, etc.).
Order 636 provides a mechanism for pipelines to recover
transition costs associated with restructuring their gas sales
services.
Based on currently available information contained in the various
interstate pipeline Order 636 compliance filings, CIPS estimates
that the total amount of transition costs to be incurred by CIPS
is approximately $10 million of which $4.5 million has been paid.
At June 30, 1994, CIPS had recorded a liability and a related
deferred gas cost of $1.4 million for that portion of the
transition costs that will be billed to CIPS regardless of future
pipeline services.
The Illinois commission issued an order in March 1994 permitting
retail gas distribution companies, including CIPS, full recovery
through rates of prudently incurred Order 636 transition costs.
On May 4, 1994, the Illinois commission granted rehearing of the
order. CIPS believes that the rehearing will be limited to a
determination of the proper allocation of transition costs among
customer classes. A hearing examiner's proposed order in June
1994, reaffirmed the original order. A final order will be
issued in the near future. CIPS cannot predict what further
action the Illinois commission will take in this matter or
whether the Illinois commission's final order in this matter will
be appealed.
CLEAN AIR ACT - CIPS' compliance strategy to meet the sulfur
dioxide emission reduction requirements of the Clean Air Act
Amendments of 1990 (Amendments) includes complying with Phase I
of the Amendments by switching to a lower sulfur coal at some of
its units. Phase II compliance will be accomplished by
-18-
additional fuel switching at various units and by increased
scrubbing with its existing scrubber at Newton Unit 1. Phase I
and Phase II emission provisions of the Amendments become
effective in 1995 and 2000, respectively.
CIPS estimates that total capital costs, primarily for
modifications to boilers, precipitators, coal handling
facilities, and continuous monitoring equipment for
implementation of this compliance strategy, will be less than $50
million in total including amounts spent to date. Operating
costs are not expected to change materially. Compliance costs
could result in electric base rate increases of approximately one
to two percent by the year 2000.
In 1991, in accordance with the plan to switch some units to
lower sulfur coal, CIPS signed a long-term coal contract with an
existing supplier for lower sulfur Illinois coal. Due to the
magnitude of the supplier's capital investment, the contract
includes a graduated termination charge. In 1994, CIPS can
terminate the contract under certain conditions, and CIPS would
be required to pay up to $41 million (plus an inflation
adjustment) in termination charges. Each year subsequent to 1994
the termination charge is reduced according to a formula using
tons of coal purchased. The termination charge would not be
effective if CIPS terminated the contract due to the failure of
the coal to meet quality specifications provided for in the
contract.
LABOR DISPUTES - The International Union of Operating Engineers
(IUOE) Local 148 and the International Brotherhood of Electrical
Workers (IBEW) Local 702 each filed unfair labor practice charges
in 1993 with the National Labor Relations Board (NLRB) relating
to the legality of a lockout by CIPS of both unions during 1993.
The Peoria Regional Office of the NLRB has issued a complaint
against CIPS concerning its lockout of IBEW-702 represented
employees. However, the Peoria Regional Office did not find
merit to a similar charge filed by the IUOE 148 and it was
dismissed. The IUOE 148 appealed the dismissal within the NLRB.
On July 20, 1994, CIPS received notification from the Peoria
Regional Office that the Appeals Division, located in Washington
D.C., reversed the earlier decision made by the Peoria Regional
Office thereby finding merit to the claim by IUOE 148 that the
lockout of its members was illegal. As a result of the finding
by the Appeals Division, the Peoria Regional Office may issue a
complaint against CIPS regarding the lockout of the IUOE 148
employees. Both unions seek, among other things, back pay and
other benefits for the period of the lockout. CIPS estimates the
amount of back pay and other benefits for both unions to be less
than $12 million. Management believes the lockout was both
lawful and reasonable and that the final resolution of the
disputes will not have a material adverse effect on financial
position or results of operations of the Company or CIPS.
OTHER ISSUES - CIPS is involved in other legal and administrative
proceedings before various courts and agencies with respect to
rates, taxes, gas and electric fuel cost reconciliations, service
area disputes, environmental and other matters. Although unable
to predict the outcome of these matters, management believes that
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appropriate liabilities have been established and that final
disposition of these actions will have no material adverse effect
on the results of operations or the financial position of the
Company or CIPS.
-20-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis of financial condition and
results of operations is for CIPSCO Incorporated and Subsidiaries
("Company") unless otherwise stated.
THE OUTLOOK
CIPS currently estimates that its total construction expenditures
for the 1994-1998 period will be about $431 million, including
about $4 million of allowance for funds used during construction.
In addition to funds for construction, projected capital
requirements for the remainder of 1994 and for the 1995-1998
period include $73 million for scheduled debt retirements.
Capital requirements for the 1994-1998 period are expected to be
provided primarily through internally generated funds. External
financing to fund scheduled debt retirements may be required.
FINANCIAL CONDITION
Financial condition and changes in total Shareholder Equity of
the Company and CIPS for the six-month periods ended June 30,
1994 and 1993 are as follows:
Six Months Ended
June 30,
________________________
(in thousands)
The Company: 1994 1993
_________ _________
Common Shareholders' Equity
Net income $ 33,304 $ 29,332
Common stock dividends paid (33,767) (33,084)
Other (789) (655)
________ ________
Change in Shareholder Equity (1,252) (4,407)
======== ========
Six Months Ended
June 30,
________________________
(in thousands)
CIPS: 1994 1993
_________ _________
Common Shareholders' Equity
Earnings for Common stock $ 30,851 $ 27,383
Repurchase of Common stock - (33,250)
Common stock dividends paid (34,200) -
Other (52) (655)
________ ________
Change in Shareholder Equity (3,401) (6,522)
======== ========
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OVERVIEW
The Company's earnings per share were $.57 for the quarter ended
June 30, 1994, compared to $.37 per share earned during the same
period in 1993. The increase was primarily caused by increased
electric sales to customers of CIPS caused by warmer temperatures
in the second quarter of 1994. The Company's earnings per share
were $.98 for the six months ended June 30, 1994, compared to
$.86 per share earned during the same period in 1993. The
increase was due to increased sales to electric customers of CIPS
caused by warmer temperatures in the second quarter of 1994,
partially offset by increased operation and maintenance expenses
due to one time labor settlement costs and timing of production
maintenance expenses. The following table summarizes the
components of consolidated net income and CIPS earnings for
common stock for the three months and six months ended June 30,
1994 and 1993 (see Results of Operations for further discussion).
In this table, electric operating margin equals electric
operating revenues less fuel for electric generation and less
purchased power. Gas operating margin equals gas operating
revenues less gas purchased.
Second Quarter Ended Six Months Ended
June 30, June 30,
____________________ ___________________
1994 1993 1994 1993
_________ _________ _________ _________
CIPS
Electric operating margin $112,512 $104,448 $208,227 $197,867
Gas operating margin 9,475 8,843 30,968 29,012
Other deductions and interest (102,829) (100,700) (206,665) (197,561)
expenses
CIPS preferred stock dividends (851) (981) (1,679) (1,935)
_______ _______ _______ _______
Total earnings for
common stock 18,307 11,610 30,851 27,383
_______ _______ _______ _______
NON-UTILITY
Investment revenues 1,958 1,819 3,983 3,539
Other deduction and expenses (720) (759) (1,530) (1,590)
_______ _______ _______ _______
Total non-utility net
income 1,238 1,060 2,453 1,949
_______ _______ _______ _______
Consolidated net income $ 19,545 $ 12,670 $ 33,304 $ 29,332
======= ======= ======= =======
RESULTS OF OPERATIONS
The results of operations of the Company and CIPS for the three
months and six months ended June 30, 1994 compared to the same
periods in 1993 are presented below.
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The Company Net Income (in thousands) Earnings Per Share
_________________________ __________________
Three Months Six Months Three Months Six Months
____________ __________ ____________ __________
1994 $19,545 $33,304 $.57 $.98
1993 12,670 29,332 .37 .86
_______ _______ ____ ____
Increase $ 6,875 $ 3,972 $.20 $.12
======= ======= ==== ====
Percent
Increase 54% 14% 54% 14%
CIPS Earnings for Common Stock (in thousands)
________________________________________
Three Months Six Months
____________ __________
1994 $18,307 $30,851
1993 11,610 27,383
_______ _______
Increase $ 6,697 $ 3,468
======= =======
Percent
Increase 58% 13%
OPERATING REVENUES
The changes in electric and gas revenues described below are for
the Company. The only differences between changes in electric
and gas operating revenues for the Company and for CIPS are
intercompany revenues which are eliminated in the consolidated
financial statements. These intercompany amounts are immaterial.
Electric revenues increased 6% in the second quarter and 8% in
the first six months of 1994 compared to the same periods in
1993, principally due to increased KWH sales in residential,
commercial and industrial classes. Overall KWH sales decreased
9% in the second quarter of 1994 due to a decrease in interchange
economy and emergency sales from last year's record levels;
however, sales were higher in all other customer classes due to
warmer weather in the second quarter of 1994. KWH sales
increased 2% in the first six months of 1994 as compared to the
same period in 1993 principally due to warmer weather in the
second quarter of 1994.
The changes in electric revenue and KWH sales are shown below:
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CHANGES IN ELECTRIC REVENUE AND KILOWATTHOUR SALES
INCREASE (DECREASE) FROM PRIOR YEAR
(in thousands)
_______________________________________________________________________________________
Second Quarter Six Months
__________________________________________ __________________________________________
Revenue Rev % KWH KWH % Revenue Rev % KWH KWH %
_________ _____ _________ _____ _________ _____ _________ _____
Residential $2,698 6% 31,759 6% $ 2,799 3% 31,726 2%
Commercial 3,214 7% 50,033 8% 2,988 4% 39,469 3%
Industrial 1,682 6% 14,108 2% 3,063 6% 57,221 5%
Public Authorities
and Other 714 26% 209 1% 540 8% (5,470) (6)%
_____ _______ ______ _______
Total Retail $8,308 7% 96,109 5% $ 9,391 4% 122,946 3%
Power Supply Agreements 2,793 17% 86,962 30% 5,837 18% 184,100 34%
Interchange Sales
(economy/emergency) (1,836) (8)% (544,606) (36)% 7,347 24% (210,286) (10)%
Cooperatives and
Municipals 643 13% 12,342 11% 1,212 12% 17,801 8%
_____ _______ ______ _______
Total Wholesale $1,600 4% (445,302) (23)% $14,396 20% (8,385) -
_____ _______ ______ _______
Total $9,908 6% (349,193) (9)% $23,786 8% 114,561 2%
===== ======= ====== =======
Gas revenues increased 17% in the second quarter and 4% in the
first six months of 1994 when compared to the same periods of
1993. The second quarter increase in revenues to residential
customers was a result of increased purchase gas costs, and the
increase to commercial customers was due to commercial customers
switching from transported gas to purchasing directly from CIPS.
The six month increase occurred primarily because industrial
customers switched from transporting gas to purchasing gas
directly from CIPS resulting in an increase in industrial
revenues and a decrease in transportation revenues.
Gas therm sales increased 19% in the second quarter and 6% in the
first six months of 1994 primarily due to colder weather in 1994.
The changes in gas revenues and therm sales are shown below.
CHANGES IN GAS REVENUE AND THERM SALES
INCREASE (DECREASE) FROM PRIOR YEAR
(in thousands)
_______________________________________________________________________________________
Second Quarter Six Months
__________________________________________ __________________________________________
Therms Therms
Revenue Rev % Therms % Revenue Rev % Therms %
_________ _____ _________ _____ _________ _____ _________ _____
Residential $2,291 21% 1,840 12% $ 605 1% (21) -
Commercial 611 18% 350 6% 352 2% 696 2%
Industrial (45) (2)% (1,634) (18)% 2,702 57% 4,476 28%
Transportation 6 - 8,465 50% (997) (20)% 7,540 13%
Miscellaneous 251 - - - 460 414% 361 -
_____ _____ _____ ______
Total $3,114 17% 9,021 19% $3,122 4% 12,691 6%
===== ===== ===== ======
Fuel for electric generation increased 10% for the second quarter
and 14% for the six months because of the increased generation
-24-
required to support retail sales to customers and sales under
power supply agreements.
Purchased power decreased 14% for the second quarter of 1994
compared with the same period in 1993 reflecting lower levels of
purchases made for resale to interchange economy and emergency
customers. Purchased power increased 1% for the six months of
1994 principally due to increases in average prices of power
purchased for resale.
Purchased gas increased 26% for the second quarter and 2% for the
six months when compared to the same periods in 1993. The
primary reason for the increases in both the second quarter and
for the six months was the commercial and industrial customers
switching from transported gas to CIPS system gas resulting in
both higher purchased gas costs and higher gas revenues.
Maintenance and other operation expenses declined 5% in the
second quarter of 1994 compared to the second quarter of 1993 due
to fewer maintenance projects scheduled in the second quarter of
1994. Maintenance and other operation expenses increased 5% in
the first six months of 1994 when compared to 1993 due to one
time expenses involved with settlement of labor disputes and the
scheduling of a major power station maintenance outage in the
first quarter of 1994, for which a similar project in 1993 did
not occur until later in the year.
Depreciation and amortization expense increased 3% in the second
quarter and 4% in the first six months of 1994 when compared to
1993 due to normal plant additions.
Interest charges and preferred dividends decreased 7% in the
second quarter and 9% in the first six months of 1994 as compared
with the same periods of 1993 due principally to refinancing of
long-term debt and preferred stock in 1993 at lower rates.
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PART II. OTHER INFORMATION
Item 5. Other Information
Reference is made to the fifth paragraph on page 5 under "Item 1.
Business - Rate Matters" in the CIPS 10-K (incorporated by
reference in the CIPSCO 10-K) for information regarding the
economic development rate. Effective June 13, 1994 the Illinois
commission granted CIPS approval to offer qualifying customers
the economic development rate through the period ending January
1, 2000. The scope of the rate was broadened to include those
customers who receive service under the commercial time of use
rate classification. In addition, the threshold for a customer
to qualify for the special contract provision of the rate was
lowered to 500 KW of load (or increments thereof) added to the
CIPS system from 2,000 KW.
Reference is made to the fourth paragraph on page 6 under "Item
1. Business - Electric Operations" in the CIPS 10-K
(incorporated by reference in the CIPSCO 10-K) for information
regarding the analysis of the generating units at the five power
stations owned by CIPS. At the present time CIPS plans to
continue operation of the twelve generating units at its power
stations and to continue its efforts to make additional sales of
capacity at market-based prices. It is expected that CIPS will
conduct additional studies from time to time in the future to
determine the best economic options with respect to its
generating resources.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
None
(B) Reports on Form 8-K:
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant, CIPSCO Incorporated, has duly caused this
report to be signed on its behalf by the undersigned thereunto
duly authorized.
CIPSCO Incorporated
Date: August 11, 1994 /s/ J. C. Fiaush
J. C. Fiaush
Controller
(Chief Accounting Officer)
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant, Central Illinois Public Service Company,
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Central Illinois Public Service Company
Date: August 11, 1994 /s/ J. C. Fiaush
J. C. Fiaush
Controller
(Principal Accounting Officer)
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