21
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 SEPTEMBER 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 Registrants; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-11327 Illinova Corporation 37-1319890
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525
(217) 424-6600
1-3004 Illinois Power Company 37-0344645
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525
(217) 424-6600
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 registrant was required to file such report),
and (2) have been subject to such filing requirements for the past 90
days.
Illinova Yes X No
Corporation ---- -----
Illinois Power Yes X No
Company ---- -----
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of the latest practicable date:
Illinova Corporation Common stock, no par value, 75,643,937
shares outstanding at October 31, 1994
Illinois Power Company Common stock, no par value, 75,643,937
shares outstanding held by Illinova
Corporation at October 31, 1994
Total number of sequentially numbered pages is 105.
ILLINOVA CORPORATION
ILLINOIS POWER COMPANY
This combined Form 10-Q is separately filed by Illinova Corporation
and Illinois Power Company. Prior to the filing of the combined 10-Q
for the quarter ended June 30, 1994, Illinova was not a reporting
company for purposes of the Securities Exchange Act of 1934, and
Illinois Power Company filed its own separate reports on Form 10-Q.
Information contained herein relating to Illinois Power Company is
filed by Illinova Corporation and separately by Illinois Power Company
on its own behalf. Illinois Power Company makes no representation as
to information relating to Illinova Corporation or its subsidiaries,
except as it may relate to Illinois Power Company.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1994
INDEX
PAGE NO.
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Illinova Corporation
Consolidated Balance Sheets 3 - 4
Consolidated Statements of Income 5 - 6
Consolidated Statements of Cash Flows 7
Illinois Power Company
Balance Sheets 8 - 9
Statements of Income 10
Statements of Cash Flows 11
Notes to Financial Statements of
Illinova Corporation and
Illinois Power Company 12 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for Illinova Corporation
and Illinois Power Company 14 - 20
Part II. OTHER INFORMATION
Item 1: Legal Proceedings 21
Item 6: Exhibits and Reports on Form 8-K 21
Signatures 22 - 23
Exhibit Index 24
PART I. FINANCIAL INFORMATION
ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Financial Statements)
SEPTEMBER 30, DECEMBER 31,
1994 1993
ASSETS (Unaudited)
(Millions of Dollars)
Utility Plant, at original cost
Electric (includes construction work
in progress of $237.0 million and
$218.7 million, respectively) $ 5,976.6 $ 5,889.4
Gas (includes construction work
in progress of $16.9 million and
$18.8 million, respectively) 601.2 589.9
---------- ----------
6,577.8 6,479.3
Less-Accumulated depreciation 2,065.9 1,974.6
---------- ----------
4,511.9 4,504.7
Nuclear fuel in process 6.8 6.6
Nuclear fuel under capital lease 104.4 128.5
---------- ----------
Total utility plant 4,623.1 4,639.8
---------- ----------
Investments and Other Assets 32.8 20.1
---------- ----------
Current Assets
Cash and cash equivalents 14.9 9.9
Accounts receivable (less allowance
for doubtful accounts of $4.0 million)
Service 93.1 85.2
Other 24.7 37.5
Accrued unbilled revenue 44.9 49.0
Material and supplies, at average cost 135.6 131.6
Prepayments and other 48.3 31.8
---------- ----------
Total current assets 361.5 345.0
---------- ----------
Deferred Charges
Deferred Clinton costs 111.7 114.3
Recoverable income taxes 119.7 108.0
Other 191.9 196.3
---------- ----------
Total deferred charges 423.3 418.6
---------- ----------
$ 5,440.7 $ 5,423.5
========== ==========
ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Financial Statements)
SEPTEMBER 30, DECEMBER 31,
1994 1993
CAPITAL AND LIABILITIES (Unaudited)
(Millions of Dollars)
Capitalization
Common stock -
No par value, 100,000,000 shares authorized;
75,643,937 shares outstanding,
stated at $ 1,424.6 $ 1,424.6
Less - Deferred compensation - ESOP 25.9 28.2
Retained earnings (deficit) 47.3 (64.6)
Less - Capital stock expense 10.6 10.8
Preferred and preference stock of subsidiary 303.7 303.7
Mandatorily redeemable preferred stock
of subsidiary 36.0 48.0
Long-term debt 1,938.7 1,926.3
---------- ----------
Total capitalization 3,713.8 3,599.0
---------- ----------
Current Liabilities
Accounts payable 93.3 128.8
Notes payable 204.5 92.3
Long-term debt and lease obligations
maturing within one year 34.3 187.7
Other 111.4 197.9
---------- ----------
Total current liabilities 443.5 606.7
---------- ----------
Deferred Credits
Accumulated deferred income taxes 975.3 906.4
Accumulated deferred investment tax credits 224.5 230.5
Other 83.6 80.9
---------- ----------
Total deferred credits 1,283.4 1,217.8
---------- ----------
$ 5,440.7 $ 5,423.5
========== ==========
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(See accompanying Notes to Financial Statements)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
(Unaudited)
(Millions except per share)
Operating Revenues:
Electric $ 362.4 $ 372.2 $ 912.1 $ 886.7
Electric interchange 30.2 45.6 83.3 91.0
Gas 36.3 34.6 226.0 220.3
------- ------- ------- -------
Total 428.9 452.4 1,221.4 1,198.0
======= ======= ======= =======
Operating Expenses and Taxes:
Fuel for electric plants 77.3 72.2 206.0 183.5
Power purchased 12.8 31.0 39.5 48.1
Gas purchased for resale 13.5 15.3 129.9 127.2
Other operating expenses 61.4 67.1 190.7 195.1
Maintenance 19.8 25.0 63.5 72.3
Depreciation 44.2 42.5 131.9 126.1
Amortization of excess
unprotected deferred taxes - (1.4) (1.4) (4.2)
General taxes 32.8 31.7 100.0 98.1
Deferred Clinton costs 0.8 2.8 2.6 8.4
Income Taxes 54.1 51.9 103.0 92.8
------- ------- ------- -------
Total 316.7 338.1 965.7 947.4
------- ------- ------- -------
Operating Income 112.2 114.3 255.7 250.6
------- ------- ------- -------
Other Income and Deductions:
Allowance for equity funds
used during construction 0.9 0.6 2.9 1.6
Disallowed Clinton costs - (271.0) - (271.0)
Income tax effects of
disallowed costs - 70.6 - 70.6
Miscellaneous - net (4.4) 2.3 (10.1) 2.0
------- ------- ------- -------
Total (3.5) (197.5) (7.2) (196.8)
------- ------- ------- -------
Income (Loss) Before
Interest Charges 108.7 (83.2) 248.5 53.8
------- ------- ------- -------
Interest Charges & Other:
Interest on long-term debt 32.9 38.7 103.1 116.8
Other interest charges (0.7) 3.0 3.3 6.6
Allowance for borrowed funds
used during construction (1.2) (1.0) (4.3) (3.0)
Preferred dividend requirements
of subsidiary 5.9 6.3 17.8 20.1
------- ------- ------- -------
Total 36.9 47.0 119.9 140.5
------- ------- ------- -------
Net Income (Loss) $ 71.8 $ (130.2) $ 128.6 $ (86.7)
======= ======= ======= =======
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(See accompanying Notes to Financial Statements)
Illinova Corporation Earnings Per Share and Dividends
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
(Unaudited)
Net Earnings (Loss) per
common share $ 0.95 $ (1.72) $ 1.70 $ (1.15)
Cash dividends declared per
common share $ 0.20 $ - $ 0.40 $ 0.40
Cash dividends paid per
common share $ 0.20 $ 0.20 $ 0.60 $ 0.60
Weighted average number
of common shares
outstanding during
period 75,643,937 75,643,937 75,643,937 75,643,937
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(See accompanying Notes to Financial Statements)
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1993
(Unaudited)
(Millions of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 128.6 $ (86.7)
Items not requiring cash, net 170.7 385.2
Changes in assets and liabilities (89.3) 8.1
--------- ---------
Net cash provided by operating
activities 210.0 306.6
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (128.0) (163.1)
Other investing activities (15.4) (9.3)
--------- ---------
Net cash used in investing activities (143.4) (172.4)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on common stock (45.4) (45.4)
Redemptions -
Short-term debt (131.8) (217.5)
Long-term debt (145.8) (615.2)
Preferred stock of subsidiary (12.0) (94.4)
Issuances -
Short-term debt 244.1 204.4
Long-term debt 35.6 645.0
Preferred stock of subsidiary -- 43.5
Other financing activities (6.3) (32.3)
--------- ---------
Net cash used in financing activities (61.6) (111.9)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 5.0 22.3
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 9.9 8.7
--------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 14.9 $ 31.0
========= =========
ILLINOIS POWER COMPANY
BALANCE SHEETS
(See accompanying Notes to Financial Statements)
SEPTEMBER 30, DECEMBER 31,
1994 1993
ASSETS (Unaudited)
(Millions of Dollars)
Utility Plant, at original cost
Electric (includes construction work
in progress of $237.0 million and
$218.7 million, respectively) $ 5,976.6 $ 5,889.4
Gas (includes construction work
in progress of $16.9 million and
$18.8 million, respectively) 601.2 589.9
------------ ------------
6,577.8 6,479.3
Less-Accumulated depreciation 2,065.9 1,974.6
------------ ------------
4,511.9 4,504.7
Nuclear fuel in process 6.8 6.6
Nuclear fuel under capital lease 104.4 128.5
------------ ------------
Total utility plant 4,623.1 4,639.8
------------ ------------
Investments and Other Assets 15.7 15.4
------------ ------------
Current Assets
Cash and cash equivalents 11.9 9.3
Accounts receivable (less allowance
for doubtful accounts of $4.0 million)
Service 93.1 85.2
Other 39.1 37.5
Accrued unbilled revenue 44.9 49.0
Material and supplies,
at average cost 135.6 131.6
Prepayments and other 48.2 31.7
------------ ------------
Total current assets 372.8 344.3
------------ ------------
Deferred Charges
Deferred Clinton costs 111.7 114.3
Recoverable income taxes 119.7 108.0
Other 190.1 195.1
------------ ------------
Total deferred charges 421.5 417.4
------------ ------------
$ 5,433.1 $ 5,416.9
============ ============
ILLINOIS POWER COMPANY
BALANCE SHEETS
(See accompanying Notes to Financial Statements)
SEPTEMBER 30, DECEMBER 31,
1994 1993
CAPITAL AND LIABILITIES (Unaudited)
(Millions of Dollars)
Capitalization
Common stock -
No par value, 100,000,000 shares
authorized; 75,643,937 shares
outstanding, stated at $ 1,424.6 $ 1,424.6
Less-Deferred compensation-ESOP 25.9 28.2
Retained earnings (deficit) 38.8 (71.0)
Less - Capital stock expense 10.6 10.8
Preferred and preference stock 303.7 303.7
Mandatorily redeemable
preferred stock 36.0 48.0
Long-term debt 1,938.7 1,926.3
------------ ------------
Total capitalization 3,705.3 3,592.6
------------ ------------
Current Liabilities
Accounts payable 92.4 128.4
Notes payable 204.0 92.3
Long-term debt and lease
obligations maturing
within one year 34.3 187.7
Other 111.4 197.9
------------ ------------
Total current liabilities 442.1 606.3
------------ ------------
Deferred Credits
Accumulated deferred income taxes 977.6 906.6
Accumulated deferred investment
tax credits 224.5 230.5
Other 83.6 80.9
------------ ------------
Total deferred credits 1,285.7 1,218.0
------------ ------------
$ 5,433.1 $ 5,416.9
============ ============
ILLINOIS POWER COMPANY
STATEMENTS OF INCOME
(See accompanying Notes to Financial Statements)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
(Unaudited)
(Millions except per share)
Operating Revenues:
Electric $ 362.4 $ 372.2 $ 912.1 $ 886.7
Electric interchange 30.2 45.6 83.3 91.0
Gas 36.3 34.6 226.0 220.3
------- ------- ------- -------
Total 428.9 452.4 1,221.4 1,198.0
Operating Expenses and Taxes:------- ------- ------- -------
Fuel for electric plants 77.3 72.2 206.0 183.5
Power purchased 12.8 31.0 39.5 48.1
Gas purchased for resale 13.5 15.3 129.9 127.2
Other operating expenses 61.4 67.1 190.7 195.1
Maintenance 19.8 25.0 63.5 72.3
Depreciation 44.2 42.5 131.9 126.1
Amortization of excess
unprotected deferred taxes - (1.4) (1.4) (4.2)
General taxes 32.8 31.7 100.0 98.1
Deferred Clinton costs 0.8 2.8 2.6 8.4
Income Taxes 54.1 51.9 103.0 92.8
------- ------- ------- -------
Total 316.7 338.1 965.7 947.4
------- ------- ------- -------
Operating Income 112.2 114.3 255.7 250.6
------- ------- ------- -------
Other Income and Deductions:
Allowance for equity funds
used during construction 0.9 0.6 2.9 1.6
Disallowed Clinton costs - (271.0) - (271.0)
Income tax effects of
disallowed costs - 70.6 - 70.6
Miscellaneous Net (3.7) 2.3 (7.2) 2.0
------- ------- ------- -------
Total (2.8) (197.5) (4.3) (196.8)
------- ------- ------- -------
Income (Loss) Before
Interest Charges 109.4 (83.2) 251.4 53.8
Interest Charges and Other: ------- ------- ------- -------
Interest on long-term debt 32.9 38.7 103.1 116.8
Other interest charges (0.7) 3.0 3.3 6.6
Allowance for borrowed funds
used during construction (1.2) (1.0) (4.3) (3.0)
------- ------- ------- -------
Total 31.0 40.7 102.1 120.4
------- ------- ------- -------
Net Income (Loss) 78.4 (123.9) 149.3 (66.6)
Preferred dividend requirements 5.9 6.3 17.8 20.1
Net Income (Loss) applicable ------- - ------- -------
- -------
to common stock $ 72.5 $(130.2) $ 131.5 $ (86.7)
======= ======= ======= =======
ILLINOIS POWER COMPANY
STATEMENTS OF CASH FLOWS
(See accompanying Notes to Financial Statements)
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1993
(Unaudited)
(Millions of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 149.3 $ (66.6)
Items not requiring cash, net 172.9 385.2
Changes in assets and liabilities (103.5) 8.1
--------- ---------
Net cash provided by operating
activities 218.7 326.7
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (128.0) (163.1)
Other investing activities (3.0) (3.2)
--------- ---------
Net cash used in investing
activities (131.0) (166.3)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on preferred and
common stock (63.4) (65.5)
Redemptions -
Short-term debt (131.3) (217.5)
Long-term debt (145.8) (615.2)
Preferred Stock (12.0) (94.4)
Issuances -
Short-term debt 243.0 204.4
Long-term debt 35.6 645.0
Preferred stock -- 43.5
Other financing activities (11.2) (38.4)
--------- ---------
Net cash used in financing
activities (85.1) (138.1)
--------- ---------
NET CHANGE IN CASH AND
CASH EQUIVALENTS 2.6 22.3
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 9.3 8.7
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 11.9 $ 31.0
========= =========
ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
GENERAL
Financial Statement note disclosures, normally included in
financial statements prepared in conformity with generally accepted
accounting principles, have been omitted from this Form 10-Q pursuant
to the Rules and Regulations of the Securities and Exchange
Commission. However, in the opinion of Illinova Corporation
(Illinova) and Illinois Power Company (IP), the disclosures and
information contained in this Form 10-Q are adequate and not
misleading. See IP's Form 10-K for the year ended December 31, 1993
and the "Notes to Financial Statements" in IP's 1993 Annual Report
incorporated by reference in IP's Form 10-K for the year ended
December 31, 1993, IP's report on Form 10-Q for the quarter ended
March 31, 1994, and the combined Illinova and Illinois Power report on
Form 10-Q for the quarter ended June 30, 1994, for information
relevant to the financial statements contained herein, including
information as to certain regulatory and environmental matters
involving IP and as to the significant accounting policies followed by
IP.
In the opinion of Illinova, the accompanying unaudited financial
statements reflect all adjustments necessary to present fairly the
Consolidated Balance Sheets as of September 30, 1994 and December 31,
1993, the Consolidated Statements of Income for the three months and
nine months ended September 30, 1994 and 1993, and the Consolidated
Statements of Cash Flows for the nine months ended September 30, 1994
and 1993. In addition, it is Illinova's and IP's opinion that the
accompanying unaudited financial statements for IP reflect all
adjustments necessary to present fairly the Balance Sheets as of
September 30, 1994 and December 31, 1993, the Statements of Income for
the three months and nine months ended September 30, 1994 and 1993,
and the Statements of Cash Flows for the nine months ended September
30, 1994 and 1993. Due to seasonal and other factors which are
characteristic of electric and gas utility operations, interim period
results are not necessarily indicative of results to be expected for
the year.
ACCOUNTING MATTERS
CONSOLIDATION
The consolidated financial statements of Illinova include the
accounts of Illinova, IP and Illinova Generating Company. Intercompany
balances and transactions have been eliminated from the consolidated
financial statements. All non-utility operating transactions are
included in the section titled Other Income and Deductions,
"Miscellaneous-net" in Illinova's Consolidated Statements of Income
and IP's Statements of Income. Prior year financial statements of
Illinois Power have been restated on a basis consistent with the
September 30, 1994 presentation.
IP's financial condition and results of operation are currently
the principal factors affecting Illinova's financial position or
results of operations.
FAS 119
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 119, "Disclosure About
Derivative Financial Instruments and Fair Value of Financial
Instruments," (FAS 119). FAS 119 requires expanded disclosure in the
financial statements of Illinova and IP beginning with the year ending
December 31, 1994. This standard is not expected to impact the
financial position or results of operations of Illinova or IP.
REGULATORY AND LEGAL MATTERS
DECOMMISSIONING
See "Decommissioning" in IP's Report on Form 10-Q for the quarter
ended March 31, 1994, and in the combined Illinova and IP Report on
Form 10-Q for the quarter ended June 30, 1994, for further discussion.
NUCLEAR FUEL CONTRACTS
In October 1993, IP filed suit in the U.S. District Court in
Danville, Illinois, against a number of entities who are parties to
one of IP's uranium supply contracts. In that suit, IP sought a
declaratory judgment on the propriety of its earlier termination of
the contract. In September 1994, the Court ruled against IP, granting
summary judgment motions filed by the defendants and holding that the
contract had been breached by IP's unauthorized termination. The
Court did not determine the amount of damages owed for the breach nor
the basis for calculating damages. Currently, settlement negotiations
are underway. If the negotiations are unsuccessful, a trial on the
issue of damages will be held. The outcome of this proceeding, even
if the issue of damages is litigated to judgment, is not expected to
have a material effect on IP's financial position or results of
operations.
ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to Notes to Financial Statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations presented in IP's 1993 Annual Report
incorporated by reference in IP's Form 10-K for the year ended
December 31, 1993, IP's Report on Form 10-Q for the quarter ended
March 31, 1994, and the combined Illinova and Illinois Power Report on
Form 10-Q for the quarter ended June 30, 1994. Important factors
affecting financial condition and results of operations between the
periods indicated are as follows:
Illinova Subsidiaries
IP, the primary business and subsidiary of Illinova, is engaged
in the generation, transmission, distribution and sale of electric
energy and the distribution, transportation and sale of natural gas in
the State of Illinois.
Illinova Generating Company (IG) is Illinova's wholly-owned
independent power subsidiary which invests in energy supply projects
throughout the world. IG's strategy is to develop "greenfield" power
plants, acquire existing generation facilities and provide power plant
O&M services. During the third quarter of 1994, IG became an equity
partner in three natural gas-fired generation plants with Tenaska, two
of which are already in operation. Tenaska is an Omaha, Nebraska-
based developer of independent power projects throughout the U.S. In
August 1994, IG also purchased 50 percent of the North American Energy
Services Company (NAES), headquartered in Issaquah, Washington. NAES
supplies a broad range of operations, maintenance and support services
to the worldwide independent power generation industry, and operates
the three generation plants in which IG purchased an equity interest
as noted above. Illinova has invested $25 million in IG as of
September 30, 1994.
Recent and potential future changes in federal and state
regulation of the utility industry have resulted in increased
competition in the energy marketplace. As part of Illinova's overall
strategy for preparing for this competition, potential future
deregulation and opportunities in higher-growth energy markets,
Illinova Power Marketing (IPM), a wholly-owned subsidiary of Illinova,
was formed on July 19, 1994 as a Delaware corporation. On July 20,
1994, IPM filed a request for Federal Energy Regulatory Commission
(FERC) approval to buy electricity from producers and to sell
electricity at market rates to wholesale customers, such as utilities,
electric cooperatives and municipalities, which are at least two
systems away from IP. Subsequent to the IPM filing, the FERC issued a
decision in Heartland Energy Services, Inc., et al., setting forth the
general standards governing applications by utility-affiliated
marketers, such as IPM, for market-based rates. Among these standards
is the submission, by the marketer's affiliated utility, of an open
access transmission tariff offering transmission services and prices
comparable to those which the utility provides to its customers. IPM
intends to amend its filing based on the FERC decision in the
Heartland case and has requested that the FERC defer action on the
original filing until it is amended. IPM plans to submit the amended
filing and IP plans to submit the comparable open access transmission
tariff, designed to satisfy the FERC's "comparability" requirements,
to the FERC during the first quarter of 1995. See the discussion of
open access and wheeling in "Regulatory Matters" on page 17 of this
report.
LIQUIDITY AND CAPITAL RESOURCES
DIVIDENDS
On March 23, 1994, the Illinois Commerce Commission (ICC) granted
IP permission to declare and pay common and preferred dividends for
the third and fourth quarters of 1994, with dividends on common stock
not to exceed 20 cents per share per quarter, in the event of a
negative retained earnings balance, contingent on satisfaction of
certain net income, cash flow and capitalization requirements as set
forth in the ICC order. As of July 31, 1994, IP no longer has negative
retained earnings. As a result, compliance with the conditions of the
ICC's March 1994 order is no longer necessary.
On August 10, 1994, the Board of Directors of Illinova declared
common stock dividends for the fourth quarter of 1994. In addition,
IP declared preferred stock dividends for the fourth quarter of 1994.
On October 12, 1994, the Board of Directors of Illinova increased the
common stock dividend 25 percent, declaring the common stock dividend
for the first quarter of 1995 at 25 cents per share, payable February
1, 1995, to shareholders of record as of January 10, 1995. This
declaration does not affect the previously declared common stock
dividend for the fourth quarter of 1994.
DECOMMISSIONING
See "Decommissioning" in IP's Report on Form 10-Q for the quarter
ended March 31, 1994, and in the combined Illinova and Illinois Power
Report on Form 10-Q for the quarter ended June 30, 1994, for further
discussion.
FERC ORDER 636
In January 1994, the ICC issued its Hearing Examiner's Proposed
Order (HEPO) related to its investigation of the appropriate method
for recovery of FERC Order 636 transition costs. The HEPO permitted
recovery of the transition costs through the Uniform Gas Adjustment
Clause. On September 23, 1994, the ICC issued a final order
addressing the appropriate method for the recovery of Order 636
transition costs. In the final order, the ICC distinguished between
Gas Supply Realignment Costs (GSR costs) and all other transition
costs, and determined that GSR costs should be recovered on a
volumetric basis in order to allocate these costs to all gas
customers. The Company will recover GSR costs from customers through
its gas rate rider for recovery of take-or-pay costs. All non-GSR
transition costs will be recovered through the Uniform Gas Adjustment
Clause. See "FERC Order 636" under "Regulatory Matters" in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in IP's 1993 Annual Report incorporated by
reference in IP's Form 10-K for the year ended December 31, 1993, for
further discussion.
TAX MATTERS
The Internal Revenue Service (IRS) has completed its audit of
IP's federal income tax returns for the years 1986 through 1988. IP
and the IRS have reached an agreement on all audit issues. The
results of the agreement did not have a material effect on IP's
financial position or results of operations.
CAPITAL RESOURCES AND REQUIREMENTS
Cash flow from operations during the first nine months of 1994
provided sufficient working capital to meet ongoing operating and
construction requirements and to service existing preferred and common
stock dividends and debt requirements for Illinova and its
subsidiaries. Additionally, Illinova and its subsidiaries believe
internal and external sources of capital will be available to meet
future operating requirements and continue to service existing debt,
preferred stock and common stock dividends, sinking fund requirements
and all anticipated construction requirements.
IP's capital requirements for construction were approximately
$128 million and $163 million during the nine months ended September
30, 1994 and 1993, respectively.
Illinois Power Company mortgage bonds are currently rated BBB by
Duff & Phelps, Baa2 by Moody's and BBB by Standard & Poor's. IP's
preferred stock is currently rated BBB- by Duff & Phelps, baa3 by
Moody's and BBB- by Standard & Poor's. Both Illinova and IP have
adequate short- and intermediate-term bank borrowing capacity.
IP has current ICC authorization to issue $212 million of debt
securities and $100 million of preferred stock. Illinois Power Capital
L.P., a limited partnership in which Illinois Power Company serves as
general partner, was established during the third quarter of 1994 for
the sole purpose of issuing its partnership interests and using the
proceeds to purchase certain debt securities of IP. Illinois Power
Capital issued $97 million of tax-advantaged monthly income preferred
securities (MIPS) at 9.45% (5.67% after-tax rate) in October 1994.
The proceeds from the sale of the MIPS were loaned to IP and will be
used by IP for the redemption or the purchase on the open market of
higher-cost outstanding securities of IP.
REGULATORY MATTERS
1993 GAS RATE CASE
See "1993 Gas Rate Case" under "Regulatory Matters" in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in IP's Report on Form 10-Q for the quarter
ended March 31, 1994, for a discussion of the financial impacts of the
ICC rate order issued on April 6, 1994.
OPEN ACCESS AND WHEELING
As noted in the discussion of Illinova Power Marketing on page 14
and 15 of this report, IP plans to submit an open access transmission
tariff to the FERC during the first quarter of 1995.
An open access transmission tariff provides for any qualified
entity to use the IP transmission system to wheel electricity. At
this time, qualified entities include any wholesale power entity such
as electric cooperatives, municipalities, exempt wholesale generators,
power marketers and other investor-owned utilities. Under the 1992
Energy Policy Act, an investor-owned utility must respond to any bona
fide transmission service request under Section 211 of the Federal
Power Act within 60 days. Although the Energy Policy Act of 1992
created, for the first time, a FERC-administered mechanism for
imposing wholesale wheeling obligations on utilities, IP has had the
obligation to wheel power for interconnected electricity suppliers
since 1976. That condition was included in IP's Clinton Power Station
construction permit and in the subsequently issued Clinton operating
license, to address anti-trust considerations by mitigating IP's
market power in transmission. Federal agencies have imposed
transmission access conditions on specific utilities in return for
plant construction and operating authority, but also in return for
approval of utility mergers and in connection with the granting of
other privileges. Open access has thus been a business reality in the
industry, and at IP, for some time. IP currently wheels power at
rates originally approved by the FERC in 1984. The open access tariff
filing that IP plans to make in the first quarter of 1995 may result
in a lower rate for transmission as imposed by the FERC or proposed by
IP in the interest of retaining and enhancing revenues derived from
wheeling. It is too soon to predict accurately the long-term
financial impact of increasing transmission access and other issues
arising from such access.
GAS MANUFACTURING SITES
IP is currently recovering Manufactured Gas Plant (MGP) site
cleanup costs from customers through a tariff rider approved by the
ICC in April 1993. In December 1993, the Appellate Court affirmed the
ICC ruling that cleanup costs may be recovered from customers through
a tariff rider. In February 1994, an intervening consumer group
appealed the December 1993 Appellate Court decision to the Supreme
Court of Illinois, arguing that utilities should not be permitted to
recover MGP cleanup costs from customers. IP and other utilities have
also appealed to the Illinois Supreme Court seeking to include
carrying costs on the unrecovered balance of cleanup costs through the
tariff rider. The Illinois Supreme Court agreed to hear both appeals,
and briefing and oral arguments were held in September 1994. Although
at the present time IP is unable to predict the outcome of these
appeals, management believes that the final disposition will not have
a material adverse effect on IP's financial position or results of
operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Electric Operations - The current quarter decrease of $9.8
million in electric revenues is primarily due to decreased sales to
the residential sector, partially offset by increased sales to the
industrial and commercial sectors. Total kilowatt-hour sales
(excluding interchange and sales to municipalities) increased 0.8% or
38 million kwh from the third quarter 1993. This increase was
primarily due to an increase in industrial sales of 1.3% (28 million
kwh) as a result of improving economic conditions throughout IP's
territory. Interchange revenues decreased $15.4 million due to warmer
weather and decreased sales opportunities in 1994 as compared to 1993.
The current quarter cost of fuel for electric plants increased
$5.1 million and electric generation increased 9.7%. The increase in
fuel cost was attributable to increased generation and the impact of
the Uniform Fuel Adjustment Clause. The equivalent availability of
Clinton was 93% and 89% for the three months ended September 30, 1994
and 1993, respectively. The equivalent availability for IP's coal-
fired plants was 88% and 89% for the three months ended September 30,
1994 and 1993, respectively. Power purchased and interchanged for the
current quarter decreased $18.2 million due to higher purchases at
lower-than-expected prices during 1993.
Gas Operations - Gas revenues increased $1.7 million in the third
quarter of 1994 due to the effects of the 6.1% rate increase granted
by the ICC in April 1994, partially offset by the effects of the
Uniform Gas Adjustment Clause. Therm sales increased 13.0% (5 million
therms) but were offset by a decrease in therms transported which
resulted in a 4.0% decrease in gas consumption. Commercial sales and
transport decreased 8.3% (1 million therms) and industrial sales and
transport decreased 4.4% (3 million therms).
The cost of gas purchased for resale decreased $1.8 million in
the third quarter as a result of the effects of the Uniform Gas
Adjustment Clause and the lower cost of gas.
Gas bypass (connection by the natural gas customer directly to a
pipeline, "bypassing" IP's sales and transportation service) continues
to be actively considered or utilized by several of IP's large
customers. IP is aggressively competing with the bypass options
available to these customers in an attempt to minimize the potential
loss in earnings.
Disallowed Clinton Costs and Income Tax Effects of Disallowed
Costs - In September 1993, IP recorded a loss of $271 million ($200
million or $2.65 per share, net of income taxes) related to the write-
off of certain deferred Clinton Power Station post-construction costs.
See "Note 2 - Clinton Power Station" in "Notes to Financial
Statements" in IP's 1993 Annual Report incorporated by reference in
IP's Form 10-K for the year ended December 31, 1993, for further
discussion.
Miscellaneous-net - The current quarter increase of $6.0 million
for IP is primarily a result of increased coal transportation costs
related to the 1993 United Mine Workers' Strike and flooding in the
Midwest. The current quarter increase of $6.7 million for Illinova is
due to the factors previously noted for IP, as well as holding company
and subsidiary expenses.
Interest on Long-Term Debt - The current quarter decrease of $5.8
million in interest on long-term debt is due to IP's 1993 and 1994
refinancings of higher-cost debt with lower-cost debt.
Earnings (Loss) per Common Share - The earnings (loss) per common
share for Illinova during the third quarter of 1994 and 1993 resulted
from the interaction of all other factors discussed herein, as well as
lower dividend requirements due to the redemption of IP preferred
stock in 1994 and 1993.
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Electric Operations - The current period increase of $25.4
million in electric revenues is primarily due to increased sales
across all classes of customers. Total kilowatt-hour sales (excluding
interchange and sales to municipalities) increased 5.5% or 678 million
kwh. The improving economy contributed to an increase in sales for the
industrial and commercial sectors of 8.0% (482 million kwh) and 6.5%
(159 million kwh), respectively. Interchange revenues decreased $7.8
million, mainly due to 1993 third quarter interchange sales that were
higher primarily due to warmer weather and decreased sales
opportunities in 1994 as compared to 1993.
The current period cost of fuel for electric plants increased
$22.5 million with electric generation increasing 6.5%. The increase
in fuel cost is a result of an increase in higher-cost fossil plant
generation and a decrease in lower-cost nuclear generation coupled
with the effects of the Uniform Fuel Adjustment Clause. The
equivalent availability of Clinton was 93% and 96% for the nine months
ended September 30, 1994 and 1993, respectively. The equivalent
availability of IP's coal-fired plants was 77% and 82% for the nine
months ended September 30, 1994 and 1993, respectively. Power
purchased and interchanged for the period decreased $8.6 million due
to higher interchange purchases in the third quarter of 1993 as a
result of increased purchases at lower-than-expected prices.
Gas Operations - Gas revenues increased $5.7 million in the
current period due to increased sales and the effects of the 6.1% rate
increase granted by the ICC in April 1994. Therm sales increased 2.0%
(8 million therms) and therms transported increased 7.4% (12 million
therms), for a combined increase in gas consumption of 3.6% (20
million therms). Therm sales to residential customers increased 3.1%
(8 million therms), commercial sales and transport increased 0.9% (1
million therms) and industrial therm sales and transport increased
5.5% (11 million therms).
Cost of gas purchased for resale increased $2.7 million for the
period. This increase is a result of increased gas storage service
costs due to an increase of leased gas storage fields and the effects
of the Uniform Gas Adjustment Clause.
Disallowed Clinton Costs and Income Tax Effects of Disallowed
Costs - In September 1993, Illinois Power recorded a loss of $271
million ($200 million or $2.65 per share, net of income taxes) related
to the write-off of certain deferred Clinton Power Station post-
construction costs. See "Note 2 - Clinton Power Station" in "Notes to
Financial Statements" in IP's 1993 Annual Report incorporated by
reference in IP's Form 10-K for the year ended December 31, 1993, for
further discussion.
Miscellaneous-net - The year-to-date increase of $9.2 million for
IP is primarily a result of increased coal transportation costs
related to the 1993 United Mine Workers' Strike and flooding in the
Midwest. The year-to-date increase of $12.1 million for Illinova is
due to the factors previously noted for IP, as well as holding company
and subsidiary expenses.
Interest on long-term debt - The year-to-date decrease of $13.7
million in interest on long-term debt is due to IP's 1993 refinancings
of higher-cost debt with lower-cost debt.
Earnings (Loss) per Common Share - The earnings (loss) per common
share for Illinova during the nine months ended September 30, 1994 and
1993, resulted from the interaction of all other factors discussed
herein, as well as lower dividend requirements due to the redemption
of IP preferred stock in 1994 and 1993.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
See "Notes to Financial Statements" in Part I for a discussion of
certain legal proceedings related to nuclear fuel contracts.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibits filed with this 10-Q are listed on the
Exhibit Index.
(b) Reports on Form 8-K since June 30, 1994:
An IP Current Report on Form 8-K, dated September 29,
1994, was filed reporting under Item 5, Other Events.
SIGNATURES
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.
ILLINOIS POWER COMPANY
(Registrant)
By /s/Larry F. Altenbaumer
---------------------------
Larry F. Altenbaumer,
Senior Vice President and
Chief Financial Officer
on behalf of
Illinois Power Company
Date: November 9, 1994
EXHIBIT INDEX
PAGE NO. WITHIN
SEQUENTIAL NUMBERING
EXHIBIT DESCRIPTION SYSTEM
3(a) Articles of Amendment 25 - 31
to the Articles of Incorporation
of Illinova filed as of October 31, 1994.
3(b) Statement of Correction to the 32 - 33
Articles of Incorporation of Illinova
filed as of October 31, 1994.
4(a) Indenture dated October 1, 34 - 89
1994 between Illinois Power
Company and The First National
Bank of Chicago.
4(b) First Supplemental Indenture 90 - 105
dated October 1, 1994 to Indenture
dated October 1, 1994 between
Illinois Power Company and The
First National Bank of Chicago
as Trustee, 9.45% Subordinated
Debentures, Series A, Due September
30, 2043.
27 Financial Data Schedule UT
(filed herewith)