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 MARCH 31, 1997
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, 75,681,937
shares outstanding at March 31, 1997
Illinois Power Company Common stock, no par value, 72,031,846
shares outstanding held by Illinova
Corporation at March 31, 1997
ILLINOVA CORPORATION
ILLINOIS POWER COMPANY
This combined Form 10-Q is separately filed by Illinova Corporation and
Illinois Power Company. 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 MARCH 31, 1997
INDEX
PAGE NO.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Illinova Corporation
Consolidated Balance Sheets 3 - 4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Illinois Power Company
Consolidated Balance Sheets 7 - 8
Consolidated Statements of Income 9
Consolidated Statements of Cash Flows 10
Notes to Consolidated Financial Statements of
Illinova Corporation and
Illinois Power Company 11 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for Illinova Corporation
and Illinois Power Company 13 - 18
Part II. OTHER INFORMATION
Item 1: Legal Proceedings 19
Item 6: Exhibits and Reports on Form 8-K 19
Signatures 20 - 21
Exhibit Index 22
PART I. FINANCIAL INFORMATION
ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
MARCH 31, DECEMBER 31,
1997 1996
ASSETS (Unaudited)
(Millions of Dollars)
Utility Plant, at original cost
Electric (includes construction work
in progress of $183.4 million and
$212.5 million, respectively) $ 6,368.4 $ 6,335.4
Gas (includes construction work
in progress of $14.4 million and
$21.2 million, respectively) 649.0 646.1
---------- --------
7,017.4 6,981.5
Less-Accumulated depreciation 2,456.1 2,419.7
---------- --------
4,561.3 4,561.8
Nuclear fuel in process 19.6 5.3
Nuclear fuel under capital lease 97.1 96.4
---------- ---------
Total utility plant 4,678.0 4,663.5
---------- ---------
Investments and Other Assets 153.7 146.2
---------- ---------
Current Assets
Cash and cash equivalents 31.3 24.6
Accounts receivable (less allowance
for doubtful accounts of $3.0 million)
Service 158.8 138.8
Other 76.3 62.0
Accrued unbilled revenue 86.0 106.0
Materials and supplies, at average cost 107.9 113.2
Prepayments and other 29.0 24.1
---------- ---------
Total current assets 489.3 468.7
---------- ---------
Deferred Charges
Deferred Clinton costs 103.0 103.9
Recoverable income taxes 111.0 101.3
Other 229.4 229.2
---------- ---------
Total deferred charges 443.4 434.4
---------- ---------
$5,764.4 $ 5,712.8
========== ==========
ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
MARCH 31, DECEMBER 31,
1997 1996
CAPITAL AND LIABILITIES
(Unaudited)
(Millions of Dollars)
Capitalization
Common stock -
No par value, 200,000,000 shares authorized;
75,681,937 shares outstanding,
stated at $ 1,425.7 $1,425.7
Less - Deferred compensation - ESOP 13.4 14.3
Retained earnings 253.5 233.0
Less - Capital stock expense 8.2 8.2
Preferred stock of subsidiary 96.2 96.2
Mandatorily redeemable preferred stock of
subsidiary 197.0 197.0
Long-term debt 100.0 --
Long-term debt of subsidiary 1,638.7 1,636.4
---------- ---------
Total capitalization 3,689.5 3,565.8
---------- ---------
Current Liabilities
Accounts payable 170.5 166.7
Notes payable 250.8 387.0
Long-term debt and lease obligations of
subsidiary maturing within one year 46.5 47.7
Other 156.9 146.6
---------- ---------
Total current liabilities 624.7 748.0
---------- ---------
Deferred Credits
Accumulated deferred income taxes 1,073.8 1,034.9
Accumulated deferred investment tax credits 213.8 215.5
Other 162.6 148.6
---------- ---------
Total deferred credits 1,450.2 1,399.0
---------- ----------
$ 5,764.4 $ 5,712.8
========== ==========
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1997 1996
(Unaudited)
(Millions except per
share)
Operating Revenues:
Electric $ 282.2 $ 278.7
Electric interchange 26.6 31.9
Gas 164.0 136.1
Diversified enterprises 97.4 5.1
---------- ----------
Total 570.2 451.8
---------- ----------
Operating Expenses:
Fuel for electric plants 45.3 66.6
Power purchased 35.8 9.8
Gas purchased for resale 99.7 73.0
Diversified enterprises 102.6 5.4
Other operating expenses 59.4 65.7
Maintenance 19.7 20.5
Depreciation & amortization 49.0 48.1
General taxes 38.7 37.8
---------- ----------
Total 450.2 326.9
---------- ----------
Operating Income 120.0 124.9
---------- ----------
Other Income and Deductions, (2.9) (14.9)
Net ---------- ----------
Income Before Interest Charges
and Income Taxes 117.1 110.0
---------- ----------
Interest Charges
Interest expense 36.4 33.8
Allowance for borrowed funds
during construction (1.4) (1.7)
Preferred dividend requirements 5.5 5.6
of subsidiary
---------- ----------
Total 40.5 37.7
---------- ----------
Income Before Income Taxes 76.6 72.3
---------- ----------
Income Taxes 32.6 29.0
---------- ----------
Net Income Applicable to Common Stock $ 44.0 $ 43.3
========== ==========
Earnings per common share $0.58 $0.57
Cash dividends declared per
common share $0.31 $0.28
Cash dividends paid per common $0.31 $0.28
share
Weighted average number of common 75,681,937 75,674,514
shares outstanding during period
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1997 1996
(Unaudited)
(Millions of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 44.0 $ 43.3
Items not requiring cash, net 69.6 45.0
Changes in assets and liabilities 1.2 56.0
-------- --------
Net cash provided by operating
activities 114.8 144.3
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (33.9) (47.9)
Other investing activities (15.2) (3.0)
-------- --------
Net cash used in investing
activities (49.1) (50.9)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on common stock (23.5) (21.2)
Exercise of stock options -- 1.1
Redemptions -
Short-term debt (136.2) (209.9)
Long-term debt of subsidiary -- (10.0)
Preferred stock of subsidiary -- (0.3)
Issuances -
Short-term debt -- 55.0
Long-term debt 100.0 --
Preferred stock of subsidiary -- 100.0
Other financing activities 0.7 (2.9)
--------- ---------
Net cash used in financing
activities (59.0) (88.2)
--------- ---------
NET CHANGE IN CASH AND
CASH EQUIVALENTS 6.7 5.2
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 24.6 11.3
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 31.3 $ 16.5
========= =========
ILLINOIS POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
MARCH 31, DECEMBER 31,
1997 1996
ASSETS (Unaudited)
(Millions of Dollars)
Utility Plant, at original cost
Electric (includes construction work
in progress of $183.4 million and
$212.5 million, respectively) $ 6,368.4 $ 6,335.4
Gas (includes construction work
in progress of $14.4 million and
$21.2 million, respectively) 649.0 646.1
------------ ----------
7,017.4 6,981.5
Less-Accumulated depreciation 2,456.1 2,419.7
------------ ----------
4,561.3 4,561.8
Nuclear fuel in process 19.6 5.3
Nuclear fuel under capital lease 97.1 96.4
------------ ------------
Total utility plant 4,678.0 4,663.5
------------ -----------
Investments and Other Assets 6.4 14.5
------------ -----------
Current Assets
Cash and cash equivalents 15.9 12.5
Accounts receivable (less allowance
for doubtful accounts of $3.0 million)
Service 158.8 138.8
Other 18.9 51.1
Accrued unbilled revenue 86.0 106.0
Materials and supplies,
at average cost 107.2 112.2
Prepayments and other 27.8 23.7
------------ -----------
Total current assets 414.6 444.3
------------ -----------
Deferred Charges
Deferred Clinton costs 103.0 103.9
Recoverable income taxes 111.0 101.3
Other 239.1 241.0
------------ -----------
Total deferred charges 453.1 446.2
------------ -----------
$ 5,552.1 $ 5,568.5
============ ============
ILLINOIS POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
MARCH 31, DECEMBER 31,
1997 1996
CAPITAL AND LIABILITIES (Unaudited)
(Millions of Dollars)
Capitalization
Common stock -
No par value, 100,000,000 shares
authorized; 75,643,937 shares issued,
stated at $ 1,424.6 $ 1,424.6
Retained earnings 271.9 245.9
Less - Capital stock expense 8.2 8.2
Less - 3,612,091 and 3,410,897 shares of
common stock in treasury, respectively,
at cost 90.5 86.2
Preferred stock 96.2 96.2
Mandatorily redeemable preferred stock 197.0 197.0
Long-term debt 1,638.7 1,636.4
------------ -----------
Total capitalization 3,529.7 3,505.7
------------ -----------
Current Liabilities
Accounts payable 118.0 149.7
Notes payable 250.8 310.0
Long-term debt and lease
obligations maturing
within one year 46.5 47.7
Other 154.6 148.1
------------ -----------
Total current liabilities 569.9 655.5
------------ -----------
Deferred Credits
Accumulated deferred income taxes 1,082.4 1,048.0
Accumulated deferred investment
tax credits 213.8 215.5
Other 156.3 143.8
------------ -----------
Total deferred credits 1,452.5 1,407.3
------------ -----------
$ 5,552.1 $ 5,568.5
============ ============
ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1997 1996
(Unaudited)
(Millions of Dollars)
Operating Revenues:
Electric $ 282.2 $ 278.7
Electric interchange 26.6 31.9
Gas 164.0 136.1
---------- -----------
Total 472.8 446.7
----------- -----------
Operating Expenses and
Taxes:
Fuel for electric plants 45.3 66.6
Power purchased 35.8 9.8
Gas purchased for resale 99.7 73.0
Other operating expenses 59.4 65.7
Maintenance 19.7 20.5
Depreciation & amortization 49.0 48.1
General taxes 38.7 37.8
Income taxes 36.3 37.1
----------- ----------
Total 383.9 358.6
----------- ----------
Operating Income 88.9 88.1
---------- -----------
Other Income and
Deductions, Net (1.2) (6.9)
---------- -----------
Income Before Interest Charges 87.7 81.2
----------- ----------
Interest Charges and Other:
Interest Expense 34.1 33.8
Allowance for borrowed funds
used during construction (1.7) (1.4)
----------- ----------
Total 32.7 32.1
----------- ----------
Net Income 55.0 49.1
Preferred dividend
requirements 5.5 5.6
---------- ----------
Net Income applicable to
common stock $ 49.5 $ 43.5
========== ===========
ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1997 1996
(Unaudited)
(Millions of Dollars)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $ 55.0 49.1
Items not requiring cash, net 65.3 45.9
Changes in assets and 8.5 51.7
liabilities ------------ ------------
Net cash provided by operating 128.8 146.7
activities ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (33.9) (47.9)
Other investing activities 0.4 3.1
------------- -------------
Net cash used in investing (33.5) (44.8)
activities ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on preferred and
common stock (29.0) (24.5)
Repurchase of common stock (4.3) (7.7)
Redemptions -
Short-term debt (59.2) (209.9)
Long-term debt -- (10.0)
Preferred stock -- (0.3)
Common stock -- --
Issuances
Short-term debt -- 55.0
Preferred Stock -- 100.0
Other financing activities 0.6 (2.9)
------------- -------------
Net cash used in financing (91.9) (100.3)
activities ------------- -------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 3.4 1.6
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 12.5 4.3
------------- -------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 15.9 $ 5.9
============ =============
ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY
NOTES TO CONSOLIDATED 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 (SEC). 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 the
consolidated financial statements and the
accompanying notes in Illinova's 1996 Annual
Report to Shareholders (included in the Proxy
Statement), the consolidated financial
statements and the accompanying notes in IP's
1996 Annual Report to Shareholders (included in
the Information Statement), Illinova's and IP's
1996 Form 10-K filings to the SEC for
information relevant to the consolidated
financial statements contained herein, including
information as to certain regulatory and
environmental matters and as to the significant
accounting policies followed.
In the opinion of Illinova, the accompanying
unaudited consolidated financial statements for Illinova
reflect all adjustments necessary to present
fairly the Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996, the
Consolidated Statements of Income for the three
months ended March 31, 1997 and 1996, and the
Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1996. In
addition, it is Illinova's and IP's opinion that
the accompanying unaudited consolidated
financial statements for IP reflect all
adjustments necessary to present fairly the
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996, the Consolidated
Statements of Income for the three months ended
March 31, 1997 and 1996, and the Consolidated
Statements of Cash Flows for the three months
ended March 31, 1997 and 1996. 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,
Illinova Generating Company (IGC), Illinova
Insurance Company (IIC), and Illinova Energy
Partners, Inc. (IEPI). All significant
intercompany balances and transactions have been
eliminated from the consolidated financial
statements. All non-utility operating
transactions are included in the sections titled
"Diversified enterprises", "Interest expense"
and "Income taxes" with the exception of some
immaterial transactions recorded in "Other
Income and Deductions, Net" in Illinova's
Consolidated Statements of Income. This
represents a format change to Illinova's
Consolidated Statements of Income and subsequent
reclassification of prior year's amounts to
conform to the new presentation.
The consolidated financial statements of IP
include the accounts of Illinois Power Capital,
L.P. and Illinois Power Financing I (IPFI). All
significant 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,
Net" in IP's Consolidated Statements of Income.
IP's consolidated financial position and results
of operations are currently the principal factors
affecting Illinova's consolidated financial
position and results of operations.
REGULATORY AND LEGAL MATTERS
OPEN ACCESS AND COMPETITION
IP continues to work with other interested
parties in the state to propose legislation that would
allow a managed transition to direct access for
all consumers. The proposed legislation, which
was introduced in the Illinois House of
Representatives on January 29, 1997, is designed
to provide an orderly transition to direct
access for all customers, and balance financial
stability for current utility providers with
customer choice.
Other parties have introduced plans that
allow for full competition by as early as 1998.
On February 18, 1997, the Citizen's Utility
Board (CUB) outlined its regulatory reform
proposal which would require utilities to
separate their generation assets, shop for the
cheapest available power in the wholesale
market, and sell that power to consumers, by
January 1999. On March 1, 1997, a new
restructuring bill was introduced in the
Illinois House. This bill, supported by a broad-
based alliance representing residential,
commercial and industrial consumers, would allow
all customers served by investor-owned utilities
to have equal access to a competitive electric
market by May 1, 1998. On March 7, 1997, a
fourth and final bill on this issue was
submitted to the Illinois House that also calls
for all customers to be able to choose their
electric supplier beginning May 1, 1998.
Legislation for regulatory reform is
currently being considered in the spring
legislative session. At this time, it is
impossible to predict what legislation, if any,
will be enacted. Unfavorable legislation could
have a material adverse impact on the financial
position of Illinova, IP and their operations.
IP currently prepares its financial
statements in accordance with Statement of
Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of
Regulation" (FAS 71). The SEC has raised the
issue of continued qualification to report under
FAS 71 for utilities in states that have changed
their utility laws to introduce competition,
even if the legislation provides for a
transition to full competition and for stranded
cost recovery. The Emerging Issues Task Force
(EITF) of the Financial Accounting Standards
Board (FASB) is scheduled to debate this and
related issues at its May 22, 1997 meeting.
Reporting under FAS 71 allows companies whose
service obligations and prices are regulated, to
maintain assets on their balance sheets
representing costs they reasonably expect to
recover from customers in the future, through
inclusion of such costs in their rates. If IP
ceased to qualify for reporting under FAS 71, it
could be required to write off its regulatory
assets, and this could have a material adverse
impact on the financial position of Illinova, IP
and their operations.
MANUFACTURED GAS PLANT SITES
IP's liability for Manufactured Gas Plant
(MGP) site remediation is $70.2 million. This
amount represents IP's best estimate of its
remaining costs to remediate the 24 MGP sites
for which it is responsible. Because of the
unknown and unique characteristics of each site,
IP is not able to determine its ultimate
liability for remediation. IP is recovering MGP
site cleanup costs from its customers through
tariff riders approved by the Illinois Commerce
Commission (ICC) in March 1996. In anticipation
of full recovery of MGP site costs, IP has
recorded a regulatory asset equivalent to its
liability.
IP is continuing settlement discussions
with its insurance carriers regarding the
recovery of estimated MGP site remediation
costs. A settlement has been reached with
thirteen carriers, and settlement negotiations
with nine other carriers are ongoing.
Litigation related to a suit filed by IP in
October 1995 seeking a declaratory judgment and
damages regarding insurance coverage for four
MGP sites is in progress. The trial has been
scheduled for January, 1998. Any insurance
recoveries received will cause the regulatory
asset to be reduced by the amount of the
recovery.
TREASURY STOCK
IP repurchased 201,194 shares of its common
stock from Illinova during the three months
ended March 31, 1997. Through March 31, 1997, IP
has purchased 3,612,091 shares of its common
stock, all of which are held as treasury stock
and are deducted from common equity at the cost
of the shares.
ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Notes to the
Consolidated Financial Statements and
Management's Discussion and Analysis of
Financial Condition and Results of Operations
presented in Illinova's 1996 Annual Report to
Shareholders (included in the Proxy Statement),
the Consolidated Financial Statements and
Management's Discussion and Analysis of
Financial Condition and Results of Operations
presented in IP's 1996 Annual Report to
Shareholders (included in the Information
Statement), and Illinova's and IP's Form 10-K
for the year ended December 31, 1996.
ILLINOVA SUBSIDIARIES
IP is the primary business and subsidiary
of Illinova and engages in the generation,
transmission, distribution and sale of electric
energy and the distribution, transportation and
sale of natural gas in the State of Illinois.
IGC is a wholly-owned independent power
subsidiary of Illinova and invests in energy
supply projects throughout the world. IGC's
strategy is to invest in and develop
"greenfield" power plants, acquire existing
generation facilities and provide power plant
operations and maintenance services.
IEPI is a wholly-owned subsidiary of
Illinova formed in May 1996. IEPI develops and
markets energy-related services to the
unregulated energy market throughout the United
States and engages in the brokering and
marketing of electric power and gas.
IIC is a wholly-owned subsidiary of Illinova and
was licensed by the State of Vermont as a captive
insurance company in August 1996. The primary
business of IIC is to insure certain risks of
Illinova and its subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES AND REQUIREMENTS
Cash flows from operations during the first
three months of 1997 provided sufficient working
capital to meet ongoing operating requirements,
to service existing common and IP preferred
stock dividends and debt requirements and all of
IP's construction requirements. Additionally,
Illinova expects 1997 cash flows will enable it
to meet operating requirements and continue to
service IP's existing debt, IP's preferred and
Illinova's common stock dividends, IP's sinking
fund requirements and IP's anticipated
construction requirements. IP periodically
repurchases shares of its common stock from
Illinova to provide Illinova cash for
operations, in accordance with authority granted
by the ICC. During the first three months of
1997, IP made purchases of 201,194 shares.
On April 10, 1997, IP issued $150 million
of Adjustable Rate Pollution Control Revenue
Refunding Bonds, due April 1, 2032. The
proceeds will be used on June 2, 1997 to retire
$150 million of IP's 7 5/8% pollution control
first mortgage bonds due 2016. IP issued a call
notice on April 28, 1997 to retire the 7 5/8%
bonds at a premium of 103.
IP's capital requirements for construction
were approximately $34 million and $48 million
during the three months ended March 31, 1997 and
1996, respectively.
Illinova and IP currently have total lines
of credit represented by bank commitments of
$150 million and $354 million, respectively.
Both Illinova and IP have adequate short- and
intermediate-term bank borrowing capacity.
Currently, Illinova is reviewing additional
financing alternatives to provide cash for
operations and has remaining shelf authority
with the SEC to issue $200 million in debt
securities.
Presently, IP's mortgage bonds are rated
Baa1 by Moody's, BBB+ by Duff & Phelps, and BBB
by Standard & Poor's. IP's preferred stock is
rated Baa2 by Moody's and BBB- by both Duff &
Phelps and Standard & Poor's.
Illinova's $100 million senior notes issued
February 5, 1997 have a rating of Baa3 and BBB-
from Moody's and Standard & Poor's,
respectively.
ACCOUNTING ISSUES
IP is considering seeking regulatory
approval to increase the rate at which its
generation-related assets are expensed. Because
this change is viewed as discretionary, and
subject to regulatory approval, the rate of such
increase, if any, will be based on then current
conditions and financial performance. The
increase in expense could begin as early as the
second quarter of 1997 and could amount to at
least $400 million in the aggregate through the
year 2001, and potentially more thereafter,
depending on changes in regulation, the
marketplace and financial performance. This
reduction in the net book value of IP's
generating assets should help position the
Company to operate competitively and profitably
in the changing business environment. This
acceleration of expense would have a direct
impact on earnings but not on cash flow.
For further information on accounting
issues, see "Open Access and Competition" under
"Regulatory and Legal Matters" of the "Notes to
Consolidated Financial Statements" on page 12 of
this report.
REGULATORY MATTERS
ACQUISITION OF CLINTON POWER STATION FROM
SOYLAND
On March 13, 1997, the Nuclear Regulatory
Commission (NRC) issued an order approving transfer of the
Clinton Power Station (Clinton) operating
license related to Soyland Power Cooperative's
(Soyland) 13.21% ownership, to IP, in connection
with the transfer from Soyland to IP of all of
Soyland's interest in Clinton pursuant to an
agreement reached in 1996. Soyland's title to
the plant and directly related assets such as
nuclear fuel was transferred to IP on May 1,
1997. Soyland's nuclear decommissioning trust
will also be transferred to IP, consistent with
IP's assumption of all of Soyland's ownership
obligations including those related to
decommissioning. On February 21, 1997, IP filed
with the Federal Energy Regulatory Commission
(FERC) an amended Power Coordination Agreement
(PCA) between Soyland and IP entered into in
furtherance of the transfer. FERC
approval of the amended PCA is expected by the
third quarter of 1997. That Agreement obligates
Soyland to purchase all of its capacity and
energy needs from IP for at least ten years.
OPEN ACCESS AND COMPETITION
See "Open Access and Competition" under
"Regulatory and Legal Matters" of the "Notes to
Consolidated Financial Statements" on Page 12 of
this report.
ENVIRONMENTAL MATTERS
GAS MANUFACTURING SITES
See "Manufactured Gas Plant Sites" under
"Regulatory and Legal Matters" of the Notes to Consolidated
Financial Statements on page 12 of this report.
NITROGEN OXIDE
Regulators in the Chicago and metropolitan
areas of the Northeast are continuing to examine
potential approaches for compliance with current
federal ozone level requirements impacted by
nitrogen oxide (NOx) emissions. A regulatory
initiative to examine recommendations on
reducing the amount of ozone transported across
the eastern United States is expected to release
its findings by June 1997. Any legislative
action resulting from the initiative's findings
could make IP's fossil-fuel generating plants
less competitive.
CLINTON POWER STATION
On September 6, 1996, leakage at a recirculation
pump seal caused IP operations personnel to shut down
Clinton. IP decided not to restart Clinton prior to the
start of the scheduled refueling outage on
October 13, 1996. During the current outage,
Clinton has attempted to modify the first of
three divisions of its electrical power system.
Because of deficiencies in the implementation of
the new transformer design, the decision was
made to return to the old transformers until the
newer design is modified and fully tested. This
unanticipated delay, along with necessary NRC
approval of the action, will delay start up of
Clinton. It is anticipated Clinton will return
to service before the summer cooling season,
when demand is greatest. If Clinton does not
return to service as anticipated, there could be
periods when IP is unable to meet demand.
The seventh refueling outage at Clinton
originally scheduled for the spring of 1998 is
now planned for the fall of 1998.
WOOD RIVER POWER STATION
On December 18, 1996, the control and computer
rooms for Wood River units 4 and 5 were damaged by an
in-plant fire. Current estimates are to return
Unit 4 to service in June 1997, with Unit 5
returning to service in September
1997. The cost associated with restoring the
units to service is not expected to have a
material adverse impact on Illinova, IP and
their operations.
POWER SUPPLY AND RELIABIITY
Electricity may be in short supply
throughout Illinois and Wisconsin this summer
because of an unusually high number of plant
outages in this region. If the weather is
abnormally hot and if IP's major generating
units were to require maintenance and/or
experience delay in returning to service, IP may
be unable to meet demand. Although IP can
purchase replacement power, and has secured
generation and transmission capacity in order to
guard against disruptions in service,
availability of power in the region may be
limited, and recovery of the added expense is
subject to ICC approval in the annual
reconciliation of the Uniform Fuel Adjustment
Clause (UFAC) cost recovery mechanism. IP will
also be incurring additional expense by
reactivating older power plants in cold storage
and upgrading electric transmission facilities
in an attempt to avoid a power supply shortage.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Electric Operations - Electric revenues for
the first quarter of 1997 increased $3.5 million
compared to the first quarter of 1996. Electric
interchange sales decreased $5.3 million in the
same time frame due to reduced available
capacity to sell. Heating degree days decreased
approximately nine percent during the first
quarter of 1997 compared to the same time frame
in 1996, resulting in a 1.5% decrease in
kilowatt hour (kwh) sales to the temperature
sensitive residential market. Revenue from the
industrial and commercial markets remained
relatively stable. Power purchased increased
$26 million for the period due to lower
equivalent availability at both the nuclear and
fossil facilities. This increase in operating
costs was partially offset by a decrease of
$21.3 million in fuel for electric plants.
The equivalent availability of Clinton was 0.0%
and 99.7% for the three months ended March 31, 1997
and 1996, respectively. Clinton was unavailable
in the first quarter of 1997 due to the
continued outage which began September 6, 1996.
The equivalent availability for IP's coal-fired
plants was 70.9% and 83.2% for the three months
ended March 31, 1997 and 1996, respectively.
The lower equivalent availability for the fossil
plants in 1997 was primarily due to the fire and
subsequent shut-down of the Wood River fossil
station in December, 1996.
Gas Operations - Gas revenues increased
$27.9 million in the first quarter of 1997.
Therms transported increased 65% (35.1 million
therms) resulting in an increase to revenue of
$1.9 million. Gas prices charged by suppliers
drastically increased during the first quarter
of 1997. Nationwide, supplier prices increased
50-70% over 1996.
This in turn caused the Purchased Gas Adjustment
(PGA) rates to rise, which increased gas
revenues by $39.9 million.
This increase was offset by reduced volumes
caused in part by milder weather in 1997 than in
1996. Therm sales
decreased 13.5% (43.2 million therms) resulting
in a total decrease in gas consumption of 2.1%
(8.0 million therms).
Other Income and Deductions, Net - The
current quarter decrease in net deductions of
$12 million is primarily a result of 1996 costs
recorded to reflect the planned disposition of
property, partially offset by 1997 holding
company expenses and decreased interest
revenues.
Operation and Maintenance Expense - The
current quarter decrease of $7.1 million dollars
is primarily due to lower expenses associated
with professional services, maintenance of
dispatch equipment, employee activities and
reduced pension plan contributions. The first
quarter trend in lower Operation and Maintenance
expenses is not expected to continue throughout
1997.
Diversified enterprises revenues increased
$92.3 million for the first quarter of 1997 due
to increased activity at IEPI. However,
diversified enterprises expenses increased $97.2
million which offsets the growth in revenues.
Earnings per Common Share - The earnings
per common share for Illinova during the first
quarter of 1997 and 1996 resulted from the
interaction of all other factors discussed
herein.
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings
See "Notes to Consolidated Financial
Statements" in Part I for a discussion of
certain legal proceedings related to
manufactured gas plant sites.
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 January
1, 1997:
Report filed on Form 8-K on
January 29, 1997 Other Events: NRC
informed IP via letter that it
viewed Clinton as having a
declining safety performance trend, but
did not place Clinton on its semiannual "watch
list".
Report filed on Form 8-K on March 6, 1997
Other Events: Communication to the Financial Community
regarding the status of Clinton outage.
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.
ILLINOVA CORPORATION
(Registrant)
By /s/Leah Manning Stetzner
--------------------------
Leah Manning Stetzner,
General Counsel and
Corporate Secretary
on behalf of
Illinova Corporation
Date: May 14, 1997
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/Leah Manning Stetzner
--------------------------
Leah Manning Stetzner,
Vice President, General
Counsel, and Corporate
Secretary on behalf of
Illinois Power Company
Date: May 14, 1997
EXHIBIT INDEX
PAGE NO. WITHIN
SEQUENTIAL NUMBERING
EXHIBIT DESCRIPTION SYSTEM
4(a) Supplemental Indenture dated 23
April 1, 1997 to Mortgage
and Deed of Trust dated
November 1, 1943.
4(b) Supplemental Indenture dated 34
April 1, 1997 to General
Mortgage Indenture and Deed
of Trust dated
as of November 1, 1992.
27 Financial Data Schedule UT
(filed herewith)