FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ IOWA-ILLINOIS GAS AND ELECTRIC COMPANY (Exact name of registrant as specified in its charter) Illinois 42-0673189 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One RiverCenter Place, 106 East Second Street, Davenport, Iowa 52801 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (319) 326-7111 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes X No ____ Common shares outstanding at March 31, 1995 29,918,363 Part I. Quarterly Financial Information IOWA-ILLINOIS GAS AND ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME First Quarter Ended March 31, 1995 1994 (In thousands, except per share amounts) (Unaudited) OPERATING REVENUES Electric $80,117 $84,608 Gas 72,162 100,256 152,279 184,864 OPERATING EXPENSES AND TAXES Operation- Cost of gas sold 49,137 75,040 Cost for fuel, energy and capacity 17,159 20,174 Other operation 24,637 27,197 Maintenance 10,477 12,028 Provision for depreciation 15,555 15,383 Income taxes 7,126 6,935 Property and other taxes 9,337 9,303 133,428 166,060 OPERATING INCOME 18,851 18,804 OTHER INCOME InterCoast Energy Company - Oil and gas revenues 13,437 15,775 Other income 6,225 9,625 Expenses, including interest and provision for income taxes (18,641) (21,692) Net income of InterCoast Energy Company 1,021 3,708 Allowance for equity funds used during construction - 176 Miscellaneous (245) 332 776 4,216 INCOME BEFORE UTILITY INTEREST CHARGES 19,627 23,020 UTILITY INTEREST CHARGES Interest on long-term debt 6,073 5,860 Other interest expense 895 285 Allowance for borrowed funds used during construction (792) (215) 6,176 5,930 NET INCOME 13,451 17,090 PREFERRED AND PREFERENCE DIVIDEND REQUIREMENTS 911 1,203 NET INCOME ON COMMON SHARES $12,540 $15,887 AVERAGE COMMON SHARES OUTSTANDING 29,828 29,349 NET INCOME PER AVERAGE COMMON SHARE OUTSTANDING $0.42 $0.54 CASH DIVIDENDS DECLARED AND PAID PER COMMON SHARE $0.4325 $0.4325 <FN> The accompanying notes to consolidated financial statements are an intergral part of these statements. -1- IOWA-ILLINOIS GAS AND ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS 3-31-95 12-31-94 (In thousands, except share amounts) (Unaudited) PROPERTY AND OTHER ASSETS UTILITY PLANT, at original cost Electric $1,297,740 $1,281,027 Gas 274,298 279,118 1,572,038 1,560,145 Less--Accumulated provision for depreciation 651,281 638,493 920,757 921,652 Nuclear fuel, net of accumulated amortization 29,001 31,103 Construction work in progress 62,436 51,316 1,012,194 1,004,071 CURRENT ASSETS Cash and cash equivalents 33,359 24,740 Accounts receivable, less reserves of $1,256 and $1,165 39,495 41,498 Accrued unbilled revenues 15,337 21,637 Inventories 33,286 37,328 Deferred gas expense - 4,471 Other 15,711 16,262 137,188 145,936 INVESTMENTS InterCoast Energy Company 474,781 489,830 Nuclear decommissioning trust fund 53,902 49,432 Corporate-owned life insurance 14,888 14,338 543,571 553,600 OTHER ASSETS Regulatory assets 133,628 133,427 Other 13,580 12,865 147,208 146,292 1,840,161 1,849,899 CAPITALIZATION AND LIABILITIES CAPITALIZATION COMMON SHAREHOLDERS' EQUITY Common shares--authorized 80,000,000 shares--outstanding 29,918,363 and 29,783,486 shares stated at 291,586 288,692 Retained earnings 222,184 222,541 Other (8,403) (8,991) 505,367 502,242 PREFERENCE SHARES--authorized 2,386,250 shares, cumulative --outstanding 500,000 shares subject to mandatory redemption 50,000 50,000 LONG-TERM DEBT First Mortgage Bonds 311,125 323,745 Pollution Control Obligations 60,883 48,133 InterCoast Energy Company 231,000 239,000 603,008 610,878 TOTAL CAPITALIZATION 1,158,375 1,163,120 CURRENT LIABILITIES Notes payable 50,000 67,500 Debt redeemable within one year 64,145 64,145 Accounts payable 36,555 37,785 Accrued taxes 37,555 26,240 Accrued interest 13,266 10,987 Accrued gas expense 11,583 9,499 Other 23,286 20,921 236,390 237,077 OTHER LIABILITIES Accumulated provision for nuclear decommissioning 53,902 49,432 Other 69,181 69,650 123,083 119,082 ACCUMULATED DEFERRED INCOME TAXES 283,660 291,426 ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 38,653 39,194 $1,840,161 $1,849,899 <FN> The accompanying notes to consolidated financial statements are an integral part of these statements. -2- IOWA-ILLINOIS GAS AND ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 1995 1994 (In thousands) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $13,451 $17,090 Adjustments to reconcile net income to net cash from operating activities - Depreciation 16,552 16,382 Depletion 4,949 4,272 Nuclear fuel amortization 2,102 2,213 Deferred income taxes, net (7,683) (543) Tax credits, net (541) (540) Net gain on disposition of securities (425) (528) Allowance for equity funds used during construction - (176) Changes in current assets and liabilities Accounts receivable 2,003 (716) Accrued unbilled revenues 6,300 1,257 Inventories 4,042 13,117 Deferred and accrued gas expense 6,554 15,822 Accounts payable (1,187) (17,688) Accrued taxes 11,315 3,426 Other current assets and liabilities 4,514 (9,767) Energy-efficiency program cost deferrals, net (2,016) (1,993) Other 2,574 (1,459) Net cash from operating activities 62,504 40,169 CASH FLOWS FROM INVESTING ACTIVITIES Utility plant expenditures (23,933) (14,852) Nuclear fuel expenditures - (3,202) Allowance for equity funds used during construction - 176 Nuclear decommissioning trust fund (2,201) (2,186) Oil and gas investments (10,389) (4,641) Purchase of available-for-sale investments (13,637) (41,872) Sale of available-for-sale investments 11,950 28,522 Purchase of investments (1,570) (4,089) Sale of investments 984 7,672 Other 21,571 1,893 Net cash from investing activities (17,225) (32,579) CASH FLOWS FROM FINANCING ACTIVITIES Common shares issued 2,830 - Long-term debt issued 12,750 - Long-term debt retired (12,750) - Decrease in short-term borrowings (17,500) (8,000) Borrowings of InterCoast Energy Company - Increase/(decrease) in unsecured revolving credit facility (8,000) 12,500 Dividends paid (13,794) (13,940) Issuance expense (196) (30) Net cash from financing activities (36,660) (9,470) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 8,619 (1,880) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,740 17,844 CASH AND CASH EQUIVALENTS AT END OF PERIOD $33,359 $15,964 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the periods for - Interest (net of amounts capitalized) $10,406 $13,795 Income taxes 118 15 <FN> The accompanying notes to consolidated financial statements are an integral part of these statements. -3- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (a) The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The statements reflect all adjustments which are, in the Company's opinion, necessary for a fair statement of the results for the periods presented. The Company believes that the disclosures are adequate to make the information presented not misleading. Certain 1994 amounts have been reclassified to conform to the current year presentation. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto incorporated by reference in the latest annual report on Form 10-K. (b) In October 1994, the Company filed an application with the Iowa Utilities Board (IUB) to recover the costs of state- mandated energy-efficiency programs offered to Iowa electric and gas customers since 1992. Costs of the programs are to be recovered over four years, as required by Iowa law. The total annual cost to be recovered, including a return on deferred amounts and an allowance for performance rewards, is approximately $4.7 million. On May 8, 1995, the IUB issued an order approving cost recovery of the full amount requested with collection to begin in June 1995. (c) In 1992, the Federal Energy Regulatory Commission (FERC) issued Order No. 636, restructuring the natural gas sales and transportation services of interstate pipeline companies. The FERC Order contemplated that transitional gas supply realignment costs related to this restructuring may be billed by interstate pipelines to their customers. At March 31, 1995, a regulatory asset of $21.9 million, with an offsetting non-current Other Liability, has been recorded. In addition, the Company estimates it may incur other future billings of approximately $15 million related to such restructuring. The Company is currently recovering such costs through rates. (d) The allowance for funds used during construction (AFUDC) includes the costs of equity and borrowed funds used to finance construction, which are capitalized in accordance with rules prescribed by the FERC. In the first three months of 1995 and 1994, AFUDC rates were 6.1% and 6.2%, respectively, compounded semi-annually. While currently capitalized AFUDC does not represent a current source of cash, it does represent a basis for future sources of cash through the inclusion in rates of depreciation charges and allowance for returns on investment. (e) In January 1995, $12.75 million of floating rate Pollution Control Revenue Bonds, due 2025, were issued. In March 1995, proceeds from this financing were used to redeem $12.75 million of Collateralized Pollution Control Revenue Bonds, 5.8% Series, due 2007. (f) The Company is investigating five properties currently owned by the Company which were, at one time, sites of gas manufacturing plants. The purpose of these investigations is to determine whether waste materials are present, whether such materials constitute an environmental or health risk, and whether the Company has any responsibility for remedial action. One site is located in Illinois and four sites are located in Iowa. With regard to the Illinois property, the Company has signed a working agreement with the Illinois Environmental Protection Agency to perform further investigation to determine whether waste materials are present and, if so, whether such materials constitute an environmental or health risk. At March 31, 1995, an estimated liability of $3.3 million has been recorded for litigation, investigation and remediation related to the Illinois site. A regulatory asset has been recorded reflecting anticipated cost recovery through rates in Illinois. With regard to the Iowa sites, no agreement or consent order has been negotiated to perform any site investigations or remediation. The Company has recorded a $4 million estimated liability for the Iowa sites. A regulatory asset has been recorded based on the current regulatory treatment of comparable costs in Iowa. The estimated recorded liabilities for these properties are based upon preliminary data. Thus, actual costs could vary significantly from the estimates. In addition, insurance recoveries for some or all of the costs may be possible, but the liabilities recorded have not been reduced by any estimate of such recoveries. Although the timing of incurred costs, recoveries and the inclusion of provision for such costs in rates may affect the results of operations in individual periods, management believes that the outcome of these issues will not have a material adverse effect on the Company's financial position or results of operations. Clean Air Act legislation was signed into law in November 1990. The Company has four jointly and one wholly owned coal- fired generating stations, which represent approximately 65% of the Company's electric generating capability. Each of these facilities are impacted to varying degrees by the legislation. Only one unit at the wholly owned generating station, representing approximately 10% of the Company's electric generating capability, is impacted by the emission reduction requirements effective in 1995. Under such requirements, beginning in 1995, this unit is required to hold allowances, issued by the federal government, in order to emit sulfur dioxide. The compliance strategy for this unit includes modifications to allow for burning low-sulfur coal, modifications for nitrogen oxide control and installation of a new emission monitoring system. The Company's remaining construction expenditures relative to this work are estimated to be $2.4 million. The four generating stations not affected until 2000 already burn low-sulfur coal, so additional capital costs will not be incurred for sulfur dioxide emission reduction requirements. Beginning in 2000, these facilities will be required to hold allowances, issued by the federal government, in order to emit sulfur dioxide. Installation of low nitrogen oxide burners is required at one of these facilities and existing emission monitoring systems at all four facilities require upgrading. The Company's remaining construction cost for this work is estimated to be $1.4 million. It is anticipated that any costs incurred by the Company to comply with the Clean Air Act legislation would be included in the cost of service on which the Company's rates for utility service are based. (g) Expenses of InterCoast include interest expense as follows: March 31, 1995 1994 Three Months Ended. . . .$ 6,508,000 $ 6,241,000 (h) On December 21, 1994, the shareholders of the Company, Midwest Resources Inc. and Midwest Power Systems Inc. approved a strategic merger of equals to form MidAmerican Energy Company (MidAmerican). MidAmerican will be structured as a utility with the Company, Midwest Resources Inc. and Midwest Power Systems Inc. being merged into the new company. Approval of the merger is required from the following regulatory agencies: the IUB, the Illinois Commerce Commission (ICC) and the FERC. Approval by the Nuclear Regulatory Commission (NRC) of the transfer of the Quad-Cities Nuclear Power Station license to MidAmerican must also be obtained. Applications for approval of the merger were filed with the IUB and the ICC in October 1994. An application for approval of the merger was filed with the FERC in November 1994. At the same time, consistent with FERC policy, the Company filed open-access, comparable services electric tariffs with the FERC, which tariffs will allow others to use MidAmerican's electric transmission system in a manner comparable to its use by MidAmerican. A filing with the NRC was made in November 1994. In January 1995, the IUB issued an order approving the merger. The ICC approved the merger on May 4, 1995. The FERC is expected to issue an order on the merger by mid 1995. Completion of the merger is expected during 1995. The Company and Midwest Resources Inc. have announced plans to reduce their combined utility work forces by approximately 15 percent in conjunction with development of a restructured organization. As part of these reductions, the companies are offering incentive retirement and severance programs to salaried employees. The companies estimate these programs will reduce 1995 after-tax earnings of MidAmerican by approximately $9 million, or 9 cents a share, if the merger is consummated in 1995. The present value of the net savings from employment reductions is estimated to be approximately $230 million. (i) In April 1995, InterCoast completed the sale of a partnership interest in Tenaska Marketing Ventures, a gas marketing organization. The after-tax gain of $3.2 million on this sale will be recorded in the quarter ending June 30, 1995. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Operating Revenues Electric revenues decreased in the first quarter of 1995 compared to the first quarter of 1994 primarily due to decreased sales for resale. Also contributing to the decrease in electric revenues were decreased residential sales, decreased collections through rate riders relating to former manufactured gas plant sites and nuclear decommissioning costs, and decreased fuel and energy billings. Variations in fuel and energy cost billings reflect corresponding changes in fuel and purchased energy costs from levels included in base rates and, thus, do not affect net income. Beginning in January 1995, costs of investigation, remediation and litigation relating to former manufactured gas plant sites included in Illinois customer billings through a rate rider were decreased by $450,000 annually. Also beginning in January 1995, nuclear decommissioning costs included in Illinois customer billings through a rate rider were decreased by $500,000 annually. Decreased revenues collected through rate riders relating to former manufactured gas plant sites and nuclear decommissioning will not affect net income due to a corresponding decrease in costs. The changes in electric revenues are shown below: Revenue Decrease First Quarter 1995 to First Quarter 1994 (In thousands) Change in Retail Unit Sales $( 800) Change in Retail Fuel and Energy Adjustment Clause Billings ( 100) Change in Sales for Resale ( 3,400) Changes in Retail Rates ( 200) $( 4,500) Gas revenues decreased in the first quarter of 1995 compared to the first quarter of 1994. The principal factors contributing to the decrease were lower purchased gas cost billings and decreased sales volumes due to temperatures which were 11 percent warmer than the first quarter of 1994. Variations in purchased gas cost billings reflect corresponding changes in cost of gas sold and, thus, do not affect net income. The changes in gas revenue are shown below: Revenue Decrease First Quarter 1995 to First Quarter 1994 (In thousands) Change in Purchased Gas Adjustment Clause Billings $(17,800) Change in Unit Sales (10,300) $(28,100) Operation Cost of gas sold decreased in the first quarter of 1995 compared to the first quarter of 1994 primarily due to decreased purchased gas costs from suppliers and lower gas purchases reflecting warmer temperatures in the first quarter of 1995. Changes in the cost of electric fuel, energy and capacity reflect fluctuations in generation mix, fuel cost and energy and capacity purchases. Decreased fuel, energy and capacity costs in the first quarter of 1995 compared to the first quarter of 1994 are primarily due to decreased total sales and decreased average unit fuel and energy costs. Other operation and maintenance decreased in the first quarter of 1995 compared to the first quarter of 1994 primarily due to lower costs at the Quad-Cities Nuclear Power Station (Quad-Cities Station). In January 1994, the Company was advised by ComEd, operator and 75 percent owner of the Quad-Cities Station, that the NRC had placed the station on its list of plants with adverse performance trends. The NRC concerns with the Quad-Cities Station include deficiencies in the condition of certain station equipment and the effectiveness of the operators of the units in identifying and responding to certain operational problems. ComEd has provided written and verbal responses to the NRC and is working to resolve the concerns. As of February 1995, the Quad-Cities Station remains on the list of plants with adverse performance trends. Oil and Gas Revenues of InterCoast Energy Company Oil and gas revenues of InterCoast decreased in the first quarter of 1995 compared to the first quarter of 1994 primarily due to lower margins on gas marketed and lower gas prices on gas produced, partially offset by greater prices on oil produced and greater gas production volumes. Other Income of InterCoast Energy Company Other income of InterCoast decreased in the first quarter of 1995 compared to the first quarter of 1994 primarily due to gains on the disposition of special-purpose funds in 1994, which were not duplicated in the first quarter of 1995, and lower lease income. In April 1995, InterCoast completed the sale of a partnership interest in Tenaska Marketing Ventures, a gas marketing organization. The after-tax gain of $3.2 million on this sale will be recorded in the quarter ending June 30, 1995. Expenses of InterCoast Energy Company Expenses of InterCoast decreased in the first quarter of 1995 compared to the first quarter of 1994 primarily due to lower expenses associated with gas marketed. Allowance for Funds Used During Construction The increase in the total allowance for the first quarter of 1995 compared to first quarter of 1994 is primarily due to higher construction work in progress balances. Other Interest Expense The increase in other interest expense in the first quarter of 1995 compared to the first quarter of 1994 is primarily due to increased interest rates on notes payable and greater notes payable balances. Preferred and Preference Dividend Requirements The decrease in the preferred and preference dividend requirements in the first quarter of 1995 compared to the first quarter of 1994 is due to the redemption of all outstanding preferred shares in December 1994. Other Matters On December 21, 1994, the shareholders of the Company, Midwest Resources Inc. and Midwest Power Systems Inc. approved a strategic merger of equals to form MidAmerican. MidAmerican will be structured as a utility with the Company, Midwest Resources Inc. and Midwest Power Systems Inc. being merged into the new company. Approval of the merger is required from the following regulatory agencies: the IUB, the ICC and the FERC. Approval by the NRC of the transfer of the Quad-Cities Nuclear Power Station license to MidAmerican must also be obtained. Applications for approval of the merger were filed with the IUB and the ICC in October 1994. An application for approval of the merger was filed with the FERC in November 1994. At the same time, consistent with FERC policy, the Company filed open-access, comparable services electric tariffs with the FERC, which tariffs will allow others to use MidAmerican's electric transmission system in a manner comparable to its use by MidAmerican. A filing with the NRC was made in November 1994. In January 1995, the IUB issued an order approving the merger. The ICC approved the merger on May 4, 1995. The FERC is expected to issue an order on the merger by mid 1995. Completion of the merger is expected during 1995. The Company and Midwest Resources Inc. have announced plans to reduce their combined utility work forces by approximately 15 percent in conjunction with development of a restructured organization. As part of these reductions, the companies are offering incentive retirement and severance programs to salaried employees. The companies estimate these programs will reduce 1995 after-tax earnings of MidAmerican by approximately $9 million, or 9 cents a share, if the merger is consummated in 1995. The present value of the net savings from employment reductions is estimated to be approximately $230 million. LIQUIDITY AND CAPITAL RESOURCES The Company's current utility construction program forecast calls for expenditures of $84 million in 1995. In excess of 75% of these expenditures are expected to be met from cash generated from operations. The Company's utility capital requirements for the years 1995-1999 include budgeted construction expenditures of $300 million, expected contributions to nuclear decommissioning trust funds of $43 million, and maturities and cash sinking fund requirements related to long-term debt of $98 million. In January 1995, $12.75 million of floating rate Pollution Control Revenue Bonds, due 2025, were issued. In March 1995, proceeds from this financing were used to redeem $12.75 million of Collateralized Pollution Control Revenue Bonds, 5.8% Series, due 2007. At March 31, 1995 and December 31, 1994, the Company had $50 million and $67.5 million, respectively, of outstanding short- term commercial paper notes. The Company currently has regulatory authority to incur up to $100 million of short-term debt for its utility operations. Effective July 1, 1995, the authorized amount is increasing to $150 million. In 1992, the FERC issued Order No. 636, restructuring the natural gas sales and transportation services of interstate pipeline companies. The FERC Order contemplated that transitional gas supply realignment costs related to this restructuring may be billed by interstate pipelines to their customers. At March 31, 1995, a regulatory asset of $21.9 million, with an offsetting non-current Other Liability, has been recorded. In addition, the Company estimates it may incur other future billings of approximately $15 million related to such restructuring. The Company is currently recovering such costs through rates. The Company is investigating five properties currently owned by the Company which were, at one time, sites of gas manufacturing plants. The purpose of these investigations is to determine whether waste materials are present, whether such materials constitute an environmental or health risk, and whether the Company has any responsibility for remedial action. One site is located in Illinois and four sites are located in Iowa. With regard to the Illinois property, the Company has signed a working agreement with the Illinois Environmental Protection Agency to perform further investigation to determine whether waste materials are present and, if so, whether such materials constitute an environmental or health risk. At March 31, 1995, an estimated liability of $3.3 million has been recorded for litigation, investigation and remediation related to the Illinois site. A regulatory asset has been recorded reflecting anticipated cost recovery through rates in Illinois. With regard to the Iowa sites, no agreement or consent order has been negotiated to perform any site investigations or remediation. The Company has recorded a $4 million estimated liability for the Iowa sites. A regulatory asset has been recorded based on the current regulatory treatment of comparable costs in Iowa. The estimated recorded liabilities for these properties are based upon preliminary data. Thus, actual costs could vary significantly from the estimates. In addition, insurance recoveries for some or all of the costs may be possible, but the liabilities recorded have not been reduced by any estimate of such recoveries. Although the timing of incurred costs, recoveries and the inclusion of provision for such costs in rates may affect the results of operations in individual periods, management believes that the outcome of these issues will not have a material adverse effect on the Company's financial position or results of operations. Clean Air Act legislation was signed into law in November 1990. The Company has four jointly and one wholly owned coal- fired generating stations, which represent approximately 65% of the Company's electric generating capability. Each of these facilities are impacted to varying degrees by the legislation. Only one unit at the wholly owned generating station, representing approximately 10% of the Company's electric generating capability, is impacted by the emission reduction requirements effective in 1995. Under such requirements, beginning in 1995, this unit is required to hold allowances, issued by the federal government, in order to emit sulfur dioxide. The compliance strategy for this unit includes modifications to allow for burning low-sulfur coal, modifications for nitrogen oxide control and installation of a new emission monitoring system. The Company's remaining construction expenditures relative to this work are estimated to be $2.4 million. The four generating stations not affected until 2000 already burn low-sulfur coal, so additional capital costs will not be incurred for sulfur dioxide emission reduction requirements. Beginning in 2000, these facilities will be required to hold allowances, issued by the federal government, in order to emit sulfur dioxide. Installation of low nitrogen oxide burners is required at one of these facilities and existing emission monitoring systems at all four facilities require upgrading. The Company's remaining construction cost for this work is estimated to be $1.4 million. It is anticipated that any costs incurred by the Company to comply with the Clean Air Act legislation would be included in the cost of service on which the Company's rates for utility service are based. Capital expenditures for InterCoast during 1995 are estimated to be approximately $65 million. Actual capital expenditures for InterCoast are dependent on overall InterCoast performance and general market conditions. InterCoast's aggregate amounts of maturities and cash sinking fund requirements for long-term debt outstanding at March 31, 1995 are $64 million for 1995 and $161 million for the years 1996-1999. Amounts due in 1995 are expected to be refinanced with debt instruments and operating cash flow. InterCoast has a $110 million unsecured revolving credit facility agreement, which matures in July 1996. Borrowings under this agreement may be on a fixed rate, floating rate or competitive bid rate basis. All such borrowings are without recourse to the parent Company. Borrowings at March 31, 1995 were $27 million at a weighted average interest cost of 6.9%. In the first quarter of 1995, the lessee in a leveraged lease investment held by InterCoast exercised the purchase option provision of the lease agreement. This resulted in the termination of the lease agreement, the receipt of $23 million in cash by InterCoast and an increase in current tax expense of $11 million, offset by the reversal of $11 million in previously deferred income taxes including the utilization of Alternative Minimum Tax credit carryforwards. Part II - Other Information Item 5. Other Events Rate Matters See Note (b) to the Consolidated Financial Statements contained in Part I of this Form 10-Q for a discussion of an Iowa energy-efficiency program filing. Federal Gas Transition Costs See Note (c) to the Consolidated Financial Statements contained in Part I of this Form 10-Q for a discussion of federal gas transition costs related to Federal Energy Regulatory Commission Order No. 636. Refinancing See Note (e) to the Consolidated Financial Statements contained in Part I of this Form 10-Q for a discussion related to the refinancing of $12.75 million of Collateralized Pollution Control Revenue Bonds. Environmental Matters See Note (f) to the Consolidated Financial Statements contained in Part I of this Form 10-Q for a discussion related to manufactured gas plant sites and Clean Air Act legislation. Merger See Note (h) to the Consolidated Financial Statements contained in Part I of this Form 10-Q for a discussion related to the pending merger of the Company, Midwest Resources Inc. and Midwest Power Systems Inc. into a new utility, MidAmerican Energy Company. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K A report on form 8-K dated February 1, 1995 was filed. the report included under "Item 5 Other Events" and "Item 7 Financial Statements and Exhibits" information related to the announcement by the Company and Midwest Resources Inc. to reduce their combined utility work forces by approximately 15 percent (650 positions) in conjunction with the development of a restructured organization. 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. Iowa-Illinois Gas and Electric Company (Registrant) Date: May 9, 1995 By L. E. Cooper L. E. Cooper Vice President-Finance (Chief Financial Officer) Date: May 9, 1995 By B. A. Ven Horst B. A. Ven Horst Assistant Secretary and Assistant Treasurer