UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended 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 Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-10628 CIPSCO INCORPORATED 37-1260920
(An Illinois Corporation)
607 East Adams Street
Springfield, Illinois 62739
217-523-3600
1-3672 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 37-0211380
(An Illinois Corporation)
607 East Adams Street
Springfield, Illinois 62739
217-523-3600
Indicate by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrants were required to
file such reports), and (2) have been subject to such filing
requirements for the past 90 days.
Yes X No
_______ _______
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of the latest practicable date:
CIPSCO INCORPORATED Common stock, no par value, 34,107,706
shares outstanding at October 31, 1994
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Common stock no par value, 25,452,373
shares outstanding and held by
CIPSCO INCORPORATED at October 31, 1994
-1-
CIPSCO INCORPORATED
AND
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1994
CONTENTS
PART I. FINANCIAL INFORMATION Page No.
Item 1: Financial Statements
CIPSCO INCORPORATED
Consolidated Statements of Income 4- 5
Consolidated Balance Sheets 6- 7
Consolidated Statements of Cash Flows 8- 9
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Statements of Income 10-11
Balance Sheets 12-13
Statements of Cash Flows 14-15
CONDENSED NOTES TO FINANCIAL STATEMENTS of
CIPSCO Incorporated and Central Illinois
Public Service Company 16-20
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations
CIPSCO Incorporated and Central Illinois
Public Service Company 20-26
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 27
Item 6: Exhibits and Reports on Form 8-K 27
Signatures 28-29
Exhibit Index 30
Exhibit 12 Ratio of Earnings to Fixed Charges
and Ratio of Earnings to Fixed Charges
plus Preferred Stock Dividend
Requirements Before Income Taxes (CIPS) 31
Exhibit 27 Financial Data Schedule for CIPSCO -
Financial Data Schedule for CIPS -
-2-
The unaudited interim financial statements presented herein
include the consolidated statements of CIPSCO Incorporated and
Subsidiaries ("Company") as well as separate financial statements
for Central Illinois Public Service Company ("CIPS"). The
unaudited statements have been prepared by the Company and CIPS,
respectively, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations, although the Company and CIPS believe the
disclosures are adequate to make the information presented not
misleading. The Company's consolidated financial statements
should be read in conjunction with the financial statements and
notes thereto incorporated by reference in the Annual Report on
Form 10-K of CIPSCO Incorporated for the year ended December 31,
1993 (the "CIPSCO 10-K"); and the CIPS financial statements
should be read in conjunction with the financial statements and
notes thereto included in the Annual Report on Form 10-K of CIPS
for the year ended December 31, 1993 (the "CIPS 10-K").
In the opinion of the Company and CIPS, their respective interim
financial statements filed as part of this Form 10-Q reflect all
adjustments necessary to present fairly the results for the
respective periods. Due to the effect of weather and other
factors which are characteristic of CIPS' utility operations,
financial results for the periods ended September 30, 1994 and
1993 are not necessarily indicative of trends for any twelve-
month period.
This financial and other information is not given in connection
with any sale or offer to buy any security.
-3-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CIPSCO INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
For the Periods Ended September 30, 1994 and 1993
(in thousands except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
___________________ ____________________
1994 1993 1994 1993
_________ _________ _________ _________
Operating Revenues:
Electric......................... $198,767 $216,314 $537,013 $530,774
Gas.............................. 15,146 15,782 100,724 98,238
Investment....................... 2,357 3,581 6,660 7,260
________ ________ ________ ________
Total operating revenues...... 216,270 235,677 644,397 636,272
________ ________ ________ ________
Operating Expenses:
Fuel for electric generation..... 45,493 48,532 149,427 139,329
Purchased power.................. 14,486 23,242 40,587 49,053
Gas purchased.................... 7,222 7,115 61,835 60,562
Other operation.................. 36,734 32,629 109,795 102,663
Maintenance...................... 14,375 16,208 45,378 45,191
Depreciation and amortization.... 20,162 19,612 60,610 58,663
Taxes other than income taxes.... 13,794 13,893 42,972 42,382
________ ________ ________ ________
Total operating expenses...... 152,266 161,231 510,604 497,843
________ ________ ________ ________
Operating Income................... 64,004 74,446 133,793 138,429
________ ________ ________ ________
Interest and Other Charges:
Interest on long-term debt of
subsidiary....................... 8,138 8,455 24,704 26,052
Other interest charges........... 125 130 122 548
Allowance for funds used during
construction..................... (251) (664) (735) (1,705)
Preferred stock dividends of
subsidiary....................... 889 853 2,568 2,788
Miscellaneous, net............... (881) (732) (2,673) (2,291)
________ ________ ________ ________
Total interest and other
charges....................... 8,020 8,042 23,986 25,392
________ ________ ________ ________
-4-
Income Before Income Taxes......... 55,984 66,404 109,807 113,037
________ ________ ________ ________
Income Taxes....................... 21,728 26,282 42,247 43,584
________ ________ ________ ________
Net Income......................... $ 34,256 $ 40,122 $ 67,560 $ 69,453
======== ======== ======== ========
Average Shares of Common Stock
Outstanding........................ 34,108 34,108 34,108 34,108
Earnings per Average Share of
Common Stock....................... $1.00 $1.18 $1.98 $2.04
The accompanying condensed notes to financial statements are an integral
part of these statements.
-5-
CIPSCO INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993
(in thousands)
September 30, December 31,
1994 1993
_____________ ____________
(unaudited)
ASSETS
Utility Plant, at original cost:
Electric.......................... $2,227,192 $2,172,578
Gas............................... 217,135 208,208
__________ __________
2,444,327 2,380,786
Less-Accumulated depreciation..... 1,065,898 1,020,416
__________ __________
1,378,429 1,360,370
Construction work in progress..... 49,191 61,104
__________ __________
1,427,620 1,421,474
__________ __________
Current Assets:
Cash.............................. 2,083 4,630
Temporary investments, at cost
which approximates market......... 6,881 5,527
Accounts receivable, net.......... 75,105 61,445
Accrued unbilled revenues......... 20,698 38,774
Materials and supplies, at average
cost.............................. 42,432 40,824
Fuel for electric generation, at
average cost...................... 32,247 26,046
Gas stored underground, at average
cost.............................. 13,683 14,335
Prepayments....................... 7,614 10,142
__________ __________
200,743 201,723
__________ __________
Investments and Other Assets:
Investment in marketable
securities........................ 46,917 42,703
Investment in leveraged leases.... 48,841 42,216
Other............................. 43,162 49,634
__________ __________
138,920 134,553
__________ __________
$1,767,283 $1,757,750
========== ==========
-6-
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders' equity....... $ 650,938 $ 634,252
Unrealized investment losses,
net............................... (922) -
Preferred stock of subsidiary..... 80,000 80,000
Long-term debt of subsidiary...... 459,543 474,323
__________ __________
1,189,559 1,188,575
__________ __________
Current Liabilities:
Long-term debt of subsidiary due
within one year................... 15,000 20,000
Commercial paper and short-term
borrowings........................ 850 -
Accounts payable.................. 48,525 56,039
Accrued wages..................... 12,392 12,775
Accrued taxes..................... 19,356 12,973
Accrued interest.................. 8,420 9,204
Other............................. 44,154 34,902
__________ __________
148,697 145,893
__________ __________
Deferred Credits:
Accumulated deferred income taxes. 304,338 294,732
Investment tax credits............ 56,437 58,962
Regulatory liability, net......... 68,252 69,588
__________ __________
429,027 423,282
__________ __________
$1,767,283 $1,757,750
========== ==========
The accompanying condensed notes to financial statements are an
integral part of these statements.
-7-
CIPSCO INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Periods Ended September 30, 1994 and 1993
(in thousands)
(unaudited)
Nine Months Ended
September 30,
______________________
1994 1993
__________ __________
Operating Activities:
Net income.............................. $ 67,560 $ 69,453
Adjustments to reconcile net income
to net cash provided:
Depreciation and amortization......... 60,610 58,663
Allowance for equity funds used during
construction (AFUDC).................. (503) (1,101)
Deferred income taxes, net............ 8,583 15,147
Investment tax credit amortization.... (2,525) (2,525)
Cash flows impacted by changes in assets
and liabilities:
Accounts receivable and unbilled
revenues.............................. 4,416 (11,847)
Fuel for electric generation.......... (6,201) 7,048
Other inventories..................... (956) (6,870)
Prepayments........................... 2,528 6,489
Other assets.......................... 6,472 9,064
Accounts payable and other............ 1,738 5,088
Accrued wages, taxes and interest..... 5,216 15,469
Other................................... (1,996) 4,719
_________ _________
Net cash provided by operating
activities............................ 144,942 168,797
_________ _________
Investing Activities:
Utility construction expenditures,
excluding AFUDC......................... (64,184) (56,252)
Allowance for borrowed funds used
during construction..................... (231) (603)
Change in temporary investments......... (1,354) (35,570)
Long-term investment in marketable
securities.............................. (5,136) (2,287)
Long-term investment in leveraged
leases.................................. (6,625) (8,804)
_________ _________
Net cash used in investing activities. (77,530) (103,516)
_________ _________
-8-
Financing Activities:
Common stock dividends paid............. (50,820) (49,797)
Proceeds from issuance of long-term
debt of subsidiary...................... - 195,000
Repayment of long-term debt of
subsidiary.............................. (20,000) (205,000)
Repayment of short-term borrowings...... 850 (14,593)
Proceeds from issuance of preferred
stock of subsidiary..................... - 30,000
Redemption of preferred stock of
subsidiary.............................. - (15,000)
Issuance expense, discount and premium.. 11 (6,320)
_________ _________
Net cash used in financing activities. (69,959) (65,710)
_________ _________
Net decrease in cash.................... (2,547) (429)
Cash at beginning of period............. 4,630 1,534
_________ _________
Cash at end of period................... $ 2,083 $ 1,105
========= =========
Supplemental Disclosures of Cash Flow
Information
Cash paid during the period for:
Interest, net of amount capitalized... $ 23,881 $ 20,790
Income taxes.......................... 25,923 16,701
The accompanying condensed notes to financial statements are an
integral part of these statements.
-9-
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Statements of Income
For the Periods Ended September 30, 1994 and 1993
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
___________________ ___________________
1994 1993 1994 1993
_________ _________ _________ _________
Operating Revenues:
Electric......................... $198,775 $216,321 $537,036 $530,795
Gas.............................. 15,147 15,783 100,728 98,242
________ ________ ________ ________
Total operating revenues...... 213,922 232,104 637,764 629,037
________ ________ ________ ________
Operating Expenses:
Fuel for electric generation..... 45,493 48,532 149,427 139,329
Purchased power.................. 14,486 23,242 40,587 49,053
Gas purchased.................... 7,222 7,115 61,835 60,562
Other operation.................. 36,377 32,205 108,759 101,567
Maintenance...................... 14,374 16,208 45,375 45,190
Depreciation and amortization.... 20,041 19,507 60,227 58,352
Taxes other than income taxes.... 13,790 13,891 42,946 42,338
Income taxes:
Current........................ 16,660 18,175 36,596 32,717
Deferred, net.................. 5,325 7,867 6,588 11,431
Deferred investment tax
credits, net................... (842) (842) (2,525) (2,525)
________ ________ ________ ________
Total operating expenses...... 172,926 185,900 549,815 538,014
________ ________ ________ ________
Operating Income................... 40,996 46,204 87,949 91,023
________ ________ ________ ________
Other Income and Deductions:
Allowance for equity funds used
during construction.............. 172 429 503 1,101
Nonoperating income taxes........ (117) (107) (604) (352)
Miscellaneous, net............... 1,021 818 3,171 2,480
________ ________ _________ ________
Total other income and
deductions.................... 1,076 1,140 3,070 3,229
________ ________ ________ ________
-10-
Income Before Interest Charges..... 42,072 47,344 91,019 94,252
________ ________ ________ ________
Interest Charges:
Long-term debt................... 8,138 8,455 24,704 26,052
Other interest charges........... 111 99 114 460
Allowance for borrowed funds used
during construction.............. (79) (235) (231) (603)
________ ________ ________ ________
Total interest charges....... 8,170 8,319 24,587 25,909
________ ________ ________ ________
Net Income......................... 33,902 39,025 66,432 68,343
Preferred Dividends................ 889 853 2,568 2,788
________ ________ ________ ________
Earnings for Common Stock.......... $ 33,013 $ 38,172 $ 63,864 $ 65,555
======== ======== ======== ========
The accompanying condensed notes to financial statements are an integral
part of these statements.
-11-
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Balance Sheets
September 30, 1994 and December 31, 1993
(in thousands)
September 30, December 31,
1994 1993
___________ ____________
(unaudited)
ASSETS
Utility Plant, at original cost:
Electric......................... $2,227,192 $2,172,578
Gas.............................. 217,135 208,208
__________ __________
2,444,327 2,380,786
Less-Accumulated depreciation.... 1,065,898 1,020,416
__________ __________
1,378,429 1,360,370
Construction work in progress.... 49,191 61,104
__________ __________
1,427,620 1,421,474
__________ __________
Current Assets:
Cash............................. 1,524 4,038
Temporary investments, at cost
which approximates market........ 6,881 2,734
Accounts receivable, net......... 75,209 61,591
Accrued unbilled revenues........ 20,698 38,774
Materials and supplies, at average
cost............................. 42,432 40,824
Fuel for electric generation, at
average cost..................... 32,247 26,046
Gas stored underground, at average
cost............................. 13,683 14,335
Prepayments...................... 7,495 9,847
__________ __________
200,169 198,189
__________ __________
Other Assets....................... 42,117 48,799
__________ __________
$1,669,906 $1,668,462
========== ==========
-12-
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's equity...... $ 577,435 $ 565,023
Preferred stock.................. 80,000 80,000
Long-term debt................... 459,543 474,323
__________ __________
1,116,978 1,119,346
__________ __________
Current Liabilities:
Long-term debt due within one
year............................. 15,000 20,000
Accounts payable................. 48,446 55,931
Accrued wages.................... 12,392 12,720
Accrued taxes.................... 19,335 13,391
Accrued interest................. 8,420 9,204
Other............................ 44,153 34,895
__________ __________
147,746 146,141
__________ __________
Deferred Credits:
Accumulated deferred income
taxes............................ 280,493 274,425
Investment tax credits........... 56,437 58,962
Regulatory liability, net........ 68,252 69,588
__________ __________
405,182 402,975
__________ __________
$1,669,906 $1,668,462
========== ==========
The accompanying condensed notes to financial statements are an
integral part of these statements.
-13-
Central Illinois Public Service Company
Statements of Cash Flows
For the Periods Ended September 30, 1994 and 1993
(in thousands)
(unaudited)
Nine Months Ended
September 30,
______________________
1994 1993
__________ __________
Operating Activities:
Net income.............................. $ 66,432 $ 68,343
Adjustments to reconcile net income
to net cash provided:
Depreciation and amortization......... 60,227 58,352
Allowance for equity funds used during
construction (AFUDC).................. (503) (1,101)
Deferred income taxes, net............ 5,046 10,269
Income tax credit amortization........ (2,525) (2,525)
Cash flows impacted by changes in assets
and liabilities:
Accounts receivable and accrued
unbilled revenues..................... 4,458 (11,870)
Fuel for electric generation.......... (6,201) 7,048
Other inventories..................... (956) (6,870)
Prepayments........................... 2,352 4,022
Other assets.......................... 6,682 11,714
Accounts payable and other............ 1,773 5,182
Accrued wages, taxes and interest..... 4,832 11,831
Other................................... (1,612) 5,030
_________ _________
Net cash provided by operating
activities............................ 140,005 159,425
_________ _________
Investing Activities:
Construction expenditures, excluding
AFUDC................................... (64,184) (56,252)
Allowance for borrowed funds used during
construction............................ (231) (603)
Changes in temporary investments........ (4,147) (30,881)
_________ _________
Net cash used in investing activities. (68,562) (87,736)
_________ _________
-14-
Financing Activities:
Repurchase of common stock.............. - (50,000)
Proceeds from issuance of long-term debt - 195,000
Repayment of long-term debt............. (20,000) (205,000)
Repayment of short-term borrowings...... - (17,393)
Proceeds from issuance of preferred
stock................................... - 30,000
Redemption of preferred stock........... - (15,000)
Dividends paid:
Preferred stock....................... (2,568) (2,788)
Common stock.......................... (51,400) -
Issuance expense, discount and premium.. 11 (6,320)
_________ _________
Net cash used in financing activities. (73,957) (71,501)
_________ _________
Net increase (decrease) in cash......... (2,514) 188
Cash at beginning of period............. 4,038 480
_________ _________
Cash at end of period................... $ 1,524 $ 668
========= =========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest, net of amount capitalized... $ 23,871 $ 20,727
Income taxes.......................... 29,218 23,024
The accompanying condensed notes to financial statements are an
integral part of these statements.
-15-
CIPSCO INCORPORATED AND SUBSIDIARIES
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(unaudited)
Note 1. GENERAL
________________
The consolidated financial statements presented herein include
the accounts of CIPSCO INCORPORATED (CIPSCO), CENTRAL ILLINOIS
PUBLIC SERVICE COMPANY (CIPS), and CIPSCO INVESTMENT COMPANY AND
SUBSIDIARIES (CIC). CIPSCO and Subsidiaries are referred to as
the "Company." CIPSCO has two first-tier subsidiaries: CIC, an
investment subsidiary, and CIPS, an electric and gas public
utility. Prior year amounts have been reclassified on a basis
consistent with the September 30, 1994 presentation.
The financial statements of CIPS, a subsidiary of CIPSCO, include
only the accounts of CIPS. Prior year amounts have been
reclassified on a basis consistent with the September 30, 1994
presentation.
Note 2. COMMITMENTS AND CONTINGENCIES
______________________________________
ENVIRONMENTAL REMEDIATION COSTS - CIPS and certain of its
predecessors and other affiliates operated facilities in the past
for manufacturing gas from coal. In connection with
manufacturing gas, various by-products were produced, some of
which remain on sites where the facilities were located. CIPS
has identified 13 of these former manufactured gas plant sites
(enviromental remediation sites) which contain potentially
harmful materials. Under directives from the Illinois
Environmental Protection Agency (IEPA), CIPS has incurred costs
and associated legal expenses related to the investigation and
remediation of the sites.
One site was added to the United States Environmental Protection
Agency (USEPA) Superfund list on August 30, 1990. On September
30, 1992 the IEPA, in consultation with the USEPA, decided that
the long-term remedial plan for this site should consist of a
ground water pump-and-treat program. The IEPA and CIPS entered
into an agreement, which received required court approval on
March 14, 1994, for CIPS to carry out the remedial action with
the IEPA providing oversight. It is not known at this time what
specific remedial action will be required at the other 12 sites.
In 1987, CIPS filed a lawsuit against a number of insurance
carriers seeking full indemnification for all costs in connection
-16-
with certain environmental sites. CIPS has now settled the
lawsuit with substantially all of the insurance carriers. In
1991, a circuit court entered a verdict in favor of CIPS
involving the coverage under one environmental impairment
liability policy. On August 26, 1994, the Illinois Appellate
court reversed the circuit court ruling on the basis that no
claim was made during the policy coverage period. CIPS will ask
for rehearing and may appeal to the Illinois Supreme Court.
The estimated incurred costs related to studies and remediation
at these 13 sites and associated legal expenses are being accrued
and deferred rather than expensed currently, pending recovery
through rates, from insurance carriers or from other parties.
The total amount deferred represents costs incurred and estimates
for costs of completing studies at various sites and an estimate
of remediation costs at the Superfund site. At September 30,
1994 the amounts recovered have exceeded the aggregate amount
deferred.
In 1992, the Illinois Commerce Commission (the "Illinois
commission") issued an Order (the "Generic Order") in its
consolidated generic proceeding initiated on March 6, 1991,
regarding appropriate ratemaking treatment of cleanup costs
incurred by Illinois utilities with respect to environmental
remediation sites. The Generic Order indicates that allowed
cleanup costs may include prudently incurred costs of
investigation, assessment and cleanup of environmental
remediation sites, as well as litigation costs including those
involved in insurance recovery claims. The Generic Order
authorizes utilities, including CIPS, to propose a mechanism to
recover cleanup costs which is consistent with the provisions of
the order. Such a mechanism must, among other things, provide
for (1) recovery of cleanup costs over a five-year period,
excluding carrying costs associated with the unrecovered balance
of cleanup costs from the time that the recovery mechanism
becomes effective; (2) a return to ratepayers over a five-year
amortization period of any reimbursement of cleanup costs
received from insurance carriers or other parties; and (3) a
prudence review of each utility's expenditures. The Generic Order
was upheld on appeal by the Third District Illinois Appellate
Court. That decision held that a rate rider mechanism is an
appropriate means for utilities to recover cleanup costs. The
case has been appealed to the Illinois Supreme Court by an
intervenor that maintains that no recovery of cleanup costs
should be allowed and that, if allowed, a rate rider mechanism is
not the proper means of providing recovery. CIPS and other
utilities have also appealed to the Illinois Supreme Court
seeking to include the unrecovered carrying charges in the rate
rider. The Illinois Supreme Court heard the appeals on September
27, 1994. CIPS cannot predict what action the Illinois Supreme
Court will take in this matter.
On March 26, 1993, the Illinois commission approved CIPS'
proposed environmental cost-recovery rate riders, effective with
April 1993 billings to customers. Known as the electric
-17-
environmental adjustment clause and the gas environmental
adjustment clause, the riders are designed to enable CIPS to
recover from its customers costs associated with cleanup of the
environmental remediation sites, along with associated legal
expenses, over a five year period on terms consistent with the
Generic Order. The environmental adjustment clause riders
provide for an annual review of amounts recovered through the
riders. Amounts found to have been incorrectly included would be
subject to refund. Through December 31, 1993, CIPS had collected
$2.9 million including interest from its customers pursuant to
the riders. Pursuant to monthly filings made by CIPS under the
riders, no additional amounts have been collected from customers
under the riders since January 1994. On April 6, 1994, the
Illinois commission initiated a reconciliation proceeding to
review CIPS environmental remediation activities and determine
whether the level of revenues collected by the riders is
consistent with the amount of remediation costs prudently
incurred and whether all amounts collected were correctly
included in the riders. CIPS has filed testimony and provided
data to the Illinois commission regarding the reconciliation
proceeding. A status hearing is scheduled for January 1995.
Total cost to be incurred for the cleanup of these sites or the
possible recovery from insurance carriers and other parties
cannot be estimated. Management believes that any costs incurred
in connection with the sites that are not recovered from
insurance carriers or other parties will be recovered through
utility rates. Accordingly, management believes that costs
incurred in connection with these sites will not have a material
adverse effect on the financial position or results of operations
of the Company or CIPS.
FERC ORDER 636 - During 1992, the Federal Energy Regulatory
Commission ("FERC") issued a series of orders that require
substantial restructuring of the service obligations of
interstate pipeline suppliers. These orders (together called
Order 636) required mandatory unbundling of existing pipeline gas
sales services. Mandatory unbundling requires pipelines to sell
separately the various components previously included with gas
sales services (i.e., storage, transport, capacity sales, etc.).
Order 636 provides a mechanism for pipelines to recover
transition costs associated with restructuring their gas sales
services through billings to their customers.
Based on currently available information contained in the various
interstate pipeline Order 636 compliance filings, CIPS estimates
that the total amount of transition costs to be incurred by CIPS
is approximately $10 million of which $6 million has been paid.
At September 30, 1994, CIPS had recorded a liability and a
related deferred gas cost of $.5 million for that portion of the
transition costs that will be billed to CIPS regardless of future
pipeline services.
The Illinois commission issued an order in March 1994 permitting
retail gas distribution companies, including CIPS, full recovery
through rates of prudently incurred Order 636 transition costs.
On May 4, 1994, the Illinois commission granted rehearing of the
-18-
order. The final order issued September 22, 1994, reaffirmed
full recovery of prudently incurred Order 636 transition costs
and changed the recovery mechanism to include recovery from an
additional class of customer. CIPS cannot predict what further
action the Illinois commission will take in this matter or
whether the Illinois commission's order in this matter will be
appealed.
CLEAN AIR ACT - CIPS' compliance strategy to meet the sulfur
dioxide emission reduction requirements of the Clean Air Act
Amendments of 1990 (Amendments) includes complying with Phase I
of the Amendments by switching to a lower sulfur coal at some of
its units. Phase II compliance will be accomplished by
additional fuel switching at various units and by increased
scrubbing with its existing scrubber at Newton Unit 1. Phase I
and Phase II emission provisions of the Amendments become
effective in 1995 and 2000, respectively.
CIPS estimates that total capital costs, primarily for
modifications to boilers, precipitators, coal handling
facilities, and continuous monitoring equipment for
implementation of this compliance strategy, will be less than $50
million in total including amounts spent to date. Operating
costs are not expected to change materially. Compliance costs
could result in electric base rate increases of approximately one
to two percent by the year 2000.
In 1991, in accordance with the plan to switch some units to
lower sulfur coal, CIPS signed a long-term coal contract with an
existing supplier for lower sulfur Illinois coal. Due to the
magnitude of the supplier's capital investment, the contract
includes a graduated termination charge. In 1994, CIPS can
terminate the contract under certain conditions, and CIPS would
be required to pay up to $41 million (plus an inflation
adjustment) in termination charges. Each year subsequent to 1994
the termination charge is reduced according to a formula using
tons of coal purchased. The termination charge would not be
effective if CIPS terminated the contract due to the failure of
the coal to meet quality specifications provided for in the
contract.
LABOR DISPUTES - The International Union of Operating Engineers
(IUOE) Local 148 and the International Brotherhood of Electrical
Workers (IBEW) Local 702 each filed unfair labor practice charges
in 1993 with the National Labor Relations Board (NLRB) relating
to the legality of a lockout by CIPS of both unions during 1993.
The Peoria Regional Office of the NLRB has issued a complaint
against CIPS concerning its lockout of IBEW-702 represented
employees. However, the Peoria Regional Office did not find
merit to a similar charge filed by the IUOE 148 and it was
dismissed. The IUOE 148 appealed the dismissal within the NLRB.
On July 20, 1994, CIPS received notification from the Peoria
Regional Office that the Appeals Division, located in Washington
D.C., reversed the earlier decision made by the Peoria Regional
Office thereby finding merit to the claim by IUOE 148 that the
lockout of its members was illegal. As a result of the finding
-19-
by the Appeals Division, the Peoria Regional Office issued a
complaint against CIPS regarding the lockout of the IUOE 148
employees. Both unions seek, among other things, back pay and
other benefits for the period of the lockout. CIPS estimates the
amount of back pay and other benefits for both unions to be less
than $12 million. Management believes the lockout was both
lawful and reasonable and that the final resolution of the
disputes will not have a material adverse effect on financial
position or results of operations of the Company or CIPS.
OTHER ISSUES - CIPS is involved in other legal and administrative
proceedings before various courts and agencies with respect to
rates, taxes, gas and electric fuel cost reconciliations, service
area disputes, environmental and other matters. Although unable
to predict the outcome of these matters, management believes that
appropriate liabilities have been established and that final
disposition of these actions will not have material adverse
effect on the results of operations or the financial position of
the Company or CIPS.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis of financial condition and
results of operations is for CIPSCO Incorporated and Subsidiaries
("Company") unless otherwise stated.
THE OUTLOOK
CIPS currently estimates that its total construction expenditures
for the 1994-1998 period will be about $431 million, including
about $4 million of allowance for funds used during construction.
In addition to funds for construction, projected capital
requirements for the remainder of 1994 and for the 1995-1998
period include $73 million for scheduled debt retirements.
Capital requirements for the 1994-1998 period are expected to be
provided primarily through internally generated funds. External
financing to fund scheduled debt retirements may be required.
CIPS has filed a shelf registration statement under the
Securities Act of 1933 relating to $50 million of first mortgage
bonds, medium term notes and/or preferred stock. Proceeds will
be used to replace maturing long-term debt or for general
corporate purposes.
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FINANCIAL CONDITION
Financial condition and changes in total Shareholder Equity of
the Company and CIPS for the nine-month periods ended September
30, 1994 and 1993 are as follows:
Nine Months Ended
September 30,
________________________
(in thousands)
The Company: 1994 1993
_________ _________
Common Shareholders' Equity
Net income $ 67,560 $ 69,453
Common stock dividends paid (50,820) (49,797)
Other (54) (761)
________ ________
Change in Shareholders' Equity 16,686 18,895
======== ========
Nine Months Ended
September 30,
________________________
(in thousands)
CIPS: 1994 1993
_________ _________
Common Shareholder's Equity
Earnings for Common stock $ 63,864 $ 65,555
Common stock dividends paid (51,400) (50,000)
Other (53) (762)
________ ________
Change in Shareholder's Equity 12,411 14,793
======== ========
OVERVIEW
The Company's earnings per share were $1.00 for the quarter ended
September 30, 1994, compared to $1.18 per share earned during the
same period in 1993. The decrease in earnings was caused by
decreased electric sales to customers of CIPS caused by cooler
temperatures in the third quarter of 1994 compared to the
temperatures recorded in the third quarter of 1993. In addition,
the third quarter 1993 results reflected additional electric
sales opportunities for CIPS due to Midwest flooding and a coal
miners' strike that caused some other utilities to purchase more
of their electric requirements.
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The Company's earnings per share were $1.98 for the nine months ended
September 30, 1994, compared to $2.04 per share earned during the same
period in 1993. The decline in earnings was due in part by cooler summer
weather in 1994 and to increased operation expenses in 1994 caused by one
time labor settlement costs, increased legal expenses, and increases in
public liability and injury and damages claims.
The following table summarizes the components of consolidated net income and
CIPS earnings for common stock for the three months and nine months ended
September 30, 1994 and 1993 (see Results of Operations for further
discussion). In this table, electric operating margin equals electric
operating revenues less fuel for electric generation and less purchased
power. Gas operating margin equals gas operating revenues less gas
purchased.
Third Quarter Ended Nine Months Ended
September 30, September 30,
___________________ __________________
(in thousands) (in thousands)
1993 1994 1993 1994
________ ________ ________ ________
CIPS
Electric operating margin $138,796 $144,547 $347,022 $342,413
Gas operating margin 7,925 8,668 38,893 37,680
Other deductions and interest
expenses 112,819 114,190 319,483 311,750
CIPS preferred stock dividends 889 853 2,568 2,788
_______ _______ _______ _______
Total earnings for
common stock 33,013 38,172 63,864 65,555
_______ _______ _______ _______
NON-UTILITY
Investment revenues 2,213 3,492 6,151 7,031
Other deduction and expenses 970 1,542 2,455 3,133
_______ _______ _______ _______
Total non-utility net
income 1,243 1,950 3,696 3,898
_______ _______ _______ _______
Consolidated net income $ 34,256 $ 40,122 $ 67,560 $ 69,453
======= ======= ======= =======
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RESULTS OF OPERATIONS
The results of operations of the Company and CIPS for the three months and
nine months ended September 30, 1994, compared to the same periods in 1993
are presented below.
The Company
Net Income (in thousands) Earnings Per Share
_________________________ _________________________
Three Months Nine Months Three Months Nine Months
____________ ___________ ____________ ___________
1994 $34,256 $67,560 $1.00 $1.98
1993 40,122 69,453 1.18 2.04
_______ _______ _____ _____
Decrease $(5,866) $(1,893) $(.18) $(.06)
======= ======= ===== =====
Percent
Decrease (15%) (3%) (15%) (3%)
CIPS
Earnings for Common Stock (in thousands)
________________________________________
Three Months Nine Months
____________ ___________
1994 $33,013 $63,864
1993 38,172 65,555
_______ _______
Decrease $(5,159) $(1,691)
======= =======
Percent
Decrease (14%) (3%)
OPERATING REVENUES
The changes in electric and gas revenues described below are for the
Company. The only differences between changes in electric and gas operating
revenues for the Company and for CIPS are intercompany revenues that are
eliminated in the consolidated financial statements. These intercompany
amounts are immaterial.
Electric revenues decreased 8% in the third quarter of 1994 compared to the
third quarter of 1993 reflecting fewer KWH sales due to the cooler weather
in the third quarter of 1994. Also, contributing to the decrease in third
quarter 1994 revenues is the fact that the third quarter 1993 results
reflected additional sales opportunities due to Midwest flooding and a coal
miners' strike that caused other utilities to purchase more of their
electric requirements from CIPS.
Electric revenues increased 1% in the first nine months of 1994 compared to
the same period in 1993, principally due to increased KWH sales to retail
commercial and industrial customers due to a stronger economy in 1994, and
increased KWH sales to wholesale power supply agreement customers due
-23-
principally to additional requirements of these customers. These increases
more than offset the decrease in residential sales due to cooler summer
weather in 1994 compared to 1993. Overall KWH sales decreased 5% in the
first nine months of 1994 principally due to a 21% decrease in interchange
economy and emergency sales. Interchange economy and emergency sales in
1993 reflected additional sales due to Midwest flooding and a coal miners'
strike that caused other utilities to purchase more of their electric
requirements from CIPS in 1993.
The changes in electric revenue and KWH sales are shown below:
CHANGES IN ELECTRIC REVENUE AND KILOWATTHOUR SALES
INCREASE (DECREASE) FROM PRIOR YEAR
(in thousands)
_______________________________________________________________________________________
Third Quarter Nine Months
__________________________________________ __________________________________________
Revenue Rev % KWH KWH % Revenue Rev % KWH KWH %
_________ _____ _________ _____ _________ _____ _________ _____
Residential $ (8,853) (12%) (99,778) (12%) $(6,055) (3%) (68,052) (3%)
Commercial (1,151) (2%) (11,524) (2%) 1,837 1% 27,945 1%
Industrial (68) - 13,250 2% 2,995 3% 70,471 4%
Public Authorities
and Other 865 32% (107) - 1,403 15% (5,578) (4%)
_______ _______ _______ _______
Total Retail $ (9,207) (6%) (98,159) (4%) $ 180 - 24,786 -
Power Supply Agreements 856 5% (38,357) (9%) 7,068 14% 145,745 15%
Interchange Sales
(economy/emergency) (8,605) (31%) (533,038) (34%) (1,633) (3%) (743,324) (21%)
Cooperatives and
Municipals (591) (9%) (10,093) (7%) 622 4% 9,708 3%
_______ _______ _______ _______
Total Wholesale $ (8,340) (16%) (581,488) (27%) $ 6,057 5% (587,871) (12%)
_______ _______ _______ _______
Total $(17,547) (8%) (679,647) (16%) $ 6,237 1% (563,085) (5%)
======= ======= ======= =======
Gas revenues decreased 4% in the third quarter compared to the same period
in 1993 due to decreased revenue from a large industrial customer
principally due to a change in the method of billing the customer where
revenues were reduced, with corresponding reductions in purchased gas
expense. Gas transportation revenues increased 9% in the third quarter of
1994 due primarily to a 19% increase in the number of therms transported.
The increase in transported therms in 1994 is a reflection of a more
favorable economy in the third quarter of 1994 compared to the same period
in 1993.
Gas revenues increased 3% in the first nine months of 1994 when compared to
the same period in 1993 primarily because therm sales to industrial and
commercial customers increased in 1994 due to a more favorable economy. Gas
transportation revenues decreased 13% in the first nine months of 1994
compared to the same period in 1993 even though therms transported increased
15%. The revenues decreased because the average rate per therm transported
was lower in 1994 due to a special summer rate offered by CIPS to large
industrial transport customers.
-24-
The changes in gas revenues and therm sales are shown below.
CHANGES IN GAS REVENUE AND THERM SALES
INCREASE (DECREASE) FROM PRIOR YEAR
(in thousands)
_______________________________________________________________________________________
Third Quarter Nine Months
__________________________________________ __________________________________________
Therms Therms
Revenue Rev % Therms % Revenue Rev % Therms %
_________ _____ _________ _____ _________ _____ _________ _____
Residential $ (345) (4%) (329) (4%) $ 261 - (351) -
Commercial 80 3% 66 2% 432 2% 762 2%
Industrial (611) (20%) (1,806) (21%) 2,090 27% 2,671 11%
Transportation 139 9% 3,833 19% (859) (13%) 11,371 15%
Miscellaneous 101 - - - 532 291% - -
_____ _____ _____ ______
Total $ (636) (4%) 1,764 4% $2,456 3% 14,453 6%
===== ===== ===== ======
OPERATIONS
__________
Fuel for electric generation declined 6% for the third quarter of 1994
compared to the third quarter 1993. The decline corresponded with
less generation due to the cooler weather in 1994 and fewer sales
opportunities to other utilities.
Fuel for electric generation increased 7% for the nine months ended
September 30, 1994, compared to the same period last year due to a 7%
increase in generation that was primarily related to increased sales
in the wholesale market.
Purchased power decreased 38% for the third quarter and 17% for the
nine months ended September 30, 1994, compared with the same periods
in 1993 reflecting fewer marketable purchases made for resale to
interchange economy and emergency customers. In the summer months of
1993, the weather, Midwest flooding and a coal miners' strike created
an unusual opportunity for sales to other utilities which was not
repeated in 1994.
Gas purchased increased 2% for the third quarter and 2% for the nine
months when compared to the same periods in 1993 primarily due to
timing differences in the recoverable gas costs adjusted through the
purchased gas adjustment clause.
Other operation expenses increased 13% for the third quarter 1994
compared to the same period in 1993. Over half of the increase in the
third quarter of 1994 is because the third quarter of 1993 contained
out of quarter adjustments related to the labor disputes which reduced
expenses in the third quarter of 1993. The remainder of the increase
is due to increases in injury and damages claims and related legal
expenses.
-25-
Other operation expenses increased 7% for the nine months ended
September 30, 1994, compared to the same period in 1993 due to one
time expenses involved with settlement of the labor disputes,
increases in injury and damages claims including related legal costs,
and increases in medical insurance expense because the 1993 medical
insurance expense was lower than normal due to the lockout of union
employees.
Maintenance expenses declined 11% in the third quarter of 1994
compared to the third quarter of 1993 due to fewer maintenance
projects scheduled in the third quarter of 1994. Maintenance expenses
were virtually at the same level in the first nine months of 1994 when
compared to 1993.
Depreciation and amortization expense increased 3% in the third
quarter and 3% in the first nine months of 1994 when compared to 1993
due to normal plant additions.
Interest on long-term debt and preferred dividends decreased 3% in the
third quarter and 5% in the first nine months of 1994 as compared with
the same periods of 1993 due principally to refinancing of both long-
term debt and preferred stock in 1993 which lowered interest and
dividend rates.
-26-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 2 to the "Condensed Notes to Financial Statements" in
Part I on pages 16 through 20 for a discussion of certain additional
information which relates to environmental remediation sites, FERC
Order 636 and labor disputes.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
Exhibit 12 Computation of Ratio of Earnings to
Fixed Charges and Computation of Ratio
of Earnings to Fixed Charges Plus
Preferred Stock Dividend Requirements
Before Income Taxes for CIPS.
Exhibit 27 Financial Data Schedule for CIPSCO
(required for electronic filing only
in accordance with Item 601(c)(1)
of Regulation S-K).
Financial Data Schedule for CIPS
(required for electronic filing only
in accordance with Item 601(c)(1)
of Regulation S-K).
(B) Reports on Form 8-K:
None
-27-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant, CIPSCO Incorporated, has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
CIPSCO Incorporated
Date: November 14, 1994 /s/ J. C. Fiaush
J. C. Fiaush
Controller
(Chief Accounting Officer)
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant, Central Illinois Public Service Company, has duly
caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Central Illinois Public Service Company
Date: November 14, 1994 /s/ J. C. Fiaush
J. C. Fiaush
Controller
(Principal Accounting Officer)
-29-
CIPSCO INCORPORATED AND
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1994
Exhibit No. Description
___________ ___________
12 Computation of Ratio of Earnings
to Fixed Charges and Computation of
Ratio of Earnings to Fixed Charges
plus Preferred Stock Dividend
Requirements Before Income Taxes for CIPS.
27 Financial Data Schedule for CIPSCO
Financial Data Schedule for CIPS
-30-