UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported):
December 16, 1997
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
Item 5. Other Events.
Reference is made to Item 1 - Business under the caption
"Competition - Electric Business", and Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations under the Caption
"Regulation and Competition" in the Company's and CIPS' 1996 for 10-K and
to Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations under the caption "Legislative Matters" in the
Company's and CIPS' Form 10-Q for the quarter ended September 30, 1997, for
a discussion of proposals for utility deregulation legislation in Illinois.
On December 16, 1997, the Governor of Illinois signed the Electric Service
Customer Choice and Rate Relief Law of 1997 (the "Act") providing for
utility restructuring in Illinois. This legislation introduces price-based
competition into the supply of electric energy in Illinois and will provide
a less regulated structure for Illinois electric utilities.
The Act includes a 5% residential electric rate decrease for
CIPS' electric customers, effective August 1, 1998. CIPS may be subject to
additional 5% residential electric rate decreases in each of 2000 and 2002 to
the extent its rates exceed the Midwest utility average at that time. CIPS'
rates are currently below the Midwest utility average. CIPS estimates that
the initial 5% rate decrease will result in a decrease in annual electric
revenues of about $10 million, based on estimated levels of sales and
assuming normal weather conditions.
Retail direct access, which allows customers to choose their
electric generation supplier, will be phased in over several years. Access
for commercial and industrial customers will occur over a period from
October 1999 to December 2000, and access for residential customers will
occur after May 1, 2002.
The Act also relieves CIPS of the requirement in the Illinois
Commerce Commission's Order of September 17, 1997 (which approved the
Merger between Union Electric Company and the Company), requiring CIPS to
file an electric rate case or alternative regulatory plan in Illinois
following consummation of the Merger to reflect the effects of net merger
savings.
Other provisions of the Act include (1) potential recovery of a
portion utility's stranded costs through a transition charge collected from
customers who choose another electric supplier, (2) the option for certain
utilities, including CIPS, to eliminate the fuel adjustment clause
applicable to their rates and to roll into base rates a historical level
of fuel expense and (3) a mechanism to securitize certain future
revenues related to stranded costs.
The Company's and CIPS' accounting policies and financial statements
conform to generally accepted accounting principles (GAAP) applicable to
rate-regulated enterprises and reflect the effects of the ratemaking
process in accordance with SFAS No. 71, "Accounting for the Effects of
Certain Types of Regulation." Such effects concern mainly the time at
which various items enter into the determination of net income in order to
follow the principle of matching costs and revenues (SFAS 71). For
example, SFAS 71 allows the company to record certain assets and
liabilities ("regulatory assets" and "regulatory liabilities") which are
expected to be recovered or settled in future rates and would not be
recorded under GAAP for nonregulated entities. In addition, reporting
under SFAS 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, through inclusion of such
costs in their future rates. SFAS 101, "Accounting for the Discontinuance
of Application of FASB Statement No. 71," specifies how an enterprise that
ceases to meet the criteria for application of SFAS 71 for all or part of
its operations should report that event in its financial statements. In
general, SFAS 101 requires that the enterprise report the discontinuation
of SFAS 71 by eliminating from its balance sheet all "regulatory assets and
liabilities" related to the applicable portion of the business. At its July 24,
1997 meeting, the Emerging Issues Task Force of the Financial Accounting
Standards Board (EITF) concluded that application of SFAS 71 accounting
should be discontinued once sufficiently detailed deregulation legislation
is issued for a separable portion of a business for which a plan of
deregulation has been established. However, the EITF further concluded
that "regulatory assets" associated with a deregulated portion of the
business, which will be recovered through tariffs charged to customers of a
regulated portion of the business, should be associated with the regulated
portion of the business from which future cash recovery is expected (not
the portion of the business from which the cost originated), and can
therefore continue to be carried on the regulated entity's balance sheet to
the extent such assets are recovered. In addition, SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," which was adopted in January 1996, establishes
accounting standards for the impairment of long-lived assets (i.e.,
determining whether the costs of such assets are recoverable in future
revenues.) SFAS 121 also requires that regulatory assets, which are no
longer probable of recovery through future revenue, be written off through a
charge to earnings.
Due to the enactment of the Act, prices for the supply of
electric generation are expected to transition from cost-based, regulated
rates to rates determined by competitive market forces in the state of
Illinois. As a result, the Company and CIPS will discontinue application
of SFAS 71 for its generating business in the fourth quarter of 1997. At
this time, the Company and CIPS is assessing the impact that the Act will
have on its operations. The potential negative consequences resulting from
the Act could be significant, and include the impairment and writedown of
certain assets, including generation-related plant and "regulatory assets."
At September 30, 1997, CIPS' net investment in generation facilities was
$590 million and was included in electric utility plant in service on
CIPS' and the Company's balance sheets. In addition, at September 30, 1997,
CIPS' generation-related net "regulatory assets" approximated $128 million.
The provisions of the Act could also result in lower revenues, reduced
profit margins and increased costs of capital. At this time, the Company
is unable to determine the impact of the Act on the Company's future
financial condition, results of operations or liquidity.
The foregoing estimates of the annual reduction in electric
revenues resulting from the Act and the potential negative consequences
of the Act are forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements involve
risks and uncertainties that could cause actual results to differ
materially from those discussed herein. Among the factors that could
affect actual results are: (1) future market prices for electric energy,
(2) load growth, (3) demand levels in CIPS' service territory, (4) average
rates for electricity in the Midwest, (5) further changes in laws and
governmental or regulatory actions interpreting those laws, and (6) other
matters detailed in Exhibit 99.03, Cautionary Statements, to the 1996
Annual Report on Form 10-K of the Company and CIPS, incorporated here in
reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants CIPSCO Incorporated and Central Illinois Public Service Company
have duly caused this report to be signed on each registrant's behalf by
the undersigned hereunto duly authorized.
CIPSCO Incorporated
(Registrant)
Central Illinois Public Service Company
(Registrant)
/s/ Robert C. Porter
___________________________________
Robert C. Porter
Treasurer and Assistant Secretary
of each Registrant
Date: December 23, 1997