UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From to
Commission file number 1-3672.
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Illinois 37-0211380
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
607 East Adams Street, Springfield, Illinois 62739
(Address of principal executive offices and Zip Code)
Registrant's telephone number,
including area code: (217) 523-3600
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 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 such filing
requirements for the past 90 days.
Yes X . No .
------- ------
Shares outstanding of each of registrant's classes of common stock as of October
31, 2000: Common Stock, no par value, held by Ameren Corporation (parent company
of Registrant) - 25,452,373
Central Illinois Public Service Company
Index
Page No.
Part I Financial Information (Unaudited)
Management's Discussion and Analysis 2
Quantitative and Qualitative Disclosures
About Market Risk 6
Balance Sheet
- September 30, 2000 and December 31, 1999 8
Statement of Income
- Three months, nine months and 12 months ended
September 30, 2000 and 1999 9
Statement of Cash Flows
- Nine months ended September 30, 2000 and 1999 10
Notes to Financial Statements 11
Part II Other Information 14
PART I. FINANCIAL INFORMATION (UNAUDITED)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Central Illinois Public Service Company (AmerenCIPS or the Registrant) is a
subsidiary of Ameren Corporation (Ameren), a holding company registered under
the Public Utility Holding Company Act of 1935 (PUHCA). In December 1997, Union
Electric Company (AmerenUE) and CIPSCO Incorporated (CIPSCO) combined to form
Ameren, with AmerenUE and CIPSCO's subsidiaries, the Registrant and CIPSCO
Investment Company (CIC), becoming subsidiaries of Ameren (the Merger).
On May 1, 2000, following the receipt of all required State and Federal
regulatory approvals, the Registrant transferred its electric generating assets
and liabilities, at historical net book value, to a newly created nonregulated
company, AmerenEnergy Generating Company (Generating Company), a subsidiary of
AmerenEnergy Resources Company (Resources Company), a wholly-owned subsidiary of
Ameren (the Transfer). Discussion below under Results of Operations reflects
that as a result of the Transfer, from May 1, 2000 interchange sales and sales
under certain wholesale contracts are no longer being included in the
Registrant's operating revenues and that operating expenses include those
expenses it incurs under its traditional transmission and distribution
operations, as well as purchased power under an electric power supply agreement
with Resources Company's newly created marketing subsidiary (the Power Supply
Agreement). See Electric Industry Restructuring and Note 1 under Notes to
Financial Statements for further discussion.
The following discussion and analysis should be read in conjunction with the
Notes to Financial Statements beginning on page 11, and the Management's
Discussion and Analysis of Financial Condition and Results of Operations (MD&A),
the Audited Financial Statements and the Notes to Financial Statements appearing
in the Registrant's 1999 Form 10-K.
RESULTS OF OPERATIONS
Earnings
Third quarter 2000 earnings of $31 million decreased $12 million from 1999's
third quarter earnings. Earnings for the nine months ended September 30, 2000
were comparable to the preceding nine-month period. Earnings for the 12 months
ended September 30, 2000 were $50 million, a $34 million decrease from the
preceding 12-month period.
Earnings fluctuated due to many conditions, primarily: sales growth, weather
variations, electric rate reductions, the Transfer, a gas rate increase,
competitive market forces, fluctuating operating costs, changes in interest
expense, changes in income and property taxes and nonrecurring charges for a
targeted employee separation plan and for coal contract termination payments.
The significant items affecting revenues, costs and earnings during the
three-month, nine-month and 12-month periods ended September 30, 2000 and 1999
are detailed below.
Electric Operations
Electric Operating Revenues Variations for periods ended September 30, 2000
from comparable prior-year periods
- -------------------------------------------------------------------------------
(Millions of Dollars) Three Months Nine Months Twelve Months
------------ ----------- -------------
- -------------------------------------------------------------------------------
Credit to customers $ 8 $ 8 $ 16
Effect of abnormal weather (14) (17) (18)
Growth and other - 20 22
Interchange sales (58) (59) (42)
- -------------------------------------------------------------------------------
$ (64) $ (48) $ (22)
- -------------------------------------------------------------------------------
Electric revenues for the three months ended September 30, 2000, decreased $64
million compared to the prior three-month period primarily due to a decrease in
interchange sales, which are now being recorded at Resources Company as a result
of the Transfer. In addition, sales under certain wholesale contracts are no
longer being included in the Registrant's operating revenues as a result of the
Transfer. Electric revenues were also reduced by a decline in residential and
commercial sales of 8 percent and 4 percent, respectively, resulting from
-2-
milder weather. These decreases were partially offset by a 37 percent increase
in industrial sales, resulting primarily from a new contract with a large
industrial customer.
Electric revenues for the nine months and 12 months ended September 30, 2000,
decreased $48 million and $22 million, respectively, compared to the same prior
year periods primarily due to a decrease in interchange sales as a result of the
Transfer. Electric revenues were also reduced by a decrease in residential sales
of 4 percent and 3 percent, respectively, resulting from milder weather. These
decreases were offset in part by an increase in wholesale and industrial sales.
Fuel and Purchased Power Variations for periods ended September 30, 2000
from comparable prior-year periods
- --------------------------------------------------------------------------------
(Millions of Dollars) Three Months Nine Months Twelve Months
------------ ----------- -------------
- --------------------------------------------------------------------------------
Fuel:
Generation $ (51) $ (70) $ (61)
Price - (6) (8)
Generation efficiencies and other - (4) (7)
Coal contract termination payments - - 52
Purchased power 73 140 143
- --------------------------------------------------------------------------------
$ 22 $ 60 $ 119
- --------------------------------------------------------------------------------
Fuel and purchased power costs for the three months ended September 30, 2000
increased $22 million versus the same period in the prior year, primarily due to
an overall net increase in purchased power costs under the provisions of the
Power Supply Agreement entered into as part of the Transfer.
Fuel and purchased power costs for the nine months ended September 30, 2000
increased $60 million compared to the prior year period, primarily due to an
overall net increase in generation and purchased power resulting from higher
native sales and higher purchased power costs under the provisions of the Power
Supply Agreement entered into as part of the Transfer, partially offset by lower
fuel prices.
The $119 million increase in fuel and purchased power costs for the 12 months
ended September 30, 2000 versus the prior-year period was primarily the result
of an overall net increase in generation and purchased power, resulting from
higher sales volume and higher purchased power costs under the provisions of the
Power Supply Agreement entered into as part of the Transfer, and coal contract
termination payments, partially offset by lower fuel prices.
Gas Operations
Gas revenues for the three-month and nine-month periods ended September 30,
2000, increased $4 million and $8 million, respectively, compared to the
year-ago periods primarily due to higher gas costs recovered through the
Registrant's purchased gas adjustment clause, partially offset by decreased
retail sales of 2 percent and 5 percent, respectively. Gas revenues for the
12-month period ended September 30, 2000 increased $16 million compared to the
same year-ago period primarily due to a gas rate increase which became effective
in February 1999 and higher gas costs recovered through the Registrant's
purchased gas adjustment clause. These increases were partially offset by a 6
percent decline in retail sales, as well as a decrease in off-system sales to
others.
Gas costs for the three-month, nine-month and 12-month periods ended September
30, 2000, increased $3 million, $4 million and $11 million, respectively,
compared to the year-ago periods primarily due to higher gas prices, partially
offset by lower retail sales.
Other Operating Expenses
Other operating expense variations reflected recurring factors such as growth,
inflation, the Transfer and labor and benefit decreases, in addition to a charge
for the targeted employee separation plan.
Other operations expenses decreased $28 million and $43 million for the three
months and nine months ended September 30, 2000, respectively, compared to the
same year-ago periods primarily due to lower employee benefit costs and a
reduced workforce resulting from the Transfer. Other operations expenses
decreased $39 million for the 12 months ended September 30, 2000, compared to
the same year-ago period, primarily due to a reduced workforce resulting from
the Transfer, coupled with the fact that expenses for the twelve months ended
September 30, 1999 included a nonrecurring pretax charge for a targeted
separation plan of $7 million. These decreases were partially offset by expenses
associated with deregulation in Illinois and the Year 2000 computer compliance
project.
-3-
Maintenance expenses for the three months, nine months and 12 months ended
September 30, 2000 decreased $17 million, $32 million and $17 million,
respectively, from the comparable year-ago periods. These decreases were
primarily the result of decreased power plant maintenance resulting from the
Transfer.
Taxes
Income taxes for the three months and 12 months ended September 30, 2000,
decreased $5 million and $14 million, respectively, primarily due to lower
pretax income. Income taxes for the nine months ended September 30, 2000,
increased $4 million, primarily due to a higher effective tax rate.
Other taxes for the three months ended September 30, 2000 decreased $4 million
primarily due to lower property taxes as a result of the Transfer. Other taxes
for the 12 months ended September 30, 2000 decreased $3 million primarily due to
lower property taxes as a result of the Transfer and a decrease in gross receipt
taxes, resulting from the restructuring of the Illinois public utility tax
whereby gross receipt taxes are no longer recorded as electric revenue and gross
receipt tax expense. These decreases were partially offset by increased property
taxes as a result of higher estimated assessment values.
Other Income and Deductions
For the three months, nine months and 12 months ended September 30, 2000,
miscellaneous, net increased $10 million, $16 million and $17 million,
respectively, compared to same year-ago periods, primarily due to interest
income earned on the promissory note receivable from Generating Company as part
of the Transfer. See Electric Industry Restructuring and Note 1 under Notes to
Financial Statements for further discussion of the promissory note.
Balance Sheet
The $5 million increase in trade accounts receivable and unbilled revenue was
primarily due to higher revenues in August and September 2000 compared to
November and December 1999.
The decrease in property and plant, net and the increase in intercompany notes
receivable and intercompany tax receivable were due to the Transfer. See
Electric Industry Restructuring and Note 1 under Notes to Financial Statements
for further discussion.
Changes in accounts and wages payable, taxes accrued, other accounts and notes
receivable, and other current assets resulted from the timing of various
payments to taxing authorities and suppliers.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $139 million for the nine months
ended September 30, 2000, compared to $163 million during the same 1999 period.
Cash flows used in investing activities totaled $31 million and $81 million for
the nine months ended September 30, 2000 and 1999, respectively. Construction
expenditures for the nine months ended September 30, 2000, for constructing new
or improving existing facilities, were $31 million. Construction expenditures
decreased from the prior period due to the effects of the Transfer. See Electric
Industry Restructuring and Note 1 under Notes to Financial Statements for
further discussion.
Cash flows used in financing activities totaled $100 million for the nine months
ended September 30, 2000, compared to $72 million during the same 1999 period.
The Registrant's principal financing activities for the period included the
redemption of long-term debt, the payment of intercompany notes payable and the
payment of dividends, partially offset by the issuance of long-term debt.
Subject to certain approvals, the Registrant intends to transfer primary
liability for $104 million of tax-exempt pollution control loan obligations to
Generating Company during the first quarter of 2001. Upon the transfer of these
obligations to Generating Company, the amount of Generating Company's liability
to the Registrant under the promissory note issued as part of the Transfer will
be reduced by a like amount. The pollution control loan obligations referred to
above have maturity dates ranging from 2014 to 2028 and bear interest at
variable rates.
The Registrant plans to continue utilizing short-term debt to support normal
operations and other temporary requirements. The Registrant is authorized by the
Securities and Exchange Commission (SEC) under PUHCA to have up to $250 million
of short-term unsecured debt instruments outstanding at any one time. Short-term
borrowings consist of bank loans (maturities generally on an overnight basis)
and commercial paper (maturities generally within 1 to 45 days). At September
30, 2000, the Registrant had committed bank lines of credit
-4-
aggregating $25 million (all of which was unused and available at such date)
which make available interim financing at various rates of interest based on
LIBOR, the bank certificate of deposit rate or other options. The lines of
credit are renewable annually at various dates throughout the year. At September
30, 2000, the Registrant had no outstanding short-term borrowings.
Also, the Registrant has the ability to borrow up to approximately $950 million
from Ameren or AmerenUE through a regulated money pool agreement. The regulated
money pool was established to coordinate and provide for certain short-term cash
and working capital requirements and is administered by Ameren Services Company,
another subsidiary of Ameren. Interest is calculated at varying rates of
interest depending on the composition of internal and external funds in the
regulated money pool. At September 30, 2000, the Registrant had $126 million of
intercompany borrowings outstanding and $484 million available through the
regulated money pool.
The Registrant, in the ordinary course of business, explores opportunities to
reduce its costs in order to remain competitive in the marketplace. An area
where the Registrant focuses its review includes, but is not limited to, labor
costs. In the labor area, the Registrant has reached agreements with all of the
Registrant's major collective bargaining units which will permit it to manage
its labor costs and practices effectively in the future. The Registrant also
explores alternatives to effectively manage the size of its workforce. These
alternatives include utilizing hiring freezes, outsourcing and offering employee
separation packages.
Certain of these cost reduction alternatives could require nonrecurring payments
of employee separation benefits. Management is unable to predict which (if any),
and to what extent, these alternatives to reduce its overall cost structure will
be executed. Management is unable to determine the impact of these actions on
the Registrant's future financial position, results of operations or liquidity.
REGULATORY MATTERS
In September 2000, the Registrant and its affiliate, AmerenUE, filed a request
with the Illinois Commerce Commission (ICC) seeking authorization to transfer
AmerenUE's Illinois-based electric and natural gas busineses and its
Illinois-based distribution and transmission assets and personnel to the
Registrant. The distribution and transmission assets and related liabilities
will be transferred from AmerenUE to the Registrant at historical net book value
of approximately $100 million. In connection with this transaction, the
Registrant will issue a subordinated intercompany note payable to AmerenUE of
approximately $50 million. The balance of the assets will be transferred to the
Registrant in the form of a capital contribution. In October 2000, AmerenUE
filed a requestwith the Missouri Public Service Commission for approval of the
transfer. The transfer is also subject to regulatory filings and approvals of
the Federal Energy Regulatory Commission (FERC), the SEC and the ICC.
ELECTRIC INDUSTRY RESTRUCTURING
In December 1997, the Governor of Illinois signed the Electric Service Customer
Choice and Rate Relief Law of 1997 (the Law) providing for electric utility
restructuring in Illinois. This legislation introduces competition into the
supply of electric energy at retail in Illinois.
One of the major provisions of the Law includes the phasing-in through 2002 of
retail direct access, which allows customers to choose their electric generation
supplier. The phase-in of retail direct access began on October 1, 1999, with
large commercial and industrial customers principally comprising the initial
group. The customers in this group represent approximately 24 percent of the
Registrant's total sales. As of September 30, 2000, the impact of retail direct
access on the Registrant's financial condition, results of operations or
liquidity was immaterial. Retail direct access will be offered to the remaining
commercial and industrial customers on December 31, 2000, and to residential
customers on May 1, 2002.
The Transfer
In conjunction with another provision of the Law, on May 1, 2000, following the
receipt of all required State and Federal regulatory approvals, the Registrant
transferred its electric generating assets and liabilities, at historical net
book value, to a newly created nonregulated company, AmerenEnergy Generating
Company (Generating Company), a subsidiary of AmerenEnergy Resources Company, a
wholly-owned subsidiary of Ameren, in exchange for a promissory note from
Generating Company in the principal amount of $552 million and 1,000 shares of
Generating Company common stock. The promissory note has a term of five years
and bears interest at 7 percent based on a 10-year amortization. The transferred
assets represent a generating capacity of approximately 2,900 megawatts.
-5-
Approximately 45 percent of the Registrant's employees were transferred to
Generating Company as a part of the transaction.
Also on May 1, 2000, an electric power supply agreement was entered into between
Generating Company and a newly created nonregulated affiliate, AmerenEnergy
Marketing Company (Marketing Company), also a wholly-owned subsidiary of
Resources Company. On the same date, Marketing Company entered into an electric
power supply agreement with the Registrant (Power Supply Agreement) to supply it
sufficient power to meet native load requirements. A portion of the capacity and
energy supplied by Generating Company to Marketing Company will be resold to the
Registrant for resale to native load customers at rates specified by the ICC
(which approximate the historical regulatory rates for generation) or to retail
customers allowed choice of an electric supplier under state law at market based
prices. This agreement expires December 31, 2004. In turn, the Registrant will
bill these customers at rates which approximate the costs the Registrant incurs
for its capacity and energy supplied by Generating Company. For the five-month
period ended September 30, 2000, $157 million of the Registrant's purchased
power was derived under the Power Supply Agreement.
As a result of the Transfer, coupled with the Power Supply Agreement,
prospectively from May 1, 2000 through December 31, 2004, the Registrant's
operating revenues will include revenues derived from its traditional
transmission and distribution operations, as well as those revenues it receives
from its native load customers, or new customers allowed choice of an electric
supplier under state law. Sales under certain wholesale contracts and
interchange sales will no longer be reflected in operating revenues of the
Registrant. Instead, those revenues will be recorded at Resources Company. The
Registrant's operating expenses will include those expenses it incurs under its
traditional transmission and distribution operations, as well as purchased power
expenses incurred under the terms of the Power Supply Agreement.
In addition, as a result of the Transfer, the Registrant incurred a deferred
intercompany tax gain, which resulted in an additional deferred tax liability.
An intercompany tax receivable with Generating Company was established for the
deferred tax liability. This asset and liability will be amortized over twenty
years. At September 30, 2000, the Registrant's deferred tax liability and
intercompany tax receivable was $219 million.
MIDWEST ISO
On November 9, 2000, the Registrant announced its intention to withdraw from the
Midwest Independent System Operator (Midwest ISO) to become a member of the
Alliance Regional Transmission Organization (Alliance RTO), pending the
necessary regulatory approvals. The Alliance RTO, including its rate structure,
is still subject to approval by the FERC. Accordingly, the Registrant is
currently unable to determine the impact that the operation of the Alliance RTO,
or the withdrawal from the Midwest ISO, will have on its financial condition,
results of operations or liquidity.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in market variables (e.g.,
interest rates, equity prices, commodity prices, etc.). The following discussion
of Ameren's, including AmerenCIPS', risk management activities includes
"forward-looking" statements that involve risks and uncertainties. Actual
results could differ materially from those projected in the "forward-looking"
statements. Ameren handles market risks in accordance with established policies,
which may include entering into various derivative transactions. In the normal
course of business, Ameren also faces risks that are either non-financial or
non-quantifiable. Such risks principally include business, legal, operational
and credit risk and are not represented in the following analysis.
Interest Rate Risk
The Registrant is exposed to market risk through changes in interest rates
through its issuance of both long-term and short-term variable-rate debt,
commercial paper and auction rate preferred stock. The Registrant manages its
interest rate exposure by controlling the amount of these instruments it holds
within its total capitalization portfolio and by monitoring the effects of
market changes in interest rates.
If interest rates increase one percentage point in 2001 as compared to 2000, the
Registrant's interest expense would increase by approximately $3 million and net
income would decrease by approximately $2 million. This amount has been
determined using the assumptions that the Registrant's outstanding variable rate
debt, commercial paper and auction market preferred stock as of September 30,
2000, continued to be outstanding throughout 2001, and that the average interest
rates for these instruments increased one percentage point over 2000. The model
-6-
does not consider the effects of the reduced level of overall economic activity
that would exist in such an environment. In the event of a significant change in
interest rates, management would likely take actions to further mitigate its
exposure to this market risk. However, due to the uncertainty of the specific
actions that would be taken and their possible effects, the sensitivity analysis
assumes no change in the Registrant's financial structure.
Commodity Price Risk
The Registrant is exposed to changes in market prices for natural gas and fuel
and electricity. With regard to its natural gas utility business, the
Registrant's exposure to changing market prices is in large part mitigated by
the fact that the Registrant has a Purchased Gas Adjustment Clause (PGA) in
place. The PGA allows the Registrant to pass on to its customers its prudently
incurred costs of natural gas.
While the Registrant does not have a provision similar to the PGA for its
electric operations, purchased power commodity price risk is mitigated in part
due to the fact that the Registrant has entered into a long-term contract with a
supplier for purchased power (see Electric Industry Restructuring and Note 1
under Notes to Financial Statements for further discussion). With regard to the
Registrant's exposure to commodity price risk for purchased power, Ameren has
established a subsidiary, AmerenEnergy, Inc. (AmerenEnergy), whose primary
responsibility includes managing market risks associated with the changing
market prices for electricity purchased on behalf of the Registrant.
ACCOUNTING MATTERS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities and requires
recognition of all derivatives as either assets or liabilities on the balance
sheet measured at fair value. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," which delayed the effective date of
SFAS 133 to all fiscal quarters of all fiscal years, beginning after June 15,
2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities -an amendment of FASB
Statement No. 133," which amended certain accounting and reporting standards of
SFAS 133. Management believes that adoption of SFAS 133 will not have a material
impact on the Registrant's financial position or results of operations upon
adoption based on the derivative instruments that existed at June 30, 2000.
However, changing market conditions and the volume of future transactions which
fall within the scope of SFAS 133, as amended, and the interpretations from the
FASB's Derivative Implementation Group could change management's current
assessment. As a result, SFAS 133, as amended, could increase the volatility of
the Registrant's future earnings and could be material to the Registrant's
financial position and results of operations upon adoption.
SAFE HARBOR STATEMENT
Statements made in this Form 10-Q which are not based on historical facts, are
"forward-looking" and, accordingly, involve risks and uncertainties that could
cause actual results to differ materially from those discussed. Although such
"forward-looking" statements have been made in good faith and are based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. These statements include (without limitation) statements as to future
expectations, beliefs, plans, strategies, objectives, events, conditions,
financial performance and the Year 2000 Issue. In connection with the "Safe
Harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Registrant is providing this cautionary statement to identify important factors
that could cause actual results to differ materially from those anticipated. The
following factors, in addition to those discussed elsewhere in this report and
in the Annual Report on Form 10-K for the fiscal year ended December 31, 1999,
and in subsequent securities filings, could cause results to differ materially
from management expectations as suggested by such "forward-looking" statements:
the effects of regulatory actions; changes in laws and other governmental
actions; the impact on the Registrant of current regulations related to the
phasing-in of the opportunity for some customers to choose alternative energy
suppliers in Illinois; the effects of increased competition in the future due
to, among other things, deregulation of certain aspects of the Registrant's
business at both the State and Federal levels; future market prices for fuel and
purchased power, electricity, and natural gas, including the use of financial
instruments; average rates for electricity in the Midwest; business and economic
conditions; interest rates; weather conditions; fuel prices and availability;
generation plant performance; the impact of current environmental regulations on
utilities and generating companies and the expectation that more stringent
requirements will be introduced over time, which could potentially have a
negative financial effect; monetary and fiscal policies; future wages and
employee benefits costs; and legal and administrative proceedings.
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CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
BALANCE SHEET
UNAUDITED
(Thousands of Dollars, Except Shares)
September 30, December 31,
ASSETS 2000 1999
- ------------------------------------------------------------------------------------------- ---------- ----------
Property and plant, at original cost:
Electric $1,192,443 $2,422,002
Gas 272,661 267,909
---------- ----------
1,465,104 2,689,911
Less accumulated depreciation and amortization 647,964 1,260,582
---------- ----------
817,140 1,429,329
Construction work in progress 5,986 43,435
---------- ----------
Total property and plant, net 823,126 1,472,764
---------- ----------
Investments and other assets:
Intercompany notes receivable 511,701 --
Intercompany tax receivable 198,931 --
Other 17,628 17,722
---------- ----------
Total investments and other assets 728,260 17,722
---------- ----------
Current assets:
Cash and cash equivalents 20,994 12,536
Accounts receivable - trade (less allowance for doubtful
accounts of $2,408 and $1,828, respectively) 51,630 48,703
Unbilled revenue 77,639 75,884
Other accounts and notes receivable 41,616 20,875
Intercompany notes receivable 39,925 --
Intercompany tax receivable 20,065 --
Materials and supplies, at average cost -
Fossil fuel 24,958 47,291
Other 10,075 33,931
Other 6,418 10,387
---------- ----------
Total current assets 293,320 249,607
---------- ----------
Regulatory assets:
Deferred income taxes 226 21,520
Other 13,742 20,141
---------- ----------
Total regulatory assets 13,968 41,661
---------- ----------
Total Assets $1,858,674 $1,781,754
========== ==========
CAPITAL AND LIABILITIES
Capitalization:
Common stock, no par value, 45,000,000 shares authorized -
25,452,373 shares outstanding $ 120,033 $ 120,033
Retained earnings 434,899 414,345
---------- ----------
Total common stockholder's equity 554,932 534,378
Preferred stock not subject to mandatory redemption 80,000 80,000
Long-term debt 463,145 493,625
---------- ----------
Total capitalization 1,098,077 1,108,003
---------- ----------
Current liabilities:
Current maturity of long-term debt 30,000 35,000
Intercompany notes payable 125,720 132,900
Accounts and wages payable 167,050 82,800
Accumulated deferred income taxes 19,627 22,621
Taxes accrued 30,680 32,145
Other 34,003 39,619
---------- ----------
Total current liabilities 407,080 345,085
---------- ----------
Accumulated deferred income taxes 279,937 216,661
Accumulated deferred investment tax credits 13,048 32,169
Regulatory liability 35,451 34,004
Other deferred credits and liabilities 25,081 45,832
---------- ----------
Total Capital and Liabilities $1,858,674 $1,781,754
========== ==========
See Notes to Financial Statements.
-8-
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF INCOME
UNAUDITED
(Thousands of Dollars)
Three Months Ended Nine Months Twelve Months Ended
September 30, September 30, September 30,
2000 1999 2000 1999 2000 1999
--------- --------- --------- --------- --------- ---------
OPERATING REVENUES:
Electric $ 197,405 $ 261,453 $ 569,239 $ 617,029 $ 747,686 $ 770,081
Gas 21,843 17,874 100,455 91,999 141,102 125,352
--------- --------- --------- --------- --------- ---------
Total operating revenues 219,248 279,327 669,694 709,028 888,788 895,433
OPERATING EXPENSES:
Operations
Fuel and purchased power 104,560 82,072 268,318 208,304 374,222 255,246
Gas 10,081 7,324 54,241 50,326 77,267 66,304
Other 26,505 54,944 97,951 140,923 147,650 186,308
--------- --------- --------- --------- --------- ---------
141,146 144,340 420,510 399,553 599,139 507,858
Maintenance 7,494 24,741 35,547 67,309 71,820 88,698
Depreciation and amortization 12,221 20,141 48,807 60,330 69,034 79,862
Income taxes 21,044 26,204 47,165 43,380 34,558 49,036
Other taxes 6,349 10,056 28,752 29,921 39,144 42,184
--------- --------- --------- --------- --------- ---------
Total operating expenses 188,254 225,482 580,781 600,493 813,695 767,638
OPERATING INCOME 30,994 53,845 88,913 108,535 75,093 127,795
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used
during construction -- (9) -- (8) -- (37)
Miscellaneous, net 10,172 533 17,988 1,614 18,404 1,204
--------- --------- --------- --------- --------- ---------
Total other income and (deductions) 10,172 524 17,988 1,606 18,404 1,167
INCOME BEFORE
INTEREST CHARGES 41,166 54,369 106,901 110,141 93,497 128,962
INTEREST CHARGES:
Interest 9,391 10,748 28,738 31,906 39,568 41,819
Allowance for borrowed funds
used during construction (53) 338 99 (43) 163 (143)
--------- --------- --------- --------- --------- ---------
Net interest charges 9,338 11,086 28,837 31,863 39,731 41,676
NET INCOME 31,828 43,283 78,064 78,278 53,766 87,286
PREFERRED STOCK DIVIDENDS 1,027 957 2,857 2,842 3,848 3,786
--------- --------- --------- --------- --------- ---------
NET INCOME AFTER PREFERRED
STOCK DIVIDENDS $ 30,801 $ 42,326 $ 75,207 $ 75,436 $ 49,918 $ 83,500
========= ========= ========= ========= ========= =========
See Notes to Financial Statements.
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CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF CASH FLOWS
UNAUDITED
(Thousands of Dollars)
Nine Months Ended
September 30,
2000 1999
--------- ---------
Cash Flows From Operating:
Net income $ 78,064 $ 78,278
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 48,807 60,330
Allowance for funds used during construction 99 (35)
Deferred income taxes, net 9,503 (12,774)
Deferred investment tax credits, net 607 (1,863)
Changes in assets and liabilities:
Receivables, net (25,423) (42,285)
Materials and supplies (7,617) 5,367
Accounts and wages payable 84,403 27,134
Taxes accrued (1,465) 13,598
Other, net (47,711) 35,741
--------- ---------
Net cash provided by operating activities 139,267 163,491
Cash Flows From Investing:
Construction expenditures (30,602) (80,601)
Allowance for funds used during construction (99) 35
--------- ---------
Net cash used in investing activities (30,701) (80,566)
Cash Flows From Financing:
Dividends on common stock (54,171) (53,297)
Dividends on preferred stock (2,857) (2,957)
Redemptions -
Short-term debt -- (46,700)
Long-term debt (87,000) (60,000)
Intercompany notes payable (7,180) --
Issuances -
Long-term debt 51,100 --
Intercompany notes payable -- 91,200
--------- ---------
Net cash used in financing activities (100,108) (71,754)
--------- ---------
Net change in cash and cash equivalents 8,458 11,171
Cash and cash equivalents at beginning of year 12,536 10,180
--------- ---------
Cash and cash equivalents at end of period $ 20,994 $ 21,351
========= =========
Cash paid during the periods:
Interest (net of amount capitalized) $ 30,619 $ 28,990
Income taxes, net $ 34,509 $ 39,983
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION:
In the second quarter of 2000, the Registrant transferred its electric
generating assets and liabilities, at historical net book value, to a newly
created nonregulated company, AmerenEnergy Generating Company, a subsidiary of
AmerenEnergy Resources Company, in exchange for a promissory note from
Generating Company in the principal amount of $552 million and Generating
Company common stock. The transaction also resulted in a deferred intercompany
tax gain liability and related tax receivable from AmerenEnergy Generating
Company in the amount of $219 million. See Note 1 in Notes to Financial
Statements for further information.
See Notes to Financial Statements.
-10-
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2000
Note 1 - Central Illinois Public Service Company (AmerenCIPS or the Registrant)
is a subsidiary of Ameren Corporation (Ameren), which is the parent company of
the following operating companies: the Registrant, Union Electric Company
(AmerenUE) and AmerenEnergy Generating Company (Generating Company), a
wholly-owned subsidiary of AmerenEnergy Resources Company (Resources Company).
Ameren is a registered holding company under the Public Utility Holding Company
Act of 1935 (PUHCA) formed in December 1997 upon the merger of CIPSCO
Incorporated (the Registrant's former parent) and AmerenUE (the Merger). Both
Ameren and its subsidiaries are subject to the regulatory provisions of the
PUHCA. The operating companies are engaged principally in the generation,
transmission, distribution and sale of electric energy and the purchase,
distribution, transportation and sale of natural gas in the states of Illinois
and Missouri. Contracts among the companies--dealing with jointly-operated
generating facilities, interconnecting transmission lines, and the exchange of
electric power--are regulated by the Federal Energy Regulatory Commission (FERC)
or the Securities and Exchange Commission (SEC). Administrative support services
are provided to the Registrant by a separate Ameren subsidiary, Ameren Services
Company. The Registrant serves 400,000 electric and 175,000 gas customers in a
20,000 square-mile region of central and southern Illinois.
The Registrant also has a 20 percent interest in Electric Energy, Inc. (EEI),
which is accounted for under the equity method of accounting. EEI owns and
operates electric generating and transmission facilities in Illinois that supply
electric power primarily to a uranium enrichment plant located in Paducah,
Kentucky.
In conjunction with the Illinois Electric Service Customer Choice and Rate
Relief Law of 1997, on May 1, 2000, following the receipt of all required State
and Federal regulatory approvals, the Registrant transferred its electric
generating assets and liabilities, at historical net book value, to a newly
created nonregulated company, Generating Company, for a promissory note from
Generating Company in the principal amount of $552 million and 1,000 shares of
Generating Company common stock (the Transfer). The promissory note has a term
of five years and bears interest at 7 percent based on a 10-year amortization.
The transferred assets represent a generating capacity of approximately 2,900
megawatts. Approximately 45 percent of the Registrant's employees were
transferred to Generating Company as a part of the transaction. The significant
components of the net assets transferred are as follows:
(Thousands of dollars)
Cash $ 6,387
Other receivable - intercompany 26,000
Material and supplies 53,806
Other current assets 5,522
Property and plant, net 635,031
---------------
Total assets transferred $ 726,746
---------------
Accounts payable $ 6,541
Other current liabilities 3,351
Other deferred credits 1,804
Deferred investment tax credits 19,728
Deferred tax liabilities, net 143,696
---------------
Total liabilities transferred $ 175,120
---------------
Net assets transferred $ 551,626
---------------
Also on May 1, 2000, an electric power supply agreement was entered into between
Generating Company and a newly created nonregulated affiliate, AmerenEnergy
Marketing Company (Marketing Company), also a wholly-owned subsidiary of
Resources Company. On the same date, Marketing Company entered into an electric
power supply agreement with the Registrant (Power Supply Agreement) to supply it
sufficient power to meet native load
-11-
requirements. A portion of the capacity and energy supplied by Generating
Company to Marketing Company will be resold to the Registrant for resale to
native load customers at rates specified by the Illinois Commerce Commission
(ICC) (which approximate the historical regulatory rates for generation) or to
retail customers allowed choice of an electric supplier under state law at
market based prices. This agreement expires December 31, 2004. In turn, the
Registrant will bill these customers at rates which approximate the costs the
Registrant incurs for its capacity and energy supplied by Generating Company.
For the five-month period ended September 30, 2000, $157 million of the
Registrant's purchased power was derived under the Power Supply Agreement.
As a result of the Transfer, coupled with the Power Supply Agreement between the
Registrant and Marketing Company, prospectively from May 1, 2000 through
December 31, 2004, the Registrant's operating revenues will include revenues
derived from its traditional transmission and distribution operations, as well
as those revenues it receives from its native load customers, or new customers
allowed choice of an electric supplier under state law. Sales under certain
wholesale contracts and interchange sales will no longer be reflected in
operating revenues of the Registrant. Instead, those revenues will be recorded
at Resources Company. The Registrant's operating expenses will include those
expenses it incurs under its traditional transmission and distribution
operations, as well as purchased power expenses incurred under the terms of the
Power Supply Agreement.
In addition, as a result of the transaction, the Registrant incurred a deferred
intercompany tax gain, which resulted in an additional deferred tax liability.
An intercompany tax receivable with Generating Company was established for the
deferred tax liability. This asset and liability will be amortized over twenty
years. At September 30, 2000, the Registrant's deferred tax liability and
intercompany tax receivable was $219 million.
Note 2 - Financial statement note disclosures, normally included in financial
statements prepared in conformity with generally accepted accounting principles,
have been omitted in this Form 10-Q pursuant to the Rules and Regulations of the
SEC. However, in the opinion of the Registrant, the disclosures contained in
this Form 10-Q are adequate to make the information presented not misleading.
See Notes to Financial Statements included in the 1999 Form 10-K for information
relevant to the financial statements contained in this Form 10-Q, including
information as to the significant accounting policies of the Registrant.
Note 3 - In the opinion of the Registrant, the interim financial statements
filed as part of this Form 10-Q reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the periods presented. The Registrant's financial statements were prepared to
permit the information required in the Financial Data Schedule (FDS), Exhibit
27, to be directly extracted from the filed statements. The FDS amounts
correspond to or are calculable from the amounts reported in the financial
statements or notes thereto.
Note 4 - Due to the effect of weather on sales and other factors which are
characteristic of public utility operations, financial results for the periods
ended September 30, 2000 and 1999, are not necessarily indicative of trends for
any three-month, nine-month or 12-month period.
Note 5 - The Registrant has transactions in the normal course of business with
other Ameren subsidiaries. These transactions are primarily comprised of power
purchases and sales and services received or rendered. Intercompany receivables
included in other accounts and notes receivable were approximately $26 million
and $12 million, respectively, as of September 30, 2000 and December 31, 1999.
Intercompany payables included in accounts and wages payable totaled
approximately $108 and $35 million, respectively, as of September 30, 2000 and
December 31, 1999.
In addition, the Registrant has the ability to borrow up to approximately $950
million from Ameren or AmerenUE or invest funds through a regulated money pool
agreement. The regulated money pool was established to coordinate and provide
for certain short-term cash and working capital requirements and is administered
by Ameren Services Company. Interest is calculated at varying rates of interest
depending on the composition of internal and external funds in the regulated
money pool. At September 30, 2000, the Registrant had $126 million of
intercompany borrowings outstanding and $484 million available through the
regulated money pool.
Note 6 - On November 9, 2000, the Registrant announced its intention to withdraw
from the Midwest Independent System Operator (Midwest ISO) to become a member of
the Alliance Regional Transmission Organization (Alliance RTO), pending the
necessary regulatory approvals. The Alliance RTO, including its rate structure,
is still subject to approval by the FERC. Accordingly, the Registrant is
currently unable to determine the impact that the operation of the Alliance RTO,
or the withdrawal from the Midwest ISO, will have on its financial condition,
results of operations or liquidity.
-12-
Note 7 - In September 2000, the Registrant and its affiliate, AmerenUE, filed a
request with the Illinois Commerce Commission (ICC) seeking authorization to
transfer AmerenUE's Illinois-based electric and natural gas business and its
Illinois-based distribution and transmission assets and personnel to the
Registrant. The distribution and transmission assets and related liabilities
will be transferred from AmerenUE to the Registrant at historical net book value
of approximately $100 million. In connection with this transaction, the
Registrant will issue an intercompany note payable to AmerenUE of approximately
$50 million. The balance of the assets will be transferred to the Registrant in
the form of a capital contribution. In October 2000, AmerenUE filed a request
with the Missouri Public Service Commission for approval of the transfer. The
transfer is also subject to regulatory filings and approvals of the FERC, the
SEC and the ICC.
Note 8 - Segment information for the three-month, nine-month and 12-month
periods ended September 30, 2000 and 1999 is as follows:
- --------------------------------------------------------------------------------
(in thousands) Electric Gas Total
- --------------------------------------------------------------------------------
Three months ended September 30, 2000:
Revenues $197,405 $21,843 $219,248
Operating Income (Net) 27,175 3,819 30,994
- --------------------------------------------------------------------------------
Three months ended September 30, 1999:
Revenues $261,453 $17,874 $279,327
Operating Income (Net) 53,763 82 53,845
- --------------------------------------------------------------------------------
Nine months ended September 30, 2000:
Revenues $569,239 $100,455 $669,694
Operating Income (Net) 77,615 11,298 88,913
- --------------------------------------------------------------------------------
Nine months ended September 30, 1999:
Revenues $617,029 $91,999 $709,028
Operating Income (Net) 102,182 6,353 108,535
- --------------------------------------------------------------------------------
12 months ended September 30, 2000:
Revenues $747,686 $141,102 $888,788
Operating Income (Net) 61,120 13,973 75,093
- --------------------------------------------------------------------------------
12 months ended September 30, 1999:
Revenues $770,081 $125,352 $895,433
Operating Income (Net) 119,358 8,437 127,795
- --------------------------------------------------------------------------------
-13-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Reference is made to "Regulation" section in Item 1. Business of the
Registrant's Form 10-K for the year ended December 31, 1999 and Item 1. Legal
Proceedings in Part II of the Registrant's Form 10-Q for the quarterly period
ended June 30, 2000, for information relating to litigation concerning the
alleged exposure to carcinogens contained in coal tar at the Registrant's
Taylorville, Illinois manufactured gas plant site. On October 4, 2000, the
Illinois Supreme Court granted the Registrant's request to review a decision
issued by the Illinois Appellate Court in March 2000 which upheld a $3.2 million
verdict in favor of the plaintiffs against the Registrant. The Registrant
believes that final disposition of this matter will not have a material adverse
effect on its financial position, results of operations or liquidity.
On August 24, 2000, Steven and Tina Brannon sued the Registrant, its parent,
Ameren Corporation, and its affiliate, AmerenEnergy Generating Company in the
Circuit Court of Christian County, Illinois. The suit alleges that the
Registrant and others were negligent in the manner in which the Registrant's
manufactured gas plant site was remediated in Taylorville, Illinois, therefore,
wrongfully causing the death of their son. The Brannon's son was born in 1992,
diagnosed with neuroblastoma in 1996, and died in 1998. The remediation occurred
in 1987. Plaintiffs seek unspecified compensatory damages in excess of $50,000.
The Registrant believes that the final resolution of this lawsuit will not have
a material adverse effect on its financial position, results of operations or
liquidity.
Reference is made to Item 1. Legal Proceedings in Part II of the Registrant's
Form 10-Q for the quarterly period ended June 30, 2000, for information relating
to a lawsuit filed in the Circuit Court of Madison County, Illinois, by
twenty-three named plaintiffs alleging negligence on behalf of the Registrant
and Dover Elevator Company (Dover) for injuries arising out of an elevator
accident which occurred at the Registrant's Newton Power Plant in November 1996.
In mid-October 2000, a settlement agreement was entered into which (i) capped
all of the plaintiffs' damages and (ii) apportioned fault between the Registrant
and Dover as to approximately one-half of the plaintiffs. The settlement amount
is the subject of a confidentiality agreement. Subsequently, an apportionment
trial was held between the Registrant and Dover as to the remaining plaintiffs.
The jury found the Registrant ninety-five percent at fault and Dover five
percent at fault. The Registrant has adequate insurance to cover the settlement
and the judgment entered in these proceedings. As such, the final resolution of
this lawsuit will not have a material adverse effect on the Registrant's
financial position, results of operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements, 12 Months Ended
September 30, 2000.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. None.
-14-
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.
CENTRAL ILLINOIS PUBLIC
SERVICE COMPANY
(Registrant)
By /S/ Warner L. Baxter
-----------------------
Vice President and Controller
(Principal Accounting Officer)
Date: November 14, 2000
-15-