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 EXCHANG
ACT OF 1934
For Quarterly Period Ended June 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 July
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 5
Balance Sheet
- June 30, 2000 and December 31, 1999 8
Statement of Income
- Three months, six months and 12 months ended
June 30, 2000 and 1999 9
Statement of Cash Flows
- Six months ended June 30, 2000 and 1999 10
Notes to Financial Statements 11
Part II Other Information 14
9
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, interchange sales from May 1, 2000 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. 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
Second quarter 2000 earnings of $19 million were comparable to 1999's second
quarter earnings. Earnings for the six months ended June 30, 2000 increased $11
million from the year-ago period to $44 million. Earnings for the 12 months
ended June 30, 2000 were $61 million, an $18 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, six-month and 12-month periods ended June 30, 2000 and 1999 are
detailed below.
Electric Operations
Electric Operating Revenues Variations for periods ended June 30, 2000
from comparable prior-year periods
- --------------------------------------------------------------------------------
(Millions of Dollars) Three Months Six Months Twelve Months
------------ ---------- -------------
- --------------------------------------------------------------------------------
Rate variations $ - $ - $ (1)
Effect of abnormal weather - (2) (4)
Growth and other 3 19 21
Interchange sales (34) (1) 57
- --------------------------------------------------------------------------------
$ (31) $ 16 $ 73
- -------------------------------------------------------------------------------
Electric revenues for the three months ended June 30, 2000, decreased $31
million compared to the prior three- month period primarily due to a 51 percent
decrease in interchange sales. As a result of the Transfer, interchange sales
are now being recorded at Resources Company.
-2-
Electric revenues for the six months ended June 30, 2000, increased $16 million
compared to the prior six-month period primarily due to increases in native
sales of 21 percent. The increase in native sales was primarily due to increased
wholesale, commercial and industrial sales, offset in part by decreased
interchange sales as a result of the Transfer.
Electric revenues for the 12 months ended June 30, 2000, increased $73 million,
compared to the same prior year period, primarily due to increases in
interchange sales of 12 percent, due to strong marketing efforts and increases
in native sales of 11 percent. The increase in native sales was primarily due to
increased wholesale and industrial sales.
Fuel and Purchased Power Variations for periods ended June 30, 2000
from comparable prior-year periods
- -----------------------------------------------------------------------------------------
(Millions of Dollars) Three Months Six Months Twelve Months
------------ ---------- -------------
- -----------------------------------------------------------------------------------------
Fuel:
Generation $ (30) $ (19) $ (10)
Price (2) (6) (12)
Generation efficiencies and other (3) (3) (8)
Coal contract termination payments - - 52
Purchased power 47 66 90
- -----------------------------------------------------------------------------------------
$ 12 $ 38 $ 112
- -----------------------------------------------------------------------------------------
Fuel and purchased power costs for the three and six months ended June 30, 2000
increased $12 million and $38 million, respectively, versus the prior year
periods, 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 $112 million increase in fuel and purchased power costs for the 12 months
ended June 30, 2000 versus the prior-year period was primarily the result of
increased 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 six-month periods ended June 30, 2000,
increased $4 million 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 7 percent and 5 percent,
respectively. Gas revenues for the 12-month period ended June 30, 2000 increased
$13 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 an 11 percent decline in retail sales, as well as a decrease
in off-system sales to others.
Gas costs for the three-month and 12-month periods ended June 30, 2000,
increased $3 million and $9 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, labor and benefit decreases, in addition to a charge
for the targeted separation plan.
Other operations expenses decreased $17 million and $15 million for the three
months and six months ended June 30, 2000, respectively, compared to the same
year-ago periods primarily due to lower employee benefit costs, a reduced
workforce and the Transfer, partially offset by increased professional services.
Other operations expenses decreased $7 million for the 12 months ended June 30,
2000, compared to the same year-ago period, primarily due to a reduced workforce
and the Transfer, coupled with the fact that expenses for the twelve months
ended June 30, 1999 included a nonrecurring pretax charge for a targeted
separation plan of $7 million. These decreases were partially offset by
increased injuries and damages expenses based on claims experience and expenses
associated with deregulation in Illinois.
Maintenance expenses for the three months and six months ended June 30, 2000
decreased $14 million and $15 million, respectively, from the comparable
year-ago periods. These decreases were primarily the result of decreased
-3-
power plant maintenance and the Transfer. Maintenance expenses for the 12 months
ended June 30, 2000 increased $9 million from the comparable year-ago period due
to increased power plant maintenance offset in part by the Transfer.
Taxes
Income taxes for the six months ended June 30, 2000, increased $9 million,
primarily due to higher pretax income. Income taxes for the 12 months ended June
30, 2000, decreased $8 million, primarily due to lower pretax income.
Other taxes for the six months ended June 30, 2000 increased $3 million
primarily due to increased property taxes as a result of higher estimated
assessment values. Other taxes for the 12 months ended June 30, 2000, decreased
$2 million primarily due to 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. This
decrease was partially offset by increased property taxes as a result of higher
estimated assessment values.
Other Income and Deductions
For the three months, six months and 12 months ended June 30, 2000,
miscellaneous net increased $7 million, $7 million and $9 million, respectively,
compared to same year-ago periods, primarily due to interest income earned on
the promissory note receivable from Generating Company. See Electric Industry
Restructuring and Note 1 under Notes to Financial Statements for further
discussion of the promissory note.
Balance Sheet
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 $102 million for the six months
ended June 30, 2000, compared to $80 million during the same 1999 period.
Cash flows used in investing activities totaled $20 million and $62 million for
the six months ended June 30, 2000 and 1999, respectively. Construction
expenditures for the six months ended June 30, 2000, for constructing new or
improving existing facilities, were $20 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 $81 million for the six months
ended June 30, 2000, compared to $10 million during the same 1999 period. The
Registrant's principal financing activities for the quarter 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.
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 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 June 30,
2000, the Registrant had committed bank lines of credit 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 June 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 June 30, 2000, the Registrant had $120 million of
intercompany borrowings outstanding and $434 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
-4-
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.
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 June 30, 2000, the impact of retail direct
access on the Registrant's financial condition, results of operation 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 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. 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
Illinois Commerce Commission (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 two-month period ended June 30, 2000, $57 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 June 30, 2000, the Registrant's deferred tax liability and
intercompany tax receivable was $219 million.
-5-
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 and net income would decrease by
approximately $1 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 June 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 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 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.
-6-
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.
-7-
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
BALANCE SHEET
UNAUDITED
---------
(Thousands of Dollars, Except Shares)
June 30, December 31,
ASSETS 2000 1999
- ------ ---------- ----------
Property and plant, at original cost:
Electric $1,185,886 $2,422,002
Gas 271,062 267,909
---------- ----------
1,456,948 2,689,911
Less accumulated depreciation and amortization 637,627 1,260,582
---------- ----------
819,321 1,429,329
Construction work in progress 6,741 43,435
---------- ----------
Total property and plant, net 826,062 1,472,764
---------- ----------
Investments and other assets:
Intercompany notes receivable 511,701 --
Intercompany tax receivable 202,882 --
Other 17,684 17,722
---------- ----------
Total investments and other assets 732,267 17,722
---------- ----------
Current assets:
Cash and cash equivalents 12,626 12,536
Accounts receivable - trade (less allowance for doubtful
accounts of $2,563 and $1,828, respectively) 49,288 48,703
Unbilled revenue 76,919 75,884
Other accounts and notes receivable 29,050 20,875
Intercompany notes receivable 39,925 --
Intercompany tax receivable 16,114 --
Materials and supplies, at average cost -
Fossil fuel 14,160 47,291
Other 9,746 33,931
Other 6,768 10,387
---------- ----------
Total current assets 254,596 249,607
---------- ----------
Regulatory assets:
Deferred income taxes 364 21,520
Other 9,401 20,141
---------- ----------
Total regulatory assets 9,765 41,661
---------- ----------
Total Assets $1,822,690 $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 422,385 414,345
---------- ----------
Total common stockholder's equity 542,418 534,378
Preferred stock not subject to mandatory redemption 80,000 80,000
Long-term debt 468,116 493,625
---------- ----------
Total capitalization 1,090,534 1,108,003
---------- ----------
Current liabilities:
Current maturity of long-term debt 30,000 35,000
Intercompany notes payable 120,350 132,900
Accounts and wages payable 119,100 82,800
Accumulated deferred income taxes 19,618 22,621
Taxes accrued 22,858 32,145
Other 34,401 39,619
---------- ----------
Total current liabilities 346,327 345,085
---------- ----------
Accumulated deferred income taxes 310,741 216,661
Accumulated deferred investment tax credits 13,196 32,169
Regulatory liability 36,004 34,004
Other deferred credits and liabilities 25,888 45,832
---------- ----------
Total Capital and Liabilities $1,822,690 $1,781,754
========== ==========
See Notes to Financial Statements.
-8-
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF INCOME
UNAUDITED
---------
(Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
----------------------- --------------------- ------------------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
OPERATING REVENUES:
Electric $ 169,331 $ 200,336 $ 371,834 $ 355,576 $ 811,734 $ 739,050
Gas 25,788 21,593 78,612 74,125 137,133 123,731
--------- --------- --------- --------- --------- ---------
Total operating revenues 195,119 221,929 450,446 429,701 948,867 862,781
OPERATING EXPENSES:
Operations
Fuel and purchased power 82,128 70,542 163,758 126,232 351,734 240,139
Gas 12,446 9,752 44,160 43,002 74,510 65,497
Other 28,450 45,581 71,446 85,979 176,089 183,305
--------- --------- --------- --------- --------- ---------
123,024 125,875 279,364 255,213 602,333 488,941
Maintenance 11,549 25,161 28,053 42,568 89,067 80,189
Depreciation and amortization 15,236 19,449 36,586 40,189 76,954 77,078
Income taxes 11,958 11,197 26,121 17,176 39,718 47,316
Other taxes 11,167 10,266 22,403 19,865 42,851 44,684
--------- --------- --------- --------- --------- ---------
Total operating expenses 172,934 191,948 392,527 375,011 850,923 738,208
OPERATING INCOME 22,185 29,981 57,919 54,690 97,944 124,573
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used
during construction -- 7 -- 1 (9)
(32)
Miscellaneous, net 7,439 725 7,816 1,081 8,765 (163)
--------- --------- --------- --------- --------- ---------
Total other income and (deductions) 7,439 732 7,816 1,082 8,756 (195)
INCOME BEFORE
INTEREST CHARGES 29,624 30,713 65,735 55,772 106,700 124,378
INTEREST CHARGES:
Interest 9,788 10,343 19,347 21,158 40,925 41,494
Allowance for borrowed funds
used during construction (68) (310) 152 (381) 554 (791)
--------- --------- --------- --------- --------- ---------
Net interest charges 9,720 10,033 19,499 20,777 41,479 40,703
NET INCOME 19,904 20,680 46,236 34,995 65,221 83,675
PREFERRED STOCK DIVIDENDS 837 917 1,830 1,885 3,778 3,765
--------- --------- --------- --------- --------- ---------
NET INCOME AFTER PREFERRED
STOCK DIVIDENDS $ 19,067 $ 19,763 $ 44,406 $ 33,110 $ 61,443 $ 79,910
========= ========= ========= ========= ========= =========
See Notes to Financial Statements.
-9-
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF CASH FLOWS
UNAUDITED
---------
(Thousands of Dollars)
Six Months Ended
June 30,
-------------------------
2000 1999
---- ----
Cash Flows From Operating:
Net income $ 46,236 $ 34,995
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 36,586 40,189
Allowance for funds used during construction 152 (382)
Deferred income taxes, net 14,713 (7,768)
Deferred investment tax credits, net 755 (1,242)
Changes in assets and liabilities:
Receivables, net (9,795) (13,547)
Materials and supplies 3,510 10,810
Accounts and wages payable 36,453 (4,561)
Taxes accrued (9,287) 5,156
Other, net (17,655) 16,135
--------- ---------
Net cash provided by operating activities 101,668 79,785
Cash Flows From Investing:
Construction expenditures (20,032) (62,840)
Allowance for funds used during construction (152) 382
--------- ---------
Net cash used in investing activities (20,184) (62,458)
Cash Flows From Financing:
Dividends on common stock (36,114) (34,310)
Dividends on preferred stock (1,830) (1,697)
Redemptions -
Short-term debt -- (46,700)
Long-term debt (82,000) (55,000)
Intercompany notes payable (12,550) --
Issuances -
Long-term debt 51,100 --
Intercompany notes payable -- 127,500
--------- ---------
Net cash used in financing activities (81,394) (10,207)
--------- ---------
Net change in cash and cash equivalents 90 7,120
Cash and cash equivalents at beginning of year 12,536 10,180
--------- ---------
Cash and cash equivalents at end of period $ 12,626 $ 17,300
========= =========
Cash paid during the periods:
Interest (net of amount capitalized) $ 21,882 $ 19,458
Income taxes, net $ 21,712 $ 21,805
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.
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CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 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 an electric generating and transmission facility in Illinois that
supplies 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 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
Material and supplies 53,806
Other current assets 5,522
Property and plant, net 635,031
Deferred tax assets 22,022
---------------
Total assets transferred $ 722,768
---------------
Accounts payable $ 6,541
Other current liabilities 3,351
Other deferred credits 1,804
Deferred investment tax credits 19,728
Deferred tax liabilities 139,718
---------------
Total liabilities transferred $ 171,142
---------------
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 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
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Commission (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 two-month period ended June 30, 2000, $57 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 June 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 June 30, 2000 and 1999, are not necessarily indicative of trends for any
three-month, six-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 $24 million
and $12 million, respectively, as of June 30, 2000 and December 31, 1999.
Intercompany payables included in accounts and wages payable totaled
approximately $82 and $35 million, respectively, as of June 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 June 30, 2000, the Registrant had $120 million of intercompany
borrowings outstanding and $434 million available through the regulated money
pool.
Note 6 - In 1998, the Registrant joined a group of companies that support the
formation of the Midwest Independent System Operator (Midwest ISO). An ISO
operates, but does not own, electric transmission systems and maintains system
reliability and security while alleviating certain pricing issues. The FERC
conditionally approved the formation of the Midwest ISO. The Registrant is
evaluating certain issues which are outstanding related to the start-up of
operations of the Midwest ISO, including the final determination of revenue
distribution among the Midwest ISO members. Further, the Registrant is
evaluating alternatives to membership in the Midwest ISO. At this time,
management has not decided its course of action relative to its transmission
business and accordingly is unable to determine the impact that operation of the
Midwest ISO or other alternatives will have on its financial condition, results
of operations or liquidity.
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Note 7 - Segment information for the three-month, six-month and 12-month periods
ended June 30, 2000 and 1999 is as follows:
- --------------------------------------------------------------------------------
(in thousands) Electric Gas Total
- --------------------------------------------------------------------------------
Three months ended June 30, 2000:
Revenues $169,331 $25,788 $195,119
Operating Income (Net) 20,408 1,777 22,185
- --------------------------------------------------------------------------------
Three months ended June 30, 1999:
Revenues $200,336 $21,593 $221,929
Operating Income (Net) 28,603 1,378 29,981
- --------------------------------------------------------------------------------
Six months ended June 30, 2000:
Revenues $371,834 $78,612 $450,446
Operating Income (Net) 50,440 7,479 57,919
- --------------------------------------------------------------------------------
Six months ended June 30, 1999:
Revenues $355,576 $74,125 $429,701
Operating Income (Net) 48,419 6,271 54,690
- --------------------------------------------------------------------------------
12 months ended June 30, 2000:
Revenues $811,734 $137,133 $948,867
Operating Income (Net) 87,708 10,236 97,944
- --------------------------------------------------------------------------------
12 months ended June 30, 1999:
Revenues $739,050 $123,731 $862,781
Operating Income (Net) 116,476 8,097 124,573
- --------------------------------------------------------------------------------
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 1996, a lawsuit was filed in the Circuit Court of Madison
County, Illinois, 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, As currently
consolidated, the case includes twenty-three named plaintiffs, all of whom were
in the employ of an independent contractor as boilermakers at the time of the
incident. In January 2000, the court allowed plaintiffs to amend their claims to
include amounts for potential punitive damages against both the Registrant and
Dover. In April, 2000, plaintiffs' attorneys made their initial demand, upon
both defendants, totaling approximately $83 million on behalf of all named
plaintiffs. The jury trial of this lawsuit is scheduled to begin in October
2000. At this time, the Registrant is unable to determine to what extent, if at
all, the Registrant and/or Dover may be responsible for these claims. While the
Registrant cannot predict the ultimate outcome of this litigation, the
Registrant believes it has adequate insurance to cover the ultimate claims made
against the Company. At this time, the Registrant believes that the final
resolution of this lawsuit will not have a material adverse effect on its
financial position, results of operation or liquidity.
Reference is made to Note 2 - Regulatory Matters (Illinois Electric
Restructuring) in the Notes to Financial Statements of the Registrant's Form
10-K for the year ended December 31, 1999, for information relating to a
transmission system rate case filed by the Registrant with the Federal Energy
Regulatory Commission (FERC) in August 1999. This filing was primarily designed
to implement rates, terms and conditions for electric transmission service for
those retail customers in Illinois who choose other suppliers as allowed under
the Electric Service Customer Choice and Rate Relief Law of 1997. On May 17,
2000, the FERC issued a letter order approving a settlement of this case reached
with the FERC trial staff and other interested parties.
Reference is made to Note 11 - Commitments and Contingencies in the Notes
to Financial Statements of the Registrant's Form 10-K for the year ended
December 31, 1999 for information regarding unfair labor practice charges filed
with the National Labor Relations Board (NLRB) by the International Union of
Operating Engineers Local 148 and the International Brotherhood of Electrical
Workers Local 702 relating to the lockout by the Registrant of both unions
during 1993. On May 9, 2000, the U.S. Court of Appeals for the District of
Columbia Circuit issued a ruling upholding the NLRB's August 1998 decision which
ruled in favor of the Registrant and held that the lockout was lawful. The
unions are seeking review of the court's decision by the U.S. Supreme Court.
Reference is made to "Regulation" section in Item 1. Business of the
Registrant's Form 10-K for the year ended December 31, 1999, for information
relating to litigation concerning the alleged exposure to carcinogens contained
in coal tar at the Registrant's Taylorville gas plant site. On June 23, 2000,
the Registrant filed an appeal with the Illinois Supreme Court 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. The Registrant believes that
final disposition of this matter will not have a material adverse effect on its
financial position, results of operation 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 March 31, 2000, for
information relating to the National Ambient Air Quality Standards for ozone and
particulate matter litigation. On May 22, 2000, the United States Supreme Court
granted certiorari and agreed to review the United States Court of Appeals for
the District of Columbia Circuit's decision to remand the ambient air quality
standard regulations to the United States Environmental Protection Agency for
reconsideration. At this time, the Registrant is unable to predict the ultimate
impact of those revised air quality standards on its future financial condition,
results of operation or liquidity.
ITEM 5. OTHER INFORMATION
Any stockholder proposal intended for inclusion in the proxy material for
the Registrant's 2001 annual meeting of stockholders must be received by the
Registrant by November 30, 2000.
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In addition, under the Registrant's By-Laws, stockholders who intend to
submit a proposal in person at an annual meeting, or who intend to nominate a
director at a meeting, must provide advance written notice along with other
prescribed information. In general, such notice must be received by the
Secretary of the Registrant not later than 60 nor earlier than 90 days prior to
the first anniversary of the preceding year's annual meeting. For the
Registrant's 2001 annual meeting of stockholders, written notice of any
in-person stockholder proposal or director nomination must be received not later
than February 24, 2001 or earlier than January 25, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 10 - Asset Transfer Agreement between Central Illinois
Public Service Company and AmerenEnergy Generating Company dated
as of May 1, 2000.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirement, 12 Months Ended June
30, 2000.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. The Registrant filed a report on Form 8-K
dated May 5, 2000 reporting the transfer of its electric
generating facilities to a new nonregulated subsidiary,
AmerenEnergy Generating Company.
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
------------------------
Warner L. Baxter
Vice President and Controller
(Principal Accounting Officer)
Date: August 14, 2000
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