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, 1999
[ ] 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, 1999: 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 Disclosure
About Market Risk 7
Balance Sheet
- September 30, 1999 and December 31, 1998 9
Statement of Income
- Three months, Nine months, and 12 months ended
September 30, 1999 and 1998 10
Statement of Cash Flows
- Nine months ended September 30, 1999 and 1998 11
Notes to Financial Statements 12
Part II Other Information 15
2
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 wholly-owned subsidiaries of Ameren (the
Merger).
The following discussion and analysis should be read in conjunction with the
Notes to Financial Statements beginning on page 12, 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 1998 Form 10-K.
RESULTS OF OPERATIONS
Earnings
Third quarter 1999 earnings of $42 million increased $3 million from 1998's
third quarter earnings. Earnings for the nine months ended September 30, 1999
increased $7 million from the year-ago period to $75 million. Earnings for the
12 months ended September 30, 1999 were $84 million, a $36 million increase from
the preceding 12-month period. Excluding the extraordinary charge recorded in
the fourth quarter of 1997 to write off the generation-related regulatory assets
and liabilities of the Registrant's retail electric business, earnings for the
12-month period ended September 30, 1998 were $72 million.
Earnings fluctuated due to many conditions, primarily: weather variations,
credits to electric customers, electric rate reductions, competitive market
forces, sales growth, fluctuating operating costs, merger-related expenses,
changes in interest expense, changes in income and property taxes, a charge for
a targeted employee separation plan and an extraordinary charge, as noted above.
The significant items affecting revenues, costs and earnings during the
three-month, nine-month and 12-month periods ended September 30, 1999 and 1998
are detailed below.
Electric Operations
Electric Operating Revenues Variations for periods ended September 30, 1999
from comparable prior-year periods
- -------------------------------------------------------------------------------
(Millions of Dollars) Three Months Nine Months Twelve Months
- -------------------------------------------------------------------------------
Credit to customers $ (8) $ (8) $ (8)
Rate variations (2) (8) (13)
Effect of abnormal weather (1) (15) (25)
Growth and other - 8 1
Interchange sales 42 71 80
- -------------------------------------------------------------------------------
$ 31 $ 48 $ 35
- -------------------------------------------------------------------------------
Electric revenues for the three months ended September 30, 1999, increased $31
million compared to the prior three- month period primarily driven by an 8
percent increase in interchange sales, due to strong marketing efforts. This
increase was partially offset by a residential rate decrease and an estimated
credit that the Registrant expects to pay its electric customers for the initial
period of a sharing mechanism provided by deregulation legislation (see Note 5
under Notes to Financial Statements for further information).
Electric revenues for the nine months and 12 months ended September 30, 1999,
increased $48 million and $35 million, respectively, compared to the comparable
year-ago periods, primarily due to increases in interchange sales of 33 percent
and 23 percent, respectively, due to strong marketing efforts. These increases
were partially offset by a decrease in native sales of 2 percent for each of the
nine-month and 12-month periods, primarily due to milder weather. In addition,
electric revenues were reduced as a result of a residential rate decrease and an
estimated credit
-2-
that the Registrant expects to pay its electric customers for the initial period
of a sharing mechanism provided by deregulation legislation (see Note 5 under to
Notes to Financial Statements for further information).
Fuel and Purchased Power
Variations for periods ended September 30, 1999
from comparable prior-year periods
- --------------------------------------------------------------------------------
(Millions of Dollars) Three Months Nine Months Twelve Months
- --------------------------------------------------------------------------------
Fuel:
Variation in generation $ - $ 8 $ (3)
Price (4) (16) (19)
Generation efficiencies and other (2) (4) (9)
Purchased power variation 21 37 39
- --------------------------------------------------------------------------------
$ 15 $ 25 $ 8
- --------------------------------------------------------------------------------
Fuel and purchased power costs for the three months ended September 30, 1999
increased $15 million over the same period in the prior year primarily as a
result of an increase in purchased power resulting from higher sales volume,
partially offset by lower fuel prices. Fuel and purchased power costs for the
nine months ended September 30, 1999 increased $25 million over the comparable
prior year period primarily due to an increase in generation and purchased power
resulting from higher sales volume, partially offset by lower fuel prices. The
$8 million increase in fuel and purchased power costs for the 12 months ended
September 30, 1999 versus the prior-year period was primarily the result of
increased purchased power resulting from higher sales volume, partially offset
by lower fuel prices.
Gas Operations
Gas revenues for the 12-month period ended September 30, 1999, decreased $17
million compared to the same year-ago period primarily due to a decline in total
sales resulting primarily from milder winter weather, partially offset by an
Illinois gas rate increase effective February 1999.
Gas costs for the nine months ended September 30, 1999, decreased $3 million
compared to the year-ago period due to lower sales. Gas costs for the 12 months
ended September 30, 1999, decreased $22 million compared to the year-ago period
primarily due to lower sales and lower gas prices.
Other Operating Expenses
Other operating expense variations reflected recurring factors such as growth,
inflation, labor and benefit increases.
Other operations expenses increased $3 million and $7 million, respectively, for
the three months and nine months ended September 30, 1999, compared to the same
year-ago periods primarily due to increased injuries and damages expenses based
on claims experience, and expenses associated with deregulation in Illinois and
the Year 2000 project, partially offset by the 1998 one-time pretax charge of $7
million for the targeted employee separation plan and reduced workforce. Other
operations expenses increased $12 million for the 12 months ended September 30,
1999, compared to the same year-ago period, primarily due to increases in
expenses associated with deregulation in Illinois and the Year 2000 project,
partially offset by the 1998 charge for the targeted separation plan.
Maintenance expenses for the three months, nine months and 12 months ended
September 30, 1999, increased $9 million, $17 million and $11 million,
respectively, from the comparable year-ago periods due to increased power plant
maintenance.
Other Taxes
Other taxes decreased primarily due to a decrease in gross receipt taxes. This
decrease results 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.
Taxes
Income taxes for the three months, nine months and 12 months ended September 30,
1999, increased $2 million, $3 million and $8 million, respectively, primarily
due to higher pretax income.
-3-
Balance Sheet
The $17 increase in trade accounts receivable and unbilled revenue was due
primarily to higher revenues in August and September 1999 compared to November
and December 1998.
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. The $91 million increase in
intercompany notes payable is due to funds borrowed from a utility money pool
(see Note 6 under Notes to Financial Statements for further information).
The $11 million increase in other current liabilities was primarily due to the
estimated credit to Illinois electric customers recorded in the third quarter of
1999 for the initial period of a sharing mechanism provided by deregulation
legislation (see Note 5 under Notes to Financial Statements for further
information). The remaining variance is a result of the timing of various
payments to suppliers.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $163 million for the nine months
ended September 30, 1999, compared to $98 million during the same 1998 period.
Cash flows used in investing activities totaled $81 million and $46 million for
the nine months ended September 30, 1999 and 1998, respectively. Construction
expenditures for the nine months ended September 30, 1999, for constructing new
or improving existing facilities were $81 million. Capital requirements for the
remainder of 1999 are expected to be principally for construction expenditures.
Cash flows used in financing activities totaled $72 million for the nine months
ended September 30, 1999, compared to $67 million during the same 1998 period.
The Registrant's principal financing activities for the period included the
redemption of $107 million of debt and the payment of dividends, partially
offset by the issuance of intercompany notes payable.
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 10 to 45 days). At September
30, 1999, the Registrant had committed bank lines of credit aggregating $30
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, 1999,
the Registrant had no outstanding short-term borrowings other than $91 million
of intercompany notes payable.
Also, Ameren has a bank credit agreement due 2002, which permits the borrowing
of up to $200 million on a short-term basis. This credit agreement is available
to Ameren and its subsidiaries, including the Registrant. As of September 30,
1999, $132 million was available for the Registrant's use.
The Registrant, in the ordinary course of business, explores opportunities to
reduce its cost in order to remain competitive in the marketplace. Areas where
the Company focuses its review include, but are not limited to, labor costs and
fuel supply costs. In the labor area, the Registrant is currently in
negotiations with many of the Registrant's major collective bargaining units in
an effort 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. In the fuel supply area, the Registrant
explores alternatives to effectively manage its overall fuel costs. These
alternatives include diversifying fuel sources for use at the Registrant's
fossil plants (e.g. utilizing low sulfur versus high sulfur coal), as well as
restructuring or terminating existing contracts with suppliers.
Certain of these reduction alternatives could result in additional investments
being made at the Registrant's power plants in order to utilize different types
of coal, or could require nonrecurring payments of employee separation benefits
or nonrecurring payments to restructure or terminate an existing fuel contract
with a supplier. Management is unable to predict which (if any), and to what
extent, these alternatives to reduce its overall cost structure will be
executed, as well as determine the impact of these actions on the Registrant's
future financial position, results of operations or cash flows.
-4-
RATE MATTERS
In March 1999, the Registrant filed delivery service tariffs with the Illinois
Commerce Commission (ICC) to comply with the requirements of the Electric
Service Customer Choice and Rate Relief Law of 1997. These tariffs would be used
by electric customers who choose to purchase their power from an alternate
supplier. On August 25, 1999, the ICC issued an order approving the delivery
services tariffs, with an allowed rate of return on equity of 10.45%. The
Registrant and AmerenUE filed a joint petition for rehearing of that order
requesting the ICC to alter its conclusions on a number of issues. On October
13, 1999, the ICC granted a rehearing on certain issues. An order on this
reopened proceeding is expected in early 2000.
In August 1999, Ameren filed a transmission system rate case with the Federal
Energy Regulatory Commission (FERC). This filing was primarily designed to
implement rates, terms and conditions for transmission service for those retail
customers in Illinois which choose other suppliers. On October 14, 1999, the
FERC issued an order suspending the proposed rates until March 25, 2000. Ameren
filed in response an emergency request for rehearing which requested that the
portion of the filing which related to retail access in Illinois be placed into
effect as of October 1, 1999 to coincide with the start of retail competition in
Illinois. An order from the FERC to this request is expected shortly. An initial
decision as to Ameren's overall filing is expected in early 2001.
See Note 5 under Notes to Financial Statements for further discussion of Rate
Matters.
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 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 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. 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.
In conjunction with another provision of the Law, in July 1999, AmerenCIPS filed
a notice with the ICC that it intends to transfer AmerenCIPS' generating
facilities (all in Illinois) to a new unregulated subsidiary of Ameren. The
formation of the new generating subsidiary, as well as the transfer of
AmerenCIPS' generating assets and liabilities (at historical net book value) and
certain power sales contracts, will be subject to regulatory proceedings.
Regulatory approval was received from the ICC on October 13, 1999. Other
regulatory approvals are required from the Federal Energy Regulatory Commission
and the Missouri Public Service Commission. In addition to the AmerenCIPS
facilities, the generating subsidiary will include substantially all of the
combustion turbine generators which Ameren has committed to acquire. The new
subsidiary is expected to be operational sometime in 2000, subject to the
outcome of these regulatory proceedings.
Once the transfer is completed, a power supply agreement would be in place
between the new generating company and a nonregulated marketing subsidiary for
all generation. The marketing subsidiary would have a power supply agreement
with AmerenCIPS to supply them sufficient generation to meet native load
requirements over the term of the agreement. Power will continue to be jointly
dispatched between AmerenUE, AmerenCIPS and the new generating subsidiary.
The proposed transfer of generating assets and liabilities had no effect on the
Registrant's financial statements as of September 30, 1999.
YEAR 2000 ISSUE
The Year 2000 Issue relates to how dates are stored and used in computer
systems, applications, and embedded systems. As the century date change occurs,
certain date-sensitive systems need to be able to recognize the year as 2000 and
not as 1900. This inability to recognize and properly treat the year as 2000 may
cause these systems to process critical financial and operational information
incorrectly. The Registrant's primary concern is the potential for any
interruption in providing electric and gas service to customers, as well as the
potential inability to process critical financial and operational information on
a timely basis, including billing its customers, if appropriate steps
-5-
are not taken to address this issue. Management has developed a Year 2000 plan
(Plan) covering Ameren, including AmerenCIPS, and Ameren's Board of Directors
has been briefed about the Year 2000 Issue and how it may affect the Registrant.
Ameren's Plan to resolve the Year 2000 Issue involves three phases: assessment,
planning, and implementation/ testing. Implementation of the Plan is directly
supervised by each area's responsible Vice President. A Year 2000 Project
Director coordinates the implementation of the Plan among functional teams who
are addressing issues specific to a particular area, such as nuclear and
non-nuclear generation facilities, energy management systems, gas distribution,
etc. Ameren has also engaged certain outside consultants, technicians and other
external resources to aid in formulating and implementing the Plan.
Ameren has completed its assessment phase, which included analyzing
date-sensitive electronic hardware, software applications and embedded systems
and has developed a compliance plan to address issues that were identified. Many
of the major corporate computer systems at Ameren are relatively new and
therefore are either Year 2000 compliant or only require minor modifications.
Also, several of the operating hardware and embedded systems (i.e.,
microprocessor chips) use analog rather than digital technology and thus are
unaffected by the two-digit date issue. In addition, Ameren has contacted
hundreds of vendors and suppliers to verify compliance.
Ameren has also completed its planning phase. Items that have been identified
for remediation have been prioritized into groups based on their significance to
Ameren's operations.
The implementation/testing phase for all mission critical systems was completed
by September 30, 1999. The implementation/testing phase for all other
components/applications is approximately 98 percent complete as of September 30,
1999.
With respect to third parties, for areas that interface directly with
significant vendors, Ameren has inventoried vendors and major suppliers and is
currently assessing their Year 2000 readiness through surveys, websites and
personal contact. Ameren plans to follow up with major suppliers and vendors and
verify Year 2000 compliance, where appropriate. Ameren has also queried its
health insurance providers. To date, Ameren is not aware of any problems that
would materially impact its financial condition, results of operations or
liquidity. However, neither Ameren nor the Registrant has the means of ensuring
that these parties will be Year 2000 compliant. The inability of those parties
to complete their Year 2000 resolution process could materially impact Ameren
and the Registrant.
Ameren has also addressed the impact of electric power grid problems that may
occur outside of its own electric system. Ameren has conducted Year 2000
electric power grid impact planning through the system's various electric
interconnection affiliations and is working with the Mid-American Interchange
Network (MAIN) and the North American Electric Reliability Council (NERC) to
plan Year 2000 operational preparedness and restoration scenarios. As of
September 30, 1999, Ameren has completed its assessment, planning, and
implementation/testing phases for mission critical items as identified by NERC.
As a result, Ameren has been added to the "Ready" list being compiled by NERC as
it assesses readiness of the regional and national electric grid. Through the
Electric Power Research Institute (EPRI), an industry-wide effort has been
established to deal with Year 2000 problems affecting digital systems and
equipment used by the nation's electric power companies. Under this effort,
participating utilities are working together to assess specific vendors' system
problems and test plans. The assessment is being shared with EPRI participants
to facilitate Year 2000 problem solving.
In addressing the Year 2000 Issue, Ameren will incur internal labor costs as
well as external consulting and other expenses to prepare for the new century.
Ameren estimates that its external costs (consulting fees and related costs) for
addressing the Year 2000 Issue will range from $10 million to $15 million. As of
September 30, 1999, Ameren had expended approximately $8 million. Ameren's plans
to complete Year 2000 modifications are based on management's best estimates,
which are derived utilizing numerous assumptions of future events including the
continued availability of certain resources, and other factors. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
Ameren believes that, with appropriate modifications to existing computer
systems/components, updates by vendors and trading partners, and conversion to
new software and hardware in the ordinary course of business, the Year 2000
Issue will not pose significant operational problems for the Registrant.
However, if such conversions are not completed in a proper and timely manner by
all affected parties, the Year 2000 Issue could result in material adverse
operational and financial consequences to the Registrant, and there can be no
assurance that Ameren's efforts, or
-6-
those of vendors and trading partners, interconnection affiliates, NERC or EPRI
to address the Year 2000 Issue will be successful. Ameren is in the process of
developing contingency plans to address potential risks, including risks of
vendor/trading partners noncompliance, as well as noncompliance of any of the
Registrant's material operating systems. The first operational contingency plan
addressing power grid issues was completed during the first quarter of 1999.
Contingency plans related to the business areas were completed in July 1999. At
this time, the Registrant is unable to predict the ultimate impact, if any, of
the Year 2000 Issue on the Registrant's financial condition, results of
operations or liquidity; however, the impact could be material.
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 and for hedging activities and
requires recognition of all derivatives on the balance sheet measured at fair
value. In June 1999, the FASB issued SFAS 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. Earlier application
is still encouraged. At this time, the Registrant is unable to determine the
impact of SFAS 133 on its financial position or results of operations upon
adoption; however, SFAS 133 could increase the volatility of the Registrant's
future earnings.
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 interest rates and
equity prices. 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 credit
risk and legal 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,
fixed-rate debt, commercial paper and auction market 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 1 percent in 2000 as compared to 1999, 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 September 30, 1999, continued to be
outstanding throughout 2000, and that the average interest rates for these
instruments increased 1 percent over 1999. 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 purchased power. 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.
Since the Registrant does not have a provision similar to the PGA for its
electric operations, the Registrant has entered into several long-term contracts
with various suppliers to purchase coal to manage its exposure to fuel prices.
With regard to the Registrant's exposure to commodity risk for purchased power,
Ameren has established a subsidiary, AmerenEnergy, Inc., whose primary
responsibility includes managing market risks associated with the changing
market prices for purchased power for the Registrant.
AmerenEnergy utilizes several techniques to mitigate its market risk for
purchased power, including utilizing derivative financial instruments. A
derivative is a contract whose value is dependent on or derived from the value
of
-7-
some underlying asset. The derivative financial instruments that AmerenEnergy is
allowed to utilize (which include forward contracts and futures contracts) are
dictated by a risk management policy, which has been reviewed with the Auditing
Committee of Ameren's Board of Directors. Compliance with the risk management
policy is the responsibility of a risk management steering committee, consisting
of Ameren officers and an independent risk management officer at AmerenEnergy.
As of September 30, 1999, the fair value of derivative financial instruments
exposed to commodity price risk was immaterial.
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, 1998,
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 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.
-8-
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
BALANCE SHEET
UNAUDITED
(Thousands of Dollars, Except Shares)
September 30, December 31,
ASSETS 1999 1998
- ------ ------------- ------------
Property and plant, at original cost:
Electric $2,400,383 $2,381,682
Gas 265,459 259,656
---------- ----------
2,665,842 2,641,338
Less accumulated depreciation and amortization 1,246,472 1,192,108
---------- ----------
1,419,370 1,449,230
Construction work in progress 61,370 16,220
---------- ----------
Total property and plant, net 1,480,740 1,465,450
---------- ----------
Other assets 29,526 31,904
Current assets:
Cash and cash equivalents 21,351 10,180
Accounts receivable - trade (less allowance for doubtful
accounts of $2,593 and $1,714, respectively) 52,191 44,494
Unbilled revenue 62,397 53,120
Other accounts and notes receivable 41,797 16,486
Materials and supplies, at average cost -
Fossil fuel 46,290 50,791
Other 35,181 36,047
Other 10,602 8,214
---------- ----------
Total current assets 269,809 219,332
---------- ----------
Regulatory assets:
Deferred income taxes 22,339 24,797
Other 19,214 22,914
---------- ----------
Total regulatory assets 41,553 47,711
---------- ----------
Total Assets $1,821,628 $1,764,397
========== ==========
CAPITAL AND LIABILITIES
Capitalization:
Common stock, no par value, authorized 45,000,000 shares -
outstanding 25,452,373 shares $ 120,033 $ 120,033
Retained earnings 477,525 455,337
---------- ----------
Total common stockholders' equity 597,558 575,370
Preferred stock not subject to mandatory redemption 80,000 80,000
Long-term debt 493,586 528,446
---------- ----------
Total capitalization 1,171,144 1,183,816
---------- ----------
Current liabilities:
Current maturity of long-term debt 35,000 60,000
Short-term debt -- 46,700
Intercompany notes payable 91,200 --
Accounts and wages payable 88,743 61,609
Accumulated deferred income taxes 22,312 21,386
Taxes accrued 26,799 13,201
Other 45,200 34,454
---------- ----------
Total current liabilities 309,254 237,350
---------- ----------
Accumulated deferred income taxes 222,174 234,119
Accumulated deferred investment tax credits 32,794 34,657
Regulatory liability 35,409 39,621
Other deferred credits and liabilities 50,853 34,834
---------- ----------
Total Capital and Liabilities $1,821,628 $1,764,397
========== ==========
See Notes to Financial Statements.
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CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF INCOME
UNAUDITED
(Thousands of Dollars)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
---------------------- ---------------------- ----------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
OPERATING REVENUES:
Electric $ 261,453 $ 230,422 $ 617,029 $ 568,866 $ 770,081 $ 734,692
Gas 17,874 16,253 91,999 92,153 125,352 142,534
--------- --------- --------- --------- --------- ---------
Total operating revenues 279,327 246,675 709,028 661,019 895,433 877,226
OPERATING EXPENSES:
Operations
Fuel and purchased power 82,072 66,965 208,304 183,143 255,246 246,763
Gas 7,324 6,517 50,326 53,372 66,304 87,657
Other 54,944 51,941 140,923 134,092 186,308 174,071
--------- --------- --------- --------- --------- ---------
144,340 125,423 399,553 370,607 507,858 508,491
Maintenance 24,741 16,232 67,309 50,153 88,698 77,749
Depreciation and amortization 20,141 17,357 60,330 54,791 79,862 75,233
Income taxes 26,204 24,484 43,380 40,113 49,036 40,970
Other taxes 10,056 12,556 29,921 44,571 42,184 58,668
--------- --------- --------- --------- --------- ---------
Total operating expenses 225,482 196,052 600,493 560,235 767,638 761,111
OPERATING INCOME 53,845 50,623 108,535 100,784 127,795 116,115
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used
during construction (9) (4) (8) 45 (37) 447
Miscellaneous, net 533 (834) 1,614 (545) 1,204 (3,713)
--------- --------- --------- --------- --------- ---------
Total other income and deductions 524 (838) 1,606 (500) 1,167 (3,266)
INCOME BEFORE
INTEREST CHARGES 54,369 49,785 110,141 100,284 128,962 112,849
INTEREST CHARGES:
Interest 10,748 10,423 31,906 30,126 41,819 38,472
Allowance for borrowed funds
used during construction 338 (310) (43) (981) (143) (1,283)
--------- --------- --------- --------- --------- ---------
Net interest charges 11,086 10,113 31,863 29,145 41,676 37,189
INCOME BEFORE
EXTRAORDINARY CHARGE 43,283 39,672 78,278 71,139 87,286 75,660
--------- --------- --------- --------- --------- ---------
EXTRAORDINARY CHARGE
(NET OF INCOME TAXES) -- -- -- -- -- (24,853)
--------- --------- --------- --------- --------- ---------
NET INCOME 43,283 39,672 78,278 71,139 87,286 50,807
PREFERRED STOCK DIVIDENDS 957 936 2,842 2,801 3,786 3,734
--------- --------- --------- --------- --------- ---------
NET INCOME AFTER PREFERRED
STOCK DIVIDENDS $ 42,326 $ 38,736 $ 75,436 $ 68,338 $ 83,500 $ 47,073
========= ========= ========= ========= ========= =========
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,
1999 1998
Cash Flows From Operating:
Net income $ 78,278 $ 71,139
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 60,330 54,791
Allowance for funds used during construction (35) (1,026)
Deferred income taxes, net (12,774) (9,760)
Deferred investment tax credits, net (1,863) (4,573)
Changes in assets and liabilities:
Receivables, net (42,285) (36,417)
Materials and supplies 5,367 (6,942)
Accounts and wages payable 27,134 (13,590)
Taxes accrued 13,598 9,186
Other, net 35,741 35,163
--------- ---------
Net cash provided by operating activities 163,491 97,971
Cash Flows From Investing:
Construction expenditures (80,601) (46,911)
Allowance for funds used during construction 35 1,026
--------- ---------
Net cash used in investing activities (80,566) (45,885)
Cash Flows From Financing:
Dividends on common stock (53,297) (53,297)
Dividends on preferred stock (2,957) (3,035)
Redemptions -
Short-term debt (46,700) (11,166)
Long-term debt (60,000) (10,000)
Issuances -
Long-term debt -- 10,000
Intercompany notes payable 91,200 --
--------- ---------
Net cash used in financing activities (71,754) (67,498)
--------- ---------
Net increase (decrease) in cash and cash equivalents 11,171 (15,412)
Cash and cash equivalents at beginning of year 10,180 28,140
--------- ---------
Cash and cash equivalents at end of period $ 21,351 $ 12,728
========= =========
Cash paid during the periods:
Interest (net of amount capitalized) $ 28,990 $ 29,650
Income taxes, net $ 39,983 $ 37,940
See Notes to Financial Statements.
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CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1999
Note 1 - Central Illinois Public Service Company (AmerenCIPS or the Registrant)
is a wholly-owned subsidiary of Ameren Corporation (Ameren), which is the parent
company of two utility operating companies, the Registrant and Union Electric
Company (AmerenUE). 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-owned
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% 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.
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
Securities and Exchange Commission. 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 1998
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, 1999 and 1998, are not necessarily indicative of trends for
any three-month, nine-month or 12-month period.
Note 5 -In conjunction with the Electric Service Customer Choice and Rate Relief
Law of 1997 (the Law), a 5 percent residential electric rate decrease for the
Registrant's electric customers was effective August 1, 1998. This rate decrease
is expected to decrease electric revenues $11 million annually, based on
estimated levels of sales and assuming normal weather conditions. The Registrant
may be subject to additional 5 percent residential electric rate decreases in
each of 2000 and 2002, to the extent its rates exceed the Midwest utility
average at that time. The Registrant's rates are currently below the Midwest
utility average.
The Law also contains a provision requiring one-half of excess earnings from the
Illinois jurisdiction for the years 1998 through 2004 to be refunded to the
Registrant's customers. Excess earnings are defined as the portion of the
two-year average annual rate of return on common equity in excess of 1.5 percent
of the two-year average of an Index, as defined in the Law. The Index is defined
as the sum of the average for the twelve months ended September 30 of the
average monthly yields of the 30-year U. S. Treasury bonds plus prescribed
percentages ranging from 4 percent to 5 percent. In July 1999, Senate Bill 24
was passed which increased the prescribed percentages to 7 percent beginning in
2000. Filings must be made with the Illinois Commerce Commission on or before
March 31 of each year 2000 through 2005. As of September 30, 1999, the
Registrant recorded an estimated $8 million credit that it expects to return to
its customers under the Law for the two year period ended December 31, 1999.
-12-
Note 6 - 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 $32 million
and $2 million, respectively, as of September 30, 1999 and December 31, 1998.
Intercompany payables included in accounts and wages payable totaled
approximately $33 and $12 million, respectively, as of September 30, 1999 and
December 31, 1998.
In March 1999, the Registrant, along with Ameren Services Company and AmerenUE,
entered into a utility money pool agreement to coordinate and provide for
certain short-term cash and working capital requirements. Borrowings under the
agreement are limited to $500 million and are due on demand or within one year.
Interest is calculated at varying rates depending on the composition of internal
and external funds in the money pool. The money pool is administered by Ameren
Services Company. The Registrant recorded an intercompany note payable of $91
million, representing funds borrowed from the utility money pool as of September
30, 1999.
Note 7 - Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" became effective on January 1,
1999. SOP 98-1 provides guidance on accounting for the costs of computer
software developed or obtained for internal use. Under SOP 98-1, certain costs,
may be capitalized and amortized over some future period. SOP 98-1 did not have
a material impact on the Registrant's financial position or results of
operations upon adoption.
The Emerging Issues Task Force of the Financial Accounting Standards Board
(EITF) Issue 98-10, "Accounting for Energy Trading and Risk Management
Activities" became effective on January 1, 1999. EITF 98-10 provides guidance on
the accounting for energy contracts entered into for the purchase or sale of
electricity, natural gas, capacity and transportation. The EITF reached a
consensus in EITF 98-10 that sales and purchase activities being performed need
to be classified as either trading or non-trading. Furthermore, transactions
that are determined to be trading activities would be recognized on the balance
sheet measured at fair value, with gains and losses included in earnings. EITF
98-10 includes factors or indicators to consider when determining if a
transaction is a trading or non-trading activity. Currently, AmerenEnergy, Inc.,
an energy marketing subsidiary of Ameren, enters into contracts for the sale and
purchase of energy on behalf of AmerenCIPS. These transactions are considered
non-trading activities and are accounted for using the accrual or settlement
method, which represents industry practice. Should any of AmerenEnergy's future
activities be considered material trading activities based on the indicators
provided in EITF 98-10, a change in accounting practice would be required. EITF
98-10 did not have a material impact on the Registrant's financial position or
results of operations upon adoption.
-13-
Note 8 - Segment information for the three month, nine month and 12 month
periods ended September 30, 1999 and 1998 is as follows:
- ----------------------------------------------------------------------------------------
(in thousands) Electric Gas Total
- ----------------------------------------------------------------------------------------
Three months ended September 30, 1999:
Revenues $261,453 $17,874 $279,327
Operating Income 53,763 82 53,845
- ----------------------------------------------------------------------------------------
Three months ended September 30, 1998:
Revenues $230,422 $16,253 $246,675
Operating Income (Loss) 50,880 (257) 50,623
- ----------------------------------------------------------------------------------------
Nine months ended September 30, 1999:
Revenues $617,029 $91,999 $709,028
Operating Income 102,182 6,353 108,535
- ----------------------------------------------------------------------------------------
Nine months ended September 30, 1998:
Revenues $568,866 $92,153 $661,019
Operating Income 97,806 2,978 100,784
- ----------------------------------------------------------------------------------------
12 months ended September 30, 1999:
Revenues $770,081 $125,352 $895,433
Operating Income 119,358 8,437 127,795
- ----------------------------------------------------------------------------------------
12 months ended September 30, 1998:
Revenues $734,692 $142,534 $877,226
Operating Income 109,773 6,342 116,115
- ----------------------------------------------------------------------------------------
Note 9 - Certain reclassifications were made to prior-year financial statements
to conform to current-period presentation.
-14-
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 26, 1999, the Board of Directors of the Registrant amended
its By-Laws to change the date for holding its annual meeting of stockholders to
the fourth Tuesday of April in each year to coincide with the annual meeting
date of its parent, Ameren Corporation.
In addition, the By-Laws were amended to include a requirement that
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.
Consequently, for the Registrant's annual meeting of stockholders for the year
2000, stockholders who intend to submit a stockholder proposal or director
nomination in person at the meeting must provide written notice by not later
than February 22, 2000 or earlier than January 23, 2000.
Any stockholder proposal intended for inclusion in the proxy material
for the Registrant's 2000 annual meeting of stockholders must be received by the
Registrant by December 1, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 3(ii)-By-Laws of Central Illinois Public Service Company,
as amended as of August 26, 1999.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements, 12 Months Ended
September 30, 1999.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. None.
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: November 15, 1999
-15-