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 the Quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ........ to ........
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-8946 CILCORP Inc. 37-1169387
(An Illinois Corporation)
300 Hamilton Blvd, Suite 300
Peoria, Illinois 61602
(309) 675-8810
1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050
(An Illinois Corporation)
300 Liberty Street
Peoria, Illinois 61602
(309) 675-8810
Indicate by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrants were required to file such reports), and (2)
have been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
CILCORP Inc. Common stock, no par value,
shares outstanding at July 31, 1995 13,155,249
CENTRAL ILLINOIS LIGHT COMPANY
Common stock, no par value,
shares outstanding and privately
held by CILCORP Inc. at July 31, 1995 13,563,871
<PAGE>
CILCORP INC.
AND
CENTRAL ILLINOIS LIGHT COMPANY
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1995
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1: Financial Statements
CILCORP INC.
Consolidated Balance Sheets 3-4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6-7
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets 8-9
Consolidated Statements of Income 10
Consolidated Statements of Cash Flows 11-12
Notes to Consolidated Financial Statements
CILCORP Inc. and Central Illinois Light Company 13-15
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
CILCORP Inc. and Central Illinois Light Company 15-24
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 25
Item 5: Other Information 25-29
Item 6: Exhibits and Reports on Form 8-K 29
Signatures 30-31
<PAGE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 3,843 $ 1,604
Receivables, less reserves of $2,588 and $2,291 53,768 55,779
Accrued unbilled revenue 33,436 40,474
Fuel, at average cost 11,227 14,765
Materials and supplies, at average cost 18,226 17,173
Gas in underground storage, at average cost 9,810 17,484
Prepayments and other 13,100 12,402
---------- ----------
Total current assets 143,410 159,681
---------- ----------
Investments and other property:
Investment in leveraged leases 124,094 120,961
Cash surrender value of company-owned life
insurance, net of related policy loans of
$28,831 2,546 1,637
Other investments 3,334 3,790
---------- ----------
Total investments and other property 129,974 126,388
---------- ----------
Property, plant and equipment:
Utility plant, at original cost
Electric 1,104,443 1,092,382
Gas 365,237 355,270
---------- ----------
1,469,680 1,447,652
Less - accumulated provision for depreciation 674,198 653,571
---------- ----------
795,482 794,081
Construction work in progress 78,482 71,105
Plant acquisition adjustments, being amortized
to 1999 2,999 3,355
Other, net of depreciation 23,767 23,152
---------- ----------
Total property, plant and equipment 900,730 891,693
---------- ----------
Other assets:
Prepaid pension expense 12,171 13,423
Cost in excess of net assets of acquired
businesses, net of accumulated amortization of
$3,941 and $3,589 24,196 24,548
Other 22,285 22,651
---------- ----------
Total other assets 58,652 60,622
---------- ----------
Total assets $1,232,766 $1,238,384
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these Balance Sheets.
</TABLE>
<PAGE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 19,191 $ 21,200
Notes payable 32,200 29,400
Accounts payable 32,957 51,952
Accrued taxes 8,733 7,729
Accrued interest 9,345 9,024
FCA over-recoveries 996 --
Purchased gas adjustment over-recoveries 3,001 2,142
Other 15,653 16,557
---------- ----------
Total current liabilities 122,076 138,004
---------- ----------
Long-term debt 330,696 326,695
---------- ----------
Deferred credits and other liabilities:
Deferred income taxes 248,157 246,815
Net regulatory liability of regulated subsidiary 57,849 59,997
Deferred investment tax credit 25,331 26,178
Customers' advances for construction and other 32,850 29,860
---------- ----------
Total deferred credits 364,187 362,850
---------- ----------
Preferred stock of subsidiary 66,120 66,120
---------- ----------
Stockholders' equity:
Common stock, no par value; authorized
50,000,000 shares - outstanding 13,142,604 and
13,035,756 shares 171,864 167,987
Retained earnings 177,823 176,728
---------- ----------
Total stockholders' equity 349,687 344,715
---------- ----------
Total liabilities and stockholders' equity $1,232,766 $1,238,384
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these Balance Sheets.
</TABLE>
<PAGE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)*
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue:
Electric $ 75,897 $ 78,034 $150,242 $151,741
Gas 24,615 23,471 83,497 95,150
Environmental and engineering
services 30,199 33,832 64,873 63,216
Other businesses 1,779 1,809 4,465 4,475
-------- -------- -------- --------
Total 132,490 137,146 303,077 314,582
-------- -------- -------- --------
Operating expenses:
Fuel for generation and
purchased power 24,875 26,362 52,419 54,274
Gas purchased for resale 9,640 11,413 38,747 54,359
Other operations and maintenance 56,200 57,013 116,118 114,066
Depreciation and amortization 15,813 15,584 31,629 31,056
Taxes, other than income taxes 8,659 8,279 19,777 19,498
-------- -------- -------- --------
Total 115,187 118,651 258,690 273,253
-------- -------- -------- --------
Fixed charges and other:
Interest expense 7,452 6,234 14,908 12,750
Preferred stock dividends
of subsidiary 833 726 1,667 1,429
Allowance for funds used during
construction (66) (79) (297) (169)
Other 194 145 385 272
-------- -------- -------- -------
Total 8,413 7,026 16,663 14,282
-------- -------- -------- -------
Income before income taxes 8,890 11,469 27,724 27,047
Income taxes 3,213 4,529 10,573 10,405
-------- -------- -------- --------
Net income available for
common stockholders $ 5,677 $ 6,940 $ 17,151 $ 16,642
======== ======== ======== ========
Average common shares outstanding 13,096 13,036 13,067 13,017
Net income per common share $ .43 $ .53 $ 1.31 $ 1.28
Dividends per common share $ .615 $ .615 $ 1.23 $ 1.23
<FN>
*Except per share amounts
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $18,818 $18,071
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash lease income and investment income (3,466) (3,550)
Depreciation and amortization 31,629 31,056
Deferred income taxes, investment tax credit and
regulatory liability of subsidiary, net (1,653) 3,738
Changes in operating assets and liabilities:
Decrease in accounts receivable and accrued
unbilled revenue 9,049 6,502
Decrease in inventories 10,159 6,611
Decrease in accounts payable (18,995) (7,872)
Increase in accrued taxes 1,004 2,782
Decrease in other assets 1,181 2,766
Increase in other liabilities 4,262 1,535
------- -------
Total adjustments 33,170 43,568
------- -------
Net cash provided by operating activities 51,988 61,639
------- -------
Cash flows from investing activities:
Additions to plant (38,110) (37,327)
Proceeds from sale of long-term investments 872 --
Other (3,457) (2,054)
------- -------
Net cash used in investing activities (40,695) (39,381)
------- -------
Cash flows from financing activities:
Net increase (decrease) in short-term debt 2,800 (5,900)
Increase in long-term debt 19,816 --
Repayment of long-term debt (17,824) (122)
Common dividends paid (16,056) (16,036)
Preferred dividends paid (1,667) (1,429)
Proceeds from issuance of stock 3,877 2,325
------- -------
Net cash used in financing activities (9,054) (21,162)
------- -------
Net increase in cash and temporary cash
investments 2,239 1,096
Cash and temporary cash investments at beginning
of year 1,604 1,440
------- -------
Cash and temporary cash investments at June 30 $ 3,843 $ 2,536
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 13,721 $ 12,971
Income Taxes $ 8,671 $ 4,351
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
June 30, December 31,
ASSETS 1995 1994
(Unaudited)
<S> <C> <C>
Utility plant, at original cost:
Electric $1,104,443 $1,092,382
Gas 365,237 355,270
---------- ----------
1,469,680 1,447,652
Less - accumulated provision for depreciation 674,198 653,571
---------- ----------
795,482 794,081
Construction work in progress 78,482 71,105
Plant acquisition adjustments, net of
amortization 2,999 3,355
---------- ----------
Total utility plant 876,963 868,541
---------- ----------
Other property and investments:
Cash surrender value of company-owned life
insurance (net of related policy loans of
$28,831) 2,546 1,637
Other 1,100 1,041
---------- ----------
Total other property and investments 3,646 2,678
---------- ----------
Current assets:
Cash and temporary cash investments 1,243 629
Receivables, less reserves of $752 and $600 26,481 30,543
Accrued unbilled revenue 18,212 22,340
Fuel, at average cost 11,227 14,765
Materials and supplies, at average cost 16,796 16,731
Gas in underground storage, at average cost 9,810 17,484
Other 7,492 7,217
---------- ----------
Total current assets 91,261 109,709
---------- ----------
Deferred debits:
Unamortized loss on reacquired debt 6,258 6,486
Unamortized debt expense 2,311 2,212
Prepaid pension cost 12,171 13,423
Other 13,165 13,957
---------- ----------
Total deferred debits 33,905 36,078
---------- ----------
Total assets $1,005,775 $1,017,006
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these Balance Sheets.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
June 30, December 31,
CAPITALIZATION AND LIABILITIES 1995 1994
(Unaudited)
<S> <C> <C>
Capitalization:
Common shareholder's equity:
Common stock, no par value; authorized
20,000,000 shares; outstanding 13,563,871
shares $ 185,661 $ 185,661
Retained earnings 123,557 122,125
---------- ----------
Total common shareholder's equity 309,218 307,786
Preferred stock without mandatory redemption 44,120 44,120
Preferred stock with mandatory redemption 22,000 22,000
Long-term debt 282,378 278,359
---------- ----------
Total capitalization 657,716 652,265
---------- ----------
Current liabilities:
Current maturities of long-term debt 16,000 --
Notes payable 11,200 23,400
Accounts payable 29,238 47,536
Accrued taxes 4,605 4,284
Accrued interest 8,338 8,477
Purchased gas adjustment over-recoveries 3,001 2,142
Level payment plan 1,696 4,155
Other 6,791 6,809
---------- ----------
Total current liabilities 80,869 96,803
---------- ----------
Deferred liabilities and credits:
Accumulated deferred income taxes 151,773 151,856
Regulatory liability, net 57,849 59,997
Investment tax credits 25,331 26,178
Capital lease obligation 3,214 2,665
Other 29,023 27,242
---------- ----------
Total deferred liabilities and credits 267,190 267,938
---------- ----------
Total capitalization and liabilities $1,005,775 $1,017,006
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these Balance Sheets.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Income
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Operating revenues:
Electric $ 75,897 $ 78,034 $150,242 $151,741
Gas 24,615 23,471 83,497 95,150
-------- -------- -------- --------
Total operating revenues 100,512 101,505 233,739 246,891
-------- -------- -------- --------
Operating expenses:
Cost of fuel 22,356 24,517 47,116 50,569
Cost of gas 9,640 11,413 38,747 54,359
Purchased power 2,519 1,845 5,303 3,705
Other operation and maintenance 27,239 26,265 54,554 54,996
Depreciation and amortization 14,171 13,902 28,317 27,654
Income taxes 4,105 4,245 11,620 10,420
Other taxes 7,463 7,114 17,180 16,977
-------- -------- -------- --------
Total operating expenses 87,493 89,301 202,837 218,680
-------- -------- -------- --------
Operating income 13,019 12,204 30,902 28,211
-------- -------- -------- --------
Other income and deductions:
Cost of equity funds capitalized -- -- -- 23
Company-owned life insurance, net (194) (145) (385) (272)
Other, net 116 (2) 100 (42)
-------- -------- -------- --------
Total other income and
(deductions) (78) (147) (285) (291)
-------- -------- -------- --------
Income before interest expenses 12,941 12,057 30,617 27,920
-------- -------- -------- --------
Interest expenses:
Interest on long-term debt 4,942 4,808 9,750 9,604
Cost of borrowed funds capitalized (66) (79) (297) (146)
Other 991 271 2,008 790
-------- -------- -------- --------
Total interest expenses 5,867 5,000 11,461 10,248
-------- -------- -------- --------
Net income 7,074 7,057 19,156 17,672
-------- -------- -------- --------
Dividends on preferred stock 832 726 1,667 1,429
-------- -------- -------- --------
Net income available for
common stock $ 6,242 $ 6,331 $ 17,489 $ 16,243
======== ======== ======== ========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
<PAGE>
<TABLE>
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 19,156 $ 17,672
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 28,673 28,011
Deferred taxes, investment tax credits and
regulatory liability, net (3,078) (1,865)
Decrease in accounts receivable 4,062 2,901
Decrease in fuel, materials and supplies, and gas
in underground storage 11,147 6,611
Decrease in unbilled revenue 4,128 6,893
Decrease in accounts payable (18,298) (5,406)
Increase (decrease) in accrued taxes and interest 183 (1,433)
Capital lease payments 267 239
Decrease in other current assets 4,330 336
(Decrease) increase in other current
liabilities (1,619) 144
(Increase) decrease in other non-current
assets (1,346) 1,372
Increase in other non-current liabilities 1,804 1,714
-------- --------
Net cash provided by operating activities 49,409 57,189
-------- --------
Cash flows from investing activities:
Capital expenditures (34,881) (35,406)
Cost of equity funds capitalized -- (23)
Other (3,540) (2,767)
-------- --------
Net cash used in investing activities (38,421) (38,196)
-------- --------
Cash flows from financing activities:
Common dividends paid (16,056) (8,010)
Preferred dividends paid (1,667) (1,429)
Long-term debt issued 19,816 --
Payments on capital lease obligation (267) (239)
Decrease in short-term borrowing (12,200) (7,800)
-------- --------
Net cash used in financing activities (10,374) (17,478)
-------- --------
Net increase in cash and temporary cash investments 614 1,515
Cash and temporary cash investments at beginning of
year 629 594
-------- --------
Cash and temporary cash investments at June 30 $ 1,243 $ 2,109
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of cost of borrowed funds
capitalized) $11,085 $10,623
Income taxes 9,276 12,062
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
</TABLE>
CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Introduction
The consolidated financial statements include the accounts of CILCORP
Inc. (CILCORP or Company), Central Illinois Light Company (CILCO),
Environmental Science & Engineering, Inc. (ESE) and CILCORP's other
subsidiaries after elimination of significant intercompany transactions.
CILCORP owns 100% of the common stock of CILCO. The consolidated
financial statements of CILCO include the accounts of CILCO and its
subsidiaries, CILCO Exploration and Development Company and CILCO Energy
Corporation.
The accompanying unaudited consolidated financial statements have been
prepared according to the rules and regulations of the Securities and
Exchange Commission (SEC). Although CILCORP believes the disclosures
are adequate to make the information presented not misleading, these
consolidated financial statements should be read with the consolidated
financial statements and related notes forming a part of the Company's
1994 Annual Report on Form 10-K. Prior year amounts have been
reclassified on a basis consistent with the 1995 presentation.
In the Company's opinion, the accompanying consolidated financial
statements reflect all normal and recurring adjustments necessary for a
fair presentation of the results of operations for the periods
presented. Operating results for interim periods are not necessarily
indicative of operating results to be expected for the year or of the
Company's future financial condition.
NOTE 2. Gas Pipeline Supplier Transition Costs
In 1992, the Federal Energy Regulatory Commission (FERC) issued Orders
636, 636A and 636B (collectively Order 636). Order 636 substantially
restructured the relationship between gas pipelines and distribution
companies, such as CILCO, for the sale, transportation and storage of
natural gas. These services, which traditionally had been "bundled"
by interstate pipeline companies, are now individually arranged by
CILCO. CILCO believes it is well-positioned to ensure the continued
acquisition of adequate and reliable gas supplies.
Order 636 also permitted pipeline suppliers to recover from gas
distribution companies prudently incurred transition costs attributed
to compliance with Order 636. As of June 30, 1995, pipeline suppliers
have billed CILCO, subject to refund, approximately $1.8 million of
transition costs, including interest. These charges have been, or
will be, recovered from CILCO's customers through its purchased gas
adjustment clause (PGA). The PGA allows CILCO to adjust customer
billings to reflect changes in the cost of natural gas. Presently,
CILCO cannot determine its actual allocation of suppliers' transition
costs but believes that it could ultimately be billed up to an
additional $2.1 million, excluding interest. During 1994, the
Illinois Commerce Commission (ICC) affirmed the right of Illinois gas
distribution companies to recover pipeline transition costs from their
customers; therefore, management does not expect Order 636 to
materially impact CILCO's financial position or results of operations.
CILCO has recorded a regulatory asset and corresponding liability of
$2 million on the Balance Sheets as of June 30, 1995, representing the
minimum amount of the estimated range of costs which CILCO expects to
incur related to transition costs. The current portion of this
regulatory asset and corresponding liability is $.5 million.
NOTE 3. Contingencies
Neither CILCORP, CILCO, nor any of their affiliates has been
identified as a potentially responsible party (PRP) under federal or
state environmental laws.
CILCO continues to investigate and/or monitor four former gas
manufacturing plant sites (Sites A, B, C and D) located within CILCO's
present gas service territory. The purpose of these studies is to
determine if waste materials, principally coal tar, are present,
whether such waste materials constitute an environmental or health
risk and if CILCO is responsible for the remediation of any remaining
waste materials at those sites. CILCO previously operated plants at
three of the four sites (Sites A, B and C) and currently owns two
(Sites A and B). In cooperation with the Illinois Environmental
Protection Agency, CILCO completed remedial action in 1991 at Site A,
at a cost of $3.3 million. In 1994, CILCO investigated Site B to
define the extent of waste materials on site. A risk assessment for
Site B is currently being developed, which will be followed by a
feasibility study of remedial alternatives in 1995. CILCO has paid to
date approximately $357,000 to outside parties for investigating,
testing and clean-up of Site B. CILCO has not yet formulated a
remediation plan for Site C. Until more detailed site specific
testing has been completed, CILCO cannot determine the ultimate extent
or cost of any remediation of Site C. CILCO does not currently own
Site D and has not yet determined the extent, if any, of its
remediation responsibility for this site.
CILCO expects to spend approximately $300,000 for former gas
manufacturing plant site monitoring, legal fees and feasibility
studies in 1995. A $4.7 million regulatory asset and a corresponding
liability are recorded on the Balance Sheets representing the minimum
amount of coal tar investigation and remediation costs CILCO expects
to incur. Coal tar remediation costs incurred through June 1995, have
been deferred on the Balance Sheets, net of amounts recovered from
customers.
Through June 30, 1995, CILCO has recovered approximately $3.9 million
in coal tar remediation costs from its customers through a gas rate
rider approved by the ICC. Currently, that rider allows recovery over
five years, without carrying costs, of prudently incurred coal tar
remediation expenses paid to outside vendors. The primary purpose of
the five-year recovery period without carrying costs, was to effect a
sharing of coal tar remediation costs between Illinois utilities and
their customers by disallowing rate recovery of carrying charges on
unrecovered balances. However, on April 20, 1995, the Illinois
Supreme Court held that Illinois utilities are entitled to recover
prudently incurred coal tar remediation costs without any sharing. On
June 20, 1995, the matter was remanded to the ICC for further
proceedings, consistent with the Illinois Supreme Court's decision.
The ICC has until December 20, 1995, to enter its final order in
response to the remand. Based upon the Court's opinion issued on
April 20, 1995, management continues to believe that the cost of coal
tar remediation will not have a material adverse effect on CILCO's
financial position or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CILCORP Inc. (the Company) is the parent of two core operating
businesses, Central Illinois Light Company (CILCO) and Environmental
Science & Engineering, Inc. (ESE). The Company also has two other
first-tier subsidiaries, CILCORP Investment Management Inc. (CIM), and
CILCORP Ventures Inc. (CVI), whose operations, combined with those of
the holding company (Holding Company) itself, are collectively referred
to herein as Other Businesses.
CILCO, the primary business subsidiary, is an electric and gas utility
serving customers in central and east central Illinois. CILCO's
financial condition and results of operations are currently the
principal factors affecting the Company's financial condition and
results of operations.
ESE is a national environmental consulting, analytical laboratory and
engineering firm serving governmental, industrial and commercial customers.
CIM invests in a diversified portfolio of long-term financial
investments which currently includes leveraged leases and energy-related
interests.
CVI invests in new ventures and the expansion of existing ventures in
environmental services, energy, biotechnology and health care.
Capital Resources & Liquidity
Declaration of dividends is at the discretion of the Board of Directors.
The Company's ability to declare and pay dividends is contingent upon
its receipt of dividend payments from its subsidiaries, business
conditions, earnings and the financial condition of the Company. The
Company believes that internal and external sources of capital which
are, or are expected to be, available to the Holding Company and its
subsidiaries will be adequate to meet the Company's capital expenditures
program, pay interest and dividends, meet working capital needs and
retire debt as it matures.
The Company
Short-term borrowing capability is available to the Company for
additional cash requirements. CILCORP's Board of Directors has
authorized it to borrow up to $50 million on a short-term basis. On
June 30, 1995, CILCORP had committed bank lines of credit of $50
million, of which $24 million was outstanding.
From March 20 through July 31, 1995, the Company issued 119,493 shares
of common stock at an average price of $36.16 per share through the
CILCORP Inc. Automatic Reinvestment and Stock Purchase Plan (DRIP) and
the CILCO Employees' Savings Plan (ESP). Depending on market
conditions, the Company may issue additional shares of common stock
through the DRIP, the ESP or through a conventional stock offering. The
proceeds from newly-issued stock will continue to be used to retire
CILCORP short-term debt, to meet working capital and capital expenditure
requirements at CILCO and for other corporate purposes.
At June 30, 1995, the Company had issued $48 million of medium-term
notes under its $75 million medium-term note program. The Company may
issue additional notes during 1995 through 1997 under this program to
retire maturing debt and to provide funds for other corporate purposes.
CILCO
Capital expenditures totaled $35 million for the six months ended
June 30, 1995, and are anticipated to be approximately $35 million for
the remainder of 1995. The installation of electric generating
equipment for a cogeneration plant at Midwest Grain Products, Inc. (MWG)
is complete. The plant, which began providing steam heat to MWG's
Pekin, Illinois, facility in December 1994, also began generating
electricity for distribution to CILCO's customers on June 8, 1995.
CILCO anticipates the total cost of the project to be approximately
$18.1 million. Capital expenditures for the years 1996 and 1997 are
estimated to be $64 million and $61 million, respectively.
On May 19, 1995, CILCO issued $20 million of secured medium-term notes
due May 19, 2025. The stated interest rate on the new notes is 7.73%.
These notes are redeemable at a premium after ten years and at par after
twenty years. The proceeds from the issuance of the notes will be used
to finance capital expenditures and to retire a portion of CILCO's
short-term debt.
CILCO plans to issue $16 million of secured medium-term notes to retire
outstanding long-term debt maturing in 1996. In addition, $25 million
of pollution control bonds are expected to be issued in 1996, to finance
pollution control facilities, including new solid waste disposal
facilities at CILCO's Duck Creek generating station. CILCO intends to
finance the remainder of its 1995 and 1996 capital expenditures with
funds provided by operations and capital provided by CILCORP.
At June 30, 1995, CILCO had bank lines of credit aggregating $30 million
which are used to support CILCO's issuance of commercial paper. CILCO
had $11.2 million of commercial paper outstanding at June 30, 1995, and
expects to issue commercial paper periodically throughout the remainder
of 1995.
ESE
For the six months ended June 30, 1995, ESE's expenditures for capital
additions and improvements were approximately $3.2 million. Capital
expenditures for the remainder of 1995 are expected to be approximately
$.9 million.
At June 30, 1995, ESE had borrowed $27.5 million from the Holding
Company, an increase of $1.9 million from December 31, 1994. ESE has a
$7.75 million bank line of credit, of which $4.4 million was outstanding
at June 30, 1995, to collateralize performance bonds issued in
connection with ESE projects. ESE expects to finance its capital
expenditures and working capital needs during 1995 with a combination of
funds generated internally and periodic short-term borrowings from the
Holding Company.
CIM
At June 30, 1995, CIM had outstanding debt of $26.6 million, consisting
of $23.6 million borrowed from the Holding Company and $3 million
borrowed from banks. CIM expects to finance new investments and working
capital needs during the remainder of 1995 with a combination of funds
generated internally and periodic short-term borrowings from the Holding
Company.
Results Of Operations
The following table summarizes net income of CILCO, ESE and Other
Businesses for the three months and six months ended June 30, 1995 and
1994.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Core businesses:
CILCO
Electric operating income $11,860 $12,887 $20,925 $21,430
Gas operating income (loss) 1,159 (683) 9,977 6,781
------- ------- ------- -------
Total utility operating income 13,019 12,204 30,902 28,211
Utility other income and deductions (5,945) (5,147) (11,746) (10,539)
Preferred stock dividends of CILCO (832) (726) (1,667) (1,429)
------- ------- ------- -------
Total utility net income 6,242 6,331 17,489 16,243
ESE
ESE net income (loss) (456) 826 (79) 477
------- ------- ------- -------
5,786 7,157 17,410 16,720
Other businesses:
Other businesses net (loss) (109) (217) (259) (78)
------- ------- ------- -------
Consolidated net income available
to common shareholders $ 5,677 $ 6,940 $17,151 $16,642
======= ======= ======= =======
</TABLE>
CILCO Electric Operations
The following table summarizes the components of CILCO electric operating
income for the three months and six months ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Components of Electric June 30, June 30,
Operating Income 1995 1994 1995 1994
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Electric retail $74,961 $75,090 $147,894 $145,095
Sales for resale 936 2,944 2,348 6,646
------- ------- -------- --------
Total revenue 75,897 78,034 150,242 151,741
------- ------- -------- --------
Cost of sales:
Cost of fuel 22,356 24,517 47,116 50,569
Purchased power expense 2,519 1,845 5,303 3,705
Revenue taxes 3,049 2,913 6,478 5,974
------- ------- -------- --------
Total cost of sales 27,924 29,275 58,897 60,248
------- ------- -------- --------
Gross margin 47,973 48,759 91,345 91,493
------- ------- -------- --------
Operating expenses:
Other operation and maintenance 19,206 18,249 38,288 37,934
Depreciation and amortization 10,239 9,887 20,452 19,775
Income and other taxes 6,668 7,736 11,680 12,354
------- ------- -------- --------
Total operating expenses 36,113 35,872 70,420 70,063
------- ------- -------- --------
Electric operating income $11,860 $12,887 $ 20,925 $ 21,430
======= ======= ======== ========
</TABLE>
Electric gross margin remained relatively constant for the quarter and
six months ended June 30, 1995, compared to the same periods in 1994,
mainly due to level retail kilowatt hour (Kwh) sales for these same
periods. Industrial sales increased 4% and 6% for the quarter and six
months ended June 30, 1995, respectively. Commercial sales were
relatively unchanged for the quarter and six months ended June 30, 1995,
respectively. Residential sales decreased 4% for the quarter and 5% for
the six months ended June 30, 1995, compared to the same periods in
1994. The decline in residential sales was primarily due to cooler
weather. Cooling degree days were 33% lower for both the quarter and
six months ended June 30, 1995, compared to the same periods in 1994.
CILCO's largest customer is Caterpillar Inc. On June 20, 1994,
Caterpillar employees, represented by the United Auto Workers Union,
began a strike at certain Caterpillar facilities in CILCO's service
territory. To date, the strike has not had an adverse effect on CILCO's
sales to Caterpillar. CILCO's management cannot predict what, if any,
impact a continued strike at Caterpillar will have on CILCO's future
revenues or earnings.
The overall level of business activity in CILCO's service territory and
weather conditions will continue to be the primary factors affecting
electric sales in the near term. CILCO's electric sales may be affected
in the long-term by increased competition in the electric utility
industry (see Part II. Item 5: Electric Competition).
Sales for resale decreased during the quarter and six months ended
June 30, 1995, due to lower demand for electricity from neighboring
utilities. Sales for resale vary based on the energy requirements of
neighboring utilities, CILCO's available capacity for bulk power sales
and the price of power available for sale. CILCO expects increased
competition in the sales for resale and purchased power markets.
Substantially all of CILCO's electric generating capacity is coal-fired.
The cost of fuel declined 9% during the quarter and 7% for the six
months ended June 30, 1995, compared to the same periods in 1994. The
decrease was due to lower electric generation by CILCO and reduced coal
prices.
Purchased power expense increased for the three and six months ended
June 30, 1995, compared to the same periods in 1994 due to readily
available and reasonably priced wholesale energy, plant maintenance
outages and increased capacity charges. Purchased power expense varies
based on CILCO's need for energy and the price of power available for
purchase. CILCO makes use of purchased power when it is economical to
do so and when required during maintenance outages at CILCO plants.
Cost fluctuations related to the purchase of power are passed through to
CILCO's customers via the fuel adjustment clause (FAC). The FAC allows
CILCO to pass increases or decreases in the cost of fuel through to
customers.
Other operation and maintenance expenses increased 5% for the quarter
ended June 30, 1995, compared to the same period in 1994. The increase
for the second quarter was primarily due to increased power plant
maintenance expenses, overhead line expenses, information systems
software expenses, production maintenance expenses at Midwest Grain
Products, Inc. and injury and damage claims reserve. Decreased employee
benefit costs partially offset the increase. Other operation and
maintenance expenses remained relatively constant for the six months
ended June 30, 1995, compared to 1994.
Depreciation and amortization expense increased, reflecting additions
and replacements of utility plant at costs in excess of the original
cost of the property retired.
Income and other tax expense decreased mainly due to lower pre-tax
operating income.
CILCO Gas Operations
The following table summarizes the components of CILCO gas operating
income (loss) for the three months and six months ended June 30, 1995
and 1994:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Components of Gas Operating June 30, June 30,
Income (loss) 1995 1994 1995 1994
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Sale of gas $22,783 $21,439 $78,951 $89,848
Transportation services 1,832 2,032 4,546 5,302
------- ------- ------- -------
Total revenue 24,615 23,471 83,497 95,150
------- ------- ------- -------
Cost of sales:
Cost of gas 9,640 11,413 38,747 54,359
Revenue taxes 1,206 1,303 4,320 4,998
------- ------- ------- -------
Total cost of sales 10,846 12,716 43,067 59,357
------- ------- ------- -------
Gross margin 13,769 10,755 40,430 35,793
------- ------- ------- -------
Operating expenses:
Other operation and maintenance 8,033 8,016 16,266 17,062
Depreciation and amortization 3,932 4,015 7,865 7,879
Income and other taxes 645 (593) 6,322 4,071
------- ------- ------- -------
Total operating expenses 12,610 11,438 30,453 29,012
------- ------- ------- -------
Gas operating income (loss) $ 1,159 $ (683) $ 9,977 $ 6,781
======= ======= ======= =======
</TABLE>
Gas gross margin increased 28% and 13% for the quarter and six months
ended June 30, 1995, compared to the same periods in 1994. Retail sales
increased 16% for the quarter and decreased 3% for the six months ended
June 30, 1995, compared to the same periods in 1994. Residential sales
increased 14% for the quarter and decreased 5% for the six months ended
June 30, 1995, compared to the same periods in 1994. Commercial sales
increased 16% for the quarter and remained relatively constant for the
six months ended June 30, 1995, compared to the corresponding periods in
1994. Heating degree days were 17% higher for the quarter and 5% lower
for the six months ended June 30, 1995, compared to the same periods in
1994. Gross margin was positively affected by the December 1994 rate
order that increased overall gas base rates approximately 6.7%. For
additional rate information, refer to Note 9. Rate Matters in the
Company's 1994 Annual Report on Form 10-K. The overall level of
business activity in CILCO's service territory and weather conditions
will continue to be the primary factors affecting gas sales.
Revenue from gas transportation services decreased 10% and 14%, and
sales volumes decreased 7% and 10%, for the quarter and six months ended
June 30, 1995, compared to the same period in 1994. Revenue declined
primarily due to decreased purchases of gas by industrial transportation
customers from suppliers other than CILCO and the fact that there are
fewer transportation customers. There were 380 transportation customers
at June 30, 1995, compared to 666 transportation customers at the end of
the same quarter in 1994. As a result of CILCO's new gas tariffs,
CILCO's system rates are more competitive with transportation rates and
various transportation customers have resumed purchasing gas from CILCO.
The cost of gas decreased 16% and 29% for the quarter and six months
ended June 30, 1995, compared to the corresponding periods in 1994. The
decrease for the quarter resulted from lower natural gas prices,
partially offset by increased sales. The reduction for the six months
ended June 30, 1995, was principally due to decreased sales and lower
natural gas prices from CILCO's suppliers. The lower natural gas prices
were passed through to CILCO's gas customers via the PGA. The PGA is the
mechanism used to pass increases or decreases in the cost of natural gas
through to customers.
Other operation and maintenance expenses remained relatively constant
for the quarter and decreased 5% for the six months ended June 30, 1995,
compared to the same periods in 1994. The decrease for the six months
was primarily due to decreased employee benefit costs. Increased
outside services expenses from an audit of CILCO's gas operations (see
Part II. Item 5: Audit of CILCO's Gas Operations) and higher gas
maintenance expenses partially offset the decrease.
Depreciation and amortization expense decreased due to a $6.4 million
reduction of utility plant. This reduction resulted from a rate base
disallowance recorded in 1994 as part of CILCO's gas rate case. For
additional information, refer to Note 9. Rate Matters in the Company's
1994 Annual Report on Form 10-K. Additions and replacements of utility
plant at prices in excess of the original cost of the property retired
partially offset the decrease.
Income and other taxes expense increased for the quarter and six months
ended June 30, 1995, primarily due to higher pre-tax operating income.
CILCO Other Income and Deductions and Interest Expense
The following table summarizes other income and deductions and interest
expense for the three months and six months ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Components of Other Income and June 30, June 30,
Deductions and Interest Expense 1995 1994 1995 1994
(In thousands)
<S> <C> <C> <C> <C>
Net interest expense $(5,861) $(4,933) $(11,675) $ (9,911)
Income taxes 540 391 1,105 670
Other (624) (605) (1,176) (1,298)
------- ------- -------- --------
Other income (deductions) $(5,945) $(5,147) $(11,746) $(10,539)
======= ======= ======== ========
</TABLE>
Interest expense increased primarily as a result of a settlement with
the Illinois Department of Revenue related to an audit of the Illinois
gross receipts tax and a higher outstanding notes payable balance during
1995.
CILCO's Early Retirement Incentive Program
In a continuing effort to better position itself for competition in the
energy services industry (see Part II. Item 5: Electric Competition),
CILCO made available in July 1995, Voluntary Early Retirement Incentive
Programs (programs) to eligible employees. Elections to participate are
due by November 6, 1995, with retirements effective January 1, 1996.
The program offered to the International Brotherhood of Electrical
Workers (IBEW) is based upon an agreement made between CILCO and the
union. The International Brotherhood of Firemen and Oilers (IBF&O)
program is still subject to negotiation (see Part II. Item 5: CILCO's
Union Contracts). Another program was offered to all management, office
and technical workers. CILCO currently has 1,531 full-time employees of
which 257 are eligible for these programs. Management expects the
programs to generate an after-tax charge of approximately $5.2 million
against fourth quarter 1995 earnings and to generate an annual after-tax
cost reduction of approximately $2.7 million beginning in 1996. The
annual after-tax charge would increase along with the annual after-tax
cost reduction if a greater than anticipated number of eligible
employees accepts the early retirement offer.
ESE Operations
The following table summarizes the components of the environmental and
engineering services results for the three months and six months ended
June 30, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Components of ESE Net Income (Loss) June 30, June 30,
1995 1994 1995 1994
(In thousands)
<S> <C> <C> <C> <C>
Environmental and engineering
services revenue $30,199 $33,832 $64,873 $63,216
Direct non-labor project costs 10,657 13,305 24,617 23,718
------- ------- ------- -------
Net revenue 19,542 20,527 40,256 39,498
------- ------- ------- -------
Expenses:
Direct salaries and other costs 10,167 9,928 20,315 19,392
General and administrative 7,990 7,276 15,798 15,335
Depreciation and amortization 1,416 1,455 2,859 2,949
------- ------- ------- -------
Operating expenses 19,573 18,659 38,972 37,676
------- ------- ------- -------
Interest expense 535 397 1,046 802
------- ------- ------- -------
Income (loss) before income taxes (566) 1,471 238 1,020
Income taxes (110) 645 317 543
------- ------- ------- -------
ESE net income (loss) $ (456) $ 826 $ (79) $ 477
======= ======= ======= =======
</TABLE>
ESE's results have fluctuated from quarter to quarter since its
acquisition in 1990. Such fluctuations may be expected to continue.
Factors influencing such variations include: project delays, which may
be impacted by regulatory agency approvals or client considerations; the
level of subcontractor services; weather, which may limit the amount of
time ESE professionals have in the field; and the initial training of
new professionals. Accordingly, results for any one quarter are not
necessarily indicative of results for any other quarter or for the year.
ESE incurs substantial direct project costs from the use of
subcontractors on projects. These costs are passed directly through to
ESE's clients. As a result, ESE measures its operating performance on
the basis of net revenues, which are determined by deducting such direct
project costs from gross revenues.
Net revenues decreased by 5% for the second quarter and were relatively
unchanged for the six months ended June 30, 1995, compared to the same
periods in 1994. The net revenue decrease for the second quarter of
1995 primarily resulted from changes in regulatory requirements of many
states, funding delays at the federal level, increased competition in
the market for laboratory services and a cost overrun on a single fixed-
price project. ESE is not currently pursuing, and is reevaluating its
approach to, projects of this type and size.
ESE's future operating results may be affected by a number of factors
which have softened the marketplace for several of ESE's traditional
lines of business. These factors include significant changes in
regulatory requirements (cleanup standards), changes in the level of
funding of government financed projects and increased price competition
in the laboratory business. Revenue and earnings growth has been, and
will continue to be, impacted by increased competitive pressures on
pricing in both the government and private sectors.
ESE continues to position itself for competition in a continually
changing business climate by evaluating its traditional business lines
and expanding into new markets (see Part II. Item 5: ESE New Subsidiary
contained herein and Part I. Item 1: Description of Business of ESE in
the Company's 1994 Annual Report on Form 10-K).
Direct and indirect salary expense increased slightly for the second
quarter and 5% for the six months ended June 30, 1995, compared to the
same periods in 1994. These increases are primarily due to wage and
salary increases effective March 1995.
General and administrative expenses increased by 10% for the quarter and
3% for the six months ended June 30, 1995, compared to the corresponding
periods in 1994. These increases are attributable to higher travel-
related costs and higher salary and related employee benefits expense
resulting from wage increases effective in March 1995. The labor-
intensive nature of ESE's business, allows it to adjust staffing levels,
and management will make such adjustments, so as to appropriately
reflect the changing business climate. ESE had 1,224 full-time
equivalent employees at June 30, 1995, compared to 1,239 at
June 30, 1994.
ESE's interest expense increased for the quarter and six months ended
June 30, 1995, compared to the same periods in 1994. This increase was
due to higher interest rates and higher average outstanding balances on
ESE's short-term line of credit.
Other Businesses' Operations
The following table summarizes the components of Other Businesses'
(loss) for the three months and six months ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Components of Other Businesses' June 30, June 30,
Net (Loss) 1995 1994 1995 1994
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Other revenue $1,707 $1,742 $4,382 $4,161
------ ------ ------ ------
Expenses:
Operating expenses 457 1,038 1,603 2,347
Depreciation and amortization 49 49 97 96
Interest expense 1,491 758 3,083 1,553
Income and other taxes (181) 114 (142) 243
------ ------ ------ ------
Total expenses 1,816 1,959 4,641 4,239
------ ------ ------ ------
Other businesses' net (loss) $ (109) $ (217) $ (259) $ (78)
====== ====== ====== ======
</TABLE>
Other revenues were relatively unchanged for the second quarter of 1995,
compared to the second quarter of 1994. Other revenues were 5% greater
for the six months ended June 30, 1995, compared to the corresponding
time period for 1994, primarily due to a one-time preferred dividend in
the first quarter of 1995 on a CVI investment and revenues generated by
CILCORP Energy Services Inc., a wholly-owned CVI subsidiary, which
primarily markets carbon monoxide detectors to utilities for resale.
These revenues were partially offset by declining leveraged lease
income. Under generally accepted accounting principles pertaining to
leveraged leases, income declines as the lease portfolio matures.
Operating expenses were lower for the three months and six months ended
June 30, 1995, compared to the corresponding periods in 1994, primarily
due to several one-time charges during the first and second quarters of
1994 at the Holding Company, including CILCORP's termination of a lease
at an ESE facility. The lease was entered into during negotiations
which led to CILCORP's 1990 acquisition of ESE.
Interest expense increased in the three months and six months ended
June 30, 1995, compared to the corresponding periods in 1994, as a
result of an increase in long-term debt incurred to fund operations of
subsidiaries other than CILCO.
Income and other taxes were lower in the first quarter of 1995, compared
to the first quarter of 1994, primarily due to lower pre-tax income.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Reference is made to "Environmental Matters" under "Item 1. Business"
in the Company's 1994 Annual Report on Form 10-K and "Note 3.
Contingencies," herein, for certain pending legal proceedings and
proceedings known to be contemplated by governmental authorities.
The Company and its subsidiaries are subject to certain claims and
lawsuits in connection with work performed in the ordinary course of
their businesses. Except as otherwise disclosed or referred to in this
section, in the opinion of management, all such claims currently pending
either will not result in a material adverse effect on the financial
position and results of operations of the Company or are adequately
covered by: (i) insurance; (ii) contractual or statutory
indemnification; and/or (iii) reserves for potential losses.
CILCO
On July 6, 1994, a lawsuit was filed against CILCO in a United States
District Court by the current property owner, Vector-Springfield
Properties, Ltd., seeking damages related to alleged coal tar
contamination from a gas manufacturing plant. Currently, discovery is
being undertaken. CILCO never owned or operated the plant but later
owned a portion of the site (Site D). The lawsuit seeks cost recovery
of more than $3 million related to coal tar investigation expenses,
operating losses and diminution of market value. CILCO is vigorously
defending these claims. For a further discussion of gas manufacturing
plant sites, refer to Note 3. Contingencies. Management cannot
currently determine the outcome of this litigation, but does not believe
it will have a material adverse impact on CILCO's financial position or
results of operations.
ESE
At the request of the South Carolina Department of Health and
Environmental Control, the U. S. Department of Justice initiated an
investigation into an alleged record-keeping violation at an office
operated by ESE in Greenville, South Carolina. The office was closed in
May 1993. Following its investigation, the U. S. Department of Justice
referred this matter to the Attorney General of South Carolina for
disposition as a civil matter. Management does not believe this matter
will have a material adverse impact on the Company's financial position
or results of operations.
Item 5: Other Information
Public Utility Holding Company Act
In June 1995, the SEC issued a report, "The Regulation of Public-Utility
Holding Companies," which contained its recommendations as to the future
of the Public Utility Holding Company Act (Act). The SEC's
recommendations are of two types: legislative recommendations for
Congress to consider and proposals for SEC administrative reform of the
Act. Three legislative recommendations are contained within the report:
conditional repeal of the Act; unconditional repeal of the Act; and
broader exemptive authority. Hearings on proposed legislative changes
began August 4, 1995, before a subcommittee of the Energy and Commerce
Commission of the U. S. House of Representatives. The Company will
continue to monitor these legislative proposals as well as
administrative changes undertaken by the SEC.
Electric Competition
The National Energy Policy Act of 1992 encourages competition but
specifically bans federally-mandated wheeling of power for retail
customers. However, several state public utility regulatory
commissions are investigating or adopting pilot programs to initiate
retail wheeling. At present, incentive regulation is being
implemented, or considered by public utility commissions in over
twenty states. Utilities may benefit or lose depending upon their
ability to reduce costs and improve efficiency.
Illinois Senate Bill 232 was signed by the governor on July 21, 1995,
becoming Public Act 89-0194. The new law offers gas and electric public
utilities an opportunity to develop alternative regulation and
performance-based ratemaking programs by petitioning the ICC. These
experimental programs will be subject to standards established by the
ICC and restricted to the public utility's service territory. In
addition, the programs will not extend beyond June 30, 2000. A report
on the results of the programs will be delivered to the Illinois
legislature by December 31, 2000. Programs developed under the law may
become effective January 1, 1996, with the ICC's approval.
CILCO participated in a state-wide "Regulatory Initiatives Task Force"
(RITF) to review and analyze regulation in Illinois. The RITF, which
examined the status of past and future regulation, presented eight
potential competitive scenarios with individual comments from each
task force participant as part of its study. The completed text
describing this study was printed and provided to the ICC and the
Illinois legislature for educational and planning purposes.
Legislation was introduced in the Illinois General Assembly in the
spring of this year to provide, among other things, an option for
electric utilities to lease their generating plants to a subsidiary or
other affiliated company, to provide for retail wheeling for larger
electric customers within five years, to provide experimental retail
wheeling for smaller electric customers, to create a new class or
status of "competitive" customers that are permitted to negotiate
service contracts with their electric utility suppliers without
regulatory oversight and to provide for alternative regulation similar
to that contained in Public Act 89-0194. The proposed legislation was
supported by at least one major electric utility in Illinois and by a
group of Illinois industrial customers. The legislation was not
adopted by this year's session of the legislature. Instead, the
legislature passed Senate Joint Resolution 21 (SJR 21) on
May 25, 1995, creating the Joint Committee on Electric Utility
Regulatory Reform (Committee) to study deregulation and increased
competition in the provision of electric service in Illinois. The
Committee will review reports and studies from a diverse group of
organizations. A technical advisory group comprised of
representatives from the ICC and various companies, including CILCO,
will conduct research and offer testimony. SJR 21 specifically
requires the Committee to consider the legislative proposal described
at the beginning of this paragraph as a "key element" in its
deliberations. A series of workshops will be held to facilitate the
Committee's progress. A preliminary report, including specific
legislative proposals, is required to be submitted to the Illinois
legislature by December 1, 1995; the final legislative package is due
on or before November 8, 1996.
On March 29, 1995, the FERC initiated a Notice of Proposed Rulemaking
(NOPR), which addresses expanded transmission access, recovery of
stranded investment due to increased wholesale competition,
information sharing and other issues related to expanded competition
in the electric utility industry. The FERC's NOPR seeks comments on
proposals concerning transaction coordination, record-keeping,
reporting, tariffs, state-versus-federal jurisdiction and many other
related topics. CILCO is reviewing the NOPR to determine its effect
on operations and to develop a strategy for dealing with its
provisions.
In July 1995, CILCO filed comments with the FERC on its proposal to
mandate real-time information networks (RINs). These comments address
the implementation of costly programs, such as RINs, which place a
disproportionate cost burden on smaller competitive utilities, such as
CILCO, which have fewer wholesale transactions of lesser value. In
August 1995, CILCO filed comments with the FERC on its proposal to
require open access to electric transmission networks and its stranded
cost subsidy proposal. CILCO suggests that only partial and not full
recovery of stranded costs should be permitted during a limited term.
CILCO intends to be an active participant in the new competitive
markets and intends to file open access tariffs consistent with those
included in the NOPR.
With the proposed changes in the regulatory environment and the
potential for increased competition in the electric utility industry
at both the wholesale and retail levels, CILCO anticipates changes in
the manner in which the industry operates in the years to come.
Management cannot predict the ultimate effect of these changes, but
believes that, at a minimum, larger customers may have increased
opportunities to select the electric supplier of their choice and that
low operating costs and improved efficiency will be key competitive
factors for electric utilities. CILCO management continues to
position itself for competition by keeping its costs and prices low,
maintaining good customer relations and developing the flexibility to
respond directly to individual customer requirements.
CILCO's Electric Least Cost Plan
The Illinois statute governing public utilities requires the ICC to
review and adopt electric least cost energy plans (LCPs) for public
utilities. In general, CILCO's LCP consists of customer demand
forecasts and the projected resources that CILCO will rely upon to
meet that demand. The planning horizon is twenty years, and the LCP
is reviewed by the ICC every three years.
CILCO filed its most recent electric LCP on June 30, 1995; the ICC is
required to make a decision on whether to adopt this or a modified
plan after an eleven-month public hearing process. This LCP contains
several existing Demand Side Management (DSM) programs, including
interruptible and standby generation rates, residential heat pumps,
commercial audits and the "In Concert With The Environment" program.
The new plan also proposes to add four new DSM programs to help meet
system load growth anticipated over the planning period. These
include new interruptible contracts, new standby generation contracts,
air conditioning cycling and targeted thermal storage cooling
programs. Three new informational programs are also proposed,
including new construction efficiency, motor efficiency and commercial
lighting efficiency programs. Based on a preliminary assessment,
electric DSM programs are projected to reduce CILCO's peak demand by
137 MW over the twenty-year planning horizon.
Audit Of CILCO's Gas Operations
In September 1994, as part of a settlement arrangement with the U.S.
Department of Justice, CILCO agreed to underwrite the reasonable expense
of an outside expert, selected by the ICC, to examine CILCO's gas
operations manuals and systems to ensure they comply with all applicable
statutes and regulations. CILCO estimates the cost of the audit will be
$350,000 and expects the audit to conclude by the end of 1995. For
additional information refer to Note 9. Rate Matters in the Company's
1994 Annual Report on Form 10-K.
CILCO Sale Of R. S. Wallace Station
In 1994, CILCO entered into an option agreement to sell for
$7 million the 95-acre site of the former R. S. Wallace Station, a
retired electric generating plant. On January 5, 1995, the ICC
approved the sale and the accounting treatment of the proceeds.
Various significant terms and conditions must be satisfied in order
for the sale to be completed. If such terms and conditions are
satisfied, CILCO expects a portion of the sale will be completed in
1995, with the remainder to be completed during 1996 and 1997. Gain
on the sale would be included in other income during 1995, 1996 and
1997.
CILCO's Coal Contract Arbitration
Freeman United Coal Mining Company (Freeman), a coal supplier with
whom CILCO has a long-term contract, notified CILCO of its intent to
calculate charges related to post-retirement benefits other than
pensions (SFAS 106) on the accrual basis and include them in its
billings to CILCO based upon a 1986 Coal Supply Agreement. This is a
change from the cash method of billing for these expenses. Freeman
has billed CILCO an additional $5.1 million for SFAS 106 charges for
the period from January 1, 1993, through June 30, 1995. CILCO
anticipates that Freeman will continue to bill CILCO on the accrual
basis for SFAS 106 expenses. Based upon the language of a 1992
settlement agreement between CILCO and Freeman, CILCO believes it is
responsible for paying these SFAS 106 expenses on a cash basis rather
than on an accrual basis. To date, no liability for these charges
has been recorded and no payments have been remitted to Freeman.
This issue has been submitted to arbitration.
CILCO believes that any additional charges which may be paid to
Freeman are properly recoverable through the fuel adjustment clause.
Management cannot currently determine the outcome of this
arbitration, but does not believe it will have a material adverse
impact on CILCO's financial position or results of operations.
CILCO's Union Contracts
CILCO is presently engaged in contract negotiations with one of its
unions, the IBF&O. The IBF&O agreed to extend its current contract
which expired June 30, 1995, on a day-to-day basis with the right of
either party to give a ten-day advance notice to terminate the contract.
The next contract negotiation meeting is scheduled for August 10, 1995.
A two-year contract with the IBEW members was ratified effective
July 1, 1995.
ESE New Subsidiary
ESE formed a wholly-owned subsidiary on May 4, 1995, to engage in the
business of removal of unexploded ordnance and related waste from
contaminated sites. Employees of this subsidiary are primarily former
military personnel who have been trained in unexploded ordnance
procedures. ESE's initial equity investment in the subsidiary is
$100,000.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial data schedules
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the regis-
trant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CILCORP Inc.
(Registrant)
Date August 10, 1995 R. O. Viets
R. O. Viets
President and
Chief Executive Officer
Date August 10, 1995 J. L. Barnett
J. L. Barnett
Controller
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the regis-
trant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL ILLINOIS LIGHT COMPANY
(Registrant)
Date August 10, 1995 T. S. Romanowski
T. S. Romanowski
Vice President and Chief
Financial Officer
Date August 10, 1995 R. L. Beetschen
R. L. Beetschen
Controller and Manager
of Accounting
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<LONG-TERM-DEBT-NET> 330,696
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<CAPITAL-LEASE-OBLIGATIONS> 3,214
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<NAME> CENTRAL ILLINOIS LIGHT COMPANY
<MULTIPLIER> 1,000
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<LONG-TERM-DEBT-NET> 282,378
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