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 September 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 November 6, 1995 13,265,509
CENTRAL ILLINOIS LIGHT COMPANY
Common stock, no par value,
shares outstanding and privately
held by CILCORP Inc. at November 6, 1995 13,563,871
CILCORP INC.
AND
CENTRAL ILLINOIS LIGHT COMPANY
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 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 13-14
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
CILCORP Inc. and Central Illinois Light Company 15-26
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 27
Item 5: Other Information 27-32
Item 6: Exhibits and Reports on Form 8-K 32
Signatures 33-34
<PAGE>
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
ASSETS (Unaudited)
<C> <C>
Current assets:
Cash and temporary cash investments $ 5,575 $ 1,604
Receivables, less reserves of $2,378 and $2,291 60,813 55,779
Accrued unbilled revenue 31,724 40,474
Fuel, at average cost 9,879 14,765
Materials and supplies, at average cost 17,929 17,173
Gas in underground storage, at average cost 17,197 17,484
Prepayments and other 11,035 12,402
---------- ----------
Total current assets 154,152 159,681
---------- ----------
Investments and other property:
Investment in leveraged leases 125,627 120,961
Cash surrender value of company-owned life
insurance, net of related policy loans of
$32,591 and $28,831 1,982 1,637
Other investments 3,745 3,790
---------- ----------
Total investments and other property 131,354 126,388
---------- ----------
Property, plant and equipment:
Utility plant, at original cost
Electric 1,108,228 1,092,382
Gas 368,971 355,270
---------- ----------
1,477,199 1,447,652
Less - accumulated provision for depreciation 683,537 653,571
---------- ----------
793,662 794,081
Construction work in progress 82,928 71,105
Plant acquisition adjustments, being amortized
to 1999 2,821 3,355
Other, net of depreciation 23,296 23,152
---------- ----------
Total property, plant and equipment 902,707 891,693
---------- ----------
Other assets:
Prepaid pension expense 11,720 13,423
Cost in excess of net assets of acquired
businesses, net of accumulated amortization of
$4,117 and $3,589 24,020 24,548
Other 23,754 22,651
---------- ----------
Total other assets 59,494 60,622
---------- ----------
Total assets $1,247,707 $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>
September 30, December 31,
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 19,037 $ 21,200
Notes payable 34,935 29,400
Accounts payable 37,732 51,952
Accrued taxes 9,658 7,729
Accrued interest 4,100 9,024
Purchased gas adjustment over-recoveries 2,121 2,142
Other 15,113 16,557
---------- ----------
Total current liabilities 122,696 138,004
---------- ----------
Long-term debt 330,697 326,695
---------- ----------
Deferred credits and other liabilities:
Deferred income taxes 249,034 246,815
Net regulatory liability of regulated subsidiary 56,775 59,997
Deferred investment tax credit 24,908 26,178
Customers' advances for construction and other 32,751 29,860
---------- ----------
Total deferred credits 363,468 362,850
---------- ----------
Preferred stock of subsidiary 66,120 66,120
---------- ----------
Stockholders' equity:
Common stock, no par value; authorized
50,000,000 shares - outstanding 13,247,104 and
13,035,756 shares 175,567 167,987
Retained earnings 189,159 176,728
---------- ----------
Total stockholders' equity 364,726 344,715
---------- ----------
Total liabilities and stockholders' equity $1,247,707 $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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenue:
Electric $104,201 $92,749 $254,443 $244,490
Gas 17,834 15,393 101,331 110,543
Environmental and engineering
services 33,424 35,204 98,296 98,420
Other businesses 2,115 2,508 6,580 6,983
-------- -------- -------- --------
Total 157,574 145,854 460,650 460,436
-------- -------- -------- --------
Operating expenses:
Fuel for generation and
purchased power 27,773 27,565 80,192 81,839
Gas purchased for resale 5,342 5,712 44,089 60,071
Other operations and maintenance 58,791 60,619 174,908 174,685
Disallowed plant cost of regulated
subsidiary -- 4,636 -- 4,636
Depreciation and amortization 16,123 15,558 47,753 46,614
Taxes, other than income taxes 9,305 8,890 29,083 28,388
-------- -------- -------- --------
Total 117,334 122,980 376,025 396,233
-------- -------- -------- --------
Fixed charges and other:
Interest expense 7,310 6,889 22,218 19,639
Preferred stock dividends
of subsidiary 833 761 2,500 2,190
Allowance for funds used during
construction (10) (154) (307) (323)
Other 76 220 461 492
-------- -------- -------- --------
Total 8,209 7,716 24,872 21,998
-------- -------- -------- --------
Income before income taxes 32,031 15,158 59,753 42,205
Income taxes 12,596 5,588 23,169 15,993
-------- -------- -------- --------
Net income available for
common stockholders $ 19,435 $ 9,570 $ 36,584 $ 26,212
======== ======== ======== ========
Average common shares outstanding 13,191 13,036 13,104 13,023
Net income per common share $ 1.47 $ .73 $ 2.79 $ 2.01
Dividends per common share $ .615 $ .615 $ 1.845 $ 1.845
<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>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $39,084 $28,403
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash lease income and investment income (4,984) (4,911)
Disallowed plant cost of regulated subsidiary -- 4,636
Depreciation and amortization 47,753 46,614
Deferred income taxes, investment tax credit and
regulatory liability of subsidiary, net (2,273) 3,394
Changes in operating assets and liabilities:
Decrease in accounts receivable and accrued
unbilled revenue 3,716 6,687
Decrease (increase) in inventories 4,417 (3,477)
Decrease in accounts payable (14,220) (537)
Increase in accrued taxes 1,929 1,372
Decrease in other assets 2,152 944
Decrease in other liabilities (3,498) (5,844)
------- -------
Total adjustments 34,992 48,878
------- -------
Net cash provided by operating activities 74,076 77,281
------- -------
Cash flows from investing activities:
Additions to plant (55,601) (63,557)
Proceeds from sale of long-term investments 872 575
Other (3,678) 3,202
------- -------
Net cash used in investing activities (58,407) (59,780)
------- -------
Cash flows from financing activities:
Net increase in short-term debt 5,535 8,100
Increase in long-term debt 19,766 --
Repayment of long-term debt (17,927) (157)
Common dividends paid (24,152) (24,053)
Preferred dividends paid (2,500) (2,190)
Proceeds from issuance of stock 7,580 2,325
------- -------
Net cash used in financing activities (11,698) (15,975)
------- -------
Net increase in cash and temporary cash
investments 3,971 1,526
Cash and temporary cash investments at beginning
of year 1,604 1,440
------- --------
Cash and temporary cash investments at
September 30 $ 5,575 $ 2,966
======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $26,153 $24,852
Income Taxes 20,434 12,172
<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>
September 30, December 31,
ASSETS 1995 1994
(Unaudited)
<S> <C> <C>
Utility plant, at original cost:
Electric $1,108,228 $1,092,382
Gas 368,971 355,270
---------- ----------
1,477,199 1,447,652
Less - accumulated provision for depreciation 683,537 653,571
---------- ----------
793,662 794,081
Construction work in progress 82,928 71,105
Plant acquisition adjustments, net of
amortization 2,821 3,355
---------- ----------
Total utility plant 879,411 868,541
---------- ----------
Other property and investments:
Cash surrender value of company-owned life
insurance (net of related policy loans of
$32,591 and $28,831) 1,982 1,637
Other 1,096 1,041
---------- ----------
Total other property and investments 3,078 2,678
---------- ----------
Current assets:
Cash and temporary cash investments 650 629
Receivables, less reserves of $640 and $600 36,802 30,543
Accrued unbilled revenue 16,034 22,340
Fuel, at average cost 9,879 14,765
Materials and supplies, at average cost 16,519 16,731
Gas in underground storage, at average cost 17,197 17,484
Other 8,544 7,217
---------- ----------
Total current assets 105,625 109,709
---------- ----------
Deferred debits:
Unamortized loss on reacquired debt 6,143 6,486
Unamortized debt expense 2,317 2,212
Prepaid pension cost 11,720 13,423
Other 14,464 13,957
---------- ----------
Total deferred debits 34,644 36,078
---------- ----------
Total assets $1,022,758 $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>
September 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 142,831 122,125
---------- ----------
Total common shareholder's equity 328,492 307,786
Preferred stock without mandatory redemption 44,120 44,120
Preferred stock with mandatory redemption 22,000 22,000
Long-term debt 282,388 278,359
---------- ----------
Total capitalization 677,000 652,265
---------- ----------
Current liabilities:
Current maturities of long-term debt 16,000 --
Notes payable 15,500 23,400
Accounts payable 33,477 47,536
Accrued taxes 2,796 4,284
Accrued interest 4,130 8,477
PGA over-recoveries 2,121 2,142
Level payment plan 1,173 4,155
Other 4,478 6,809
---------- ----------
Total current liabilities 79,675 96,803
---------- ----------
Deferred liabilities and credits:
Accumulated deferred income taxes 151,581 151,856
Regulatory liability, net 56,775 59,997
Investment tax credits 24,908 26,178
Capital lease obligation 3,120 2,665
Other 29,699 27,242
---------- ----------
Total deferred liabilities and credits 266,083 267,938
---------- ----------
Total capitalization and liabilities $1,022,758 $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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Operating revenues:
Electric $104,201 $ 92,749 $254,443 $244,490
Gas 17,834 15,393 101,331 110,543
-------- -------- -------- --------
Total operating revenues 122,035 108,142 355,774 355,033
-------- -------- -------- --------
Operating expenses:
Cost of fuel 23,667 25,071 70,783 75,640
Cost of gas 5,342 5,712 44,089 60,071
Purchased power 4,106 2,494 9,409 6,199
Other operation and maintenance 27,651 27,270 82,205 82,266
Depreciation and amortization 14,488 13,852 42,805 41,506
Income taxes 12,437 7,709 24,057 18,129
Other taxes 8,217 7,807 25,397 24,784
-------- -------- -------- --------
Total operating expenses 95,908 89,915 298,745 308,595
-------- -------- -------- --------
Operating income 26,127 18,227 57,029 46,438
Other income and deductions:
Cost of equity funds capitalized -- -- -- 23
Company-owned life insurance, net (76) (220) (461) (492)
Disallowed plant cost -- (4,636) -- (4,636)
Income tax reduction for disallowed
plant cost -- 1,840 -- 1,840
Other, net (116) (981) (16) (1,023)
-------- -------- -------- --------
Total other income and
(deductions) (192) (3,997) (477) (4,288)
-------- -------- -------- --------
Income before interest expenses 25,935 14,230 56,552 42,150
-------- -------- -------- --------
Interest expenses:
Interest on long-term debt 5,242 4,809 14,992 14,413
Cost of borrowed funds capitalized (10) (154) (307) (300)
Other 597 589 2,605 1,379
-------- -------- -------- --------
Total interest expenses 5,829 5,244 17,290 15,492
-------- -------- -------- --------
Net income 20,106 8,986 39,262 26,658
-------- -------- -------- --------
Dividends on preferred stock 833 761 2,500 2,190
-------- -------- -------- --------
Net income available for common stock $ 19,273 $ 8,225 $ 36,762 $ 24,468
======== ======== ======== ========
<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>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 39,262 $ 26,658
Adjustments to reconcile net income to net cash
provided by operating activities:
Disallowed plant costs -- 4,636
Income tax reduction for disallowed plant costs -- (1,840)
Depreciation and amortization 43,338 42,040
Deferred taxes, investment tax credits and
regulatory liability, net (4,768) (2,796)
(Increase) decrease in accounts receivable (6,260) 1,237
Decrease (increase) in fuel, materials and
supplies, and gas in underground storage 5,385 (3,477)
Decrease in unbilled revenue 6,306 10,978
(Decrease) increase in accounts payable (14,059) 1,007
Decrease in accrued taxes and interest (5,835) (5,282)
Capital lease payments 428 359
Decrease in other current assets 3,279 354
Decrease in other current liabilities (5,334) (1,377)
(Increase) decrease in other non-current assets (1,542) 1,815
Increase in other non-current liabilities 1,845 2,348
-------- --------
Net cash provided by operating activities 62,045 76,660
-------- --------
Cash flows from investing activities:
Capital expenditures (51,689) (60,468)
Cost of equity funds capitalized -- (23)
Other (3,217) (4,190)
-------- --------
Net cash used in investing activities (54,906) (64,681)
-------- --------
Cash flows from financing activities:
Common dividends paid (16,056) (8,010)
Preferred dividends paid (2,500) (2,190)
Long-term debt issued 19,766 --
Payments on capital lease obligation (428) (359)
Decrease in short-term borrowing (7,900) (1,200)
-------- --------
Net cash used in financing activities (7,118) (11,759)
-------- --------
Net increase in cash and temporary cash investments 21 220
Cash and temporary cash investments at beginning of
year 629 594
-------- --------
Cash and temporary cash investments at September 30 $ 650 $ 814
======== ========
<PAGE>
<PAGE>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of cost of borrowed funds
capitalized) $21,021 $ 20,354
Income taxes 26,290 21,261
<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 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 September 30, 1995, pipeline
suppliers have billed CILCO, subject to refund, approximately
$2 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 $1.8 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
$1.9 million on the Balance Sheets as of September 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
$.4 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. The preliminary
results of this study should be completed by the end of 1995, and
finalized by June 1996. CILCO has paid to date approximately $362,000
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 has not yet determined the extent, if any, of its remediation
responsibility for Site D.
CILCO expects to spend approximately $300,000 for former gas
manufacturing plant site monitoring, legal fees and feasibility
studies in 1995. A $4.6 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 September 1995
have been deferred on the Balance Sheets, net of amounts recovered
from customers.
Through September 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. Since the spring of 1994, this gas
rate rider allowed recovery of these costs over five years without
carrying charges. On April 20, 1995, the Illinois Supreme Court held
that Illinois utilities are entitled to recover 100% of their prudently
incurred coal tar remediation costs. Based upon the Supreme Court's
decision, the ICC granted CILCO's request to place into effect beginning
November 1, 1995, revised gas rate riders which will allow recovery of
coal tar remediation costs in the year they are incurred. Under these
circumstances, 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, energy-related
interests and affordable residential housing.
CVI invests in ventures in environmental services, energy,
biotechnology, health care and telecommunications.
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
September 30, 1995, CILCORP had committed bank lines of credit of $50
million, of which $19 million was used.
From March 20 through November 6, 1995, the Company issued 229,753
shares of common stock at an average price of $36.51 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 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 September 30, 1995, the Company had issued $48 million of medium-term
notes (all issued prior to 1995) 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 $52 million for the nine months ended
September 30, 1995, and are anticipated to be approximately $18 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 is owned by CILCO, began providing steam
heat to MWG's Pekin, Illinois, facility in December 1994, and began
generating electricity for distribution to CILCO's customers on
June 8, 1995. CILCO anticipates the total cost of the project to be
approximately $18.9 million. As the utility industry heads toward
competition, (see Part II. Item 5: Electric Competition) CILCO
recognizes the need for different systems and processes for providing
quality customer service. To address this need, CILCO replaced its
Customer Information System (CIS) in September 1995, at a cost of
approximately $12.6 million. Capital expenditures for the years 1996
and 1997 are estimated to be $64 million and $61 million, respectively.
However, management is currently reviewing the capital expenditures program
which may result in reduced capital expenditures for 1996 and 1997.
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 were 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, CILCO has
been authorized by the ICC to enter into arrangements for the issuance
of up to $25 million of pollution control bonds to finance pollution
control facilities, including proposed 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 September 30, 1995, CILCO had bank lines of credit aggregating
$30 million which are used to support CILCO's issuance of commercial
paper. CILCO had $15.5 million of commercial paper outstanding at
September 30, 1995, and expects to issue commercial paper periodically
throughout the remainder of 1995.
ESE
For the nine months ended September 30, 1995, ESE's capital expenditures
for capital additions and improvements were approximately $3.7 million.
Capital expenditures for the remainder of 1995 are expected to be
approximately $400,000.
At September 30, 1995, ESE had borrowed $20.5 million from the Holding
Company, a decrease of $5.1 million from December 31, 1994. ESE has a
$10 million bank line of credit, of which $4.4 million was used at
September 30, 1995, to collateralize performance bonds issued in
connection with ESE projects. ESE expects to finance its capital
expenditures 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.
CIM
At September 30, 1995, CIM had outstanding debt of $26 million,
consisting of $23 million borrowed from the Holding Company and
$3 million borrowed from banks. Capital expenditures are anticipated to
be approximately $1 million for the remainder of 1995. 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 nine months ended September 30, 1995
and 1994.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Core businesses:
CILCO
Electric operating income $26,079 $20,131 $47,004 $41,561
Gas operating income (loss) 48 (1,904) 10,025 4,877
------ ------ ------ -------
Total utility operating income 26,127 18,227 57,029 46,438
Utility other income and deductions (6,021) (9,241) (17,767) (19,780)
Preferred stock dividends of CILCO (833) (761) (2,500) (2,190)
------ ------ ------- -------
Total utility net income 19,273 8,225 36,762 24,468
ESE
ESE net income 413 967 333 1,444
------ ------ ------- -------
Other businesses:
Other businesses net income (loss) (251) 378 (511) 300
------- ------- ------- -------
Consolidated net income available
to common shareholders $19,435 $ 9,570 $36,584 $26,212
======= ======= ======= =======
</TABLE>
CILCO Electric Operations
The following table summarizes the components of CILCO electric
operating income for the three months and nine months ended
September 30, 1995 and 1994:
<TABLE>
<CAPTION>
Components of CILCO Electric Three Months Ended Nine Months Ended
Operating Income September 30, September 30,
1995 1994 1995 1994
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Electric retail $103,214 $91,704 $251,108 $236,799
Sales for resale 987 1,045 3,335 7,691
-------- ------- -------- --------
Total revenue 104,201 92,749 254,443 244,490
-------- ------- -------- --------
Cost of Sales:
Cost of fuel 23,667 25,071 70,783 75,640
Purchased power 4,106 2,494 9,409 6,199
Revenue taxes 4,686 4,109 11,164 10,083
-------- ------- -------- --------
Total cost of sales 32,459 31,674 91,356 91,922
-------- ------- -------- --------
Gross margin 71,742 61,075 163,087 152,568
-------- ------- -------- --------
Operating Expenses:
Other operation and maintenance 19,640 18,825 57,928 56,759
Depreciation and amortization 10,397 9,888 30,849 29,663
Income and other taxes 15,626 12,231 27,306 24,585
-------- ------- -------- --------
Total operating expenses 45,663 40,944 116,083 111,007
-------- ------- -------- --------
Electric operating income $ 26,079 $20,131 $ 47,004 $ 41,561
======== ======= ======== ========
</TABLE>
Electric gross margin increased 18% for the quarter ended
September 30, 1995, compared to the same period in 1994, primarily due
to increases in residential and commercial kilowatt hour (Kwh) sales of
29% and 12%, respectively. The increase in sales resulted from warmer
weather. Cooling degree days for the quarter were 39% higher than 1994,
and 35% higher than normal. Industrial sales decreased 6% primarily due
to lower demand by several large industrial customers. Overall retail
sales were 10% higher for the quarter ended September 30, 1995, compared
to the corresponding 1994 period. CILCO set a new all-time system peak
demand of 1,188,000 Kwh on August 17, 1995.
Electric gross margin increased 7% for the nine months ended
September 30, 1995, compared to the same period in 1994, primarily due
to a 5% increase in retail sales. Residential and commercial sales
increased 7% and 5%, respectively, while industrial sales increased
slightly for the nine months ended September 30, 1995, compared to 1994.
The increase in residential sales was primarily due to warmer weather.
The increase in commercial sales resulted from an increased number of
commercial customers and higher demand because of warmer weather.
Cooling degree days were 12% higher for the nine months ended
September 30, 1995, compared to the same period in 1994, and 17% higher
than normal.
CILCO's largest customer is Caterpillar Inc. On June 20, 1994,
Caterpillar employees represented by the United Auto Workers 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 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 are expected to continue to be the primary factors
affecting electric sales in the near term. CILCO's electric sales may
ultimately be affected in the long-term by increased competition in the
electric utility industry (see Part II. Item 5: Electric Competition).
Energy sales to other utilities (sales for resale) decreased for the
quarter and nine months ended September 30, 1995. The decline in sales
for resale resulted from lower available capacity and lower demand for
electricity from neighboring utilities. Sales for resale vary based on
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 and reduced margins in the sales for
resale and purchased power markets.
Substantially all of CILCO's electric generating capacity is coal-fired.
The cost of fuel decreased 6% for the quarter and nine months ended
September 30, 1995, compared to the same periods in 1994. This decrease
was partially offset by an increase in purchased power for those same
periods. 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 or when required to
meet CILCO power requirements, such as during maintenance outages at
CILCO plants. Costs and savings realized from the purchase of power are
passed on to CILCO's customers via the fuel adjustment clause (FAC).
The FAC allows CILCO to pass increases and decreases in the cost of fuel
through to customers.
Other operation and maintenance expenses increased 4% for the quarter
ended September 30, 1995, compared to the same period in 1994. The
increase for the third quarter was primarily due to increases in
property plant maintenance expenses and outside services. Decreased
purchases of multi-use software partially offset the increase for the third
quarter of 1995.
Other operation and maintenance expenses increased slightly for the nine
months ended September 30, 1995, compared to 1994. The increases were
primarily due to increased property plant maintenance expenses, injury
and damage claims, outside services and power plant operating expenses.
These increases were partially offset by decreased software purchases
and employee benefit costs.
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 increased for the quarter and nine months
ended September 30, 1995, primarily due to higher pre-tax operating
income.
CILCO Gas Operations
The following table summarizes the components of CILCO gas operating
income for the three months and nine months ended September 30, 1995 and
1994:
<TABLE>
<CAPTION>
Components of Gas Three Months Ended Nine Months Ended
Operating Income September 30, September 30,
1995 1994 1995 1994
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Sale of gas $15,999 $13,345 $ 94,950 $103,193
Transportation services 1,835 2,048 6,381 7,350
------- ------- -------- --------
Total revenue 17,834 15,393 101,331 110,543
------- ------- -------- --------
Cost of Sales:
Cost of gas 5,342 5,712 44,089 60,071
Revenue taxes 521 699 4,841 5,697
------- ------- -------- --------
Total cost of sales 5,863 6,411 48,930 65,768
------- ------- -------- --------
Gross margin 11,971 8,982 52,401 44,775
------- ------- -------- --------
Operating Expenses:
Other operation and maintenance 8,011 8,445 24,277 25,507
Depreciation and amortization 4,091 3,964 11,956 11,843
Income and other taxes (179) (1,523) 6,143 2,548
------- ------- -------- --------
Total operating expenses 11,923 10,886 42,376 39,898
------- ------- -------- --------
Gas operating (loss) income $ 48 $(1,904) $ 10,025 $ 4,877
======= ======= ======== ========
</TABLE>
Gas gross margin increased 33% and 17% for the quarter and nine months
ended September 30, 1995, respectively, compared to the same periods in
1994. Gas gross margin was positively affected by the December 1994
rate order that increased overall gas base rates by approximately 6.7%.
For additional information, refer to Note 9. Rate Matters in the
Company's 1994 Annual Report on Form 10-K. Residential sales remained
relatively constant for the quarter and decreased 5% for the nine months
ended September 30, 1995, compared to the same periods in 1994.
Commercial sales increased 2% for the quarter and remained relatively
unchanged for the nine months ended September 30, 1995, compared to the
same periods in 1994. The overall level of business activity in CILCO's
service territory and weather conditions are expected to continue to be
the primary factors affecting gas sales.
Revenue from gas transportation services decreased 10% and 13%, while
transportation volumes decreased 17% and 12% for the quarter and nine
months ended September 30, 1995, respectively, when compared to the same
periods in 1994. Revenue declined primarily due to decreased purchases
of gas by commercial and industrial transportation customers from
suppliers other than CILCO. The decrease in revenue was not
proportional to the decrease in volume because certain large volume
transportation customers can negotiate lower unit charges for service.
In addition, there were 390 transportation customers at
September 30, 1995, compared to 662 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 6% and 27% for the quarter and nine months
ended September 30, 1995, respectively. The decrease for both periods
resulted from lower natural gas prices. The lower natural gas prices
were passed through to customers via the PGA. The PGA is the mechanism
used to pass increases and decreases in the cost of natural gas through
to customers.
Other operation and maintenance expenses decreased 5% for the quarter
and nine months ended September 30, 1995, compared to the same periods
in 1994. The decline for the quarter was principally due to decreased
regulatory commission expenses and gas distribution system expenses,
partially offset by increased costs for outside services. The decrease
for the nine months was primarily due to decreased employee benefit
costs and regulatory commission expenses. Increased outside services
expenses from an audit of CILCO's gas operations (see Part II. Item 5:
Audit of CILCO's Gas Operations) partially offset the decreases.
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 taxes expense increased for the quarter and nine months
ended September 30, 1995, primarily due to higher pre-tax operating
income.
CILCO Other Income and Deductions
The following table summarizes other income and deductions for the three
months and nine months ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
Components of Other Income and Three Months Ended Nine Months Ended
Deductions and Interest Expense September 30, September 30,
1995 1994 1995 1994
(In thousands)
<S> <C> <C> <C> <C>
Net interest expense $(5,825) $(5,362) $(17,500) $(15,442)
Income taxes 603 496 1,708 1,166
Disallowed plant cost -- (4,636) -- (4,636)
Income tax reduction for
disallowed plant cost -- 1,840 -- 1,840
Other (799) (1,579) (1,975) (2,708)
------- ------- -------- --------
Other income (deductions) $(6,021) $(9,241) $(17,767) $(19,780)
======= ======= ======== ========
</TABLE>
Total other deductions declined for the quarter and nine months ended
September 30, 1995, compared to the same periods in 1994, primarily due
to disallowed plant costs and related income taxes recorded in 1994 as
part of CILCO's gas rate case, and payment of a civil fine and other
costs as a result of the Department of Justice and Department of
Transportation investigations (see Note 9. Rate Matters in the Company's
1994 Annual Report on Form 10-K). In addition, interest expense
increased for the nine months ended September 30, 1995, compared to the
same periods in 1994, primarily due to the issuance of $20 million of
secured medium-term notes (see Capital Resources and Liquidity) and a
higher outstanding notes payable balance in 1995. Also contributing to
the increase was a settlement with the Illinois Department of Revenue
related to an audit of the Illinois gross receipts tax.
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 offered Voluntary Early Retirement Incentive Programs (programs)
to eligible employees in July 1995. Elections to participate were
due October 30, 1995, with retirements effective January 1, 1996.
The programs offered to the International Brotherhood of Electrical
Workers (IBEW) and the International Brotherhood of Firemen and Oilers
(IBF&O) are based upon agreements made between CILCO and the unions.
Another program was offered to all management, office and technical
workers. CILCO currently has 1,523 full-time employees of which 257
were eligible for these programs and 166 accepted the offer. Management
expects the programs to generate an after-tax charge of approximately
$6.7 million against fourth quarter 1995 earnings and to generate an
annual after-tax cost reduction of approximately $3.4 million beginning
in 1996. The after-tax charge could increase along with the annual
after-tax cost reduction depending upon the years of service, age and
salaries associated with the employees who accepted the offer.
CILCO's Pilot Programs for Competitive Markets
On August 28, 1995, CILCO filed a petition with the ICC seeking
regulatory permission to place two electric pilot retail competition
programs into effect. The programs, as proposed, will offer greater
choice to customers and provide the opportunity for CILCO and its
customers to participate in a competitive business environment. The
pilot programs proposed in the filing will be available to certain
residential, commercial and industrial customers.
One program will permit eight industrial customers that had peak loads
of 10 megawatts or more during the twelve months ending July 31, 1995,
to secure part or all of their electric power requirements from
suppliers other than CILCO, subject to the limitation that at no time
shall total purchases by participants in the program exceed 50
megawatts (approximately 10% of CILCO's industrial load). The
programs' two-year term may be extended with the approval of the ICC.
In the other program, CILCO will designate one or more areas within
its service territory as "Open Access Sites" for a period of up to five
years. During that period, customers located within an Open Access
Site--whether residential, commercial or industrial--will be eligible
to purchase some or all of their electric power requirements from
suppliers other than CILCO. The five-year program period may be
extended with ICC approval.
Under both programs, CILCO will deliver the off-system power supplies
from a designated receipt point in CILCO's system to the customer's
location. CILCO will offer retail transportation rates for both
programs, with one part covering the transmission charges and another
part covering the distribution charges. In addition, there will be
separate charges for any ancillary services that are not otherwise
provided. The ancillary services will include load following,
reactive power support, system protection services, system loss
services and administrative services. CILCO will not impose any exit
fees, entrance fees, or stranded cost recovery upon any customers in
connection with these programs.
CILCO anticipates that during the pilot programs, there will be some
reduction in net income from what it would otherwise be, as eligible
customers go off-system to purchase some or all of their power
requirements. The amount of any such reduction depends largely upon the
extent of participation in the pilot programs by eligible customers.
CILCO expects to offset some of the reduced revenues through charges for
ancillary services (as discussed above) and increased sales of power off-
system, using generating capacity freed up by the customers that
participate in the pilot programs. The estimated annual net income
reduction associated with the pilot program for industrial customers is
not likely to exceed $2.5 million. The amount of any such loss
associated with the other pilot program cannot be estimated at this
time. Management cannot currently predict the impact to net income
which may result from proposed changes in the regulatory environment or
from increased competition in the electric utility industry (see Part
II. Item 5: FERC Notice of Proposed Rulemaking and Electric
Competition).
On September 29, 1995, CILCO filed additional information in the form of
testimony and exhibits with the ICC. The ICC will hold public hearings
beginning on October 26, 1995, which will address this request. CILCO
has asked that the programs become effective at the earliest practicable
date, preferably not later than the first quarter of 1996. Management
cannot currently predict when the ICC will rule on its petition.
ESE Operations
The following table summarizes the components of the environmental and
engineering services results for the three months and nine months ended
September 30, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Components of ESE Net Income September 30, September 30,
1995 1994 1995 1994
(In thousands)
<S> <C> <C> <C> <C>
Environmental and engineering
services revenue $33,424 $35,204 $98,296 $98,420
Direct non-labor project costs 13,576 14,496 38,193 38,214
------- ------- ------- -------
Net revenue 19,848 20,708 60,103 60,206
------- ------- ------- -------
Expenses:
Direct salaries and other costs 9,311 10,121 29,626 29,513
General and administrative 7,802 7,036 23,600 22,371
Depreciation and amortization 1,409 1,472 4,268 4,421
------- ------- ------- -------
Operating expenses 18,522 18,629 57,494 56,305
------- ------- ------- -------
Interest expense 464 594 1,510 1,396
------- ------- ------- -------
Income before income taxes 862 1,485 1,099 2,505
Income taxes 449 518 766 1,061
------- ------- ------- -------
ESE net income $ 413 $ 967 $ 333 $ 1,444
======= ======= ======= =======
</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
caused by regulatory agency approvals and 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 the direct
project costs from gross revenues.
Net revenues decreased by 4% for the third quarter when compared to the
same period in 1994, and were relatively unchanged for the nine months
ended September 30, 1995, compared to the same period in 1994. The net
revenue decrease in the third quarter of 1995 resulted from changes in
the regulatory requirements of many states, funding delays at the
federal level and increased competition in the market for laboratory
services. The decrease in laboratory and consulting net revenues of 13%
was offset by the resale of the property owned by Savannah Resources,
Inc. (Savannah), a subsidiary of ESE. The net revenue and pretax net
gain recognized by this sale was $1.7 million and $1.2 million,
respectively. This property was acquired in 1994, and was remediated by
Savannah and its subcontractors. ESE, through Savannah or other
subsidiaries, will continue to pursue property investments of this
nature for remediation and resale.
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 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 pricing
pressures in both the government and private sectors.
The labor intensive nature of ESE's business allows it to adjust
staffing levels to appropriately reflect the changing business climate.
In the third quarter, ESE incurred $300,000 in severance costs related
to staff reductions. Excluding ESE's recently established subsidiary,
OES (see Part II. Item 5: ESE New Subsidiaries), ESE had 1,087 full-time
equivalent employees at September 30, 1995, compared to 1,231 at
September 30, 1994.
Direct salaries and indirect salary expense decreased by 8% for the
third quarter and remained relatively unchanged for the nine months
ended September 30, 1995, compared to the same periods in 1994. The
decrease in the third quarter is primarily due to 1) a commitment of
staff time to business development activities and marketing efforts and
2) a reduction in technical staff.
General and administrative expenses increased by 11% for the third
quarter and 5% for the nine months ended September 30, 1995, compared to
the same periods in 1994. In addition to increased proposal and
marketing efforts and severance costs, higher salary and related
employee benefits expense resulting from wage increases effective in
March 1995 also contributed to this increase. These increases were
partially offset by $400,000 in insurance proceeds which resulted from a
fire in October 1994 at ESE's Denver Laboratory. The proceeds exceeded
the net book value of the assets destroyed in the fire.
Interest expense decreased by 22% for the third quarter and increased by
8% for the nine months ended September 30, 1995, when compared to the
same periods in 1994. Interest expense fluctuates due to a combination
of interest rates and the amount of outstanding short-term debt. The
decrease in the third quarter resulted from improved billings and
accounts receivable collections.
Other Businesses' Operations
The following table summarizes the components of Other Businesses'
income (loss) for the three months and nine months ended September 30,
1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Components of Other Businesses' September 30, September 30,
Net Income (loss) 1995 1994 1995 1994
(In thousands)
<S> <C> <C> <C> <C>
Revenue:
Other revenue $2,115 $2,508 $6,580 $6,983
------ ------ ------ ------
Expenses:
Operating expenses 493 1,131 2,179 3,792
Depreciation and amortization 49 58 146 154
Interest expense 1,457 1,198 4,540 2,751
Income and other taxes 367 (257) 226 (14)
------ ------- ------- -------
Total expenses 2,366 2,130 7,091 6,683
------ ------ ------ -------
Other businesses' net income
(loss) $ (251) $ 378 $ (511) $ 300
====== ====== ====== ======
</TABLE>
Other revenues decreased for the three months and nine months ended
September 30, 1995, compared to the corresponding periods in 1994,
primarily due to the sale of Tucson Electric Power Company (TEP) stock
during the third quarter of 1994.
Operating expenses were lower for the three months and nine months ended
September 30, 1995, compared to the corresponding periods in 1994,
primarily due to several one-time charges during 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 nine months ended
September 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.
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 (DHEC), 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. A settlement with DHEC is pending.
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
The Company has endorsed the unconditional repeal of the Public Utility
Holding Company Act of 1935 (Act) and will continue to monitor
alternative proposals including those seeking conditional repeal or
amendment of the Act. On October 12, 1995, a bill, entitled the "Public
<PAGE>
Utility Holding Company Act of 1995," was introduced in the U. S.
Senate. This bill provides for conditional repeal of the current Act and
for the assumption of certain responsibilities under the new Act by
the FERC. Additional legislative proposals are expected, but final
legislative action is not likely to occur during this session of
Congress.
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. In addition, 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 (see Part I.
Item 2: CILCO's Pilot Programs for Competitive Markets).
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 published 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 1995 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 the 1995 session of the legislature. Instead, the General
Assembly 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 proposal is due on or before November 8, 1996.
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. In an effort to obtain better
competitive positions, various mergers and business combinations are
occurring in the utility industry. CILCO management will monitor this
activity and continue 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.
FERC Notice of Proposed Rulemaking
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.
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 and in lesser amounts.
In August 1995, CILCO filed comments with the FERC on its proposal to
require open access to electric transmission networks and its stranded
cost recovery proposal. CILCO suggests that only partial and not full
recovery of stranded costs should be permitted during a limited term.
In September 1995, CILCO filed open access tariffs for the wheeling of
electricity over CILCO's electric transmission lines. These tariffs
conform to the pro forma tariffs proposed by FERC in its NOPR. By
filing open access transmission line tariffs that conform to the
FERC's pro forma tariff format, CILCO will benefit from the incentives
provided in a FERC's Further Guidance Order issued June 28, 1995. The
FERC will allow the tariffs to go into effect without the standard
hearing and refund process. In exchange for complying with this
Order, CILCO must abide by FERC's final rule dictating the method of
calculating open access tariffs.
In October 1995, CILCO filed reply comments with the FERC addressing
stranded cost recovery. CILCO is asking the FERC to recognize that
electric utilities are far from unanimous in requesting extraordinary
and extra-contractual stranded cost recovery. In addition, CILCO
stated that it opposed the position taken by Edison Electric Institute
in support of stranded cost recovery. A joint statement was also
issued in October 1995, by CILCO, IPALCO Enterprises, Inc., Wisconsin
Electric Power Company and Wisconsin Power & Light Company opposing
FERC's position on stranded costs. These utilities hold a common view
that implementation of FERC's proposed "revenues lost" method of
calculating full stranded costs will benefit high-cost utilities and
their shareholders to the detriment of customers, low-cost utilities
and the competitive wholesale electric market.
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. On October 15, 1995, the final audit report was issued, and
CILCO has agreed to accept all recommendations. CILCO's implementation
plans must be submitted to the ICC by November 14, 1995. Management
estimates the initial cost for implementation of the plans could range
from $1.5 to $2 million and expects future benefits derived from the
plans to offset these costs. 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 will 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 $5.4 million for SFAS 106 charges for
the period from January 1, 1993, through September 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 FAC. 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
A two-year IBEW contract and a three-year IBF&O contract were both
ratified effective July 1, 1995. Both the IBEW and the IBF&O contracts
provide for annual 3% salary increases during the contracts. As part of
the IBF&O contract, medical benefits may be renegotiated in January
1997.
CILCO Officer Responsibility Changes
On November 9, 1995, CILCORP Chief Executive Officer Robert O. Viets
announced several changes in executive officer responsibilities.
William M. Shay, CILCO Group President - Electric Operations, goes on
special assignment to continue leading CILCO's efforts to position
itself for competition. James F. Vergon, CILCO Group President - Gas
Operations, assumes additional responsibility for Electric Operations
during Shay's special assignment. Robert J. Sprowls, previously Vice
President - Strategic Services, becomes Assistant to the CEO, reporting
directly to Viets. Michael J. Bowling, previously Vice President -
Electric Operations, becomes Vice President - Distribution. Stephen R.
Corwell, previously Vice President - Gas Operations, becomes Vice
President - Sales & Customer Service. Scott A. Cisel, previously Vice
President - Sales & Marketing, becomes Vice President - Rates,
Regulation & Legislation. Thomas S. Romanowski continues as Vice
President - Finance. CILCO has begun a search for an executive to replace
Terrence S. Kurtz, Vice President - Electric Production, who resigned to
pursue other opportunities. All changes in responsiblities are
effective November 13, 1995.
ESE New Subsidiaries
ESE formed a wholly-owned subsidiary, Ordnance/Explosives Environmental
Services, Inc. (OES), 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.
On October 24, 1995, ESE formed a wholly-owned subsidiary, ESE Land
Corporation, to coordinate both organizationally and financially the
acquisition, remediation and resale of environmentally impaired
properties.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial data schedules
(b) Reports on Form 8-K
A combined Form 8-K was filed on August 28, 1995, to disclose a
petition CILCO filed with the ICC seeking regulatory permission to
place two pilot retail wheeling programs into effect.
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 November 9, 1995 R. O. Viets
R. O. Viets
President and
Chief Executive Officer
Date November 9, 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 November 9, 1995 T. S. Romanowski
T. S. Romanowski
Vice President and Chief
Financial Officer
Date November 9, 1995 R. L. Beetschen
R. L. Beetschen
Controller and Manager
of Accounting
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