SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported):
December 23, 1996
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification
No.
1-10628 CIPSCO INCORPORATED 37-1260920
(AN Illinois Corporation)
607 East Adams Street
Springfield, Illinois 62739
217-523-3600
1-3672 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 37-0211380
(An Illinois Corporation)
607 East Adams Street
Springfield, Illinois 62739
217-523-3600
Item 5. Other Events.
Fuel Costs, O&M Expense and Financing Requirements
Reference is made to Note 2. Commitments and Contingencies -
Clean Air Act in the Condensed Notes to Financial Statements in the
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (the
"Form 10-Q") for information regarding the coal contract modification with
Amax Coal Sales Company, a Cyprus Amax Minerals Company ("Cyprus Amax").
Implementation of the modification is conditioned on receipt of
satisfactory approvals from the Illinois Commerce Commission (the "Illinois
commission") of certain aspects of the contract modification. On December
23, 1996, the Illinois commission issued an order in the coal contract
modification proceeding which provides substantially all the relief sought
by CIPS. An intervenor in the proceeding has filed a petition for
rehearing to the Illinois commission and, if such petition for rehearing is
denied, may appeal the order to the appropriate Illinois state court. In
the event the order is not upheld as entered, CIPS will have to assess its
alternatives. CIPS has agreed with Cyprus Amax to certain additional
modifications to the existing contract which would be operative in this
event (assuming the restructuring charge to Cypress Amax has not already
been paid) and which would result in higher fuel costs. CIPS would have to
determine if other alternatives were available and whether such
alternatives would result in higher operating or maintenance costs or
capital costs. CIPS cannot predict the final outcome of this matter.
Although CIPS expects that certain operating and maintenance
costs will decline in the future as a result of its decision, as reported
in the Form 10-Q, to remove from service the scrubber on its Newton Unit 1
generating unit, other expenses, including those relating to the retirement
of the scrubber, will be higher. Operating and maintenance expense, as
well as capital expenditures and corresponding financing needs, could
increase substantially if the Clean Air Act compliance strategy based on
fuel switching and the modification of the Cyprus Amax coal contract
referred to above is not implemented as planned.
CIPS anticipates that it will issue or incur indebtedness in 1997
and 1998 to fund cash requirements attributable to the coal contract
modification, to refinance outstanding debt and to finance other capital
requirements. In order to implement its anticipated financing program,
CIPS has filed registration statements under the Securities Act of 1933
covering $200 million of additional debt securities. CIPS has approval of
the Illinois commission to issue or incur through December 31, 1998 not to
exceed $200 million in first mortgage bonds, medium-term notes or bank debt.
To provide flexibility in meeting financing requirements, CIPS anticipates
that in the first quarter of 1997 it will enter into long-term revolving credit
facilities with several banks providing for a total of $75 million of
borrowings.
Utility Restructuring Initiatives and Competition
Two recently formed coalitions are advocating legislation in
Illinois which would provide open access to all Illinois retail electric
customers. CIPS has announced its support for the Coalition for
Responsible Electricity Choice ("CREC"). CREC, which also has the support
of most of Illinois' other investor-owned utilities and certain key
business groups, advocates a phased-in approach to open access and supports
recovery of so called "stranded costs." The other coalition, Consumers
Choice Partnership, which includes one investor-owned utility from
Illinois, other investor-owned utilities from adjoining states and certain
other groups, reportedly advocates immediate open access and does not
support stranded cost recovery. CIPS believes the complicated issue of
electric industry restructuring requires careful review and deliberation
with input from all affected constituencies. Implementation of these or
other restructuring proposals in Illinois will require legislative action.
CIPS cannot predict what form any restructuring legislation will take, or
how such legislation will affect its business. However, CIPS expects, and
is preparing for, increased competition in its businesses.
Restructuring of the electric and gas utility industries has
already resulted in increased competition and reduced margins on
electricity sales. As evidence of this increased competition, CIPS has
experienced pressure from its large industrial gas and electric customers
to reduce rates through special contracts and other means. Some of these
customers have alternatives such as co-generation, shifting production to
existing or new facilities outside CIPS' service territory and, in the case
of gas customers, purchases of natural gas directly from pipeline
companies. CIPS has recently entered into long-term special contracts with
certain of such customers at reduced rates in order to retain their
business. CIPS expects that it may be required to enter into similar
contracts in the future to retain other existing customers similarly
positioned and to attract new customers to its service territory.
CIPS is also experiencing pressure to reduce margins on its
wholesale electric business. Wholesale power sales to electric
cooperatives and others represent about 20% of CIPS' electric sales
excluding emergency and economy interchange sales. As discussed in
previous reports, contracts with these wholesale customers expire at
various dates over the next several years. Although most of the contracts
extend to the period 2007 to 2014, contracts representing about $17 million
in annual revenue expire in 1999. When such contracts expire, CIPS may not
be able to sell the available capacity or energy at the margins provided
under the existing contracts. In addition to such wholesale power sales
contracts, CIPS also has long-term transmission service agreements with
certain customers. There are proceedings underway before the Federal
Energy Regulatory Commission ("FERC") regarding open access transmission
tariffs for CIPS (to be applicable prior to the proposed merger with Union
Electric Company) and CIPS and Union Electric, jointly (to be applicable
after the proposed merger). CIPS' open access transmission tariffs,
effective after the proposed merger, are expected to offer transmission at
rates lower than those reflected in certain existing long-term transmission
agreements. Certain customers under these long-term transmission
agreements have attempted to challenge such agreements (and one such
challenge is still pending) before FERC on the basis that the rates under
these agreements are higher than those to be available under the open
access tariffs. CIPS believes that its existing wholesale power sales
agreements and transmission service agreements are just and reasonable and
should not be altered by FERC.
These competitive pressures on CIPS' wholesale and retail
businesses could have a negative impact on revenues and earnings. In
response to these pressures, CIPS is working closely with its wholesale,
industrial, and other customers to find mutually beneficial solutions to
the challenges brought about by competition. In recent years, the Company
and CIPS have taken a number of other steps to prepare for increasing
competition and to reduce costs and increase sales, including renegotiation
of several major long-term coal supply contracts, reduction of its
workforce through attrition and a voluntary workforce separation program
and instituting a business process re-engineering program. Further, CIPS
initiated a new marketing function to increase sales, as described in the
Company's and CIPS' Annual Report on Form 10-K for the year ended December
31, 1995. Finally, the Company has entered into the merger agreement with
Union Electric to form a strategic alliance to enhance the Company's
competitive position.
Cautionary Factors
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking statements in various circumstances.
Forward-looking statements have been and will be made in written documents
and oral presentations of the Company and CIPS. The forward-looking
statements included in this Form 8-K are those relating to (i) the possible
impact of competitive conditions on revenues, earnings and margins, (ii)
anticipated levels of financing and (iii) anticipated levels of operating and
maintenance expense and fuel expense. Such statements are and will be based on
management's belief, judgment and analysis as well as assumptions made by and
information available to management at the time the statements are made.
When used in the Company's or CIPS' documents or oral presentations, the words
"anticipate," "estimate," "expect," "believe" and similar expressions are
intended to identify forward-looking statements. In addition to any
assumptions and other factors referred to specifically in connection with
such forward-looking statements, factors that could cause the Company's or
CIPS' actual results to differ materially from those contemplated in any
forward-looking statements include, among others, those identified in
Exhibit 99.01 hereto, which is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Statements - None
(b) Pro Forma Financial Information - None
(c) Exhibits
Exhibit 99.01 - Cautionary statements, assumptions and other
factors that could cause the Company's or CIPS' actual results to
differ materially from those contemplated in any forward-looking
statements within the meaning of the Private Securities
Litigation Act of 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants CIPSCO Incorporated and Central Illinois Public Service Company
have duly caused this report to be signed on each registrant's behalf by
the undersigned hereunto duly authorized.
CIPSCO Incorporated
(Registrant)
Central Illinois Public Service Company
(Registrant)
/s/ Robert C. Porter
___________________________________
Robert C. Porter
Treasurer and Assistant Secretary
of each Registrant
Date: January 31, 1997
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
EXHIBIT INDEX TO FORM 8-K
WHICH REPORTS THE EVENT DATED DECEMBER 23, 1996
Page Number in
Sequentially
Exhibit No. Description Numbered System
99.01 Cautionary statements, assump- 8-9
tions and other factors that
could cause the Company's or
CIPS' actual results to differ
materially from those contemplated in
any forward-looking statements within
the meaning of the Private Securities
Litigation Act of 1995.
EXHIBIT 99.01
The following are cautionary statements, assumptions and other
factors that could cause the Company's or CIPS' actual results to differ
materially from those contemplated in any forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
1. Increased competition in the utility industry including effects of:
decreasing margins as a result of competitive pressures; industry
restructuring initiatives; inability to recover in rates a return on
investments made under traditional regulation; legislation or
regulatory initiatives (such as retail wheeling or open access)
designed to increase competition and the presence of new competitors
entering the CIPS service territory, including other traditional
utilities, non-utility generators, power marketers, power brokers and
others. These factors could result in lower revenues and earnings.
2. Economic conditions affecting customers' businesses producing changes
in demand for their products or services or changes in their cost
structures causing fluctuations in the amount of energy purchased from
CIPS. These factors could have a significant impact on the economic
health of the CIPS service territory, which (in turn) could have an
adverse impact on revenues and earnings.
3. Financial or regulatory accounting principles or policies imposed by
the Financial Accounting Standards Board, the Securities and Exchange
Commission, the Federal Energy Regulatory Commission and the Illinois
Commerce Commission. These could adversely affect reported results.
4. Availability or cost of capital, which may be affected by, or may
affect, interest rates, market perceptions of the utility and energy-
related industries, the Company or any of its subsidiaries or changes
in security ratings of the Company or CIPS. Increases in capital
costs, without corresponding increases in revenues, would adversely
affect earnings.
5. Unusual weather conditions; catastrophic weather-related events;
unscheduled generation outages; unanticipated changes in the cost or
availability of fuel or gas supply due to higher demand, shortages or
transportation problems; or electric transmission system or gas
pipeline constraints. The foregoing could adversely affect operating
results.
6. Economic conditions including significant fluctuations in the rate of
inflation. Increased costs caused by inflation, without corresponding
increases in revenues would adversely affect earnings.
7. Changes in monetary, fiscal, tax or environmental policies of
governments or governmental agencies, which may significantly affect
costs of capital, expense levels or costs of compliance with existing
or future environmental requirements. Such increases in costs,
without corresponding increases in revenues, would adversely affect
earnings.
8. Employee workforce factors including changes in collective bargaining
agreements with union employees, or work stoppages, which may increase
costs or reduce revenues.
9. Significant changes in policies of regulatory agencies with
jurisdiction over CIPS' rates, which may adversely affect revenues and
earnings.
10. Costs and other effects of legal and administrative proceedings,
settlements, investigations and claims, including but not limited to
those described in Note 4 of the Notes to Consolidated Financial
Statements in the Company's and CIPS' Annual Report on Form 10-K for
the year ended December 31, 1995, under the caption Commitments and
Contingencies.
Neither the Company nor CIPS undertakes any obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
