<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
( ) Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to .
COMMISSION FILE NUMBER 1-3672
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
(Exact name of registrant as specified in its charter)
Illinois 37-0211380
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or orginization
607 East Adams Street, Springfield, Illinois 62739
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (217) 523-3600
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
Title Of Class
Cumulative Preferred Stock, par value $100 per share
Depositary Shares, each representing one-fourth of a share
of 6.625% Cumulative Preferred Stock, par value $100 per
share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X).
Aggregate market value of voting stock held by non-affiliates as of March
6, 2000 determined by trader derived valuations based on current market
conditions on a spread basis (excluding Preferred Stock for which prices are not
publicly available): $19,804,500.
Shares of Common Stock without par value, outstanding as of March 6, 2000:
25,452,373 shares (all owned by Ameren Corporation).
Documents incorporated by references.
Portions of the registrant's definitive proxy statement for the 2000 annual
meeting are incorporated by reference into Part III.
<PAGE>
TABLE OF CONTENTS
PART I Page
Item 1 - Business
General...................................................... 1
Capital Program and Financing................................ 2
Rates........................................................ 3
Fuel Supply.................................................. 3
Regulation................................................... 3
Industry Issues.............................................. 4
Item 2 - Properties....................................................... 4
Item 3 - Legal Proceedings................................................ 6
Item 4 - Submission of Matters to a Vote of Security Holders<F1>
Executive Officers of the Registrant (Item 401(b) of Regulation S-K)......... 7
PART II
Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 7
Item 6 - Selected Financial Data.......................................... 7
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 8
Item 7A - Quantitative and Qualitative Disclosures about Market Risk....... 16
Item 8 - Financial Statements and Supplementary Data...................... 18
Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 36
PART III
Item 10 - Directors and Executive Officers of the Registrant<F2>.......... 36
Item 11 - Executive Compensation2......................................... 36
Item 12 - Security Ownership of Certain Beneficial Owners
and Management<F2>.......................................... 37
Item 13 - Certain Relationships and Related Transactions2................. 37
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K. 37
SIGNATURES ................................................................ 39
EXHIBITS ................................................................ 40
[FN]
<F1> Not applicable and not included herein.
<F2> Incorporated by reference.
</FN>
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Central Illinois Public Service Company (AmerenCIPS or the Registrant) is a
subsidiary of Ameren Corporation (Ameren), a holding company, registered under
the Public Utility Holding Company Act of 1935. On December 31, 1997, CIPSCO
Incorporated (CIPSCO) and Union Electric Company (AmerenUE) combined with the
result that the common shareholders of CIPSCO and AmerenUE became the common
shareholders of Ameren, and Ameren became the owner of 100% of the common stock
of AmerenUE and CIPSCO's operating subsidiaries, the Registrant and CIPSCO
Investment Company (the Merger). Since the Merger, Ameren has formed a number of
other subsidiaries including AmerenEnergy, Inc. which serves as a power
marketing agent for the Registrant and Ameren Services Company which provides
shared support services to the Registrant. For additional information on the
Registrant's business organization, see Note 1 to the "Notes to Financial
Statements" under Item 8 herein.
In conjunction with the Illinois Electric Service Customer Choice and Rate
Relief Law of 1997 (the Law), the Registrant has received regulatory approvals
to transfer its generating facilities to Ameren Energy Generating Company (AEG),
a nonregulated, indirectly wholly-owned subsidiary of Ameren. The transfer of
the assets and liabilities (at historical net book value of approximately $600
million) is currently scheduled to occur in May 2000. Discussion below relating
to "forward-looking" statements reflects information assuming that the transfer
will occur as scheduled. For additional information on the Law, its impact on
the Registrant, and the generating facilities transfer, see "Electric Industry
Restructuring" in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" under Item 7 herein and Note 2 to the "Notes to
Financial Statements" under Item 8 herein.
The Registrant, an Illinois corporation, was organized in 1902. AmerenCIPS
is a public utility operating company engaged in the sale of electricity and
natural gas in portions of central and southern Illinois. The Registrant
furnishes electric service in 557 incorporated and unincorporated communities
and adjacent suburban and rural areas. The Registrant also furnishes natural gas
service to retail customers in 267 incorporated and unincorporated communities
and adjacent suburban and rural areas located in 41 counties of central and
southern Illinois and provides gas transportation service to end-users.
The AmerenCIPS service territory is predominantly made up of small towns
and rural areas. Of the communities served, only 5 have populations greater than
15,000. Customer density on the AmerenCIPS gas system is approximately 35
customers per mile of main. The Registrant furnishes both electric and natural
gas service in 236 of the communities served by it.
The territory served by the Registrant, located in 66 counties in Illinois,
has an estimated population of 820,000 and is devoted principally to agriculture
and diversified industrial operations. Key industries include petroleum and
petrochemical industries, food processing, metal fabrication and coal mining.
For the year 1999, 85% of total operating revenues was derived from the
sale of electric energy and 15% from the sale of natural gas. Electric operating
revenues as a percentage of total operating revenues in 1998 and 1997 were 85%
and 82%, respectively.
The Registrant employed 1,759 persons at December 31, 1999. Approximately
70% of such employees are represented by local unions affiliated with the
AFL-CIO. For information on labor agreements and other labor matters, see Note
11 to the "Notes to Financial Statements" under Item 8 herein. Approximately 45%
of the Registrant's employees will transfer to AEG in conjunction with the
generation facilities transfer discussed above.
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<PAGE<
CAPITAL PROGRAM AND FINANCING
The Registrant is engaged in a capital program under which capital
expenditures are expected to approximate $59 million in 2000. For the five-year
period 2000-2004, construction expenditures are estimated at $309 million. This
estimate assumes that the transfer of the Registrant's generating facilities to
AEG will occur in 2000.
During the five-year period ended 1999, gross additions to the property of
the Registrant, including allowance for funds used during construction, were
approximately $476 million (including $68 million in 1999) and property
retirements were $259 million.
In addition to the funds required for construction during the 2000-2004
period, $143 million will be required to repay long-term debt as follows: $35
million in 2000; $30 million in 2001; $33 million in 2002; and $45 million in
2003. There are no repayments in 2004.
The Registrant has transactions in the normal course of business with other
Ameren subsidiaries and has the ability to borrow funds from Ameren or AmerenUE
or invest funds through a regulated money pool agreement. At December 31, 1999,
the Registrant had outstanding intercompany borrowings of $133 million through
the regulated money pool.
For additional information on the Registrant's capital program, external
cash sources and intercompany borrowings, see "Liquidity and Capital Resources"
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 herein and Notes 3, 7 and 11 to the "Notes to Financial
Statements" under Item 8 herein.
Financing Restrictions. The Mortgage Indenture of AmerenCIPS, as presently
operative, permits the issuance of additional first mortgage bonds up to 60% of
available net expenditures for bondable property, provided the "net earnings" of
AmerenCIPS (before income taxes and otherwise as provided in the Mortgage
Indenture) for a recent 12-month period equal at least twice the annual interest
requirements on all first mortgage bonds outstanding (and on all equally secured
and prior lien indebtedness) and on the bonds then to be issued. At December 31,
1999, the more restrictive of these requirements was the "net earnings" test.
The "net earnings" of AmerenCIPS for the year ended December 31, 1999, so
computed, were equal to 5.29 times the interest for one year on the aggregate
amount of bonds outstanding under the Mortgage Indenture at December 31, 1999.
Based on the "net earnings" of AmerenCIPS (so computed) for the year ended
December 31, 1999, and the bonds outstanding under the Mortgage Indenture at
December 31, 1999, the Registrant could have issued about $479 million of
additional first mortgage bonds under the foregoing interest coverage provision
(assuming an annual interest rate of 8% on such bonds).
The Articles of Incorporation of AmerenCIPS provide, in effect, that so
long as any CIPS preferred stock is outstanding, AmerenCIPS shall not, without
the requisite vote of the holders of preferred stock, unless the retirement of
such stock is provided for, (a) issue any preferred or equal ranking stock
(except to retire or in exchange for an equal amount thereof) unless the "gross
income available for interest" of AmerenCIPS for a recent 12-month period is at
least one and one-half (1-1/2) times the sum of (i) one year's interest on all
funded debt and notes maturing more than 12 months after the date of issuance of
such shares and (ii) one year's dividend requirement on all preferred stock to
be outstanding after such issue, or (b) issue or assume any unsecured debt
securities maturing less than two years from the date of issuance or assumption
(except for certain refunding or retirement purposes) if immediately after such
issuance or assumption the total amount of all such unsecured debt securities
would exceed 20% of the sum of all secured debt securities and the capital and
surplus of AmerenCIPS. For the year ended December 31, 1999, the "gross income
available for interest" of AmerenCIPS equalled 2.43 times the sum of the annual
interest charges and dividend requirements on all such funded debt, notes and
preferred stock outstanding at December 31, 1999. Such "gross income available
for interest" was
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sufficient under the test to support the issuance of additional preferred stock
(assuming an annual dividend rate on such preferred stock of 6.75%) in an amount
in excess of the maximum amount ($185 million) of authorized and unissued
preferred stock under the Articles.
RATES
For the year 1999, approximately 78% of the Registrant's electric operating
revenues were based on rates regulated by the Illinois Commerce Commission (ICC)
and 22% were regulated by the Federal Energy Regulatory Commission (FERC) of the
U. S. Department of Energy. The Registrant's gas operating revenues for the year
1999 were based on rates regulated exclusively by the ICC. For information on
rate matters in these jurisdictions, see "Electric Industry Restructuring" in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 herein and Note 2 to the "Notes to Financial
Statements" under Item 8 herein.
FUEL SUPPLY
<TABLE>
<CAPTION>
Cost of Fuels Year
- ------------- ----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Million BTU - Coal 139.700(cent) 152.738(cent) 163.000(cent) 171.000(cent) 176.000(cent)
</TABLE>
Over 99% of the net kilowatthour generation of the Registrant in 1999 was
provided by coal-fired generating units and the remainder by an oil-fired unit.
As discussed under "General" section above, the Registrant's generating
facilities are scheduled to be transferred to AEG in the year 2000.
For additional information on the Registrant's "Fuel Supply", see "Results
of Operations" in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" under Item 7 herein and Note 11 to the "Notes to
Financial Statements" under Item 8 herein.
REGULATION
Information contained in this section could be impacted by the transfer of
the Registrant's generating facilities to AEG. See discussion in "General"
section above for more information.
The Registrant is subject to regulation by the Securities and Exchange
Commission and, as a subsidiary of Ameren, is subject to the provisions of the
Public Utility Holding Company Act of 1935. The Registrant is subject to
regulation by the ICC as to rates, service, accounts, issuance of equity
securities, issuance of debt having a maturity of more than twelve months,
mergers, and various other matters. The Registrant is also subject to regulation
by the FERC as to rates and charges in connection with the transmission of
electric energy in interstate commerce and the sale of such energy at wholesale
in interstate commerce, mergers, and certain other matters. Authorization to
issue debt having a maturity of twelve months or less is obtained from the
Securities and Exchange Commission.
For information on regulatory matters in these jurisdictions, including the
current status of electric utility restructuring in Illinois, see "Liquidity and
Capital Resources" and "Electric Industry Restructuring" in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
Item 7 herein and Notes 1 and 2 to the "Notes to Financial Statements" under
Item 8 herein.
The Registrant is regulated, in certain of its operations, by air and water
pollution and hazardous waste regulations at the city, county, state and federal
levels. The Registrant is in substantial compliance with such existing
regulations.
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Environmental Issues. On December 22, 1995, a complaint was filed in the
Circuit Court for the Seventh Judicial Circuit, Sangamon County, Illinois
against the Registrant and several other defendants. The complaint sought
unspecified monetary damages and alleged that, as a result of exposure to
carcinogens contained in coal tar at the AmerenCIPS Taylorville gas plant site,
plaintiffs' children had suffered from a rare form of childhood cancer known as
"neuroblastoma". In 1998, a jury awarded plaintiffs $3.2 million. In March 2000,
the Illinois Appellate Court, on an appeal by AmerenCIPS, upheld the plaintiffs'
verdict. The Registrant plans to seek an appeal of the court's decision to the
Illinois Supreme Court. The Registrant believes that final disposition of this
matter will not have a material adverse effect on the financial position,
results of operations or liquidity of AmerenCIPS.
On August 2, 1996, the Illinois Attorney General filed a complaint with the
Illinois Pollution Control Board alleging various violations of wastewater
discharge permit conditions and ground water standards at AmerenCIPS'
Hutsonville Power Station. The complaint seeks monetary penalties and the award
of attorney fees. The Registrant, the Illinois Environmental Protection Agency
and the Attorney General have reached a settlement in principle resolving the
complaint which will require the Registrant to perform remedial actions at the
site. Any final settlement of this matter must be approved by the Illinois
Pollution Control Board. While the Registrant cannot predict the final outcome
of this matter, it does not believe that the final resolution will have a
material adverse effect on financial position, results of operations or
liquidity of the Registrant.
See "Liquidity and Capital Resources" in "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" under Item 7 herein
and Note 11 to the "Notes to Financial Statements" under Item 8 herein for a
further discussion of environmental issues.
INDUSTRY ISSUES
The Registrant is facing issues common to the electric and gas utility
industries which have emerged during the past several years. These issues
include: the potential for more intense competition and for changing the
structure of regulation; changes in the structure of the industry as a result of
changes in federal and state laws, including the formation of unregulated
generating entities; on-going consideration of additional changes of the
industry by federal and state authorities; continually developing environmental
laws, regulations and issues, including proposed new air quality standards;
public concern about the siting of new facilities; proposals for demand side
management programs; and global climate issues. The Registrant is monitoring
these issues and is unable to predict at this time what impact, if any, these
issues will have on its operations, financial condition, or liquidity.
For additional information on certain of these issues, see "Liquidity and
Capital Resources" and "Electric Industry Restructuring" in Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
Item 7 herein and Notes 2 and 11 to the "Notes to Financial Statements" under
Item 8 herein.
Year 2000 Issue. The Year 2000 Issue relates to how dates are stored and
used in computer systems, applications, and embedded systems. As the century
date change occurred, certain date-sensitive systems had to recognize and
properly treat the year as 2000 and not as 1900. This inability to recognize and
properly treat the year as 2000 could have caused these systems to process
critical financial and operational information incorrectly. The Registrant
encountered no significant problems associated with the Year 2000 Issue at
year-end. For information on this issue, see "Year 2000 Issue" in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
Item 7 herein.
ITEM 2. PROPERTIES.
Information contained in this section could be impacted by the transfer of
the Registrant's generating facilities to AEG. See discussion in "General"
section above for more information.
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In planning its construction program, the Registrant is presently utilizing
a forecast of kilowatthour sales growth of approximately 1.2% and peak load
growth of 1.4%, each compounded annually, and is providing for a minimum reserve
margin of approximately 15% above its anticipated peak load requirements.
The Registrant is a member of one of the ten regional electric reliability
councils organized for coordinating the planning and operation of the nation's
bulk power supply - MAIN (Mid-America Interconnected Network) operating
primarily in Wisconsin, Illinois and Missouri. The Registrant's bulk power
system is operated as an Ameren-wide control area and transmission system under
the FERC approved Joint Dispatch Agreement between the Registrant and AmerenUE.
Ameren has interconnections for transmission service and the exchange of
electric energy, directly and through the facilities of others, with more than
twenty power suppliers.
The Registrant has also received regulatory approvals to join the Midwest
Independent System Operator (Midwest ISO) which will operate electric
transmission systems and maintain system reliability and security for its
members. For a discussion of the Midwest ISO which is expected to be operational
in the year 2001, see "Electric Industry Restructuring" in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
Item 7 herein and Note 2 to the "Notes to Financial Statements" under Item 8
herein.
The Registrant owns 20% of the capital stock of Electric Energy, Inc.
(EEI), and its affiliate, AmerenUE, owns 40% of such stock. The balance is held
by two other sponsoring companies -- Kentucky Utilities Company (KU), and
Illinova Generating (IG). EEI owns and operates a generating plant with a
nominal capacity of 1,000 mW. 50% of the plant's output is committed to the
Paducah Project of the U.S. Department of Energy, 20% to KU, 15% to AmerenUE and
7.5% each to IG and AmerenCIPS.
As of December 31, 1999, the Registrant owned approximately 4,700 circuit
miles of electric transmission lines. The Registrant also owned 4,800 miles of
natural gas transmission and distribution mains, four underground gas storage
fields and one propane-air gas plant used to supplement the available pipeline
supply of natural gas during periods of abnormally high demands. Other
properties of the Registrant include distribution lines, underground cable,
office buildings, warehouses, garages and repair shops.
AmerenCIPS has fee title to all principal plants and other important units
of property, or to the real property on which such facilities are located
(subject to mortgage liens securing outstanding indebtedness of the Registrant
and to permitted liens and judgment liens, as defined).
Substantially all of AmerenCIPS' property and plant is subject to the
direct first lien of an Indenture of Mortgage or Deed of Trust dated October 1,
1941, as amended and supplemented.
The following table sets forth information with respect to the Registrant's
generating facilities and capability at the time of the expected 2000 peak.
These facilities are part of the assets due to be transferred to AEG as
discussed under "General" section above. As a part of this transfer, these
facilities and the real property on which they are located will be released from
the above referenced mortgage lien.
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Energy Gross Kilowatt
Source Plant Location Installed Capability
------ ----- -------- --------------------
Coal Newton Newton, IL 1,170,000
Coffeen Coffeen, IL 950,000
Grand Tower Grand Tower, IL 202,000
Hutsonville
(Units 3 & 4) Hutsonville, IL 161,000
Meredosia
(Units 1, 2 & 3) Meredosia, IL 359,000
----------
Total Coal 2,842,000
Oil Hutsonville
(Diesel) Hutsonville, IL 3,000
Meredosia
(Unit 4) Meredosia, IL 182,000
----------
Total Oil 185,000
TOTAL 3,027,000
=========
ITEM 3. LEGAL PROCEEDINGS.
The Registrant is involved in legal and administrative proceedings before
various courts and agencies with respect to matters arising in the ordinary
course of business, some of which involve substantial amounts. Management
believes that the final disposition of these proceedings will not have a
material adverse effect on its financial position, results of operations or
liquidity.
For additional information on legal and administrative proceedings, see
"Regulation - Environmental Issues" under Item 1 herein, "Electric Industry
Restructuring" in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" under Item 7 herein, and Notes 2 and 11 to the "Notes
to Financial Statements" under Item 8 herein.
___________________________
Statements made in this report which are not based on historical facts, are
"forward-looking" and, accordingly, involve risks and uncertainties that could
cause actual results to differ materially from those discussed. Although such
"forward-looking" statements have been made in good faith and are based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. These statements include (without limitation) statements as to future
expectations, beliefs, plans, strategies, objectives, events, conditions,
financial performance and the Year 2000 Issue. In connection with the "Safe
Harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Registrant is providing this cautionary statement to identify important factors
that could cause actual results to differ materially from those anticipated. The
following factors, in addition to those discussed elsewhere in this report and
in subsequent securities filings, could cause results to differ materially from
management expectations as suggested by such "forward-looking" statements: the
effects of regulatory actions; changes in laws and other governmental actions;
the impact on the Registrant of current regulations related to the phasing-in of
the opportunity for some customers to choose alternative energy suppliers in
Illinois; the effects of increased competition in the future due to, among other
things, deregulation of certain aspects of the Registrant's business at both the
state and Federal levels; future market prices for fuel and purchased power,
electricity, and natural gas, including the use of financial instruments;
average rates for electricity in the Midwest; business and economic conditions;
interest rates; weather conditions; fuel prices and availability; generation
plant performance; the impact of current environmental regulations on utilities
and generating companies and the expectation that more stringent requirements
will be introduced over time, which could potentially have a negative financial
effect; monetary and fiscal policies; future wages and employee benefits costs;
and legal and administrative proceedings.
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INFORMATION REGARDING EXECUTIVE OFFICERS REQUIRED BY ITEM 401(b) OF
REGULATION S-K:
Age At Date First Elected
Name 12/31/99 Present Position or Appointed
---- -------- ---------------- ------------
G. L. Rainwater 53 President,
Chief Executive Officer 1/1/98
and Director 12/31/97
T. R. Voss 52 Senior Vice President 6/1/99
W. L. Baxter 38 Vice President, 4/22/99
Controller and 12/31/97
Director 4/22/99
M. J. Montana 53 Vice President 4/28/98
G. W. Moorman 56 Vice President 6/1/88
C. D. Nelson 46 Vice President 4/28/98
J. L. Simpson 43 Vice President 6/1/99
S. R. Sullivan 39 Vice President, General Counsel
and Secretary 11/7/98
J. E. Birdsong 45 Treasurer 12/31/97
All officers are elected or appointed annually by the Board of Directors
following the election of such Board at the annual meeting of stockholders held
in April. Except for Messrs. Baxter and Sullivan, each of the above-named
executive officers has been employed by the Company or its affiliates for more
than five years in executive or management positions. Mr. Baxter was previously
employed by PricewaterhouseCoopers LLP. Mr. Sullivan was previously employed by
Anheuser Busch Companies, Inc.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no market for the Registrant's Common Stock since all shares are
owned by its parent, Ameren.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
For the Years Ended
December 31 (In Thousands) 1999 1998 1997 1996 1995
- -------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues $ 928,122 $ 847,424 $ 852,075 $ 881,102 $ 828,073
Operating income 94,715 120,044 102,495 116,531 106,029
Net income 53,980 80,147 38,620 77,393 70,631
Preferred stock dividends 3,833 3,745 3,715 3,721 3,850
Net income after preferred
stock dividends 50,147 76,402 34,905 73,672 66,781
Common stock dividends 90,342 72,285 43,300 62,950 71,000
As of December 31,
Total assets $1,781,754 $1,764,397 $1,788,707 $1,795,353 $1,759,838
Long-term debt 493,625 528,446 558,474 421,228 478,926
Total common stockholder's equity 534,378 575,370 572,759 581,224 570,419
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Central Illinois Public Service Company (AmerenCIPS or the Registrant) is a
subsidiary of Ameren Corporation (Ameren), a holding company registered under
the Public Utility Holding Company Act of 1935 (PUHCA). In December 1997, Union
Electric Company (AmerenUE) and CIPSCO Incorporated (CIPSCO) combined to form
Ameren, with AmerenUE and CIPSCO's subsidiaries, the Registrant and CIPSCO
Investment Company (CIC), becoming subsidiaries of Ameren (the Merger).
In conjunction with the Illinois Electric Service Customer Choice and Rate
Relief Law of 1997 (the Law), the Registrant has received regulatory approvals
to transfer its generating facilities to Ameren Energy Generating Company (AEG),
a nonregulated, indirectly wholly-owned subsidiary of Ameren. The transfer of
the assets and liabilities (at historical net book value of approximately $600
million) is currently scheduled to occur in May 2000. Discussion below relating
to "forward-looking" statements reflects information assuming that the transfer
will occur as scheduled. For additional information on the Law, its impact on
the Registrant, and the generating facilities transfer, see "Electric Industry
Restructuring" below and Note 2 to the Notes to Financial Statements.
RESULTS OF OPERATIONS
Earnings
Earnings for 1999, 1998 and 1997, were $50 million, $76 million and $35 million,
respectively. Earnings fluctuated due to many conditions, primarily: sales
growth, weather variations, credits to electric customers, electric rate
reductions, gas rate increases, competitive market forces, fluctuating operating
costs, charges for coal contract terminations, a targeted employee separation
plan, merger-related expenses, changes in interest expense, changes in income
and property taxes, and an extraordinary charge.
In the fourth quarter of 1999, the Registrant recorded a nonrecurring charge to
earnings in connection with coal contract terminations with two coal suppliers.
The charge reduced earnings $31 million, net of income taxes (see discussion
below under "Electric Operations" and Note 11 - Commitments and Contingencies
under Notes to Financial Statements for further information). In 1998, the
Registrant also recorded a nonrecurring charge to earnings in connection with a
targeted separation plan it offered to employees in July 1998. The charge
reduced earnings $4 million, net of income taxes, (see Note 4 - Targeted
Separation Plan under Notes to Financial Statements for further information). In
addition, the Registrant recorded an extraordinary charge to earnings in the
fourth quarter of 1997 for the write-off of generation-related regulatory assets
and liabilities of the Registrant's retail electric business as a result of
electric industry restructuring legislation enacted in Illinois in December
1997. The write-off reduced earnings $25 million, net of income taxes (see Note
2 - Regulatory Matters under Notes to Financial Statements for further
information).
The significant items affecting revenues, expenses and earnings for the years
ended December 31, 1999, 1998 and 1997 are detailed in the following pages.
Electric Operations
Electric Revenues Variations from Prior Year
- --------------------------------------------------------------------------------
(In Millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Rate variations $(7) $(5) $ -
Effect of abnormal weather (16) 13 (1)
Growth and other 9 14 5
Interchange sales 88 (1) (29)
- --------------------------------------------------------------------------------
$74 $21 $(25)
- --------------------------------------------------------------------------------
Electric revenues for 1999 increased $74 million, compared to 1998, primarily
due to an 11% increase in total kilowatthour sales. This increase was primarily
driven by a 37% increase in interchange sales, due to strong marketing efforts.
This increase was partially offset by a residential rate decrease (see Note 2 -
Regulatory Matters under notes to Financial Statements for further information).
In addition, revenues were lower due to a 1% decrease in native sales, resulting
from milder weather.
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Electric revenues for 1998 increased $21 million, compared to 1997. Revenues
increased primarily due to higher sales to retail customers within the
Registrant's service territory, as a result of warm summer weather and economic
growth in the service area. Weather-sensitive residential and commercial sales
increased 6% and 4%, respectively, while industrial sales grew 4%. These
increases were partially offset by a 5% rate decrease to residential customers
beginning in August 1998 (see Note 2 - Regulatory Matters under Notes to
Financial Statements for further information).
Electric revenues for 1997 decreased primarily due to a 19% decrease in
interchange sales due to market conditions and differences in the classification
of certain interchange and purchased power transactions resulting from Federal
Energy Regulatory Commission (FERC) Order 888, as well as a 3% decline in
industrial sales. Residential sales remained constant with prior year levels,
while commercial sales increased 2% over the same period.
Fuel and Purchased Power Variations from Prior Year
- --------------------------------------------------------------------------------
(In Millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Fuel:
Generation $17 $(25) $ 7
Price (18) (2) (8)
Generation efficiencies and other (7) (6) (4)
Coal contract termination payments 52 - -
Purchased power 40 21 (27)
- --------------------------------------------------------------------------------
$84 $(12) $(32)
- --------------------------------------------------------------------------------
The $84 million increase in fuel and purchased power costs for 1999, compared to
1998, was primarily due to increased generation and purchased power, resulting
from higher sales volume and coal contract termination payments discussed below,
partially offset by lower fuel costs.
In the fourth quarter of 1999, the Registrant and two of its coal suppliers
executed agreements to terminate their existing coal supply contracts effective
December 31, 1999. Under these agreements, the Registrant made termination
payments to the suppliers totaling approximately $52 million. These termination
payments were recorded as a nonrecurring charge in the fourth quarter of 1999.
Total pretax fuel cost savings from these termination agreements are estimated
to be $183 million (or $131 million net of the termination payments) through
2010, which is the maximum period that would have remained on any of the
terminated coal supply contracts. Approximately $66 million of pretax fuel cost
savings is expected to be realized over the next three years. See Note 11 -
Commitments and Contingencies under Notes to Financial Statements for further
information.
The $12 million decrease in fuel and purchased power costs for 1998, compared to
1997, was primarily driven by lower fuel costs due to lower fuel prices and
utilizing joint dispatch generation. Upon consummation of the Merger, AmerenUE
and AmerenCIPS began jointly dispatching generation, therefore allowing Ameren
to utilize the most cost efficient plants of both operating companies to serve
customers in either service territory. The decrease in 1997 fuel and purchased
power costs was driven mainly by a decrease in interchange sales and lower fuel
prices.
Gas Operations
Gas revenues in 1999 increased $7 million, compared to 1998, primarily due to a
gas rate increase which became effective in February 1999 (see Note 2 -
Regulatory Matters under Notes to Financial Statements for further information)
and higher gas costs recovered through the Registrant's purchased gas adjustment
clause. These increases were partially offset by a 10% decline in retail sales,
resulting primarily from milder winter weather, as well as a decrease in
off-system sales of gas to others. Gas revenues in 1998 decreased $26 million
compared to 1997, primarily due to a 7% decline in retail sales resulting from
milder winter weather and lower gas costs recovered through the Registrant's
purchase gas adjustment clause. Gas revenues in 1997 decreased $4 million
primarily due to a 10% decline in retail sales resulting from mild winter
weather.
Gas costs in 1999 increased $4 million compared to 1999. This increase in gas
costs was primarily due to higher gas prices, partially offset by lower total
sales. Gas costs in 1998 declined $28 million compared to 1997. This decrease in
gas costs was due to lower sales and lower gas prices. Gas costs for 1997
remained relatively flat when compared to 1996 costs.
Other Operating Expenses
Other operating expense variations in 1997 through 1999 reflected recurring
factors such as growth, inflation, labor and benefit increases, in addition to a
charge for the targeted separation plan (TSP), as discussed below.
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In 1998, Ameren announced plans to reduce its other operating expenses,
including plans to eliminate approximately 400 employee positions by mid-1999
through a hiring freeze and the TSP. During the third quarter of 1998, a
nonrecurring, pretax charge of $7 million was recorded, representing the
Registrant's share of costs incurred to implement the TSP. The elimination of
these positions, exclusive of the nonrecurring charge, reduced the Registrant's
operating expenses approximately $4 million in 1998, and approximately $7
million in 1999, and is expected to reduce the Registrant's operating expenses
by approximately $6 million to $7 million each year thereafter. See Note 4 -
Targeted Separation Plan under Notes to Financial Statements for further
information.
Other operating expenses increased $11 million, in 1999, compared to 1998,
primarily due to increased postretirement expenses resulting from changes in
actuarial assumptions, increased injuries and damages expenses based on claims
experience, expenses associated with electric industry deregulation in Illinois
and the Year 2000 project. These increases were partially offset by a reduced
workforce, coupled with the fact that 1998 expenses included the charge for the
TSP. The $19 million increase in other operating expenses in 1998, compared to
1997, were primarily due to the charge for the TSP and increased information
system-related costs. In 1997, other operating expenses increased $15 million,
primarily due to increases in labor, various equipment purchases and rentals and
information system-related costs.
Maintenance expenses increased $32 million in 1999, compared to 1998. This
increase was primarily due to increased power plant maintenance. In 1998,
maintenance expenses decreased $4 million from the prior year, primarily due to
less scheduled power plant maintenance. The 1997 maintenance expenses increase
of $14 million from the prior year can be attributed to scheduled outages at
three power plants.
Depreciation and amortization expense increased $6 million in 1999, compared to
1998. This increase was primarily due to increased depreciable property. In
1998, depreciation and amortization expense decreased $8 million from the prior
year due to the write-off of generation-related regulatory assets in Illinois
during the fourth quarter of 1997. The 1997 depreciation and amortization
expense fluctuation relates primarily to property additions.
Taxes
Income tax expense from operations decreased $15 million in 1999, compared to
1998, due to lower pretax income. Income tax expense from operations increased
$12 million in 1998, compared to 1997, due to higher pretax income and a higher
effective tax rate. Income tax expense from operations decreased $14 million in
1997, principally due to lower pretax income and a lower effective tax rate.
Other tax expense decreased $17 million in 1999, compared to 1998, primarily due
to a decrease in gross receipts taxes. This decrease is the result of the
restructuring of the Illinois public utility tax whereby gross receipts taxes
are no longer recorded as electric revenue and gross receipts tax expense.
Other Income and Deductions
In 1999, miscellaneous, net decreased $3 million, compared to 1998, primarily
due to losses on the disposal of property realized in 1998. In 1998,
miscellaneous, net decreased $3 million primarily due to higher merger-related
expenses incurred in the prior year. Miscellaneous, net increased $2 million
between 1997 and 1996 primarily due to increased merger-related expenses.
Interest
Interest expense increased $3 million in 1999, compared to 1998, due to an
increase in intercompany notes payable resulting from funds borrowed from the
regulated money pool (see Note 7 - Short-Term Borrowings under Notes to
Financial Statements for further information), partially offset by the
redemption of short-term debt. Interest expense increased $3 million in 1998,
compared to 1997, due to a higher amount of debt outstanding, partially offset
by a decrease in other interest.
Balance Sheet
The $27 million increase in trade accounts receivable and unbilled revenue was
due primarily to higher sales and revenues in November and December 1999,
compared to the same 1998 period.
The changes in accounts and wages payable, taxes accrued, other accounts and
notes receivable, and other current assets resulted from the timing of various
payments to taxing authorities and suppliers. The $133 million increase in
intercompany notes payable was due to funds borrowed from a regulated money pool
(see Note 7 - Short-Term Borrowings under Notes to Financial Statements for
further information).
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LIQUIDITY AND CAPITAL RESOURCES
Information contained in this section could be impacted by the transfer of the
Registrant's generating facilities to AEG. See discussion in "Overview" section
above for more information.
Cash provided by operating activities totaled $166 million for 1999, compared to
$123 million for 1998 and $81 million in 1997, respectively.
Cash flows used in investing activities totaled $95 million, $68 million and
$111 million, for the years ended December 31, 1999, 1998 and 1997,
respectively. Expenditures in 1999 for constructing new or improving existing
facilities and purchasing rail cars were $95 million.
Capital expenditures are expected to approximate $60 million in 2000. For the
five-year period 2000-2004, construction expenditures are estimated at $264
million. This estimate assumes that the transfer of the Registrant's generating
facilities to AEG will occur in 2000.
Title IV of the Clean Air Act Amendments of 1990 requires the Registrant to
significantly reduce total annual sulfur dioxide (SO2) and nitrogen oxide (NOx)
emissions by the year 2000. By switching to low-sulfur coal, the Registrant is
meeting these requirements.
In July 1997, the United States Environmental Protection Agency (EPA) issued
regulations revising the National Ambient Air Quality Standards for ozone and
particulate matter. In May 1999, the U.S. Court of Appeals for the District of
Columbia remanded the regulations back to the EPA for review. Litigation
regarding appeals of these regulations is ongoing. New ambient standards may
result in significant additional reductions in SO2 and NOx emissions from the
Registrant's power plants by 2007. At this time, the Registrant is unable to
predict the ultimate impact of these revised air quality standards on its future
financial condition, results of operations or liquidity.
In an attempt to lower ozone levels across the eastern United States, the EPA
issued the implementation of regulations in September 1998 to reduce NOx
emissions from coal-fired boilers and other sources in 22 states, including
Illinois (where all of the Registrant's coal-fired power plant boilers are
located). The proposed regulations mandate a 75% reduction from 1990 levels by
the year 2003 and require states to develop plans to reduce NOx emissions to
help alleviate ozone problem areas. The NOx emissions reductions already
achieved on several of the Registrant's coal-fired power plants will help reduce
the costs of compliance with these regulations. However, preliminary analysis of
the regulations indicate that selective catalytic reduction technology may be
required for some of the Registrant's units, as well as other additional
controls.
In March 2000, the U.S. Court of Appeals for the District of Columbia
substantially upheld the proposed NOx regulations but remanded portions of them
to the EPA for further consideration. The implementation date of the regulations
is uncertain and further legal challenge is possible. Assuming an implementation
date of 2003, the Registrant currently estimates that its additional capital
expenditures to comply with the final NOx regulations could range from $125
million to $150 million. Associated operations and maintenance expenditures
could increase $5 million to $8 million annually, beginning in 2003. The
Registrant is exploring alternatives to comply with these new regulations in
order to minimize, to the extent possible, its capital costs and operating
expenses. The Registrant is unable to predict the outcome of the litigation, the
regulation implementation date or the ultimate impact of these standards on its
future financial condition, results of operations or liquidity.
In November 1998, the United States signed an agreement with numerous other
countries (the Kyoto Protocol) containing certain environmental provisions,
which would require decreases in greenhouse gases in an effort to address the
"global warming" issue. The Kyoto Protocol has not been ratified by the United
States Senate. Implementation of the Kyoto Protocol in its present form would
likely result in significantly higher capital costs and operations and
maintenance expenses by the Registrant. At this time, the Registrant is unable
to determine the impact of these proposals on the Registrant's future financial
condition, results of operations or liquidity.
Cash flows used in financing activities were $68 million for 1999. This compares
to cash flows used in financing activities of $74 million in 1998 and cash flows
provided by financing activities of $48 million for 1997. The Registrant's
financing activities during 1999 included the issuance of $133 million of
intercompany notes payable, the redemption of $60 million of long-term debt, the
redemption of $47 million of short-term debt, and the payment of dividends.
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The Registrant plans to continue utilizing short-term debt to support normal
operations and other temporary requirements. The Registrant is authorized by the
Securities and Exchange Commission (SEC) under PUHCA to have up to $125 million
of short-term unsecured debt instruments outstanding at any one time. Short-term
borrowings consist of bank loans (maturities generally on an overnight basis)
and commercial paper (maturities generally within 10 to 45 days). At December
31, 1999, the Registrant had committed bank lines of credit aggregating $30
million, all of which was unused and available at such date, which make
available interim financing at various rates of interest based on LIBOR, the
bank certificate of deposit rate or other options. The lines of credit are
renewable annually at various dates throughout the year. At year-end, the
Registrant had no outstanding short-term borrowings.
Also, the Registrant has the ability to borrow up to approximately $950 million
from Ameren or AmerenUE through a regulated money pool agreement. The regulated
money pool was established to coordinate and provide for certain short-term cash
and working capital requirements and is administered by Ameren Services Company,
another subsidiary of Ameren. Interest is calculated at varying rates of
interest depending on the composition of internal and external funds in the
regulated money pool. At December 31, 1999, the Registrant had $133 million of
intercompany borrowings outstanding and $520 million available through the
regulated money pool. See Note 7 - Short-Term Borrowings under Notes to
Financial Statements for further information.
The Registrant, in the ordinary course of business, explores opportunities to
reduce its costs in order to remain competitive in the marketplace. Areas where
the Registrant focuses its review include, but are not limited to, labor costs
and fuel supply costs. In the labor area, the Registrant has recently reached
agreements with all of the Registrant's major collective bargaining units which
will permit it to manage its labor costs and practices effectively in the future
(see Note 11 - Commitments and Contingencies under Notes to Financial Statements
for further discussion). The Registrant also explores alternatives to
effectively manage the size of its workforce. These alternatives include
utilizing hiring freezes, outsourcing and offering employee separation packages.
In the fuel supply area, the Registrant explores alternatives to effectively
manage its overall fuel costs. These alternatives include diversifying fuel
sources for use at the Registrant's power plants (e.g. utilizing low-sulfur
versus high- sulfur coal), as well as restructuring or terminating existing
contracts with suppliers.
Certain of these reduction alternatives could result in additional investments
being made at the Registrant's power plants in order to utilize different types
of coal, or could require nonrecurring payments of employee separation benefits
or nonrecurring payments to restructure or terminate existing fuel contracts
with a supplier. Management is unable to predict which (if any), and to what
extent, these alternatives to reduce its overall cost structure will be
executed. Management is unable to determine the impact of these actions on the
Registrant's future financial position, results of operations or liquidity.
RATE MATTERS
See Note 2 - Regulatory Matters under Notes to Financial Statements for a
discussion of rate matters.
ELECTRIC INDUSTRY RESTRUCTURING
Steps taken and being considered at the federal and state levels continue to
change the structure of the electric industry and utility regulation, and
encourage increased competition. At the federal level, the Energy Policy Act of
1992 reduced various restrictions on the operation and ownership of independent
power producers and gave the FERC the authority to order electric utilities to
provide transmission access to third parties.
In April 1996, the FERC issued Order 888 and Order 889, which are intended to
promote competition in the wholesale electric market. The FERC requires
transmission-owning public utilities, such as AmerenCIPS, to provide
transmission access and service to others in a manner similar and comparable to
that which the utilities have by virtue of ownership. Order 888 requires that a
single tariff be used by the utility in providing transmission service. Order
888 also provides for the recovery of strandable costs, under certain
conditions, related to the wholesale business.
Order 889 established the standards of conduct and information requirements that
transmission owners must adhere to in doing business under the open access rule.
Under Order 889, utilities must obtain transmission service for their own use in
the same manner their customers will obtain service, thus mitigating market
power through control of transmission facilities. In addition, under Order 889,
utilities must separate their merchant function (buying and selling wholesale
power) from their transmission and reliability functions.
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The Registrant believes that Order 888 and Order 889, which relate to its
wholesale business, will not have a material adverse effect on its financial
condition, results of operations or liquidity.
In 1998, the Registrant joined a group of companies that support the formation
of the Midwest Independent System Operator (Midwest ISO). An ISO operates, but
does not own, electric transmission systems and maintains system reliability and
security, while alleviating pricing issues associated with the "pancaking" of
rates. The Midwest ISO would be regulated by the FERC. Thirteen
transmission-owning utilities have joined the Midwest ISO as of December 31,
1999. The FERC conditionally approved the formation of the Midwest ISO in
September 1998, and it is expected to be operational during the year 2001. The
Illinois Commerce Commission (ICC) has authorized the Registrant to join the
Midwest ISO and to transfer control of its transmission facilities to the
Midwest ISO. The Midwest ISO covers 14 states, represents portions of 60,000
miles of transmission line and controls $8 billion of assets. The Registrant
believes that the operation of the Midwest ISO will not have a material adverse
effect on its financial condition, results of operations or liquidity.
In December 1999, the FERC issued its Order 2000 relating to Regional
Transmission Organizations (RTOs) that would meet certain characteristics such
as size and independence. Order 2000 calls on all transmission owners to join
RTOs. In particular, all public utilities that own, operate, or control
interstate transmission facilities must file with the FERC by October 15, 2000,
a proposal for an RTO, or alternatively a description of efforts by the utility
to join an RTO. The Registrant expects that its participation in the Midwest ISO
will satisfy the requirements of Order 2000.
Certain states are considering proposals or have adopted legislation that will
promote competition at the retail level. In December 1997, the Governor of
Illinois signed the Electric Service Customer Choice and Rate Relief Law of 1997
(the Law) providing for electric utility restructuring in Illinois. This
legislation introduces competition into the supply of electric energy at retail
in Illinois.
Major provisions of the Law include the phasing-in through 2002 of retail direct
access, which allows customers to choose their electric generation suppliers.
The phase-in of retail direct access began on October 1, 1999, with large
commercial and industrial customers principally comprising the initial group.
The customers in this group represent approximately 24% of the Registrant's
total sales. As of December 31, 1999, the impact of retail direct access on the
Registrant's financial condition, results of operations or liquidity was
immaterial. Retail direct access will be offered to the remaining commercial and
industrial customers on December 31, 2000, and to residential customers on May
1, 2002.
In addition, the Law included a 5% rate decrease for residential customers that
became effective in August 1998. This rate decrease is expected to reduce
electric revenues by approximately $11 million annually, based on estimated
levels of sales and assuming normal weather conditions. (See Note 2 - Regulatory
Matters under Notes to Financial Statements for further information.) In 1998,
the Registrant eliminated its Uniform Fuel Adjustment Clause (FAC) as allowed by
the Law, which benefited shareholders in 1998 and 1999 and is expected to
benefit shareholders in the future (see Note 1 - Summary of Significant
Accounting Policies under Notes to Financial Statements for further
information). The Law contains a provision allowing for the potential recovery
of a portion of strandable costs, which represent costs that would not be
recoverable in a restructured environment, through a transition charge collected
from customers who choose an alternate electric supplier. In addition, the Law
contains a provision requiring a portion of excess earnings (as defined under
the Law) for the years 1998 through 2004 to be refunded to customers.
In December 1997, after evaluating the impact of the Law, the Registrant
determined that it was necessary to write-off the generation-related regulatory
assets and liabilities of its Illinois retail electric business. This
extraordinary charge reduced 1997 earnings $25 million, net of income taxes. The
Registrant has also concluded that its remaining net generation-related assets
are not impaired for financial reporting purposes and that no plant writedowns
are necessary at this time. See Note 2 - Regulatory Matters under Notes to
Financial Statements for further information.
In conjunction with another provision of the Law, in July 1999, the Registrant
filed a notice with the ICC that it intends to transfer its generating
facilities (all in Illinois) to Ameren Energy Generating Company (AEG), a
nonregulated, indirectly wholly-owned subsidiary of Ameren. The formation of the
new generating subsidiary, as well as the transfer of the Registrant's
generating assets and liabilities (at historical net book value of approximately
$600 million) and certain power sales contracts, in exchange for an intercompany
note receivable, was subject to regulatory approvals from the ICC, the FERC, and
the Missouri Public Service Commission, all of which have been received as of
March 10, 2000. An additional PUHCA-related determination that will permit the
new generating
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subsidiary to operate as an Exempt Wholesale Generator is being sought from the
FERC. The generating subsidiary will include most of the new combustion turbine
generators being acquired by Ameren, in addition to the Registrant's facilities.
The new subsidiary is scheduled to be operational in May 2000. See Note 2 -
Regulatory Matters under Notes to Financial Statements for further information.
Once the transfer is completed, a power sales agreement will be in place between
the new generating subsidiary and a nonregulated marketing affiliate for all
generation. The marketing affiliate will have a power sales agreement with the
Registrant to supply it sufficient generation to meet native load requirements
over the term of the agreement.
The proposed transfer of the Registrant's generating assets and liabilities had
no effect on the Registrant's financial statements as of December 31, 1999.
In summary, the potential negative consequences associated with electric
industry restructuring could be significant and could include the impairment and
writedown of certain assets, including generation-related plant assets, lower
revenues, reduced profit margins and increased costs of capital and operations
expenses. Ameren and the Registrant are actively taking steps to mitigate these
potential negative consequences. Most importantly, they will continue to focus
on cost control to ensure that they maintain a competitive cost structure, which
includes the recent termination of high-cost coal supply contracts (see Note 11
- - Commitments and Contingencies under Notes to Financial Statements for further
information). Also, the actions of Ameren and the Registrant include
establishing a nonregulated generating subsidiary and expanding its generation
assets, strengthening the Registrant's trading and marketing operation to
maintain current customers and obtain new customers, and enhancing information
systems. The Registrant believes that these actions will position Ameren and the
Registrant well in the competitive Illinois marketplace. The Registrant is also
actively involved in shaping the policies of the Midwest ISO to protect its
shareholders' interests. At this time, the Registrant is unable to predict the
ultimate impact of electric industry restructuring on the Registrant's future
financial condition, results of operations or liquidity.
YEAR 2000 ISSUE
The Year 2000 Issue relates to how dates are stored and used in computer
systems, applications, and embedded systems. As the century date change
occurred, certain date-sensitive systems had to recognize the year as 2000 and
not as 1900. This inability to recognize and properly treat the year as 2000
could have caused these systems to process critical financial and operational
information incorrectly. Management implemented a Year 2000 plan covering
Ameren, including AmerenCIPS, and briefed Ameren's Board of Directors about the
Year 2000 Issue and how it might have affected the Registrant. Ameren
encountered no significant problems associated with the Year 2000 Issue at
year-end. In addressing the Year 2000 Issue, Ameren incurred internal labor
costs as well as external consulting and other expenses to prepare for the new
century. As of December 31, 1999, Ameren had expended approximately $8 million
in external costs (consulting fees and related costs). The impact of the Year
2000 Issue on the Registrant's financial condition, results of operations or
liquidity was immaterial. Ameren will continue to monitor date-sensitive systems
as certain key dates occur throughout the year.
CONTINGENCIES
See Note 2 - Regulatory Matters and Note 11 - Commitments and Contingencies
under Notes to Financial Statements for material issues existing at December 31,
1999.
MARKET RISK RELATED TO FINANCIAL INSTRUMENTS AND COMMODITY INSTRUMENTS
Market risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in market variables (e.g.,
interest rates, equity prices, commodity prices, etc.). The following discussion
of Ameren's, including AmerenCIPS', risk management activities includes
"forward-looking" statements that involve risks and uncertainties. Actual
results could differ materially from those projected in the "forward-looking"
statements. Ameren handles market risks in accordance with established policies,
which may include entering into various derivative transactions. In the normal
course of business, Ameren also faces risks that are either non-financial or
non-quantifiable. Such risks principally include business, legal, operational,
and credit risk and are not represented in the following analysis.
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Interest Rate Risk
The Registrant is exposed to market risk through changes in interest rates
through its issuance of both long-term and short-term variable-rate debt,
fixed-rate debt, commercial paper and auction market preferred stock. The
Registrant manages its interest rate exposure by controlling the amount of these
instruments it holds within its total capitalization portfolio and by monitoring
the effects of market changes in interest rates.
If interest rates increase one percentage point in 2000 as compared to 1999, the
Registrant's interest expense would increase and net income would decrease by
approximately $1 million. This amount has been determined using the assumptions
that the Registrant's outstanding variable-rate debt, commercial paper and
auction market preferred stock as of December 31, 1999, continued to be
outstanding throughout 2000, and that the average interest rates for these
instruments increased one percentage point over 1999. The model does not
consider the effects of the reduced level of overall economic activity that
would exist in such an environment. In the event of a significant change in
interest rates, management would likely take actions to further mitigate its
exposure to this market risk. However, due to the uncertainty of the specific
actions that would be taken and their possible effects, the sensitivity analysis
assumes no change in the Registrant's financial structure.
Commodity Price Risk
The Registrant is exposed to changes in market prices for natural gas, fuel and
electricity. With regard to its natural gas utility business, the Registrant's
exposure to changing market prices is in large part mitigated by the fact that
the Registrant has a Purchased Gas Adjustment Clause (PGA) in place. The PGA
allows the Registrant to pass on to its customers its prudently incurred costs
of natural gas.
Since the Registrant does not have a provision similar to the PGA for its
electric operations, the Registrant has entered into several long-term contracts
with various suppliers to purchase coal to manage its exposure to fuel prices.
(See Note 11 - Commitments and Contingencies under Notes to Financial Statements
for further information). With regard to the Registrant's exposure to commodity
price risk for purchased power and excess electricity sales, Ameren has
established a subsidiary, AmerenEnergy, Inc. (AmerenEnergy), whose primary
responsibility includes managing market risks associated with the changing
market prices for electricity purchased and sold on behalf of the Registrant.
AmerenEnergy utilizes several techniques to mitigate its market risk for
electricity, including utilizing derivative financial instruments. A derivative
is a contract whose value is dependent on or derived from the value of some
underlying asset. The derivative financial instruments that AmerenEnergy is
allowed to utilize (which include forward contracts, futures contracts, and
option contracts) are dictated by a risk management policy, which has been
reviewed with the Auditing Committee of Ameren's Board of Directors. Compliance
with the risk management policy is the responsibility of a risk management
steering committee, consisting of Ameren officers and an independent risk
management officer at AmerenEnergy.
As of December 31, 1999, the fair value of derivative financial instruments
exposed to commodity price risk was immaterial. AmerenEnergy's primary use of
derivatives has been limited to transactions that are either risk-neutral or
that reduce price risk exposure of the Registrant.
ACCOUNTING MATTERS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities and requires recognition of all derivatives as either assets
or liabilities on the balance sheet measured at fair value. The intended use of
the derivatives and their designation as either a fair value hedge, a cash flow
hedge, or a foreign currency hedge will determine when the gains or losses on
the derivatives are to be reported in earnings and when they are to be reported
as a component of other comprehensive income. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133," which delayed the effective
date of SFAS 133 to all fiscal quarters of all fiscal years, beginning after
June 15, 2000. Earlier application is still encouraged. The Registrant expects
to adopt SFAS 133 in the first quarter of 2001.
The Registrant is currently evaluating the impact of SFAS 133 on its financial
position and results of operations upon adoption. The Registrant's evaluation
includes reviewing existing derivative instruments to determine whether they
fall within the scope of SFAS 133. At this time, management believes that
adoption of SFAS 133 will not have
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a material impact on the Registrant's financial position or results of
operations upon adoption based on the derivative instruments which existed as of
December 31, 1999. However, changing market conditions, the volume of future
transactions which may fall within the scope of SFAS 133, and potential
amendments to SFAS 133 could change management's current assessment. As a
result, SFAS 133 could increase the volatility of the Registrant's future
earnings and could be material to the Registrant's financial position and
results of operations upon adoption.
EFFECTS OF INFLATION AND CHANGING PRICES
The Registrant's rates for retail electric and gas utility service are generally
regulated by the ICC. Non-retail electric rates are regulated by the FERC.
The current replacement cost of the Registrant's utility plant substantially
exceeds its recorded historical cost. Under existing regulatory practice, only
the historical cost of plant is recoverable from customers. As a result, cash
flows designed to provide recovery of historical costs through depreciation
might not be adequate to replace plants in future years. Regulatory practice has
been modified for the Registrant's generation portion of its business (see Note
2 - Regulatory Matters under Notes to Financial Statements for further
information). In addition, the impact on common stockholders is mitigated to the
extent depreciable property is financed with debt that is repaid with dollars of
less purchasing power.
The cost of fuel for electric generation, which was previously reflected in
billings to customers through a Uniform Fuel Adjustment Clause, has been added
to base rates as provided for in the Law (see Note 2 - Regulatory Matters under
Notes to Financial Statements for further information). Changes in gas costs are
generally reflected in billings to customers through a Purchased Gas Adjustment
Clause.
Inflation continues to be a factor affecting operations, earnings, stockholders'
equity and financial performance.
SAFE HARBOR STATEMENT
Statements made in this report which are not based on historical facts, are
"forward-looking" and, accordingly, involve risks and uncertainties that could
cause actual results to differ materially from those discussed. Although such
"forward-looking" statements have been made in good faith and are based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. These statements include (without limitation) statements as to future
expectations, beliefs, plans, strategies, objectives, events, conditions,
financial performance and the Year 2000 Issue. In connection with the "Safe
Harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Registrant is providing this cautionary statement to identify important factors
that could cause actual results to differ materially from those anticipated. The
following factors, in addition to those discussed elsewhere in this report and
in subsequent securities filings, could cause results to differ materially from
management expectations as suggested by such "forward-looking" statements: the
effects of regulatory actions; changes in laws and other governmental actions;
the impact on the Registrant of current regulations related to the phasing-in of
the opportunity for some customers to choose alternative energy suppliers in
Illinois; the effects of increased competition in the future due to, among other
things, deregulation of certain aspects of the Registrant's business at both the
state and Federal levels; future market prices for fuel and purchased power,
electricity, and natural gas, including the use of financial instruments;
average rates for electricity in the Midwest; business and economic conditions;
interest rates; weather conditions; fuel prices and availability; generation
plant performance; the impact of current environmental regulations on utilities
and generating companies and the expectation that more stringent requirements
will be introduced over time, which could potentially have a negative financial
effect; monetary and fiscal policies; future wages and employee benefits costs;
and legal and administrative proceedings.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information required to be reported by this item is included under "Market
Risk Related to Financial Instruments and Commodity Instruments" in
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" under Item 7 herein.
-16-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders
of Central Illinois Public Service Company
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) on Page 37 present fairly, in all material respects, the financial
position of Central Illinois Public Service Company at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above. The financial statements of Central Illinois Public Service Company for
the year ended December 31, 1997 were audited by other independent accountants
whose report dated January 31, 1997 expressed an unqualified opinion on those
statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
February 2, 2000
-17-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
BALANCE SHEET
(Thousands of Dollars, Except Shares)
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1999 1998
- ------ ---- ----
<S> <C> <C>
Property and plant, at original cost:
Electric $2,422,002 $2,381,682
Gas 267,909 259,656
---------- ----------
2,689,911 2,641,338
Less accumulated depreciation and amortization 1,260,582 1,192,108
---------- ----------
1,429,329 1,449,230
Construction work in progress 43,435 16,220
---------- ----------
Total property and plant, net 1,472,764 1,465,450
---------- ----------
Other assets 17,722 31,904
Current assets:
Cash and cash equivalents 12,536 10,180
Accounts receivable - trade (less allowance for doubtful
accounts of $1,828 and $1,714, respectively) 48,703 44,494
Unbilled revenue 75,884 53,120
Other accounts and notes receivable 20,875 16,486
Materials and supplies, at average cost -
Fossil fuel 47,291 50,791
Other 33,931 36,047
Other 10,387 8,214
---------- ----------
Total current assets 249,607 219,332
---------- ----------
Regulatory assets:
Deferred income taxes 21,520 24,797
Other 20,141 22,914
---------- ----------
Total regulatory assets 41,661 47,711
---------- ----------
TOTAL ASSETS $1,781,754 $1,764,397
========== ==========
CAPITAL AND LIABILITIES
Capitalization:
Common stock, no par value, authorized 45,000,000 shares -
outstanding 25,452,373 shares $ 120,033 $ 120,033
Retained earnings 414,345 455,337
---------- ----------
Total common stockholder's equity 534,378 575,370
Preferred stock not subject to mandatory redemption (Note 6) 80,000 80,000
Long-term debt (Note 8) 493,625 528,446
---------- ----------
Total capitalization 1,108,003 1,183,816
---------- ----------
Current liabilities:
Current maturity of long-term debt (Note 8) 35,000 60,000
Short-term debt -- 46,700
Intercompany notes payable 132,900 --
Accounts and wages payable 82,800 58,800
Accumulated deferred income taxes 22,621 21,386
Taxes accrued 32,145 13,201
Other 39,619 34,454
---------- ----------
Total current liabilities 345,085 234,541
---------- ----------
Commitments and Contingencies (Notes 2 and 11)
Accumulated deferred income taxes 216,661 234,119
Accumulated deferred investment tax credits 32,169 34,657
Regulatory liability 34,004 39,621
Other deferred credits and liabilities 45,832 37,643
---------- ----------
TOTAL CAPITAL AND LIABILITIES $1,781,754 $1,764,397
========== ==========
</TABLE>
See Notes to Financial Statements.
-18-
<PAGE>
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF INCOME
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31, December 31, December 31,
For the year ended 1999 1998 1997
---- ---- ----
OPERATING REVENUES:
<S> <C> <C> <C>
Electric $ 795,476 $ 721,918 $ 700,517
Gas 132,646 125,506 151,558
--------- --------- ---------
Total operating revenues 928,122 847,424 852,075
OPERATING EXPENSES:
Operations
Fuel and purchased power 314,208 230,085 242,256
Gas 73,352 69,350 97,226
Other 190,622 179,477 160,201
--------- --------- ---------
578,182 478,912 499,683
Maintenance 103,582 71,542 75,652
Depreciation and amortization 80,557 74,323 82,689
Income taxes 30,773 45,769 33,661
Other taxes 40,313 56,834 57,895
--------- --------- ---------
Total operating expenses 833,407 727,380 749,580
Operating Income 94,715 120,044 120,044
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used during
Construction (8) 16 783
Miscellaneous, net 2,030 (955) (3,800)
--------- --------- ---------
Total other income and deductions 2,022 (939) (3,017)
Income Before Interest Charges 99,737 119,105 99,478
INTEREST CHARGES:
Interest 42,736 40,039 36,791
Allowance for borrowed funds used during construction 21 (1,081) (786)
--------- --------- ---------
Net interest charges 42,757 38,958 36,005
Income Before Extraordinary Charge 53,980 80,147 63,473
--------- --------- ---------
Extraordinary Charge, net of income taxes (Note 2) -- -- (24,853)
--------- --------- ---------
NET INCOME 53,980 80,147 38,620
--------- --------- ---------
Preferred Stock Dividends 3,833 3,745 3,715
--------- --------- ---------
NET INCOME AFTER PREFERRED
STOCK DIVIDENDS $ 50,147 $ 76,402 $ 34,905
========= ========= =========
</TABLE>
See Notes to Financial Statements.
-19-
<PAGE>
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31, December 31, December 31,
For the year ended 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating:
Income before extraordinary charge $53,980 $80,147 $63,473
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 80,557 74,323 82,689
Allowance for funds used during
construction 29 (1,097) (1,569)
Deferred income taxes, net (18,562) (10,801) (1,686)
Deferred investment tax credits, net (2,488) (5,712) (8,516)
Changes in assets and liabilities:
Receivables, net (31,362) (7,137) (2,076)
Materials and supplies 5,616 (15,310) 2,249
Regulatory assets - other 2,773 2,294 (50,693)
Accounts and wages payable 24,000 (30,562) 16,840
Taxes accrued 18,944 (2,668) 1,926
Other, net 32,175 39,867 (21,922)
-------------------- ------------------ --------------------
Net Cash Provided By Operating Activities 165,662 123,344 80,715
Cash Flows From Investing:
Construction expenditures (95,302) (68,848) (115,551)
Allowance for funds used during construction (29) 1,097 1,569
Other -- -- 3,182
-------------------- ------------------ --------------------
Net Cash Used In Investing Activities (95,331) (67,751) (110,800)
Cash Flows From Financing:
Dividends on common stock (90,342) (72,285) (43,300)
Dividends on preferred stock (3,833) (4,002) (3,638)
Redemptions -
Short-term debt (46,700) (18,266) --
Long-term debt (60,000) (64,000) (64,000)
Issuances -
Short-term debt -- -- 7,198
Long-term debt -- 85,000 152,000
Intercompany notes payable 132,900 -- --
-------------------- ------------------ --------------------
Net Cash Provided By (Used In) Financing Activities (67,975) (73,553) 48,260
Net Change In Cash And Cash Equivalents 2,356 (17,960) 18,175
Cash And Cash Equivalents At Beginning Of Year 10,180 28,140 9,965
-------------------- ------------------ --------------------
Cash And Cash Equivalents At End Of Year $12,536 $10,180 $28,140
=======================================================================================================================
Cash paid during the periods:
- -----------------------------------------------------------------------------------------------------------------------
Interest (net of amount capitalized) $39,140 $40,269 $35,363
Income taxes $30,998 $61,953 $36,763
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION:
An extraordinary charge to earnings was recorded in the fourth quarter of 1997
for the write-off of generation-related regulatory assets and liabilities of the
Registrant's retail electric business as a result of electric industry
restructuring legislation enacted in Illinois in December 1997. The write-off
reduced earnings $25 million, net of income taxes. See Note 2 - Regulatory
Matters under Notes to Financial Statements for further information.
See Notes to Financial Statements.
-20-
<PAGE>
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
---------------------------------------
STATEMENT OF RETAINED EARNINGS
- ------------------------------
(Thousands of Dollars)
- -------------------------------------------------------------------------------
Year Ended December 31,
1999 1998 1997
- -------------------------------------------------------------------------------
Balance at Beginning of Period $455,337 $451,477 $459,942
- -------------------------------------------------------------------------------
Add:
Net income 53,980 80,147 38,620
- -------------------------------------------------------------------------------
509,317 531,624 498,562
- -------------------------------------------------------------------------------
Deduct:
Common stock dividends 90,342 72,285 43,300
Preferred stock dividends 4,630 4,002 3,785
- -------------------------------------------------------------------------------
94,972 76,287 47,085
- -------------------------------------------------------------------------------
Balance at End of Period $414,345 $455,337 $451,477
- -------------------------------------------------------------------------------
SELECTED QUARTERLY INFORMATION (Unaudited)
- -------------------------------
(Thousands of Dollars)
- --------------------------------------------------------------------------------
Operating Operating Net Net Income
Revenues Income Income (Loss) After
Quarter Ended (Loss) (Loss) Preferred
Stock Dividends
- --------------------------------------------------------------------------------
March 31, 1999 207,772 24,709 14,315 13,347
March 31, 1998 199,515 21,732 12,118 11,134
June 30, 1999 221,929 29,981 20,680 19,763
June 30, 1998 214,829 28,429 19,349 18,468
September 30, 1999 279,327 53,845 43,283 42,326
September 30, 1998 (a) 246,675 50,623 39,672 38,736
December 31, 1999 (b) 219,094 (13,820) (24,298) (25,289)
December 31, 1998 186,405 19,260 9,008 8,064
- --------------------------------------------------------------------------------
(a) The third quarter of 1998 included a nonrecurring charge related to the
targeted separation plan that reduced net income $4 million. (See Note 4 -
Targeted Separation Plan under Notes to Financial Statements for further
information.)
(b) The fourth quarter of 1999 included a charge for coal supply contract
terminations that reduced net income $31 million. (See Note 11 - Commitments and
Contingencies under Notes to Financial Statements for further information).
Other changes in quarterly earnings are due to the effect of weather on sales
and other factors that are characteristic of public utility operations.
See Notes to Financial Statements.
-21-
<PAGE>
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - Summary of Significant Accounting Policies
Basis of Presentation
Central Illinois Public Service Company (AmerenCIPS or the Registrant) is a
subsidiary of Ameren Corporation (Ameren), which is the parent company of two
utility operating companies, the Registrant and Union Electric Company
(AmerenUE). Ameren is a registered holding company under the Public Utility
Holding Company Act of 1935 (PUHCA) formed in December 1997 upon the merger of
CIPSCO Incorporated (the Registrant's former parent) and AmerenUE (the Merger).
Both Ameren and its subsidiaries are subject to the regulatory provisions of the
PUHCA. The operating companies are engaged principally in the generation,
transmission, distribution and sale of electric energy and the purchase,
distribution, transportation and sale of natural gas in the states of Illinois
and Missouri. Contracts among the companies--dealing with jointly-operated
generating facilities, interconnecting transmission lines, and the exchange of
electric power--are regulated by the Federal Energy Regulatory Commission (FERC)
or the Securities and Exchange Commission (SEC). Administrative support services
are provided to the Registrant by a separate Ameren subsidiary, Ameren Services
Company. The Registrant serves 400,000 electric and 175,000 gas customers in a
20,000 square-mile region of central and southern Illinois.
In conjunction with the Illinois Electric Service Customer Choice and Rate
Relief Law of 1997 (the Law), the Registrant has received regulatory approvals
to transfer its generating facilities to Ameren Energy Generating Company (AEG),
a nonregulated, indirectly wholly-owned subsidiary of Ameren. The transfer of
the assets and liabilities (at historical net book value of approximately $600
million) is currently scheduled to occur in May 2000. Discussion below relating
to "forward-looking" statements reflects information assuming that the transfer
will occur as scheduled. For additional information on the law, its impact on
the Registrant, and the generating facilities transfer, see Note 2 - Regulatory
Matters.
The Registrant also has a 20% interest in Electric Energy, Inc. (EEI), which is
accounted for under the equity method of accounting. EEI owns and operates an
electric generating and transmission facility in Illinois that supplies electric
power primarily to a uranium enrichment plant located in Paducah, Kentucky.
Regulation
In addition to the SEC, the Registrant is regulated by the Illinois Commerce
Commission (ICC) and the FERC. The accounting policies of the Registrant conform
to U.S. generally accepted accounting principles (GAAP). See Note 2 - Regulatory
Matters for further information.
Property and Plant
The cost of additions to, and betterments of, units of property and plant is
capitalized. Cost includes labor, material, applicable taxes and overheads. An
allowance for funds used during construction is also added for the Registrant's
regulated assets, and interest incurred during construction is added for
nonregulated assets. Maintenance expenditures and the renewal of items not
considered units of property are charged to income, as incurred. When units of
depreciable property are retired, the original cost and removal cost, less
salvage value, are charged to accumulated depreciation.
Depreciation
Depreciation is provided over the estimated lives of the various classes of
depreciable property by applying composite rates on a straight-line basis. The
provision for depreciation in 1999, 1998, and 1997 was approximately 3% of the
average depreciable cost.
Fuel and Gas Costs
The cost of fuel for electric generation is reflected in base rates with no
provision for changes to be made through a fuel adjustment clause. (See Note 2 -
Regulatory Matters for further information.) In 1997, changes in fuel costs were
generally reflected in billings to electric customers through a fuel adjustment
clause. Changes in gas costs are generally reflected in billings to gas
customers through a purchased gas adjustment clause.
-22-
<PAGE>
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and temporary investments
purchased with an original maturity of three months or less.
Income Taxes
The Registrant is included in the consolidated federal income tax return filed
by Ameren. Income taxes are allocated to the individual companies based on their
respective taxable income or loss. Deferred tax assets and liabilities are
recognized for the tax consequences of transactions that have been treated
differently for financial reporting and tax return purposes, measured using
statutory tax rates.
Investment tax credits utilized in prior years were deferred and are being
amortized over the useful lives of the related properties.
Allowance for Funds Used During Construction
Allowance for funds used during construction (AFC) is a utility industry
accounting practice whereby the cost of borrowed funds and the cost of equity
funds (preferred and common stockholders' equity) applicable to the Registrant's
regulated construction program are capitalized as a cost of construction. AFC
does not represent a current source of cash funds. This accounting practice
offsets the effect on earnings of the cost of financing current construction,
and treats such financing costs in the same manner as construction charges for
labor and materials.
Under accepted ratemaking practice, cash recovery of AFC, as well as other
construction costs, occurs when completed projects are placed in service and
reflected in customer rates. The AFC rates used were 5% during 1999, 6% during
1998 and 8% during 1997.
Unamortized Debt Discount, Premium and Expense
Discount, premium, and expense associated with long-term debt are amortized over
the lives of the related issues.
Revenue
The Registrant accrues an estimate of electric and gas revenues for service
rendered, but unbilled, at the end of each accounting period.
Energy Contracts
The Emerging Issues Task Force of the Financial Accounting Standards Board
(EITF) Issue 98-10, "Accounting for Energy Trading and Risk Management
Activities" became effective on January 1, 1999. EITF 98-10 provides guidance on
the accounting for energy contracts entered into for the purchase or sale of
electricity, natural gas, capacity and transportation. The EITF reached a
consensus in EITF 98-10 that sales and purchase activities being performed need
to be classified as either trading or nontrading. Furthermore, transactions that
are determined to be trading activities would be recognized on the balance sheet
measured at fair value, with gains and losses included in earnings.
AmerenEnergy, Inc., an energy marketing subsidiary of Ameren, enters into
contracts for the sale and purchase of energy on behalf of the Registrant and
AmerenUE. Currently, virtually all of AmerenEnergy's transactions are considered
nontrading activities and are accounted for using the accrual or settlement
method, which represents industry practice. EITF 98-10 did not have a material
impact on the Registrant's financial position or results of operations upon
adoption.
Software
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" became effective on January 1, 1999. SOP
98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use. Under SOP 98-1, certain costs may be
capitalized and amortized over some future period. SOP 98-1 did not have a
material impact on the Registrant's financial position or results of operations
upon adoption.
Evaluation of Assets for Impairment
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
prescribes general standards for the recognition and measurement of impairment
losses. The Registrant determines if long-lived assets are impaired by comparing
their undiscounted expected future cash flows to their carrying amount. An
impairment loss is recognized if the undiscounted expected future cash flows are
less than the carrying amount of the asset. SFAS 121 also requires that
regulatory assets which are no longer probable of recovery through future
revenues be charged to earnings (see Note 2 - Regulatory Matters for further
information). As of December 31, 1999, no impairment was identified.
-23-
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions. Such estimates and
assumptions affect reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior-years' financial statements to
conform with 1999 reporting.
NOTE 2 - Regulatory Matters
Illinois Electric Restructuring
Certain states are considering proposals or have adopted legislation that will
promote competition at the retail level. In December 1997, the Governor of
Illinois signed the Electric Service Customer Choice and Rate Relief Law of 1997
(the Law) providing for electric utility restructuring in Illinois. This
legislation introduces competition into the supply of electric energy at retail
in Illinois.
Under the Law, retail direct access, which allows customers to choose their
electric generation suppliers, will be phased in over several years. Access for
commercial and industrial customers will occur over a period from October 1999
to December 2000, and access for residential customers will occur after May 1,
2002.
As a requirement of the Law, in March 1999, the Registrant filed delivery
service tariffs with the ICC. These tariffs would be used by electric customers
who choose to purchase their power from alternate suppliers. On August 25, 1999,
the ICC issued an order approving the delivery services tariffs, with an allowed
rate of return on equity of 10.45%. The Registrant and AmerenUE filed a joint
petition for rehearing of that order requesting the ICC to alter its conclusions
on a number of issues. On October 13, 1999, the ICC granted a rehearing on
certain issues. An order on this reopened proceeding was issued in 2000
resolving all outstanding issues.
The Law included a 5% residential electric rate decrease for the Registrant's
electric customers, effective August 1, 1998. This rate decrease reduced
electric revenues by approximately $7 million in 1999. The Registrant may be
subject to additional 5% residential electric rate decreases in each of 2000 and
2002, to the extent its rates exceed the Midwest utility average at that time.
The Registrant's rates are currently below the Midwest utility average.
As a result of the Law, the Registrant filed a proposal with the ICC to
eliminate the electric fuel adjustment clause for Illinois retail customers,
thereby including historical levels of fuel costs in base rates. The ICC
approved the Registrant's filing in early 1998.
The Law also contains a provision requiring that one-half of excess earnings
from the Illinois jurisdiction for the years 1998 through 2004 to be refunded to
the Registrant's customers. Excess earnings are defined as the portion of the
two-year average annual rate of return on common equity in excess of 1.5% of the
two-year average of an Index, as defined in the Law. The Index is defined as the
sum of the average for the twelve months ended September 30 of the average
monthly yields of the 30-year U.S. Treasury bonds, plus prescribed percentages
ranging from 4% to 7%. Filings must be made with the ICC on, or before, March 31
of each year 2000 through 2005.
In conjunction with another provision of the Law, in July 1999, the Registrant
filed a notice with the ICC that it intends to transfer its generating
facilities (all in Illinois) to Ameren Energy Generating Company (AEG), a
nonregulated, indirectly wholly-owned subsidiary of Ameren. The formation of the
new generating subsidiary, as well as the transfer of the Registrant's
generating assets and liabilities (at historical net book value of approximately
$600 million) and certain power sales contracts in exchange for an intercompany
note receivable, was subject to regulatory approvals from the ICC, the FERC, and
the Missouri Public Service Commission, all of which have been received as of
March 10, 2000. An additional PUHCA-related determination that will permit the
new generating subsidiary to operate as an Exempt Wholesale Generator is being
sought from the FERC. The generating subsidiary will include most of the new
combustion turbine generators being acquired by Ameren in addition to the
Registrant's facilities. The new generating subsidiary is scheduled to be
operational in May 2000. The proposed transfer of the Registrant's generating
assets and liabilities had no effect on the Registrant's financial statements as
of December 31, 1999.
Once the transfer is completed, a power sales agreement will be in place between
the new generating subsidiary and a nonregulated marketing affiliate for all
generation. The marketing affiliate will have a power sales agreement with the
Registrant to supply it sufficient generation to meet native load requirements
over the term of the agreement.
-24-
<PAGE>
Other provisions of the Law include (1) potential recovery of a portion of
strandable costs, which represent costs which would not be recoverable in a
restructured environment, through a transition charge collected from customers
who choose another electric supplier; (2) a mechanism to securitize certain
future revenues; and (3) a provision relieving the Registrant of the requirement
to file electric rate cases or alternative regulatory plans, following the
consummation of the Merger to reflect the effects of net merger savings.
The Registrant's accounting policies and financial statements conform to GAAP
applicable to rate-regulated enterprises and reflect the effects of the
ratemaking process in accordance with SFAS 71, "Accounting for the Effects of
Certain Types of Regulation." Such effects concern mainly the time at which
various items enter into the determination of net income in order to follow the
principle of matching costs and revenues. For example, SFAS 71 allows the
Registrant to record certain assets and liabilities (regulatory assets and
regulatory liabilities) that are expected to be recovered or settled in future
rates and would not be recorded under GAAP for nonregulated entities. In
addition, reporting under SFAS 71 allows companies whose service obligations and
prices are regulated to maintain assets on their balance sheets representing
costs they reasonably expect to recover from customers, through inclusion of
such costs in future rates. SFAS 101, "Accounting for the Discontinuance of
Application of FASB Statement No. 71," specifies how an enterprise that ceases
to meet the criteria for application of SFAS 71 for all or part of its
operations should report that event in its financial statements. In general,
SFAS 101 requires that the enterprise report the discontinuance of SFAS 71 by
eliminating from its balance sheet all regulatory assets and liabilities related
to the applicable portion of the business that no longer meets SFAS 71 criteria.
The EITF has concluded that application of SFAS 71 accounting should be
discontinued once sufficiently detailed deregulation legislation is issued for a
separable portion of a business for which a plan of deregulation has been
established. However, the EITF further concluded that regulatory assets
associated with the deregulated portion of the business, which will be recovered
through tariffs charged to customers of a regulated portion of the business,
should be associated with the regulated portion of the business from which
future cash recovery is expected (not the portion of the business from which the
costs originated). Those assets can therefore continue to be carried on the
regulated entity's balance sheet to the extent such assets are recoverable. In
addition, SFAS 121 establishes accounting standards for the impairment of
long-lived assets.
Due to the enactment of the Law, prices for the retail supply of electric
generation are expected to transition from cost-based, regulated rates to rates
determined in large part by competitive market forces in the state of Illinois.
As a result, the Registrant discontinued application of SFAS 71 for the retail
portion of its generating business (i.e., the portion of the Registrant's
business related to the supply of electric energy) in the fourth quarter of
1997. The Registrant evaluated the impact of the Law on the future
recoverability of its regulatory assets and liabilities related to the
generation portion of its business and determined that it was not probable that
such assets and liabilities would be recovered through cash flows from the
regulated portion of its business. Accordingly, the Registrant's
generation-related regulatory assets and liabilities of its retail electric
business were written off in the fourth quarter of 1997, resulting in an
extraordinary charge to earnings of $25 million, net of income taxes. These
regulatory assets and liabilities included previously incurred costs originally
expected to be collected/refunded in future revenues, such as coal contract
restructuring costs, costs associated with an abandoned scrubber at a generating
plant, and income tax-related regulatory assets and liabilities. In addition,
the Registrant has evaluated whether the recoverability of the costs associated
with its remaining net generation-related assets has been impaired as defined
under SFAS 121. The Registrant has concluded that impairment, as defined under
SFAS 121, does not exist and that no plant writedowns are necessary at this
time. At December 31, 1999, the Registrant's net investment in generation
facilities related to its retail jurisdiction approximated $647 million and was
included in electric plant in-service on the Registrant's balance sheet.
In August 1999, the Registrant filed a transmission system rate case with the
FERC. This filing was primarily designed to implement, rates, terms and
conditions for transmission service for those retail customers who choose other
suppliers as allowed under the Law. On October 14, 1999, the FERC issued an
order suspending the proposed rates until March 25, 2000. In January 2000, a
settlement in principle was reached with the FERC trial staff and other
interested parties. The settlement establishes the rates for transmission
service that are to go into effect in the first quarter of 2000. The settlement
is subject to approval by the FERC. The Registrant expects that the FERC will
approve the settlement in 2000.
The provisions of the Law could also result in lower revenues, reduced profit
margins and increased costs of capital and operations expense. At this time, the
Registrant is unable to determine the impact of the Law on its future financial
condition, results of operations or liquidity.
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<PAGE>
Gas
In February 1999, the ICC approved an $8 million annual rate increase for
natural gas service. The increase became effective in February 1999.
Midwest ISO
In 1998, the Registrant joined a group of companies that support the formation
of the Midwest Independent System Operator (Midwest ISO). An ISO operates, but
does not own, electric transmission systems and maintains system reliability and
security while alleviating pricing issues associated with the "pancaking" of
rates. The Midwest ISO would be regulated by FERC. Thirteen transmission-owning
utilities have joined the Midwest ISO, as of December 31, 1999. The FERC
conditionally approved the formation of the Midwest ISO in September 1998, and
it is expected to be operational during the year 2001. The ICC has authorized
the Registrant to join the Midwest ISO and to transfer control of its
transmission facilities to the Midwest ISO. The Midwest ISO covers 14 states,
represents portions of 60,000 miles of transmission line and controls $8 billion
in assets. The Registrant believes that the operation of the Midwest ISO will
not have a material adverse effect on its financial condition, results of
operations or liquidity.
In December 1999, the FERC issued its Order 2000 relating to Regional
Transmission Organizations (RTOs) that would meet certain characteristics such
as size and independence. Order 2000 calls on all transmission owners to join
RTOs. In particular, all public utilities that own, operate, or control
interstate transmission facilities must file with the FERC by October 15, 2000,
a proposal for an RTO, or alternatively a description of efforts by the utility
to join an RTO. The Registrant expects that its participation in the Midwest ISO
will satisfy the requirements of Order 2000.
Regulatory Assets and Liabilities
In accordance with SFAS 71, the Registrant has deferred certain costs pursuant
to actions of its regulators, and is currently recovering such costs in electric
rates charged to customers.
At December 31, the Registrant had recorded the following regulatory assets and
regulatory liability:
- -------------------------------------------------------------------------
(In Millions)
1999 1998
- -------------------------------------------------------------------------
Regulatory Assets:
Income taxes $22 $25
Unamortized loss on reacquired debt 7 8
Other 13 15
- -------------------------------------------------------------------------
Regulatory Assets $42 $48
- -------------------------------------------------------------------------
Regulatory Liability:
Income taxes $34 $40
- -------------------------------------------------------------------------
Regulatory Liability $34 $40
- -------------------------------------------------------------------------
Income Taxes: See Note 9 - Income Taxes.
Unamortized Loss on Reacquired Debt: Represents losses related to refunded debt.
These amounts are being amortized over the lives of the related new debt issues
or the remaining lives of the old debt issues if no new debt was issued.
The Registrant continually assesses the recoverability of its regulatory assets.
Under current accounting standards, regulatory assets are written off to
earnings when it is no longer probable that such amounts will be recovered
through future revenues.
NOTE 3 - Related Party Transactions
The Registrant has transactions in the normal course of business with other
Ameren subsidiaries. These transactions are primarily comprised of power
purchases and sales and services received or rendered. Intercompany receivables
included in other accounts and notes receivable were approximately $12 million
and $2 million, respectively, as of December 31, 1999 and 1998. Intercompany
payables included in accounts and wages payable totaled approximately $35
million and $12 million, respectively, as of December 31, 1999 and 1998.
In addition, the Registrant has the ability to borrow funds from Ameren or
AmerenUE or invest funds through a regulated money pool agreement. At December
31, 1999, the Registrant had outstanding intercompany borrowings of $133 million
through the regulated money pool. See Note 7 - Short-Term Borrowings for further
information.
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<PAGE>
NOTE 4 - Targeted Separation Plan
In July 1998, Ameren offered separation packages to employees whose positions
were eliminated through a targeted separation plan (TSP). During the third
quarter of 1998, a nonrecurring, pretax charge of $7 million was recorded, which
reduced earnings $4 million, representing the Registrant's share of costs
incurred to implement the TSP.
NOTE 5 - Concentration of Risk
Market Risk
The Registrant engages in price risk management activities related to
electricity and fuel. In addition to buying and selling these commodities, the
Registrant uses derivative financial instruments to manage market risks and
reduce exposure resulting from fluctuations in interest rates and the prices of
electricity and fuel. Derivative instruments used include futures, forward
contracts and options. The use of these types of contracts allows the Registrant
to manage and hedge its contractual commitments and reduce exposure related to
the volatility of commodity market prices.
Credit Risk
Credit risk represents the loss that would be recognized if counterparties fail
to perform as contracted. New York Mercantile Exchange (NYMEX) traded futures
contracts are guaranteed by NYMEX and have nominal credit risk. On all other
transactions, the Registrant is exposed to credit risk in the event of
nonperformance by the counterparties in the transaction.
The Registrant's financial instruments subject to credit risk consist primarily
of trade accounts receivable and forward contracts. The risk associated with
trade receivables is mitigated by the large number of customers in a broad range
of industry groups comprising the Registrant's customer base. The Registrant's
revenues are primarily derived from sales of electricity and natural gas to
customers in Illinois. For each counterparty in forward contracts, the
Registrant analyzes the counterparty's financial condition prior to entering
into an agreement, establishes credit limits and monitors the appropriateness of
these limits on an ongoing basis through a credit risk management program.
NOTE 6 - Preferred Stock
At December 31, 1999 and 1998, AmerenCIPS had 4.6 million shares of authorized
preferred stock. There were 2 million shares of cumulative preferred and 2.6
million shares of preferred without par value (aggregate stated value not to
exceed $65 million) authorized.
Outstanding preferred stock is entitled to cumulative dividends and is
redeemable at the prices shown in the following table:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred Stock Not Subject to Mandatory Redemption:
( Dollars in Millions)
- --------------------------------------------------------------------------------
Redemption Price December 31,
(per share) 1999 1998
Par value $100 Series--
4.00% Series - 150,000 shares $101.00 $15 $15
4.25% Series - 50,000 shares 102.00 5 5
4.90% Series - 75,000 shares 102.00 8 8
4.92% Series - 50,000 shares 103.50 5 5
5.16% Series - 50,000 shares 102.00 5 5
1993 Auction - 300,000 shares 100.00 - note(a) 30 30
6.625% Series - 125,000 shares 100.00 12 12
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
OUTSTANDING NOT SUBJECT TO
MANDATORY REDEMPTION $80 $80
- --------------------------------------------------------------------------------
(a) Dividend rates, and periods during which such rates apply, vary depending on
the Registrant's selection of certain defined dividend period lengths. The
average dividend rate during 1999 was 3.89%.
- --------------------------------------------------------------------------------
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<PAGE>
NOTE 7 - Short-Term Borrowings
Short-term borrowings of the Registrant consist of bank loans (maturities
generally on an overnight basis) and commercial paper (maturities generally
within 10-45 days). No short-term borrowings were outstanding at December 31,
1999. At December 31, 1998, short-term borrowings of $47 million were
outstanding with weighted average interest rates of 4.9%.
At December 31, 1999, the Registrant had committed bank lines of credit
aggregating $30 million (all of which was unused and available at such date)
which make available interim financing at various rates of interest based on
LIBOR, the bank certificate of deposit rate, or other options. These lines of
credit are renewable annually at various dates throughout the year.
Also, the Registrant has the ability to borrow up to approximately $950 million
from Ameren or AmerenUE through a regulated money pool agreement. The regulated
money pool was established to coordinate and provide for certain short-term cash
and working capital requirements and is administered by Ameren Services Company.
Interest is calculated at varying rates of interest depending on the composition
of internal and external funds in the regulated money pool. At December 31,
1999, the Registrant had $133 million of intercompany borrowings outstanding and
$520 million available through the regulated money pool.
NOTE 8 - Long-Term Debt
Long-term debt outstanding at December 31, was:
- ------------------------------------------------------------------------------
(In Millions) 1999 1998
- ------------------------------------------------------------------------------
First Mortgage Bonds - note (a)
- ------------------------------------------------------------------------------
7 1/8% Series W paid in 1999 $ - 50
6.00% Series Z due 2000 25 25
6.73% Series 1997-2 due 2001 20 20
6 3/4% Series Y due 2002 23 23
6 3/8% Series Z due 2003 40 40
6.49% Series 1995-1 due 2005 20 20
7.05% Series 1997-2 due 2006 20 20
7 1/2% Series X due 2007 50 50
7.61% Series 1997-2 due 2017 40 40
6.125% Series due 2028 60 60
Other 5.375% - 6.99% due 2000 through 2008 50 60
- ------------------------------------------------------------------------------
348 408
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Pollution Control Loan Obligations
- ------------------------------------------------------------------------------
1990 Series B 7.60% due 2013 32 32
1990 Series A 7.60% due 2014 20 20
1993 Series C-1 due 2026 - note (b) 35 35
1993 Series C-2 5.70% due 2026 25 25
1993 Series A 6 3/8% due 2028 35 35
Other 5.40% - 5.90% due 2028 35 35
- ------------------------------------------------------------------------------
182 182
- ------------------------------------------------------------------------------
Unamortized Discount and Premium on Debt (1) (2)
- ------------------------------------------------------------------------------
Maturities Due Within One Year (35) (60)
- ------------------------------------------------------------------------------
Total Long-Term Debt $494 $528
- ------------------------------------------------------------------------------
(a) At December 31, 1999, substantially all of the property and plant was
mortgaged under, and subject to liens of, the respective indentures pursuant to
which the bonds were issued. (b) The interest rate for the year 1999 was 3.34%.
Since August 15, 1998, the actual interest rates vary since the bonds are
currently in the weekly interest rate mode. Interest rate modes can be changed
by the Registrant at the end of any interest rate mode period.
Maturities of long-term debt through 2004 are as follows:
- ------------------------------------------------------------------------
(In Millions) Principal Amount
- ------------------------------------------------------------------------
2000 $35
2001 30
2002 33
2003 45
2004 -
- ------------------------------------------------------------------------
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<PAGE>
NOTE 9 - Income Taxes
Total income tax expense for 1999 resulted in an effective tax rate of 36% on
earnings before income taxes (36% in 1998 and 35% in 1997).
Principal reasons such rates differ from the statutory federal rate:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Statutory federal income 35% 35% 35%
tax rate
Increases (decreases) from:
Depreciation differences - (3) -
Amortization of investment tax credit (3) (2) (3)
State income tax 5 5 5
Other (1) 1 (2)
- --------------------------------------------------------------------------------
Effective income tax rate 36% 36% 35%
- --------------------------------------------------------------------------------
Income tax expense components:
- --------------------------------------------------------------------------------
(In Millions) 1999 1998 1997
- --------------------------------------------------------------------------------
Taxes currently payable (principally
federal):
Included in operating expenses $52 $60 $39
- --------------------------------------------------------------------------------
$52 $60 $39
- --------------------------------------------------------------------------------
Deferred taxes (principally federal):
Included in operating expenses--
Depreciation differences $ (7) $(10) $(4)
Other (12) (1) 2
- --------------------------------------------------------------------------------
$(19) $(11) $(2)
- --------------------------------------------------------------------------------
Deferred investment tax credits,
Amortization
Included in operating expenses $ (2) $ (3) $ (3)
- --------------------------------------------------------------------------------
Total income tax expense $ 31 $46 $34
- --------------------------------------------------------------------------------
In accordance with SFAS 109, "Accounting for Income Taxes," a regulatory asset,
representing the probable recovery from customers of future income taxes, which
is expected to occur when temporary differences reverse, was recorded along with
a corresponding deferred tax liability. Also, a regulatory liability,
recognizing the lower expected revenue resulting from reduced income taxes
associated with amortizing accumulated deferred investment tax credits, was
recorded. Investment tax credits have been deferred and will continue to be
credited to income over the lives of the related property.
The Registrant adjusts its deferred tax liabilities for changes enacted in tax
laws or rates. Recognizing that regulators will probably reduce future revenues
for deferred tax liabilities initially recorded at rates in excess of the
current statutory rate, reductions in the deferred tax liability were credited
to the regulatory liability.
Temporary differences gave rise to the following deferred tax assets and
deferred tax liabilities at December 31:
- --------------------------------------------------------------------------------
(In Millions) 1999 1998
- --------------------------------------------------------------------------------
Accumulated Deferred Income Taxes:
Accelerated depreciation $216 $228
Capitalized taxes and expenses 78 87
Regulatory liabilities, net (29) (32)
Prepayments (15) (27)
Deferred benefit costs (11) -
- --------------------------------------------------------------------------------
Total net accumulated deferred income tax liabilities $239 $256
- --------------------------------------------------------------------------------
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<PAGE>
NOTE 10 - Retirement Benefits
On January 1, 1999, the AmerenUE and the AmerenCIPS defined-benefit pension
plans combined to form the Ameren Retirement Plan. The Ameren plan covers
qualified employees of the Registrant. Benefits are based on the employees'
years of service and compensation. The Ameren plan is funded in compliance with
income tax regulations and federal funding requirements. The Registrant, along
with other subsidiaries of Ameren, is a participant in the Ameren plan and is
responsible for its proportional share of the costs and the assets or
liabilities. The Registrant's share of the pension costs in 1999 was $6 million,
of which approximately 20% was charged to construction accounts. The AmerenCIPS
pension plan information for 1998 and 1997 is presented separately.
Pension costs for the years 1998 and 1997 were $9 million and $5 million,
respectively, of which approximately 19% in 1998 and 15% in 1997 was charged to
construction accounts.
In 1998, the Registrant changed its measurement date for valuation of plan
assets and liabilities to December 31.
Funded Status of Pension Plan:
- ------------------------------------------------------------------------
(In Millions) 1998
- ------------------------------------------------------------------------
Change in benefit obligation
Net benefit obligation at beginning of year $249
Service cost 8
Interest cost 17
Amendments 5
Actuarial loss 8
Special termination benefit charge 5
Benefits paid (31)
- ------------------------------------------------------------------------
Net benefit obligation at end of year 261
Change in plan assets *
Fair value of plan assets at beginning of year 319
Actual return on plan assets 38
Employer contributions 5
Benefits paid (31)
- ------------------------------------------------------------------------
Fair value of plan assets at end of year 331
Funded status - excess (70)
Unrecognized net actuarial gain 73
Unrecognized prior service cost (13)
Unrecognized net transition asset 2
- ------------------------------------------------------------------------
Prepaid pension cost at December 31 $ (8)
- ------------------------------------------------------------------------
* Plan assets consist principally of common and preferred stocks, bonds, money
market instruments and real estate.
Components of Net Periodic Benefit Cost:
- ------------------------------------------------------------------------
(In Millions) 1998 1997
- ------------------------------------------------------------------------
Service cost $ 8 $ 7
Interest cost 17 16
Expected return on plan assets (22) (19)
Amortization of prior service cost 1 1
Special termination benefit charge 5 -
- ------------------------------------------------------------------------
Net periodic benefit cost $ 9 $ 5
- ------------------------------------------------------------------------
Weighted-average Assumptions for Actuarial Present Value of Projected Benefit
Obligations:
- ------------------------------------------------------
1998
- ------------------------------------------------------
Discount rate at measurement date 6.75%
Expected return on plan assets 8.5%
Increase in future compensation 4%
- ------------------------------------------------------
In addition to providing pension benefits, the Registrant provides certain
health care and life insurance benefits for retired employees. The Registrant's
postretirement benefit plans cover substantially all employees of AmerenCIPS as
well as certain employees of Ameren Services Company. The Registrant accrues the
expected postretirement
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<PAGE>
benefit costs during employees' years of service. The following is information
related to the Registrant's postretirement benefit plans as of December 31.
The Registrant's funding policy is to fund two Voluntary Employee Beneficiary
Association trusts (VEBAs) and the 401(h) account established within the
Registrant's retirement income trust with the lesser of the net periodic cost or
the amount deductible for federal income tax purposes. In 1998, the Registrant
changed its measurement date for valuation of plan assets and liabilities to
December 31. Postretirement benefit costs were $3 million for 1999, $6 million
for 1998 and $12 million for 1997, of which approximately 10% was charged to
construction accounts in 1999, 20% in 1998 and 17% in 1997. AmerenCIPS'
transition obligation at December 31, 1999 is being amortized over the next 13
years.
The ICC allows the recovery of postretirement benefit costs in rates to the
extent that such costs are funded.
Funded Status of Postretirement Benefit Plans:
- -----------------------------------------------------------------------------
(In Millions) 1999 1998
- -----------------------------------------------------------------------------
Change in benefit obligation
Net benefit obligation at beginning of year $152 $140
Service cost 3 3
Interest cost 9 10
Actuarial (gain)/loss (22) 4
Benefits paid (4) (5)
- -----------------------------------------------------------------------------
Net benefit obligation at end of year 138 152
Change in plan assets *
Fair value of plan assets at beginning of year 128 115
Actual return on plan assets 10 16
Employer contributions 1 4
401(h) transfer - (2)
Benefits paid (4) (5)
- -----------------------------------------------------------------------------
Fair value of plan assets at end of year 135 128
Funded status - deficiency 3 24
Unrecognized net actuarial gain 75 58
Unrecognized net transition obligation (71) (76)
- -----------------------------------------------------------------------------
Postretirement benefit liability at December 31 $ 7 $ 6
- -----------------------------------------------------------------------------
* Plan assets consist principally of common and preferred stocks, bonds, money
market instruments and real estate.
Components of Net Periodic Benefit Cost:
- ------------------------------------------------------------------------------
(In Millions) 1999 1998 1997
- ------------------------------------------------------------------------------
Service cost $3 $3 $4
Interest cost 9 10 10
Expected return on plan assets (9) (8) (5)
Amortization of:
Transition obligation 6 5 5
Actuarial gain (6) (4) (2)
- ------------------------------------------------------------------------------
Net periodic benefit cost $3 $6 $12
- ------------------------------------------------------------------------------
Assumptions for the Obligation Measurements:
- ------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------
Discount rate at measurement date 7.75% 6.75%
Expected return on plan assets 8.5% 8.5%
Medical cost trend rate - initial - 5.75%
- ultimate 5.25% 4.75%
Ultimate medical cost trend rate expected in year 2000 2000
- ------------------------------------------------------------------------------
A one percentage point increase in the medical cost trend rate is estimated to
increase the net periodic cost and the accumulated postretirement benefit
obligation approximately $2 million and $20 million, respectively. A one
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<PAGE>
percentage point decrease in the medical cost trend rate is estimated to
decrease the net periodic cost and the accumulated postretirement benefit
obligation approximately $2 million and $20 million, respectively.
NOTE 11 - Commitments and Contingencies
Information contained in this section could be impacted by the transfer of the
Registrant's generating facilities to AEG. See discussion in Note 1 - Summary of
Significant Accounting Policies for more information.
The Registrant is engaged in a capital program under which expenditures
averaging approximately $62 million, including AFC, are anticipated during each
of the next five years. This estimate assumes the transfer of the Registrant's
generating facilities to AEG will occur in 2000.
The Registrant has commitments for the purchase of coal under long-term
contracts. Coal contract commitments, including transportation costs, for 2000
through 2004 are estimated to total $761 million. Total coal purchases,
including transportation costs, for 1999, 1998 and 1997 were $216 million, $189
million and $209, respectively. The Registrant also has existing contracts with
pipeline and natural gas suppliers to provide, transport and store natural gas
for distribution and electric generation. Gas-related contract cost commitments
for 2000 through 2004 are estimated to total $54 million. Total delivered
natural gas costs were $73 million for 1999, $69 million for 1998, and $97
million for 1997.
In the fourth quarter of 1999, the Registrant and two of its coal suppliers
executed agreements to terminate their existing coal supply contracts, effective
December 31, 1999. Under these agreements, the Registrant has made termination
payments to the suppliers totaling approximately $52 million. These termination
payments were recorded as a nonrecurring charge in the fourth quarter of 1999,
equivalent to $31 million, after income taxes. Total pretax fuel cost savings
from these termination agreements are estimated to be $183 million (or $131
million net of the termination payments) through 2010, which is the maximum
period that would have remained on any of the terminated coal supply contracts.
Approximately $66 million of pretax fuel cost savings is expected to be realized
over the next three years.
During 1996, the Registrant restructured its contract with one of its major coal
suppliers. In 1997, the Registrant paid a $70 million restructuring payment to
the supplier, which allowed it to purchase at market prices low-sulfur,
non-Illinois coal through the supplier (in substitution for the high-sulfur
Illinois coal the Registrant was obligated to purchase under the original
contract). Under the restructuring, the Registrant received options for future
purchases of low-sulfur, non-Illinois coal from the supplier through 1999 at set
negotiated prices.
By switching to low-sulfur coal, the Registrant was able to discontinue
operating a generating plant scrubber. The benefits of the restructuring include
lower cost coal, avoidance of significant capital expenditures to renovate the
scrubber, and elimination of scrubber operating and maintenance costs (offset by
scrubber retirement expenses). The net benefits of restructuring are expected to
exceed $100 million through 2007. In December 1996, the ICC entered an order
approving the switch to non-Illinois coal, recovery of the restructuring payment
plus associated carrying costs (Restructuring Charges) through the retail Fuel
Adjustment Clause (FAC) over six years, and continued recovery in rates of the
undepreciated scrubber investment, plus costs of removal. Additionally, in May
1997 the FERC approved recovery of the wholesale portion of the Restructuring
Charges through the wholesale FAC. As a result of the ICC and FERC orders, the
Registrant classified the $72 million of the Restructuring Charges as a
regulatory asset and, through December 1997, recovered approximately $10 million
of the Restructuring Charges through the retail FAC and from wholesale
customers. In November 1997, the ICC order was reversed on appeal by the
Illinois Third District Appellate Court. The Illinois Supreme Court issued a
final decision in December 1998 reversing the Appellate Court's opinion and
affirming the ICC's order allowing the recovery of the Restructuring Charges
through the retail FAC.
The recoverability of the Restructuring Charges under the retail FAC in Illinois
was impacted by the Law. Among other things, the Law provides utilities with the
option to eliminate the retail FAC and limits the ability of utilities to file a
full rate case for its aggregate revenue requirements. After evaluating the
impact of the Law on the future recoverability of the Registrant's Restructuring
Charges through future rates, the Registrant wrote off the unamortized balance
of the Illinois retail portion of its Restructuring Charges as of December 31,
1997 ($34 million, net of income taxes). See Note 2 - Regulatory Matters for
further information.
Under Title IV of the Clean Air Act Amendments of 1990, the Registrant is
required to significantly reduce total annual sulfur dioxide (SO2) and nitrogen
oxide (NOx) emissions by the year 2000. By switching to low-sulfur coal, the
Registrant is meeting these requirements.
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<PAGE>
In July 1997, the United States Environmental Protection Agency (EPA) issued
regulations revising the National Ambient Air Quality Standards for ozone and
particulate matter. In May 1999, the U.S. Court of Appeals for the District of
Columbia remanded the regulations back to the EPA for review. Litigation
regarding appeals of these regulations is ongoing. New ambient standards may
result in additional significant reductions in SO2 and NOx emissions from the
Registrant's power plants by 2007. At this time, the Registrant is unable to
predict the ultimate impact of these revised air quality standards on its future
financial condition, results of operations or liquidity.
In an attempt to lower ozone levels across the eastern United States, the EPA
issued the implementation of regulations in September 1998 to reduce NOx
emissions from coal-fired boilers and other sources in 22 states, including
Illinois (where all of the Registrant's coal-fired power plant boilers are
located). The proposed regulations mandate a 75% reduction from 1990 levels by
the year 2003 and require states to develop plans to reduce NOx emissions to
help alleviate ozone problem areas. The NOx emissions reductions already
achieved on several of the Registrant's coal-fired power plants will help to
reduce the costs of compliance with this regulation. However, preliminary
analysis of the regulations indicate that selective catalytic reduction
technology will be required for some of the Registrant's units, as well as other
additional controls.
In March 2000, the U.S. Court of Appeals for the District of Columbia
substantially upheld the proposed NOx regulations but remanded portions of them
to the EPA for further consideration. The implementation date of the regulations
is uncertain and further legal challenge is possible. Assuming an implementation
date of 2003, the Registrant currently estimates that its additional capital
expenditures to comply with the final NOx could range from $125 million to $150
million. Associated operations and maintenance expenditures could increase $5
million to $8 million annually, beginning in 2003. The Registrant will explore
alternatives to comply with these new regulations in order to minimize, to the
extent possible, its capital costs and operating expenses. The Registrant is
unable to predict the outcome of the litigation, the regulation implementation
date or the ultimate impact of these standards on its future financial
condition, results of operations or liquidity.
In November 1998, the United States signed an agreement with numerous other
countries (the Kyoto Protocol) containing certain environmental provisions,
which would require decreases in greenhouse gases in an effort to address the
"global warming" issue. The Kyoto Protocol has not been ratified by the United
States Senate. Implementation of the Kyoto Protocol in its present form would
likely result in significantly higher capital costs and operations and
maintenance expenses by the Registrant. At this time, the Registrant is unable
to determine the impact of these proposals on the Registrant's future financial
condition, results of operations or liquidity.
As of December 31, 1999, the Registrant was designated as a potentially
responsible party (PRP) by federal and state environmental protection agencies
at five hazardous waste sites. Other hazardous waste sites have been identified
for which the Registrant may be responsible but has not been designated a PRP.
Costs relating to studies and remediation and associated legal and litigation
expenses at the former manufactured gas plant sites located in Illinois are
being accrued and deferred rather than expensed currently, pending recovery
through environmental adjustment clause rate riders approved by the ICC. Through
December 31, 1999, the total of the costs deferred, net of recoveries from
insurers and through environmental adjustment clause rate riders, was $13
million.
The ICC has instituted reconciliation proceedings to review the Registrant's
environmental remediation activities to determine whether the revenues collected
from customers under its environmental adjustment clause rate riders were
consistent with the amount of remediation costs prudently and properly incurred.
Amounts found to have been incorrectly included under the riders would be
subject to refund. Rulings from the ICC are pending with respect to these
proceedings applicable to the years 1993 through 1998. The reconciliation
proceedings relating to the Registrant's 1999 environmental remediation
activities will commence by the ICC in 2000.
The Registrant continually reviews remediation costs that may be required for
all of these sites. Any unrecovered environmental costs are not expected to have
a material adverse effect on the Registrant's financial position, results of
operations or liquidity.
The International Union of Operating Engineers Local 148 and the International
Brotherhood of Electrical Workers Local 702 filed unfair labor practice charges
with the National Labor Relations Board (NLRB), relating to the legality of the
1993 lockout of both unions by the Registrant. The NLRB issued complaints
against the Registrant concerning its lockout. Both unions sought, among other
things, back pay and other benefits for the period of the lockout. At that time,
the Registrant estimated the amount of back pay and other benefits for both
unions to be
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<PAGE>
approximately $17 million. In August 1998, a three-member panel of the NLRB
reversed the May 1996 decision of its administrative law judge and ruled in
favor of the Registrant holding that the lockout was lawful. In April 1999, the
unions filed petitions for review with the U.S. Court of Appeals for the
District of Columbia Circuit of the NLRB's August 1998 decision. This appeal is
pending. The Registrant continues to believe that the lockout was both lawful
and reasonable and that the final resolution of the dispute will not have a
material adverse effect on its financial position, results of operations or
liquidity.
Certain employees of the Registrant and its affiliated companies are represented
by the International Brotherhood of Electrical Workers (IBEW) and the
International Union of Operating Engineers. These employees comprise
approximately 70% of Ameren's workforce. Labor agreements covering substantially
all represented employees of the Registrant expired in 1999 and were renewed for
a term expiring in 2002. Labor agreements which expired in 1999 have not been
renewed with IBEW Locals 1439, 309, 649 and 1455, who collectively represent
approximately 2,000 AmerenUE and Ameren Services Company employees. Negotiations
with Local 1455 are still ongoing. However, after engaging in extensive
good-faith bargaining with IBEW Locals 1439, 309 and 649, AmerenUE submitted a
last, best and final offer to these collective bargaining units on February 2,
2000. The offer was rejected and AmerenUE informed these locals that it would
implement the noneconomic portion of its offer effective March 6, 2000. The
employees are currently working under the noneconomic portion of AmerenUE's
last, best and final offer. The Registrant is unable to predict what further
action, if any, these collective bargaining units will take or the response of
the Registrant's union represented employees to any action by its affiliates'
employees. The Registrant is unable to determine what, if any, impact these
labor matters could have on its future financial condition, results of
operations or cash flows.
Regulatory changes enacted and being considered at the federal and state levels
continue to change the structure of the utility industry and utility regulation,
as well as encourage increased competition. At this time, the Registrant is
unable to predict the impact of these changes on the Registrant's future
financial condition, results of operations or liquidity. See Note 2 - Regulatory
Matters for further information.
The Registrant is involved in other legal and administrative proceedings before
various courts and agencies with respect to matters arising in the ordinary
course of business, some of which involve substantial amounts. The Registrant
believes that the final disposition of these proceedings will not have a
material adverse effect on its financial position, results of operations or
liquidity.
NOTE 12 - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Temporary Investments/Short-Term Borrowings
The carrying amounts approximate fair value because of the short-term maturity
of these instruments.
Preferred Stock
The fair value is estimated based on the quoted market prices for the same or
similar issues.
Long-Term Debt
The fair value is estimated based on the quoted market prices for same or
similar issues or on the current rates offered to the Registrant for debt of
comparable maturities.
Derivative Financial Instruments
Market prices used to determine fair value are based on management's estimates,
which take into consideration factors like closing exchange prices,
over-the-counter prices, time value of money and volatility factors.
Carrying amounts and estimated fair values of the Registrant's financial
instruments at December 31:
1999 1998
- --------------------------------------------------------------------------------
(In Millions) Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Preferred stock $ 80 $ 66 $ 80 $ 75
Long-term debt (including current portion) 529 528 588 636
- --------------------------------------------------------------------------------
-34-
<PAGE>
NOTE 13 - Segment Information
In 1998, the Registrant adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." AmerenCIPS' business segments provide
electric and gas service in portions of Illinois.
The accounting policies of the segments are the same as those described in Note
1 - Summary of Significant Accounting Policies. Segment data includes a charge
allocating costs of administrative support services to each of the segments.
These costs are accumulated in a separate Ameren subsidiary, Ameren Services
Company, which provides a variety of support services to the Registrant. The
Registrant evaluates the performance of its segments and allocates resources to
them, based on revenues and operating income.
The table below presents information about the reported revenues and operating
income of the Registrant for the years ended December 31:
- --------------------------------------------------------------------
(In Millions) Electric Gas Total
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1999
- --------------------------------------------------------------------
Revenues $ 795 $133 $ 928
Operating income 86 9 95
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1998
- --------------------------------------------------------------------
Revenues $ 722 $125 $ 847
Operating income 115 5 120
- --------------------------------------------------------------------
- --------------------------------------------------------------------
1997
- --------------------------------------------------------------------
Revenues $ 700 $152 $ 852
Operating income 95 7 102
- --------------------------------------------------------------------
Specified items included in segment profit/loss for the year ended December 31:
- ------------------------------------------------------------------------------
(In Millions) Electric Gas Total
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------
Depreciation, depletion
and amortization expense $ 73 $ 8 $ 81
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1998
- ------------------------------------------------------------------------------
Depreciation, depletion
and amortization expense $ 66 $ 8 $ 74
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1997
- ------------------------------------------------------------------------------
Depreciation, depletion
and amortization expense $ 76 $ 7 $ 83
Extraordinary items (25) - (25)
- ------------------------------------------------------------------------------
-35-
<PAGE>
Specified item related to segment assets as of December 31:
- -----------------------------------------------------------------------------
(In Electric Gas Total
Millions)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1999
- -----------------------------------------------------------------------------
Expenditures for additions
to long-lived assets $ 86 $ 9 $ 95
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1998
- -----------------------------------------------------------------------------
Expenditures for additions
to long-lived assets $ 60 $ 9 $ 69
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1997
- -----------------------------------------------------------------------------
Expenditures for additions
To long-lived assets $ 105 $ 11 $ 116
- -----------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
On June 12, 1998, the Board of Directors of the Registrant's parent,
Ameren, approved the recommendation of the Board's Auditing Committee and
appointed PricewaterhouseCoopers LLP as auditors for the year 1998. Ameren's
appointment of PricewaterhouseCoopers LLP also covered auditing services for
Ameren's subsidiaries, which meant that Registrant's previous certifying
accountant, Arthur Andersen LLP (Andersen), was, in effect, dismissed.
Andersen's report of the Registrant's financial statements for the year
1997 did not contain an adverse opinion or a disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope, or accounting principles.
Further, during such period, and through the date of dismissal, there were no
disagreements with Andersen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. Also, there was
no occurrence of any kind of event set out in paragraphs (a) (1) (v) (A) through
(D) of Item 304 of Regulation S-K.
PricewaterhouseCoopers LLP was also appointed as auditors for the year
1999.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Any information concerning directors required to be reported by this item
is included under "Item (1): Election of Directors" in the AmerenCIPS' 2000
definitive proxy statement filed pursuant to Regulation 14A and is incorporated
herein by reference.
Information concerning executive officers required by this item is reported
in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Any information required to be reported by this item is included under
"Compensation" in AmerenCIPS' 2000 definitive proxy statement filed pursuant to
Regulation 14A and is incorporated herein by reference.
-36-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Any information required to be reported by this item is included under
"Security Ownership of Management" in AmerenCIPS' 2000 definitive proxy
statement filed pursuant to Regulation 14A and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Any information required to be reported by this item is included under
"Item (1): Election of Directors" in AmerenCIPS' 2000 definitive proxy statement
filed pursuant to Regulation 14A and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. Financial Statements and Financial Statement Schedule Covered by
Report of Independent Accountants
Pages Herein
Report of Independent Accountants.................................17
Balance Sheet - December 31, 1999 and 1998........................18
Statement of Income - Years 1999, 1998, and 1997..................19
Statement of Cash Flows - Years 1999, 1998, and 1997..............20
Statement of Retained Earnings - Years 1999, 1998, and 1997.......21
Notes to Financial Statements.....................................22
Valuation and Qualifying Accounts (Schedule II)
Years 1999, 1998, and 1997......................................38
2. Exhibits: See EXHIBITS beginning on Page 40
(b) Reports on Form 8-K. The Registrant filed a report on Form 8-K
dated December 20, 1999 reporting the termination of coal supply
contracts, the resulting estimated pretax fuel cost savings and
the recording of a nonrecurring charge.
-37-
<PAGE>
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
------------------------------
(1) (2)
Balance at Charged to Balance at
beginning costs and Charged to end of
Description of period expenses other accounts Deductions period
----------- --------- -------- -------------- ---------- ------
(Note)
Year ended December 31, 1999
<S> <C> <C> <C> <C> <C>
Reserves deducted in the balance sheet from
assets to which they apply:
Allowance for doubtful accounts $1,714,232 $3,400,000 $3,286,354 $1,827,878
========== ========== ========== ==========
Year ended December 31, 1998
Reserves deducted in the balance sheet from
assets to which they apply:
Allowance for doubtful accounts $1,200,000 $4,267,000 $3,752,768 $1,714,232
========== ========== ========== ==========
Year ended December 31, 1997
Reserves deducted in the balance sheet from
assets to which they apply:
Allowance for doubtful accounts $ 600,000 $1,788,812 $1,188,812 $1,200,000
========== ========== ========== ==========
</TABLE>
Note: Uncollectible accounts charged off, less recoveries.
-38-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
(Registrant)
G. L. RAINWATER
President and Chief Executive Officer
Date March 29, 2000 By /s/ Steven R. Sullivan
-------------- ------------------------------------
(Steven R. Sullivan, Attorney-in-Fact)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title
/s/ G. L. Rainwater President, Chief Executive Officer and Director
- ------------------------------ (Principal Executive Offcer)
G. L. RAINWATER
/s/ Jerre E. Birdsong Treasurer
- ------------------------------ (Principal Financial Officer)
JERRE E. BIRDSONG
/s/ Warner L. Baxter Vice President, Controller and Director
- ------------------------------ (Principal Accounting Officer)
WARNER L. BAXTER
/s/ Paul A. Agathen Director
- ------------------------------
PAUL A. AGATHEN
/s/ Donald E. Brandt Director
- ------------------------------
DONALD E. BRANDT
/s/ Charles W. Mueller Director
- ------------------------------
CHARLES W. MUELLER
By /s/ Steven R. Sullivan March 29, 2000
---------------------------
(Steven R. Sullivan, Attorney-in Fact)
-39-
<PAGE>
EXHIBITS
Exhibits Filed Herewith
Exhibit No. Description
12 - Statement re Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividend Requirements.
23 - Consent of Independent Accountants.
24 - Powers of Attorney.
27 - Financial Data Schedule.
-40-
<PAGE>
Exhibits Incorporated By Reference
The following exhibits heretofore have been filed with the Securities and
Exchange Commission pursuant to requirements of the Acts administered by the
Commission. Such exhibits are identified by the references following the listing
of each such exhibit, and they are hereby incorporated herein by reference.
Exhibit No. Description
- ----------- ------------
2 - Agreement and Plan of Merger, dated as of August 11, 1995, by and among
CIPSCO Incorporated, Union Electric Company, Ameren Corporation and Arch
Merger Inc. (Exhibit 2(a) filed with CIPSCO's and CIPS' Form 10-Q/A
(Amendment No. 1) for the quarter ended June 30, 1995.)
3.01 - Restated Articles of Incorporation of CIPS. (Exhibit 3(b) filed with
CIPS' Form 10-Q for the quarter ended March 31, 1994.)
3.02 - By-Laws of the Company as amended effective August 26, 1999. (September
30, 1999 Form 10-Q, Exhibit 3(ii).)
4 - Indenture of Mortgage or Deed of Trust dated October 1, 1941, from CIPS
to Continental Illinois National Bank and Trust Company of Chicago and
Edmond B. Stofft, as Trustees. (Exhibit 2.01 in File No. 2-60232.)
Supplemental Indentures dated, respectively September 1, 1947, January 1,
1949, February 1, 1952, September 1, 1952, June 1, 1954, February 1, 1958
, January 1, 1959, May 1, 1963, May 1, 1964, June 1, 1965, May 1, 1967,
April 1, 1970, April 1, 1971, September 1, 1971, May 1, 1972, December 1,
1973, March 1, 1974, April 1, 1975, October 1, 1976, November 1, 1976,
October 1, 1978, August 1, 1979, February 1, 1980, February 1, 1986, May
15, 1992, July 1, 1992, September 15, 1992, April 1, 1993, and June 1,
1995 between CIPS and the Trustees under the Indenture of Mortgage or
Deed of Trust referred to above (Amended Exhibit 7(b) in File No. 2-7341;
Second Amended Exhibit 7.03 in File No. 2-7795; Second Amended Exhibit
4.07 in File No.2-9353; Amended Exhibit 4.05 in file No. 2-9802; Amended
Exhibit 4.02 in File No. 2-10944; Amended Exhibit 2.02 in File No.
2-13866; Amended Exhibit 2.02 in File No. 2-14656; Amended Exhibit 2.02
in File No.2-21345; Amended Exhibit 2.02 in File No. 2-22326; Amended
Exhibit 2.02 in File No. 2-23569; Amended Exhibit 2.02 in File No.
2-26284; Amended Exhibit 2.02 in File No. 2-36388; Amended Exhibit 2.02
in File No. 2-39587; Amended Exhibit 2.02 in File No. 2-41468; Amended
Exhibit 2.02 in File No. 2-43912; Exhibit 2.03 in File No. 2-60232;
Amended Exhibit 2.02 in File No. 2-50146; Amended Exhibit 2.02 in File
No. 2-52886; Second Amended Exhibit 2.04 in File No. 2-57141; Amended
Exhibit 2.04 in File No. 2-57557; Amended Exhibit 2.06 in File No. 2-
62564; Exhibit 2.02(a) in File No. 2-65914; Amended Exhibit 2.02(a) in
File No. 2-66380; and Amended Exhibit 4.02 in File No. 33-3188; Exhibit
4.02 to Form 8-K dated May 15, 1992; Exhibit 4.02 to Form 8-K dated July
1, 1992; Exhibit 4.02 to Form 8-K dated September 15, 1992; Exhibit 4.02
to Form 8-K dated March 30, 1993; Exhibit 4.03 to Form 8-K dated June 5,
1995; Exhibit 4.03 to Form 8-K dated March 15, 1997; Exhibit 4.03 to
Form 8-K dated June 1, 1997; and Exhibit 4.02, Post-Effective Amendment
No. 1 in File No. 333-18473.)
4.01 - Indenture dated as of December 1, 1998 from CIPS to the Bank of New York
relating to CIPS' Senior Notes, 5.375% due 2008 and 6.125% due 2028.
(Exhibit 4.03, Post-Effective Amendment No. 1 to File No. 333-18473.)
-41-
<PAGE>
Exhibit No. Description
10.01- Form of Director's Retirement Income Plan. (Exhibit 10.04 filed with
1990 Annual Report on Form 10-K.)
10.02- Form of Excess Benefit Plan. (Exhibit 10.10 filed with CIPSCO's and
CIPS' 1994 Annual Report on Form 10-K.)
10.03- Amendment to Form of Excess Benefit Plan. (Exhibit 10.07 filed with
CIPSCO's and CIPS' 1995 Annual Report on Form 10-K.)
10.04- Form of Special Executive Retirement Plan. (Exhibit 10.11 filed with
CIPSCO's and CIPS' 1994 Annual Report on Form 10-K.)
10.05- Amendment to Form of Special Executive Retirement Plan. (Exhibit 10.09
filed with CIPSCO's and CIPS' 1995 Annual Report on Form 10-K.)
10.06- Ameren Long-Term Incentive Plan of 1998. (Ameren's 1998 Form 10-K,
Exhibit 10.1.)
10.07- Ameren Change of Control Severance Plan. ((Ameren's 1998 Form 10-K,
Exhibit 10.2.)
10.08- Ameren Deferred Compensation Plan for Members of the Ameren Leadership
Team. (Ameren's 1998 Form 10-K, Exhibit 10.3.)
10.09- Ameren Deferred Compensation Plan for Members of the Board of Directors.
(Ameren's 1998 Form 10-K, Exhibit 10.4.)
Note: Reports of the Company on Forms 8-K, 10-Q and 10-K are on file with the
SEC under File Number 1-3672.
Reports of Ameren on Form 10-K are on file with the SEC under File Number
1-14756.
-42-
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
Thousands of Dollars Except Ratios
<S> <C> <C> <C> <C> <C>
Net Income $70,631 $77,393 $38,620 $80,147 $53,980
Add- Extraordinary items net of tax -- -- 24,853 -- --
---------- -------- -------- -------- --------
Net Income from continuing operations 70,631 77,393 63,473 80,147 53,980
Taxes based on income 44,483 47,286 33,922 45,412 30,763
---------- -------- -------- -------- --------
Net income before income taxes 115,114 124,679 97,395 125,559 84,743
---------- -------- -------- -------- --------
Add- fixed charges:
Interest on long term debt 31,168 31,409 32,271 37,260 38,223
Other interest 853 4,636 2,875 1,647 3,373
Amortization of net debt premium,
discount, expenses and losses 1,703 1,709 1,643 1,132 1,139
---------- -------- -------- -------- --------
Total fixed charges 33,724 37,754 36,789 40,039 42,735
---------- -------- -------- -------- --------
Earnings available for fixed charges 148,838 162,433 134,184 165,598 127,478
========== ======== ======== ======== ========
Ratio of earnings to fixed charges 4.41 4.30 3.64 4.13 2.98
========== ======== ======== ======== ========
Earnings required for preferred dividends:
Preferred stock dividends 3,850 3,721 3,715 3,745 3,833
Adjustment to pre-tax basis 2,425 2,273 1,985 2,122 2,185
---------- -------- -------- -------- --------
6,275 5,994 5,700 5,867 6,018
Fixed charges plus preferred stock
dividend requirements 39,999 43,748 42,489 45,906 48,753
========== ======== ======== ======== ========
Ratio of earnings to fixed charges
plus preferred stock dividend
requirements 3.72 3.71 3.15 3.60 2.61
========== ======== ======== ======== ========
</TABLE>
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-59674, No.
33-45506, No. 33-56063 and No. 333-18473) of Central Illinois Public Service
Company of our report dated February 2, 2000 appearing on Page 17 of this Form
10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
March 30, 2000
EXHIBIT 24
POWER OF ATTORNEY
WHEREAS, CENTRAL ILLINOIS PUBLIC SERVICE COMPANY, an Illinois corporation
(herein referred to as the "Company"), is required to file with the Securities
and Exchange Commission, under the provisions of the Securities Exchange Act of
1934, as amended, its annual report on Form 10-K for the year ended December 31,
1999; and
WHEREAS, each of the below undersigned holds the office or offices in the
Company set opposite his name;
NOW, THEREFORE, each of the undersigned hereby constitutes and appoints
Gary L. Rainwater and/or Steven R. Sullivan the true and lawful
attorneys-in-fact of the undersigned, for and in the name, place and stead of
the undersigned, to affix the name of the undersigned to said Form 10-K and any
amendments thereto, and, for the performance of the same acts, each with power
to appoint in their place and stead and as their substitute, one or more
attorneys-in-fact for the undersigned, with full power of revocation; hereby
ratifying and confirming all that said attorneys-in-fact may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 10th
day of February 2000:
Gary L. Rainwater, President, Chief
Executive Officer and Director
(Principal Executive Officer) /s/ Gary L. Rainwater
-----------------------
Paul A. Agathen, Director /s/ Paul A. Agathen
-----------------------
Warner L. Baxter, Vice President,
Controller and Director
(Principal Accounting Officer) /s/ Warner L. Baxter
-----------------------
Donald E. Brandt, Director /s/ Donald E. Brandt
-----------------------
Charles W. Mueller, Director /s/ Charles W. Mueller
-----------------------
Jerre E. Birdsong, Treasurer
(Principal Financial Officer) /s/ Jerre E. Birdsong
-----------------------
STATE OF MISSOURI )
) SS.
CITY OF ST. LOUIS )
On this 10th day of February, 2000, before me, the undersigned Notary
Public in and for said State, personally appeared the above-named officers and
directors of Central Illinois Public Service Company, known to me to be the
persons described in and who executed the foregoing power of attorney and
acknowledged to me that they executed the same as their free act and deed for
the purposes therein stated.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official
seal.
/s/ K. A. Bell
---------------
K. A. BELL
Notary Public - Notary Seal
STATE OF MISSOURI
St. Louis County
My Commission Expires: October 13, 2002
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit 27
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
10-K DECEMBER 31, 1999
FINANCIAL DATA SCHEDULE UT
PUBLIC UTILITY COMPANIES AND PUBLIC UTILITY HOLDING COMPANIES
APPENDIX E TO ITEM 601 (C) OF REGULATION S-K
(Thousands of Dollars)
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,472,764
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 249,607
<TOTAL-DEFERRED-CHARGES> 17,722
<OTHER-ASSETS> 41,661
<TOTAL-ASSETS> 1,781,754
<COMMON> 120,033
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 414,345
<TOTAL-COMMON-STOCKHOLDERS-EQ> 534,378
0
80,000
<LONG-TERM-DEBT-NET> 493,625
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 35,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 638,751
<TOT-CAPITALIZATION-AND-LIAB> 1,781,754
<GROSS-OPERATING-REVENUE> 928,122
<INCOME-TAX-EXPENSE> 30,773
<OTHER-OPERATING-EXPENSES> 802,634
<TOTAL-OPERATING-EXPENSES> 833,407
<OPERATING-INCOME-LOSS> 94,715
<OTHER-INCOME-NET> 2,022
<INCOME-BEFORE-INTEREST-EXPEN> 96,737
<TOTAL-INTEREST-EXPENSE> 42,757
<NET-INCOME> 53,980
3,833
<EARNINGS-AVAILABLE-FOR-COMM> 50,147
<COMMON-STOCK-DIVIDENDS> 90,342
<TOTAL-INTEREST-ON-BONDS> 38,332
<CASH-FLOW-OPERATIONS> 165,621
<EPS-BASIC> 0.00 <F1>
<EPS-DILUTED> 0.00 <F1>
<FN>
<F1> Information not normally disclosed in financial statements and notes.
</FN>
</TABLE>
