SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
__________to __________
Commission Registrants; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-11327 Illinova Corporation 37-1319890
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525
(217) 424-6600
1-3004 Illinois Power Company 37-0344645
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525
(217) 424-6600
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such report), and (2)
have been subject to such filing requirements for the past 90 days.
Illinova Yes X No
Corporation ---- ---
Illinois Power Yes X No
Company ---- ----
Indicate the number of shares outstanding of each of the issuers' classes
of common stock, as of the latest practicable date:
Illinova Corporation Common stock, no par value, 75,681,937
shares outstanding at July 31, 1996
Illinois Power Company Common stock, no par value, 72,233,040
shares outstanding held by Illinova Corporation
at July 31, 1996
ILLINOVA CORPORATION
ILLINOIS POWER COMPANY
This combined Form 10-Q is separately filed by Illinova Corporation and
Illinois Power Company. Information contained herein relating to
Illinois Power Company is filed by Illinova Corporation and separately
by Illinois Power Company on its own behalf. Illinois Power Company
makes no representation as to information relating to Illinova Corporation
or its subsidiaries, except as it may relate to Illinois Power Company.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
PAGE NO.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Illinova Corporation
Consolidated Balance Sheets 3 - 4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Illinois Power Company
Consolidated Balance Sheets 7 - 8
Consolidated Statements of Income 9
Consolidated Statements of Cash Flows 10
Notes to Consolidated Financial Statements of
Illinova Corporation and
Illinois Power Company 11 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for Illinova Corporation
and Illinois Power Company 13 - 17
Part II. OTHER INFORMATION
Item 1: Legal Proceedings 18
Item 6: Exhibits and Reports on Form 8-K 18
Signatures 19 - 20
Exhibit Index 21
<TABLE>
PART I. FINANCIAL INFORMATION
ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
<S> <C> <C>
JUNE 30, DECEMBER 31,
1996 1995
ASSETS (Unaudited)
(Millions of Dollars)
Utility Plant, at original cost
Electric (includes construction work
in progress of $232.1 million and
$199.8 million, respectively) $ 6,267.2 $ 6,189.0
Gas (includes construction work
in progress of $11.8 million and
$10.2 million, respectively) 633.1 625.9
---------- --------
6,900.3 6,814.9
Less-Accumulated depreciation 2,341.2 2,251.7
---------- --------
4,559.1 4,563.2
Nuclear fuel in process 5.4 5.7
Nuclear fuel under capital lease 93.9 95.2
---------- ---------
Total utility plant 4,658.4 4,664.1
---------- ---------
Investments and Other Assets 123.9 65.8
---------- ---------
Current Assets
Cash and cash equivalents 22.0 11.3
Notes receivable -- 6.1
Accounts receivable (less allowance
for doubtful accounts of $3.0 million)
Service 121.2 129.4
Other 36.4 13.2
Accrued unbilled revenue 78.8 89.1
Materials and supplies, at average cost 105.5 111.1
Prepayments and other 29.3 40.4
---------- ---------
Total current assets 393.2 400.6
---------- ---------
Deferred Charges
Deferred Clinton costs 105.6 107.3
Recoverable income taxes 107.9 128.7
Other 230.3 243.3
---------- ---------
Total deferred charges 443.8 479.3
---------- ---------
$ 5,619.3 $ 5,609.8
========== ==========
</TABLE>
<TABLE>
ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
<S> <C> <C>
JUNE 30, DECEMBER 31,
1996 1995
CAPITAL AND LIABILITIES (Unaudited)
(Millions of Dollars)
Capitalization
Common stock -
No par value, 200,000,000 shares authorized;
75,681,937 and 75,643,937 shares outstanding,
respectively, stated at $ 1,425.7 $ 1,424.6
Less - Deferred compensation - ESOP 16.2 18.4
Retained earnings 166.9 129.6
Less - Capital stock expense 8.3 8.8
Preferred stock of subsidiary 104.4 125.6
Mandatorily redeemable preferred stock of
subsidiary 197.0 97.0
Long-term debt of subsidiary 1,664.8 1,739.3
---------- ---------
Total capitalization 3,534.3 3,488.9
---------- ---------
Current Liabilities
Accounts payable 141.1 119.9
Notes payable 341.5 359.6
Long-term debt and lease obligations
maturing within one year 95.6 95.0
Other 127.0 173.0
---------- ---------
Total current liabilities 705.2 747.5
---------- ---------
Deferred Credits
Accumulated deferred income taxes 1,012.0 1,012.8
Accumulated deferred investment tax credits 219.4 222.8
Other 148.4 137.8
---------- ---------
Total deferred credits 1,379.8 1,373.4
---------- ----------
$ 5,619.3 $ 5,609.8
========== ==========
</TABLE>
<TABLE>
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
<S> <C> <C> <C> <C>
1996 1995 1996 1995
(Unaudited)
(Millions except per share)
Operating Revenues:
Electric $ 282.6 $ 278.6 $ 561.3 $ 566.7
Electric interchange 33.6 24.6 65.5 47.0
Gas 49.5 41.1 185.6 156.1
----------- ----------- ----------- --------- -- -- --
Total 365.7 344.3 812.4 769.8
----------- ----------- ----------- ------------ -- -- --
Operating Expenses and Taxes:
Fuel for electric plants 59.5 58.3 126.1 122.6
Power purchased 13.3 15.1 23.1 29.1
Gas purchased for resale 32.8 14.6 105.8 79.2
Other operating expenses 53.3 63.5 119.0 127.7
Maintenance 24.3 28.7 44.8 56.8
Depreciation & amortization 48.3 45.3 96.4 90.6
General taxes 31.6 31.1 69.4 69.3
Income taxes 27.7 20.6 64.8 49.1
----------- ----------- ----------- ------------ -- -- --
Total 290.8 277.2 649.4 624.4
----------- ----------- ----------- ------------ -- -- --
Operating Income 74.9 67.1 163.0 145.4
----------- ----------- ----------- -----------
Other Income and Deductions:
Allowance for equity funds
used during construction -- 0.1 -- 0.3
Miscellaneous - net (0.7) 1.5 (7.8) (0.9)
----------- ----------- ----------- ------------ -- --
Total (0.7) 1.6 (7.8) (0.6)
----------- ----------- ----------- ------------
Income Before Interest Charges 74.2 68.7 155.2 144.8
----------- ----------- ----------- ----------
Interest Charges:
Interest on long-term debt 30.0 33.3 61.2 67.8
Other interest charges 3.7 3.9 6.3 7.8
Allowance for borrowed funds
used during construction (1.9) (1.3) (3.6) (2.5)
Preferred dividend
requirements of subsidiary 6.2 6.5 11.8 13.0
----------- ----------- ----------- -----------
Total 38.0 42.4 75.7 86.1
----------- ----------- ----------- ------------ -- --
Net Income $ 36.2 $ 26.3 $ 79.5 $ 58.7
=========== =========== =========== ============ == ==
Earnings per common share $0.48 $0.35 $1.05 $0.78
Cash dividends declared
per common share $0.28 $0.25 $0.56 $0.50
Cash dividends paid per
common share $0.28 $0.25 $0.56 $0.50
Weighted average number of
common shares outstanding
during period 75,681,937 75,643,937 75,678,225 75,643,937
</TABLE>
<TABLE>
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
SIX MONTHS ENDED
June 30,
1996 1995
(Unaudited)
(Millions of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 79.5 $ 58.7
Items not requiring cash, net 114.8 118.0
Changes in assets and liabilities 12.6 (21.5)
-------- --------
Net cash provided by operating
activities 206.9 155.2
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (86.9) (93.3)
Other investing activities (56.5) (9.5)
-------- --------
Net cash used in investing
activities (143.4) (102.8)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on common stock (42.4) (37.5)
Exercise of stock options 1.1 --
Redemptions -
Short-term debt (303.0) (97.4)
Long-term debt of subsidiary (74.1) (0.2)
Preferred stock of subsidiary (21.2) (39.2)
Issuances -
Short-term debt 284.9 75.3
Preferred Stock of subsidiary 100.0 --
Other financing activities 1.9 1.0
--------- ---------
Net cash used in financing
activities (52.8) (98.0)
--------- ---------
NET CHANGE IN CASH AND
CASH EQUIVALENTS 10.7 (45.6)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 11.3 50.7
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 22.0 $ 5.1
========= =========
</TABLE>
<TABLE>
ILLINOIS POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(Unaudited)
ASSETS (Millions of Dollars)
<S> <C> <C>
Utility Plant, at original cost
Electric (includes construction work
in progress of $232.1 million and
$199.8 million, respectively) $ 6,267.2 $ 6,189.0
Gas (includes construction work
in progress of $11.8 million and
$10.2 million, respectively) 633.1 625.9
------------ ----------
6,900.3 6,814.9
Less-Accumulated depreciation 2,341.2 2,251.7
------------ ----------
4,559.1 4,563.2
Nuclear fuel in process 5.4 5.7
Nuclear fuel under capital lease 93.9 95.2
------------ -----------
Total utility plant 4,658.4 4,664.1
------------ -----------
Investments and Other Assets 16.2 16.4
------------ -----------
Current Assets
Cash and cash equivalents 8.7 4.3
Accounts receivable (less allowance
for doubtful accounts of $3.0 million)
Service 121.2 129.4
Other 31.7 18.2
Accrued unbilled revenue 78.8 89.1
Materials and supplies,
at average cost 104.9 111.1
Prepayments and other 28.6 40.4
------------ -----------
Total current assets 373.9 392.5
------------ -----------
Deferred Charges
Deferred Clinton costs 105.6 107.3
Recoverable income taxes 107.9 128.7
Other 243.6 258.2
------------ -----------
Total deferred charges 457.1 494.2
------------ -----------
$ 5,505.6 $ 5,567.2
============ ============
</TABLE>
<TABLE>
ILLINOIS POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
CAPITAL AND LIABILITIES (Unaudited)
(Millions of Dollars)
<S> <C> <C>
Capitalization
Common stock -
No par value, 100,000,000 shares
authorized; 75,643,937 shares issued,
stated at $ 1,424.6 $ 1,424.6
Retained earnings 173.3 129.6
Less - Capital stock expense 8.3 8.8
Less - 3,410,897 and 2,696,086 shares of
common stock in treasury, respectively,
at cost 86.2 67.3
Preferred stock 104.4 125.6
Mandatorily redeemable preferred stock 197.0 97.0
Long-term debt 1,664.8 1,739.3
------------ -----------
Total capitalization 3,469.6 3,440.0
------------ -----------
Current Liabilities
Accounts payable 131.1 119.9
Notes payable 295.5 359.6
Long-term debt and lease
obligations maturing
within one year 95.6 95.0
Other 126.3 173.0
------------ ------------
Total current liabilities 648.5 747.5
------------ -----------
Deferred Credits
Accumulated deferred income taxes 1,024.2 1,019.1
Accumulated deferred investment
tax credits 219.4 222.8
Other 143.9 137.8
------------ -----------
Total deferred credits 1,387.5 1,379.7
------------ -----------
$ 5,505.6 $ 5,567.2
============ ============
</TABLE>
<TABLE>
ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
(Unaudited)
(Millions of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues:
Electric $ 282.6 $ 278.6 $ 561.3 $ 566.7
Electric interchange 33.6 24.6 65.5 47.0
Gas 49.5 41.1 185.6 156.1
---------- ----------- ----------- -----------
Total 365.7 344.3 812.4 769.8
---------- ----------- ----------- -----------
Operating Expenses and Taxes:
Fuel for electric plants 59.5 58.3 126.1 122.6
Power purchased 13.3 15.1 23.1 29.1
Gas purchased for resale 32.8 14.6 105.8 79.2
Other operating expenses 53.3 63.5 119.0 127.7
Maintenance 24.3 28.7 44.8 56.8
Depreciation & amortization 48.3 45.3 96.4 90.6
General taxes 31.6 31.1 69.4 69.3
Income taxes 27.7 20.6 64.8 49.1
Total 290.8 277.2 649.4 624.4
---------- ----------- ----------- -----------
Operating Income 74.9 67.1 163.0 145.4
----------- ----------- ----------- -----------
Other Income and Deductions:
Allowance for equity funds
used during construction -- 0.1 -- 0.3
Miscellaneous - net 5.6 3.1 (1.3) 3.6
---------- ----------- ----------- -----------
Total 5.6 3.2 (1.3) 3.9
---------- ----------- ----------- -----------
Income Before Interest Charges 80.5 70.3 161.7 149.3
---------- ----------- ----------- -----------
Interest Charges and Other:
Interest on long-term 30.0 33.3 61.2 67.8
Other interest charges 3.7 3.9 6.3 7.8
Allowance for borrowed funds
used during construction (1.9) (1.3) (3.6) (2.5)
----------- ----------- ----------- ----------
Total 31.8 35.9 63.9 73.1
----------- ----------- ----------- -----------
Net Income 48.7 34.4 97.8 76.2
Preferred dividend
requirements 6.2 6.5 11.8 13.0
----------- ----------- ------------ -----------
Net Income applicable to
common stock $ 42.5 $ 27.9 $ 86.0 $ 63.2
========== =========== ============ ===========
</TABLE>
<TABLE>
ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
(Unaudited)
(Millions of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 97.8 $ 76.2
Items not requiring cash, net 120.7 119.4
Changes in assets and liabilities (1.2) 3.0
------------- ------------
Net cash provided by operating
activities 217.3 198.6
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (86.9) (93.3)
Other investing activities 1.8 (1.2)
------------- --------------
Net cash used in investing (85.1) (94.5)
activities ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on preferred and common (51.4) (50.7)
stock
Repurchase of common stock (18.9) (39.1)
Redemptions -
Short-term debt (303.0) (97.4)
Long-term debt (74.1) (0.2)
Preferred Stock (21.2) (39.2)
Issuances
Short-term debt 238.9 75.3
Preferred Stock 100.0 --
Other financing activities 1.9 1.0
------------- --------------
Net cash used in financing activities (127.8) (150.3)
------------- ------------
NET CHANGE IN CASH AND CASH 4.4 (46.2)
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT 4.3 47.9
BEGINNING OF YEAR ------------- ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 8.7 $ 1.7
============= ============
</TABLE>
ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
Financial Statement note disclosures, normally included in financial
statements prepared in conformity with generally accepted accounting
principles, have been omitted from this Form 10-Q pursuant to the Rules and
Regulations of the Securities and Exchange Commission. However, in the
opinion of Illinova Corporation (Illinova) and Illinois Power Company (IP),
the disclosures and information contained in this Form 10-Q are adequate and
not misleading. See the consolidated financial statements and the
accompanying notes in Illinova's 1995 Annual Report to Shareholders
(included in the Proxy Statement), the consolidated financial statements and
the accompanying notes in IP's 1995 Annual Report to Shareholders (included
in the Information Statement), Illinova's and IP's 1995 Form 10-K filings to
the Securities and Exchange Commission, and Illinova's and IP's Report on
Form 10-Q for the quarter ended March 31, 1996, for information relevant to
the consolidated financial statements contained herein, including information
as to certain regulatory and environmental matters and as to the significant
accounting policies followed.
In the opinion of Illinova, the accompanying unaudited consolidated
financial statements for Illinova reflect all adjustments necessary to present
fairly the Consolidated Balance Sheets as of June 30, 1996 and December 31,
1995, the Consolidated Statements of Income for the three months and six
months ended June 30, 1996 and 1995, and the Consolidated Statements of Cash
Flows for the six months ended June 30, 1996 and 1995. In addition, it is
Illinova's and IP's opinion that the accompanying unaudited consolidated
financial statements for IP reflect all adjustments necessary to present
fairly the Consolidated Balance Sheets as of June 30, 1996 and December 31,
1995, the Consolidated Statements of Income for the three months and the six
months ended June 30, 1996 and 1995, and the Consolidated Statements of Cash
Flows for the six months ended June 30, 1996 and 1995. Due to seasonal and
other factors which are characteristic of electric and gas utility operations,
interim period results are not necessarily indicative of results to be
expected for the year.
ACCOUNTING MATTERS
CONSOLIDATION
The consolidated financial statements of Illinova include the accounts of
Illinova, IP, Illinova Generating Company (IGC), Illinova Power Marketing,
Inc. (IPMI) and Illinova Energy Partners, Inc. (IEPI). All significant
intercompany balances and transactions have been eliminated from the
consolidated financial statements. All non-utility operating transactions
are included in the section titled Other Income and Deductions,
"Miscellaneous-net" in Illinova's and IP's Consolidated Statements of Income.
The consolidated financial statements of IP include the accounts of
Illinois Power Capital, L.P. and the accounts of Illinois Power Financing I
(IPFI). All significant intercompany balances and transactions have been
eliminated from the consolidated financial statements.
IP's consolidated financial position and results of operations are currently
the principal factors affecting Illinova's consolidated financial position
and results of operations.
REGULATORY AND LEGAL MATTERS
MANUFACTURED GAS PLANT SITES
IP's current estimate of liability for Manufactured Gas Plant (MGP) site
remediation is $72.9 million. This amount represents IP's current best
estimate of its remaining costs to remediate the 24 MGP sites for which it is
responsible. Because of the unknown and unique characteristics of each site,
IP is not able to determine its ultimate liability for remediation. IP is
recovering MGP site cleanup costs from its customers through tariff riders
approved by the Illinois Commerce Commission (ICC) in March 1996. In
anticipation of full recovery of MGP site costs, IP has recorded a regulatory
asset to counter its liability. Changes in the law, the nature and timing of
which are uncertain, could affect IP's ability to continue to recover these
costs.
IP has begun settlement discussions with its insurance carriers
regarding the recovery of estimated MGP site remediation costs. A settlement
has been reached with three carriers, and negotiations are scheduled with
two other carriers. Litigation related to a suit filed by IP in October 1995
seeking a declaratory judgment and damages regarding insurance coverage for
four MGP sites is in progress. Any insurance recoveries received will cause
the regulatory asset to reduce by a corresponding amount.
SPENT NUCLEAR FUEL
On June 20, 1994, IP and 13 other utilities filed an action in the D.C.
Circuit Court of Appeals asking the Court to rule that the U.S. Department of
Energy (DOE) is obligated to take responsibility for spent nuclear fuel by
January 31, 1998, under the Nuclear Waste Policy Act of 1982. IP based its
decision to build the Clinton Power Station, in part, on the assurance that
a federal repository would be built and operated by the DOE, and, under the
Act, the DOE has been collecting money from IP to pay for such a repository.
The utilities asked the Court to confirm the DOE's commitment and to order
the DOE to develop a compliance program with appropriate deadlines. The
utilities also asked for relief from the ongoing funding requirements or to
have an escrow account established for future funds paid to DOE.
On July 23, 1996, the D.C. Circuit Court of Appeals issued a decision in
this case. It ruled that the DOE has an unconditional obligation to accept
responsibility for disposal of spent nuclear fuel in 1998. The Court did not
specify damages or a remedy should the DOE fail to perform in 1998, but
remanded the matter to the DOE for further proceedings consistent with the
Court's opinion.
TREASURY STOCK
IP repurchased 281,597 shares of its common stock from Illinova on
March 31, 1996; 370,806 shares on May 31, 1996; and 62,408 shares on
June 28, 1996. Through June 30, 1996, IP has purchased 3,410,897 shares of
its common stock, all of which are held as treasury stock and are deducted
from common equity at the cost of the shares.
ENHANCED SEVERANCE
IP offered a voluntary enhanced severance program to certain eligible
employees during the fourth quarter of 1995. In December 1995, IP recorded
a liability of $11.0 million to reflect the anticipated costs of the program,
based on the number of employees accepting severance. Payments made to
severed employees during the first six months of 1996 have reduced the
liability by $7.3 million.
ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Notes to the Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition and Results
of Operations presented in Illinova's 1995 Annual Report to Shareholders
(included in the Proxy Statement), the Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations presented in IP's 1995 Annual Report to Shareholders (included in
the Information Statement), and Illinova's and IP's Form 10-K for the year
ended December 31, 1995, and Illinova's and IP's Report on Form 10-Q for the
quarter ended March 31, 1996.
ILLINOVA SUBSIDIARIES
IP is the primary business and subsidiary of Illinova and engages in the
generation, transmission, distribution and sale of electric energy and the
distribution, transportation and sale of natural gas in the State of Illinois.
IGC is a wholly-owned independent power subsidiary of Illinova and
invests in energy supply projects throughout the world. IGC's strategy is to
invest in and develop "greenfield" power plants, acquire existing generation
facilities and provide power plant operations and maintenance services.
IPMI is a wholly-owned subsidiary of Illinova and engages in the
brokering and marketing of electric power and gas. IPMI commenced operations
in wholesale electricity transactions in the western United States in
September 1995. In May 1996, IPMI expanded operations to include the
Midwestern United States.
IEPI is a wholly-owned subsidiary of Illinova formed in May 1996. IEPI
develops and markets energy-related services to the unregulated energy market
throughout the United States. IEPI has incorporated the project management
practice of the Illinova Energy Services group, a division within Illinova.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES AND REQUIREMENTS
Cash flows from operations during the first six months of 1996 provided
sufficient working capital to meet ongoing operating requirements, to service
existing common and IP preferred stock dividends and debt requirements and
all of IP's construction requirements. Additionally, Illinova expects 1996
cash flows will enable it to meet operating requirements and continue to
service IP's existing debt, IP's preferred and Illinova's common stock
dividends, IP's sinking fund requirements and IP's anticipated construction
requirements. IP periodically repurchases shares of its common stock from
Illinova to provide Illinova cash for operations, in accordance with
authority granted by the ICC. During the first six months of 1996, IP made
purchases of 281,597 shares on March 31, 370,806 shares on May 31, and
62,408 shares on June 28.
Illinois Power Financing I (IPFI) is a statutory business trust in which
IP serves as sponsor. IPFI issued $100 million of trust originated preferred
securities (TOPrS) at 8% (4.8% after-tax rate) in January 1996. IPFI issued
the TOPrS and invested the proceeds in an equivalent amount of IP
subordinated debentures due in 2045. IP used the proceeds to repay short-
term indebtedness on varying dates on or before March 1, 1996. IP incurred
the indebtedness in December 1995, to redeem $95.3 million (principal value)
of higher-cost outstanding preferred stock of IP.
On May 15, 1996, IP redeemed $20.5 million of its Adjustable Rate Series B
Preferred Stock. Additionally, since the beginning of 1996, IP has redeemed
approximately $89.4 million of bonds and preferred stock through open-market
purchases. IP has been actively reducing its long-term debt as cash flows
from operations and short-term debt borrowings allow.
IP's capital requirements for construction were approximately $87
million and $93 million during the six months ended June 30, 1996 and
1995, respectively.
Illinova and IP currently have total lines of credit represented by bank
commitments of $150 million and $354 million, respectively. Both Illinova
and IP have adequate short- and intermediate-term bank borrowing capacity.
In June 1996 Illinova entered into a 364-day $150 million line of credit
with nine banks. Currently, Illinova has borrowed $46 million under this
line of credit to support financing requirements of its non-regulated
subsidiaries.
On July 1, 1996, Moody's Investors Service upgraded the credit ratings
of IP based on the expected improvement in IP's financial profile. In
addition, Moody's stated that IP's business risk has diminished due to
significant reductions in electric power production costs. Moody's raised
IP's mortgage bonds rating from Baa2 to Baa1 and IP's preferred stock rating
from Baa3 to Baa2. At present, IP's mortgage bonds are rated BBB+ by Duff &
Phelps and BBB by Standard & Poor's. IP's preferred stock currently is rated
BBB- by both Duff & Phelps and Standard & Poor's.
In August 1995, IP announced an agreement in principle with Soyland
Power Cooperative, Inc. (Soyland) for the possible purchase of Soyland's
assets. Because certain conditions could not be met, agreement was not
reached, and the agreement in principle expired at the end of 1995.
Currently, IP and Soyland are negotiating a possible new arrangement for
meeting the bulk power needs of the twenty-one electric distribution
cooperatives who are members of and have requirements contracts with Soyland.
Soyland's member cooperatives serve approximately 160,000 customers in
Illinois.
REGULATORY MATTERS
OPEN ACCESS AND WHEELING
On April 25, 1996, IP began an open-energy access experiment that will
operate until December 31, 1999. Under the experiment, certain industrial
customers purchase electricity from suppliers other than IP and have it
transmitted ("wheeled") from the source to an IP transmission system.
Currently, the electricity wheeled is about 80% of the maximum load permitted
under the experiment. The maximum load permitted represents about one
percent of IP's total load.
At this time, IP has not conducted a full study of the actual revenue
impact of this experiment; however, IP's original estimate of an annual loss
of $3.0 million to $7.5 million in revenue continues to appear reasonable.
IP believes that the experiment will have a minimal impact on earnings. Any
losses in revenue due to the experiment should be partially compensated by
revenues obtained through selling the surplus energy and capacity on the open
market.
INTERCOMPANY TRANSACTIONS
On July 17, 1996, the Federal Energy Regulatory Commission (FERC)
approved a tariff allowing IP to sell electricity to IPMI on an ongoing
basis. Previously, IP was required to obtain FERC approval for each
transaction with IPMI. Because hourly price fluctuations may be the basis
for some of IPMI's transactions, the prior approval requirement restricted
the ability of IPMI to purchase electricity from IP. The new tariff places
IP on an equal footing with other utilities and power producers who can
market their electricity through IPMI.
ENVIRONMENTAL MATTERS
GAS MANUFACTURING SITES
See "Manufactured Gas Plant Sites" under "Regulatory and Legal Matters"
of the Notes to Consolidated Financial Statements on page 12.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Electric Operations - The electric margin (revenue less cost of fuel
and purchased power) for the second quarter of 1996 increased by $13.6
million compared to the second quarter of 1995. This increase in margin was
caused by two major factors. First, electric revenues for the current
quarter increased by $4.0 million, representing a 5.9% increase in kwh sales.
This increase is primarily due to a 16.2% increase in kwh sales to the
temperature-sensitive residential market, resulting in a $6.0 million
increase in revenues. The increase in revenues has been somewhat offset by
a decline in industrial revenues. Sales to the commercial sector have been
relatively stable from 1995 to 1996. The second factor is the greater
availability of IP's generating stations which facilitated a $9.0 million
increase in interchange revenues while also allowing IP to cut the cost of
purchased power by $1.8 million during the second quarter.
The equivalent availability of IP's Clinton Power Station (Clinton) was
92.4% and 53.7% for the three months ended June 30, 1996 and 1995,
respectively. The lower equivalent availability for Clinton in 1995 was due
to a 49-day scheduled maintenance and refueling outage that began in March
and was completed in April. The equivalent availability for IP's coal-fired
plants was 79.6% and 77.0% for the three months ended June 30, 1996 and 1995,
respectively.
Gas Operations - Gas revenues increased $8.4 million in the second
quarter of 1996. Therm sales increased 27.1% (21.8 million therms) and
therms transported decreased resulting in an increase in gas consumption of
13.5% (20.5 million therms). Residential sales increased 44.7% (16.5 million
therms), commercial sales and transport increased 60.0% (9.4 million therms)
and industrial sales and transport decreased 11.1% (5.4 million therms). The
increase in gas sales is due primarily to the weather in 1996 being closer to
normal than it was in 1995.
The cost of gas purchased for resale increased $18.2 million in the
second quarter. Higher prices increased the cost of gas by $8.1 million and
an increase in the volume sold further increased the cost of gas. These
increases were compounded by the effects of the Uniform Gas Adjustment Clause
(UGAC).
Operation and Maintenance Expense - The current quarter decrease of
$14.6 million dollars is primarily due to lower labor expenses resulting
from IP's reengineering efforts and the absence of costs associated with a
Clinton refueling outage completed in the second quarter of 1995. These
savings have been partially offset by increases in the use of contract
labor. Additionally, new tariff riders approved by the ICC in March 1996
have resulted in the accelerated recognition of MGP site remediation costs.
While this has had the effect of increasing operation expense, the increase
has been offset by increased revenues collected under the riders.
Miscellaneous - Net - The current quarter decrease of $2.2 million is
due to increased operating costs at Illinova and its unregulated subsidiaries.
Interest Charges - Total interest charges decreased by $4.4 million due
to lower short-term interest rates and the impact of refinancing efforts and
capitalization reduction during the second quarter of 1996.
Earnings per Common Share - The earnings per common share for Illinova
during the second quarter of 1996 and 1995 resulted from the interaction of
all other factors discussed herein.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Electric Operations - The electric margin (revenue less cost of fuel and
purchased power) for the first six months of 1996 increased by $15.6 million
compared to the same period of 1995. This increase in margin was primarily
caused by favorable changes in interchange transactions. First, the greater
availability of IP's generating stations and improved sales opportunities in
1996 resulted in an $18.5 million increase in interchange revenues.
Additionally, the same increase in availability also allowed IP to cut the
cost of purchased power by $6.0 million during the current period.
The margin was unfavorably impacted by a decrease in industrial revenues.
Led by declining sales in the foods, metals and mining segments, industrial
revenues decreased by 6.6%. However, total residential revenues increased
2.6% while commercial revenues remained constant. The increase in
residential revenue is largely due to a greater number of cooling degree days
in 1996.
The equivalent availability of IP's Clinton Power Station (Clinton) was
96.1% and 59.9% for the six months ended June 30, 1996 and 1995,
respectively. The lower equivalent availability for Clinton in 1995 was due
to a 49-day scheduled maintenance and refueling outage. The equivalent
availability for IP's coal-fired plants was 81.8% and 77.8% for the six
months ended June 30, 1996 and 1995, respectively. The increased availability
is due to fewer planned outages and the shorter duration of those planned
outages, which resulted in plants operating at closer to full capacity.
Gas Operations - Gas revenues increased $29.5 million in the first half of
1996. Therm sales increased 20.5% (71.9 million therms) and therms
transported decreased resulting in an increase in gas consumption of 10.9%
(53.7 million therms). Residential sales increased 18.3% (40.3 million
therms), commercial sales and transport increased 23.0% (20.1 million therms)
and industrial sales and transport decreased 26.7% (6.7 million therms). The
increase in gas sales is due primarily to colder winter weather as compared
to 1995, which had a milder than normal winter.
The cost of gas purchased for resale increased $26.6 million in the
second quarter. Higher prices increased the cost of gas by $22.8 million
and an increase in the volume sold further increased the cost of gas. These
increases were partially offset by the effects of the UGAC.
Operation and Maintenance Expense - The decrease of $20.7 million
dollars is primarily due to lower labor expenses resulting from IP's
reengineering efforts and the absence of costs associated with a Clinton
refueling outage occurring in the first half of 1995. These savings have
been partially offset by increases in the use of contract labor.
Additionally, new tariff riders approved by the ICC in March 1996 have
resulted in the accelerated recognition of MGP site remediation costs.
While this has had the effect of increasing operation expense, the increase
has been offset by increased revenues collected under the riders.
Miscellaneous - Net - The increase in net deductions of $6.9 million is
due to increased operating costs at Illinova and its unregulated
subsidiaries, partially offset by increased equity earnings of the
subsidiaries.
Interest Charges - Total interest charges decreased by $10.4 million
due to lower short-term interest rates and the impact of refinancing efforts
and capitalization reduction during the first six months of 1996.
Earnings per Common Share - The earnings per common share for Illinova
during the first six months of 1996 and 1995 resulted from the interaction of
all other factors discussed herein.
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings
See "Notes to Consolidated Financial Statements" in Part I for a
discussion of certain legal proceedings related to manufactured gas plant
sites and spent nuclear fuel.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibits filed with this 10-Q are listed on the Exhibit
Index.
(b) Reports on Form 8-K since March 31, 1996:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ILLINOVA CORPORATION
(Registrant)
By /s/ Larry F. Altenbaumer
--------------------------
Larry F. Altenbaumer,
Chief Financial Officer, Treasurer
and Controller on behalf of
Illinova Corporation
Date: August 7, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ILLINOIS POWER COMPANY
(Registrant)
By /s/ Larry F. Altenbaumer
--------------------------
Larry F. Altenbaumer,
Senior Vice President,
Chief Financial Officer and
Treasurer on behalf of
Illinois Power Company
Date: August 7, 1996
EXHIBIT INDEX
PAGE NO. WITHIN
SEQUENTIAL NUMBERING
EXHIBIT DESCRIPTION SYSTEM
27 Financial Data Schedule UT
(filed herewith)
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET, INCOME STATEMENT AND CASH FLOW STATEMENT OF ILLINOIS POWER
COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE BALANCE
SHEET, INCOME STATEMENT AND CASH FLOW STATEMENT OF ILLINOIS POWER COMPANY.
<S> <C> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4658
<OTHER-PROPERTY-AND-INVEST> 17
<TOTAL-CURRENT-ASSETS> 374
<TOTAL-DEFERRED-CHARGES> 457
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5508
<COMMON> 1330
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 173
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1508
197
104
<LONG-TERM-DEBT-NET> 1605
<SHORT-TERM-NOTES> 106
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 190
<LONG-TERM-DEBT-CURRENT-PORT> 62
0
<CAPITAL-LEASE-OBLIGATIONS> 60
<LEASES-CURRENT> 34
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1648
<TOT-CAPITALIZATION-AND-LIAB> 5506
<GROSS-OPERATING-REVENUE> 812
<INCOME-TAX-EXPENSE> 65
<OTHER-OPERATING-EXPENSES> 584
<TOTAL-OPERATING-EXPENSES> 649
<OPERATING-INCOME-LOSS> 163
<OTHER-INCOME-NET> (1)
<INCOME-BEFORE-INTEREST-EXPEN> 162
<TOTAL-INTEREST-EXPENSE> 64
<NET-INCOME> 98
12
<EARNINGS-AVAILABLE-FOR-COMM> 86
<COMMON-STOCK-DIVIDENDS> 39
<TOTAL-INTEREST-ON-BONDS> 61
<CASH-FLOW-OPERATIONS> 217
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
