SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549-1004
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1995
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Registrants, State of
Incorporation, Address
Commission of Principal Executive I.R.S. Employer
File Number Offices and Telephone Number Identification No.
- - ---------- ____________________________ ------------------
1-11327 ILLINOVA CORPORATION 37-1319890
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525-1805
(217) 424-6600
1-3004 ILLINOIS POWER COMPANY 37-0344645
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525-1805
(217) 424-6600
Securities registered pursuant to Section 12(b) of the Act:
Each of the following securities registered pursuant to
Section 12(b) of the Act are listed on the New York Stock
Exchange.
Title of each class Registrant
- - ------------------- ----------
Common Stock (a) Illinova Corporation
Preferred stock, cumulative, Illinois Power Company
$50 par value
4.08% Series 4.26% Series 4.70% Series
4.20% Series 4.42% Series
Preferred stock, cumulative,
no par value
Adjustable Rate Series A Adjustable Rate Series B
Mandatorily redeemable preferred securities of subsidiary
(Illinois Power Capital, L.P.)
9.45% Series
First mortgage bonds
6 1/2% Series due 1999 8 3/4% Series due 2021
7.95% Series due 2004
New mortgage bonds
6 1/8% Series due 2000 6 3/4% Series due 2005
5 5/8% Series due 2000 8% Series due 2023
6 1/2% Series due 2003 7 1/2% Series due 2025
(a) Illinova Common Stock is also listed on the Chicago Stock Exchange.
Indicate by check mark whether the registrants (1) have
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2)
have been subject to such filing requirements for the past
90 days.
Illinova Corporation Yes [X] No
Illinois Power Company 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
registrants' 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.
Illinova Corporation [X]
Illinois Power Company [X]
The aggregate market value of the voting common stock
held by non-affiliates of Illinova Corporation at February
29, 1996 was approximately $2.2 billion. Illinova
Corporation is the sole holder of the common stock of
Illinois Power Company. The aggregate market value of the
voting preferred stock held by non-affiliates of Illinois
Power Company at February 29, 1996, was approximately $99
million. The determination of stock ownership by non-
affiliates was made solely for the purpose of responding to
this requirement and the registrants are not bound by this
determination for any other purpose.
The number of shares of Illinova Corporation Common
Stock, without par value, outstanding on February 29, 1996
was 75,674,837.
Documents Incorporated by Reference
1. Portions of the 1995 Annual Report to Shareholders of
Illinova Corporation in the appendix to the Illinova
Corporation Proxy Statement.
(Parts I, II, III and IV of Form 10-K)
2. Portions of the 1995 Annual Report to Shareholders of
Illinois Power Company in the appendix to the Illinois
Power Company Information Statement.
(Parts I, II, III and IV of Form 10-K)
3. Portions of the Illinova 1995 Proxy Statement.
(Part III of Form 10-K)
4. Portions of the Illinois Power 1995 Information Statement.
(Part III of Form 10-K)
ILLINOVA CORPORATION
ILLINOIS POWER COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 1995
This combined Form 10-K is separately filed by Illinova
Corporation and Illinois Power Company. Prior to the filing of
the combined 10-Q for the quarter ended June 30, 1994, Illinova
Corporation was not a reporting company for purposes of the
Securities Exchange Act of 1934 and Illinois Power Company filed
its own separate reports on Form 10-K. 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.
TABLE OF CONTENTS
Part I Page
Item 1. Business 6
General 6
Competition 7
Customer and Revenue Data 8
Electric Business 9
Overview 9
Power Coordination Agreement
With Soyland 10
Fuel Supply 10
Construction Program 12
Clinton Power Station 13
General 13
Decommissioning Costs 13
Accounting Matters 13
Dividends 14
Gas Business 14
Gas Supply 14
Environmental Matters 15
Air Quality 15
Clean Air Act 16
Manufactured-Gas Plant(MGP) Sites 16
Water Quality 16
Other Issues 17
Electric and Magnetic Fields 17
Environmental Expenditures 17
Research and Development 17
Regulation 18
Executive Officers of Illinova Corporation 18
Executive Officers of Illinois Power Company 19
Operating Statistics 20
Item 2. Properties 20
Item 3. Legal Proceedings 20
Environmental 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Part II
Item 5. Market for Registrants' Common Equity
and Related Stockholder Matters 22
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 22
TABLE OF CONTENTS (Continued)
Item 8. Financial Statements and Supplementary
Data 22
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 23
Part III
Item 10. Directors and Executive Officers of
the Registrants 24
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain
Beneficial Owners and Management 24
Item 13. Certain Relationships and Related
Transactions 24
Part IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 25
Signatures 27-28
Exhibit Index 29
PART I
- - -----------------------------------------------------------------
ITEM 1. Business
- - -------
General
-------
Illinois Power Company (IP) was incorporated under the laws
of the State of Illinois on May 25, 1923.
Illinova Corporation (Illinova) was incorporated under the
laws of the State of Illinois on May 27, 1994 and currently
serves as the parent holding company of three principal operating
subsidiaries: IP, Illinova Generating Company (IGC) and Illinova
Power Marketing, Inc. (IPMI).
IP is the primary business and principal subsidiary of
Illinova and is engaged in the generation, transmission,
distribution and sale of electric energy and the distribution,
transportation and sale of natural gas in the State of Illinois.
Several developments have occurred recently at IP that are
related to the increasingly competitive nature of the utility
industry and IP's efforts to position itself to benefit from the
opportunities emerging on the horizon. In 1995, IP was a
participant in the development of Energy Choice 2000, a
legislative proposal designed to reform utility regulation in
Illinois. Furthermore, IP designed and proposed an open energy
access experiment which would allow approximately 20 industrial
customers to purchase electricity and related services from other
sources. IP plans to use this experiment to evaluate the
financial, operational and service impacts of transporting power
from other suppliers to customers. For a more detailed
discussion of these developments, refer to the "Competition"
section of this item.
In December 1994, IP announced plans for voluntary enhanced
retirement and severance programs. During the fourth quarter of
1995, 727 employees elected to accept either enhanced retirement
or enhanced severance. These two programs resulted in a pre-tax
charge of $38 million against fourth quarter 1995 earnings but
are expected to generate savings of approximately $36 million
annually beginning in 1996.
IP provides funds to Illinova for operations and
investments. Illinova accrues interest due to IP on these funds
at a rate equal to the higher of the rate that Illinova would
have to pay if it used a currently outstanding line of credit, or
IP's actual cost of the funds provided. At the end of each
quarter, IP effects a common stock repurchase from Illinova by
accepting shares equal in market value to the amount of the funds
provided to Illinova during the quarter plus the accrued interest
for the quarter. During 1995, IP provided approximately $34
million in funds to Illinova. Since Illinova's inception in
1994, IP has provided approximately $54 million to Illinova. For
further information on IP common stock repurchases, see Item 7
"Management's Discussion and Analysis of Financial Condition and
Results of Operation" of this report.
IP's financial position and results of operations are
currently the principal factors affecting Illinova's consolidated
financial position and results of operations.
IGC is Illinova's wholly-owned independent power subsidiary
that invests in energy-related projects throughout the world and
competes in the independent power market. IGC is an equity
partner with Tenaska, Inc. in four natural gas-fired generation
plants. Tenaska, Inc. is a developer of independent power
projects and is based in Omaha, Nebraska. IGC also owns 50
percent of the North American Energy Services Company (NAES),
which supplies a broad range of operations, maintenance and
support services to the world-wide independent power generation
industry. NAES will operate the Tenaska generation plants in
which IGC has an equity position. IGC is an equity partner in
the Indeck North American Power Fund (Fund). The Fund has
generation projects in Long Beach, California, and Pepperell,
Massachusetts. In addition to these ventures, IGC is involved in
generation projects in Teesside, England; Puerto Cortez,
Honduras; Zhejiang Province, People's Republic of China;
Aguaytia, Peru; and Old Harbour, Jamaica. IGC also has invested
in a coal-drying facility in Gillette, Wyoming.
IPMI is Illinova's wholly-owned subsidiary that is in the
business of marketing energy and energy-related services. On May
16, 1995, IPMI obtained approval from the Federal Energy
Regulatory Commission (FERC) to conduct business as a marketer of
electric power and gas to various customers outside of IP's
present service territory. In September 1995, IPMI began buying
and selling wholesale electricity in the western United States.
IPMI owns 50 percent of Tenaska Marketing Ventures (TMV). IPMI
and TMV have formed Tenaska Marketing Canada to market natural
gas in Canada.
On December 13, 1995, the Illinova Board of Directors
approved the formation of a captive insurance subsidiary of
Illinova. The purpose of the insurance subsidiary will be to
provide insurance coverage to IP that is not available in the
commercial market, to provide greater financial flexibility for
Illinova and to reduce IP's risk management costs. It is
anticipated that the insurance subsidiary will be created in mid-
1996.
Competition
- - -----------
Competition has become a dominant issue for the electric
utility industry. It has been promoted by federal legislation,
starting with the Public Utility Regulatory Policies Act of 1978,
which facilitated the development of co-generators and
independent power producers. Federal promotion of competition
continued with enactment of the Energy Policy Act of 1992, which
authorized the FERC to mandate wholesale wheeling of electricity
by utilities at the request of certain authorized generating
entities and electric service providers. Wheeling is the
transport of electricity generated by one entity over
transmission and distribution lines belonging to another entity.
For many years prior to enactment of the Energy Policy Act, the
FERC imposed wholesale wheeling obligations as a condition of
approving mergers and granting operating privileges, which is a
practice that continues.
Competition arises not only from co-generation or
independent power production, but also from municipalities
seeking to extend their service boundaries to include customers
being served by IP. The right of municipalities to have power
wheeled to them by utilities was established in 1973. IP has
been obligated to wheel power for municipalities and cooperatives
in its territory since 1976. The Illinois Commerce Commission
(ICC) has been supportive of IP's attempts to maintain its
customer base through approval of special contracts and flexible
pricing that help IP to compete with existing municipal
providers.
Further competition may be introduced by state action or by
federal regulatory action. While the Energy Policy Act precludes
the FERC from mandating retail wheeling, state regulators and
legislators could open utility franchise territories to full
competition at the retail level. Legislative action would be
required for retail wheeling to occur in Illinois. Retail
wheeling involves the transport of electricity to end-use
residential, commercial or industrial customers. Such a change
would be a significant departure from existing regulation in
which public utilities have a universal obligation to serve the
public in return for relatively protected service territories and
regulated pricing which is designed to allow a reasonable return
on prudent investment and recovery of operating costs. States'
attempts to lay the groundwork for retail wheeling have been
hampered by opposition from various interest groups, as well as
the complexity of related issues, including recovery of costs
associated with existing generation investment.
In March 1995, IP was instrumental in developing a
legislative proposal, Energy Choice 2000, which is designed to
reform Illinois' regulatory laws governing utilities. Energy
Choice 2000 establishes the framework for a managed transition
for utilities to operate in a competitive market. The proposal
outlines a time frame for all classes of customers to benefit
from competition, beginning in the year 2000. In May 1995, the
Illinois General Assembly passed Senate Joint Resolution 21,
which established the Joint Committee on Electric Utility
Regulatory Reform and directed it to use Energy Choice 2000 "as a
key element for developing legislative proposals for reducing
regulation, increasing customer choice and promoting and
facilitating competition in Illinois' electric utility industry."
The Joint Committee on Electric Utility Regulatory Reform is
directed to provide a final legislative proposal during the
fourth quarter of 1996.
On September 11, 1995, IP filed a proposal with the ICC
seeking approval to conduct an open-energy access experiment
beginning in 1996. The experiment would allow approximately 20
industrial customers to purchase electricity and related services
from other sources. IP would transmit (wheel) the electricity
over its lines. IP received approval for the experiment from the
ICC on March 13, 1996. IP expects to receive approval from the
FERC by April 15, 1996.
The maximum total load involved in this experiment
represents approximately 1 percent of IP's total load, or about
$7.5 million in net annual revenue. IP expects the earnings
impact to be immaterial. Any loss of sales would be partially
offset by revenues obtained by selling the surplus energy and
capacity on the open market and by transmission and ancillary
service charges necessary for customers to obtain energy from an
alternative supplier, as well as by corresponding reductions in
fuel and other variable operating costs.
The open-access experiment will allow IP to evaluate the
financial, operational and service impacts of transporting power
from other suppliers to customers. Additionally, regulators and
legislators will benefit from the experiment by observing open-
energy access in a "laboratory setting" while they look for ways
to bring the benefits of competition to all customers. Finally,
it will give customers opportunity to gain experience in
arranging their power supplies and transmission requirements and
managing their operations under an open-energy access scenario.
At this time, the ultimate effect of competition in the
electric utility industry on Illinova's consolidated financial
position and results of operations is uncertain.
Customer and Revenue Data
- - -------------------------
Approximately 83 percent and 17 percent of Illinova's and
its subsidiaries' operating revenues are derived from the sale of
electricity and the sale and transportation of natural gas,
respectively. The territory served by IP comprises substantial
areas in northern, central and southern Illinois, including ten
cities with populations greater than 30,000 (1990 Federal Census
data). IP supplies electric service at retail to an estimated
aggregate population of 1,265,000 in 310 incorporated
municipalities, adjacent suburban and rural areas, and numerous
unincorporated communities and retail natural gas service to an
estimated population of 920,000 in 257 incorporated
municipalities and adjacent areas. IP holds franchises in all of
the 310 incorporated municipalities in which it furnishes retail
electric service and in all of the 257 incorporated
municipalities in which it furnishes retail gas service. At
February 29, 1996, IP served 629,351 active electric customers
and 402,775 active gas customers. These numbers do not include
non-metered customers such as street lights. Sales of
electricity and gas sales and transportation are affected by
seasonal weather patterns, and, therefore, operating revenues and
associated operating expenses are not distributed evenly during
the year.
For more information, see "Note 13 - Segments of Business"
on page A-30 of the 1995 Annual Report to Shareholders in the
appendix to the Illinova Proxy Statement which is incorporated
herein by reference. To the extent that information incorporated
by reference herein appears identically in both the 1995 Annual
Report to Shareholders of Illinova Corporation and the 1995
Annual Report to Shareholders of Illinois Power Company,
reference will be made herein only to the 1995 Annual Report to
Shareholders of Illinova Corporation, and such reference will be
deemed to include a reference to the 1995 Annual Report of
Illinois Power Company.
Electric Business
-----------------
Overview
- - --------
IP supplies electric service at retail to residential,
commercial and industrial consumers in substantial portions of
northern, central and southern Illinois. Electric service at
wholesale is supplied for resale to one electric utility and to
the Illinois Municipal Electric Agency (IMEA) as agent for 11
municipalities. IP also has a power coordination agreement with
Soyland Power Cooperative, Inc. (Soyland). See the sub-caption
"Power Coordination Agreement With Soyland" hereunder for
additional information. In 1995, IP provided interchange power
to 21 entities, including 7 power marketers.
IP's highest system peak hourly demand (native load) in 1995
was 3,666,738 kilowatts on July 13, 1995. This 1995 peak load
set a new company record, surpassing IP's previous high of
3,508,000 kilowatts set in 1988.
IP owns and operates generating facilities with a total net
summer capability of 4,443,000 kilowatts. The generating
capability comes from six major steam generating plants and three
peaking service combustion turbine plants. See Item 2
"Properties" for further information.
IP owns 20% of the capital stock of Electric Energy, Inc.
(EEI), an Illinois corporation. EEI was organized to own and
operate a steam electric generating station and related
transmission facilities near Joppa, Illinois to supply electric
energy to the U.S. Department of Energy (DOE) for its project
near Paducah, Kentucky. Under a power supply agreement with EEI,
IP has the right to purchase 5.0% of the annual output of the
Joppa facility. IP has the flexibility to schedule the capacity
in varying amounts ranging from a nominal 51,000 kilowatts for 52
weeks up to a maximum of 203,000 kilowatts for approximately 13
weeks. IP must schedule its annual capacity entitlement by
August 1 of the preceding year, and availability of the scheduled
capacity is subject to certain other limitations related to
scheduling considerations of the other co-owners of the Joppa
facility and the DOE, and any planned unit outages. The power
supply agreement is effective until December 31, 2005, unless
amended, changed, or canceled by mutual agreement of all parties.
IP is a participant, together with Union Electric Company
(UE) and Central Illinois Public Service Company (CIPS), in the
Illinois-Missouri Power Pool which was formed in 1952. The Pool
operates under an interconnection agreement which provides for
the interconnection of transmission lines. Additionally, the
agreement contains provisions for the coordination of generating
equipment maintenance schedules, inter-company sales of firm and
non-firm power, and the maintenance of minimum capacity reserves
by each participant. These capacity reserves are equal to the
greater of 15% of its peak demand, one-half of its largest unit,
or one-half of its largest non-firm purchase. This agreement has
no expiration date, but any party may withdraw from the agreement
by giving 36 months notice to the other parties.
IP, CIPS and UE have a contract with the Tennessee Valley
Authority (TVA) providing for the interconnection of the TVA
system with those of the three companies to exchange economy and
emergency power and for other working arrangements. This
contract has no expiration date, but any party may withdraw from
the agreement by giving 5 years written notice to the other
parties.
IP also has interconnections with Indiana-Michigan Power
Company, Commonwealth Edison Company, Central Illinois Light
Company, Mid-American Energy Corporation, Kentucky Utilities
Company, Southern Illinois Power Cooperative, EEI, Soyland and
the City of Springfield, Illinois.
IP is also a member of the Mid-America Interconnected
Network, which is one of nine regional reliability councils
established to coordinate plans and operations of member
companies regionally and nationally.
Power Coordination Agreement With Soyland
- - -----------------------------------------
Under the provisions of the 1984 Power Coordination
Agreement (PCA) between IP and Soyland, IP is required to provide
Soyland with 12.0% of the electrical capacity from its fossil-
fueled generating plants until the agreement expires or is
terminated. IP transmits energy for Soyland through IP's
transmission and subtransmission systems and is compensated by
Soyland with capacity charges and for energy and variable
operating costs. For more information on the PCA, see "Note 6 -
Facilities Agreements" on page A-23 of the 1995 Annual Report to
Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference.
Fuel Supply
- - -----------
Coal was used to generate 72.7% of the electricity produced
by IP during 1995, with nuclear and oil and gas contributing
26.8% and 0.5%, respectively. Based on current forecasts, the
percentages of generation attributable to coal, nuclear, oil and
gas in 1995 should remain essentially the same in future years.
The percentage attributable to nuclear is projected to increase
to around 31.0%, while the percentage attributable to coal should
decline to about 68.0%, during those years in which there is not
a scheduled refueling outage for the Clinton Power Station
(Clinton).
IP's rate schedules contain provisions for passing along to
its electric customers increases or decreases in the cost of
fuels used in its generating stations. For additional
information see the information under the sub-captions "Revenue
and Energy Cost" of "Note 1 - Summary of Significant Accounting
Policies" on page A-15 of the 1995 Annual Report to Shareholders
in the appendix to the Illinova Proxy Statement which is
incorporated herein by reference.
COAL - Coal is expected to be a major source of fuel for future
generation. Through both long-term and short-term contracts, IP
has obtained commitments for the major portion of future coal
requirements. IP has short-term contracts with four suppliers
which last through 1997 and long-term contracts with two
suppliers which last through 1999 and 2010. Contracts
renegotiated in 1993 and 1994 have provided for the continued
economic use of high sulfur Illinois coal while IP complies with
Phase I of the Clean Air Act Amendments that became effective
January 1, 1995.
Spot purchases of coal in 1995 represented less than 1% of
IP's total coal purchases. IP believes that it will be able to
obtain sufficient coal to meet its future generating
requirements. However, IP is unable to predict the extent to
which coal availability and price may fluctuate in the future.
Coal inventories on hand at December 31, 1995 represented a 27-
day supply based on IP's average daily burn projections for 1996.
IP continues to evaluate and obtain alternate fuel delivery
and unloading facilities for greater flexibility of fuel
supplies. New rail unloading facilities at the Havana Station
(Havana) are expected to be operational in 1996.
NUCLEAR - IP leases nuclear fuel from Illinois Power Fuel Company
(Fuel Company). The Fuel Company, which is 50% owned by IP, was
formed in 1981 for the purpose of leasing nuclear fuel to IP for
Clinton. Lease payments are equal to the Fuel Company's cost of
fuel as consumed (including related financing and administrative
costs). As of December 31, 1995, the Fuel Company had an invest
ment in nuclear fuel of approximately $95 million. IP is
obligated to make subordinated loans to the Fuel Company at any
time the obligations of the Fuel Company which are due and
payable exceed the funds available to the Fuel Company. At
December 31, 1995, IP had no outstanding loans to the Fuel
Company.
At December 31, 1995, IP's net investment in nuclear fuel
consisted of $10 million of Uranium 308. This inventory
represents fuel to be used in connection with the sixth reload of
Clinton which is scheduled to begin in October 1996 and expected
to last approximately six weeks. At December 31, 1995, the
unamortized investment of the nuclear fuel assemblies in the
reactor was $85 million.
IP has two long-term contracts for the supply of uranium
concentrates. One contract is with Cameco, a Canadian
corporation. The Cameco contract was renegotiated in 1994 to
lower the price and provide 55% to 65% of Clinton's estimated
fuel requirements through 2000. The decision to utilize Cameco
for the additional 10% of Clinton's fuel requirements is made the
year before each delivery and depends on the estimated price and
availability from the spot market versus the estimated contract
prices. The contract with Cameco is stated in terms of U. S.
Dollars.
The second uranium contract is with U.S. Energy/Crested
Corporation. Originally, it was for 1,179,240 pounds of uranium
concentrates with deliveries through 1998. IP purchased
approximately one half of the uranium concentrates supply under
this contract before it was terminated in September 1993.
In October 1993, IP filed suit in U.S. District Court,
Central District of Illinois, Danville, seeking a declaration
that IP's termination of the U.S. Energy contract was permitted
by the terms of the contract as they relate to rights of
termination in the event of certain receivership proceedings. On
September 1, 1994, the Court granted defendants' motions for
summary judgment and ruled that the termination constituted a
breach of contract. On June 15, 1995, IP concluded a negotiated
settlement with U.S. Energy/Crested Corporation. That settlement
reduced the quantity to be purchased and shortened the contract
term by one year, while increasing the price per pound.
Conversion services for the period 1991-2001 are contracted
with Sequoyah Fuels. Sequoyah Fuels closed its Oklahoma
conversion plant in 1992 and joined with Allied Chemical Company
to form a marketing company named CoverDyn. All conversion
services will be performed at Allied's Metropolis, Illinois
facility, but Sequoyah Fuels retains the contract with IP. IP
has a Utility Services contract for uranium enrichment require
ments with the DOE which provides 70% of the enrichment require
ments of Clinton through September 1999. The remaining 30% has
been contracted with the DOE through an amendment to its
incentive pricing plan through 1999. This amendment allows IP to
either purchase the enrichment services at the DOE's incentive
price or provide electricity at DOE's Paducah, Kentucky
enrichment plant at an agreed exchange rate. In addition,
legislation was passed to create a new private government
corporation, the United States Enrichment Corporation (USEC), for
enrichment services. All of the DOE's assets including all
contracts, were transferred to the USEC as of July 1993.
A contract with General Electric Company provides fuel
fabrication requirements for the initial core and approximately
11 reloads, or through 2004. In 1993, an amendment was signed
with the General Electric Company to add 67% more fuel bundles to
the contract and to change the existing price and other terms and
conditions. The additional fuel bundles are expected to cover
fuel fabrication requirements through 2017.
Beyond the stated commitments, IP may enter into additional
contracts for uranium concentrates, conversion to uranium
hexafluoride, enrichment and fabrication.
Currently, no plants for commercial reprocessing of spent
nuclear fuel are in operation in the U.S., and reprocessing
cannot begin until appropriate licenses are issued by the Nuclear
Regulatory Commission (NRC). Various governmental agencies are
currently reviewing the environmental impact of nuclear fuel
reprocessing and waste management. The Nuclear Waste Policy Act
of 1982 was enacted to establish a government policy with respect
to disposal of spent nuclear fuel and high-level radioactive
waste. On July 6, 1984, IP signed a contract with the DOE for
disposal of spent nuclear fuel and/or high-level radioactive
waste. Under the contract, IP is required to pay the DOE one
mill (one-tenth of a cent) per net kilowatt-hour (one dollar per
MWH) of electricity generated and sold. IP is recovering this
amount through rates charged to customers.
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 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 Clinton, 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 are asking the Court to confirm the DOE's commitment
and to order the DOE to develop a compliance program with
appropriate deadlines. The utilities also have asked for relief
from the ongoing funding requirements or to have an escrow
account established for future funds paid to DOE. Oral arguments
in this case were held in January 1996. A decision from the
Court is expected sometime in 1996.
IP has on-site storage capacity that will accommodate its
spent fuel storage needs until the year 2004, based on current
operating levels. If by that date the U.S. Government has not
complied with to its statutory obligation to dispose of spent
fuel, and IP has continued to operate the plant at current
levels, IP will have to use alternative means of disposal, such
as dry storage in casks on site or transportation of the fuel
rods to private or collectively-owned utility repositories. IP
currently is an equity partner in an effort to develop a private
storage facility in conjunction with the Mescalaro Apaches on
their reservation in New Mexico. Continued participation in the
partnership will depend on the technological and economic
viability of the project. Current technology allows safe, dry,
on-site storage, subject to licensing and local permitting
requirements.
Under the Energy Policy Act of 1992, IP is responsible for a
portion of the cost to decontaminate and decommission the DOE's
uranium enrichment facilities. Each utility will be assessed an
annual fee for a period of fifteen years based on quantities
purchased from the DOE facilities prior to passage of the Act.
At December 31, 1995, IP has a remaining liability of $5.1
million representing future assessments. IP is recovering these
costs, as amortized, through its fuel adjustment clause.
OIL and GAS - IP used natural gas and oil to generate 0.5% of the
electricity produced in 1995. IP has not experienced difficulty
in obtaining adequate supplies of these resources. However, IP
is unable to predict the extent to which oil and gas availability
and price may fluctuate in the future.
Reference is made to the sub-caption "Environmental Matters"
hereunder for information regarding pollution control matters
relating to IP's fuel supply.
Construction Program
- - --------------------
Illinova and IP need cash for construction programs. To
meet anticipated needs, Illinova and IP have used internally
generated funds and external financings. The timing and amount
of external financings depend primarily on economic and financial
market conditions, cash needs and capitalization ratio
objectives.
For more information on Illinova's construction program and
liquidity, see "Note 4 - Commitments and Contingencies" on page A-
18 of the 1995 Annual Report to Shareholders in the appendix to
the Illinova Proxy Statement which is incorporated herein by
reference; "Note 5 - Lines of Credit and Short-Term Loans" on
page A-22 of the 1995 Annual Report to Shareholders in the
appendix to the Illinova Proxy Statement which is incorporated
herein by reference; and "Capital Resources and Requirements" in
"Management's Discussion and Analysis" on page A-7 of the 1995
Annual Report to Shareholders in the appendix to the Illinova
Proxy Statement which is incorporated herein by reference.
For more information on IP's construction program and
liquidity, see "Note 3 - Commitments and Contingencies" on page A-
18 of the 1995 Annual Report to Shareholders in the appendix to
the Illinois Power Information Statement which is incorporated
herein by reference; "Note 4 - Lines of Credit and Short-Term
Loans" on page A-22 of the 1995 Annual Report to Shareholders in
the appendix to the Illinois Power Information Statement which is
incorporated herein by reference; and "Capital Resources and
Requirements" in "Management's Discussion and Analysis" on page A-
7 of the 1995 Annual Report to Shareholders in the appendix to
the Illinois Power Information Statement which is incorporated
herein by reference.
Clinton Power Station
- - ---------------------
General
-------
IP and Soyland share ownership of Clinton, with IP owning
86.8% and Soyland owning 13.2%. Clinton was placed in service in
1987 and represents approximately 18% of IP's installed
generation capacity. For more information on the Clinton Power
Station, see "Note 3 - Clinton Power Station" on page A-17 of the
1995 Annual Report to Shareholders in the appendix to the
Illinova Proxy Statement which is incorporated herein by
reference.
Decommissioning Costs
---------------------
IP is responsible for its ownership share of the costs of
decommissioning Clinton and for spent nuclear fuel disposal
costs. IP is collecting future decommissioning costs through its
electric rates based on an ICC-approved formula that allows IP to
adjust rates annually for changes in decommissioning cost
estimates. For more information on the decommissioning costs
related to the Clinton Power Station, see "Note 4 - Commitments
and Contingencies" on page A-18 of the 1995 Annual Report to
Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference.
Accounting Matters
- - ------------------
The Illinova consolidated financial statements include the
accounts of Illinova Corporation, a holding company; IP, a
combination electric and gas utility; IGC, a wholly-owned
subsidiary that invests in energy-related projects and competes
in the independent power market; and IPMI, a wholly-owned
subsidiary that markets energy and energy-related services.
IP's consolidated financial position and results of
operations are currently the principal factors affecting
Illinova's consolidated financial position and results of
operations. 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 the Consolidated Statements of Income. Prior year
amounts have been restated on a basis consistent with the
December 31, 1995, presentation.
The IP consolidated financial statements include the
accounts of Illinois Power Capital, L.P., a limited partnership
in which IP serves as the general partner.
IP currently prepares its financial statements in accordance
with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (FAS
71). Accordingly, IP records various regulatory assets and
liabilities to reflect the actions of regulators. Management
believes that IP currently meets the criteria for continued
application of FAS 71 but will continue to evaluate significant
changes in the regulatory and competitive environment to assess
IP's overall compliance with such criteria. These criteria
include: 1) whether rates set by regulators are designed to
recover the specific costs of providing regulated services and
products to customers and 2) whether regulators continue to
establish rates based on cost. In the event that management
determines that IP no longer meets the criteria for application
of FAS 71, an extraordinary non-cash charge to income would be
recorded in order to remove the effects of the actions of
regulators from the consolidated financial statements. The
discontinuation of application of FAS 71 would likely have a
material adverse effect on Illinova's and IP's consolidated
financial position and results of operations.
Dividends
- - ---------
On December 13, 1995, Illinova increased the quarterly
common stock dividend 12%, to $.28 per share from $.25 per share,
effective with the common stock dividend for the first quarter of
1996.
Gas Business
------------
IP supplies retail natural gas service to an estimated
aggregate population of 920,000 in 257 incorporated municipalities,
adjacent suburban areas and numerous unincorporated
communities. IP does not sell gas for resale.
IP's rate schedules contain provisions for passing through
to its gas customers increases or decreases in the cost of
purchased gas. For information on revenue and energy costs, see
the sub-caption "Revenue and Energy Cost" of "Note 1 - Summary of
Significant Accounting Policies" on page A-15 of the 1995 Annual
Report to Shareholders in the appendix to the Illinova Proxy
Statement that is incorporated herein by reference.
IP has eight underground gas storage fields having a total
capacity of approximately 15.2 million MMBtu and a total
deliverability on a peak day of about 347,000 MMBtu. In addition
to the capacity of the eight underground storage fields, IP has
contracts with various natural gas suppliers and producers for
11.0 million MMBtu of underground storage capacity and a total
deliverability on a peak day of 160,000 MMBtu. Operation of un
derground storage permits IP to increase deliverability to its
customers during peak load periods by taking gas into storage
during the off-peak months.
IP owns two active liquefied petroleum gas plants having an
aggregate peak-day deliverability of about 40,000 MMBtu for peak-
shaving purposes. Gas properties include approximately 7,800
miles of mains.
IP experienced its 1995 peak-day send out of 666,200 MMBtu
of natural gas on December 9, 1995. This compares with IP's
record peak-day send out of 857,324 MMBtu of natural gas on
January 10, 1982.
Gas Supply
- - ----------
Pursuant to Orders 636 and 636-A, issued in April and August
1992, respectively, the FERC approved amendments to rules
intended to increase competition among natural gas suppliers by
"unbundling" the interstate pipelines' merchant sales service
into separate sales and transportation services and by mandating
that the pipelines' firm transportation service be comparable to
the transportation service included in their traditional bundled
sales service. Under this rule, pipelines are required to
unbundle services that they provided so that natural gas
purchasers can select services as needed to meet their energy
requirements. As of December 31, 1993, all of IP's pipeline
suppliers had restructured their service offerings to conform
with the requirements of Orders 636 and 636-A.
These rules have increased the complexity of providing firm
gas service. This additional complexity results from the greater
number of options available to IP, as well as the added
responsibility to arrange for the acquisition, transportation and
storage of natural gas, which was previously bundled into the
pipelines' sales service. As a result of Orders 636 and 636-A,
the pipelines are charging their customers "transition" costs,
which arise from unbundling services. IP estimates that it will
incur approximately $10.5 million in transition costs through
1998. In 1993, IP began to pay transition costs billed by gas
pipelines and to recover these payments through a tariff rider.
On September 23, 1994, the ICC issued a final order approving
recovery of Order 636 transition costs.
Under Order 636, IP has entered into firm transportation
agreements with the pipelines that feed its system. IP has
contracts with five suppliers through 1996. IP's present
estimated supplies of gas from pipelines and its own storage are
sufficient to serve all of its existing firm loads. When gas
service to interruptible customers is interrupted, storage
service is made available in lieu of curtailment. Gas service
continues to be available to all applicants on a current basis.
Environmental Matters
---------------------
IP is subject to regulation by certain federal and Illinois
authorities with respect to environmental matters and may in the
future become subject to additional regulation by such
authorities or by other federal, state and local governmental
bodies. Existing regulations affecting IP are principally
related to air and water quality, hazardous wastes and toxic
substances.
Air Quality
- - -----------
Pursuant to the Federal Clean Air Act (Act), the United
States Environmental Protection Agency (USEPA) has established
ambient air quality standards for air pollutants which, in its
judgment, have an adverse effect on public health or welfare.
The Act requires each state to adopt laws and regulations,
subject to USEPA approval, designed to achieve such standards.
Pursuant to the Illinois Environmental Protection Act, the
Illinois Pollution Control Board (Board) adopted and, along with
the Illinois Environmental Protection Agency (IEPA), is enforcing
a comprehensive set of air pollution control regulations which
include emission limitations and permitting and monitoring and
reporting requirements.
The air pollution regulations of the Board impose
limitations on emissions of particulate, sulfur dioxide, carbon
monoxide, nitrogen oxides and various other pollutants.
Enforcement of emission limitations is accomplished in part
through the regulatory permitting process. IP's practice is to
obtain an operating permit for each source of regulated
emissions. Presently, it has a total of approximately 100
permits for emission sources at its power stations and other
facilities, expiring at various times. In addition to having the
requisite operating permits, each source of regulated emissions
must be operated within the regulatory limitations on emissions.
Verification of such compliance is usually accomplished by
reports to regulatory authorities and inspections by such
authorities.
In accordance with the requirements of the Illinois Clean
Air Act Permit Program (CAAPP), IP submitted new air permit
applications for each of its generating facilities in 1995. The
IEPA will review these applications and is expected to issue
CAAPP permits in 1996 or 1997.
In addition to the sulfur dioxide emission limitations for
existing facilities, both the USEPA and the State of Illinois
adopted New Source Performance Standards (NSPS) applicable to
coal-fired generating units limiting emissions to 1.2 pounds of
sulfur dioxide per million Btu of heat input. This standard is
applicable to IP's Unit 6 at the Havana power station. The
federal NSPS also limit nitrogen oxides, opacity and particulate
emissions and imposes certain monitoring requirements. In 1977
and 1990 the Act was amended and, as a result, USEPA has adopted
more stringent emission standards for new sources. These
standards would apply to any new plant constructed by IP.
Clean Air Act
- - -------------
For information on the impacts of the Clean Air Act
Amendments of 1990, see "Note 4 - Commitments and Contingencies"
on page A-18 of the 1995 Annual Report to Shareholders in the
appendix to the Illinova Proxy Statement which is incorporated
herein by reference.
Manufactured-Gas Plant (MGP) Sites
- - ----------------------------------
For information on MGP sites, see "Note 4 - Commitments and
Contingencies" on page A-18 of the 1995 Annual Report to
Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference.
Water Quality
- - -------------
The Federal Water Pollution Control Act Amendments of 1972
require that National Pollutant Discharge Elimination System
(NPDES) permits be obtained from USEPA (or, when delegated, from
individual state pollution control agencies) for any discharge
into navigable waters. Such discharges are required to conform
with the standards, including thermal, established by USEPA and
also with applicable state standards.
Enforcement of discharge limitations is accomplished in part
through the regulatory permitting process similar to that
described previously under "Air Quality". Presently, IP has
approximately two dozen permits for discharges at its power
stations and other facilities, which must be periodically
renewed.
In addition to obtaining such permits, each source of
regulated discharges must be operated within the limitations
prescribed by applicable regulations. Verification of such
compliance is usually accomplished by monitoring results reported
to regulatory authorities and inspections by such authorities.
The Baldwin power station (Baldwin) NPDES permit was
reissued during the fourth quarter of 1993 and is due for renewal
in the fourth quarter of 1997. The Hennepin power station
(Hennepin) permit was reissued in 1992 and is due for renewal in
the third quarter of 1997. The application to renew the Clinton
permit has been submitted and IP is allowed to continue to
operate the plant at currently authorized levels. IP expects the
permit to be reissued in the second quarter of 1996. The
Vermilion power station (Vermilion), Wood River power station
(Wood River) and Havana permits were reissued in 1991 and were
due for renewal in the fourth quarter of 1995. IP submitted all
three applications for reissuance. The Havana permit was
reissued effective March 1, 1996, and the Wood River permit is
expected during the second quarter of 1996. The IEPA has not
begun reviewing the Vermilion application; therefore, no
realistic estimation can be made regarding its reissuance date.
Because the applications have been filed, all three plants can
continue operations without reissued permits.
The Baldwin NPDES permit has been modified to extend the
compliance schedule for achieving compliance with the boron
effluent limit for its ash pond discharge. The initial date for
achieving compliance was October 1996; however, because of delays
caused by the flooded Kaskaskia River, necessary mixing zones
studies could not be completed as anticipated. IEPA modified the
permit to extend the compliance schedule until December 1, 1997,
which allowed IP sufficient time to complete all necessary
studies.
Other Issues
- - ------------
Hazardous and non-hazardous wastes generated by IP must be
managed in accordance with federal regulations under the Toxic
Substances Control Act (TSCA), the Comprehensive Environmental
Response, Compensation and Liability Act and the Resource
Conservation and Recovery Act (RCRA) and additional state
regulations promulgated under both RCRA and state law.
Regulations promulgated in 1988 under RCRA govern IP's use of
underground storage tanks. The use, storage, and disposal of
certain toxic substances, such as polychlorinated biphenyls
(PCBs) in electrical equipment, are regulated under the TSCA.
Hazardous substances used by IP are subject to reporting
requirements under the Emergency Planning and Community-Right-To-
Know Act. The State of Illinois has been delegated authority for
enforcement of these regulations under the Illinois Environmental
Protection Act and state statutes. These requirements impose
certain monitoring, recordkeeping, reporting and operational
requirements which IP has implemented or is implementing to
assure compliance. IP does not anticipate that compliance will
have a material adverse effect on its financial position or
results of operations.
Between June 1983 and January 1985, IP shipped various
materials containing PCBs to the Martha C. Rose Chemicals, Inc.
(Rose) facility in Holden, Missouri for proper treatment and
disposal. Rose, pursuant to permits issued by USEPA, had
undertaken to dispose of PCB materials for IP and others, but
failed in part to do so. As a result of such failure, PCB
materials were being stored at the facility. In 1986, IP joined
with a number of other generators to efficiently and economically
cleanup the facility. The Steering Committee, consisting of IP
and 15 other entities, has successfully implemented the Remedial
Design Work Plan. The Steering Committee is required to monitor
ground water at the site from a minimum of five years to a
maximum of ten years after completion of the plan. Based upon
data collected during the first year of ground water monitoring,
the Steering Committee has petitioned the USEPA to amend the
record of decision to negate additional ground water monitoring.
This will allow the USEPA to end the Committee's liability at the
Rose site. At the present time, management does not believe its
ratable share of potential liability related to the cost of
future activities at the Rose site will have a material adverse
effect on Illinova's or IP's consolidated financial position or
results of operations.
Electric and Magnetic Fields
- - ----------------------------
For information on Electric and Magnetic Fields, see "Note 4
- - - Commitments and Contingencies" on page A-18 of the 1995 Annual
Report to Shareholders in the appendix to the Illinova Proxy
Statement which is incorporated herein by reference.
Environmental Expenditures
- - --------------------------
Operating expenses for environmentally-related activities in
1995 were approximately $22 million (including the incremental
costs of alternative fuels to meet environmental requirements).
IP's accumulated capital expenditures (including AFUDC) for
environmental protection programs since 1969 have reached
approximately $814 million.
Research and Development
------------------------
Illinova's research and development expenditures, consisting
entirely of IP's research and development expenditures, during
1995, 1994 and 1993 were approximately $5.5 million, $5.5 million
and $6.4 million, respectively. The higher research and
development costs in 1993 were due primarily to increased dues to
the Electric Power Research Institute and increased alternate
fuel testing at the Baldwin power station. The lower research
and development costs during 1994 and 1995 were because of
decreased alternate fuel testing at the Baldwin power station and
an overall reduction in discretionary spending at IP.
Regulation
----------
Under the Illinois Public Utilities Act, the ICC has broad
powers of supervision and regulation with respect to the rates
and charges of IP, its services and facilities, extensions or
abandonment of service, classification of accounts, valuation and
depreciation of property, issuance of securities and various
other matters. Before a new electric generating plant or a
significant addition to an existing facility may be included in
IP's rate base, the ICC must determine that the plant or addition
is reasonable in cost, prudent and used and useful in providing
utility service to customers.
Illinova and IP are exempt from all the provisions of the
Public Utility Holding Company Act of 1935 except Section 9(a)(2)
thereof. That section requires approval of the Securities and Ex
change Commission prior to certain acquisitions of any securities
of other public utility companies or public utility holding
companies.
IP is subject to regulation under the Federal Power Act 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, the
issuance of debt securities maturing in not more than 12 months,
accounting and depreciation policies, and certain other matters.
The FERC has declared IP exempt from the Natural Gas Act and the
orders, rules and regulations of the Commission thereunder.
IP is subject to the jurisdiction of the NRC with respect to
Clinton. NRC regulations control the granting of permits and
licenses for the construction and operation of nuclear power
stations and subject such stations to continuing review and
regulation. Additionally, the NRC review and regulatory process
covers decommissioning, radioactive waste, environmental and
radiological aspects of such stations. In general, the NRC
continues to propose new and revised rules relating to the
operations and maintenance aspects of nuclear facilities. It is
unclear whether such proposed rules will be adopted and what
effect, if any, such adoption will have on IP.
IP is subject to the jurisdiction of the Illinois Department
of Nuclear Safety (IDNS) with respect to Clinton. IDNS and the
NRC entered a memorandum of understanding which allows IDNS to
review and regulate nuclear safety matters at state nuclear
facilities. The IDNS review and regulatory process covers
radiation safety, environmental safety, non-nuclear pressure
vessels, emergency preparedness and emergency response. IDNS
continues to propose new and revised state administrative code.
It is unclear if such proposed rules will be adopted and what
effect, if any, such adoption will have on IP.
Executive Officers of Illinova Corporation
------------------------------------------
Name of Officer Age Position
- - --------------- --- --------
Larry D. Haab 58 Chairman, President and
Chief Executive Officer
Larry F. Altenbaumer 48 Chief Financial Officer,
Treasurer and Controller
Leah Manning Stetzner 47 General Counsel and
Corporate Secretary
Mr. Haab was elected Chairman, President and Chief Executive
Officer in December 1993.
Mr. Altenbaumer was elected Chief Financial Officer,
Treasurer and Controller in June 1994.
Ms. Stetzner was elected General Counsel and Corporate
Secretary in June 1994.
Executive Officers of Illinois Power Company
--------------------------------------------
Name of Officer Age Position
- - --------------- --- --------
Larry D. Haab 58 Chairman, President and
Chief Executive Officer
Larry F. Altenbaumer 48 Senior Vice President, Chief
Financial Officer and
Treasurer
David W. Butts 41 Senior Vice President
John G. Cook 48 Senior Vice President
Paul L. Lang 55 Senior Vice President
Wilfred Connell 58 Vice President
Richard W. Eimer, Jr. 47 Vice President
Leah Manning Stetzner 47 Vice President, General
Counsel and Corporate
Secretary
Ralph F. Tschantz 43 Vice President
Cynthia G. Steward 38 Controller
Each of the IP executive officers, except for Mr. Tschantz,
has been employed by IP or another subsidiary of Illinova for
more than five years in executive or management positions. Prior
to election to the positions shown above, the following executive
officers held the following positions since January 1, 1991.
Mr. Haab was elected Chairman in June 1991. Prior to being
elected Chief Executive Officer in April 1991, Mr. Haab was
President.
Mr. Altenbaumer was elected Senior Vice President, Chief
Financial Officer and Treasurer in September 1995. Prior to
being elected Senior Vice President and Chief Financial Officer
in June 1992, Mr. Altenbaumer was Vice President, Chief Financial
Officer and Controller.
Mr. Butts was elected Senior Vice President in September
1995. Prior to being elected President of IGC in 1993, Mr. Butts
was a Division Vice President of IP.
Mr. Cook was elected Senior Vice President in December 1995.
Prior to being elected Vice President in 1992, Mr. Cook was
Manager of Clinton Power Station.
Mr. Lang was elected Senior Vice President in June 1992. He
joined IP as Vice President in July 1986.
Mr. Eimer was elected Vice President in December 1995. He
previously held the positions of Assistant to the Vice President
and Manager of Marketing.
Ms. Stetzner was elected Vice President, General Counsel and
Corporate Secretary in February 1993. She joined IP as General
Counsel and Corporate Secretary in October 1989.
Mr. Tschantz joined IP as Vice President in March 1995. He
previously was a Regional Account Management Director with
Keebler Company since 1993 and Group Director, Sales, Systems and
Planning since 1990.
Ms. Steward was elected Controller in September 1995. She
previously held the positions of Manager of Employee Services and
Director of Accounting.
The present term of office of each of the above executive
officers extends to the first meeting of Illinova's and IP's
Board of Directors after the Annual Election of Directors. There
are no family relationships among any of the executive officers
and directors of Illinova and IP.
Operating Statistics
---------------------
For Illinova the information under the caption "Selected
Illinois Power Company Statistics" on page A-33 of the 1995
Annual Report to Shareholders in the appendix to the Illinova
Proxy Statement is incorporated herein by reference.
For IP the information under the caption "Selected
Statistics" on page A-33 of the 1995 Annual Report to
Shareholders in the appendix to the IP Information Statement is
incorporated herein by reference.
Item 2. Properties
- - -------
IP owns and operates six steam generating stations with
composite net summer capacity of 4,296,000 kilowatts. In
addition, IP owns nine quick start combustion turbine peaking
units at three locations with a combined net summer capacity of
147,000 kilowatts. The total IP owned system net summer
capability is 4,443,000 kilowatts.
All of the generating stations are in the State of Illinois
and are wholly-owned by IP, except for 13.2% of the Clinton power
station owned by Soyland. Clinton is IP's only nuclear
generating station. IP owns 807,000 kilowatts (86.8%) of the
930,000 kilowatt station.
The major coal fired units at Baldwin, Havana, Hennepin and
Wood River make up 2,936,000 kilowatts of capacity. Units
comprising 377,000 kilowatts of capacity at the Wood River and
Havana stations currently are not staffed but are available to
meet reserve requirements with a maximum of four months notice.
During 1995, natural gas firing capability was added to the
Vermilion station. Vermilion now has the capability for either
coal or natural gas firing to achieve its capacity of 176,000
kilowatts. Vermilion now is operated as a peaking plant, mainly
during the summer season.
IP owns an interconnected electric transmission system of
approximately 2,800 circuit miles, operating from 69,000 to
345,000 volts and a distribution system which includes about
37,200 circuit miles of overhead and underground lines.
All outstanding first mortgage bonds issued under the
Mortgage and Deed of Trust dated November 1, 1943 are secured by
a first mortgage lien on substantially all of the fixed property,
franchises and rights of IP with certain exceptions expressly
provided in the mortgage securing the bonds. All outstanding New
Mortgage Bonds issued under the General Mortgage and Deed of
Trust dated November 1, 1992, are secured by a lien on IP's
properties used in the generation, purchase, transmission,
distribution and sale of electricity and gas, which lien is
junior to the lien of the Mortgage and Deed of Trust dated
November 1, 1943.
Item 3. Legal Proceedings
- - -------
See discussion of legal proceedings under Item 1
"Competition" of this report and in "Manufactured-Gas Plant
(MGP)" in "Note 4 - Commitments and Contingencies" on page A-21
of the 1995 Annual Report to Shareholders in the appendix to the
Illinova Proxy Statement which is incorporated herein by
reference.
Environmental
-------------
See "Environmental Matters" reported under Item 1 of this
report for information regarding legal proceedings concerning
environmental matters.
Item 4. Submission of Matters to a Vote of Security Holders
- - -------
Neither Illinova nor IP submitted any matter to a vote of
security holders during the fourth quarter of the fiscal year
ended December 31, 1995.
PART II
- - -----------------------------------------------------------------
Item 5. Market for Registrants' Common Equity and Related
- - ------- Stockholder Matters
For Illinova the information under the caption "Quarterly
Consolidated Financial Information and Common Stock Data (Unaudit
ed)" on page A-31 of the 1995 Annual Report to Shareholders in
the appendix to the Illinova Proxy Statement is incorporated
herein by reference.
For IP the information under the caption "Quarterly
Consolidated Financial Information and Common Stock Data
(Unaudited)" on page A-31 of the 1995 Annual Report to
Shareholders in the appendix to the IP Information Statement is
incorporated herein by reference.
Item 6. Selected Financial Data
- - -------
For Illinova the information under the caption "Selected
Consolidated Financial Data" on page A-32 of the 1995 Annual
Report to Shareholders in the appendix to the Illinova Proxy
Statement is incorporated herein by reference.
For IP the information under the caption "Selected
Consolidated Financial Data" on page A-32 of the 1995 Annual
Report to Shareholders in the appendix to the IP Information
Statement is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
- - ------- Condition and Results of Operations
For Illinova the information under the caption "Management's
Discussion and Analysis" on pages A-2 through A-9 of the 1995
Annual Report to Shareholders in the appendix to the Illinova
Proxy Statement is incorporated herein by reference.
For IP the information under the caption "Management's
Discussion and Analysis" on pages A-2 through A-9 of the 1995
Annual Report to Shareholders in the appendix to the IP
Information Statement is incorporated herein by reference.
In December 1994, IP filed a petition with the ICC seeking
approval of a program whereby IP will reacquire shares of its
common stock from Illinova, from time to time, at prices
determined to be equivalent to current market value. The
reacquired stock will be retained as treasury stock or canceled.
On March 22, 1995, the ICC approved the common stock repurchase
program. The ICC specified that IP may initiate the repurchase
of shares of its common stock from Illinova subject to meeting
certain financial tests. The ICC did not set a limit on the
number of shares of common stock that can be repurchased. During
1995, IP repurchased 2,696,086 shares for a total of $67.3
million, averaging about $25 per share.
For information regarding the redemption of IP preferred
stock, see "Note 10 - Preferred Stock of Subsidiary" in the
"Notes to Consolidated Financial Statements" in the 1995 Annual
Report to Shareholders in the appendix to the Illinova Proxy
Statement or "Note 9 - Preferred Stock" in the "Notes to
Consolidated Financial Statements" in the 1995 Annual Report to
Shareholders in the appendix to the IP Information Statement.
Item 8. Financial Statements and Supplementary Data
- - -------
For Illinova the consolidated financial statements and
related notes on pages A-11 through A-31 and Report of Inde
pendent Accountants on page A-10 of the 1995 Annual Report to
Shareholders in the appendix to the Illinova Proxy Statement are
incorporated herein by reference. With the exception of the
aforementioned information and the information incorporated in
Items 1, 3, 5, 6 and 7, the 1995 Annual Report to Shareholders in
the appendix to the Illinova Proxy Statement is not to be deemed
filed as part of this Form 10-K Annual Report.
For IP the consolidated financial statements and related
notes on pages A-11 through A-31 and Report of Independent
Accountants on page A-10 of the 1995 Annual Report to
Shareholders in the appendix to the IP Information Statement are
incorporated herein by reference. With the exception of the
aforementioned information and the information incorporated in
Items 1, 3, 5, 6 and 7, the 1995 Annual Report to Shareholders in
the appendix to the IP Information Statement is not to be deemed
filed as part of this form 10-K Annual Report.
Item 9. Changes in and Disagreements With Accountants on
- - ------- Accounting and Financial Disclosure
None.
PART III
- - -----------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrants
- - --------
For Illinova the information under the caption "Board of
Directors" on pages 3 through 7 of Illinova's Proxy Statement for
its 1996 Annual Meeting of Stockholders is incorporated herein by
reference. The information relating to Illinova's executive
officers is set forth in Part I of this Annual Report on Form 10-
K.
For IP the information under the caption "Board of Directors"
on pages 4 through 7 of IP's Information Statement for its 1996
Annual Meeting of Stockholders is incorporated herein by
reference. The information relating to Illinois Power Company's
executive officers is set forth in Part I of this Annual Report
on Form 10-K.
Item 11. Executive Compensation
- - --------
For Illinova the information under the caption "Executive
Compensation" on pages 8 through 12 of Illinova's Proxy Statement
for its 1996 Annual Meeting of Stockholders is incorporated
herein by reference.
For IP the information under the caption "Executive
Compensation" on pages 8 through 13 of IP's Information Statement
for its 1996 Annual Meeting of Stockholders is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
________ Management
For Illinova the information under the caption "Security
Ownership of Management and Certain Beneficial Owners" on page 7
and the information regarding securities owned by certain
officers and directors under the caption "Board of Directors" on
pages 3 through 7 of Illinova's Proxy Statement for its 1996
Annual Meeting of Stockholders is incorporated herein by
reference.
For IP the information under the caption "Security Ownership
of Management and Certain Beneficial Owners" on page 7 and the
information regarding securities owned by certain officers and
directors under the caption "Board of Directors" on pages 4
through 7 of IP's Information Statement for its 1996 Annual
Meeting of Stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- - --------
None.
PART IV
- - -------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- - -------- Form 8-K
(a) Documents filed as part of this report.
(1a) Financial Statements:
Page in 1995
Annual Report
to Shareholders
in the appendix
to the Illinova
Proxy Statement*
----------------
Report of Independent Accountants A-10
Consolidated Statements of Income for the
three years ended December 31, 1995 A-11
Consolidated Balance Sheets at
December 31, 1995 and 1994 A-12
Consolidated Statements of Cash Flows for
the three years ended December 31, 1995 A-13
Consolidated Statements of Retained
Earnings (Deficit) for the three years
ended December 31, 1995 A-13
Notes to Consolidated Financial Statements A-14 - A-31
* Incorporated by reference from the indicated pages of the 1995 Annual
Report to Shareholders in the appendix to the Illinova Proxy Statement.
(1b) Financial Statements:
Page in 1995
Annual Report
to Shareholders
in the appendix
to the IP
Information
Statement**
---------------
Report of Independent Accountants A-10
Consolidated Statements of Income for the
three years ended December 31, 1995 A-11
Consolidated Balance Sheets at
December 31, 1995 and 1994 A-12
Consolidated Statements of Cash Flows for
the three years ended December 31, 1995 A-13
Consolidated Statements of Retained
Earnings (Deficit) for the three years
ended December 31, 1995 A-13
Notes to Consolidated Financial Statements A-14 - A-31
** Incorporated by reference from the indicated pages of the 1995 Annual
Report to Shareholders in the appendix to the IP Information Statement (See
page 21 of this Form 10-K).
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- - -------- Form 8-K (Continued)
(2) Financial Statement Schedules:
All Financial Statement Schedules are omitted because they are
not applicable or the required information is shown in the
financial statements or notes thereto.
(3) Exhibits
The exhibits filed with this Form 10-K are listed in the
Exhibit Index located elsewhere herein. All management
contracts and compensatory plans or arrangements set forth
in such list are marked with a ~.
(b) Reports on Form 8-K since September 30, 1995:
None.
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.
ILLINOIS POWER COMPANY
(REGISTRANT)
By Larry D. Haab
Larry D. Haab, Chairman,
President
and Chief Executive Officer
Date: March 29, 1996
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 on the dates
indicated.
Signature Title Date
Larry D. Haab Chairman, President, Chief
Larry D. Haab Executive Officer and Director
(Principal Executive Officer)
Larry F. Altenbaumer Senior Vice President,
Larry F. Altenbaumer Chief Financial Officer
(Principal Financial Officer) and Treasurer
Cynthia G. Steward Controller
Cynthia G. Steward
(Principal Accounting Officer)
Richard R. Berry
Richard R. Berry
Donald E. Lasater
Donald E. Lasater
Donald S. Perkins
Donald S. Perkins
Robert M. Powers
Robert M. Powers
Walter D. Scott
Walter D. Scott Director
Ronald L. Thompson
Ronald L. Thompson
Walter M. Vannoy
Walter M. Vannoy
Marilou von Ferstel
Marilou von Ferstel
John D. Zeglis
John D. Zeglis
Vernon K. Zimmerman
Vernon K. Zimmerman
Exhibit Index
Exhibit Page Number
- - ------- -----------
(3)(i) Articles of Incorporation
Illinova Corporation
(a)(1) Articles of Amendment to the Articles of
Incorporation of Illinova Corporation, filed as
of October 31, 1994. Filed as Exhibit 3(a) to
the Quarterly Report on Form 10-Q under the
Securities Exchange Act of 1934 for the quarter
ended September 30, 1994 (File No. 1-3004). *
(a)(2) Statement of Correction to the Articles of
Incorporation of Illinova Corporation, filed as
of October 31, 1994. Filed as Exhibit 3(b) to
the Quarterly Report on Form 10-Q under the
Securities Exchange Act of 1934 for the quarter
ended September 30, 1994 (File No. 1-3004). *
Illinois Power Company
(b)(1) Amended and Restated Articles of Incorporation
of Illinois Power Company, dated September 7, 1994.
Filed as Exhibit 3(a) to the Current Report on
Form 8-K dated September 7, 1994 (File No. 1-3004). *
(3)(ii) By-Laws
(a) By-laws of Illinova Corporation, as amended
through December 14, 1994. Filed as Exhibit
3(b)(2)to the Annual Report on Form 10-K under
the Securities Exchange Act of 1934 for the
year ended December 31, 1994 (File No. 1-3004). *
(b) By-laws of Illinois Power Company, as amended
through December 14, 1994. Filed as Exhibit
3(b)(1) to the Annual Report on Form 10-K under
the Securities Exchange Act of 1934 for the
year ended December 31, 1994 (File No. 1-3004). *
(4) Instruments Defining Rights of Security Holders,
Including Indentures
Illinova Corporation
(a) See (4)(b) below for instruments defining the rights
of holders of long-term debt of Illinois Power
Company.
Illinois Power Company
(b)(1) Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 2(b) Registration No. 2-14066. *
(b)(2) Supplemental Indenture dated October 1, 1966.
Filed as Exhibit 2(i) Registration No. 2-27783. *
(b)(3) Supplemental Indenture dated May 1, 1974.
Filed as Exhibit 2(v) Registration No. 2-51674. *
(b)(4) Supplemental Indenture dated May 1, 1977.
Filed as Exhibit 2(w) Registration No. 2-59465. *
(b)(5) Supplemental Indenture dated July 1, 1979. Filed
as Exhibit 2 to the Quarterly Report on Form 10-Q
under the Securities Exchange Act of 1934 for the
quarter ended June 30, 1979. *
(b)(6) Supplemental Indenture dated March 1, 1985. Filed
as exhibit 4(a) to the Quarterly Report on Form
10-Q under the Securities Exchange Act of 1934 for
the quarter ended March 31, 1985 (File No. 1-3004). *
(b)(7) Supplemental Indenture No. 1 dated February 1, 1987,
providing for $25,000,000 principal amount of 7 5/8%
First Mortgage Bonds, Pollution Control Series F,
due December 1, 2016. Filed as Exhibit 4(ii) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1986 (File No. 1-3004). *
(b)(8) Supplemental Indenture No. 2 dated February 1, 1987,
providing for $50,000,000 principal amount of 7 5/8%
First Mortgage Bonds, Pollution Control Series G,
due December 1, 2016. Filed as Exhibit 4(jj) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1986 (File No. 1-3004). *
(b)(9) Supplemental Indenture No. 3 dated February 1, 1987,
providing for $75,000,000 principal amount of 7 5/8%
First Mortgage Bonds, Pollution Control Series H,
due December 1, 2016. Filed as Exhibit 4(kk) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1986 (File No. 1-3004). *
(b)(10)Supplemental Indenture dated July 1, 1987,
providing for $33,755,000 principal amount of 8.30%
First Mortgage Bonds, Pollution Control Series I, due
April 1, 2017. Filed as Exhibit 4(ll) to the Annual
Report on Form 10-K under the Securities Exchange
Act of 1934 for the year ended December 31, 1987
(File No. 1-3004). *
(b)(11)Supplemental Indenture dated December 13,
1989, providing for $300,000,000 principal amount of
Medium-Term Notes, Series A. Filed as Exhibit 4(nn)
to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended
December 31, 1989 (File No. 1-3004). *
(b)(12)Supplemental Indenture dated July 1, 1991,
providing for $84,710,000 principal amount of 7 3/8%
First Mortgage Bonds due July 1, 2021. Filed as Exhibit
4(mm) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended
December 31, 1991 (File No. 1-3004). *
(b)(13)Supplemental Indenture No. 1 dated June 1, 1992.
Filed as Exhibit 4(nn) to the Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992
(File No. 1-3004). *
(b)(14)Supplemental Indenture No. 2 dated June 1, 1992.
Filed as Exhibit 4(oo) to the Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992
(File No. 1-3004). *
(b)(15)Supplemental Indenture No. 1 dated July 1, 1992.
Filed as Exhibit 4(pp) to the Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992
(File No. 1-3004). *
(b)(16)Supplemental Indenture No. 2 dated July 1, 1992.
Filed as Exhibit 4(qq) to the Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992
(File No. 1-3004). *
(b)(17)Supplemental Indenture dated September 1, 1992,
providing for $72,000,000 principal amount of 6 1/2%
First Mortgage Bonds due September 1, 1999. Filed
as Exhibit 4(rr) to the Quarterly Report on Form
10-Q for the quarter ended September 30, 1992
(File No. 1-3004). *
(b)(18)General Mortgage Indenture and Deed of Trust
dated as of November 1, 1992. Filed as Exhibit 4(cc) to
the Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December
31, 1992 (File No. 1-3004). *
(b)(19)Supplemental Indenture dated February 15, 1993,
to Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(dd) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1992 (File No. 1-3004). *
(b)(20)Supplemental Indenture dated February 15, 1993, to
General Mortgage Indenture and Deed of Trust dated as
of November 1, 1992. Filed as Exhibit 4(ee) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1992 (File No. 1-3004). *
(b)(21)Supplemental Indenture No. 1 dated March 15, 1993,
to Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(ff) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1992 (File No. 1-3004). *
(b)(22)Supplemental Indenture No. 1 dated March 15, 1993,
to General Mortgage Indenture and Deed of Trust
dated as of November 1, 1992. Filed as Exhibit
4(gg) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended
December 31, 1992 (File No. 1-3004). *
(b)(23)Supplemental Indenture No. 2 dated March 15,
1993, to Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(hh) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1992 (File No. 1-3004). *
(b)(24)Supplemental Indenture No. 2 dated March 15,
1993, to General Mortgage Indenture and Deed of Trust
dated as of November 1, 1992. Filed as Exhibit
4(ii) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended
December 31, 1992 (File No. 1-3004). *
(b)(25)Supplemental Indenture dated July 15, 1993, to
Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(jj) to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993
(File No. 1-3004). *
(b)(26)Supplemental Indenture dated July 15, 1993, to
General Mortgage Indenture and Deed of Trust
dated as of November 1, 1992. Filed as Exhibit
4(kk)to the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993 (File No. 1-3004). *
(b)(27)Supplemental Indenture dated August 1, 1993, to
Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(ll) to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993
(File No. 1-3004). *
(b)(28)Supplemental Indenture dated August 1, 1993, to
General Mortgage Indenture and Deed of Trust
dated as of November 1, 1992. Filed as Exhibit
4(mm) to the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993 (File No. 1-3004). *
(b)(29)Supplemental Indenture dated October 15, 1993, to
Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(nn) to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993
(File No. 1-3004). *
(b)(30)Supplemental Indenture dated October 15, 1993, to
General Mortgage Indenture and Deed of Trust dated
as of November 1, 1992. Filed as Exhibit 4(oo) to
the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 (File No. 1-3004). *
(b)(31)Supplemental Indenture dated November 1, 1993, to
Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(pp) to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993
(File No. 1-3004). *
(b)(32)Supplemental Indenture dated November 1, 1993, to
General Mortgage Indenture and Deed of Trust dated
as of November 1, 1992. Filed as Exhibit 4(qq) to
the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 (File No. 1-3004). *
(b)(33)Supplemental Indenture dated February 1, 1994, to
Mortgage and Deed of Trust dated November 1, 1943.
Filed as Exhibit 4(hh) to the Annual Report on
Form 10-K under the Securities Exchange Act of 1934
for the year ended December 31, 1993
(File No. 1-3004). *
(b)(34)Indenture dated October 1, 1994 between Illinois
Power Company and the First National Bank of
Chicago. Filed as Exhibit 4(a) to the Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1994 (File No. 1-3004). *
(b)(35)Supplemental Indenture dated October 1, 1994, to
Indenture dated as of October 1, 1994. Filed as
Exhibit 4(b) to the Quarterly Report on Form
10-Q for the quarter ended September 30, 1994
(File No. 1-3004). *
(b)(36)Indenture dated January 1, 1996 between Illinois
Power Company and Wilmington Trust Company. 37
(b)(37)First Supplemental Indenture dated January 1,
1996, between Illinois Power Company and
Wilmington Trust Company. 97
(10) Material Contracts
Illinova Corporation
(a)(1) Illinova Corporation Deferred Compensation Plan
for Certain Directors, as amended April 10, 1991.
Filed as Exhibit 10(b) to the Annual Report on
Form 10-K under the Securities Exchange Act of
1934 for the year ended December 31, 1991
(File No. 1-3004).~ *
(a)(2) Illinova Corporation Director Emeritus Plan for
Outside Directors. Filed as Exhibit 10(e) to
the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year
ended December 31, 1989 (File No. 1-3004).~ *
(a)(3) Illinova Corporation Stock Plan for Outside
Directors as amended and restated by the Board of
Directors on April 9, 1992 and as further amended
April 14, 1993. Filed as Exhibit 10(h) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December
31, 1993 (File No. 1-3004).~ *
(a)(4) Illinova Corporation Retirement Plan for Outside
Directors, as amended through December 11, 1991.
Filed as Exhibit 10(j) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1991 (File No. 1-3004).~ *
(a)(5) Illinova Corporation 1992 Long-Term Incentive
Compensation Plan. Filed as Exhibit 10(k) to the
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992 (File No. 1-3004).~ *
(a)(6) Illinova Corporation Comprehensive Deferred Stock
Plan for Outside Directors, as approved by the Board
of Directors on February 7, 1996. Supersedes the
Illinova Corporation Retirement Plan for Outside
Directors, as amended through December 11, 1991 and
filed as Exhibit 10(j) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1991 (File No. 1-3004).~ 126
(a)(7) Form of Employee Retention Agreement in place between
Illinova Corporation and its elected officers,
Illinois Power Company's elected officers, and the
Presidents of Illinova Corporation's subsidiaries.
Filed as Exhibit 10(g) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1989 (File no. 1-3004). *
Illinois Power Company
(b)(1) Group Insurance Benefits for Managerial Employees
of Illinois Power Company as amended January 1, 1983.
Filed as Exhibit 10(a) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1983 (File No. 1-3004).~ *
(b)(2) Illinois Power Company Incentive Savings Trust and
Illinois Power Company Incentive Savings Plan and
Amendment I thereto. Filed as Exhibit 10(d) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1984 (File No. 1-3004).~ *
(b)(3) Illinois Power Company's Executive Incentive
Compensation Plan. Filed as Exhibit 10(f) to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1989 (File No. 1-3004).~ *
(b)(4) Illinois Power Company Incentive Savings Plan, as
amended and restated effective January 1, 1991.
Filed as Exhibit 10(h) to the Annual Report on
Form 10-K under the Securities Exchange Act of
1934 for the year ended December 31, 1990
(File No. 1-3004).~ *
(b)(5) Retirement and Consulting Agreement entered into
as of June 1, 1991 between Illinois Power Company
and Wendell J. Kelley. Filed as Exhibit 10(I) to
the Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31,
1991 (File No. 1-3004).~ *
(b)(6) Illinois Power Company Executive Deferred
Compensation Plan. Filed as Exhibit 10(l) to
the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year
ended December 31, 1993. (File No. 1-3004)~ *
(b)(7) Illinois Power Company Retirement Income Plan for
salaried employees as amended and restated effective
January 1, 1989, as further amended through January
1, 1994. Filed as Exhibit 10(m) to the Annual Report
on Form 10-K under the Securities Exchange Act of
1934 for the year ended December 31, 1994
(File No. 1-3004).~ *
(b)(8) Illinois Power Company Retirement Income Plan for
employees covered under a collective bargaining
agreement as amended and restated effective as of
January 1, 1994. Filed as Exhibit 10(n)to the Annual
Report on Form 10-K under the Securities Exchange Act
of 1934 for the year ended December 31, 1994
(File No. 1-3004).~ *
(b)(9) Illinois Power Company Incentive Savings Plan as
amended and restated effective January 1, 1991 and
as further amended through amendments adopted
December 28, 1994. Filed as Exhibit 10(o)to the
Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December
31, 1994 (File No. 1-3004).~ *
(b)(10)Illinois Power Company Incentive Savings Plan for
employees covered under a collective bargaining
agreement as amended and restated effective January
1, 1991 and as further amended through amendments
adopted December 28, 1994. Filed as Exhibit 10(p)
to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended
December 31, 1994 (File No. 1-3004).~ *
(12) Statement Re Computation of Ratios
(a) Computation of ratio of earnings to fixed
charges for Illinova Corporation. 133
(b) Computation of ratio of earnings to fixed
charges for Illinois Power Company. 134
(13) Annual Reports to Shareholders
(a) Illinova Corporation Proxy Statement and 1995
Annual Report to Shareholders. 135
(b) Illinois Power Company Information Statement
and 1995 Annual Report to Shareholders. 183
(21) Subsidiaries of Registrants
(a) Subsidiaries of Illinova Corporation and Illinois
Power Company. 230
(23) Consents of Experts
(a) Consent of Independent Accountants for Illinova
Corporation. 232
(b) Consent of Independent Accountants for Illinois
Power Company. 233
_
____________________________
* Incorporated herein by reference.
~ Management contract and compensatory plans or arrangements.
_______________________________
1
<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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4664
<OTHER-PROPERTY-AND-INVEST> 16
<TOTAL-CURRENT-ASSETS> 393
<TOTAL-DEFERRED-CHARGES> 494
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5567
<COMMON> 1348
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 130
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1478
97
126
<LONG-TERM-DEBT-NET> 1677
<SHORT-TERM-NOTES> 131
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 229
<LONG-TERM-DEBT-CURRENT-PORT> 62
0
<CAPITAL-LEASE-OBLIGATIONS> 62
<LEASES-CURRENT> 33
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1672
<TOT-CAPITALIZATION-AND-LIAB> 5567
<GROSS-OPERATING-REVENUE> 1641
<INCOME-TAX-EXPENSE> 126
<OTHER-OPERATING-EXPENSES> 1191
<TOTAL-OPERATING-EXPENSES> 1317
<OPERATING-INCOME-LOSS> 324
<OTHER-INCOME-NET> 1
<INCOME-BEFORE-INTEREST-EXPEN> 325
<TOTAL-INTEREST-EXPENSE> 142
<NET-INCOME> 183
24
<EARNINGS-AVAILABLE-FOR-COMM> 156
<COMMON-STOCK-DIVIDENDS> 77
<TOTAL-INTEREST-ON-BONDS> 126
<CASH-FLOW-OPERATIONS> 474
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
FIRST SUPPLEMENTAL INDENTURE
between
ILLINOIS POWER COMPANY
and
WILMINGTON TRUST COMPANY
Dated as of January 1, 1996
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.1. Definition of Terms 2
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE SUBORDINATED DEBENTURES
SECTION 2.1. Designation and Principal Amount 4
SECTION 2.2. Maturity 4
SECTION 2.3. Form and Payment 4
SECTION 2.4. Global Debenture 4
SECTION 2.5. Interest 6
ARTICLE III
REDEMPTION OF THE SUBORDINATED DEBENTURES
SECTION 3.1. Special Event Redemption 7
SECTION 3.2. Optional Redemption by Company 7
SECTION 3.3. No Sinking Fund 8
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1. Extension of Interest Payment Period 8
SECTION 4.2. Notice of Extension 9
SECTION 4.3. Limitation of Transactions 9
ARTICLE V
EXPENSES
SECTION 5.1. Payment of Expenses 10
SECTION 5.2. Payment Upon Resignation or Removal 10
ARTICLE VI
SUBORDINATION
SECTION 6.1. Agreement to Subordinate 11
SECTION 6.2. Default on Senior Indebtedness 11
SECTION 6.3. Liquidation; Dissolution; Bankruptcy 12
SECTION 6.4. Subrogation 13
SECTION 6.5. Trustee to Effectuate Subordination 14
SECTION 6.6. Notice by the Company 14
SECTION 6.7. Rights of the Trustee; Holders of Senior
Indebtedness 15
SECTION 6.8. Subordination May Not Be Impaired 15
ARTICLE VII
COVENANT TO LIST ON EXCHANGE
SECTION 7.1. Listing on an Exchange 16
ARTICLE VIII
FORM OF DEBENTURE
SECTION 8.1. Form of Debenture 16
ARTICLE IX
ORIGINAL ISSUE OF SUBORDINATED DEBENTURES
SECTION 9.1. Original Issue of Subordinated Debentures 23
ARTICLE X
MISCELLANEOUS
SECTION 10.1.Ratification of Indenture 23
SECTION 10.2.Trustee Not Responsible for Recitals 23
SECTION 10.3.Governing Law 23
SECTION 10.4.Separability 23
SECTION 10.5.Counterparts 24
FIRST SUPPLEMENTAL INDENTURE, dated as of January 1,
1996 (the "First Supplemental Indenture"), between Illinois Power
Company, an Illinois corporation (the "Company"), and Wilmington
Trust Company, not in its individual capacity but solely as trust
ee (the "Trustee") under the Indenture dated as of January 1,
1996 between the Company and the Trustee (the "Indenture").
W I T N E S S E T H:
WHEREAS, the Company executed and delivered the
Indenture to the Trustee to provide for the future issuance of
the Company's unsecured junior subordinated debt securities to be
issued from time to time in one or more series as might be
determined by the Company under the Indenture, in an unlimited
aggregate principal amount which may be authenticated and delivered
as provided in the Indenture;
WHEREAS, pursuant to the terms of the Indenture, the
Company desires to provide for the establishment of a new series
of its Debt Securities to be known as its 8% Junior Subordinated
Deferrable Interest Debentures due 2045 (the "Subordinated
Debentures"), the form and substance of such Subordinated
Debentures and the terms, provisions and conditions thereof to be
set forth as provided in the Indenture and this First
Supplemental Indenture;
WHEREAS, Illinois Power Financing I, a Delaware
statutory business trust (the "Trust"), has offered to the public
$100,000,000 aggregate liquidation amount of its 8% Trust
Originated Preferred Securities (the "Preferred Securities"),
representing undivided beneficial interests in the assets of the
Trust and proposes to invest the proceeds from such offering,
together with the proceeds of the issuance and sale by the Trust
to the Company of $3,100,000 aggregate liquidation amount of its
8% Trust Originated Common Securities, in $103,100,000 aggregate
principal amount of the Subordinated Debentures; and
WHEREAS, the Company has requested that the Trustee
execute and deliver this First Supplemental Indenture and all
requirements necessary to make this First Supplemental Indenture
a valid instrument in accordance with its terms, and to make the
Subordinated Debentures, when executed by the Company and
authenticated and delivered by the Trustee, the valid obligations
of the Company, have been performed, and the execution and
delivery of this First Supplemental Indenture has been duly
authorized in all respects;
NOW THEREFORE, in consideration of the purchase and
acceptance of the Subordinated Debentures by the holders thereof,
and for the purpose of setting forth, as provided in the
Indenture, the form and substance of the Subordinated Debentures
and the terms, provisions and conditions thereof, the Company
covenants and agrees with the Trustee as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definition of Terms.
Unless the context otherwise requires:
(a) a term defined in the Indenture has the same meaning
when used in this First Supplemental Indenture;
(b) a term defined anywhere in this First Supplemental
Indenture has the same meaning throughout;
(c) the singular includes the plural and vice versa;
(d) a reference to a Section or Article is to a Section or
Article of this First Supplemental Indenture;
(e) headings are for convenience of reference only and do
not affect interpretation;
(f) the following terms have the meanings given to them in
the Declaration: (i) Business Day; (ii) Clearing Agency; (iii)
Delaware Trustee; (iv) Depositary; (v) Dissolution Tax Opinion;
(vi) No Recognition Opinion; (vii) Preferred Security
Certificate; (viii) Pricing Agreement; (ix) Property Trustee; (x)
Regular Trustees; (xi) Special Event; and (xii) Tax Event; and
(xiii) Underwriting Agreement;
(g) the following terms have the meanings given to them in
this Section 1.1(g):
"Additional Interest" shall have the meaning set forth
in Section 2.5.
"Compounded Interest" shall have the meaning set forth
in Section 4.1.
"Coupon Rate" shall have the meaning set forth in
Section 2.5.
"Declaration" means the Amended and Restated
Declaration of Trust of Illinois Power Financing I, a
Delaware statutory business trust, dated as of January 11,
1996, including the Terms of Securities attached thereto as
Annex I.
"Deferred Interest" shall have the meaning set forth in
Section 4.1.
"Dissolution Event" means that, as a result of the
occurrence and continuation of a Special Event, the Trust
is to be terminated in accordance with the Declaration, and the
Subordinated Debentures held by the Property Trustee are to be
distributed to the holders of the Trust Securities issued by the
Trust pro rata in accordance with the Declaration.
"Extended Interest Payment Period" shall have the meaning set
forth in Section 4.1.
"Global Debenture" shall have the meaning set forth in
Section 2.4.
"Maturity Date" means the date on which the Subordinated
Debentures mature and on which the principal shall
be due and payable together with all accrued and unpaid interest
thereon including Compounded Interest and Additional Interest, if
any.
"Non Book-Entry Preferred Securities" shall have the
meaning set forth in Section 2.4.
"Optional Redemption Price" shall have the meaning set
forth in Section 3.2.
"Senior Indebtedness" means, with respect to the Company,
(i) the principal, premium, if any, and interest in
respect of (A) indebtedness of such obligor for money borrowed
and (B) indebtedness evidenced by securities, debentures, bonds
or other similar instruments issued by such obligor, including,
without limitation, indebtedness evidenced by securities issued
pursuant to the Company's Mortgage and Deed of Trust dated
November 1, 1943, as supplemented, and its General Mortgage
Indenture and Deed of Trust dated November 1, 1992, as
supplemented; (ii) all capital lease obligations of such obligor,
(iii) all obligations of such obligor issued or assumed as the
deferred purchase price of property, all conditional sale obliga
tions of such obligor and all obligations of such obligor under
any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business); (iv) all
obligations of such obligor for the reimbursement on any letter
of credit, banker's acceptance, security purchase facility or
similar credit transaction; (v) all obligations of the type
referred to in clauses (i) through (iv) of other Persons for the
payment of which such obligor is responsible or liable as
obligor, guarantor or otherwise; and (vi) all obligations of the
type referred to in clauses (i) through (v) of other Persons
secured by any lien on any property or asset of such obligor
(whether or not such obligation is assumed by such obligor),
except for (1) any such indebtedness that is by its terms
subordinated to or pari passu with the Subordinated Debentures,
and (2) any indebtedness between or among such obligor and its
Affiliates, including all other debt securities and guarantees in
respect of those debt securities, issued to any other trust, or a
trustee of such trust, partnership or other entity affiliated
with the Company which is a financing vehicle of the Company (a
"Financing Entity") in connection with the issuance by such
Financial Entity of preferred securities or other securities
which rank pari passu with, or junior to, the Preferred
Securities.
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE SUBORDINATED DEBENTURES
SECTION 2.1. Designation and Principal Amount.
There is hereby authorized a series of Debt Securities
designated the "8% Junior Subordinated Deferrable Interest
Debentures due 2045", limited in aggregate principal amount to
$103,100,000, which amount shall be as set forth in any written
order of the Company for the authentication and delivery of
Subordinated Debentures pursuant to Section 2.04 of the
Indenture.
SECTION 2.2. Maturity.
The Maturity Date is January 31, 2045.
SECTION 2.3. Form and Payment.
The Subordinated Debentures shall be issued in fully
registered certificated form without interest coupons. Principal
and interest on the Subordinated Debentures will be payable, the
transfer of such Subordinated Debentures will be registrable and
such Subordinated Debentures will be exchangeable for
Subordinated Debentures bearing identical terms and provisions,
at the office or agency of the Trustee; provided, however, that
payment of interest may be made at the option of the Company by
check mailed to the holder at such address as shall appear in the
Security Register. Notwithstanding the foregoing, so long as the
holder of any Subordinated Debentures is the Property Trustee,
the payment of the principal of and interest (including Compound
ed Interest and Additional Interest, if any) on such Subordinated
Debentures held by the Property Trustee will be made at such
place and to such account as may be designated by the Property
Trustee.
SECTION 2.4. Global Debenture.
(a) In connection with a Dissolution Event:
(i) the Subordinated Debentures may be presented to the
Trustee by the Property Trustee in exchange for a global
Subordinated Debenture in an aggregate principal amount equal to
the aggregate principal amount of all outstanding Subordinated
Debentures (a "Global Debenture"), to be registered in the name
of the Depositary, or its nominee, and delivered by the Trustee
to the Depositary for crediting to the accounts of its
participants pursuant to the instructions of the Regular
Trustees. The Company, upon any such presentation, shall execute
a Global Debenture in such aggregate principal amount and deliver
the same to the Trustee for authentication and delivery in
accordance with the Indenture and this First Supplemental
Indenture. Payments on the Subordinated Debentures issued as a
Global Debenture will be made to the Depositary; and
(ii) if any Preferred Securities are held in non book-entry
certificated form, the Subordinated Debentures may be presented
to the Trustee by the Property Trustee and any Preferred Security
Certificate which represents Preferred Securities other than
Preferred Securities held by the Clearing Agency or its nominee
("Non Book-Entry Preferred Securities") will be deemed to
represent beneficial interests in Subordinated Debentures
presented to the Trustee by the Property Trustee having an
aggregate principal amount equal to the aggregate liquidation
amount of the Non Book-Entry Preferred Securities until such
Preferred Security Certificates are presented to the Security
Registrar for transfer or reissuance at which time such Preferred
Security Certificates will be cancelled and a Debenture,
registered in the name of the holder of the Preferred Security
Certificate or the transferee of the holder of such Preferred
Security Certificate, as the case may be, with an aggregate
principal amount equal to the aggregate liquidation amount of the
Preferred Security Certificate cancelled, will be executed by the
Company and delivered to the Trustee for authentication and
delivery in accordance with the Indenture and this First
Supplemental Indenture. On issue of such Subordinated
Debentures, Subordinated Debentures with an equivalent aggregate
principal amount that were presented by the Property Trustee to
the Trustee will be deemed to have been cancelled.
(b) Except as provided in clause (c) below, a Global
Debenture may be transferred, in whole but not in part, only to
another nominee of the Depositary, or to a successor Depositary
selected or approved by the Company or to a nominee of such
successor Depositary.
(c) If at any time the Depositary notifies the Company that
it is unwilling or unable to continue as Depositary or if at any
time the Depositary for such series shall no longer be registered
or in good standing under the Exchange Act, or other applicable
statute or regulation, and a successor Depositary for such series
is not appointed by the Company within 90 days after the Company
receives such notice or becomes aware of such condition, as the
case may be, the Company will execute, and, subject to Article II
of the Indenture, the Trustee, upon written notice from the
Company, will authenticate and deliver the Subordinated
Debentures in definitive registered form, in authorized
denominations, and in an aggregate principal amount equal to the
principal amount of the Global Debenture in exchange for such
Global Debenture. In addition, the Company may at any time
determine that the Subordinated Debentures shall no longer be
represented by a Global Debenture. In such event the Company
will execute, and subject to Section 2.11(c) of the Indenture,
the Trustee, upon receipt of an Officers' Certificate evidencing
such determination by the Company, will authenticate and deliver
the Subordinated Debentures in definitive registered form, in
authorized denominations, and in an aggregate principal amount
equal to the principal amount of the Global Debenture in exchange
for such Global Debenture. Upon the exchange of the Global
Debenture for such Subordinated Debentures in definitive
registered form, in authorized denominations, the Global
Debenture shall be cancelled by the Trustee. Such Subordinated
Debentures in definitive registered form issued in exchange for
the Global Debenture shall be registered in such names and in
such authorized denominations as the Depositary, pursuant to
instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee. The Trustee shall deliver
such Subordinated Debentures to the Depositary for delivery to
the Persons in whose names such Subordinated Debentures are so
registered.
SECTION 2.5. Interest.
(a) Each Subordinated Debenture will bear interest at the
rate of 8% per annum (the "Coupon Rate") from the original date
of issuance until the principal thereof becomes due and payable,
and on any overdue principal and (to the extent that payment of
such interest is enforceable under applicable law) on any overdue
installment of interest, at the Coupon Rate, compounded
quarterly, payable (subject to the provisions of Article IV)
quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year (each, an "Interest Payment Date"),
commencing March 31, 1996, to the Person in whose name such
Subordinated Debenture or any predecessor Subordinated Debenture
is registered, at the close of business on the regular record
date for such interest installment, which, in respect of any
Subordinated Debentures of which the Property Trustee is the
holder of a Global Debenture, shall be the close of business on
the Business Day next preceding that Interest Payment Date.
Notwithstanding the foregoing sentence, if the Preferred
Securities are no longer in book-entry only form or, except if
the Subordinated Debentures are held by the Property Trustee, the
Subordinated Debentures are not represented by a Global
Debenture, the Company may select a regular record date for such
interest installment which shall be any date at least one
Business Day before an Interest Payment Date.
(b) The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
Except as provided in the following sentence, the amount of
interest payable for any period shorter than a full quarterly
period for which interest is computed, will be computed on the
basis of the actual number of days elapsed in such a 30-day
period. In the event that any date on which interest is payable
on the Subordinated Debentures is not a Business Day, then
payment of interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest
or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day,
in each case with the same force and effect as if made on such
date.
(c) If, at any time while the Property Trustee is the
holder of any Subordinated Debentures, the Trust or the Property
Trustee is required to pay any taxes, duties, assessments or
governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing
authority, then, in any case, the Company will pay as additional
interest ("Additional Interest") on the Subordinated Debentures
held by the Property Trustee, such additional amounts as shall be
required so that the net amounts received and retained by the
Trust and the Property Trustee after paying such taxes, duties,
assessments or other governmental charges will be equal to the
amounts the Trust and the Property Trustee would have received
had no such taxes, duties, assessments or other governmental
charges been imposed.
ARTICLE III
REDEMPTION OF THE SUBORDINATED DEBENTURES
SECTION 3.1. Special Event Redemption.
If a Tax Event has occurred and is continuing and:
(a) the Company has received a Redemption Tax Opinion; or
(b) after receiving a Dissolution Tax Opinion, the Regular
Trustees shall have been informed by tax counsel rendering the
Dissolution Tax Opinion that a No Recognition Opinion cannot be
delivered to the Trust,
then, notwithstanding Section 3.2(a) but subject to Section
3.2(b), the Company shall have the right upon not less than 30
days nor more than 60 days notice to the holders of the
Subordinated Debentures to redeem the Subordinated Debentures, in
whole or in part, for cash within 90 days following the
occurrence of such Tax Event (the "90-Day Period") at a
redemption price equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest thereon to the date
of such redemption (the "Redemption Price"), provided that if at
the time there is available to the Company the opportunity to
eliminate, within the 90-Day Period, the Tax Event by taking some
ministerial action ("Ministerial Action"), such as filing a form
or making an election, or pursuing some other similar reasonable
measure which has no adverse effect on the Company, the Trust or
the holders of the Trust Securities issued by the Trust, the
Company shall pursue such Ministerial Action in lieu of redemp
tion, and, provided, further, that the Company shall have no
right to redeem the Subordinated Debentures while the Trust is
pursuing any Ministerial Action pursuant to its obligations under
the Declaration.
SECTION 3.2. Optional Redemption by Company.
(a) Subject to the provisions of Section 3.02(b) and to the
provisions of Article III of the Indenture, except as otherwise
may be specified in this First Supplemental Indenture, the Com
pany shall have the right to redeem the Subordinated Debentures,
in whole or in part, from time to time, on or after January 31,
2001, at a redemption price equal to 100% of the principal amount
to be redeemed plus any accrued and unpaid interest thereon to
the date of such redemption (the "Optional Redemption Price").
Any redemption pursuant to this paragraph will be made upon not
less than 30 days nor more than 60 days notice to the holder of
the Subordinated Debentures, at the Optional Redemption Price.
If the Subordinated Debentures are only partially redeemed
pursuant to this Section 3.2, the Subordinated Debentures will be
redeemed pro rata or by lot or by any other method utilized by
the Trustee; provided, that if at the time of redemption the
Subordinated Debentures are registered as a Global Debenture, the
Depositary shall determine, in accordance with its procedures,
the principal amount of such Subordinated Debentures held by each
holder of Subordinated Debentures to be redeemed.
(b) If a partial redemption of the Subordinated Debentures
would result in the delisting of the Preferred Securities from
any national securities exchange or other organization on which
the Preferred Securities are then listed, the Company shall not
be permitted to effect such partial redemption and may only
redeem the Subordinated Debentures in whole.
SECTION 3.3. No Sinking Fund.
The Subordinated Debentures are not entitled to the
benefit of any sinking fund.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT
SECTION 4.1. Extension of Interest Payment Period.
The Company shall have the right, at any time and from
time to time during the term of the Subordinated Debentures, to
defer payments of interest by extending the interest payment
period of such Subordinated Debentures for a period not exceeding
20 consecutive quarters (the "Extended Interest Payment Period"),
during which Extended Interest Payment Period no interest shall
be due and payable. To the extent permitted by applicable law,
interest, the payment of which has been deferred because of the
extension of the interest payment period pursuant to this Section
4.1, will bear interest thereon at the Coupon Rate compounded
quarterly for each quarter of the Extended Interest Payment
Period ("Compounded Interest"). At the end of the Extended
Interest Payment Period, the Company shall pay all interest
accrued and unpaid on the Subordinated Debentures, including any
Additional Interest and Compounded Interest (together, "Deferred
Interest") that shall be payable to the holders of the
Subordinated Debentures in whose names the Subordinated
Debentures are registered in the Security Register on the first
record date after the end of the Extended Interest Payment
Period. Before the termination of any Extended Interest Payment
Period, the Company may further extend such period, provided that
such period together with all such further extensions thereof
shall not exceed 20 consecutive quarters. Upon the termination
of any Extended Interest Payment Period and upon the payment of
all Deferred Interest then due, the Company may commence a new
Extended Interest Payment Period, subject to the foregoing
requirements. No interest shall be due and payable during an
Extended Interest Payment Period, except at the end thereof, but
the Company may prepay at any time all or any portion of the
interest accrued during an Extended Interest Payment Period.
SECTION 4.2. Notice of Extension.
(a) If the Property Trustee is the only registered holder
of the Subordinated Debentures at the time the Company elects an
Extended Interest Payment Period, the Company shall give written
notice to the Regular Trustees, the Property Trustee and the
Trustee of its election of such Extended Interest Payment Period
at least one Business Day before the earlier of (i) the next
succeeding date on which Distributions on the Trust Securities
issued by the Trust are payable, or (ii) the date the Trust is
required to give notice of the record date, or the date such
Distributions are payable, to the New York Stock Exchange or
other applicable self-regulatory organization or to holders of
the Preferred Securities, but in any event at least one Business
Day before such record date.
(b) If the Property Trustee is not the only holder of the
Subordinated Debentures at the time the Company elects an
Extended Interest Payment Period, the Company shall give the
holders of the Subordinated Debentures and the Trustee written
notice of its election of such Extended Interest Payment Period
10 Business Days before the earlier of (i) the next succeeding
Interest Payment Date, or (ii) the date the Company is required
to give notice of the record or payment date of such interest
payment to the New York Stock Exchange or other applicable self-
regulatory organization or to holders of the Subordinated
Debentures.
(c) The quarter in which any notice is given pursuant to
paragraphs (a) or (b) of this Section 4.2 shall be counted as one
of the 20 quarters permitted in the maximum Extended Interest
Payment Period permitted under Section 4.1.
SECTION 4.3. Limitation of Transactions.
If (i) the Company shall exercise its right to defer
payment of interest as provided in Section 4.1, or (ii) there
shall have occurred any Event of Default, then (a) the Company
shall not declare or pay any dividend on, make any distributions
with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock,
provided, however, the Company may declare and pay a stock
dividend where the dividend stock is the same stock as that on
which the dividend is being paid, (b) the Company shall not make
any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by the
Company which rank pari passu with or junior to the Subordinated
Debentures; and (c) the Company shall not make guarantee payments
with respect to the foregoing (other than pursuant to the
Preferred Securities Guarantee).
ARTICLE V
EXPENSES
SECTION 5.1. Payment of Expenses.
In connection with the offering, sale and issuance of
the Subordinated Debentures to the Property Trustee and in
connection with the sale of the Trust Securities by the Trust,
the Company, in its capacity as borrower with respect to the
Subordinated Debentures, shall:
(a) pay all costs and expenses relating to the offering,
sale and issuance of the Subordinated Debentures, including
commissions to the underwriters payable pursuant to the
Underwriting Agreement and compensation of the Trustee under the
Indenture in accordance with the provisions of Section 7.06 of
the Indenture;
(b) pay all costs and expenses of the Trust (including, but
not limited to, costs and expenses relating to the organization
of the Trust, the offering, sale and issuance of the Trust
Securities (including commissions to the underwriters in
connection therewith), the fees and expenses of the Property
Trustee and the Delaware Trustee, the costs and expenses relating
to the operation of the Trust, including without limitation,
costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing and engraving and
computing or accounting equipment, paying agent(s), registrar(s),
transfer agent(s), duplicating, travel and telephone and other
telecommunications expenses and costs and expenses incurred in
connection with the acquisition, financing, and disposition of
Trust assets); and
(c) pay any and all taxes (other than United States
withholding taxes attributable to the Trust or its assets) and
all liabilities, costs and expenses with respect to such taxes of
the Trust.
SECTION 5.2. Payment Upon Resignation or Removal.
Upon termination of this First Supplemental Indenture
or the Indenture or the removal or resignation of the Trustee
pursuant to this Section, the Company shall pay to the Trustee
all amounts accrued to the date of such termination, removal or
resignation. Upon termination of the Declaration or the removal
or resignation of the Delaware Trustee or the Property Trustee,
as the case may be, pursuant to Section 5.6 of the Declaration,
the Company shall pay to the Property Trustee all amounts accrued
to the date of such termination, removal or resignation.
ARTICLE VI
SUBORDINATION
SECTION 6.1. Agreement to Subordinate.
The Company covenants and agrees, and each holder of
Subordinated Debentures issued hereunder, by such holder's
acceptance thereof, likewise covenants and agrees, that all
Subordinated Debentures shall be issued subject to the provisions
of this Article; and each holder of a Subordinated Debenture,
whether upon original issue or upon transfer or assignment
thereof, accepts and agrees to be bound by such provisions.
The payment by the Company of the principal of,
premium, if any, and interest on all Subordinated Debentures
issued hereunder shall, to the extent and in the manner
hereinafter set forth, be subordinate and junior in right of
payment to the prior payment in full of all Senior Indebtedness
of the Company, whether outstanding at the date of this Indenture
or thereafter incurred.
No provision of this Article shall prevent the occur
rence of any default hereunder or Event of Default.
SECTION 6.2. Default on Senior Indebtedness.
In the event and during the continuation of any default
by the Company in the payment of principal, premium, interest or
any other payment due on any Senior Indebtedness of the Company,
and any applicable grace period with respect to such default has
expired and such default has not been cured or waived or ceased
to exist, or in the event that the maturity of any Senior
Indebtedness of the Company, as the case may be, has been
accelerated because of a default, then, in either case, no
payment shall be made by the Company with respect to the princi
pal (including redemption and sinking fund payments) of, or
premium, if any, or interest on the Subordinated Debentures.
In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee when such payment is
prohibited by the preceding paragraph of this Section, such
payment shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of Senior Indebtedness or
their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Senior Indebted
ness may have been issued, as their respective interests may
appear, but only to the extent that the holders of the Senior
Indebtedness (or their representative or representatives or a
trustee) notify the Trustee in writing within 90 days of such
payment of the amounts then due and owing on the Senior Indebted
ness and only the amounts specified in such notice to the Trustee
shall be paid to the holders of Senior Indebtedness.
SECTION 6.3. Liquidation; Dissolution; Bankruptcy.
Upon any payment by the Company or distribution of
assets of the Company of any kind or character, whether in cash,
property or securities, to creditors upon any dissolution or
winding-up or liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due upon all
Senior Indebtedness of the Company shall first be paid in full,
or payment thereof provided for in money in accordance with its
terms, before any payment is made by the Company on account of
the principal (and premium, if any) or interest on the Subor
dinated Debentures; and upon any such dissolution or winding-up
or liquidation or reorganization, any payment by the Company, or
distribution of assets of the Company of any kind or character,
whether in cash, property or securities, which the holders of the
Subordinated Debentures or the Trustee would be entitled to
receive from the Company, except for the provisions of this
Article, shall be paid by the Company or by any receiver, trustee
in bankruptcy, liquidating trustee, agent or other Person making
such payment or distribution, or by the holders of the
Subordinated Debentures or by the Trustee if received by them or
it, directly to the holders of Senior Indebtedness of the Company
(pro rata to such holders on the basis of the respective amounts
of Senior Indebtedness held by such holders, as calculated by the
Company) or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any
instruments evidencing such Senior Indebtedness may have been
issued, as their respective interests may appear, to the extent
necessary to pay such Senior Indebtedness in full, in money or
money's worth, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness,
before any payment or distribution is made to the holders of
Subordinated Debentures or to the Trustee.
In the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, prohibited by
the foregoing, shall be received by the Trustee before all Senior
Indebtedness of the Company is paid in full, or provision is made
for such payment in money in accordance with its terms, such
payment or distribution shall be held in trust for the benefit of
and shall be paid over or delivered to the holders of such Senior
Indebtedness or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any
instruments evidencing such Senior Indebtedness may have been
issued, and their respective interests may appear, as calculated
by the Company, for application to the payment of all Senior
Indebtedness of the Company, as the case may be, remaining unpaid
to the extent necessary to pay such Senior Indebtedness in full
in money in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the benefit of the
holders of such Senior Indebtedness.
For purposes of this Article, the words "cash, property
or securities" shall not be deemed to include shares of stock of
the Company as reorganized or readjusted, or securities of the
Company or any other corporation provided for by a plan of
reorganization or readjustment, the payment of which is
subordinated at least to the extent provided in this Article Six
with respect to the Subordinated Debentures to the payment of all
Senior Indebtedness of the Company, as the case may be, that may
at the time be outstanding, provided that (i) such Senior
Indebtedness is assumed by the new corporation, if any, resulting
from any such reorganization or readjustment, and (ii) the rights
of the holders of such Senior Indebtedness are not, without the
consent of such holders, altered by such reorganization or
readjustment. The consolidation of the Company with, or the
merger of the Company into, another corporation or the
liquidation or dissolution of the Company following the
conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the
terms and conditions provided for in Article X of the Indenture
shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section if such other
corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in
Article X of the Indenture. Nothing in Section 6.2 or in this
Section 6.3 shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 7.06 of the Indenture.
SECTION 6.4. Subrogation.
Subject to the payment in full of all Senior
Indebtedness of the Company, the rights of the holders of the
Subordinated Debentures shall be subrogated to the rights of the
holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company, as
the case may be, applicable to such Senior Indebtedness until the
principal of (and premium, if any) and interest on the
Subordinated Debentures shall be paid in full; and, for the
purposes of such subrogation, no payments or distributions to the
holders of such Senior Indebtedness of any cash, property or
securities to which the holders of the Subordinated Debentures or
the Trustee would be entitled except for the provisions of this
Article, and no payment over pursuant to the provisions of this
Article to or for the benefit of the holders of such Senior
Indebtedness by holders of the Subordinated Debentures or the
Trustee, shall, as between the Company, its creditors other than
holders of Senior Indebtedness of the Company, and the holders of
the Subordinated Debentures, be deemed to be a payment by the
Company to or on account of such Senior Indebtedness. It is
understood that the provisions of this Article are and are
intended solely for the purposes of defining the relative rights
of the holders of the Subordinated Debentures, on the one hand,
and the holders of such Senior Indebtedness on the other hand.
Nothing contained in this Article or elsewhere in the
Indenture, this First Supplemental Indenture or in the
Subordinated Debentures is intended to or shall impair, as among
the Company, its creditors other than the holders of Senior
Indebtedness of the Company, and the holders of the Subordinated
Debentures, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Subordinated
Debentures the principal of (and premium, if any) and interest on
the Subordinated Debentures as and when the same shall become due
and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holders of the
Subordinated Debentures and creditors of the Company, as the case
may be, other than the holders of Senior Indebtedness of the
Company, as the case may be, nor shall anything herein or therein
prevent the Trustee or the holder of any Subordinated Debenture
from exercising all remedies otherwise permitted by applicable
law upon default under the Indenture, subject to the rights, if
any, under this Article of the holders of such Senior
Indebtedness in respect of cash, property or securities of the
Company, as the case may be, received upon the exercise of any
such remedy.
Upon any payment or distribution of assets of the
Company referred to in this Article, the Trustee, subject to the
provisions of Section 7.01 of the Indenture, and the holders of
the Subordinated Debentures shall be entitled to conclusively
rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding-up, liquidation
or reorganization proceedings are pending, or a certificate of
the receiver, trustee in bankruptcy, liquidation trustee, agent
or other Person making such payment or distribution, delivered to
the Trustee or to the holders of the Subordinated Debentures, for
the purposes of ascertaining the Persons entitled to participate
in such distribution, the holders of Senior Indebtedness and
other indebtedness of the Company, as the case may be, the amount
thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to
this Article.
SECITON 6.5. Trustee to Effectuate Subordination.
Each holder of Subordinated Debentures, by such
holder's acceptance thereof, authorizes and directs the Trustee
on such holder's behalf to take such action as may be necessary
or appropriate to effectuate the subordination provided in this
Article and appoints the Trustee such holder's attorney-in-fact
for any and all such purposes.
SECTION 6.6 Notice by the Company.
The Company shall give prompt written notice to a
Responsible Officer of the Trustee of any fact known to the
Company that would prohibit the making of any payment of monies
to or by the Trustee in respect of the Subordinated Debentures
pursuant to the provisions of this Article. Notwithstanding the
provisions of this Article or any other provision of the
Indenture and this First Supplemental Indenture, the Trustee
shall not be charged with knowledge of the existence of any facts
that would prohibit the making of any payment of monies to or by
the Trustee in respect of the Subordinated Debentures pursuant to
the provisions of this Article, unless and until a Responsible
Officer of the Trustee shall have received written notice thereof
from the Company or a holder or holders of Senior Indebtedness or
from any trustee therefor; and before the receipt of any such
written notice, the Trustee, subject to the provisions of Section
7.01 of the Indenture, shall be entitled in all respects to
assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this
Section at least two Business Days prior to the date upon which,
by the terms hereof, any money may become payable for any purpose
(including, without limitation, the payment of the principal of
(or premium, if any) or interest on any Subordinated Debenture),
then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such
money and to apply the same to the purposes for which they were
received, and shall not be affected by any notice to the contrary
that may be received by it within two Business Days prior to such
date.
The Trustee, subject to the provisions of Section 7.02
of the Indenture, shall be entitled to conclusively rely on the
delivery to it of a written notice by a Person representing
himself to be a holder of Senior Indebtedness of the Company, as
the case may be (or a trustee on behalf of such holder), to
establish that such notice has been given by a holder of such
Senior Indebtedness or a trustee on behalf of any such holder or
holders. In the event that the Trustee determines in good faith
that further evidence is required with respect to the right of
any Person as a holder of such Senior Indebtedness to participate
in any payment or distribution pursuant to this Article, the
Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of such
Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such Person under
this Article, and, if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such
payment.
SECTION 6.7. Rights of the Trustee; Holders of Senior Indebtedness.
The Trustee in its individual capacity shall be enti
tled to all the rights set forth in this Article in respect of
any Senior Indebtedness at any time held by it, to the same
extent as any other holder of Senior Indebtedness, and nothing in
this Indenture shall deprive the Trustee of any of its rights as
such holder.
With respect to the holders of Senior Indebtedness of
the Company, the Trustee undertakes to perform or to observe only
such of its covenants and obligations as are specifically set
forth in this Article, and no implied covenants or obligations
with respect to the holders of such Senior Indebtedness shall be
read into the Indenture or this First Supplemental Indenture
against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Section 7.02 of the Indenture, the
Trustee shall not be liable to any holder of such Senior
Indebtedness if it shall pay over or deliver to holders of
Subordinated Debentures, the Company or any other Person money or
assets to which any holder of such Senior Indebtedness shall be
entitled by virtue of this Article or otherwise.
SECTION 6.8. Subordination May Not Be Impaired.
No right of any present or future holder of any Senior
Indebtedness of the Company to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired
by any act or failure to act on the part of the Company, as the
case may be, or by any act or failure to act, in good faith, by
any such holder, or by any noncompliance by the Company, as the
case may be, with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof that any such
holder may have or otherwise be charged with.
Without in any way limiting the generality of the
foregoing paragraph, the holders of Senior Indebtedness of the
Company may, at any time and from time to time, without the
consent of or notice to the Trustee or the holders of the
Subordinated Debentures, without incurring responsibility to the
holders of the Subordinated Debentures and without impairing or
releasing the subordination provided in this Article or the
obligations hereunder of the holders of the Subordinated
Debentures to the holders of such Senior Indebtedness, do any one
or more of the following: (i) change the manner, place or terms
of payment or extend the time of payment of, or renew or alter,
such Senior Indebtedness, or otherwise amend or supplement in any
manner such Senior Indebtedness or any instrument evidencing the
same or any agreement under which such Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing such Senior
Indebtedness; (iii) release any Person liable in any manner for
the collection of such Senior Indebtedness; and (iv) exercise or
refrain from exercising any rights against the Company, as the
case may be, and any other Person.
ARTICLE VII
COVENANT TO LIST ON EXCHANGE
SECTION 7.1. Listing on an Exchange.
If the Subordinated Debentures are to be issued as a
Global Debenture in connection with the distribution of the
Subordinated Debentures to the holders of the Preferred
Securities upon a Dissolution Event, the Company will use its
best efforts to list such Subordinated Debentures on the New York
Stock Exchange or on such other exchange as the Preferred Secu
rities are then listed.
ARTICLE VIII
FORM OF DEBENTURE
SECTION 8.1. Form of Debenture.
The Subordinated Debentures and the Trustee's Certifi
cate of Authentication to be endorsed thereon are to be
substantially in the following forms:
(FORM OF FACE OF DEBENTURE)
[IF THE Debenture IS TO BE A GLOBAL Debenture, INSERT -
This Debenture is a Global Debenture within the meaning of the
Indenture hereinafter referred to and is registered in the name
of a Depositary or a nominee of a Depositary. This Debenture is
exchangeable for Subordinated Debentures registered in the name
of a person other than the Depositary or its nominee only in the
limited circumstances described in the Indenture, and no transfer
of this Debenture (other than a transfer of this Debenture as a
whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of
the Depositary) may be registered except in limited
circumstances.
Unless this Debenture is presented by an authorized
representative of The Depository Trust Company (55 Water Street,
New York, New York) to the issuer or its agent for registration
of transfer, exchange or payment, and any Debenture issued is
registered in the name of Cede & Co. or such other name as
requested by an authorized representative of The Depository Trust
Company and any payment hereon is made to Cede & CO., ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A
PERSON IS WRONGFUL since the registered owner hereof, Cede & CO.,
has an interest herein.]
No._______________
ILLINOIS POWER COMPANY
8% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE
DUE 2045
Illinois Power Company, an Illinois corporation (the
"Company", which term includes any successor corporation under
the Indenture hereinafter referred to), for value received,
hereby promises to pay to ______________, or registered assigns,
the principal sum of One Hundred Three Million One Hundred
Thousand Dollars ($103,100,000) on January 31, 2045, and to pay
interest on said principal sum from January 17, 1996, or from the
most recent interest payment date (each such date, an "Interest
Payment Date") to which interest has been paid or duly provided
for, quarterly (subject to deferral as set forth herein) in
arrears on March 31, June 30, September 30 and December 31 of
each year commencing March 31, 1996, at the rate of 8% per annum
until the principal hereof shall have become due and payable, and
on any overdue principal and premium, if any, and (without
duplication and to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of
interest at the same rate per annum compounded quarterly. The
amount of interest payable on any Interest Payment Date shall be
computed on the basis of a 360-day year of twelve 30-day months.
In the event that any date on which interest is payable on this
Debenture is not a Business Day, then payment of interest payable
on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is
in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date. The interest
installment so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in the Indenture,
be paid to the person in whose name this Debenture (or one or
more Predecessor Securities, as defined in said Indenture) is
registered at the close of business on the regular record date
for such interest installment, which shall be the close of
business on the business day next preceding such Interest Payment
Date. [IF PURSUANT TO THE PROVISIONS OF THE INDENTURE THE
SUBORDINATED DEBENTURES ARE NO LONGER REPRESENTED BY A GLOBAL
DEBENTURE -- which shall be the close of business on the 15th day
of the month in which such Interest Payment Date shall occur.]
Any such interest installment not punctually paid or duly
provided for shall forthwith cease to be payable to the
registered holders on such regular record date and may be paid to
the Person in whose name this Debenture (or one or more
Predecessor Securities) is registered at the close of business on
a special record date to be fixed by the Trustee for the payment
of such defaulted interest, notice whereof shall be given to the
registered holders of this series of Subordinated Debentures not
less than 10 days prior to such special record date, or may be
paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the
Subordinated Debentures may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in
the Indenture. The principal of (and premium, if any) and the
interest on this Debenture shall be payable at the office or
agency of the Trustee maintained for that purpose in any coin or
currency of the United States of America that at the time of
payment is legal tender for payment of public and private debts;
provided, however, that payment of interest may be made at the
option of the Company by check mailed to the registered holder at
such address as shall appear in the Security Register.
Notwithstanding the foregoing, so long as the holder of this
Debenture is the Property Trustee, the payment of the principal
of (and premium, if any) and interest on this Debenture will be
made at such place and to such account as may be designated by
the Property Trustee.
The indebtedness evidenced by this Debenture is, to the
extent provided in the Indenture, subordinate and junior in right
of payment to the prior payment in full of all Senior
Indebtedness, and this Debenture is issued subject to the
provisions of the Indenture with respect thereto. Each holder of
this Debenture, by accepting the same, (a) agrees to and shall be
bound by such provisions, (b) authorizes and directs the Trustee
on his or her behalf to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination so
provided and (c) appoints the Trustee his or her attorney-in-fact
for any and all such purposes. Each Holder hereof, by his or her
acceptance hereof, hereby waives all notice of the acceptance of
the subordination provisions contained herein and in the
Indenture by each holder of Senior Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each
such holder upon said provisions.
This Debenture shall not be entitled to any benefit
under the Indenture hereinafter referred to, be valid or become
obligatory for any purpose until the Certificate of
Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Debenture are continued on the
reverse side hereof and such continued provisions shall for all
purposes have the same effect as though fully set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this
instrument to be executed.
Dated
ILLINOIS POWER COMPANY
By:
Name:
Title
Attest:
By:
Name:
Title:
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Subordinated Debentures of the
series of Subordinated Debentures described in the
within-mentioned Indenture.
as Trustee
or as Authentication Agent
By By
Authorized Signatory Authorized Signatory
(FORM OF REVERSE OF DEBENTURE)
This Debenture is one of a duly authorized series of
Subordinated Debentures of the Company (herein sometimes referred
to as the "Subordinated Debentures"), specified in the Indenture,
all issued or to be issued in one or more series under and
pursuant to an Indenture dated as of January 1, 1996, duly
executed and delivered between the Company and Wilmington Trust
Company, as Trustee (the "Trustee"), as supplemented by the First
Supplemented Indenture dated as of January 1, 1996, between the
Company and the Trustee (the Indenture as so supplemented, the
"Indenture"), to which Indenture and all indentures supplemental
thereto reference is hereby made for a description of the rights,
limitations of rights, obligations, duties and immunities
thereunder of the Trustee, the Company and the holders of the
Subordinated Debentures. By the terms of the Indenture, the
Subordinated Debentures are issuable in series that may vary as
to amount, date of maturity, rate of interest and in other
respects as provided in the Indenture. This series of
Subordinated Debentures is limited in aggregate principal amount
as specified in said First Supplemental Indenture.
Because of the occurrence and continuation of a Tax
Event, in certain circumstances, this Debenture may become due
and payable at the principal amount together with any interest
accrued thereon (the "Redemption Price"). The Company shall have
the right to redeem this Debenture at the option of the Company,
without premium or penalty, in whole or in part at any time on or
after January 31, 2001 (an "Optional Redemption"), or at any time
in certain circumstances upon the occurrence of a Tax Event, at a
redemption price equal to 100% of the principal amount plus any
accrued but unpaid interest, to the date of such redemption (the
"Optional Redemption Price"). Any redemption pursuant to this
paragraph will be made upon not less than 30 days nor more than
60 days notice, at the Optional Redemption Price. If the
Subordinated Debentures are only partially redeemed by the
Company pursuant to an Optional Redemption, the Subordinated
Debentures will be redeemed pro rata or by lot or by any other
method utilized by the Trustee; provided that if, at the time of
redemption, the Subordinated Debentures are registered as a
Global Debenture, the Depositary shall determine the principal
amount of such Subordinated Debentures held by each
Debentureholder to be redeemed in accordance with its procedures.
In the event of redemption of this Debenture in part
only, a new Debenture or Debentures of this series for the
unredeemed portion hereof will be issued in the name of the
holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the
Indenture, shall have occurred and be continuing, the principal
of all of the Subordinated Debentures may be declared, and upon
such declaration shall become, due and payable, in the manner,
with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions permitting the
Company and the Trustee, with the consent of the holders of not
less than 66_% in aggregate principal amount of the Subordinated
Debentures of each series affected at the time Outstanding, as
defined in the Indenture, to execute supplemental indentures for
the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the Indenture or of any
supplemental indenture or of modifying in any manner the rights
of the holders of the Subordinated Debentures; provided, however,
that no such supplemental indenture shall (i) extend the fixed
maturity of any Subordinated Debentures of any series, or reduce
the principal amount thereof, or reduce the rate or extend the
time of payment of interest thereon, or reduce any premium
payable upon the redemption thereof, without the consent of the
holder of each Debenture so affected, or (ii) reduce the
aforesaid percentage of Subordinated Debentures, the holders of
which are required to consent to any such supplemental indenture,
without the consent of the holders of each Debenture then Out
standing and affected thereby. The Indenture also contains
provisions permitting the holders of a majority in aggregate
principal amount of the Subordinated Debentures of any series at
the time outstanding affected thereby, on behalf of all of the
holders of the Subordinated Debentures of such series, to waive
any past default in the performance of any of the covenants con
tained in the Indenture, or established pursuant to the Indenture
with respect to such series, and its consequences, except a
default in the payment of the principal of or premium, if any, or
interest on any of the Subordinated Debentures of such series.
Any such consent or waiver by the registered holder of this
Debenture (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such holder and upon all future
holders and owners of this Debenture and of any Debenture issued
in exchange herefor or in place hereof (whether by registration
of transfer or otherwise), irrespective of whether or not any
notation of such consent or waiver is made upon this Debenture.
No reference herein to the Indenture and no provision
of this Debenture or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and premium, if any, and interest on this
Debenture at the time and place and at the rate and in the money
herein prescribed.
The Company shall have the right at any time during the
term of the Subordinated Debentures and from time to time to
extend the interest payment period of such Subordinated Deben
tures for up to 20 consecutive quarters (an "Extended Interest
Payment Period"), at the end of which period the Company shall
pay all interest then accrued and unpaid (together with interest
thereon at the rate specified for the Subordinated Debentures to
the extent that payment of such interest is enforceable under
applicable law). Before the termination of any such Extended
Interest Payment Period, the Company may further extend such
Extended Interest Payment Period, provided that such Extended
Interest Payment Period together with all such further extensions
thereof shall not exceed 20 consecutive quarters. At the termi
nation of any such Extended Interest Payment Period and upon the
payment of all accrued and unpaid interest and any additional
amounts then due, the Company may commence a new Extended Inter
est Payment Period.
As provided in the Indenture and subject to certain
limitations therein set forth, this Debenture is transferable by
the registered holder hereof on the Security Register of the
Company, upon surrender of this Debenture for registration of
transfer at the office or agency of the Trustee in the City and
State of New York accompanied by a written instrument or instru
ments of transfer in form satisfactory to the Company or the
Trustee duly executed by the registered holder hereof or his
attorney duly authorized in writing, and thereupon one or more
new Subordinated Debentures of authorized denominations and for
the same aggregate principal amount and series will be issued to
the designated transferee or transferees. No service charge will
be made for any such transfer, but the Company may require
payment of a sum sufficient to cover any tax or other governmen
tal charge payable in relation thereto.
Prior to due presentment for registration of transfer
of this Debenture, the Company, the Trustee, any paying agent and
the Security Registrar may deem and treat the registered holder
hereof as the absolute owner hereof (whether or not this Deben
ture shall be overdue and notwithstanding any notice of ownership
or writing hereon made by anyone other than the Security Regis
trar) for the purpose of receiving payment of or on account of
the principal hereof and premium, if any, and interest due hereon
and for all other purposes, and neither the Company nor the
Trustee nor any paying agent nor any Security Registrar shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the princi
pal of or the interest on this Debenture, or for any claim based
hereon, or otherwise in respect hereof, or based on or in respect
of the Indenture, against any incorporator, stockholder, officer
or director, past, present or future, as such, of the Company or
of any predecessor or successor corporation, whether by virtue of
any constitution, statute or rule of law, or by the enforcement
of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration
for the issuance hereof, expressly waived and released.
[The Subordinated Debentures of this series are
issuable only in registered form without coupons in denominations
of $25 and any integral multiple thereof.] [This Global
Debenture is exchangeable for Subordinated Debentures in
definitive form only under certain limited circumstances set
forth in the Indenture. Subordinated Debentures of this series
so issued are issuable only in registered form without coupons in
denominations of $25 and any integral multiple thereof.] As
provided in the Indenture and subject to certain limitations
herein and therein set forth, Subordinated Debentures of this
series so issued are exchangeable for a like aggregate principal
amount of Subordinated Debentures of this series of a different
authorized denomination, as requested by the holder surrendering
the same.
All terms used in this Debenture that are defined in
the Indenture shall have the meanings assigned to them in the
Indenture.
ARTICLE IX
ORIGINAL ISSUE OF SUBORDINATED DEBENTURES
SECTION 9.1. Original Issue of Subordinated Debentures.
Subordinated Debentures in the aggregate principal
amount of $103,100,000 may, upon execution of this First Supple
mental Indenture, be executed by the Company and delivered to the
Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver said Subordinated Debentures to or upon
the written order of the Company, signed by its Chairman, its
Vice Chairman, its President, or any Vice President and its Trea
surer or an Assistant Treasurer, without any further action by
the Company.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Ratification of Indenture.
The Indenture, as supplemented by this First Supple
mental Indenture, is in all respects ratified and confirmed, and
this First Supplemental Indenture shall be deemed part of the
Indenture in the manner and to the extent herein and therein
provided.
SECTION 10.2. Trustee Not Responsible for Recitals.
The recitals herein contained are made by the Company
and not by the Trustee, and the Trustee assumes no responsibility
for the correctness thereof. The Trustee makes no representation
as to the validity or sufficiency of this First Supplemental
Indenture.
SECTION 10.3. Governing Law.
This First Supplemental Indenture and each Subordinated
Debenture shall be deemed to be a contract made under the
internal laws of the State of New York, and for all purposes
shall be construed in accordance with the laws of said State.
SECTION 10.4. Separability.
In case any one or more of the provisions contained in
this First Supplemental Indenture or in the Subordinated Deben
tures shall for any reason be held to be invalid, illegal or un
enforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this
First Supplemental Indenture or of the Subordinated Debentures,
but this First Supplemental Indenture and the Subordinated
Debentures shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein or
therein.
SECTION 10.5. Counterparts.
This First Supplemental Indenture may be executed in
any number of counterparts each of which shall be an original,
but such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
First Supplemental Indenture to be duly executed, and their
respective corporate seals to be hereunto affixed and attested,
on the date or dates indicated in the acknowledgements and as of
the day and year first above written.
ILLINOIS POWER COMPANY
By: /s/ Cynthia G. Steward
Name: Cynthia G. Steward
Title: Controller
Attest:
By: /s/ Leah Manning Stetzner
Name: Leah Manning Stetzner
Title: Vice President, General Counsel
and Corporate Secretary
[Seal]
THE WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Trustee
By: /s/ Emmett R. Harmon
Name: Emmett R. Harmon
Title: Vice President
Attest:
By: /s/ W. Chris Sponenberg
Name: W. Chris Sponenberg
Title: Financial Services Officer
[Seal]
SoftSolutions Document Identifier: CHI2:43297.1
Dataset: CHI2 Chicago - Floors 72 and 73
Doc #: 43297
Version: 1CHI2:43297.1 03.26.96 16.03
Draft 3/20/96
ILLINOVA CORPORATION
COMPREHENSIVE DEFERRED STOCK PLAN
FOR OUTSIDE DIRECTORS
SECTION 1
General
1.1. Purpose. Illinova Corporation (the "Company") has
established the Illinova Corporation Comprehensive Deferred Stock
Plan for Outside Directors (the "Plan") in order to continue to
remain competitive in attracting and retaining outstanding
individuals as outside directors.
1.2. Operation and Administration. The operation and
administration of the Plan shall be subject to the provisions of
Section 4. Capitalized terms in the Plan shall be defined as set
forth in Section 5 or elsewhere in the Plan.
SECTION 2
Stock Unit Awards and Accounts
2.1. Stock Unit Awards. Each Eligible Director shall be
credited with "Stock Unit" awards under the Plan in accordance
with the following:
(a) On the date of the 1996 Annual Meeting of
Stockholders, and on the date of each Annual Meeting of
Stockholders thereafter, each Eligible Director who is
continuing as a Director shall be awarded the number of
Stock Units equal to $6,000 divided by the Fair Market
Value of a share of Stock on the date such Stock Units
are awarded.
(b) As of the Effective Date, each Eligible Director
will receive an initial grant of Stock Units equal to
the dollar value of his Accumulated Benefit (defined below), if any,
divided by the Fair Market Value of a share of Stock on
such date.
An Eligible Director's "Accumulated Benefit" means the net
present value on the Effective Date of a stream of payments of
$18,000 each, payable on April 1 of each year commencing with the
April 1 coincident with or next following the Eligible Director's
attainment of age 65, and continuing for the number of the
Eligible Director's Years of Service not in excess of 10. Net
present value for this purpose shall be determined using a
discount rate of 8.5 percent, compounded annually. An Eligible
Director's number of "Years of Service" means the number of 12-
consecutive-month periods the Eligible Director served on the
Board as an Outside Director prior to the Effective Date.
2.2. Accounts. An "Account" shall be established in the
name of each Participant, which shall be adjusted as follows:
(a) As of the date that Stock Units are awarded under
subsection 2.1, the Participant's Account shall be
credited with the number of Stock Units so awarded.
(b) As of each dividend payment date with respect to the
shares of Stock:
(i) If such dividend is payable in cash, the
Participant's Account shall be credited with the
number of Stock Units determined by (A)
multiplying the cash dividend payable with respect
to a share of Stock by the number of Stock Units
in the Participant's Account as of the applicable
dividend record date, and (B) dividing the product
obtained in (A) by the Fair Market Value of a
share of Stock on the date the dividend is paid.
(ii) If such dividend is payable in shares of
Stock, the Participant's Account shall be credited
with the number of Stock Units determined by
multiplying the number of shares distributed in
the dividend with respect to each share of Stock
by the number of Stock Units in the Participant's
Accounts as of the applicable dividend record
date.
(c) No additional Stock Units shall be credited to a
Participant's Account under this Section 2 after the
Participant's Date of Termination. The Company's sole
obligation to the Participant under the Plan after his
Date of Termination shall be payment of the Account
Value in accordance with Section 3.
SECTION 3
Distributions
3.1. Account Value. As of a Participant's Date of
Termination, the Stock Units in his Account shall be converted to
a dollar value, which shall be determined by multiplying the
number of Stock Units in the Participant's Account as of his Date
of Termination by the Fair Market Value of a share of Stock as of
the last day of the month immediately preceding such Date of
Termination (the "Account Value").
3.2. Form of Payment. Payment of a Participant's Account
Value shall be made solely in cash and shall be made, or commence
to be made, as soon as practicable following the Participant's
Date of Termination, as follows:
(a) in a lump sum payment; or
(b) in ten or fewer annual installments, as elected by
the Participant; provided, however, any such election
that has not been on file with the Committee at least
12 months prior to the Participant's Date of
Termination shall be disregarded and payments shall be
made in accordance with the Participant's most recent
election form that has been on file with the Committee
at least 12 months, or if no such election has been
filed, in accordance with paragraph (a) next above.
3.3. Death of Participant. In the event of a Participant's
death before he has received payment of his full Account Value,
the remaining unpaid Account Value shall be paid to his
designated beneficiary or beneficiaries as soon as practicable
thereafter in a lump sum. If no designated beneficiary has been
named or survives the Participant, the beneficiary will be the
Participant's estate.
SECTION 4
Operation and Administration
4.1. Administration. The authority to manage and control
the operation and administration of the Plan shall be vested in
the Compensation and Nominating Committee of the Board of
Directors (the "Committee"). Subject to the limitations of the
Plan, the Committee shall have the sole and complete authority
to:
(a) interpret the Plan and to adopt, amend and rescind
administrative guidelines and other rules and
regulations relating to the Plan;
(b) correct any defect or omission or to reconcile any
inconsistency in the Plan or in any payment made
hereunder; and
(c) to make all other determinations and to take all other
actions necessary or advisable for the implementation
and administration of the Plan.
The Committee's determinations on matters within its control
shall be conclusive and binding on the Company and all other
persons.
4.2. Shares Subject to the Plan. Shares of Stock which may
be distributed under the Plan may be either authorized and
unissued shares or treasury shares (including, in the discretion
of the Company, shares purchased in the open market).
4.3. Gender and Number. Where the context admits, words in
one gender shall include the other gender, words in the singular
shall include the plural and words in the plural shall include
the singular.
4.4. Director and Shareholder Status. The Plan will not
give any person the right to continue as a director of the
Company, or any right or claim to any benefits under the Plan
unless such right or claim has specifically accrued under the
terms of the Plan. Participation in the Plan shall not create
any rights in a director (or any other person) as a shareholder
of the Company until shares of stock are registered in the name
of the director (or such other person).
4.5. Source of Payments. The Plan constitutes only a
promise of the Company to make payments or awards to Eligible
Directors (or other persons) in the future in accordance with the
terms of the Plan, and Participants shall have the status of
general unsecured creditors of the Company.
4.6. Compliance With Applicable Laws and Withholding of
Taxes. All payments under the Plan are subject to withholding of
all applicable taxes.
4.7. Transferability. No award under the Plan, and no
interest therein, may be transferred or otherwise voluntarily or
involuntarily assigned or alienated.
4.8. Adjustments to Number of Stock Units Awarded Under the
Plan. In the event of any change in the outstanding shares of
Stock of the Company by reason of any stock dividend, split,
spinoff, recapitalization, merger, consolidation, combination,
exchange of shares or otherwise, the terms, type of shares, and
the number of any outstanding Stock Units under the Plan will be
equitably adjusted by the Committee in its sole discretion to
preserve the benefit of the award for the Company and the
Participant.
4.9. Amendment and Termination of Plan. The Board may at
any time and in any way amend or terminate the Plan, provided
that, subject to subsection 4.8 (relating to certain adjustments
to shares), no such amendment or termination shall impair the
rights of Participants with respect to awards made under the Plan
prior to the date such amendment is adopted by the Board.
4.10. Governing Law. This Plan shall be governed by the
internal laws of the state of Illinois without regard to any
principles of conflict of laws.
4.11. Successors. The obligations of the Company under the
Plan shall be binding upon any assignee or successor in interest
thereto.
SECTION 5
Defined Terms
For purposes of the Plan, the terms listed below shall be
defined as follows:
(a) Board. The term "Board" shall mean the Board of
Directors of the Company.
(b) Date of Termination. A Participant's Date of
Termination shall be the date following the last day on
which he serves as an Outside Director.
(c) Director. The term "Director" means a member of the
Board.
(d) Effective Date. The "Effective Date" of the Plan is
February 7, 1996.
(e) Eligible Director. As of any date, each individual who
is then an Outside Director shall be an "Eligible
Director".
(f) Fair Market Value. The "Fair Market Value" of a share
of Stock of the Company as of any date shall be the
closing market composite price for such Stock as
reported on the New York Stock Exchange Composite Tape on
that date or, if Stock is not traded on that date, on
the next preceding date on which Stock was traded.
(g) Outside Director. The term "Outside Director" means a
Director who is not an officer or employee of the
Company or a Related Company.
(h) Participant. A "Participant" is any Eligible Director
who has received an award of Stock Units under Section
2 of the Plan.
(i) Related Company. The term "Related Company" means any
company during any period in which it is a subsidiary
corporation (as that term is defined in section 424(f)
of the Internal Revenue Code) with respect to the
Company.
(j) Stock. The term "Stock" shall mean shares of common
stock of the Company.
o:\ars\dstkplan.doc
<TABLE>
ILLINOIS POWER COMPANY
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(Thousands of Dollars)
Year Ended December 31, Supplemental **
1991 1992 1993 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Net Income (Loss) $109,244 $122,088 ($56,038) ($56,038) $180,242 $182,713
Add:
Income Taxes:
Current 29,369 22,930 25,260 25,260 58,354 98,578
Deferred - Net 45,990 63,739 82,057 82,057 71,177 34,137
Allocated income taxes (1,348) (6,632) (12,599) (12,599) (8,285) (8,417)
Investment tax credit - deferred (11) (519) (782) (782) (11,331) (6,894)
Income tax effect of disallowed costs - - (70,638) (70,638) - -
Interest on long-term debt 176,179 160,795 154,110 135,115 125,581
Amortization of debt expense and
premium-net, and other interest charges 9,004 12,195 17,007 17,007 15,826 29,558
One-third of all rentals (Estimated to be
representative of the interest component) 4,996 5,117 5,992 5,992 5,847 5,221
Interest on in-core fuel 8,862 8,278 6,174 6,174 7,185 6,716
Disallowed Clinton plant costs - - - 270,956 - -
-------- -------- -------- -------- -------- --------
Earnings (loss) available for fixed $382,285 $387,991 $150,543 $421,499 $454,130 $467,193
======== ======== ======== ======== ======== ========
Fixed charges:
Interest on long-term debt $176,179 $160,795 $154,110 $154,110 $135,115 $125,581
Amortization of debt expense and
premium-net, and other interest charges 25,553 25,785 27,619 27,619 25,381 38,147
One-third of all rentals (Estimated to be
representative of the interest component) 4,996 5,117 5,992 5,992 5,847 5,221
Total Fixed Charges $206,728 $191,697 $187,721 $187,721 $166,343 $168,949
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 1.85 2.02 0.80 * 2.25 2.73 2.77
======== ======== ======== ========= ======== ========
</TABLE>
* Earnings are inadequate to cover fixed charges. Additional earnings
(thousands) of $37,178 for 1993, are required to attain a one-to-one ratio
of Earnings to Fixed Charges.
** Supplemental ratio of earnings to fixed charges presented to exclude
nonrecurring item - Disallowed Clinton plant costs.
<TABLE>
ILLINOVA CORPORATION
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(Thousands of Dollars)
Year Ended December 31, Supplemental **
1991 1992 1993 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Earnings Available for Fixed Charges:
Net Income (Loss) $78,378 $93,234 ($81,874) ($81,874) $151,786 $151,601
Add:
Income Taxes:
Current 29,369 22,930 25,260 25,260 58,354 98,578
Deferred - Net 45,990 63,739 82,057 82,057 71,177 34,137
Allocated income taxes (1,348) (6,632) (12,599) (12,599) (8,285) (11,851)
Investment tax credit - deferred (11) (519) (782) (782) (11,331) (6,894)
Income tax effect of disallowed costs - - (70,638) (70,638) - -
Interest on long-term debt 176,179 160,795 154,110 154,110 135,115 125,581
Amortization of debt expense and
premium-net, and other interest charges 9,004 12,195 17,007 17,007 15,826 29,558
One-third of all rentals (Estimated to be
representative of the interest component4,996 5,117 5,992 5,992 5,847 5,221
Interest on in-core fuel 8,862 8,278 6,174 6,174 7,185 6,716
Disallowed Clinton plant costs - - - 270,956 - -
-------- -------- ------- ------- ------ ---------
Earnings (loss) available for fixed $351,419 $359,137 $124,707 $395,663 $425,674 $432,647
======== ======== ======== ======== ======== ========
Fixed charges:
Interest on long-term debt $176,179 $160,795 $154,110 $154,110 $135,115 $125,581
Amortization of debt expense and
premium-net, and other interest charges 25,553 25,785 27,619 27,619 25,381 38,147
One-third of all rentals (Estimated to be
representative of the interest component)4,996 5,117 5,992 5,992 5,847 5,221
________ ________ ________ ________ ________ ________
Total Fixed Charges $206,728 $191,697 $187,721 $187,721 $166,343 $168,949
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 1.70 1.87 0.66 * 2.11 2.56 2.56
======== ======== ======== ======== ======== ========
</TABLE>
* Earnings are inadequate to cover fixed charges. Additional earnings
(thousands) of $63,014 for 1993, are required to attain a one-to-one ratio
of Earnings to Fixed Charges.
** Supplemental ratio of earnings to fixed charges presented to exclude
nonrecurring item - Disallowed Clinton plant costs.
Measures of Our Success
Illinova 1995 Proxy Statement
and 1995 Annual Report to
Stockholders
we will be the best by the year 2000
- - --------------------------------------------
notice of annual meeting of shareholders
Proxy Statement
Table of Contents
- - --------------------
Notice of Annual Meeting 2
Proxy Statement 3
Appendix:
1995 Annual Report to Shareholders A-1
To the Shareholders
of Illinova Corporation:
Notice is Hereby Given that the Annual Meeting of Shareholders of Illinova
Corporation ("Illinova") will be held at 10 a.m. Wednesday, April 10, 1996,
at Shilling Community Education Center, Richland Community College, One
College Park, Decatur, Illinois 62521, for the following purposes:
(1) To elect the Board of Directors for the ensuing year.
(2) To transact any other business which may properly come before the meeting or
any adjournment.
Shareholders of record at the close of business on February 12, 1996, will be
entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors,
Leah Manning Stetzner,
General Counsel and Corporate Secretary
Decatur, Illinois
March 1, 1996
IMPORTANT
Illinova invites each of its approximately 35,000 shareholders to attend the
Annual Meeting. Shareholders will be admitted on verification of record share
ownership at the admission desk. Shareholders who own shares through banks,
brokerage firms, nominees or other account custodians must present proof of
beneficial share ownership (such as a brokerage account statement) at the
admission desk. If you are unable to be present at the meeting, it is
important that you, whether the owner of one or many shares, sign and return
the enclosed proxy. An envelope on which postage will be paid by Illinova
is enclosed for that purpose.
Return of your executed proxy will ensure you are represented at the Annual
Meeting. Your cooperation is appreciated.
proxy statement
Solicitation and
Revocation of Proxies
This Proxy Statement is furnished in connection with a solicitation of proxies
by the Board of Directors of Illinova, for use at the Annual Meeting of
Shareholders to be held at Shilling Community Education Center, Richland
Community College, One College Park, Decatur, Illinois 62521, at 10 a.m.
Wednesday, April 10, 1996, and at any adjournment thereof (the "Annual
Meeting"). Any shareholder giving a proxy may revoke it at any time by giving
a later proxy or by giving written notice of revocation to the Corporate
Secretary of Illinova prior to the Annual Meeting. All duly executed proxies
received prior to the Annual Meeting will be voted.
Shares credited to the accounts of participants in Illinova's Automatic
Reinvestment and Stock Purchase Plan, and Employees Stock Ownership Plan,
and Illinois Power Company's ("Illinois Power") Incentive Savings Plans will
be voted in accordance with the instructions of the participants or otherwise
in accordance with the terms of such plans.
Voting Rights
Shareholders of record at the close of business on Monday, February 12, 1996
(the "Record Date"), will be entitled to receive notice of and to vote at the
Annual Meeting. As of such date, Illinova had outstanding 75,674,837 shares
of Common Stock. Shareholders who are present at the Annual Meeting in person
or by proxy will be entitled to one vote for each share of Illinova's Common
Stock which they held of record at the close of business on the Record Date.
When voting for candidates nominated to serve as directors, all shareholders
will be entitled to 11 votes (the number of directors to be elected) for each
of their shares and may cast all of their votes for any one candidate whose
name has been placed in nomination prior to the voting or distribute their
votes among two or more such candidates in such proportions as they may
determine. In voting on other matters presented for consideration at the
Annual Meeting, each shareholder will be entitled to one vote for each share of
Common Stock held of record at the close of business on the Record Date. The
affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy and entitled to vote at the
Annual Meeting is required for the election of directors.
Annual Report,
Proxy and Proxy Statement
Accompanying this Proxy Statement, which includes Consolidated Financial
Statements, is a Notice of Annual Meeting of Shareholders, a form of Proxy
and the Summary Annual Report to Shareholders covering operations of Illinova
for the year 1995. This Proxy Statement and accompanying documents are first
being mailed to shareholders on or about March 1, 1996.
Board of Directors
Information Regarding
the Board of Directors
The Board of Directors held six Board meetings during 1995. All directors
attended at least 75% of the aggregate meetings of the Board and Committees
of which they were members during 1995. The Board has four standing
committees: the Audit Committee, the Finance Committee, the Compensation and
Nominating Committee, and the Business Development Committee.
The duties and members of the standing committees are:
Audit Committee
(1) Review with the Chairman, President and Chief Executive Officer and the
independent accountants the scope and adequacy of Illinova's system of
internal controls; (2) review the scope and results of the annual examination
performed by the independent accountants; (3) review the activities of
Illinova's internal auditors; (4) report its findings to the Board and
provide a line of communication between the Board and both the internal
auditors and the independent accountants; and (5) recommend to the Board
the appointment of the independent accountants and approval of the services
performed by the independent accountants, considering their independence with
regard thereto.
The Audit Committee met three times during 1995.
This Committee consists of the following non-employee directors ("Outside
Directors"): Vernon K. Zimmerman, Chairman, Richard R. Berry, Donald E. Lasater,
Robert M. Powers, Walter M. Vannoy, and Marilou von Ferstel.
Finance Committee
(1) Review management's capital and operations and maintenance expenditure
budgets, financial forecasts and financing program, and make recommendations
to the Board regarding the approval of such budgets and plans; (2) review
Illinova's banking relationships, short-term borrowing arrangements, dividend
policies, arrangements with the transfer agent and registrar, investment
objectives and the performance of Illinova's pension funds, evaluate fund
managers, and make recommendations to the Board concerning such matters; and
(3) act in an advisory capacity to management, the Board of Directors, and the
Chairman, President and Chief Executive Officer on other financial matters
as they may arise.
The Finance Committee met three times during 1995.
This Committee consists of the following members of the Board: Donald E.
Lasater, Chairman, Richard R. Berry, Larry D. Haab, Walter D. Scott,
Charles W. Wells (until his retirement on December 31, 1995), and Vernon K.
Zimmerman.
Compensation and
Nominating Committee
(1) Review performance and recommend salaries plus other forms of compensation
of elected Illinova officers and the Board of Directors; (2) review Illinova's
benefit plans for elected Illinova officers and make recommendations to the
Board regarding any changes deemed necessary; (3) review with the Chairman,
President and Chief Executive Officer any organizational or other personnel
matters; and (4) recommend to the Board nominees to stand for election as
director to fill vacancies in the Board of Directors as they occur.
The Compensation and Nominating Committee will consider shareholders'
recommendations for nominees for director made pursuant to timely notice in
writing addressed to the Chairman of the Committee at the executive offices
of Illinova, together with a full description of the qualifications and
business and professional experience of the proposed nominees and a statement
of the nominees' willingness to serve. To be timely, the notice shall be
delivered to or mailed and received at the executive offices of Illinova not
less than 90 nor more than 120 days prior to the Annual Meeting.
The Compensation and Nominating Committee met four times during 1995.
This Committee consists of the following Outside Directors: Donald S. Perkins,
Chairman, Robert M. Powers, Walter D. Scott, Ronald L. Thompson, Marilou von
Ferstel, and John D. Zeglis.
Business development Committee
(1) Review corporate objectives of Illinova, consider appropriate structure
changes to meet corporate objectives and make recommendations to the Board
concerning such matters; (2) review Illinova's program for long-term corporate
activities and make recommendations to the Board regarding the approval of
such programs; and (3) act in an advisory capacity to management and the
Board of Directors on corporate development.
The Business Development Committee met once during 1995.
This Committee consists of the following members of the Board: Robert M.
Powers, Chairman, Larry D. Haab, Donald S. Perkins, Walter D. Scott, Ronald L.
Thompson, Marilou von Ferstel, and John D. Zeglis.
Board Compensation
The Outside Directors of Illinova receive a retainer fee of $18,000 per year.
Outside Directors who also chair Board Committees receive an additional
$2,000 per year retainer. Outside Directors receive a grant of 650 shares of
Common Stock on the date of each Annual Shareholders Meeting, representing
payment in lieu of attendance-based fees for all Board and Committee meetings
to be held during the subsequent one-year period. Outside Directors elected
to the Board between Annual Shareholders Meetings are paid $850 for each
Board and Committee meeting attended prior to the first Annual Shareholders
Meeting after their election to the Board.
Illinova has a Retirement Plan for Outside Directors. Under this plan, each
Outside Director who has attained age 65 and has served on the Board for a
period of 60 or more consecutive months is eligible for annual retirement
benefits at the rate of the annual retainer fee in effect when the director
retires. These benefits, at the discretion of the Board, may be extended to
Outside Directors who have attained the age of 65 but not served on the Board
for the specified period. The benefits are payable for a number of months
equal to the number of months of Board service, subject to a maximum of
120 months, and cease upon the death of the retired Outside Director. On
February 7, 1996, the Board of Directors approved a compensation plan that
eliminates the Retirement Plan. Each former Outside Director whose right
to receive the retirement benefit has vested will continue to receive such
benefits in accordance with the terms of the Retirement Plan. All current
Outside Directors will receive a lump sum payment based on the net present
value of these benefits to them, were they to have retired under the
Retirement Plan, based on the number of years they have served on the Board
but not to exceed 10. Thereafter, each Outside Director will receive an
annual award of stock units having a value of $6,000, to be paid to the
Outside Director in cash on retirement, at once or in installments as the
Director may elect, together with dividend equivalents attributable to such
stock units.
Pursuant to Illinova's Deferred Compensation Plan for Certain Directors, the
Outside Directors may elect to defer all or any portion of their fees and
stock grants until termination of their services as directors. Such deferred
amounts are converted into stock units representing shares of Illinova's
Common Stock with the value of each stock unit based upon the last reported
sales price of such stock at the end of each calendar quarter. Additional
credits are made to the participating director's account in dollar amounts
equal to the dividends paid on Common Stock which the director would have
received if the director had been the record owner of the shares represented
by stock units, and are converted into additional stock units. On
termination of participating directors' services as directors, payment of
their deferred fees and stock grants is made in shares of Common Stock in
an amount equal to the aggregate number of stock units credited to their
accounts. Such payment is made in such number of annual installments as
Illinova may determine beginning in the year following the year of
termination.
Election of Directors
Illinova's entire Board of Directors is elected at each Annual Meeting of
Shareholders. Directors hold office until the next Annual Meeting of
Shareholders and until their successors are elected and qualified. At the
Annual Meeting a vote will be taken on a proposal to elect the 11 directors
nominated by Illinova's Board of Directors. The names and certain additional
information concerning each of the director nominees is set forth below. The
dates shown for service as a director include service as a director of
Illinois Power prior to the May 1994 merger in which Illinois Power became a
wholly owned subsidiary of Illinova. If any nominee should be unable to serve
as a director, another nominee will be selected by the current Board of
Directors.
Name of Director Nominee, Age, Year in Which First
Business Experience and Elected a Director
Other Information of Illinova
Richard R. Berry, 64 1988
- - ---------------------------
Prior to retirement in February 1990, Mr. Berry was Executive Vice President
and director of Olin Corporation, Stamford, Connecticut, a diversified
manufacturer concentrated in chemicals, metals and aerospace/defense products,
since June 1983.
Larry D. Haab, 58 1986
- - -------------------------
Chairman, President and Chief Executive Officer of Illinova since December
1993, and of Illinois Power since June 1991, and an employee of Illinois
Power since 1965. He is a director of First Decatur Bancshares, Inc., The
First National Bank of Decatur and Firstech, Incorporated.
C. Steven McMillan, 50
- - -------------------------
Executive Vice President and Director of Sara Lee Corporation, Chicago,
Illinois, a global packaged food and consumer products company, since 1993.
He had previously been Senior Vice President-Strategy Development from 1986
to 1993. He is Chairman of the Board of Electrolux Corporation and a director
of J. P. Food Service.
Donald S. Perkins, 68 1988
- - -----------------------------
Prior to retirement in June 1983, as Chairman of the Executive Committee,
Mr. Perkins was Chairman of the Board and Chief Executive Officer of Jewel
Companies, Inc., Chicago, Illinois, a diversified retailer, from 1970 to 1980.
He is a director of AT&T, Aon Corporation, Cummins Engine Company, Inc.,
Current Assets, Inland Steel Industries, Inc., LaSalle Street Fund, Inc.,
The Putnam Funds, Spring Industries, Inc., and Time Warner, Inc.
Robert M. Powers, 64 1984
- - -----------------------------
Prior to retirement in December 1988, Mr. Powers was President and Chief
Executive Officer of A. E. Staley Manufacturing Company, Decatur, Illinois,
a processor of grain and oil seeds, since 1980. He is a director of A. E.
Staley Manufacturing Company.
Walter D. Scott, 64 1990
- - ----------------------------
Professor of Management and Senior Austin Fellow, J. L. Kellogg Graduate
School of Management, Northwestern University, Evanston, Illinois, since 1988.
Previously, Mr. Scott served as Chairman of GrandMet USA, from 1984 to 1986,
and as President and Chief Executive Officer of IDS Financial Services, from
1980 to 1984. Mr. Scott is a director of Chicago Title and Trust Company,
Chicago Title Insurance Company, Intermatic Incorporated, and Orval Kent Food
Company, Inc.
Ronald L. Thompson, 46 1991
- - -----------------------------
Chairman and Chief Executive Officer of Midwest Stamping and Manufacturing Co.,
Bowling Green, Ohio, a manufacturer of automotive parts, since 1993. He was
President and Chief Executive Officer and a director of The GR Group, Inc.,
St. Louis, Missouri, a diversified holding company with interests in
manufacturing and service activities, from 1980 to 1993. He is Chairman of the
Board of The GR Group, a director of McDonnell Douglas Corporation, and a
director of Teachers Insurance and Annuity Association.
Walter M. Vannoy, 68 1990
- - -----------------------------
Prior to retirement in May 1995, Mr. Vannoy was Chairman and Chief Executive
Officer of Figgie International, Inc., Willoughby, Ohio, a diversified
operating company serving consumer, industrial, technical, and service markets
world-wide, since 1994. He is a director of Figgie International, Inc.
Marilou von Ferstel, 58 1990
- - ------------------------------
Executive Vice President and General Manager of Ogilvy Adams & Rinehart, Inc.,
a public relations firm in Chicago, Illinois, since June 1990. She had
previously been Managing Director and Senior Vice President of Hill and
Knowlton, Chicago, Illinois, a public relations consulting firm, from 1981 to
1990. Ms. von Ferstel is a director of Walgreen Company.
John D. Zeglis, 48 1993
- - ------------------------------
Senior Executive Vice President-General Counsel, Government Affairs, and
Policy Development of AT&T, Basking Ridge, New Jersey, a diversified
communications company, since 1995. He had been Senior Vice President-General
Counsel and Government Affairs from 1989 to 1995. He is a director of the
Helmerich & Payne Corporation.
Vernon K. Zimmerman, 67 1973
- - --------------------------------
Director of the Center for International Education Research and Accounting,
and Distinguished Service Professor of Accountancy, University of Illinois,
Urbana, Illinois, since August 1985. He is a director of ICH Corporation.
Security Ownership of Management and Certain Beneficial Owners
The following table shows shares of stock beneficially owned as of January 31,
1996, by each director nominee and the executive officers named in the
Summary Compensation Table. To the best of Illinova's knowledge, no owner
holds more than 5 percent of Illinova Common Stock.
Number
of Shares
Name of Class Beneficially Percent
Beneficial Owner of Stock Owned (1) of Class
- - ------------------------------------------------------------
Richard R. Berry Common 3,580 (2)
Larry D. Haab Common 10,185 (2)
C. Steven McMillan Common 0 (2)
Donald S. Perkins Common 8,112 (2)
Robert M. Powers Common 7,250 (2)
Walter D. Scott Common 3,850 (2)
Ronald L. Thompson Common 3,127 (2)
Walter M. Vannoy Common 3,350 (2)
Marilou von Ferstel Common 4,112 (2)
John D. Zeglis Common 2,390 (2)
Vernon K. Zimmerman Common 8,401 (2)
Charles W. Wells Common 8,585 (2)
Paul L. Lang Common 2,734 (2)
Larry F. Altenbaumer Common 4,179 (2)
Larry S. Brodsky Common 1,713 (2)
(1) The nature of beneficial ownership for shares shown is sole voting and/or
investment power, except for Mr. Wells, who disclaims beneficial ownership of
1,000 shares held in the name of his wife.
(2) No director or executive officer owns any other equity securities of
Illinova. No director or executive officer owns as much as 1% of the Common
Stock. All directors and executive officers of both Illinova and Illinois
Power Company as a group own 80,299 shares of Common Stock (less than 1%).
Executive Compensation
The following table sets forth a summary of the compensation of the Chief
Executive Officer and the four other most highly compensated executive officers
of Illinova and Illinois Power Company, its principal subsidiary, for the years
indicated. The compensation shown includes all compensation paid for service
to Illinova and its subsidiaries, including Illinois Power.
<TABLE>
Summary Compensation Table
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Compensation
_________________________________________________
Annual Compensation Awards Payouts
------------------------------- ------------------------ ---------
Other Restricted Securities LTIP All Other
Bonus Annual Stock Awards Underlying Payouts Compensation
Name and Principal Position (1) Year Salary (2) Compensation (3) Options (4) (5)
Larry D. Haab 1995 $472,250 $76,975 $19,088 $76,975 20,000 shs. $43,597 $2,550
Chairman, President and 1994 451,375 42,881 15,783 20,900 shs. 360
Chief Executive Officer of 1993 437,500 22,531 13,199 20,000 shs. 480
Illinova and Illinois Power
Charles W. Wells 1995 $318,863 $ 33,734 $ 22,342 $ 33,734 -- $ 24,392 $2,470
Executive Vice President 1994 276,625 25,242 12,404 8,500 shs. 330
of Illinois Power 1993 265,875 12,629 9,697 6,500 shs. 357
Paul L. Lang 1995 $ 222,812 $ 20,499 $ 8,265 $ 20,499 6,500 shs. $ 20,360 $ 2,510
Senior Vice President 1994 213,562 20,289 8,672 6,800 shs. 440
of Illinois Power 1993 205,625 9,767 7,508 6,000 shs. 440
Larry F. Altenbaumer 1995 $ 204,937 $ 17,317 $ 7,686 $ 17,317 6,500 shs. $ 16,084 $ 2,378
Chief Financial Officer, 1994 196,562 18,674 8,975 6,800 shs. 400
Treasurer and Controller 1993 187,750 8,918 7,093 6,000 shs. 480
of Illinova, and Senior
Vice President, Chief
Financial Officer, and
Treasurer of Illinois Power
Larry S. Brodsky 1995 $ 196,000 $ -- $ 5,120 $ - 6,500 shs. $ 14,179 $ 2,190
Senior Vice President 1994 $ 174,186 $ 16,548 $ 4,973 4,400 shs. 400
of Illinois Power 1993 157,875 8,131 4,220 4,500 shs. 400
</TABLE>
(1) Mr. Wells retired from Illinois Power on December 31, 1995. Mr. Brodsky
resigned from Illinois Power on January 2, 1996.
(2) The amounts shown in this column are the cash award portion of grants
made to these individuals under the Executive Incentive Compensation Plan
("Compensation Plan") for 1995, including amounts deferred under the Executive
Deferred Compensation Plan. See the Compensation Plan description in footnote
(3) below.
(3) This table sets forth stock unit awards for 1995 under the Compensation
Plan. One-half of each year's award under this plan is converted into stock
units representing shares of Illinova Common Stock based on the closing price
of Common Stock on the last trading day of the award year. The other one-half
of the award is paid to the recipient in cash and is included under Bonus in
the Summary Compensation Table. Stock units awarded in a given year, together
with cash representing the accumulated dividend equivalents on those stock
units, become fully vested after a three-year holding period. Stock units are
converted into cash and piad based on the closing price of Common Stock on
the first trading day of the distriubtion year. Particpants (or beneficiears of
deceased participants) whose employment is terminated by retirement on or
after age 55, disability, or death receive the present value of all unpaid
awards on the date of such termination. Particpants whose employment is
terminated for reasons other than retirement, disability, or death forfeit
all unvested awards. In the event of a termination of employment within two
years after a change in control of Illinova, without good cause or by any
participant with good reason, all awards of the paricipant becme fully vested
and payable. As of December 31, 1995, named executive officers were credited
with the following total aggregate number of unvested stock units under
the Compensation Plan since its inception, valued on the basis of the closing
price of Common Stock on December 31, 1995: Mr. Haab, 8,253 units valued at
$247,603; Mr. Wells, 3,758 units valued at $112,759; Mr. Lang, 2,807 units
valued at $84,211; Mr. Altenbaumer, 2,439 units valued at $73,187; Mr. Brodsky,
474 units valued at $14,238. Although stock units have been rounded, valuation
is based on total stock units, including partial shares.
(4) The amounts shown in this column reflect the cash value of the stock units
granted in 1993 for the year 1992, including amounts deferred, under the
Compensation Plan. See the Compensation Plan description in footnote (3) above.
(5) The amounts shown in this column are Illinois Power's contributions
under the Incentive Savings Plan (including the market value of shares of
Illinova Common Stock at the time of allocation).
The following tables summarize grants during 1995 of stock options under
Illinova's 1992 Long-Term Incentive Compensation Plan ("LTIC") and awards
outstanding at year end for the individuals named in the Summary Compensation
Table. No options were exercisable or exercised during 1995.
Option Grants In 1995
Individual Grants
<TABLE>
Number of Securities % of Total Options
Underlying Options Granted to Employees Exercise or Base Grant Date
Granted(1) in 1995 Price Per Share(1) Expiration Date Present Value (2)
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
Larry D. Haab 20,000 29% $ 24.875 6/14/2004 $ 117,800
Charles W. Wells 0
Paul L. Lang 6,500 9% 24.875 6/14/2004 38,285
Larry F. Altenbaumer 6,500 9% 24.875 6/14/2004 38,285
Larry S. Brodsky 6,500 9% 24.875 6/14/2004 38,285
</TABLE>
(1) Each option becomes exercisable on June 30, 1998. In addition to the
specified expiration date, the grant expires on the first anniversary of the
recipient's death and/or the 90th day following retirement, and is not
exercisable in the event a recipient's employment terminates. In the event of
certain change-in-control circumstances, the Compensation and Nominating
Committee may declare the option immediately exercisable. The exercise price
of each option is equal to the fair market value of the Common Stock on the
date of the grant. Recipients shall also receive, on or shortly after June
30, 1998, a payment equal to a percentage of the total dividends declared
and paid on Illinova Common Stock during the period between the date of
this grant and June 30, 1998 calculated by multiplying the number of shares
of Common Stock granted hereunder times the total amount of dividends
paid per share of Common Stock during the holding period, times a percentage
based on Illinova total shareholder return ranking relative to the S & P
Electric Utility Group. At the discretion of the Board of Directors, the
foregoing payment may be made in the form of Illinova Common Stock of
equivalent value based on the average New York Stock Exchange price of
the stock during June 1998, or in cash.
(2) The Grant Date Present Value has been calculated using the Black-Scholes
option pricing model. Disclosure of the Grant Date Present Value,
or the potential realizable value of option grants assuming 5% and 10%
annualized growth rates, is mandated by regulation; however, Illinova does
not necessarily view the Black-Scholes pricing methodology, or any other
present methodology, as a valid or accurate means of valuing stock option
grants. The calculation was based on the following assumptions: (i) An
annual dividend yield on Illinova Common Stock of 3.80%; (ii) A risk-free
interest rate of 6.40%, based on the yield of a zero-coupon government bond
maturing at the end of the option term; and (iii) Stock volatility of 19.73%.
Aggregated Option and Fiscal Year-End Option Value Table
<TABLE>
<S> <C> <C>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year-End Options at Fiscal Year-End
Name Exercisable/Unexercisable Exercisable/Unexercisable
Larry D. Haab 0 shs./76,900 shs. 0/$514,212
Charles W. Wells 0 shs./21,000 shs. 0/$154,687
Paul L. Lang 0 shs./24,300 shs. 0/$162,987
Larry F. Altenbaumer 0 shs./24,300 shs. 0/$162,987
Larry S. Brodsky 0 shs./18,400 shs. 0/$119,212
</TABLE>
Pension Benefits
Illinois Power maintains a Retirement Income Plan for Salaried Employees (the
"Retirement Plan") providing pension benefits for all eligible salaried
employees. In addition to the Retirement Plan, Illinois Power also maintains a
nonqualified Supplemental Retirement Income Plan for Salaried Employees
(the "Supplemental Plan") that covers all elected officers eligible to
participate in the Retirement Plan and provides for payments from general
funds of Illinois Power of any monthly retirement income not payable under
the Retirement Plan because of the benefit limits imposed by law or
because of certain Retirement Plan rules limiting the amount of credited service
accrued by a participant.
The following table shows the estimated annual pension benefits on a straight
life annuity basis payable upon retirement based on specified annual average
earnings and years of credited service classifications, assuming continuation
of the Retirement Plan and Supplemental Plan and employment until age 65.
This table does not show, but any actual pension benefit payments would be
subject to, the Social Security offset.
Estimated Annual Benefits (rounded)
-------------------------------------
Annual
Average 15 Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs.
Earnings Service Service Service Service Service
$125,000 $37,500 $50,000 $62,500 $75,000 $87,500
150,000 45,000 60,000 75,000 90,000 105,000
175,000 52,500 70,000 87,500 105,000 122,500
200,000 60,000 80,000 100,000 120,000 140,000
250,000 75,000 100,000 125,000 150,000 175,000
300,000 90,000 120,000 150,000 180,000 210,000
350,000 105,000 140,000 175,000 210,000 245,000
400,000 120,000 160,000 200,000 240,000 280,000
450,000 135,000 180,000 225,000 270,000 315,000
500,000 150,000 200,000 250,000 300,000 350,000
550,000 165,000 220,000 275,000 330,000 385,000
600,000 180,000 240,000 300,000 360,000 420,000
650,000 195,000 260,000 325,000 390,000 455,000
The earnings used in determining pension benefits under the Retirement Plan
are the participants' regular base compensation, as set forth under Salary in
the Summary Compensation Table.
At December 31, 1995, for purposes of both the Retirement Plan and the
Supplemental Plan, Messrs. Haab, Wells, Lang, Altenbaumer, and Brodsky had
completed 30, 32, 9, 23, and 21 years of credited service, respectively.
Employee Retention Agreements
Illinova has entered into Employee Retention Agreements with each of its
executive officers and officers of its subsidiaries. Under each agreement,
the officer would be entitled to receive a lump sum cash payment if his or
her employment were terminated by Illinova without good cause or voluntarily
by the officer for good reason within two years following a change in control
of Illinova Corporation (as defined in the Agreement). The amount of the lump
sum payment would be equal to (1) 36 months' salary at the greater of the
officer's salary rate in effect on the date the change in control occurred or
the salary rate in effect on the date of the officer's employment with
Illinova terminated; plus (2) three times the latest bonus earned by the
officer during the three calendar years preceding termination of employment.
Under the agreement, the officer would continue, after any such termination
of employment, to participate in and receive benefits under other benefit
plans of Illinova. Such coverage would contnue for 36 months following
termination of employment, or, if earlier, until the officer reached age
65 or was employed by another employer; provided that, if the officer
was 50 years of age or older at the time of such termination, then coverage
under health, life insurance and similar welfare plans would continue
until the officer became 55 years of age, at which time he or she would
be eligible to receive the benefits extended to the employees of Illinova
who elect early retirement.
Compensation and Nominating Committee Report on Officer Compensation
The six-member Compensation and Nominating Committee of the Board of
Directors (the "Committee") is composed entirely of Outside Directors. The
Committee's role includes a review of the performance of the elected officers
and the establishment of specific officer salaries subject to Board approval.
The Committee establishes performance goals for the officers under the
Compensation Plan, approves payments made pursuant to the Compensation Plan
and recommends grants under the Long-Term Incentive Compensation Plan
approved by the shareholders in 1992. The Committee also reviews other
forms of compensation and benefits making recommendations to the Board on
changes whenever appropriate. The Committee carries out these
responsibilities with assistance from an executive compensation consulting
firm and with input from the Chief Executive Officer and management as
it deems appropriate.
Officer Compensation Philosophy
Illinova's compensation philosophy reflects a commitment to compensate
officers competitively with other companies in the electric and gas utility
industry while rewarding executives for achieving levels of operational
excellence and financial returns consistent with continuous improvement in
customer satisfaction and shareholder value. Illinova's compensation policy
is to provide a total compensation opportunity targeted to all utilities in
the Edison Electric Institute (EEI) database. Eighty-four percent of the
companies in the S&P Utilities Index are also in the EEI database. The
S&P Utilities Index is used to relate Illinova's shareholder value in the
following performance graphs. The S&P index covers the utility industry
broadly including electric, gas, and telecommunications utilities. After
careful consideration, the Committee has decided to maintain a separate
peer group limited to electric or combination electric and gas companies
for compensation purposes.
The compensation program for officers consists of base salary, annual
incentive and long-term incentive components. The combination of these three
elements balances short- and long-term business performance goals and aligns
officer financial rewards with those of Illinova's shareholders. The
compensation program is structured so that, depending on the salary level,
between 25 and 45 percent of an officer's total compensation target is
composed of incentive compensation.
Base Salary Plan
The Committee determines base salary ranges for executive officers based on
competitive pay practices of a peer group of utilities. Officer salaries
correspond to approximately the average of the companies in the compensation
peer group. Individual increases are based on several factors including the
officer's performance during the year and the relationship of the officer's
salary to the market salary level for the position.
Annual Incentive Compensation Plan
Annual incentive awards are earned based on the achievement of specific
annual financial and operational goals by the elected officer group as a
whole and consideration of the officer's individual contribution. If payment
is earned under this Plan, one-half of the bonus is payable in cash during
the year following the award year and one-half is credited to the participant
in the form of Common Stock units, the number of which is determined by
dividing half of the earned bonus amount by the closing price of the Common
Stock on the last trading day of the award year. The officer's interest
in the stock units vests at the end of the three-year period which begins
the year after the award year. The officer receives this award in cash
equal to (1) the closing stock price on the first trading day of the
distribution year times the number of units held plus (2) dividend
equivalents that would have been received if the stock had actually been
issued.
For 1995, awards under the Compensation Plan are based on achievement in the
performance areas: earnings per share, customer satisfaction, employee
teamwork, cost management and operating effectiveness. Up to 25 percent of the
awarded amount is based on an assessment of the individual officer's
performance during the year.
Awards shown under Bonus in the Summary Compensation Table for performance
during 1995 were based on the following results. Earnings per Share, Customer
Satisfaction and Cost Management were at or better than the threshold level
for the award. Employee Teamwork results were not known at the time of printing.
Long-Term Incentive Compensation Plan
Awards under the LTIC Plan are made to individual officers based on their
contribution to corporate performance based on the review of this Committee.
The Committee may grant awards in the form of stock options, stock
appreciation rights, dividend equivalents or restricted stock grants. The
stock options and dividend equivalents granted to the officers for 1995
represent a long-term incentive award based on Illinova and individual
performance as evaluated by the Chairman and reviewed by the Committee. The
actual number of dividend equivalents earned is determined by Illinova's
total shareholder return compared to the companies in the S&P Utility
Index.
CEO Compensation
Larry Haab became Chairman, President, and Chief Executive Officer ("CEO") of
Illinois Power on June 12, 1991, and Chairman, President and Chief Executive
Officer of Illinova in December 1993. Illinova based Mr. Haab's 1995
compensation on the policies and plans described above.
The Committee invokes the active participation of all non-management
directors in reviewing Mr. Haab's performance before it makes recommendations
regarding his compensation. The Committee is responsible for administering
the processes for completing this review. The process starts early in the
year when the Board of Directors works with Mr. Haab to establish his
personal goals and short- and long-term strategic goals for Illinova. At the
conclusion of the year Mr. Haab reviews his performance with the non-management
directors. The Committee oversees this review and recomends to the board
appropriate adjustments to compensation. In setting the CEO's salary for
1995, the Committee, with the participation of all Outside Directors,
determined that important goals were achieved and the results for Illinova
for the year were excellent. Mr. Haab's vision of the industry's evolution
has led, and is continuing to lead, to appropriate redeployment of Illinova
resources. The Committee concluded that in 1995 Mr. Haab's performance
continued to advance Illinova toward the accomplishment of its strategic
objectives.
The 1995 Annual Incentive Compensation Plan award for the Chief Executive
Officer was calculated consistent with the determination of awards for all
other officers. Under the terms of the plan, one-half of the award was paid
in cash and one-half was converted to 2,566 stock units which vest over a
three-year period as described above.
The 20,000 option shares and dividend equivalents granted to the CEO reflect
the Committee's recognition of his work in directing Illinova towards its
long-term objectives of outstanding customer satisfaction and sustained
growth in shareholder return.
Compensation and Nominating Committee
Donald S. Perkins, Chairman
Robert M. Powers
Walter D. Scott
Ronald L. Thompson
Marilou von Ferstel
John D. Zeglis
Stock Performance Graphs
The following performance graphs compare the cumulative total shareholder
return on Illinova's Common Stock to the cumulative total return on the S&P
500 Index, S&P MidCap 400 Index and S&P Utilities Index from (i) December 31,
1990, through December 31, 1995, and (ii) December 31, 1992, through December
31, 1995.
Comparison of Five-Year
Cumulative Total Return
Among Illinova, S&P 500 Index, S&P Midcap 400 Index, and S&P Utilities Index.
1991 1992 1993 1994 1995
Illinova 146 142 147 151 216
S & P 500 130 140 155 157 215
S & P MidCap 400 150 168 191 185 242
S & P Utilities 114 124 141 130 184
Assumes $100 invested on December 31, 1990, in Illinova's Common Stock, S&P 500
Index, S&P MidCap 400 Index, and S&P Utilities Index.
* Fiscal year ended December 31
Comparison of Three-Year
Cumulative Total Return
Among Illinova, S&P 500 Index, S&P Midcap 400 Index, and S&P Utilities Index.
1993 1994 1995
Illinova 103 106 152
S&P 500 110 112 153
S&P MidCap 400 114 110 144
S&P Utilities 114 105 149
Assumes $100 invested on December 31, 1992, in Illinova's Common Stock, S&P 500
Index, S&P MidCap 400 Index, and S&P Utilities Index.
*Fiscal year ended December 31
Independent Auditors
The Board of Directors of Illinova has selected Price Waterhouse LLP as
independent auditors for Illinova for 1996. A representative of that firm
will be present at the Annual Meeting and available to make a statement and
to respond to appropriate questions.
Other Matters
Illinova's 1995 Summary Annual Report to Shareholders was mailed to
shareholders commencing on March 1, 1996. Copies of Illinova's Annual Report
on Form 10-K will be available to shareholders, after its filing with the
Securities and Exchange Commission on or before March 31, 1996. Requests
should be addressed to Investor Relations, G-21, Illinova Corporation,
500 South 27th Street, Decatur, Illinois 62525-1805.
Any proposal by a shareholder to be presented at the next Annual Meeting
must be received at Illinova's executive offices not later than November 1,
1996.
Other Business
Management does not know of any matter which will be presented for
consideration at the Annual Meeting other than the matters described in the
accompanying Notice of Annual Meeting.
By Order of the Board of Directors,
Leah Manning Stetzner,
General Counsel and Corporate Secretary
Decatur, Illinois
March 1, 1996
appendix: 1995 annual report to shareholders
Table of Contents
- - -----------------
Management's Discussion and Analysis A-2
Responsibility for Information A-10
Report of Independent Accountants A-10
Consolidated Statements of Income A-11
Consolidated Balance Sheets A-12
Consolidated Statements of Cash Flows A-13
Consolidated Statements of Retained Earnings (Deficit) A-13
Notes to Consolidated Financial Statements A-14
Selected Consolidated Financial Data A-32
Selected Illinois Power Company Statistics A-33
management's discussion and analysis
In this report, we make reference to the Consolidated Financial Statements,
related Notes to Consolidated Financial Statements, Selected Consolidated
Financial Data and Selected Illinois Power Company Statistics for information
concerning consolidated financial position and results of operations. A
discussion of the factors having significant impact upon consolidated
financial position and consolidated results of operations since January 1,
1993, is below.
Illinova Subsidiaries
The Consolidated Financial Statements include the accounts of: Illinova
Corporation (Illinova), a holding company; Illinois Power Company (IP), a
combination electric and gas utility; Illinova Generating Company (IGC),
which invests in energy-related projects throughout the world; and Illinova
Power Marketing, Inc. (IPMI), which is in the business of marketing energy,
energy-related services and natural gas.
On May 16, 1995, IPMI gained Federal Energy Regulatory Commission (FERC)
approval to buy electricity from various producers not affiliated with IP and
to sell electricity at market rates to such wholesale customers as utilities,
electric cooperatives and municipalities. In January 1995, IPMI established
operating headquarters in Salt Lake City, Utah.
See" Note 2-Illinova Subsidiaries" of the "Notes to Consolidated Financial
Statements" for additional information. IP's consolidated financial position
and results of operations are currently the principal factors affecting
Illinova's consolidated financial position and results of operations.
Open Access and Wheeling
On March 29, 1995, the FERC issued a Notice of Proposed Rulemaking (NOPR)
designed to encourage a more fully competitive wholesale electric market
through mandated open access to public utility transmission facilities, at
rates to be determined, at the outset, by the FERC. Transmission of
electricity for a customer who is not an end-user, or for delivery to an
end-user who is not a customer of the transmitting utility is called,
respectively, wholesale wheeling and retail wheeling. Under the FERC's
proposal, all transmission-owning public utilities were required to file
nondiscriminatory open-access transmission tariffs, available to all
wholesale sellers and buyers of electric energy.
On March 20, 1995, IP filed three transmission service tariffs that offer
eligible transmission customers the same or comparable transmission service
on terms comparable to service IP provides itself. On May 16, 1995, the FERC
accepted IP's open-access tariff filings. It's too soon to predict the long-
term financial inpact of increasing access and other issues arising from such
access.
Competition
In March 1995, IP was instrumental in developing a legislative proposal,
Energy Choice 2000, which is designed to reform Illinois' regulatory laws
governing utilities. Energy Choice 2000 establishes the framework for a
managed transition for utilities to operate in an increasingly competitive
environment. The proposal outlines a time frame for all classes of customers
to benefit from competition, beginning in the year 2000. In May 1995, the
Illinois General Assembly passed Senate Joint Resolution 21, which established
the Joint Committee on Electric Utility Regulatory Reform and directed it to
use Energy Choice 2000 "as a key element for developing legislative proposals
for reducing regulation, increasing customer choice and promoting and
facilitating competition in Illinois' electirc utility industry." The Joint
Committee on Electric Utility Regulation Reform is directed to proivde a
final legisltaion proposal during the fourth quarter of 1996.
On September 11, 1995, IP filed a proposal with the Illinois Commerce
Commission (ICC) seeking its approval to conduct an open-energy access
experiment beginning in 1996. The experiment would allow approximately 20
industrial customers to purchase electricity and related services from other
sources. IP would transmit (wheel) the electricity over its lines. IP will
seek FERC approval of the experiment after receipt of ICC approval,
anticipated in the second quarter of 1996.
The maximum total load involved in this experiment represents approximately 1
percent of IP's total load, or about $7.5 million in net annual revenue. IP
expects the earnings impact to be immaterial. Any loss of sales would be
partially offset by revenues obtained by selling the surplus energy and
capacity on the open market and by transmission and ancillary service charges
necessary for customers to obtain energy from an alternative supplier, as well
as by corresponding reductions in fuel and other variable operating costs.
The open-access experiment will allow IP to evaluate the financial,
operational and service impacts of transporting power from other suppliers
to customers. Additionally, regulators and legislators will benefit from the
experiment by observing open-energy access in a "laboratory setting" while
they look for ways to bring the benefits of competition to all customers.
Finally, it will give customers opportunity to gain experience in arranging
their power supplies and transmission requirements and managing their
operations under an open-energy access scenario.
The issue of competition is one that raises both risks and opportunities. At
this time, the ultimate effect of competition on Illinova's consolidated
financial position and results of operations is uncertain. See "Note 1-Summary
of Significant Accounting Policies" of the "Notes to Consolidated Financial
Statements" for additional discussion of the effects of regulation.
Enhanced Retirement
In December 1994, IP announced plans for voluntary enhanced retirement and
severance programs. During the fourth quarter of 1995, 727 employees accepted
enhanced retirement or severance under these programs. At January 1, 1996,
Illinova employed 3,596 people, as compared to 4,350 at December 31, 1994.
The combined enhanced retirement and severance programs generated a pre-tax
charge of $38 million against fourth quarter 1995 earnings and will generate
savings of approximately $36 million annually, starting in 1996.
Consolidated Results
of Operations
Overview
Earnings (loss) applicable to common stock were $148 million for 1995, $158
million for 1994 and $(82) million for 1993. Earnings (loss) per common share
were $1.96 for 1995 ($2.26 before the one-time charge of $38 million for
enhanced retirement and severance), $2.09 for 1994 and $(1.08) for 1993. The
1995 earnings per share include $(.30) net-of-tax for the enhanced retirement
and severance program and $(.05) for the carrying amount under consideration
paid for IP preferred stock redeemed in December 1995. The 1995 earnings also
reflect increased electric sales due to unseasonably warm summer weather,
partially offset by increased operating and maintenance expenses due to the
Clinton Power Station (Clinton) refueling and maintenance outage.
The 1994 earnings per share include $.08 for the carrying amount over
consideration paid for IP preferred stock redeemed in December 1994 and an
increase in gas rates as a result of IP's 1994 gas rate order. The 1994
earnings also reflect increased electric sales, lower operating and
maintenance expenses due to ongoing cost management efforts, no Clinton
refueling and maintenance outage and lower financing costs. In 1993, Illinova's
earnings were $118 million, or $1.57 per common share, excluding the September
write-off of disallowed Clinton post-construction costs of $200 million, or
$2.65 per share, net of income taxes. The 1993 earnings before the write-off
reflect increased electric and gas sales due to closer-to-normal
temperatures, increased interchange sales, lower operating and maintenace
expenses and lower interest expense as a result of refinancing efforts.
The ICC and FERC determine IP's rates, at the retail and wholesale levels,
respectively, for electric service, and the ICC determines IP's rates for gas
service. These rates are designed to recover the cost of service and allow
shareholders the opportunity to earn a fair rate of return. Future electric
and natural gas sales, including interchange sales, will continue to be
affected by an increasingly competitive marketplace, changes in the
regulatory environment, increased transmission access, weather conditions,
competing fuel sources, interchange market conditions, plant availability,
fuel cost recoveries, customer conservation efforts and the overall economy.
Operating Revenues
(Millions of Dollars)
1995 $1,641.4
1994 1,589.5
1993 1,581.2
1992 1,479.5
1991 1,474.9
Illinois Power - Results of Operations
Electric Operations - For the years 1993 through 1995, electric revenues
including interchange increased 8.1% and the gross electric margin increased
8.7% as follows:
- - ---------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ---------------------------------------------------------
Electric revenues $ 1,252.6 $ 1,177.5 $ 1,135.6
Interchange revenues 116.3 110.0 130.8
Fuel cost & power purchased (333.4) (319.2) (313.6)
- - ---------------------------------------------------------
Electric margin $ 1,035.5 $ 968.3 $ 952.8
=========================================================
The components of annual changes in electric revenues:
- - ---------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ---------------------------------------------------------
Price $ 13.3 $ (23.2) $ (30.0)
Volume and other 42.7 44.1 72.1
Fuel cost recoveries 19.1 21.0 (24.4)
- - ---------------------------------------------------------
Revenue increase $ 75.1 $ 41.9 $ 17.7
=========================================================
1995 - The 6.4% increase in electric revenues was primarily due to a 1.9%
increase in kilowatt-hour sales to ultimate consumers (excluding interchange
sales and wheeling). Volume increases resulted from higher residential sales
(4.8%) and higher commercial sales (8.2%) due to an improving economy and
warmer summer temperatures compared to 1994. Industrial sales remained
essentially unchanged from 1994. Interchange revenues increased $6.3 million
(5.8%) as a result of increased sales opportunities.
1994 - The 3.7% increase in electric revenues was primarily due to a 6.3%
increase in kilowatt-hour sales to ultimate consumers (excluding interchange
sales and wheeling). Volume increases resulted from higher commercial sales
(8.3%) and higher industrial sales (7.0%) due to an improving economy.
Residential sales remained essentially unchanged from 1993 primarily due to
milder temperatures in 1994 as compared to 1993. Interchange sales decreased
19.6% from 1993 levels primarily due to unusually large sales opportunities
in 1993.
Major Sources of Electric Energy
(Millions of Megawatt-hours)
1995 1994 1993
Fossil 14.5 13.2 13.1
Nuclear 5.3 6.4 5.1
Purchases 3.2 3.1 5.1
1993 - The 1.6% increase in electric revenues was primarily due to a 3.2%
increase in kilowatt-hour sales to ultimate consumers (excluding interchange
sales and wheeling) reflecting closer-to-normal temperatures during the
summer season. Volume increases resulted from higher residential sales (9.9%),
commercial sales (6.3%), and industrial sales (.5%). The increase in electric
revenues was partially offset by the reduction in rates resulting from the
August 1992 ICC Rehearing Order. Interchange revenues increased $57.8 million
(79.2%) primarily as a result of increased sales opportunities.
The cost of meeting IP's system requirements was reflected in fuel costs for
electric plants and power purchased. Changes in these costs are below:
- - ----------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ----------------------------------------------------
Fuel for electric plants
Volume and other $ 9.8 $ 13.8 $ 3.5
Price (35.5) (14.3) 7.4
Emission allowances 18.5 --- ---
Fuel cost recoveries 14.5 32.0 (24.6)
- - ----------------------------------------------------
7.3 31.5 (13.7)
Power purchased 6.9 (25.9) 54.5
- - ----------------------------------------------------
Total increase $ 14.2 $ 5.6 $ 40.8
====================================================
Weighted average system
generating fuel cost ($/MWH)$ 11.41 $ 12.72 $ 13.88
====================================================
System load requirements, generating unit availability, fuel prices,
purchased power prices, resale of energy to other utilities, emission
allowance purchases and fuel cost recovery through the Uniform Fuel Adjustment
Clause (UFAC) caused changes in these costs.
Equivalent Availability - Clinton and Fossil
Clinton Fossil
1995 76% 81%
1994 92% 78%
1993 73% 85%
1992 62% 82%
1991 76% 81%
Changes in factors affecting the cost of fuel for electric generation are below:
- - ------------------------------------------------------
1995 1994 1993
- - ------------------------------------------------------
Increase in generation 1.9% 8.2% 2.5%
Generation mix
Coal and other 73% 67% 72%
Nuclear 27% 33% 28%
======================================================
1995 - The cost of fuel increased 2.8% and electric generation increased 1.9%.
The increase in fuel cost was attributable to the effects of the UFAC, the
increase in higher-cost fossil generation and the cost of emission allowances.
Clinton's equivalent availability and generation were lower in 1995 as compared
to 1994 due to the scheduled refueling and maintenance outage. Clinton
returned to service April 29, 1995, after completing its fifth refueling and
maintenance outage, which began March 13, 1995. Power purchased increased
$6.9 million.
Fuel Cost Per Million BTU
Fuel Cost Percent of Generation
Coal $1.34 70.8%
Nuclear .81 27.7%
Gas 2.08 1.1%\
Oil 4.44 .1%
Tires .88 .3%
1994 - The cost of fuel increased 13.4% and electric generation increased 8.2%.
The increase in fuel cost was attributable to the effects of the UFAC, partially
offset by a decrease in fossil generation and an increase in lower-cost
nuclear generation. Clinton's equivalent availability and generation were
higher in 1994 as compared to 1993 due to no refueling and maintenance outage.
Power purchased for the period decreased $25.9 million. Unusually large
interchange sales opportunities during 1993, which did not recur in 1994, were
the primary cause of the decrease in power purchased.
1993 - The cost of fuel decreased 5.5%, while electric generation increased
2.5%. The decrease in fuel cost was attributable to the effects of the UFAC and
lower generation at IP's largest fossil plant. The decrease was partially
offset by an increase in transportation costs due to flooding in the Midwest
and a United Mine Workers' strike. Power purchased for the period increased
$54.5 million. Coal delivery concerns and coal conservation measures stemming
from the United Mine Workers' strike, combined with favorable interchange
prices and increased sales opportunities, contributed to IP's increase in
purchased power. Clinton returned to service December 10, 1993, after
completing its fourth refueling and maintenance outage, which began September
26, 1993.
Gas Operations - For the years 1993 through 1995, gas revenues including
transportation decreased 13.4% while the gross margin on gas revenues
increased 4.9% as follows:
- - ---------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ---------------------------------------------------
Gas revenues $ 264.5 $ 293.2 $ 306.8
Gas cost (138.8) (172.4) (187.3)
Transportation revenues 8.0 8.8 8.0
- - ----------------------------------------------------
Gas margin $ 133.7 $ 129.6 $ 127.5
====================================================
(Millions of therms)
Therms sold 588 584 597
Therms transported 273 262 229
- - ----------------------------------------------------
Total consumption 861 846 826
====================================================
Changes in the cost of gas purchased for resale:
- - --------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - --------------------------------------------------------
Gas purchased for resale
Cost (excluding take-or-pay) $ (43.1) $ (6.4) $ 13.3
Take-or-pay costs (.4) 2.8 5.3
Volume 25.3 (13.6) (3.4)
Gas cost recoveries (15.4) 2.3 .2
- - --------------------------------------------------------
Total increase (decrease) $(33.6) $ (14.9) $ 15.4
- - --------------------------------------------------------
Average cost per therm delivered$ .201 $ .261 $ .275
========================================================
The 1995 decrease in the cost of gas purchased was due to lower gas prices
caused by unusually warm winter weather nationwide. The 1994 decrease in the
cost of gas purchased was primarily due to lower gas prices, the expanded
use of additional gas storage and a decrease in therms purchased. Also
contributing to the higher gas margins in 1995 and 1994 was the 6.1%
increase in the gas base rates approved by the ICC in April 1994. The 1993
increase in the cost of gas purchased was primarily due to an increase
in the price of purchased gas and take-or-pay costs.
Other Expenses and Taxes - A comparison of significant increases (decreases)
in other expenses and deferred Clinton costs for the last three years is
presented in the following table:
- - ---------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ---------------------------------------------------------
Other operating expenses $(.3) $(9.2) $(2.1)
Maintenance 10.4 (11.2) (1.3)
Depreciation and amortization 7.2 6.4 6.0
==========================================================
The increase in maintenance expense for 1995 is primarily due to the
refueling and maintenance outage at Clinton. The decrease in operating and
maintenance expenses for 1994 is due to ongoing re-engineering efforts,
improved operating efficiencies at IP's fossil plants and at Clinton, and no
refueling and maintenance outage at Clinton. The decrease in operating and
maintenance expenses for 1993 is primarily due to decreased costs at Clinton,
partially offset by increased fossil plant maintenance. The 1995 and 1994
increases in depreciation expense are due primarily to a higher utility
plant balance in 1995 and1994 as compared to 1994 and 1993.
The 1993 increase in depreciation expense was due principally to the effects
of the adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." See "Note 1-Summary of Significant Accounting
Policies" of the "Notes to Consolidated Financial Statements" for additional
information. The 1994 and 1993 increases in depreciation expense are partially
offset by the decrease in deferred Clinton costs as a result of the September
1993 write-off of disallowed Clinton post-construction costs.
Operating and Maintenance Expenses
(Millions of Dollars)
1995 $359.7
1994 349.6
1993 370.0
1992 373.4
1991 340.6
Other Income and Deductions - Total allowance for funds used during
construction (AFUDC), a non-cash item of income, decreased in 1995 compared
to non-cash item of income, decreased in 1995 compared to 1994 due to
decreased eligible capital expenditures. The 1994 increase was due to
higher construction work-in-progress balances eligible for AFUDC, partially
offset by a lower AFUDC rate. The AFUDC effective rate was 6.5%, 7.0%
and 7.5% in 1995, 1994 and 1993, respectively. The 1994 increase was primarily
due to a decrease in allocated income taxes.
Interest Charges - Total interest charges increased $4.1 million in 1995, and
decreased $21.0 million in 1994 and $3.7 million in 1993. The 1995
increase was due to increased short-term borrowings at higher rates. The
1994 and 1993 decreases were primarily due to the refinancing with lower-cost
debt and the retirement of debt from 1992 through 1994. From 1992 to 1994,
IP retired or refinanced approximately $1.5 billion of long-term debt,
excluding revolving loan agreements, with a weighted average interest rate
of 9.27%. During this time, IP issued approximately $1.4 billion of new
debt at a weighted average interest rate of 6.97%.
Inflation - Inflation, as measured by the Consumer Price Index, was 2.5%, 2.5%
and 3.1% in 1995, 1994 and 1993, respectively. IP recovers historical
rather than current plant costs in rates.
LIQUIDITY AND CAPITAL RESOURCES
Regulatory Matters
UFAC Suspension - On June 26, 1995, IP filed a petition with the ICC for
permission to eliminate its UFAC by adjusting base rates to include projected
fuel costs. IP filed its petition under a procedure that allows the ICC
to grant or deny the specific proposal, but not to subject it to
hearings or require that it be modified. IP believes that continuation of
the UFAC creates disincentives to efficient decisions made on a total
cost basis; that the UFAC is inconsistent with a competitive environment;
and that the significance of fuel costs as a component of total costs
has diminished, thereby reducing the need for a UFAC as a risk-reduction
mechanism. On August 8, 1995, the ICC voted three to two to deny IP's
petition. IP is currently reviewing its alternatives in light of the
decision.
1994 Gas Rate Order - On April 6, 1994, the ICC approved an increase of $18.9
million, or 6.1%, in IP's gas base rates. For customers, the increase is
partially offset by savings from lower gas costs resulting from the
expansion of the Hillsboro gas storage field. The approved authorized rate of
return on rate base is 9.29%, with a rate of return on common equity of
11.24%. Concurrent with the gas rate increase, IP's gas utility plant
composite depreciation rate decreased to 3.4%.
Dividends
On December 13, 1995, Illinova increased the quarterly common stock dividend
12%, declaring the common stock dividend for the first quarter of 1996 at
$.28 per share, payable February 1, 1996, to shareholders of record as of
January 10, 1996. On October 12, 1994, Illinova increased the quarterly
common stock dividend 25%, declaring the common stock dividend for the first
quarter of 1995 at $.25 per share.
Capital Resources and Requirements
Illinova and IP need cash for operating expenses, interest and dividend
payments, debt and certain IP preferred stock retirements, and construction
programs. To meet these needs, Illinova and IP have used internally generated
funds and external financings including the issuance of IP preferred stock,
debt and revolving lines of credit. The timing and amount of external
financings depend primarily on economic and financial market conditions, cash
needs and capitalization ratio objectives. To a significant degree, the
availability and cost of external financing depend on the financial health
of the company seeking those funds.
Cash flows from operations during 1995 provided sufficient working capital to
meet ongoing operating requirements, to service existing common and IP
preferred stock dividends and debt requirements, and to meet all of IP's
construction requirements. Additionally, Illinova expects future cash flows
will enable it to meet future 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 all of IP's anticipated construction
requirements. The current ratings of securities by two principal
securities rating agencies are as follows:
- - --------------------------------------------------------
Standard
Moody's & Poor's
- - ---------------------------------------------------------
IP first/new mortgage bonds Baa2 BBB
IP preferred stock baa3 BBB-
IP commercial paper P-2 A-2
=========================================================
These ratings are an indication of Illinova's and IP's financial position
and may affect the cost of securities, as well as the willingness of
investors to invest in these securities. Under current market conditions,
these ratings are unlikely to impair Illinova's or IP's ability to issue,
or significantly increase the cost of issuing additional securities
through external financing. Illinova and IP have adequate short-term and
intermediate-term bank borrowing capacity.
In 1993, Standard & Poor's (S&P) published revised standards for review of
utility business and financial risks, based in part on a subjective
evaluation of such factors as anticipated growth in service territory,
industrial sales as a proportion of total revenues, regulatory environment
and nuclear plant ownership. S&P's preliminary assessment placed IP, along
with approximately one-third of the industry, in the "somewhat below
average" category. On April 13, 1994, S&P lowered IP's mortgage bond rating
to BBB from BBB+. This action came after S&P reviewed IP's specific business
position in light of the revised standards. In August 1995, S&P changed the
assessment to "low average" and revised its ratings outlook to positive from
stable. In February 1996, Moody's also revised its ratings outlook to
positive from stable. IP's revised rating assessments reflect prospects for
continued financial strengthening driven by gradual debt reduction, rigorous
cost controls and moderate sales growth.
In February, 1995, IP redeemed $12 million of 8.00% mandatorily redeemable
serial preferred stock. In May 1995, IP redeemed the remaining $24 million
of 8.00% mandatorily redeemable serial preferred stock. In March 1995, IP
redeemed $.2 million of 7.56% serial preferred stock and $3 million of 8.24%
serial preferred stock. In December 1995, IP redeemed $34.7 million of 8.00%
serial preferred stock, $33.6 million of 7.56% serial preferred stock and
$27 million of 8.24% serial preferred stock.
In February 1994, IP redeemed $12 million of 8.00% mandatorily redeemable
serial preferred stock and issued $35.6 million of First Mortgage Bonds,
5.7% Series due 2024 (Pollution Control Series K). In May 1994, IP retired
$35.6 million of First Mortgage Bonds, 11 5/8% Series due 2014 (Pollution
Control Series D) with the proceeds of the debt issuance. In August 1994, IP
retired $100 million of 8 1/2% debt securities.
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. The TOPrS
were issued by IPFI, which invested the proceeds in an equivalent amount of
IP subordinated debentures due in 2045. The proceeds were used by IP 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. The
carrying amount under consideration paid for redeemed IP preferred stock
amounted to $3.5 million which was recorded in equity and included in Net
income applicable to common stock. See "Note 10-Preferred Stock of
Subsidiary" of the "Notes to Consolidated Financial Statements" for
additional information.
Illinois Power Capital, L.P., (IP Capital), is a limited partnership in
which IP serves as a general partner. IP Capital issued $97 million of tax-
advantaged monthly income preferred securities (MIPS) at 9.45% (5.67%
after-tax rate) in October 1994. The proceeds were loaned to IP and were
used to redeem $97 million (principal value) of higher-cost outstanding
preferred stock of IP. The carrying amount over consideration paid for
redeemed preferred stock amounted to $6.4 million which was recorded in
equity and included in Net income applicable to common stock. See "Note 10-
Preferred Stock of Sudsidiary" of the "Notes to Consolidated Financial
Statements" for additional information.
In December 1994, IP issued $84.1 million of First Mortgage Bonds, 7.4%
Series due 2024 (Pollution Control Series L). In March 1995, the proceeds of
the debt issuance were used to retire $84.1 million of First Mortgage Bonds,
10 3/4% Series due 2015 (Pollution Control Series E). In August 1995, IP
purchased $5 million of 8.75% First Mortgage Bonds on the open market.
See "Note 9--Long-Term Debt of Subsidiary" of the "Notes to Consolidated
Financial Statements" for additional information.
For the years 1995, 1994 and 1993, changes in long-term debt and IP preferred
stock outstanding, including normal maturities and elective redemptions,
were as follows:
(Millions of dollars)
1995 1994 1993
Bonds $ (5) $ (10) $ 35
Other long-term debt - (100) -
Preferred stock (135) 6 (51)
Total decrease $ (140) $ (104) $ (16)
The amounts shown in the preceding table for debt retirements do not include
all mortgage sinking fund requirements. IP has generally met these
requirements by pledging property additions as permitted under IP's 1943
Mortgage and Deed of Trust. For additional information, see "Note 9--Long-
Term Debt of Subsidiary" and "Note 10-- Preferred Stock of Subsidiary" of
the "Notes to Consolidated Financial Statements." See "Note 4--Commitments
and Contingencies" of the "Notes to Consolidated Financial Statements" for
information related to coal and gas purchases, nuclear fuel commitments and
emission allowance purchases.
In 1992, IP executed a new general obligation mortgage (New Mortgage) to
replace, over time, IP's 1943 Mortgage and Deed of Trust (First Mortgage).
Both mortgages are secured by liens on substantially all of IP's properties.
A corresponding issue of First Mortgage bonds, under the First Mortgage,
secures bonds issued under the New Mortgage. At December 31, 1995, based on
the most restrictive earnings test contained in the First Mortgage, IP could
issue approximately $1.2 billion of additional First Mortgage bonds for other
than refunding purposes. The amount of available unsecured borrowing capacity
totaled $144 million at December 31, 1995. Also at December 31, 1995, the
unused portion of Illinova and IP total bank lines of credit was $404 million.
As of December 31, 1995, IP had $120 million of unissued debt securities and
$56.5 million of unissued preferred stock authorized by the Securities and
Exchange Commission in September 1993 and August 1993, respectively.
Capital expenditures for the years 1993 through 1995 were approximately
$680.7 million, including $22.5 million of AFUDC. Illinova estimates that
$1.56 billion will be required for construction and capital expenditures
during the 1996-2000 period as follows:
Five-Year Period
- - --------------------------------------------------------------------
(Millions of dollars) 1996 1996-2000
- - --------------------------------------------------------------------
Construction requirements
Electric generating facilities $ 45 $ 236
Electric transmission and
distribution facilities 68 249
General plant 24 86
Gas facilities 28 110
Total construction requirements 165 681
Nuclear fuel 25 135
Debt retirements 62 362
Investments in subsidiaries 77 381
- - ----------------------------------------------------------------------
Total $ 329 $ 1,559
======================================================================
See "Note 4--Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for additional information. Internal cash generation
will meet substantially all construction and capital requirements.
Environmental Matters
See "Note 4--Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for a discussion of the Clean Air Act and manufactured-
gas plant sites.
Tax Matters
See "Note 7--Income Taxes" of the "Notes to Consolidated Financial Statements"
for a discussion of effective tax rates and other tax issues.
Accounting Matters
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of" (FAS 121), effective for
fiscal years beginning after December 15, 1995. FAS 121 requires that an
entity review long-lived assets for impairment when events indicate that the
carrying amount of an asset may not be recoverable. For regulated
enterprises, FAS 121 amends FASB Statement No. 71, "Accounting for the
Effects of Certain Types of REgulation" (FAS71), requiring that an impairment
be recognized for regulatory assets no longer meeting the criteria of
paragraph 9 of FAS 71. This standard is not currently expected to materially
impact the consolidated financial position or results of operations of
Illinova or IP.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123), effective for
fiscal years beginning after December 15, 1995. FAS 123 establishes a fair-
value based method of accounting for employee stock-based compensation plans
and encourages companies to adopt that method. However, it also allows
companies to continue to apply the intrinsic value-based method currently
prescribed under APB Opinion No. 25 and related pronouncements, provided
certain fair-value pro forma disclosures are made. Illinova is continuing to
evaluate its alternatives under this standard.
The FASB continues to review the accounting for liabilities related to
closure and removal of long-lived assets, including decommissioning. See
"Note 4--Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for a discussion of decommissioning.
responsibility for information
The consolidated financial statements and all information in this annual
report are the responsibility of management. The consolidated financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis and include amounts that
are based on management's best estimates and judgments. Management also
prepared the other information in the annual report and is responsible for
its accuracy and consistency with the consolidated financial statements. In
the opinion of management, the consolidated financial statements fairly
reflect Illinova's financial position, results of operations and cash flows.
Illinova believes that its accounting and internal accounting control systems
are maintained so that these systems provide reasonable assurance that assets
are safeguarded against loss from unauthorized use or disposition and that
the financial records are reliable for preparing the consolidated financial
statements.
The consolidated financial statements have been audited by Illinova's
independent accountants, Price Waterhouse LLP, in accordance with generally
accepted auditing standards. Such standards include the evaluation of
internal accounting controls to establish a basis for developing the scope
of the examination of the consolidated financial statements. In addition to
the use of independent accountants, Illinova maintains a professional staff
of internal auditors who conduct financial, procedural and special audits.
To assure their independence, both Price Waterhouse LLP and the internal
auditors have direct access to the Audit Committee of the Board of Directors.
The Audit Committee is composed of members of the Board of Directors who are
not active or retired employees of Illinova. The Audit Committee meets with
Price Waterhouse LLP and the internal auditors and makes recommendations to
the Board of Directors concerning the appointment of the independent
accountants and services to be performed. Additionally, the Audit Committee
meets with Price Waterhouse LLP to discuss the results of their annual audit,
Illinova's internal accounting controls and financial reporting matters.
The Audit Committee meets with the internal auditors to assess the internal
audit work performed, including tests of internal accounting controls.
Larry D. Haab Larry F. Altenbaumer
Chairman, President Chief Financial Officer,
and Chief Executive Officer Treasurer and Controller
report of independent accountants
Price Waterhouse LLP
To the Board of Directors
of Illinova Corporation
In our opinion, the consolidated financial statements of Illinova Corporation
and its subsidiaries appearing on pages A-11 through A-31 of this report
present fairly, in all material respects, the financial position of Illinova
Corporation and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
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.
Price Waterhouse LLP
St. Louis, Missouri
February 2, 1996
Illinova Corporation
consolidated statements of income
(Millions of dollars except per share amounts)
- - ------------------------------------------------------------------------------
For the Years Ended December 31, 1995 1994 1993
Operating Revenues
Electric $ 1,252.6 $ 1,177.5 $ 1,135.6
Electric interchange 116.3 110.0 130.8
Gas 272.5 302.0 314.8
- - -------------------------------------------------------------------------------
Total 1,641.4 1,589.5 1,581.2
- - -------------------------------------------------------------------------------
Operating Expenses and Taxes
Fuel for electric plants 273.9 266.6 235.1
Power purchased 59.5 52.6 78.5
Gas purchased for resale 138.8 172.4 187.3
Other operating expenses 259.7 260.0 269.2
Maintenance 100.0 89.6 100.8
Enhanced retirement and severance 37.8 -- --
Depreciation and amortization 186.5 179.3 172.9
General taxes 135.0 130.3 125.6
Income taxes 125.8 118.3 106.5
- - -------------------------------------------------------------------------------
Total 1,317.0 1,269.1 1,275.9
- - -------------------------------------------------------------------------------
Operating income 324.4 320.4 305.3
- - -------------------------------------------------------------------------------
Other Income and Deductions
Allowance for equity funds used
during construction --- 3.8 2.7
Disallowed Clinton costs --- --- (271.0)
Income tax effects of disallowed costs --- --- 70.6
Miscellaneous-net (7.1) (9.1) (3.0)
- - --------------------------------------------------------------------------------
Total (7.1) (5.3) (200.7)
- - --------------------------------------------------------------------------------
Income before interest charges 317.3 315.1 104.6
- - --------------------------------------------------------------------------------
Interest Charges
Interest expense 148.0 143.9 164.9
Allowance for borrowed funds used during
construction (6.0) (5.5) (4.5)
Preferred dividend requirements of subsidiary 23.7 24.9 26.1
- - --------------------------------------------------------------------------------
Total 165.7 163.3 186.5
- - --------------------------------------------------------------------------------
Net income (loss) 151.6 151.8 (81.9)
Carrying amount over (under) consideration paid for
redeemed preferred stock of subsidiary (3.5) 6.4 ---
- - --------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $148.1 $158.2 $(81.9)
================================================================================
Earnings (loss) per common share $ 1.96 $ 2.09 $(1.08)
Cash dividends declared per common share $ 1.03 $ .65 $ .40
Cash dividends paid per common share $ 1.00 $ .80 $ .80
Weighted average common shares 75,643,937 75,643,937 75,643,937
See notes to consolidated financial statements which are an integral part of
these statements.
Illinova Corporation
consolidated balance sheets
(Millions of dollars)
- - --------------------------------------------------------------------------------
December 31, 1995 1994
Assets
Utility Plant, At Original Cost
Electric (includes construction work in
progress of $199.8 million and $202.8 million,
respectively) $6,189.0 $6,023.1
Gas (includes construction work in progress of
$10.2 million and $16.8 million, respectively) 625.9 606.1
- - -------------------------------------------------------------------------------
6,814.9 6,629.2
Less -- accumulated depreciation 2,251.7 2,102.7
- - -------------------------------------------------------------------------------
4,563.2 4,526.5
Nuclear fuel in process 5.7 6.2
Nuclear fuel under capital lease 95.2 111.5
- - -------------------------------------------------------------------------------
4,664.1 4,644.2
Investments and Other Assets 65.8 37.4
Current Assets
Cash and cash equivalents 11.3 50.7
Notes receivable 6.1 -
Accounts receivable (less allowance for doubtful accounts of $3 million)
Service 129.4 110.4
Other 13.2 30.5
Accrued unbilled revenue 89.1 78.9
Materials and supplies, at average cost
Fossil fuel 9.9 18.7
Gas in underground storage 18.5 23.1
Operating materials 82.7 92.1
Prepaid and refundable income taxes 19.6 11.5
Prepayments and other 20.8 23.5
400.6 439.4
Deferred Charges
Deferred Clinton costs 107.3 110.8
Recoverable income taxes 128.7 147.3
Other 243.3 197.6
479.3 455.7
$5,609.8 $5,576.7
Capital and Liabilities
Capitalization
Common stock -- No par value, 200,000,000 shares
authorized; 75,643,937 shares outstanding, stated at $1,424.6 $1,424.6
Less -- Deferred compensation -- ESOP 18.4 23.5
Retained earnings 129.6 58.8
Less -- Capital stock expense 8.8 9.7
Total common stock equity 1,527.0 1,450.2
Preferred stock of subsidiary 125.6 224.7
Mandatorily redeemable preferred stock of subsidiary 97.0 133.0
Long-term debt of subsidiary 1,739.3 1,946.1
Total capitalization 3,488.9 3,754.0
Current Liabilities
Accounts payable 119.9 108.2
Notes payable 359.6 238.8
Long-term debt and lease obligations of subsidiary
maturing within one year 95.0 33.5
Dividends declared 23.0 23.4
Taxes accrued 44.8 32.3
Interest accrued 39.0 38.4
Other 66.2 55.8
747.5 530.4
Deferred Credits
Accumulated deferred income taxes 1,012.8 978.6
Accumulated deferred investment tax credits 222.8 230.9
Other 137.8 82.8
(Commitments and Contingencies Note 4) 1,373.4 1,292.3
$5,609.8 $5,576.7
See notes to consolidated financial statements which are an integral part of
these statements.
Illinova Corporation
consolidated statements of cash flows
(Millions of dollars)
For the Years Ended December 31, 1995 1994 1993
Cash Flows From Operating Activities
Net income (loss) $ 151.6 $ 151.8 $ (81.9)
Items not requiring (providing) cash--
Disallowed Clinton costs,
net of income taxes - - 200.4
Depreciation and amortization 190.0 182.3 176.6
Allowance for funds used during construction (6.0) (9.3) (7.2)
Deferred income taxes 39.1 36.4 67.9
Enhanced retirement and severance 37.8 - -
Changes in assets and liabilities --
Accounts and notes receivable (7.8) (18.2) (21.3)
Accrued unbilled revenue (10.2) (29.9) 42.9
Materials and supplies 22.8 (2.3) 6.2
Accounts payable (13.6) (20.6) 13.8
Interest accrued and other, net 9.5 (21.6) (27.7)
Net cash provided by operating activities 413.2 268.6 369.7
Cash Flows From Investing Activities
Construction expenditures (209.3) (193.7) (277.7)
Allowance for funds used during construction 6.0 9.3 7.2
Other investing activities (34.9) (19.7) (8.2)
Net cash used in investing activities (238.2) (204.1) (278.7)
Cash Flows From Financing Activities
Dividends on common stock (75.6) (60.5) (60.5)
Redemptions --
Short-term debt (213.6) (259.3) (254.5)
Long-term debt of subsidiary (5.2) (230.0) (832.0)
Preferred stock of subsidiary (134.5) (91.0) (94.4)
Issuances --
Short-term debt 209.5 405.8 279.7
Long-term debt of subsidiary - 119.8 866.8
Preferred stock of subsidiary - 97.0 43.5
Discount (premium) paid on redemption of
long-term debt of subsidiary -- - (2.8) (25.8)
Other financing activities 5.0 (2.7) (12.6)
Net cash used in financing activities (214.4) (23.7) (89.8)
Net change in cash and cash equivalents (39.4) 40.8 1.2
Cash and cash equivalents at beginning of year 50.7 9.9 8.7
Cash and cash equivalents at end of year $ 11.3 $ 50.7$ 9.9
Illinova Corporation
consolidated statements of retained earnings (deficit)
(Millions of dollars)
For the Years Ended December 31, 1995 1994 1993
Balance (deficit) at beginning of year $ 58.8 $ (64.6)$ 41.0
Net income (loss) before dividends 175.3 176.7 (55.8)
234.1 112.1 (14.8)
Less --
Dividends --
Preferred stock of subsidiary 23.6 11.1 20.1
Common stock 77.4 48.6 29.7
Plus --
Carrying amount over (under) consideration
paid for redeemed preferred stock of subsidiary (3.5) 6.4 -
(104.5) (53.3) (49.8)
Balance (deficit) at end of year $ 129.6 $ 58.8 $ (64.6)
See notes to consolidated financial statements which are an integral part of
these statements.
notes to consolidated financial statements
Note 1--Summary of Significant Accounting Policies
Principles of Consolidation The consolidated financial statements include
the accounts of Illinova Corporation (Illinova), a holding company, Illinois
Power Company (IP), a combination electric and gas utility, Illinova
Generating Company (IGC), a wholly owned subsidiary that invests in energy-
related projects throughout the world and competes in the independent power
market and Illinova Power Marketing, Inc. (IPMI), a wholly owned subsidiary
in the business of marketing energy and energy-related services to various
customers. See "Note 2--Illinova Subsidiaries" of the "Notes to Consolidated
Financial Statements" for additional information.
IP's consolidated financial position and results of operations are currently
the principal factors affecting Illinova's consolidated financial position
and results of operations. All significant intercompany balances and
transactions have been eliminated from the consolidated financial statements.
All nonutility operating transactions are included in the section titled
Other Income and Deductions, "Miscellaneous-net" in the Consolidated
Statements of Income. Preparation of financial statements in conformity with
generally accepted accounting principles requires the use of management's
estimates. Prior year amounts have been reclassified on a basis consistent
with the December 31, 1995, presentation.
Regulation IP is subject to regulation by the Illinois Commerce Commission
(ICC) and the Federal Energy Regulatory Commission (FERC) and, accordingly,
prepares its consolidated financial statements based on the concepts of
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" (FAS 71), which requires that the
effects of the ratemaking process be recorded. Such effects primarily concern
the time at which various items enter into the determination of net income
in order to follow the principles of matching cost and revenues.
Accordingly, IP records various regulatory assets and liabilities to reflect
the actions of regulators. Management believes that IP currently meets the
criteria for continued application of FAS 71, but will continue to evaluate
significant changes in the regulatory and competitive environment to assess
IP's overall compliance with such criteria. These criteria include: 1)
whether rates set by regulators are designed to recover the specific costs
of providing regulated services and products to customers and 2) whether
regulators continue to establish rates based on cost. In the event that
management determines that IP no longer meets the criteria for application
of FAS 71, an extraordinary non-cash charge to income would be recorded in
order to remove the effects of the actions of regulators from the
consolidated financial position and results of operations. Illinova's
principal accounting policies are:
Utility Plant The cost of additions to utility plant and replacements for
retired property units is capitalized. Cost includes labor, materials and an
allocation of general and administrative costs, plus an allowance for funds
used during construction (AFUDC) as described below. Maintenance and repairs,
including replacement of minor items of property, are charged to maintenance
expense as incurred. When depreciable property units are retired, the
original cost and dismantling charges, less salvage value, are charged to
accumulated depreciation.
Regulatory Assets Significant regulatory assets include deferred Clinton
Power Station (Clinton) post-construction costs, unamortized losses on
reacquired debt, recoverable income taxes and manufactured-gas plant site
cleanup costs.
Allowance For Funds Used During Construction The FERC Uniform System of
Accounts defines AFUDC as the net costs for the period of construction of
borrowed funds used for construction purposes and a reasonable rate on other
funds when so used. AFUDC is capitalized at a rate that is related to the
approximate weighted average cost of capital. In 1995, 1994 and 1993, the
pre-tax rate used for all construction projects was 6.5%, 7.0% and 7.5%,
respectively. Although cash is not currently realized from the allowance,
it is realized under the ratemaking process over the service life of the
related property through increased revenues, resulting from a higher rate
base and higher depreciation expense.
Depreciation For financial statement purposes, IP depreciates the various
classes of depreciable property over their estimated useful lives by applying
composite rates on a straight-line basis. In 1995, 1994 and 1993, provisions
for depreciation were 2.8% of the average depreciable cost for Clinton.
Provisions for depreciation for all other electric plant were 2.6% in 1995
and 2.5% in 1994 and 1993. Provisions for depreciation of gas utility plant,
as a percentage of the average depreciable cost, were 3.4% in 1995 and 1994
and 4% in 1993.
Amortization of Nuclear Fuel IP leases nuclear fuel from Illinois Power Fuel
Company (Fuel Company) under a capital lease. Amortization of nuclear fuel
(including related financing costs) is determined on a unit of production
basis. See "Note 4--Commitments and Contingencies" of the "Notes to
Consolidated Financial Statements" for discussion of decommissioning and
nuclear fuel disposal costs. A provision for spent fuel disposal costs is
charged to fuel expense based on kilowatt-hours generated.
Deferred Clinton Costs In accordance with an ICC order in April 1987, IP
began deferring certain Clinton post-construction operating and financing
costs until rates to reflect such costs became effective (April 1989). After
issuance of the March 1989 ICC rate order, deferral of Clinton post-
construction costs ceased and amortization of the previously deferred
post-construction costs over a 37.5-year period began. Although cash is not
currently realized from these deferrals, it is realized under the ratemaking
process over the service life of Clinton through increased revenues,
resulting from a higher rate base and higher amortization expense.
Unamortized Debt Discount, Premium and Expense Discount, premium and expense
associated with long-term debt are amortized over the lives of the related
issues. Costs related to refunded debt are amortized over the lives of the
related new debt issues or the remaining life of the old debt if no new debt
is issued.
Revenue and Energy Cost IP records revenue for services provided but not yet
billed to more closely match revenues with expenses. Unbilled revenues
represent the estimated amount customers will be billed for service delivered
from the time meters were last read to the end of the accounting period.
Operating revenues include related taxes that have been billed to customers
in the years 1995, 1994 and 1993 in the amount of $66 million, $66 million
and $65 million, respectively. The cost of fuel for the generation of
electricity, purchased gas adjustment clauses. Accordingly, allowable
energy costs that are to be passed on to customers in a subsequent accounting
period are deferred. The recovery of costs deferred under these clauses is
subject to review and approval by the ICC.
On April 6, 1994, the ICC approved an increase of $18.9 million, or 6.1%, in
IP's gas base rates. The increase to customers is partially offset by savings
from lower gas costs resulting from the expansion of the Hillsboro gas
storage field. The approved authorized rate of return on rate base is 9.29%,
with a rate of return on common equity of 11.24%.
Income Taxes Under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109), 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
on the basis of the statutory tax rates. In accordance with FAS 71, a
regulatory asset (recoverable income taxes) has been recorded representing
the probable recovery from customers of additional deferred income taxes
established under FAS 109.
Investment tax credits used to reduce federal income taxes have been deferred
and are being amortized to income over the "service life" of the property
that gave rise to the credits. Illinova and its subsidiaries file a
consolidated federal income tax return. Income taxes are allocated to the
individual companies based on their respective taxable income or loss. See
"Note 7--Income Taxes" of the "Notes to Consolidated Financial Statements"
for additional discussion.
Preferred Dividend Requirements of Subsidiary Preferred dividend requirements
of IP reflected in the Consolidated Statements of Income are recorded on the
accrual basis and relate to the period for which the dividends are applicable.
Consolidated Statements of Cash Flows Cash and cash equivalents include cash
on hand and temporary investments purchased with an initial maturity of three
months or less. Capital lease obligations not affecting cash flows increased
by $19 million, $28 million and $27 million during 1995, 1994 and 1993,
respectively. Income taxes and interest paid are as follows:
Years ended December 31,
(Millions of dollars) 1995 1994 1993
Income taxes $ 64.7 $ 71.1 $ 26.0
Interest $ 152.4 $ 165.9 $ 166.4
The increase in income taxes paid from 1993 to 1994 was due to an increase
in taxable income and the settlement of an IRS audit. The results of the
settlement did not have a material effect on Illinova's or IP's financial
position or results of operations. See "Note 7--Income Taxes" of the "Notes
to Consolidated Financial Statements" for additional information.
Interest Rate Cap Premiums paid for the purchased interest rate cap
agreements are being amortized to interest expense over the terms of the
caps. Unamortized premiums are included in Current Assets, "Prepayments and
Other," in the Consolidated Balance Sheets. Amounts to be received under the
cap agreements are recognized as a reduction in interest expense.
Note 2--Illinova Subsidiaries
Illinova, a holding company, is the parent of IP, IGC and IPMI. IP, the
primary business and subsidiary of Illinova, is engaged 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,
Illinova's wholly owned independent power subsidiary, invests in energy-
related projects throughout the world and competes in the independent power
market. IPMI, Illinova's wholly owned subsidiary, is in the business of
marketing energy and energy-related services to various customers.
In 1993, IGC invested in a 168 MW co-generation project in Teesside, England.
In 1994, IGC became an equity partner with Tenaska, Inc., in four natural
gas-fired generation plants, of which two are in operation, one is under
construction and one is suspended. Tenaska, Inc. is an Omaha, Nebraska-based
developer of independent power projects throughout the U.S. In August 1994,
IGC purchased 50 percent of the North American Energy Services Company
(NAES). NAES supplies a broad range of operations, maintenance and support
services to the worldwide independent power generation industry and will
operate the Tenaska generation plants in which IGC purchased an equity
interest. In November 1994, IGC became an equity partner in an 80 MW
operating diesel engine-powered generating plant in Puerto Cortez, Honduras.
In March 1995, IGC invested in Brazos, a 258 MW plant located near Claiborne,
Texas. In May 1995, IGC became an equity partner in the Indeck North American
Power Fund (Fund). The Fund's first project, in June 1995, a 70 MW plant, was
the Harbor Cogeneration Project in Long Beach, California. In August 1995,
the Fund acquired the Pepperell Cogeneration Project, a 38 MW gas-fired
combined cycle facility located in Pepperell, Massachusetts. In the fourth
quarter of 1995, IGC completed its first investment in the People's Republic
of China by investing in the Xinchang Project, a 24 MW coal-fired plant
located in Zhejiang Province. Additionally, IGC invested in the Carbontec
Project located near Gillette, Wyoming. This coal-drying facility will
utilize a recently developed proprietary CARBONDRY process to dry moderate to
high moisture coals. In December 1995, IGC signaled a limited liability
company agreement to complete an initial investment in a 146 MW power project
located near Aguaytia, Peru. Also, in December 1995, IGC invested in the
Jamaica Energy Partners Project, a 74 MW barge-mounted facility located in
Old Harbour, Jamaica. In 1996, IGC plans to make an equity investment in a
400 MW operating plant located in Columbia. See "Note 4--Commitments and
Contingencies" of the "Notes to Consolidated Financial Statements" for
information about IGC contingencies.
At December 31, 1995, Illinova's net investment in IGC was $49 million.
On May 16, 1995, IPMI obtained approval from the FERC to conduct business as
a marketer of electric power and gas to various customers outside IP's
present service territory. In September 1995, IPMI began buying and selling
wholesale electricity in the western United States. IPMI acquired 50 percent
ownership in Tenaska Marketing Ventures (TMV) on April 17, 1995, with the
ownership interest retroactive to January 1, 1995. In October 1995, IPMI and
TMV formed a natural gas company, Tenaska Marketing Canada, to market gas in
Canada. IPMI secured sales commitments of $12 million for 1996. See "Note
4--Commitments and Contingencies" of the "Notes to Consolidated Financial
Statements" for information about IPMI contingencies.
At December 31, 1995, Illinova's net investment in IPMI was $9 million.
In December 1995, Illinova established a new division, Illinova Energy
Services, to provide energy-related services to customers inside and outside
IP's service territory. These services involve the ways energy is used and
distributed after its delivery at the meter.
Note 3--Clinton Power Station
IP and Soyland Power Cooperative, Inc. (Soyland) share ownership of Clinton,
with IP owning 86.8% and Soyland owning 13.2%. IP's ownership percentage is
reflected in Utility Plant, at Original Cost, and in accumulated depreciation
in the Consolidated Balance Sheets. Clinton was placed in service in 1987 and
represents approximately 18% of IP's installed generation capacity. The
investment in Clinton and its related deferred costs represented
approximately 51% of Illinova's total assets at December 31, 1995. IP's
86.8% share of Clinton-related costs represented 34% of Illinova's total 1995
other operating, maintenance and depreciation expenses. Clinton's equivalent
availability was 76%, 92% and 73% for 1995, 1994 and 1993, respectively.
Clinton's equivalent availability was higher in 1994 due to no refueling
outage.
Ownership of an operating nuclear generating unit exposes IP to significant
risks, including increased and changing regulatory, safety and environmental
requirements and the uncertain future cost of closing and dismantling the
unit. IP expects to be allowed to continue to operate Clinton; however, if
any unforeseen or unexpected developments prevent IP from doing so, Illinova
and IP would be materially adversely affected. See "Note 4--Commitments and
Contingencies" of the "Notes to Consolidated Financial Statements" for
additional information.
Rate and Regulatory Matters
1992 Rate Order A September 1993 decision by the Illinois Appellate Court,
Third District (Appellate Court Decision), upheld key components of the
August 1992 Rehearing Order (Rehearing Order) issued by the ICC. The
Rehearing Order denied IP recovery of certain deferred Clinton post-
construction costs, which were recorded from the time Clinton began
operations (April 1987) to the time the ICC allowed IP to begin recovering
these deferred costs in rates (March 1989), otherwise known as the regulatory
lag period.
Based on IP's assessment of the Appellate Court Decision and in accordance
with FAS 71, IP recorded a loss of $271 million ($200 million or $2.65 per
share, net of income taxes) in September 1993.
Note 4--Commitments
and Contingencies
Commitments
Estimated capital requirements in 1996 are $267 million, which includes $113
million for electric facilities, $28 million for gas facilities, $25 million
for nuclear fuel, $24 million for general plant and $77 million for non-
regulated subsidiary activities. The estimated five-year construction program
for 1996 through 2000 is $1.2 billion. These expenditures do not include
capital expenditures for full compliance with the Clean Air Act, as discussed
below.
In addition, IP has substantial commitments for the purchase of coal under
long-term contracts. Estimated coal contract commitments for 1996 through
2000 are $664 million (excluding price escalation provisions). Total coal
purchases for 1995, 1994 and 1993 were $168 million, $191 million and $184
million, respectively. IP has contracts with various natural gas suppliers
and interstate pipelines to provide natural gas supply, transportation and
leased storage. Estimated committed natural gas, transportation and leased
storage costs (including pipeline transition costs) for 1996 through 2000
total $39 million. Total natural gas purchased for 1995, 1994 and 1993 was
$150 million, $168 million and $188 million, respectively. IP's share of
estimated nuclear fuel commitments for Clinton is approximately $26 million
for uranium concentrates through 1998, $7 million for conversion through
2002, $47 million for enrichment through 1999 and $213 million for
fabrication through 2017. IP is committed to purchase approximately $74
million of emission allowances through 1999. IP anticipates that all of
these costs will be recoverable under IP's electric fuel and purchased gas
adjustment clauses, if found by the ICC to be prudently incurred.
Insurance IP maintains insurance on behalf of IP and Soyland for certain
losses involving the operation of Clinton. One insurance program provides
coverage for physical damage to the plant. Based on a review of this
insurance, IP has reduced its limits from $2.7 billion to $1.6 billion
effective December 15, 1994. IP's insurance program has two layers: 1) a
primary layer of $500 million provided by nuclear insurance pools; and 2) an
excess coverage layer of $1.1 billion provided by an industry-owned mutual
insurance company. In the event of an accident with an estimated cost of
reactor stabilization and site decontamination exceeding $100 million,
Nuclear Regulatory Commission (NRC) regulations require that insurance
proceeds be dedicated and used first to return the reactor to, and maintain
it in, a safe and stable condition. After providing for stabilization and
decontamination, the insurers would then cover property damage up to a total
payout of $1.38 billion. Second, the NRC requires decontamination of the
reactor station site in accordance with the plan approved by the NRC. The
insurers would provide up to $220 million to cover decommissioning costs in
excess of funds already collected for decommissioning, as discussed later.
In the event insurance limits are not exhausted, the excess will cover a
portion of the value of the undamaged property. In addition, while IP has
no reason to anticipate a serious nuclear accident at Clinton, if such an
incident should occur, the claims for property damage and other costs would
materially exceed the limits of current or available insurance coverage. IP
also covers approximately $9 million per week of business interruption
insurance coverage for its ownership share of Clinton through the industry-
owned mutual insurance company in the event of an extended shutdown of
Clinton due to accidental property damage. This insurance does not provide
coverage until Clinton has been out of service for 21 weeks. Thereafter,
the insurance provides up to 156 weeks of coverage.
Multiple major losses, covered under the current property damage and business
interruption insurance coverage, involving Clinton or other stations insured
by the industry-owned mutual insurance company would result in retrospective
premium assessments of up to approximately $13 million. IP would allocate
this assessment between IP and Soyland based on their respective ownership
interest in Clinton.
All United States nuclear power station operators are subject to the Price-
Anderson Act. This act currently limits public liability for a nuclear
incident to $8.9 billion. Private insurance covers the first $200 million.
Retrospective premium assessments against each licensed nuclear reactor in
the United States provide excess coverage. Currently, the liability to these
reactor operators/owners for such an assessment would be up to $79.3 million
per incident, not including premium taxes which may be applicable, payable
in annual installments of not more than $10 million.
A Master Worker Policy covers worker tort claims alleging bodily injury,
sickness or disease as a result of initial radiation exposure occurring on or
after January 1, 1988. The policy has an aggregate limit of $200 million that
applies to the commercial nuclear industry as a whole. If the policy pays,
then a provision for automatic reinstatement of policy limits up to an
additional $200 million takes effect. There is also a provision for
retrospective assessment of additional premiums if claims exceed funds
available in the insurance company's reserve accounts. The maximum
retrospective premium assessment for this contingency is approximately $3
million and may be subject to state premium taxes. IP and Soyland would
allocate, based on their respective ownership in Clinton, any retrospective
premium assessments pertaining to the Master Worker Policy or the Price-
Anderson Act.
IP may be subject to other risks which may not be insurable, or the amount of
insurance carried to offset the various risks may not be sufficient to meet
potential liabilities and losses. There is also no assurance that IP will be
able to maintain insurance coverages at their present levels. Under those
circumstances, such losses or liabilities may have a substantial adverse
effect on Illinova's and IP's financial position.
Decommissioning and Nuclear Fuel Disposal Costs IP is responsible for its
ownership share of the costs of decommissioning Clinton and for spent nuclear
fuel disposal costs. IP is collecting future decommissioning costs through
its electric rates based on an ICC-approved formula that allows IP to adjust
rates annually for changes in decommissioning cost estimates.
Based on NRC regulations that establish a minimum funding level, IP estimates
its 86.8% share of Clinton decommissioning costs to be approximately $376
million (1995 dollars) or $692 million (2026 dollars, assuming a 2% inflation
factor). The NRC bases the minimum only on the cost of removing radioactive
plant structures. IP is concluding a site-specific study to estimate the
costs of dismantlement, removal and disposal of Clinton. This study is
expected to result in projected decommissioning costs higher than the NRC-
specified funding level.
External decommissioning trusts, as prescribed under Illinois law and
authorized by the ICC, accumulate funds based on the expected service life of
the plant for the future decommissioning of Clinton. For the years 1995, 1994
and 1993, IP contributed $5.0 million, $5.5 million and $3.9 million,
respectively, to its external nuclear decommissioning trust funds. The
balances in these nuclear decommissioning funds at December 31, 1995, and
1994, were $32.7 million and $22.4 million, respectively. IP recognizes
earnings and expenses from the trust fund as changes in its assets and
liabilities relating to these funds. In November 1994, the ICC granted IP
permission to invest up to 60% of the nuclear decommissioning trust assets in
selected equity securities.
The FASB is reviewing the accounting for removal costs of nuclear generating
stations, including decommissioning. Changing current electric utility
industry accounting practices for such decommissioning may result in: 1)
increasing annual provisions for decommissioning through increases in
depreciation; 2) recording the estimated total cost for decommissioning as a
liability with a gross-up to plant balances; and 3) reporting trust fund
income from the external decommissioning trusts as investment income rather
than as a reduction to decommissioning expense. Changes to current electric
utility industry accounting practices for decommissioning will likely be
effective in 1997. IP believes that, based on current information, these
changes will not have an adverse effect on results of operations due to
existing and anticipated future ability to recover decommissioning costs
through rates.
In 1992, the ICC entered an order in which it expressed concern that IP take
all reasonable action to ensure that Soyland contributes its ownership share
of the current or any revised estimate of decommissioning costs. The order
also states that if IP becomes liable for decommissioning expenses
attributable to Soyland, the ICC will then decide whether that expense should
be the responsibility of IP stockholders or its customers. If Soyland were to
fail to meet these or other obligations related to its ownership of Clinton,
then IP could become liable for such payments.
Under the Nuclear Waste Policy Act of 1982, the Department of Energy (DOE) is
responsible for the permanent storage and disposal of spent nuclear fuel. The
DOE currently charges one mill ($.001) per net kilowatt-hour (one dollar per
MWH) generated and sold for future disposal of spent fuel. IP is recovering
these charges through rates.
Environmental Matters
Clean Air Act - In August 1992, IP announced that it had suspended construction
of two scrubbers at the Baldwin Power Station. At December 31, 1995,
approximately $24 million in costs for the suspended Baldwin scrubber program
continue to be recorded by Illinois Power as plant held for future use. After
suspending scrubber construction, IP reconsidered its alternatives for
complying with Phase I of the 1990 Clean Air Act Amendments.
To comply with the sulfur dioxide (SO2) emission reduction requirements of
Phase I (1995-1999) of the 1990 Clean Air Act Amendments, IP continues to
purchase emission allowances. An emission allowance is the authorization by
the United States Environmental Protection Agency (U.S.EPA) to emit one ton
of SO2. The ICC approved IP's Phase I Clean Air Act compliance plan in
September 1993, and IP is continuing to implement that plan. IP has acquired
sufficient emission allowances to meet most of its anticipated needs for 1996
and will purchase the remainder on the spot market. In 1993, the
Illinois General Assembly passed and the governor signed legislation
authoirzing, but not requiring, the ICC to permit expenditures from emission
allowance purchases and sales to be included in rates charged to customers as
a cost of fuel. In December 1994, the ICC approved the recovery of emission
allownace costs through the Uniform Fuel Adjustment Clause. IP's compliance
plan will defer, until at 2000, any need for scrubbers or other capital
projects associated with SO2 emission reductions. Phase II (2000 and beyond)
SO2 emission requirements of the Clean Air Act will require additional
actions and may result in capital expenditures.
To comply with the Phase I nitrogen oxide (NOx) emission reduction
requirements of the acid rain provisions of the Clean Air Act, IP installed
low-NOx burners at Baldwin Unit 3 and Vermilion Unit 2. On November 29, 1994,
the U.S. Appellate Court remanded the Phase I NOx rules back to the U.S.EPA.
On April 13, 1995, the U.S.EPA reinstated, with some modifications, the Phase
I NOx rules effective January 1, 1996. IP was positioned to comply with these
revised rules without additional modifications to any of its generating
plants. The U.S. EPA will issue Phase II NOx emission limits by January 1,
1997.
IP anticipates additional capital expenditures prior to 2000 to comply with
the Phase II NOx requirements, as well as potential requirements to further
reduce NOx emissions from IP plants to help achieve compliance with air
quality standards in the St. Louis and Chicago metropolitan areas. IP has
installed continuous emission monitoring systems at its major generating
stations, as required by the acid rain provisions of the Clean Air Act.
IP is monitoring the developments of several emerging clean air compliance
issues which could have a significant impact on its fossil-fueled generating
plants. These issues include global climate change (theorized to result from
emissions of "greenhouse gasses" such as carbon dioxide), controls on
"hazardous air pollutants," and standards for fine particulates. Compliance
with potential new regulations in these areas may require significant
expenditures prior to 2000.
Manufactured-Gas Plant (mgp) In September 1995, IP increased its liability
for MGP site remediation by $41 million to a total of $76 million. This
amount represents IP's current best estimate of its cost to remediate MGP
sites for which it is responsible. This estimate reflects the results of a
site-by-site survey utilizing current site information and remediation
techniques. The estimate, determined by IP with assistance from several
external environmental consultants, is in accordance with Electric Power
Research Institute guidelines. Because of the unknown and unique
characteristics of each site and uncertain regulatory requirements, IP is
not able to determine its ultimate liability for remediation of the 24
sites. The previously recorded liability of $35 million was an estimate of
the minimum cost based on ongoing remediation efforts at eight sites and
ongoing investigations of the remaining 16 sites.
IP is currently recovering MGP site cleanup costs from its customers through
tariff riders approved by the ICC in April 1993. On April 20, 1995, the
Illinois Supreme Court issued a ruling that upheld the ICC authorization of
cost recovery and reversed the ICC's disallowance of carrying costs,
mandating the ICC to reissue an order providing for recovery of prudently
incurred MGP site cleanup costs, including carrying costs. On November 20,
1995, the ICC issued an order on remand allowing full recovery of all such
MGP site cleanup costs. Accordingly IP has recorded a regulatory asset in
the amount of $76 million, reflecting management's expectation that
remediation costs will be recovered from customers.
IP has begun settlement discussions with its insurance carriers regarding
the recovery of estimated MGP site remediation costs. A settlement has been
reached with one carrier and an agreement in principle has been reached with
two other carriers. On October 17, 1995, IP filed a lawsuit in the Circuit
Court of Macon County seeking a declaratory judgment and damages regarding
insurance coverage for four MGP sites. Any insurance recoveries received will
be credited to IP's customers through the tariff rider mechanisms.
Electric and Magnetic Fields (EMF) The possibility that exposure to EMF
emanating from power lines, household appliances and other electric sources
may result in adverse health effects continues to be the subject of
litigation and governmental, medical and media attention. Litigants have also
claimed that EMF concerns justify recovery from utilities for the loss in
value of real property exposed to power lines, substations and other such
sources of EMF. Scientific research worldwide has produced conflicting
results and no conclusive evidence that electric and/or magnetic field
exposure causes adverse health effects. Research is continuing to resolve
scientific uncertainties. It is too soon to tell what, if any, impact
these actions may have on Illinova's and IP's consolidated financial
position.
Other
Legal Proceedings - Illinova and IP are involved in legal or administrative
proceedings before various courts and agencies with respect to matters
occurring in the ordinary course of business, some of which involve
substantial amounts of money. Management believes that the final disposition
of these proceedings will not have a material adverse effect on the
consolidated financial position or the results of operations.
Accounts Receivable - IP sells electric energy and natural gas to residential,
commercial and industrial customers throughout Illinois. At December 31,
1995, 67%, 17% and 16% of Accounts receivable--Service were from residential,
commercial and industrial customers, respectively. IP maintains reserves for
potential credit losses and such losses have been within management's
expectations.
Contingencies
IPMI is a 50% partner with TMV which markets natural gas. At its April 1995
meeting, the Illinova Board authorized IPMI to provide certain guarantees on
its behalf in the performance of IPMI's business. Illinova guarantees the
performance of TMV up to an aggregate of $50 million for net accounts payable
or delivery obligations incurred during the ordinary course of purchasing and
reselling natural gas. The level of payable guarantees in place during
December 1995 peaked at $19 million. Illinova also guarantees performance
by TMV of all obligations to parties providing price-hedging services. The
guarantees to the parties providing heding services are a function of the
market price of gas. Management believes that the exposure is minimal. See
"Note 2--Illinova Subsidiaries" of the "Notes to Consolidate Financial
Statements" for additional information about IPMI.
IGC has signed equity contribution agreements up to an aggregate amount of
$32 million secured by Illinova Corporation parent guarantees. See
"Note 2--Illinova Subsidiaries" of the "Notes to Consolidated Financial
Statements" for additional information about IGC.
Note 5--Lines of Credit
and Short-Term Loans
IP has total lines of credit represented by bank commitments amounting to
$354 million, all of which were unused at December 31, 1995. These lines of
credit are renewable in May 1996, August 1996 and May 2000. These bank
commitments support the amount of commercial paper outstanding at any time,
limited only by the amount of unused bank commitments, and are available to
support other IP activities.
IP pays facility fees up to .175% per annum on $350 million of the total
lines of credit, regardless of usage. The interest rate on borrowings under
these agreements is, at IP's option, based upon the lending banks' reference
rate, their Certificate of Deposit rate, the borrowing rate of key banks in
the London interbank market or competitive bid.
IP has letters of credit totaling $204 million and pays fees up to .45% per
annum on the unused amount of credit.
In addition, IP Fuel Company has a short-term financing option to obtain
funds not to exceed $30 million. IP Fuel Company pays no fees for this
uncommitted facility and funding is subject to availability upon request.
For the years 1995, 1994 and 1993, IP had short-term borrowings consisting of
bank loans, commercial paper, extendible floating rate notes and other short-
term debt outstanding at various times as follows:
- - -----------------------------------------------------------------
(Millions of dollars, except rates) 1995 1994 1993
- - -----------------------------------------------------------------
Short-term borrowings
at December 31, $ 359.6 $ 238.8 $ 92.3
Weighted average interest
rate at December 31, 6.0% 6.2% 3.5 %
Maximum amount outstanding
at any month end $ 359.6 $ 238.8 $ 123.7
Average daily borrowings
outstanding during
the year $ 306.5 $ 165.4 $ 85.0
Weighted average interest
rate during the year 6.2% 4.6% 3.5 %
- - ------------------------------------------------------------------
Illinova's total lines of credit represented by bank commitments amount to
$50 million, all of which was unused at December 31, 1995. Illinova's letters
of credit total $6.5 million.
Illinova has derivative financial instruments, however, it does not use them
for trading purposes. Illinova uses them to manage well defined interest rate
and commodity risks.
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on floating-rate debt. IP has two variable rate
interest rate cap agreements covering up to $189 million of commercial paper.
These agreements entitle IP to receive from a counterparty on a monthly basis
the amount, if any, by which IP's interest payments on a nominal amount of
commercial paper exceed the interest rate set by the cap. On December 31,
1995, the cap rates were set at 6.25% and 7.0% while the current market
rate available to IP was 5.9%.
Note 6--Facilities Agreements
IP and Soyland share ownership of Clinton, with IP owning 86.8% and Soyland
owning 13.2%. Agreements between IP and Soyland provide that IP has control
over construction and operation of the generating station, that the parties
share electricity generated in proportion to their ownership interests and
that IP will have certain obligations to provide replacement power to Soyland
if IP ceases to operate or reduces output from Clinton.
Under the provisions of a Power Coordination Agreement (PCA) between Soyland
and IP dated October 5, 1984, as amended, IP is required to provide Soyland
with 12.0% (436 megawatts) of the electrical capacity from its fossil-fueled
generating plants until the agreement expires or is terminated. This is in
addition to the capacity Soyland receives as an owner of Clinton. IP is
compensated with capacity charges and for energy costs and variable
operating expenses. IP transmits energy for Soyland through IP's transmission
and subtrasmission systems. Under provisions of the PCA, Soyland has the
option of participating financial in major capital expenditures at the fossil-
fueled plants, such as those needed for Phase II Clean Air Act compliance, to
the extent of its capacity entitlement with each party bearing its own direct
capital costs, or by having the costs treated as plant additions and billed
to Soyland in accordance with other billing provisions of the PCA. See
"Note 4--Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for discussion of the Clean Air Act. At any time after
December 31, 2004, either IP or Soyland may terminate the PCA by giving
not less than seven years' prior written notice to the other party. The party
to whom termination notice has been given may designate an earlier effective
date of termination which shall be not less than 12 months after receiving
notice.
Note 7--income taxes
Deferred tax assets and liabilities were comprised of the following:
Balances as of December 31,
- - ----------------------------------------------------------------------------
(Millions of dollars) 1995 1994
- - ----------------------------------------------------------------------------
Deferred Tax Assets:
- - ----------------------------------------------------------------------------
Current:
Misc. book/tax recognition differences $ 26.1 $ 19.7
- - ----------------------------------------------------------------------------
Noncurrent:
Depreciation and other property related 45.5 52.6
Alternative minimum tax 183.1 186.0
Tax credit and net operating loss
carryforward 32.4 27.6
Unamortized investment tax credit 126.1 122.0
Misc. book/tax recognition differences 66.7 57.0
- - ----------------------------------------------------------------------------
453.8 445.2
- - ----------------------------------------------------------------------------
Total deferred tax assets $ 479.9 $ 464.9
============================================================================
Deferred Tax Liabilities:
- - ----------------------------------------------------------------------------
Current:
Misc. book/tax recognition differences $ 6.5 $ 8.2
- - ----------------------------------------------------------------------------
Noncurrent:
Depreciation and other property related 1,303.5 1,252.0
Deferred Clinton costs 60.1 62.1
Misc. book/tax recognition differences 103.0 109.7
- - ----------------------------------------------------------------------------
1,466.6 1,423.8
- - ----------------------------------------------------------------------------
Total deferred tax liabilities $ 1,473.1 $ 1,432.0
============================================================================
Income taxes included in the Consolidated Statements of Income consist of the
following components:
Years Ended December 31,
- - ----------------------------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ----------------------------------------------------------------------------
Current taxes--
Included in operating
expenses and taxes $ 98.6 $ 58.3 $ 25.3
Included in other income
and deductions (20.3) -- --
- - ----------------------------------------------------------------------------
Total current taxes 78.3 58.3 25.3
- - ----------------------------------------------------------------------------
Deferred taxes--
Included in operating
expenses and taxes
Property-related differences 62.2 60.0 72.3
Alternative minimum tax 2.9 (50.4) (31.8)
Gain/loss on reacquired debt (1.9) -- 16.5
Net operating loss
carryforward (.2) 62.0 22.8
Enhanced retirement
and severance (15.0) -- --
Misc. book/tax recognition
differences (13.9) (7.8) 4.1
Internal Revenue Service
interest on tax issues -- 7.5 (1.9)
Included in other income
and deductions
Property-related differences 9.7 10.0 6.0
Net operating loss
carryforward -- (17.4) (15.4)
Misc. book/tax recognition
differences (1.2) (.7) (2.5)
Disallowed Clinton costs -- -- (62.2)
- - -----------------------------------------------------------------------------
Total deferred taxes 42.6 63.2 7.9
- - -----------------------------------------------------------------------------
Deferred investment
tax credit--net
Included in operating
expense and taxes (6.9) (11.3) (.8)
Included in other income
and deductions -- (.3) (.7)
Disallowed investment
tax credit --- -- (8.4)
- - ----------------------------------------------------------------------------
Total investment tax credit (6.9) (11.6) (9.9)
- - ----------------------------------------------------------------------------
Total income taxes $ 114.0 $ 109.9 $ 23.3
=============================================================================
The reconciliations of income tax expense to amounts computed by applying the
statutory tax rate to reported pretax results for the period are set below:
Years Ended December 31,
- - ----------------------------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ----------------------------------------------------------------------------
Income tax expense at the
federal statutory tax rate $ 92.9 $ 91.6 $ (20.5)
Increases/(decreases) in taxes
resulting from--
State taxes,
net of federal effect 12.4 13.8 5.8
Investment tax credit
amortization (6.9) (7.8) (8.8)
Depreciation not normalized 7.4 4.3 7.1
Preferred dividend requirement
of subsidiary 5.8 8.7 9.1
Disallowed Clinton costs
(including ITC) -- -- 27.4
Other--net 2.4 (.7) 3.2
- - -----------------------------------------------------------------------------
Total income taxes $ 114.0 $ 109.9 $ 23.3
=============================================================================
Combined federal and state effective income tax rates were 42.9%, 42.0% and
(39.8%) for the years 1995, 1994 and 1993, respectively. The negative
effective tax rate for 1993 is a result of the loss recorded by IP due to
the Rehearing Order which denied IP recovery of certain deferred Clinton
costs. The 1993 effective tax rate excluding the effect of this loss is
44.2%.
Illinova is subject to the provisions of the Alternative Minimum Tax System
(AMT). As a result, Illinova has an AMT credit carryforward at December 31,
1995, of approximately $183 million. This credit can be carried forward
indefinitely to offset future regular income tax liabilities in excess of the
tentative minimum tax.
In 1994, the Internal Revenue Service (IRS) completed its audit of IP's
federal income tax returns for the years 1989 through 1990. IP and the IRS
reached an agreement on all audit issues. The results of the agreement did
not have a material effect on Illinova's or IP's consolidated financial
positions or results of operations.
Note 8--Capital Leases
Illinois Power Fuel Company (Fuel Company), which is 50% owned by IP, was
formed in 1981 for the purpose of leasing nuclear fuel to IP for Clinton.
Lease payments are equal to the Fuel Company's cost of fuel as consumed
(including related financing and administrative costs). Billings under the
lease agreement during 1995, 1994 and 1993 were $41 million, $52 million and
$45 million, respectively, including financing costs of $7 million, $7 million
and $6 million, respectively. IP is obligated to make subordinated loans to
the Fuel Company at any time the obligations of the Fuel Company that are
due and payable exceed the funds available to the Fuel Company. IP has an
obligation for nuclear fuel disposal costs of leased nuclear fuel. See "Note
4--Commitments and Contingencies" of the "Notes to Consolidated Financial
Statements" for discussion of decommissioning and nuclear fuel disposal
costs. Nuclear fuel lease payments are included with Fuel for electric
plants on Illinova's Consolidated Statements of Income.
At December 31, 1995 and 1994, current obligations under capital lease for
nuclear fuel were $33.3 million.
Over the next five years, estimated payments under capital leases are as
follows:
- - ---------------------------------------------------------------------------
(Millions of dollars)
- - ---------------------------------------------------------------------------
1996 $ 37.9
1997 31.1
1998 17.3
1999 12.4
2000 4.5
Thereafter 1.9
- - ---------------------------------------------------------------------------
105.1
Less: Interest 10.0
- - ---------------------------------------------------------------------------
Total $ 95.1
===========================================================================
Note 9--Long-Term Debt of Subsidiary
(Millions of dollars)
_____________________________________________________________________________
December 31, 1995 1994
First mortgage bonds--
5.85% series due 1996 $ 40.0 $ 40.0
61/2 % series due 1999 72.0 72.0
6.60% series due 2004 (Pollution Control Series A) 6.8 7.0
7.95% series due 2004 72.0 72.0
6% series due 2007 (Pollution Control Series B) 18.7 18.7
75/8% series due 2016
(Pollution Control Series F, G and H) 150.0 150.0
8.30% series due 2017 (Pollution Control Series I) 33.8 33.8
73/8% series due 2021 (Pollution Control Series J) 84.7 84.7
83/4% series due 2021 120.0 125.0
5.70% series due 2024 (Pollution Control Series K) 35.6 35.6
7.40% series due 2024 (Pollution Control Series L) 84.1 84.1
_____________________________________________________________________________
Total first mortgage bonds 717.7 722.9
_____________________________________________________________________________
New mortgage bonds--
61/8% series due 2000 40.0 40.0
5.625% series due 2000 110.0 110.0
61/2% series due 2003 100.0 100.0
63/4% series due 2005 70.0 70.0
8% series due 2023 235.0 235.0
71/2% series due 2025 200.0 200.0
Adjustable rate series due 2028
(Pollution Control Series M, N and O) 111.8 111.8
_____________________________________________________________________________
Total new mortgage bonds 866.8 866.8
_____________________________________________________________________________
Total mortgage bonds 1,584.5 1,589.7
_____________________________________________________________________________
Short-term debt to be refinanced as long-term debt - 125.0
Medium-term notes, series A 100.0 100.0
Variable rate long-term debt due 2017 75.0 75.0
_____________________________________________________________________________
Total other long-term debt 175.0 300.0
_____________________________________________________________________________
1,759.5 1,889.7
Unamortized discount on debt (20.3) (21.6)
_____________________________________________________________________________
Total long-term debt excluding
capital lease obligations 1,739.2 1,868.1
Obligation under capital leases 95.1 111.5
_____________________________________________________________________________
1,834.3 1,979.6
Long-term debt and lease obligations
maturing within one year (95.0) (33.5)
_____________________________________________________________________________
Total long-term debt $ 1,739.3 $ 1,946.1
_____________________________________________________________________________
In August 1995, $5.0 million of 8 3/4% First Mortgage Bonds due 2021 were
purchased on the open market.
Short-term debt to be refinanced as long-term debt consisted of commercial
paper that would be renewed regularly on a long-term basis. In September
1995, IP reclassified the $125 million to short-term debt in accordance with
Statement of Financial Accounting Standards No. 6, "Classification of Short-
Term Obligations Expected to be Refinanced." In 1989 and 1991, IP issued a
series of fixed rate medium-term notes. At December 31, 1995, the maturity
dates on these notes ranged from 1996 to 1998 with interest rates ranging from
9% to 9.31%. Interest rates on variable rate long-term debt due 2017 are
adjusted weekly and ranged from 5.3% to 5.5% at December 31, 1995.
For the years 1996, 1997, 1998, 1999 and 2000, IP has long-term debt
maturities and cash sinking fund requirements in the aggregate of (in
millions) $61.7, $10.8, $68.8, $72.8 and $150.8, respectively. These amounts
exclude capital lease requirements. See "Note 8--Capital Leases" of the "Notes
to Consolidated Financial Statements." Certain supplemental indentures to
the First Mortgage require that IP make annual deposits, as a sinking and
property fund, in amounts not to exceed $1.8 million in each of the years
1997 through 2000. These amounts are subject to reduction and historically
have been met by pledging property additions, as permitted by the First
Mortgage.
At December 31, 1995, the aggregate total of unamortized debt expense and
unamortized loss on reacquired debt was approximately $105.8 million.
IP's First Mortgage bonds are secured by a first mortgage lien on
substantially all of the fixed property, franchises and rights of IP with
certain minor exceptions expressly provided in the First Mortgage. In 1992,
the Board authorized a new general obligation mortgage, which is intended to
replace the First Mortgage. Bonds issued under the New Mortgage were secured
by a corresponding issue of First Mortgage bonds under the First Mortgage.
The remaining balance of net bondable additions at December 31, 1995, was
approximately $1.4 billion.
Note 10--Preferred Stock of Subsidiary
(Millions of dollars)
December 31, 1995 1994
Serial Preferred Stock of Subsidiary,
cumulative, $50 par value--
Authorized 5,000,000 shares; 1,356,800 and
3,325,815 shares outstanding, respectively
series shares redemption prices
4.08% 300,000 $ 51.50 $ 15.0 $ 15.0
4.26% 150,000 51.50 7.5 7.5
4.70% 200,000 51.50 10.0 10.0
4.42% 150,000 51.50 7.5 7.5
4.20% 180,000 52.00 9.0 9.0
8.24% - - - 30.0
7.56% - - - 33.8
8.00% - - - 34.7
7.75% 376,800 50.00
after July 1, 2003 18.8 18.8
Net premium on preferred stock .2 .8
______________________________________________________________________________
Total Preferred Stock of Subsidiary,
$50 par value $ 68.0 $ 167.1
______________________________________________________________________________
Serial Preferred Stock of Subsidiary,
cumulative, without par value--
Authorized 5,000,000 shares; 1,152,550
and 1,512,550 shares outstanding,
respectively (including 0 and 360,000
shares, respectively, of redeemable
preferred stock)
series shares redemption prices
A 742,300 $50.00 $ 37.1 $ 37.1
B 410,250 50.00 20.5 20.5
______________________________________________________________________________
Total Preferred Stock of Subsidiary,
without par value $ 57.6 $ 57.6
______________________________________________________________________________
Preference Stock of Subsidiary, cumulative,
without par value--
Authorized 5,000,000 shares; none outstanding - -
______________________________________________________________________________
Total Serial Preferred Stock, Preference
Stock and Preferred Securities of Subsidiary $ 125.6 $ 224.7
______________________________________________________________________________
Company Obligated Mandatorily Redeemable
preferred Securities of
Illinois Power Capital, L.P.
Monthly Income Preferred Securities,
cumulative, $25 liquidation preference--
3,880,000 shares authorized and outstanding $ 97.0 $ 97.0
Mandatorily Redeemable Serial
Preferred Stock of Subsidiary, cumulative --
series shares par value
8.00% - - - 36.0
______________________________________________________________________________
Total Mandatorily Redeemable
Preferred Stock of Subsidiary $ 97.0 $ 133.0
______________________________________________________________________________
Serial Preferred Stock ($50 par value) is redeemable at the option of IP in
whole or in part at any time with not less than 30 days and not more than 60
days notice by publication.
Quarterly dividend rates for Serial Preferred Stock, Series A, are determined
based on market interest rates of certain U.S. Treasury securities. Dividends
paid in 1995 and 1994 were $.75 per quarter. The dividend rate for any
dividend period will not be less than 6% per annum or greater than 12% per
annum applied to the liquidation preference value of $50 per share.
Quarterly dividend rates for Serial Preferred Stock, Series B, are determined
based on market interest rates of certain U.S. Treasury securities. Dividends
paid in 1995 and 1994 were $.875 per quarter. The dividend rate for any
dividend period will not be less than 7% per annum or greater than 14% per
annum applied to the liquidation preference value of $50 per share.
Illinois Power Capital, L.P., is a limited partnership in which IP serves as
a general partner. In October 1994, Illinois Power Capital issued $97 million
of tax-advantaged monthly income preferred securities (MIPS) at 9.45% (5.67%
after-tax rate) with a liquidation preference of $25 per share. The proceeds
were loaned to IP and were used to redeem $97 million (principal value) of
higher-cost outstanding preferred stock of IP. The carrying amount of
redeemed preferred stock over consideration paid amounted to $6.4 million,
which was recorded in equity and included in Net income applicable to common
stock. IP consolidates the accounts of Illinois Power Capital.
In February 1995 and 1994, IP redeemed $12.0 million of the 8.00% mandatorily
redeemable serial preferred stock. In May 1995, IP redeemed the remaining
$24.0 million of the 8.00% mandatorily redeemable serial preferred stock.
In March 1995, IP redeemed $.2 million of the 7.56% serial preferred stock
and $3.0 million of the 8.24% serial preferred stock. In December 1995, IP
redeemed $34.7 million of its 8.00% serial preferred stock, $33.6 million of
its 7.56% serial preferred stock and $27.0 million of its 8.24% serial
preferred stock. The carrying amount under consideration paid for redeemed
preferred stock amounted to $3.5 million, which was recorded in equity and
included in net income applicable to common stock.
Note 11--Common Stock
and Retained Earnings
IP has an Incentive Savings Plan (Plan) for salaried employees. IP's matching
contribution is used to purchase Illinova common stock. Under this Plan,
27,545 shares of common stock were designated for issuance at December 31,
1995.
IP has an Incentive Savings Plan for Employees Covered Under a Collective
Bargaining Agreement. IP's matching contribution is used to purchase Illinova
common stock. Under this plan, 69,167 shares of stock were designated for
issuance at December 31, 1995.
Illinova has an Employees' Stock Ownership Plan (ESOP) that includes an
incentive compensation feature which is tied to employee achievement of
specified corporate performance goals. This arrangement began in 1991 when IP
loaned $35 million to the Trustee of the Plans, which used the loan proceeds
to purchase 2,031,445 shares of IP's common stock on the open market. The
loan and common shares were converted to Illinova instruments with the
formation of Illinova in May 1994. These shares are held in a suspense
account under the Plans and are being distributed to the accounts of
participating employees as the loan is repaid by the Trustee with funds
contributed by IP, together with dividends on the shares acquired with the
loan proceeds. IP financed the loan with funds borrowed under its bank
credit agreements.
For the year ended December 31, 1995, 75,729 shares were allocated to
salaried employees and 70,830 shares to employees covered under the
Collective Bargaining Agreement through the matching contribution feature of
the ESOP arrangement. Under the incentive compensation feature, 109,662
shares were allocated to employees for the year ended December 31, 1995.
During 1995, IP contributed $6.0 million to the ESOP and using the shares
allocated method, recognized $4.4 million of expense. Interest paid on the
ESOP debt was approximately $2.1 million in 1995 and dividends used for debt
service were approximately $2.0 million.
Illinova has an Automatic Reinvestment and Stock Purchase Plan and an
Employees' Stock Ownership Plan for which, at December 31, 1995, 3,270,236
and 29,115 shares, respectively, of common stock were designated for
issuance. Illinova has the responsibility for administering both of these
plans. The plans allow purchases of shares on the open market, as well as
purchases of new issue shares directly from Illinova.
In 1992, the Board of Directors adopted and the shareholders approved a Long-
Term Incentive Compensation Plan (the Plan) for officers or employee members
of the Board, but excluding directors who are not officers or employees. The
types of awards that may be granted under the Plan are restricted stock,
incentive stock options, non-qualified stock options, stock appreciation
rights, dividend equivalents and other stock-based awards. The Plan provides
that any one or more types of awards may be granted for up to 1,500,000
shares of Illinova's common stock. The following table outlines the activity
thus far under this plan:
_____________________________________________________________________________
Year Options Grant Year
Granted Granted Price Exercisable
_____________________________________________________________________________
1992 62,000 $ 233/8 1996
1993 73,500 $ 241/4 1997
1994 82,650 $ 207/8 1997
1995 69,300 $ 247/8 1998
_____________________________________________________________________________
The provisions of Supplemental Indentures to IP's General Mortgage Indenture
and Deed of Trust contain certain restrictions with respect to the
declaration and payment of dividends. IP was not limited by any of these
restrictions at December 31, 1995. Under the Restated Articles of
Incorporation, common stock dividends are subject to the preferential rights
of the holders of preferred and preference stock.
Note 12--Pension and
Other Benefit Costs
IP has defined-benefit pension plans covering all officers and employees.
Benefits are based on years of service and compensation. IP's funding policy
is to contribute annually at least the minimum amount required by government
funding standards, but not more than can be deducted for federal income tax
purposes.
Pension costs, a portion of which have been capitalized for 1995, 1994 and
1993, include the following components:
Years Ended December 31,
______________________________________________________________________________
(Millions of dollars) 1995 1994 1993
______________________________________________________________________________
Service cost on benefits
earned during the year $ 10.4 $ 11.9 $ 11.3
Interest cost on projected
benefit obligation 23.6 21.8 20.8
Return on plan assets (58.3) (7.9) (28.1)
Net amortization and deferral 29.6 (19.2) 1.9
Effect of enhanced retirement
program 15.7 - -
_____________________________________________________________________________
Net periodic pension cost $ 21.0 $ 6.6 $ 5.9
_____________________________________________________________________________
The estimated funded status of the plans at December 31, 1995 and 1994, using
discount rates of 7.75% and 8.75%, respectively, and future compensation
increases of 4.5% was as follows:
Balances as of December 31,
_____________________________________________________________________________
(Millions of dollars) 1995 1994
_____________________________________________________________________________
Actuarial present value of:
Vested benefit obligation $ (276.8) $ (209.6)
_____________________________________________________________________________
Accumulated benefit obligation $ (297.5) $ (220.8)
_____________________________________________________________________________
Projected benefit obligation $ (343.6) $ (267.3)
Plan assets at fair value 331.5 284.0
_____________________________________________________________________________
Funded status (12.1) 16.7
Unrecognized net (gain)/loss (5.1) (38.8)
Unrecognized net asset at transition (34.6) (15.0)
Unrecognized prior service cost 21.2 24.5
_____________________________________________________________________________
Accrued pension cost included in
accounts payable $ (30.6) $ (12.6)
_____________________________________________________________________________
The plan's assets consist primarily of common stocks, fixed income
securities, cash equivalents and real estate. The actuarial present value of
accumulated plan benefits at January 1, 1995 and 1994, were $258 million and
$230 million, respectively, including vested benefits of $239 million and
$213 million, respectively. The pension cost for 1995, 1994 and 1993 was
calculated using: a discount rate of 8.75%, 7.75% and 8.25%, respectively;
future compensation increases of 4.5% for 1995, 4.5% for 1994 and 5.5% for
1993; and a return on assets of 9% for 1995, 1994 and 1993. The unrecognized
net asset at transition and unrecognized prior service cost are amortized on
a straight-line basis over the average remaining service period of employees
who are expected to receive benefits under the plan. IP did not make any
cash contributions during 1993 for the pension plans due to its overfunded
status. IP made cash contributions of $2 million in 1995 and $10 million in
1994.
IP provides health care and life insurance benefits to certain retired
employees, including their eligible dependents, who attain specified ages
and years of service under the terms of the defined-benefit plans.
Postretirement benefits, a portion of which have been capitalized, for 1995
and 1994 included the following components:
Years Ended December 31,
- - -----------------------------------------------------------------------------
(Millions of dollars) 1995 1994
- - -----------------------------------------------------------------------------
Service cost on benefits earned
during the year $ 2.1 $ 3.3
Interest cost on projected
benefit obligation 5.5 6.2
Return on plan assets (4.7) .2
Amortization of unrecognized
transition obligation 6.3 2.1
Effect of enhanced retirement program 9.5 --
- - -----------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 18.7 $ 11.8
- - -----------------------------------------------------------------------------
The net periodic postretirement benefit cost in the preceeding table includes
amortization of the previously unrecognized accumulated postretirement benefit
obligation, which was $52.3 million and $55.2 million as of January 1, 1995 and
1994, respectively, over 20 years on a straight-line basis.
IP has established two separate trusts for those retirees who were subject to
a collectively bargained agreement and all other retirees to fund retiree health
care and life insurance benefits. IP's funding policy is to contribute annually
an amount at least equal to the revenues collected for the amount of
postretirement benefit costs allowed in rates. The plan assets consist of
common stocks and fixed income securities at December 31, 1995 and 1994.
The estimated funded status of the plans at December 31,
Balances as of December 31,
- - ------------------------------------------------------------------------------
(Millions of dollars) 1995 1994
- - ------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation
Retirees $ (54.5) $ (26.7)
Other fully eligible participants (3.0) (11.6)
Other active plan participants (27.5) (27.3)
- - ------------------------------------------------------------------------------
Total benefit obligation (85.0) (65.6)
Plan assets at fair value 25.6 15.2
- - ------------------------------------------------------------------------------
Funded status (59.4) (50.4)
Unrecognized transition obligation 44.2 52.3
Unrecognized net (gain)/loss -- (7.8)
- - ------------------------------------------------------------------------------
Accrued postretirement benefit cost
included in accounts payable $ ( 15.2) $ ( 5.9)
- - ------------------------------------------------------------------------------
The pre-65 health-care-cost trend rate decreases from 7.6% to 5.5% over nine
years and the post-65 health-care-cost trend rate is level at 1.5%. A 1
percent increase in each future year's assumed health-care-cost trend rates
increases the service and interest cost from $7.6 million to $8.5 million and
the accumulated postretirement benefit obligation from $85.0 million to $93.0
million.
Enhanced Retirement
In December 1994, IP announced plans for voluntary enhanced retirement programs.
During the fourth quarter of 1995, enhanced retirement and severance reduced the
number of employees by 492 and 235, respectively. At January 1, 1996, Illinova
employed 3,596 people, as compared to 4,350 at December 31, 1994. The enhanced
retirement and severance programs generated pre-tax charges of approximately
$26 and $12 million, respectively, against fourth quarter 1995 earnings and
will generate savings of approximately $36 million annually, starting in 1996.
Note 13--Segments of Business
<TABLE>
(Millions of dollars)
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993
Total Total Total
Electric Gas Corporation Electric Gas Corporation Electric Gas Corporation
- - ----------------------------------------------------------------------------------------------------------------------
Operation information --
Operating revenues $1,368.9 $272.5 $1,641.4 $1,287.5 $302.0 $1,589.5 $1,266.4 $314.8 $1,581.2
Operating expenses, excluding
provision for income taxes
and deferred Clinton costs 942.7 245.0 1,187.7 872.6 274.7 1,147.3 873.9 286.2 1,160.1
Deferred Clinton costs 3.5 - 3.5 3.5 - 3.5 9.3 - 9.3
- - -----------------------------------------------------------------------------------------------------------------------
Pre-tax operating income 422.7 27.5 450.2 411.4 27.3 438.7 383.2 28.6 411.8
Allowance for funds used
during construction (AFUDC) 5.5 .5 6.0 8.9 .4 9.3 6.2 1.0 7.2
Disallowed Clinton costs (net of taxes) - - - - - - (200.4) - (200.4)
- - ------------------------------------------------------------------------------------------------------------------------
Pre-tax operating income, including
AFUDC and disallowed
Clinton costs $428.2 $28.0 $456.2 $420.3 $27.7 $448.0 $189.0 $29.6 $218.6
- - -------------------------------------------------------------- ----------------- -----------------
Other deductions, net 18.9 17.5 15.6
Interest charges 148.0 143.9 164.9
Provision for income taxes 114.0 109.9 93.9
Preferred dividend requirements
of subsidiary 23.7 24.9 26.1
- - --------------------------------------------------------------------------------------------------------------------------
Net income (loss) 151.6 151.8 (81.9)
Carrying value over (under)
consideration paid for redeemed
preferred stock of subsidiary (3.5) 6.4 -
- - --------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable
to common stock $148.1 $158.2 $(81.9)
===========================================================================================================================
Other information --
Depreciation $161.4 $21.6 $183.0 $156.1 $21.1 $177.2 $148.2 $21.0 $169.2
- - ---------------------------------------------------------------------------------------------------------------------------
Capital expenditures $185.7 $23.6 $209.3 $173.1 $20.6 $193.7 $221.3 $56.4 $277.7
- - ----------------------------------------------------------------------------------------------------------------------------
Investment information --
Identifiable assets* $4,580.4 $446.3 $5,026.7 $4,589.0 $442.6 $5,031.6 $4,526.8 $406.4 $4,933.2
- - --------------------------------------------------------------- ------------------ ----------------
Nonutility plant and other investments 65.5 37.2 19.9
Assets utilized for overall operations 517.6 507.9 470.4
- - -----------------------------------------------------------------------------------------------------------------------------
Total assets $5,609.8 $5,576.7 $5,423.5
==============================================================================================================================
*Utility plant, nuclear fuel, materials and supplies, deferred Clinton costs
and prepaid and deferred energy costs.
Note 14--Fair Value of
Financial Instruments
1995 1994
- - ----------------------------------------------------------------------------
(Millions of dollars) Carrying Fair Carrying Fair
Value Value Value Value
- - -----------------------------------------------------------------------------
Nuclear decommissioning
trust funds $ 32.7 $ 32.7 $ 22.4 $ 22.4
Cash and cash equivalents 11.3 11.3 50.7 50.7
Mandatorily redeemable
preferred stock
of subsidiary 97.0 108.2 133.0 133.0
Long-term debt
of subsidiary 1,739.2 1,855.8 1,868.1 1,750.7
Notes payable 359.6 359.6 238.8 238.8
- - ------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments listed in the table above:
Nuclear Decommissioning Trust Funds - The fair values of available-for-sale
marketable debt securities and equity investments held by the Nuclear
Decommissioning Trust are based on quoted market prices at the reporting
date for those or similar investments.
Cash and Cash Equivalents - The carrying amount of cash and cash equivalents
approximates fair value due to the short maturity of these instruments.
Mandatorily Redeemable Serial Preferred Stock of Subsidiary and Long-Term
Debt of Subsidiary - The fair value of IP mandatorily redeemable preferred
stock and IP long-term debt is estimated based on the quoted market prices
for similar issues or by discounting expected cash flows at the rates currently
offered to IP for debt of the same remaining maturities, as advised by IP's
bankers.
Notes Payable - The carrying amount of notes payable approximates fair value
due to the short maturity of these instruments.
Note 15--quarterly consolidated financial information and common stock data
(unaudited)
(Millions of dollars except per common share amounts)
- - ---------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
1995 1995 1995 1995
- - --------------------------------------------------------------------------------------------------
Operating revenues $425.5 $344.3 $486.1 $385.5
Operating income 78.3 67.1 137.2 41.8
Net income 32.4 26.3 89.9 3.0
Net income (loss) applicable to common stock 32.4 26.3 89.9 (.5)
Earnings per common share $.43 $.35 $1.18 $ .00
Common stock prices and dividends
High $23 5/8 $26 $27 1/4 $30
Low $21 1/4 $22 3/4 $24 1/4 $27
Dividends declared $.25 $.25 $.25 $.28
First Quarter Second Quarter Third Quarter Fourth Quarter
1994 1994 1994 1994
___________________________________________________________________________________________________
Operating revenues $ 442.9 $ 349.6 $ 428.9 $ 368.1
Operating income 71.3 72.2 112.2 64.7
Net income 27.3 29.5 71.8 23.2
Net income applicable to common stock 27.3 29.5 71.8 29.6
Earnings per common share $ .36 $ .39 $ .95 $ .39
Common stock prices and dividends
High $ 22 1/2 $ 22 5/8 $ 21 1/2 $ 21 7/8
Low $ 19 7/8 $ 18 1/4 $ 18 1/8 $ 18 7/8
Dividends declared $ .00 $ .20 $ .20 $ .25
The 1995 fourth quarter earnings include $23 million net of tax, $(.30) per
share, for the enhanced retirement and severance program and $3.5 million,
$(.05) per share, for the carrying amount under consideration paid for
redeemed preferred stock of IP.
The 1994 fourth quarter earnings include $6.4 million, $.08 per share, for
the carrying amount over consideration paid for redeemed preferred stock of
IP.
The common stock is listed on the New York Stock Exchange and the Chicago
Stock Exchange. The stock prices above are the prices reported on the
Composite Tape. There were 35,035 registered holders of common stock at
January 10, 1996. On May 31, 1994, common shares of Illinois Power began
trading as common shares of Illinova.
Illinova Corporation
__________________________________________________________________________________________________________
selected consolidated financial data*
(Millions of dollars)
1995 1994 1993 1992 1991 1985
__________________________________________________________________________________________________________
Operating revenues
Electric $ 1,252.6 $ 1,177.5 $ 1,135.6 $ 1,117.9 $ 1,101.2 $ 766.5
Electric interchange 116.3 110.0 130.8 73.0 85.5 36.0
Gas 272.5 302.0 314.8 288.6 288.2 400.9
___________________________________________________________________________________________________________
Total operating revenues $ 1,641.4 $ 1,589.5 $ 1,581.2 $ 1,479.5 $ 1,474.9 $ 1,203.4
___________________________________________________________________________________________________________
Net income (loss) $ 151.6 $ 151.8 $ (81.9) $ 93.2 $ 78.4 $ 207.2
Effective income tax rate 42.9% 42.0% (39.8)% 46.0% 48.6% 29.1%
____________________________________________________________________________________________________________
Net income (loss) appli-
cable to common stock $ 148.1 $ 158.2 $ (81.9) $ 93.2 $ 78.4 $ 207.2
Earnings (loss)
per common share $ 1.96 $ 2.09 $ (1.08) $ 1.23 $ 1.04 $ 3.48
Cash dividends declared
per common share $ 1.03 $ .65 $ .40 $ 1.40 $ .40 $ 2.64
Dividend payout ratio
(declared) 52.3% 30.7% N/A 112.9% 38.4% 76.6%
Book value per common
share $ 20.19 $ 19.17 $ 17.46 $ 18.81 $ 19.25 $ 24.51
Price range of common shares
High $ 30 $ 22 5/8 $ 25 7/8 $ 25 1/8 $ 24 1/8 $ 27 1/2
Low $ 21 1/4 $ 18 1/8 $ 20 1/8 $ 19 1/4 $ 15 3/8 $ 21 3/8
Weighted average number
of common shares outstanding
during the period
(thousands) 75,644 75,644 75,644 75,644 75,644 59,619
______________________________________________________________________________________________________________
Total assets** $ 5,609.8 $ 5,576.7 $ 5,423.5 $ 5,331.7 $ 5,271.8 $ 4,894.6
______________________________________________________________________________________________________________
Capitalization
Common stock equity $ 1,527.0 $ 1,450.2 $ 1,321.0 $ 1,422.7 $ 1,456.1 $ 1,539.3
Preferred stock of
subsidiary 125.6 224.7 303.7 303.1 303.1 315.2
Mandatorily redeemable
preferred stock of subsidiary 97.0 133.0 48.0 100.0 110.0 86.0
Long-term debt of
subsidiary** 1,739.3 1,946.1 1,926.3 2,017.4 2,153.1 1,997.5
___________________________________________________________________________________________________________
Total capitalization** $ 3,488.9 $ 3,754.0 $ 3,599.0 $ 3,843.2 $ 4,022.3 $ 3,938.0
___________________________________________________________________________________________________________
Embedded cost of
long-term debt 7.9% 7.6% 7.5% 8.3% 8.7% 10.0%
____________________________________________________________________________________________________________
Retained earnings
(deficit) $ 129.6 $ 58.8 $ (64.6) $ 41.0 $ 75.8 $ 398.8
_____________________________________________________________________________________________________________
Capital expenditures $ 209.3 $ 193.7 $ 277.7 $ 244.4 $ 141.2 $ 870.7
Cash flows from
operations $ 413.2 $ 268.6 $ 369.7 $ 344.8 $ 281.3 $ 242.7
AFUDC as a percent of
earnings applicable
to common stock 4.1% 5.9% N/A 5.6% 3.7% 78.2%
Return on average
common equity 10.2% 11.0% (6.0)% 6.5% 5.5% 14.4%
Ratio of earnings to
fixed charges 2.56 2.56 .66 1.87 1.70 2.66
===========================================================================================================
* Millions of dollars except earnings (loss) per common share, cash
dividends declared per common share, book value per common share and price
range of common shares.
** Restated for the effect of capitalized nuclear fuel lease.
Illinova Corporation
selected illinois power company statistics
1995 1994 1993 1992 1991 1985
- - ------------------------------------------------------------------------------------------------------------
Electric Sales In KWH (millions)
Residential 4,754 4,537 4,546 4,138 4,620 3,927
Commercial 3,804 3,517 3,246 3,055 3,111 2,706
Industrial 8,670 8,685 8,120 8,083 7,642 6,933
Other 367 536 337 466 699 861
____________________________________________________________________________________________________________
Sales to ultimate consumers 17,595 17,275 16,249 15,742 16,072 14,427
Interchange 4,444 4,837 6,015 2,807 3,360 1,692
Wheeling 642 622 569 402 292 -
____________________________________________________________________________________________________________
Total electric sales 22,681 22,734 22,833 18,951 19,724 16,119
____________________________________________________________________________________________________________
Electric Revenues (millions)
Residential $ 500 $ 471 $ 463 $ 435 $ 447 $ 276
Commercial 321 295 269 263 251 179
Industrial 392 378 360 381 355 277
Other 37 30 40 38 47 34
____________________________________________________________________________________________________________
Revenues from ultimate consumers 1,250 1,174 1,132 1,117 1,100 766
Interchange 116 110 131 73 86 36
Wheeling 3 3 3 1 1 -
_____________________________________________________________________________________________________________
Total electric revenues $ 1,369 $ 1,287 $ 1,266 $1,191 $ 1,187 $ 802
_____________________________________________________________________________________________________________
Gas Sales In Therms (millions)
Residential 356 359 371 339 339 365
Commercial 144 144 148 138 133 166
Industrial 88 81 78 136 98 136
______________________________________________________________________________________________________________
Sales to ultimate consumers 588 584 597 613 570 667
Transportation of customer-owned gas 273 262 229 204 253 -
_______________________________________________________________________________________________________________
Total gas sold and transported 861 846 826 817 823 667
Interdepartmental sales 21 5 7 12 8 1
_______________________________________________________________________________________________________________
Total gas delivered 882 851 833 829 831 668
_______________________________________________________________________________________________________________
Gas Revenues (millions)
Residential $ 173 $ 192 $ 200 $ 181 $ 84 $ 228
Commercial 60 66 68 61 61 89
Industrial 24 31 34 37 31 68
_______________________________________________________________________________________________________________
Revenues from ultimate consumers 257 289 302 279 276 385
Transportation of customer-owned gas 8 9 8 7 9 -
Miscellaneous 7 4 5 3 3 16
________________________________________________________________________________________________________________
Total gas revenues $ 272 $ 302 $ 315 $ 289 $ 288 $ 401
________________________________________________________________________________________________________________
System peak demand (native load)
in kw (thousands) 3,667 3,395 3,415 3,109 3,272 2,929
Firm peak demand (native load)
in kw (thousands) 3,576 3,232 3,254 2,925 3,108 2,771
Net generating capability
in kw (thousands) 3,862 4,121 4,045 4,052 3,909 3,770
________________________________________________________________________________________________________________
Electric customers (end of year) 529,966 553,869 554,270 549,391 565,421 537,047
Gas customers (end of year) 374,299 388,170 394,379 386,261 401,763 382,442
Employees (end of year) 3,559 4,350 4,540 4,624 4,514 4,550
_________________________________________________________________________________________________________________
</TABLE>
Measures of Our Success
Illinois Power 1995 Information Statement
and 1995 Annual Report to
Stockholders
we will be the best by the year 2000
- - --------------------------------------------
notice of annual meeting of shareholders
Proxy Statement
Table of Contents
- - --------------------
Notice of Annual Meeting 2
Proxy Statement 3
Appendix:
1995 Annual Report to Shareholders A-1
To the Shareholders
of Illinova Corporation:
Notice is Hereby Given that the Annual Meeting of Shareholders of Illinova
Corporation ("Illinova") will be held at 10 a.m. Wednesday, April 10, 1996,
at Shilling Community Education Center, Richland Community College, One
College Park, Decatur, Illinois 62521, for the following purposes:
(1) To elect the Board of Directors for the ensuing year.
(2) To transact any other business which may properly come before the meeting or
any adjournment.
Shareholders of record at the close of business on February 12, 1996, will be
entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors,
Leah Manning Stetzner,
General Counsel and Corporate Secretary
Decatur, Illinois
March 1, 1996
IMPORTANT
Illinova invites each of its approximately 35,000 shareholders to attend the
Annual Meeting. Shareholders will be admitted on verification of record share
ownership at the admission desk. Shareholders who own shares through banks,
brokerage firms, nominees or other account custodians must present proof of
beneficial share ownership (such as a brokerage account statement) at the
admission desk. If you are unable to be present at the meeting, it is
important that you, whether the owner of one or many shares, sign and return
the enclosed proxy. An envelope on which postage will be paid by Illinova
is enclosed for that purpose.
Return of your executed proxy will ensure you are represented at the Annual
Meeting. Your cooperation is appreciated.
proxy statement
Solicitation and
Revocation of Proxies
This Proxy Statement is furnished in connection with a solicitation of proxies
by the Board of Directors of Illinova, for use at the Annual Meeting of
Shareholders to be held at Shilling Community Education Center, Richland
Community College, One College Park, Decatur, Illinois 62521, at 10 a.m.
Wednesday, April 10, 1996, and at any adjournment thereof (the "Annual
Meeting"). Any shareholder giving a proxy may revoke it at any time by giving
a later proxy or by giving written notice of revocation to the Corporate
Secretary of Illinova prior to the Annual Meeting. All duly executed proxies
received prior to the Annual Meeting will be voted.
Shares credited to the accounts of participants in Illinova's Automatic
Reinvestment and Stock Purchase Plan, and Employees Stock Ownership Plan,
and Illinois Power Company's ("Illinois Power") Incentive Savings Plans will
be voted in accordance with the instructions of the participants or otherwise
in accordance with the terms of such plans.
Voting Rights
Shareholders of record at the close of business on Monday, February 12, 1996
(the "Record Date"), will be entitled to receive notice of and to vote at the
Annual Meeting. As of such date, Illinova had outstanding 75,674,837 shares
of Common Stock. Shareholders who are present at the Annual Meeting in person
or by proxy will be entitled to one vote for each share of Illinova's Common
Stock which they held of record at the close of business on the Record Date.
When voting for candidates nominated to serve as directors, all shareholders
will be entitled to 11 votes (the number of directors to be elected) for each
of their shares and may cast all of their votes for any one candidate whose
name has been placed in nomination prior to the voting or distribute their
votes among two or more such candidates in such proportions as they may
determine. In voting on other matters presented for consideration at the
Annual Meeting, each shareholder will be entitled to one vote for each share of
Common Stock held of record at the close of business on the Record Date. The
affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy and entitled to vote at the
Annual Meeting is required for the election of directors.
Annual Report,
Proxy and Proxy Statement
Accompanying this Proxy Statement, which includes Consolidated Financial
Statements, is a Notice of Annual Meeting of Shareholders, a form of Proxy
and the Summary Annual Report to Shareholders covering operations of Illinova
for the year 1995. This Proxy Statement and accompanying documents are first
being mailed to shareholders on or about March 1, 1996.
Board of Directors
Information Regarding
the Board of Directors
The Board of Directors held six Board meetings during 1995. All directors
attended at least 75% of the aggregate meetings of the Board and Committees
of which they were members during 1995. The Board has four standing
committees: the Audit Committee, the Finance Committee, the Compensation and
Nominating Committee, and the Business Development Committee.
The duties and members of the standing committees are:
Audit Committee
(1) Review with the Chairman, President and Chief Executive Officer and the
independent accountants the scope and adequacy of Illinova's system of
internal controls; (2) review the scope and results of the annual examination
performed by the independent accountants; (3) review the activities of
Illinova's internal auditors; (4) report its findings to the Board and
provide a line of communication between the Board and both the internal
auditors and the independent accountants; and (5) recommend to the Board
the appointment of the independent accountants and approval of the services
performed by the independent accountants, considering their independence with
regard thereto.
The Audit Committee met three times during 1995.
This Committee consists of the following non-employee directors ("Outside
Directors"): Vernon K. Zimmerman, Chairman, Richard R. Berry, Donald E. Lasater,
Robert M. Powers, Walter M. Vannoy, and Marilou von Ferstel.
Finance Committee
(1) Review management's capital and operations and maintenance expenditure
budgets, financial forecasts and financing program, and make recommendations
to the Board regarding the approval of such budgets and plans; (2) review
Illinova's banking relationships, short-term borrowing arrangements, dividend
policies, arrangements with the transfer agent and registrar, investment
objectives and the performance of Illinova's pension funds, evaluate fund
managers, and make recommendations to the Board concerning such matters; and
(3) act in an advisory capacity to management, the Board of Directors, and the
Chairman, President and Chief Executive Officer on other financial matters
as they may arise.
The Finance Committee met three times during 1995.
This Committee consists of the following members of the Board: Donald E.
Lasater, Chairman, Richard R. Berry, Larry D. Haab, Walter D. Scott,
Charles W. Wells (until his retirement on December 31, 1995), and Vernon K.
Zimmerman.
Compensation and
Nominating Committee
(1) Review performance and recommend salaries plus other forms of compensation
of elected Illinova officers and the Board of Directors; (2) review Illinova's
benefit plans for elected Illinova officers and make recommendations to the
Board regarding any changes deemed necessary; (3) review with the Chairman,
President and Chief Executive Officer any organizational or other personnel
matters; and (4) recommend to the Board nominees to stand for election as
director to fill vacancies in the Board of Directors as they occur.
The Compensation and Nominating Committee will consider shareholders'
recommendations for nominees for director made pursuant to timely notice in
writing addressed to the Chairman of the Committee at the executive offices
of Illinova, together with a full description of the qualifications and
business and professional experience of the proposed nominees and a statement
of the nominees' willingness to serve. To be timely, the notice shall be
delivered to or mailed and received at the executive offices of Illinova not
less than 90 nor more than 120 days prior to the Annual Meeting.
The Compensation and Nominating Committee met four times during 1995.
This Committee consists of the following Outside Directors: Donald S. Perkins,
Chairman, Robert M. Powers, Walter D. Scott, Ronald L. Thompson, Marilou von
Ferstel, and John D. Zeglis.
Business development Committee
(1) Review corporate objectives of Illinova, consider appropriate structure
changes to meet corporate objectives and make recommendations to the Board
concerning such matters; (2) review Illinova's program for long-term corporate
activities and make recommendations to the Board regarding the approval of
such programs; and (3) act in an advisory capacity to management and the
Board of Directors on corporate development.
The Business Development Committee met once during 1995.
This Committee consists of the following members of the Board: Robert M.
Powers, Chairman, Larry D. Haab, Donald S. Perkins, Walter D. Scott, Ronald L.
Thompson, Marilou von Ferstel, and John D. Zeglis.
Board Compensation
The Outside Directors of Illinova receive a retainer fee of $18,000 per year.
Outside Directors who also chair Board Committees receive an additional
$2,000 per year retainer. Outside Directors receive a grant of 650 shares of
Common Stock on the date of each Annual Shareholders Meeting, representing
payment in lieu of attendance-based fees for all Board and Committee meetings
to be held during the subsequent one-year period. Outside Directors elected
to the Board between Annual Shareholders Meetings are paid $850 for each
Board and Committee meeting attended prior to the first Annual Shareholders
Meeting after their election to the Board.
Illinova has a Retirement Plan for Outside Directors. Under this plan, each
Outside Director who has attained age 65 and has served on the Board for a
period of 60 or more consecutive months is eligible for annual retirement
benefits at the rate of the annual retainer fee in effect when the director
retires. These benefits, at the discretion of the Board, may be extended to
Outside Directors who have attained the age of 65 but not served on the Board
for the specified period. The benefits are payable for a number of months
equal to the number of months of Board service, subject to a maximum of
120 months, and cease upon the death of the retired Outside Director. On
February 7, 1996, the Board of Directors approved a compensation plan that
eliminates the Retirement Plan. Each former Outside Director whose right
to receive the retirement benefit has vested will continue to receive such
benefits in accordance with the terms of the Retirement Plan. All current
Outside Directors will receive a lump sum payment based on the net present
value of these benefits to them, were they to have retired under the
Retirement Plan, based on the number of years they have served on the Board
but not to exceed 10. Thereafter, each Outside Director will receive an
annual award of stock units having a value of $6,000, to be paid to the
Outside Director in cash on retirement, at once or in installments as the
Director may elect, together with dividend equivalents attributable to such
stock units.
Pursuant to Illinova's Deferred Compensation Plan for Certain Directors, the
Outside Directors may elect to defer all or any portion of their fees and
stock grants until termination of their services as directors. Such deferred
amounts are converted into stock units representing shares of Illinova's
Common Stock with the value of each stock unit based upon the last reported
sales price of such stock at the end of each calendar quarter. Additional
credits are made to the participating director's account in dollar amounts
equal to the dividends paid on Common Stock which the director would have
received if the director had been the record owner of the shares represented
by stock units, and are converted into additional stock units. On
termination of participating directors' services as directors, payment of
their deferred fees and stock grants is made in shares of Common Stock in
an amount equal to the aggregate number of stock units credited to their
accounts. Such payment is made in such number of annual installments as
Illinova may determine beginning in the year following the year of
termination.
Election of Directors
Illinova's entire Board of Directors is elected at each Annual Meeting of
Shareholders. Directors hold office until the next Annual Meeting of
Shareholders and until their successors are elected and qualified. At the
Annual Meeting a vote will be taken on a proposal to elect the 11 directors
nominated by Illinova's Board of Directors. The names and certain additional
information concerning each of the director nominees is set forth below. The
dates shown for service as a director include service as a director of
Illinois Power prior to the May 1994 merger in which Illinois Power became a
wholly owned subsidiary of Illinova. If any nominee should be unable to serve
as a director, another nominee will be selected by the current Board of
Directors.
Name of Director Nominee, Age, Year in Which First
Business Experience and Elected a Director
Other Information of Illinova
Richard R. Berry, 64 1988
- - ---------------------------
Prior to retirement in February 1990, Mr. Berry was Executive Vice President
and director of Olin Corporation, Stamford, Connecticut, a diversified
manufacturer concentrated in chemicals, metals and aerospace/defense products,
since June 1983.
Larry D. Haab, 58 1986
- - -------------------------
Chairman, President and Chief Executive Officer of Illinova since December
1993, and of Illinois Power since June 1991, and an employee of Illinois
Power since 1965. He is a director of First Decatur Bancshares, Inc., The
First National Bank of Decatur and Firstech, Incorporated.
C. Steven McMillan, 50
- - -------------------------
Executive Vice President and Director of Sara Lee Corporation, Chicago,
Illinois, a global packaged food and consumer products company, since 1993.
He had previously been Senior Vice President-Strategy Development from 1986
to 1993. He is Chairman of the Board of Electrolux Corporation and a director
of J. P. Food Service.
Donald S. Perkins, 68 1988
- - -----------------------------
Prior to retirement in June 1983, as Chairman of the Executive Committee,
Mr. Perkins was Chairman of the Board and Chief Executive Officer of Jewel
Companies, Inc., Chicago, Illinois, a diversified retailer, from 1970 to 1980.
He is a director of AT&T, Aon Corporation, Cummins Engine Company, Inc.,
Current Assets, Inland Steel Industries, Inc., LaSalle Street Fund, Inc.,
The Putnam Funds, Spring Industries, Inc., and Time Warner, Inc.
Robert M. Powers, 64 1984
- - -----------------------------
Prior to retirement in December 1988, Mr. Powers was President and Chief
Executive Officer of A. E. Staley Manufacturing Company, Decatur, Illinois,
a processor of grain and oil seeds, since 1980. He is a director of A. E.
Staley Manufacturing Company.
Walter D. Scott, 64 1990
- - ----------------------------
Professor of Management and Senior Austin Fellow, J. L. Kellogg Graduate
School of Management, Northwestern University, Evanston, Illinois, since 1988.
Previously, Mr. Scott served as Chairman of GrandMet USA, from 1984 to 1986,
and as President and Chief Executive Officer of IDS Financial Services, from
1980 to 1984. Mr. Scott is a director of Chicago Title and Trust Company,
Chicago Title Insurance Company, Intermatic Incorporated, and Orval Kent Food
Company, Inc.
Ronald L. Thompson, 46 1991
- - -----------------------------
Chairman and Chief Executive Officer of Midwest Stamping and Manufacturing Co.,
Bowling Green, Ohio, a manufacturer of automotive parts, since 1993. He was
President and Chief Executive Officer and a director of The GR Group, Inc.,
St. Louis, Missouri, a diversified holding company with interests in
manufacturing and service activities, from 1980 to 1993. He is Chairman of the
Board of The GR Group, a director of McDonnell Douglas Corporation, and a
director of Teachers Insurance and Annuity Association.
Walter M. Vannoy, 68 1990
- - -----------------------------
Prior to retirement in May 1995, Mr. Vannoy was Chairman and Chief Executive
Officer of Figgie International, Inc., Willoughby, Ohio, a diversified
operating company serving consumer, industrial, technical, and service markets
world-wide, since 1994. He is a director of Figgie International, Inc.
Marilou von Ferstel, 58 1990
- - ------------------------------
Executive Vice President and General Manager of Ogilvy Adams & Rinehart, Inc.,
a public relations firm in Chicago, Illinois, since June 1990. She had
previously been Managing Director and Senior Vice President of Hill and
Knowlton, Chicago, Illinois, a public relations consulting firm, from 1981 to
1990. Ms. von Ferstel is a director of Walgreen Company.
John D. Zeglis, 48 1993
- - ------------------------------
Senior Executive Vice President-General Counsel, Government Affairs, and
Policy Development of AT&T, Basking Ridge, New Jersey, a diversified
communications company, since 1995. He had been Senior Vice President-General
Counsel and Government Affairs from 1989 to 1995. He is a director of the
Helmerich & Payne Corporation.
Vernon K. Zimmerman, 67 1973
- - --------------------------------
Director of the Center for International Education Research and Accounting,
and Distinguished Service Professor of Accountancy, University of Illinois,
Urbana, Illinois, since August 1985. He is a director of ICH Corporation.
Security Ownership of Management and Certain Beneficial Owners
The following table shows shares of stock beneficially owned as of January 31,
1996, by each director nominee and the executive officers named in the
Summary Compensation Table. To the best of Illinova's knowledge, no owner
holds more than 5 percent of Illinova Common Stock.
Number
of Shares
Name of Class Beneficially Percent
Beneficial Owner of Stock Owned (1) of Class
- - ------------------------------------------------------------
Richard R. Berry Common 3,580 (2)
Larry D. Haab Common 10,185 (2)
C. Steven McMillan Common 0 (2)
Donald S. Perkins Common 8,112 (2)
Robert M. Powers Common 7,250 (2)
Walter D. Scott Common 3,850 (2)
Ronald L. Thompson Common 3,127 (2)
Walter M. Vannoy Common 3,350 (2)
Marilou von Ferstel Common 4,112 (2)
John D. Zeglis Common 2,390 (2)
Vernon K. Zimmerman Common 8,401 (2)
Charles W. Wells Common 8,585 (2)
Paul L. Lang Common 2,734 (2)
Larry F. Altenbaumer Common 4,179 (2)
Larry S. Brodsky Common 1,713 (2)
(1) The nature of beneficial ownership for shares shown is sole voting and/or
investment power, except for Mr. Wells, who disclaims beneficial ownership of
1,000 shares held in the name of his wife.
(2) No director or executive officer owns any other equity securities of
Illinova. No director or executive officer owns as much as 1% of the Common
Stock. All directors and executive officers of both Illinova and Illinois
Power Company as a group own 80,299 shares of Common Stock (less than 1%).
Executive Compensation
The following table sets forth a summary of the compensation of the Chief
Executive Officer and the four other most highly compensated executive officers
of Illinova and Illinois Power Company, its principal subsidiary, for the years
indicated. The compensation shown includes all compensation paid for service
to Illinova and its subsidiaries, including Illinois Power.
<TABLE>
Summary Compensation Table
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Compensation
_________________________________________________
Annual Compensation Awards Payouts
------------------------------- ------------------------ ---------
Other Restricted Securities LTIP All Other
Bonus Annual Stock Awards Underlying Payouts Compensation
Name and Principal Position (1) Year Salary (2) Compensation (3) Options (4) (5)
Larry D. Haab 1995 $472,250 $76,975 $19,088 $76,975 20,000 shs. $43,597 $2,550
Chairman, President and 1994 451,375 42,881 15,783 20,900 shs. 360
Chief Executive Officer of 1993 437,500 22,531 13,199 20,000 shs. 480
Illinova and Illinois Power
Charles W. Wells 1995 $318,863 $ 33,734 $ 22,342 $ 33,734 -- $ 24,392 $2,470
Executive Vice President 1994 276,625 25,242 12,404 8,500 shs. 330
of Illinois Power 1993 265,875 12,629 9,697 6,500 shs. 357
Paul L. Lang 1995 $ 222,812 $ 20,499 $ 8,265 $ 20,499 6,500 shs. $ 20,360 $ 2,510
Senior Vice President 1994 213,562 20,289 8,672 6,800 shs. 440
of Illinois Power 1993 205,625 9,767 7,508 6,000 shs. 440
Larry F. Altenbaumer 1995 $ 204,937 $ 17,317 $ 7,686 $ 17,317 6,500 shs. $ 16,084 $ 2,378
Chief Financial Officer, 1994 196,562 18,674 8,975 6,800 shs. 400
Treasurer and Controller 1993 187,750 8,918 7,093 6,000 shs. 480
of Illinova, and Senior
Vice President, Chief
Financial Officer, and
Treasurer of Illinois Power
Larry S. Brodsky 1995 $ 196,000 $ -- $ 5,120 $ - 6,500 shs. $ 14,179 $ 2,190
Senior Vice President 1994 $ 174,186 $ 16,548 $ 4,973 4,400 shs. 400
of Illinois Power 1993 157,875 8,131 4,220 4,500 shs. 400
</TABLE>
(1) Mr. Wells retired from Illinois Power on December 31, 1995. Mr. Brodsky
resigned from Illinois Power on January 2, 1996.
(2) The amounts shown in this column are the cash award portion of grants
made to these individuals under the Executive Incentive Compensation Plan
("Compensation Plan") for 1995, including amounts deferred under the Executive
Deferred Compensation Plan. See the Compensation Plan description in footnote
(3) below.
(3) This table sets forth stock unit awards for 1995 under the Compensation
Plan. One-half of each year's award under this plan is converted into stock
units representing shares of Illinova Common Stock based on the closing price
of Common Stock on the last trading day of the award year. The other one-half
of the award is paid to the recipient in cash and is included under Bonus in
the Summary Compensation Table. Stock units awarded in a given year, together
with cash representing the accumulated dividend equivalents on those stock
units, become fully vested after a three-year holding period. Stock units are
converted into cash and piad based on the closing price of Common Stock on
the first trading day of the distriubtion year. Particpants (or beneficiears of
deceased participants) whose employment is terminated by retirement on or
after age 55, disability, or death receive the present value of all unpaid
awards on the date of such termination. Particpants whose employment is
terminated for reasons other than retirement, disability, or death forfeit
all unvested awards. In the event of a termination of employment within two
years after a change in control of Illinova, without good cause or by any
participant with good reason, all awards of the paricipant becme fully vested
and payable. As of December 31, 1995, named executive officers were credited
with the following total aggregate number of unvested stock units under
the Compensation Plan since its inception, valued on the basis of the closing
price of Common Stock on December 31, 1995: Mr. Haab, 8,253 units valued at
$247,603; Mr. Wells, 3,758 units valued at $112,759; Mr. Lang, 2,807 units
valued at $84,211; Mr. Altenbaumer, 2,439 units valued at $73,187; Mr. Brodsky,
474 units valued at $14,238. Although stock units have been rounded, valuation
is based on total stock units, including partial shares.
(4) The amounts shown in this column reflect the cash value of the stock units
granted in 1993 for the year 1992, including amounts deferred, under the
Compensation Plan. See the Compensation Plan description in footnote (3) above.
(5) The amounts shown in this column are Illinois Power's contributions
under the Incentive Savings Plan (including the market value of shares of
Illinova Common Stock at the time of allocation).
The following tables summarize grants during 1995 of stock options under
Illinova's 1992 Long-Term Incentive Compensation Plan ("LTIC") and awards
outstanding at year end for the individuals named in the Summary Compensation
Table. No options were exercisable or exercised during 1995.
Option Grants In 1995
Individual Grants
<TABLE>
Number of Securities % of Total Options
Underlying Options Granted to Employees Exercise or Base Grant Date
Granted(1) in 1995 Price Per Share(1) Expiration Date Present Value (2)
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
Larry D. Haab 20,000 29% $ 24.875 6/14/2004 $ 117,800
Charles W. Wells 0
Paul L. Lang 6,500 9% 24.875 6/14/2004 38,285
Larry F. Altenbaumer 6,500 9% 24.875 6/14/2004 38,285
Larry S. Brodsky 6,500 9% 24.875 6/14/2004 38,285
</TABLE>
(1) Each option becomes exercisable on June 30, 1998. In addition to the
specified expiration date, the grant expires on the first anniversary of the
recipient's death and/or the 90th day following retirement, and is not
exercisable in the event a recipient's employment terminates. In the event of
certain change-in-control circumstances, the Compensation and Nominating
Committee may declare the option immediately exercisable. The exercise price
of each option is equal to the fair market value of the Common Stock on the
date of the grant. Recipients shall also receive, on or shortly after June
30, 1998, a payment equal to a percentage of the total dividends declared
and paid on Illinova Common Stock during the period between the date of
this grant and June 30, 1998 calculated by multiplying the number of shares
of Common Stock granted hereunder times the total amount of dividends
paid per share of Common Stock during the holding period, times a percentage
based on Illinova total shareholder return ranking relative to the S & P
Electric Utility Group. At the discretion of the Board of Directors, the
foregoing payment may be made in the form of Illinova Common Stock of
equivalent value based on the average New York Stock Exchange price of
the stock during June 1998, or in cash.
(2) The Grant Date Present Value has been calculated using the Black-Scholes
option pricing model. Disclosure of the Grant Date Present Value,
or the potential realizable value of option grants assuming 5% and 10%
annualized growth rates, is mandated by regulation; however, Illinova does
not necessarily view the Black-Scholes pricing methodology, or any other
present methodology, as a valid or accurate means of valuing stock option
grants. The calculation was based on the following assumptions: (i) An
annual dividend yield on Illinova Common Stock of 3.80%; (ii) A risk-free
interest rate of 6.40%, based on the yield of a zero-coupon government bond
maturing at the end of the option term; and (iii) Stock volatility of 19.73%.
Aggregated Option and Fiscal Year-End Option Value Table
<TABLE>
<S> <C> <C>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year-End Options at Fiscal Year-End
Name Exercisable/Unexercisable Exercisable/Unexercisable
Larry D. Haab 0 shs./76,900 shs. 0/$514,212
Charles W. Wells 0 shs./21,000 shs. 0/$154,687
Paul L. Lang 0 shs./24,300 shs. 0/$162,987
Larry F. Altenbaumer 0 shs./24,300 shs. 0/$162,987
Larry S. Brodsky 0 shs./18,400 shs. 0/$119,212
</TABLE>
Pension Benefits
Illinois Power maintains a Retirement Income Plan for Salaried Employees (the
"Retirement Plan") providing pension benefits for all eligible salaried
employees. In addition to the Retirement Plan, Illinois Power also maintains a
nonqualified Supplemental Retirement Income Plan for Salaried Employees
(the "Supplemental Plan") that covers all elected officers eligible to
participate in the Retirement Plan and provides for payments from general
funds of Illinois Power of any monthly retirement income not payable under
the Retirement Plan because of the benefit limits imposed by law or
because of certain Retirement Plan rules limiting the amount of credited service
accrued by a participant.
The following table shows the estimated annual pension benefits on a straight
life annuity basis payable upon retirement based on specified annual average
earnings and years of credited service classifications, assuming continuation
of the Retirement Plan and Supplemental Plan and employment until age 65.
This table does not show, but any actual pension benefit payments would be
subject to, the Social Security offset.
Estimated Annual Benefits (rounded)
-------------------------------------
Annual
Average 15 Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs.
Earnings Service Service Service Service Service
$125,000 $37,500 $50,000 $62,500 $75,000 $87,500
150,000 45,000 60,000 75,000 90,000 105,000
175,000 52,500 70,000 87,500 105,000 122,500
200,000 60,000 80,000 100,000 120,000 140,000
250,000 75,000 100,000 125,000 150,000 175,000
300,000 90,000 120,000 150,000 180,000 210,000
350,000 105,000 140,000 175,000 210,000 245,000
400,000 120,000 160,000 200,000 240,000 280,000
450,000 135,000 180,000 225,000 270,000 315,000
500,000 150,000 200,000 250,000 300,000 350,000
550,000 165,000 220,000 275,000 330,000 385,000
600,000 180,000 240,000 300,000 360,000 420,000
650,000 195,000 260,000 325,000 390,000 455,000
The earnings used in determining pension benefits under the Retirement Plan
are the participants' regular base compensation, as set forth under Salary in
the Summary Compensation Table.
At December 31, 1995, for purposes of both the Retirement Plan and the
Supplemental Plan, Messrs. Haab, Wells, Lang, Altenbaumer, and Brodsky had
completed 30, 32, 9, 23, and 21 years of credited service, respectively.
Employee Retention Agreements
Illinova has entered into Employee Retention Agreements with each of its
executive officers and officers of its subsidiaries. Under each agreement,
the officer would be entitled to receive a lump sum cash payment if his or
her employment were terminated by Illinova without good cause or voluntarily
by the officer for good reason within two years following a change in control
of Illinova Corporation (as defined in the Agreement). The amount of the lump
sum payment would be equal to (1) 36 months' salary at the greater of the
officer's salary rate in effect on the date the change in control occurred or
the salary rate in effect on the date of the officer's employment with
Illinova terminated; plus (2) three times the latest bonus earned by the
officer during the three calendar years preceding termination of employment.
Under the agreement, the officer would continue, after any such termination
of employment, to participate in and receive benefits under other benefit
plans of Illinova. Such coverage would contnue for 36 months following
termination of employment, or, if earlier, until the officer reached age
65 or was employed by another employer; provided that, if the officer
was 50 years of age or older at the time of such termination, then coverage
under health, life insurance and similar welfare plans would continue
until the officer became 55 years of age, at which time he or she would
be eligible to receive the benefits extended to the employees of Illinova
who elect early retirement.
Compensation and Nominating Committee Report on Officer Compensation
The six-member Compensation and Nominating Committee of the Board of
Directors (the "Committee") is composed entirely of Outside Directors. The
Committee's role includes a review of the performance of the elected officers
and the establishment of specific officer salaries subject to Board approval.
The Committee establishes performance goals for the officers under the
Compensation Plan, approves payments made pursuant to the Compensation Plan
and recommends grants under the Long-Term Incentive Compensation Plan
approved by the shareholders in 1992. The Committee also reviews other
forms of compensation and benefits making recommendations to the Board on
changes whenever appropriate. The Committee carries out these
responsibilities with assistance from an executive compensation consulting
firm and with input from the Chief Executive Officer and management as
it deems appropriate.
Officer Compensation Philosophy
Illinova's compensation philosophy reflects a commitment to compensate
officers competitively with other companies in the electric and gas utility
industry while rewarding executives for achieving levels of operational
excellence and financial returns consistent with continuous improvement in
customer satisfaction and shareholder value. Illinova's compensation policy
is to provide a total compensation opportunity targeted to all utilities in
the Edison Electric Institute (EEI) database. Eighty-four percent of the
companies in the S&P Utilities Index are also in the EEI database. The
S&P Utilities Index is used to relate Illinova's shareholder value in the
following performance graphs. The S&P index covers the utility industry
broadly including electric, gas, and telecommunications utilities. After
careful consideration, the Committee has decided to maintain a separate
peer group limited to electric or combination electric and gas companies
for compensation purposes.
The compensation program for officers consists of base salary, annual
incentive and long-term incentive components. The combination of these three
elements balances short- and long-term business performance goals and aligns
officer financial rewards with those of Illinova's shareholders. The
compensation program is structured so that, depending on the salary level,
between 25 and 45 percent of an officer's total compensation target is
composed of incentive compensation.
Base Salary Plan
The Committee determines base salary ranges for executive officers based on
competitive pay practices of a peer group of utilities. Officer salaries
correspond to approximately the average of the companies in the compensation
peer group. Individual increases are based on several factors including the
officer's performance during the year and the relationship of the officer's
salary to the market salary level for the position.
Annual Incentive Compensation Plan
Annual incentive awards are earned based on the achievement of specific
annual financial and operational goals by the elected officer group as a
whole and consideration of the officer's individual contribution. If payment
is earned under this Plan, one-half of the bonus is payable in cash during
the year following the award year and one-half is credited to the participant
in the form of Common Stock units, the number of which is determined by
dividing half of the earned bonus amount by the closing price of the Common
Stock on the last trading day of the award year. The officer's interest
in the stock units vests at the end of the three-year period which begins
the year after the award year. The officer receives this award in cash
equal to (1) the closing stock price on the first trading day of the
distribution year times the number of units held plus (2) dividend
equivalents that would have been received if the stock had actually been
issued.
For 1995, awards under the Compensation Plan are based on achievement in the
performance areas: earnings per share, customer satisfaction, employee
teamwork, cost management and operating effectiveness. Up to 25 percent of the
awarded amount is based on an assessment of the individual officer's
performance during the year.
Awards shown under Bonus in the Summary Compensation Table for performance
during 1995 were based on the following results. Earnings per Share, Customer
Satisfaction and Cost Management were at or better than the threshold level
for the award. Employee Teamwork results were not known at the time of printing.
Long-Term Incentive Compensation Plan
Awards under the LTIC Plan are made to individual officers based on their
contribution to corporate performance based on the review of this Committee.
The Committee may grant awards in the form of stock options, stock
appreciation rights, dividend equivalents or restricted stock grants. The
stock options and dividend equivalents granted to the officers for 1995
represent a long-term incentive award based on Illinova and individual
performance as evaluated by the Chairman and reviewed by the Committee. The
actual number of dividend equivalents earned is determined by Illinova's
total shareholder return compared to the companies in the S&P Utility
Index.
CEO Compensation
Larry Haab became Chairman, President, and Chief Executive Officer ("CEO") of
Illinois Power on June 12, 1991, and Chairman, President and Chief Executive
Officer of Illinova in December 1993. Illinova based Mr. Haab's 1995
compensation on the policies and plans described above.
The Committee invokes the active participation of all non-management
directors in reviewing Mr. Haab's performance before it makes recommendations
regarding his compensation. The Committee is responsible for administering
the processes for completing this review. The process starts early in the
year when the Board of Directors works with Mr. Haab to establish his
personal goals and short- and long-term strategic goals for Illinova. At the
conclusion of the year Mr. Haab reviews his performance with the non-management
directors. The Committee oversees this review and recomends to the board
appropriate adjustments to compensation. In setting the CEO's salary for
1995, the Committee, with the participation of all Outside Directors,
determined that important goals were achieved and the results for Illinova
for the year were excellent. Mr. Haab's vision of the industry's evolution
has led, and is continuing to lead, to appropriate redeployment of Illinova
resources. The Committee concluded that in 1995 Mr. Haab's performance
continued to advance Illinova toward the accomplishment of its strategic
objectives.
The 1995 Annual Incentive Compensation Plan award for the Chief Executive
Officer was calculated consistent with the determination of awards for all
other officers. Under the terms of the plan, one-half of the award was paid
in cash and one-half was converted to 2,566 stock units which vest over a
three-year period as described above.
The 20,000 option shares and dividend equivalents granted to the CEO reflect
the Committee's recognition of his work in directing Illinova towards its
long-term objectives of outstanding customer satisfaction and sustained
growth in shareholder return.
Compensation and Nominating Committee
Donald S. Perkins, Chairman
Robert M. Powers
Walter D. Scott
Ronald L. Thompson
Marilou von Ferstel
John D. Zeglis
Independent Auditors
The Board of Directors of Illinova has selected Price Waterhouse LLP as
independent auditors for Illinova for 1996. A representative of that firm
will be present at the Annual Meeting and available to make a statement and
to respond to appropriate questions.
Other Matters
Illinova's 1995 Summary Annual Report to Shareholders was mailed to
shareholders commencing on March 1, 1996. Copies of Illinova's Annual Report
on Form 10-K will be available to shareholders, after its filing with the
Securities and Exchange Commission on or before March 31, 1996. Requests
should be addressed to Investor Relations, G-21, Illinova Corporation,
500 South 27th Street, Decatur, Illinois 62525-1805.
Any proposal by a shareholder to be presented at the next Annual Meeting
must be received at Illinova's executive offices not later than November 1,
1996.
Other Business
Management does not know of any matter which will be presented for
consideration at the Annual Meeting other than the matters described in the
accompanying Notice of Annual Meeting.
By Order of the Board of Directors,
Leah Manning Stetzner,
General Counsel and Corporate Secretary
Decatur, Illinois
March 1, 1996
appendix: 1995 annual report to shareholders
Table of Contents
- - -----------------
Management's Discussion and Analysis A-2
Responsibility for Information A-10
Report of Independent Accountants A-10
Consolidated Statements of Income A-11
Consolidated Balance Sheets A-12
Consolidated Statements of Cash Flows A-13
Consolidated Statements of Retained Earnings (Deficit) A-13
Notes to Consolidated Financial Statements A-14
Selected Consolidated Financial Data A-32
Selected Illinois Power Company Statistics A-33
management's discussion and analysis
In this report, we make reference to the Consolidated Financial Statements,
related Notes to Consolidated Financial Statements, Selected Consolidated
Financial Data and Selected Statistics for information
concerning consolidated financial position and results of operations. A
discussion of the factors having significant impact upon consolidated
financial position and consolidated results of operations since January 1,
1993, is below.
Illinois Power Company (IP) is a susbsidiary of Illinova Corporation (Illinova),
a holding company. Illinova was officially formed on May 27, 1994, with the
filing of documents with the Illinois Secretary of State. Illinova became the
parent of IP through a merger pursuant to a share-for-share conversion common
stock into Illinova common stock. Illinova Generating Company and Illinova
Power Marketing, Inc. are wholly owned subsidiaries of Illinova. IP is the
primary business and subsidiary of Illinova, and is engaged in the generation,
transmission, distribution and sale of electric energy and the distribution,
transportation and sale of natural gas in the State of Illinois.
Open Access and Wheeling
On March 29, 1995, the FERC issued a Notice of Proposed Rulemaking (NOPR)
designed to encourage a more fully competitive wholesale electric market
through mandated open access to public utility transmission facilities, at
rates to be determined, at the outset, by the FERC. Transmission of
electricity for a customer who is not an end-user, or for delivery to an
end-user who is not a customer of the transmitting utility is called,
respectively, wholesale wheeling and retail wheeling. Under the FERC's
proposal, all transmission-owning public utilities were required to file
nondiscriminatory open-access transmission tariffs, available to all
wholesale sellers and buyers of electric energy.
On March 20, 1995, IP filed three transmission service tariffs that offer
eligible transmission customers the same or comparable transmission service
on terms comparable to service IP provides itself. On May 16, 1995, the FERC
accepted IP's open-access tariff filings. It's too soon to predict the long-
term financial inpact of increasing access and other issues arising from such
access.
Competition
In March 1995, IP was instrumental in developing a legislative proposal,
Energy Choice 2000, which is designed to reform Illinois' regulatory laws
governing utilities. Energy Choice 2000 establishes the framework for a
managed transition for utilities to operate in an increasingly competitive
environment. The proposal outlines a time frame for all classes of customers
to benefit from competition, beginning in the year 2000. In May 1995, the
Illinois General Assembly passed Senate Joint Resolution 21, which established
the Joint Committee on Electric Utility Regulatory Reform and directed it to
use Energy Choice 2000 "as a key element for developing legislative proposals
for reducing regulation, increasing customer choice and promoting and
facilitating competition in Illinois' electirc utility industry." The Joint
Committee on Electric Utility Regulation Reform is directed to proivde a
final legisltaion proposal during the fourth quarter of 1996.
On September 11, 1995, IP filed a proposal with the Illinois Commerce
Commission (ICC) seeking its approval to conduct an open-energy access
experiment beginning in 1996. The experiment would allow approximately 20
industrial customers to purchase electricity and related services from other
sources. IP would transmit (wheel) the electricity over its lines. IP will
seek FERC approval of the experiment after receipt of ICC approval,
anticipated in the second quarter of 1996.
The maximum total load involved in this experiment represents approximately 1
percent of IP's total load, or about $7.5 million in net annual revenue. IP
expects the earnings impact to be immaterial. Any loss of sales would be
partially offset by revenues obtained by selling the surplus energy and
capacity on the open market and by transmission and ancillary service charges
necessary for customers to obtain energy from an alternative supplier, as well
as by corresponding reductions in fuel and other variable operating costs.
The open-access experiment will allow IP to evaluate the financial,
operational and service impacts of transporting power from other suppliers
to customers. Additionally, regulators and legislators will benefit from the
experiment by observing open-energy access in a "laboratory setting" while
they look for ways to bring the benefits of competition to all customers.
Finally, it will give customers opportunity to gain experience in arranging
their power supplies and transmission requirements and managing their
operations under an open-energy access scenario.
The issue of competition is one that raises both risks and opportunities. At
this time, the ultimate effect of competition on Illinova's consolidated
financial position and results of operations is uncertain. See "Note 1-Summary
of Significant Accounting Policies" of the "Notes to Consolidated Financial
Statements" for additional discussion of the effects of regulation.
Enhanced Retirement
In December 1994, IP announced plans for voluntary enhanced retirement and
severance programs. During the fourth quarter of 1995, 727 employees accepted
enhanced retirement or severance under these programs. At January 1, 1996,
Illinova employed 3,596 people, as compared to 4,350 at December 31, 1994.
The combined enhanced retirement and severance programs generated a pre-tax
charge of $38 million against fourth quarter 1995 earnings and will generate
savings of approximately $36 million annually, starting in 1996.
Consolidated Results
of Operations
Overview
Net income (loss) applicable to common stock were $156 million for 1995, $162
million for 1994 and $(82) million for 1993. The 1995 results include $22.8
million net-tax for the enhanced retirement and severance program and $3.5
million for the carrying amount under consideration paid for preferred stock
redeemed in December 1995. The 1995 earnings also
reflect increased electric sales due to unseasonably warm summer weather,
partially offset by increased operating and maintenance expenses due to the
Clinton Power Station (Clinton) refueling and maintenance outage.
The 1994 results include $6.4 million for the carrying amount over
consideration paid for preferred stock redeemed in December 1994.
The 1994 results also reflect an increase in gas rates as a result of IP's
1994 gas rate order, increased electric sales, lower operating and maintenance
expenses due to ongoing cost management efforts, no Clinton refueling and
maintenance outage and lower financing costs. In 1993, earnings were $118
million, excluding the September write-off disallowed Clinton post-construction\
costs of $200 million, net of income taxes. The 1993 earnings before the
write-off reflect increased electric and gas sales due to closer-to-normal
temperatures increased interchange sales, lower operating and maintenance
expenses and lower interest expense as a result of refinancing efforts.
The ICC and FERC determine IP's rates, at the retail and wholesale levels,
respectively, for electric service, and the ICC determines IP's rates for gas
service. These rates are designed to recover the cost of service and allow
shareholders the opportunity to earn a fair rate of return. Future electric
and natural gas sales, including interchange sales, will continue to be
affected by an increasingly competitive marketplace, changes in the
regulatory environment, increased transmission access, weather conditions,
competing fuel sources, interchange market conditions, plant availability,
fuel cost recoveries, customer conservation efforts and the overall economy.
Operating Revenues
(Millions of dollars)
1995 $ 1,641.4
1994 1,589.5
1993 1,581.2
1992 1,479.5
1991 1,474.9
Illinois Power - Results of Operations
Electric Operations - For the years 1993 through 1995, electric revenues
including interchange increased 8.1% and the gross electric margin increased
8.7% as follows:
- - ---------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ---------------------------------------------------------
Electric revenues $ 1,252.6 $ 1,177.5 $ 1,135.6
Interchange revenues 116.3 110.0 130.8
Fuel cost & power purchased (333.4) (319.2) (313.6)
- - ---------------------------------------------------------
Electric margin $ 1,035.5 $ 968.3 $ 952.8
=========================================================
The components of annual changes in electric revenues:
- - ---------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ---------------------------------------------------------
Price $ 13.3 $ (23.2) $ (30.0)
Volume and other 42.7 44.1 72.1
Fuel cost recoveries 19.1 21.0 (24.4)
- - ---------------------------------------------------------
Revenue increase $ 75.1 $ 41.9 $ 17.7
=========================================================
1995 - The 6.4% increase in electric revenues was primarily due to a 1.9%
increase in kilowatt-hour sales to ultimate consumers (excluding interchange
sales and wheeling). Volume increases resulted from higher residential sales
(4.8%) and higher commercial sales (8.2%) due to an improving economy and
warmer summer temperatures compared to 1994. Industrial sales remained
essentially unchanged from 1994. Interchange revenues increased $6.3 million
(5.8%) as a result of increased sales opportunities.
1994 - The 3.7% increase in electric revenues was primarily due to a 6.3%
increase in kilowatt-hour sales to ultimate consumers (excluding interchange
sales and wheeling). Volume increases resulted from higher commercial sales
(8.3%) and higher industrial sales (7.0%) due to an improving economy.
Residential sales remained essentially unchanged from 1993 primarily due to
milder temperatures in 1994 as compared to 1993. Interchange sales decreased
19.6% from 1993 levels primarily due to unusually large sales opportunities
in 1993.
Major Sources of Electric Energy
(Millions of megawatt-hours)
1995 1994 1993
Fossil 14.5 13.2 13.1
Nuclear 5.3 6.4 5.1
Purchases 3.2 3.1 5.1
1993 - The 1.6% increase in electric revenues was primarily due to a 3.2%
increase in kilowatt-hour sales to ultimate consumers (excluding interchange
sales and wheeling) reflecting closer-to-normal temperatures during the
summer season. Volume increases resulted from higher residential sales (9.9%),
commercial sales (6.3%), and industrial sales (.5%). The increase in electric
revenues was partially offset by the reduction in rates resulting from the
August 1992 ICC Rehearing Order. Interchange revenues increased $57.8 million
(79.2%) primarily as a result of increased sales opportunities.
The cost of meeting IP's system requirements was reflected in fuel costs for
electric plants and power purchased. Changes in these costs are below:
- - ----------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ----------------------------------------------------
Fuel for electric plants
Volume and other $ 9.8 $ 13.8 $ 3.5
Price (35.5) (14.3) 7.4
Emission allowances 18.5 --- ---
Fuel cost recoveries 14.5 32.0 (24.6)
- - ----------------------------------------------------
7.3 31.5 (13.7)
Power purchased 6.9 (25.9) 54.5
- - ----------------------------------------------------
Total increase $ 14.2 $ 5.6 $ 40.8
====================================================
Weighted average system
generating fuel cost ($/MWH)$ 11.41 $ 12.72 $ 13.88
====================================================
System load requirements, generating unit availability, fuel prices,
purchased power prices, resale of energy to other utilities, emission
allowance purchases and fuel cost recovery through the Uniform Fuel Adjustment
Clause (UFAC) caused changes in these costs.
Equivalent Availability-Clinton and Fossil
Clinton Fossil
1995 76% 81%
1994 92% 78%
1993 62% 82%
1992 62% 82%
1991 76% 81%
Changes in factors affecting the cost of fuel for electric generation are below:
- - ------------------------------------------------------
1995 1994 1993
- - ------------------------------------------------------
Increase in generation 1.9% 8.2% 2.5%
Generation mix
Coal and other 73% 67% 72%
Nuclear 27% 33% 28%
======================================================
1995 - The cost of fuel increased 2.8% and electric generation increased 1.9%.
The increase in fuel cost was attributable to the effects of the UFAC, the
increase in higher-cost fossil generation and the cost of emission allowances.
Clinton's equivalent availability and generation were lower in 1995 as compared
to 1994 due to the scheduled refueling and maintenance outage. Clinton
returned to service April 29, 1995, after completing its fifth refueling and
maintenance outage, which began March 13, 1995. Power purchased increased
$6.9 million.
Fuel Cost per Million BTU
(Percent of generation)
Fuel Cost Percent of Generation
Coal $1.34 70.8%
Nuclear .81 27.7%
Gas 2.08 1.1%
Oil 4.44 .1%
Tires .88 .3%
1994 - The cost of fuel increased 13.4% and electric generation increased 8.2%.
The increase in fuel cost was attributable to the effects of the UFAC, partially
offset by a decrease in fossil generation and an increase in lower-cost
nuclear generation. Clinton's equivalent availability and generation were
higher in 1994 as compared to 1993 due to no refueling and maintenance outage.
Power purchased for the period decreased $25.9 million. Unusually large
interchange sales opportunities during 1993, which did not recur in 1994, were
the primary cause of the decrease in power purchased.
1993 - The cost of fuel decreased 5.5%, while electric generation increased
2.5%. The decrease in fuel cost was attributable to the effects of the UFAC and
lower generation at IP's largest fossil plant. The decrease was partially
offset by an increase in transportation costs due to flooding in the Midwest
and a United Mine Workers' strike. Power purchased for the period increased
$54.5 million. Coal delivery concerns and coal conservation measures stemming
from the United Mine Workers' strike, combined with favorable interchange
prices and increased sales opportunities, contributed to IP's increase in
purchased power. Clinton returned to service December 10, 1993, after
completing its fourth refueling and maintenance outage, which began September
26, 1993.
Gas Operations - For the years 1993 through 1995, gas revenues including
transportation decreased 13.4% while the gross margin on gas revenues
increased 4.9% as follows:
- - ---------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ---------------------------------------------------
Gas revenues $ 264.5 $ 293.2 $ 306.8
Gas cost (138.8) (172.4) (187.3)
Transportation revenues 8.0 8.8 8.0
- - ----------------------------------------------------
Gas margin $ 133.7 $ 129.6 $ 127.5
====================================================
(Millions of therms)
Therms sold 588 584 597
Therms transported 273 262 229
- - ----------------------------------------------------
Total consumption 861 846 826
====================================================
Changes in the cost of gas purchased for resale:
- - --------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - --------------------------------------------------------
Gas purchased for resale
Cost (excluding take-or-pay) $ (43.1) $ (6.4) $ 13.3
Take-or-pay costs (.4) 2.8 5.3
Volume 25.3 (13.6) (3.4)
Gas cost recoveries (15.4) 2.3 .2
- - --------------------------------------------------------
Total increase (decrease) $(33.6) $ (14.9) $ 15.4
- - --------------------------------------------------------
Average cost per therm delivered$ .201 $ .261 $ .275
========================================================
The 1995 decrease in the cost of gas purchased was due to lower gas prices
caused by unusually warm winter weather nationwide. The 1994 decrease in the
cost of gas purchased was primarily due to lower gas prices, the expanded
use of additional gas storage and a decrease in therms purchased. Also
contributing to the higher gas margins in 1995 and 1994 was the 6.1%
increase in the gas base rates approved by the ICC in April 1994. The 1993
increase in the cost of gas purchased was primarily due to an increase
in the price of purchased gas and take-or-pay costs.
Other Expenses and Taxes - A comparison of significant increases (decreases)
in other expenses and deferred Clinton costs for the last three years is
presented in the following table:
- - ---------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ---------------------------------------------------------
Other operating expenses $(.3) $(9.2) $(2.1)
Maintenance 10.4 (11.2) (1.3)
Depreciation and amortization 7.2 6.4 6.0
==========================================================
The increase in maintenance expense for 1995 is primarily due to the
refueling and maintenance outage at Clinton. The decrease in operating and
maintenance expenses for 1994 is due to ongoing re-engineering efforts,
improved operating efficiencies at IP's fossil plants and at Clinton, and no
refueling and maintenance outage at Clinton. The decrease in operating and
maintenance expenses for 1993 is primarily due to decreased costs at Clinton,
partially offset by increased fossil plant maintenance. The 1995 and 1994
increases in depreciation expense are due primarily to a higher utility
plant balance in 1995 and1994 as compared to 1994 and 1993.
The 1993 increase in depreciation expense was due principally to the effects
of the adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." See "Note 1-Summary of Significant Accounting
Policies" of the "Notes to Consolidated Financial Statements" for additional
information. The 1994 and 1993 increases in depreciation expense are partially
offset by the decrease in deferred Clinton costs as a result of the September
1993 write-off of disallowed Clinton post-construction costs.
Operating and Maintenance Expenses
(Millions of dollars)
1995 $359.7
1994 349.6
1993 370.0
1992 373.4
1991 340.6
Other Income and Deductions - Total allowance for funds used during
construction (AFUDC), a non-cash item of income, decreased in 1995 compared
to non-cash item of income, decreased in 1995 compared to 1994 due to
decreased eligible capital expenditures. The 1994 increase was due to
higher construction work-in-progress balances eligible for AFUDC, partially
offset by a lower AFUDC rate. The AFUDC effective rate was 6.5%, 7.0%
and 7.5% in 1995, 1994 and 1993, respectively. The 1994 increase was primarily
due to a decrease in allocated income taxes.
Interest Charges - Total interest charges increased $4.1 million in 1995, and
decreased $21.0 million in 1994 and $3.7 million in 1993. The 1995
increase was due to increased short-term borrowings at higher rates. The
1994 and 1993 decreases were primarily due to the refinancing with lower-cost
debt and the retirement of debt from 1992 through 1994. From 1992 to 1994,
IP retired or refinanced approximately $1.5 billion of long-term debt,
excluding revolving loan agreements, with a weighted average interest rate
of 9.27%. During this time, IP issued approximately $1.4 billion of new
debt at a weighted average interest rate of 6.97%.
Inflation - Inflation, as measured by the Consumer Price Index, was 2.5%, 2.5%
and 3.1% in 1995, 1994 and 1993, respectively. IP recovers historical
rather than current plant costs in rates.
LIQUIDITY AND CAPITAL RESOURCES
Regulatory Matters
UFAC Suspension - On June 26, 1995, IP filed a petition with the ICC for
permission to eliminate its UFAC by adjusting base rates to include projected
fuel costs. IP filed its petition under a procedure that allows the ICC
to grant or deny the specific proposal, but not to subject it to
hearings or require that it be modified. IP believes that continuation of
the UFAC creates disincentives to efficient decisions made on a total
cost basis; that the UFAC is inconsistent with a competitive environment;
and that the significance of fuel costs as a component of total costs
has diminished, thereby reducing the need for a UFAC as a risk-reduction
mechanism. On August 8, 1995, the ICC voted three to two to deny IP's
petition. IP is currently reviewing its alternatives in light of the
decision.
1994 Gas Rate Order - On April 6, 1994, the ICC approved an increase of $18.9
million, or 6.1%, in IP's gas base rates. For customers, the increase is
partially offset by savings from lower gas costs resulting from the
expansion of the Hillsboro gas storage field. The approved authorized rate of
return on rate base is 9.29%, with a rate of return on common equity of
11.24%. Concurrent with the gas rate increase, IP's gas utility plant
composite depreciation rate decreased to 3.4%.
Dividends
On December 13, 1995, IP increased the quarterly common stock dividend
12%, declaring the common stock dividend for the first quarter of 1996
payable February 1, 1996, to shareholders of record as of
January 10, 1996. On October 12, 1994, IP increased the quarterly
common stock dividend 25%, declaring the common stock dividend for the first
quarter of 1995.
Capital Resources and Requirements
IP needs cash for operating expenses, interest and dividend
payments, debt and certain IP preferred stock retirements, and construction
programs. To meet these needs, IP has used internally generated
funds and external financings including the issuance of IP preferred stock,
debt and revolving lines of credit. The timing and amount of external
financings depend primarily on economic and financial market conditions, cash
needs and capitalization ratio objectives. To a significant degree, the
availability and cost of external financing depend upon the financial health
of the company seeking those funds.
Cash flows from operations during 1995 provided sufficient working capital to
meet ongoing operating requirements, to service existing common and IP
preferred stock dividends and debt requirements, and to meet all of IP's
construction requirements. Additionally, IP expects future cash flows
will enable it to meet future operating requirements and continue to service
its existing debt, preferred and common stock dividends,
sinking fund requirements and all of IP's anticipated construction
requirements. The current ratings of securities by two principal
securities rating agencies are as follows:
- - --------------------------------------------------------
Standard
Moody's & Poor's
- - ---------------------------------------------------------
IP first/new mortgage bonds Baa2 BBB
IP preferred stock baa3 BBB-
IP commercial paper P-2 A-2
=========================================================
These ratings are an indication of IP's financial position
and may affect the cost of securities, as well as the willingness of
investors to invest in these securities. Under current market conditions,
these ratings are unlikely to impair IP's ability to issue,
or significantly increase the cost of issuing additional securities
through external financing. IP has adequate short-term and
intermediate-term bank borrowing capacity.
In 1993, Standard & Poor's (S&P) published revised standards for review of
utility business and financial risks, based in part on a subjective
evaluation of such factors as anticipated growth in service territory,
industrial sales as a proportion of total revenues, regulatory environment
and nuclear plant ownership. S&P's preliminary assessment placed IP, along
with approximately one-third of the industry, in the "somewhat below
average" category. On April 13, 1994, S&P lowered IP's mortgage bond rating
to BBB from BBB+. This action came after S&P reviewed IP's specific business
position in light of the revised standards. In August 1995, S&P changed the
assessment to "low average" and revised its ratings outlook to positive from
stable. In February 1996, Moody's also revised its ratings outlook to
positive from stable. IP's revised rating assessments reflect prospects for
continued financial strengthening driven by gradual debt reduction, rigorous
cost controls and moderate sales growth.
In 1995, IP repurchased 2,696,086 shares of its common stock from Illinova.
Under Illinois law, such shares may be held as treasury stock and treated as
authorized but unissued, or may be canceled by resolution of the Board of
Directors. IP holds the common stock as treasury stock and deducts it from
common equity at the cost of the shares.
In February 1995, IP redeemed $12 million of 8.00% mandatorily redeemable
serial preferred stock. In May 1995, IP redeemed the remaining $24 million
of 8.00% mandatorily redeemable serial preferred stock. In March 1995, IP
redeemed $.2 million of 7.56% serial preferred stock and $3 million of 8.24%
serial preferred stock. In December 1995, IP redeemed $34.7 million of 8.00%
serial preferred stock, $33.6 million of 7.65% serial preferred stock, and
$27 million of 8.24% of serial preferred stock.
In February 1994, IP redeemed $12 million of 8.00% mandatorily redeemable
serial preferred stock and issued $35.6 million of capital First Mortgage
Bonds, 5.7% Series due 2024 (Pollution Control Series K). In May 1994, IP
retired $35.6 million of First Mortgage Bonds, 11 5/8% Series due 2014
(Pollution Control Series D) with the proceeds of the debt issuance. In
August 1994, IP retired $100 million of 8 1/2% debt securities.
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. The TOPrS
were issued by IPFI, which invested the proceeds in an equivalent amount of
IP subordinated debentures due in 2045. The proceeds were used by IP 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. The
carrying amount under consideration paid for redeemed preferred stock
amounted to $3.5 million which was recorded in equity and included in Net
income applicable to common stock. See "Note 9-Preferred Stock"
of the "Notes to Consolidated Financial Statements" for
additional information.
Illinois Power Capital, L.P., (IP Capital), is a limited partnership in
which IP serves as a general partner. IP Capital issued $97 million of tax-
advantaged monthly income preferred securities (MIPS) at 9.45% (5.67%
after-tax rate) in October 1994. The proceeds were loaned to IP and were
used to redeem $97 million (principal value) of higher-cost outstanding
preferred stock of IP. The carrying amount over consideration paid for
redeemed preferred stock amounted to $6.4 million which was recorded in
equity and included in Net income applicable to common stock. See "Note 9-
Preferred Stock" of the "Notes to Consolidated Financial
Statements" for additional information.
In December 1994, IP issued $84.1 million of First Mortgage Bonds, 7.4%
Series due 2024 (Pollution Control Series L). In March 1995, the proceeds of
the debt issuance were used to retire $84.1 million of First Mortgage Bonds,
10 3/4% Series due 2015 (Pollution Control Series E). In August 1995, IP
purchased $5 million of 8.75% First Mortgage Bonds on the open market.
See "Note 8--Long-Term Debt" of the "Notes to Consolidated
Financial Statements" for additional information.
For the years 1995, 1994 and 1993, changes in long-term debt and preferred
stock outstanding, including normal maturities and elective redemptions,
were as follows:
(Millions of dollars) 1995 1994 1993
Bonds $ (5) $ (10) $ 35
Other long-term debt - (100) -
Preferred stock (135) 6 (51)
Total decrease $ (140) $ (104) $ (16)
The amounts shown in the preceding table for debt retirements do not include
all mortgage sinking fund requirements. IP has generally met these
requirements by pledging property additions as permitted under IP's 1943
Mortgage and Deed of Trust. For additional information, see "Note 8--Long-
Term Debt" and "Note 9-- Preferred Stock" of
the "Notes to Consolidated Financial Statements." See "Note 3--Commitments
and Contingencies" of the "Notes to Consolidated Financial Statements" for
information related to coal and gas purchases, nuclear fuel commitments and
emission allowance purchases.
In 1992, IP executed a new general obligation mortgage (New Mortgage) to
replace, over time, IP's 1943 Mortgage and Deed of Trust (First Mortgage).
Both mortgages are secured by liens on substantially all of IP's properties.
A corresponding issue of First Mortgage bonds, under the First Mortgage,
secures bonds issued under the New Mortgage. At December 31, 1995, based on
the most restrictive earnings test contained in the First Mortgage, IP could
issue approximately $1.2 billion of additional First Mortgage bonds for other
than refunding purposes. The amount of available unsecured borrowing capacity
totaled $144 million at December 31, 1995. Also at December 31, 1995, the
unused portion of IP total bank lines of credit was $354 million.
As of December 31, 1995, IP had $120 million of unissued debt securities and
$56.5 million of unissued preferred stock authorized by the Securities and
Exchange Commission in September 1993 and August 1993, respectively.
Capital expenditures for the years 1993 through 1995 were approximately
$680.7 million, including $22.5 million of AFUDC. IP estimates that
$1.18 billion will be required for construction and capital expenditures
during the 1996-2000 period as follows:
Five-Year Period
- - --------------------------------------------------------------------
(Millions of dollars) 1996 1996-2000
- - --------------------------------------------------------------------
Construction requirements
Electric generating facilities $ 45 $ 236
Electric transmission and
distribution facilities 68 249
General plant 24 86
Gas facilities 28 110
____________________________________________________________________
Total construction requirements 165 681
Nuclear fuel 25 135
Debt retirements 62 362
- - ----------------------------------------------------------------------
Total $ 252 $ 1,178
======================================================================
See "Note 3--Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for additional information. Internal cash generation
will meet substantially all construction and capital requirements.
Environmental Matters
See "Note 3--Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for a discussion of the Clean Air Act and manufactured-
gas plant sites.
Tax Matters
See "Note 6--Income Taxes" of the "Notes to Consolidated Financial Statements"
for a discussion of effective tax rates and other tax issues.
Accounting Matters
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of" (FAS 121), effective for
fiscal years beginning after December 15, 1995. FAS 121 requires that an
entity review long-lived assets for impairment when events indicate that the
carrying amount of an asset may not be recoverable. For regulated
enterprises, FAS 121 amends FASB Statement No. 71, "Accounting for the
Effects of Certain Types of Regulation" (FAS71), requiring that an impairment
be recognized for regulatory assets no longer meeting the criteria of
paragraph 9 of FAS 71. This standard is not currently expected to materially
impact the consolidated financial position or results of operations of
IP.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123), effective for
fiscal years beginning after December 15, 1995. FAS 123 establishes a fair-
value based method of accounting for employee stock-based compensation plans
and encourages companies to adopt that method. However, it also allows
companies to continue to apply the intrinsic value-based method currently
prescribed under APB Opinion No. 25 and related pronouncements, provided
certain fair-value pro forma disclosures are made. IP is continuing to
evaluate its alternatives under this standard.
The FASB continues to review the accounting for liabilities related to
closure and removal of long-lived assets, including decommissioning. See
"Note 3--Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for a discussion of decommissioning.
responsibility for information
The consolidated financial statements and all information in this annual
report are the responsibility of management. The consolidated financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis and include amounts that
are based on management's best estimates and judgments. Management also
prepared the other information in the annual report and is responsible for
its accuracy and consistency with the consolidated financial statements. In
the opinion of management, the consolidated financial statements fairly
reflect Illinois Power's financial position, results of operations and cash
flows.
Illinois Power believes that its accounting and internal accounting control
systems
are maintained so that these systems provide reasonable assurance that assets
are safeguarded against loss from unauthorized use or disposition and that
the financial records are reliable for preparing the consolidated financial
statements.
The consolidated financial statements have been audited by Illinois Power's
independent accountants, Price Waterhouse LLP, in accordance with generally
accepted auditing standards. Such standards include the evaluation of
internal accounting controls to establish a basis for developing the scope
of the examination of the consolidated financial statements. In addition to
the use of independent accountants, Illinois Power maintains a professional
staff
of internal auditors who conduct financial, procedural and special audits.
To assure their independence, both Price Waterhouse LLP and the internal
auditors have direct access to the Audit Committee of the Board of Directors.
The Audit Committee is composed of members of the Board of Directors who are
not active or retired employees of Illinois Power. The Audit Committee meets
with
Price Waterhouse LLP and the internal auditors and makes recommendations to
the Board of Directors concerning the appointment of the independent
accountants and services to be performed. Additionally, the Audit Committee
meets with Price Waterhouse LLP to discuss the results of their annual audit,
Illinois Power's internal accounting controls and financial reporting matters.
The Audit Committee meets with the internal auditors to assess the internal
audit work performed, including tests of internal accounting controls.
Larry D. Haab Larry F. Altenbaumer
Chairman, President Chief Financial Officer,
and Chief Executive Officer Treasurer and Controller
report of independent accountants
Price Waterhouse LLP
To the Board of Directors
of Illinois Power Company
In our opinion, the consolidated financial statements of Illinois Power Company
and its subsidiaries appearing on pages A-11 through A-31 of this report
present fairly, in all material respects, the financial position of Illinois
Power Company and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Illinois Power's management; our responsibility is is to express an
opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
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.
Price Waterhouse LLP
St. Louis, Missouri
February 2, 1996
Illinois Power Company
consolidated statements of income
(Millions of dollars except per share amounts)
- - ------------------------------------------------------------------------------
For the Years Ended December 31, 1995 1994 1993
Operating Revenues
Electric $ 1,252.6 $ 1,177.5 $ 1,135.6
Electric interchange 116.3 110.0 130.8
Gas 272.5 302.0 314.8
- - -------------------------------------------------------------------------------
Total 1,641.4 1,589.5 1,581.2
- - -------------------------------------------------------------------------------
Operating Expenses and Taxes
Fuel for electric plants 273.9 266.6 235.1
Power purchased 59.5 52.6 78.5
Gas purchased for resale 138.8 172.4 187.3
Other operating expenses 259.7 260.0 269.2
Maintenance 100.0 89.6 100.8
Enhanced retirement and severance 37.8 -- --
Depreciation and amortization 186.5 179.3 172.9
General taxes 135.0 130.3 125.6
Income taxes 125.8 118.3 106.5
- - -------------------------------------------------------------------------------
Total 1,317.0 1,269.1 1,275.9
- - -------------------------------------------------------------------------------
Operating income 324.4 320.4 305.3
- - -------------------------------------------------------------------------------
Other Income and Deductions
Allowance for equity funds used
during construction --- 3.8 2.7
Disallowed Clinton costs --- --- (271.0)
Income tax effects of disallowed costs --- --- 70.6
Miscellaneous-net (0.3) (5.5) (3.3)
- - --------------------------------------------------------------------------------
Total (0.3) (1.7) (201.0)
- - --------------------------------------------------------------------------------
Income before interest charges 324.7 318.7 104.3
- - --------------------------------------------------------------------------------
Interest Charges
Interest expense 148.0 143.9 164.9
Allowance for borrowed funds used during
construction (6.0) (5.5) (4.5)
- - --------------------------------------------------------------------------------
Total 142.0 138.4 160.4
- - --------------------------------------------------------------------------------
Net income (loss) 182.7 180.3 (56.1)
Less--Preferred dividend requirements 23.7 24.9 26.1
Plus--Carrying amount over (under)
consideration paid for redeemed
preferred stock (3.5) 6.4 -
- - --------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $155.5 $161.8 $(82.2)
================================================================================
See notes to consolidated financial statements which are an integral part of
these statements.
Illinois Power Company
consolidated balance sheets
(Millions of dollars)
- - --------------------------------------------------------------------------------
December 31, 1995 1994
Assets
Utility Plant, At Original Cost
Electric (includes construction work in
progress of $199.8 million and $202.8 million,
respectively) $6,189.0 $6,023.1
Gas (includes construction work in progress of
$10.2 million and $16.8 million, respectively) 625.9 606.1
- - -------------------------------------------------------------------------------
6,814.9 6,629.2
Less -- accumulated depreciation 2,251.7 2,102.7
- - -------------------------------------------------------------------------------
4,563.2 4,526.5
Nuclear fuel in process 5.7 6.2
Nuclear fuel under capital lease 95.2 111.5
- - -------------------------------------------------------------------------------
4,664.1 4,644.2
________________________________________________________________________________
Investments and Other Assets 16.4 15.4
Current Assets
Cash and cash equivalents 4.3 47.9
Accounts receivable (less allowance for doubtful accounts of $3 million)
Service 129.4 110.4
Other 18.2 52.6
Accrued unbilled revenue 89.1 78.9
Materials and supplies, at average cost
Fossil fuel 9.9 18.7
Gas in underground storage 18.5 23.1
Operating materials 82.7 92.1
Prepaid and refundable income taxes 19.6 11.5
Prepayments and other 20.8 23.4
392.5 458.6
Deferred Charges
Deferred Clinton costs 107.3 110.8
Recoverable income taxes 128.7 147.3
Other 258.2 219.5
494.2 477.6
$5,567.2 $5,595.8
Capital and Liabilities
Capitalization
Common stock -- No par value, 200,000,000 shares
authorized; 75,643,937 shares outstanding, stated at $1,424.6 $1,424.6
Retained earnings 129.6 51.1
Less -- Capital stock expense 8.8 9.7
Less -- 2,696,086 shares of common stock in treasury,
at cost 67.3 -
Total common stock equity 1,478.1 1,466.0
Preferred stock 125.6 224.7
Mandatorily redeemable preferred stock of subsidiary 97.0 133.0
Long-term debt of subsidiary 1,739.3 1,946.1
Total capitalization 3,440.0 3,769.8
Current Liabilities
Accounts payable 119.9 108.7
Notes payable 359.6 238.8
Long-term debt and lease obligations
maturing within one year 95.0 33.5
Dividends declared 23.0 23.4
Taxes accrued 44.8 32.3
Interest accrued 39.0 38.4
Other 66.2 55.8
747.5 530.9
Deferred Credits
Accumulated deferred income taxes 1,019.1 981.4
Accumulated deferred investment tax credits 222.8 230.9
Other 137.8 82.8
(Commitments and Contingencies Note 4) 1,379.7 1,295.1
$5,567.2 $5,595.8
See notes to consolidated financial statements which are an integral part of
these statements.
Illinois Power Company
consolidated statements of cash flows
(Millions of dollars)
For the Years Ended December 31, 1995 1994 1993
Cash Flows From Operating Activities
Net income (loss) $ 182.7 $ 180.3 $ (56.1)
Items not requiring (providing) cash--
Disallowed Clinton costs,
net of income taxes - - 200.4
Depreciation and amortization 190.0 182.3 176.6
Allowance for funds used during construction (6.0) (9.3) (7.2)
Deferred income taxes 42.0 38.9 67.9
Enhanced retirement and severance 37.8 - -
Changes in assets and liabilities --
Accounts and notes receivable 38.7 (40.2) (21.3)
Accrued unbilled revenue (10.2) (29.9) 42.9
Materials and supplies 22.8 (2.3) 6.2
Accounts payable (14.0) (19.7) 13.8
Interest accrued and other, net (10.1) (19.9) (26.6)
Net cash provided by operating activities 473.7 280.2 396.6
Cash Flows From Investing Activities
Construction expenditures (209.3) (193.7) (277.7)
Allowance for funds used during construction 6.0 9.3 7.2
Other investing activities (7.5) (2.4) (2.1)
Net cash used in investing activities (210.8) (186.8) (272.6)
Cash Flows From Financing Activities
Dividends on common stock (100.5) (86.6) (88.0)
Redemptions --
Short-term debt (213.6) (258.2) (254.5)
Long-term debt (5.2) (230.0) (832.0)
Preferred stock (134.5) (91.0) (94.4)
Common Stock (67.3) - -
Issuances --
Short-term debt 209.5 404.7 279.7
Long-term debt - 119.8 866.8
Preferred stock - 97.0 43.5
Premium paid on redemption of
long-term debt - (2.8) (25.8)
Other financing activities 5.1 (7.7) (18.7)
Net cash used in financing activities (306.5) (54.8) (123.4)
Net change in cash and cash equivalents (43.6) 38.6 0.6
Cash and cash equivalents at beginning of year 47.9 9.3 8.7
Cash and cash equivalents at end of year $ 4.3 $ 47.9 $ 9.3
Illinois Power Company
consolidated statements of retained earnings (deficit)
(Millions of dollars)
For the Years Ended December 31, 1995 1994 1993
Balance (deficit) at beginning of year $ 51.1 $ (71.0)$ 41.0
Net income (loss) before dividends 182.7 180.3 (56.1)
233.8 109.3 (15.1)
Less --
Dividends --
Preferred stock 23.6 11.1 20.1
Common stock 77.1 53.5 35.8
Plus --
Carrying amount over (under) consideration
paid for redeemed preferred stock (3.5) 6.4 -
(104.2) (58.2) (55.9)
Balance (deficit) at end of year $ 129.6 $ 51.1 $ (71.0)
See notes to consolidated financial statements which are an integral part of
these statements.
notes to consolidated financial statements
Note 1--Summary of Significant Accounting Policies
Principles of Consolidation - Illinois Power Company (IP) is a subsidiary
of Illinova Corporation (Illinova), a holidng company. Illinova was
officially formed on May 27, 1994, with the filing of documents with the
Illinois Secretary of State. Illinova became the parent of IP through a
merger pursuant to a share-for-share conversion of IP common stock
into Illinova common stock. On June 8, 1994, Illinova Generating
Company (formerly IP Group, Inc.), originally a subsidiary of IP, was
transferred to Illinova, establishing Illinova Generating Company as
a wholly owned subsidiary of Illinova. The transfer of Illinova
Generating Company and other equity to Illinova is reflected in the
1994 and 1993 Consolidated Statements of Retained Earnings (Deficit)
as a component of common stock dividends. IP is the primary business
and susidiary of Illinova, and is engaged in the generation, transmission,
distribution and sale of electric energy and the distribution,
transportation and sale of natural gas in the State of Illinois. The
consolidated financial statements include the accounts of IP, a combination
electric and gas utility, and Illinois Power Capital, L.P. See "Note 9--
Preferred Stock" of the "Notes to Consolidated Financial Statements" for
additional information.
All siginificant intercompany balances and transactions have been
eliminated from the consolidated financial statements. Prior year
amounts have been restated on a basis consistent with the December 31,
1995 presentation.
Regulation - IP is subject to regulation by the Illinois Commerce Commission
(ICC) and the Federal Energy Regulatory Commission (FERC) and, accordingly,
prepares its consolidated financial statements based on the concepts of
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" (FAS 71), which requires that the
effects of the ratemaking process be recorded. Such effects primarily concern
the time at which various items enter into the determination of net income
in order to follow the principles of matching cost and revenues.
Accordingly, IP records various regulatory assets and liabilities to reflect
the actions of regulators. Management believes that IP currently meets the
criteria for continued application of FAS 71, but will continue to evaluate
significant changes in the regulatory and competitive environment to assess
IP's overall compliance with such criteria. These criteria include: 1)
whether rates set by regulators are designed to recover the specific costs
of providing regulated services and products to customers and 2) whether
regulators continue to establish rates based on cost. In the event that
management determines that IP no longer meets the criteria for application
of FAS 71, an extraordinary non-cash charge to income would be recorded in
order to remove the effects of the actions of regulators from the
consolidated financial position and results of operations. Illinova's
principal accounting policies are:
Utility Plant - The cost of additions to utility plant and replacements for
retired property units is capitalized. Cost includes labor, materials and an
allocation of general and administrative costs, plus an allowance for funds
used during construction (AFUDC) as described below. Maintenance and repairs,
including replacement of minor items of property, are charged to maintenance
expense as incurred. When depreciable property units are retired, the
original cost and dismantling charges, less salvage value, are charged to
accumulated depreciation.
Regulatory Assets Significant regulatory assets include deferred Clinton
Power Station (Clinton) post-construction costs, unamortized losses on
reacquired debt, recoverable income taxes and manufactured-gas plant site
cleanup costs.
Allowance For Funds Used During Construction The FERC Uniform System of
Accounts defines AFUDC as the net costs for the period of construction of
borrowed funds used for construction purposes and a reasonable rate on other
funds when so used. AFUDC is capitalized at a rate that is related to the
approximate weighted average cost of capital. In 1995, 1994 and 1993, the
pre-tax rate used for all construction projects was 6.5%, 7.0% and 7.5%,
respectively. Although cash is not currently realized from the allowance,
it is realized under the ratemaking process over the service life of the
related property through increased revenues, resulting from a higher rate
base and higher depreciation expense.
Depreciation For financial statement purposes, IP depreciates the various
classes of depreciable property over their estimated useful lives by applying
composite rates on a straight-line basis. In 1995, 1994 and 1993, provisions
for depreciation were 2.8% of the average depreciable cost for Clinton.
Provisions for depreciation for all other electric plant were 2.6% in 1995
and 2.5% in 1994 and 1993. Provisions for depreciation of gas utility plant,
as a percentage of the average depreciable cost, were 3.4% in 1995 and 1994
and 4% in 1993.
Amortization of Nuclear Fuel IP leases nuclear fuel from Illinois Power Fuel
Company (Fuel Company) under a capital lease. Amortization of nuclear fuel
(including related financing costs) is determined on a unit of production
basis. See "Note 3--Commitments and Contingencies" of the "Notes to
Consolidated Financial Statements" for discussion of decommissioning and
nuclear fuel disposal costs. A provision for spent fuel disposal costs is
charged to fuel expense based on kilowatt-hours generated.
Deferred Clinton Costs In accordance with an ICC order in April 1987, IP
began deferring certain Clinton post-construction operating and financing
costs until rates to reflect such costs became effective (April 1989). After
issuance of the March 1989 ICC rate order, deferral of Clinton post-
construction costs ceased and amortization of the previously deferred
post-construction costs over a 37.5-year period began. Although cash is not
currently realized from these deferrals, it is realized under the ratemaking
process over the service life of Clinton through increased revenues,
resulting from a higher rate base and higher amortization expense.
Unamortized Debt Discount, Premium and Expense Discount, premium and expense
associated with long-term debt are amortized over the lives of the related
issues. Costs related to refunded debt are amortized over the lives of the
related new debt issues or the remaining life of the old debt if no new debt
is issued.
Revenue and Energy Cost - IP records revenue for services provided but not yet
billed to more closely match revenues with expenses. Unbilled revenues
represent the estimated amount customers will be billed for service delivered
from the time meters were last read to the end of the accounting period.
Operating revenues include related taxes that have been billed to customers
in the years 1995, 1994 and 1993 in the amount of $66 million, $66 million
and $65 million, respectively. The cost of fuel for the generation of
electricity, purchased power and gas purchased for resale is recovered
from customers pursuant to the electric fuel and gas adjustment clauses.
Accordingly, allowable
energy costs that are to be passed on to customers in a subsequent accounting
period are deferred. The recovery of costs deferred under these clauses is
subject to review and approval by the ICC.
On April 6, 1994, the ICC approved an increase of $18.9 million, or 6.1%, in
IP's gas base rates. The increase to customers is partially offset by savings
from lower gas costs resulting from the expansion of the Hillsboro gas
storage field. The approved authorized rate of return on rate base is 9.29%,
with a rate of return on common equity of 11.24%.
Income Taxes Under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109), 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
on the basis of the statutory tax rates. In accordance with FAS 71, a
regulatory asset (recoverable income taxes) has been recorded representing
the probable recovery from customers of additional deferred income taxes
established under FAS 109.
Investment tax credits used to reduce federal income taxes have been deferred
and are being amortized to income over the "service life" of the property
that gave rise to the credits. Illinova and its subsidiaries file a
consolidated federal income tax return. Income taxes are allocated to the
individual companies based on their respective taxable income or loss. See
"Note 6--Income Taxes" of the "Notes to Consolidated Financial Statements"
for additional discussion.
Preferred Dividend Requirements of Subsidiary Preferred dividend requirements
of IP reflected in the Consolidated Statements of Income are recorded on the
accrual basis and relate to the period for which the dividends are applicable.
Consolidated Statements of Cash Flows - Cash and cash equivalents include cash
on hand and temporary investments purchased with an initial maturity of three
months or less. Capital lease obligations not affecting cash flows increased
by $19 million, $28 million and $27 million during 1995, 1994 and 1993,
respectively. Income taxes and interest paid are as follows:
Years ended December 31,
(Millions of dollars) 1995 1994 1993
Income taxes $ 65.7 $ 72.1 $ 26.0
Interest $ 152.4 $ 165.9 $ 166.4
The increase in income taxes paid from 1993 to 1994 was due to an increase
in taxable income and the settlement of an IRS audit. The results of the
settlement did not have a material effect on IP's financial
position or results of operations. See "Note 6--Income Taxes" of the "Notes
to Consolidated Financial Statements" for additional information.
Interest Rate Cap - Premiums paid for the purchased interest rate cap
agreements are being amortized to interest expense over the terms of the
caps. Unamortized premiums are included in Current Assets, "Prepayments and
Other," in the Consolidated Balance Sheets. Amounts to be received under the
cap agreements are recognized as a reduction in interest expense.
Transaction with Illinova - In addition to transfers of capital reflected
in the Consolidated Statements of Retained Earnings (Deficit), IP provided
approximately $34 million and $20 million in funds to Illinova for operations
and investments during 1995 and 1994, respectively. Illinova is paying
IP interest on these funds at a rate equal to that which Illinova would
have paid had it used a currently outstanding line of credit. In addition,
Illinova and IP have recorded an intercompany payable and receivable,
respectively, for approximately $18.4 million and $23.5 in 1995 and 1994,
respectively, in order to recognize the effect on the Employees' Stock
Onwership Plan of the conversion of IP common stock to Illinova common
stock concurrent with the formation of Illinova. This was a noncash
transaction. See "Note 10 -- Common Stock and Retained Earnings" of
the "Notes to Consolidated Financial Statements" for additional information.
Note 2--Clinton Power Station
IP and Soyland Power Cooperative, Inc. (Soyland) share ownership of Clinton,
with IP owning 86.8% and Soyland owning 13.2%. IP's ownership percentage is
reflected in Utility Plant, at Original Cost, and in accumulated depreciation
in the Consolidated Balance Sheets. Clinton was placed in service in 1987 and
represents approximately 18% of IP's installed generation capacity. The
investment in Clinton and its related deferred costs represented
approximately 51% of IP's total assets at December 31, 1995. IP's
86.8% share of Clinton-related costs represented 34% of its total 1995
other operating, maintenance and depreciation expenses. Clinton's equivalent
availability was 76%, 92% and 73% for 1995, 1994 and 1993, respectively.
Clinton's equivalent availability was higher in 1994 due to no refueling
outage.
Ownership of an operating nuclear generating unit exposes IP to significant
risks, including increased and changing regulatory, safety and environmental
requirements and the uncertain future cost of closing and dismantling the
unit. IP expects to be allowed to continue to operate Clinton; however, if
any unforeseen or unexpected developments prevent IP from doing so,
IP would be materially adversely affected. See "Note 3--Commitments and
Contingencies" of the "Notes to Consolidated Financial Statements" for
additional information.
Rate and Regulatory Matters
1992 Rate Order A September 1993 decision by the Illinois Appellate Court,
Third District (Appellate Court Decision), upheld key components of the
August 1992 Rehearing Order (Rehearing Order) issued by the ICC. The
Rehearing Order denied IP recovery of certain deferred Clinton post-
construction costs, which were recorded from the time Clinton began
operations (April 1987) to the time the ICC allowed IP to begin recovering
these deferred costs in rates (March 1989), otherwise known as the regulatory
lag period.
Based on IP's assessment of the Appellate Court Decision and in accordance
with FAS 71, IP recorded a loss of $271 million ($200 million, net of income
taxes) in September 1993.
Note 3--Commitments
and Contingencies
Commitments
Estimated construction requirements in 1996 are $190 million, which includes
$113 million for electric facilities, $28 million for gas facilities, $25
million for nuclear fuel and $24 million for general plant. The estimated
five-year construction program
for 1996 through 2000 is $816 million. These expenditures do not include
capital expenditures for full compliance with the Clean Air Act, as discussed
below.
In addition, IP has substantial commitments for the purchase of coal under
long-term contracts. Estimated coal contract commitments for 1996 through
2000 are $664 million (excluding price escalation provisions). Total coal
purchases for 1995, 1994 and 1993 were $168 million, $191 million and $184
million, respectively. IP has contracts with various natural gas suppliers
and interstate pipelines to provide natural gas supply, transportation and
leased storage. Estimated committed natural gas, transportation and leased
storage costs (including pipeline transition costs) for 1996 through 2000
total $39 million. Total natural gas purchased for 1995, 1994 and 1993 was
$150 million, $168 million and $188 million, respectively. IP's share of
estimated nuclear fuel commitments for Clinton is approximately $26 million
for uranium concentrates through 1998, $7 million for conversion through
2002, $47 million for enrichment through 1999 and $213 million for
fabrication through 2017. IP is committed to purchase approximately $74
million of emission allowances through 1999. IP anticipates that all of
these costs will be recoverable under IP's electric fuel and purchased gas
adjustment clauses, if found by the ICC to be prudently incurred.
Insurance - IP maintains insurance on behalf of IP and Soyland for certain
losses involving the operation of Clinton. One insurance program provides
coverage for physical damage to the plant. Based on a review of this
insurance, IP has reduced its limits from $2.7 billion to $1.6 billion
effective December 15, 1994. IP's insurance program has two layers: 1) a
primary layer of $500 million provided by nuclear insurance pools; and 2) an
excess coverage layer of $1.1 billion provided by an industry-owned mutual
insurance company. In the event of an accident with an estimated cost of
reactor stabilization and site decontamination exceeding $100 million,
Nuclear Regulatory Commission (NRC) regulations require that insurance
proceeds be dedicated and used first to return the reactor to, and maintain
it in, a safe and stable condition. After providing for stabilization and
decontamination, the insurers would then cover property damage up to a total
payout of $1.38 billion. Second, the NRC requires decontamination of the
reactor station site in accordance with the plan approved by the NRC. The
insurers would provide up to $220 million to cover decommissioning costs in
excess of funds already collected for decommissioning, as discussed later.
In the event insurance limits are not exhausted, the excess will cover a
portion of the value of the undamaged property. In addition, while IP has
no reason to anticipate a serious nuclear accident at Clinton, if such an
incident should occur, the claims for property damage and other costs would
materially exceed the limits of current or available insurance coverage. IP
also covers approximately $9 million per week of business interruption
insurance coverage for its ownership share of Clinton through the industry-
owned mutual insurance company in the event of an extended shutdown of
Clinton due to accidental property damage. This insurance does not provide
coverage until Clinton has been out of service for 21 weeks. Thereafter,
the insurance provides up to 156 weeks of coverage.
Multiple major losses, covered under the current property damage and business
interruption insurance coverage, involving Clinton or other stations insured
by the industry-owned mutual insurance company would result in retrospective
premium assessments of up to approximately $13 million. IP would allocate
this assessment between IP and Soyland based on their respective ownership
interest in Clinton.
All United States nuclear power station operators are subject to the Price-
Anderson Act. This act currently limits public liability for a nuclear
incident to $8.9 billion. Private insurance covers the first $200 million.
Retrospective premium assessments against each licensed nuclear reactor in
the United States provide excess coverage. Currently, the liability to these
reactor operators/owners for such an assessment would be up to $79.3 million
per incident, not including premium taxes which may be applicable, payable
in annual installments of not more than $10 million.
A Master Worker Policy covers worker tort claims alleging bodily injury,
sickness or disease as a result of initial radiation exposure occurring on or
after January 1, 1988. The policy has an aggregate limit of $200 million that
applies to the commercial nuclear industry as a whole. If the policy pays,
then a provision for automatic reinstatement of policy limits up to an
additional $200 million takes effect. There is also a provision for
retrospective assessment of additional premiums if claims exceed funds
available in the insurance company's reserve accounts. The maximum
retrospective premium assessment for this contingency is approximately $3
million and may be subject to state premium taxes. IP and Soyland would
allocate, based on their respective ownership in Clinton, any retrospective
premium assessments pertaining to the Master Worker Policy or the Price-
Anderson Act.
IP may be subject to other risks which may not be insurable, or the amount of
insurance carried to offset the various risks may not be sufficient to meet
potential liabilities and losses. There is also no assurance that IP will be
able to maintain insurance coverages at their present levels. Under those
circumstances, such losses or liabilities may have a substantial adverse
effect on IP's financial position.
Decommissioning and Nuclear Fuel Disposal Costs - IP is responsible for its
ownership share of the costs of decommissioning Clinton and for spent nuclear
fuel disposal costs. IP is collecting future decommissioning costs through
its electric rates based on an ICC-approved formula that allows IP to adjust
rates annually for changes in decommissioning cost estimates.
Based on NRC regulations that establish a minimum funding level, IP estimates
its 86.8% share of Clinton decommissioning costs to be approximately $376
million (1995 dollars) or $692 million (2026 dollars, assuming a 2% inflation
factor). The NRC bases the minimum only on the cost of removing radioactive
plant structures. IP is concluding a site-specific study to estimate the
costs of dismantlement, removal and disposal of Clinton. This study is
expected to result in projected decommissioning costs higher than the NRC-
specified funding level.
External decommissioning trusts, as prescribed under Illinois law and
authorized by the ICC, accumulate funds based on the expected service life of
the plant for the future decommissioning of Clinton. For the years 1995, 1994
and 1993, IP contributed $5.0 million, $5.5 million and $3.9 million,
respectively, to its external nuclear decommissioning trust funds. The
balances in these nuclear decommissioning funds at December 31, 1995, and
1994, were $32.7 million and $22.4 million, respectively. IP recognizes
earnings and expenses from the trust fund as changes in its assets and
liabilities relating to these funds. In November 1994, the ICC granted IP
permission to invest up to 60% of the nuclear decommissioning trust assets in
selected equity securities.
The FASB is reviewing the accounting for removal costs of nuclear generating
stations, including decommissioning. Changing current electric utility
industry accounting practices for such decommissioning may result in: 1)
increasing annual provisions for decommissioning through increases in
depreciation; 2) recording the estimated total cost for decommissioning as a
liability with a gross-up to plant balances; and 3) reporting trust fund
income from the external decommissioning trusts as investment income rather
than as a reduction to decommissioning expense. Changes to current electric
utility industry accounting practices for decommissioning will likely be
effective in 1997. IP believes that, based on current information, these
changes will not have an adverse effect on results of operations due to
existing and anticipated future ability to recover decommissioning costs
through rates.
In 1992, the ICC entered an order in which it expressed concern that IP take
all reasonable action to ensure that Soyland contributes its ownership share
of the current or any revised estimate of decommissioning costs. The order
also states that if IP becomes liable for decommissioning expenses
attributable to Soyland, the ICC will then decide whether that expense should
be the responsibility of IP stockholders or its customers. If Soyland were to
fail to meet these or other obligations related to its ownership of Clinton,
then IP could become liable for such payments.
Under the Nuclear Waste Policy Act of 1982, the Department of Energy (DOE) is
responsible for the permanent storage and disposal of spent nuclear fuel. The
DOE currently charges one mill ($.001) per net kilowatt-hour (one dollar per
MWH) generated and sold for future disposal of spent fuel. IP is recovering
these charges through rates.
Environmental Matters
Clean Air Act - In August 1992, IP announced that it had suspended construction
of two scrubbers at the Baldwin Power Station. At December 31, 1995,
approximately $24 million in costs for the suspended Baldwin scrubber program
continue to be recorded by Illinois Power as plant held for future use. After
suspending scrubber construction, IP reconsidered its alternatives for
complying with Phase I of the 1990 Clean Air Act Amendments.
To comply with the sulfur dioxide (SO2) emission reduction requirements of
Phase I (1995-1999) of the 1990 Clean Air Act Amendments, IP continues to
purchase emission allowances. An emission allowance is the authorization by
the United States Environmental Protection Agency (U.S.EPA) to emit one ton
of SO2. The ICC approved IP's Phase I Clean Air Act compliance plan in
September 1993, and IP is continuing to implement that plan. IP has acquired
sufficient emission allowances to meet most of its anticipated needs for 1996
and will purchase the remainder on the spot market. In 1993, the
Illinois General Assembly passed and the governor signed legislation
authoirzing, but not requiring, the ICC to permit expenditures from emission
allowance purchases and sales to be included in rates charged to customers as
a cost of fuel. In December 1994, the ICC approved the recovery of emission
allownace costs through the Uniform Fuel Adjustment Clause. IP's compliance
plan will defer, until at 2000, any need for scrubbers or other capital
projects associated with SO2 emission reductions. Phase II (2000 and beyond)
SO2 emission requirements of the Clean Air Act will require additional
actions and may result in capital expenditures.
To comply with the Phase I nitrogen oxide (NOx) emission reduction
requirements of the acid rain provisions of the Clean Air Act, IP installed
low-NOx burners at Baldwin Unit 3 and Vermilion Unit 2. On November 29, 1994,
the U.S. Appellate Court remanded the Phase I NOx rules back to the U.S.EPA.
On April 13, 1995, the U.S.EPA reinstated, with some modifications, the Phase
I NOx rules effective January 1, 1996. IP was positioned to comply with these
revised rules without additional modifications to any of its generating
plants. The U.S. EPA will issue Phase II NOx emission limits by January 1,
1997.
IP anticipates additional capital expenditures prior to 2000 to comply with
the Phase II NOx requirements, as well as potential requirements to further
reduce NOx emissions from IP plants to help achieve compliance with air
quality standards in the St. Louis and Chicago metropolitan areas. IP has
installed continuous emission monitoring systems at its major generating
stations, as required by the acid rain provisions of the Clean Air Act.
IP is monitoring the developments of several emerging clean air compliance
issues which could have a significant impact on its fossil-fueled generating
plants. These issues include global climate change (theorized to result from
emissions of "greenhouse gasses" such as carbon dioxide), controls on
"hazardous air pollutants," and standards for fine particulates. Compliance
with potential new regulations in these areas may require significant
expenditures prior to 2000.
Manufactured-Gas Plant (mgp) In September 1995, IP increased its liability
for MGP site remediation by $41 million to a total of $76 million. This
amount represents IP's current best estimate of its cost to remediate MGP
sites for which it is responsible. This estimate reflects the results of a
site-by-site survey utilizing current site information and remediation
techniques. The estimate, determined by IP with assistance from several
external environmental consultants, is in accordance with Electric Power
Research Institute guidelines. Because of the unknown and unique
characteristics of each site and uncertain regulatory requirements, IP is
not able to determine its ultimate liability for remediation of the 24
sites. The previously recorded liability of $35 million was an estimate of
the minimum cost based on ongoing remediation efforts at eight sites and
ongoing investigations of the remaining 16 sites.
IP is currently recovering MGP site cleanup costs from its customers through
tariff riders approved by the ICC in April 1993. On April 20, 1995, the
Illinois Supreme Court issued a ruling that upheld the ICC authorization of
cost recovery and reversed the ICC's disallowance of carrying costs,
mandating the ICC to reissue an order providing for recovery of prudently
incurred MGP site cleanup costs, including carrying costs. On November 20,
1995, the ICC issued an order on remand allowing full recovery of all such
MGP site cleanup costs. Accordingly IP has recorded a regulatory asset in
the amount of $76 million, reflecting management's expectation that
remediation costs will be recovered from customers.
IP has begun settlement discussions with its insurance carriers regarding
the recovery of estimated MGP site remediation costs. A settlement has been
reached with one carrier and an agreement in principle has been reached with
two other carriers. On October 17, 1995, IP filed a lawsuit in the Circuit
Court of Macon County seeking a declaratory judgment and damages regarding
insurance coverage for four MGP sites. Any insurance recoveries received will
be credited to IP's customers through the tariff rider mechanisms.
Electric and Magnetic Fields (EMF) The possibility that exposure to EMF
emanating from power lines, household appliances and other electric sources
may result in adverse health effects continues to be the subject of
litigation and governmental, medical and media attention. Litigants have also
claimed that EMF concerns justify recovery from utilities for the loss in
value of real property exposed to power lines, substations and other such
sources of EMF. Scientific research worldwide has produced conflicting
results and no conclusive evidence that electric and/or magnetic field
exposure causes adverse health effects. Research is continuing to resolve
scientific uncertainties. It is too soon to tell what, if any, impact
these actions may have on IP's consolidated financial
position.
Other
Legal Proceedings - IP is involved in legal or administrative
proceedings before various courts and agencies with respect to matters
occurring in the ordinary course of business, some of which involve
substantial amounts of money. Management believes that the final disposition
of these proceedings will not have a material adverse effect on the
consolidated financial position or the results of operations.
Accounts Receivable - IP sells electric energy and natural gas to residential,
commercial and industrial customers throughout Illinois. At December 31,
1995, 67%, 17% and 16% of Accounts receivable--Service were from residential,
commercial and industrial customers, respectively. IP maintains reserves for
potential credit losses and such losses have been within management's
expectations.
Note 4--Lines of Credit
and Short-Term Loans
IP has total lines of credit represented by bank commitments amounting to
$354 million, all of which were unused at December 31, 1995. These lines of
credit are renewable in May 1996, August 1996 and May 2000. These bank
commitments support the amount of commercial paper outstanding at any time,
limited only by the amount of unused bank commitments, and are available to
support other IP activities.
IP pays facility fees up to .175% per annum on $350 million of the total
lines of credit, regardless of usage. The interest rate on borrowings under
these agreements is, at IP's option, based upon the lending banks' reference
rate, their Certificate of Deposit rate, the borrowing rate of key banks in
the London interbank market or competitive bid.
IP has letters of credit totaling $204 million and pays fees up to .45% per
annum on the unused amount of credit.
In addition, IP Fuel Company has a short-term financing option to obtain
funds not to exceed $30 million. IP Fuel Company pays no fees for this
uncommitted facility and funding is subject to availability upon request.
For the years 1995, 1994 and 1993, IP had short-term borrowings consisting of
bank loans, commercial paper, extendible floating rate notes and other short-
term debt outstanding at various times as follows:
- - -----------------------------------------------------------------
(Millions of dollars, except rates) 1995 1994 1993
- - -----------------------------------------------------------------
Short-term borrowings
at December 31, $ 359.6 $ 238.8 $ 92.3
Weighted average interest
rate at December 31, 6.0% 6.2% 3.5 %
Maximum amount outstanding
at any month end $ 359.6 $ 238.8 $ 123.7
Average daily borrowings
outstanding during
the year $ 306.5 $ 165.4 $ 85.0
Weighted average interest
rate during the year 6.2% 4.6% 3.5 %
- - ------------------------------------------------------------------
IP has derivative financial instruments, but does not use them for
trading purposes. They are used to manage well defined interest rate
risks arising from core activities without the use of leverage.
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on floating-rate debt. IP has two variable rate
interest rate cap agreements covering up to $189 million of commercial paper.
These agreements entitle IP to receive from a counterparty on a monthly basis
the amount, if any, by which IP's interest payments on a nominal amount of
commercial paper exceed the interest rate set by the cap. On December 31,
1995, the cap rates were set at 6.25% and 7.0% while the current market
rate available to IP was 5.9%.
Note 5--Facilities Agreements
IP and Soyland share ownership of Clinton, with IP owning 86.8% and Soyland
owning 13.2%. Agreements between IP and Soyland provide that IP has control
over construction and operation of the generating station, that the parties
share electricity generated in proportion to their ownership interests and
that IP will have certain obligations to provide replacement power to Soyland
if IP ceases to operate or reduces output from Clinton.
Under the provisions of a Power Coordination Agreement (PCA) between Soyland
and IP dated October 5, 1984, as amended, IP is required to provide Soyland
with 12.0% (436 megawatts) of the electrical capacity from its fossil-fueled
generating plants until the agreement expires or is terminated. This is in
addition to the capacity Soyland receives as an owner of Clinton. IP is
compensated with capacity charges and for energy costs and variable
operating expenses. IP transmits energy for Soyland through IP's transmission
and subtrasmission systems. Under provisions of the PCA, Soyland has the
option of participating financial in major capital expenditures at the fossil-
fueled plants, such as those needed for Phase II Clean Air Act compliance, to
the extent of its capacity entitlement with each party bearing its own direct
capital costs, or by having the costs treated as plant additions and billed
to Soyland in accordance with other billing provisions of the PCA. See
"Note 3--Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for discussion of the Clean Air Act. At any time after
December 31, 2004, either IP or Soyland may terminate the PCA by giving
not less than seven years' prior written notice to the other party. The party
to whom termination notice has been given may designate an earlier effective
date of termination which shall be not less than 12 months after receiving
notice.
Note 6--income taxes
Deferred tax assets and liabilities were comprised of the following:
Balances as of December 31,
- - ----------------------------------------------------------------------------
(Millions of dollars) 1995 1994
- - ----------------------------------------------------------------------------
Deferred Tax Assets:
- - ----------------------------------------------------------------------------
Current:
Misc. book/tax recognition differences $ 26.1 $ 19.7
- - ----------------------------------------------------------------------------
Noncurrent:
Depreciation and other property related 45.5 52.6
Alternative minimum tax 184.1 187.0
Tax credit and net operating loss
carryforward 32.4 27.6
Unamortized investment tax credit 126.1 122.0
Misc. book/tax recognition differences 59.4 53.2
- - ----------------------------------------------------------------------------
447.5 442.4
- - ----------------------------------------------------------------------------
Total deferred tax assets $ 473.6 $ 462.1
============================================================================
Deferred Tax Liabilities:
- - ----------------------------------------------------------------------------
Current:
Misc. book/tax recognition differences $ 6.5 $ 8.2
- - ----------------------------------------------------------------------------
Noncurrent:
Depreciation and other property related 1,303.5 1,252.0
Deferred Clinton costs 60.1 62.1
Misc. book/tax recognition differences 103.0 109.7
- - ----------------------------------------------------------------------------
1,466.6 1,423.8
- - ----------------------------------------------------------------------------
Total deferred tax liabilities $ 1,473.1 $ 1,432.0
============================================================================
Income taxes included in the Consolidated Statements of Income consist of the
following components:
Years Ended December 31,
- - ----------------------------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ----------------------------------------------------------------------------
Current taxes--
Included in operating
expenses and taxes $ 98.6 $ 58.3 $ 25.3
Included in other income
and deductions (20.3) -- --
- - ----------------------------------------------------------------------------
Total current taxes 78.3 58.3 25.3
- - ----------------------------------------------------------------------------
Deferred taxes--
Included in operating
expenses and taxes
Property-related differences 62.2 60.0 72.3
Alternative minimum tax 2.9 (50.4) (31.8)
Gain/loss on reacquired debt (1.9) -- 16.5
Net operating loss
carryforward (.2) 62.0 22.8
Enhanced retirement
and severance (15.0) -- --
Misc. book/tax recognition
differences (13.9) (7.8) 4.1
Internal Revenue Service
interest on tax issues -- 7.5 (1.9)
Included in other income
and deductions
Property-related differences 9.7 10.0 6.0
Net operating loss
carryforward -- (17.4) (15.4)
Misc. book/tax recognition
differences 2.2 1.9 (2.3)
Disallowed Clinton costs -- -- (62.2)
- - -----------------------------------------------------------------------------
Total deferred taxes 46.0 65.8 8.1
- - -----------------------------------------------------------------------------
Deferred investment
tax credit--net
Included in operating
expense and taxes (6.9) (11.3) (.8)
Included in other income
and deductions -- (.3) (.7)
Disallowed investment
tax credit --- -- (8.4)
- - ----------------------------------------------------------------------------
Total investment tax credit (6.9) (11.6) (9.9)
- - ----------------------------------------------------------------------------
Total income taxes $ 117.4 $ 112.5 $ 23.5
=============================================================================
The reconciliations of income tax expense to amounts computed by applying the
statutory tax rate to reported pretax results for the period are set below:
Years Ended December 31,
- - ----------------------------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- - ----------------------------------------------------------------------------
Income tax expense at the
federal statutory tax rate $ 105.0 $ 102.5 $(11.4)
Increases/(decreases) in taxes
resulting from--
State taxes,
net of federal effect 14.0 13.8 5.8
Investment tax credit
amortization (6.9) (7.8) (8.8)
Depreciation not normalized 7.4 4.3 7.1
Disallowed Clinton costs
(including ITC) -- -- 27.4
Other--net (2.1) (.3) 3.4
- - -----------------------------------------------------------------------------
Total income taxes $ 117.4 $112.5 $23.5
=============================================================================
Combined federal and state effective income tax rates were 39.1%, 38.4% and
(72.4%) for the years 1995, 1994 and 1993, respectively. The negative
effective tax rate for 1993 is a result of the loss recorded by IP due to
the Rehearing Order which denied IP recovery of certain deferred Clinton
costs. The 1993 effective tax rate excluding the effect of this loss is
39.5%.
IP is subject to the provisions of the Alternative Minimum Tax System
(AMT). As a result, IP has an AMT credit carryforward at December 31,
1995, of approximately $184.1 million. This credit can be carried forward
indefinitely to offset future regular income tax liabilities in excess of the
tentative minimum tax.
In 1994, the Internal Revenue Service (IRS) completed its audit of IP's
federal income tax returns for the years 1989 through 1990. IP and the IRS
reached an agreement on all audit issues. The results of the agreement did
not have a material effect on Illinova's or IP's consolidated financial
positions or results of operations.
Note 7--Capital Leases
Illinois Power Fuel Company (Fuel Company), which is 50% owned by IP, was
formed in 1981 for the purpose of leasing nuclear fuel to IP for Clinton.
Lease payments are equal to the Fuel Company's cost of fuel as consumed
(including related financing and administrative costs). Billings under the
lease agreement during 1995, 1994 and 1993 were $41 million, $52 million and
$45 million, respectively, including financing costs of $7 million, $7 million
and $6 million, respectively. IP is obligated to make subordinated loans to
the Fuel Company at any time the obligations of the Fuel Company that are
due and payable exceed the funds available to the Fuel Company. IP has an
obligation for nuclear fuel disposal costs of leased nuclear fuel. See "Note
3--Commitments and Contingencies" of the "Notes to Consolidated Financial
Statements" for discussion of decommissioning and nuclear fuel disposal
costs. Nuclear fuel lease payments are included with Fuel for electric
plants on IP's Consolidated Statements of Income.
At December 31, 1995 and 1994, current obligations under capital lease for
nuclear fuel were $33.3 million.
Over the next five years, estimated payments under capital leases are as
follows:
- - ---------------------------------------------------------------------------
(Millions of dollars)
- - ---------------------------------------------------------------------------
1996 $ 37.9
1997 31.1
1998 17.3
1999 12.4
2000 4.5
Thereafter 1.9
- - ---------------------------------------------------------------------------
105.1
Less: Interest 10.0
- - ---------------------------------------------------------------------------
Total $ 95.1
===========================================================================
Note 8--Long-Term Debt
(Millions of dollars)
_____________________________________________________________________________
December 31, 1995 1994
First mortgage bonds--
5.85% series due 1996 $ 40.0 $ 40.0
61/2 % series due 1999 72.0 72.0
6.60% series due 2004 (Pollution Control Series A) 6.8 7.0
7.95% series due 2004 72.0 72.0
6% series due 2007 (Pollution Control Series B) 18.7 18.7
75/8% series due 2016
(Pollution Control Series F, G and H) 150.0 150.0
8.30% series due 2017 (Pollution Control Series I) 33.8 33.8
73/8% series due 2021 (Pollution Control Series J) 84.7 84.7
83/4% series due 2021 120.0 125.0
5.70% series due 2024 (Pollution Control Series K) 35.6 35.6
7.40% series due 2024 (Pollution Control Series L) 84.1 84.1
_____________________________________________________________________________
Total first mortgage bonds 717.7 722.9
_____________________________________________________________________________
New mortgage bonds--
61/8% series due 2000 40.0 40.0
5.625% series due 2000 110.0 110.0
61/2% series due 2003 100.0 100.0
63/4% series due 2005 70.0 70.0
8% series due 2023 235.0 235.0
71/2% series due 2025 200.0 200.0
Adjustable rate series due 2028
(Pollution Control Series M, N and O) 111.8 111.8
_____________________________________________________________________________
Total new mortgage bonds 866.8 866.8
_____________________________________________________________________________
Total mortgage bonds 1,584.5 1,589.7
_____________________________________________________________________________
Short-term debt to be refinanced as long-term debt - 125.0
Medium-term notes, series A 100.0 100.0
Variable rate long-term debt due 2017 75.0 75.0
_____________________________________________________________________________
Total other long-term debt 175.0 300.0
_____________________________________________________________________________
1,759.5 1,889.7
Unamortized discount on debt (20.3) (21.6)
_____________________________________________________________________________
Total long-term debt excluding
capital lease obligations 1,739.2 1,868.1
Obligation under capital leases 95.1 111.5
_____________________________________________________________________________
1,834.3 1,979.6
Long-term debt and lease obligations
maturing within one year (95.0) (33.5)
_____________________________________________________________________________
Total long-term debt $ 1,739.3 $ 1,946.1
_____________________________________________________________________________
In August 1995, $5.0 million of 8 3/4% First Mortgage Bonds due 2021 were
purchased on the open market.
Short-term debt to be refinanced as long-term debt consisted of commercial
paper that would be renewed regularly on a long-term basis. In September
1995, IP reclassified the $125 million to short-term debt in accordance with
Statement of Financial Accounting Standards No. 6, "Classification of Short-
Term Obligations Expected to be Refinanced." In 1989 and 1991, IP issued a
series of fixed rate medium-term notes. At December 31, 1995, the maturity
dates on these notes ranged from 1996 to 1998 with interest rates ranging from
9% to 9.31%. Interest rates on variable rate long-term debt due 2017 are
adjusted weekly and ranged from 5.3% to 5.5% at December 31, 1995.
For the years 1996, 1997, 1998, 1999 and 2000, IP has long-term debt
maturities and cash sinking fund requirements in the aggregate of (in
millions) $61.7, $10.8, $68.8, $72.8 and $150.8, respectively. These amounts
exclude capital lease requirements. See "Note 7--Capital Leases" of the "Notes
to Consolidated Financial Statements." Certain supplemental indentures to
the First Mortgage require that IP make annual deposits, as a sinking and
property fund, in amounts not to exceed $1.8 million in each of the years
1997 through 2000. These amounts are subject to reduction and historically
have been met by pledging property additions, as permitted by the First
Mortgage.
At December 31, 1995, the aggregate total of unamortized debt expense and
unamortized loss on reacquired debt was approximately $105.8 million.
IP's First Mortgage bonds are secured by a first mortgage lien on
substantially all of the fixed property, franchises and rights of IP with
certain minor exceptions expressly provided in the First Mortgage. In 1992,
the Board authorized a new general obligation mortgage, which is intended to
replace the First Mortgage. Bonds issued under the New Mortgage were secured
by a corresponding issue of First Mortgage bonds under the First Mortgage.
The remaining balance of net bondable additions at December 31, 1995, was
approximately $1.4 billion.
Note 9--Preferred Stock
(Millions of dollars)
December 31, 1995 1994
Serial Preferred Stock
cumulative, $50 par value--
Authorized 5,000,000 shares; 1,356,800 and
3,325,815 shares outstanding, respectively
series shares redemption prices
4.08% 300,000 $ 51.50 $ 15.0 $ 15.0
4.26% 150,000 51.50 7.5 7.5
4.70% 200,000 51.50 10.0 10.0
4.42% 150,000 51.50 7.5 7.5
4.20% 180,000 52.00 9.0 9.0
8.24% - - - 30.0
7.56% - - - 33.8
8.00% - - - 34.7
7.75% 376,800 50.00
after July 1, 2003 18.8 18.8
Net premium on preferred stock .2 .8
______________________________________________________________________________
Total Preferred Stock
$50 par value $ 68.0 $ 167.1
______________________________________________________________________________
Serial Preferred Stock,
cumulative, without par value--
Authorized 5,000,000 shares; 1,152,550
and 1,512,550 shares outstanding,
respectively (including 0 and 360,000
shares, respectively, of redeemable
preferred stock)
series shares redemption prices
A 742,300 $50.00 $ 37.1 $ 37.1
B 410,250 50.00 20.5 20.5
______________________________________________________________________________
Total Preferred Stock
without par value $ 57.6 $ 57.6
______________________________________________________________________________
Preference Stock, cumulative,
without par value--
Authorized 5,000,000 shares; none outstanding - -
______________________________________________________________________________
Total Serial Preferred Stock, Preference
Stock and Preferred Securities $ 125.6 $ 224.7
______________________________________________________________________________
Company Obligated Mandatorily Redeemable
preferred Securities of
Illinois Power Capital, L.P.
Monthly Income Preferred Securities,
cumulative, $25 liquidation preference--
3,880,000 shares authorized and outstanding $ 97.0 $ 97.0
Mandatorily Redeemable Serial
Preferred Stock, cumulative --
series shares par value
8.00% - - - 36.0
______________________________________________________________________________
Total Mandatorily Redeemable
Preferred Stock $ 97.0 $ 133.0
______________________________________________________________________________
Serial Preferred Stock ($50 par value) is redeemable at the option of IP in
whole or in part at any time with not less than 30 days and not more than 60
days notice by publication.
Quarterly dividend rates for Serial Preferred Stock, Series A, are determined
based on market interest rates of certain U.S. Treasury securities. Dividends
paid in 1995 and 1994 were $.75 per quarter. The dividend rate for any
dividend period will not be less than 6% per annum or greater than 12% per
annum applied to the liquidation preference value of $50 per share.
Quarterly dividend rates for Serial Preferred Stock, Series B, are determined
based on market interest rates of certain U.S. Treasury securities. Dividends
paid in 1995 and 1994 were $.875 per quarter. The dividend rate for any
dividend period will not be less than 7% per annum or greater than 14% per
annum applied to the liquidation preference value of $50 per share.
Illinois Power Capital, L.P., is a limited partnership in which IP serves as
a general partner. In October 1994, Illinois Power Capital issued $97 million
of tax-advantaged monthly income preferred securities (MIPS) at 9.45% (5.67%
after-tax rate) with a liquidation preference of $25 per share. The proceeds
were loaned to IP and were used to redeem $97 million (principal value) of
higher-cost outstanding preferred stock of IP. The carrying amount of
redeemed preferred stock over consideration paid amounted to $6.4 million,
which was recorded in equity and included in Net income applicable to common
stock. IP consolidates the accounts of Illinois Power Capital.
In February 1995 and 1994, IP redeemed $12.0 million of the 8.00% mandatorily
redeemable serial preferred stock. In May 1995, IP redeemed the remaining
$24.0 million of the 8.00% mandatorily redeemable serial preferred stock.
In March 1995, IP redeemed $.2 million of the 7.56% serial preferred stock
and $3.0 million of the 8.24% serial preferred stock. In December 1995, IP
redeemed $34.7 million of its 8.00% serial preferred stock, $33.6 million of
its 7.56% serial preferred stock and $27.0 million of its 8.24% serial
preferred stock. The carrying amount under consideration paid for redeemed
preferred stock amounted to $3.5 million, which was recorded in equity and
included in net income applicable to common stock.
Note 10--Common Stock
and Retained Earnings
On May 31, 1994, common shares of IP began trading as common shares of
Illinova. Illinova is the sole shareholder of IP common stock.
In 1995, IP repurchased 2,696,086 shares of its common stock from Illinova.
Under Illinois law, such shares may be held as treasury stock and treated
as authorized but unissued, or may be canceled by resolution of the
Board of Directors. IP holds the common stock as treasury stock and
deducts it from common equity at the cost of the shares.
IP has an Incentive Savings Plan for Employees Covered Under a Collective
Bargaining Agreement. IP's matching contribution is used to purchase Illinova
common stock. Under this plan, 69,167 shares of stock were designated for
issuance at December 31, 1995.
IP employees participate in an Employees' Stock Ownership Plan (ESOP) that
includes an
incentive compensation feature which is tied to achievement of
specified corporate performance goals. This arrangement began in 1991 when IP
loaned $35 million to the Trustee of the Plans, which used the loan proceeds
to purchase 2,031,445 shares of IP's common stock on the open market. The
loan and common shares were converted to Illinova instruments with the
formation of Illinova in May 1994. These shares are held in a suspense
account under the Plans and are being distributed to the accounts of
participating employees as the loan is repaid by the Trustee with funds
contributed by IP, together with dividends on the shares acquired with the
loan proceeds. IP financed the loan with funds borrowed under its bank
credit agreements.
For the year ended December 31, 1995, 75,729 shares were allocated to
salaried employees and 70,830 shares to employees covered under the
Collective Bargaining Agreement through the matching contribution feature of
the ESOP arrangement. Under the incentive compensation feature, 109,662
shares were allocated to employees for the year ended December 31, 1995.
During 1995, IP contributed $6.0 million to the ESOP and using the shares
allocated method, recognized $4.4 million of expense. Interest paid on the
ESOP debt was approximately $2.1 million in 1995 and dividends used for debt
service were approximately $2.0 million.
In 1992, the Board of Directors adopted and the shareholders approved a Long-
Term Incentive Compensation Plan (the Plan) for officers or employee members
of the Board, but excluding directors who are not officers or employees. The
types of awards that may be granted under the Plan are restricted stock,
incentive stock options, non-qualified stock options, stock appreciation
rights, dividend equivalents and other stock-based awards. The Plan provides
that any one or more types of awards may be granted for up to 1,500,000
shares of Illinova's common stock. The following table outlines the activity
thus far under this plan:
_____________________________________________________________________________
Year Options Grant Year
Granted Granted Price Exercisable
_____________________________________________________________________________
1992 62,000 $ 233/8 1996
1993 73,500 $ 241/4 1997
1994 82,650 $ 207/8 1997
1995 69,300 $ 247/8 1998
_____________________________________________________________________________
The provisions of Supplemental Indentures to IP's General Mortgage Indenture
and Deed of Trust contain certain restrictions with respect to the
declaration and payment of dividends. IP was not limited by any of these
restrictions at December 31, 1995. Under the Restated Articles of
Incorporation, common stock dividends are subject to the preferential rights
of the holders of preferred and preference stock.
Note 11--Pension and
Other Benefit Costs
IP has defined-benefit pension plans covering all officers and employees.
Benefits are based on years of service and compensation. IP's funding policy
is to contribute annually at least the minimum amount required by government
funding standards, but not more than can be deducted for federal income tax
purposes.
Pension costs, a portion of which have been capitalized for 1995, 1994 and
1993, include the following components:
Years Ended December 31,
______________________________________________________________________________
(Millions of dollars) 1995 1994 1993
______________________________________________________________________________
Service cost on benefits
earned during the year $ 10.4 $ 11.9 $ 11.3
Interest cost on projected
benefit obligation 23.6 21.8 20.8
Return on plan assets (58.3) (7.9) (28.1)
Net amortization and deferral 29.6 (19.2) 1.9
Effect of enhanced retirement
program 15.7 - -
_____________________________________________________________________________
Net periodic pension cost $ 21.0 $ 6.6 $ 5.9
_____________________________________________________________________________
The estimated funded status of the plans at December 31, 1995 and 1994, using
discount rates of 7.75% and 8.75%, respectively, and future compensation
increases of 4.5% was as follows:
Balances as of December 31,
_____________________________________________________________________________
(Millions of dollars) 1995 1994
_____________________________________________________________________________
Actuarial present value of:
Vested benefit obligation $ (276.8) $ (209.6)
_____________________________________________________________________________
Accumulated benefit obligation $ (297.5) $ (220.8)
_____________________________________________________________________________
Projected benefit obligation $ (343.6) $ (267.3)
Plan assets at fair value 331.5 284.0
_____________________________________________________________________________
Funded status (12.1) 16.7
Unrecognized net (gain)/loss (5.1) (38.8)
Unrecognized net asset at transition (34.6) (15.0)
Unrecognized prior service cost 21.2 24.5
_____________________________________________________________________________
Accrued pension cost included in
accounts payable $ (30.6) $ (12.6)
_____________________________________________________________________________
The plan's assets consist primarily of common stocks, fixed income
securities, cash equivalents and real estate. The actuarial present value of
accumulated plan benefits at January 1, 1995 and 1994, were $258 million and
$230 million, respectively, including vested benefits of $239 million and
$213 million, respectively. The pension cost for 1995, 1994 and 1993 was
calculated using: a discount rate of 8.75%, 7.75% and 8.25%, respectively;
future compensation increases of 4.5% for 1995, 4.5% for 1994 and 5.5% for
1993; and a return on assets of 9% for 1995, 1994 and 1993. The unrecognized
net asset at transition and unrecognized prior service cost are amortized on
a straight-line basis over the average remaining service period of employees
who are expected to receive benefits under the plan. IP did not make any
cash contributions during 1993 for the pension plans due to its overfunded
status. IP made cash contributions of $2 million in 1995 and $10 million in
1994.
IP provides health care and life insurance benefits to certain retired
employees, including their eligible dependents, who attain specified ages
and years of service under the terms of the defined-benefit plans.
Postretirement benefits, a portion of which have been capitalized, for 1995
and 1994 included the following components:
Years Ended December 31,
- - -----------------------------------------------------------------------------
(Millions of dollars) 1995 1994
- - -----------------------------------------------------------------------------
Service cost on benefits earned
during the year $ 2.1 $ 3.3
Interest cost on projected
benefit obligation 5.5 6.2
Return on plan assets (4.7) .2
Amortization of unrecognized
transition obligation 6.3 2.1
Effect of enhanced retirement program 9.5 --
- - -----------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 18.7 $ 11.8
- - -----------------------------------------------------------------------------
The net periodic postretirement benefit cost in the preceeding table includes
amortization of the previously unrecognized accumulated postretirement benefit
obligation, which was $52.3 million and $55.2 million as of January 1, 1995 and
1994, respectively, over 20 years on a straight-line basis.
IP has established two separate trusts for those retirees who were subject to
a collectively bargained agreement and all other retirees to fund retiree health
care and life insurance benefits. IP's funding policy is to contribute annually
an amount at least equal to the revenues collected for the amount of
postretirement benefit costs allowed in rates. The plan assets consist of
common stocks and fixed income securities at December 31, 1995 and 1994.
The estimated funded status of the plans at December 31,
Balances as of December 31,
- - ------------------------------------------------------------------------------
(Millions of dollars) 1995 1994
- - ------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation
Retirees $ (54.5) $ (26.7)
Other fully eligible participants (3.0) (11.6)
Other active plan participants (27.5) (27.3)
- - ------------------------------------------------------------------------------
Total benefit obligation (85.0) (65.6)
Plan assets at fair value 25.6 15.2
- - ------------------------------------------------------------------------------
Funded status (59.4) (50.4)
Unrecognized transition obligation 44.2 52.3
Unrecognized net (gain)/loss -- (7.8)
- - ------------------------------------------------------------------------------
Accrued postretirement benefit cost
included in accounts payable $ ( 15.2) $ ( 5.9)
- - ------------------------------------------------------------------------------
The pre-65 health-care-cost trend rate decreases from 7.6% to 5.5% over nine
years and the post-65 health-care-cost trend rate is level at 1.5%. A 1
percent increase in each future year's assumed health-care-cost trend rates
increases the service and interest cost from $7.6 million to $8.5 million and
the accumulated postretirement benefit obligation from $85.0 million to $93.0
million.
Enhanced Retirement
In December 1994, IP announced plans for voluntary enhanced retirement programs.
During the fourth quarter of 1995, enhanced retirement and severance reduced the
number of employees by 492 and 235, respectively. At January 1, 1996, Illinova
employed 3,596 people, as compared to 4,350 at December 31, 1994. The enhanced
retirement and severance programs generated pre-tax charges of approximately
$26 and $12 million, respectively, against fourth quarter 1995 earnings and
will generate savings of approximately $36 million annually, starting in 1996.
Note 12--Segments of Business
<TABLE>
(Millions of dollars)
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993
Total Total Total
Electric Gas Corporation Electric Gas Corporation Electric Gas Corporation
- - ----------------------------------------------------------------------------------------------------------------------
Operation information --
Operating revenues $1,368.9 $272.5 $1,641.4 $1,287.5 $302.0 $1,589.5 $1,266.4 $314.8 $1,581.2
Operating expenses, excluding
provision for income taxes
and deferred Clinton costs 942.7 245.0 1,187.7 872.6 274.7 1,147.3 873.9 286.2 1,160.1
Deferred Clinton costs 3.5 - 3.5 3.5 - 3.5 9.3 - 9.3
- - -----------------------------------------------------------------------------------------------------------------------
Pre-tax operating income 422.7 27.5 450.2 411.4 27.3 438.7 383.2 28.6 411.8
Allowance for funds used
during construction (AFUDC) 5.5 .5 6.0 8.9 .4 9.3 6.2 1.0 7.2
Disallowed Clinton costs (net of taxes) - - - - - - (200.4) - (200.4)
- - ------------------------------------------------------------------------------------------------------------------------
Pre-tax operating income, including
AFUDC and disallowed
Clinton costs $428.2 $28.0 $456.2 $420.3 $27.7 $448.0 $189.0 $29.6 $218.6
- - -------------------------------------------------------------- ----------------- -----------------
Other deductions, net 8.1 11.3 15.6
Interest charges 148.0 143.9 164.9
Provision for income taxes 117.4 112.5 94.2
- - --------------------------------------------------------------------------------------------------------------------------
Net income (loss) 182.7 180.3 (56.1)
Carrying value over (under)
consideration paid for redeemed
preferred stock (3.5) 6.4 -
- - --------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable
to common stock $155.5 $161.8 $(82.2)
===========================================================================================================================
Other information --
Depreciation $161.4 $21.6 $183.0 $156.1 $21.1 $177.2 $148.2 $21.0 $169.2
- - ---------------------------------------------------------------------------------------------------------------------------
Capital expenditures $185.7 $23.6 $209.3 $173.1 $20.6 $193.7 $221.3 $56.4 $277.7
- - ----------------------------------------------------------------------------------------------------------------------------
Investment information --
Identifiable assets* $4,580.4 $446.3 $5,026.7 $4,589.0 $442.6 $5,031.6 $4,526.8 $406.4 $4,933.2
- - --------------------------------------------------------------- ------------------ ----------------
Nonutility plant and other investments 16.2 15.2 15.2
Assets utilized for overall operations 524.3 549.0 496.7
- - -----------------------------------------------------------------------------------------------------------------------------
Total assets $5,567.2 $5,595.8 $5,445.1
==============================================================================================================================
</TABLE>
*Utility plant, nuclear fuel, materials and supplies, deferred Clinton costs
and prepaid and deferred energy costs.
Note 13--Fair Value of
Financial Instruments
1995 1994
- - ----------------------------------------------------------------------------
(Millions of dollars) Carrying Fair Carrying Fair
Value Value Value Value
- - -----------------------------------------------------------------------------
Nuclear decommissioning
trust funds $ 32.7 $ 32.7 $ 22.4 $ 22.4
Cash and cash equivalents 4.3 4.3 47.9 47.9
Mandatorily redeemable
preferred stock 97.0 108.2 133.0 133.0
Long-term debt 1,739.2 1,855.8 1,868.1 1,750.7
Notes payable 359.6 359.6 238.8 238.8
- - ------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments listed in the table above:
Nuclear Decommissioning Trust Funds - The fair values of available-for-sale
marketable debt securities and equity investments held by the Nuclear
Decommissioning Trust are based on quoted market prices at the reporting
date for those or similar investments.
Cash and Cash Equivalents - The carrying amount of cash and cash equivalents
approximates fair value due to the short maturity of these instruments.
Mandatorily Redeemable Serial Preferred Stock and Long-Term
Debt - The fair value of mandatorily redeemable preferred
stock and long-term debt is estimated based on the quoted market prices
for similar issues or by discounting expected cash flows at the rates currently
offered for debt of the same remaining maturities.
Notes Payable - The carrying amount of notes payable approximates fair value
due to the short maturity of these instruments.
Note 14--quarterly consolidated financial information and common stock data
(unaudited)
<TABLE>
(Millions of dollars except per common share amounts)
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter Second Quarter Third Quarter Fourth Quarter
1995 1995 1995 1995
- - --------------------------------------------------------------------------------------------------
Operating revenues $425.5 $344.3 $486.1 $385.5
Operating income 78.3 67.1 137.2 41.8
Net income 41.7 34.5 98.2 8.3
Net income (loss) applicable to common stock 35.3 35.1 95.9 (10.8)
Cash dividends declared on common stock 18.9 18.9 18.9 21.2
Cash dividends on paid on common stock 18.9 18.6 18.9 18.9
First Quarter Second Quarter Third Quarter Fourth Quarter
1994 1994 1994 1994
___________________________________________________________________________________________________
Operating revenues $ 442.9 $ 349.6 $ 428.9 $ 368.1
Operating income 71.3 72.2 112.2 64.7
Net income 34.4 36.5 78.4 31.0
Net income applicable to common stock 28.5 30.5 72.5 30.3
Cash dividends declared on common stock -- 15.1 15.1 18.9
Cash dividends paid on common stock 15.1 30.2 -- 15.2
</TABLE>
The 1995 fourth quarter earnings include $23 million, net of tax,
for the enhanced retirement and severance program and $3.5 million,
for the carrying amount under consideration paid for
redeemed preferred stock.
The 1994 fourth quarter earnings include $6.4 million for
the carrying amount over consideration paid for redeemed preferred stock.
On May 31, 1994, common shares of Illinois Power Company began trading
as common shares of Illinova Corporation. Illinova is the sole shareholder
of Illinois Power Company common stock.
<TABLE>
Illinois Power Company
__________________________________________________________________________________________________________
selected consolidated financial data*
<S> <C> <C> <C> <C> <C> <C>
(Millions of dollars)
1995 1994 1993 1992 1991 1985
__________________________________________________________________________________________________________
Operating revenues
Electric $ 1,252.6 $ 1,177.5 $ 1,135.6 $ 1,117.9 $ 1,101.2 $ 766.5
Electric interchange 116.3 110.0 130.8 73.0 85.5 36.0
Gas 272.5 302.0 314.8 288.6 288.2 400.9
___________________________________________________________________________________________________________
Total operating revenues $ 1,641.4 $ 1,589.5 $ 1,581.2 $ 1,479.5 $ 1,474.9 $ 1,203.4
___________________________________________________________________________________________________________
Net income (loss) $ 182.7 180.3 (56.1) 122.1 109.3 240.0
Effective income tax rate 39.1% 38.4% (72.4)% 39.4% 40.4% 26.2%
____________________________________________________________________________________________________________
Net income (loss) appli-
cable to common stock $ 155.5 161.8 (82.2) 93.2 78.4 207.2
Cash dividends declared
on common stock $ 77.9 49.1 30.2 105.9 30.2 158.7
Cash dividends paid
on common stock 75.3 60.5 60.5 60.5 15.1 155.2
- - ------------------------------------------------------------------------------------------------------------
Total assets** $ 5,567.2 5,595.8 5,445.1 5,331.7 5,271.8 4,894.6
______________________________________________________________________________________________________________
Capitalization
Common stock equity $ 1,478.1 1,466.0 1,342.8 1,454.0 1,488.8 1,539.3
Preferred stock 125.6 224.7 303.7 303.1 303.1 315.2
Mandatorily redeemable
preferred stock 97.0 133.0 48.0 100.0 110.0 86.0
Long-term debt* 1,739.3 1,946.1 1,926.3 2,017.4 2,153.1 1,997.5
___________________________________________________________________________________________________________
Total capitalization* $ 3,440.0 $ 3,769.8 $ 3,620.8 $ 3,874.5 $ 4,055.0 $ 3,938.0
___________________________________________________________________________________________________________
Embedded cost of
long-term debt 7.9% 7.6% 7.5% 8.3% 8.7% 10.0%
____________________________________________________________________________________________________________
Retained earnings
(deficit) $ 129.6 $ 51.1 $ (71.0) $ 41.0 $ 75.8 $ 398.8
_____________________________________________________________________________________________________________
Capital expenditures $ 209.3 $ 193.7 $ 277.7 $ 244.4 $ 141.2 $ 870.7
Cash flows from
operations $ 473.7 280.2 396.6 374.5 313.1 242.7
AFUDC as a percent of
earnings applicable
to common stock 3.9% 5.7% N/A 5.6% 3.7% 78.2%
Ratio of earnings to
fixed charges 2.77 2.73 .80 2.02 1.85 2.66
===========================================================================================================
</TABLE>
* Restated for the effect of capitalized nuclear fuel lease.
Illinois Power Company
<TABLE>
selected illinois power company statistics
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1985
- - ------------------------------------------------------------------------------------------------------------
Electric Sales In KWH (millions)
Residential 4,754 4,537 4,546 4,138 4,620 3,927
Commercial 3,804 3,517 3,246 3,055 3,111 2,706
Industrial 8,670 8,685 8,120 8,083 7,642 6,933
Other 367 536 337 466 699 861
____________________________________________________________________________________________________________
Sales to ultimate consumers 17,595 17,275 16,249 15,742 16,072 14,427
Interchange 4,444 4,837 6,015 2,807 3,360 1,692
Wheeling 642 622 569 402 292 -
____________________________________________________________________________________________________________
Total electric sales 22,681 22,734 22,833 18,951 19,724 16,119
____________________________________________________________________________________________________________
Electric Revenues (millions)
Residential $ 500 $ 471 $ 463 $ 435 $ 447 $ 276
Commercial 321 295 269 263 251 179
Industrial 392 378 360 381 355 277
Other 37 30 40 38 47 34
____________________________________________________________________________________________________________
Revenues from ultimate consumers 1,250 1,174 1,132 1,117 1,100 766
Interchange 116 110 131 73 86 36
Wheeling 3 3 3 1 1 -
_____________________________________________________________________________________________________________
Total electric revenues $ 1,369 $ 1,287 $ 1,266 $1,191 $ 1,187 $ 802
_____________________________________________________________________________________________________________
Gas Sales In Therms (millions)
Residential 356 359 371 339 339 365
Commercial 144 144 148 138 133 166
Industrial 88 81 78 136 98 136
______________________________________________________________________________________________________________
Sales to ultimate consumers 588 584 597 613 570 667
Transportation of customer-owned gas 273 262 229 204 253 -
_______________________________________________________________________________________________________________
Total gas sold and transported 861 846 826 817 823 667
Interdepartmental sales 21 5 7 12 8 1
_______________________________________________________________________________________________________________
Total gas delivered 882 851 833 829 831 668
_______________________________________________________________________________________________________________
Gas Revenues (millions)
Residential $ 173 $ 192 $ 200 $ 181 $ 84 $ 228
Commercial 60 66 68 61 61 89
Industrial 24 31 34 37 31 68
_______________________________________________________________________________________________________________
Revenues from ultimate consumers 257 289 302 279 276 385
Transportation of customer-owned gas 8 9 8 7 9 -
Miscellaneous 7 4 5 3 3 16
________________________________________________________________________________________________________________
Total gas revenues $ 272 $ 302 $ 315 $ 289 $ 288 $ 401
________________________________________________________________________________________________________________
System peak demand (native load)
in kw (thousands) 3,667 3,395 3,415 3,109 3,272 2,929
Firm peak demand (native load)
in kw (thousands) 3,576 3,232 3,254 2,925 3,108 2,771
Net generating capability
in kw (thousands) 3,862 4,121 4,045 4,052 3,909 3,770
________________________________________________________________________________________________________________
Electric customers (end of year) 529,966 553,869 554,270 549,391 565,421 537,047
Gas customers (end of year) 374,299 388,170 394,379 386,261 401,763 382,442
Employees (end of year) 3,559 4,350 4,540 4,624 4,514 4,550
_________________________________________________________________________________________________________________
</TABLE>
Exhibit 21(a)
Subsidiaries of Illinova Corporation and Illinois Power Company
State or Jurisdiction
Name of Incorporation
- - ---- -------------------
Illinova Corporation Illinois
Illinois Power Company Illinois
IP Gas Supply Company Illinois
Illinois Power Fuel Company (1) Illinois
Electric Energy, Inc. (2) Illinois
Illinois Power Capital, L.P. (3) Delaware
Illinois Power Financing I Delaware
Illinova Generating Company Illinois
IPG Canfield Co. Illinois
IPG Dominguez Co. Illinois
IPG Eastern, Inc. Illinois
IPG Ferndale, Inc. Illinois
IPG Frederickson, Inc. Illinois
IGC Solutions, Inc.
(formerly IPG LAP Cogen, Inc.) Illinois
IPG Panorama Co. Illinois
IPG Paris, Inc. Illinois
IPG Western, Inc. Illinois
IGC Acquisition Co.
(formerly IPG Aztec Co.) Illinois
IGC Brazos, Inc. Illinois
IGC Development Company Illinois
IGC International, Inc. Cayman Islands
IGC Sub Co., Inc. Illinois
ICG White Oak Energy Investors, Inc. Illinois
ECI Energy, Ltd. (4) Delaware
North American Energy Services Co. (5) Washington
IGC ELCO Partnership, LLC (6) Cayman Islands
IGC Aguaytia Partners, LLC (7) Cayman Islands
IGC Jamaica Partnership, LLC (8) Cayman Islands
IGC International II, Inc. Cayman Islands
IGC Flores Partnership, LLC (9) Cayman Islands
IGC Flores Partnership II, LLC (10) Cayman Islands
FIG Leasing International, LLC (11) Cayman Islands
Simms International, Ltd. (12) New York
Illinova Power Marketing, Inc. Delaware
Tenaska Marketing Ventures (13) Nebraska
(1) Illinois Power Company owns 50% of the common stock of
Illinois Power Fuel Company.
(2) Illinois Power Company owns 20% of the common
stock of EEI.
(3) Illinois Power Company is the general partner in
Illinois Power Capital, L.P., with a 3% equity
ownership share. Illinois Power Capital is
consolidated in the accounts of Illinois Power Company.
(4) Illinova Generating Company owns 47.5% of the voting
common stock of ECI Energy, Ltd..
(5) Illinova Generating Company owns 50% of the common
stock of North American Energy Services Company.
(6) Illinova Generating Company owns 1% and IGC
International, Inc. (a wholly-owned subsidiary of
Illinova Generating Company) owns 99% of ELCO
Partnership LLC.
(7) IGC International, Inc. (a wholly-owned subsidiary of
Illinova Generating Company) owns 99% and IGC
International II, Inc. (a wholly-owned
subsidiary of Illinova Generating Company) owns 1% of
IGC Aguaytia Partners, LLC.
(8) IGC International, Inc. (a wholly-owned subsidiary of
Illinova Generating Company) owns 99% and IGC
International II, Inc. (a wholly-owned
subsidiary of Illinova Generating Company) owns 1% of
IGC Jamaica Partnership, LLC.
(9) IGC International, Inc. (a wholly-owned subsidiary of
Illinova Generating Company) owns 99% and IGC
International II, Inc. (a wholly-owned
subsidiary of Illinova Generating Company) owns 1% of
IGC Flores Partnership, LLC.
(10) IGC International, Inc. (a wholly-owned subsidiary of
Illinova Generating Company) owns 99% and IGC
International II, Inc. (a wholly-owned
subsidiary of Illinova Generating Company) owns 1% of
IGC Flores Partnership II, LLC.
(11) IGC Flores Partnership, LLC (a subsidiary of IGC
International,Inc. and IGC International II,
Inc.) owns 50% and IGC Flores Partnership II,
LLC (a subsidiary of IGC International Inc. and
IGC International II, Inc.) owns 50% of FIG Leasing
International, LLC.
(12) IGC International II, Inc. (a wholly-owned subsidiary
of Illinova Generating Company) owns 100% of Simms
International, Ltd..
(13) Illinova Power Marketing, Inc. owns 50% of the equity
of Tenaska Marketing Ventures.
March 26,1996
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 33-22068), the
Registration Statement on Form S-8 (No. 33-60278), the
Registration Statement on Form S-8 (No. 33-66124), the
Prospectus constituting part of the Registration Statement on
Form S-3 (No. 33-25699), the Prospectus constituting part of the
Registration Statement on Form S-3 (No. 33-50173), the Prospectus
constituting part of the Registration Statement on Form S-3
(No. 33-52048), and the Prospectus constituting part of the
Registration Statement on Form S-3 (No. 33-62506) of our report
dated February 2, 1996, appearing on page A-10 of the Annual
Report to Shareholders in the appendix to the Illinova
Corporation Proxy Statement which is incorporated in this Annual
Report on Form 10-K.
PRICE WATERHOUSE LLP
March 27, 1996
EXHIBIT 23(b)
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. 33-50173), the Prospectus constituting part of the
Registration Statement on Form S-3 (No. 33-52048), and the
Prospectus constituting part of the Registration Statement on
Form S-3 (No. 33-62506) of our report dated February 2, 1996,
appearing on page A-10 of the Annual Report to Shareholders in
the appendix to the Illinois Power Company Information Statement
which is incorporated in this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
March 27, 1996
ILLINOIS POWER COMPANY,
Issuer
AND
WILMINGTON TRUST COMPANY,
Trustee
INDENTURE
Dated as of January 1, 1996
Subordinated Debt Securities
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions of Terms. 1
ARTICLE II
ISSUE, DESCRIPTION, TERMS, EXECUTION,
REGISTRATION AND EXCHANGE OF DEBT SECURITIES
SECTION 2.01. Designation and Terms of Debt Securities. 6
SECTION 2.02. Form of Debt Securities and Trustee's Certificate. 8
SECTION 2.03. Denominations; Provisions for Payment. 9
SECTION 2.04. Execution and Authentication. 10
SECTION 2.05. Registration of Transfer and Exchange. 11
SECTION 2.06. Temporary Securities. 13
SECTION 2.07. Mutilated, Destroyed, Lost or Stolen Debt Securities. 13
SECTION 2.08. Cancellation. 14
SECTION 2.09. Benefits of Indenture. 14
SECTION 2.10. Authenticating Agent. 15
SECTION 2.11. Global Securities. 15
ARTICLE III
REDEMPTION OF DEBT SECURITIES AND SINKING FUND PROVISIONS
SECTION 3.01. Redemption. 17
SECTION 3.02. Notice of Redemption. 17
SECTION 3.03. Payment Upon Redemption. 18
SECTION 3.04. Sinking Fund. 19
SECTION 3.05. Satisfaction of Sinking Fund Payments
with Debt Securities. 19
SECTION 3.06. Redemption of Debt Securities for Sinking Fund. 20
ARTICLE IV
COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Principal, Premium and Interest. 20
SECTION 4.02. Maintenance of Office or Agency. 20
SECTION 4.03. Paying Agents. 21
SECTION 4.04. Appointment to Fill Vacancy in Office of Trustee. 22
SECTION 4.05. Compliance with Consolidation Provisions. 22
SECTION 4.06. Limitation on Dividends. 22
SECTION 4.07. Covenants as to Illinois Power Trusts. 23
SECTION 4.08. Corporate Existence. 23
ARTICLE V
SECURITY HOLDERS, LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
SECTION 5.01. Company to Furnish Trustee Names and Addresses of
Securityholders. 23
SECTION 5.02. Preservation Of Information; Communications With
Securityholders. 24
SECTION 5.03. Reports By the Company. 24
SECTION 5.04. Reports by the Trustee. 25
ARTICLE VI
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 6.01. Events of Default. 25
SECTION 6.02. Collection of Indebtedness and Suits for Enforcement
by Trustee. 27
SECTION 6.03. Application of Moneys Collected. 29
SECTION 6.04. Limitation on Suits. 30
SECTION 6.05. Rights and Remedies Cumulative; Delay or Omission
Not Waiver. 31
SECTION 6.06. Control by Securityholders. 31
SECTION 6.07. Undertaking to Pay Costs. 32
ARTICLE VII
CONCERNING THE TRUSTEE
SECTION 7.01. Certain Duties and Responsibilities of Trustee. 32
SECTION 7.02. Certain Rights of Trustee. 34
SECTION 7.03. Trustee Not Responsible for Recitals or
Issuance of Debt Securities. 35
SECTION 7.04. May Hold Debt Securities. 36
SECTION 7.05. Moneys Held in Trust. 36
SECTION 7.06. Compensation and Reimbursement. 36
SECTION 7.07. Reliance on Officers' Certificate. 37
SECTION 7.08. Qualification; Conflicting Interests. 37
SECTION 7.09. Corporate Trustee Required; Eligibility. 37
SECTION 7.10. Resignation and Removal; Appointment of Successor. 37
SECTION 7.11. Acceptance of Appointment By Successor. 39
SECTION 7.12. Merger, Conversion, Consolidation or
Succession to Business. 39
SECTION 7.13. Preferential Collection of Claims Against the Company. 41
ARTICLE VIII
CONCERNING THE SECURITYHOLDERS
SECTION 8.01. Evidence of Action by Securityholders. 41
SECTION 8.02. Proof of Execution by Securityholders. 42
SECTION 8.03. Who May be Deemed Owners. 42
SECTION 8.04. Certain Debt Securities Owned by Company Disregarded. 42
SECTION 8.05. Actions Binding on Future Securityholders. 43
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures Without the Consent of
Securityholders. 43
SECTION 9.02. Supplemental Indentures With Consent of
Securityholders. 44
SECTION 9.03. Effect of Supplemental Indentures. 45
SECTION 9.04. Debt Securities Affected by Supplemental Indentures. 45
SECTION 9.05. Execution of Supplemental Indentures. 45
ARTICLE X
SUCCESSOR CORPORATION
SECTION 10.01. Company May Consolidate, Etc. 46
SECTION 10.02. Successor Corporation Substituted. 46
SECTION 10.03. Evidence of Consolidation, Etc. to Trustee. 47
ARTICLE XI
SATISFACTION AND DISCHARGE
SECTION 11.01. Satisfaction and Discharge of Indenture. 47
SECTION 11.02. Discharge of Obligations. 48
SECTION 11.03. Deposited Moneys to be Held in Trust. 49
SECTION 11.04. Payment of Moneys Held by Paying Agents. 49
SECTION 11.05. Repayment to Company. 49
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 12.01. No Recourse. 50
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Effect on Successors and Assigns. 50
SECTION 13.02. Actions by Successor. 50
SECTION 13.03. Surrender of Company Powers. 50
SECTION 13.04. Notices. 51
SECTION 13.05. Governing Law. 51
SECTION 13.06. Treatment of the Debt Securities as Debt. 51
SECTION 13.07. Compliance Certificates and Opinions. 51
SECTION 13.08. Payments on Business Days. 52
SECTION 13.09. Conflict with Trust Indenture Act. 52
SECTION 13.10. Counterparts. 52
SECTION 13.11. Separability. 52
SECTION 13.12. Assignment. 52
SECTION 13.13. Acknowledgment of Rights. 53
ARTICLE XIV
SUBORDINATION OF DEBT SECURITIES
SECTION 14.01. Subordination Terms. 53
Section of
Trust Indenture Act Section of
of 1939, as amended Indenture
310(a) 7.09
310(b) 7.08
7.10
310(c) Inapplicable
311(a) 7.13(a)
311(b) 7.13(b)
311(c) Inapplicable
312(a) 5.01
5.02(a)
312(b) 5.02(b)
312(c) 5.02(c)
313(a) 5.04(a)
313(b) 5.04(b)
313(c) 5.04(a)
5.04(b)
313(d) 5.04(c)
314(a) 5.03
314(b) Inapplicable
314(c) 13.06
314(d) Inapplicable
314(e) 13.06
314(f) Inapplicable
315(a) 7.01(a)
7.02
315(b) 6.07
315(c) 7.01
315(d) 7.01(b)
7.01(c)
315(e) 6.07
316(a) 6.06
8.04
316(b) 6.04
316(c) 8.01
317(a) 6.02
317(b) 4.03
318(a) 13.08
Note: This Cross-Reference Table shall not, for any purpose,
be deemed to be part of the Indenture and shall not have any
bearing on the interpretation of its terms or provisions.
THIS INDENTURE, dated as of January 1, 1996, between
ILLINOIS POWER COMPANY, an Illinois corporation (the "Company"),
and WILMINGTON TRUST COMPANY, a Delaware banking corporation, not
in its individual capacity but solely as trustee (the "Trustee"):
RECITALS OF THE COMPANY
The Company has duly authorized the execution and
delivery of this Indenture to provide for the issuance from time
to time of its unsecured debentures, notes or other evidences of
indebtedness (the "Securities"), to be issued in one or more
series as in this Indenture provided. This Indenture is subject
to the provisions of the Trust Indenture Act of 1939, as amended,
that are required to be part of this Indenture and shall, to the
extent applicable, be governed by such provisions. All things
necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the
purchase of the Securities by the Holders thereof, it is mutually
covenanted and agreed, for the equal and proportionate benefit of
all Holders of the Securities or of any series thereof, as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions of Terms.
The terms defined in this Section (except as in this
Indenture otherwise expressly provided or unless the context
otherwise requires) for all purposes of this Indenture and of any
indenture supplemental hereto shall have the respective meanings
specified in this Section and shall include the plural as well as
the singular. All other terms used in this Indenture that are
defined in the Trust Indenture Act of 1939, as amended, or that
are by reference in such Trust Indenture Act defined in the
Securities Act of 1933, as amended (except as herein otherwise
expressly provided or unless the context otherwise requires),
shall have the meanings assigned to such terms in said Trust
Indenture Act and in said Securities Act as in force at the date
of the execution of this instrument.
"Affiliate" means, with respect to a specified Person,
(a) any Person directly or indirectly owning, controlling or
holding with power to vote 10% or more of the outstanding voting
securities or other ownership interests of the specified Person,
(b) any Person 10% or more of whose outstanding voting securities
or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person,
(c) any Person directly or indirectly controlling, controlled by
or under common control with the specified Person, (d) a
partnership in which the specified Person is a general partner,
(e) any officer or director of the specified Person and (f) if
the specified Person is an individual, any entity of which the
specified Person is an officer, director or general partner.
"Authenticating Agent" means an authenticating agent
with respect to all or any of the series of Debt Securities
appointed with respect to all or such series of the Debt
Securities by the Trustee pursuant to Section 2.10.
"Bankruptcy Law" means Title 11, United States Code, or
any similar federal or state law for the relief of debtors.
"Board of Directors" means the board of directors of
the Company, or any duly authorized committee of such board or
any officer of the Company duly authorized by the board of
directors of the Company or a duly authorized committee of that
board.
"Board Resolution" means a copy of a resolution
certified by the Secretary or an Assistant Secretary of the
Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification.
"Business Day" means, with respect to any series of
Debt Securities, any day other than a day on which banking
institutions in New York are authorized or required by law to
close.
"Certificate" means a certificate signed by the
principal executive officer, the principal financial officer, the
treasurer or the principal accounting officer of the Company.
The Certificate need not comply with the provisions of Section
13.07.
"Common Securities" means undivided beneficial
interests in the assets of an Illinois Power Trust which rank
pari passu with Preferred Securities issued by such trust;
provided, however, that upon the occurrence of an Event of
Default, the rights of holders of Common Securities to payment in
respect of distributions and payments upon liquidation,
redemption and maturity are subordinated to the rights of holders
of Preferred Securities.
"Common Securities Guarantee" means any guarantee that
the Company may enter into with an Illinois Power Trust or other
Persons that operate directly or indirectly for the benefit of
holders of Common Securities of such trust.
"Company" means Illinois Power Company, a corporation
duly organized and existing under the laws of the State of
Illinois, and, subject to the provisions of Article X, shall also
include its successors and assigns.
"Corporate Trust Office" means the office of the
Trustee at which, at any particular time, its corporate trust
business shall be principally administered, which office at the
date hereof is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890-0001, Attention: Corporate
Trust Department.
"Custodian" means any receiver, trustee, assignee,
liquidator, or similar official under any Bankruptcy Law.
"Declaration" means, in respect of an Illinois Power
Trust, the amended and restated declaration of trust of such
Illinois Power Trust or any other governing instrument of such
Trust.
"Debt Securities" means the Debt Securities
authenticated and delivered under this Indenture.
"Default" means any event, act or condition that with
notice or lapse of time, or both, would constitute an Event of
Default.
"Defaulted Interest" has the meaning specified in
Section 2.03.
"Depositary" means, with respect to Debt Securities of
any series for which the Company shall determine that such Debt
Securities will be issued as a Global Security, The Depository
Trust Company, New York, New York, another clearing agency, or
any successor registered as a clearing agency under the Exchange
Act or other applicable statute or regulation, which, in each
case, shall be designated by the Company pursuant to either
Section 2.01 or 2.11.
"Event of Default" means, with respect to Debt
Securities of a particular series, any event specified in Section
6.01, continued for the period of time, if any, therein
designated.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Global Security" means, with respect to any series of
Securities, a Debt Security executed by the Company and delivered
by the Trustee to the Depositary or pursuant to the Depositary's
instruction, all in accordance with this Indenture, which shall
be registered in the name of this Depositary or its nominee.
"Governmental Obligations" means securities that are
(i) direct obligations of the United States of America for the
payment of which its full faith and credit is pledged or (ii)
obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America that, in
either case, are not callable or redeemable at the option of the
issuer thereof, and shall also include a depositary receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities
Act) as custodian with respect to any such Governmental
Obligation or a specific payment of principal of or interest on
any such Governmental Obligation held by such custodian for the
account of the holder of such depositary receipt; provided,
however, that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the
holder of such depositary receipt from any amount received by the
custodian in respect of the Governmental Obligation or the
specific payment of principal of or interest on the Governmental
Obligation evidenced by such depositary receipt.
"Herein", "hereof" and "hereunder", and other words of
similar import, refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Illinois Power Trust" means a Delaware business trust
formed by the Company for the purpose of purchasing Debt
Securities of the Company.
"Indenture" means this instrument as originally
executed or as it may from time to time be supplemented or
amended by one or more indentures supplemental hereto entered
into in accordance with the terms hereof.
"Interest Payment Date", when used with respect to any
installment of interest on a Debt Security of a particular
series, means the date specified in such Debt Security or in a
Board Resolution, in an Officers' Certificate or in an indenture
supplemental hereto with respect to such series as the fixed date
on which an installment of interest with respect to Debt
Securities of that series is due and payable.
"Officers' Certificate" means a certificate signed by
the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Controller or an Assistant Controller
or the Secretary or an Assistant Secretary of the Company that is
delivered to the Trustee in accordance with the terms hereof.
Each such certificate shall include the statements provided for
in Section 13.07, if and to the extent required by the provisions
thereof.
"Opinion of Counsel" means an opinion in writing of
legal counsel, who may be an employee of or counsel for the
Company, that is delivered to the Trustee in accordance with the
terms hereof. Each such opinion shall include the statements
provided for in Section 13.07, if and to the extent required by
the provisions thereof.
"Outstanding", when used with reference to Debt
Securities of any series, means, subject to the provisions of
Section 8.04, as of any particular time, all Debt Securities of
that series theretofore authenticated and delivered by the
Trustee under this Indenture, except (a) Debt Securities
theretofore canceled by the Trustee or any paying agent, or
delivered to the Trustee or any paying agent for cancellation or
that have previously been canceled; (b) Debt Securities or
portions thereof for the payment or redemption of which moneys or
Governmental Obligations in the necessary amount shall have been
deposited in trust with the Trustee or with any paying agent
(other than the Company) or shall have been set aside and
segregated in trust by the Company (if the Company shall act as
its own paying agent); provided, however, that if such Debt
Securities or portions of such Debt Securities are to be redeemed
prior to the maturity thereof, notice of such redemption shall
have been given as provided in Section 3.02, or provision
satisfactory to the Trustee shall have been made for giving such
notice; (c) Debt Securities in lieu of or in substitution for
which other Debt Securities shall have been authenticated and
delivered pursuant to the terms of Section 2.07; and (d) Debt
Securities, except to the extent provided in Sections 11.01 and
11.02, with respect to which the Company has effected defeasance
and/or covenant defeasance as provided in Article XI.
"Person" means any individual, corporation,
partnership, limited liability company, joint venture,
joint-stock company, unincorporated organization or government or
any agency or political subdivision thereof.
"Predecessor Security" of any particular Debt Security
means every previous Debt Security evidencing all or a portion of
the same debt and guarantee as that evidenced by such particular
Debt Security; and, for the purposes of this definition, any Debt
Security authenticated and delivered under Section 2.07 in lieu
of a lost, destroyed or stolen Debt Security shall be deemed to
evidence the same debt as the lost, destroyed or stolen Debt
Security.
"Preferred Securities" means undivided beneficial
interests in the assets of an Illinois Power Trust which rank
pari passu with Common Securities issued by such trust; provided,
however, that upon the occurrence of an Event of Default, the
rights of holders of Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and
otherwise are subordinated to the rights of holders of Preferred
Securities.
"Preferred Securities Guarantee" means any guarantee
that the Company may enter into with an Illinois Power Trust or
other Persons that operates directly or indirectly for the
benefit of holders of Preferred Securities of such trust.
"Property Trustee" means the entity performing the
functions of the Property Trustee of an Illinois Power Trust
under the applicable Declaration of such Illinois Power Trust.
"Responsible Officer," when used with respect to the
Trustee, means the Chairman or any Vice Chairman of the Board of
Directors, the President, any Vice President, the Secretary, the
Treasurer, any trust officer, any corporate trust officer or any
other officer or assistant officer of the Trustee customarily
performing functions similar to those performed by the Persons
who at the time shall be such officers, respectively, or to whom
any corporate trust matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Securities Act" means the Securities Act of 1933, as
amended from time to time or any successor legislation.
"Securityholder", "Holder of Debt Securities",
"Registered Holder", or other similar term, means the Person or
Persons in whose name or names a particular Debt Security shall
be registered on the books of the Company kept for that purpose
in accordance with the terms of this Indenture.
"Security Register" and "Security Registrar" have the
respective meanings set forth in Section 2.05.
"Subsidiary" means, with respect to any Person, (i) any
corporation at least a majority of whose outstanding Voting Stock
shall at the time be owned, directly or indirectly, by such
Person or by one or more of its Subsidiaries or by such Person
and one or more of its Subsidiaries, (ii) any general
partnership, joint venture or similar entity, at least a majority
of whose outstanding partnership or similar interests shall at
the time be owned by such Person, or by one or more of its
Subsidiaries, or by such Person and one or more of its
Subsidiaries and (iii) any limited partnership of which such
Person or any of its Subsidiaries is a general partner.
"Trustee" means Wilmington Trust Company, not in its
individual capacity, and, subject to the provisions of Article
VII, shall also include its successors and assigns, and, if at
any time there is more than one Person acting in such capacity
hereunder, "Trustee" shall mean each such Person. The term
"Trustee," as used with respect to a particular series of Debt
Securities, shall mean the trustee with respect to that series.
"Trust Indenture Act" means the Trust Indenture Act of
1939, subject to the provisions of Sections 9.01, 9.02 and 10.01,
as in effect at the date of execution of this instrument.
"Trust Securities" means Common Securities and
Preferred Securities.
"Voting Stock", as applied to stock of any Person,
means shares, interests, participations or other equivalents in
the equity interest (however designated) in such Person having
ordinary voting power for the election of a majority of the
directors (or the equivalent) of such Person, other than shares,
interests, participations or other equivalents having such power
only by reason of the occurrence of a contingency.
ARTICLE II
ISSUE, DESCRIPTION, TERMS, EXECUTION,
REGISTRATION AND EXCHANGE OF DEBT SECURITIES
SECTION 2.01. Designation and Terms of Debt Securities.
The aggregate principal amount of Debt Securities that
may be authenticated and delivered under this Indenture is
unlimited. The Debt Securities may be issued in one or more
series up to the aggregate principal amount of Debt Securities of
that series from time to time authorized by or pursuant to a
Board Resolution of the Company, or pursuant to one or more
indentures supplemental hereto. Prior to the initial issuance of
Debt Securities of any series, there shall be established in or
pursuant to a Board Resolution of the Company, and set forth in
an Officers' Certificates, or established in one or more
indentures supplemental hereto:
(1) the title of the series of Debt Security (which shall
distinguish the Debt Securities of that series from all
other series of Debt Securities);
(2) any limit upon the aggregate principal amount of the
Debt Securities of that series that may be authenticated and
delivered under this Indenture (except for Debt Securities
authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Debt Securities
of that series);
(3) the date or dates on which the principal of the Debt
Securities of that series is payable;
(4) the rate or rates at which the Debt Securities of that
series shall bear interest or the manner of calculation of
such rate or rates, if any;
(5) the date or dates from which such interest shall
accrue, the Interest Payment Dates on which such interest
will be payable or the manner of determination of such
Interest Payment Dates and the record date for the
determination of holders to whom interest is payable on any
such Interest Payment Dates;
(6) the right, if any, to defer the interest payment
periods and the duration of such extension;
(7) the period or periods within which, the price or prices
at which, and the terms and conditions upon which, Debt
Securities of that series may be redeemed, in whole or in
part, at the option of the Company;
(8) the obligation, if any, of the Company to redeem or
purchase Debt Securities of that series pursuant to any
sinking fund or analogous provisions (including payments
made in cash in participation of future sinking fund
obligations) or at the option of a holder thereof and the
period or periods within which, the price or prices at
which, and the terms and conditions upon which, Debt
Securities of that series shall be redeemed or purchased, in
whole or in part, pursuant to such obligation;
(9) the security or subordination terms of the Debt
Securities of that series;
(10) the form of the Debt Securities of that series,
including the form of the Certificate of Authentication for
such series;
(11) if other than denominations of twenty-five U.S. dollars
($25) or any integral multiple thereof, the denominations in
which the Debt Securities of that series shall be issuable;
(12) whether and under what circumstances the Company will
pay additional amounts on the Debt Securities of the series
to any holder who is not a United States person (including
any modification to the definition of such term) in respect
of any tax, assessment or governmental charge and, if so,
whether the Company will have the option to redeem such Debt
Securities rather than pay such additional amounts (and the
terms of any such option);
(13) whether the Debt Securities are issuable as a Global
Security and, in such case, the identity of the Depositary
for such series.; and
(14) any and all other terms with respect to such series
(which terms shall not be inconsistent with the terms of
this Indenture), including any terms which may be required
by or advisable under United States laws or regulations or
advisable in connection with the marketing of Debt
Securities of that series.
All Debt Securities of any one series shall be
substantially identical except as to denomination and except as
may otherwise be provided in or pursuant to any such Board
Resolution or in any indentures supplemental hereto.
If any of the terms of a series are established by
action taken pursuant to a Board Resolution, a copy of an
appropriate record of such action shall be certified by the
Secretary or an Assistant Secretary of the Company and delivered
to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of such series.
SECTION 2.02. Form of Debt Securities and Trustee's Certificate.
The Debt Securities of any series and the Trustee's
certificate of authentication to be borne by such Debt Securities
shall be substantially of the tenor and purport as set forth in
one or more indentures supplemental hereto or as provided in a
Board Resolution and as set forth in an Officers' Certificate,
and may have such letters, numbers or other marks of
identification or designation and such legends or endorsements
printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of
this Indenture, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which Debt Securities
of that series may be listed, or to conform to usage.
SECTION 2.03. Denominations; Provisions for Payment.
The Debt Securities shall be issuable as registered
Debt Securities and in the denominations of twenty-five U.S.
dollars ($25) or any integral multiple thereof, subject to
Section 2.01(11). The Debt Securities of a particular series
shall bear interest payable on the dates and at the rate
specified with respect to that series. The principal of and the
interest on the Debt Securities of any series, as well as any
premium thereon in case of redemption thereof prior to maturity,
shall be payable in the coin or currency of the United States of
America that at the time of such payment is legal tender for
public and private debt, at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, the City
and State of New York. Each Debt Security shall be dated the
date of its authentication. Interest on the Debt Securities
shall be computed on the basis of a 360-day year composed of
twelve 30-day months.
Unless otherwise contemplated by Section 2.01 with
respect to any series of Debt Securities, the interest
installment on any Debt Security that is payable, and is
punctually paid or duly provided for, on any Interest Payment
Date for Debt Securities of that series shall be paid to the
Person in whose name said Debt Security (or one or more
Predecessor Debt Securities) is registered at the close of
business on the regular record date for such interest
installment.
In the event that any Debt Security of a particular
series or portion thereof is called for redemption and the
redemption date is subsequent to a regular record date with
respect to any Interest Payment Date and prior to such Interest
Payment Date, interest on such Debt Security will be paid upon
presentation and surrender of such Debt Security as provided in
Section 3.03.
Any interest on any Debt Security that is payable, but
is not punctually paid or duly provided for, on any Interest
Payment Date for Debt Securities of that series (herein called
"Defaulted Interest") shall forthwith cease to be payable to the
registered holder on the relevant regular record date by virtue
of having been such holder; and such Defaulted Interest shall be
paid by the Company, at its election, as provided in clause (1)
or clause (2) below:
(1) The Company may make payment of any Defaulted Interest
on Debt Securities to the Persons in whose names such Debt
Securities (or their respective Predecessor Debt Securities)
are registered at the close of business on a special record
date for the payment of such Defaulted Interest, which shall
be fixed in the following manner: the Company shall notify
the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each such Debt Security and the date
of the proposed payment, and at the same time the Company
shall deposit with the Trustee an amount of money equal to
the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory
to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such
Defaulted Interest as in this clause provided. Thereupon
the Trustee shall fix a special record date for the payment
of such Defaulted Interest which shall not be more than 15
nor less than 10
days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice
of the proposed payment. The Trustee shall promptly notify
the Company of such special record date and, in the name and
at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the special
record date therefor to be mailed, first class postage
prepaid, to each Securityholder at his or her address as it
appears in the Security Register (as hereinafter defined),
not less than 10 days prior to such special record date.
Notice of the proposed payment of such Defaulted Interest
and the special record date therefor having been mailed as
aforesaid, such Defaulted Interest shall be paid to the
Persons in whose names such Debt Securities (or their
respective Predecessor Debt Securities) are registered on
such special record date and shall be no longer payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest
on any Debt Securities in any other lawful manner not
inconsistent with the requirements of any securities
exchange on which such Debt Securities may be listed, and
upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustees of the
proposed payment pursuant to this clause, such manner of
payment shall be deemed practicable by the Trustee.
Unless otherwise provided in a Board Resolution, in an
Officers' Certificate or in one or more indentures supplemental
hereto establishing the terms of any series of Debt Securities
pursuant to Section 2.01 hereof, the term "regular record date"
as used in this Section with respect to a series of Debt
Securities with respect to any Interest Payment Date for such
series shall mean the fifteenth day of the month in which an
Interest Payment Date established for such series pursuant to
Section 2.01 hereof shall occur, whether or not such date is a
Business Day.
Subject to the foregoing provisions of this Section,
each Debt Security of a series delivered under this Indenture
upon transfer of or in exchange for or in lieu of any other Debt
Security of such series shall carry the rights to interest
accrued and unpaid, and to accrue, that were carried by such
other Debt Security.
SECTION 2.04. Execution and Authentication.
The Debt Securities shall be signed on behalf of the
Company by its Chairman, President or one of its Vice Presidents,
under its corporate seal attested by its Secretary or one of its
Assistant Secretaries. Signatures may be in the form of a manual
or facsimile signature. The Company may use the facsimile
signature of any Person who shall have been a President or Vice
President thereof, or of any Person who shall have been a
Secretary or Assistant Secretary thereof, notwithstanding the
fact that at the time the Debt Securities shall be authenticated
and delivered or disposed of such Person shall have ceased to be
the President or a Vice President, or the Secretary or an
Assistant Secretary, of the Company. The seal of the Company may
be in the form of a facsimile of such seal and may be impressed,
affixed, imprinted or otherwise reproduced on the Debt
Securities. The Debt Securities may contain such notations,
legends or endorsements required by law, stock exchange rule or
usage. Each Debt Security shall be dated the date of its
authentication by the Trustee.
A Debt Security shall not be valid until authenticated
manually by an authorized signatory of the Trustee, or by an
Authenticating Agent. Such signature shall be conclusive
evidence that the Debt Security so authenticated has been duly
authenticated and delivered hereunder and that the holder is
entitled to the benefits of this Indenture.
At any time and from time to time after the execution
and delivery of this Indenture, the Company may deliver Debt
Securities of any series executed by the Company to the Trustee
for authentication, together with a written order of the Company
for the authentication and delivery of such Debt Securities,
signed by its President or any Vice President and its Treasurer
or any Assistant Treasurer, and the Trustee in accordance with
such written order shall authenticate and deliver such Debt
Securities.
In authenticating such Debt Securities and accepting
the additional responsibilities under this Indenture in relation
to such Debt Securities, the Trustee shall be entitled to
receive, and (subject to Section 7.01) shall be fully protected
in relying upon, an Opinion of Counsel stating that the form and
terms thereof have been established in conformity with the
provisions of this Indenture.
The Trustee shall not be required to authenticate such
Debt Securities if the issue of such Debt Securities pursuant to
this Indenture will affect the Trustee's own rights, duties or
immunities under the Debt Securities and this Indenture or
otherwise in a manner that is not reasonably acceptable to the
Trustee.
SECTION 2.05. Registration of Transfer and Exchange.
(a) Debt Securities of any series may be exchanged upon
presentation thereof at the Corporate Trust Office or such
other location designated by the Company pursuant to Section
4.02 for other Debt Securities of such series of authorized
denominations, and for a like aggregate principal amount,
upon payment of a sum sufficient to cover any tax or other
governmental charge in relation thereto, all as provided in
this Section. In respect of any Debt Securities so
surrendered for exchange, the Company shall execute, the
Trustee shall authenticate and such office or agency shall
deliver in exchange therefor the Debt Security or Debt
Securities of the same series that the Securityholder making
the exchange shall be entitled to receive, bearing numbers
not contemporaneously outstanding.
(b) The Company shall keep, or cause to be kept, at
the Corporate Trust Office or such other location
designated by the Company pursuant to Section 4.02 a
register or registers (herein referred to as the
"Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company
shall register the Debt Securities and the transfers of
Debt Securities as in this Article provided and which
at all reasonable times shall be open for inspection by
the Trustee. The registrar for the purpose of
registering Securities and transfer of Securities as
herein provided shall be appointed as authorized by
Board Resolution (the "Security Registrar").
Upon surrender for transfer of any Debt Security at the
Corporate Trust Office or such other location designated by the
Company pursuant to Section 4.02, the Company shall execute, the
Trustee shall authenticate and such office or agency shall
deliver in the name of the transferee or transferees a new Debt
Security or Debt Securities of the same series as the Debt
Security presented for a like aggregate principal amount.
All Debt Securities presented or surrendered for
exchange or registration of transfer, as provided in this
Section, shall be accompanied (if so required by the Company or
the Security Registrar) by a written instrument or instruments of
transfer, in form satisfactory to the Company or the Security
Registrar, duly executed by the registered holder or by such
holder's duly authorized attorney in writing.
(c) No service charge shall be made for any exchange or
registration of transfer of Debt Securities, or issue of new
Debt Securities in case of partial redemption of any series,
but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge in relation
thereto, other than exchanges pursuant to Section 2.06,
Section 3.03(b) and Section 9.04 not involving any transfer.
(d) The Company shall not be required (i) to issue,
exchange or register the transfer of any Debt Securities
during a period beginning at the opening of business 15 days
before the day of the mailing of a notice of redemption of
less than all the Outstanding Debt Securities of the same
series and ending at the close of business on the day of
such mailing, nor (ii) to register the transfer of or
exchange any Debt Securities of any series or portions
thereof called for redemption. The provisions of this
Section 2.05 are, with respect to any Global Security,
subject to Section 2.11 hereof.
SECTION 2.06. Temporary Securities.
Pending the preparation of definitive Debt Securities
of any series, the Company may execute, and the Trustee shall
authenticate and deliver, temporary Debt Securities (printed,
lithographed or typewritten) of any authorized denomination.
Such temporary Debt Securities shall be substantially in the form
of the definitive Debt Securities in lieu of which they are
issued, but with such omissions, insertions and variations as may
be appropriate for temporary Debt Securities, all as may be
determined by the Company. Every temporary Debt Security of any
series shall be executed by the Company and be authenticated by
the Trustee upon the same conditions and in substantially the
same manner, and with like effect, as the definitive Debt
Securities of such series. Without unnecessary delay the Company
will execute and furnish definitive Debt Securities of such
series and thereupon any or all temporary Debt Securities of such
series may be surrendered in exchange therefor (without charge to
the holders), at the Corporate Trust Office or such location
designated by the Company pursuant to Section 4.02 and such
Corporate Trust Office or location shall deliver in exchange for
such temporary Debt Securities an equal aggregate principal
amount of definitive Debt Securities of such series, unless the
Company advises the Trustee to the effect that definitive Debt
Securities need not be executed and furnished until further
notice from the Company. Until so exchanged, the temporary Debt
Securities of such series shall be entitled to the same benefits
under this Indenture as definitive Debt Securities of such series
authenticated and delivered hereunder.
SECTION 2.07. Mutilated, Destroyed, Lost or Stolen Debt
Securities.
In case any temporary or definitive Debt Security shall
become mutilated or be destroyed, lost or stolen, the Company
(subject to the next succeeding sentence) shall execute, and upon
the Company's request, the Trustee (subject as aforesaid) shall
authenticate and deliver, a new Debt Security of the same series,
bearing a number not contemporaneously outstanding, in exchange
and substitution for the mutilated Debt Security, or in lieu of
and in substitution for the Debt Security so destroyed, lost or
stolen. In every case the applicant for a substituted Debt
Security shall furnish to the Company and the Trustee such
security or indemnity as may be required by them to save each of
them harmless, and, in every case of destruction, loss or theft,
the applicant shall also furnish to the Company and the Trustee
evidence to their satisfaction of the destruction, loss or theft
of the applicant's Debt Security and of the ownership thereof.
The Trustee may authenticate any such substituted Debt Security
and deliver the same upon the written request or authorization of
any officer of the Company. Upon the issuance of any substituted
Debt Security, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may
be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith. In
case any Debt Security that has matured or is about to mature
shall become mutilated or be destroyed, lost or stolen, the
Company may, instead of issuing a substitute Debt Security, pay
or authorize the payment of the same (without surrender thereof
except in the case of a mutilated Debt Security) if the applicant
for such payment shall furnish to the Company and the Trustee
such security or indemnity as they may require to save them
harmless, and, in case of destruction, loss or theft, evidence to
the satisfaction of the Company and the Trustee of the
destruction, loss or theft of such Debt Security and of the
ownership thereof.
Every replacement Debt Security issued pursuant to the
provisions of this Section shall constitute an additional
contractual obligation of the Company, whether or not the
mutilated, destroyed, lost or stolen Debt Security shall be found
at any time, or be enforceable by anyone, and shall be entitled
to all the benefits of this Indenture equally and proportionately
with any and all other Debt Securities of the same series duly
issued hereunder. All Debt Securities shall be held and owned
upon the express condition that the foregoing provisions are
exclusive with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Debt Securities, and shall
preclude (to the extent lawful) any and all other rights or
remedies, notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement
or payment of negotiable instruments or other securities without
their surrender.
SECTION 2.08. Cancellation.
All Debt Securities surrendered for the purpose of
payment, redemption, exchange or registration of transfer shall,
if surrendered to the Company or any paying agent, be delivered
to the Trustee for cancellation, or, if surrendered to the
Trustee, shall be cancelled by it, and no Debt Securities shall
be issued in lieu thereof except as expressly required or
permitted by any of the provisions of this Indenture. On request
of the Company at the time of such surrender, the Trustee shall
deliver to the Company canceled Debt Securities held by the
Trustee. In the absence of such request the Trustee may dispose
of canceled Debt Securities in accordance with its standard
procedures and deliver a certificate of disposition to the
Company. If the Company shall otherwise acquire any of the Debt
Securities, however, such acquisition shall not operate as a
redemption or satisfaction of the indebtedness represented by
such Debt Securities unless and until the same are delivered to
the Trustee for cancellation.
SECTION 2.09. Benefits of Indenture.
Nothing in this Indenture or in the Debt Securities,
express or implied, shall give or be construed to give to any
Person, other than the parties hereto and the holders of the Debt
Securities (and, with respect to the provisions of Article XIV,
the holders of Senior Indebtedness) any legal or equitable right,
remedy or claim under or in respect of this Indenture, or under
any covenant, condition or provision herein contained; all such
covenants, conditions and provisions being for the sole benefit
of the parties hereto and of the holders of the Debt Securities
(and, with respect to the provisions of Article XIV, the holders
of Senior Indebtedness).
SECTION 2.10. Authenticating Agent.
So long as any of the Debt Securities of any series
remain Outstanding, there may be an Authenticating Agent for any
or all such series of Debt Securities which the Trustee shall
have the right to appoint. Said Authenticating Agent shall be
authorized to act on behalf of the Trustee to authenticate Debt
Securities of such series issued upon exchange, transfer or
partial redemption thereof, and Debt Securities so authenticated
shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. All references in this Indenture to the
authentication of Debt Securities by the Trustee shall be deemed
to include authentication by an Authenticating Agent for such
series. Each Authenticating Agent shall be acceptable to the
Company and shall be a corporation that has a combined capital
and surplus, as most recently reported or determined by it,
sufficient under the laws of any jurisdiction under which it is
organized or in which it is doing business to conduct a trust
business, and that is otherwise authorized under such laws to
conduct such business and is subject to supervision or
examination by federal or state authorities. If at any time any
Authenticating Agent shall cease to be eligible in accordance
with these provisions, it shall resign immediately.
Any Authenticating Agent may at any time resign by
giving written notice of resignation to the Trustee and to the
Company. The Trustee may at any time (and upon request by the
Company shall) terminate the agency of any Authenticating Agent
by giving written notice of termination to such Authenticating
Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee
may appoint an eligible successor Authenticating Agent acceptable
to the Company. Any successor Authenticating Agent, upon
acceptance of its appointment hereunder, shall become vested with
all the rights, powers and duties of its predecessor hereunder as
if originally named as an Authenticating Agent pursuant hereto.
SECTION 2.11. Global Securities.
(a) If the Company shall establish pursuant to Section 2.01
that the Debt Securities of a particular series are to be
issued as a Global Security or Securities, then the Company
shall execute and the Trustee shall, in accordance with
Section 2.04, authenticate and deliver, a Global Security
that (i) shall represent, and shall be denominated in an
amount equal to the aggregate principal amount of, all of
the Outstanding Debt Securities of such series, (ii) shall
be registered in the name of the Depositary or its nominee,
(iii) shall be delivered by the Trustee to the Depositary or
pursuant to the Depositary's instruction and (iv) shall bear
a legend substantially to the following effect: "Except as
otherwise provided in Section 2.11 of the Indenture, this
Debt Security may be transferred, in whole but not in part,
only to another nominee of the Depositary or to a successor
Depositary or to a nominee of such successor Depositary."
(b) Except as provided in clause (c), notwithstanding the
provisions of Section 2.05, the Global Security or
Securities of a series may be transferred, in whole but not
in part and in the manner provided in Section 2.05, only to
another nominee of the Depositary for such series, or to a
successor Depositary for such series selected or approved by
the Company or to a nominee of such successor Depositary.
(c) If at any time the Depositary for a series of the Debt
Securities notifies the Company that it is unwilling or
unable to continue as Depositary for such series or if at
any time the Depositary for such series shall no longer be
registered or in good standing under the Exchange Act, or
other applicable statute or regulation, at a time when the
Depositary is required to be so registered to act as such
Depositary and a successor Depositary for such series is not
appointed by the Company within 90 days after the Company
receives such notice or becomes aware of such condition, as
the case may be, this Section 2.11 shall no longer be
applicable to the Debt Securities of such series and the
Company will execute, and subject to Section 2.05, the
Trustee will authenticate and deliver the Debt Securities of
such series in definitive registered form without coupons,
in authorized denominations, and in an aggregate principal
amount equal to the principal amount of the Global Security
or Securities of such series in exchange for such Global
Security or Securities. In addition, the Company may at any
time determine that the Debt Securities of any series shall
no longer be represented by a Global Security or Securities
and that the provisions of this Section 2.11 shall no longer
apply to the Debt Securities of such series. In such event,
the Company will execute and, subject to Section 2.05, the
Trustee, upon receipt of an Officers' Certificate evidencing
such determination by the Company, will authenticate and
deliver the Debt Securities of such series in definitive
registered form without coupons, in authorized
denominations, and in an aggregate principal amount equal to
the principal amount of the Global Security or Securities of
such series in exchange for such Global Security or
Securities. Upon the exchange of the Global Security or
Securities for such Debt Securities in definitive registered
form without coupons, in authorized denominations, the
Global Security or Securities shall be canceled by the
Trustee. Such Debt Securities in definitive registered form
issued in exchange for the Global Security or Securities
pursuant to this Section 2.11(c) shall be registered in such
names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Debt Securities to
the Depositary for delivery to the Persons in whose names
such Debt Securities are so registered.
ARTICLE III
REDEMPTION OF DEBT SECURITIES AND SINKING FUND PROVISIONS
SECTION 3.01. Redemption.
The Company may redeem the Debt Securities of any
series issued hereunder on and after the dates and in accordance
with the terms established for such series pursuant to Section
2.01.
SECTION 3.02. Notice of Redemption.
(a) In case the Company shall desire to exercise such right
to redeem all or, as the case may be, a portion of the Debt
Securities of any series in accordance with the right
reserved so to do, the Company shall, or shall cause the
Trustee to, give notice of such redemption to holders of the
Debt Securities of such series to be redeemed by mailing,
first class postage prepaid, a notice of such redemption not
less than 30 days and not more than 90 days before the date
fixed for redemption of that series to such holders at their
last addresses as they shall appear upon the Security
Register unless a shorter period is specified in the Debt
Securities to be redeemed. Any notice that is mailed in the
manner herein provided shall be conclusively presumed to
have been duly given, whether or not the registered holder
receives the notice. In any case, failure duly to give such
notice to the holder of any Debt Security of any series
designated for redemption in whole or in part, or any defect
in the notice, shall not affect the validity of the
proceedings for the redemption of any other Debt Securities
of such series or any other series. In the case of any
redemption of Debt Securities prior to the expiration of any
restriction on such redemption provided in the terms of such
Debt Securities or elsewhere in this Indenture, the Company
shall furnish the Trustee with an Officers' Certificate
evidencing compliance with any such restriction. Each such
notice of redemption shall specify the date fixed for
redemption and the redemption price at which Debt Securities
of that series are to be redeemed, and shall state that
payment of the redemption price of such Debt Securities to
be redeemed will be made at the Corporate Trust Office, upon
presentation and surrender of such Debt Securities, that
interest accrued to the date fixed for redemption will be
paid as specified in said notice, that from and after said
date interest will cease to accrue and that the redemption
is for a sinking fund, if such is the case. If less than
all the Debt Securities of a series are to be redeemed, the
notice to the holders of Debt Securities of that series to
be redeemed in whole or in part shall specify the particular
Debt Securities to be so redeemed. In case any Debt
Security is to be redeemed in part only, the notice that
relates to such Debt Security shall state the portion of the
principal amount thereof to be redeemed, and shall state
that on and after the redemption date, upon surrender of
such Debt Security, a new Debt Security or Debt Securities
of such series in principal amount equal to the unredeemed
portion thereof will be issued.
(b) If less than all the Debt Securities of a series are to
be redeemed, the Company shall give the Trustee at least 45
days' notice in advance of the date fixed for redemption as
to the aggregate principal amount of Debt Securities of the
series to be redeemed, and thereupon the Trustee shall
select, by lot or in such other manner as it shall deem
appropriate and fair in its discretion and that may provide
for the selection of a portion or portions (equal to
twenty-five U.S. dollars ($25) or any integral multiple
thereof) of the principal amount of such Debt Securities of
a denomination larger than $25, the Debt Securities to be
redeemed and shall thereafter promptly notify the Company in
writing of the numbers of the Debt Securities to be
redeemed, in whole or in part.
The Company may, if and whenever it shall so
elect, by delivery of instructions signed on its behalf
by its President or any Vice President, instruct the
Trustee or any paying agent to call all or any part of
the Debt Securities of a particular series for
redemption and to give notice of redemption in the
manner set forth in this Section, such notice to be in
the name of the Company or its own name as the Trustee
or such paying agent may deem advisable. In any case
in which notice of redemption is to be given by the
Trustee or any such paying agent, the Company shall
deliver or cause to be delivered to, or permit to
remain with, the Trustee or such paying agent, as the
case may be, such Security Register, transfer books or
other records, or suitable copies or extracts
therefrom, sufficient to enable the Trustee or such
paying agent to give any notice by mail that may be
required under the provisions of this Section.
SECTION 3.03. Payment Upon Redemption.
(a) If the giving of notice of redemption shall have been
completed as above provided, the Debt Securities or portions
of Debt Securities of the series to be redeemed specified in
such notice shall become due and payable on the date and at
the place stated in such notice at the applicable redemption
price, together with interest accrued to the date fixed for
redemption, and interest on such Debt Securities or portions
of Debt Securities shall cease to accrue on and after the
date fixed for redemption, unless the Company shall default
in the payment of such redemption price and accrued interest
with respect to any such Debt Security or portion thereof.
On presentation and surrender of such Debt Securities on or
after the date fixed for redemption at the place of payment
specified in the notice, said Debt Securities shall be paid
and redeemed at the applicable redemption price for such
series, together with interest accrued thereon to the date
fixed for redemption (but if the date fixed for redemption
is an Interest Payment Date, the interest installment
payable on such date shall be payable to the registered
holder at the close of business on the applicable record
date pursuant to Section 2.03).
(b) Upon presentation of any Debt Security of such series
that is to be redeemed in part only, the Company shall
execute and the Trustee shall authenticate and the office or
agency where the Debt Security is presented shall deliver to
the holder thereof, at the expense of the Company, a new
Debt Security or Debt Securities of the same series, of
authorized denominations in principal amount equal to the
unredeemed portion of the Debt Security so presented.
SECTION 3.04. Sinking Fund.
The provisions of Sections 3.04, 3.05 and 3.06 shall be
applicable to any sinking fund for the retirement of Debt
Securities of a series, except as otherwise specified as
contemplated by Section 2.01 for Debt Securities of such series.
The minimum amount of any sinking fund payment provided
for by the terms of Debt Securities of any series is herein
referred to as a "mandatory sinking fund payment," and any
payment in excess of such minimum amount provided for by the
terms of Debt Securities of any series is herein referred to as
an "optional sinking fund payment." If provided for by the terms
of Debt Securities of any series, the cash amount of any sinking
fund payment may be subject to reduction as provided in Section
3.05. Each sinking fund payment shall be applied to the
redemption of Debt Securities of any series as provided for by
the terms of Debt Securities of such series.
SECTION 3.05. Satisfaction of Sinking Fund Payments with Debt
Securities.
The Company (i) may deliver Outstanding Debt Securities
of a series (other than any Debt Securities previously called for
redemption) and (ii) may apply as a credit Debt Securities of a
series that have been redeemed either at the election of the
Company pursuant to the terms of such Debt Securities or through
the application of permitted optional sinking fund payments
pursuant to the terms of such Debt Securities, in each case in
satisfaction of all or any part of any sinking fund payment with
respect to the Debt Securities of such series required to be made
pursuant to the terms of such Debt Securities as provided for by
the terms of such series, provided that such Debt Securities have
not been previously so credited. Such Debt Securities shall be
received and credited for such purpose by the Trustee at the
redemption price specified in such Debt Securities for redemption
through operation of the sinking fund and the amount of such
sinking fund payment shall be reduced accordingly.
SECTION 3.06. Redemption of Debt Securities for Sinking Fund.
Not less than 45 days prior to each sinking fund
payment date for any series of Debt Securities, the Company will
deliver to the Trustee an Officers' Certificate specifying the
amount of the next ensuing sinking fund payment for that series
pursuant to the terms of the series, the portion thereof, if any,
that is to be satisfied by delivering and crediting Debt
Securities of that series pursuant to Section 3.05 and the basis
for such credit and will, together with such Officers'
Certificate, deliver to the Trustee any Debt Securities to be so
delivered. Not less than 30 days before each such sinking fund
payment date, the Trustee shall select the Debt Securities to be
redeemed upon such sinking fund payment date in the manner
specified in Section 3.02 and cause notice of the redemption
thereof to be given in the name of and at the expense of the
Company in the manner provided in Section 3.02. Such notice
having been duly given, the redemption of such Debt Securities
shall be made upon the terms and in the manner stated in Section
3.03.
ARTICLE IV
COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay or cause to be
paid the principal of (and premium, if any) and interest on the
Debt Securities of that series at the time and place and in the
manner provided herein and established with respect to such Debt
Securities.
SECTION 4.02. Maintenance of Office or Agency.
So long as any series of the Debt Securities remain
Outstanding, the Company agrees to maintain an office or agency
with respect to each such series and at such other location or
locations as may be designated as provided in this Section 4.02,
where (i) Debt Securities of that series may be presented for
payment, (ii) Debt Securities of that series may be presented as
hereinabove authorized for registration of transfer and exchange,
and (iii) notices and demands to or upon the Company in respect
of the Debt Securities of that series and this Indenture may be
given or served, such designation to continue with respect to
such office or agency until the Company shall, by written notice
signed by its President or a Vice President and delivered to the
trustee, designate some other office or agency for such purposes
or any of them. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations,
notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, notices
and demands.
SECTION 4.03. Paying Agents.
(a) If the Company shall appoint one or more paying agents
for all or any series of the Debt Securities, other than the
Trustee, the Company will cause each such paying agent to
execute and deliver to the Trustee an instrument in which
such agent shall agree with the Trustee, subject to the
provisions of this Section:
(1) that it will hold all sums held by it as such
agent for the payment of the principal of (and premium, if
any) or interest on the Debt Securities of that series
(whether such sums have been paid to it by the Company or by
any other obligor of such Debt Securities) in trust for the
benefit of the Persons entitled thereto;
(2) that it will give the Trustee notice of any
failure by the Company to make any payment of the principal
of (and premium, if any) or interest on the Debt Securities
of that series when the same shall be due and payable;
(3) that it will, at any time during the continuance
of any failure referred to in the preceding paragraph (a)(2)
above, upon the written request of the Trustee, forthwith
pay to the Trustee all sums so held in trust by such paying
agent; and
(4) that it will perform all other duties of paying
agent as set forth in this Indenture.
(b) If the Company shall act as its own paying agent with
respect to any series of the Debt Securities, it will on or
before each due date of the principal of (and premium, if
any) or interest on Debt Securities of that series, set
aside, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay such
principal (and premium, if any) or interest so becoming due
on Debt Securities of that series until such sums shall be
paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee of such
action, or any failure by it to take such action. Whenever
the Company shall have one or more paying agents for any
series of Debt Securities, it will, prior to each due date
of the principal of (and premium, if any) or interest on any
Debt Securities of that series, deposit with the paying
agent a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due, such sum to be held in
trust for the benefit of the Persons entitled to such
principal, premium or interest, and (unless such paying
agent is the Trustee) the Company will promptly notify the
Trustee of this action or failure so to act.
Notwithstanding anything in this Section to the
contrary, (i) the agreement to hold sums in trust as provided in
this Section is subject to the provisions of Section 11.05, and
(ii) the Company may at any time, for the purpose of obtaining
the satisfaction and discharge of this Indenture or for any other
purpose, pay, or direct any paying agent to pay, to the Trustee
all sums held in trust by the Company or such paying agent, such
sums to be held by the Trustee upon the same terms and conditions
as those upon which such sums were held by the Company or such
paying agent; and, upon such payment by any paying agent to the
Trustee, such paying agent shall be released from all further
liability with respect to such money.
SECTION 4.04. Appointment to Fill Vacancy in Office of Trustee.
The Company, whenever necessary to avoid or fill a
vacancy in the office of Trustee, will appoint, in the manner
provided in Section 7.10, a Trustee, so that there shall at all
times be a Trustee hereunder.
SECTION 4.05. Compliance with Consolidation Provisions.
The Company will not, while any of the Debt Securities remain
Outstanding, consolidate with, or merge into, or merge into
itself, or sell or convey all or substantially all of its
property to any other company unless the provisions of Article X
are complied with.
SECTION 4.06. Limitation on Dividends.
(a) If Debt Securities are issued to an Illinois Power
Trust or a trustee of such trust in connection with the
issuance of Trust Securities by such Illinois Power Trust
and (i) there shall have occurred any event that would
constitute an Event of Default or (ii) the Company shall be
in default with respect to its payment or any obligations
under the Preferred Securities Guarantee or Common
Securities Guarantee relating to such Trust Securities, then
(x) the Company shall not declare or pay any dividend on,
make any distributions with respect to, or redeem, purchase
or make a liquidation payment with respect to, any of its
capital stock, provided, however, the Company may declare
and pay a stock dividend where the dividend stock is the
same stock as that on which the dividend is being paid, (y)
the Company shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or
redeem any debt securities (including guarantees) issued by
the Company which rank pari passu with or junior to such
Debt Securities and (z) the Company shall not make guarantee
payments with respect to the foregoing (other than pursuant
to the Preferred Securities Guarantee).
(b) If Debt Securities are issued to an Illinois Power
Trust or a trustee of such trust in connection with the
issuance of Trust Securities by such Illinois Power Trust
and the Company shall have given notice of its election to
defer payments of interest on such Debt Securities by
extending the interest payment period as provided in any
indenture supplemental hereto and such period, or any
extension thereof, shall be continuing, then (i) the Company
shall not declare or pay any dividend, or make any
distributions with respect to, or redeem, purchase or make a
liquidation payment with respect to, any of its capital
stock, provided, however, the Company may declare and pay a
stock dividend where the dividend stock is the same stock as
that on which the dividend is being paid, (ii) the Company
shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by the Company
which rank pari passu with or junior to such Debt Securities
and (iii) the Company shall not make any guarantee payments
with respect to the foregoing (other than pursuant to the
Preferred Securities Guarantee).
SECTION 4.07. Covenants as to Illinois Power Trusts.
In the event Debt Securities are issued to an Illinois
Power Trust in connection with the issuance of Trust Securities
by such trust, for so long as such Trust Securities remain
outstanding, the Company will (i) maintain 100% direct or
indirect ownership of the Common Securities of such trust;
provided, however, that any permitted successor of the Company
under this Indenture may succeed to the Company's ownership of
the Common Securities, (ii) not cause, as sponsor of such trust,
or permit, as holder of Common Securities of such trust, the
dissolution, winding-up or termination of such trust, except in
connection with a distribution of Debt Securities as provided in
the Declaration and in connection with certain mergers,
consolidations or amalgamations permitted by the Declaration and
(iii) use its reasonable efforts to cause such trust (a) to
remain a business trust, except in connection with a distribution
of Debt Securities, the redemption of all of the Trust Securities
of such Illinois Power Trust or certain mergers, consolidations
or amalgamations, each as permitted by the Declaration of such
Illinois Power Trust, and (b) to otherwise continue to be
classified for United States federal income tax purposes as a
grantor trust.
SECTION 4.08. Corporate Existence.
The Company will, subject to the provisions of Article
X, at all times maintain its corporate existence and right to
carry on business and will duly procure all renewals and
extensions thereof, and, to the extent necessary or desirable in
the operation of its business, will use its best efforts to
maintain, preserve and renew all of its rights, powers,
privileges and franchises.
ARTICLE V
SECURITYHOLDERS, LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
SECTION 5.01. Company to Furnish Trustee Names and Addresses of
Securityholders.
The Company will furnish or cause to be furnished to
the Trustee (a) on a quarterly basis on each regular record date
(as defined in Section 2.03) a list, in such form as the Trustee
may reasonably require, of the names and addresses of the holders
of each series of Debt Securities as of such regular record date,
provided that the Company shall not be obligated to furnish or
cause to furnish such list at any time that the list shall not
differ in any respect from the most recent list furnished to the
Trustee by the Company and (b) at such other times as the Trustee
may request in writing within 30 days after the receipt by the
Company of any such request, a list of similar form and content
as of a date not more than 15 days prior to the time such list is
furnished; provided, however, that in either case, no such list
need be furnished for any series for which the Trustee shall be
the Security Registrar.
SECTION 5.02. Preservation Of Information; Communications With
Securityholders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and
addresses of the holders of Debt Securities contained in the
most recent list furnished to it as provided in Section 5.01
and as to the names and addresses of holders of Debt
Securities received by the Trustee in its capacity as
Security Registrar (if acting in such capacity).
(b) The Trustee may destroy any list furnished to it as
provided in Section 5.01 upon receipt of a new list so
furnished.
(c) Securityholders may communicate as provided in Section
312(b) of the Trust Indenture Act with other Securityholders
with respect to their rights under this Indenture or under
the Debt Securities.
SECTION 5.03. Reports By the Company.
(a) The Company covenants and agrees to file with the
Trustee, within 15 days after the Company is required to
file the same with the Commission, copies of the annual
reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations
prescribe) that the Company may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the
Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such
sections, then to file with the Trustee and the Commission,
in accordance with the rules and regulations prescribed from
time to time by the Commission, such of the supplementary
and periodic information, documents and reports that may be
required pursuant to Section 13 of the Exchange Act, in
respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time
in such rules and regulations.
(b) The Company covenants and agrees to file with the
Trustee and the Commission, in accordance with the rules and
regulations prescribed from to time by the Commission, such
additional information, documents and reports with respect
to compliance by the Company with the conditions and
covenants provided for in this Indenture as may be required
from time to time by such rules and regulations.
(c) The Company covenants and agrees to transmit by mail,
first class postage prepaid, or reputable overnight delivery
service that provides for evidence of receipt, to the
Securityholders, as their names and addresses appear upon
the Security Register, within 30 days after the filing
thereof with the Trustee, such summaries of any information,
documents and reports required to be filed by the Company
pursuant to subsections (a) and (b) of this Section as may
be required by rules and regulations prescribed from time to
time by the Commission.
SECTION 5.04. Reports by the Trustee.
(a) On or before July 15 in each year in which any of the
Debt Securities are Outstanding, the Trustee shall transmit
by mail, first class postage prepaid, to the
Securityholders, as their names and addresses appear upon
the Security Register, a brief report dated as of the
preceding May 15, if and to the extent required under
Section 313(a) of the Trust Indenture Act.
(b) The Trustee shall comply with Sections 313(b) and
313(c) of the Trust Indenture Act.
(c) A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the Trustee
with the Company, with each stock exchange upon which any
Debt Securities are listed (if so listed) and also with the
Commission. The Company agrees to notify the Trustee when
any Debt Securities become listed on any stock exchange.
ARTICLE VI
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 6.01. Events of Default.
(a) Whenever used herein with respect to Debt Securities of
a particular series, "Event of Default" means any one or
more of the following events that has occurred and is
continuing:
(1) the Company defaults in the payment of any
installment of interest upon any of the Debt Securities
of that series, as and when the same shall become due
and payable, and continuance of such default for a
period of 30 days; provided, however, that a valid
extension of an interest payment period by the Company
in accordance with the terms of the Debt Securities of
that series shall not constitute a default in the
payment of interest for this purpose;
(2) the Company defaults in the payment of the
principal of (or premium, if any, on) any of the Debt
Securities of that series as and when the same shall
become due and payable whether at maturity, upon
redemption, by declaration or otherwise, or in any
payment required by any sinking or analogous fund
established with respect to that series;
(3) the Company fails to observe or perform any
other of its covenants or agreements with respect to
that series contained in this Indenture or otherwise
established with respect to that series of Debt
Securities pursuant to Section 2.01 for a period of 90
days after the date on which written notice of such
failure, requiring the same to be remedied and stating
that such notice is a "Notice of Default" hereunder,
shall have been given to the Company by the Trustee, by
registered or certified mail, or to the Company and the
Trustee by the holders of at least 25% in principal
amount of the Debt Securities of that series at the
time Outstanding;
(4) the Company, pursuant to or within the meaning
of any Bankruptcy Law, (i) commences a voluntary case,
(ii) consents to the entry of an order for relief
against it in an involuntary case, (iii) consents to
the appointment of a Custodian of it or for all or
substantially all of its property or (iv) makes a
general assignment for the benefit of its creditors;
(5) a court of competent jurisdiction enters an
order under any Bankruptcy Law that (i) is for relief
against the Company in an involuntary case, (ii)
appoints a Custodian of the Company for all or
substantially all of its property, or (iii) orders the
liquidation of the Company, and the order or decree
remains unstayed and in effect for 90 days; or
(6) in the event Debt Securities are issued to an
Illinois Power Trust or other trust of the Company in
connection with the issuance of Trust Securities by
such trust, such trust shall have voluntarily or
involuntarily dissolved, wound-up its business or
otherwise terminated its existence, except in
connection with (i) the distribution of Debt Securities
to holders of Trust Securities in liquidation of their
interests in such trust, (ii) the redemption of all
outstanding Trust Securities of such trust, and (iii)
mergers, consolidations or amalgamations, each as
permitted by the Declaration of such trust.
(b) If an Event of Default described in clauses 1, 2, 3 or
6 of this Section 6.01 with respect to Debt Securities of
any series at the time outstanding occurs and is continuing,
unless the principal of all the Debt Securities of that
series shall have already become due and payable, either the
Trustee or the holders of not less than 25% in aggregate
principal amount of the Debt Securities of that series then
Outstanding hereunder, by notice in writing to the Company
(and to the Trustee, if given by such Securityholders), may
declare the principal of all the Debt Securities of that
series to be due and payable immediately, and upon any such
declaration the same shall become and be immediately due and
payable, notwithstanding anything contained in this
Indenture or in the Debt Securities of that series or
established with respect to that series pursuant to Section
2.01 to the contrary. If an Event of Default specified in
clause (4) or (5) of Section 6.01(a) occurs or is
continuing, then the principal amount of all the Debt
Securities shall ipso facto become and be immediately due
and payable without any declaration or other act on the part
of the Trustee or any Securityholder.
At any time after the principal of the Debt
Securities of that series shall have been so declared
due and payable, and before any judgment or decree for
the payment of the moneys due shall have been obtained
or entered as hereinafter provided, the holders of 66%
in aggregate principal amount of the Debt Securities of
that series then Outstanding hereunder, by written
notice to the Company and the Trustee, may rescind and
annul such declaration and its consequences if: (i) the
Company has paid or deposited with the Trustee a sum
sufficient to pay all matured installments of interest
upon all the Debt Securities of that series and the
principal of (and premium, if any, on) any and all Debt
Securities of that series that shall have become due
otherwise than by acceleration (with interest upon such
principal and premium, if any, and, to the extent that
such payment is enforceable under applicable law, upon
overdue installments of interest, at the rate per annum
expressed in the Debt Securities of that series to the
date of such payment or deposit) and the amount payable
to the Trustee under Section 7.06, and (ii) any and all
Events of Default with respect to such series, other
than the nonpayment of principal on Debt Securities of
that series that shall not have become due by their
terms, shall have been remedied or waived as provided
in Section 6.06. No such rescission and annulment
shall extend to or shall affect any subsequent default
or impair any right consequent thereon.
(c) In case the Trustee shall have proceeded to enforce any
right with respect to Debt Securities of that series under
this Indenture and such proceedings shall have been
discontinued or abandoned because of such rescission or
annulment or for any other reason or shall have been
determined adversely to the Trustee, then and in every such
case the Company and the Trustee shall be restored
respectively to their former positions and rights hereunder,
and all rights, remedies and powers of the Company and the
Trustee shall continue as though no such proceedings had
been taken.
SECTION 6.02. Collection of Indebtedness and Suits for
Enforcement by Trustee.
(a) The Company covenants that (1) in case it shall default
in the payment of any installment of interest on any of the
Debt Securities of a series, or any payment required by any
sinking or analogous fund established with respect to that
series as and when the same shall have become due and
payable, and such default shall have continued for a period
of 90 days, or (2) in case it shall default in the payment
of the principal of (or premium, if any, on) any of the Debt
Securities of a series when the same shall have become due
and payable, whether upon maturity of the Debt Securities of
a series or upon redemption or upon declaration or
otherwise, then, upon demand of the Trustee, the Company
will pay to the Trustee, for the benefit of the holders of
the Debt Securities of that series, the whole amount that
then shall have become due and payable on all such Debt
Securities for principal (and premium, if any) or interest,
or both, as the case may be, with interest upon the overdue
principal (and premium, if any) and (to the extent that
payment of such interest is enforceable under applicable law
and, if the Debt Securities are held by an Illinois Power
Trust, without duplication of any other amounts paid by such
trust in respect thereof) upon overdue installments of
interest at the rate per annum expressed in the Debt
Securities of that series; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and
expenses of collection and the amount payable to the Trustee
under Section 7.06.
(b) If the Company shall fail to pay such amounts forthwith
upon such demand, the Trustee, in its own name and as
trustee of an express trust, shall be entitled and empowered
to institute any action or proceedings at law or in equity
for the collection of the sums so due and unpaid, and may
prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree
against the Company or other obligor upon the Debt
Securities of that series and collect the moneys adjudged or
decreed to be payable in the manner provided by law out of
the property of the Company or other obligor upon the Debt
Securities of that series, wherever situated.
(c) In case of any receivership, insolvency, liquidation,
bankruptcy, reorganization, readjustment, arrangement,
composition or judicial proceedings affecting the Company or
its creditors or property, the Trustee shall have power to
intervene in such proceedings and take any action therein
that may be permitted by the court and shall (except as may
be otherwise provided by law) be entitled to file such
proofs of claim and other papers and documents as may be
necessary or advisable in order to have the claims of the
Trustee and of the holders of Debt Securities of such series
allowed for the entire amount due and payable by the Company
under this Indenture at the date of institution of such
proceedings and for any additional amount that may become
due and payable by the Company after such date, and to
collect and receive any moneys or other property payable or
deliverable on any such claim, and to distribute the same
after the deduction of the amount payable to the Trustee
under Section 7.06; and any receiver, assignee or trustee in
bankruptcy or reorganization is hereby authorized by each of
the holders of Debt Securities of such series to make such
payments to the Trustee, and, in the event that the Trustee
shall consent to the making of such payments directly to
such Securityholders, to pay to the Trustee any amount due
it under Section 7.06.
(d) All rights of action and of asserting claims under this
Indenture, or under any of the terms established with
respect to Debt Securities of that series, may be enforced
by the Trustee without the possession of any of such Debt
Securities, or the production thereof at any trial or other
proceeding relative thereto, and any such suit or proceeding
instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment
shall, after provision for payment to the Trustee of any
amounts due under Section 7.06, be for the ratable benefit
of the holders of the Debt Securities of such series.
In case of an Event of Default, the Trustee may in its
discretion proceed to protect and enforce the rights vested in it
by this Indenture by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any of
such rights, either at law or in equity or in bankruptcy or
otherwise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture or in aid of the
exercise of any power granted in this Indenture, or to enforce
any other legal or equitable right vested in the Trustee by this
Indenture or by law.
Nothing contained herein shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on
behalf of any Securityholder any plan of reorganization,
arrangement, adjustment or composition affecting the Debt
Securities of that series or the rights of any holder thereof or
to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding.
SECTION 6.03. Application of Moneys Collected.
Any moneys collected by the Trustee pursuant to this
Article with respect to a particular series of Debt Securities
shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such
moneys on account of principal (or premium, if any) or interest,
upon presentation of the Debt Securities of that series, and
notation thereon of the payment, if only partially paid, and upon
surrender thereof if fully paid:
FIRST: To the payment of costs and expenses of
collection and of all amounts payable to the Trustee under
Section 7.06;
SECOND: To the payment of all Senior Indebtedness of
the Company if and to the extent required by Article XIV; and
THIRD: To the payment of the amounts then due and
unpaid upon Debt Debt Securities of such series for principal
(and premium, if any) and interest, in respect of which or for
the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the
amounts due and payable on such Debt Securities for principal
(and premium, if any) and interest, respectively.
SECTION 6.04. Limitation on Suits.
No holder of any Security of any series shall have any
right by virtue or by availing of any provision of this Indenture
to institute any suit, action or proceeding in equity or at law
upon or under or with respect to this Indenture or for the
appointment of a receiver or trustee, or for any other remedy
hereunder, unless (i) such holder previously shall have given to
the Trustee written notice of an Event of Default and of the
continuance thereof with respect to the Debt Securities of such
series specifying such Event of Default, as hereinbefore
provided; (ii) the holders of not less than 25% in aggregate
principal amount of the Debt Securities of such series then
Outstanding shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as
trustee hereunder; (iii) such holder or holders shall have
offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be
incurred therein or thereby; (iv) the Trustee, for 60 days after
its receipt of such notice, request and offer of indemnity, shall
have failed to institute any such action, suit or proceeding; and
(v) during such 60 day period, the holders of not less than 66%
in principal amount of the Debt Securities of that series do not
give the Trustee a direction inconsistent with the request.
Notwithstanding anything contained herein to the
contrary, any other provisions of this Indenture, the right of
any holder of any Debt Security to receive payment of the
principal of (and premium, if any) and interest on such Debt
Security, as therein provided, on or after the respective due
dates expressed in such Debt Security (or in the case of
redemption, on the redemption date), or to institute suit for the
enforcement of any such payment on or after such respective dates
or redemption date, shall not be impaired or affected without the
consent of such holder, and by accepting a Debt Security
hereunder it is expressly understood, intended and covenanted by
the taker and holder of every Debt Security of such series with
every other such taker and holder and the Trustee, that no one or
more holders of Debt Securities of such series shall have any
right in any manner whatsoever by virtue or by availing of any
provision of this Indenture to affect, disturb or prejudice the
rights of the holders of any other of such Debt Securities, or to
obtain or seek to obtain priority over or preference to any other
such holder, or to enforce any right under this Indenture, except
in the manner herein provided and for the equal, ratable and
common benefit of all holders of Debt Securities of such series.
For the protection and enforcement of the provisions of this
Section, each and every Securityholder and the Trustee shall be
entitled to such relief as can be given either at law or in
equity.
SECTION 6.05. Rights and Remedies Cumulative; Delay or Omission
Not Waiver.
(a) Except as otherwise provided in Section 2.07, all
powers and remedies given by this Article to the Trustee or
to the Securityholders shall, to the extent permitted by
law, be deemed cumulative and not exclusive of any other
powers and remedies available to the Trustee or the holders
of the Debt Securities, by judicial proceedings or
otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture or
otherwise established with respect to such Debt Securities.
(b) No delay or omission of the Trustee or of any holder of
any of the Debt Securities to exercise any right or power
accruing upon any Event of Default occurring and continuing
as aforesaid shall impair any such right or power, or shall
be construed to be a waiver of any such default or an
acquiescence therein; and, subject to the provisions of
Section 6.04, every power and remedy given by this Article
or by law to the Trustee or the Securityholders may be
exercised from time to time, and as often as shall be deemed
expedient, by the Trustee or by the Securityholders.
SECTION 6.06. Control by Securityholders.
The holders of a majority in aggregate principal amount
of the Debt Securities of any series at the time Outstanding,
determined in accordance with Section 8.04, shall have the right
to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee with respect to such series;
provided, however, that such direction shall not be in conflict
with any rule of law or with this Indenture or be unduly
prejudicial to the rights of holders of Debt Securities of any
other series at the time Outstanding determined in accordance
with Section 8.04. Subject to the provisions of Section 7.01,
the Trustee shall have the right to decline to follow any such
direction if the Trustee in good faith shall, by a Responsible
Officer or Officers of the Trustee, determine that the proceeding
so directed would involve the Trustee in personal liability. The
holders of a majority in aggregate principal amount of the Debt
Securities of any series at the time Outstanding affected
thereby, determined in accordance with Section 8.04, may on
behalf of the holders of all of the Debt Securities of such
series waive any past default in the performance of any of the
covenants contained herein or established pursuant to Section
2.01 with respect to such series and its consequences, except (i)
a default in the payment of the principal of, or premium, if any,
or interest on, any of the Debt Securities of that series as and
when the same shall become due by the terms of such Debt
Securities otherwise than by acceleration (unless such default
has been cured and a sum sufficient to pay all matured
installments of interest and principal and any premium has been
deposited with the Trustee (in accordance with Section 6.01(c))
or (ii) a default in the covenants contained in Section 4.06(b).
Upon any such waiver, the default covered thereby shall be deemed
to be cured for all purposes of this Indenture and the Company,
the Trustee and the holders of the Debt Securities of such series
shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent
or other default or impair any right consequent thereon. If the
Property Trustee fails to enforce its rights under this
Indenture, any holder of Preferred Securities or Common
Securities (as defined in the Declaration) may institute a legal
proceeding directly against the Company to enforce the Property
Trustee's rights under this Indenture without first instituting a
legal proceeding against the Property Trustee or any other
Person. In addition, if the Company fails to make interest or
other payments on Debt Securities of any series at the time
Outstanding when due, any holder of Preferred Securities or
Common Securities may enforce the Property Trustee's Rights
directly against the Company.
SECTION 6.07. Undertaking to Pay Costs.
All parties to this Indenture agree, and each holder of
any Debt Securities by such holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion
require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any
action taken or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable
costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good
faith of the claims or defenses made by such party litigant; but
the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any
Securityholder, or group of Securityholders, holding more than
10% in aggregate principal amount of the Outstanding Debt
Securities of any series, or to any suit instituted by any
Securityholder for the enforcement of the payment of the
principal of (or premium, if any) or interest on any Debt
Security of such series, on or after the respective due dates
expressed in such Debt Security or established pursuant to this
Indenture.
ARTICLE VII
CONCERNING THE TRUSTEE
SECTION 7.01. Certain Duties and Responsibilities of Trustee.
(a) The Trustee, prior to the occurrence of an Event of
Default with respect to the Debt Securities of a series and
after the curing of all Events of Default with respect to
the Debt Securities of that series that may have occurred,
shall undertake to perform with respect to the Debt
Securities of such series such duties and only such duties
as are specifically set forth in this Indenture, and no
implied covenants shall be read into this Indenture against
the Trustee. In case an Event of Default with respect to
the Debt Securities of a series has occurred (that has not
been cured or waived), the Trustee shall exercise with
respect to Debt Securities of that series such of the rights
and powers vested in it by this Indenture, and use the same
degree of care and skill in their exercise, as a prudent man
would exercise or use under the circumstances in the conduct
of his own affairs.
(b) no provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent
action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) prior to the occurrence of an Event of
Default with respect to the Debt Securities of a
series and after the curing or waiving of all such
Events of Default with respect to that series that
may have occurred:
(A) the duties and obligations of the
Trustee shall, with respect to the Debt Securities of such
series, be determined solely by the express provisions of
this Indenture, and the Trustee shall not be liable with
respect to the Debt Securities of such series except for the
performance of such duties and obligations as are
specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture
against the Trustee; and
(B) in the absence of bad faith on the part
of the Trustee, the Trustee may with respect to the Debt
Securities of such series conclusively rely, as to the truth
of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions
furnished to the Trustee and conforming to the requirements
of this Indenture; but in the case of any such certificates
or opinions that by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or
not they conform to the requirement of this Indenture;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be
proved that the Trustee, was negligent in ascertaining the
pertinent facts;
(3) the Trustee shall not be liable with
respect to any action taken or omitted to be taken
by it in good faith in accordance with the
direction of the holders of not less than a
majority in principal amount of the Debt
Securities of any series at the time Outstanding
relating to the time, method and place of
conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power
conferred upon the Trustee under this Indenture
with respect to the Debt Securities of that
series; and
(4) None of the provisions contained in this
Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur personal
financial liability in the performance of any of
its duties or in the exercise of any of its rights
or powers, if there is reasonable ground for
believing that the repayment of such funds or
liability is not reasonably assured to it under
the terms of this Indenture or adequate indemnity
against such risk is not reasonably assured to it.
SECTION 7.02. Certain Rights of Trustee.
Except as otherwise provided in Section 7.01:
(a) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request,
consent, order, approval, bond, security or other paper or
document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by a Board
Resolution or an Officers' Certificate (unless other
evidence in respect thereof is specifically prescribed
herein);
(c) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection in respect of
any action taken or suffered or omitted hereunder in good
faith and in reliance thereon;
(d) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture
at the request, order or direction of any of the
Securityholders, pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to
the Trustee reasonable security or indemnity against the
costs, expenses and liabilities that may be incurred therein
or thereby; nothing contained herein shall, however, relieve
the Trustee of the obligation, upon the occurrence of an
Event of Default with respect to a series of the Debt
Securities (that has not been cured or waived) to exercise
with respect to Debt Securities of that series such of the
rights and powers vested in it by this Indenture, and to use
the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in
the conduct of his own affairs;
(e) the Trustee shall not be liable for any action taken or
omitted to be taken by it in good faith and believed by it
to be authorized or within the discretion or rights or
powers conferred upon it by this Indenture;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond,
security, or other papers or documents, unless requested in
writing so to do by the holders of not less than a majority
in principal amount of the Outstanding Debt Securities of
the particular series affected thereby (determined as
provided in Section 8.04); provided, however, that if the
payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it
in the making of such investigation is, in the opinion of
the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such costs,
expenses or liabilities as a condition to so proceeding. The
reasonable expense of every such examination shall be paid
by the Company or, if paid by the Trustee, shall be repaid
by the Company upon demand;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or
by or through agents or attorneys and the Trustee shall not
be responsible for any misconduct or negligence on the part
of any agent or attorney appointed with due care by it
hereunder;
(h) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any
action hereunder, the Trustee (unless other evidence be
herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate; and
(i) the Trustee shall not be required to expend or risk its
own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
SECTION 7.03. Trustee Not Responsible for Recitals or Issuance
of Debt Securities.
(a) The recitals contained herein and in the Debt
Securities shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for the
correctness of the same.
(b) The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Debt Securities.
(c) The Trustee shall not be accountable for the use or
application by the Company of any of the Debt Securities or
of the proceeds of such Debt Securities, or for the use or
application of any moneys paid over by the Trustee in
accordance with any provision of this Indenture or
established pursuant to Section 2.01, or for the use or
application of any moneys received by any paying agent other
than the Trustee.
SECTION 7.04. May Hold Debt Securities.
The Trustee or any paying agent or Security Registrar,
in its individual or any other capacity, may become the owner or
pledgee of Debt Securities with the same rights it would have if
it were not Trustee, paying agent or Security Registrar.
SECTION 7.05. Moneys Held in Trust.
Subject to the provisions of Section 11.05, all moneys
received by the Trustee shall, until used or applied as herein
provided, be held in trust for the purposes for which they were
received, but need not be segregated from other funds except to
the extent required by law. The Trustee shall be under no
liability for interest on any moneys received by it hereunder
except such as it may agree with the Company to pay thereon.
SECTION 7.06. Compensation and Reimbursement.
(a) The Company covenants and agrees to pay to the Trustee,
and the Trustee shall be entitled to, such reasonable
compensation (which shall not be limited by any provision of
law in regard to the compensation of a trustee of an express
trust), as the Company and the Trustee may from time to time
agree in writing, for all services rendered by it in the
execution of the trusts hereby created and in the exercise
and performance of any of the powers and duties hereunder of
the Trustee, and, except as otherwise expressly provided
herein, the Company will pay or reimburse the Trustee upon
its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with
any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements
of its counsel and of all Persons not regularly in its
employ) except any such expense, disbursement or advance as
may arise from its negligence or bad faith. The Company
also covenants to indemnify the Trustee (and its officers,
agents, directors and employees) for, and to hold it
harmless against, any loss, liability or expense incurred
without negligence or bad faith on the part of the Trustee
and arising out of or in connection with the acceptance or
administration of this trust, including the costs and
expenses of defending itself against any claim of liability
in the premises.
(b) The obligations of the Company under this Section to
compensate and indemnify the Trustee and to pay or reimburse
the Trustee for expenses, disbursements and advances shall
constitute additional indebtedness hereunder and shall
survive the satisfaction and discharge of this Indenture.
Such additional indebtedness shall be secured by a lien
prior to that of the Debt Securities upon all property and
funds held or collected by the Trustee as such, except funds
held in trust for the benefit of the holders of particular
Debt Securities.
SECTION 7.07. Reliance on Officers' Certificate.
Except as otherwise provided in Section 7.01, whenever
in the administration of the provisions of this Indenture the
Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting to
take any action hereunder, such matter (unless other evidence in
respect thereof be herein specifically prescribed) may, in the
absence of negligence or bad faith on the part of the Trustee, be
deemed to be conclusively proved and established by an Officers'
Certificate delivered to the Trustee and such certificate, in the
absence of negligence or bad faith on the part of the Trustee,
shall be full warrant to the Trustee for any action taken,
suffered or omitted to be taken by it under the provisions of
this Indenture upon the faith thereof.
SECTION 7.08. Qualification; Conflicting Interests.
If the Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Trustee and the Company shall in all respects
comply with the provisions of Section 310(b) of the Trust
Indenture Act.
SECTION 7.09. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee with respect to
the Debt Securities issued hereunder which shall at all times be
a corporation organized and doing business under the laws of the
United States of America or any State or Territory thereof or of
the District of Columbia, or a corporation or other Person
permitted to act as trustee by the Commission, authorized under
such laws to exercise corporate trust powers, having a combined
capital and surplus of at least fifty million U.S. dollars
($50,000,000), and subject to supervision or examination by
Federal, State, Territorial or District of Columbia authority.
If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. The
Company may not, nor may any Person directly or indirectly
controlling, controlled by, or under common control with the
Company, serve as Trustee. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and
with the effect specified in Section 7.10.
SECTION 7.10. Resignation and Removal; Appointment of Successor.
(a) The Trustee or any successor hereafter appointed, may
at any time resign with respect to the Debt Securities of
one or more series by giving written notice thereof to the
Company and by transmitting notice of resignation by mail,
first class postage prepaid, to the Securityholders of such
series, as their names and addresses appear upon the
Security Register. Upon receiving such notice of
resignation, the Company shall promptly appoint a successor
trustee with respect to Debt Securities of such series by
written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the
successor trustee. If no successor trustee shall have been
so appointed and have accepted appointment within 30 days
after the mailing of such notice of resignation, the
resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee with
respect to Debt Securities of such series, or any
Securityholder of that series who has been a bona fide
holder of a Debt Security or Debt Securities for at least
six months may, subject to the provisions of Section 6.08,
on behalf of himself and all others similarly situated,
petition any such court for the appointment of a successor
trustee. Such court may thereupon after such notice, if
any, as it may deem proper and prescribe, appoint a
successor trustee.
(b) In case at any time any one of the following shall
occur:
(1) the Trustee shall fail to comply with the
provisions of subsection (a) of Section 7.08 after
written request therefor by the Company or by any
Securityholder who has been a bona fide holder of a
Debt Security or Debt Securities for at least six
months; or
(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section 7.09 and
shall fail to resign after written request therefor by
the Company or by any such Securityholder; or
(3) the Trustee shall become incapable of acting,
or shall be adjudged a bankrupt or insolvent, or
commence a voluntary bankruptcy proceeding, or a
receiver of the Trustee or of its property shall be
appointed or consented to, or any public officer shall
take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation, then, in any such case,
the Company may remove the Trustee with respect to all
Debt Securities and appoint a successor trustee by
written instrument, in duplicate, executed by order of
the Board of Directors, one copy of which instrument
shall be delivered to the Trustee so removed and one
copy to the successor trustee, or, subject to the
provisions of Section 6.08, unless the Trustee's duty
to resign is stayed as provided herein, any
Securityholder who has been a bona fide holder of a
Debt Security or Debt Securities for at least six
months may, on behalf of that holder and all others
similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the
appointment of a successor trustee. Such court may
thereupon after such notice, if any, as it may deem
proper and prescribe, remove the Trustee and appoint a
successor trustee.
(c) The holders of a majority in aggregate principal amount
of the Debt Securities of any series at the time Outstanding
may at any time remove the Trustee with respect to such
series by so notifying the Trustee and the Company and may
appoint a successor Trustee for such series with the consent
of the Company.
(d) Any resignation or removal of the Trustee and
appointment of a successor trustee with respect to the Debt
Securities of a series pursuant to any of the provisions of
this Section shall become effective upon acceptance of
appointment by the successor trustee as provided in Section
7.11.
(e) Any successor trustee appointed pursuant to this
Section may be appointed with respect to the Debt Securities
of one or more series or all of such series, and at any time
there shall be only one Trustee with respect to the Debt
Securities of any particular series.
SECTION 7.11. Acceptance of Appointment By Successor.
(a) In case of the appointment hereunder of a successor
trustee with respect to all Debt Securities, every such
successor trustee so appointed shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become
effective and such successor trustee, without any further
act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee;
but, on the request of the Company or the successor trustee,
such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such
successor trustee all the rights, powers, and trusts of the
retiring Trustee and shall duly assign, transfer and deliver
to such successor trustee all property and money held by
such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor
trustee with respect to the Debt Securities of one or more
(but not all) series, the Company, the retiring Trustee and
each successor trustee with respect to the Debt Securities
of one or more series shall execute and deliver an indenture
supplemental hereto wherein each successor trustee shall
accept such appointment and which (1) shall contain such
provisions as shall be necessary or desirable to transfer
and confirm to, and to vest in, each successor trustee all
the rights, powers, trusts and duties of the retiring
Trustee with respect to the Debt Securities of that or those
series to which the appointment of such successor trustee
relates, (2) shall contain such provisions as shall be
deemed necessary or desirable to confirm that all the
rights, powers, trusts and duties of the retiring Trustee
with respect to the Debt Securities of that or those series
as to which the retiring Trustee is not retiring shall
continue to be vested in the retiring Trustee, and (3) shall
add to or change any of the provisions of this Indenture as
shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one
Trustee, it being understood that nothing herein or in such
supplemental indenture shall constitute such Trustees
co-trustees of the same trust, that each such Trustee shall
be trustee of a trust or trusts hereunder separate and apart
from any trust or trusts hereunder administered by any other
such Trustee and that no Trustee shall be responsible for
any act or failure to act on the part of any other Trustee
hereunder; and upon the execution and delivery of such
supplemental indenture, the resignation or removal of the
retiring Trustee shall become effective to the extent
provided therein, such retiring Trustee shall with respect
to the Debt Securities of that or those series to which the
appointment of such successor trustee relates have no
further responsibility for the exercise of rights and powers
or for the performance of the duties and obligations vested
in the Trustee under this Indenture, and each such successor
trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Debt Securities
of that or those series to which the appointment of such
successor trustee relates; but, on request of the Company or
any successor trustee, such retiring Trustee shall duly
assign, transfer and deliver to such successor trustee, to
the extent contemplated by such supplemental indenture, the
property and money held by such retiring Trustee hereunder
with respect to the Debt Securities of that or those series
to which the appointment of such successor trustee relates.
(c) Upon request of any such successor trustee, the Company
shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor
trustee all such rights, powers and trusts referred to in
paragraph (a) or (b) of this Section, as the case may be.
(d) No successor trustee shall accept its appointment
unless at the time of such acceptance such successor trustee
shall be qualified and eligible under this Article.
(e) Upon acceptance of appointment by a successor trustee
as provided in this Section, the Company shall transmit
notice of the succession of such trustee hereunder by mail,
first class postage prepaid, to the Securityholders, as
their names and addresses appear upon the Security Register.
If the Company fails to transmit such notice within ten days
after acceptance of appointment by the successor trustee,
the successor trustee shall cause such notice to be
transmitted at the expense of the Company.
SECTION 7.12. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be qualified under the
provisions of Section 7.08 and eligible under the provisions of
Section 7.09, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding. In case any Debt
Securities shall have been authenticated, but not delivered, by
the Trustee then in office, any successor by merger, conversion
or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Debt Securities so authenticated
with the same effect as if such successor trustee had itself
authenticated such Debt Securities.
SECTION 7.13. Preferential Collection of Claims Against the
Company.
The Trustee shall comply with Section 311(a) of the
Trust Indenture Act, excluding any creditor relationship
described in Section 311(b) of the Trust Indenture Act. A
Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent included
therein.
ARTICLE VIII
CONCERNING THE SECURITYHOLDERS
SECTION 8.01. Evidence of Action by Securityholders.
Whenever in this Indenture it is provided that the
holders of a majority or specified percentage in aggregate
principal amount of the Debt Securities of a particular series
may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the
taking of any other action), the fact that at the time of taking
any such action the holders of such majority or specified
percentage of that series have joined therein may be evidenced by
any instrument or any number of instruments of similar tenor
executed by such holders of Debt Securities of that series in
Person or by agent or proxy appointed in writing.
If the Company shall solicit from the Securityholders
of any series any request, demand, authorization, direction,
notice, consent, waiver or other action, the Company may, at its
option, as evidenced by an Officers' Certificate, fix in advance
a record date for such series for the determination of
Securityholders (entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other
action, but the Company shall have no obligation to do so. If
such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other action) may be given
before or after the record date, but only the Securityholders of
record at the close of business on the record date shall be
deemed to be Securityholders for the purposes of determining
whether Securityholders of the requisite proportion of
Outstanding Debt Securities of that series have authorized or
agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other action, and for that
purpose the Outstanding Debt Securities of that series shall be
computed as of the record date; provided, however, that no such
authorization, agreement or consent by such Securityholders on
the record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later
than six months after the record date.
SECTION 8.02. Proof of Execution by Securityholders.
Subject to the provisions of Section 7.01, proof of the
execution of any instrument by a Securityholder (such proof will
not require notarization) or his agent or proxy and proof of the
holding by any Person of any of the Debt Securities shall be
sufficient if made in the following manner:
(a) The fact and date of the execution by any such Person
of any instrument may be proved in any reasonable manner
acceptable to the Trustee.
(b) The ownership of Debt Securities shall be proved by the
Debt Security Register of such Debt Securities or by a
certificate of the Debt Security Registrar thereof.
(c) The Trustee may require such additional proof of any
matter referred to in this Section as it shall deem
necessary.
SECTION 8.03. Who May be Deemed Owners.
Prior to the due presentment for registration of
transfer of any Debt Security, the Company, the Trustee, any
paying agent and any Debt Security Registrar may deem and treat
the Person in whose name such Debt Security shall be registered
upon the books of the Company as the absolute owner of such Debt
Security (whether or not such Debt Security shall be overdue and
notwithstanding any notice of ownership or writing thereon made
by anyone other than the Debt Security Registrar) for the purpose
of receiving payment of or on account of the principal of,
premium, if any, and (subject to Section 2.03) interest on such
Debt Security and for all other purposes; and neither the Company
nor the Trustee nor any paying agent nor any Debt Security
Registrar shall be affected by any notice to the contrary.
SECTION 8.04. Certain Debt Securities Owned by Company
Disregarded.
In determining whether the holders of the requisite
aggregate principal amount of Debt Securities of a particular
series have concurred in any direction, consent waiver under this
Indenture, the Debt Securities of that series that are owned by
the Company or any other obligor on the Debt Securities of that
series or by any Person directly or indirectly controlling or
controlled by or under common control with the Company or any
other obligor on the Debt Securities of that series (except
Illinois Power Trust) shall be disregarded and deemed not to be
Outstanding for the purpose of any such determination, except
that for the purpose of determining whether the Trustee shall be
protected in relying on any such direction, consent or waiver,
only Debt Securities of such series that the Trustee actually
knows are so owned shall be so disregarded. The Debt Securities
so owned that have been pledged in good faith may be regarded as
Outstanding for the purposes of this Section, if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's
right so to act with respect to such Debt Securities and that the
pledgee is not a Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the
Company or any such other obligor. In case of a dispute as to
such right, any decision by the Trustee taken upon the advice of
counsel shall be full protection to the Trustee.
SECTION 8.05. Actions Binding on Future Securityholders.
At any time prior to (but not after) the evidencing to
the Trustee, as provided in Section 8.01, of the taking of any
action by the holders of a majority or specified percentage in
aggregate principal amount of the Debt Securities of a particular
series in connection with such action, any holder of a Debt
Security of that series that is shown by the evidence to be
included in the Debt Securities the holders of which have
consented to such action may, by filing written notice with the
Trustee, and upon proof of holding as provided in Section 8.02,
revoke such action so far as concerns such Debt Security. Except
as aforesaid, any such action taken by the holder of any Debt
Security shall be conclusive and binding upon such holder and
upon all future holders and owners of such Debt Security, and of
any Debt Security issued in exchange therefor, on registration of
transfer thereof or in place thereof, irrespective of whether or
not any notation in regard thereto is made upon such Debt
Security. Any action taken by the holders of a majority or
specified percentage in aggregate principal amount of the Debt
Securities of a particular series in connection with such action
shall be conclusively binding upon the Company, the Trustee and
the holders of all the Debt Securities of that series.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures Without the Consent of
Securityholders.
In addition to any supplemental indenture otherwise
authorized by this Indenture, the Company and the Trustee may
from time to time and at any time enter into an indenture or
indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as then in effect), without
the consent of the Securityholders, for one or more of the
following purposes:
(1) to cure any ambiguity, defect or inconsistency herein
or in the Debt Securities of any series;
(2) to comply with Article X;
(3) to provide for uncertificated Debt Securities in
addition to or in place of certificated Debt Securities;
(4) to add to the covenants of the Company for the benefit
of the holders of all or any series of Debt Securities (and
if such covenants are to be for the benefit of less than all
series of Debt Securities, stating that such covenants are
expressly being included solely for the benefit of such
series) or to surrender any right or power herein conferred
upon the Company;
(5) to add to, delete from, or revise the conditions,
limitations and restrictions on the authorized amount, terms
or purposes of issue, authentication and delivery of Debt
Securities, as herein set forth;
(6) to make any change that does not adversely affect the
rights of any Securityholder in any material respect; or
(7) to provide for the issuance of and establish the form
and terms and conditions of the Debt Securities of any
series as provided in Section 2.01, to establish the form of
any certifications required to be furnished pursuant to the
terms of this Indenture or any series of Debt Securities, or
to add to the rights of the holders of any series of Debt
Securities.
The Trustee is hereby authorized to join with the
Company in the execution of any such supplemental indenture, and
to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated
to enter into any such supplemental indenture that affects the
Trustee's own rights, duties or immunities under this Indenture
or otherwise.
Any supplemental indenture authorized by the provisions
of this Section may be executed by the Company and the Trustee
without the consent of the holders of any of the Debt Securities
at the time Outstanding notwithstanding any of the provisions of
Section 9.02.
SECTION 9.02. Supplemental Indentures With Consent of
Securityholders.
With the consent (evidenced as provided in Section
8.01) of the holders of not less than 66% in aggregate principal
amount of the Debt Securities of each series affected by such
supplemental indenture or indentures at the time Outstanding, the
Company, when authorized by a Board Resolution, and the Trustee
may from time to time and at any time enter into an indenture or
indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as then in effect) for the
purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of any
supplemental indenture or of modifying in any manner not covered
by Section 9.01 the rights of the holders of the Debt Securities
of such series under this Indenture; provided, however, that no
such supplemental indenture shall, without the consent of the
holders of each Debt Security then Outstanding and affected
thereby, (i) extend the fixed maturity of any Debt Securities of
any series, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, or reduce
any premium payable upon the redemption thereof, without the
consent of the holder of each Debt Security so affected or (ii)
reduce the aforesaid percentage of Debt Securities, the holders
of which are required to consent to any such supplemental
indenture.
It shall not be necessary for the consent of the
Securityholders of any series affected thereby under this Section
to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall
approve the substance thereof.
SECTION 9.03. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture
pursuant to the provisions of this Article or of Section 10.01,
this Indenture shall, with respect to such series, be and be
deemed to be modified and amended in accordance therewith and the
respective rights, limitations of rights, obligations, duties and
immunities under this Indenture of the Trustee, the Company and
the holders of Debt Securities of the series affected thereby
shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and
all the terms and conditions of any such supplemental indenture
shall be and be deemed to be part of the terms and conditions of
this Indenture for any and all purposes.
SECTION 9.04. Debt Securities Affected by Supplemental
Indentures.
Debt Securities of any series, affected by a
supplemental indenture, authenticated and delivered after the
execution of such supplemental indenture pursuant to the
provisions of this Article or of Section 10.01, may bear a
notation in form approved by the Company, provided such form
meets the requirements of any securities exchange upon which such
series may be listed, as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new
Debt Securities of that series so modified as to conform, in the
opinion of the Board of Directors of the Company, to any
modification of this Indenture contained in any, such
supplemental indenture may be prepared by the Company,
authenticated by the Trustee and delivered in exchange for the
Debt Securities of that series then Outstanding.
SECTION 9.05. Execution of Supplemental Indentures.
Upon the request of the Company, accompanied by a Board
Resolution authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of
the consent of Securityholders required to consent thereto as
aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental
indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may
in its discretion but shall not be obligated to enter into such
supplemental indenture. The Trustee, subject to the provisions
of Section 7.01, may receive an Opinion of Counsel as conclusive
evidence that any supplemental indenture executed pursuant to
this Article is authorized or permitted by, and conforms to, the
terms of this Article and that it is proper for the Trustee under
the provisions of this Article to join in the execution thereof.
Promptly after the execution by the Company and the
Trustee of any supplemental indenture pursuant to the provisions
of this Section, the Trustee shall transmit by mail, first class
postage prepaid, a notice, setting forth in general terms the
substance of such supplemental indenture, to the Securityholders
of all series affected thereby as their names and addresses
appear upon the Debt Security Register. Any failure of the
Trustee to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such
supplemental indenture.
ARTICLE X
SUCCESSOR CORPORATION
SECTION 10.01. Company May Consolidate, Etc.
Nothing contained in this Indenture or in any of the
Debt Securities shall prevent any consolidation or merger of the
Company with or into any other corporation or corporations
(whether or not affiliated with the Company), or successive
consolidations or mergers in which the Company or its successor
or successors shall be a party or parties, or shall prevent any
sale, conveyance, transfer or other disposition of the property
of the Company or its successor or successors as an entirety, or
substantially as an entirety, to any other corporation (whether
or not affiliated with the Company or its successor or
successors) authorized to acquire and operate the same; provided,
however, the Company hereby covenants and agrees that, upon any
such consolidation, merger, sale, conveyance, transfer or other
disposition, the due and punctual payment of the principal of
(premium, if any) and interest on all of the Debt Securities of
all series in accordance with the terms of each series, according
to their tenor and the due and punctual performance and
observance of all the covenants and conditions of this Indenture
with respect to each series or established with respect to such
series pursuant to Section 2.01 to be kept or performed by the
Company, shall be expressly assumed, by supplemental indenture
(which shall conform to the provisions of the Trust Indenture
Act, as then in effect) satisfactory in form to the Trustee
executed and delivered to the Trustee by the entity formed by
such consolidation, or into which the Company shall have been
merged, or by the entity which shall have acquired such property.
SECTION 10.02. Successor Corporation Substituted.
(a) In case of any such consolidation, merger, sale,
conveyance, transfer or other disposition and upon the
assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the due and punctual
payment of the principal of, premium, if any, and interest
on all of the Debt Securities of all series Outstanding and
the due and punctual performance of all of the covenants and
conditions of this Indenture or established with respect to
each series of the Debt Securities pursuant to Section 2.01
to be performed by the Company, with respect to each series,
such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it
had been named as the Company herein.
(b) In case of any such consolidation, merger, sale,
conveyance, transfer or other disposition, such changes in
phraseology and form (but not in substance) may be made in
the Debt Securities thereafter to be issued as may be
appropriate.
(c) Nothing contained in this Indenture or in any of the
Debt Securities shall prevent the Company from merging into
itself or acquiring by purchase or otherwise all or any part
of the property of any other Person (whether or not
affiliated with the Company).
SECTION 10.03. Evidence of Consolidation, Etc. to Trustee.
The Trustee, subject to the provisions of Section 7.01,
may receive an Opinion of Counsel as conclusive evidence that any
such consolidation, merger, sale, conveyance, transfer or other
disposition, and any such assumption, comply with the provisions
of this Article.
ARTICLE XI
SATISFACTION AND DISCHARGE
SECTION 11.01. Satisfaction and Discharge of Indenture.
If at any time: (a) the Company shall have delivered to
the Trustee for cancellation all Debt Securities of a series
theretofore authenticated (other than any Debt Securities that
shall have been destroyed, lost or stolen and that shall have
been replaced or paid as provided in Section 2.07 and Debt
Securities for whose payment money or Governmental Obligations
have theretofore been deposited in trust or segregated and held
in trust by the Company (and thereupon repaid to the Company or
discharged from such trust, as provided in Section 11.05)); or
(b) all such Debt Securities of a particular series not
theretofore delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and
payable within one year or are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the
giving of notice of redemption, and the Company shall deposit or
cause to be deposited with the Trustee as trust funds the entire
amount in moneys or Governmental Obligations or a combination
thereof, sufficient in the opinion of a nationally recognized
firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay at
maturity or upon redemption all Debt Securities of that series
not theretofore delivered to the Trustee for cancellation,
including principal (and premium, if any) and interest due or to
become due to such date of maturity or date fixed for redemption,
as the case may be, and if the Company shall also pay or cause to
be paid all other sums payable hereunder with respect to such
series by the Company; then if the Company has delivered to the
Trustee an Opinion of Counsel based on the fact that (x) the
Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (y) since the date hereof,
there has been a change in the applicable United States federal
income tax law, in either case to the effect that, and such
opinion shall confirm that, the holders of the Debt Securities of
such series will not recognize income, gain or loss for United
States federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to United States
federal income tax on the same amount and in the same manner and
at the same times, as would have been the case if such deposit,
defeasance and discharge had not occurred, this Indenture shall
thereupon cease to be of further effect with respect to such
series except for the provisions of Sections 2.03, 2.05, 2.07,
4.01, 4.02, 4.03 and 7.10, that shall survive until the date of
maturity or redemption date, as the case may be, and Sections
7.06 and 11.05, that shall survive to such date and thereafter,
and the Trustee, on demand of the Company and at the cost and
expense of the Company shall execute proper instruments
acknowledging satisfaction of and discharging this Indenture with
respect to such series.
SECTION 11.02. Discharge of Obligations.
If at any time all Debt Securities of a particular
series not heretofore delivered to the Trustee for cancellation
or that have not become due and payable as described in Section
11.01 shall have been paid by the Company by depositing
irrevocably with the Trustee as trust funds the entire amount in
moneys or Governmental Obligations, or a combination thereof,
sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written
certification thereof, delivered to the Trustee to pay at
maturity or upon redemption under arrangements satisfactory to
the Trustee for the giving of notice of redemption all such Debt
Securities of that series not theretofore delivered to the
Trustee for cancellation, including principal (and premium, if
any) and interest due or to become due to such date of maturity
or date fixed for redemption, as the case may be, and if the
Company shall also pay or cause to be paid all other sums payable
hereunder by the Company with respect to such series, then after
the date such moneys or Governmental Obligations, as the case may
be, are deposited with the Trustee then, if the Company has
delivered to the Trustee an Opinion of Counsel based on the fact
that (x) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (y) since
the date hereof, there has been a change in the applicable United
States federal income tax law, in either case to the effect that,
and such opinion shall confirm that, the holders of the Debt
Securities of such series will not recognize income, gain or loss
for United States federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to United
States federal income tax on the same amount and in the same
manner and at the same times, as would have been the case if such
deposit, defeasance and discharge had not occurred, the
obligations of the Company, under this Indenture with respect to
such series shall cease to be of further effect except for the
provisions of Sections 2.03, 2.05, 2.07, 4.01, 4.02, 4.03, 7.06,
7.10 and 11.05 hereof that shall survive until such Debt
Securities shall mature and be paid. Thereafter, Sections 7.06
and 11.05 shall survive.
SECTION 11.03. Deposited Moneys to be Held in Trust.
All moneys or Governmental Obligations deposited with
the Trustee pursuant to Sections 11.01 or 11.02 shall be held in
trust and shall be available for payment as due, either directly
or through any paying agent (including the Company acting as its
own paying agent), to the holders of the particular series of
Debt Securities for the payment or redemption of which such
moneys or Governmental Obligations have been deposited with the
Trustee.
SECTION 11.04. Payment of Moneys Held by Paying Agents.
In connection with the satisfaction and discharge of
this Indenture, or the Company's obligation with respect to the
Debt Securities of a series, all moneys or Governmental
Obligations then held by any paying agent under the provisions of
this Indenture shall, upon demand of the Company, be paid to the
Trustee and thereupon such paying agent shall be released from
all further liability with respect to such moneys or Governmental
Obligations.
SECTION 11.05. Repayment to Company.
Any moneys or Governmental Obligations deposited with
any paying agent or the Trustee, or then held by the Company, in
trust for payment of principal of or premium or interest on the
Debt Securities of a particular series that are not applied but
remain unclaimed by the holders of such Debt Securities for at
least two years after the date upon which the principal of (and
premium, if any) or interest on such Debt Securities shall have
respectively become due and payable, shall be repaid to the
Company on May 31 of each year or (if then held by the Company)
shall be discharged from such trust; and thereupon the paying
agent and the Trustee shall be released from all further
liability with respect to such moneys or Governmental
Obligations, and the holder of any of the Debt Securities
entitled to receive such payment shall thereafter, as an
unsecured general creditor, look only to the Company for the
payment thereof.
ARTICLE XII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 12.01. No Recourse.
No recourse under or upon any obligation, covenant or
agreement of this Indenture, or of any Debt Security, or for any
claim based thereon or otherwise in respect thereof, shall be had
against any incorporator, stockholder, officer or director, past,
present or future as such, of the Company or of any predecessor
or successor corporation, either directly or through the Company
or any such predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being
expressly understood that this Indenture and the obligations
issued hereunder are solely corporate obligations, and that no
such personal liability whatever shall attach to, or is or shall
be incurred by, the incorporators, stockholders, officers or
directors as such, of the Company or of any predecessor or
successor corporation, or any of them, because of the creation of
the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture
or in any of the Debt Securities or implied herefrom; and that
any and all such personal liability of every name and nature,
either at common law or in equity or by constitution or statute,
of, and any and all such rights and claims against, every such
incorporator, stockholder, officer or director as such, because
of the creation of the indebtedness hereby authorized, or under
or by reason of the obligations, covenants or agreements
contained in this Indenture or in any of the Debt Securities or
implied therefrom, are hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this
Indenture and the issuance of such Debt Securities.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.01. Effect on Successors and Assigns.
All the covenants, stipulations, promises and
agreements in this Indenture contained by or on behalf of the
Company shall bind successors and assigns of the Company, whether
so expressed or not.
SECTION 13.02. Actions by Successor.
Any act or proceeding by any provision of this
Indenture authorized or required to be done or performed by any
board, committee or officer of the Company shall and may be done
and performed with like force and effect by the corresponding
board, committee or officer of any corporation that shall at the
time be the lawful successor of the Company.
SECTION 13.03. Surrender of Company Powers.
The Company by instrument in writing executed by
authority of 2/3 (two-thirds) of the Board of Directors and
delivered to the Trustee may surrender any of the powers reserved
to the Company, and thereupon such power so surrendered shall
terminate both as to the Company and as to any successor
corporation.
SECTION 13.04. Notices.
Except as otherwise expressly provided herein, any
notice or demand that by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by
the holders of Debt Securities to or on the Company may be given
or served by being deposited first class postage prepaid in a
post-office letterbox addressed (until another address is filed
in writing by the Company with the Trustee), as follows: Illinois
Power Company, 500 South 27th Street, Decatur, Illinois 62525,
Attention: Treasurer. Any notice, election, request or demand by
the Company or any Securityholder to or upon the Trustee shall be
deemed to have been sufficiently given or made, for all purposes,
if given or made in writing at the Corporate Trust Office of the
Trustee.
SECTION 13.05. Governing Law.
This Indenture and each Debt Security shall be deemed
to be a contract made under the internal laws of the State of New
York, and for all purposes shall be construed in accordance with
the laws of said State.
SECTION 13.06. Treatment of the Debt Securities as Debt.
It is intended that the Debt Securities will be treated
as indebtedness and not as equity for federal income tax
purposes. The provisions of this Indenture shall be interpreted
to further this intention.
SECTION 13.07. Compliance Certificates and Opinions.
(a) Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of
this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent
provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel
stating that in the opinion of such counsel all such
conditions precedent have been complied with, except that in
the case of any such application or demand as to which the
furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular
application or demand, no additional certificate or opinion
need be furnished.
(b) Each certificate or opinion provided for in this
Indenture and delivered to the Trustee with respect to
compliance with a condition or covenant in this Indenture
shall include (1) a statement that the Person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
SECTION 13.08. Payments on Business Days.
Except as provided pursuant to Section 2.01 pursuant to
a Board Resolution, and as set forth in an Officers' Certificate,
or established in one or more indentures supplemental to this
Indenture, in any case where the date of maturity of interest or
principal of any Debt Security or the date of redemption of any
Debt Security shall not be a Business Day, then payment of
interest or principal (and premium, if any) may be made on the
next succeeding Business Day with the same force and effect as if
made on the nominal date of maturity or redemption, and no
interest shall accrue for the period after such nominal date.
SECTION 13.09. Conflict with Trust Indenture Act.
If and to the extent that any provision of this
Indenture limits, qualifies or conflicts with the duties imposed
by Sections 310 to 317, inclusive, of the Trust Indenture Act,
such imposed duties shall control.
SECTION 13.10. Counterparts.
This Indenture may be executed in any number of
counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same
instrument.
SECTION 13.11. Separability.
In case any one or more of the provisions contained in
this Indenture or in the Debt Securities of any series shall for
any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall
not affect any other provisions of this Indenture or of such Debt
Securities, but this Indenture and such Debt Securities shall be
construed as if such invalid or illegal or unenforceable
provision had never been contained herein or therein.
SECTION 13.12. Assignment.
The Company will have the right at all times to assign
any of its respective rights or obligations under this Indenture
to a direct or indirect wholly-owned Subsidiary of the Company,
provided that, in the event of any such assignment, the Company
will remain liable for all such obligations. Subject to the
foregoing, the Indenture is binding upon and inures to the
benefit of the parties thereto and their respective successors
and assigns. This Indenture may not otherwise be assigned by the
parties thereto.
SECTION 13.13. Acknowledgment of Rights.
The Company acknowledges that, with respect to any Debt
Securities held by an Illinois Power Trust or a trustee of such
trust, if the Property Trustee of such Trust fails to enforce its
rights under this Indenture as the holder of the series of Debt
Securities held as the assets of such Illinois Power Trust, any
holder of Preferred Securities may, after a period of 30 days has
elapsed from such holder's written request to such Property
Trustee to enforce such rights, institute legal proceedings
directly against the Company to enforce such Property Trustee's
rights under this Indenture without first instituting any legal
proceedings against such Property Trustee or any other person or
entity.
ARTICLE XIV
SUBORDINATION OF DEBT SECURITIES
SECTION 14.01. Subordination Terms.
The payment by the Company of the principal of,
premium, if any, and interest on any series of Debt Securities
issued hereunder shall be subordinated to the extent set forth in
an indenture supplemental hereto or a Board Resolution relating
to such Debt Securities.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, all as of the day and
year first above written.
ILLINOIS POWER COMPANY
By:/s/ Cynthia G. Steward
Name: Cynthia G. Steward
Title: Controller
Attest:
By: /s/ Leah Manning Stetzner
Name: Leah Manning Stetzner
Title: Vice President, General Counsel
and Corporate Secretary
[Seal]
WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Trustee
By: /s/ Emmett R. Harmon
Name: Emmett R. Harmon
Title: Vice President
Attest:
By: /s/ W. Chris Sponenberg
Name: W. Chris Sponenberg
Title: Financial Services Officer
[Seal]
