SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to __________
Commission Registrants; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-11327 Illinova Corporation 37-1319890
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525
(217) 424-6600
1-3004 Illinois Power Company 37-0344645
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525
(217) 424-6600
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) have been subject to such
filing requirements for the past 90 days.
Illinova Yes X No
Corporation ---- ----
Illinois Power Yes X No
Company ---- ----
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of the latest practicable date:
Illinova Corporation Common stock, no par value, 71,711,837
shares outstanding at April 30, 1998
Illinois Power Company Common stock, no par value, 66,215,292
shares outstanding held by Illinova
Corporation at April 30, 1998
<PAGE>
ILLINOVA CORPORATION
ILLINOIS POWER COMPANY
This combined Form 10-Q is separately filed by Illinova Corporation and Illinois
Power Company. Information contained herein relating to Illinois Power Company
is filed by Illinova Corporation and separately by Illinois Power Company on its
own behalf. Illinois Power Company makes no representation as to information
relating to Illinova Corporation or its subsidiaries, except as it may relate to
Illinois Power Company.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
PAGE NO.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Illinova Corporation
Consolidated Balance Sheets 3 - 4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Illinois Power Company
Consolidated Balance Sheets 7 - 8
Consolidated Statements of Income 9
Consolidated Statements of Cash Flows 10
Notes to Consolidated Financial Statements of
Illinova Corporation and
Illinois Power Company 11 - 15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for Illinova Corporation
and Illinois Power Company 16 - 22
Part II. OTHER INFORMATION
Item 1: Legal Proceedings 23
Item 4: Submission of Matters to a Vote of
Security Holders 24
Item 6: Exhibits and Reports on Form 8-K 24
Signatures 25 - 26
Exhibit Index 27
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
ASSETS (Unaudited) (Audited)
(Millions of Dollars)
<S> <C> <C>
Utility Plant, at original cost
Electric (includes construction work
in progress of $181.3 million and
$214.3 million, respectively) $ 6,723.5 $ 6,690.4
Gas (includes construction work
in progress of $10.9 million and
$10.7 million, respectively) 667.3 663.0
---------- ----------
7,390.8 7,353.4
Less-Accumulated depreciation 2,843.2 2,808.1
---------- ----------
4,547.6 4,545.3
Nuclear fuel in process 6.2 6.3
Nuclear fuel under capital lease 128.1 126.7
---------- ----------
Total utility plant 4,681.9 4,678.3
---------- ----------
Investments and Other Assets 207.8 198.8
---------- ----------
Current Assets
Cash and cash equivalents 70.6 33.0
Accounts receivable (less allowance
for doubtful accounts of $5.5 million
Service 186.4 115.6
Other 72.3 102.3
Accrued unbilled revenue 66.6 86.3
Materials and supplies, at average cost 103.2 118.6
Prepayments and other 33.3 64.4
---------- ----------
Total current assets 532.4 520.2
---------- ----------
Deferred Charges 196.7 185.7
---------- ----------
Total deferred charges 196.7 185.7
---------- ----------
$ 5,618.8 $ 5,583.0
========== ==========
</TABLE>
<PAGE>
ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
MARCH 31, DECEMBER 31,
1998 1997
CAPITAL AND LIABILITIES (Unaudited) (Audited)
(Millions of Dollars)
Capitalization
Common stock -
No par value, 200,000,000 shares authorized;
71,711,837 and 71,681,937 shares outstanding,
respectively, stated at $ 1,425.7 $ 1,425.7
Less - Deferred compensation - ESOP 9.1 10.2
Retained earnings 52.7 51.7
Less - Capital stock expense 7.3 7.3
Less - 3,970,100 and 4,000,000 shares of common
stock in treasury, respectively, at cost 89.8 90.4
---------- ---------
Total common stock equity 1,372.2 1,369.5
Preferred stock of subsidiary 57.1 57.1
Company obligated mandatorily redeemable
preferred stock of subsidiary 197.0 197.0
Long-term debt 140.0 100.0
Long-term debt of subsidiary 1,661.0 1,617.5
---------- ----------
Total capitalization 3,427.3 3,341.1
---------- ----------
Current Liabilities
Accounts payable 158.9 177.3
Notes payable 308.6 415.3
Long-term debt and lease obligations of
subsidiary maturing within one year 98.1 87.5
Other 168.9 181.6
---------- ----------
Total current liabilities 734.5 861.7
---------- ----------
Deferred Credits
Accumulated deferred income taxes 989.9 969.0
Accumulated deferred investment tax credits 206.5 208.3
Other 260.6 202.9
---------- ----------
Total deferred credits 1,457.0 1,380.2
---------- ----------
$ 5,618.8 $ 5,583.0
========== ==========
<PAGE>
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1998 1997
(Unaudited)
(Millions except per share)
Operating Revenues:
Electric $ 276.6 $ 282.2
Electric interchange 96.3 26.6
Gas 116.6 164.0
Diversified enterprises 85.9 97.6
------------ ------------
Total 575.4 570.4
------------ ------------
Operating Expenses:
Fuel for electric plants 55.7 45.3
Power purchased 97.1 35.8
Gas purchased for resale 66.0 99.7
Diversified enterprises 94.7 108.4
Other operating expenses 79.8 59.4
Maintenance 29.0 19.7
Depreciation & amortization 50.7 49.0
General taxes 38.7 38.7
------------ ------------
Total 511.7 456.0
------------ ------------
Operating Income 63.7 114.4
------------ ------------
Other Income and Deductions:
Miscellaneous-net (1.5) .8
Equity earnings in affiliates 5.5 4.0
------------ ------------
Total 4.0 4.8
Income Before Interest Charges
and Income Taxes 67.7 119.2
------------ ------------
Interest Charges:
Interest expense 36.6 38.2
Allowance for borrowed funds
used during construction (1.1) (1.4)
Preferred dividend requirements
of subsidiary 4.9 5.5
------------ ------------
Total 40.4 42.3
------------ ------------
Income Before Income Taxes 27.3 76.9
------------ ------------
Income Taxes 4.3 32.9
------------ ------------
Net Income Applicable to Common Stock $ 23.0 $ 44.0
============ ============
Earnings per common share (basic and
diluted) $0.32 $0.58
Cash dividends declared per
common share $0.31 $0.31
Cash dividends paid per common share $0.31 $0.31
Weighted average number of common
shares outstanding during period 71,701,253 75,681,937
<PAGE>
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1998 1997
(Unaudited)
(Millions of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 23.0 $ 44.0
Items not requiring cash, net 44.4 69.6
Changes in assets and liabilities 62.0 1.2
-------- --------
Net cash provided by operating
activities 129.4 114.8
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (47.8) (33.9)
Other investing activities (8.5) (15.2)
-------- --------
Net cash used in investing
activities (56.3) (49.1)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on common stock (22.2) (23.5)
Reissuance of common stock from treasury 0.7 --
Redemptions -
Short-term debt (115.6) (136.2)
Issuances -
Short-term debt 8.9 --
Long-term debt 92.4 100.0
Other financing activities 0.3 0.7
--------- ---------
Net cash used in financing
activities (35.5) (59.0)
--------- ---------
NET CHANGE IN CASH AND
CASH EQUIVALENTS 37.6 6.7
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 33.0 24.6
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 70.6 $ 31.3
========= =========
<PAGE>
ILLINOIS POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
MARCH 31, DECEMBER 31,
1998 1997
ASSETS (Unaudited) (Audited)
(Millions of Dollars)
Utility Plant, at original cost
Electric (includes construction work
in progress of $181.3 million and
$214.3 million, respectively) $ 6,723.5 $ 6,690.4
Gas (includes construction work
in progress of $10.9 million and
$10.7 million, respectively) 667.3 663.0
------------ ------------
7,390.8 7,353.4
Less-Accumulated depreciation 2,843.2 2,808.1
------------ ------------
4,547.6 4,545.3
Nuclear fuel in process 6.2 6.3
Nuclear fuel under capital lease 128.1 126.7
------------ ------------
Total utility plant 4,681.9 4,678.3
------------ ------------
Investments and Other Assets 5.8 5.9
------------ ------------
Current Assets
Cash and cash equivalents 58.2 17.8
Accounts receivable (less allowance
for doubtful accounts of $5.5 million)
Service 186.4 115.6
Other 12.5 16.6
Accrued unbilled revenue 66.6 86.3
Materials and supplies,
at average cost 102.1 117.3
Prepayments and other 24.9 61.2
------------ ------------
Total current assets 450.7 414.8
------------ ------------
Deferred Charges 202.3 192.5
------------ ------------
Total deferred charges 202.3 192.5
------------ ------------
$ 5,340.7 $ 5,291.5
============ ============
<PAGE>
ILLINOIS POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
MARCH 31, DECEMBER 31,
1998 1997
CAPITAL AND LIABILITIES (Unaudited) (Audited)
(Millions of Dollars)
Capitalization
Common stock -
No par value, 100,000,000 shares
authorized; 75,643,937 shares issued,
stated at $ 1,424.6 $ 1,424.6
Retained earnings 115.0 89.5
Less - Capital stock expense 7.3 7.3
Less - 9,428,645 shares of
common stock in treasury
at cost 207.7 207.7
----------- ------------
Total common stock equity 1324.6 1229.1
Preferred stock 57.1 57.1
Company obligated mandatorily
redeemable preferred stock 197.0 197.0
Long-term debt 1,661.0 1,617.5
------------ ------------
Total capitalization 3,239.7 3,170.7
------------ ------------
Current Liabilities
Accounts payable 105.9 102.7
Notes payable 299.7 376.8
Long-term debt and lease
obligations maturing
within one year 98.1 87.5
Other 125.9 162.1
------------ ------------
Total current liabilities 629.6 729.1
------------ ------------
Deferred Credits
Accumulated deferred income taxes 1,004.4 980.6
Accumulated deferred investment
tax credits 206.5 208.3
Other 260.5 202.8
------------ ------------
Total deferred credits 1,471.4 1,391.7
------------ ------------
$ 5,340.7 $ 5,291.5
============ ============
<PAGE>
ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1998 1997
(Unaudited)
(Millions of Dollars)
Operating Revenues:
Electric $ 276.6 $ 282.2
Electric interchange 96.3 26.6
Gas 116.6 164.0
------------- -------------
Total 489.5 472.8
------------- -------------
Operating Expenses and Taxes:
Fuel for electric plants 55.7 45.3
Power purchased 97.1 35.8
Gas purchased for resale 66.0 99.7
Other operating expenses 79.8 59.4
Maintenance 29.0 19.7
Depreciation & amortization 50.7 49.0
General taxes 38.7 38.7
Income taxes 10.7 36.3
------------- -------------
Total 427.7 383.9
------------- -------------
Operating Income 61.8 88.9
------------- -------------
Other Income and Deductions, Net 1.6 .6
------------- -------------
Income Before Interest Charges 63.4 89.5
------------- -------------
Interest Charges and Other:
Interest expense 34.1 35.9
Allowance for borrowed funds
used during construction (1.1) (1.4)
------------- -------------
Total 33.0 34.5
------------- -------------
Net Income 30.4 55.0
Preferred dividend
requirements 4.9 5.5
------------- -------------
Net Income Applicable to
Common Stock $ 25.5 $ 49.5
============= =============
<PAGE>
ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1998 1997
(Unaudited)
(Millions of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 30.4 $ 55.0
Items not requiring cash, net 47.4 65.3
Changes in assets and liabilities 61.7 8.5
-------------- ---------------
Net cash provided by operating 139.5 128.8
activities -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (47.8) (33.9)
Other investing activities 0.6 0.4
-------------- ---------------
Net cash used in investing (47.2) (33.5)
activities -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on preferred and common
stock (27.2) (29.0)
Repurchase of common stock -- (4.3)
Redemptions -
Short-term debt (77.1) (59.2)
Issuances
Long-term debt 52.4 --
Other financing activities -- 0.6
-------------- ---------------
Net cash used in financing activities (51.9) (91.9)
-------------- ---------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 40.4 3.4
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 17.8 12.5
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 58.2 $ 15.9
============== ==============
<PAGE>
ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
Financial statement note disclosures, normally included in financial
statements prepared in conformity with generally accepted accounting principles,
have been omitted from this Form 10-Q pursuant to the Rules and Regulations of
the Securities and Exchange Commission (SEC). However, in the opinion of
Illinova Corporation (Illinova) and Illinois Power Company (IP), the disclosures
and information contained in this Form 10-Q are adequate and not misleading. See
the consolidated financial statements and the accompanying notes in Illinova's
1997 Annual Report to Shareholders (included in the Proxy Statement), the
consolidated financial statements and the accompanying notes in IP's 1997 Annual
Report to Shareholders (included in the Information Statement), and Illinova's
and IP's 1997 Form 10-K filings to the SEC for information relevant to the
consolidated financial statements contained herein, including information as to
certain regulatory and environmental matters and as to the significant
accounting policies followed.
In the opinion of Illinova, the accompanying unaudited March 31, 1998
and audited December 31, 1997 consolidated financial statements for Illinova
reflect all adjustments necessary to present fairly the Consolidated Balance
Sheets as of March 31, 1998 and December 31, 1997, the Consolidated Statements
of Income for the three months ended March 31, 1998 and 1997, and the
Consolidated Statements of Cash Flows for the three months ended March 31, 1998
and 1997. In addition, it is Illinova's and IP's opinion that the accompanying
unaudited consolidated financial statements for IP reflect all adjustments
necessary to present fairly the Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997, the Consolidated Statements of Income for the three
months ended March 31, 1998 and 1997, and the Consolidated Statements of Cash
Flows for the three months ended March 31, 1998 and 1997. Due to seasonal and
other factors which are characteristic of electric and gas utility operations,
interim period results are not necessarily indicative of results to be expected
for the year.
The consolidated financial statements of Illinova include the accounts
of Illinova, IP, Illinova Generating Company (IGC), Illinova Insurance Company
(IIC), Illinova Energy Partners, Inc. (IEP), and Illinova Business Enterprises,
Inc. (IBE). IBE was incorporated in 1998. All significant intercompany balances
and transactions have been eliminated from the consolidated financial
statements. All non-utility operating transactions are included in the sections
titled "Diversified enterprises", "Interest expense", "Income taxes" and "Other
Income and Deductions" in Illinova's Consolidated Statements of Income. This
represents a format change to Illinova's Consolidated Statements of Income in
1997 during which 1997 amounts were reclassified to conform to the new 1998
presentation.
The consolidated financial statements of IP include the accounts of
Illinois Power Capital, L.P. and Illinois Power Financing I (IPFI). 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, Net" in IP's
Consolidated Statements of Income.
<PAGE>
REGULATORY AND LEGAL MATTERS
OPEN ACCESS AND COMPETITION
On December 16, 1997, Illinois Governor Edgar signed electric
deregulation legislation, An Act in Relation to the Competitive Provision of
Utility Services (P.A. 90-561). P.A. 90-561 guarantees IP's residential
customers a 15 percent decrease in base electric rates beginning August 1, 1998,
and an additional 5 percent decrease effective on May 1, 2002. The rate
decreases are expected to result in revenue reductions of approximately $40
million in 1998, approximately $80 million in each of the years 1999 through
2001 and approximately $100 million in 2002, based on current consumption.
Customers with demand greater than 4 MW at a single site will be free to choose
their electric generation suppliers ("direct access") starting in October 1999.
Customers with at least 10 sites which aggregate at least 9.5 MW in total demand
also will have direct access starting October 1999. Direct access for the
remaining non-residential customers will occur in two phases: customers
representing one-third of the remaining load in the non-residential class in
October 1999 and customers representing the entire remaining non-residential
load on December 31, 2000. Direct access will be available to all residential
customers in May 2002. IP remains obligated to serve all customers who continue
to take service from IP at tariff rates, and remains obligated to provide
delivery service to all at regulated rates. In 1999, rates for delivery services
will be established in proceedings mandated by the legislation.
Although the specified residential rate reductions and the introduction
of direct access will lead to lower electric service revenues, P.A. 90-561 is
designed to protect the financial integrity of electric utilities in three
principal ways:
1) Departing customers are obligated to pay transition charges, based on
the utility's lost revenue from that customer, adjusted to deduct: a)
delivery charges the utility will continue to receive from the
customer, and b) the market value of the freed-up energy net of a
mitigation factor, which is a percentage reduction of the transition
charge amount. The mitigation factor is designed to provide incentive
for management to continue cost reduction efforts and generate new
sources of revenue;
2) Utilities are provided the opportunity to lower their financing and
capital costs through the issuance of "securitized" bonds, also called
transitional funding instruments; and
3) Utilities are permitted to seek rate relief in the event that the
change in law leads to their return on equity falling below a
specified minimum based on a prescribed test. Utilities are also
subject to an "over-earnings" test which requires them, in effect, to
share with customers earnings in excess of specified levels.
The extent to which revenues are lowered will depend on a number of
factors including future market prices for wholesale and retail energy, and load
growth and demand levels in the current IP service territory. The impact on net
income will depend on, among other things, the amount of revenues earned and the
ongoing costs of doing business.
On March 18, 1998, the Company filed an application with the Illinois
Commerce Commission seeking approval for securitization financings in two or
more tranches up to a total of $1.728 billion. The staff of the Commission
believed the Company's presentation to be lacking in adequate support regarding
the impact on cost of capital. Because the securitization legislation imposes a
90 day time limit on the Commission to act, the Company elected on May 6, 1998
to withdraw its filing and work with the Commission staff to satisfy their
concerns. The Company expects to re-file its application in the near future.
<PAGE>
In January 1998, IP, in conjunction with eight other
transmission-owning entities, filed with the FERC for all approvals necessary to
create and implement the Midwest Independent Transmission System Operator, Inc.
(MISO) The goals of this joint undertaking are to: 1) put in place a tariff
allowing easy and nondiscriminatory access to transmission facilities in a
multi-state region, 2) enhance regional reliability and 3) establish an entity
that operates independently of any transmission owner(s) or other market
participants thus furthering competition in the wholesale generation market,
consistent with the objectives of the FERC's Order No. 888. Since January 1998,
two other transmission-owning entities joined the MISO. The parties have
requested that the FERC rule on the joint filing by no later than September 1,
1998.
ACCOUNTING MATTERS
Prior to the passage of P.A. 90-561, IP prepared its consolidated
financial statements in accordance with Statement of Financial Accounting
Standards (FAS) 71, "Accounting for the Effects of Certain Types of Regulation."
Reporting under FAS 71 allows companies whose service obligations and prices are
regulated to maintain on their balance sheets assets representing costs they
expect to recover from customers, through inclusion of such costs in their
future rates. In July 1997, the EITF concluded that application of FAS 71
accounting should be discontinued at the date of enactment of deregulation
legislation for business segments for which a plan of deregulation has been
established. The EITF further concluded that regulatory assets and liabilities
that originated in the portion of the business being deregulated should be
written off unless their recovery is specifically provided for through future
cash flows from the regulated portion of the business.
Because P.A. 90-561 provides for future market-based pricing of
electric generation services, IP discontinued application of FAS 71 for its
generating segment. IP evaluated its regulatory assets and liabilities
associated with its generation segment and determined that recovery of these
costs was not probable through rates charged to transmission and distribution
customers, the regulated portion of the business.
IP wrote off generation-related regulatory assets and liabilities of
approximately $195 million (net of income taxes) in December 1997. These net
assets related to previously incurred costs that were expected to be collected
through future revenues, including deferred costs for the Clinton Power Station
(Clinton), unamortized losses on reacquired debt, recoverable income taxes and
other generation-related regulatory assets. At March 31, 1998, IP's net
investment in generation facilities was $3.3 billion and was reflected in
"Utility Plant, at Original Cost" on IP's balance sheet.
In addition, IP evaluated its generation segment plant investments to
determine if they had been impaired as defined in FAS 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This
evaluation determined that future revenues were expected to be sufficient to
recover the costs of generation segment plant investments and as a result, no
plant write-downs were necessary. However, ultimate recovery depends on a number
of factors and variables including market conditions and IP's ability to operate
its generation assets efficiently.
<PAGE>
The provisions of P.A. 90-561 allow an acceleration in the rate at
which any utility-owned assets are expensed without regulatory approval provided
such charges are consistent with generally accepted accounting principles. Under
this legislation, up to an aggregate of $1.5 billion in additional expense for
the generation-related assets could be accelerated through the year 2008. The
amount of expense accelerated through the year 2008 is contingent on the changes
in revenue resulting from P.A. 90-561, cost mitigation efforts, fuel costs and
elimination of UFAC (Uniform Fuel Adjustment Clause), and changes in the cost of
capital resulting from the issuance of transitional funding instruments. Any
such reduction in the net book value of IP's generation-related assets would
help position IP to operate competitively and profitably in the changing
business environment. This accelerated charge would have a direct impact on
earnings but not on cash flows.
The Financial Accounting Standards Board (FASB) issued FAS 128,
"Earnings Per Share (EPS)" in February 1997, effective for financial statements
issued after December 15, 1997. FAS 128 establishes standards for computing and
presenting EPS and replaces the presentation of primary EPS and fully diluted
EPS with a presentation of basic EPS and diluted EPS, respectively.
The FASB issued FAS 130, "Reporting Comprehensive Income" in June 1997,
effective for fiscal years beginning after December 15, 1997. FAS 130
establishes standards for reporting and display of comprehensive income and its
components in a financial statement that is displayed with the same prominence
as other financial statements. Illinova and Illinois Power do not currently have
any components of comprehensive income in any period presented herein. Illinova
and Illinois Power will continue to analyze the disclosure requirements of FAS
130.
The FASB issued FAS 131, "Disclosures about Segments of an Enterprise and
Related Information" in June 1997, effective for periods beginning after
December 15, 1997. FAS 131 supersedes FAS 14, "Financial Reporting for Segments
of a Business Enterprise." FAS 131 establishes standards for the way public
business enterprises report financial and descriptive information about their
reportable operating segments in their financial statements. Generally,
financial information is required to be reported on the same basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. Illinova and Illinois Power continue to evaluate the
provisions of FAS 131 to determine the impact of the revised disclosure
requirements on its 1998 financial statements.
MANUFACTURED GAS PLANT SITES
IP's estimated liability for Manufactured Gas Plant (MGP) site
remediation is $63 million. This amount represents IP's current best estimate of
the cost that it will incur in remediation of the 24 MGP sites for which it is
responsible. Because of the unknown and unique characteristics at each site, IP
cannot presently determine its ultimate liability for remediation of the sites.
IP is currently recovering MGP site remediation costs through tariff
riders approved by the ICC. Accordingly, IP has recorded a regulatory asset on
its balance sheet totaling $63 million as of March 31, 1998. Management expects
that cleanup costs will be fully recovered from IP's transmission and
distribution customers.
In October 1995, to offset the burden imposed on its customers, IP
initiated litigation against a number of insurance carriers. As of February
1998, settlements or settlements in principle have been reached with all of the
carriers. The settlement proceeds recovered from the carriers will offset a
significant portion of the remediation costs and will be credited to customers
through the tariff rider mechanism which the ICC previously approved.
<PAGE>
PREFERRED STOCK VOTE
Illinois Power is seeking approval from preferred stockholders for an
amendment of the IP Articles of Incorporation to remove a restriction limiting
the amount of unsecured debt to not more than 20% of total capitalization
excluding unsecured debt. Preferred shareholders of record as of April 6, 1998
are entitled and solicited to vote on this matter at a special meeting of IP
common and preferred shareholders scheduled May 29, 1998.
TREASURY STOCK
Through March 31, 1998, IP has purchased a total of 9,428,645 shares of
its common stock from Illinova, all of which are held as treasury stock and are
deducted from common equity at the cost of the shares purchased.
No shares of IP common stock were purchased during the first quarter.
<PAGE>
ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains estimates, projections and other forward-looking
statements that involve risks and uncertainties. Actual results or outcomes
could differ materially from those provided in the forward-looking statements as
a result of such important factors as: the outcome of state and federal
regulatory proceedings affecting the restructuring of the electric and gas
utility industries; the impacts of new laws and regulations on Illinova and its
subsidiaries relating to restructuring, environmental, and other matters ; the
effects of increased competition on the utility businesses; risks of owning and
operating a nuclear facility; changes in prices and cost of fuel; factors
affecting non-utility investments, such as the risk of doing business in foreign
countries; construction and operation risks; and increases in financing costs.
Reference is made to the Notes to the Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations presented in Illinova's 1997 Annual Report to Shareholders (included
in the Proxy Statement), the Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
presented in IP's 1997 Annual Report to Shareholders (included in the
Information Statement), and Illinova's and IP's Form 10-K for the year ended
December 31, 1997.
ILLINOVA SUBSIDIARIES
IP, a subsidiary of Illinova, engages in the generation, transmission,
distribution and sale of electric energy and the distribution, transportation
and sale of natural gas in the State of Illinois. IP has preferred shares
outstanding but its common stock is wholly-owned by Illinova.
IGC is a wholly-owned independent power subsidiary of Illinova and
invests in energy supply projects throughout the world. IGC's strategy is to
invest in and develop "greenfield" power plants, acquire existing generation
facilities and provide power plant operations and maintenance services.
IEP is a wholly-owned subsidiary of Illinova. IEP develops and markets
energy-related services to the unregulated energy market throughout the United
States and engages in the brokering and marketing of electric power and gas.
IIC is a wholly-owned subsidiary of Illinova and was licensed by the
State of Vermont as a captive insurance company. The primary business of IIC is
to insure certain risks of Illinova and its subsidiaries.
IBE is a wholly-owned subsidiary of Illinova and was created to account
for miscellaneous business activities not regulated by the ICC or the Federal
Energy Regulatory Commission (FERC) and not falling within the business scope of
other Illinova subsidiaries.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES AND REQUIREMENTS
Cash flows from operations during the first three months of 1998
provided sufficient working capital to meet ongoing operating requirements, to
service existing common and IP preferred stock dividends and debt requirements
and all of IP's construction requirements. Additionally, Illinova expects 1998
cash flows (including external financings) will enable it to meet operating
requirements and continue to service IP's and Illinova's existing debt, IP's
preferred and Illinova's common stock dividends, IP's sinking fund requirements
and IP's and Illinova's anticipated construction requirements. IP periodically
repurchases shares of its common stock from Illinova to provide Illinova cash
for operations, in accordance with authority granted by the ICC. For more
information, see "Treasury Stock" of the "Notes to Consolidated Financial
Statements" on page 15 of this report.
IP's capital requirements for construction were approximately $48
million and $34 million during the three months ended March 31, 1998 and 1997,
respectively.
Illinova and IP currently have total lines of credit represented by
bank commitments of $150 million and $354 million, respectively. Both Illinova
and IP have adequate short- and intermediate-term bank borrowing capacity.
Currently, Illinova is reviewing additional financing alternatives to provide
cash for operating and investment purposes. Under its $300 million shelf
registration statement with the SEC, Illinova has remaining authority to issue
$160 million in debt securities. On January 28, 1998, Illinova issued $40
million of 6.46% medium-term notes due October 1, 2002 under the shelf
registration statement.
On February 26, 1998, IP issued a redemption notice for all outstanding
bonds of its 6.00% Pollution Control First Mortgage Bonds due 2007 ($18.7
million) and its 8.30% Pollution Control First Mortgage Bonds due 2017 ($33.8
million). Both series were called April 1, 1998. On March 6, 1998, IP issued
$18.7 million of 5.40% Pollution Control First Mortgage Bonds due 2028 and $33.8
million of 5.40% Pollution Control First Mortgage Bonds due 2028.
IP will hold a special meeting of shareholders on May 29, 1998 to vote
on an amendment to its Articles to remove a restriction limiting IP's ability to
issue unsecured debt. The amendment requires the separate class vote of
two-thirds of outstanding shares of preferred stock. See "Preferred Stock Vote"
in "Notes to Consolidated Financial Statements" page 15.
Presently, IP's mortgage bonds are rated Baa1 by Moody's, BBB+ by Duff
& Phelps, and BBB by Standard & Poor's. IP's preferred stock is rated Baa2 by
Moody's and BBB- by both Duff & Phelps and Standard & Poor's. Illinova's senior
and medium-term notes have a rating of Baa3 and BBB- from Moody's and Standard &
Poor's, respectively.
ACCOUNTING MATTERS
For further information on accounting issues, see "Accounting Matters"
under "Regulatory and Legal Matters" of the "Notes to Consolidated Financial
Statements" on pages 13-14 of this report.
<PAGE>
CLINTON POWER STATION
In September 1996, a leak in a recirculation pump seal caused IP
operations personnel to shut down Clinton. Clinton has not resumed operation.
In January 1997 and again in June 1997, the Nuclear Regulatory
Commission (NRC) named Clinton among plants having a trend of declining
performance. In June 1997, IP committed to conduct an Integrated Safety
Assessment (ISA) to thoroughly assess Clinton's performance. The ISA was
conducted by a team of 30 individuals with extensive nuclear experience and no
substantial previous involvement at Clinton. Their report concluded that the
underlying reasons for the performance problems at Clinton were ineffective
leadership throughout the organization in providing standards of excellence,
complacency throughout the organization, barrier weaknesses and weaknesses in
teamwork. In late October, a team commissioned by the NRC performed an
evaluation to validate the ISA results. In December, this team concluded that
the findings of the ISA accurately characterized Clinton's performance
deficiencies and their causes.
On January 5, 1998, IP and PECO Energy Company (PECO) announced an
agreement under which PECO will provide management services for Clinton.
Although a PECO team will help manage the plant, IP will continue to maintain
the operating license for Clinton and retain ultimate oversight of the plant.
PECO employees have assumed senior positions at Clinton, but the plant will
remain primarily staffed by IP employees. IP made this decision based on a
belief that bringing in PECO's experienced management team would be the most
efficient way to get Clinton back on line and operating at a superior level as
quickly as possible.
On January 21, 1998, the NRC placed Clinton on its Watch List of
nuclear plants that require additional regulatory oversight because of declining
performance. Twice a year the NRC evaluates the performance of nuclear power
plants in the United States and identifies those which require additional
regulatory oversight. Once placed on the Watch List, a plant must demonstrate
consistent improved performance before it is removed from the list. The NRC will
monitor Clinton more closely than plants not on the Watch List. This may include
increased inspections, additional required documentation, NRC-required approval
of processes and procedures, and higher-level NRC oversight.
On February 19, 1998, IP filed Clinton's Summary Plan for Excellence
with the NRC. This recovery/restart program to get Clinton back online is now
going through a formal NRC review process.
The NRC has advised IP that it must submit a written report to the NRC
at least two weeks prior to restarting Clinton, giving the agency reasonable
assurance that IP's actions to correct recurring weaknesses in the corrective
action program have been effective. After the report is submitted, the NRC staff
plans to meet with IP's management to discuss the plant's readiness for restart.
Although no specific restart date has been established, Clinton is
expected to return to operation by the end of 1998. IP currently expects
Clinton's 1998 operating and maintenance expenses to be at least $20 million
more than Clinton's 1997 expenses.
The prolonged outage at Clinton is having an adverse effect on
Illinova's and IP's financial condition, through higher operating and
maintenance and capital costs, lost opportunities to sell energy, and
replacement power costs. The magnitude of these costs and lost opportunities is
unknown because of uncertainty regarding the timing of Clinton's return to
service, the ultimate cost of restart and uncertain market conditions.
Previously disclosed earnings expectations are subject to the effects of these
uncertainties and changes.
<PAGE>
REGULATORY MATTERS
SOYLAND PCA
The FERC approved an amended Power Coordination Agreement (PCA) between
Soyland and IP in July 1997. Under the amended PCA, Soyland is allowed to prepay
an Elected Capacity Reduction Fee associated with a unilateral reduction in its
base capacity charge under the PCA. In December 1997, Soyland signed a letter of
intent to pay in advance the remainder of its base capacity charges in the PCA.
The fee of approximately $70 million is contingent upon Soyland obtaining the
necessary financing and regulatory approvals, expected during the second quarter
of 1998. During the first quarter of 1998, IP received $30 million from Soyland.
The prepayment has been deferred and is being recognized as interchange revenue
over the initial term of the PCA which is from September 1, 1996 through August
31, 2006.
UNIFORM FUEL ADJUSTMENT CLAUSE
Previously, IP's rate schedules contained provisions for passing
through to its electric customers increases or decreases in the cost of energy
provided to its native load customers under the UFAC. Such costs included fuel
and allowable fuel transportation costs, emission allowance costs, DOE spent
fuel disposal fees and costs of power purchased to serve native load. However,
on March 6, 1998, IP made the ICC filing required for elimination of the UFAC.
This established a new base fuel cost recoverable in IP's electric tariffs
effective on the date of the filing. As provided in P.A. 90-561, the new base
fuel cost is 1.287 cents per kwh, which is equal to 91 percent of IP's average
prudent and allowable fuel and purchased power supply costs in the two most
recent years for which the ICC has approved the level of recovery. Every year
UFAC cost recoveries are audited by the ICC in a reconciliation proceeding in
which they may be adjusted upward for actual costs not recovered, or downward
through a disallowance of costs incurred. By opting out of the UFAC, IP
eliminates exposure for potential disallowed fuel and purchased power costs for
periods after December 31, 1996, as those years will no longer be subject to the
ICC's annual reconciliation proceeding. This change will prevent IP from
automatically passing through increases in cost and will expose IP to the risks
and opportunities of price volatility in the marketplace. Whether electric
energy costs will continue to be recovered in revenues from customers will
depend on a number of factors, including the number of customers served, demand
for electric service, and changes in fuel cost components. These variables may
be influenced, in turn, by market conditions, availability of generating
capacity, future regulatory proceedings, and environmental protection costs,
among other things.
DEREGULATION RULEMAKINGS AND TARIFFS
As a result of P.A. 90-561, ICC rulemakings are underway covering
issues such as affiliated interests and reliability. In February 1998, these two
ICC rulemaking processes began with the filing of initial written testimony by
utilities and other groups. Rulemaking processes for other issues are in various
stages.
<PAGE>
Affiliate Interest Rulemaking - The ICC is considering what
restrictions, if any, should be placed on Illinois utilities and their
affiliated companies. Testimony has been filed, cross-examination heard by the
parties involved, and the record closed, with legal briefs filed in April. The
hearing examiner's proposed order was issued on May 7, 1998. Emergency rules
issued by the ICC are expected by June 15, 1998, and will be in effect for 150
days. The Joint Committee on Administrative Rules (a legislative committee
focusing on proper format and due process) must issue final rules by December
1998.
Reliability Rulemaking - Provisions of P.A. 90-561 mandate that rules
be in place to address transmission and distribution reliability during the
transition to a deregulated industry. The ICC is scheduled to have preliminary
rules established by June 15, 1998, with final rules in place by November 15,
1998.
OPEN ACCESS AND COMPETITION
See "Open Access and Competition" under "Regulatory and Legal Matters"
of the "Notes to Consolidated Financial Statements" on pages 12-13 of this
report for additional information.
YEAR 2000 DATA PROCESSING
In November 1996, Illinova deployed a project team to coordinate the
identification, evaluation, and implementation of changes to computer systems
and applications necessary to achieve a year 2000 date conversion with no effect
on customers or disruption to business operations.
These actions are necessary to ensure that systems and applications
will recognize and process coding for the year 2000 and beyond. Major areas of
potential business impact have been identified and initial conversion efforts
are underway. Illinova also is communicating with third parties with whom it
does business to ensure continued business operations. The cost of achieving
year 2000 compliance is estimated to be at least $18 million through 1999.
Contingency plans for operating without year 2000 compliance have not been
developed. Such activity will depend on assessment of progress. Project
completion is planned for the fourth quarter of 1999.
ENVIRONMENTAL MATTERS
GAS MANUFACTURING SITES
See "Manufactured Gas Plant Sites" under "Regulatory and Legal Matters"
of the "Notes to Consolidated Financial Statements" on pages 14 and 15 of this
report.
NITROGEN OXIDE
Regulators are continuing to examine potential approaches for
compliance with current federal ozone air quality standards. On November 7,
1997, the U.S. EPA proposed air pollution rules which would require substantial
reductions of NOx emissions in Illinois and 21 other states. The proposal would
require the installation of NOx controls by September 2002. This proposal is
expected to be finalized by November 1998 with Illinois utility reduction
requirements specified in 1999. Preliminary cost estimates to comply with the
proposed NOx limitations are $130 to $150 million beyond what is already needed
to comply with the NOx requirements of Phase II of the Acid Rain Program. The
legality of this proposal along with its technical feasibility is expected to be
challenged by a number of utilities and utility groups, including IP.
<PAGE>
Illinois Governor Jim Edgar joined nine Midwest governors in sending a
letter March 9, 1998, to President Clinton expressing concern with the EPA's
proposed plan to reduce NOx emissions. A similar letter signed by the Illinois
Congressional delegation also went to the President on March 9. The letter
commits those states to developing an alternative reduction proposal by August
1, 1998. Instead of an overly expensive, one-size-fits-all federal approach, the
states seek guidelines for efficient ozone reductions that meet individual state
needs.
GLOBAL WARMING
On December 11, 1997, international negotiations to reduce greenhouse
gas emissions concluded with the adoption of the Kyoto Protocol. This Protocol
requires the United States to reduce greenhouse gas emissions to 7% below 1990
levels during the years 2008 through 2012 and to make further reductions
thereafter. This Protocol must be ratified by the United States Senate. United
States Senate Resolution 98 (passed 95-0) indicates the Senate would not ratify
an agreement that fails to involve all countries or would damage the United
States economy. Ratification will be a major political issue since the Protocol
does not contain key elements that Senate Resolution 98 said would be necessary
for ratification. It is anticipated that ratification will not occur in 1998.
IP will face major changes in how it generates electricity if the Kyoto
Protocol is ratified, or if the Protocol's reduction goals are incorporated into
other environmental regulations. IP would have to repower some generating units
and change from coal to natural gas in other units to reduce greenhouse gas
emissions. IP estimates that compliance with these proposed regulations may
require significant capital outlays and annual operating expenses which could
have a material adverse impact on Illinova and IP.
POWER SUPPLY AND RELIABILITY
Electricity may be in short supply throughout Illinois and Wisconsin
this summer because of an unusually high number of plant outages in this region.
IP is attempting to secure generation and transmission capacity in order to
guard against disruptions in service. If the weather is abnormally hot or if
IP's major generating units were to require maintenance and/or experience delay
in returning to service, IP may be unable to meet demand because of the limited
availability of power in the region and limited ability to import power. IP has
taken additional steps to avoid potential shortages, including inspecting and
upgrading transmission lines and equipment and readying emergency procedures.
Expenses will be incurred in an effort to adequately prepare for the summer
situation which could have a material adverse impact on Illinova and IP.
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Electric Operations - Electric revenues for the first quarter of 1998
decreased $5.6 million compared to the first quarter of 1997 due largely to
decreased sales to residential and commercial customers. Electric interchange
revenues increased $69.7 million primarily due to increased activity on the
interchange market. Power purchased increased $61.3 million due largely to
increased interchange activity. During the quarter, Fuel for electric plants
increased $10.4 million due primarily to an increase in unrecoverable fuel costs
largely due to the elimination of the Uniform Fuel Adjustment Clause. For more
information, see "Uniform Fuel Cost Adjustment" under "Regulatory Matters" of
the "Management's Discussion and Analysis" on page 19 of this report. These
factors combined to decrease electric margin $7.6 million for the quarter.
Kilowatt hour (kwh) sales to ultimate consumers decreased 3.9% for the
quarter due to decreases of 9.5% and 5.9% in the residential and the commercial
markets, respectively. Heating degree days decreased approximately 15% from 1997
which contributed to the decrease in sales to the temperature-sensitive markets.
For the first quarters of 1998 and 1997, Clinton was unavailable due to
the continued outage which began September 6, 1996. The equivalent availability
for IP's coal-fired plants was 79.5% and 70.9% for the three months ended March
31, 1998 and 1997, respectively. The lower equivalent availability for the
fossil plants in 1997 was primarily due to the fire and subsequent shut-down of
the Wood River fossil station in December 1996.
Gas Operations - For the quarter, gas margin decreased $13.7 million.
Gas revenues decreased $47.4 million reflecting an 18% decrease in therm sales
(excluding transport) caused by the mild winter weather. Gas purchased costs
decreased $33.7 million due to the lower consumption.
Operation and Maintenance Expenses - The current quarter increase of
$29.7 million is primarily due to higher operating and maintenance expenses
associated with the Clinton outage. For more information, see "Clinton Power
Station" of the "Management's Discussion and Analysis" on pages 17-18 of this
report.
Diversified enterprises - Due primarily to decreased sales activity at
IEP, diversified enterprise revenues decreased $11.7 million for the first
quarter of 1998, which was offset by a decrease in diversified enterprise
expenses of $13.7 million.
Earnings per Common Share - The earnings per common share for Illinova
during the first quarter of 1998 and 1997 resulted from the interaction of all
of the factors discussed herein as well as fewer shares of common stock
outstanding.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings
See "Notes to Consolidated Financial Statements" in Part I for a
discussion of certain legal proceedings related to manufactured gas plant sites.
Currently, commercial reprocessing of spent nuclear fuel is not allowed
in the U.S. The Nuclear Waste Policy Act of 1982 (NWPA) was enacted to establish
a government policy with respect to disposal of spent nuclear fuel and
high-level radioactive waste. On June 20, 1994, IP, along with other utilities
and state utility commissions, 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 NWPA. The
utilities asked the Court to confirm the DOE's commitment and to order the DOE
to develop a compliance program with appropriate deadlines. The utilities also
asked for relief from the ongoing funding requirements or to have an escrow
account established for future funds paid to DOE. Subsequently, the petition was
amended to seek, in addition, relief in the form of specific performance.
A three-judge panel ruled in July 1996 that the DOE's obligation to
take spent fuel, by the January 1998 date specified in the NWPA, is binding and
unconditional. The DOE notified utilities in December 1996 that it may not be
able to meet the 1998 deadline, and solicited utility suggestions on how to
accommodate the potential delay. In January 1997, petitions were filed in the
D.C. Circuit Court of Appeals by IP and other utilities and state utility
commissions, seeking further enforcement of DOE's obligation. In response, the
Court has reaffirmed its ruling that the DOE obligation is unconditional, but
has not granted injunctive relief. This means that the Court has found the DOE
in breach of DOE's obligation but has not literally ordered the DOE to perform.
On May 5, 1998, the court issued another order denying all motions before it on
the basis that the various requests for relief were either beyond the scope of
that court's jurisdiction or premature. This reaffirmed its earlier ruling that
the DOE has an unconditional statutory obligation to perform, and offering
relief if contract remedies imposed by a different court are inconsistent with
this statutory duty.
IP has on-site storage capacity that will accommodate its spent fuel
storage needs until the year 2007, based on current operating levels. If by that
date the DOE has not complied with its statutory obligation to dispose of spent
fuel, and IP has continued to operate the plant, 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 is currently
an equity partner with seven other utilities in an effort to develop a private
temporary repository. Attempts to reach agreement with the Mescalaro Apache
Tribe of New Mexico ended in early 1996; however, the group signed a lease in
December 1996 with the Goshute Tribe to use land on its Utah reservation. A
spent fuel storage license was filed with the Nuclear Regulatory Commission
(NRC) in 1997, initiating a process which will take the NRC up to three years to
complete. Continued participation in the partnership will depend on the
technological and economic viability of the project. Safe, dry, on-site storage
is technologically feasible, but is subject to licensing and local permitting
requirements, for which there may be effective opposition.
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders
See "Notes to Consolidated Financial Statements" for a discussion of proxy
action and vote of preferred shareholders.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibits filed with this 10-Q are listed on the Exhibit Index.
(b) Reports on Form 8-K since December 31, 1997:
Report filed on Form 8-K on January 8, 1998
Other Events: IP selects PECO Nuclear to manage
Clinton Power Station. Impacts of
Illinois P.A. 90-561 and returning
Clinton to operation will result in a
fourth quarter 1997 charge of $260
million (net of income taxes).
Report filed on Form 8-K on January 21, 1998
Other Events: The Nuclear Regulatory Commission
places IP's Clinton Power Station on
its Watch List.
Report filed on Form 8-K on January 21, 1998
Other Events: Illinova offers Medium-Term Notes under
its shelf Registration Statement
on Form S-3.
Financial
Statements,
Pro Forma
Financial
Information
and Exhibits: Exhibits
Report filed on Form 8-K on February 13, 1998
Other Events: Illinova releases 1997 earnings and
discloses that it will not take a
previously announced $40 million charge
(net of income taxes) in 1997
for returning Clinton Power
Station to operation.
Report filed on Form 8-K on April 14, 1998
Other Events: Illinova releases 1998 first quarter
earnings and provides earnings outlook
for 1998.
Report filed on Form 8-K on May 6, 1998
Other Events: Illinois Power withdraws its
March 18, 1998 application seeking
ICC authorization for securitization
funding.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ILLINOVA CORPORATION
(Registrant)
By /s/ Leah Manning Stetzner
-------------------------
Leah Manning Stetzner,
General Counsel and
Corporate Secretary
on behalf of
Illinova Corporation
Date: May 13, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ILLINOIS POWER COMPANY
(Registrant)
By /s/ Leah Manning Stetzner
---------------------------
Leah Manning Stetzner,
Vice President, General
Counsel, and Corporate
Secretary on behalf of
Illinois Power Company
Date: May 13, 1998
<PAGE>
EXHIBIT INDEX
PAGE NO. WITHIN
SEQUENTIAL NUMBERING
EXHIBIT DESCRIPTION SYSTEM
27 Financial Data Schedule UT
(filed herewith)
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet, income statement, and cash flow statement of Illinois Power
Company and is qualified in its entirety by reference to the balance sheet,
imcome statement, and cash flow statement of Illinois Power Company.
</LEGEND>
<CIK> 0000049816
<NAME> Illinois Power Company
<SUBSIDIARY>
<NUMBER> 0
<NAME> 0
<MULTIPLIER> 1,000,000
<CURRENCY> Default
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4682
<OTHER-PROPERTY-AND-INVEST> 6
<TOTAL-CURRENT-ASSETS> 451
<TOTAL-DEFERRED-CHARGES> 202
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5341
<COMMON> 1210
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 115
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1325
197
57
<LONG-TERM-DEBT-NET> 1562
<SHORT-TERM-NOTES> 106
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 194
<LONG-TERM-DEBT-CURRENT-PORT> 69
0
<CAPITAL-LEASE-OBLIGATIONS> 99
<LEASES-CURRENT> 29
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1703
<TOT-CAPITALIZATION-AND-LIAB> 5341
<GROSS-OPERATING-REVENUE> 490
<INCOME-TAX-EXPENSE> 11
<OTHER-OPERATING-EXPENSES> 417
<TOTAL-OPERATING-EXPENSES> 428
<OPERATING-INCOME-LOSS> 62
<OTHER-INCOME-NET> 1
<INCOME-BEFORE-INTEREST-EXPEN> 62
<TOTAL-INTEREST-EXPENSE> 32
<NET-INCOME> 30
5
<EARNINGS-AVAILABLE-FOR-COMM> 26
<COMMON-STOCK-DIVIDENDS> 22
<TOTAL-INTEREST-ON-BONDS> 27
<CASH-FLOW-OPERATIONS> 140
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
