UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to __________
Commission 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 62521
(217) 424-6600
1-3004 Illinois Power Company 37-0344645
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62521
(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, 69,919,287
shares outstanding at April 30, 1999
Illinois Power Company Common stock, no par value, 62,892,213
shares outstanding held by Illinova
Corporation at April 30, 1999
<PAGE>
ILLINOVA CORPORATION
ILLINOIS POWER COMPANY
This combined Form 10-Q/A 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/A FOR THE QUARTER ENDED March 31, 1999
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 Comprehensive Income 6
Consolidated Statements of Cash Flows 7
Illinois Power Company
Consolidated Balance Sheets 8 - 9
Consolidated Statements of Income 10
Consolidated Statements of Comprehensive Income 11
Consolidated Statements of Cash Flows 12
Notes to Consolidated Financial Statements of
Illinova Corporation and
Illinois Power Company 13 - 26
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations for Illinova Corporation
and Illinois Power Company 27 - 44
Item 3: Quantitative and Qualitative Disclosures
About Market Risk 45 - 47
Part II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K and 8-K/A 48
Signatures 49 - 50
Exhibit Index 51
2
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PART I. FINANCIAL INFORMATION
ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS AS RESTATED
(See accompanying Notes to Consolidated Financial Statements)
MARCH 31, DECEMBER 31,
1999 1998
ASSETS (Unaudited) (Audited)
(Millions of Dollars)
Utility Plant
Electric (includes construction work
in progress of $139.4 million and
$177.7 million, respectively) $5,496.0 $5,481.8
Gas (includes construction work
in progress of $14.8 million and
$15.3 million, respectively) 690.5 686.9
--------- --------
6,186.5 6,168.7
Less - Accumulated depreciation 1,736.6 1,713.7
--------- --------
4,449.9 4,455.0
Nuclear fuel under capital lease 20.3 20.3
--------- --------
Total utility plant 4,470.2 4,475.3
--------- --------
Investments and Other Assets 256.8 246.9
--------- --------
Current Assets
Cash and cash equivalents 65.7 518.1
Accounts receivable (less allowance
for doubtful accounts of $5.5 million)
Service 116.6 105.9
Other 91.4 116.1
Accrued unbilled revenue 64.4 82.6
Materials and supplies, at average cost 80.2 90.8
Assets from commodity price risk
management activities 58.5 51.5
Prepayments and other 61.7 51.5
--------- --------
Total current assets 538.5 1,016.5
--------- --------
Deferred Charges
Transition period cost recovery 457.3 457.3
Other 347.0 279.6
--------- --------
Total deferred charges 804.3 736.9
--------- --------
$6,069.8 $6,475.6
========= ========
3
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ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS AS RESTATED
(See accompanying Notes to Consolidated Financial Statements)
MARCH 31, DECEMBER 31,
1999 1998
CAPITAL AND LIABILITIES (Unaudited) (Audited)
(Millions of Dollars)
Capitalization
Common stock -
No par value, 200,000,000 shares authorized;
75,681,937 shares issued, stated at $1,123.3 $1,123.2
Less - Deferred compensation - ESOP 5.3 6.8
Retained deficit - accumulated since 1/1/99 (3.4) -
Accumulated other comprehensive income 0.2 -
Less - Capital stock expense 7.3 7.3
Less - 5,762,650 shares of common stock
in treasury, at cost 138.7 138.7
-------- --------
Total common stock equity 968.8 970.4
Preferred stock of subsidiary 52.9 57.1
Company obligated mandatorily redeemable
preferred stock of subsidiary 194.5 199.0
Long-term debt 175.7 176.1
Long-term debt of subsidiary 2,078.7 2,158.5
-------- --------
Total capitalization 3,470.6 3,561.1
-------- --------
Current Liabilities
Accounts payable 216.4 256.5
Notes payable 263.5 147.6
Long-term debt and lease obligations
of subsidiary maturing within one year 182.0 506.6
Liabilities from commodity price
risk management activities 105.2 99.8
Other 170.6 203.8
-------- --------
Total current liabilities 937.7 1,214.3
-------- --------
Deferred Credits
Accumulated deferred income taxes 846.0 834.8
Accumulated deferred investment tax credits 39.2 39.6
Decommissioning liability 574.2 567.4
Other 202.1 258.4
-------- --------
Total deferred credits 1,661.5 1,700.2
-------- --------
$6,069.8 $6,475.6
======== ========
4
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ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1999 1998
(Unaudited)
(Millions except per share)
Operating Revenues:
Electric $ 255.2 $276.6
Electric interchange 94.0 96.3
Gas 123.1 116.6
Diversified enterprises 76.1 85.9
---------- ----------
Total 548.4 575.4
---------- ----------
Operating Expenses:
Fuel for electric plants 51.4 55.7
Power purchased 51.7 97.1
Gas purchased for resale 72.5 66.0
Diversified enterprises 81.5 94.7
Other operating expenses 110.4 79.8
Maintenance 41.3 29.0
Depreciation & amortization 44.5 50.7
Amortization of regulatory asset 1.5 -
General taxes 29.9 38.7
---------- ----------
Total 484.7 511.7
---------- ----------
Operating Income 63.7 63.7
---------- ----------
Other Income and Deductions:
Miscellaneous-net 10.9 (1.5)
Equity earnings in affiliates 0.5 5.5
---------- ----------
Total 11.4 4.0
---------- ----------
Income Before Interest
Charges and Income Taxes 75.1 67.7
---------- ----------
Interest Charges:
Interest expense 43.1 36.6
Allowance for borrowed funds
used during construction (1.2) (1.1)
Preferred dividend
requirements of subsidiary 5.0 4.9
---------- ----------
Total 46.9 40.4
---------- ----------
Income Before Income Taxes 28.2 27.3
---------- ----------
Income Taxes 11.3 4.3
---------- ----------
Net Income 16.9 23.0
Carrying amount over
consideration paid for redeemed
preferred stock of subsidiary 0.8 -
---------- ----------
Net Income Applicable to
Common Stock $17.7 $23.0
========== ==========
Earnings per common share (basic
and diluted) $0.25 $0.32
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 69,919,287 71,701,253
5
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ILLINOVA
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1999 1998
(Unaudited)
(Millions of Dollars)
Net Income Applicable to Common Stock $17.7 $23.0
----- -----
Other Comprehensive Income
Foreign currency translation adjustments (0.1) -
Unrealized gains on securities 0.5 -
----- -----
Other comprehensive income, before tax 0.4 -
Income taxes on other comprehensive income (0.2) -
----- -----
Other comprehensive income, net of tax 0.2 -
----- -----
Comprehensive Income $17.9 $23.0
===== =====
6
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ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1999 1998
(Unaudited)
(Millions of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $16.9 $23.0
Items not requiring cash, net 54.2 44.4
Changes in assets and liabilities (129.4) 62.0
------- -----
Net cash provided (used) by operating activities (58.3) 129.4
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (37.1) (47.8)
Other investing activities (17.4) (8.5)
------ ------
Net cash used in investing activities (54.5) (56.3)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends on common stock (21.7) (22.2)
Reissuance of common stock - 0.7
Redemptions -
Short-term debt (123.4) (115.6)
Long-term debt of subsidiary (345.8) -
Preferred stock of subsidiary (8.6) -
Issuances -
Short-term debt 239.3 8.9
Long-term debt - 92.4
Other financing activities (79.4) 0.3
------- ------
Net cash used in financing activities (339.6) (35.5)
------- ------
NET CHANGE IN CASH AND CASH EQUIVALENTS (452.4) 37.6
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 518.1 33.0
------- ------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $65.7 $70.6
======= ======
7
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ILLINOIS POWER COMPANY
CONSOLIDATED BALANCE SHEETS AS RESTATED
(See accompanying Notes to Consolidated Financial Statements)
MARCH 31, DECEMBER 31,
1999 1998
(Unaudited) (Audited)
(Millions of Dollars)
ASSETS
Utility Plant
Electric (includes construction work
in progress of $139.4 million and
$177.7 million, respectively) $5,496.0 $5,481.8
Gas (includes construction work
in progress of $14.8 million and
$15.3 million, respectively) 690.5 686.9
-------- --------
6,186.5 6,168.7
Less - Accumulated depreciation 1,736.6 1,713.7
-------- --------
4,449.9 4,455.0
Nuclear fuel under capital lease 20.3 20.3
-------- --------
Total utility plant 4,470.2 4,475.3
-------- --------
Investments and Other Assets 3.2 2.6
-------- --------
Current Assets
Cash and cash equivalents 49.3 504.5
Accounts receivable (less allowance
for doubtful accounts of $5.5 million)
Service 116.6 105.9
Other 29.2 32.5
Accrued unbilled revenue 64.4 82.6
Materials and supplies, at average cost 79.0 90.4
Assets from commodity price risk
management activities 33.9 26.0
Prepayments and other 49.7 42.8
-------- --------
Total current assets 422.1 884.7
-------- --------
Deferred Charges
Transition period cost recovery 457.3 457.3
Other 350.5 284.2
-------- --------
Total deferred charges 807.8 741.5
-------- --------
$5,703.3 $6,104.1
======== ========
8
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ILLINOIS POWER COMPANY
CONSOLIDATED BALANCE SHEETS AS RESTATED
(See accompanying Notes to Consolidated Financial Statements)
MARCH 31, DECEMBER 31,
1999 1998
(Unaudited) (Audited)
(Millions of Dollars)
CAPITAL AND LIABILITIES
Capitalization
Common stock -
No par value, 100,000,000 shares
authorized; 75,643,937 shares issued,
stated at $1,186.0 $1,185.9
Retained earnings - accumulated since 1/1/99 19.4 -
Accumulated other comprehensive income 0.2 -
Less - Capital stock expense 7.3 7.3
Less - 12,751,724 shares of
common stock in treasury, at cost 286.4 286.4
-------- --------
Total common stock equity 911.9 892.2
Preferred stock 52.9 57.1
Company obligated mandatorily
redeemable preferred stock 194.5 199.0
Long-term debt 2,078.7 2,158.5
-------- --------
Total capitalization 3,238.0 3,306.8
-------- --------
Current Liabilities
Accounts payable 228.7 216.2
Notes payable 197.5 147.6
Long-term debt and lease obligations
maturing within one year 182.0 506.6
Liabilities from commodity price
risk management activities 71.0 61.6
Other 108.9 150.5
-------- --------
Total current liabilities 788.1 1,082.5
-------- --------
Deferred Credits
Accumulated deferred income taxes 861.7 849.5
Accumulated deferred investment tax credits 39.2 39.6
Decommissioning liability 574.2 567.4
Other 202.1 258.3
-------- --------
Total deferred credits 1,677.2 1,714.8
-------- --------
$5,703.3 $6,104.1
======== ========
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ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1999 1998
(Unaudited)
(Millions of Dollars)
Operating Revenues:
Electric $255.2 $276.6
Electric interchange 94.0 96.3
Gas 123.1 116.6
------ ------
Total 472.3 489.5
------ ------
Operating Expenses and Taxes:
Fuel for electric plants 51.4 55.7
Power purchased 51.7 97.1
Gas purchased for resale 72.5 66.0
Other operating expenses 110.4 79.8
Maintenance 41.3 29.0
Depreciation & amortization 44.5 50.7
Amortization of regulatory asset 1.5 -
General taxes 29.9 38.7
Income taxes 13.7 10.7
------ ------
Total 416.9 427.7
------ ------
Operating Income 55.4 61.8
------ ------
Other Income and Deductions, Net 6.2 1.6
------ ------
Income Before Interest Charges 61.6 63.4
------ ------
Interest Charges and Other:
Interest expense 39.8 34.1
Allowance for borrowed funds
used during construction (1.2) (1.1)
------ ------
Total 38.6 33.0
------ ------
Net Income 23.0 30.4
Less-Preferred dividend
requirements 5.0 4.9
Plus - Carrying amount over
consideration paid for
redeemed preferred stock 0.8 -
------ ------
Net Income Applicable to
Common Stock $18.8 $25.5
====== ======
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ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1999 1998
(Unaudited)
(Millions of Dollars)
Net Income Applicable to Common Stock $18.8 $25.5
----- -----
Other Comprehensive Income
Unrealized gains on securities 0.4 -
Income taxes on other comprehensive income (0.2) -
----- -----
Other comprehensive income, net of tax 0.2 -
----- -----
Comprehensive Income $19.0 $25.5
===== =====
11
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ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED
MARCH 31,
1999 1998
(Unaudited)
(Millions of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $22.9 $30.4
Items not requiring cash, net 55.5 47.4
Changes in assets and liabilities (105.6) 61.7
------- -----
Net cash provided (used) by operating activities (27.2) 139.5
------- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (37.1) (47.8)
Other investing activities (2.7) 0.6
------- ------
Net cash used in investing activities (39.8) (47.2)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends on preferred and common stock (4.3) (27.2)
Redemptions -
Short-term debt (123.4) (77.1)
Long-term debt (345.8) -
Preferred stock (8.6) -
Issuances -
Short-term debt 173.3 -
Long-term debt - 52.4
Other financing activities (79.4) -
------- ------
Net cash used in financing activities (388.2) (51.9)
------- ------
NET CHANGE IN CASH AND CASH EQUIVALENTS (455.2) 40.4
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 504.5 17.8
------- ------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $49.3 $58.2
======= ======
12
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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
1998 Annual Report to Shareholders, (included in the Proxy Statement), the
consolidated financial statements and the accompanying notes in IP's 1998 Annual
Report to Shareholders (included in the Information Statement), Illinova's and
IP's 1998 Form 10-K filings to the SEC, and Illinova's and IP's 1998 Form 8-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, 1999,
and audited December 31, 1998, consolidated financial statements for Illinova
reflect all adjustments necessary to present fairly the Consolidated Balance
Sheets as of March 31, 1999, and December 31, 1998, the Consolidated Statements
of Income for the three months ended March 31, 1999 and 1998, and the
Consolidated Statements of Cash Flows for the three months ended March 31, 1999
and 1998. In addition, it is Illinova's and IP's opinion that the accompanying
unaudited March 31, 1999, and audited December 31, 1998, consolidated financial
statements for IP reflect all adjustments necessary to present fairly the
Consolidated Balance Sheets as of March 31, 1999, and December 31, 1998, the
Consolidated Statements of Income for the three months ended March 31, 1999 and
1998, and the Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998. 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). All significant intercompany balances and transactions have been
eliminated from the consolidated financial statements. All transactions for
Illinova's unregulated subsidiaries are included in the sections titled
"Diversified Enterprises," "Interest Charges," "Income Taxes" and "Other Income
and Deductions" in Illinova's Consolidated Statements of Income.
The consolidated financial statements of IP include the accounts of
Illinois Power Capital, L.P., Illinois Power Financing I (IPFI), Illinois Power
Securitization Limited Liability Company, and Illinois Power Special Purpose
Trust (IPSPT). All significant intercompany balances and transactions have been
13
<PAGE>
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.
REGULATORY AND LEGAL MATTERS
OPEN ACCESS AND COMPETITION
The Illinois Customer Choice and Rate Relief Act of 1997, P.A. 90-561,
Illinois electric utility restructuring legislation, was enacted in December
1997. P.A. 90-561 gives IP's residential customers a 15 percent decrease in base
electric rates beginning August 1, 1998, and an additional 5 percent decrease
effective May 1, 2002. The rate decreases result in revenue reductions of
approximately $35 million in 1998, and expected revenue reductions of
approximately $70 million in each of the years 1999 through 2001, approximately
$90 million in 2002, and approximately $100 million in 2003, based on current
consumption.
Under P.A. 90-561, customers with demand greater than 4 MW at a single
site and customers with at least 10 sites which aggregate at least 9.5 MW in
total demand will be free to choose their electric generation suppliers ("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. Rates for delivery services for non-residential customers will
be established in 1999, in proceedings mandated by P.A. 90-561. The transition
charges departing customers must pay to IP are not designed to hold IP
completely harmless from resulting revenue loss because of the mitigation factor
described below. IP will be able to estimate the revenue impact of customer
choice more accurately when the various components of the transition charges
calculation have been established.
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. The transition charges are
applicable through 2006 and can be extended two additional years by the
Illinois Commerce Commission (ICC). The transition charges are calculated
by subtracting from a customer's fully bundled rate an amount equal to: a)
delivery charges the utility will continue to receive from the customer, b)
the market value of the freed-up energy, and c) a mitigation factor, which
is the higher of a fixed rate per kwh or a percentage of the customer's
bundled base rate. The mitigation factor increases during the transition
period and is designed to provide incentive for management to continue cost
reduction efforts and generate new sources of revenue;
14
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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 affected by P.A. 90-561 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,
and success in marketing to customers outside IP's service territory. The impact
on net income will depend on, among other things, the amount of revenues earned
and the cost of doing business.
ACCOUNTING MATTERS
Prior to the enactment of P.A. 90-561, IP prepared its consolidated
financial statements in accordance with FAS 71, "Accounting for the Effects of
Certain Types of Regulation." Because P.A. 90-561 provides for market-based
pricing of electric generation services, IP discontinued application of FAS 71
for its generating segment in December 1997, when P.A. 90-561 was enacted.
In December 1998, Illinova's and IP's Boards of Directors decided to
exit the nuclear portion of the business by either sale or shutdown of Clinton
Power Station (Clinton). FAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," requires that all
long-lived assets for which management has committed to a plan of disposal be
reported at the lower of carrying amount or fair value less costs to sell.
Consequently, IP wrote off the value of Clinton and accrued Clinton-related exit
costs, which resulted in a $1,523.7 million, net of income taxes, charge against
retained earnings and an accumulated deficit in Illinova's consolidated retained
earnings balance of $1,616.0 million.
Illinova's and IP's Boards of Directors also chose in December 1998 to
effect a quasi-reorganization. The quasi-reorganization is an accounting
procedure that eliminated the accumulated deficit in retained earnings and
permitted the Company to proceed on much the same basis as if it had been
legally reorganized by restating the Company's assets and liabilities to their
fair values, with the net amount of these adjustments added to or deducted from
the deficit. The remaining deficit in retained earnings was then eliminated by a
transfer from paid-in capital, giving the Company a "fresh start" with a zero
balance in retained earnings. The quasi-reorganization eliminated Illinova's
consolidated accumulated deficit in retained earnings of $1,616.0 million.
Implementation of a quasi-reorganization required the adoption of any
accounting standards that had not yet been adopted because their required
implementation date had not occurred. All applicable accounting standards were
adopted as of December 1998. The standards adopted included FAS 133, "Accounting
for Derivative Instruments and Hedging Activities," EITF Issue 98-10,
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"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities", SOP 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use", and SOP 98-5, "Reporting on the Costs of Start-Up
Activities."
Illinova and IP recognized other comprehensive income for the three
months ended March 31, 1999, as required by FAS 130, "Reporting Comprehensive
Income." FAS 130 established standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Illinova and IP have adopted the two-statement approach,
as provided for by FAS 130 and present a separate statement of comprehensive
income in addition to the income statement. Items included in Illinova's other
comprehensive income for the three months ended March 31, 1999, include
unrealized gains on securities, foreign currency translations, and related
income taxes. IP's March 31, 1999, other comprehensive income was comprised of
unrealized gains on securities held in IP's nuclear decommissioning trust and
related income taxes. There were no items reported as other comprehensive income
in 1998.
MANUFACTURED GAS PLANT SITES
IP's estimated liability for Manufactured Gas Plant (MGP) site
remediation is $61 million. This amount represents IP's current estimate of the
costs it will incur to remediate the 24 MGP sites for which it is responsible.
Because of the unknown and unique characteristics at each site, IP cannot
currently determine its ultimate liability for remediation of the sites.
In October 1995, to offset the burden imposed on its customers, IP
initiated litigation against a number of insurance carriers. As of June 1998,
settlements or settlements in principle have been reached with all thirty of the
carriers. Settlement proceeds recovered from the carriers will offset a
significant portion of the MGP remediation costs and will be credited to
customers through the tariff rider mechanism which the ICC has previously
approved. Cleanup costs in excess of insurance proceeds will be fully recovered
from IP's transmission and distribution customers.
TREASURY STOCK
Through March 31, 1999, IP has purchased a total of 12,751,724 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 three months of 1999. At the
October 14, 1998, Illinova Board of Director's meeting, the Board approved the
repurchase of up to 12 million shares of Illinova common stock over the next six
to twelve months in conjunction with IP's issuance of securitized debt, although
no additional repurchases are planned, at present. For more information, see
"Liquidity and Capital Resources" of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on page 28 of this report.
16
<PAGE>
FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS
Trading Activities- Illinova, through its subsidiaries, IP and IEP,
engages in the brokering and marketing of electricity and natural gas. IP and
IEP use a variety of instruments, including fixed-price swap agreements,
variable-price swap agreements, exchange-traded energy futures and options
contracts, and over-the-counter forwards, swaps, and options.
As of December 31, 1998, Illinova and its subsidiaries adopted EITF
98-10. For more information regarding Illinova's adoption of new accounting
pronouncements, see Accounting Matters of this section on page 15 of this
report. At March 31, 1999, IP's and IEP's derivative assets and liabilities were
recorded in the Consolidated Balance Sheets at fair value with unrealized gains
and losses shown net in the Consolidated Statements of Income. IP and IEP record
realized gains and losses as components of operating revenues and operating
expenses in the Consolidated Statements of Income.
The notional quantities and average terms of commodity instruments held
for trading purposes at March 31, 1999, are presented below:
Volume-Fixed Volume-Fixed Average
Price Payor Price Receiver Term
Electricity
IP 2,300 MW 1,950 MW 1 year
IEP 11,388 MW 11,053 MW 1 year
Gas
IEP (in thousands) 2,350 MMBtu 2,350 MMBtu 1 year
All notional amounts reflect the volume of transactions but do not
represent the dollar amounts or actual megawatts exchanged by the parties to the
contracts. Accordingly, notional amounts do not accurately measure Illinova's
exposure to market or credit risk.
The estimated fair value of commodity instruments held for trading
purposes at March 31, 1999, are presented below:
Fair Value Fair Value
(Millions of dollars) Assets Liabilities
Electricity
IP $27.2 $52.1
IEP 24.6 34.0
---- ----
51.8 86.1
Gas
IEP 2.2 1.2
--- ---
$54.0 $87.3
The fair value was estimated using quoted prices and indices where
available and the liquidity of the market for the instrument was considered. The
fair values are subject to volatility based on changing market conditions.
17
<PAGE>
The weighted average term of the trading portfolio, based on volume, is
less than one year. The maximum and average terms disclosed herein are not
indicative of likely future cash flows as these positions may be modified by new
transactions in the trading portfolio at any time in response to changing market
conditions, market liquidity, and Illinova's risk management portfolio needs and
strategies. Terms regarding cash settlements of these contracts vary with
respect to the actual timing of cash receipts and payments.
Non-Trading Activities- To reduce the risk from market fluctuations in the price
of electricity and related transmission, Illinova, through its subsidiary IP,
enters into forward transactions, swaps, and options (energy derivatives). These
instruments are used to hedge expected purchases, sales, and transmission of
electricity (a portion of which are firm commitments at the inception of the
hedge). The weighted average maturity of these instruments is less than one
year.
Periodically, IP has used interest rate derivatives (principally
interest rate swaps and caps) to adjust the portion of its overall borrowings
subject to interest rate risk. As of March 31, 1999, there were no interest rate
derivatives outstanding.
In order to hedge expected purchases of emission allowances, IP has
entered into swap agreements and written put options with other utilities to
mitigate the risk from market fluctuations in the price of the allowances. At
March 31, 1999, the notional amount of two emission allowance swaps was 126,925
units, with a recorded liability of $15.6 million, based on fair value at
delivery date. The maximum maturity of the swap agreements is 10 years. These
agreements do not fall under the scope of FAS 133. Due to the remote probability
of exercise, three put options written by IP are considered immaterial.
As of December 31, 1998, Illinova and its subsidiaries adopted FAS 133.
IP's derivative assets and liabilities are currently recorded on the
Consolidated Balance Sheets at fair value with unrealized gains and losses shown
net in the Consolidated Statements of Income. Hedge accounting was not applied.
In the future, if hedge accounting is applied, unrealized gains and losses will
be shown as a component of Comprehensive Income in the equity section of the
Consolidated Balance Sheets. IP records realized gains and losses as components
of operating revenues and operating expenses in the Consolidated Statements of
Income. As of March 31, 1999, all non-trading derivative instruments were
accounted for using mark-to-market accounting.
The notional quantities and the average term of energy derivative
commodity instruments held for other than trading purposes at March 31, 1999,
follows:
Volume-Fixed Volume-Fixed Average
Price Payor Price Receiver Term
Electricity
IP 900 MW 300 MW 1 year
In addition to the fixed-price notional volumes above, IP recorded a $25
million liability in 1998 for two "commodity for commodity" energy swap
agreements totaling 350 MW which are not considered derivatives as defined by
18
<PAGE>
FAS 133. As of March 31, 1999, the swap liability decreased to $23.5 million.
The decrease in the liability is due to IP's commencing repayment of one power
swap in January 1999.
The notional amount is intended to be indicative of the level of
activity in such derivatives, although the amounts at risk are significantly
smaller because changes in the market value of these derivatives generally are
offset by changes in the value associated with the underlying physical
transactions or in other derivatives. When energy derivatives are closed out in
advance of the underlying commitment or anticipated transaction, the market
value changes may not be offset because price movement correlation ceases to
exist when the positions are closed.
The estimated fair values of energy derivative commodity instruments,
held for non-trading purposes at March 31, 1999, are presented below:
Fair Value Fair Value
(Millions of dollars) Assets Liabilities
Electricity
IP $6.0 $18.6
The fair value was estimated using quoted prices and indices where
available, and considering the liquidity of the market for the instrument. The
fair values are subject to significant volatility based on changing market
conditions.
The average maturity and fair values discussed above are not necessarily
indicative of likely future cash flows. These positions may be modified by new
offsetting transactions at any time in response to changing generation forecast,
market conditions, market liquidity, and Illinova's risk management portfolio
needs and strategies. Terms regarding cash settlements of these contracts vary
with respect to the actual timing of cash receipts and payments.
ILLINOVA - SEGMENTS OF BUSINESS
In 1997, the FASB issued FAS 131, "Disclosures about Segments of an Enterprise
and Related Information." This statement superseded FAS 14, "Financial Reporting
for Segments of a Business Enterprise," and established new standards for
defining a company's segments and disclosing information about them. The new
statement requires that segments be based on the internal structure and
reporting of a company's operations.
The Illinova enterprise comprises six separate corporations and eight functional
business groups. The business groups and their principal activities are as
follows:
o IP Customer Service Business Group - transmission, distribution, and sale
of electric energy; distribution, transportation, and sale of natural gas
in Illinois.
19
<PAGE>
o IP Wholesale Energy Business Group - fossil-fueled electric generation in
Illinois, wholesale electricity transactions throughout the United States,
and dispatching activities.
o IP Nuclear Generation Business Group - nuclear-fueled electric generation
in Illinois.
o Illinova Energy Partners - energy-related products and services
throughout the United States and Canada.
o Illinova Generating Company - independent power projects throughout the
world.
o IP Financial Business Group - financial support functions such as
accounting, finance, corporate performance, audit and compliance, investor
relations, legal, corporate development, regulatory, risk management, and
tax services.
o IP Support Services Business Group - specialized support functions,
including information technology, human resources, environmental resources,
purchasing and materials management, and public affairs.
o Corporate - Illinova Corporation, Illinova Insurance Company and Illinova
Business Enterprises - holding company; insurance and risk products; and
miscellaneous business lines.
Of the above-listed segments, the IP Financial Business Group, the IP Support
Services Business Group, and Corporate did not individually meet the minimum
threshold requirements for separate disclosure and are combined in the Other
category.
In 1998, three measures were used to judge segment performance: contribution
margin, cash flow, and return on net invested capital. In 1999, two measures
were used to judge segment performance: contribution margin and cash flow;
return on net invested capital is no longer a corporate measure in 1999.
20
<PAGE>
<TABLE>
<CAPTION>
Illinova Corporation
Three Months Ended March 31, 1999 (Millions of Dollars)
Illinova
Customer Wholesale Energy Illinova Other Consoli-
Service Energy Nuclear Partners Generating dated
1999
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from external customers 376.7 94.1 1.5 - - - 472.3
Diversified enterprise revenue - - - 46.4 28.3 1.4 76.1
Intersegment revenue (1) - 135.9 (0.7) - - - 135.2
-----------------------------------------------------------
Total Revenue 376.7 230.0 0.8 46.4 28.3 1.4 683.6
Depreciation and amortization
expense 18.5 25.6 2.0 - - (0.1) 46.0
Other operating expenses (1) 275.3 126.6 89.4 49.3 30.1 3.2 573.9
-----------------------------------------------------------
Operating income (loss) 82.9 77.8 (90.6) (2.9) (1.8) (1.7) 63.7
Interest expense 19.3 19.9 0.7 - - 3.2 43.1
AFUDC (0.4) (0.8) - - - 0.0 (1.2)
-----------------------------------------------------------
Net income (loss) before taxes 64.0 58.7 (91.3) (2.9) (1.8) (4.9) 21.8
Income tax expense (benefit) 24.4 22.3 (35.7) (0.7) 1.7 (0.7) 11.3
Miscellaneous - net - 0.1 (0.5) - (6.2) (1.2) (7.8)
Equity earnings in subsidiaries - - - (1.0) 0.4 0.1 (0.5)
Interest revenue - - (1.1) - - (2.0) (3.1)
-----------------------------------------------------------
Net income (loss) after taxes 36.7 36.3 (54.0) (1.2) 2.3 (1.1) 21.9
Preferred dividend requirement and
carrying amount over consideration
paid for redeemed preferred stock 2.9 3.0 (0.9) - - (0.8) 4.2
----------------------------------------------------------
Net income (loss) available
to common 36.7 33.3 (53.5) (1.2) 2.3 (0.3) 17.7
- -----------------------------------------------------------------------------------------------------------------------------------
Other information -
Total assets (3) 2,297.3 3,121.8 198.5 63.3 239.7 149.2 6,069.8
Subsidiary's investment in
equity method investees - - - 9.5 188.5 - 198.0
Total expenditures for additions
to long-lived assets 22.9 14.5 - - - 0.9 38.3
- -----------------------------------------------------------------------------------------------------------------------------------
Corporate Measures -
Contribution margin (4) 50.0 46.5 (53.4) (1.2) 2.3 0.9 45.3
Cash flow (5) 42.1 (87.6) (106.3) (1.7) 12.5 51.6 (89.4)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Intersegment revenue priced at 2.9 cents per kwh delivered.
Intersegment expense is reflected in other operating expenses for
Customer Service.
(2) Net Income (loss) before Clinton impairment loss.
(3) Primary assets for Nuclear include decommissioning assets, shared
general and intangible plant and nuclear fuel.
(4) Contribution margin represented by net income before financing costs
(net-of-tax) and preferred dividend requirement.
(5) Cash flow before financing activities.
21
<PAGE>
<TABLE>
<CAPTION>
Illinova Corporation
Three Months Ended March 31, 1998 (Millions of Dollars)
Illinova
Customer Wholesale Energy Illinova Other Consoli-
Service Energy Nuclear Partners Generating dated
1998
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues from external customers 391.6 96.3 1.6 - - - 489.5
Diversified enterprise revenue - - - 84.9 0.7 0.3 85.9
Intersegment revenue (1) - 111.8 (0.6) - - - 111.2
------------------------------------------------------------
Total Revenue 391.6 208.1 1.0 84.9 0.7 0.3 686.6
Depreciation and amortization
expense 16.9 7.4 24.8 - - 1.6 50.7
Other operating expenses (1) 244.7 150.7 84.0 89.8 4.0 (1.0) 572.2
------------------------------------------------------------
Operating income (loss) 130.0 50.0 (107.8) (4.9) (3.3) (0.3) 63.7
Interest expense 17.1 5.7 21.5 - - (7.7) 36.6
AFUDC (0.3) (0.4) (0.4) - - - (1.1)
------------------------------------------------------------
Net income (loss) before taxes 113.2 44.7 (128.9) (4.9) (3.3) 7.4 28.2
Income tax expense (benefit) 46.4 16.7 (55.3) (1.1) (0.7) (1.7) 4.3
Miscellaneous - net - 1.8 - (0.1) - (0.2) 1.5
Equity earnings in subsidiaries - - - (2.0) (3.5) - (5.5)
Interest revenue - - - - - - -
------------------------------------------------------------
Net income (loss) after taxes 66.8 26.2 (73.6) (1.7) 0.9 9.3 27.9
Preferred dividend requirement and
carrying amount over consideration
paid for redeemed preferred stock 1.8 0.7 2.5 - - (0.1) 4.9
----------------------------------------------------------
Net income (loss) available
to common 65.0 25.5 (76.1) (1.7) 0.9 9.4 23.0
- -----------------------------------------------------------------------------------------------------------------------------------
Other information -
Total assets 1,766.9 717.1 2,772.3 56.4 174.6 131.5 5,618.8
Subsidiary's investment in
equity method investees - - - 12.4 165.4 - 117.8
Total expenditures for additions
to long-lived assets 30.2 10.2 7.2 - - 1.3 48.9
- -----------------------------------------------------------------------------------------------------------------------------------
Corporate Measures -
Contribution margin (2) 75.6 28.1 (61.2) (1.7) 0.9 5.0 46.7
Cash flow (3) 73.2 43.2 (81.6) 2.1 3.9 42.1 82.9
- -----------------------------------------------------------------------------------------------------------------------------------
Return on net invested capital (4) 5.9% 6.0% N/A 5.2% 0.5% N/A 1.3%
</TABLE>
(1) Intersegment revenue priced at 2.5 cents per kwh delivered.
Intersegment expense is reflected in other operating expenses for
Customer Service. Nuclear reflects a replacement power expense for the
increment of market price over the intersegment price.
(2) Contribution margin represented by net income before financing costs
(net-of-tax) and preferred dividend requirement.
(3) Cash flow before financing activities.
(4) Return on net invested capital calculated as contribution margin divided
by net invested capital.
22
<PAGE>
GEOGRAPHIC INFORMATION
(Millions of dollars)
- --------------------------------------------------------------------------------
Quarter ended March 31, 1999 1998
- --------------------------------------------------------------------------------
Revenues: (1)
United States $544.2 $575.4
Foreign countries - seven 4.2 0
------ ------
$548.4 $575.2
====== ======
(Millions of dollars)
- --------------------------------------------------------------------------------
March 31, 1999 1998
- --------------------------------------------------------------------------------
Long-lived assets: (2)
United States $4,525.5 $4,597.4
Foreign countries - nine 157.1 124.8
-------- --------
$4,682.6 $4,722.2
======== ========
(1) Revenues are attributed to geographic regions based on location of customer.
(2) Long-lived assets include plant, equipment, and investments in subsidiaries.
IP - SEGMENTS OF BUSINESS
IP comprises five business groups. The business groups and their principal
services are as follows:
o IP Customer Service Business Group - transmission, distribution, and sale
of electric energy; distribution, transportation, and sale of natural gas
in Illinois.
o IP Wholesale Energy Business Group - fossil-fueled electric generation in
Illinois, wholesale electricity transactions throughout the United States,
and dispatching activities.
o IP Nuclear Generation Business Group - nuclear-fueled electric generation
in Illinois.
o IP Financial Business Group - financial support functions such as
accounting, finance, corporate performance, audit and compliance, investor
relations, legal, corporate development, regulatory, risk management, and
tax services.
o IP Support Services Business Group - specialized support functions,
including information technology, human resources, environmental resources,
purchasing and materials management, and public affairs.
Of the above-listed segments, the IP Financial Business Group and the IP Support
Services Business Group did not individually meet the minimum threshold
requirements for separate disclosure and are combined in the Other category.
23
<PAGE>
In 1998, three measures were used to judge segment performance: contribution
margin, cash flow, and return on net invested capital. In 1999, two measures
were used to judge segment performance; contribution margin and cash flow;
return on net invested capital is no longer a corporate measure in 1999.
<TABLE>
<CAPTION>
Illinois Power
Three Months Ended March 31, 1999
Customer Wholesale Total
1999 Service Energy Nuclear Other Company
<S> <C> <C> <C> <C> <C>
Revenues from external customers $376.7 $94.1 $1.5 $ - $472.3
Intersegment revenue (1) - 135.9 (0.7) - 135.2
-------------------------------------------------------------------------
Total Revenue 376.7 230.0 0.8 - 607.5
Depreciation and amortization expense 18.5 25.6 2.0 (0.1) 46.0
Other operating expenses (1) 275.3 126.6 89.4 1.1 492.4
-------------------------------------------------------------------------
Operating income (loss) 82.9 77.8 (90.6) (1.0) 69.1
Interest expense 19.3 19.9 0.7 (0.1) 39.8
AFUDC (0.4) (0.8) - 0.0 (1.2)
-------------------------------------------------------------------------
Net income (loss) before taxes 64.0 58.7 (91.3) (0.9) 30.5
Income tax expense (benefit) 24.4 22.3 (35.7) 0.6 11.6
Miscellaneous-net - 0.1 (0.5) (0.4) (0.8)
Interest revenue - - (1.1) (2.2) (3.3)
-------------------------------------------------------------------------
Net income (loss) after taxes 39.6 36.3 (54.0) 1.1 23.0
Preferred dividend requirement and
carrying amount over consideration
paid for redeemed preferred stock 2.9 3.0 (0.9) (0.8) 4.2
-------------------------------------------------------------------------
Net income (loss) available to common $ 36.7 $ 33.3 $ (53.1) $1.9 $ 18.8
- --------------------------------------------------------------------------------------------------------------------------------
Other information -
Total assets (2) $2,297.3 $3,121.8 $198.5 $ 34.4 $5,652.0
Total expenditures for additions to long-lived
assets 22.9 14.5 - 0.9 38.3
Corporate Measures -
Contribution margin (3) $ 50.0 $ 46.7 $ (53.4) $1.1 $ 44.4
Cash flow (4) 42.1 (87.6) (106.3) 81.4 (70.4)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Intersegment revenue priced at 2.9 cents per kwh delivered for 1999.
Intersegment expense is reflected in other operating expenses for Customer
Service.
(2) Primary assets for Nuclear include decommissioning assets, shared general
and intangible plant and nuclear fuel.
(3) Contribution margin represented by net income before financing costs
(net-of-tax) and preferred dividend requirement.
(4) Cash flow before financing activities.
24
<PAGE>
<TABLE>
<CAPTION>
Illinois Power
Three Months Ended March 31, 1998
Customer Wholesale Total
1998 Service Energy Nuclear Other Company
<S> <C> <C> <C> <C> <C>
Revenues from external customers $391.6 $96.3 $ 1.6 $ - $489.5
Intersegment revenue (1) - 111.8 (0.6) - 111.2
-------------------------------------------------------------------------
Total Revenue 391.6 208.1 1.0 - 600.7
Depreciation and amortization expense 16.9 7.4 24.8 1.6 50.7
Other operating expenses (1) 244.7 150.7 84.0 (1.9) 477.5
-------------------------------------------------------------------------
Operating income (loss) 130.0 50.0 (107.8) 0.3 72.5
Interest expense 17.1 5.7 21.5 (10.2) 34.1
AFUDC (0.3) (0.4) (0.4) - (1.1)
-------------------------------------------------------------------------
Net income (loss) before taxes 113.2 44.7 (128.9) 10.5 39.5
Income tax expense (benefit) 46.4 16.7 (55.3) (0.6) 7.2
Miscellaneous-net - 1.8 - 0.3 2.1
Interest revenue - - - (0.2) (0.2)
-------------------------------------------------------------------------
Net income (loss) after taxes 66.8 26.2 (73.6) 11.0 30.4
Preferred dividend requirement 1.8 0.7 2.5 (0.1) 4.9
-------------------------------------------------------------------------
Net income (loss) available to common $ 65.0 $25.5 $ (76.1) $ 11.1 $ 25.5
- --------------------------------------------------------------------------------------------------------------------------------
Other information -
Total assets $1,766.9 $ 717.1 $2,772.3 $ 84.4 $5,340.7
Total expenditures for additions to long-lived
assets long-lived assets $ 30.2 $10.2 $ 7.2 $ 1.3 $ 48.9
- --------------------------------------------------------------------------------------------------------------------------------
Corporate Measures -
Contribution margin (2) $ 75.6 $28.1 $ (61.2) $ 5.1 $ 47.6
Cash flow (3) 73.2 43.2 (81.6) 31.3 66.1
Return on net invested capital (4) 5.9% 6.0% N/A N/A 1.3%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Intersegment revenue priced at 2.5 cents per kwh delivered for 1998.
Intersegment expense is reflected in other operating expenses for Customer
Service. Nuclear reflects a replacement power expense for the increment of
market price over the intersegment price for 1998.
(2) Contribution margin represented by net income before financing costs
(net-of-tax) and preferred dividend requirement.
(3) Cash flow before financing activities.
(4) Return on net invested capital calculated as contribution margin divided
by net invested capital.
25
<PAGE>
GEOGRAPHIC INFORMATION
(Millions of dollars)
- --------------------------------------------------------------------------------
Quarter ended March 31, 1999 1998
- --------------------------------------------------------------------------------
Revenues: (1)
United States $472.3 $489.5
====== ======
(Millions of dollars)
- --------------------------------------------------------------------------------
March 31, 1999 1998
- --------------------------------------------------------------------------------
Long-lived assets: (2)
United States $4,436.1 $4,536.5
======== ========
(1) Revenues are attributed to geographic regions based on location of customer.
(2) Long-lived assets include plant, equipment, and investments in subsidiaries.
RESTATEMENT OF THE CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1999 AND AS
OF DECEMBER 31, 1998
In February 2000, Illinova and IP restated their consolidated financial
statements for the year ended December 31, 1998 to reflect a revision to the
initial estimate of the "Transition period cost recovery" regulatory asset
established in December 1998 coincident with the impairment of the Clinton Power
Station. The effect of this revision was to decrease the amount of the
regulatory asset at December 31, 1998, and correspondingly increase the related
impairment charge by $325.7 million ($196.5 million net of taxes). The impact of
this revision on the consolidated financial statements follows:
<TABLE>
- ------------------------------------------------------------------------------------------
March 31, 1999 December 31, 1998
- -------------------------------------------------------------------------------------------
As Previously As Restated As Previously As Restated
Reported Reported
- -------------------------------------------------------------------------------------------
(Millions of Dollars) (Millions of Dollars)
<S> <C> <C> <C> <C>
Illinova Corporation
Common stock-No par value $1,319.8 $1,123.3 $1,319.7 $1,123.2
Illinois Power Company
Common stock-No par value $1,382.5 $1,186.0 $1,382.4 $1,185.9
- -------------------------------------------------------------------------------------------
</TABLE>
As a result of the quasi-reorganization, there was no effect of this revision on
"Retained Earnings." For more information, see "Accounting Matters" of "Notes to
Consolidated Financial Statements" on page 15 of this report.
26
<PAGE>
ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain information contained in this report is forward-looking
information based on current expectations and plans that involve risks and
uncertainties. Forward-looking information includes, among other things,
statements concerning the impact of regulatory changes, plans for the Clinton
facility, and success in addressing Year 2000 issues; as well as those that
include the words "expect," "intend," "predict," "estimate," "believe" or
similar language. Although Illinova and IP believe these forward-looking
statements are accurate, their businesses are dependent on various regulatory
issues, general economic conditions and future trends, and these factors can
cause actual results to differ materially from the forward-looking statements
that have been made.
The following factors, in addition to those discussed elsewhere in this
report and in the Annual Report on Form 10-K for the fiscal year ended December
31, 1998, and subsequent securities filings could cause results to differ
materially from management expectations as suggested by such forward-looking
statements: the outcome of state and Federal regulatory proceedings affecting
the restructuring of the electric and utility industry; the impact on IP of
current regulations providing for rate reductions and the phasing in of the
opportunity for some customers to choose alternative energy suppliers; the
effects of increased competition in the future due to, among other things,
deregulation of certain aspects of IP's business at both the state and Federal
levels, and the increasing popularity of alternative sources of electricity,
such as co-generation facilities; the effects of the implementation of
Illinova's various strategies to best respond to its changing business and
regulatory environment, including potential acquisitions, focused growth of
unregulated businesses and other options; the fluctuating electricity supply
demands of IP customers, which, if increased beyond IP's generation capacity,
might result in unplanned outages forcing IP to acquire additional supplies in
the electricity marketplace in uncertain and often volatile prices and
availability; changes in prices and costs of fuel; various financial risks
attendant to selling or shutting down Clinton; ongoing nuclear operational
exposures until Clinton is sold or shut down; the effect of events that can
occur in Illinova's or IP's business operations or in general economic
conditions, that could negatively impact its financial flexibility and costs of
financing; the impact of the sale or shutdown of Clinton on IP's ability to
issue indebtedness under its existing mortgages; the impact of current
environmental regulations on utilities and the expectation that more stringent
requirements will be introduced over time, which are likely to have a negative
financial effect; various factors affecting non-utility investments, such as
IGC's investments in foreign countries, which are subject to currency
fluctuations, cyclical and sustained economic downturns and political risks; the
inherent risks of active purchases and sales by Illinova, through IEP and IP, of
electricity and natural gas futures and similar contracts; and the ability of
Illinova and IP, their vendors and others to manage Year 2000 issues.
27
<PAGE>
All forward-looking statements in this report are based on information
that currently is available. Illinova and IP disclaim any obligation to update
any forward-looking statement.
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 publicly traded
preferred shares outstanding but its common stock is wholly-owned by Illinova.
IGC is Illinova's wholly-owned independent power subsidiary. IGC invests
in energy supply projects throughout the world and competes in the independent
power market. IGC's strategy is to invest in and develop "greenfield" power
plants, acquire existing generation facilities and provide power plant
operations and maintenance.
IEP is a wholly-owned subsidiary of Illinova. IEP develops and markets
energy-related products and services to the unregulated energy market throughout
the United States and Canada 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.
Illinova Power Marketing, Inc. (IPMI) is a wholly-owned subsidiary of
Illinova created in April, 1999 to become the wholesale generation and power
marketing company to which IP's fossil generating assets will be transferred.
Regulatory approvals for the transfer of these assets and for IPMI's marketing
activities are being sought.
RESTATEMENT OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 1998 AND AS OF MARCH 31, 1999
In February 2000, Illinova and IP restated their financial statements for the
year ended December 31, 1998 to reflect a revision to the initial estimate of
the "Transition period cost recovery" regulatory asset established in December
1998 coincident with the impairment of the Clinton Power Station. The effect of
this revision was to decrease the amount of the regulatory asset at December 31,
1998, and correspondingly increase the related impairment charge by $325.7
million ($196.5 million net of tax). The net effect of this revision was to
increase the previously reported net loss by $196.5 million, or $2.74 per common
share (basic and diluted). As a result of the quasi-reorganization described
below, there was no effect of this revision on "Retained earnings;" however,
"Total common stock equity" was reduced by $196.5 million. The financial tables
and stateemnts, the notes to the consolidated financial statements, and
management's discussion and analysis of financial condition and results of
operations in the 10-Q/A have been modified to reflect these changes.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES AND REQUIREMENTS
Cash flows from operations during the first three months of 1999,
supplemented by external financing and cash on hand, were sufficient to meet
ongoing operating requirements and to service existing common and preferred
stock dividends, debt requirements, IP's construction requirements and
Illinova's investments in its subsidiaries. However, Illinova and IP liquidity
has decreased as compared to March 31, 1998, as a result of higher fossil
maintenance costs, increased marketing expenses, and higher Clinton costs
combined with lower revenues caused by the rate reduction mandated by P.A.
90-561.
Illinova expects to use future operating cash flows, supplemented by
external financing, to meet operating requirements and to continue to service
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existing debt, IP's preferred and Illinova common stock dividends, and
Illinova's and IP's anticipated subsidiary investments and construction
requirements for the remainder of 1999.
Illinova currently has authority to issue an additional $130 million in
debt securities under an existing $300 million shelf registration. Illinova put
in place a $130 million Revolving Credit Agreement in January 1999, which had
$64 million of capacity available at March 31, 1999. Prior to 1999 IP has paid
Illinova dividends on the IP common stock held by Illinova to provide Illinova
cash for operations. IP is limited in its payment of dividends by the Illinois
Public Utilities Act, which requires retained earnings equal to or greater than
the amount of any proposed dividend declaration or payment, and by the Federal
Power Act, which precludes declaration or payment of dividends by electric
utilities "out of money properly stated in a capital account." In the first
quarter of 1999, IP did not declare or pay dividends on its common stock. Based
on the Board's current dividend policy, management expects IP's retained
earnings to be sufficient to support Illinova common dividends. IP also is
allowed to periodically repurchase its common stock from Illinova in accordance
with authority granted by the ICC, contingent on IP meeting certain cash flow
tests. IP currently does not satisfy this cash flow test and it is anticipated
that it will not satisfy the test throughout 1999. This test would not interfere
with the repurchases, if any, of Illinova equity shares using securitization
proceeds. Illinova's current $130 million capacity under the existing shelf
registration should meet its cash requirements through the remainder of 1999.
Illinova and IGC are developing additional financing capabilities to meet future
needs.
Through May 10, 1999, IP redeemed $57.1 million of 8.75% First Mortgage
Bonds due 2021, $229 million of 8.00% New Mortgage Bonds due 2023, $22.9 million
of 7.95% First Mortgage Bonds due 2004, $36.8 million of 6.50% First Mortgage
Bonds due 1999, $39.85 million of 7.50% New Mortgage Bonds due 2025, along with
154,900 shares of Monthly Income Preferred Securities (MIPS) and 83,780 shares
of various serial preferred stock series. These securities were retired using
funds from securitization proceeds received in December 1998.
IP's capital requirements for construction were approximately $37
million and $48 million during the three months ended March 31, 1999 and 1998,
respectively. Through 2000, IP plans to complete improvements in its generation
facilities including pollution control equipment and new combustion turbine
peaking units. Illinova estimates that it will spend approximately $370 million
for IP construction expenditures in 1999. IP construction expenditures for 1999
through 2003 are expected to total approximately $1.3 billion. In light of the
December 1998 decision to exit Clinton and resulting Clinton impairment, Clinton
capital expenditures are expensed as incurred and are not included in the above
estimates. On March 2, 1999, IP deposited $62.1 million for partially depleted
nuclear fuel in the Clinton reactor with IP Fuel Company as a result of Clinton
Nuclear Station failing to restart by January 31, 1999. The liability for the
nuclear fuel was accrued as of December 31, 1998. As part of the Clinton
impairment entries at year end, nuclear fuel was written down to the expected
consumption through August 31, 1999.
Additional expenditures may be required during this period to
accommodate the transition to a competitive environment, environmental
compliance, system upgrades, and other costs which cannot be determined at this
time.
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In addition to IP construction expenditures, Illinova's capital
expenditures for 1999 through 2003 are expected to include $592 million for
mandatory debt retirement and approximately $600 million target levels for
investment opportunities by the non-regulated subsidiaries. In addition, IPSPT
has long-term debt maturities of $86.4 million in each of the above years.
IP currently has the authority to issue $250 million in long-term debt
and $500 million in short-term debt, which includes $350 million in committed
bank lines of credit. Of these authorized amounts, IP had $229 million at March
31, 1999, in remaining capacity that may be utilized to issue commercial paper
and extend floating rate notes. IP anticipates that this liquidity will be
sufficient to address its requirements into the fourth quarter of 1999. IP is
developing additional financial capabilities to meet future needs.
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, BBB- by Duff & Phelps and BB+ by Standard & Poor's. Illinova's senior
and medium-term notes have a rating of Baa3 from Moody's and BBB- from Standard
& Poor's. On July 6, 1998, a change in outlook was issued. The outlook from
Moody's changed from stable to negative and the outlook from Standard & Poor's
changed from positive to stable.
On March 4, 1999, Moody's placed all of the securities of Illinova and
IP under review for possible downgrade, citing erosion of cash flow and an
expected increase in leverage caused by the extended Clinton outage. On April
18, 1999, Moody's confirmed the security ratings of Illinova and IP, and removed
the securities from review for possible downgrade following the NRC's decision
to allow the restart of Clinton and the announcement of an interim sales
agreement with AmerGen to purchase and operate Clinton. See "PECO Agreement"
section which follows on page 30 for additional information regarding the
interim sales agreement.
ACCOUNTING MATTERS
For further information on accounting issues, see "Accounting Matters"
under "Regulatory and Legal Matters" of the "Notes to Consolidated Financial
Statements" on page 15 of this report.
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, the Nuclear Regulatory Commission (NRC) named Clinton
among plants having a trend of declining performance and, in January 1998,
placed Clinton on its "Watch List" of nuclear plants that require additional
regulatory oversight.
In late 1997, an independent team conducted an ISA to thoroughly assess
Clinton's performance, and an NRC team performed an evaluation to validate the
ISA results. Both teams concluded that the underlying reasons for Clinton's
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performance problems were ineffective leadership throughout the organization in
providing standards of excellence, complacency throughout the organization,
barrier weaknesses, and weaknesses in teamwork.
In January 1998, IP and PECO announced an agreement under which PECO
provides management services for Clinton, with IP maintaining the operating
license and ultimate oversight for the plant. PECO employees have assumed senior
positions at Clinton but the plant remains staffed primarily by IP employees. IP
selected PECO because it believed that bringing in PECO's experienced management
team would be the fastest and most efficient way to return Clinton to service
and to a superior level of operation.
In February 1998, IP filed with the NRC Clinton's Summary Plan for
Excellence, a comprehensive set of strategies and associated actions necessary
to improve performance, permit safe restart of the plant, and achieve excellence
in operations. IP is implementing the actions required prior to plant restart.
The NRC is conducting a formal review process in parallel with IP's recovery and
restart program.
On April 27, 1999, IP received notification from the NRC that the
actions required prior to restart have been satisfied, thus lifting the
regulatory agency's constraints on restarting the plant.
Due to uncertainties of deregulated generation pricing in Illinois and
to various operation and management factors, Illinova's and IP's Boards of
Directors decided in December 1998 to sell or close Clinton. This decision
resulted in an impairment of Clinton-related assets and accrual of exit-related
costs of $1,523.7 million, net of income taxes, which was recognized as a charge
against earnings.
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. Due to the failure of Clinton to restart by January 31,
1999, a provision in the lease agreement between IP and the Fuel Company
required IP to deposit $62.1 million cash for the acquisition of core fuel in
March 1999, with the Fuel Company Trustee for the benefit of investors in
secured Notes of the Fuel Company.
PECO AGREEMENT
On April 15, 1999, IP announced that it had reached an interim agreement
with AmerGen Energy Company (AmerGen), whereby AmerGen would purchase and
operate Clinton and IP would buy at least 75 percent of the plant's electricity
output for the next several years. AmerGen is owned jointly by PECO Energy
Company (PECO) and British Energy. IP also announced a revised management
agreement (Agreement) with PECO for the operation of Clinton commencing April 1,
1999. PECO will continue to manage the station pending a final agreement between
the parties and consummation of the sale.
Under the Agreement, starting April 1, 1999, PECO is assuming the
plant's direct operating and capital expenditures, regardless of operating
status. This eliminates the Company's exposure to the uncertainty regarding the
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costs of returning Clinton to service and subsequent operations. In return for
transferring this financial risk, the Company has modified the management
agreement with PECO to incorporate a new fee structure. The Agreement obligates
IP to pay a management fee to PECO calculated by multiplying a fixed dollar
amount per MWH times 80 percent of the electricity generated at Clinton during
the remainder of 1999. The financial impact of this obligation is contingent on
three variables: (1) whether Clinton restarts; (2) the capacity levels at which
it subsequently operates; and (3) the prices at which the electricity can be
sold from time to time. Based on the terms of the revised management agreement
the fees payable to PECO between April 1 and December 31, 1999 could equal or
exceed the 1999 Clinton-related O&M and capital costs for which PECO assumed
full responsibility commencing April 1, 1999. Under the interim agreement
AmerGen has no obligation to buy the plant if it has not actually generated
electric energy and been synchronized to the grid by December 31, 1999. For
further information, see the management agreement, which is attached as exhibit
A to the interim agreement filed as Exhibit 10.1 to this document.
Under the terms of the interim agreement, AmerGen will pay IP $20
million for Clinton (including nuclear fuel) and IP will have an obligation to
pay AmerGen $275 million to assume the Clinton decommissioning liability. It is
anticipated that IP will transfer $95 million in its decommissioning trust fund
and make payments of $30 million in each of the next six years to meet its
decommissioning obligation. This compares favorably with the $529 million NPV
that IP reported as its decommissioning liability as of December 31, 1998.
IP has agreed to negotiate exclusively with AmerGen until June 15, 1999.
While the interim agreement provides a framework for further negotiations toward
a final agreement to sell Clinton to AmerGen, several significant steps remain
before a sale can be completed. Significant income tax issues related to the
funding of decommissioning costs, similar to those being addressed with the
Internal Revenue Service by parties to other pending sales of nuclear generating
stations, must be resolved to the mutual satisfaction of IP and AmerGen. The
parties must conclude a definitive agreement. The NRC must approve the sale and
the transfer of the operating license; the ICC must approve the sale; and, the
FERC must approve the PPA.
REGULATORY MATTERS
FOSSIL GENERATION FILING
IP filed a notice with the ICC in April 1999, as required by law,
advising of its intention to sell its fossil generating assets to Illinova.
Subsequently, Illinova intends to transfer those assets to its IPMI subsidiary.
IPMI, which was incorporated in April 1999, will become a wholesale generation
and power marketing company. The proposed transfer of assets from IP will be
done pursuant to Section 16-111(g) of The Customer Choice and Rate Relief Act of
1997, which permits transfer of utility assets on successful demonstration to
the Commission that certain financial and reliability criteria will be met. The
Commission will have 90 days to review the filing and make its decision. Also,
IP intends to make a filing with the FERC during the second quarter of 1999,
seeking approval of a proposed Purchase Power Agreement between IP and IPMI.
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ATTORNEY GENERAL COMPLAINT
On July 17, 1998, a complaint against IP was filed at the ICC by the
Illinois State Attorney General. The complaint alleges that IP failed to meet
its statutory obligations to provide adequate and reliable service in connection
with last summer's electric supply situation (for further disclosure, see "Power
Supply and Reliability" on page 31). It asks the ICC to conduct a management
audit of IP and seeks an order requiring IP to offer compensation to customers
for voluntary conservation and service interruptions. The company has agreed to
provide the Attorney General with a reliability report. The Attorney General and
the Company have mutually agreed on an independent committee of two outside
experts to review the report. The company believes this approach will lead to a
settlement of the complaint without a material adverse effect. Although there
were limited calls for voluntary conservation, and interruptible customers were
curtailed, no firm load was interrupted or curtailed during all of 1998.
SOYLAND POWER COORDINATION AGREEMENT
The FERC approved an amended Power Coordination Agreement (PCA) between
Soyland and IP in July 1997. Under the amended PCA, Soyland was 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. Soyland obtained the necessary financing and regulatory approvals
during the second quarter of 1998. During the first quarter of 1998, IP received
$30 million from Soyland and the remaining $40 million was received during the
second quarter of 1998. The prepayment was deferred and was being recognized as
interchange revenue evenly over the initial term of the PCA, which was from
September 1, 1996 through August 31, 2006. In March 1999, Soyland and IP signed
a new PCA agreement and filed this agreement with FERC. The new agreement no
longer obligates IP to provide capacity and energy to Soyland with the exception
of a small amount of capacity for the purpose of supplying Soyland's load within
the IP Control Area. Therefore, the new PCA triggered the immediate recognition
of the deferred revenue from the prepayment of the base capacity charge as
discussed above. This resulted in an increase in interchange revenues of $61
million in the first quarter of 1999.
UNIFORM FUEL ADJUSTMENT CLAUSE (UFAC)
Prior to March 1998, the costs of fuel for electric generation and
purchased power costs were deferred and recovered from customers pursuant to the
UFAC. On March 6, 1998, IP initiated an ICC proceeding to eliminate the UFAC in
accordance with P.A. 90-561. A new base fuel cost recoverable under IP's
electric tariffs was established, effective on the date of the filing. UFAC
elimination prevents IP from automatically passing cost increases through to its
customers and exposes IP to the risks and opportunities of cost fluctuations and
operating efficiencies.
Under UFAC, IP was subject to annual ICC audits of its actual allowable
fuel costs. Costs could be disallowed, resulting in negotiations and/or
litigation with the ICC. In 1998, IP agreed to settlements with the ICC which
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closed the audits for all previously disputed years. As a result of the
settlements, IP electric customers received refunds totaling $15.1 million in
the first quarter of 1999. These refunds complete the process of eliminating the
UFAC at IP.
DEREGULATION RULEMAKINGS AND TARIFFS
The Illinois Public Utilities Act was significantly modified in 1997 by
P.A. 90-561, but the ICC continues to have 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 significant plant addition may be included in IP's rate base,
the ICC must determine that the addition is reasonable in cost, prudent and used
and useful in providing utility service to customers. IP must continue to
provide bundled retail electric service to all who choose to continue to take
service at tariff rates, and IP must provide unbundled electric distribution
services to all eligible customers as defined by P.A. 90-561 at rates to be
determined by the ICC. During 1998, pursuant to authority granted in P.A.
90-561, the ICC issued rules associated with (i) transactions between the
utility and its affiliates; (ii) service reliability; (iii) environmental
disclosure; and (iv) alternative retail electric supplier certification criteria
and procedures. During 1999, it is expected that the ICC will rule on (i) the
rates and terms associated with the provision of delivery services for
commercial and industrial customers; (ii) establishing the neutral fact finder
price utilized in (a) calculating competitive transition costs and (b) IP's
power purchase tariff; (iii) the competitive transition cost methodology; and
(iv) guidelines regarding standards of conduct and functional separation. A
proceeding will be opened in September 1999 to address the issue of unbundling
billing, metering, and customer handling with a final decision to be rendered
prior to the third quarter of the year 2000. The final rule on delivery service
tariffs is expected in early August.
Under the new rules, Illinois utilities must keep records identifying
service interruptions experienced by each customer. Illinois utilities must also
file an annual report detailing the reliability of its service and explaining
its plans for reliability improvements. In addition, each utility must also
report the number and causes of service interruptions that were due to causes
within the utility's control. Outage targets were established for service to
individual customers and for system performance.
The extent to which revenues are affected by P.A. 90-561 will depend on
a number of factors including future market prices for wholesale and retail
energy, load growth and demand levels in the current IP service territory, and
success in marketing to customers outside IP's existing service territory. The
impact on net income will depend on, among other things, the amount of revenues
earned and the cost of doing business.
OPEN TRANSMISSION ACCESS AND COMPETITION
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). On
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September 16, 1998, the FERC issued an order authorizing the creation of a MISO.
The MISO has elected a seven-person independent board of directors. 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, four other
transmission-owning entities joined the MISO. Participation in an ISO by
utilities serving retail customers in Illinois was one of the requirements
included in P.A. 90-561, enacted in 1997. The MISO has a stated goal to be fully
operational by January 1, 2001.
See "Open Access and Competition" under "Regulatory and Legal Matters"
of the "Notes to Consolidated Financial Statements" on page 14 of this report
for additional information.
YEAR 2000 DATA PROCESSING
Passing from 1999 into 2000 creates a risk that computer-dependent
processes will fail because the date will be read as "1900." Illinova began its
Year 2000 (Y2K) project in November 1996. The project scope encompasses all of
Illinova's subsidiaries including IP, IGC, and IEP. A central organization is
providing overall project guidance and coordination among the business groups,
meeting monthly to share information, conducting internal project reviews, and
producing monthly status reports to all levels of Illinova management.
Bi-monthly Year 2000 readiness reports are provided to the Illinova Board of
Directors.
The Year 2000 project involves evaluation and testing of software,
hardware, and business processes, including mainframe and personal computer
software and hardware, process computer software and hardware, end user
computing, telecommunications and networks, vendor purchased packages, embedded
systems, facility control systems, vendors/supplies, financial institutions, and
electronic interfaces with outside agencies.
The project is divided into two focus areas. The first focus area deals
with information technology (IT) software, hardware, and infrastructure. This
includes such items as the billing system, payroll system, accounts payable
system, personal computers, telecommunications, networks, and mainframes.
The second focus area targets non-IT operational systems and processes
which encompass most of the systems and business processes actually used to
deliver electricity and gas to customers. This is also the area where embedded
systems and microprocessors are found. Included in this focus area are power
plant facilities, transportation systems such as railways, barges, etc., fuel
suppliers, electric and gas transmission and distribution facilities,
substations and transformers, meters, building systems such as HVAC and
security, and financial institutions.
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The overall status of Illinova's Y2K project is illustrated in the table
below.
Illinova Status
March 1999
IT Non-IT
% Completion * % Completion *
Complete Date Complete Date
Awareness 100 02/01/97 a 100 05/31/98 a
Inventory 100 01/20/97 a 100 02/28/99 a
Assessment 100 05/09/97 a 100 02/28/99 a
Process Analysis 100 11/30/98 a 100 03/31/99 a
Implementation -
(Mission Critical) 81 06/30/99 e 74 10/31/99 e
Implementation -
(Important to
Operations) 87 05/31/99 e 73 10/31/99 e
Contingency Planning 20 06/30/99 e 35 06/30/99 e
*"a" = Actual Completion Date, "e" = Estimated Completion Date
IP has completed its awareness, inventory, assessment, and process
analysis phases. The table below provides further details differentiating
between IT and non-IT for IP alone.
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IP Status
March 1999
IT Non-IT
% Completion * % Completion *
Complete Date Complete Date
Awareness 100 02/01/97 a 100 04/29/98 a
Inventory 100 01/20/97 a 100 07/31/98 a
Assessment 100 05/09/97 a 100 09/30/98 a
Process Analysis 100 11/30/98 a 100 02/28/99 a
Implementation - **
(Mission Critical) 81 06/30/99 e 79 10/31/99 e
Implementation -
(Important to ***
Operations) 87 05/31/99 e 82 10/31/99 e
Contingency Planning 20 06/30/99 e 41 06/30/99 e
*"a" = Actual Completion Date, "e" = Estimated Completion Date
** It is currently projected that all IP mission critical items will be fully
Year 2000 ready by June 30, 1999, with the exception of one process computer
system at Clinton. However, Clinton still plans to be Year 2000 ready, per NRC
requirements, by developing contingency plans that will allow continued
operation.
*** It is currently projected that all IP important to operations items will be
fully Year 2000 ready by June 30, 1999, with the exception of three process
computer systems at Clinton and one process computer system in our fossil power
system. Contingency plans for these systems are being developed to allow
continued operations.
IT systems (such as billing, payroll, etc.) and infrastructure are
approximately 84% complete, with 100% completion projected by June 30, 1999. The
customer billing system, materials management system, accounts payable system,
power plant maintenance system, payroll system, and shareholder system have been
remediated and are now Year 2000 ready. Year 2000 work has not caused any IT
projects to be delayed, and thus no maintenance costs have been deferred.
The United States Department of Energy (DOE) has charged the North
American Electric Reliability Council (NERC) with taking the lead in
facilitating North American-wide coordination of electric utilities' Year 2000
efforts. The collective efforts of the industry will minimize risks imposed by
Year 2000 to the reliable supply of electricity. NERC has in turn assigned the
regional reliability councils the responsibility of assessing their respective
networks to ensure reliable electric supply. IP is taking an active role within
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its regional council (MAIN) in assessment and renovation of the grid and in
developing contingency plans to minimize any unexpected Year 2000 grid problems.
IP participated in the April NERC drill and is also participating in the
September NERC drill.
NERC has recommended that all "mission critical" systems needed to meet
demand and reliability obligations be Year 2000 ready by June 30, 1999. IP is
working diligently to meet the June 30, 1999, deadline. It is currently
projected that all of IP's power plants and field transmission and distribution
items will be fully Year 2000 ready by that date with the exception of one
process computer system at Clinton. Clinton still plans to be Year 2000 ready by
June 30, 1999, per NRC requirements, by developing contingency plans that will
allow continued operation.
The total cost for achieving Year 2000 readiness for Illinova is
estimated to be approximately $20.5 million through 1999. Through the end of
March 1999, $11.8 million, or 57% of the total $20.5 million had been spent.
Invoicing is lagging a few months behind when the actual work is completed, and
Clinton has had to reschedule some tasks to a later date to coincide with the
plant startup schedule.
Development of contingency plans has begun and are focused on Illinova's
"mission critical" business processes. Contingency plans are being developed in
accordance with industry guidelines, such as NERC and the General Accounting
Office, and involve senior management review and approval. These plans address
business continuity and the ability to deliver essential products and services
to customers in the event of unexpected Year 2000 problems.
Illinova is currently assessing potential worst-case scenarios. Such a
scenario might include one or both of the following events: winter storms
coupled with a significant Year 2000 system problem that compounds emergency
response efforts and/or loss of a major telecommunications carrier causes
disruptions in dispatching generation, dispatching emergency response crews, and
communications with financial institutions.
Contingency plans will address the above scenarios as well as any other
potential scenarios that could affect the ability to serve customers and
maintain the financial viability of Illinova.
DIVERSIFIED BUSINESS ACTIVITIES
In February, 1999, IEP, a wholly-owned subsidiary of Illinova, purchased
the Indiana-based natural gas management operations of Equitable Resources
Marketing Company. Equitable Resources Marketing was a subsidiary of Equitable
Resources, Inc., (ERI) of Pittsburgh, PA. ERI is an integrated energy company
that produces, markets, and distributes natural gas and oil.
In April 1999, IEP also purchased Quality Energy Services (QES), a
Tempe, AZ based natural gas marketing company.
In May 1999, IEP purchased the Chicago, IL based holdings of Energy
Dynamics, Inc., (EDI) an independent natural gas marketing firm based in Rolling
Meadows, IL.
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The 1998 combined revenues of ERI, QES, and EDI were approximately $67
million.
ENVIRONMENTAL MATTERS
GAS MANUFACTURING SITES
See "Manufactured Gas Plant Sites" under "Regulatory and Legal Matters"
of the "Notes to Consolidated Financial Statements" on page 16 of this report.
NITROGEN OXIDE
On October 27, 1998, the U.S. EPA finalized air pollution rules that
will require substantial reductions of NOx emissions in Illinois and 21 other
states. This rule will require the installation of NOx controls by May 2003,
with each Illinois utility's exact reduction requirement to be specified in
1999. Preliminary estimates of the capital expenditures needed in 2000 through
2003 to comply with these new NOx limitations are $90 million to $140 million.
NOx estimates are included in forecasted capital expenditures. The legality of
this proposal, along with its technical feasibility, is being challenged by a
number of states, utility groups, and utilities, including IP.
EMISSION ALLOWANCE EXCHANGES
The value of emission allowances expected to be given up in future
periods as the result of exchange agreements was recorded in the third quarter
1998 at the current market price and a liability of $9.8 million was recognized.
This obligation will be adjusted as price fluctuates until the allowances are
surrendered. The market value and recorded liability of the allowances at March
31, 1999, was $10.4 million.
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 1999
levels during the years 2008 through 2012 and to make further reductions
thereafter. Before it can take effect, this Protocol must be ratified by the
United States Senate. However, United States Senate Resolution 98 which passed
95-0 in July 1997, says the Senate would not ratify an agreement that fails to
include commitments for all countries or would damage the economy of the United
States. Since the Protocol does not contain these key elements, ratification
would be a major political issue. It is anticipated that a ratification vote
will be delayed until the current administration feels the Protocol could pass,
or an attractive alternative to the Kyoto Protocol is found.
IP will face major changes in the way 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.
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POWER SUPPLY AND RELIABILITY
Electricity was in short supply during the 1998 summer cooling season
because of an unusually high number of plant outages in the Midwest region. IP
bought generation and transmission capacity to prevent firm load curtailment and
took additional steps to avoid power outages, including upgrading transmission
lines and equipment, readying emergency procedures, and returning to service
five units that had been in cold shutdown. Expenses incurred as a result of the
shortage have had a material adverse impact on Illinova and IP.
The electric energy market experienced unprecedented prices for power
purchases during the last week of June 1998. IP's power purchases for 1998 were
$517 million higher than 1997 due to summer price spikes resulting in a $274
million increase in power purchased, additional purchases of $215 million to
serve increased volumes of interchange sales, and market losses of $28 million
recorded on forward power purchase and sales contracts as part of the wholesale
trading business. Income from interchange sales was $382 million higher than in
1997 due to increased sales volumes and higher prices.
IP expects to have in excess of 400 MW of additional generation on line
for the summer of 1999. This includes approximately 235 MW from five oil-fired
units which were brought up from cold shutdown during the summer of 1998 and 176
MW from four natural gas turbines that IP plans to install before the summer of
1999. Total cost for the two projects is estimated at $87 million. IP also plans
to refurbish nine gas turbines already in service at a cost of $13 million. In
addition, the restructuring of the Soyland PCA agreement freed up an additional
287 MW of capacity. IP expects to have sufficient generating capacity to serve
firm load during the periods of peak summer demand using demand-side and
supply-side initiatives taken in response to the 1998 regional supply crisis. If
generation is lost or demand is at unprecedented levels, firm load could be
curtailed.
RESULTS OF OPERATIONS
THREE MONTHS ENDED March 31, 1999 AND 1998
Electric Operations - Electric revenues for the first quarter of 1999
decreased $21.4 million compared to the first quarter of 1998 primarily due to
the 15% residential rate decrease effective August 1, 1998, and the
reclassification of revenue-related taxes mandated by deregulation legislation.
Revenue-related taxes are now accounted for as a liability, and both revenues
and general taxes are reduced. The rate decrease resulted in revenue reductions
of $17.4 million in the first quarter of 1999. The removal of $11.3 million in
excise and municipal taxes from revenue and general taxes also negatively
impacted electric revenues. These reductions were partially offset by increased
sales in 1999. Electric interchange revenues decreased $2.3 million. Interchange
activity decreased $59.0 million along with a $3.4 million expense to reflect
mark-to-market for forward contracts and options. These decreases were offset by
40
<PAGE>
a $60.1 million revenue recognition resulting from the restructuring of a
Soyland Power Cooperative power supply contract. Power purchased decreased $45.4
million due largely to decreased interchange activity. During the quarter, fuel
for electric plants decreased $4.3 million due to decreased generation and
decreased emission allowance costs. These factors combined to increase electric
margin $26.0 million for the quarter.
Kilowatt hour (kwh) sales to ultimate consumers increased 6.5% for the
quarter due to increases of 11.3% and 9.5% in the residential and the commercial
markets, respectively. Heating degree days increased approximately 12% from 1998
which contributed to the increase in sales to the temperature-sensitive markets.
For the first quarter of 1999 and 1998, Clinton was unavailable due to
the continued outage which began September 6, 1996. The equivalent availability
for IP's coal-fired plants was 77.5% and 79.5% for the three months ended March
31, 1999 and 1998, respectively.
Gas Operations - For the quarter, gas margin remained constant. Gas
revenues increased $6.5 million reflecting a 10% increase in therm sales
(excluding transport) caused by colder winter weather. Gas purchased costs
increased $6.5 million due to the higher consumption.
Operation and Maintenance Expenses - Of the current quarter increase of
$42.9 million, $29.0 million is due to higher operating and maintenance expenses
associated with the Clinton outage. This $29.0 million increase in Clinton
expenses includes $12.4 million of costs which would have been considered
capital additions had Clinton not been impaired. For more information, see
"Clinton Power Station" of the "Management's Discussion and Analysis" on pages
13-14 of this report.
Depreciation and amortization - The decrease in depreciation and
amortization for the first quarter of 1999 compared to 1998 was $6.2 million.
Due to the Clinton impairment, nuclear depreciation decreased approximately $23
million but was offset by approximately $18 million for the amortization of the
adjustment to fair value for the fossil generation assets.
Diversified enterprises - Due primarily to decreased power trading
activity at IEP, diversified enterprise revenues decreased $9.8 million for the
first quarter of 1999, which was offset by a decrease in diversified enterprise
expenses of $13.2 million.
Miscellaneous - net - Of the current quarter increase of $12.4 million,
$6.2 million is income from IGC investments not accounted for under the equity
method. Interest income increased $3.1 million primarily due to the investment
of the proceeds of the transitional funding trust notes issued in December 1998,
and the adjustment in the net present value of the decommissioning regulatory
asset. Revenues from non-utility operations also increased in the first quarter
of 1999.
Interest expense - The increase in interest expense of $6.5 million in
the first quarter of 1999 is primarily the result of interest on increased
long-term debt and the adjustment in the net present value of the
decommissioning liability, offset by lower interest charges resulting from
reduced short-term borrowings in 1999.
41
<PAGE>
Earnings per Common Share - The earnings per common share for Illinova
during the first quarter of 1999 and 1998 resulted from the interaction of all
the factors discussed herein as well as fewer shares of common stock
outstanding.
RESULTS OF OPERATIONS - ILLINOVA SEGMENTS OF BUSINESS
Customer Service
For the quarter, both the contribution margin and cash flow measures were lower
than for the corresponding quarter in 1998, primarily due to decreased electric
revenues as discussed below.
Transmission, Distribution and Sale of Electric Energy
The Customer Service Business Group derives its revenues through regulated
tariffs. Its source of electricity is the Wholesale Energy Business Group;
electricity was provided to the Customer Service Business Group at a fixed 2.9
cents per kwh in 1999 and 2.5 cents per kwh in 1998, primarily due to decreased
electric revenues as discussed below.
Retail electric revenues, excluding interchange sales, for the first quarter of
1999 decreased 7.7% over the first quarter of 1998 due to the 15% residential
decrease mandated by P.A. 90-561, which became effective July 15, 1998
voluntarily advanced by IP from the statutory effective date of August 1,
partially offset by increased kwh sales to customers. Additionally, operating
costs were higher during the first quarter of 1999 compared to the same period
in 1998.
Transmission, Distribution and Sale of Natural Gas
Revenues are derived through regulated tariffs. During the first quarter of
1999, revenues from gas sales and transportation were up 5.5%, while therms sold
and transported were up 7.7% over the first quarter of 1998. The increase in
therm sales was caused by a return to normal weather after the milder-than-usual
weather experienced in 1998. The margin on gas sales and transportation
decreased 0.2% during the period due to an increase in gas costs, offset by
decreases in both therms sold and therms transported.
Wholesale Energy
Factors leading to the increased contribution margin during the first quarter of
1999 compared to 1998 include: higher intersegment revenues in 1999 due to a new
pricing agreement; higher purchased power costs, partially offset by lower fuel
costs, due to fossil generating stations having extended outages during 1999; a
one-time credit to electric interchange revenues from the restructuring of a
power supply contract; market losses recorded on forward power purchase and
sales contracts as part of the wholesale trading business; and higher
depreciation expense due to the revaluation of fossil assets during the December
1998 quasi-reorganization.
Cash flow is lower than 1998 due to cash received in 1998 related to the power
supply contract buyout, increased expenditures for major capital projects in
1999, payments in 1999 for prepaid fuel purchases, as well as changes in current
assets and liabilities due to normal operating activity.
42
<PAGE>
Wholesale Energy provided power to the Customer Service Group at 2.9 cents per
kwh during the first Quarter of 1999 compared to 2.5 cents per kwh in 1998.
Nuclear
IP's only nuclear generating station, Clinton, did not generate electricity
during the first quarter of either 1999 or 1998. Its only revenues were those
paid by customers under a tariff rider to fund the decommissioning trust.
Nuclear's results were unfavorably affected by higher operating and maintenance
expenses and capital being expensed in 1999.
Illinova Energy Partners, Inc.
Although negative, contribution margin is slightly more favorable than in 1998
due to increased revenues and margin earned on electricity and natural gas,
offset by continuing investment in future growth and market penetration in both
the Midwest and Western United States.
Illinova Generating Company
IGC's positive contribution margin during the first quarter of 1999 compared
with the first quarter of 1998 reflect improvement due primarily to an increase
in income from investing activities. The increase in cash flows is attributed to
increased distributions from project investments.
Other
Included in this category are the Financial Business Group, the Support Services
Business Group, and Corporate. These segments did not individually meet the
minimum threshold requirements for separate disclosure.
See "Illinova Segments of Business" in the footnotes to the financial statements
on page 19 for additional information.
RESULTS OF OPERATIONS - ILLINOIS POWER SEGMENTS OF BUSINESS
Customer Service
For the quarter, both the contribution margin and cash flow measures were lower
than for the corresponding quarter in 1998, primarily due to decreased electric
revenues as discussed below.
Transmission, Distribution and Sale of Electric Energy
The Customer Service Business Group derives its revenues through regulated
tariffs. Its source of electricity is the Wholesale Energy Business Group;
electricity was provided to the Customer Service Business Group at a fixed 2.9
cents per kwh in 1999 and 2.5 cents per kwh in 1998.
Retail electric revenues, excluding interchange sales, for the first quarter of
1999 decreased 7.7% over the first quarter of 1998 due to the 15% residential
decrease mandated by P.A. 90-561, which became effective July 15, 1998
voluntarily advanced by IP from the statutory effective date of August 1,
partially offset by increased kwh sales to customers. Additionally, operating
costs were higher during the first quarter of 1999 compared to the same period
in 1998.
43
<PAGE>
Transmission, Distribution and Sale of Natural Gas
Revenues are derived through regulated tariffs. During the first quarter of
1999, revenues from gas sales and transportation were up 5.5%, while therms sold
and transported were up 7.7% over the first quarter of 1998. The increase in
therm sales was caused by a return to normal weather after the milder-than-usual
weather experienced in 1998. The margin on gas sales and transportation
decreased 0.2% during the period due to an increase in gas costs, offset by
decreases in both therms sold and therms transported.
Wholesale Energy
Factors leading to the increased contribution margin during the first quarter of
1999 compared to 1998 include: higher intersegment revenues in 1999 due to a new
pricing agreement; higher purchased power costs, partially offset by lower fuel
costs, due to fossil generating stations having extended outages during 1999; a
one-time credit to electric interchange revenues from the restructuring of a
power supply contract; market losses recorded on forward power purchase and
sales contracts as part of the wholesale trading business; and higher
depreciation expense due to the revaluation of fossil assets during the December
1998 quasi-reorganization.
Cash flow is lower than 1998 due to cash received in 1998 related to the power
supply contract buyout, increased expenditures for major capital projects in
1999, payments in 1999 for prepaid fuel purchases, as well as changes in current
assets and liabilities due to normal operating activity.
Wholesale Energy provided power to the Customer Service Group at 2.9 cents per
kwh during the first quarter of 1999 compared to 2.5 cents per kwh in 1998.
Nuclear
IP's only nuclear generating station, Clinton, did not generate electricity
during the first quarter of either 1999 or 1998. Its only revenues were those
paid by customers under a tariff rider to fund the decommissioning trust.
Nuclear's results were unfavorably affected by higher operating and maintenance
expenses and capital being expensed in 1999.
Other
Included in this category are the Financial Business Group, the Support Services
Business Group, and other corporate functions. These segments did not
individually meet the minimum threshold requirements for separate disclosure.
See "IP Segments of Business" in the footnotes to the financial statements on
page 23 for additional information.
44
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
RISK MANAGEMENT
Illinova is exposed to both trading and non-trading market risks. The
non-trading market risks to which Illinova is exposed include interest rate
risk, equity price risk, foreign currency risks, and commodity price risks. The
market risk due to trading is comprised basically of commodity price risk.
Illinova's risk management policy allows the use of financial derivative
products, like futures, swaps, and certain types of options to manage its
positions. Illinova uses various approaches to measure and monitor market risk,
which include Value-at-Risk (VaR) and position sensitivity measures to market
factors. VaR is the maximum potential loss that may be incurred on a portfolio
due to adverse movements in market factors, given a confidence level and
specified holding period. VaR does not represent the expected nor the maximum
loss that may actually occur since gains and losses may differ from those
estimated, based on actual fluctuations in market factors and changes in the
composition of the portfolio during a given evaluation period.
INTEREST RATE RISK
Illinova is exposed to interest rate risk from its financing activities,
through issuance of fixed or variable-rate debt and acquisition of bank notes.
IP is likewise exposed to interest rate risk resulting from its issuance of
fixed or variable-rate debt, commercial paper, and bank notes that it has
obtained. Interest rate exposure is managed in accordance with policy by
limiting the variable-rate exposure to a certain percentage of capitalization.
Interest rate derivative instruments are also used when deemed appropriate to
change the composition of variable to fixed-rate component. In addition, the
sensitivity of the portfolio to changes in market factors like interest rate
levels and volatility are also monitored. At March 31, 1998, there was no
interest rate derivative instrument in use.
Interest rate VaR is calculated based on a variance-covariance approach
using the RiskMetrics FourFifteen(TM) model. A 95 percent confidence level and a
one-day holding period is currently used. The interest rate risk as measured by
VaR at March 31, 1999, as compared to VaR at December 31, 1998, is given below.
- --------------------------------------------------------------------------------
(Millions of dollars) March 31, 1999 December 31,1998
- --------------------------------------------------------------------------------
VaR VaR
Illinova, including IP debt $9.2 $14.9
IP debt only $8.7 $14.2
- --------------------------------------------------------------------------------
Contributing factors to the decrease in VaR were retirement of high
coupon debt with maturities extending past the year 2020 and an increase in
commercial paper levels from that at year end. The December 31, 1998, VaR was
unusually high due to the issuance of securitized debt with the removal of
called bonds not occurring until after year end. The securitized debt has
shorter maturities than the called bonds, which further contributed to the
decrease in VaR.
45
<PAGE>
COMMODITY PRICE RISK
Trading Positions
Illinova is exposed to commodity price risk through IEP's power trading
activities and IP's trading and non-trading operations. IEP uses a
variance-covariance approach to calculate VaR, similar to the RiskMetrics(TM)
model, to monitor and control its market risk positions. IP measures, monitors,
and manages its commodity price risk using a proprietary VaR model employing a
Monte Carlo simulation technique. IP and IEP both use a 95 percent confidence
level and a five-day holding period to monitor their daily trading market risk
positions. During the quarter ended March 31, 1999, the Board approved a change
in the risk management policy, to use a five day holding period instead of a
four-day period. IP's and IEP's trading VaR at March 31, 1999, and December 31,
1998, as restated using a five day holding period follow:
- --------------------------------------------------------------------------------
March 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------
(Millions of Dollars) VaR VaR
IP $0.6 $1.4
IEP $0.1 $0.1
- --------------------------------------------------------------------------------
IP and IEP both use stress and scenario testing to control "event risk",
i.e., the risk that certain stressful market events will occur and result in a
loss. In addition, option positions are monitored using sensitivity limits such
as delta (sensitivity to price change), gamma (sensitivity of delta to price
change), and vega (sensitivity to change in implied volatility.)
Non-Trading Positions
IP is also exposed to non-trading commodity price risk through its
energy generation business. IP uses physical contracts and is authorized to use
financial derivative instruments to manage its native load requirements. To
measure, monitor, and control the commodity price risk of its non-trading
portfolio, IP uses the same proprietary Monte Carlo model used in the trading
portfolio.
The Monte-Carlo simulation process used in this VaR model generates the
power price, fuel price and load series that are used to value the generation
assets, fuel assets, and contracts entered into by the firm (e.g., tolling,
forward, call & put options). A sophisticated process is used to generate daily
and hourly prices based on historical price series and volatility, wherein
"price spikes", a recent phenomenon in the electricity markets, are modeled into
the price series. The VaR calculated by this model represents the maximum
reduction in operating margin given a 95 percent confidence level. This means
that there is only a 5 percent probability that the reduction in operating
margin from the expected margin will be greater than what is provided by the VaR
number. In this model, a sufficient number of scenarios are generated, whereby
each scenario simulates a one-year margin (one-year holding period). The
expected margin is obtained by averaging the margins calculated from all the
simulation scenarios. The VaR is obtained by sorting the simulation results from
the lowest to highest value and taking the 95th percentile worst case value.
46
<PAGE>
Since the new VaR methodology was implemented only at the beginning of
March 1999, there is no comparable VaR number at December 31, 1998. The VaR for
the non-trading portfolio at March 31, 1999 using a five-day holding period is
$11.6 million.
The overall IP electricity portfolio is also controlled using quarterly
expected margin reduction limits. In this process, the difference between the
current expected margin and last quarter's expected margin is monitored against
the quarterly limits. To control "event risk", IP measures the "Stress-VaR",
i.e., the VaR calculated using assumptions similar to the events that led to the
electricity price spikes in June 1998. The "Stress-VaR" is monitored against
stress limits that were approved by the Board.
FOREIGN OPERATIONS RISK
Illinova's foreign operations risk is its inherent risk of loss due to
the potential volatility of emerging countries and fluctuations in foreign
currency exchange rates in relation to the U.S. dollar. At March 31, 1999, IGC
had invested $169 million in several international operations, many of which are
joint ventures. Primarily, these investments are with affiliates owning
energy-related production, generation, and transmission facilities.
IGC is exposed to foreign currency risk, sovereign risk, and other
foreign operations risks, primarily through investments in affiliates of $47
million in Asia and $119 million in South and Central America. To mitigate risks
associated with foreign currency fluctuations, the majority of contracts entered
into by IGC or its affiliates are denominated in or indexed to the U.S. dollar.
OTHER MARKET RISK
Illinova is exposed to equity price risk primarily through IP. IP
maintains trust funds, as required by the NRC, to fund certain costs of nuclear
decommissioning. As of March 31, 1999, these funds were invested in domestic and
international equity securities, fixed income securities, and cash and cash
equivalents. By maintaining a portfolio that includes equity investments, IP is
maximizing the return to be used to fund nuclear decommissioning, which in the
long term will correlate better with inflationary increases in decommissioning
costs. The equity securities included in the corporation's portfolio are exposed
to price fluctuations in equity market risk as a result of fluctuations in
interest rates. IP actively monitors its portfolio by benchmarking the
performance of its investments against equity and fixed-income indexes. It
maintains and periodically reviews established target allocations of the trust
assets approved in the investment policy statement. VaR at March 31, 1999,
calculated based on a 95 percent confidence level and a one day holding period
follows:
- --------------------------------------------------------------------------------
(Millions of dollars) Value-at-Risk
- --------------------------------------------------------------------------------
IP $1.4
- --------------------------------------------------------------------------------
47
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibits filed with this 10-Q/A are listed on the Exhibit Index.
(b) Reports on Form 8-K since December 31, 1998:
Report filed on Form 8-K on February 12, 1999
Item 7: Illinova announces continued
work toward restarting Clinton Power
Station and pursuit of negotiations
with potential buyers.
Report filed on Form 8-K/A on March 3, 1999
Item 5, Other Events: Press release: Illinova
releases 1998 year end earnings.
Item 7, Exhibits: Illinova Consolidated
Income Statements.
Report filed on Form 8-K/A on April 19, 1999
Item 5, Other Events: Press Release: Illinova
Releases 1999 first quarter earnings,
Announces expected sale of Clinton to AmerGen.
Item 7, Exhibits: Illinova Consolidated
Income Statements.
48
<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)
/s/Larry F. Altenbaumer
---------------------------
Larry F. Altenbaumer
Senior Vice President,
Chief Financial Officer,
Treasurer and Controller
on behalf of
Illinova Corporation
Date: May 17, 1999
49
<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)
/s/Larry F. Altenbaumer
---------------------------
Larry F. Altenbaumer
Senior Vice President and
Chief Financial Officer
on behalf of
Illinois Power Company
Date: May 17, 1999
50
<PAGE>
EXHIBIT INDEX
PAGE NO. WITHIN
SEQUENTIAL NUMBERING
EXHIBIT DESCRIPTION SYSTEM
10 Material Contracts 52 - 118
27 Financial Data Schedule UT
(filed herewith)
51
<PAGE>
March 31, 1999
Mr. Charles Bayless
Chairman
Illinois Power Company
500 South 27th Street
Decatur, Illinois 62521
Re: Interim Agreement Relative to the Clinton Nuclear Power Station
Dear Mr. Bayless:
Reference is hereby made to that certain Agreement between Illinois
Power Company ("IP") and PECO Energy Company ("PECO") dated as of January 15,
1998, as amended by that certain Incentive Compensation Agreement to Amend the
Management Services Agreement dated as of May 19, 1998 (collectively, the
"Management Agreement"), whereby PECO has been providing management services to
IP in connection with the restart of IP's 930 MWE Clinton Nuclear Power Station
("Clinton"). PECO and IP have been in discussions concerning the possibility of
a sale or abandonment (hereinafter, "sale") by IP of Clinton to PECO or AmerGen
Energy Company ("Buyer"), a nuclear operating company owned by PECO and British
Energy. The parties intend promptly to negotiate a Definitive Agreement which
will contain the definitive terms and conditions relative to the sale of Clinton
and additionally to negotiate certain Ancillary Agreements, including a Power
Purchase Agreement ("PPA") and Interconnection Agreement, which will be entered
into in connection with the sale. The purpose of this Interim Agreement is to
(i) set forth certain rights, obligations and agreements of the parties during
the term of this Interim Agreement, (ii) provide for certain amendments to the
Management Agreement which are set forth in an Amendment No. 2 effective April
1, 1999, to be executed by IP and PECO in the form attached hereto as Exhibit A,
(iii) provide for the execution by IP. PECO and the designated Chief Nuclear
Officer of Clinton of a Leased Employee Agreement of even date in the form
attached hereto as Exhibit B, (iv) provide for the modification by the parties
of the Confidentiality Agreement dated March 12, 1999 attached hereto as Exhibit
C, to provide for an extension of the Exclusivity Period as described in
Paragraph 4 hereof, and (v) to establish certain business points which will
guide the parties in their negotiation of the Definitive Agreement.
1. Negotiation of Definitive Agreement and Ancillary Agreements
This Interim Agreement shall become effective on the date (the
"Effective Date") that this Interim Agreement is ratified and approved by the
Board of Directors of IP. Following the Effective Date and during the
Exclusivity Period, IP and the Buyer shall use their respective best efforts to
negotiate the Definitive Agreement and all Ancillary Agreements necessary or
desirable to complete and provide for the sale of Clinton by IP to Buyer. Buyer
is completing due diligence of Clinton, and IP is making available to Buyer such
<PAGE>
information, including confidential information, as Buyer has to date reasonably
requested. The parties will endeavor to complete the negotiation of the
Definitive Agreement and Ancillary Agreements during the Exclusivity Period but
the parties will have no obligations to each other except as specifically
provided for in this Interim Agreement, the Confidentiality Agreement, the
Management Agreement as amended by Amendment No. 2 thereto and the Leased
Employee Agreement, and as may hereinafter be provided by the Definitive
Agreement and the Ancillary Agreements. Without in any way binding the parties
hereto (the parties being bound with respect to these matters only to the extent
and as provided for in the Definitive Agreement as may hereafter be executed by
the parties), it is intended that the Definitive Agreement and the Ancillary
Agreements thereto will reflect the following business points between the
parties as such business points may be amplified or supplemented through
negotiation of the parties and set forth in the Definitive Agreement and
Ancillary Agreements:
(a) Purchase Price
At the closing of the sale of Clinton under the Definitive Agreement
(the "Closing"), which Closing shall be within ten (10) days after satisfaction
or waiver of all conditions precedent to the Closing, Buyer will pay IP
$20,000,000 for all of IP's right, title and interest in and to Clinton
including all IP equipment, spare parts, fixtures, inventory, nuclear fuel and
other property of any kind necessary for the operation and maintenance of
Clinton. IP has indicated that it desires to exclude from the sale certain lands
and facilities which are not necessary for the safe, efficient and economic
operation of Clinton. The Definitive Agreement shall identify the particular
portions of the Clinton site and facilities which IP and Buyer agree will be
excluded from the sale, subject to appropriate conditions to meet regulatory
requirements. Buyer shall have the right to contract for any necessary
transmission service under IP's Open Access Transmission Tariff and for back-up
power to the site consistent with NRC requirements and current arrangements.
(b) PPA
Ancillary to the Definitive Agreement will be a PPA providing for
IP's purchase of energy from Clinton for the period from Closing through
December 31, 2004. In addition to such other terms, conditions and
amplifications the parties may negotiate, the PPA will reflect the following
basic understandings:
IP will purchase and the Buyer will deliver to IP on an as-available
(or Unit output) hourly basis the following percentages of the actual net
electric output of Clinton:
Year 1999 2000 2001 2002 2003 2004
% output 80 xx xx xx xx xx
IP will pay for such output (with pricing reflecting all charges,
including energy and capacity) at the following general price levels, provided,
however, that such prices will be modified by mutual agreement to reflect
seasonality (canted to strongly incentivize the Buyer to maximize output at
Clinton during the summer months) and "on" and "off" peak periods on an hourly
basis:
Year 1999 2000 2001 2002 2003 2004
Price per MWH $xx $xx $xx $xx $xx $xx
<PAGE>
(c) Decommissioning Liability
At the Closing, IP will make or cause to be made such additional cash
deposits as are necessary to the Clinton Qualified and Nonqualified
Decommissioning Trusts (together with any other trusts into which the current
trusts may be liquidated or the current trust funds may be transferred, the
"Decommissioning Trusts") in order to ensure that the liquidated value of the
aggregate trust corpus of the Decommissioning Trusts is not less than
$95,000,000. On each of the next six (6) anniversary dates of the Closing, IP
wil deposit or cause to be deposited an additional $30,000,000 in such
Decommissioning Trusts subject to the NRC approval of such funding as an
acceptable method of demonstrating reasonable assurance of such funding in
accordance with 10 CFR ss.50.75 (e)(v) and IP providing such additional
assurance of payment as may be mutually agreed to by IP and Buyer. IP and the
Buyer shall cooperate in obtaining federal and state approvals to permit these
additional contributions to be made to the Qualified Trust contained in the
Decommissioning Trusts to the maximum extent practicable. The parties intend
that to the extent practicable the Buyer will take control of the
decommissioning funds, but in any event the parties agree that neither IP nor
any of its affiliates will have any liability following the Closing with respect
to the decommissioning of Clinton except to the extent of the aforementioned
funding of the Decommissioning Trusts at the time of the Closing and IP's
liability to make the six (6) anniversary payments following the Closing. Except
as set forth in the immediately preceding sentence, at Closing Buyer will assume
and be responsible for all other liability with respect to the decommissioning
of Clinton. It will be a condition to the Closing that either through the
receipt of favorable rulings from the Internal Revenue Service, changes in
existing tax law and/or the regulations thereunder or other circumstances, the
Buyer is satisfied that the transfer of the assets represented by the
Decommissioning Trusts on a tax-free or tax-efficient basis can be accomplished
and that the maintenance of the Qualified and Nonqualified Decommissioning Trust
funds post-Closing can be accomplished without negative tax implications for the
assets of the Decommissioning Trusts or the Buyer. Similarly, it will be a
condition to Closing that IP must be satisfied that any chosen structure will
neither result in adverse tax consequences to IP (such as, but not limited to,
inability to deduct its payments into the Decommissioning Trusts, increased
amounts realized on the sale or other income recognition which are not offset by
deductions or losses, its inability to collect its decommissioning tariff from
the Illinois taxpayers on a tax effective basis, or a recapture of the Qualified
or Nonqualified Decommissioning Trusts) nor jeopardize IP's legal entitlement to
continue to collect such decommissioning tariff in no less than the aggregate
amounts now envisioned under such tariff.
(d) Spent Fuel Fees
IP will continue to pay or cause to be paid all spent fuel disposal
fees now in effect or subsequently imposed for nuclear fuel burned at Clinton
prior to Closing. On and after the Closing, Buyer will assume the liability for
payment of all spent fuel disposal fees for fuel burned on or subsequent to
Closing. Fuel burned shall be determined by electricity generated in accordance
with Department of Energy Regulations.
(e) Decommissioning and Decontamination Fee
<PAGE>
IP will continue to pay or cause to be paid to the Department of
Energy the annual decontamination and decommissioning fees associated with
Clinton fuel enriched and burned prior to the Closing.
(f) Insurance
IP will maintain in effect until the Closing substantially the same
level of property damage and liability insurance for Clinton as is currently in
effect. As of the date of Closing, IP shall retain all rights to (i) its member
insurance accounts in Nuclear Electric Insurance Limited ("NEIL"), and (ii) its
future nuclear insurance distributions and credits from both NEIL and American
Nuclear Insurers ("ANI") including, but not limited to, shutdown credits earned
by IP through the date of Closing. Alternatively, upon mutual agreement of the
parties, IP shall transfer its rights referenced in clauses (i) and (ii) of the
immediately preceding sentence to Buyer at the Closing, subject to the approval
of NEIL and/or ANI, if required, in return for a lump sum payment from Buyer to
IP in an amount to be mutually agreed upon by the parties.
(g) Employees
As of the Closing, Buyer will employ consistent with its business
needs the IP employees then working at Clinton and those fully dedicated to
Clinton who are on Clinton's budget and payroll and Buyer will be given the
opportunity, subject to agreement by IP and Buyer as to the particular
individuals involved, to offer positions to IP headquarters staff whose job
responsibility is to provide support for Clinton. Buyer will recognize the
unions which currently represent employees at Clinton and will adopt pension and
other employee benefit plans and arrangements for Clinton employees which will
provide substantially similar benefits to such employees retained by Buyer as
such employees would receive under IP's plans and programs in effect as of the
date of Closing. IP and Buyer shall agree in the Definitive Agreement to develop
a transition plan in accordance with Sections 16-128 of the Illinois Public
Utilities Act to be offered to employees of Clinton prior to and following
Closing. IP will be responsible for implementing and funding the transition plan
for employees at Clinton who are not transferred to (employed by) Buyer and for
applicable severance obligations owing to any transferred employees lawfully
terminated (except for cause) by Buyer during the twenty-four (24) month period
following Closing. Following its employment of the employees referenced above,
the Buyer will comply with the provisions of Section 16-128 of the Illinois
Public Utilities Act. As soon as practicable following the Closing, IP will
transfer or cause to be transferred to defined contribution plans established
and/or already maintained by the Buyer an amount equal to the assets (including,
but not limited to, promissory notes evidencing loans from IP's corresponding
defined contribution plans to transferred employees that are outstanding as of
the transfer date) representing the account balances of all transferred
employees. This transfer will be done in the most practical and effective method
in order to ensure compliance with the Internal Revenue Code and the Employee
Retirement Income Security Act. As soon as practicable after the Closing, Seller
shall cause to be transferred from Seller's pension and welfare benefit plans to
Buyer or its affiliates an amount (the "Benefit Assets Transfer Amount") equal
to the total of (i) an amount to be mutually agreed upon by the parties based
upon the projected costs to cover pension benefit obligations owing to Seller's
transferred employees, (ii) an amount to be mutually agreed upon by the parties
equal to the value of retiree medical and life insurance benefits for each
transferred employee accrued through the date immediately preceding Closing,
less (iii) any payment made to or in respect of any transferred employee who
<PAGE>
retires or otherwise terminates employment with Buyer after Closing and before
the date of the transfer of such assets. With respect to the preceding sentence,
a dollar for dollar adjustment to the purchase price shall be made in the event
that compliance with applicable law results in the actual assets transferred to
Buyer being different than the assets that would have been transferred if the
asset calculation were undertaken using mutually approved long-term actuarial
assumptions, including, but not limited to, long-term trust earnings.
(h) Approvals
The Definitive Agreement will contain provisions which make the
Closing subject, among other things, to receipt of all necessary federal, state
and local regulatory approvals as well as the expiration of applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act. These approvals
must contain no terms or conditions which would cause a material adverse effect
on the value of Clinton or on the cost of the transaction to IP and shall be
otherwise reasonably satisfactory to the parties. The parties will cooperate
with each other and use their respective best efforts to obtain the necessary
regulatory approvals as promptly as practicable following the execution of the
Definitive Agreement.
(i) Closing Conditions
The Definitive Agreement shall contain provisions which condition each
party's obligation to proceed with the Closing on all Closing conditions having
been satisfied or waived by the appropriate party within eighteen (18) months of
the execution of the Definitive Agreement. A further condition to Closing will
be the requirement that Clinton has at any instant in time subsequent to March
15, 1999 and on or before December 31, 1999 actually generated electric energy
and been synchronized to the grid. In addition to such Closing conditions
described herein, the Definitive Agreement will contain such further Closing
conditions as are negotiated by the parties.
(j) Environmental Matters
To the extent that IP has not already conducted or had conducted a
Phase I environmental site assessment reasonably satisfactory to Buyer of the
Clinton land and facilities to be transferred, Buyer may, at its expense, have a
Phase I and/or Phase II environmental site assessment conducted by environmental
consultants mutually agreeable to IP and Buyer to identify any recognized
environmental condition for which a release notification would be required to be
made to any state or federal agency having jurisdiction or which would pose an
imminent or substantial endangerment to human health or the environment under
applicable environmental laws. IP and Buyer shall mutually agree on (i) whether
any remediation is necessary with respect to any such recognized environmental
conditions, (ii) what type of remediation should be performed, if any, and (iii)
who will conduct such remediation. IP shall cause any mutually agreed upon
remediation to be performed prior to Closing, or IP shall pay to Buyer the
estimated cost for any uncompleted mutually agreed upon remediation or make
appropriate arrangements to indemnify Buyer therefor. From and after the
Closing, Buyer shall assume, and shall indemnify IP with respect to, all
environmental liabilities and obligations at the site; provided however, that IP
shall indemnify Buyer for environmental liabilities arising from waste disposal
or treatment of waste at the site or other waste disposal activities of IP which
occurred off-site prior to Closing.
<PAGE>
(k) Property Tax
The Definitive Agreement will provide for (i) the allocation of
property taxes on the basis of the percent of the tax year that Clinton is owned
by IP and the Buyer, and (ii) the allocation of transfer taxes on a 50-50 basis
between IP and Buyer.
2. Publicity
The parties must mutually agree on any news release, press statement or
other public announcement relating to this Interim Agreement or the proposed
sale of Clinton to the Buyer, which agreement in either case shall not be
unreasonably withheld or delayed, except either party may disclose the
transaction to the extent it is advised by counsel that such disclosure is
required under applicable regulatory provisions, securities laws or the rules of
the New York Stock Exchange. Notwithstanding the foregoing, no party will
disclose the existence of this Agreement prior to the Effective Date, except as
otherwise provided in Paragraph 6 herein.
3. Transaction Costs
Each party shall bear its own costs related to this Agreement and the
agreements exhibited herein, the Definitive Agreement and the Ancillary
Agreements, to the provision, receipt and examination of due diligence
materials, and to any other transaction costs, including the cost of legal,
technical and financial consultants and the cost of any necessary or appropriate
regulatory filings and/or prosecuting applications for required regulatory
approvals, except as may otherwise be provided in the Definitive Agreement.
4. Exclusivity
Buyer shall have the exclusive right to negotiate with IP for the sale
of Clinton during the Exclusivity Period to the extent and in the manner
provided for in paragraph 10 of the Confidentiality Agreement; provided,
however, that the Exclusivity Period shall continue in effect from the execution
of this Agreement until the execution of a Definitive Agreement or 5:00 p.m.
Decatur, Illinois time June 15, 1999, whichever first occurs.
5. Other Agreements
Concurrently with the execution of this Interim Agreement, the
appropriate parties will execute and deliver to each other Amendment No. 2 to
the Management Agreement and the Leased Employee Agreement (together with the
Confidentiality Agreement, as modified hereby, the "Other Agreements").
6. Regulatory Filings: Cooperation
At the time of the execution of this Interim Agreement, the parties
hereto will confer as to whether this Interim Agreement, any of the Other
Agreements or the transactions to be implemented under any of them require or
make advisable (i) the filing of any documents, notices, requests or
<PAGE>
applications for approval with any state, local or federal government or
regulatory agency, and/or (ii) the appearance before or personal contact with
the appropriate personnel at any such governmental body or agency. To the extent
that any of the foregoing is determined by the parties to be necessary or
advisable, the parties will cooperate with one another and use their respective
best efforts to initiate and complete such necessary or appropriate action in
the most effective and prompt fashion practicable.
7. Term
If the Definitive Agreement is executed by the parties prior to June
15, 1999, this Interim Agreement will terminate upon the earlier to occur of the
date of the Closing or the effective date of the termination of the Definitive
Agreement, unless the Definitive Agreement otherwise provides. Otherwise, this
Interim Agreement will terminate at midnight on December 31, 1999.
8. Governing Law
This Interim Agreement shall be governed by, and construed, interpreted
and enforced in accordance with, the laws of the State of Illinois without
regard to the conflict of law provisions thereof.
9. No Waiver: Amendment
No failure or delay by any of the parties in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder. This
Interim Agreement shall not be modified, supplemented or amended except by a
writing signed by all parties hereto.
<PAGE>
Sincerely,
PECO Energy Company
By:_________________________
Paul E. Haviland
Vice President
AmerGen Energy Compay
By:_________________________
Name:____________________
Title:___________________
Agreed to and accepted:
ILLINOIS POWER COMPANY
By: /s/David W. Butts
--------------------------
Name: David W. Butts
Title: Sr. Vice President
<PAGE>
Exhibit A
AMENDMENT NO. 2
THIS AMENDMENT AGREMENT (the "Amendment") is made and entered into this
31st day of March, 1999, to be effective as of the "Effective Date" (as
hereinafter defined), by and between PECO ENERGY COMPANY, a Pennsylvania
corporation ("PECO"), and ILLINOIS POWER COMPANY, an Illinois corporation
("IP").
WHEREAS, PECO and IP entered into that certain Agreement dated as of
January 15, 1998, as amended by that certain Incentive Compensation Agreement to
Amend the Management Services Agreement dated as of May 19, 1998 (the "Incentive
Compensation Amendment"), the terms of which are incorporated by reference
herein (such Agreement as so amended being hereinafter referred to as the
"Management Agreement");
WHEREAS, the Management Agreement provides for the provision of certain
management services by PECO to IP in support of outage recovery efforts and
operation of IP's Clinton Power Station ("CPS");
WHEREAS, IP, PECO and AmerGen Energy Company ("AmerGen") have entered
into an Interim Agreement of even date herewith (the "Interim Agreement") (which
Interim Agreement shall become effective on the date that it is ratified and
approved by the Board of Directors of IP (the "Effective Date")), in
anticipation among other things of (i) PECO's or AmerGen's purchase of CPS
(pursuant to the terms and conditions of a to-be-negotiated and executed
definitive asset purchase agreement (the "Definitive Agreement")) and (ii) a
revised fee arrangement under the Management Agreement and the assumption of
certain O&M and capital costs relative to CPS by PECO; and
WHEREAS, the parties hereto desire to amend the Management Agreement,
effective as of the Effective Date, in the manner set forth herein to provide,
among other things, for changes in the compensation for PECO's management of CPS
during the period that the Interim Agreement is in effect, or as otherwise
provided for in the Definitive Agreement;
<PAGE>
NOW, THEREFORE, FOR AND IN CONSIDERATION OF the mutual promises and
covenants hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. The Management Agreement is hereby amended by deleting the seventh sentence
of Article 3.1.1 in its entirety and inserting in lieu thereof the following
sentence:
The Parties recognize and agree that notwithstanding any duties the CNO
will have by virtue of his position in IP, the CNO may share
information regarding Clinton Power Station with PECO management,
including information regarding plant status, plant condition, budgets,
future needs for repairs, replacements, modifications and costs, plant
staff performance, labor relations, regulatory issues, and local
conditions and issues; provided, however, that in no event may the CNO
disclose information to PECO management (i) which is privileged to IP
(including but not limited to the attorney client communication
privilege and work product doctrine), or (ii) the disclosure of which
would constitute a breach of a confidentiality or nondisclosure
agreement to which IP is bound with another party or a violation of
law; provided further that any information shared by CNO with PECO
management shall be subject to the non-disclosure provisions of Article
15 of this Agreement and to the terms of the Confidentiality Agreement
among IP, PECO and AmerGen Energy Company dated March 12, 1999, as
amended from time to time, which is incorporated by reference herein.
2. The Management Agreement is hereby amended by deleting Articles 5.1, 5.2,
5.3, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 5.11, 5.12, Attachments A and B, and
Article 3 of the Incentive Compensation Amendment in their entirety and
inserting in lieu thereof the following Articles 5.1, 5.2, 5.3, 5.4, 5.5, 5.6,
5.7, 5.8, 5.9, 5.10 and 5.11 which read in their entirety as follows:
5.1 Direct Operating and Maintenance and Capital Costs Reimbursement
Commencing as of April 1, 1999, PECO shall be responsible for the
payment of all direct operating and maintenance ("O&M") costs and
direct capital costs incurred by IP and allocable to the operation of
CPS. The specific categories of such O&M and capital costs for which
PECO shall be responsible are set forth on Attachments A.1, A.2 and
A.3, respectively, which Attachments are incorporated herein by
reference. The Parties will confer with each other to ensure that the
categories of costs set forth on Attachments A.1, A.2 and A.3
constitute reimbursable direct O&M and capital costs of IP allocable to
the operation of CPS. Notwithstanding the foregoing prior to the
scheduled November, 1999 purchase of fuel, IP will confer with PECO as
to the timing of such purchase and the treatment of such purchase if
the Closing under the Definitive Agreement does not occur. IP shall
<PAGE>
remain responsible for all other costs attributable to the operation of
CPS, including, for example: pension, benefits and payroll tax
payments; real property taxes; DOE spent fuel fees; DOE decommissioning
and decontamination fees, if any; and contributions to the CPS
decommissioning trust funds.
IP shall submit to PECO invoices for each calendar month detailing all
O&M and capital costs incurred or accrued by IP with respect to such
month and reimbursable or payable, as the case may be, by PECO
hereunder. Within fifteen (15) days of receipt of such invoice, PECO
shall by wire transfer pay the invoiced amount, subject to PECO's right
to dispute the invoice pursuant to Article 5.7. Other than as expressly
provided in such Article 5.7, such payments are non-refundable.
Invoices to PECO will be submitted to:
Charles P. Lewis
PECO Nuclear
965 Chesterbrook Boulevard
Wayne, Pennsylvania 19087
Fax No.:
and may, at IP's election, be submitted by first class or priority mail,
courier, fax or hand delivery.
5.2 PECO Management Fee
Commencing as of April 1, 1999, in consideration for all services,
payments and reimbursements provided by PECO under this Agreement,
including without limitation the On-Site Management Services and
Additional Services, and in lieu of any and all other fees and
incentive payments accrued as of, or otherwise payable after, April 1,
1999, IP shall, in addition to the provision of electric energy as
provided in Article 5.3, pay as provided in the next paragraph to PECO
a management fee ("Management Fee") of $xx.xx for each megawatt-hour
("Fee Hour") of electric energy contained during the period commencing
April 1, 1999 and ending December 31, 1999 in the Net Electric Output
of CPS after subtracting therefrom the Electric Output Entitlement, as
such terms are defined in Article 5.3. For months commencing after
December 31, 1999, the Management Fee shall be calculated consistent
with the pricing provided for in the Power Purchase Agreement to be
negotiated in connection with (and attached as an Exhibit to) the
Definitive Agreement.
Commencing with the month immediately following the first calendar
month after March 1999 that CPS generates Net Electric Output which is
measurable, IP will by the last day of each month provide to PECO a
statement setting forth the Net Electric Output of CPS for the
preceding month along with a calculation of the Management Fee based
thereon and shall concurrently make payment of such indicated fee to
PECO by wire transfer. PECO shall be entitled to dispute such statement
in accordance Article 5.7 hereof.
5.3 PECO Entitlement to Electric Output
<PAGE>
As additional consideration for On-Site Management Services and
Additional Services provided by PECO, IP shall be obligated to deliver
to PECO 20% of the Net Electric Output of the CPS (the "Electric Output
Entitlement"), if any, generated after March 31, 1999 during term of
this Agreement. For purposes of determining the amount of the Electric
Output Entitlement to be delivered to PECO pursuant to this Article
5.3, the Net Electric Output of CPS shall be defined as follows:
[Within fifteen (15) business days following the execution of
this Amendment, the Parties shall negotiate a supplement to
this Amendment pursuant to which the Parties shall agree on
procedures for calculating the Net Electric Output of CPS
prior to and following installation of the revenue-grade
metering discussed in the following paragraph, as well as the
metering points necessary to calculate the Net Electric Output
and Station Service Energy.]
The Parties recognize and agree that the current metering equipment and
system at the CPS (the "Metering System") is not optimal and
modifications to improve the Metering System are needed. The Parties
shall mutually agree upon the modifications and upgrades required to
convert the Metering System to the level of revenue-grade metering as
well as how the costs of such modifications and upgrades shall be
allocated between the Parties.
PECO shall be notified of and shall have the right to have a
representative present at any test, inspection, adjustment,
maintenance, installation or replacement of any part of the Metering
System performed by IP or its agents. IP will test the Metering System
for accuracy at least once each year. In addition, IP will also conduct
a test, at any time within thirty (30) business days after a request by
PECO, if PECO reasonably believes that the Metering System is
inaccurate by more than two percent (2%). PECO may have a
representative present during all testing. The costs of such tests
requested by PECO shall be borne one-half by PECO an one-half by IP;
provided, however, that if a test requested by PECO indicates that the
Metering System is accurate to within two percent (2%), PECO shall bear
the full costs of such test.
IP shall be responsible for delivery of the Electric Output Entitlement
to the Delivery Point and shall have no obligation, responsibility or
liability for making arrangements for or the costs for the transmission
of the Electric Output Entitlement beyond the Delivery Point, including
but not limited to, transmission and ancillary service costs and
congestion costs. IP shall provide for transmission service in
accordance with IP's Open Access Transmission Tariff on file with the
FERC.
The Electric Output Entitlement shall be unit specific from the CPS
and, except as expressly set forth above, IP shall have no minimum or
maximum delivery obligations over any time period. If CPS is
unavailable in whole or in part, IP shall have no obligation to supply
back-up energy to PECO.
The transaction contemplated by IP and PECO in this Section 5.3 is a
wholesale power sale for resale pursuant to IP's Power Sales Tariff
(the "PS Tariff") on file with the Federal Energy Regulatory
Commission. IP and PECO have previously executed a "Form of Agreement
<PAGE>
for Electric Service" pursuant to the PS Tariff, dated as of October 3,
1996. IP and PECO desire for this transaction to occur pursuant to this
Form of Agreement for Electric Service.
Other than as provided for in this Article 5.3 and in Article 5.2, PECO
shall not be entitled to receive from IP any other compensation or
payment for, or in respect of, any services or performance rendered
under this Agreement.
5.4 Billing Estimates and Adjustments
If either Party renders an invoice or statement on an estimated basis,
any adjustment to such invoice or statement shall be made in the
subsequent month's invoice or statement, as appropriate. Each invoice
or statement shall be subject to adjustment for errors in arithmetic,
computation, meter readings, or other errors, until twelve months after
the date each respective invoice or statement was rendered.
5.5 Record Retention and Audit Rights
IP and PECO shall both keep complete and accurate records and all other
data required by either of them for the purpose of proper
administration of the Agreement, including such records as may be
required by state or federal regulatory authorities. All such records
shall be maintained for a minimum of five (5) years after the creation
of the record or data and for any additional length of time required by
state or federal regulatory agencies with jurisdiction over IP and
PECO. IP and PECO, on a confidential basis as provided for in Article
15 of this Agreement, will provide reasonable access to the relevant
and appropriate financial and operating records and data kept by the
other relating to this Agreement necessary for such Party to comply
with its obligations to federal and/or state regulatory authorities,
through the use of a mutually agreed upon third party auditor. The
Party seeking access to such records in this manner shall pay 100% of
the fees and expenses associated with use of the third party auditor.
5.6 Late Payment
If either IP or PECO fails to pay any amount due under this Agreement
in full, when due, then such Party shall be required to pay interest on
the unpaid or late amount, which shall accrue from the date payment was
due through the date payment is made at a daily rate equal to the lower
of (a) the highest daily prime interest rate published in the Wall
Street Journal on the date of, or the next business day following, the
invoice due date, or (b) the highest daily rate allowed under
applicable law. Any over-payments or under-payments shall bear interest
as provided above and shall be assessed from the time of the over or
under payment to the date of the refund or payment thereof.
5.7 Disputed Invoices or Statements
Management Fees and O&M/capital costs payable hereunder shall not be
subject abatement or setoff and shall be paid in full when due. If
either Party disputes an invoice or statement or any part thereof, it
nevertheless shall make the payment due in full but may dispute the
invoice or statement in the manner prescribed in Article 12, but only
<PAGE>
if Notice of such dispute is provided to the other Party within one
year of the date of the invoice or statement.
5.8 Proration
If this Agreement is terminated effective on a day other than the last
day of a calendar month, the Management Fee, O&M costs and capital
costs due for that month hereunder shall be prorated based on the ratio
of the number of days of such month that this Agreement is in effect to
the total number of days in such month.
5.9 Payment by Wire
Unless otherwise specified in writing by the receiving Party, all
payments made under this Agreement shall be by wire transfer of
immediately available funds to a bank account specified in writing by
PECO or IP, respectively, and in accordance with the instructions
provided by each Party.
5.10 Taxes
Any and all taxes, fees and assessments based on the payment or receipt
of Management Fees or the Electric Output Entitlement, whether paid in
cash or power, shall be borne by PECO. PECO, at its own expense, will
file any documentation required by governmental authorities with
respect to such payment or receipt of Management Fees or the Electric
Output Entitlement.
5.11 Separation Costs
Except as may be otherwise provided in the Definitive Agreement,
separation agreements with any IP employee, or any PECO employee
providing services pursuant to this Agreement, who is outplaced during
the term of this Agreement shall be the sole financial responsibility
of the employing Party, either IP or PECO, as the case may be, or as
specified in any Leased Employee Agreement among the Parties and any
employee.
3. The Management Agreement is hereby amended by deleting Article 7.2 in its
entirety and inserting in lieu thereof the following Article 7.2, which reads in
its entirety as follows:
7.2 Limit on PECO Liability
PECO's aggregate liability to IP, exclusive of indemnification
obligations, arising out of this Agreement or the performance thereof
in any calendar year, whether arising in contract, tort or otherwise
(including strict liability), shall not exceed the greater of (a)
$20,000,000.00, or (b) the aggregate fees paid to PECO by IP under this
Agreement for all periods prior to April 1, 1999 plus the product of
$10.00 multiplied by the aggregate number of Fee Hours against which IP
has paid Management Fees to PECO.
<PAGE>
4. The Management Agreement is hereby amended by deleting Article 11.1 in its
entirety and inserting in lieu thereof the following Article 11.1, which reads
in its entirety as follows:
11.1 Termination Without Cause
This Agreement shall terminate on the date of the Closing
pursuant to the Definitive Agreement contemplated by the Parties for
the sale of CPS to PECO. In the event of the termination of the Interim
Agreement without the Parties having entered into and executed a
Definitive Agreement, this Agreement will terminate on December 31,
1999. In the event that a Definitive Agreement is entered into and
executed by the Parties, but is terminated without a Closing for the
sale of CPS, then this Agreement will terminate on the later to occur
of (i) December 31, 1999, or (ii) the effective date of termination of
the Definitive Agreement. At any time after termination of the
Exclusivity Period as described in the Interim Agreement and unless
otherwise provided in the Definitive Agreement, if any, IP may
terminate this Agreement by providing 180 days written Notice of
termination to PECO, such termination to be effective as of the date of
the Notice or, upon mutual agreement of the Parties, as of any other
date. Except as provided in Article 20.10, termination in accordance
with this Article 11.1 shall discharge both Parties from all
obligations and duties under this Agreement that have not become
payable as of the effective date of termination. Upon the provision of
a Notice of termination pursuant to this Article 11.1, or beginning
September 1, 1999, in the event that a Definitive Agreement has not
been executed, the Parties shall work in good faith to provide for the
expeditious replacement of PECO personnel and transition of
responsibility and work in progress in a safe and orderly manner, with
the actual length of transition to be established by IP. The Term of
this Agreement shall extend until the effective time of any termination
thereof pursuant to this Article 11.
5. The Management Agreement is amended by deleting Article 18 in its entirety.
6. The Management Agreement is hereby amended by deleting Article 20.15 in its
entirety and inserting in lieu thereof the following Article 20.15, which reads
in its entirety as follows:
20.15 Employee Status
Except as otherwise provided in the Definitive Agreement, during the
term of this Agreement and for a period of eighteen months thereafter,
PECO shall not, directly or indirectly, initiate offers of employment
or hire any IP employees, without IP's prior written consent. During
the term of this Agreement and for a period of eighteen months
thereafter, IP shall not, directly or indirectly, initiate offers of
employment or hire any personnel employed by PECO who has provided
On-Site Management Services or Additional Services, without PECO's
prior written consent.
<PAGE>
7. Except as provided in paragraphs 1, 2, 3, 4, 5 and 6 above, the Management
Agreement shall remain in full force and effect.
8. Miscellaneous
(a) This Amendment Agreement and the Management Agreement as amended hereby
constitutes the complete understanding of the Parties with respect to the
subject matter set forth herein, and shall supersede any prior understanding or
agreement to the contrary, written or oral, and may not be amended, altered or
discharged unless in a writing signed by the Parties hereto.
(b) This Amendment shall be governed by and construed in accordance with
the laws and decisions of the State of Illinois.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their duly authorized officers.
ILLINOIS POWER COMPANY
"IP"
By:/s/David W. Butts
Witness:
/s/Kay M. Trummel
PECO ENERGY COMPANY
"PECO"
By:_________________________
Witness:
- ---------------------
<PAGE>
Exhibit B
LEASED EMPLOYEE AGREEMENT
THIS LEASED EMPLOYEE AGREEMENT (the "Agreement") is made and entered
into this 31st day of March, 1999, by and among PECO ENERGY COMPANY, a
Pennsylvania corporation ("PECO"), ILLINOIS POWER COMPANY, an Illinois
corporation ("IP"), and John P. McElwain ("Employee").
WHEREAS, PECO and IP have entered into that certain Agreement effective
as of January 15, 1998, as the same has been amended by that certain Inventive
Compensation Agreement to Amend the Management Services Agreement dated as of
May 19, 1998, and Amendment No. 2, dated of even date herewith (collectively,
the "Management Agreement"), the terms of which are incorporated by reference
herein;
WHEREAS, the Management Agreement provides for the provision of certain
management services by PECO to IP in support of outage recovery efforts and
future operations of IP's Clinton Power Station ("CPS");
WHEREAS, PECO employs Employee who has the experience and skills
necessary to perform such management services;
WHEREAS, PECO has selected Employee to serve as the full time Chief
Nuclear Officer ("CNO") of CPS;
WHEREAS, in reliance upon PECO's representations regarding Employee's
experience and skills, IP has approved PECO's selection of Employee as CNO of
CPS; and
<PAGE>
WHEREAS, the parties hereto desire to permit IP to lease the services
of Employee from PECO subject to the conditions set forth herein;
NOW, THEREFORE, FOR AND IN CONSIDERATION OF the mutual promises and
covenants hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Furnishing of Employee. PECO agrees to furnish, for the time
specified in Section 2 hereof, Employee to provide full time services under the
Management Agreement (the "Work").
2. Term. This Agreement and PECO's provision of Employee shall continue
for the term of the Management Agreement or until the earlier termination of
this Agreement by written notice of either IP, PECO or Employee, at the will of
the terminating party, subject, however, to the terms and conditions of Section
3.1 and Article 11 of the Management Agreement.
3. Status of Employee. Employee shall serve as the CNO of IP and in
such capacity shall be an officer of IP subject to the direction of the IP Chief
Executive Officer ("CEO") or other officer as designated by the CEO and subject
to IP's standard rules of conduct (a copy of which is attached to the Management
Agreement as Attachment "C"). For operational and functional purposes related to
the operation of the CPS, Employee shall be treated as an employee of IP and
shall be entitled to those rights of indemnification and other protection from
claims brought by third parties as afforded by IP to its officers and employees.
Except as expressly provided by the foregoing, neither PECO nor any of its
employees or agents, including Employee, shall maintain, hold out, represent,
state or imply to any other individual or entity that an employer/employee
relationship exists between IP and PECO or between IP and Employee.
<PAGE>
Notwithstanding the foregoing, PECO, IP and Employee hereby
acknowledge and agree that Employee shall remain an employee of PECO, and except
for actions taken in his position and under his authority as CNO, IP shall have
no liability of any kind or nature whatsoever to Employee, PECO, or any other
individual or entity, as a result of the actions of Employee as a consequence of
Employee's status as a leased employee. PECO and Employee recognize, covenant
and agree that neither PECO nor Employee shall be entitled to any compensation
or other benefits given to any employees of IP, including (without limitation)
pension, welfare benefits, incentive bonuses, compensation insurance and
unemployment insurance.
4. Duties of Employee. As an officer of IP, Employee agrees to devote
his time, attention and energies in the performance of the duties designated by
IP, that with respect to such duties Employee shall be under the sole
supervision, direction and control of IP, and that Employee is subject to those
duties of loyalty and honesty to IP as an officer as established by Illinois
law. As an officer of IP, Employee shall report to, and be subject to the
supervision of, the CEO of IP or such other officer of IP as may from time to
time be designated by the CEO.
Notwithstanding the foregoing, IP, PECO and Employee recognize and
agree that Employee may share information regarding CPS with PECO management,
including information regarding plant status, plant condition, budgets , future
needs for repairs, replacements, modifications and costs, plant staff
performance, labor relations, regulatory issues, and local conditions and
issues, provided, however, that in no event may Employee disclose information to
PECO management (i) which is privileged to IP (including, but not limited to,
the attorney client communication privilege and work product doctrine), or (ii)
the disclosure of which would constitute a breach of a confidentiality or
nondisclosure agreement to which IP is bound with another party or constitute a
violation of law; provided further that any information shared by Employee with
PECO management shall be subject to the non-disclosure provisions of Paragraph 6
of this Agreement.
<PAGE>
PECO shall not take any action either pursuant to this Agreement or
the Management Agreement that diminishes the final decision-making authority of
IP with respect to licensed activities, including, but not limited to, shut-down
and start-up, reporting, operability determinations, deferral or prioritization
of repairs, implementation of quality assurance programs, continuation of
operations or cessation of operations (either short-term or permanently), or
organizational or design changes to the CPS.
5. Responsibility for Compensation and Expenses. PECO hereby
recognizes, covenants and agrees that, as the employer of Employee and pursuant
to Section 20.4 of the Management Agreement, it shall be solely and exclusively
responsible and liable for Employee's compensation, and all expenses, costs,
liabilities, assessments, taxes, insurance and other obligations incident to the
employment of Employee in performance of the Work hereunder, including (without
limitation) all wages and salary, benefits, withholding taxes, social security
taxes, unemployment taxes and workers' compensation insurance premiums.
6. Confidentiality. As an employee of PECO and pursuant to this
Agreement, Employee shall be bound by the provisions of the Confidentiality
Agreement between IP and PECO, dated December 29, 1997, attached to the
Management Agreement, and incorporated by reference herein and by the terms of
the Confidentiality Agreement among IP, PECO and AmerGen Energy Company, dated
March 12, 1999, which is incorporated by reference herein.
7. Miscellaneous.
(a) The parties may not assign this Agreement or any of their rights,
duties or obligations hereunder without the prior written consent of the
remaining parties, and any attempted assignment without such prior written
consent shall be null and void.
<PAGE>
(b) This Agreement constitutes the complete understanding of the
parties with respect to the subject matter set forth herein, and shall supersede
any prior understanding or agreement to the contrary, written or oral, and may
not be amended, altered or discharged unless in a writing signed by all parties
hereto.
(c) This Agreement shall be governed by and construed in accordance
with the laws and decisions of the State of Illinois.
(d) Failure by either party hereto, any time or from time to time, to
enforce and require the strict keeping and performance of any terms and
conditions of this Agreement shall not constitute a waiver of any such terms and
conditions at any future time and shall not prevent such party from insisting on
the strict keeping and performance of such terms and conditions at any time.
(e) The rights and responsibilities of the parties hereto under
Sections 4 and 6 hereof shall survive any termination or expiration of this
Agreement.
(f) The unenforceability or invalidity of any provision of this
Agreement shall not affect the validity or enforceability of the remaining
provisions hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers.
PECO ENERGY COMPANY
"PECO"
Witness: By:_________________________
_____________________ Its:________________________
ILLINOIS POWER COMPANY
"IP"
Witness: By:/s/David W. Butts
/s/Kay M. Trummel Its: Sr. Vice President
"EMPLOYEE"
Witness: /s/John P. McElwain
John P. McElwain
/s/Dale L. Holtzscher
<PAGE>
Exhibit C
CONFIDENTIALITY AGREEMENT
THIS CONFIDENTIALITY AGREEMENT (the "Agreement") is made and
entered into this 12th day of March, 1999, by and among ILLINOIS POWER
COMPANY, an Illinois corporation ("Illinois Power"), AMERGEN ENERGY
COMPANY L.L.C., a Delaware limited liability company ("AmerGen"). And
PECO ENERGY COMPANY, a Pennsylvania corporation and shareholder of
AmerGen ("PECO") (PECO and AmerGen are sometimes collectively referred
to herein as the "Buyer Parties").
W I T N E S S E T H
WHEREAS, Illinois Power and the Buyer Parties are discussing
the possibility of a transaction involving the sale or abandonment of
the Clinton Nuclear Power Station (the "Clinton Plant") located in
Clinton, Illinois (the "Transaction"); and
WHEREAS, in order to permit each party to evaluate fully the
potential merits of the Transaction, each party will furnish, or cause
to be furnished, "Evaluation Material" (as defined below) to the other
parties and their Representatives (as defined below);
NOW, THEREFORE, for and in consideration of the premises, the
mutual promises, covenants and agreements contained herein, and other
good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto (collectively, the
"Parties" and individually, a "Party") hereby agree as follows:
1. Definitions
(a) "Affiliate" shall have the meaning set forth in
Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(b) "Evaluation Material" shall mean all data,
information, reports, interpretations ions, forecasts and records
(whether in oral or written form, electronically stored or otherwise)
containing or otherwise reflecting information concerning the
Transaction, the Supplying Party (as defined below) or its Affiliates
or subsidiaries which is (or has been heretofore) provided by the
Supplying Party or its Representatives (as defined below) to the
Recipient (as defined below) or its Representatives pursuant to this
Agreement or any of the Other Agreements (as defined below), and all
notes, analyses, compilations, studies or other documents in tangible
form (whether in written form, electronically stored or otherwise) that
contain or otherwise reflect such information whether prepared by the
Supplying Party, the Recipient or their respective Representatives or
others. Notwithstanding the foregoing, the following will not
constitute "Evaluation Material" for purposes of this Agreement:
(i) Information that was already in the
possession of the Recipient or its Representatives
prior to the date hereof and that was not acquired or
obtained from the Supplying Party or its Affiliates
or Representatives;
<PAGE>
(ii) Information that is obtained by the
Recipient or its Representatives from a source other
than the Supplying Party or its Affiliates or
Representatives who, insofar as is known to the
Recipient after reasonable inquiry, is not prohibited
by a contractual, legal or fiduciary obligation to
the Supplying Party from transmitting the information
to the Recipient or its Representatives; or
(iii) Information that is or becomes
generally available to the public other than as a
result of a disclosure by the Recipient or its
Representatives in violation of the provisions of
this Agreement.
Provided, however that the exceptions set forth in subsections (i)
through (iii) above shall not extend to any data, information, reports,
interpretations, forecasts or records obtained or developed by or
disclosed to the Buyer Parties, or either of them, in connection with
PECO's operation and maintenance of the Clinton Plant or its
performance under the Agreement dated as of January 15, 1998 with
Illinois Power or any other agreement between the Buyer Parties (or
either of them or any of their Affiliates) and Illinois Power (or any
of its Affiliates) (such Agreement and all such other agreements being
herein referred to as the "Other Agreements"), all of which data,
information, reports, interpretations, forecasts and records shall be
deemed Evaluation Material for purposes of this Agreement.
(c) "Representatives" of any Party shall mean the
subsidiaries and Affiliates of such Party and the respective
directors, officers, employees, representatives and agents of
such Party and such Party's subsidiaries and Affiliates.
2. Nondisclosure. Except as otherwise expressly provided in
this Agreement, without the prior written consent of the Party
delivering or providing the information or as to which the information
relates (the "Supplying Party"), Evaluation Material will be held in
confidence and not disclosed by the Party receiving or developing the
information following receipt (the "Recipient") or its Representatives
or used by the Recipient or its Representatives other than directly or
indirectly in connection with the consideration and evaluation of the
Transaction or in strict compliance with such of the Other Agreements
as may be relevant. Except as otherwise expressly provided herein, the
Recipient further agrees that it will only disclose Evaluation Material
received from a Supplying Party to its Representatives who need to know
the Evaluation Material to evaluate the possible Transaction or in
strict compliance with such of the Other Agreements as may be relevant
and who are informed of its confidential nature and agree to be bound
by the terms of this Agreement. Each Recipient agrees to be fully
responsible for any breach of this Agreement by any of its
Representatives.
3. Confidentiality of Transaction. Except as expressly
provided herein, without the prior written consent of the Supplying
Party, the Recipient agrees that it and its Representatives will not
disclose to any person (i) that any investigation, discussions or
negotiations are taking or have taken place concerning a possible
Transaction, or (ii) that either Party has requested or received
Evaluation Material, or any terms or other facts regarding the possible
Transaction, including the status thereof; provided, however that
nothing in this Agreement shall prohibit a Party from making any such
disclosure to the extent it has received an opinion of counsel that
such disclosure is required to be made by it in order to avoid
violating the federal securities laws or stock exchange regulations.
The term "persons" as used in this agreement shall be interpreted
broadly to include any corporation, company, governmental agency or
body, entity, partnership, group or individual.
<PAGE>
4. Convenants of the Buyer Parties.
(a) Without limiting the generality of the foregoing,
the Buyer Parties agree that unless otherwise required by law, they
will not permit any person to have access to Restricted Data, as such
term is defined in 42 U.S.C ss. 2014(y), until and unless the Federal
Office of Personnel Management shall have made an investigation and
report to the Nuclear Regulatory Commission (the "NRC") on the
character, associations and loyalty of such person and the NRC shall
have determined that permitting such person to have access to
Restricted Data will not endanger the common defense and security.
(b) Notwithstanding anything to the contrary set
forth in of this Agreement, any access to Safeguards Information, as
such term is defined in 10 C.F.R. ss. 73.2, shall be subject to the
limitations and conditions of 10 C.F.R. ss. 73.21, the safeguards plan
for the Clinton Plant, and any other applicable legal requirements.
(c) The Buyer Parties shall use and maintain all
documents prepared by the Institute for Nuclear Power Operations
("INPO") about the Clinton Plant, as may be made available to them,
consistent with agreements between INPO and Illinois Power and the
policies of INPO and Illinois Power, as the same may be amended from
time to time. As a general matter the Buyer Parties shall treat
information, reports, draft reports, field notes, draft notes or
documents, and technical documents prepared by INPO about the Clinton
Plant as if they are Evaluation Material belonging to Illinois Power.
However, if an INPO document is classified for "General Distribution"
and marked "GENERAL" by INPO, the use and distribution of such document
will not be limited by this Agreement.
5. Return and Retention of Evaluation Material. All Evaluation
Material in tangible form (whether in written form, electronically
stored or otherwise) provided by the Supplying Party or its
Representatives will be returned by the Recipient to the Supplying
Party immediately upon request, without retention of any copies
thereof. All other Evaluation Material in tangible form, including
analyses, compilations, studies, personal notes, or other documents
(whether in written form, electronically stored or otherwise) prepared
by the Recipient or any of its Representatives, and any Evaluation
Material not so requested to be returned, will be retained by the
Recipient and kept subject to the terms of this Agreement or destroyed;
provided, however that all such Evaluation Material shall be destroyed
upon the Supplying Party's request with such destruction to be
confirmed in writing. Except as otherwise provided in this Agreement,
all retained Evaluation Material (whether in written form,
electronically stored or otherwise) will continue to be subject to this
Agreement.
6. Legal Process. If the Recipient or any of its
Representatives are requested or required to disclose any Evaluation
Material (or to disclose that any investigation, discussions or
negotiations are taking or have taken place concerning the possible
Transaction) pursuant to a subpoena, court order, civil investigative
demand or similar judicial process or other oral or
<PAGE>
written request issued by a court of competent jurisdiction or by a
federal, state or local governmental or regulatory body, the Recipient
will provide the Supplying Party with prompt written notice of such
request or requirement so that the Supplying Party and/or any of its
Representatives may seek an appropriate protective order or other
appropriate remedy or waive pursuant to paragraph 13 compliance with
the provisions of this Agreement. If such order or other remedy is not
obtained or the Supplying Party waives compliance with the provisions
of this Agreement, the Recipient or its Representatives, as the case
may be, will disclose only that portion of the Evaluation Material (or
information relating to any such investigation, discussions or
negotiations) that it is advised by counsel that it is legally required
to so disclose and will exercise reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded the Evaluation
Material or information so disclosed.
7. No Obligation to Provide: No Warranty of Accuracy or
Completeness. This Agreement defines the rights, duties and obligations
of the Parties with respect to Evaluation Material disclosed or made
available hereunder. Under no circumstances shall any Party be
obligated to disclose or make available to the other Parties any
information including, without limitation, any Evaluation Material,
that such Party in its sole discretion determines not to disclose,
provided, however, that to the extent that any Party, acting through
one of its authorized officers makes such a determination as to
information requested by the other Party, it will so advise the other
Party of that fact. The Parties (i) acknowledge that no Party, nor any
Representative of any Party, makes any representation or warranty,
either express or implied, as to the accuracy or completeness of any
Evaluation Material, and (ii) agree, to the fullest extent permitted by
law, that except as may be provided in a Definitive Agreement (as
defined below), no Party, nor any Representative of any Party, shall
have any liability to the other Parties or any of the other Parties'
Representatives on any basis (including, without limitation, in
contract, tort, under federal or state securities laws or otherwise) as
a result of the Parties' participation in evaluating a possible
Transaction, the review by any Party of the other Parties'. Evaluation
Material, or the use of the Evaluation Material by any Party or its
Representatives in accordance with the provisions of this Agreement.
Each Party agrees that it is not entitled to rely on the accuracy or
completeness of the Evaluation Material. Each Party understands and
agrees that there is no definitive agreement providing for a
Transaction currently existing among the Parties and to no contract or
agreement providing for a Transaction shall be deemed to exist by
virtue of this Agreement with respect to such Transaction except, in
the case of this Agreement, for the matters specifically agreed to
herein.
8. Securities Laws. The Parties acknowledge that they are, and
that their respective Representatives who are informed as to the
matters that are the subject of this Agreement will be made, (i) aware
that the United States securities laws would prohibit any person who
has material non-public information about a company from purchasing or
selling securities of such company, or from communicating such
information to any other person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell
such securities, and (ii) familiar with the Exchange Act and the rules
and regulations promulgated thereunder to the extent they relate to the
matters referred to in this Section 8. The Parties agree that they will
not use or permit any third party to use, and that they will each use
reasonable efforts to ensure that none of their respective
Representatives will use or permit any third party to use, any
Evaluation
<PAGE>
Material in contravention of the United States securities laws
including, without limitation, the Exchange Act or any rules and
regulations promulgated thereunder.
9. Non-Solicitation. Except as may be provided in a
Definitive Agreement, for a period of eighteen (18) months following
the execution of this Agreement, no Party or its respective
Representatives or Affiliates will, directly or indirectly, solicit or
direct any other person to solicit any current officer or key employee
or contractor of another Party (i) terminate or adversely alter his or
her employment or other relationship with that Party; or (ii) to seek
or accept employment or other affiliation with such Party.
10. Exclusivity. Illinois Power hereby agrees immediately to
cease any existing discussions or negotiations with any third parties
with respect to a sale or other transfer of Plant Clinton (a "Sale
Transaction") other than a Transaction with the Buyer Parties or their
Affiliates. Illinois Power shall not and Illinois Power shall use its
commercially reasonable efforts to ensure that none of its
Representatives or Affiliates shall solicit any person, entity or group
concerning any Sale Transaction, nor shall Illinois Power furnish
information or enter into negotiations regarding, or an agreement for,
a Sale Transaction, other than a Transaction with the Buyer Parties or
their Affiliates. The provisions and covenants contained in this
Section 10 shall expire at 5:00 p.m. C.S.T. on April 15, 1999 unless
extended in a writing signed by all the Parties.
11. Indemnification: Remedies. Each Party will be responsible
for and will idemnify and hold harmless the other Parties from any
damage, loss, cost or liability (including, without limitation,
reasonable attorney's fees and the costs of enforcing such obligations
under this indemnity) arising out of or resulting from any breach by
such Party or its Representatives of its obligations hereunder. Each
Party acknowledges that remedies at law are inadequate to protect
against breach of this Agreement and hereby in advance agrees, without
prejudice to any rights to judicial or other relief, to the granting of
equitable relief, including, without limitation, injunction, in the
other Parties' favor without proof of actual damages. Each Party agrees
not to seek and agrees to waive any requirement for the securing or
posting of, a bond in connection with a Party seeking or obtaining such
equitable relief.
12. Severability. If any term or provision of this Agreement,
or any application thereof to any circumstances, shall, to any extent
and for any reason, be held to be invalid or unenforceable, the
remainder of this Agreement, or the application of such term or
provision to circumstances other than those to which it is held invalid
or enforceable, shall not be affected thereby and shall be construed as
if such invalid or unenforceable provision had never been contained
herein, and each term and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law.
13. Term. Except as provided in Sections 9 and 10 of this
Agreement, this Agreement shall be effective for a period of five (5)
years from the date hereof.
14. Miscellaneous. This Agreement shall constitute the entire
agreement among the Parties with respect to the subject matter hereof.
The provisions of this Agreement shall control in the event of any
inconsistency with the provisions of any Other Agreement and such Other
Agreement shall be deemed modified hereby. No modification, amendment
or waiver of this
<PAGE>
Agreement shall be binding without the written consent of the Parties
hereto. This Agreement shall inure to the benefit of and be binding
upon each of the Parties and their respective successors and permitted
assigns; provided, however that neither this Agreement nor any of the
rights, interests or obligations hereunder may be assigned by any Party
without the prior written consent of the other Parties, and no
assignment of any right, interest or obligation shall release any such
assigning Party therefrom unless the other Parties shall have consented
to such release in writing specifically referring to the right,
interest or obligation from which such assigning Party is to be
released. It is further understood and agreed that no failure or delay
in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise thereof
preclude (nor any waivers thereof, unless so expressly stated in such
written waiver) any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder.
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, without
regard to the conflict of laws principles thereof.
16. Representatives. Any person who at any time after the date
hereof becomes a Representative of either Party shall be deemed to be
such Party's Representative for purposes of this Agreement, regardless
of whether such person was a Representative of such Party on the date
hereof. All references to Affiliates or subsidiaries contained in this
Agreement shall apply with equal force and effect to any and all
Representatives of such referenced Affiliates or subsidiaries.
17. Notices.
(a) All notices, consents, requests and other
communications hereunder shall be in writing and shall be sent by hand
delivery, by certified or registered mail (return-receipt requested),
by facsimile, or by recognized national overnight courier service as
set forth below:
If to Illinois Power: Illinois Power Company
500 South 27th Street
Decatur, Illinois 62521
Attention: Dave Butts
Facsimile: (217) 362-7417
With a copy to: Troutman Sanders LLP
5200 NationsBank Plaza
600 Peachtree Street, NE
Atlanta, Georgia 30308
Attention: Terry C. Bridges,
Facsimile: (404) 962-6731
<PAGE>
If to AmerGen: AmerGen Energy Company L.L.C.
2301 Market Street
Philadelphia, Pennsylvania 19101
Attention: Paul E. Haviland, Vice President
Facsimile: (215) 841-3508
With a copy to: Edward J. Cullen, Jr.
2301 Market Street
Philadelphia, Pennsylvania 19101
Facsimile: (215) 841-4474
If to PECO: PECO Energy Company
2301 Market Street
Philadelphia, Pennsylvania 19101
Attention: Paul E. Haviland, Vice President
Facsimile: (215) 841-3508
With a copy to: Edward J. Cullen, Jr.
2301 Market Street
Philadelphia, Pennsylvania 19101
Facsimile: (215) 841-4474
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives as of the date and year first
above written.
ILLINOIS POWER COMPANY
By:__________________________
Title:_________________________
AMERGEN ENERGY COMPANY L.L.C.
By:__________________________
Title:_________________________
PECO ENERGY COMPANY
By:__________________________
Title:_________________________
<PAGE>
ATTACHMENT A-1
AmerGen Billing
Clinton Power Station
April 1999
A. Direct Charges
Capital $ -
Storeroom Expense -
Preliminary Survey and Investigation -
Paid Absence -
USE Taxes -
Operation and Maintenance Expenses -
Direct Nuclear Expenses -
Plant Electric use:
_____ kwh @_____ rate -
--------
$ -
B. Material Inventory Balance
Balance-Beginning of Month $ -
Balance-End of Month -
--------
$ -
C. Diesel Fuel Balance
Balance-Beginning of Month $ -
Balance-End of Month -
$ -
D. Nuclear Fuel Purchases $ -
(excludes amortizations) ----------
Total Billing $ -
Adjustments $ -
Previous Billings $ -
Previous Payments $ -
$ -
-----------
Total Billing $ -
==========
* Note: this billing structure is designed to include direct expenses
associated with the operation of the plant and reflecting Programs and Project
Functions that are known at this time. Additional programs and project functions
may be added at a later time to tract other expenses that are a direct cost for
the operation of the Clinton Power Station.
** Note: IP shall be responsible for the costs of Plant Electric Use prior to
Restart. Restart shall be defined as the commencement of generation of Net
Electric Output from CPS.
<PAGE>
ATTACHMENT A-2
AmerGen Billing
Clinton Power Station
April 1999
Project Contractors/
FERC Function Labor Consultants Materials Miscellaneous Total
Capital
107 107200 $ $ $ $ $
107222
107227
107232
107233
107235
1073M8
1073N8
1073P8
1073R8
1073S8
1073T8
1073V8
1073W9
107302
107304
107305
107306
107307
107376
1075N8
1075P8
1075R8
1075U8
107512
107534
108 108200
1083M8
1083S8
1083T8
108302
108305
108306
108307
--------------------------------------------------------
Total Capital $ $ $ $ $
========================================================
* Note: this listing only includes FERC accounts for current expenses.
Additional project functions may be added at a later time to track other
expenses that are a direct expense of the safe operation of the Clinton
Power Station.
<PAGE>
AmerGen Billing
Clinton Power Station
April 1999
Project Contractors/
FERC Function Labor Consultants Materials Miscellaneous Total
Storeroom
163 163301 $ $ $ $ $
163303
163304
163305
--------------------------------------------------------
Total Storeroom $ $ $ $ $
========================================================
Preliminary Survey & Investigation
183 183001 $ $ $ $ $
========================================================
Paid Absence:
184 184101 $ $ $ $ $
184102
184103
184108
184109
184110
184111
184112
184113
184114
184115
184116
184201
184205
184209
184411
184412
184450
184501
184502
184801
184803
184901
184903
184913
184914
184996
--------------------------------------------------------
Total Paid Absence $ $ $ $ $
========================================================
USE Taxes:
408 408111 $ $ $ $ $
408113
--------------------------------------------------------
Total USE Taxes: $ $ $ $ $
========================================================
<PAGE>
AmerGen Billing
Clinton Power Station
April 1999
Project Contractors/
FERC Function Labor Consultants Materials Miscellaneous Total
Operations & Maintenance
500 500001 $ $ $ $ $
502 502001
505 505001
506 506001
510 510001
511 511001
512 512001
513 513001
514 514001
517 517001
519 519001
520 520001
520002
520003
520004
520005
523 523001
524 524001
524002
524003
524004
524216
525 525001
528 528001
529 529001
529002
530 530001
530002
530003
531 531001
531 531002
532 532001
532002
532003
532006
562 562001
562002
570 570001
570002
570003
582 582001
583 583004
586 586001
<PAGE>
AmerGen Billing
Clinton Power Station
April 1999
Project Contractors/
FERC Function Labor Consultants Materials Miscellaneous Total
593 593002
593003
735 735002
836 836001
863 863001
878 878001
892 892001
902 902003
903 903001
903003
912 912015
915 915001
920 920001
920002
920003
920004
921 921001
921002
921003
921004
923 923001
923003
923004
924 924004
925 925003
925004
925008
925012
926 926002
926003
926008
926010
926011
930 930205
930208
930209
930212
931 931003
--------------------------------------------------------
Total O&M $ $ $ $ $
========================================================
Direct Nuclear Expenses
524 524216 $ $ $ $ $
========================================================
Includes costs incurred in other Responsibility Areas that are directly related
to CPS
e.g. Name and Accounting Distribution
EPRI Membership - 8700-12980-524216-430
BWR Owners Group - 8700-13646-524216-430
Reactor Internals Project at EPRI - 8700-23839-524216-430
<PAGE>
ATTACHMENT A-3
Clinton Power Station
Direct Programs and Project Functions
Project
Program Program Title Function Project Function Title
002030 RF6 - SIXTH REFUELING OUTAGE 163301 CPS STOREROOM OPERATING EXP
163305 CPS COMMERCIAL GRADE DED PROG
184411 PURCHASE SMALL TOOLS
184412 MAINTENANCE OF TOOLS & EQUIP
408113 USE TAX-CPS
417140 FAB SHOP-NON REG ACTIVITY
510001 MAINT SUPV & ENG-STEAM GEN
514001 MAINT OF MISC STEAM PLANT
517001 OPER SUPV & ENG-NUCLEAR
519001 OPER OF COOLANT & WATER EQUIP
520001 OPERATING REACTOR & AUX
520002 OPER-RADIOLOGICAL CONTROLS
520003 DECONTAMINATION ACTIVITIES
520004 RADIOACTIVE WASTE DISPOSAL
520005 NUCLEAR FUEL LOAD & UNLOAD
523001 OP TURBS/GENRS/ELEC PLT EQUIP
524001 BLDG SERV & MISC NUC OPER EXP
524002 PLANT SECURITY-NUC
524003 RESEARCH & DEVELOPMENT-NUC
524004 REGULATORY FEES - NUCLEAR
525001 RENTS-NUCLEAR OPERATION
528001 MAINT SUPV & ENG-NUCLEAR
529001 MAINT OF LAKES & CANALS
529002 MAINT NUC BLDGS, GROUNDS, IMP
530001 MAINT REACTOR PLANT EQUIPMENT
530002 MAINT CONTROL ROD DRIVE SYSTEM
531001 MAINT ELECTRIC PLANT EQUIP-NUC
531002 MAINT DIESEL DRIVEN GENER-NUC
532001 MAINT STATION SECURITY SYS-NUC
532002 MAINT MISC EQUIP, SMALL TOOLS
562001 OPER OF NON-CPS TRANS SUBS
562002 OPERATION OF CPS TRANS SUB
570003 MAINT OF CPS TRANS SUB EQUIP
920001 ADMIN & GENERAL SALARIES-ELEC
920003 ADMIN & GENERAL SALARIES-JT
920004 ADMIN & GENERAL SALARIES-NUC
921003 NON-LABOR A&G EXPENSES-JOINT
923004 PROFESSIONAL SERVICES-NUC
All expenses charged to construction
(FERC 107 & 108) will also be billed
Page 1
<PAGE>
Clinton Power Station
Direct Programs and Project Functions
Project
Program Program Title Function Project Function Title
002068 PAID ABSENCE - NUCLEAR 184101 VACATION
184102 SICKNESS ALLOWANCE
184103 OTHER PAID ABSENCE
184108 VACATION - CPS EMPLOYEES
184109 SICKNESS ALLOWANCE - CPS
184110 OTHER PD ABSENCE - CPS
002087 RF7 -7TH NUCL REFUELING OUTAGE 517001 OPER SUPV & ENG-NUCLEAR
520001 OPERATING REACTOR & AUX
520002 OPER-RADIOLOGICAL CONTROLS
520003 DECONTAMINATION ACTIVITIES
520004 RADIOACTIVE WASTE DISPOSAL
520005 NUCLEAR FUEL LOAD & UNLOAD
524001 BLDG SERV & MISC NUC OPER EXP
524002 PLANT SECURITY-NUC
528001 MAINT SUPV & ENG-NUCLEAR
530001 MAINT REACTOR PLANT EQUIPMENT
531001 MAINT ELECTRIC PLANT EQUIP-NUC
570001 MAINT ELEC LOAD DISPATCH EQUIP
920001 ADMIN & GENERAL SALARIES-ELEC
002147 CPS MODIFICATIONS - NUCLEAR 184450 TRAINING - ELECTRIC
184501 SUPERVISION
184502 BUILDING SERVICE & CLERICAL
184801 A & G TO CONSTRUCTION-ELECTRIC
184996 EMPLOYEE BEN CLEAR-NUCLEAR O&M
408113 USE TAX-CPS
417101 EXPENSE NON-UTILITY OPERATIONS
417120 EXPENSES BILLABLE TO ILN GENER
417500 EXP TO BILL ILLINOVA
502001 OPER OF BOILER & ASSOC EQUIP
505001 OPER TURBO GENERS & ELEC EQUIP
506001 MISC OPERATING EXPENSES-STEAM
512001 MAINT OF BOILER & ASSOC EQUIP
513001 MAINT-TURBN GEN & ASSOC EQUIP
514001 MAINT OF MISC STEAM PLANT
517001 OPER SUPV & ENG-NUCLEAR
519001 OPER OF COOLANT & WATER EQUIP
520001 OPERATING REACTOR & AUX
520002 OPER-RADIOLOGICAL CONTROLS
520003 DECONTAMINATION ACTIVITIES
523001 OP TURBS/GENRS/ELEC PLT EQUIP
All expenses charged to construction
(FERC 107 & 108) will also be billed
Page 2
<PAGE>
Clinton Power Station
Direct Programs and Project Functions
Project
Program Program Title Function Project Function Title
002147 CPS MODIFICATIONS - NUCLEAR 524001 BLDG SERV & MISC NUC OPER EXP
528001 MAINT SUPV & ENG-NUCLEAR
529002 MAINT NUC BLDGS, GROUNDS, IMP
530001 MAINT REACTOR PLANT EQUIPMENT
530002 MAINT CONTROL ROD DRIVE SYSTEM
531001 MAINT ELECTRIC PLANT EQUIP-NUC
570002 MAINT OF TRANS SUB EQUIP
583004 OPER OH DIST LINES-UNDER 34.5
586001 TURN ON/OFF CHANGE ELEC METERS
593003 MAINT LESS THAN 34.5 OH LINES
& OH SERV
878001 REMOVE/CHANGE GAS METERS ®S
920001 ADMIN & GENERAL SALARIES-ELEC
920002 ADMIN & GENERAL SALARIES-GAS
921003 NON-LABOR A&G EXPENSES-JOINT
926002 ADMINISTRATION OF PENSION PLAN
926003 GROUP INSURANCE CONTRIBUTIONS
930209 COMM WELF CONT-ELEC-FERC 426.1
002174 EMPLOYEE SERVICES ADMIN 184111 VACATION-CSBG EMPLOYEES
184112 SICKNESS ALLOWANCE - CSBG
184113 OTHER PAID ABSENCE - CSBG
184114 VACATION - SSBG/FBG
184115 SICKNESS ALLOWANCE - SSBG/FBG
184116 OTHER PAID ABSENCE - SSBG/FBG
920003 ADMIN & GENERAL SALARIES-JT
921003 NON-LABOR A&G EXPENSES - JOINT
923003 PROFESSIONAL SERVICES-JOINT
002203 MAINTAIN PLANT - NUCLEAR 163301 CPS STOREROOM OPERATING EXP
408113 USE TAX-CPS
510001 MAINT SUPV & ENG-STEAM GEN
513001 MAINT-TURBN GEN & ASSOC EQUIP
517001 OPER SUPV & ENG-NUCLEAR
519001 OPER OF COOLANT & WATER EQUIP
520001 OPERATING REACTOR & AUX
520002 OPER-RADIOLOGICAL CONTROLS
520003 DECONTAMINATION ACTIVITIES
520004 RADIOACTIVE WASTE DISPOSAL
520005 NUCLEAR FUEL LOAD & UNLOAD
523001 OP TURBS/GENRS/ELEC PLT EQUIP
524001 BLDG SERV & MISC NUC OPER EXP
524002 PLANT SECURITY-NUC
528001 MAINT SUPV & ENG-NUCLEAR
529001 MAINT OF LAKES & CANALS
All expenses charged to construction
(FERC 107 & 108) will also be billed
Page 3
<PAGE>
Clinton Power Station
Direct Programs and Project Functions
Project
Program Program Title Function Project Function Title
002203 MAINTAIN PLANT - NUCLEAR 529002 MAINT NUC BLDGS, GROUNDS, IMP
530001 MAINT REACTOR PLANT EQUIPMENT
530002 MAINT CONTROL ROD DRIVE SYSTEM
530003 MAINT REACTOR PLANT PIPING
531001 MAINT ELECTRIC PLANT EQUIP-NUC
531002 MAINT DIESEL DRIVEN GENER-NUC
532001 MAINT STATION SECURITY SYS-NUC
532002 MAINT MISC EQUIP, SMALL TOOLS
532003 MISC MAINT MATERIALS & EXP-NUC
562002 OPERATION OF CPS TRANS SUB
570002 MAINT OF TRANS SUB EQUIP
570003 MAINT OF CPS TRANS SUB EQUIP
582001 DIST SUB PCB DISPOSAL COSTS
583004 OPER OH DIST LINES-UNDER 34.5
593003 MAINT LESS THAN 34.5 OH LINES
& OH SERV
892001 GAS DIST-MAINT OF SERVICES
915001 COST JOBBING&CONTRACT WRK-ELEC
921003 NON-LABOR A&G EXPENSES-JOINT
926011 OTHER EMPL ACTIVITY EXP-NUC
002204 OPERATE PLANT - NUCLEAR 184501 SUPERVISION
408113 USE TAX-CPS
517001 OPER SUPV & ENG-NUCLEAR
519001 OPER OF COOLANT & WATER EQUIP
520001 OPERATING REACTOR & AUX
520002 OPER-RADIOLOGICAL CONTROLS
520003 DECONTAMINATION ACTIVITIES
520004 RADIOACTIVE WASTE DISPOSAL
523001 OP TURBS/GENRS/ELEC PLT EQUIP
524001 BLDG SERV & MISC NUC OPER EXP
524002 PLANT SECURITY-NUC
524004 REGULATORY FEES - NUCLEAR
528001 MAINT SUPV & ENG-NUCLEAR
923004 PROFESSIONAL SERVICES-NUC
002205 COMPLY W/NUCLEAR REG.REQUIRE 408113 USE TAX-CPS
514001 MAINT OF MISC STEAM PLANT
517001 OPER SUPV & ENG-NUCLEAR
519001 OPER OF COOLANT & WATER EQUIP
520001 OPERATING REACTOR & AUX
520002 OPER-RADIOLOGICAL CONTROLS
523001 OP TURBS/GENRS/ELEC PLT EQUIP
All expenses charged to construction (FERC 107 & 108) will also be billed
Page 4
<PAGE>
Clinton Power Station
Direct Programs and Project Functions
Project
Program Program Title Function Project Function Title
002205 COMPLY W/ NUCLEAR REG. REQUIRE 524001 BLDG SERV & MISC NUC OPER EXP
524002 PLANT SECURITY-NUC
524004 REGULATORY FEES - NUCLEAR
524216 MISC EXPENSES - R&D - NUCLEAR
528001 MAINT SUPV & ENG-NUCLEAR
529002 MAINT NUC BLDGS, GROUNDS, IMP
530001 MAINT REACTOR PLANT EQUIPMENT
532002 MAINT MISC EQUIP, SMALL TOOLS
920001 ADMIN & GENERAL SALARIES-ELEC
920003 ADMIN & GENERAL SALARIES-JT
920004 ADMIN & GENERAL SALARIES-NUC
921003 NON-LABOR A&G EXPENSES-JOINT
921004 NON-LABOR A&G EXPENSES - NUC.
924004 PROPERTY INS PREMIUMS-NUC
925003 INJURIES & DAMAGES INS-JT
925004 INJURIES & DAMAGES INS-NUC
925008 EMPL INJ & DAMAGE CLAIMS-NUC
925012 OTHER INJ & DAMAGE CLAIMS-NUC
926011 OTHER EMPL ACTIVITY EXP-NUC
930208 CO TRADE ASSN DUES & CONT-NUC
002206 PROCURE & MANAGE NUCLEAR FUEL 517001 OPER SUPV & ENG-NUCLEAR
002207 PROCURE & CONTROL MAT'L - NUC. 163301 CPS STOREROOM OPERATING EXP
163303 CLINTON FREIGHT ON MATERIALS
163304 CLINTON MATERIAL INVENTORY ADJ
163305 CPS COMMERCIAL GRADE DED PROG
408113 USE TAX-CPS
517001 OPER SUPV & ENG-NUCLEAR
520001 OPERATING REACTOR & AUX
524001 BLDG SERV & MISC NUC OPER EXP
529002 MAINT NUC BLDGS, GROUNDS, IMP
002208 PROVIDE ADMIN. SUPPORT - NUC. 163301 CPS STOREROOM OPERATING EXP
184209 GARAGE EXPENSES NON-SPECIFIC
184501 SUPERVISION
408113 USE TAX-CPS
517001 OPER SUPV & ENG-NUCLEAR
All expenses charged to construction (FERC 107 & 108) will also be billed
Page 5
<PAGE>
Clinton Power Station
Direct Programs and Project Functions
Project
Program Program Title Function Project Function Title
002208 PROVIDE ADMIN. SUPPORT - NUC. 520001 OPERATING REACTOR & AUX
520002 OPER-RADIOLOGICAL CONTROLS
520005 NUCLEAR FUEL LOAD & UNLOAD
523001 OP TURBS/GENRS/ELEC PLT EQUIP
524001 BLDG SERV & MISC NUC OPER EXP
524002 PLANT SECURITY-NUC
524216 MISC EXPENSES - R&D - NUCLEAR
528001 MAINT SUPV & ENG-NUCLEAR
529001 MAINT OF LAKES & CANALS
529002 MAINT NUC BLDGS, GROUNDS, IMP
530001 MAINT REACTOR PLANT EQUIPMENT
531001 MAINT ELECTRIC PLANT EQUIP-NUC
532002 MAINT MISC EQUIP, SMALL TOOLS
836001 UG STOR-MAIN PURIFY EQUIP
920003 ADMIN & GENERAL SALARIES-JT
920004 ADMIN & GENERAL SALARIES-NUC
921003 NON-LABOR A&G EXPENSES - JOINT
921004 NON-LABOR A&G EXPENSES - NUC.
923003 PROFESSIONAL SERVICES-JOINT
923004 PROFESSIONAL SERVICES-NUC
925004 INJURIES & DAMAGES INS-NUC
925008 EMPL INJ & DAMAGE CLAIMS-NUC
926011 OTHER EMPL ACTIVITY EXP-NUC
002209 MANAGE HUMAN RESOURCES - NUC. 163301 CPS STOREROOM OPERATING EXP
408113 USE TAX-CPS
506001 MISC OPERATING EXPENSES-STEAM
510001 MAINT SUPV & ENG-STEAM GEN
517001 OPER SUPV & ENG-NUCLEAR
519001 OPER OF COOLANT & WATER EQUIP
520001 OPERATING REACTOR & AUX
520002 OPER-RADIOLOGICAL CONTROLS
520004 RADIOACTIVE WASTE DISPOSAL
524001 BLDG SERV & MISC NUC OPER EXP
524002 PLANT SECURITY-NUC
524216 MISC EXPENSES - R&D - NUCLEAR
528001 MAINT SUPV & ENG-NUCLEAR
529001 MAINT OF LAKES & CANALS
529002 MAINT NUC BLDGS, GROUNDS, IMP
531001 MAINT ELECTRIC PLANT EQUIP-NUC
All expenses charged to construction (FERC 107 & 108) will also be billed
Page 6
<PAGE>
Clinton Power Station
Direct Programs and Project Functions
Project
Program Program Title Function Project Function Title
002209 MANAGE HUMAN RESOURCES - NUC. 532002 MAINT MISC EQUIP, SMALL TOOLS
532003 MISC MAINT MATERIALS & EXP-NUC
532006 FABRIC'TN & MACH WRK-IP AREAS
926011 OTHER EMPL ACTIVITY EXP-NUC
002233 JC SSBG & FBG TRANSFER CHARGES 517001 OPER SUPV & ENG-NUCLEAR
520001 OPERATING REACTOR & AUX
523001 OP TURBS/GENRS/ELEC PLT EQUIP
524001 BLDG SERV & MISC NUC OPER EXP
528001 MAINT SUPV & ENG-NUCLEAR
532002 MAINT MISC EQUIP, SMALL TOOLS
532003 MISC MAINT MATERIALS & EXP-NUC
912015 PROMOTE/RETAIN SALES EXP-JT
920001 ADMIN & GENERAL SALARIES-ELEC
920003 ADMIN & GENERAL SALARIES-JT
920004 ADMIN & GENERAL SALARIES-NUC
921001 NON-LABOR A&G EXPENSES - ELEC
921003 NON-LABOR A&G EXPENSES - JOINT
921004 NON-LABOR A&G EXPENSES - NUC.
923001 PROFESSIONAL SERVICES-ELEC
923004 PROFESSIONAL SERVICES-NUC
926008 OTHER EMPL ACTIVITY EXP-ELEC
926010 OTHER EMPL ACTIVITY EXP-JT
926011 OTHER EMPL ACTIVITY EXP-NUC
930205 CO TRADE ASSN DUES & CONT ELEC
002253 YEAR 2000 - ESBG - NUCLEAR 523001 OP TURBS/GENRS/ELEC PLT EQUIP
524001 BLDG SERV & MISC NUC OPER EXP
920003 ADMIN & GENERAL SALARIES-JT
920004 ADMIN & GENERAL SALARIES-NUC
923004 PROFESSIONAL SERVICES-NUC
All expenses charged to construction (FERC 107 & 108) will also be billed
Page 7
William B. Conway Jr.
Illinova Corporation
500 South 27th Street
Decatur, Illinois 62521
Dear Mr. Conway:
This letter is to confirm the terms of your employment with Illinova
Corporation.
I. Employment Date. Your first day of employment will be April 12, 1999 (the
"Employment Date").
I. Salary. Your annual base salary will be $295,000, subject to periodic review
to determine whether an increase is appropriate.
I. Bonus. You will be entitled to participate in the Executive Incentive
Compensation Plan. Your bonus under the Executive Incentive Compensation Plan
will be $118,000 (which is 40% of your salary) if the target level of
performance is achieved, and your bonus will be $177,000 (which is 60% of your
salary) at the maximum achievement level.
I. Long-Term Incentive Award. For 1999, your entire long-term incentive award
will be in the form of a stock option, the terms of which are reflected in the
enclosed stock option agreement. The option will be granted as of the Employment
Date, and the exercise price per share will be the fair market value of a share
of stock on the grant date. After 1999, 50% of your long-term incentive award
will be made as a stock option grant, and the remaining 50% will be made as
a performance share grant.
I. Supplemental Pension. In lieu of participation in the Company's Supplemental
Executive Retirement Plan, you will be covered by the enclosed Supplemental
Pension Plan.
I. Retention Agreement. You will be covered by the enclosed Employee Retention
Agreement, which provides benefits in the event of a Change in Control.
I. Loan. To compensate you for amounts you have foregone by leaving Troutman
Sanders LLP to join Illinova Corporation, you will be entitled to a loan from
the Company of $250,000. The terms of the loan are reflected in the enclosed
letter and promissory note.
I. Lump Sum Death Benefits. If your death should occur while you are employed by
the Company, your surviving spouse (or, if she does not survive you, the
beneficiary designated by you) will be entitled to a lump sum death benefit of
two times the amount of your salary plus your target bonus at the time of your
death. In lieu of receiving this lump sum death benefit, your surviving spouse
may elect to receive the surviving spouse benefit under the Supplemental Pension
<PAGE>
Plan. (If your spouse does not survive you, only the death benefit described in
this paragraph is payable. The Supplemental Pension Plan does not provide for
other survivor benefits.)
I. Termination. You may resign from the Company at any time for any reason, and
the Board of Directors of the Company may terminate your employment at any time
for any reason. At the time of your termination of employment, you (or your
estate) will be entitled to the compensation and benefits specified in this
letter and the enclosed material, as well as to the other benefits you earned
while employed by the Company, to the extent such compensation and benefits are
payable on your termination of employment.
If the foregoing reflects your understanding of the terms of your
agreement with the Company, please so indicate by signing and returning a copy
of this letter to the undersigned, along with a signed copy of each of the
enclosures.
Very truly yours,
Illinova Corporation
Charles E. Bayless
Accepted and agreed to this 13th day of April, 1999.
William B. Conway Jr.
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
ILLINOVA CORPORATION
1992 LONG-TERM INCENTIVE COMPENSATION PLAN
THIS AGREEMENT, entered into as of the 12th day of April, 1999 (the "Grant
Date"), by and between Illinova Corporation, an Illinois corporation (the
"Company") and William B. Conway Jr. (the "Employee"),
WITNESSETH THAT:
WHEREAS, the Company maintains the Illinova Corporation 1992 Long-Term
Incentive Compensation Plan (the "Plan"), which is incorporated and forms a part
of this Agreement, for the benefit of key employees of the Company and its
Subsidiaries;
WHEREAS, to induce the Employee to accept employment by the Company,
the Company has agreed to grant to the Employee the option described in this
Agreement; and
WHEREAS, the Employee and the Company desire to enter into this
Agreement reflecting the award of such option;
NOW, THEREFORE, IT IS AGREED, by and between the Company and the
Employee as follows:
SECTION ONE
GRANT
Subject to the terms and conditions of the Plan and this Agreement, the
Employee is hereby awarded an option to purchase 30,000 shares of Stock (the
"Option"). The Option is not intended, and shall not be treated, as an incentive
stock option (as that term is used in Section 422 of the Code).
SECTION TWO
OPTION PRICE
The option price of each share of stock subject to the Option is
$21.781.
SECTION THREE
EXERCISE, EXPIRATION AND
CANCELLATION OF OPTION
The Option shall be exercisable by the Employee in accordance with the
following schedule:
<PAGE>
If the Employee is employed through The Option shall become exercisable with
the following date: respect to the following number of
shares on and after that date:
- ------------------------------------ -------------------------------------------
One-year anniversary of Grant Date 10,000 shares
- ------------------------------------ -------------------------------------------
Two-year anniversary of Grant Date 10,000 shares
- ------------------------------------ -------------------------------------------
Three-year anniversary of Grant Date 10,000 shares
- ------------------------------------ -------------------------------------------
If the Employee's employment by the Company continues through the 9-1/2
year anniversary of the Grant Date, then any portion of the Option herein
granted and not previously exercisable shall become exercisable on such
9-1/2-year anniversary.
The Option shall expire as to any unexercised portion on the earliest of:
(a) the tenth anniversary of the date first above written;
(b) the first anniversary of the Employee's death;
(c) five years following the Employee's date of retirement; or
(d) the date of the Employee's Termination; provided that if the
Employee's employment ceases because of a Termination, any exercise of
the Option occurring on or after the Employee's date of Termination
shall be void and shall be ineffective.
For purposes of this Agreement, the Employee's "date of retirement"
shall be the date of Retirement, Early Retirement or Disability Retirement as
those terms are defined in the Plan.
If the Employee exercises the Option with respect to a portion, but not
all, of the shares of Stock subject thereto, the Option shall thereafter cease
to be exercisable with respect to the shares of Stock for which it was exercised
but, subject to the terms and conditions of the Plan and this Agreement, shall
continue to be exercisable with respect to the shares of Stock with respect to
which it was not exercised.
If the Employee's Termination occurs prior to the date on which any
portion of the Option has become exercisable, that portion of the Option shall
be forfeited upon such Termination. Notwithstanding the foregoing provisions of
this Agreement, the Option shall not become exercisable and shall be forfeited
if the Employee does not become an employee of the Company, and the Option shall
be forfeited if the Employee becomes an employee of the Company but voluntarily
resigns within 30 days after his initial date of employment.
<PAGE>
SECTION FOUR
METHOD OF EXERCISE
Subject to the terms and conditions of the Plan and this Agreement, the
Option may be exercised, in whole or in part, by filing a written notice with
the Secretary of the Company at its corporate headquarters prior to the date on
which the Option expires or is otherwise canceled. Such notice shall specify the
date as of which the exercise is to occur and the number of shares of Stock
which the Employee elects to purchase and shall be in such form and shall
contain such other information as the Secretary of the Company may reasonably
require. The election shall be accompanied by payment of the option price for
such shares of Stock indicated by the Employee's election, together with the
amount of any required state, federal or local withholding taxes arising in
connection with the purchase of such Stock. Subject to the provisions of the
preceding sentence and the terms of the Plan, payment shall be by cash or check
payable to the Company, by delivery of shares of Stock having an aggregate Fair
Market Value (determined as of the date of exercise) equal to the option price,
and if elected in accordance with this Section 4, the Employee's tax withholding
obligation for the shares of Stock, indicated by the Employee's election, or a
combination of both.
SECTION FIVE
TRANSFERABILITY
The Option shall not be transferable by the Employee other than by will
or the laws of descent and distribution and, during the life of the Employee, is
exercisable only by the Employee or Employee's guardian or legal representative.
SECTION SIX
NOTICE OF DISPOSITION OF SHARES
The Employee agrees to notify the Company promptly in the event of
disposal of any shares of Stock acquired upon the exercise of the Option,
including a disposal by sale, exchange, gift or transfer of legal title.
SECTION SEVEN
ADMINISTRATION
The authority to manage and control the operation and administration of
this Agreement shall be vested in the Committee, and the Committee shall have
all powers with respect to this Agreement that it has with respect to the Plan.
Any interpretation of this Agreement by the Committee and any decision made by
it with respect to the Agreement is final and binding on all persons.
<PAGE>
SECTION EIGHT
PLAN GOVERNS
Notwithstanding anything in this Agreement to the contrary, the terms
of this Agreement shall be subject to the terms of the Plan, a copy of which may
be obtained by the Employee from the office of the Secretary of the Company.
Unless the context clearly implies or indicates the contrary, a word, term or
phrase used or defined in the Plan is similarly used or defined for purposes of
this Agreement.
SECTION NINE
AMENDMENT
This Agreement may be amended by written agreement of the Employee and
the Company, acting pursuant to authority from the Committee, without the
consent of any other person.
SECTION TEN
CONTINUED EMPLOYMENT, RIGHTS AS SHAREHOLDER
This Agreement does not constitute a contract of employment, and does
not give the Employee the right to be employed by the Company or its
Subsidiaries. This Agreement does not confer on the Employee any rights as a
shareholder of the Company prior to the date on which the Employee fulfills all
conditions for receipt of Stock pursuant to this Agreement and the Plan.
SECTION ELEVEN
GOVERNING LAW
This Agreement shall be construed and administered in accordance with
the laws of the State of Illinois, without regard to the principles of conflicts
of law.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
------------------------------
William B. Conway Jr.
Illinova Corporation
By:___________________________
Charles E. Bayless
Chairman, President and Chief
Executive Officer
ATTEST:
- ---------------------------------
<PAGE>
ILLINOVA CORPORATION
SUPPLEMENTAL PENSION PLAN
The Supplemental Pension Plan (the "Plan") is adopted effective as of April
12, 1999. The Plan is established and maintained by Illinova Corporation for the
purpose of providing benefits for the Participant, William B. Conway Jr.
Accordingly, Illinova Corporation hereby adopts the Plan pursuant to the terms
and provisions set forth below:
ARTICLE I
Definitions
Wherever used herein the following terms shall have the meanings
hereinafter set forth:
1.1 "Accrued Vested Benefit" of the Participant shall have the meaning
determined in accordance with Section 3.1.
1.2 "Board" means the Board of Directors of the Company.
1.3 "Cause" means:
(a) the Participant's conviction of any criminal violation involving
dishonesty, fraud, or breach of trust,
(b) the Participant's willful engagement in any misconduct in the
performance of the Participant's duty that materially injures the
Company,
(c) the Participant's performance of any act which, if known to the
shareholders or regulators of the Company or any of its subsidiaries,
would materially and adversely affect the business of the Company or
any of its subsidiaries, or
(d) the Participant's willful and substantial nonperformance of assigned
duties; provided that such nonperformance has continued more than ten
days after the Company has given written notice of such nonperformance
and of its intention to terminate the Participant's employment because
of such nonperformance.
1.4 "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any regulations relating thereto.
1.5 "Company" means Illinova Corporation, an Illinois corporation, or, to
the extent provided in Section 7.8, any successor corporation or other entity
resulting from a merger or consolidation into or with the Company or a transfer
or sale of substantially all of the assets of the Company.
<PAGE>
1.6 "Earnings" of the Participant for any calendar month means the
Participant's accrued salary and bonus for that month and, for this purpose,
shall include any portion of such salary or bonus that would otherwise have been
includible for the month but is contributed by the Company on behalf of the
Participant pursuant to the Participant's election under a "qualified cash or
deferred arrangement" (as defined in section 401(k) of the Code) that is part of
any qualified profit sharing plan maintained by the Company. For purposes of
this definition, the Participant's bonus for any month is the bonus amount
earned under the Executive Incentive Compensation Plan (or any other successor
plan providing for an annual bonus) for that month. For each calendar year, the
annual bonus shall be deemed to be earned evenly during each of the months in
which the Participant was employed by the Company during that year.
1.7 "Final Average Earnings" means the average of the Participant's monthly
Earnings during the 36 consecutive calendar months that produces the highest
average and that occurs during the last 60 calendar months ending with the
calendar month in which the Participant's employment with the Company
terminates. If the Participant total employment period with the Company is less
than 36 calendar months, his Final Average Earnings shall be determined by
averaging (on a calendar month basis) the Earnings received by him from the
Company during his entire period of employment.
1.8 "Normal Retirement Date" means the first day of the calendar month
coinciding with or next following the Participant's 65th birthday.
1.9 "Participant" means William B. Conway Jr.
1.10 "Plan" means the Illinova Corporation Supplemental Pension Plan.
1.11 "Qualified Plan" means the Illinois Power Company Retirement Income
Plan for Salaried Employees or any successor plan.
1.12 "Qualified Plan Retirement Benefit" means the benefit payable to a
Participant pursuant to the Qualified Plan by reason of his termination of
employment with the Company for any reason other than death.
1.13 "Qualified Plan Surviving Spouse Benefit" means the benefit payable to
the Surviving Spouse of the Participant pursuant to the Qualified Plan in the
event of the death of the Participant at any time prior to commencement of
payment of his Qualified Plan Retirement Benefit.
1.14 "Supplemental Retirement Benefit" means the benefit payable to the
Participant pursuant to the Plan by reason of his termination of employment with
the Company for any reason other than death.
1.15 "Surviving Spouse" means a person who is married to the Participant at
the date of his death and for at least one year prior thereto.
<PAGE>
1.16 "Supplemental Surviving Spouse Benefit" means the benefit payable to a
Surviving Spouse pursuant to the Plan.
1.17 The Participant's "termination" of employment with the Company shall
be deemed to occur on the day immediately following the date on which he is last
employed by the Company.
1.18 Words in the masculine gender shall include the feminine and the
singular shall include the plural, and vice versa, unless qualified by the
context. Any headings used herein are included for ease of reference only, and
are not to be construed so as to alter the terms hereof.
ARTICLE II
Eligibility
The Participant shall be eligible to receive a Supplemental Retirement
Benefit to the extent provided in Article III of the Plan. If the Participant
dies prior to commencement of payment of his Qualified Plan Retirement Benefit,
the Surviving Spouse of the Participant shall be eligible to receive a
Supplemental Surviving Spouse Benefit to the extent provided in Article IV of
the Plan.
ARTICLE III
Supplemental Retirement Benefit
3.1 Amount. The Supplemental Retirement Benefit shall be payable to the
Participant in the form of a straight life annuity over the lifetime of the
Participant only, commencing on his Normal Retirement Date, and shall consist of
a monthly amount equal to the excess of the amount described in paragraph (a)
over the amount described in paragraph (b) below:
(a) the Participant's Accrued Vested Benefit;
LESS
(b) the monthly amount of the Qualified Plan Retirement Benefit
actually payable to the Participant under the Qualified Plan.
The amounts described in (a) and (b) shall be computed as of the date of
termination of employment of the Participant with the Company in the form of a
straight life annuity payable over the lifetime of the Participant only
commencing on his Normal Retirement Date.
The Participant's "Accrued Vested Benefit" shall be determined in
accordance with the following:
<PAGE>
(i) if the Participant's employment with the Company terminates for any
reason prior to January 1, 2000, his Accrued Vested Benefit shall be
zero, and he shall not be entitled to any benefits under the Plan;
(ii) if the Participant's employment with the Company terminates after
December 31, 1999, and the termination occurs by reason of his being
discharged by the Company without Cause, or if the Participant's
employment with the Company terminates on or after April 12, 2009, for
any reason, the Participant's Accrued Vested Benefit shall be equal to
40% of the Participant's Final Average Earnings as of the date of his
termination of employment; and
(iii)if the Participant's employment with the Company terminates after
December 31, 1999, and prior to April 12, 2009, and the termination
occurs for any reason other than his being discharged by the Company
without Cause, the Participant's Accrued Vested Benefit shall be equal
to 40% of the Participant's Final Average Earnings as of the date of
his termination of employment, multiplied by the vesting percentage
determined in accordance with the following schedule:
- ----------------------------------------- --------------------------------------
If the Participant's employment with the The vesting percentage shall be:
Company terminates during this period:
- ----------------------------------------- --------------------------------------
On or after April 12, 2000, and before
April 12, 2001 10%
- ----------------------------------------- --------------------------------------
On or after April 12, 2001, and before
April 12, 2002 20%
- ----------------------------------------- --------------------------------------
On or after April 12, 2002, and before
April 12, 2003 30%
- ----------------------------------------- --------------------------------------
On or after April 12, 2003, and before
April 12, 2004 40%
- ----------------------------------------- --------------------------------------
On or after April 12, 2004, and before
April 12, 2005 50%
- ----------------------------------------- --------------------------------------
On or after April 12, 2005, and before
April 12, 2006 60%
- ----------------------------------------- --------------------------------------
On or after April 12, 2006, and before
April 12, 2007 70%
- ----------------------------------------- --------------------------------------
On or after April 12, 2007, and before
April 12, 2008 80%
- ----------------------------------------- --------------------------------------
On or after April 12, 2008, and before
April 12, 2009 90%
- ----------------------------------------- --------------------------------------
After April 12, 2009 100%
- ----------------------------------------- --------------------------------------
3.2 Form of Benefit. The Supplemental Retirement Benefit payable to the
Participant shall be paid in the same form under which the Qualified Plan
Retirement Benefit is payable to the Participant. The Participant's election
under the Qualified Plan of any optional form of payment of his Qualified Plan
Retirement Benefit shall also be applicable to the payment of his Supplemental
Retirement Benefit.
<PAGE>
3.3 Commencement of Benefit. Payment of the Supplemental Retirement
Benefit to the Participant shall commence on the same date as payment of the
Qualified Plan Retirement Benefit to the Participant commences. Any election
under the Qualified Plan made by the Participant with respect to the
commencement of payment of his Qualified Plan Retirement Benefit shall also be
applicable with respect to the commencement of payment of his Supplemental
Retirement Benefit.
3.4 Approval of Company. Notwithstanding the provisions of Sections 3.2
and 3.3 above, an election made by the Participant under the Qualified Plan with
respect to the form of payment of his Qualified Plan Retirement Benefit or the
date for commencement of payment thereof shall not be effective with respect to
the form of payment or date for commencement of payment of his Supplemental
Retirement Benefit hereunder unless such election is expressly approved in
writing by the Company with respect to his Supplemental Retirement Benefit. If
the Company shall not approve such election in writing, then the form of payment
or date for commencement of payment of the Participant's Supplemental Retirement
Benefit shall be selected by the Company in its sole discretion. If benefits are
payable to the Participant under this Plan, but no benefits are payable to the
Participant under the Qualified Plan, the time and form of benefit shall be
selected by the Participant, subject to the consent of the Company, from among
the alternatives that would be available under the Qualified Plan (or such other
alternatives permitted by the Company).
3.5 Actuarial Equivalent. A Supplemental Retirement Benefit which is
payable in any form other than a straight life annuity over the lifetime of the
Participant, or which commences at any time prior to the Participant's Normal
Retirement Date, shall be the actuarial equivalent of the Supplemental
Retirement Benefit set forth in Section 3.1 above as determined by the same
actuarial adjustments as those specified in the Qualified Plan with respect to
determination of the amount of the Qualified Plan Retirement Benefit.
ARTICLE IV
Supplemental Surviving Spouse Benefit
4.1 Amount. If the Participant dies either:
(i) while employed by the Company; or
(ii) prior to commencement of payment of his Supplemental Retirement Benefit
under this Plan, but after his employment with the Company has
terminated with an Accrued Vested Benefit that is greater than zero;
<PAGE>
then a Supplemental Surviving Spouse Benefit is payable to his
Surviving Spouse as hereinafter provided. The monthly amount of the
Supplemental Surviving Spouse Benefit payable to a Surviving Spouse
shall be equal to the excess of the amount described in paragraph (a)
over the amount described in paragraph (b) below:
(a) the monthly amount of the Qualified Plan Surviving Spouse Benefit to
which the Surviving Spouse of the Participant would have been entitled
under the Qualified Plan, but determined by applying the Surviving
Spouse Benefit provisions of the Qualified Plan as though the amount of
the monthly benefit (payable in the form of a straight life annuity
commencing at the Participant's Normal Retirement Date) which the
Participant had earned on the date of his death had been equal to the
amount of his Accrued Vested Benefit (as defined in Section 3.1 of this
Plan);
LESS
(b) the monthly amount of the Qualified Plan Surviving Spouse Benefit
actually payable to the Surviving Spouse under the Qualified Plan.
Notwithstanding any other provision of the Plan, the Surviving Spouse
shall be entitled to benefits under this Section 4.1 only if she waives all
rights to receive the lump sum death benefits to which she would otherwise be
entitled under the provisions of the April 12, 1999 letter to the Participant
from the Company, with such waiver to be made within 90 days after the
Participant's death in accordance with the procedures established by the
Company.
4.2 Form and Commencement of Benefit. A Supplemental Surviving Spouse
Benefit shall be payable over the lifetime of the Surviving Spouse only in
monthly installments commencing on the date for commencement of payment of the
Qualified Plan Surviving Spouse Benefit to the Surviving Spouse and terminating
on the date of the last payment of the Qualified Plan Surviving Spouse Benefit
made before the Surviving Spouse's death.
ARTICLE V
Administration of the Plan
5.1 Administration by the Company. The Company shall be responsible for
the general operation and administration of the Plan and for carrying out the
provisions thereof.
<PAGE>
5.2 General Powers of Administration. All provisions set forth in the
Qualified Plan with respect to the administrative powers and duties of the
Company, expenses of administration and procedures for filing claims shall also
be applicable with respect to the Plan. The Company shall be entitled to rely
conclusively upon all tables, valuations, certificates, opinions and reports
furnished by any actuary, accountant, controller, counsel or other person
employed or engaged by the Company with respect to the Plan.
ARTICLE VI
Amendment or Termination
The Plan may be amended or terminated at any time by the Board,
provided however that, notwithstanding any other provision of the Plan, no
amendment or termination that would adversely affect the rights of the
Participant or his Surviving Spouse (including, without limitation, his right to
accrue future benefits) may be made by the Company except with the written
consent of the Participant (or, in the event of his death, with the written
consent of the Surviving Spouse).
ARTICLE VII
General Provisions
7.1 Funding. The Plan at all times shall be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
the Company for payment of any benefits hereunder. No Participant, Surviving
Spouse or any other person shall have any interest in any particular assets of
the Company by reason of the right to receive a benefit under the Plan and any
such Participant, Surviving Spouse or other person shall have only the rights of
a general unsecured creditor of the Company with respect to any rights under the
Plan.
7.2 General Conditions. Except as otherwise expressly provided herein,
all terms and conditions of the Qualified Plan applicable to a Qualified Plan
Retirement Benefit or a Qualified Plan Surviving Spouse Benefit shall also be
applicable to a Supplemental Retirement Benefit or a Supplemental Surviving
Spouse Benefit payable hereunder. Any Qualified Plan Retirement Benefit or
Qualified Plan Surviving Spouse Benefit, or any other benefit payable under the
Qualified Plan, shall be paid solely in accordance with the terms and conditions
of the Qualified Plan and nothing in this Plan shall operate or be construed in
any way to modify, amend or affect the terms and provisions of the Qualified
Plan.
7.3 No Guaranty of Benefits. Nothing contained in the Plan shall
constitute a guaranty by the Company or any other entity or person that the
assets of the Company will be sufficient to pay any benefit hereunder.
7.4 No Enlargement of Employee Rights. No Participant or Surviving
Spouse shall have any right to a benefit under the Plan except in accordance
with the terms of the Plan. Establishment of the Plan shall not be construed to
give any Participant the right to be retained in the service of the Company.
<PAGE>
7.5 Spendthrift Provision. No interest of any person or entity in, or
right to receive a benefit under, the Plan shall be subject in any manner to
sale, transfer, assignment, pledge, attachment, garnishment, or other alienation
or encumbrance of any kind; nor may such interest or right to receive a benefit
be taken, either voluntarily or involuntarily, for the satisfaction of the debts
of, or other obligations or claims against, such person or entity, including
claims for alimony, support, separate maintenance and claims in bankruptcy
proceedings.
7.6 Applicable Law. The Plan shall be construed and administered under
the laws of the State of Illinois.
7.7 Incapacity of Recipient. If any person entitled to a benefit
payment under the Plan is deemed by the Company to be incapable of personally
receiving and giving a valid receipt for such payment, then, unless and until
claim therefor shall have been made by a duly appointed guardian or other legal
representative of such person, the Company may provide for such payment or any
part thereof to be made to any other person or institution then contributing
toward or providing for the care and maintenance of such person. Any such
payment shall be a payment for the account of such person and a complete
discharge of any liability of the Company and the Plan therefor.
7.8 Corporate Successors. The Plan shall be binding upon, and inure to
the benefit of, the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business, and the successor
shall be substituted for the Company under the Plan.
7.9 Unclaimed Benefit. The Participant shall keep the Company informed
of his current address and the current address of his spouse. The Company shall
not be obligated to search for the whereabouts of any person. If the location of
the Participant is not made known to the Company within three (3) years after
the date on which payment of the Participant's Supplemental Retirement Benefit
may first be made, payment may be made as though the Participant had died at the
end of the three-year period. If, within one additional year after such
three-year period has elapsed, or, within three years after the actual death of
the Participant, the Company is unable to locate any Surviving Spouse of the
Participant, then the Company shall have no further obligation to pay any
benefit hereunder to such Participant or Surviving Spouse or any other person
and such benefit shall be irrevocably forfeited.
7.10 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Plan, neither the Company nor any individual acting as an
employee or agent of the Company shall be liable to any Participant, former
Participant, Surviving Spouse or any other person for any claim, loss, liability
or expense incurred in connection with the Plan.
<PAGE>
IN WITNESS WHEREOF, the undersigned, on behalf of the Company, has
executed this Plan to witness its adoption by the Company April _____, 1999, and
the Participant has executed this Plan to witness his understanding that it
reflects his agreement with the Company.
ILLINOVA CORPORATION
By:________________________
Accepted and agreed to this
____ day of April, 1999.
William B. Conway Jr.
<PAGE>
ILLINOVA CORPORATION
EMPLOYEE RETENTION AGREEMENT
THIS EMPLOYEE RETENTION AGREEMENT (the "Agreement") is entered into the
12th day of April, 1999 by and between ILLINOVA CORPORATION, an Illinois
corporation (the "Company") and William B. Conway Jr. (the "Employee").
WHEREAS, the Company desires to retain the services of Employee in
connection with any change in control of the Company;
NOW, THEREFORE, in consideration of continued employment and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Employee agree as follows:
1. Change in Control Benefits. The provisions of paragraphs (a), (b), (c),
(d) and (e) below shall apply if a Termination Event occurs:
(a) The Employee shall be entitled to receive from the Company, within 30 days
of the Termination Event or, in the case of a Termination Event that occurs
under paragraph 2(a)(iv)(C) (relating to termination prior to a Change in
Control at the request of an acquiror), within 30 days following the Change
in Control, a lump sum cash payment equal to three times the sum of: (I)
the greater of the Employee's annual salary rate in effect on the date of
the Change in Control, or the Employee's annual salary rate in effect on
<PAGE>
the date Employee's employment with the Company terminates; plus (II) the
amount of the latest annual bonus earned by Employee, provided that the
amount described in this paragraph (II) shall be zero unless the Employee
has received an annual bonus in one or more of the three calendar years
last preceding the termination.
(b) Notwithstanding any provision in the promissory note or the tax letter to
the contrary, any obligation of the Employee for payment of principal and
interest otherwise due under the promissory note shall be forgiven, and the
Employee shall be entitled to the tax gross-up payment as described in the
tax letter with respect to such forgiven interest (but not with respect to
the forgiven principal). For purposes of this paragraph (b), the term
"promissory note" shall mean the promissory note dated April 12, 1999 with
respect to the borrowing of $250,000 by the Employee from the Company, and
the term "tax letter" shall mean the letter from the Company to the
Employee dated April 12, 1999 providing for the tax gross-up with respect
to the forgiveness of interest under the promissory note.
(c) Notwithstanding any provision in the Supplemental Pension Plan to the
contrary, the Employee's Accrued Vested Benefit under the Supplemental
Pension Plan shall be equal to 40% of the Employee's Final Average Earnings
(as defined under the Supplemental Pension Plan) as of the date of his
termination of employment with the Company.
(d) The Employee and his dependents, if any, shall, for thirty-six (36) months
following the Employee's termination of employment or until the Employee
reaches 65 years of age or is employed by another employer, if sooner,
continue to participate in any benefit plans for the Company which provide
<PAGE>
health (including medical and dental), life or disability insurance, or
similar coverage; provided, however, that if the Employee has attained 50
years of age prior to his date of termination, the Employee and dependents,
if any, shall be eligible to participate in any benefit plans of the
Company which provide health and life insurance or similar coverage as are
then extended to employees of the Company electing early retirement at age
55 on the same terms and subject to the same conditions as are applicable
to such employees; provided that such coverage shall not be furnished if
the Employee waives coverage by giving written notice of waiver to the
Company.
(e) Notwithstanding any provision of the applicable stock option agreement to
the contrary, any stock option or portion thereof that is exercisable on
the date of the Employee's Termination (as that term is used in the
applicable stock option agreement) shall not be forfeited on the date of
Termination, but shall instead remain exercisable for the 30-day period
following the Termination (or, if greater, the period otherwise specified
by the applicable option agreement); provided that, in no event shall such
the option be exercisable after the date on which the option would
otherwise expire if the Employee had continued in the employ of the
Company.
The Employee shall not be required to mitigate damages by seeking other
employment or otherwise. Except as specifically provided above with the respect
to the Employee's becoming an employee of another employer, the Company's
obligations under this paragraph 1 shall not be reduced in any way by reason of
any compensation received by the Employee from sources other than the Company
after termination of the Employee's employment with the Company.
<PAGE>
The benefits under this paragraph 1 shall be in lieu of, and not inaddition
to, any benefits to which the Employee might otherwise be entitled under any
other severance plan maintained by the Company providing benefits upon
involuntary termination of employment.
If a Termination Event occurs under paragraph 2(a)(iv)(C) (relating to
termination prior to a Change in Control at the request of an acquiror), then
the Employee's entitlement to compensation and benefits under this paragraph 1
shall be determined as though: (i) the Employee is rehired by the Company
immediately prior to the Change in Control at the salary rate equal to his
highest salary rate during the one-year period prior to the date of the Change
in Control; (ii) his employment with the Company is terminated under
circumstances described in paragraph 2(a)(iv)(A) (relating to termination by the
Company without Good Cause) immediately after the Change in Control; (iii) he
had retained any options and other benefits that were forfeited by reason of his
termination prior to the Change in Control; and (iv) this Agreement is in full
force and effect at the time of the Change in Control, and at the time of his
deemed termination of employment.
If the Employee is employed by the Company on the date of a Change in
Control then, with respect to any stock option granted to the Employee by the
Company prior to the Change in Control that is outstanding on the date of the
Change in Control, that option shall vest and be exercisable on and after the
date of the Change in Control. Except as otherwise provided in the preceding
sentence with respect to exercisability of options, the options shall remain
subject to the expiration provisions and other terms of the option awards
<PAGE>
without regard to the preceding sentence; and the preceding sentence shall not
apply to any stock option to the extent that the terms governing such option
expressly reference this Agreement and expressly provide that the provisions of
such sentence are inapplicable.
2. Definitions.
(a) For purposes of this Agreement:
(i) "Good Cause" shall mean:
(A) the Employee's conviction of any criminal violation involving
dishonesty, fraud, or breach of trust,
(B) the Employee's willful engagement in any misconduct in the
performance of the Employee's duty that materially injures the
Company,
(C) the Employee's performance of any act which, if known to the
shareholders or regulators of the Company or any of its
subsidiaries, would materially and adversely affect the business
of the Company or any of its subsidiaries, or
(D) the Employee's willful and substantial nonperformance of
assigned duties; provided that such nonperformance has continued
more than ten days after the Company has given written notice of
such nonperformance and of its intention to terminate the
Employee's employment because of such nonperformance.
(ii) "Good Reason" shall exist if, without an Employee's express
written consent, the Company shall:
(A) reduce the salary of the Employee; or
<PAGE>
(B) materially reduce the amount of paid vacations to which the
Employee is entitled, or the Employee's fringe benefits and
perquisites; or
(C) significantly change the nature or decrease the scope of the
Employee's authority; or
(D) change by 50 miles or more the principal location in which
the Employee is required to perform services.
(iii) "Change in Control" shall be deemed to occur on the earliest of
the existence of one of the following and the receipt of all
necessary regulatory approvals therefore:
(A) The acquisition other than from the Company, by any entity,
person or group (including all Affiliates or Associates of such
entity, person or group) of beneficial ownership, as that term
is defined in Rule 13d-3 under the Securities Exchange Act of
1934, of more than 20% of the outstanding shares of capital
stock of the Company entitled to vote generally in the election
of directors, but excluding for this purpose any such
acquisition by the Company or any of its subsidiaries or any
employee benefit plan (or related trust) of the Company or its
subsidiaries, or any corporation with respect to which,
following such acquisition, more than 80% of, respectively, the
then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
common stock and voting securities of the Company immediately
<PAGE>
prior to such acquisition in substantially the same proportion
as their ownership, immediately prior to such acquisition, of
the then outstanding shares of common stock of the Company or
the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors, as the case may be;
(B) The effective time of a reorganization, merger or
consolidation of the Company, in each case, with respect to which
all or substantially all of the individuals and entities who were
the respective beneficial owners of the common stock and voting
securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger, or consolidation beneficially own,
directly and indirectly more than 80% of respectively, the then
outstanding shares of common stock or the combined voting power
of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of
the corporation resulting from such reorganization, merger or
consolidation, or of a complete liquidation or dissolution of the
Company or of the sale or other disposition of a Substantial
Portion of the Property of the Company; or
(C) The election to the Board of Directors of the Company of
directors constituting a majority of the number of the directors
in office unless such directors were recommended for election by
the existing Board of Directors.
<PAGE>
(iv) A "Termination Event" means the date that the Employee's
employment with the Company terminates under one of the following
circumstances:
(A) The Employee's employment is terminated by the Company
without Good Cause within two (2) years following a Change in
Control.
(B) The Employee voluntarily terminates employment with Good
Reason within two (2) years following a Change in Control.
(C) The Employee's employment is terminated prior to a Change in
Control at the request of an acquiror. For purposes of the
definition of Termination Event, a termination will not be deemed
to have occurred solely because of the transfer of the Employee
between the Company and a subsidiary of the Company, or between
two subsidiaries of the Company.
(b) For purposes of the foregoing, (i) "Affiliate" or "Associate" shall
have the meaning set forth in Rule 12b-2 under the Securities Exchange
Act of 1934, and (ii) "Substantial Portion of the Property of the
Company" shall mean 80% of the aggregate book value of the assets of
the Company and its Affiliates and Associates as set forth on the most
recent balance sheet of the Company, prepared on a consolidated basis,
by its regularly employed, independent, certified public accountant.
(c) Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur for the Employee by virtue of any transaction in which such an
Employee is a participant in a group effecting an acquisition that
constitutes a Change in Control if, after such acquisition, the
Employee holds an equity interest in the entity that has made the
acquisition.
<PAGE>
3. Litigation Expenses. The Company shall pay to the Employee the
attorneys' fees incurred by the Employee in connection with any claim or legal
action or proceeding involving this Agreement, whether brought by the Employee
or by or on behalf of the Employee or by another party; provided, however, the
Company shall not be obligated to pay to the Employee out-of-pocket expenses,
including attorneys' fees, incurred by the Employee in any claim or legal action
or proceeding in which the Employee is a party adverse to the Company if the
Company prevails in such litigation. The Company shall pay prejudgment interest
on any money judgment obtained by the Employee, calculated at the published
prime interest rate charged by the Company's principal banking connection, as in
effect from time to time, from the date that payment(s) to the Employee should
have been made under this Agreement.
4. Post-termination Payment Obligations Absolute. The Company's obligation
to pay the Employee the amounts and to make the other arrangements provided for
herein to be paid and made after termination of the Employee's employment with
the Company shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right that the Company may have against the
Employee or anyone else. The Company hereby waives any contract formation
defenses that it may have with respect to the Employee Retention program and
this Agreement.
<PAGE>
5. Withholding. The Company may withhold from any payment that it
isrequired to make under this Agreement amounts sufficient to satisfy applicable
withholding requirements under any federal, state, or local law.
6. Successors. The obligations of the Company provided for in this
Agreement shall be the binding legal obligations of any successor to the Company
by purchase, merger, consolidation, or otherwise. Rights under this Agreement
may not be assigned by the Employee during the Employee's life, and upon the
Employee's death will inure to the benefit of the Employee's heirs, legatees and
the legal representatives of the Employee's estate.
7. Interpretation. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Illinois. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision.
8. Amendment. This Agreement may be amended or cancelled only by the mutual
agreement of the parties in writing without the consent of any other person. So
long as the Employee lives, no person, other than the parties hereto, shall have
any rights under or interest in this Agreement or the subject matter hereof.
9. Tax Payments. This paragraph 9 shall apply if all or any portion of the
payments and benefits provided to the Employee under this Agreement, or any
benefit (including any plan adopted in the future), would otherwise constitute
"excess parachute payments" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), that are subject to the tax
imposed by Section 4999 of the Code (or similar tax and/or assessment). If,
<PAGE>
after the application of such tax and/or assessment, the amount of such payment
and benefits would be less than if the payment and benefits had been reduced to
an amount that would result in there being no excess parachute payments, then
such payments and benefits shall be so reduced (the minimum extent necessary so
that no excess parachute payments result). If reduction is necessary hereunder,
the Employee shall elect which of the payments and benefits shall be reduced.
Determination of whether payments and benefits would constitute excess parachute
payments, and the amount of reduction so that no excess parachute payments shall
exist, shall be made, at the Company's expense, by the independent accounting
firm employed by the Company immediately prior to the occurrence of any change
of control of the Company which will result in the imposition of such tax.
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement on the ____ day of April, 1999. This Agreement supersedes and replaces
any prior agreement between the Company and the undersigned, regarding this
subject.
ILLINOVA CORPORATION
By:______________________________________
-----------------------------------------
WILLIAM B. CONWAY JR.
<PAGE>
PROMISSORY NOTE
$250,000.00 April 12, 1999
Decatur, Illinois
FOR VALUE RECEIVED, the undersigned, William B. Conway Jr., an
individual (the "Employee"), promises to pay to the order of Illinova
Corporation, an Illinois corporation (the "Company"), on the date on which the
Employee's employment with the Company terminates (the "Maturity Date"), the
principal sum of $250,000.00 and any accrued interest on this Note, subject to
the provisions of this Note relating to forgiveness of such obligations.
This Note evidences obligations in connection with a loan made by the
Company to the Employee as part of the inducement to the Employee to become
employed by the Company.
The unpaid principal amount of this Note from time to time outstanding
shall bear interest at a rate per annum (based upon a 365/366 day year) equal to
the applicable Federal rate as of April 12, 1999, as determined for purposes of
section 1274(d) of the Internal Revenue Code of 1986, as amended, compounded
annually. After the Maturity Date, any unpaid and unforgiven principal amount
and accrued unforgiven interest on the unpaid principal amount of this Note
shall be payable on demand.
As of each of the first five one-year anniversaries of April 12, 1999,
if the Employee is employed by the Company on such anniversary, an amount equal
to $50,000.00 of the principal amount due under this Note, together with the
amount of interest that has accrued with respect to the entire unpaid principal
and interest amount since the preceding April 12 shall be forgiven. If the
Employee's employment with the Company terminates prior to April 12, 2004, and
such termination is the result of being discharged by the Company for reasons
other than Cause, any remaining principal and interest shall be forgiven. If the
Employee's employment with the Company terminates (i) prior to April 12, 2004 by
the Company for Cause, or (ii) prior to April 12, 2004 by reason of the
Employee's death, disability, or voluntary resignation, then any remaining
principal and interest shall become due and payable on the date of such
termination of employment. For purposes of this Note, the term "Cause" shall
mean:
(a) the Employee's conviction of any criminal violation involving
dishonesty, fraud, or breach of trust,
(b) the Employee's willful engagement in any misconduct in the performance
of the Employee's duty that materially injures the Company,
<PAGE>
(c) the Employee's performance of any act which, if known to the
shareholders or regulators of the Company or any of its subsidiaries,
would materially and adversely affect the business of the Company or
any of its subsidiaries, or
(d) the Employee's willful and substantial nonperformance of assigned
duties; provided that such nonperformance has continued more than ten
days after the Company has given written notice of such nonperformance
and of its intention to terminate the Employee's employment because of
such nonperformance.
Subject to the other terms and conditions hereof, the Employee may
voluntarily prepay all or any portion of the unpaid and unforgiven principal
amount of this Note from time to time outstanding and any accrued and unforgiven
interest thereon, without premium or penalty.
All payments of principal of and interest on this Note shall be payable
in lawful currency of the United States of America at Decatur, Illinois or such
other place as the Company shall designate to the Employee in writing, in cash
or by check. If payment hereunder falls due on a day which is either a Saturday,
Sunday or any other day on which banks in Decatur, Illinois are not generally
open for business to the public (i.e., not a "Business Day"), then such due date
shall be extended to the immediately succeeding Business Day, and additional
interest shall accrue and be payable for the period of any such extension.
The Employee agrees that if any of the following events of default
(each an "Event of Default") shall occur and be continuing:
(i) default in the performance or observance of any other agreements of
the Employee contained herein, or
(ii) the institution of any bankruptcy, insolvency, receivership or similar
proceeding relating to the Employee or his assets, and if such case or
proceeding is not commenced by the Employee, it is consented to or
acquiesced in by the Employee or remains for 60 days undismissed;
then the Company may declare this Note and all unpaid and unforgiven principal
of and interest on this Note and all accrued costs, expenses and other amounts
under this Note to be due and payable, whereupon all unpaid and unforgiven
principal of and interest on this Note and all such costs, expenses and other
amounts shall immediately become due and payable following such declaration.
The Employee hereby represents and warrants to the Company as of the
date hereof (i) that this Note is the legally valid and binding obligation of
the Employee, enforceable against the Employee in accordance with its terms, and
(ii) that the execution, delivery and performance by the Employee of this Note
does not conflict with or contravene (a) any law, rule or regulation binding
<PAGE>
upon the Employee or affecting any of the Employee's assets, (b) any provision
of any contract, instrument or agreement binding upon the Employee or affecting
any of the Employee's assets, or (c) any writ, order, judgment, decree or
decision of any court or governmental instrumentality binding upon the Employee
or affecting any of the Employee's assets.
All notices, certificates and other communications ("Notices")
hereunder shall be in writing and may be either delivered personally, by
nationally recognized express courier for overnight delivery, or by facsimile
(with request for assurance of receipt in a manner appropriate with respect to
communications of that type, provided that a confirmation copy is concurrently
sent by a nationally recognized express courier for overnight delivery) or
mailed, postage prepaid, by certified or registered mail, return receipt
requested, addressed as follows:
If to the Company: Illinova Corporation
500 South 27th Street
Decatur, Illinois 62521
Attention: General Counsel
If to the Employee: William B. Conway Jr.
Illinova Corporation
500 South 27th Street
Decatur, Illinois 62521
All notices hereunder shall be sent to the Employee or the Company, as
appropriate, at such party's address shown above, or at such other address as
such party may, by written notice received by the other party hereto, have
designated as its or his address for such purpose. Notices sent by facsimile
transmission shall be deemed to have been given when sent; notices sent by mail
shall be deemed to have been given five days after the date mailed by registered
or certified mail, postage prepaid; and notices sent by hand delivery shall be
deemed to have been given when received.
This Note has been made and delivered at Decatur, Illinois and shall be
construed in accordance with and governed by the internal laws of the State of
Illinois. Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the least extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
IN WITNESS WHEREOF, the Employee has caused this Note to be executed as
of the day and year first above written.
-----------------------------
William B. Conway Jr.
<PAGE>
April 12, 1999
William B. Conway Jr.
Illinova Corporation
500 South 27th Street
Decatur, Illinois 62521
Dear Mr. Conway:
This letter is to confirm our verbal agreement that Illinova
Corporation (the "Company") will loan you $250,000.00. The Company is making the
loan to compensate you for amounts you have foregone by leaving Troutman Sanders
LLP to join the Company. As a condition of receiving the loan, you must sign and
return one copy of this letter and the enclosed promissory note.
As indicated in the promissory note, 20% of the principal amount of the
loan will be forgiven on each of the first through fifth anniversaries of April
12, 1999, if you are employed by the Company on such anniversary. Also, as of
each such anniversary, the entire amount of interest accrued on the outstanding
principal during the prior one-year period shall be forgiven.
As of each anniversary, the amount of the forgiveness of principal or
interest on that date will be taxable income to you. As of each date on which
the forgiveness occurs, you will become entitled to a tax gross-up payment from
the Company in an amount equal to the aggregate of the additional Federal, state
and local income taxes payable by you by reason of the forgiveness of the
interest amount (but not by reason of the forgiveness of the principal amount),
and by reason of your receipt of the gross-up payment.
If, prior to April 12, 2004, your employment is terminated by the
Company for reasons other than Cause (as defined in the attached promissory
note), the amount of any outstanding balance of principal and interest will be
forgiven, and you will become entitled to a tax gross-up payment in an amount
equal to the aggregate of the additional Federal, state and local income taxes
payable by you by reason of the forgiveness of the interest amount (but not by
reason of the forgiveness of the principal amount), and by reason of your
receipt of the gross-up payment. However, if your employment is terminated (i)
prior to April 12, 2004 by the Company for Cause, or (ii) prior to April 12,
2004 by reason of your death, disability, or voluntary resignation, then the
amount of any outstanding balance of principal and interest will become
immediately due and payable. After termination of your employment, if amounts
are due from you to repay the loan, and such amounts are otherwise unpaid, the
Company retains the right to offset such liability against amounts otherwise due
to you from the Company.
<PAGE>
If the foregoing reflects your understanding of the terms of your
agreement with the Company, please so indicate by signing and returning a copy
of this letter to the undersigned, along with a signed copy of each of the
enclosures.
Very truly yours,
Illinova Corporation
By:
Charles E. Bayless
Accepted and agreed to this
____ day of April, 1999.
William B. Conway Jr.
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<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>
<CIK> 0000049816
<NAME> Illinois Power Company
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<NUMBER> 0
<NAME> 0
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<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
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<BOOK-VALUE> Per-book
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<OTHER-PROPERTY-AND-INVEST> 3
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195
53
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<TOTAL-OPERATING-EXPENSES> 417
<OPERATING-INCOME-LOSS> 55
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<TOTAL-INTEREST-EXPENSE> 39
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<EARNINGS-AVAILABLE-FOR-COMM> 19
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<TOTAL-INTEREST-ON-BONDS> 27
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<EPS-BASIC> 0
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