FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
IOWA-ILLINOIS GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Illinois 42-0673189
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
206 East Second Street, Davenport, Iowa 52801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(319) 326-7111
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
Yes X No ____
Common shares outstanding at September 30, 1994 29,637,321<PAGE>
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Part I. Quarterly Financial Information
IOWA-ILLINOIS GAS AND ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Third Quarter Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(In thousands, except per share amounts)
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric $103,475 $105,324 $277,191 $264,591
Gas 20,446 22,396 146,025 139,614
123,921 127,720 423,216 404,205
OPERATING EXPENSES AND TAXES
Operation-
Cost of gas sold 10,496 12,330 99,328 94,064
Cost of fuel, energy and capacity 16,669 20,991 52,512 51,949
Other operation 25,544 26,415 79,613 73,983
Maintenance 10,957 10,239 33,239 28,321
Provision for depreciation 15,473 14,771 46,273 43,790
Depreciation and equity funds
recovered under Louisa Phase-In Clause - - - 2,370
Income taxes 11,827 10,747 24,868 23,272
Property and other taxes 8,046 8,356 26,078 25,664
99,012 103,849 361,911 343,413
OPERATING INCOME 24,909 23,871 61,305 60,792
OTHER INCOME
InterCoast Energy Company -
Oil and gas revenues 14,634 12,662 46,196 38,264
Other income 7,787 6,259 25,361 21,611
Expenses, including interest and
provision for income taxes (20,386) (17,346) (62,759) (50,330)
Net income of InterCoast Energy Company 2,035 1,575 8,798 9,545
Allowance for equity funds
used during construction 257 - 288 -
Miscellaneous (522) (205) (669) (818)
1,770 1,370 8,417 8,727
INCOME BEFORE UTILITY INTEREST CHARGES 26,679 25,241 69,722 69,519
UTILITY INTEREST CHARGES
Interest on long-term debt 5,932 5,731 17,717 18,202
Other interest expense 496 521 1,033 1,316
Allowance for borrowed funds
used during construction (379) (174) (959) (758)
6,049 6,078 17,791 18,760
NET INCOME 20,630 19,163 51,931 50,759
PREFERRED AND PREFERENCE
DIVIDEND REQUIREMENTS 1,203 1,242 3,610 3,742
NET INCOME ON COMMON SHARES $19,427 $17,921 $48,321 $47,017
AVERAGE COMMON SHARES OUTSTANDING 29,541 29,342 29,429 29,335
NET INCOME PER AVERAGE
COMMON SHARE OUTSTANDING $0.66 $0.61 $1.64 $1.60
CASH DIVIDENDS DECLARED AND
PAID PER COMMON SHARE $0.4325 $0.4325 $1.2975 $1.2975
<FN>
The accompanying notes to consolidated financial statements are an intergral part of these statements.
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IOWA-ILLINOIS GAS AND ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
9-30-94 12-31-93
(In thousands, except
share amounts)
PROPERTY AND OTHER ASSETS (Unaudited)
<S> <C> <C>
UTILITY PLANT, at original cost
Electric $1,289,041 $1,279,700
Gas 281,861 271,342
1,570,902 1,551,042
Less--Accumulated provision for depreciation 635,401 605,708
935,501 945,334
Nuclear fuel, net of accumulated amortization 27,700 25,120
Construction work in progress 43,230 22,791
1,006,431 993,245
CURRENT ASSETS
Cash and cash equivalents 8,104 17,844
Accounts receivable, less reserves of $1,100 and $1,165 34,857 43,389
Accrued unbilled revenues 13,742 22,182
Inventories 39,178 35,597
Deferred gas expense 1,862 5,794
Other 15,982 18,246
113,725 143,052
INVESTMENTS
InterCoast Energy Company 521,503 501,829
Nuclear decommissioning trust fund 47,543 39,470
Corporate-owned life insurance 13,381 12,836
582,427 554,135
OTHER ASSETS
Regulatory assets 97,565 92,828
Other 11,315 10,303
108,880 103,131
1,811,463 1,793,563
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
COMMON SHAREHOLDERS' EQUITY
Common shares--authorized 80,000,000 shares--outstanding 29,637,321 and
29,352,173 shares stated at 285,932 280,009
Retained earnings 229,504 219,371
Other (5,267) 32
510,169 499,412
PREFERRED SHARES--authorized 400,000 shares, cumulative
--outstanding 198,288 shares not subject to mandatory redemption 19,829 19,829
PREFERENCE SHARES--authorized 2,386,250 shares, cumulative
--outstanding 500,000 shares subject to mandatory redemption 50,000 50,000
LONG-TERM DEBT
First Mortgage Bonds 323,715 323,625
Pollution Control Obligations 48,133 48,275
InterCoast Energy Company 208,000 242,500
579,848 614,400
TOTAL CAPITALIZATION 1,159,846 1,183,641
CURRENT LIABILITIES
Short-term debt 80,000 31,000
Debt redeemable within one year 63,145 59,232
Accounts payable 29,304 44,847
Accrued taxes 28,092 24,913
Accrued interest 11,942 11,413
Accrued gas expense 4,342 11,745
Other 16,480 18,322
233,305 201,472
OTHER LIABILITIES
Capital lease obligations 9,668 10,036
Accumulated provision for nuclear decommissioning 47,543 39,470
Other 43,768 42,984
100,979 92,490
ACCUMULATED DEFERRED INCOME TAXES 277,599 274,605
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 39,734 41,355
$1,811,463 $1,793,563
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
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IOWA-ILLINOIS GAS AND ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1994 1993
(In thousands)
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $51,931 $50,759
Adjustments to reconcile net income
to net cash from operating activities -
Depreciation 49,315 47,507
Depletion 13,374 9,093
Depreciation and equity funds recovered under
Louisa Phase-In Clause - 2,370
Nuclear fuel amortization 5,447 6,093
Deferred income taxes, net 5,799 7,651
Tax credits, net (1,621) (1,667)
Net gain on disposition of securities (3,995) (2,234)
Allowance for equity funds used during construction (288) -
Changes in current assets and liabilities
Accounts receivable 8,532 4,784
Accrued unbilled revenues 8,440 8,021
Inventories (3,581) (177)
Deferred and accrued gas expense (3,471) 155
Accounts payable (15,643) (5,181)
Accrued taxes 3,179 (5,251)
Other current assets and liabilities 915 (10,097)
Energy-efficiency program cost deferrals, net (5,955) (4,642)
Other (2,046) (401)
Net cash from operating activities 110,332 106,783
CASH FLOWS FROM INVESTING ACTIVITIES
Utility plant expenditures (51,321) (41,218)
Nuclear fuel expenditures (8,027) (5,595)
Allowance for equity funds used during construction 288 -
Nuclear decommissioning trust fund (6,758) (5,932)
Oil and gas investments (31,814) (65,270)
Purchase of investments (38,607) (55,259)
Sale of investments 31,111 60,083
Other 2,639 1,111
Net cash from investing activities (102,489) (112,080)
CASH FLOWS FROM FINANCING ACTIVITIES
Common shares issued 6,019 -
Preference shares redeemed - (575)
Long-term debt issued - 75,865
Long-term debt retired (232) (78,143)
Increase in short-term borrowings - 6,000
Borrowings of InterCoast Energy Company -
Retirement of senior notes (51,000) -
Increase in unsecured revolving credit facility 20,500 29,500
Increase in short-term borrowings 49,000 -
Dividends paid (41,794) (41,812)
Issuance expense (76) (969)
Net cash from financing activities (17,583) (10,134)
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,740) (15,431)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,844 20,827
CASH AND CASH EQUIVALENTS AT END OF PERIOD $8,104 $5,396
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the periods for -
Interest (net of amounts capitalized) $36,521 $40,046
Income taxes 12,003 16,435
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) The condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. The statements reflect all adjustments
which are, in the Company's opinion, necessary for a fair statement of the
results for the periods presented. The Company believes that the disclosures
are adequate to make the information presented not misleading. Certain 1993
amounts have been reclassified to conform to the current year presentation. It
is suggested that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
incorporated by reference in the latest annual report on Form 10-K.
(b) On July 26, 1993, the Company implemented temporary electric rates in
its Iowa jurisdiction designed to increase annual electric revenues by $6.8
million (3.8%). Final rates at the $6.8 million increase level became effective
April 15, 1994.
(c) On October 17, 1994, the Company filed an application with the Iowa
Utilities Board to recover the costs of state-mandated energy-efficiency
programs offered to Iowa electric and gas customers since 1992. Costs of the
programs are to be recovered over four years, as required by Iowa law. The
overall annual increase requested, including a return on deferred amounts and an
allowance for performance rewards, is approximately $4.7 million (1.3%). The
proposed effective date for cost recovery additions on customer bills is June 1,
1995.
(d) In April 1992, the Federal Energy Regulatory Commission (FERC) issued
Order No. 636, directing a restructuring by interstate pipeline companies for
their natural gas sales and transportation services. The FERC Order
contemplated that transitional gas supply realignment costs related to this
restructuring may be billed by interstate pipelines to their customers. At
September 30, 1994, the estimated remaining liability for transition costs which
the FERC may authorize the pipelines to bill the Company is $40 million. The
Illinois Commerce Commission (ICC) has allowed the Company to include provisions
for such costs in its sales service and transportation customer billings.
Provisions for such costs are also being included in sales service customer
billings in Iowa.
<PAGE>
(e) The allowance for funds used during construction (AFUDC) includes the
costs of equity and borrowed funds used to finance construction which are
capitalized in accordance with rules prescribed by the FERC. The FERC's Uniform
System of Accounts defines AFUDC as the net cost of borrowed funds used for
construction and a reasonable rate to reflect the costs of other funds so used.
In the first nine months of 1994 and 1993, AFUDC rates were 5.2% and 3.3%,
respectively, compounded semi-annually. Under FERC rules, if average short-term
debt outstanding exceeds construction work in progress (CWIP), all CWIP is
assumed to have been financed with short-term debt. This was the condition in
1993. While currently capitalized AFUDC does not represent a current source of
cash, it does represent a basis for future sources of cash through the inclusion
in rates of depreciation charges and allowance for returns on investment.
(f) On January 1, 1994, the Company adopted Statement of Financial
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115). Under this statement, investments in debt and marketable
equity securities of InterCoast Energy Company (InterCoast), the Company's
wholly owned non-regulated subsidiary, are reported at fair value with net
unrealized gains and losses reported as a net of tax amount in a separate
component of shareholders' equity until realized. The adoption of SFAS 115 did
not have a material effect on financial position or results of operations.
(g) The Company is investigating five properties currently owned by the
Company which were, at one time, sites of gas manufacturing plants. The purpose
of these investigations is to determine whether waste materials are present,
whether such materials constitute an environmental or health risk, and whether
the Company has any responsibility for remedial action. One site is located in
Illinois and four sites are located in Iowa. With regard to the Illinois
property, the Company has signed a working agreement with the Illinois
Environmental Protection Agency to perform further investigation to determine
whether waste materials are present and, if so, whether such materials
constitute an environmental or health risk. At September 30, 1994, an estimated
liability of $3.3 million has been recorded for litigation, investigation and
remediation related to the Illinois site. A regulatory asset has been recorded
reflecting anticipated cost recovery through rates in Illinois. With regard to
the Iowa sites, no agreement or consent order has been negotiated to perform any
site investigations or remediation. The Company has recorded a $4 million
estimated liability for the Iowa sites. A regulatory asset has been recorded
based on the current regulatory treatment of comparable costs in Iowa. The
estimated recorded liabilities for these properties are based upon preliminary
data. Thus, actual costs could vary significantly from the estimates. In
addition, insurance recoveries for some or all of the costs may be possible, but
the liabilities recorded have not been reduced by any estimate of such
recoveries. Although the timing of incurred costs, recoveries and the inclusion
of provision for such costs in rates may affect the results of operations in
individual periods, management believes that the outcome of these issues will
not have a material adverse effect on the Company's financial position or
results of operations.
Clean Air Act legislation was signed into law in November 1990. The
Company has four jointly and one wholly owned coal-fired generating stations
which represent approximately 65% of the Company's electric generating
capability. Each of these facilities will be impacted to varying degrees by the
legislation.
Only one unit at the wholly owned generating station, representing
approximately 10% of the Company's electric generating capability, will be
impacted by the emission reduction requirements effective in 1995. Beginning in
1995, this unit will be required to hold allowances, issued by the federal
government, in order to emit sulfur dioxide. The compliance strategy for this
unit includes modifications to allow for burning low sulfur coal, modifications
for nitrogen oxide control and installation of a new emission monitoring
system. The Company's remaining construction expenditures relative to this
work are estimated to be $4.9 million.
The four generating stations not affected until 2000 already burn low
sulfur coal, so additional capital costs will not be incurred for sulfur dioxide
emission reduction requirements. Beginning in 2000, these facilities will be
required to hold allowances, issued by the federal government, in order to emit
sulfur dioxide. Installation of low nitrogen oxide burners is required at one
of these facilities and existing emission monitoring systems at all four
facilities require upgrading. The Company's remaining construction cost for
this work is estimated to be $1.4 million.
It is anticipated that any costs incurred by the Company to comply with the
Clean Air Act legislation would be included in the cost of service on which the
Company's rates for utility service are based.
(h) On September 21, 1994, InterCoast executed a $50 million bridge
revolving credit agreement under substantially the same terms of its existing
$110 million revolving credit facility. Borrowings under this agreement are
without recourse to the parent Company. The purpose of the bridge revolving
credit facility was to refinance current maturities of InterCoast's unsecured
Senior Notes. The bridge facility has a 364-day term and may be terminated
earlier upon notice. At September 30, 1994, InterCoast had $49 million
outstanding under the bridge revolving credit facility at an average interest
cost of 5.7%.
(i) Expenses of InterCoast include interest expense as follows:
September 30,
1994 1993
Three Months Ended. . . .$ 6,601,000 $ 6,261,000
Nine Months Ended. . . . $19,259,000 $18,195,000
(j) On July 27, 1994, the Company and Midwest Resources Inc. announced a
strategic "merger of equals" to form MidAmerican Energy Company. Under the
proposed merger, MidAmerican Energy Company will be structured as a utility with
the Company, Midwest Resources Inc. and Midwest Power Systems Inc. being merged
into the new company.
MidAmerican will be the largest electric and gas utility operating in Iowa
with combined utility revenues of approximately $1.5 billion, combined assets of
approximately $4.4 billion and total capitalization of approximately $2.7
billion. Midwest's common shareholders will receive one share of MidAmerican
for each Midwest share and the Company's shareholders will receive 1.47 shares
of MidAmerican for each Company share. It is anticipated that following the
merger MidAmerican will initially pay dividends on its common stock at the rate
of $1.20 per share per annum, subject to change from time to time by its board
of directors based on its results of operations, financial condition, capital
requirements and other relevant considerations.
The merger is subject to approval by the shareholders of the Company,
Midwest Resources Inc. and Midwest Power Systems Inc. Special shareholder
meetings for the purpose of obtaining such approval are scheduled for December
21, 1994. Approval is also required of the following regulatory agencies: the
Nuclear Regulatory Commission (NRC), the FERC, and the state regulators in Iowa
and Illinois. A filing also must be made with the United States Department of
Justice and the Federal Trade Commission. Filings seeking such approvals were
made on October 28, 1994, in Iowa and Illinois. Other filings are expected to
be made in November. Completion of the merger is expected in the second half of
1995.
The Company's board of directors approved an amendment of the merger
agreement as of September 27, 1994 authorizing, among other things, the call for
redemption, prior to the date of the special meeting of shareholders to approve
the proposed merger, of each of its series of preferred shares. This call was
issued on November 7, 1994, for redemption to occur on December 15, 1994. The
redemption will be made at a premium which will result in a charge to net income
on common shares of $312,000. The amended merger agreement also provides that,
as of the effective date of the merger, each series of Iowa-Illinois preference
shares then outstanding will be converted into an equal number of shares of
MidAmerican Energy Company preferred stock.<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Operating Revenues
Electric revenues decreased in the third quarter of 1994 compared to the
third quarter of 1993 primarily due to lower sales for resale and lower fuel and
energy cost billings to retail customers. These decreases were partially offset
by higher retail rates and increased retail unit sales. Variations in fuel and
energy cost billings reflect corresponding changes in fuel and purchased energy
costs and, thus, do not affect net income.
Electric revenues increased in the first nine months of 1994 compared to
the first nine months of 1993 primarily due to higher retail rates and increased
retail unit sales. These increases were partially offset by lower fuel and
energy cost billings to retail customers and lower sales for resale.
On July 26, 1993, the Company implemented temporary electric rates in its
Iowa jurisdiction designed to increase annual electric revenues by $6.8 million.
Final rates at the $6.8 million increase level became effective April 15, 1994.
On July 28, 1993, an annual electric rate increase in Illinois of $9.6
million became effective following ICC approval. On January 15, 1994, an
additional electric increase of $230,000 related to the increase in the federal
corporate income tax rate became effective on rehearing. Also on rehearing, the
ICC approved a rate rider which permits the Company to recover costs of
investigation, remediation and litigation relating to former manufactured gas
plant sites. In addition, on January 1, 1994, nuclear decommissioning costs
included in Illinois customer billings through a rate rider were increased by
$1.2 million annually. The previously mentioned rate increases were partially
offset by a $3.2 million decrease in revenues for the first nine months of 1994
reflecting the expiration of the Company's Louisa Phase-In Clause on June 30,
1993 and by decreases of $240,000 and $440,000 for the third quarter and first
nine months of 1994, respectively, related to billings to customers for the
costs of energy-efficiency plans in Illinois. Increased revenues collected
through rate riders relating to former manufactured gas plant sites and nuclear
decommissioning and the decreased revenues from expiration of the Louisa Phase-
In Clause and lower energy-efficiency plan billings will not affect net income
due to a corresponding increase or decrease in costs.
Increased retail unit sales reflect increases in commercial and industrial
usage in the third quarter and first nine months of 1994 compared to the
corresponding periods in 1993.
The changes in electric revenues are shown below:
Revenue Increase (Decrease) from Prior Period
Third Quarter 1994 Nine Months Sept. 1994
to Third Quarter 1993 to Nine Months Sept. 1993
(In thousands)
Change in Retail Fuel and Energy
Adjustment Clause Billings $( 500) $( 1,000)
Change in Retail Unit Sales 1,200 5,000
Change in Sales for Resale ( 4,800) ( 100)
Change Due to the Effect of
Higher Rates 2,300 8,700
$( 1,800) $ 12,600
Gas revenues decreased in the third quarter of 1994 compared
to the third quarter of 1993. The principal factor contributing
to the decrease was lower purchased gas cost billings. In the
third quarter of 1994, higher rates in Illinois, as discussed
below, were offset by a decrease of $170,000 in energy-efficiency
plan billings. Variations in purchased gas cost billings reflect
corresponding changes in cost of gas sold and, thus, do not
affect net income. Changes in energy-efficiency plan billings do
not affect net income due to corresponding changes in costs.
Gas revenues increased in the first nine months of 1994
compared to the first nine months of 1993. The principal factors
contributing to the increase were higher purchased gas cost
billings, higher rates, and increased industrial and
transportation sales. Variations in purchased gas cost billings
reflect corresponding changes in cost of gas sold and, thus, do
not affect net income.
On July 28, 1993, an annual gas rate increase in Illinois of
$2 million became effective following ICC approval. On January
15, 1994, an additional gas increase of $49,000 related to the
increase in the federal corporate income tax rate became
effective on rehearing. As noted previously, also on rehearing,
the ICC approved a rate rider which permits the Company to
recover costs of investigation, remediation and litigation
relating to former manufactured gas plant sites.
The changes in gas revenue are shown below:
Revenue Increase (Decrease) from Prior Period
Third Quarter 1994 Nine Months Sept. 1994
to Third Quarter 1993 to Nine Months Sept. 1993
(In thousands)
Change in Purchased Gas
Adjustment Clause Billings $(1,200) $ 4,800
Change in Unit Sales ( 800) 800
Change Due to the Effect of
Higher Rates - 800
$(2,000) $ 6,400
Operation
Cost of gas sold decreased in the third quarter of 1994
compared to the third quarter of 1993 primarily due to decreased
purchased gas costs from suppliers.
Cost of gas sold increased in the first nine months of 1994
compared to the first nine months of 1993 primarily due to
increased purchased gas costs from suppliers.
Changes in the cost of electric fuel, energy and capacity
reflect fluctuations in generation mix, fuel cost and energy and
capacity purchases. Decreased fuel, energy and capacity costs in
the third quarter of 1994 compared to the third quarter of 1993
are primarily due to lower total sales and lower average unit
fuel and energy costs.
Other operation and maintenance increased in the first nine
months of 1994 compared to the first nine months of 1993
primarily due to increased costs at the Quad-Cities Nuclear Power
Station (Quad-Cities). The Company has been advised by ComEd,
operator and 75 percent owner of Quad-Cities Station, that the
station continues to be included by the NRC on its list of plants
with adverse performance trends. The Company anticipates the
current increased expenditure levels by ComEd at Quad-Cities
Station will continue.
Depreciation and Equity Funds
Recovered Under Louisa Phase-In Clause
The decrease in the amount recovered under the Louisa Phase-In Clause in
the first nine months of 1994 compared to the <PAGE>
corresponding period in 1993
reflects the expiration of the Louisa Phase-In Clause on June 30, 1993.
Oil and Gas Revenues of InterCoast Energy Company
Oil and gas revenues of InterCoast increased in the third
quarter of 1994 compared to the third quarter of 1993 primarily
due to higher production volumes and higher oil prices, partially
offset by lower gas prices.
Oil and gas revenues of InterCoast increased in the first
nine months of 1994 compared to the first nine months of 1993
primarily due to higher production volumes, partially offset by
lower oil and gas prices.
Other Income of InterCoast Energy Company
Other income of InterCoast increased in the third quarter
and first nine months of 1994 compared to the corresponding
periods in 1993 primarily due to greater income from special
purpose funds and increased gains on the disposition of direct
holdings in common stock.
Expenses of InterCoast Energy Company
Expenses of InterCoast increased in the third quarter and
first nine months of 1994 compared to the corresponding periods
in 1993 primarily due to greater oil and gas expenses.
Allowance for Funds Used During Construction
The increase in the total allowance for the third quarter
and first nine months of 1994 compared to the corresponding
periods in 1993 is primarily due to a higher AFUDC rate, 5.2%
compared to 3.3%, and higher construction work in progress
balances. Under FERC rules, if average short-term debt
outstanding exceeds construction work in progress (CWIP), all
CWIP is assumed to have been financed with short-term debt. This
was the condition in 1993.
Other Matters
On July 27, 1994, the Company and Midwest Resources Inc.
announced a strategic "merger of equals" to form MidAmerican
Energy Company. Under the proposed merger, MidAmerican Energy
Company will be structured as a utility with the Company, Midwest
Resources Inc. and Midwest Power Systems Inc. being merged into
the new company.
MidAmerican will be the largest electric and gas utility
operating in Iowa with combined utility revenues of approximately
$1.5 billion, combined assets of approximately $4.4 billion and
total capitalization of approximately $2.7 billion. Midwest's
common shareholders will receive one share of MidAmerican for
each Midwest share and the Company's shareholders will receive
1.47 shares of MidAmerican for each Company share. It is
anticipated that following the merger MidAmerican will initially
pay dividends on its common stock at the rate of $1.20 per share
per annum, subject to change from time to time by its board of
directors based on its results of operations, financial
condition, capital requirements and other relevant
considerations.
The merger is subject to approval by the shareholders of the
Company, Midwest Resources Inc. and Midwest Power Systems Inc.
Special shareholder meetings for the purpose of obtaining such
approval are scheduled for December 21, 1994. Approval is also
required of the following regulatory agencies: the NRC, the
FERC, and the state regulators in Iowa and Illinois. A filing
must also be made with the United States Department of Justice
and the Federal Trade Commission. Filings seeking such approvals
were made on October 28, 1994, in Iowa and Illinois. Other
filings are expected to be made in November. Completion of the
merger is expected in the second half of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current utility construction program forecast
calls for expenditures of $87.6 million in 1994. Approximately
65% of these expenditures are expected to be met from cash
generated from operations. The Company's utility capital
requirements for the years 1994-1998 include budgeted
construction expenditures of $319.6 million, expected
contributions to nuclear decommissioning trust funds of $45.7
million and maturities, sinking funds and redemptions related to
long-term debt of $98.2 million.
The Company's board of directors approved an amendment of
the merger agreement as of September 27, 1994 authorizing, among
other things, the call for redemption, prior to the date of the
special meeting of shareholders to approve the proposed merger,
of each of its series of preferred shares. This call was issued
on November 7, 1994, for redemption to occur on December 15,
1994. The redemption will be made at a premium which will result
in a charge to net income on common shares of $312,000. The
amended merger agreement also provides that, as of the effective
date of the merger, each series of Iowa-Illinois preference
shares then outstanding will be converted into an equal number of
shares of MidAmerican Energy Company preferred stock.
At September 30, 1994 and December 31, 1993, the Company had
$80 million and $31 million, respectively, of outstanding short-
term debt. The September 30, 1994 balance includes $49 million
under a bridge revolving credit facility which relates to
InterCoast.
In April 1992, the FERC issued Order No. 636, directing a
restructuring by interstate pipeline companies for their natural
gas sales and transportation services. The FERC Order
contemplated that transitional gas supply realignment costs
related to this restructuring may be billed by interstate
pipelines to their customers. At September 30, 1994, the
estimated remaining liability for transition costs which the FERC
may authorize the pipelines to bill the Company is $40 million.
The ICC has allowed the Company to include provisions for such
costs in its sales service and transportation customer billings.
Provisions for such costs are also being included in sales
service customer billings in Iowa.
The Company is investigating five properties currently owned
by the Company which were, at one time, sites of gas
manufacturing plants. The purpose of these investigations is to
determine whether waste materials are present, whether such
materials constitute an environmental or health risk, and whether
the Company has any responsibility for remedial action. One site
is located in Illinois and four sites are located in Iowa. With
regard to the Illinois property, the Company has signed a working
agreement with the Illinois Environmental Protection Agency to
perform further investigation to determine whether waste
materials are present and, if so, whether such materials
constitute an environmental or health risk. At September 30,
1994, an estimated liability of $3.3 million has been recorded
for litigation, investigation and remediation related to the
Illinois site. A regulatory asset has been recorded reflecting
anticipated cost recovery through rates in Illinois. With regard
to the Iowa sites, no agreement or consent order has been
negotiated to perform any site investigations or remediation.
The Company has recorded a $4 million estimated liability for the
Iowa sites. A regulatory asset has been recorded based on the
current regulatory treatment of comparable costs in Iowa. The
estimated recorded liabilities for these properties are based
upon preliminary data. Thus, actual costs could vary
significantly from the estimates. In addition, insurance
recoveries for some or all of the costs may be possible, but the
liabilities recorded have not been reduced by any estimate of
such recoveries. Although the timing of incurred costs,
recoveries and the inclusion of provision for such costs in rates
may affect the results of operations in individual periods,
management believes that the outcome of these issues will not
have a material adverse effect on the Company's financial
position or results of operations.
Clean Air Act legislation was signed into law in November
1990. The Company has four jointly and one wholly owned coal-
fired generating stations which represent approximately 65% of
the Company's electric generating capability. Each of these
facilities will be impacted to varying degrees by the
legislation.
Only one unit at the wholly owned generating station,
representing approximately 10% of the Company's electric
generating capability, will be impacted by the emission reduction
requirements effective in 1995. Beginning in 1995, this unit
will be required to hold allowances, issued by the federal
government, in order to emit sulfur dioxide. The compliance
strategy for this unit includes modifications to allow for
burning low sulfur coal, modifications for nitrogen oxide control
and installation of a new emission monitoring system. The
Company's remaining construction expenditures relative to this
work are estimated to be $4.9 million.
The four generating stations not affected until 2000 already
burn low sulfur coal, so additional capital costs will not be
incurred for sulfur dioxide emission reduction requirements.
Beginning in 2000, these facilities will be required to hold
allowances, issued by the federal government, in order to emit
sulfur dioxide. Installation of low nitrogen oxide burners is
required at one of these facilities and existing emission
monitoring systems at all four facilities require upgrading. The
Company's remaining construction cost for this work is estimated
to be $1.4 million.
It is anticipated that any costs incurred by the Company to
comply with the Clean Air Act legislation would be included in
the cost of service on which the Company's rates for utility
service are based.
The forecasted 1994 capital expenditures for InterCoast are
approximately $82.6 million. Actual expenditures are dependent
on overall InterCoast performance and general market conditions.
InterCoast's aggregate amounts of maturities and cash
sinking fund requirements for long-term debt outstanding at
September 30, 1994 are $8 million for 1994 and $218 million for
the years 1995-1998. Amounts due in 1994 are expected to be
refinanced with debt instruments and operating cash flow.
In January 1994, InterCoast renegotiated its unsecured
revolving credit facility agreement. The renegotiation increased
the amount of capital available from $65 million to $110 million.
The amended credit agreement matures February 14, 1996.
Borrowings under this agreement may be on a fixed rate, floating
rate or competitive bid rate basis. All such borrowings are
without recourse to the parent Company. Borrowings at September
30, 1994 were $65 million at a weighted average interest cost of
5.7%.
On September 21, 1994, InterCoast executed a $50 million
bridge revolving credit agreement under substantially the same
terms of its existing $110 million revolving credit facility.
Borrowings under this agreement are without recourse to the
parent Company. The purpose of the bridge revolving credit
facility was to refinance current maturities of InterCoast's
unsecured Senior Notes. The bridge facility has a 364-day term
and may be terminated earlier upon notice. At September 30,
1994, InterCoast had $49 million outstanding under the bridge
revolving credit facility at an average interest cost of 5.7%.
<PAGE>
Part II - Other Information
Item 5. Other Events
Rate Matters
See Notes (b) and (c) to the Consolidated Financial
Statements contained in Part I of this Form 10-Q for a discussion
of an Iowa electric rate filing and an Iowa energy-efficiency
program filing.
Federal Gas Transition Costs
See Note (d) to the Consolidated Financial Statements
contained in Part I of this Form 10-Q for a discussion of federal
gas transition costs related to Federal Energy Regulatory
Commission Order No. 636.
Environmental Matters
See Note (g) to the Consolidated Financial Statements
contained in Part I of this Form 10-Q for a discussion related to
manufactured gas plant sites and Clean Air Act legislation.
InterCoast Energy Company
See Note (h) to the Consolidated Financial Statements
contained in Part I of this Form 10-Q for a discussion related to
the execution of a bridge revolving credit agreement.
Merger Announced
See Note (j) to the Consolidated Financial Statements
contained in Part I of this Form 10-Q for a discussion related to
the announced merger of the Company, Midwest Resources Inc. and
Midwest Power Systems Inc. into a new utility, MidAmerican Energy
Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
<PAGE>
(b) Reports on Form 8-K
A report on Form 8-K dated July 29, 1994 was filed. The
report included under "Item 5 Other Events" and "Item 7 Financial
Statements and Exhibits" information related to the merger of the
Company, Midwest Resources Inc. and Midwest Power Systems Inc.
with and into MidAmerican Energy Company. <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.
Iowa-Illinois Gas and Electric Company
(Registrant)
Date: November 10, 1994 By L. E. Cooper
L. E. Cooper
Vice President-Finance
(Chief Financial Officer)
Date: November 10, 1994 By K. M. Giger
K. M. Giger
Secretary and Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Iowa-Illinois Gas and Electric Company as of
September 30, 1994 and the related consolidated statements of income and cash
flows for the nine months ended September 30, 1994 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $1,006,431
<OTHER-PROPERTY-AND-INVEST> 582,427
<TOTAL-CURRENT-ASSETS> 113,725
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<OTHER-ASSETS> 108,880
<TOTAL-ASSETS> 1,811,463
<COMMON> 285,932
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<RETAINED-EARNINGS> 229,504
<TOTAL-COMMON-STOCKHOLDERS-EQ> 510,169
50,000
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<GROSS-OPERATING-REVENUE> 423,216
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<OTHER-OPERATING-EXPENSES> 337,043
<TOTAL-OPERATING-EXPENSES> 361,911
<OPERATING-INCOME-LOSS> 61,305
<OTHER-INCOME-NET> 8,417
<INCOME-BEFORE-INTEREST-EXPEN> 69,722
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3,610
<EARNINGS-AVAILABLE-FOR-COMM> 48,321
<COMMON-STOCK-DIVIDENDS> 38,146
<TOTAL-INTEREST-ON-BONDS> 17,717
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