IP HOLDING CO, U-1/A, 1994-04-21

IP HOLDING CO
U-1/A, 1994-04-21

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As filed with the Securities and Exchange Commission on April 21, 1994

File No. 70-8305

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 1

FORM U-1

APPLICATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

Illinova Corporation
(formerly IP Holding Company)
500 South 27th Street
Decatur, Illinois 62525-1805

(Name of company filing this statement
and address of principal executive office)

Leah Manning Stetzner
Gary B. Pasek
Illinois Power Company
500 South 27th Street
Decatur, Illinois 62525-1805

R. Todd Vieregg, P.C. Frederic G. Berner, Jr.
Sidley & Austin Nancy Y. Gorman
One First National Plaza Sidley & Austin
Chicago, Illinois 60603 1722 Eye Street, N.W.
(312) 853-7000 Washington, D.C. 20006
(202) 736-8000

(Names and addresses of agents for service)

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Illinova Corporation ("Illinova"), formerly IP Holding Company, is

filing this Amendment No. 1 to its Form U-1 Application (the "Application")

under the Public Utility Holding Company Act of 1935 (the "1935 Act" or the

"Act") filed with the Securities and Exchange Commission ("Commission") on

November 15, 1993, for the purpose of providing additional information, filing

additional exhibits, and advising the Commission that the Nuclear Regulatory

Commission ("NRC") and the shareholders of Illinois Power Company ("Illinois

Power") have approved the corporate restructuring proposed in the

Application.(1)

ITEM 1. DESCRIPTION OF PROPOSED TRANSACTION.

* * *

b. PARTIES TO THE TRANSACTION

1. GENERAL DESCRIPTION

* * *

Illinois Power owns 20% of the outstanding stock of EEI, an

Illinois corporation that owns and operates a steam electric generating

station near Joppa, Illinois and related transmission facilities that are used

to supply electric energy to a gaseous diffusion uranium processing plant near

Paducah, Kentucky that is owned and operated by the U.S. Department of Energy.

For the year ended December 31, 1992, EEI represented approximately .85% of

Illinois Power's consolidated operating revenues, 2.16% of consolidated net

income, 0% of consolidated net utility plant, and .04% of consolidated total

assets.

____________________
(1) IP Holding Company was renamed Illinova Corporation on February 5, 1994.
The Application is therefore also amended to reflect that name change.

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Similarly, for the year ended December 31, 1993, EEI represented approximately

1.67% of Illinois Power's consolidated operating revenues, (4.66)% of

consolidated net income, 0% of consolidated net utility plant, and .04% of

consolidated total assets.(2)

* * *

2. UTILITY OPERATIONS

* * *

Retail natural gas service is provided by Illinois Power to an

estimated aggregate population of 920,000 in 257 incorporated municipalities,

adjacent suburban areas, and numerous unincorporated communities. The highest

peak-day send-out was 857,324 MMBtu on January 10, 1982. Illinois Power's gas

properties include approximately 7,500 miles of mains, three peak-shaving

plants with an aggregate daily deliverability of about 50,000 MMBtu, and eight

underground gas storage fields with a capacity of approximately 15.5 million

MMBtu and a peak day deliverability of about 347,000 MMBtu. For the year

ended December 31, 1992, Illinois Power received $288,617,122 in revenues from

its retail natural gas service. Additional financial information regarding

the natural gas segment of Illinois Power's business (as well as comparable

financial information for the electric segment of its business), taken from

the annual report filed by Illinois Power with the Federal Energy

____________________
(2) This paragraph amends the first full paragraph as it appears at p. 4 of
the Application.

2
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Regulatory Commission (FERC Form No. 1), is attached hereto as Exhibit I-1.(3)

* * *

C. THE PROPOSED TRANSACTION

* * *

At a special meeting held on February 9, 1994, Illinois Power's

shareholders approved the Merger Agreement. Approval of the Merger Agreement

required the affirmative votes of the holders of two-thirds of the outstanding

shares of Illinois Power common stock and preferred stock, voting together as

a single class. Attached hereto as Exhibit I-2 is a copy of the "Report of

Inspectors" for the February 9, 1994 special meeting, verifying shareholder

approval of the following resolution:

RESOLVED, that the Agreement and Plan of Merger dated as of
November 15, 1993 between Illinois Power Company ("Company") and
IP Merging Corporation ("Merging Co."), for the merger of Merging
Co. with and into the Company with the outstanding Common Stock of
the Company being converted into Common Stock of IP Holding
Company, as described in the Prospectus and Proxy Statement dated
December 20, 1993, be approved.(4)

* * *

In accordance with the American Institute of Certified Public

Accountants' "Business Combinations: Accounting Interpretations of APB

Opinion No. 16, #39 - Transfers and Exchanges Between Companies Under Common

Control," Illinova proposes to account for the Merger at historical cost in a

manner

____________________
(3) This paragraph amends the first full paragraph as it appears at p. 7 of
the Application.

(4) This paragraph amends the first full paragraph as it appears at p. 11 of
the Application.

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similar to that in "pooling of interests" accounting under generally accepted

accounting principles. Price Waterhouse, the independent public accountants

for Illinois Power, have been selected as the independent public accountants

for Illinova and have concurred in such accounting treatment. The financial

statements of Illinois Power and Merging Corp. will be combined into a new

entity as though they had always been together; accordingly, the asset,

liability, and equity accounts of each company will be carried forward at

existing amounts on Illinova's consolidated financial statements. Reported

income and expense of Illinois Power for prior periods will continue to be the

income and expense of Illinois Power. Because Merging Corp. will have no

assets, revenues, income, or expenses prior to the Merger, there will be no

change in the financial statements of Illinois Power as a result of the

Merger.(5)

ITEM 3. APPLICABLE STATUTORY PROVISIONS.

* * *

c. COMPLIANCE WITH APPLICABLE STATUTORY STANDARDS

For the reasons explained below, Illinova believes that the

Acquisition complies with the applicable standards of Sections 10(b), 10(c),

and 10(f) of the Act and that Illinova will qualify for an exemption from all

of the provisions of the

____________________
(5) This paragraph amends the paragraph discussing the proposed accounting
treatment for the Merger as it appears at pp. 13-14 of the Application.

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Act (except for Section 9(a)(2) thereof) under Section 3(a)(1) of the Act

following the Acquisition.

1. SECTION 10(b)

Section 10(b) of the Act requires the Commission to approve the

Acquisition unless the Commission finds that:

(1) such acquisition will tend towards interlocking
relations or the concentration of control of public-utility
companies, of a kind or to an extent detrimental to the public
interest or the interest of investors or consumers;

(2) in the case of the acquisition of securities or utility
assets, the consideration, including all fees, commissions, and
other remuneration, to whomsoever paid, to be given, directly or
indirectly, in connection with such acquisition is not reasonable
or does not bear a fair relation to the sums invested in or the
earning capacity of the utility assets to be acquired or the
utility assets underlying the securities to be acquired; or

(3) such acquisition will unduly complicate the capital
structure of the holding-company system of the applicant or will
be detrimental to the public interest or the interest of investors
or consumers or the proper functioning of such holding company
system.

* * *

iii. SECTION 10(b)(3) -- COMPLICATION OF CAPITAL STRUCTURE(6)

The proposed restructuring will not "unduly complicate the capital

structure" of Illinova's holding-company system or otherwise "be detrimental

to the public interest or the interest of investors or consumers or the proper

functioning of such

____________________
(6) This discussion of Section 10(b)(3) of the Act supplements and amends the
discussion at pp. 21-22 of the Application.

5
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holding company system." In fact, the structure of the holding company system

resulting from the proposed restructuring will not be more complicated than it

is now, except for the interposition of Illinova as an ownership entity

between Illinois Power and the owners of common stock. The proposed

restructuring will not involve the creation of any ownership interests other

than those which are necessary to maintain the basic corporate relationships

of the holding company system to be established. Control of the system will

remain in the hands of the existing holders of Illinois Power's common stock,

who will become Illinova's shareholders.

At the time the transactions contemplated in the Application are

consummated, Illinova will acquire, by operation of law, 100% of Illinois

Power's common stock. Illinova has only one authorized class of stock,

I.E., publicly-held common stock, while many public-utility holding

companies, including Midwest Resources Inc. and IES Industries Inc., have

authorized BOTH preferred and common stock. From this additional

standpoint, Illinova will satisfy the requirement of Section 10(b)(3) of the

Act that its capital structure not be "unduly complicated."

In addition, there will be no minority common stock interest in

Illinois Power, and the existing senior debt and equity securities of Illinois

Power will be unaffected. The Commission has previously determined that

similar proposed restructurings would not unduly complicate corporate capital

6
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structures. SEE, E.G., CIPSCO, INC., Holding Co. Act Release No.

25152, 47 SEC Docket 174, 178 (1990); WISCONSIN ENERGY CORP., Holding Co.

Act Release No. 24267, 37 SEC Docket 296, 300 (1986).

As noted above, the components of Illinois Power's capital

structure will be unchanged by the proposed restructuring. In the future,

Illinois Power intends to maintain an uncomplicated capital structure that

will include a balance of debt and equity that is appropriate in light of the

overall risk characteristics of its business and other relevant

considerations. To ensure that Illinois Power maintains its status as a

financially viable company and manages its capital structure in a responsible

manner, the Illinois Commerce Commission ("Illinois Commission") sets Illinois

Power's rates based on a balanced capital structure and oversees the issuance

of long-term debt and equity securities.

2. SECTION 10(c)

Section 10(c) of the Act provides that the Commission shall not

approve

(1) an acquisition of securities or utility assets, or of any
other interest, which is unlawful under the provisions of Section 8 or
is detrimental to the carrying out of the provisions of Section 11; or

(2) an acquisition of securities or utility assets of a
public-utility or holding company unless the Commission finds that such
acquisition will serve the public interest by tending towards the
economical and the efficient development of an integrated public-utility
system . . . .

* * *

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ii. SECTION 10(c)(2) -- ECONOMIES AND EFFICIENCIES OF AN
INTEGRATED SYSTEM

The restructuring will serve the public interest by tending

towards the ECONOMICAL and EFFICIENT development of an integrated

public-utility system, as required by Section 10(c)(2) of the Act.

(A) ECONOMIES AND EFFICIENCIES(7)

The new holding company structure will tend to produce a number of

economies and efficiencies. First and foremost, the new structure will permit

Illinois Power affiliates to seize competitive opportunities in the electric

power industry. Over the next ten years, independent power producers are

expected to account for half of the estimated 100,000 MW of additional

capacity necessary to meet the demand for electric energy in the United

States. To compete in that market, IP Group, Inc. ("IP Group")(8) intends to

invest both in proposed projects and in projects that are under construction

or already in operation. Through such investments, unfulfilled demand will be

met and competition will be enhanced.

____________________
(7) This discussion of the economies and efficiencies requirement of Section
10(c)(2) of the Act supplements and amends the discussion at pp. 24-28 of the
Application.

(8) As noted in the Application on p. 4, IP Group is an Illinois company that
was incorporated on October 5, 1992, to invest in and develop independent
power projects, to provide services for such projects, and to engage in other
non-utility businesses.

8
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In addition, the holding company structure is intended to produce

efficiencies and economies through the use of skills and technologies

developed in the highly efficient independent power market to improve the

operation of Illinois Power's generating facilities. Such skills and

technologies help Illinois Power maintain competitive efficiency levels at its

power plants.

Testimony submitted by Illinois Power in hearings before the

Illinois Commission on its proposal to fund IP Group elaborates on the

economies and efficiencies of independent power projects:

The independent power industry has been able to provide lower cost
capacity solutions by entering into innovative, long-term fuel
contracts; by selecting more standardized plant design
configurations; by negotiating fixed-price turnkey construction
contracts; by securing innovative, heavily-leveraged project
financing; and by arranging incentive-based operating agreements.
The operating contracts have fee schedules based on actual plant
performance, thus mitigating risk to the customers. Lower
staffing levels are achieved by having fewer layers of management
and more flexible work rules. In addition, more involved job
planning coupled with more efficient work practices reduces plant
operating costs. These plants achieve further economies by
outsourcing major overhaul repair work to specialty repair firms.

Testimony of Illinois Power witness David W. Butts, Formerly Division Vice

President, New Products and Services Division,(currently President, IP Group,

Inc.), at 7-8. (The relevant portion of Mr. Butts' testimony is appended

hereto as Exhibit I-3.)

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After listing these benefits, Mr. Butts concluded that "while

[Illinois Power] may not be able to utilize all of these concepts, by

implementing applicable concepts from the independent power market functions,

Illinois Power expects to realize efficiency gains and operating cost

reductions." ID. Such indirect operational benefits are sufficient to support

a finding that the requirements of Section 10(c)(1) have been satisfied.(9)

In addition, Mr. Butts testified that experience and information

gained in the independent power market would allow Illinois Power to function

more successfully in an increasingly competitive environment, enhance Illinois

Power's financial strength, and provide new opportunities for the development

and application of employees' skills. Exhibit I-3 at p. 8. Mr. Butts further

testified that participation in the independent power market would "provide a

positive contribution to Illinois Power's total earnings, thus increasing

shareholder value." ID. These benefits, viewed by Illinois Power as

significant, were not quantified in the Illinois Commission proceeding,

largely because of the speculation and numerous assumptions that would be

required.

One area in which Illinois Power has been able to identify

quantifiable savings from the adoption of a holding

____________________
(9) WPL HOLDINGS, INC., Holding Co. Act Release No. 35-25377, 49 SEC Docket
1255, 1259 (1991).

10
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company structure is that of regulatory expense. Without a holding company

structure, Illinois Power would be required to seek Illinois Commission

approval pursuant to the requirements of Section 7-102 of the Illinois Public

Utilities Act (220 ILCS 5/7-102) whenever it desired to invest funds in

diversified activities. The employee time and regulatory expense for outside

consultants involved in obtaining such approvals is significant. For example,

Illinois Commission approval for IP Group's $6.1 million investment in just

one power project took more than 12 months to obtain and cost more than

$200,000 in regulatory expenses (including recorded employee time). In

addition, the delay in regulatory approvals in that instance cost Illinois

Power $42,000 in otherwise avoidable interest expense. Assuming that Illinova

invests in several independent power projects and other unregulated ventures

in the next three-to-five year period, the holding company structure could

afford savings of as much as $1 million in avoided regulatory expense alone.

Moreover, eliminating the need to obtain Illinois Commission

approval prior to committing funds for new non-utility projects will enable

Illinova and its unregulated subsidiaries to take advantage of potentially

profitable investment opportunities that could otherwise be lost. During

the past year, IP Group was foreclosed from investing in one project, having a

projected net present value of $1.7 million, because other parties to the

transaction would not wait for Illinois Power to obtain required regulatory

approvals. Assuming

11
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one such lost opportunity each year for the next ten years, the lost value to

Illinois Power could exceed $10 million.

These "lost" investment opportunities are typical of the financial

inefficiencies that will be eliminated as a result of the formation of the

holding company. Indeed, given the increasingly competitive nature of the

utility industry, such an elimination of financial inefficiencies is critical

to the maintenance of shareholder value.

As the Commission has found in a number of analogous cases, a

holding company structure would also permit adjustments of the utility's

capital ratios to appropriate levels through dividends to, or equity

investments from, the holding company. WPL HOLDINGS, INC., Holding Co. Act

Release No. 25377, 49 SEC Docket 1255, 1257 (1991). In the future, Illinois

Power would be able to reduce its common equity ratio by declaring a dividend

on its common stock payable to Illinova, without affecting the dividend rate

on publicly-held Illinova stock, if desirable.(10) Such dividends from Illinois

Power to Illinova would not, of course, be unlimited. In practice, Illinois

Power limits dividends on common stock to levels that do not significantly

____________________
(10) Illinova's dividend policy could be managed independently to provide
shareholders with consistent and sustainable dividends because Illinova's
dividend actions would not be completely dependent on Illinois Power's
dividends.

12
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reduce its book value.(11) Moreover, the Illinois Commission oversees the

balance of equity and debt in Illinois Power's capital structure, and has

statutory authority to limit or preclude the declaration and/or payment of

dividends under certain circumstances. In particular, Section 7-103 of the

Illinois Public Utilities Act (220 ILCS 5/7-103) provides that "[w]henever the

[Illinois Commission] finds that the capital of any public utility has become

impaired or will be impaired by the payment of a dividend, the [Illinois

Commission] shall have power to order said public utility to cease and desist

the declaration and payment of any dividend upon its common and preferred

stock . . . ."(12)

____________________
(11) Historically, standard utility industry practice has been to maintain a
ratio of dividends on common stock to book value of 8 1/2 to 9 1/2 percent
(which percentage may well decrease in the future due to increasing competition
in the utility industry). In addition, Illinois Power has adopted a long-term
goal regarding future dividend payouts on its common stock pursuant to which
Illinois Power will strive for steady and sustainable progress toward a payout
ratio greater than 50% of earnings, but no greater than current industry norms
of 75% to 80%. At this time, common shareholders' equity represents about 36%
of Illinois Power's total capitalization on a book value basis and 44% of its
total capitalization on a market value basis.

(12) Section 7-103 provides in full as follows:

(1) Whenever the [Illinois Commission] finds that the capital of any
public utility has become impaired or will be impaired by the payment of a
dividend, the [Illinois Commission] shall have power to order said public
utility to cease and desist the declaration and payment of any dividend upon
its common and preferred stock, and no such public utility shall pay any
dividend upon its common and preferred stock until such impairment shall have
been made good.

(2) No utility shall pay any dividend upon its common stock and
preferred stock unless:

(continued...)

13
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Consistent with these limitations, retention of earnings in

Illinova would permit later utilization of resources to provide funds for

capital investment in utility and non-utility assets and to increase the level

of Illinois Power's common equity, if deemed advisable. As a result, Illinova

would be able to more efficiently manage and allocate its earnings from

utility operations.

This ability to adjust the components of Illinois Power's capital

structure also "increases general financial flexibility, which allows the

utility to take advantage of lower-cost financing opportunities that might not

otherwise be available." CIPSCO INC., SUPRA, 47 SEC Docket at 179. The

____________________
(12) (...continued)
(a) The utility's earnings and earned surplus are sufficient to
declare and pay same after provision is made for reasonable and
proper reserves.

(b) The dividend proposed to be paid upon such common stock can
reasonably be declared and paid without impairment of the ability
of the utility to perform its duty to render reasonable and
adequate service at reasonable rates.

(c) It shall have set aside the depreciation annuity prescribed by the
[Illinois Commission] or a reasonable depreciation annuity if none
has been prescribed.

If any dividends on common stock are proposed to be declared and paid
other than as above provided, the utility shall give the [Illinois Commission]
at least thirty days' notice in writing of its intention to so declare and pay
such dividends and the [Illinois Commission] shall authorize the payment of
such dividends only if it finds that the public interest requires such
payment. Provided, however, that the [Illinois Commission] may grant such
authority upon such conditions as it may deem necessary to safeguard the
public interest.

14
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flexibility associated with a balanced capital structure permits

the issuance of various types of securities under any conditions and thus

increases the potential for cost reduction. As the Commission has noted in

similar circumstances, "Lower-cost financing can enhance efficient utility

operations and benefit ratepayers and senior security holders." KU ENERGY

CORP., Holding Co. Act Release No. 35-25409, 50 SEC Docket 294, 296 (1991).

More specifically, Illinois Power anticipates that its

relationship with Illinova would allow it to utilize cost-effective,

project-specific financing techniques that would enable it to reduce debt in

its own capital structure. A reduction in Illinois Power's debt ratio would

improve its chances of attaining an upgrade in its debt rating, which would

further improve its ability to raise low-cost capital. For example, new

30-year bonds rated A2 by Moody's Investors' Service could be issued with a

7.33% yield as of December 31, 1993, whereas investors required a yield of

7.65% from bonds rated Baa2 (Illinois Power's current debt rating). If

Illinois Power had been able to upgrade its debt rating in this manner, it

would have been able to save $320,000 per year for each $100,000,000 of debt

securities issued.

The restructuring should also help to broaden the holding company

system's financial base and its investment appeal by reducing the system's

dependence on its utility operations.

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This diversity should also increase financing alternatives, since financing may

be tailored to the specific needs and circumstances of the individual utility

and non-utility businesses. Moreover, unregulated affiliates of Illinois

Power could obtain capital for their own projects without affecting Illinois

Power's capital structure and without obtaining any capital whatsoever from

Illinois Power.

The holding company structure will tend to insulate Illinois

Power's customers and security holders from the risks of independent power

projects and other non-utility businesses by making IP Group a separate

subsidiary of Illinova. Illinois Power's ability to raise new preferred stock

and debt capital should be unaffected by any poor performance of IP Group

(after IP Group becomes a direct subsidiary of Illinova). This reduced

exposure to risk should enable Illinois Power to raise new preferred stock and

debt capital at a lower cost than might be possible if nonutility businesses

were direct subsidiaries of Illinois Power. As the Commission has stated in

similar circumstances, "The insulation of the utility businesses . . . from

any risks of diversification and the resulting lower costs should tend toward

more efficient and economical operation of the utility businesses . . . ."

CIPSCO, INC., SUPRA, 47 SEC Docket at 180. Additionally, the benefits

from the change in corporate structure that satisfy Section 10(c)(1) of the

Act are also "significant benefits" that satisfy the standards of Section

10(c)(2). SEE WPL HOLDINGS, INC., SUPRA, 49 SEC Docket at 1260-

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61. As the Commission has noted, "some overlap of the analyses under Section

10(c)(1) and 10(c)(2) is inevitable." ID. at 1260.

The value to Illinois Power's ratepayers and securities holders of

the insulation from the risks of non-utility ventures and independent power

projects that the holding company structure provides is a very significant

benefit but one that cannot be quantified. In fact, Illinova's Application

was motivated in large part by the Illinois Commission's finding, in response

to testimony from the Illinois Commission's Staff and certain intervenors that

a holding company structure was necessary to protect ratepayers, that Illinois

Power should "proceed expeditiously with the formation of a holding company."

Exhibit D-5 to Application, pp. 93-95, 105. If Illinois Power were precluded

from proceeding with the restructuring, the Illinois Commission could require

the divestiture of IP Group, thus foreclosing the ability to realize the

benefits of participating in less-regulated energy markets with the risk

protection afforded by a holding company structure.

Significantly, the Commission has recognized that unquantifiable

"financial" and "organizational" economies can satisfy the "elastic" standard

of Section 10(c)(2) of the Act.(13) Moreover, a Commission finding of

"efficiencies and economies" may be based "on the potential for economies

presented by the acquisition even where these are not precisely quantifiable."

____________________
(13) WPL HOLDINGS, SUPRA, 49 SEC Docket at 1257.

17
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AMERICAN ELECTRIC POWER CO., 46 SEC 1299, 1322 (1978). In this case, it is

clear that the proposed restructuring promises to provide significant

financial and organizational advantages and that the substantial potential

economies and efficiencies meet the standard of Section 10(c)(2) of the Act.

* * *

4. SECTION 3(a)(1) (14)

Following the proposed Acquisition, Illinova and its subsidiaries

will meet the requirements for an exemption under Section 3(a)(1) of the Act.

Illinova, Illinois Power, and EEI are each organized in the State of Illinois.

The business of Illinois Power, from which Illinova will derive a material

part of its income and revenues, will continue to be predominantly intrastate

in character and will continue to be carried on substantially in Illinois.

For the year ended December 31, 1992, EEI represented

approximately .85% of Illinois Power's consolidated operating revenues, 2.16%

of consolidated net income, 0% of consolidated net utility plant, and .04% of

consolidated total assets. Similarly, for the year ended December 31, 1993,

EEI represented approximately 1.67% of Illinois Power's consolidated operating

____________________
(14) This discussion of Section 3(a)(1) of the Act supplements and amends the
discussion at p. 32 of the Application.

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revenues, (4.66)% of consolidated net income, 0% of consolidated net utility

plant, and .04% of consolidated total assets.

Illinova believes that the proposed Acquisition and the granting

of an exemption under Section 3(a)(1) will not be detrimental in any respect

to the public interest or the interest of investors or consumers.

ITEM 4. REGULATORY APPROVALS.(15)

On November 11, 1993, Illinois Power requested that the NRC

approve the DE JURE transfer of NRC licenses pursuant to Section 184 of

the Atomic Energy Act and 10 C.F.R. Section 50.80. By letter order dated January

31, 1994, the NRC consented to the proposed ownership of Illinois Power by

Illinova. The NRC concluded therein that the proposed restructuring "will not

affect the qualifications of [Illinois Power] as a holder of the Clinton Power

Station license" and that the proposed restructuring "is otherwise consistent

with applicable provisions of law, regulations, and other requirements issued

by the [NRC] pursuant thereto." (Letter order at 3). A certified copy of the

NRC's letter order is attached hereto as Exhibit D-7. The FERC must also

approve the proposed restructuring under Section 203 of the Federal Power Act.

An appropriate application has been filed

____________________
(15) This item amends Item 4 as it appears at p. 32 of the Application.

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with the FERC, and there have been no protests or interventions. Timely FERC

approvals are expected.

* * *

ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS.

This Amendment includes the following supplemental exhibits:

Exhibit D-7: Order of NRC approving the transfer of NRC licenses pursuant
to Section 184 of the Atomic Energy Act and 10 C.F.R. Section
50.80.

Exhibit I-1: Financial information regarding gas and electric segments of
Illinois Power's utility business

Exhibit I-2: Inspectors' Report verifying shareholder approval of Merger
Agreement

Exhibit I-3: Testimony of David W. Butts, Illinois Power's Division Vice
President, New Products and Services Division, in Illinois
Commerce Commission Docket No. 92-0404

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SIGNATURES

Pursuant to the requirements of the Public Utility Holding Company
Act of 1935, Illinova Corporation has duly caused this Amendment to be signed
on its behalf by the undersigned thereunto duly authorized.

ILLINOVA CORPORATION
(formerly IP Holding Company)

By: /s/ Leah Manning Stetzner
----------------------------
Leah Manning Stetzner
Secretary and Treasurer

Dated: April 21, 1994

<PAGE>

[Seal] [Letterhead]
OFFICE OF THE
SECRETARY
UNITED STATES
NUCLEAR REGULATORY COMMISSION
WASHINGTON, D.C. 20555

CERTIFICATION

I hereby certify that the attached 5 pages contain a true copy of the U.S. NRC
January 31, 1994 letter to Richard Phares, Clinton Power Station regarding
corporate restructuring on file with the United States Nuclear Regulatory
Commission's Public Document Room, 2120 L Street, N. W., Washington, D.C.

3/25/94 /s/ M.K. Basili
- ------------- --------------------------------------------------
Date Official Custodian of the Records
of the Public Document Room
Office of the Secretary of the
Commission

(SEAL)

<PAGE>

UNITED STATES
[Seal] NUCLEAR REGULATORY COMMISSION
WASHINGTON, D.C. 20555-0001

January 31, 1994
Docket No. 50-461

Clinton Power Station
ATTN: Mr. Richard F. Phares
Director - Licensing
Post Office Box 678
Mail Code V920
Clinton, Illinois 61727

Dear Mr. Phares:

SUBJECT: CORPORATE RESTRUCTURING OF ILLINOIS POWER COMPANY
(TAC NO. M88222)

Pursuant to 10 CFR 50.80, Illinois Power Company (IP), in a November 11, 1993,
letter from Sidley & Austin, described proposed restructuring of IP. Under
the proposal, which we understand is to be voted on by the shareholders on
February 9, 1994, IP will become a wholly owned subsidiary of a new holding
company which currently is named IP Holding Company. Your letter states that
the proposed restructuring is beneficial because it will permit affiliates of
IP to take advantage of competitive non-utility business opportunities without
prior regulatory approval. If IP shareholders approve the plan, and all
necessary regulatory approvals are obtained, the proposed restructuring is
expected to take place on or about April 1, 1994. IP common stock will be
converted in a merger, on a share-for-share basis, into common stock of the
Holding Company. Holding Company will be the only IP common shareholder.

We have reviewed the information contained in your letter to ascertain that
the proposed action:

(1) will not reduce funds available to IP to carry out activities
under its Operating License;

(2) will not adversely affect the management of IP utility
operations or the bulk power services market served by the
Clinton Power Station; and

(3) will not result in IP becoming owned, controlled, or dominated
by an alien, a foreign corporation, or a foreign government.

The NRC staff has reviewed the information contained in your letter of
November 11, 1993, and has made the following findings in each of the three
areas defined above:

(1) Available Funds

Your letter states that the proposed restructuring will not reduce the
funds available to IP to carry out activities under its Operating
License for the Clinton Power Station. IP's utility operations will

<PAGE>

Mr. Richard F. Phares January 31, 1994
- 2 -

continue to be the primary source of revenue and income for IP, and
will also constitute the majority of the Holding Company's earning
power for the foreseeable future. The Federal Energy Regulatory
Commission will continue to regulate IP's wholesale electric rates
while the Illinois Commerce Commission will retain jurisdiction over
IP's retail electric rates.

The letter further states that the proposed restructuring, including
any Holding Company investments in non-utility affiliates, will not
affect IP's ability to meet future capital requirements related to
the Clinton Power Station through the revenues produced by its
utility business and by the issuance of debt and other securities.
We therefore conclude that there will be no change in the amount of
revenues, the source of funds, or IP's ability to obtain the funds
necessary to operate the Clinton Power Station as a result of the
proposed restructuring.

(2) Management of IP utility operations

The letter states that the restructuring will have no effect on the
management of IP's utility operations. Officer responsibilities at
the Holding Company level will have no direct effect on the Clinton
Power Station. When the restructuring is effective, the current
directors of IP will also become the directors of the Holding
Company and they will thereafter serve as the directors of both
companies. We therefore conclude that there will be no change in
the management of IP's utility operations nor change in ownership or
control of IP that would in any way adversely impact the bulk power
services market served by the Clinton Power Station as a result of
the proposed restructuring. Moreover, notwithstanding the fact that
IP will be owned and controlled by a new corporate entity, the staff
expects IP to continue to abide by and be bound by the existing
antitrust license conditions attached to the Clinton operating
license.

(3) Foreign Ownership, Control, or Domination

The proposed resturcturing will not result in IP becoming owned,
controlled or dominated by an alien, a foreign corporation, or a
foreign government. Our determination is based on the fact that
following the restructuring, IP Holding Company will become the sole
holder of shares of the common stock of IP on a share-for-share
basis. IP Holding Company will be owned by the holders of IP common
stock in the same proportion in which they currently hold IP common
stock. Both IP and IP Holding Company will remain as Illinois
corporations. In addition, the current directors of IP will also
become the directors of IP Holding Company. Therefore, the proposed
restructuring will not result in a new ownership, control, or
domination by an alien, a foreign corporation, or a foreign
government.

<PAGE>

Mr. Richard F. Phares January 31, 1994
- 3 -

Based on the above determinations, we conclude:

(1) that the proposed action will not affect the qualifications of
the IP as a holder of the Clinton Power Station license; and

(2) that the proposed action is otherwise consistent with
applicable provisions of law, regulations, and other
requirements issued by the Commission pursuant thereto.

Accordingly, the Commission hereby consents to the proposed ownership of the
Illinois Power Company by the Illinois Power Holding Company.

Sincerely,

/s/ John A. Zwolinski

John A. Zwolinski, Acting Director
Division of Reactor Projects - III/IV/I
Office of Nuclear Reactor

cc: See next page

<PAGE>

Mr. Richard F. Phares January 31, 1994
- 3 -

Based on the above determinations, we conclude:

(1) that the proposed action will not affect the qualifications of
the IP as a holder of the Clinton Power Station license; and

(2) that the proposed action is otherwise consistent with
applicable provisions of law, regulations, and other
requirements issued by the Commission pursuant thereto.

Accordingly, the Commission hereby consents to the proposed ownership of the
Illinois Power Company by the Illinois Power Holding Company.

Sincerely,

Original Signed By:

John A. Zwolinski, Acting Director
Division of Reactor Projects - III/IV/I
Office of Nuclear Reactor

cc: See next page

DISTRIBUTION:
Docket File
NRC & Local PDRs
JRoe
JZwolinski
JHannon
MRushbrook
AGody, Sr.
DPickett
OGC
ACRS (10)
EGreenman, RIII

<PAGE>

Mr. Richard F. Phares Clinton Power Station
Illinois Power Company Unit No. 1

cc:

Mr. J. S. Perry Illinois Department
Senior Vice President of Nuclear Safety
Clinton Power Station Office of Nuclear Facility Safety
Post Office Box 678 1035 Outer Park Drive
Clinton, IL 61727 Springfield, Illinois 62704

Mr. J. A. Miller
Manager Nuclear Station
Engineering Department
Clinton Power Station
Post Office Box 678
Clinton, IL 61727

Resident Inspector
U.S. Nuclear Regulatory Commission
RR#3, Box 229 A
Clinton, Illinois 61727

Mr. R. T. Hill
Licensing Services Company
175 Curtner Avenue, M/C 481
San Jose, California 95125

Regional Administrator, Region III
801 Warrenville Road
Lisle, Illinois 60523-4351

Chairman of DeWitt County
c/o County Clerk's Office
DeWitt County Courthouse
Clinton, IL 61727

Mr. Robert Neuman
Office of Public Counsel
State of Illinois Center
100 W. Randolph, Suite 11-300
Chicago, IL 60601

Mr. J. W. Blattner
Project Manager
Sargent & Lundy Engineers
55 East Monroe Street
Chicago, IL 60603

<PAGE>

ILLINOIS POWER COMPANY Dec. 31, 1993
An Original

NOTES TO FINANCIAL STATEMENTS (Continued)
Note 12
Segments of Business

The Company is a public utility engaged in the generation, transmission,
distribution and sale of electric energy, and the distribution, transportation
and sale of natural gas.

(MILLIONS OF DOLLARS)
- ------------------------------------------------------------------------------------------------------------------------------
1992 1991 1990

TOTAL TOTAL TOTAL
ELECTRIC GAS COMPANY ELECTRIC GAS COMPANY ELECTRIC GAS COMPANY
-------- --- ------- -------- --- ------- -------- --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Operation information
Operating revenues . . . . . . . . $1,190.8 $ 288.6 $1,479.5 $1,867.7 $ 288.2 $1,474.9 $1,158.4 $ 311.1 $1,469.5
Operating expenses,
excluding provision
for income taxes and
deferred Clinton
costs . . . . . . . . . . . . . 830.7 264.5 1,095.3 837.7 258.4 1,096.1 888.8 267.3 1,156.1
Deferred Clinton
costs . . . . . . . . . . . . . 11.3 11.3 11.3 11.3 14.8 14.8
----------------------------------------------------------------------------------------
Pre-tax operating
income . . . . . . . . . . . . . 348.8 24.1 372.9 337.7 29.8 367.5 254.8 43.8 298.6
Allowance for funds
used during con-
struction (AFUDC) . . . . . . . . 4.5 0.7 5.2 2.6 0.3 2.9 2.8 0.3 3.1
Disallowed Clinton
plant costs . . . . . . . . . . . -- -- -- -- -- -- (135.6) -- (135.6)
Pre-tax operating
income, including
AFUDC and
disallowed Clinton
plant costs . . . . . . . . . . . $ 353.3 $ 24.8 378.1 $340.3 $ 30.1 370.4 $ 122.0 $ 44.1 166.1
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Other (income) and
deductions. . . . . . . . . . . . 3.4 1.9 (6.4)
Interest charges . . . . . . . . . 173.0 185.2 204.7
Provision for income
taxes . . . . . . . . . . . . . . $ 79.6 74.0 46.3
-------- -------- --------
Net income (loss). . . . . . . . . $ 122.1 $ 109.3 $(78.50)
-------- -------- --------
-------- -------- --------
Other information -
Depreciation. . . . . . . . . . . $ 141.1 $ 20.1 $ 161.2 $ 157.1 $ 19.5 $ 176.6 $154.5 $ 18.1 $ 172.6
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Capital expenditures . . . . . . . $ 203.1 $ 41.3 $ 244.4 $116.3 $ 24.9 $141.2 $106.0 $ 24.6 $ 130.60
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Investment Information
identifiable assets*. . . . . . . $4,598.0 $ 355.4 $4,953.4 $4,572.1 $ 329.0$4,901.1$4,608.2$ 369.2$4,977.4
------------------ ------------------ ------------------
------------------ ------------------ ------------------
Nonutility plant and
other investments . . . . . . . . 40.6 41.1 8.0
Assets utilized for
overall Company
operations. . . . . . . . . . . . 663.5 629.6 568.0
-------- -------- --------
Total assets . . . . . . . . . . . $5,657.5 $5,571.8 $5,554.0
-------- -------- --------
-------- -------- --------

<FN>

* Utility plant, nuclear fuel and acquisition adjustment (less accumulated
depreciation and amortization), materials and supplies, deferred Clinton costs
and prepaid and deferred energy costs.

</TABLE>

Page 123 (17 of 20)

<PAGE>

- --------------------------------------------------------------------------------
ILLINOIS POWER COMPANY Dec. 31, 1992
An Original
- --------------------------------------------------------------------------------
STATEMENT OF INCOME FOR THE YEAR
- --------------------------------------------------------------------------------
1. Report amounts for accounts 412 and 413. Revenue and Expenses from Utility
Plant Leased to Others, in another utility column (l,k,m,o) in a similar
manner to a utility department. Spread the amount(s) over lines 01 thru 20
as appropriate include these amounts in columns (c) and (d) totals.
2. Report amounts in account 414, Other Utility Operating income, in the same
manner as accounts 412 and 413 above.
3. Report data for lines 7, 9, and 10 for Natural Gas companies using accounts
404.1, 404.2, 404.3, 407.1 and 407.2.
4. Use page 122 for important notes regarding the statement of income or any
account thereof.
5. Give concise explanations concerning unsettled rate proceedings where a
contingency exists such that refunds of a material amount may need to be
made to the utility's customers or which may result in a material refund
to the utility with respect to power or gas purchases.
State for each year affected the gross revenues or costs to which the
contingency relates and the tax effects together with an explanation of the
major factors which affect the rights of the utility to retain such
revenues or recover amounts paid with respect to power and gas purchases.
6. Give concise explanations concerning significant amounts of any refunds
made or received during the year resulting from settlement of any rate
proceeding affecting revenue received or costs incurred for power or gas
purchases, and a summary of the adjustments made to balance sheet, income,
and expense accounts.
- --------------------------------------------------------------------------------

TOTAL
(REF.) ----------------------------------
LINE ACCOUNT PAGE NO. CURRENT YEAR PREVIOUS YEAR
NO. (a) (b) (c) (d)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

1 UTILITY OPERATING INCOME
2 Operating Revenues (400) 300-301 $1,479,449,122 $1,474,905,408
----------------------------------
3 Operating Expenses
4 Operation Expenses (401) 320-323 $715,323,026 $712,200,349
5 Maintenance Expenses (402) 320-323 102,157,978 87,235,026
6 Depreciation Expense (403) 336-338 158,128,461 174,366,239
7 Amort & Depl. of Utility Plant (404-405) 336-338 3,041,528 2,246,304
8 (406) (1) 336-338 11,344,188 11,344,189
9 Amort of Property Losses, Unrecovered Plant and
Regulatory Study Costs (407) -- --
10 (407) (2) (5,619,524) (5,617,691)
11 Taxes Other Than Income Taxes (408.1) 262-263 122,216,100 125,658,978
12 Income Taxes - Federal (409.1) 262-263 22,929,639 29,453,054
13 - Other (409.1) 262-263 -- (83,398)
14 Provision for Deferred Income Taxes (410.1) 234, 272-277 159,708,882 155,810,618
15 (Less) Provision for Deferred Income Taxes - Cr. (411.1) 234, 272-277 95,969,723 109,820,853
16 Investment Tax Credit Adj. - Net (411.4) 266 (519,376) (11,276)
17 (Less) Gains from Disp. of Utility Plant (411.6) -- --
18 Losses from Disp. of Utility Plant (411.7) 288 17,248
----------------------------------
19 TOTAL Utility Operating Expenses (Enter Total of
lines 4 thru 18) $1,192,741,467 $1,182,798,787
----------------------------------
20 NET Utility Operating Income (Enter Total of line
2 less 19) $286,707,655 $292,106,621
(Carry forward to page 117, line 21)

- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Deferred Clinton Costs $11,181,288 and amortization of deferred post in-
service nuclear fuel expenses $162,900.
(2) Amortization of excess unprotected deferred taxes.

</TABLE>

Page 114
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITY GAS UTILITY OTHER UTILITY
------------------------------- --------------------------------- ---------------------------------
CURRENT YEAR PREVIOUS YEAR CURRENT YEAR PREVIOUS YEAR CURRENT YEAR PREVIOUS YEAR LINE
(e) (f) (g) (h) (i) (j) NO.
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1
$1,190,832,000 $1,186,739,846 $288,617,122 $288,165,562 2
- --------------------------------------------------------------------------------------------------------------------
3
$498,759,865 $499,522,648 $216,563,161 $212,677,701 4
92,784,758 79,355,610 9,373,220 7,879,416 5
138,786,462 155,436,486 19,341,999 18,929,753 6
2,335,027 1,695,130 706,501 551,174 7
11,344,188 11,344,189 -- -- 8
-- -- -- -- 9
(5,619,524) (5,617,691) -- -- 10
103,661,139 107,335,720 18,554,961 18,323,258 11
20,833,748 26,015,457 2,095,891 3,437,597 12
-- (78,028) -- (5,370) 13
132,356,940 106,129,570 27,351,942 49,681,048 14
74,095,018 63,053,603 21,874,705 46,767,250 15
178,004 703,254 (697,380) (714,530) 16
-- -- -- -- 17
288 17,248 -- -- 18
- --------------------------------------------------------------------------------------------------------------------
$921,325,877 $918,805,990 $271,415,590 $263,992,797 0 0 19
- --------------------------------------------------------------------------------------------------------------------
20
$269,506,123 $267,933,856 $17,201,532 $24,172,765 $0 $0
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Page 115 Next Page is 117

<PAGE>

TOTAL
REF. ----------------------------------
LINE ACCOUNT PAGE NO. CURRENT YEAR PREVIOUS YEAR
NO. (a) (b) (c) (d)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

21. Net Utility Operating Income (Carried forward
from page 114) $286,707,655 $292,106,621
22. Other Income and Deductions
23. Other Income
24. Nonutility Operating Income
25. Revenues From Merchandising, Jobbing and
Contract Work (415) $204,071 $3,307,063
26. (Less) Costs and Exp. of Merchandising Job
& Contract Work (416) 99,901 3,210,684
27. Revenues From Nonutility Operations (417) 11,690 (525)
28. (Less) Expenses of Nonutility Operations
(417.1) 3,589,093 37,868
29. Nonoperating Rental Income (418) (107,044) (99,041)
30. Equity in Earnings of Subsidiary Companies
(418.1) 119 2,645,531 2,244,873
31. Interest and Dividend Income (419) 307,312 1,538,245
32. Allowance for Other Funds Used During
Construction (419.1) 1,532,628 1,487,720
33. Miscellaneous Nonoperating Income (421) 189,553 176,057
34. Gain on Disposition of Property (421.1) 190,188 162,107
----------------------------------
35. TOTAL Other Income (Enter Total of lines
25 thru 34) $1,284,935 $5,567,947
36. Other Income Deductions
37. Loss on Disposition of Property (421.2) $141,578 $365,398
38. Miscellaneous Amortization (425) 340 -- --
39. Miscellaneous Income Deductions (426.1-426.5) 340 2,929,710 5,537,257
----------------------------------
40. TOTAL Other Income Deductions (Total of lines
37 thru 39) $3,071,288 $5,902,555
41. Taxes Applic. to Other Income Deductions
42. Taxes Other Than Income Taxes (408.2) 262-263 $158,482 $70,851
43. Income Taxes-Federal (409.2) 262-263 -- (509,022)
44. Income Taxes-Other (409.2) 262-263 -- (75,663)
45. Provision for Deferred Inc. Taxes (410.2) 234, 272-277 13,266,548 15,173,451
46. (Less) Provision for Deferred Income Taxes-Cr.
(411.2) 234, 272-277 19,070,870 15,874,915
47. Investment Tax Credit Adj.-Net (411.5) (827,950) (62,228)
48. (Less) Investment Tax Credits (420) -- --
----------------------------------
49. TOTAL Taxes on Other Income and Deduct.
(Total of 42 thru 48) ($6,473,790) ($1,277,526)
50. Net Other Income and Deductions (Enter Total of
lines 35,40,49) $4,687,437 $942,918
51. Interest Charges
52. Interest on Long-Term Debt (427) $160,794,876 $176,179,241
53. Amort. of Debt Disc. and Expense (428) 1,485,604 1,529,744
54. Amortization of Loss on Reacquired Debt (428.1) 2,883,692 2,728,136
55. (Less) Amort. of Premium on Debt-Credit (429) 3,372 3,372
56. (Less) Amortization of Gain on Reacquired Debt-
Credit (429.1) 4,532 4,531
57. Interest on Debt to Assoc. Companies (430) 340 -- --
58. Other Interest Expense (431) 340 7,833,541 4,754,227
59. (Less) Allowance for Borrowed Funds Used During
Construction-Cr. (432) 3,682,426 1,377,722
----------------------------------
60. Net Interest Charges (Total of lines 52 thru 59) $169,307,383 $183,805,723
----------------------------------
61. Income Before Extraordinary Items (Enter Total of
lines 21, 50 and 60) $122,087,709 $109,243,816
62. Extraordinary Items ----------------------------------
63. Extraordinary Income (434) -- --
64. (Less) Extraordinary Deductions (435) -- --
65. Net Extraordinary Items (Enter Total of line
63 less line 64) -- --
66. Income Taxes-Federal and Other (409.3) 262-263 -- --
67. Extraordinary Items After Taxes (Enter Total of
line 65 less line 66) -- --
----------------------------------
68. Net Income (Enter Total of lines 61 and 67) (1) $122,087,709 $109,243,816
----------------------------------
----------------------------------
<FN>
(1) Earnings per common share $1.23 $1.04
----------------------------------
----------------------------------

</TABLE>

Page 117

<PAGE>

ILLINOIS POWER COMPANY
SPECIAL MEETING OF SHAREHOLDERS
FEBRUARY 9, 1994

REPORT OF INSPECTORS

We, the undersigned, being the duly appointed and qualified inspectors for the
Special Meeting of Shareholders of Illinois Power Company ("Company") on
February 9, 1994, report as follows:

1. Based upon our determination of the presence in person at the Special
meeting of holders of Common Stock and Preferred Stock of the Company,
and the validity and effect of the proxies presented at the meeting by
persons representing holders of Common Stock and Preferred Stock of the
Company, we ascertained that there were represented in person or by
proxy at the Special Meeting, holders of the following number of shares
of Stock of the Company:

Common Stock: 56,602,589

Preferred Stock: 4,467,232

2. Those voting at the Special Meeting, in person or by proxy, were called
upon to approve the following proposal:

RESOLVED, that the Agreement and Plan of Merger dated as
of November 15, 1993 between Illinois Power Company
("Company") and IP Merging Corporation ("Merging Co."),
for the merger of Merging Co. with and into the Company
with the outstanding Common Stock of the Company being
converted into Common Stock of IP Holding Company, as
described in the Prospectus and Proxy Statement dated
December 20, 1993, be approved.

3. After the balloting was completed, we collected all ballots and counted
all votes on such resolution.

4. The result of the voting on such resolution is set forth below:

Votes Common Stock Preferred Stock Total
- ----- ------------ --------------- -----
<S> <C> <C> <C>
For Approval 53,464,008 4,183,526 57,647,534
Against Approval 1,945,780 141,789 2,087,569
Abstain 1,192,801 141,917 1,334,718

</TABLE>

/s/Patricia E. Perkins /s/Gary B. Pasek
- ------------------------------------ ------------------------------------
Patricia E. Perkins Gary B. Pasek

<PAGE>
IP Exhibit 2.1
Page 1 of 19

ILLINOIS COMMERCE COMMISSION

DOCKET NO. 92- _______

PREPARED DIRECT TESTIMONY OF DAVID W. BUTTS

I. INTRODUCTION AND WITNESS QUALIFICATIONS

1. Q. Please state your name and business address.

A. David W. Butts, 500 South 27th Street, Decatur, Illinois 62525.

2. Q. What is your position with Illinois Power Company?

A. I am Division Vice President, New Products and Services Division.

3. Q. Please state your professional qualifications and business
experience.

A. I received a Bachelor of Science degree from General Motors
Institute, Flint, Michigan in 1978. I was a cooperative-
education student employed by General Motors in Danville,
Illinois from September 1973 through August of 1978. I was
employed by Illinois Power Company ("Illinois Power" or the
"Company") in 1978 as an Engineer in the Planning Department. I
subsequently held positions as Professional Recruiting Specialist
and Supervisor-Professional Staffing in the Industrial Relations
Department. In June of 1983, I was transferred to the Champaign
Service Area as Assistant to the Service Area Manager. In 1986,
I graduated from the Executive Master of Business Administration
Program at the University of

<PAGE>

IP Exhibit 2.1
Page 2 of 19

Illinois. I became Director of Electric Marketing in June 1986
and Director of Energy Sales in April 1989. I was appointed
Division Vice President of the Northern Division in April 1990
and Division Vice President, New Products and Services Division
in November 1991. I am a Registered Professional Engineer in the
State of Illinois.

Since becoming Assistant to the Service Area Manager in June
1983, I have had responsibilities which involve direct contact
with each class of Illinois Power customers. While Director of
Electric Marketing, I had overall responsibility for managing the
sales and service activities to the Company's largest
institutional and industrial electric customers. As Director of
Energy Sales I assumed responsibility for gas sales and service
to our largest gas customers. When the Company formed four new
divisions in April 1990, I was appointed Division Vice President
of the Northern Division to develop the division concept and
organization structure. I had overall responsibility for
electric and gas operations, area engineering, customer service,
and stores management in each of the five service areas of the
Northern Division. I was also responsible for the overall
preparation and performance of the Division's operating and
capital budgets.

<PAGE>

IP Exhibit 2.1
Page 3 of 19

4. Q. What are you duties and responsibilities as Division Vice
President, New Products and Services Division?

A. As Division Vice President of New Products and Services Division,
I am responsible for developing the Division's organization and
the activities it conducts, including the formation of the
subsidiary proposed herein.

II. PURPOSE AND SCOPE

5. Q. What is the purpose of your testimony?

A. The purpose of my testimony is to provide information about the
independent power market and the Company's reasons for entering
that market through a subsidiary established by the Company. I
will also provide information about the subsidiary, its mission,
its strategies, its activities and its organizational structure
and staffing.

III. MISSION OF THE SUBSIDIARY

6. Q. What is the mission of the subsidiary?

A. The subsidiary's mission is to identify, develop and implement
cost-effective solutions to meet the energy-related needs of the
independent power industry. We will focus on opportunities where
we can capitalize on expertise developed through Illinois Power's
utility business.

This mission statement recognizes that

<PAGE>

IP Exhibit 2.1
Page 4 of 19

substantial changes are occurring in the power generation market
and that the independent power industry has established itself as
a viable and economical alternative for a substantial portion of
future power generation needs. As Mr. Altenbaumer stated,
Illinois Power believes it must participate in this market.
Additionally, by focusing on opportunities where we can achieve
synergies with the Company's businesses, we are able to utilize
our business and technical skills and return knowledge and value
to the Company.

7. Q. Why is the subsidiary concentrating its activities on energy-
related products and services?

A. Research has indicated that many of the successful utility
diversifications occurred in growth markets related to their core
business strengths. We are concentrating the subsidiary's
activities on energy-related products and services because those
activities relate to the Company's core business strengths, and
therefore present the best opportunity for success.

IV. REASONS FOR ENTERING THE INDEPENDENT POWER MARKET

8. Q. Why is the Company electing to participate in this evolving
independent power market?

A. Most important, as Mr. Altenbaumer discussed in his testimony,
Illinois Power has determined that it must participate in the
independent power

<PAGE>
IP Exhibit 2.1
Page 5 of 19

market to gain benefits (discussed below) which will enable the
Company to remain competitive in the electric utility industry.

Further, the independent power market is growing. Industry
estimates of additional generating capacity required in the
United States over the next ten years range from a low of 40,000
megawatts (Mw) to a high of 150,000 Mw. It is estimated that 20
to 50 percent of this total will come from the independent power
market. With Illinois Power's existing knowledge of the electric
industry and electric generation, the subsidiary will be able to
compete successfully in this market. Finally, as I stated
earlier, the most successful utility diversifications have
occurred in growth industries related to the utility's core
business.

9. Q. How much generation capacity was constructed by the independent
power industry in 1991?

A. In 1991, the independent power industry constructed 165 projects,
representing over 5,000 Mw of installed capacity. This accounted
for approximately 50% of all generation capacity added
domestically during 1991. This figure is consistent with the
projections for future capacity additions coming from the
independent power market I noted earlier.

<PAGE>
IP Exhibit 2.1
Page 6 of 19

10. Q. What are the planned activities of the subsidiary?

A. The subsidiary plans to participate in the independent power
market by investing in, developing and/or operating and
performing other services in connection with the development and
operation of Qualified Facilities ("QFs") and Independent Power
Producers ("IPPs").

11. Q. What do you mean by the independent power industry and how does
this industry differ from traditional public utilities?

A. The independent power industry consists of all aspects of
producing power by non-utilities, ranging from the development of
a production facility through operation and maintenance of that
facility and other related services. The independent power
industry is primarily associated with IPPs and QFs.

When a generation facility is developed, constructed and
operated in the independent power industry, the risks of
developing, constructing and operating the facility are assumed
by the independent power producers and not the utility or its
customers. This exposure to risk and market forces creates very
strong performance incentives.

Thus, independent power producers have developed innovative
cost-effective methods for developing, constructing and operating
power

<PAGE>
IP Exhibit 2.1
Page 7 of 19

generation facilities (described in more detail below). In many
competitive solicitations for additional capacity, the least-cost
alternative has been the independent power option.

12. Q. How would participation in IPP/QF projects benefit the Company's
operations?

A. The independent power industry has been able to provide lower
cost capacity solutions by entering into innovative, long-term
fuel contracts; by selecting more standardized plant design
configurations; by negotiating fixed-price turnkey construction
contracts; by securing innovative, heavily-leveraged project
financing; and by arranging incentive-based operating agreements.
The operating contracts have fee schedules based on actual plant
performance, thus mitigating risk to the customers. Lower
staffing levels are achieved by having fewer layers of management
and more flexible work rules. In addition, more involved job
planning coupled with more efficient work practices reduces plant
operating costs. These plants achieve further economies by
outsourcing major overhaul repair work to specialty repair firms.

While the Company may not be able to utilize all of these
concepts, by implementing applicable concepts from the
independent power market

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IP Exhibit 2.1
Page 8 of 19

functions Illinois Power expects to realize efficiency gains and
operating cost reductions.

13. Q. What additional benefits are gained by participating in this
independent power market?

A. As I noted earlier, we believe that experience and information
gained in the IPP/QF business will allow Illinois Power to
function more successfully in an increasingly competitive
environment. Second, we believe the subsidiary will benefit
Illinois Power's utility customers by enhancing Illinois Power's
financial strength. In turn, this will help ensure and enhance
the Company's ability to continue providing reliable and least-
cost electric and gas service over the longer term. Third, the
subsidiary will benefit the Company's employees by providing new
opportunities, which may not otherwise exist, for the development
and application of employees' skills. This, too, will benefit
the Company's customers. Finally, the subsidiary's activities
are expected to provide a positive contribution to Illinois
Power's total earnings, thus increasing shareholder value.

14. Q. Have other utility affiliates entered this independent power
market?

A. Yes. In 1991, approximately 25 to 30 utility affiliates were
participating in the independent

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IP Exhibit 2.1
Page 9 of 19

power market.

15. Q. Are there any Illinois utility affiliates participating in this
market?

A. Yes. I am aware that CILCORP, Inc. and Iowa-Illinois Gas &
Electric Company ("Iowa-Illinois") are participating in this
market through affiliates.

16. Q. Is either of these companies participating in this market through
a subsidiary similar to the one proposed by Illinois Power?

A. Yes. As Mr. Altenbaumer described, Iowa-Illinois received
illinois Commerce Commission approval to invest in a similar
subsidiary.