<PAGE>
ILLINOVA CORPORATION PROXY STATEMENT
AND 1994 ANNUAL REPORT TO SHAREHOLDERS
notice of annual meeting of shareholders
- ----------------------------------------
Proxy Statement Table of Contents
Notice of Annual Meeting . . . . . . . . . . . . . . 2
Proxy Statement . . . . . . . . . . . . . . . . . . 3
Appendix:
1994 Annual Report to Shareholders . . . . . . . . . A-1
TO THE SHAREHOLDERS OF ILLINOVA CORPORATION:
Notice is Hereby Given that the Annual Meeting of
Shareholders of Illinova Corporation (the "Company") will be
held on April 12, 1995, at 10:00 A.M., at its Corporate
Headquarters, 500 South 27th Street, Decatur, Illinois 62525-
1805, for the following purposes:
(1) To elect the Board of Directors for the ensuing year.
(2) To transact any other business which may properly come
before the meeting or any adjournment.
Shareholders of record at the close of business on February
13, 1995, will be entitled to notice of and to vote at the
Annual Meeting.
By Order of the Board of Directors,
Leah Manning Stetzner,
General Counsel and Corporate Secretary
Decatur, Illinois
March 1, 1995
<PAGE>
IMPORTANT
The Company invites each of its approximately 38,700
shareholders to attend the Annual Meeting. Shareholders will be
admitted upon verification of record share ownership at the
admission desk. Shareholders who own shares through banks,
brokerage firms, nominees or other account custodians must
present proof of beneficial share ownership (such as a brokerage
account statement) at the admission desk. If you are unable to
be present at the meeting, it is important that you, whether the
owner of one or many shares, sign and return the enclosed proxy.
An envelope on which postage will be paid by the Company is
enclosed for that purpose.
Return of your executed proxy will ensure you are
represented at the Annual Meeting. Your cooperation will be
greatly appreciated.
proxy statement
- ---------------
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Directors of the
Company, for use at the Annual Meeting of Shareholders to be
held at the office of the Company, 500 South 27th Street,
Decatur, Illinois 62525-1805, on Wednesday, April 12, 1995, at
10:00 A.M., and at any adjournment thereof (the "Annual
Meeting"). Any shareholder giving a proxy may revoke it at any
time by giving a later proxy or by giving written notice of
revocation to the Corporate Secretary of the Company prior to
the Annual Meeting. All duly executed proxies received prior to
the Annual Meeting will be voted.
Shares credited to the accounts of participants in the
Company's Automatic Reinvestment and Stock Purchase Plan,
Employees Stock Ownership Plan and Incentive Savings Plans will
be voted in accordance with the instructions of the participants
or otherwise in accordance with the terms of such plans.
VOTING RIGHTS
Shareholders of record at the close of business on Monday,
February 13, 1995 (the "Record Date"), will be entitled to
receive notice of and to vote at the Annual Meeting. As of such
date, the Company had outstanding 75,643,937 shares of Common
Stock. Shareholders who are present at the Annual Meeting in
person or by proxy will be entitled to one vote for each share
of the Company's Common Stock which they held of record at the
close of business on the Record Date.
When voting for candidates nominated to serve as directors,
all shareholders will be entitled to 12 votes (the number of
directors to be elected) for each of their shares and may cast
all of their votes for any one candidate whose name has been
placed in nomination prior to the voting or distribute their
votes among two or more such candidates in such proportions as
they may determine. In voting upon other matters presented for
consideration at the Annual Meeting, each shareholder will be
entitled to one vote for each share of Common Stock held of
record at the close of business on the Record Date. The
affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy and
entitled to vote at the Annual Meeting is required for the
election of directors.
ANNUAL REPORT, PROXY AND PROXY STATEMENT
Accompanying this Proxy Statement, which includes
Consolidated Financial Statements, is a Notice of Annual Meeting
of Shareholders, a form of Proxy and the Summary Annual Report
to Shareholders covering operations of the Company for the year
1994. This Proxy Statement and accompanying documents are first
being mailed to shareholders on or about March 1, 1995.
BOARD OF DIRECTORS
Information Regarding
the Board Of Directors
The Board of Directors held four Board meetings from the
completion date of the holding company restructuring in May 1994
(hereinafter called the Company's organization) through December
31, 1994. Other than Ms. von Ferstel and Mr. Zimmerman, all
directors attended at least 75% of the aggregate meetings of the
Board and Committees of which they were members during 1994. The
Board has four standing committees: the Audit Committee, the
Finance Committee, the Compensation and Nominating Committee,
and the Corporate Strategy Committee.
The duties and members of the standing committees are:
Audit Committee
---------------
(1) Review with the Chairman, President and Chief Executive
Officer and the independent accountants the scope and adequacy
of the Company's system of internal controls; (2) review the
scope and results of the annual examination performed by the
independent accountants; (3) review the activities of the
Company's internal auditors; (4) report its findings to the
Board and provide a line of communication between the Board and
both the internal auditors and the independent accountants; and
(5) recommend to the Board the appointment of the independent
accountants and approval of the services performed by the
independent accountants, considering their independence with
regard thereto.
The Audit Committee met once from the date of the Company's
organization in May 1994 through December 31, 1994.
This Committee consists of the following non-employee
directors ("Outside Directors"): Vernon K. Zimmerman, Chairman,
Richard R. Berry, Donald E. Lasater, Robert M. Powers, Walter M.
Vannoy, and Marilou von Ferstel.
Finance Committee
-----------------
(1) Review management's capital and operations and
maintenance expenditure budgets, financial forecasts and
financing program, and make recommendations to the Board
regarding the approval of such budgets and plans; (2) review the
Company's banking relationships, short-term borrowing
arrangements, dividend policies, arrangements with the transfer
agent and registrar, investment objectives and the performance
of the Company's pension funds, evaluate fund managers, and make
recommendations to the Board concerning such matters; and (3)
act in an advisory capacity to management, the Board of
Directors, and the Chairman, President and Chief Executive
Officer on other financial matters as they may arise.
The Finance Committee met three times from the date of the
Company's organization in May 1994 through December 31,
1994.
This Committee consists of the following members of the
Board: Donald E. Lasater, Chairman, Richard R. Berry, Larry
D. Haab, Walter D. Scott, Charles W. Wells, and Vernon K.
Zimmerman.
Compensation and Nominating Committee
-------------------------------------
(1) Review performance and recommend salaries plus
other forms of compensation of elected Company officers and
the Board of Directors; (2) review the Company's benefit
plans for elected Company officers and make recommendations
to the Board regarding any changes deemed necessary; (3)
review with the Chairman, President and Chief Executive
Officer any organizational or other personnel matters; and
(4) recommend to the Board nominees to stand for election as
director to fill vacancies in the Board of Directors as they
occur.
The Compensation and Nominating Committee will consider
shareholders' recommendations for nominees for director made
pursuant to timely notice in writing addressed to the
Chairman of the Committee at the executive offices of the
Company, together with a full description of the
qualifications and business and professional experience of
the proposed nominees and a statement of the nominees'
willingness to serve. To be timely, the notice shall be
delivered to or mailed and received at the executive offices
of the Company not less than 90 nor more than 120 days prior
to the Annual Meeting.
The Compensation and Nominating Committee met three
times from the date of the Company's organization in May
1994 through December 31, 1994.
This Committee consists of the following Outside
Directors: Donald S. Perkins, Chairman, Robert M. Powers,
Walter D. Scott, Ronald L. Thompson, Marilou von Ferstel,
and John D. Zeglis.
Corporate Strategy Committee
----------------------------
(1) Review corporate objectives of the Company,
consider appropriate structure changes to meet corporate
objectives and make recommendations to the Board concerning
such matters; (2) review the Company's program for long-term
corporate activities and make recommendations to the Board
regarding the approval of such programs; and (3) act in an
advisory capacity to management and the Board of Directors
on corporate development.
The Corporate Strategy Committee met three times from
the date of the Company's organization in May 1994 through
December 31, 1994. This Committee consists of the following
members of the Board: Robert M. Powers, Chairman, Larry D.
Haab, Donald S. Perkins, Walter D. Scott, Ronald L.
Thompson, Marilou von Ferstel, and John D. Zeglis.
BOARD COMPENSATION
The Outside Directors of the Company receive a retainer
fee of $18,000 per year. Outside Directors who also chair
Board committees receive an additional $2,000 per year
retainer. Outside Directors receive a grant of 600 shares of
Common Stock on the date of each Annual Shareholders
Meeting, representing payment in lieu of attendance-based
fees for all Board and Committee meetings to be held during
the subsequent one-year period. Outside Directors elected to
the Board between Annual Shareholders Meetings are paid $850
for each Board and Committee meeting attended prior to the
first Annual Shareholders Meeting after their election to
the Board.
The Company has a Retirement Plan for Outside
Directors. Under this plan, each Outside Director who has
attained age 65 and has served on the Board for a period of
60 or more consecutive months is eligible for annual
retirement benefits at the rate of the annual retainer fee
in effect when the director retires. These benefits, at the
discretion of the Board, may be extended to Outside
Directors who have attained the age of 65 but not served on
the Board for the specified period. The benefits are payable
for a number of months equal to the number of months of
Board service, subject to a maximum of 120 months, and cease
upon the death of the retired Outside Director.
Pursuant to the Company's Deferred Compensation Plan
for Certain Directors, any Outside Director of the Company
may elect to defer all or any portion of his or her fees
until termination of his or her services as a director. Such
deferred dollar amounts are converted into stock units
representing shares of the Company's Common Stock with the
value of each stock unit based upon the last reported sales
price of such stock at the end of each calendar quarter.
Additional credits are made to the participating director's
account in dollar amounts equal to the dividends paid on
Common Stock which the director would have received if the
director had been the record owner of the shares represented
by stock units, and are converted into additional stock
units. Upon termination of a participating director's
services as a director, payment of his or her deferred fees
is made in shares of Common Stock in an amount equal to the
aggregate number of stock units credited to his or her
account. Such payment is made in such number of annual
installments as the Company may determine beginning in the
year following the year of termination.
ELECTION OF DIRECTORS
The Company's entire Board of Directors is elected at
each Annual Meeting of Shareholders. Directors hold office
until the next Annual Meeting of Shareholders and until
their successors are elected and qualified. At the Annual
Meeting a vote will be taken on a proposal to elect the 12
directors nominated by the Company's Board of Directors. The
names and certain additional information concerning each of
the director nominees is set forth below. Each of the
director nominees is currently a director of the Company.
The dates shown for service as a director include service as
a director of Illinois Power prior to the May 1994 merger in
which Illinois Power became a wholly owned subsidiary of the
Company. If any nominee should become unable to serve
as a director, another nominee will be selected by the
current Board of Directors.
Year in Which
First Elected
Name of Director Nominee, Age, a Director of
Business Experience and Other Information the Company
- ------------------------------------------------------------
Richard R. Berry, 63 1988
Prior to retirement in February 1990, Mr. Berry was Executive
Vice President and director of Olin Corporation, Stamford,
Connecticut, a diversified manufacturer concentrated in
chemicals, metals and aerospace/defense products, since June
1983.
Larry D. Haab, 57 1986
Chairman, President and Chief Executive Officer of Illinova
since December 1993, and of Illinois Power since June 1991, and
an employee of Illinois Power since 1965. He is a director of
First Decatur Bancshares, Inc., The First National Bank of
Decatur and Firstech, Incorporated.
Donald E. Lasater, 69 1981
Prior to retirement in April 1989, Mr. Lasater was Chairman of
the Board and Chief Executive Officer of Mercantile
Bancorporation, Inc., St. Louis, Missouri, a bank holding
company, since 1970. He is a director of Interco Incorporated,
General American Life Insurance Company and A.P. Green
Industries, Inc.
Donald S. Perkins, 67 1988
Prior to retirement in June 1983, as Chairman of the Executive
Committee, Mr. Perkins was Chairman of the Board and Chief
Executive Officer of Jewel Companies, Inc., Chicago, Illinois, a
diversified retailer, from 1970 to 1980. He is Chairman of the
Board and a director of Kmart Corporation and a director of
AT&T, Aon Corporation, Cummins Engine Company, Inc., Inland
Steel Industries, Inc., LaSalle Street Fund, Inc., The Putnam
Funds, and Time Warner, Inc.
Robert M. Powers, 63 1984
Prior to retirement in December 1988, Mr. Powers was President
and Chief Executive Officer of A. E. Staley Manufacturing
Company, Decatur, Illinois, a processor of grain and oil seeds,
since 1980. He is Chairman of the Board and a director of A. E.
Staley Manufacturing Company, and a director of Tate & Lyle,
PLC.
Walter D. Scott, 63 1990
Professor of Management and Senior Austin Fellow, J. L. Kellogg
Graduate School of Management, Northwestern University,
Evanston, Illinois, since 1988. Previously, Mr. Scott served as
Chairman of GrandMet USA, from 1984 to 1986, and as President
and Chief Executive Officer of IDS Financial Services, from 1980
to 1984. Mr. Scott is a director of Chicago Title and Trust
Company, Chicago Title Insurance Company, Intermatic
Incorporated, and Orval Kent Food Company, Inc.
Ronald L. Thompson, 45 1991
Chairman and Chief Executive Officer of Midwest Stamping and
Manufacturing Co., Bowling Green, Ohio, a manufacturer of
automotive parts, since 1993. He was President and Chief
Executive Officer and a director of The GR Group, Inc., St.
Louis, Missouri, a diversified holding company with interests in
manufacturing and service activities, from 1980 to 1993. He is
Chairman of the Board of The GR Group and a director of
McDonnell Douglas Corporation.
Walter M. Vannoy, 67 1990
Chairman of the Board and a director of Figgie International,
Inc., a diversified operating
company serving consumer, industrial, technical, and service
markets world-wide, Willoughby, Ohio, since 1994. He is a
director of Chempower, Inc.
Marilou von Ferstel, 57 1990
Executive Vice President and General Manager of Ogilvy Adams &
Rinehart, Inc., a public relations firm in Chicago, Illinois,
since June 1990. She had previously been Managing Director and
Senior Vice President of Hill and Knowlton, Chicago, Illinois, a
public relations consulting firm, from May 1981 to June 1990.
Ms. von Ferstel is a director of Walgreen Company.
Charles W. Wells, 60 1976
Executive Vice President of Illinois Power Company since 1976.
Mr. Wells has been an employee of Illinois Power since 1956. He
was elected a Vice President in 1972. He is a director of First
of America Decatur N.A.
John D. Zeglis, 47 1993
Senior Vice President, General Counsel and Government Affairs of
AT&T, Basking Ridge, New Jersey, a diversified communications
company, since 1989. He had been Senior Vice President and
General Counsel from 1986 to 1989. He is a director of the
Helmerich & Payne Corporation.
Vernon K. Zimmerman, 66 1973
Director of the Center for International Education Research and
Accounting, and Distinguished Service Professor of Accountancy,
University of Illinois, Urbana, Illinois, since August 1985. He
is a director of First Busey Corporation and Southwestern Life
Corporation.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table shows shares of stock beneficially owned as
of January 25, 1995, by each director nominee, the executive
officers named in the Summary Executive Compensation Table, and
all owners of more than five percent of Illinova Common Stock.
<TABLE>
<CAPTION>
Number
of Shares
Name of Class Beneficially Percent
Beneficial Owner of Stock Owned (1) of Class
- ----------------------------------------------------------------
<S> <C> <C> <C>
Richard R. Berry Common 2,802 (2)
Larry D. Haab Common 9,647 (2)
Donald E. Lasater Common 3,313 (2)
Donald S. Perkins Common 7,353 (2)
Robert M. Powers Common 6,600 (2)
Walter D. Scott Common 3,200 (2)
Ronald L. Thompson Common 2,391 (2)
Walter M. Vannoy Common 2,700 (2)
Marilou von Ferstel Common 3,353 (2)
Charles W. Wells Common 8,157 (2)
John D. Zeglis Common 1,659 (2)
Vernon K. Zimmerman Common 7,432 (2)
Paul L. Lang Common 2,587 (2)
Larry F. Altenbaumer Common 3,642 (2)
Larry S. Brodsky Common 1,534 (2)
Mellon Bank Corporation (3) Common 4,103,000 5.42%
</TABLE>
(1) The nature of beneficial ownership for shares shown is
sole voting and/or investment power, except for Mr. Wells, who
disclaims beneficial ownership of 1,000 shares held in the name
of his wife.
(2) Except as indicated above, no director or any executive
officer owns any other equity securities of the Company. No
director or executive officer owns as much as 1% of the Common
Stock. All directors and executive officers of both the Company
and Illinois Power Company as a group own 75,791 shares of
Common Stock (less than 1%).
(3) According to its February 8, 1995 Schedule 13G filing,
Mellon Bank Corporation, Mellon Bank Center, Pittsburgh, PA
15258 and its Subsidiaries beneficially owned 4,103,000 shares
of Illinova Common Stock, with sole power to vote 3,189,000
shares, sole power to dispose of 3,250,000 shares, shared power
to vote 30,000 shares and shared power to dispose of 853,000
shares.
Executive Compensation
- ----------------------
The following table sets forth a summary of the compensation
of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company and Illinois Power
Company ("Illinois Power"), its principal subsidiary, for the
years indicated. The compensation shown includes all compensation
paid for service to the Company and its subsidiaries, including
Illinois Power.
<PAGE>
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
--------------------------- -------------------- ----------------
Restricted
Other Stock Securities LTIP All Other
Bonus Annual Awards Underlying Payouts Compensation
Name and Principal Position Year Salary (1) Compensation (2) Options (3) (4)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Larry D. Haab 1994 $451,375 $42,881 $15,783 $42,881 20,900 shs. $22,869 $3,578
Chairman, President and 1993 437,500 22,531 13,199 20,000 shs. 3,555
Chief Executive Officer of 1992 403,958 28,883 7,099 16,000 shs. 3,373
Illinova and Illinois Power
Charles W. Wells 1994 $276,625 $25,242 $12,404 $25,242 8,500 shs. $15,152 $5,533
Executive Vice President 1993 265,875 12,629 9,697 6,500 shs 5,341
of Illinois Power 1992 252,500 16,160 7,034 6,000 shs. 5,129
Paul L. Lang 1994 $213,562 $20,289 $ 8,672 $20,289 6,800 shs. $11,036 $ 543
Senior Vice President 1993 205,625 9,767 7,508 6,000 shs. 527
of Illinois Power 1992 188,667 13,490 4,472 5,000 shs. 536
Larry F. Altenbaumer 1994 $196,562 $18,674 $8,975 $18,674 6,800 shs. $ 9,519 $2,007
Chief Financial Officer, 1993 187,750 8,918 7,093 6,000 shs. 2,009
Treasurer and Controller 1992 166,500 10,656 3,588 5,000 shs. 1,867
of Illinova and
Senior Vice President and
Chief Financial Officer of
Illinois Power
Larry S. Brodsky 1994 $174,186 $16,548 $4,973 $16,548 4,400 shs. $ 8,766 $1,587
Senior Vice President 1993 157,875 8,131 4,220 4,500 shs. 1,527
of Illinois Power 1992 146,791 9,395 3,676 3,000 shs. 1,508
</TABLE>
(1) The amounts shown in this column are the cash award
portion of grants made to these individuals under the Executive
Incentive Compensation Plan ("Compensation Plan"), including
amounts deferred under the Executive Deferred Compensation Plan.
See the Compensation Plan description in footnote (2) below.
(2) This table sets forth stock unit awards for 1994 under the
Company's Compensation Plan. One-half of each year's award under
this plan is converted into stock units representing shares of
Common Stock based on the closing price of Common Stock on the
last trading day of the award year. The other one-half of the
award is paid to the recipient in cash in the following year and
is included under Bonus in the Summary Compensation Table. Stock
units awarded in a given year, together with cash representing
the accumulated dividend equivalents on those stock units,
become fully vested after a three-year holding period. Stock
units are converted into cash and paid based on the closing
price of Common Stock on the first trading day of the
distribution year. Participants (or beneficiaries of deceased
participants) whose employment is terminated by retirement on or
after age 55, disability or death receive the present value of
all unpaid awards on the date of such termination. Participants
whose employment is terminated for reasons other than
retirement, disability or death forfeit all unvested awards. In
the event of a termination of employment within two years after
a change in control of the Company, without good cause or by any
participant with good reason, all awards of the participant
become fully vested and payable. As of December
31, 1994, named executive officers were credited with the
following total aggregate number of unvested stock units under
the Compensation Plan since its inception, valued on the basis
of the closing price of Common Stock on December 31, 1994: Mr.
Haab, 4,427 units valued at $96,713; Mr. Wells, 2,535 units
valued at $55,384; Mr. Lang, 2,044 units valued at $44,653; Mr.
Altenbaumer, 1,792 units valued at $39,157; Mr. Brodsky, 1,596
units valued at $34,880. Although stock units have been rounded,
valuation is based on total stock units, including partial
shares.
(3) The amounts shown in this column reflect the cash value
of the stock units granted in 1992 for the year 1991, including
amounts deferred, under the Compensation Plan. See the
Compensation Plan description in footnote (2) above.
(4) The amounts shown in this column are Illinois Power's
contributions under the Incentive Savings Plan (including the
market value of shares of the Company's Common Stock at the time
of allocation).
The following tables summarize grants during 1994 of stock
options under the Company's 1992 Long-Term Incentive
Compensation Plan ("LTIC") and awards outstanding at year end for
the individuals named in the Summary Compensation Table. No
options were exercisable or exercised during 1994.
<TABLE>
OPTION GRANTS IN 1994
Individual Grants
-------------------------------------
<CAPTION>
Number % of
of Securities Options Exercise Grant
Underlying Granted to or Base Date
Options Employees Price Expiration Present
Granted(1) in 1994 Per Share(1) Date Value(2)
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Larry D. Haab 20,900 25% $20.875 6/8/2003 $158,500
Charles W. Wells 8,500 10 20.875 6/8/2003 64,100
Paul L. Lang 6,800 8 20.875 6/8/2003 51,500
Larry F. Altenbaumer 6,800 8 20.875 6/8/2003 51,500
Larry S. Brodsky 4,400 5 20.875 6/8/2003 33,300
</TABLE>
(1) Each option becomes exercisable on June 30, 1997. In
addition to the specified expiration date, the grant expires on
the first anniversary of the recipient's death and/or the 90th
day following retirement, and is not exercisable in the event a
recipient's employment terminates. In the event of certain
changein-control circumstances, the Compensation and Nominating
Committee may declare the option immediately exercisable. The
exercise price of each option is equal to the fair market value
of the Common Stock on the date of the grant.
(2) The Grant Date Present Value has been calculated using
the Black-Scholes option pricing model. Disclosure of the Grant
Date Present Value, using the Black-Scholes model or potential
realizable value assuming 5% and 10% annualized growth rates, is
mandated by SEC rules; however, the Company does not necessarily
view the Black-Scholes pricing methodology, or any other present
methodology, as a valid or accurate means of valuing stock
option grants. The Company elected to use the standard Black-
Scholes model, which uses the following factors: fair market
value of share at grant; option exercise price; term of the
option; current yield of the stock; risk-free interest rate;
volatility of the stock. The fair market value of the stock on
June 8, 1994, was $20.875; the exercise price of the options is
$20.875; and the term of the option is 10 years. The annual
dividend yield on the Company's Common Stock was 3.623%. The
risk-free interest rate used was 7.50%, based on the yield of a
zero-coupon government bond maturing at the end of the option
term. The volatility of the stock used was 0.1975.
<TABLE>
AGGREGATED OPTION AND FISCAL
YEAR-END OPTION VALUE TABLE
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End at FiscalYear-End
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------
<S> <C> <C>
Larry D. Haab 0 shs./56,900 shs. 0/20,168
Charles W. Wells 0 shs./21,000 shs. 0/8,202
Paul L. Lang 0 shs./17,800 shs. 0/6,562
Larry F. Altenbaumer 0 shs./17,800 shs. 0/6,562
Larry S. Brodsky 0 shs./11,900 shs. 0/4,246
</TABLE>
PENSION BENEFITS
Illinois Power maintains a Retirement Income Plan for
Salaried Employees (the "Retirement Plan") providing pension
benefits for all eligible salaried employees. In addition to the
Retirement Plan, Illinois Power also maintains a nonqualified
Supplemental Retirement Income Plan for Salaried Employees of
Illinois Power Company (the "Supplemental Plan") that covers
all elected officers eligible to participate in the Retirement
Plan and provides for payments from general funds of Illinois
Power of any monthly retirement income not payable under the
Retirement Plan because of benefit limits imposed by law or
because of certain Retirement Plan rules limiting the amount of
credited service accrued by a participant.
The following table shows the estimated annual pension
benefits on a straight life annuity basis payable upon retirement
based on specified annual average earnings and years of credited
service classifications, assuming continuation of the Retirement
Plan and Supplemental Plan and employment until age 65. This
table does not show, but any actual pension benefit payments
would be subject to, the Social Security offset.
<TABLE>
ESTIMATED ANNUAL BENEFITS (ROUNDED)
<CAPTION>
Annual
Average 15 Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs.
Earnings Service Service Service Service Service
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$125,000 $37,500 $50,000 $62,500 $75,000 $87,500
150,000 45,000 60,000 75,000 90,000 105,000
175,000 52,500 70,000 87,500 105,000 122,500
200,000 60,000 80,000 100,000 120,000 140,000
250,000 75,000 100,000 125,000 150,000 175,000
300,000 90,000 120,000 150,000 180,000 210,000
350,000 105,000 140,000 175,000 210,000 245,000
400,000 120,000 160,000 200,000 240,000 280,000
450,000 135,000 180,000 225,000 270,000 315,000
500,000 150,000 200,000 250,000 300,000 350,000
550,000 165,000 220,000 275,000 330,000 385,000
600,000 180,000 240,000 300,000 360,000 420,000
650,000 195,000 260,000 325,000 390,000 455,000
</TABLE>
The earnings used in determining pension benefits under the
Retirement Plan are the participants' regular base
compensation, as set forth under salaries in the compensation
table.
At December 31, 1994, for purposes of both the Retirement
Plan and the Supplemental Plan, Messrs. Haab, Wells, Lang,
Altenbaumer, and Brodsky had completed 29, 31, 8, 22, and 20
years of credited service, respectively.
COMPENSATION AND NOMINATING COMMITTEE
REPORT ON OFFICER COMPENSATION
The six-member Compensation and Nominating Committee of the
Board of Directors (the "Committee") is composed entirely of
Outside Directors. The Committee's role includes a review of the
performance of the elected officers and the establishment of
specific officer salaries subject to Board approval. The
Committee establishes performance goals for the officers under
the Compensation Plan, approves payments made pursuant to the
Compensation Plan and recommends grants under the Long-Term
Incentive Compensation Plan approved by the shareholders in
1992. The Committee also reviews other forms of compensation and
benefits making recommendations to the Board on changes whenever
appropriate. The Committee carries out these responsibilities
with assistance from an executive compensation consulting firm
and with input from the Chief Executive Officer and management as
it deems appropriate.
OFFICER COMPENSATION PHILOSOPHY
The Company's compensation philosophy reflects a commitment
to compensate officers competitively with other companies in the
electric and gas utility industry while rewarding executives for
achieving levels of operational excellence and financial returns
consistent with continuous improvement in customer satisfaction
and shareholder value. The Company's compensation policy is to
provide a total compensation opportunity equal to a peer group
of comparable electric utility companies. One-third of the
companies in the compensation group are included in the S&P
Utilities Index which is used to relate the Company's
shareholder value in the following performance graphs. The S&P
index covers the utility industry broadly including electric,
gas, and telecommunications utilities. After careful
consideration, the Committee has decided to maintain a separate
peer group limited to electric or combination electric and gas
companies for compensation purposes.
The compensation program for officers consists of base
salary, annual incentive and long-term incentive components. The
combination of these three elements balances short- and long-term
business performance goals and aligns officer financial rewards
with those of the Company's shareholders. The compensation program
is structured so that, depending on the salary level, between 25
and 35 percent of an officer's total compensation opportunity is
composed of incentive compensation.
BASE SALARY PLAN
The Committee determines base salary ranges for executive
officers based upon competitive pay practices. Officer salaries
correspond to approximately the average of the companies in the
compensation peer group. Individual increases were based on
several factors including the officer's performance during the
year and the relationship of the officer's salary to the market
salary level for the position.
EXECUTIVE INCENTIVE COMPENSATION PLAN
The Board of Directors established this Compensation Plan for
the Company's officers in 1992. Annual incentive awards are
earned based on the achievement of specific annual financial and
operational goals by the officer group as a whole and
consideration of the officer's individual contribution. If
payment is earned under this Compensation Plan, one-half of the
bonus is payable in cash during the year following the award
year and one-half is credited to the participant in the form of
Common Stock units, the number of which is determined by
dividing half of the earned bonus amount by the closing price of
the Common Stock on the last trading day of the award year. The
officer's interest in the stock units vests at the end of the
three-year period which begins the year after the award year.
The officer receives this award in cash equal to (1) the closing
stock price on the first trading day of the distribution year
times the number of units held plus (2) dividend equivalents
that would have been received if the stock had actually been
issued.
For 1994, awards under the Compensation Plan are based on
achievement in the performance areas: earnings per share,
customer satisfaction, employee teamwork, cost management, and
operating effectiveness. Based on an assessment of performance
relative to the standard set for each goal, each officer is
eligible for the same percentage of base salary. However, 15
percent of the awarded amount is based on an assessment of the
individual officer's performance during the year.
Awards shown under Bonus in the Summary Compensation Table
for performance during 1994 were based on the following results.
Earnings per Share and Operating Effectiveness (as measured by
power plant availability) were better than the threshold level
for the award. Customer Satisfaction was at the threshold target
level. Employee Teamwork did not result in an award. Cost
Management was better than the maximum level for the award.
LONG-TERM INCENTIVE COMPENSATION PLAN
In 1992, the Board of Directors approved and the Company's
shareholders ratified the LTIC Plan. The initial grant of stock
options was made in that year. Awards under the LTIC Plan are
made to individual officers based on their contribution to
corporate performance based on the review of this Committee. The
Committee may grant awards in the form of stock options, stock
appreciation rights, or restricted stock grants. The stock
option grants for the officers named in the Summary Compensation
Table were based on the Company's philosophy of providing a
total compensation opportunity consistent with the practices and
levels of the compensation peer group. The shares granted to the
officers for 1994 represent a long-term incentive award based on
Company and individual performance as evaluated by the Chairman
and reviewed by the Committee.
CEO COMPENSATION
Larry Haab became Chairman, President, and Chief Executive
Officer ("CEO") of Illinois Power on June 12, 1991, and
Chairman, President and Chief Executive Officer of the Company
in December 1993. The Company based Mr. Haab's 1994 compensation
on the policies and plans described above.
The Committee invokes the active participation of all non
management directors in reviewing Mr. Haab's performance before
it makes recommendations regarding his compensation. The
Committee is responsible for administering the processes for
completing this review. The process starts early in the year
when the Board of Directors works with Mr. Haab to establish his
personal goals and short- and long-term strategic goals for the
Company. At the conclusion of the year Mr. Haab reviews his
performance with the non-management directors. The Committee
oversees this review and recommends to the Board appropriate
adjustments to compensation. For 1994 the Committee, with the
participation of all Outside Directors, determined that almost all
goals were achieved and that the results for the Company for the
year were excellent.
They concluded that his performance continued to lead the
Company to the accomplishment of its strategic objectives.
The 1994 Compensation Plan award for the Chief Executive Officer
was calculated consistent with the determination of awards for
all other officers. Under the terms of the plan, one-half of the
award was paid in cash and one-half was converted to 1,963 stock
units which vest over a three-year period as described above.
The 20,900 option shares granted to the CEO reflect the
Committee's recognition of his work in directing the Company
toward its long-term objectives of outstanding customer
satisfaction and sustained growth in shareholder return.
COMPENSATION AND NOMINATING COMMITTEE
Donald S. Perkins, Chairman
Robert M. Powers
Walter D. Scott
Ronald L. Thompson
Marilou von Ferstel
John D. Zeglis
<PAGE>
STOCK PERFORMANCE GRAPHS
The following performance graphs compare the cumulative total
shareholder return on the Company's Common Stock to the
cumulative total return on the S&P 500 Index, S&P MidCap 400
Index and S&P Utilities Index from (i) December 31, 1989,
through December 31, 1994, and (ii) December 31, 1991, through
December 31, 1994. Effective May 27, 1994, Illinois Power became
a subsidiary of Illinova Corporation and each outstanding share
of Illinois Power's Common Stock was converted in a merger into
one share of Common Stock of Illinova. Information in the graphs
through May 27, 1994, reflects the performance of Illinois Power
Common Stock, and information since May 27, 1994, reflects the
performance of Illinova Common Stock.
COMPARISON OF FIVE-YEAR
CUMULATIVE TOTAL RETURN
Among Illinova, S&P 500 Index, S&P Midcap 400 Index, and S&P
Utilities Index.
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Illinova, S&P 500 Index, S&P MidCap 400 Index
and S&P Utilities Index*
<CAPTION>
Measurement Period (Fiscal Year Covered)
--------------------------------------------------
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Illinova 87 126 123 128 131
S&P 500 97 126 136 150 152
S&P MidCap 400 95 142 159 182 175
S&P Utitilies 97 112 121 139 128
</TABLE>
*Fiscal year ended December 31
Assumes $100 invested on December 31, 1989, in the Company's
Common Stock, S&P 500 Index, S&P MidCap 400 Index, and S&P
Utilities Index.
COMPARISON OF THREE-YEAR
CUMULATIVE TOTAL RETURN
Among Illinova, S&P 500 Index, S&P Midcap 400 Index, and S&P
Utilities Index.
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF 3 YEAR CUMULATIVE TOTAL RETURN
Among Illinova, S&P 500 Index, S&P MidCap 400 Index
and S&P Utilities Index*
<CAPTION>
Measurement Period (Fiscal Year Covered)
----------------------------------------
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Illinova 98 101 104
S&P 500 108 118 120
S&P MidCap 400 112 128 123
S&P Utitilies 108 124 114
</TABLE>
*Fiscal year ended December 31
Assumes $100 invested on December 31, 1991, in the Company's
Common Stock, S&P 500 Index, S&P MidCap 400 Index, and S&P
Utilities Index.
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") requires executive officers and directors, and
persons who beneficially own more than ten percent (10%) of the
Company's equity securities registered under the Exchange Act to
file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission ("SEC").
Executive officers, directors and greater than ten percent (10%)
beneficial owners are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms
furnished to the Company and written representations from the
executive officers and directors, the Company believes that all
Section 16(a) filing requirements applicable to its executive
officers and directors were complied with during 1994.
INDEPENDENT AUDITORS
The Board of Directors of the Company has selected Price
Waterhouse LLP as independent auditors for the Company for 1995.
A representative of that firm will be present at the Annual
Meeting and available to make a statement and to respond to
appropriate questions.
OTHER MATTERS
The Company's 1994 Summary Annual Report to Shareholders was
mailed to shareholders commencing on March 1, 1995. Copies of
the Company's Annual Report on Form 10-K will be provided to
shareholders, after the filing thereof with the Securities and
Exchange Commission on or before March 31, 1995. Requests should
be addressed to Investor Relations, G-21, Illinois Power
Company, 500 South 27th Street, Decatur, Illinois 62525-1805.
Any proposal by a shareholder to be presented at the next
Annual Meeting must be received at the Company's executive offices
not later than October 31, 1995.
OTHER BUSINESS
Management does not know of any matter which will be
presented for consideration at the Annual Meeting other than the
matters described in the accompanying Notice of Annual Meeting.
By Order of the Board of Directors,
Leah Manning Stetzner,
General Counsel and Corporate Secretary
Decatur, Illinois
March 1, 1995
<PAGE>
appendix: 1994 annual report to shareholders
- --------------------------------------------
TABLE OF CONTENTS
Management's Discussion and Analysis . . . . . . . . . . . A-2
Responsibility for Information . . . . . . . . . . . . . . A-10
Report of Independent Accountants . . . . . . . . . . . . A-10
Consolidated Statements of Income . . . . . . . . . . . . A-11
Consolidated Balance Sheets . . . . . . . . . . . . . . . A-12
Consolidated Statements of Cash Flows . . . . . . . . . . A-13
Consolidated Statements of Retained Earnings (Deficit) . . A-13
Notes to Consolidated Financial Statements . . . . . . . . A-14
Selected Consolidated Financial Data . . . . . . . . . . . A-32
Selected Illinois Power Company Statistics . . . . . . . . A-33
<PAGE>
management's discussion and analysis
- ------------------------------------
In this report, we make reference to the Consolidated
Financial Statements, related Notes to Consolidated Financial
Statements, Selected Consolidated Financial Data and Selected
Illinois Power Company Statistics for information concerning
consolidated financial position and results of operations. The
factors having significant impact upon consolidated financial
position and consolidated results of operations since January 1,
1992, are discussed below.
ILLINOVA SUBSIDIARIES
The consolidated financial statements include the accounts
of: Illinova Corporation (Illinova), a holding company; Illinois
Power Company (IP), a combination electric and gas utility; and
Illinova Generating Company (IGC), which invests in energy-
related projects and competes in the independent power market.
Illinova Power Marketing, Inc. (IPM) is a wholly owned
subsidiary of Illinova formed in July 1994 as a Delaware
corporation. IPM plans to become active in the business of
brokering and marketing electric power to various customers. On
July 20, 1994, IPM filed a petition with the Federal Energy
Regulatory Commission (FERC) seeking approval to buy electricity
from various producers not affiliated with IP and to sell
electricity at market rates to such wholesale customers as
utilities, electric cooperatives and municipalities. IPM
eventually intends to sell electricity directly to industrial and
commercial customers. Subsequent to the IPM filing, the FERC
issued a decision in Heartland Energy Services, Inc.,
et al., setting forth the general standards governing
applications by utility-affiliated marketers, such as IPM, for
market-based rates. Among these standards is the submission, by
the marketer's affiliated utility, of an open access transmission
tariff offering transmission services and prices comparable to
those which the utility provides to its customers. Based on the
FERC decision in the Heartland case, IPM plans to submit an
amended filing and IP plans to submit the comparable open access
transmission tariff, designed to satisfy the FERC's
"comparability" requirements, to the FERC during the first quarter
of 1995. IPM will begin power marketing operations upon receipt of
FERC approval of these filings. Until that time, IPM will be
limited to the brokering of electricity. In January 1995, IPM
established operating headquarters in Salt Lake City, Utah.
See "Note 2 - Illinova Subsidiaries" of the "Notes to
Consolidated Financial Statements" for additional information.
IP's financial position and results of operations are currently
the principal factors affecting Illinova's consolidated financial
position and results of operations.
COMPETITION
Competition has become a dominant issue for the electric
utility industry. Competition has been promoted by federal
legislation, starting with the Public Utility Regulatory Policy
Act of 1978, which facilitated the development of co-generators
and independent power producers, and continuing with enactment of
the Energy Policy Act of 1992 which authorized the FERC to mandate
wholesale wheeling of electricity by utilities at the request of
certain authorized generating entities and electric service
providers. Wheeling is the transport of electricity generated by
one entity over transmission and distribution lines belonging to
another entity. For many years prior to enactment of the Energy
Policy Act, the FERC imposed wholesale wheeling obligations as a
condition of approving mergers and granting operating privileges,
a practice that continues.
Competition arises not only from co-generation or independent
power production, but from municipalities seeking to extend their
service boundaries to include customers being served by IP. This
is not a new risk in the industry, as the right of municipalities
to have power wheeled to them by utilities was established in
1973. The Illinois Commerce Commission (ICC) has been supportive
of IP's attempts to maintain its customer base through approval of
special contracts and flexible pricing that help IP to compete
with existing municipal providers.
Further competition may be introduced by state action or by
further federal regulatory action. While the Energy Policy Act
precludes the FERC from mandating retail wheeling, state
regulators and legislators could open utility franchise
territories to full competition at the retail level. Retail
wheeling involves the transport of electricity to end-use
residential, commercial or industrial customers. Such a change
would be a significant departure from existing regulation in
which public utilities have a universal obligation to serve the
public in return for relatively protected service territories and
regulated pricing designed to allow a reasonable return on
prudent investment and recovery of operating costs. State
attempts to lay the groundwork for retail wheeling have been
hampered by opposition from various interest groups, as well as
the complexity of related issues, including recovery of costs
associated with preexisting generation investment.
While Illinova and IP are confident of IP's present ability
to compete with all current alternate sources of energy supply,
the issue of competition is one that raises both risks and
opportunities. At this time, the ultimate effect of competition
on consolidated financial position and results of operations is
uncertain. See "Note 1 - Summary of Significant Accounting
Policies" of the "Notes to Consolidated Financial Statements" for
additional discussion of the effects of regulation.
OPEN ACCESS AND WHEELING
Under the Energy Policy Act, an investor-owned utility must
respond to any bona fide transmission service request within 60
days. Although the Energy Policy Act created, for the first
time, a FERC-administered mechanism for imposing wholesale
wheeling obligations on utilities, IP has had the obligation to
wheel power for interconnected electricity suppliers since 1976.
That condition was included in IP's Clinton Power Station
(Clinton) construction permit and operating license issued by
the Nuclear Regulatory Commission. IP currently wheels power at
rates originally approved by the FERC in 1984. It is too soon to
predict the long-term financial impact of increasing transmission
access and other issues arising from such access.
EARLY RETIREMENT
In December 1994, IP announced plans for a voluntary early
retirement program. Approximately 200 salaried employees would
qualify for early retirement under this program. The offer will
be made to employees during the fourth quarter of 1995. A
similar program for union employees is the subject of contract
negotiations currently underway between IP and the International
Brotherhood of Electrical Workers. Approximately 450 union
employees would qualify for the program if current negotiations
result in the same package as offered to salaried employees. At
December 31, 1994, IP employed 4,350 people, as compared to
4,540 at December 31, 1993.
The early retirement program for salaried employees is
expected to generate a pre-tax charge of approximately $22 million
against fourth quarter 1995 earnings and to generate savings of
approximately $15 million annually beginning in 1996. A combined
early retirement program for both salaried and union employees,
based on the same package as announced for salaried employees,
would generate a pre-tax charge of approximately $42 million
against fourth quarter 1995 earnings and would generate savings
of approximately $35 million annually beginning in 1996.
CONSOLIDATED RESULTS OF OPERATIONS
Overview
Earnings (loss) applicable to common stock were $158 million
for 1994, $(82) million for 1993 and $93 million for 1992.
Earnings (loss) per common share were $2.09 for 1994, $(1.08) for
1993 and $1.23 for 1992. The 1994 results include $.08 per share
for the excess of carrying amount over consideration paid for IP
preferred stock redeemed in December 1994. The 1994 earnings
also reflect an increase in gas rates as a result of IP's 1994
gas rate order, increased electric sales, lower operating and
maintenance expenses due to on-going cost management efforts, no
Clinton refueling and maintenance outage and lower financing
costs. In 1993, earnings were $118 million, or $1.57 per common
share, excluding the September 1993 write-off of disallowed
Clinton post-construction costs of $200 million or $2.65 per
share, net of income taxes. The 1993 earnings before the write-
off reflect increased electric and gas sales due to closer-to-
normal temperatures, increased interchange sales, lower
operating and maintenance expenses and lower interest expense as
a result of a continued refinancing program. The 1992 earnings
were primarily due to the February 1992 increase in electric
rates of 9.2%, which was modified in August 1992, resulting in a
net increase of 7.2%. Additionally, in 1992 IP reduced its
interest expense by retiring and refinancing certain long-term
debt and lowered its electric depreciation expense as a result
of new depreciation rates approved in the 1992 electric rate
case order.
IP operating revenues are based on rates authorized by the
ICC and the FERC. These rates are designed to recover the cost of
service and to allow shareholders a fair rate of return as
determined by the ICC and the FERC. Future electric and natural
gas sales, including interchange sales, will continue to be
affected by an increasingly competitive marketplace, changes in
the regulatory environment, increased transmission access,
weather conditions, competing fuel sources, interchange market
conditions, plant availability, fuel cost recoveries, customer and
IP conservation efforts and the overall economy.
<TABLE>
[GRAPH APPEARS HERE]
OPERATING REVENUES
(in millions of dollars)
<CAPTION>
Year Revenue Amount
- ---- --------------
<S> <C>
1994 1589.5
1993 1581.2
1992 1479.5
1991 1474.9
1990 1469.5
</TABLE>
ELECTRIC OPERATIONS - For the years 1992 through 1994, electric
revenues including interchange increased 8.1% and the gross
electric margin increased 5.5% as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(Millions of dollars) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Electric revenues $1,177.5 $1,135.6 $1,117.9
Interchange revenues 110.0 130.8 73.0
Fuel cost & power purchased (319.2) (313.6) (272.8)
- ------------------------------------------------------------------
Electric margin $ 968.3 $ 952.8 $ 918.1
==================================================================
</TABLE>
The components of annual changes in electric revenues are
summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(Millions of dollars) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Price $(23.2) $(30.0) $ 71.2
Volume and other 44.1 72.1 (45.8)
Fuel cost recoveries 21.0 (24.4) (8.7)
- ------------------------------------------------------------------
Revenue increase $ 41.9 $ 17.7 $ 16.7
==================================================================
</TABLE>
From 1995 through 1999 electric sales excluding interchange
are expected to increase approximately 2% per year.
1994 - The 3.7% increase in electric revenues was primarily due
to a 6.3% increase in kilowatt-hour sales to ultimate consumers
(excluding interchange sales and wheeling). Volume increases
resulted from higher commercial sales (8.3%) and higher
industrial sales (7.0%) due to an improving economy. Residential
sales remained essentially unchanged from 1993 primarily due to
milder temperatures in 1994 as compared to 1993. Interchange
sales decreased 19.6% primarily due to unusually large sales
opportunities during 1993.
1993 - The 1.6% increase in electric revenues was primarily due to
a 3.2% increase in kilowatt-hour sales to ultimate consumers
(excluding interchange sales and wheeling) reflecting closer-to-
normal temperatures during the summer season. Volume increases
resulted from higher residential sales (9.9%), commercial sales
(6.3%), and industrial sales (.5%). The increase in electric
revenues was partially offset by the reduction in rates resulting
from the August 1992 ICC Rehearing Order. Interchange revenues
increased $57.8 million (79.2%) primarily as a result of increased
sales opportunities.
1992 - The 1.5% increase in electric revenues was primarily due to
the 9.2% rate increase in February 1992, which was modified in
August 1992, resulting in a net increase of 7.2%, partially
offset by decreased usage due to unusually mild weather. Total
kilowatt hour sales to ultimate consumers (excluding interchange
sales and wheeling) decreased 2.1%. The decreases in residential
sales (10.4%) and commercial sales (1.8%) were due to unusually
cool summer and mild winter temperatures as compared to a warmer
summer and colder winter during 1991. Industrial sales increased
5.8% due to higher usage by several of IP's larger customers.
The 14.7% decrease in interchange revenues in 1992 as compared
to 1991 was attributable to milder weather.
<TABLE>
[GRAPH APPEARS HERE]
MAJOR SOURCES OF ELECTRIC ENERGY
(in millions of MWH)
<CAPTION>
Year Fossil Nuclear Purchases
- ------------------------------------------------------------------
<S> <C> <C> <C>
1994 13.2 6.4 3.1
1993 13.1 5.1 5.1
1992 13.5 4.3 1.6
- ------------------------------------------------------------------
</TABLE>
The cost of meeting IP's system requirements was reflected in
fuel costs for electric plants and power purchased. Changes in
these costs are summarized as follows:
<TABLE>
- ------------------------------------------------------------------
(Millions of dollars) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Fuel for electric plants
Volume and other $ 13.8 $ 3.5 $(17.4)
Price (14.3) 7.4 (7.9)
Fuel cost recoveries 32.0 (24.6) 7.5
- ------------------------------------------------------------------
31.5 (13.7) (17.8)
Power purchased (25.9) 54.5 (.7)
- ------------------------------------------------------------------
Total increase (decrease) $ 5.6 $40.8 $(18.5)
==================================================================
Weighted average system
generating fuel cost ($/MWH) $12.72 $13.88 $13.77
==================================================================
</TABLE>
Changes in these costs were caused by system load
requirements, generating unit availability, fuel prices, purchased
power prices, resale of energy to other utilities and fuel cost
recovery through the Uniform Fuel Adjustment Clause.
<TABLE>
[GRAPH APPEARS HERE]
Equivalent Availability -- Clinton and Fossil
<CAPTION>
Year Clinton Fossil
- ------------------------------------------------------------------
<S> <C> <C>
1994 92% 78%
1993 73% 85%
1992 62% 82%
1991 76% 81%
1990 47% 76%
- ------------------------------------------------------------------
</TABLE>
Changes in factors affecting the cost of fuel for electric
generation are summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease)
in generation 8.2% 2.5% (7.0%)
Generation mix
Coal and other 67% 72% 75%
Nuclear 33% 28% 25%
==================================================================
</TABLE>
1994 - The cost of fuel increased 13.4% and electric generation
increased 8.2%. The increase in fuel cost was attributable to
the effects of the Uniform Fuel Adjustment Clause, partially
offset by a decrease in fossil generation and an increase in
lower-cost nuclear generation. Clinton's equivalent availability
and generation were higher in 1994 as compared to 1993 due to no
refueling and maintenance outage. Clinton's next refueling and
maintenance outage is scheduled to begin in March 1995. Power
purchased for the period decreased $25.9 million. Unusually
large interchange sales opportunities during 1993, not recurring
in 1994, were the primary cause of the decrease in purchased
power.
<TABLE>
[GRAPH APPEARS HERE]
FUEL COST PER MILLION BTU
(percent of generation)
<CAPTION>
Fuel
Type Cost Percent
- ----------------------------------------------------------------
<S> <C> <C>
Coal $1.42 66.2%
Nuclear .85 33.3
Gas 3.06 .2
Oil 3.89 .3
- ----------------------------------------------------------------
</TABLE>
1993 - The cost of fuel decreased 5.5%, while electric
generation increased 2.5%. The decrease in fuel cost was
attributable to the effects of the Uniform Fuel Adjustment
Clause and lower generation at IP's largest fossil plant. This
decrease was partially offset by an increase in transportation
costs due to flooding in the Midwest and the United Mine Workers'
Strike. Power purchased for the period increased $54.5 million.
Coal delivery concerns and coal conservation measures stemming
from the United Mine Workers' Strike, combined with favorable
interchange prices and increased sales opportunities,
contributed to IP's increase in purchased power. Clinton
returned to service December 10, 1993, after completing its
fourth refueling and maintenance outage which began September
26, 1993.
1992 - The cost of fuel decreased 6.7% and electric generation
decreased at fossil plants as a result of mild weather and a
credit refund from one coal supplier, partially offset by the
effects of the Uniform Fuel Adjustment Clause. The credit refund
resulted from a price reduction arrived at through arbitration
under the applicable coal supply contract. Clinton returned to
service June 1, 1992, after completing a refueling and
maintenance outage that began February 27, 1992.
GAS OPERATIONS - For the years 1992 through 1994, gas revenues,
including transportation, increased 4.6% and the gross margin on
gas revenues increased 11.1% as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(Millions of dollars) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Gas revenues $ 293.2 $ 306.8 $ 281.8
Gas cost (172.4) (187.3) (171.9)
Transportation revenues 8.8 8.0 6.8
- ------------------------------------------------------------------
Gas margin $ 129.6 $ 127.5 $ 116.7
==================================================================
(Millions of therms)
Therms sold 584 597 613
Therms transported 262 229 204
- ------------------------------------------------------------------
Total consumption 846 826 817
==================================================================
</TABLE>
Changes in the cost of gas purchased for resale are
summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(Millions of dollars) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Gas purchased for resale
Cost (excluding take-or-pay) $ (6.4) $13.3 $ 1.0
Take-or-pay costs 2.8 5.3 (16.0)
Volume (13.6) (3.4) 16.5
Gas cost recoveries 2.3 .2 2.6
- ------------------------------------------------------------------
Total increase (decrease) $(14.9) $15.4 $ 4.1
==================================================================
Average cost per therm delivered .261 .275 .260
==================================================================
</TABLE>
The 1994 decrease in the cost of gas purchased was primarily
due to lower natural gas prices, the expanded use of additional
gas storage and a decrease in therms purchased. Also contributing
to the higher gas margin in 1994 was the 6.1% increase in gas base
rates approved by the ICC in April 1994. The 1993 increase in the
cost of gas purchased was primarily due to an increase in the
price of purchased gas and take-or-pay costs. From 1995 through
1999, gas sales including therms transported are expected to
remain close to 1994 levels.
OTHER EXPENSES AND TAXES - A comparison of significant increases
(decreases) in other expenses and deferred Clinton costs for the
last three years is presented in the following table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(Millions of dollars) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Other operating expenses $(9.2) $(2.1) $17.9
Maintenance (11.2) (1.3) 14.9
Depreciation and amortization 12.2 7.9 (15.5)
Deferred Clinton costs (5.8) (1.9) -
==================================================================
</TABLE>
The decrease in operating and maintenance expenses for 1994
is due to ongoing re-engineering efforts, improved operating
efficiencies at IP's fossil plants and at Clinton and no
refueling and maintenance outage at Clinton. The decrease in
operating and maintenance expenses for 1993 is primarily due to
decreased costs at Clinton, partially offset by increased fossil
plant maintenance. The Clinton refueling and maintenance outage
and higher administration and general expenses contributed to the
increase in other operating and maintenance expenses in 1992. The
1994 increase in depreciation expense is due primarily to a
higher utility plant balance in 1994 as compared to 1993. The
1993 increase in depreciation expense is due principally to the
effects of the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." See "Note 1 -
Summary of Significant Accounting Policies" of the "Notes to
Consolidated Financial Statements" for additional information.
The 1992 decrease in depreciation expense reflects the reduction
of the nonClinton electric plant composite rate approved in the
1992 rate order. Deferred Clinton costs decreased in 1994 and 1993
as a result of the September 1993 write-off of disallowed Clinton
post-construction costs.
<TABLE>
[GRAPH APPEARS HERE]
OPERATING AND MAINTENANCE EXPENSES
(in millions of dollars)
<CAPTION>
Year Dollars
- ------------------------------------------------------------------
<S> <C>
1994 349.6
1993 370.0
1992 373.4
1991 340.6
1990 365.6
- ------------------------------------------------------------------
</TABLE>
OTHER INCOME AND DEDUCTIONS - Total allowance for funds used
during construction (AFUDC), a non-cash item of income,
increased in 1994 compared to 1993 and 1992. The 1994 increase
was due to higher construction work-in-progress balances
eligible for AFUDC, partially offset by a lower AFUDC rate. The
AFUDC effective rate was 7.0%, 7.5% and 7.5% in 1994, 1993 and
1992, respectively. The 1994 increase in Miscellaneous-net
deductions was primarily due to a decrease in allocated income
taxes.
INTEREST CHARGES - Total interest charges decreased $21.0 million
in 1994, $3.7 million in 1993 and $12.3 million in 1992. These
decreases were primarily due to the refinancing with lower cost
debt or the retirement of debt from 1992 through 1994. From 1992
to 1994, IP retired or refinanced approximately $1.5 billion of
long-term debt, excluding revolving loan agreements, with a
weighted average interest rate of 9.27%. During this time,
approximately $1.4 billion of new debt was issued at a weighted-
average interest rate of 6.97%.
INFLATION - Inflation, as measured by the Consumer Price Index,
was 2.5%, 3.1% and 3.0% in 1994, 1993 and 1992, respectively.
The primary effect of inflation on IP is that historical rather
than current plant costs are recovered in IP's rates.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
REGULATORY MATTERS
1994 GAS RATE ORDER - On April 6, 1994, the ICC approved an
increase of $18.9 million, or 6.1%, in IP's natural gas base
rates. The increase will be partially offset by savings from
lower gas costs resulting from the expansion of the Hillsboro
gas storage field. The approved authorized rate of return on
rate base is 9.29%, with a rate of return on common equity of
11.24%. Concurrent with the gas rate increase, IP's gas utility
plant composite depreciation rate decreased to 3.4%.
FERC ORDER 636 - Pursuant to Orders 636 and 636-A, issued in April
and August 1992, respectively, the FERC approved amendments to
its rules that are intended to increase competition among
natural gas suppliers by "unbundling" the interstate pipelines'
merchant sales service into separate sales and transportation
services and by mandating that the pipelines' firm
transportation service be comparable to the transportation
service included in their traditional bundled sales service. As
a result of Orders 636 and 636-A, the pipelines are charging
their customers "transition" costs, which arise from unbundling
services. IP estimates that approximately $10.5 million in
transition costs will be incurred. In 1993, IP began to pay
transition costs billed by gas pipelines and to recover these
payments through a tariff rider. On September 23, 1994, the ICC
issued a final order approving recovery of Order 636 transition
costs.
DIVIDENDS
On October 12, 1994, the Board of Directors of Illinova
increased the common stock dividend 25 percent, declaring the
common stock dividend for the first quarter of 1995 at 25 cents
per share, payable February 1, 1995, to shareholders of record
as of January 10, 1995. On December 14, 1994, IP declared
preferred stock dividends for the first quarter of 1995, payable
February 1, 1995, to shareholders of record as of January 10,
1995.
CAPITAL RESOURCES AND REQUIREMENTS
Illinova and IP need cash for operating expenses, interest
and dividend payments, debt and IP preferred stock retirements and
construction programs. To meet these needs, Illinova and IP have
used internally generated funds and external financings
including the issuance of IP preferred stock, debt and revolving
lines of credit. The timing and amount of external financings
depend primarily upon economic and financial market conditions,
cash needs and capitalization ratio objectives. To a significant
degree, the availability and cost of external financing depend
upon the financial health of the company seeking those funds.
Short-term debt is used to meet temporary cash needs for
operations or to meet capital requirements until the timing is
considered appropriate to issue long-term securities.
Cash flow from operations during 1994 provided sufficient
working capital to meet ongoing operating requirements, to
service existing common and IP preferred stock dividends and
debt requirements and a substantial portion of construction
requirements. Additionally, Illinova expects current revenues
will enable it to meet future operating requirements and
continue to service its existing debt, IP preferred and Illinova
common stock dividends, IP sinking fund requirements and all of
its anticipated construction requirements. The current ratings
of securities by two principal securities rating agencies are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Standard
Moody's & Poor's
- ------------------------------------------------------------------
<S> <C> <C>
IP first/new mortgage bonds Baa2 BBB
IP preferred stock baa3 BBB-
IP commercial paper P-2 A-2
==================================================================
</TABLE>
These ratings are an indication of Illinova's and IP's
financial position and may affect the cost of securities, as well
as the willingness of investors to invest in securities. Under
current market conditions, these ratings are unlikely to impair
Illinova's or IP's ability to issue, or significantly increase
the cost of issuing additional securities through external
financing. Illinova and IP have adequate short-term and
intermediate-term bank borrowing capacity.
In 1993, Standard and Poor's (S&P) published revised
standards for review of utility business and financial risks,
based in part on a subjective evaluation of such factors as
anticipated growth in service territory, industrial sales as a
proportion of total revenues, regulatory environment and nuclear
plant ownership. S&P's preliminary assessment placed IP, along
with approximately one-third of the industry, in the "below
average" category. On April 13, 1994, S&P lowered IP's mortgage
bond rating to BBB from BBB+. This action came after S&P reviewed
IP's specific business position in light of the revised standards.
In February 1994, IP redeemed $12 million of mandatorily
redeemable serial preferred stock and issued $35.6 million of
First Mortgage Bonds, 5.7% Series due 2024 (Pollution Control
Series K). In May, the proceeds of the debt issuance were used to
retire $35.6 million of First Mortgage Bonds, 11 5/8% Series due
2014 (Pollution Control Series D). In August 1994, $100 million of
8 1/2% debt securities were retired.
Illinois Power Capital, L.P., (IP Capital), is a limited
partnership in which IP serves as a general partner. IP Capital
issued $97 million of tax-advantaged monthly income preferred
securities (MIPS) at 9.45% (5.67% after-tax rate) in October
1994. The proceeds were loaned to IP and were used to redeem
$79.1 million (principal value) of higher-cost outstanding
preferred stock of IP. The excess of carrying amount of redeemed
preferred stock over consideration paid amounted to $6.4 million
which was recorded in equity and included in net income
applicable to common stock. See "Note 10 - Preferred Stock of
Subsidiary" of the "Notes to Consolidated Financial Statements"
for additional information.
In December 1994, IP issued $84.1 million of First Mortgage
Bonds, 7.4% Series due 2024 (Pollution Control Series L). In March
1995, the proceeds of the debt issuance will be used to retire
$84.1 million First Mortgage Bonds, 10 3/4% Series due 2015
(Pollution Control Series E). See "Note 9 - Long-Term Debt of
Subsidiary" of the "Notes to Consolidated Financial Statements"
for additional information.
For the years 1994, 1993 and 1992, changes in long-term debt
and IP preferred stock outstanding, including normal maturities
and elective redemptions, were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(Millions of dollars) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Bonds $ (10) $ 35 $(21)
Other long-term debt (100) - (66)
Preferred stock 6 (51) (10)
- ------------------------------------------------------------------
Total decrease $(104) $(16) $(97)
==================================================================
</TABLE>
In February 1995, 1994, 1993 and 1992, IP redeemed $12
million of mandatorily redeemable 8% serial preferred stock.
The amounts shown in the preceding table for debt retirements
do not include all mortgage sinking fund requirements. IP has
generally met these requirements by pledging property additions
as permitted under the 1943 mortgage. For additional information,
see "Note 9 - Long-Term Debt of Subsidiary" and "Note 10 -
Preferred Stock of Subsidiary" of the "Notes to Consolidated
Financial Statements." See "Note 4 - Commitments and
Contingencies" of the Notes to Consolidated Financial
Statements" for information related to coal and gas purchases,
nuclear fuel commitments and emission allowance purchases.
In 1992, the IP Board authorized a new general obligation
mortgage (New Mortgage), which is intended to replace IP's 1943
Mortgage and Deed of Trust (First Mortgage). Bonds issued under
the New Mortgage are secured by a corresponding issue of First
Mortgage bonds under the First Mortgage. At December 31, 1994,
based upon the most restrictive earnings test contained in the
First Mortgage, IP could issue approximately $691 million of
additional first mortgage bonds for other than refunding purposes.
The amount of available unsecured borrowing capacity totaled $160
million at December 31, 1994. Also at December 31, 1994, the
unused portion of Illinova and IP total bank lines of credit was
$293 million. As of December 31, 1994, IP has $120 million of
unissued debt securities and $56.5 million of unissued preferred
stock authorized by the Securities and Exchange Commission in
September 1993 and August 1993, respectively.
Construction expenditures for the years 1992 through 1994
were approximately $715.8 million, including $21.7 million of
AFUDC. Illinova estimates that $1.13 billion will be required for
construction and capital requirements during the 1995-99 period as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Five-Year Period
- ------------------------------------------------------------------
(Millions of dollars) 1995 1995-1999
- ------------------------------------------------------------------
<S> <C> <C>
Construction requirements
Electric generating facilities $82 $246
Electric transmission and
distribution facilities 70 296
General plant 28 112
Gas facilities 24 121
- ------------------------------------------------------------------
Total construction requirements 204 775
Nuclear fuel 11 107
Debt retirements - 214
Preferred stock retirements 12 36
- ------------------------------------------------------------------
Total $227 $1,132
==================================================================
</TABLE>
Construction and capital requirements are expected to be met
primarily through internal cash generation. The expenditures in
the preceding table do not include any capital expenditures for
compliance with the Clean Air Act. See "Note 4 - Commitments and
Contingencies" of the "Notes to Consolidated Financial
Statements" for additional information.
ENVIRONMENTAL MATTERS
See "Note 4 - Commitments and Contingencies" of the "Notes to
Consolidated Financial Statements" for a discussion of the Clean
Air Act and manufactured-gas plant sites.
TAX AND ACCOUNTING MATTERS
Illinova is subject to the Alternative Minimum Tax (AMT)
provisions of the Internal Revenue Code. As a result, in 1994,
1993 and 1992, federal income tax liabilities were approximately
$50 million, $27 million and $23 million, respectively, greater
than they would have been had Illinova not been subject to AMT.
As of December 31, 1994, Illinova had approximately $186 million
of AMT credit carryforwards that can be carried forward
indefinitely. This credit is available to offset regular tax
liabilities in excess of the tentative minimum tax. In 1994,
Illinova continued to utilize a portion of its tax net operating
loss carryforward. As of December 31, 1994, the balance of the
tax net operating loss carryforward was approximately $29
million.
In October 1994, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 119,
"Disclosures About Derivative Financial Instruments and Fair
Value of Financial Instruments" (FAS 119). FAS 119 requires
expanded disclosure in the consolidated financial statements
beginning with the year ended December 31, 1994.
responsibility for information
- ------------------------------
The consolidated financial statements and all information in
this annual report are the responsibility of management. The
consolidated financial statements have been prepared in
conformity with generally accepted accounting principles applied
on a consistent basis and include amounts that are based on
management's best estimates and judgments. Management also
prepared the other information in the annual report and is
responsible for its accuracy and consistency with the
consolidated financial statements. In the opinion of management,
the consolidated financial statements fairly reflect Illinova's
financial position, results of operations and cash flows.
Illinova believes that the accounting and internal accounting
control systems are maintained so that these systems provide
reasonable assurance that assets are safeguarded against loss
from unauthorized use or disposition and that the financial
records are reliable for preparing the consolidated financial
statements.
The consolidated financial statements have been audited by
Illinova's independent accountants, Price Waterhouse LLP, in
accordance with generally accepted auditing standards. Such
standards include the evaluation of internal accounting
controls to establish a basis for developing the scope of the
examination of the consolidated financial statements. In
addition to the use of independent accountants, Illinova
maintains a professional staff of internal auditors who conduct
financial, procedural and special audits. To assure their
independence, both Price Waterhouse LLP and the internal
auditors have direct access to the Audit Committee of the Board
of Directors.
The Audit Committee is composed of members of the Board of
Directors who are not active or retired employees of Illinova.
The Audit Committee meets with Price Waterhouse LLP and the
internal auditors and makes recommendations to the Board of
Directors concerning the appointment of the independent
accountants and services to be performed. Additionally, the
Audit Committee meets with Price Waterhouse LLP to discuss the
results of their annual audit, Illinova's internal accounting
controls and financial reporting matters. The Audit Committee
meets with the internal auditors to assess the internal audit
work performed, including tests of internal accounting controls.
/s/Larry D. Haab /s/Larry F. Altenbaumer
Larry D. Haab Larry F. Altenbaumer
Chairman, President Chief Financial Officer,
and Chief Executive Officer Treasurer and Controller
report of independent accountants
- ---------------------------------
PRICE WATERHOUSE LLP
To the Board of Directors
of Illinova Corporation
In our opinion, the consolidated financial statements of
Illinova Corporation and its subsidiaries appearing on pages A-11
through A31 of this report present fairly, in all material
respects, the financial position of Illinova Corporation and its
subsidiaries at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/Price Waterhouse LLP
Price Waterhouse LLP
St. Louis, Missouri
February 1, 1995
<PAGE>
<TABLE>
consolidated statements of income
- ---------------------------------
<CAPTION
(Millions of dollars
except per share amounts)
- -----------------------------------------------------------------
For the Years Ended December 31, 1994 1993 1992
<S> <C> <C> <C>
OPERATING REVENUES
Electric $1,177.5 $1,135.6 $1,117.9
Electric interchange 110.0 130.8 73.0
Gas 302.0 314.8 288.6
- -----------------------------------------------------------------
Total 1,589.5 1,581.2 1,479.5
- -----------------------------------------------------------------
OPERATING EXPENSES AND TAXES
Fuel for electric plants 266.6 235.1 248.8
Power purchased 52.6 78.5 24.0
Gas purchased for resale 172.4 187.3 171.9
Other operating expenses 260.0 269.2 271.3
Maintenance 89.6 100.8 102.1
Depreciation and amortization 175.8 163.6 155.7
General taxes 130.3 125.6 122.2
Deferred Clinton costs 3.5 9.3 11.2
Income taxes 118.3 106.5 86.2
- -----------------------------------------------------------------
Total 1,269.1 1,275.9 1,193.4
- -----------------------------------------------------------------
Operating income 320.4 305.3 286.1
- -----------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS
Allowance for equity funds
used during construction 3.8 2.7 1.5
Disallowed Clinton costs - (271.0) -
Income tax effects of disallowed costs - 70.6 -
Miscellaneous-net (9.1) (3.0) (0.6)
- -----------------------------------------------------------------
Total (5.3) (200.7) 0.9
- -----------------------------------------------------------------
Income before interest charges 315.1 104.6 287.0
- -----------------------------------------------------------------
INTEREST CHARGES
Interest on long-term debt 135.1 154.1 160.8
Other interest charges 8.8 10.8 7.8
Allowance for borrowed funds
used during construction (5.5) (4.5) (3.7)
Preferred dividend requirements
of subsidiary 24.9 26.1 28.9
- -----------------------------------------------------------------
Total 163.3 186.5 193.8
- -----------------------------------------------------------------
Net income (loss) 151.8 (81.9) 93.2
Excess of carrying amount over
consideration paid for redeemed
preferred stock of subsidiary 6.4 - -
- -----------------------------------------------------------------
Net income (loss) applicable
to common stock $158.2 ($81.9) $93.2
=================================================================
Weighted average number of common shares
outstanding during the period 75,643,937 75,643,937 75,643,937
Earnings (loss) per common share $2.09 ($1.08) $1.23
Cash dividends declared
per common share $0.65 $0.40 $1.40
Cash dividends paid per common share $0.80 $0.80 $0.80
</TABLE>
See notes to consolidated financial statements which are an
integral part of these financial statements.
<PAGE>
<TABLE>
consolidated balance sheets
- ---------------------------
<CAPTION>
(Millions of dollars)
- ------------------------------------------------------------------
December 31, 1994 1993
<S> <C> <C>
ASSETS
Utility Plant, at original cost
Electric (includes construction work
in progress of $202.8 million and
$218.7 million, respectively) $6,023.1 $5,889.4
Gas (includes construction work in
progress of $16.8 million and $18.8
million, respectively) 606.1 589.9
- ------------------------------------------------------------------
6,629.2 6,479.3
Less -- accumulated depreciation 2,102.7 1,974.6
- ------------------------------------------------------------------
4,526.5 4,504.7
Nuclear fuel in process 6.2 6.6
Nuclear fuel under capital lease 111.5 128.5
- ------------------------------------------------------------------
4,644.2 4,639.8
- ------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS 37.4 20.1
- ------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents 50.7 9.9
Accounts receivable (less allowance for doubtful
accounts of $3 million and $4
million, respectively)
Service 110.4 85.2
Other 30.5 37.5
Accrued unbilled revenue 78.9 49.0
Materials and supplies, at average cost
Fossil fuel 18.7 17.0
Gas in underground storage 23.1 23.2
Operating materials 92.1 91.4
Prepaid and refundable income taxes 11.5 14.7
Prepayments and other 23.5 17.1
- ------------------------------------------------------------------
439.4 345.0
- ------------------------------------------------------------------
DEFERRED CHARGES
Deferred Clinton costs 110.8 114.3
Recoverable income taxes 147.3 108.0
Other 197.6 196.3
- ------------------------------------------------------------------
455.7 418.6
- ------------------------------------------------------------------
$5,576.7 $5,423.5
==================================================================
CAPITAL AND LIABILITIES
CAPITALIZATION
Common stock -- No par value, 200,000,000
shares authorized; 75,643,937
shares outstanding, stated at $1,424.6 $1,424.6
Less -- Deferred compensation -- ESOP 23.5 28.2
Retained earnings (deficit) 58.8 (64.6)
Less -- Capital stock expense 9.7 10.8
- ------------------------------------------------------------------
Total common stock equity 1,450.2 1,321.0
- ------------------------------------------------------------------
Preferred stock of subsidiary 321.7 303.7
Mandatorily redeemable preferred
stock of subsidiary 36.0 48.0
Long-term debt of subsidiary 1,946.1 1,926.3
- ------------------------------------------------------------------
Total capitalization 3,754.0 3,599.0
- ------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable 108.2 128.8
Notes payable 238.8 92.3
Long-term debt and lease obligations
of subsidiary maturing within one year 33.5 187.7
Dividends declared 23.4 49.9
Taxes accrued 32.3 32.0
Interest accrued 38.4 64.6
Other 55.8 51.4
- ------------------------------------------------------------------
530.4 606.7
- ------------------------------------------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes 978.6 906.4
Accumulated deferred investment tax credits 230.9 230.5
Other 82.8 80.9
- ------------------------------------------------------------------
(Commitments and Contingencies Note 4) 1,292.3 1,217.8
- ------------------------------------------------------------------
$5,576.7 $5,423.5
==================================================================
</TABLE>
See notes to consolidated financial statements which are an
integral part of these statements.
<PAGE>
<TABLE>
consolidated statements of cash flows
- -------------------------------------
<CAPTION>
(Millions of dollars)
- ------------------------------------------------------------------
For the Years Ended December 31, 1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $151.8 ($81.9) $93.2
Items not requiring (providing) cash--
Disallowed Clinton costs,
net of income tax - 200.4 -
Depreciation and amortization 178.8 167.3 157.7
Allowance for funds used during
construction (9.3) (7.2) (5.2)
Deferred income taxes 36.4 67.9 56.6
Deferred Clinton costs 3.5 9.3 11.2
Changes in assets and liabilities --
Accounts and notes receivable (18.2) (21.3) 25.1
Accrued unbilled revenue (29.9) 42.9 (4.7)
Materials and supplies (2.3) 6.2 (2.2)
Accounts payable (20.6) 13.8 6.7
Interest accrued and other, net (21.6) (27.7) 6.4
- ------------------------------------------------------------------
Net cash provided by operating
activities 268.6 369.7 344.8
- ------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (193.7) (277.7) (244.4)
Allowance for funds used during
construction 9.3 7.2 5.2
Other investing activities (19.7) (8.2) 9.7
- ------------------------------------------------------------------
Net cash used in investing
activities (204.1) (278.7) (229.5)
- ------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends on common stock (60.5) (60.5) (60.5)
Redemptions --
Short-term debt (259.3) (254.5) (221.6)
Long-term debt of subsidiary (230.0) (832.0) (480.6)
Preferred stock of subsidiary (91.0) (94.4) (10.0)
Issuances --
Short-term debt 405.8 279.7 412.7
Long-term debt of subsidiary 119.8 866.8 269.0
Preferred stock of subsidiary 97.0 43.5 -
Premium paid on redemption of
long-term debt of subsidiary (2.8) (25.8) (14.6)
Other financing activities (2.7) (12.6) (12.0)
- ------------------------------------------------------------------
Net cash used in financing
activities (23.7) (89.8) (117.6)
- ------------------------------------------------------------------
Net change in cash and cash
equivalents 40.8 1.2 (2.3)
Cash and cash equivalents at
beginning of year 9.9 8.7 11.0
- ------------------------------------------------------------------
Cash and cash equivalents at
end of year $50.7 $9.9 $8.7
==================================================================
</TABLE>
<TABLE>
consolidated statements of retained earnings (deficit)
- ------------------------------------------------------
<CAPTION>
(Millions of dollars)
- ------------------------------------------------------------------
For the Years Ended December 31, 1994 1993 1992
<S> <C> <C> <C>
Balance (deficit) at
Beginning of Year ($64.6) $41.0 $75.8
Net Income (loss) before dividends 176.7 (55.8) 122.1
- ------------------------------------------------------------------
112.1 (14.8) 197.9
- ------------------------------------------------------------------
Less-
Dividends-
Preferred stock of subsidiary 11.1 20.1 51.6
Common Stock 48.6 29.7 105.3
Plus-
Excess of carrying amount
over consideration paid
for redeemed preferred stock of
subsidiary 6.4 - -
- ------------------------------------------------------------------
(53.3) (49.8) (156.9)
- ------------------------------------------------------------------
Balance (deficit) at End of Year $58.8 ($64.6) $41.0
==================================================================
</TABLE>
See notes to consolidated financial statements which are an
integral part of these statements.
<PAGE>
notes to consolidated financial statements
- ------------------------------------------
NOTE 1 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
- -----------------------------
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of Illinova Corporation, a holding
company, Illinois Power Company (IP), a combination electric and
gas utility, and Illinova Generating Company (IGC), a wholly owned
subsidiary that invests in energy-related projects and competes
in the independent power market. See "Note 2 - Illinova
Subsidiaries" for additional information.
IP's consolidated financial position and results of
operations are currently the principal factors affecting
Illinova's consolidated financial position and results of
operations. All significant intercompany balances and transactions
have been eliminated from the consolidated financial statements.
All non-utility operating transactions are included in the section
titled Other Income and Deductions, "Miscellaneous-net" in the
Consolidated Statements of Income. Prior year amounts have been
restated on a basis consistent with the December 31, 1994,
presentation.
REGULATION - IP is subject to regulation by the Illinois Commerce
Commission (ICC) and the Federal Energy Regulatory Commission
(FERC) and, accordingly, prepares its consolidated financial
statements based on the concepts of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation" (FAS 71), which require that the
effects of the ratemaking process be recorded. Such effects
primarily concern the time at which various items enter the
determination of net income in order to follow the principle of
matching costs and revenues. Accordingly, IP records various
regulatory assets and liabilities to reflect the actions of
regulators. Management believes that IP currently meets the
criteria for continued application of FAS 71, but will continue
to evaluate significant changes in the regulatory and
competitive environment to assess IP's overall compliance with
such criteria. These criteria include: 1) whether rates set by
regulators are designed to recover the specific costs of
providing regulated services and products to customers and; 2)
whether regulators continue to establish rates based on cost. In
the event that management determines that IP no longer meets the
criteria for application of FAS 71, an extraordinary noncash
charge to income would be recorded in order to remove the
effects of the actions of regulators from the consolidated
financial statements. The discontinuation of application of FAS
71 would likely have a material adverse effect on Illinova's and
IP's consolidated financial position and results of operations.
Illinova's principal accounting policies are:
UTILITY PLANT - The cost of additions to utility plant and
replacements for retired property units is capitalized. Cost
includes labor, materials and an allocation of general and
administrative costs, plus an allowance for funds used during
construction (AFUDC) as described below. Maintenance and repairs,
including replacement of minor items of property, are charged to
maintenance expense as incurred. When depreciable property units
are retired, the original cost and dismantling charges, less
salvage value, are charged to accumulated depreciation.
REGULATORY ASSETS - Regulatory assets include deferred Clinton
Power Station (Clinton) post-construction costs, unamortized
debt discount, premium and expense, recoverable income taxes,
deferred electric fuel and purchased gas costs and manufactured-
gas plant site cleanup costs.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION - The FERC Uniform
System of Accounts defines AFUDC as the net costs for the period
of construction of borrowed funds used for construction purposes
and a reasonable rate on other funds when so used. AFUDC is
capitalized at a rate that is related to the approximate
weighted average cost of capital. In 1994, 1993 and 1992, the
pre-tax rate used for all construction projects was 7.0%, 7.5%
and 7.5%, respectively. Although cash is not currently realized
from the allowance, it is realized under the ratemaking process
over the service life of the related property through increased
revenues resulting from a higher rate base and higher
depreciation expense.
DEPRECIATION - For financial statement purposes, IP depreciates
the various classes of depreciable property over their estimated
useful lives by applying composite rates on a straight-line basis.
In 1994, 1993 and 1992, provisions for depreciation were 2.8% of
the average depreciable cost for Clinton. Provisions for
depreciation for all other electric plant were 2.5% in 1994, 1993
and 1992. Provisions for depreciation of gas utility plant, as a
percentage of the average depreciable cost, were equivalent to 4%
in 1993 and 1992. Effective with the April 6, 1994, ICC order in
IP's gas rate case, the gas depreciation rate was lowered to 3.4%.
AMORTIZATION OF NUCLEAR FUEL - IP leases nuclear fuel from
Illinois Power Fuel Company under a capital lease. Amortization of
nuclear fuel (including related financing costs) is determined on
a unit of production basis. See "Note 4 - Commitments and
Contingencies" for discussion of decommissioning and nuclear fuel
disposal costs. A provision for spent fuel disposal costs is
charged to fuel expense based on kilowatt-hours generated.
DEFERRED CLINTON COSTS - In accordance with an ICC order in April
1987, IP began deferring certain Clinton post-construction
operating and financing costs until rates to reflect such costs
became effective (April 1989). After issuance of the March 1989
ICC rate order, deferral of Clinton post-construction costs
ceased and amortization of the previously deferred post-
construction costs over a 37.5-year period commenced. Although
cash is not currently realized from these deferrals, it is
realized under the ratemaking process over the service life of
Clinton through increased revenues resulting from a higher rate
base and higher amortization expense. See "Note 3 - Clinton
Power Station" for additional information.
UNAMORTIZED DEBT DISCOUNT, PREMIUM AND EXPENSE - Discount,
premium and expense associated with long-term debt are amortized
over the lives of the related issues. Costs related to refunded
debt are amortized over the lives of the related new debt issues
or the remaining life of the old debt if no new debt is issued.
REVENUE AND ENERGY COST - IP records revenue for services provided
but not yet billed to more closely match revenues with expenses.
Unbilled revenues represent the estimated amount customers will
be billed for service delivered from the time meters were last
read to the end of the accounting period. Operating revenues
include related taxes that have been billed to customers in the
years 1994, 1993 and 1992 in the amount of $66 million, $65
million and $61 million, respectively. The cost of fuel for the
generation of electricity, purchased power and gas purchased for
resale is recovered from customers pursuant to the electric fuel
and purchased gas adjustment clauses. Accordingly, allowable
energy costs that are to be passed on to customers in a
subsequent accounting period are deferred. The recovery of costs
deferred under these clauses is subject to review and approval by
the ICC.
On April 6, 1994, the ICC approved an increase of $18.9
million, or 6.1%, in IP's natural gas base rates. The increase
will be partially offset by savings from lower gas costs
resulting from the expansion of the Hillsboro gas storage field.
The approved authorized rate of return on rate base is 9.29%,
with a rate of return on common equity of 11.24%.
INCOME TAXES - Under Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (FAS 109), deferred tax
assets and liabilities are recognized for the tax consequences
of transactions that have been treated differently for financial
reporting and tax return purposes, measured on the basis of the
statutory tax rates. In accordance with FAS 71, a regulatory
asset (Recoverable income taxes) has been recorded representing
the probable recovery from customers of additional deferred
income taxes established under FAS 109.
Investment tax credits used to reduce federal income taxes
have been deferred and are being amortized to income over the
"service life" of the property that gave rise to the credits.
Illinova and its subsidiaries file a consolidated federal income
tax return. Income taxes are allocated to the individual companies
based on their respective taxable income or loss. See "Note 7 -
Income Taxes" for additional discussion.
PREFERRED DIVIDEND REQUIREMENTS OF SUBSIDIARY - Preferred dividend
requirements of IP reflected in the consolidated income
statements are recorded on the accrual basis and relate to the
period for which the dividends are applicable.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Cash and cash equivalents
include cash on hand and temporary investments purchased with an
initial maturity of three months or less. Capital lease
obligations not affecting cash flow increased by $28 million, $27
million and $14 million during 1994, 1993 and 1992, respectively.
Income taxes and interest paid are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
- ------------------------------------------------------------------
(Millions of dollars) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes $ 71.1 $ 26.0 $ 27.5
Interest $165.9 $166.4 $177.3
==================================================================
</TABLE>
The increase in income taxes paid from 1993 to 1994 was due
to an increase in taxable income and the settlement of an IRS
audit. The results of the settlement did not have a material
effect on Illinova's or IP's consolidated financial position or
results of operations. See "Note 7 - Income Taxes" for
additional information.
SALE OF ACCOUNTS RECEIVABLE AND ACCRUED UNBILLED REVENUE - In June
1993, IP entered an agreement for the sale of an undivided
interest in a designated pool of IP's accounts receivable and
accrued unbilled revenue up to a maximum of $50 million. At
December 31, 1993, $15 million of accounts receivable and $35
million of accrued unbilled revenue had been sold. In December
1994, IP bought back all of the accounts receivable and accrued
unbilled revenue that were sold under the agreement. All costs
associated with the agreement have been reflected in Other
Income and Deductions, "Miscellaneous-net," on Illinova's
Consolidated Statements of Income.
FORWARD CONTRACTS - Realized and unrealized gains and losses on
forward contracts held as hedges of interest rate exposure are
deferred and recognized as interest expense over the lives of
the hedged liabilities.
INTEREST RATE CAP - Premiums paid for the purchased interest rate
cap agreement are being amortized to interest expense over the
terms of the cap. Unamortized premiums are included in Deferred
Charges, "Other" in the Consolidated Balance Sheets. Amounts
received under the cap agreement are recognized as a reduction
in interest expense.
NOTE 2 ILLINOVA SUBSIDIARIES
- ----------------------------
On May 27, 1994, Illinova Corporation (Illinova), a holding
company, was officially formed with the filing of documents with
the Illinois Secretary of State. Illinova became the parent of
IP pursuant to a share-for-share conversion of IP common stock
into Illinova common stock. On June 8, 1994, IGC (formerly IP
Group, Inc.), originally a subsidiary of IP, was transferred as
a dividend in the amount of $9.2 million from IP to Illinova,
effectively establishing IGC as a wholly owned subsidiary of
Illinova. IP, the primary business and subsidiary of Illinova, is
engaged in the generation, transmission, distribution and sale of
electric energy and the distribution, transportation and sale of
natural gas in the State of Illinois.
IGC is Illinova's wholly owned independent power subsidiary
which invests in energy supply projects throughout the world and
competes in the independent power market. In 1993, IGC invested
in a co-generation project in Teesside, England. During 1994,
IGC became an equity partner with Tenaska, Inc., in four natural
gasfired generation plants, two of which are in operation and
two of which are under construction. Tenaska, Inc. is an Omaha,
Nebraska-based developer of independent power projects throughout
the U.S. In August 1994, IGC purchased 50 percent of the North
American Energy Services Company (NAES). NAES supplies a broad
range of operations, maintenance and support services to the
worldwide independent power generation industry and will operate
the Tenaska generation plants in which IGC purchased an equity
interest. In November 1994, IGC became an equity partner in an
operating diesel engine-powered generating plant in Puerto
Cortez, Honduras.
At December 31, 1994, Illinova's net investment in IGC is
$28.8 million.
IP provided approximately $20 million in funds to Illinova
for operations and investments during 1994. Illinova is paying IP
interest on these funds at a rate equal to that which Illinova
would have paid had it used a currently outstanding line of
credit.
NOTE 3 CLINTON POWER STATION
- ----------------------------
IP and Soyland Power Cooperative, Inc. (Soyland) share
ownership of Clinton, with IP owning 86.8% and Soyland owning
13.2%. IP's ownership percentage is reflected in utility plant
(at original cost) and in accumulated depreciation in the
Consolidated Balance Sheets. Clinton was placed in service in
1987 and represents approximately 18% of IP's installed
generation capacity. The investment in Clinton and its related
deferred costs represented approximately 52% of Illinova's total
assets at December 31, 1994. IP's 86.8% share of Clinton-related
costs represented 32% of Illinova's total 1994 other operating,
maintenance and depreciation expenses. Clinton's equivalent
availability was 92%, 73% and 62% for 1994, 1993 and 1992,
respectively. Clinton's equivalent availability was higher in
1994 due to no refueling outage.
Ownership of an operating nuclear generating unit exposes IP
to significant risks, including increased and changing regulatory,
safety and environmental requirements and the uncertain future
cost of closing and dismantling the unit. IP expects to be
allowed to continue to operate Clinton; however, if any
unforeseen or unexpected developments would prevent IP from
doing so, Illinova and IP could be materially adversely
affected. See "Note 4 Commitments and Contingencies" for
additional information.
RATE AND REGULATORY MATTERS
1992 RATE ORDER - A September 1993 decision by the Illinois
Appellate Court, Third District (Appellate Court Decision),
upheld key components of the August 1992 Rehearing Order
(Rehearing Order) issued by the ICC. The Rehearing Order denied
IP recovery of certain deferred Clinton post-construction costs,
which were composed of all deferred depreciation and real estate
taxes and 72.8% of the deferred common equity return.
IP originally recorded these deferred Clinton post-
construction costs as a regulatory asset when such costs were
believed probable of recovery through future rates, based on prior
ICC orders. The deferred costs were recorded from the time Clinton
began operations (April 1987) to the time the ICC allowed IP to
begin recovering these deferred costs in rates (March 1989),
otherwise known as the regulatory lag period.
Based upon IP's assessment of the Appellate Court Decision
and in accordance with FAS 71, IP recorded a loss of $271 million
($200 million or $2.65 per share, net of income taxes) in
September 1993. This write-off included revenues and related
interest of approximately $8.9 million to be refunded for
deferred costs included in electric rates between April 1992 and
August 1992, which were disallowed by the Rehearing Order.
The Appellate Court Decision remanded the case to the ICC for
further proceedings to determine the amount of actual financial
harm incurred by IP during the regulatory lag period. The
decision also remanded the case for verification of the
calculation of the amortization of deferred Clinton post-
construction costs from March 1989 to June 1992.
On February 25, 1994, IP and the remaining parties to this
case presented a joint motion to the Appellate Court requesting
entry of an order remanding the case to the Commission for further
proceedings in accordance with a stipulated agreement of the
parties. The Appellate Court granted the joint motion on March
2, 1994. On March 16, 1994, the ICC issued an order on remand
that did not result in any change in IP's rates from those
adopted in the Rehearing Order. The order on remand required IP
to refund $8.9 million of revenue that had been collected
between April and August 1992 subject to refund. The refunds
began in March 1994 and were completed in October 1994.
1987 UNIFORM FUEL ADJUSTMENT CLAUSE RECONCILIATION - In January
1994, the ICC issued an order on remand consistent with an
Illinois Appellate Court, Third District, decision which held
that evidence did not support the findings in a February 1992
ICC order that IP incurred $29.3 million in imprudent nuclear
fuel procurement and management costs. As a result of the
Appellate Court decision and subsequent related ICC orders, IP
is in the process of recovering approximately $12.7 million of
nuclear fuel costs, which will not have an impact on
consolidated results of operations.
NOTE 4 COMMITMENTS AND CONTINGENCIES
- ------------------------------------
COMMITMENTS - Estimated construction requirements in 1995 are $204
million, which includes $152 million for electric facilities,
$24 million for gas facilities and $28 million for general
plant. The five-year construction program for 1995 through 1999
is estimated to be $775 million. These expenditures do not
include capital expenditures for compliance with the Clean Air
Act, as discussed below.
In addition, IP has substantial commitments for the purchase
of coal under long-term contracts. Coal contract commitments for
1995 through 1999 are estimated to be $779 million (excluding
price escalation provisions). Total coal purchases for 1994, 1993
and 1992 were $191 million, $184 million and $186 million,
respectively. IP has existing contracts with various natural gas
suppliers and interstate pipelines to provide natural gas supply,
transportation and leased storage. Committed natural gas,
transportation and leased storage costs (including pipeline
transition costs) for 1995 through 1999 are estimated to total $75
million. Total natural gas purchased for 1994, 1993 and 1992 was
$168 million, $188 million and $184 million, respectively. IP's
share of nuclear fuel commitments for Clinton is approximately $22
million for uranium concentrates through 1998, $8.4 million for
conversion through 2002, $51 million for enrichment through 1999
and $164 million for fabrication through 2017. IP has commitments
for emission allowances through 1999 estimated at $101 million. It
is anticipated that all of these costs will be recoverable under
IP's electric fuel and purchased gas adjustment clauses, if
found by the ICC to be prudently incurred.
INSURANCE - IP maintains insurance on behalf of IP and Soyland
for certain losses involving the operation of Clinton. One
insurance program provides coverage for physical damage to the
plant. Based upon a review of this insurance, IP has reduced its
limits from $2.7 billion to $1.6 billion effective December 15,
1994. IP's insurance program has two layers: 1) a primary layer of
$500 million provided by nuclear insurance pools; and 2) an excess
coverage layer of $1.1 billion provided by an industry-owned
mutual insurance company. In the event of an accident with an
estimated cost of reactor stabilization and site decontamination
exceeding $100 million, Nuclear Regulatory Commission (NRC)
regulations require that insurance proceeds be dedicated and
used first to return the reactor to, and maintain it in, a safe
and stable condition. After providing for stabilization and
decontamination, the insurers would then cover property damage
up to a total payout of $1.38 billion. Second, the NRC requires
decontamination of the reactor and reactor station site in
accordance with a plan approved by the NRC. The insurers would
provide up to $220 million to cover decommissioning costs in
excess of funds already collected for decommissioning, as
discussed later. In the event insurance limits are not
exhausted, the excess coverage may also be applied to a portion
of the value of the undamaged property. In addition, while IP
has no reason to anticipate a serious nuclear accident at
Clinton, if such an incident should occur, the claims for
property damage and other costs could materially exceed the
limits of current or available insurance coverage. IP also
carries approximately $.9 million per week of business
interruption insurance coverage for its ownership share of
Clinton through the industry-owned mutual insurance company in
the event of an extended shutdown of Clinton due to accidental
property damage. This insurance does not provide coverage until
Clinton has been out of service for 21 weeks. Thereafter, the
insurance provides up to 156 weeks of coverage.
Multiple major losses covered under the current property
damage and business interruption insurance coverages involving
Clinton or other stations insured by the industry-owned mutual
insurance company could result in retrospective premium
assessments of up to approximately $13 million. About $12 million
of this assessment is subject to the ownership interest in Clinton
between IP and Soyland.
All United States nuclear power station operators are subject
to the Price-Anderson Act. Under that Act, public liability for a
nuclear incident is currently limited to $8.9 billion. Coverage
of the first $200 million is provided by private insurance.
Excess coverage is provided by retrospective premium assessments
against each licensed nuclear reactor in the United States.
Currently, the liability to these reactor operators/owners for
such an assessment would be up to $79.3 million per incident,
not including premium taxes which may be applicable, payable in
annual installments of not more than $10 million.
A Master Worker Policy covers worker tort claims alleging
bodily injury, sickness or disease as a result of initial
radiation exposure occurring on or after January 1, 1988. The
policy has an aggregate limit of $200 million applying to the
commercial nuclear industry as a whole. As claims are paid under
the policy, there is a provision for automatic reinstatement of
policy limits up to an additional $200 million. There is also a
provision for retrospective assessment of additional premiums if
claims exceed funds available in the insurance company's reserve
accounts. The maximum retrospective premium assessment for this
contingency is approximately $3 million and may be subject to
state premium taxes. Any retrospective premium assessments
pertaining to the Master Worker Policy or the Price-Anderson Act
are subject to the ownership interest in Clinton between IP and
Soyland.
IP may be subject to other risks which may not be insurable,
or the amount of insurance carried to offset the various risks may
not be sufficient to meet potential liabilities and losses. There
is also no assurance that IP will be able to maintain insurance
coverages at their present levels. Under those circumstances, such
losses or liabilities would have a substantial adverse effect on
Illinova's and IP's consolidated financial position.
DECOMMISSIONING AND NUCLEAR FUEL DISPOSAL - Costs IP is
responsible for its ownership share of the costs of
decommissioning Clinton and for spent nuclear fuel disposal
costs. IP is collecting future decommissioning costs through its
rates based on an ICC-approved formula that allows IP to adjust
rates annually for changes in decommissioning cost estimates.
Based on NRC regulations that establish a minimum funding
level, IP's 86.8% share of Clinton decommissioning costs is
estimated to be approximately $357 million (1994 dollars). The NRC
minimum is based only on the cost of removing radioactive plant
structures. A site-specific study to estimate the costs of
dismantlement, removal and disposal of Clinton has not been made;
however, IP plans to undertake this study in 1995. This study may
result in projected decommissioning costs higher than the NRC-
specified funding level. At December 31, 1994 and 1993, IP had
recorded a liability of $22.4 million and $17.2 million,
respectively, for the future decommissioning of Clinton.
External decommissioning trusts, as prescribed under Illinois
law and authorized by the ICC, have been established to accumulate
funds based on the expected service life of the plant for the
future decommissioning of Clinton. For the years 1994, 1993 and
1992, IP has contributed $5.5 million, $3.9 million and $3.7
million, respectively, to its external nuclear decommissioning
trust funds. The balances in these nuclear decommissioning funds
at December 31, 1994 and 1993, were $22.4 million and $17.2
million, respectively. IP recognizes earnings and expenses from
the trust funds as changes in its assets and liabilities relating
to these funds. In November 1994, the ICC granted IP permission to
invest up to 60% of the nuclear decommissioning trust assets in
selected equity securities. As a result, funding in this manner
commenced with an initial investment in December 1994. Future
contributions will be directed to this asset class until the
approved equity allocation is reached.
The Securities and Exchange Commission (SEC) staff has
questioned certain current accounting practices of the electric
utility industry, including those practices used by IP,
regarding the recognition, measurement and classification of
decommissioning costs for nuclear generating stations in
financial statements. In response to these questions, the FASB
has agreed to review the accounting for removal costs of nuclear
generating stations, including decommissioning. If current
electric utility industry accounting practices for such
decommissioning are changed: 1) annual provisions for
decommissioning could increase; 2) the estimated total cost for
decommissioning could be recorded as a liability; and 3) trust
fund income from the external decommissioning trusts could be
reported as investment income rather than as a reduction to
decommissioning expense. Although it is too early to determine
whether any changes to current electric utility industry
accounting practices for decommissioning will be adopted, IP
believes that based on current information, any required changes
would not have an adverse effect on results of operations due to
existing and anticipated future ability to recover
decommissioning costs through rates.
In 1992, the ICC entered an order in which it expressed
concern that IP take all reasonable action to ensure that Soyland
contributes its ownership share of the current or any revised
estimate of decommissioning costs. The order also states that if
IP becomes liable for decommissioning expenses attributable to
Soyland, the ICC will then decide whether that expense should be
the responsibility of IP stockholders or its customers.
Under the Energy Policy Act of 1992, IP is responsible for a
portion of the cost to decontaminate and decommission the U.S.
Department of Energy's (DOE) uranium enrichment facilities.
Based on quantities purchased from the DOE facilities prior to
passage of the Act, each utility is being assessed an annual fee
for a period of 15 years. At December 31, 1994, IP has a
remaining liability of $5.7 million representing future
assessments. IP is recovering these costs, as amortized, through
its fuel adjustment clause.
Under the Nuclear Waste Policy Act of 1982, the DOE is
responsible for the permanent storage and disposal of spent
nuclear fuel. The DOE currently charges one mill ($0.001) per
net kilowatt-hour (one dollar per MWH) generated and sold for
future disposal of spent fuel. IP is recovering these charges
through rates.
ENVIRONMENTAL MATTERS
CLEAN AIR ACT - In August 1992, IP announced that it had suspended
construction of two scrubbers at the Baldwin Power Station, on
which IP had expended approximately $34.6 million. IP has
recovered approximately $3.1 million as a result of the sale of
excess materials that were not used on the project. After
suspending scrubber construction, IP reconsidered its
alternatives for complying with Phase I of the 1990 Clean Air
Act Amendments. In March 1993, IP announced its compliance plan
for Phase I (19951999) of the Clean Air Act, which is to
continue using high-sulfur Illinois coal and acquire emission
allowances to comply with the Clean Air Act requirements. An
emission allowance is the authorization by the United States
Environmental Protection Agency (U.S.EPA) to emit one ton of
sulfur dioxide. The ICC approved IP's Phase I Clean Air Act
compliance plan in September 1993, and IP is continuing to
implement that plan. Sufficient emission allowances have been
acquired to meet anticipated needs for 1995. IP will be active in
the emissions allowance market in order to meet requirements for
allowances in 1996 and beyond. In 1993, the Illinois General
Assembly passed and the governor signed legislation authorizing
but not requiring the ICC to permit expenditures and revenues from
emission allowance purchases and sales to be reflected in rates
charged to customers as a cost of fuel. In December 1994, the ICC
approved the recovery of emission allowance costs through the
Uniform Fuel Adjustment Clause. IP's compliance plan will defer,
until at least 2000, any need for scrubbers or other capital
projects associated with sulfur dioxide emission reductions.
Additional actions and capital expenditures will be required by IP
to achieve compliance with the Phase II (2000 and beyond) sulfur
dioxide emission requirements of the Clean Air Act.
IP planned to comply with the Phase I nitrogenoxide emission
reduction requirements of the acid rain provisions of the Clean
Air Act by installing low-nitrogen-oxide (NOx) burners at Baldwin
Unit 3. On November 29, 1994, the U.S. Appellate Court remanded
the Phase I NOx rules back to the U.S.EPA. IP is positioned to
comply with the previously established rules and does not expect
the new rules to be any more stringent. Therefore, the Court's
decision is not expected to have a material impact on IP's
compliance activity.
Additional capital expenditures are anticipated prior to 2000
to comply with the Phase II nitrogen-oxide requirements, as well
as potential requirements to further reduce nitrogen-oxide
emissions from IP plants to help achieve compliance with air
quality standards in the St. Louis and/or Chicago metropolitan
areas. IP has installed continuous emission monitoring systems
at its major generating stations, as required by the acid rain
provisions of the Clean Air Act.
In July 1993, the Alliance for Clean Coal (Alliance), a
coalition of Western coal producers and railroads, filed suit
against the ICC in the U.S. District Court in Chicago. The
Alliance sought a declaration that an Illinois statute regarding
the filing with and approval by the ICC of utility Clean Air Act
compliance plans, including provisions on the construction of
scrubbers or other devices to facilitate continued use of high-
sulfur Illinois coal as a fuel, is unconstitutional. In December
1993, the U.S. District Court issued an opinion and an order in
ALLIANCE FOR CLEAN COAL VS. ELLEN CRAIG, ET AL. declaring the
statute unconstitutional. The order prohibits the ICC from
enforcing the statute, and declares void compliance plans
prepared and approved in reliance on the statute. Subsequent to
that decision, IP filed its plan with the ICC, not for approval
as it believes no approval of the plan is required, but as a
supplement to informational filings made in a pending least-cost
plan proceeding. The ICC concluded in its final order that IP's
compliance plan represented the least-cost option for
compliance. On January 9, 1995, the Seventh Circuit Court of
Appeals affirmed the U.S. District Court decision.
MANUFACTURED-GAS PLANT (MGP) SITES - IP, through its predecessor
companies, was identified on a State of Illinois list as the
responsible party for potential environmental impairment at 24
former manufactured-gas plant sites. IP is investigating each of
the sites to determine: 1) the type and amount of residues
present; 2) whether the residues constitute environmental or
health hazards and, if present, their extent; and 3) whether IP
has any responsibility for remedial action. Because of the unknown
and unique characteristics of each site (such as amount and type
of residues present, physical characteristics of the site and the
environmental risk) and uncertain regulatory requirements, IP is
not able to determine its ultimate liability for the
investigation and remediation of the 24 sites. However, at
December 31, 1994, IP had estimated and recorded a minimum
liability of $35 million. In 1994, IP spent approximately $1.3
million for investigation and remediation activities. IP is
unable to determine at this time what portion of these costs, if
any, will be eligible for recovery from insurance carriers or
other potentially responsible parties. In addition, IP is unable
to determine the time frame over which these costs may be paid
out. IP has recorded a regulatory asset in the amount of $35
million, reflecting management's expectation that investigation
and remediation costs for the manufactured-gas plant sites will
be recovered from customers or insurers.
In September 1992, the ICC issued a generic order concluding
that utilities will be allowed to collect from customers MGP
remediation costs paid to third parties, subject to prudency
evaluation. The order allowed recovery of such prudently incurred
costs over a five-year period but with no recovery from customers
of carrying costs on the unrecovered balance.
IP is currently recovering MGP site cleanup costs from its
customers through a tariff rider approved by the ICC in April
1993. In February 1994, an intervening consumer group appealed
the September 1992 ICC order and an affirming December 1993
Appellate Court decision to the Illinois Supreme Court, arguing
that utilities should not be permitted to recover MGP cleanup
costs from customers or should not be permitted to recover such
costs through riders. IP and other utilities have also appealed
to the Illinois Supreme Court seeking to include carrying costs
on the unrecovered balance of cleanup costs through the tariff
rider. The Illinois Supreme Court agreed to hear both appeals,
and briefing and oral arguments were held in September 1994.
Management believes that the final disposition of these appeals
will not have a material adverse effect on Illinova's or IP's
consolidated financial position or results of operations.
ELECTRIC AND MAGNETIC FIELDS - The possibility that exposure to
electric and magnetic fields (EMF) emanating from power lines,
household appliances and other electric sources may result in
adverse health effects continues to be the subject of litigation
and governmental, medical and media attention. Litigants have also
claimed that EMF concerns justify recovery from utilities for the
loss in value of real property exposed to power lines, substations
and other such sources of EMF. Scientific research worldwide has
produced conflicting results, and no conclusive evidence that
electric and/or magnetic field exposure causes adverse health
effects. Research is continuing to resolve scientific
uncertainties. It is too soon to tell what, if any, impact
these actions may have on Illinova's or IP's consolidated
financial position.
LEGAL PROCEEDINGS
Illinova and IP are involved in legal or administrative
proceedings before various courts and agencies with respect to
matters occurring in the ordinary course of business, some of
which involve substantial amounts of money. Management believes
that the final disposition of these proceedings will not have a
material adverse effect on consolidated financial position or
results of operations.
OTHER
IP sells electric energy and natural gas to residential,
commercial and industrial customers throughout Illinois. At
December 31, 1994, 60%, 21% and 19% of accounts receivable were
from residential, commercial and industrial customers,
respectively. IP maintains reserves for potential credit losses
and such losses have been within management's expectations.
NOTE 5 LINES OF CREDIT
AND SHORT-TERM LOANS
- ----------------------
IP has total lines of credit represented by bank commitments
amounting to $250 million, all of which were unused at December
31, 1994. The weighted average borrowings for 1994 were $1.1
million at a weighted average interest rate of 3.7%. These lines
of credit are renewable in July 1995 and September 1996. These
bank commitments support the amount of commercial paper
outstanding at any time, limited only by the amount of unused
bank commitments, and are available to support other IP
activities.
IP pays facility fees up to 0.25% per annum, on $250
million of the total line of credit, regardless of usage. The
interest rate on borrowings under these agreements is, at IP's
option, based upon the lending banks' reference rate, their
Certificate of Deposit rate, the borrowing rate of key banks in
the London interbank market or competitive bid.
IP has letters of credit totaling $204.8 million and pays
fees up to 0.55% per annum on the unused amount of credit.
In addition, IP has short-term financing options to obtain
funds not to exceed $80 million. IP pays no fees for these
uncommitted facilities and funding is subject to availability
upon request.
For the years 1994, 1993 and 1992, IP had short-term
borrowings consisting of bank loans, commercial paper,
extendible floating rate notes and other short-term debt
outstanding at various times as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(Millions of dollars, except rates) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31
Short-term borrowings $238.8 $ 92.3 $ 67.1
Weighted average interest
rate at December 31 6.2% 3.5% 3.8%
Maximum amount outstanding
at any month end $238.8 $123.7 $181.9
Average daily borrowings
outstanding during the year $165.4 $ 85.0 $115.1
Weighted average interest
rate during the year 4.6% 3.5% 4.0%
- ------------------------------------------------------------------
</TABLE>
Illinova has total lines of credit represented by bank
commitments amounting to $43 million, all of which were unused at
December 31, 1994.
Illinova and IP have only limited involvement with derivative
financial instruments and do not use them for trading purposes.
They are used to manage well-defined interest rate risks arising
out of core activities without the use of leverage and without
risk to principal.
Interest rate cap agreements are used to reduce the potential
impact of increases in interest rates on floating-rate
commercial paper. In 1994, IP entered a five-year variable rate
interest rate cap agreement covering up to $140 million of
commercial paper. The agreement entitles IP to receive from a
counterparty on a monthly basis the amount, if any, by which
IP's interest payments on a nominal amount of commercial paper
exceed the interest rate set by the cap. At December 31, 1994,
the cap rate was set at 5.0% while the current market rate
available to IP was 6.125%.
NOTE 6 FACILITIES AGREEMENTS
- ----------------------------
IP and Soyland share ownership of Clinton, with IP owning
86.8% and Soyland owning 13.2%. Agreements between IP and Soyland
provide that IP has control over construction and operation of
the generating station, that the parties share electricity
generated in proportion to their ownership interests and that IP
will have certain obligations to provide replacement power to
Soyland if IP ceases to operate or reduces output from Clinton.
Under the provisions of a Power Coordination Agreement (PCA)
between Soyland and IP dated October 5, 1984, as amended, IP was
required to provide Soyland with 8.0% (288 megawatts) of
electrical capacity from its fossil-fueled generating plants
through 1994. This requirement will increase to 12% in 1995 and
each year thereafter until the agreement expires or is
terminated. This is in addition to the capacity Soyland receives
as an owner of Clinton. IP is compensated with capacity charges
and for energy costs and variable operating expenses. IP
transmits energy for Soyland through IP's transmission and
subtransmission systems. Under provisions of the PCA, Soyland
has the option of participating financially in major capital
expenditures at the fossil-fueled plants, such as those needed
for Phase II Clean Air Act compliance, to the extent of its
capacity entitlement with each party bearing its own direct
capital costs, or by having the costs treated as plant additions
and billed to Soyland in accordance with other billing
provisions of the PCA. See "Note 4 - Commitments and
Contingencies" for discussion of the Clean Air Act. At any time
after December 31, 2004, either IP or Soyland can terminate the
PCA by giving not less than seven years' prior written notice to
the other party. The party to whom termination notice has been
given may designate an earlier effective date of termination
which shall be not less than twelve months after receiving
notice.
NOTE 7 INCOME TAXES
- -------------------
Deferred tax assets and liabilities were composed of the
following:
<TABLE>
<CAPTION>
Balance as of December 31,
- ------------------------------------------------------------------
(Millions of dollars) 1994 1993
- ------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
- ------------------------------------------------------------------
Current:
Misc. book/tax recognition differences $ 19.7 $ 25.6
- ------------------------------------------------------------------
Noncurrent:
Depreciation and other property related 52.6 56.3
Alternative minimum tax 186.0 131.0
Tax credit and net operating loss
carryforward 27.6 111.9
Unamortized investment tax credit 122.0 129.1
Misc. book/tax recognition differences 57.0 17.5
- ------------------------------------------------------------------
445.2 445.8
- ------------------------------------------------------------------
Total deferred tax assets $464.9 $471.4
==================================================================
Deferred Tax Liabilities:
- ------------------------------------------------------------------
Current:
Misc. book/tax recognition differences $ 8.2 $ 10.9
- ------------------------------------------------------------------
Noncurrent:
Depreciation and other property related 1,252.0 1,187.3
Deferred Clinton costs 62.1 64.0
Misc. book/tax recognition differences 109.7 100.9
- ------------------------------------------------------------------
1,423.8 1,352.2
- ------------------------------------------------------------------
Total deferred tax liabilities $1,432.0 $1,363.1
==================================================================
</TABLE>
Income taxes included in the Consolidated Statements of
Income consist of the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------
(Millions of dollars) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes -
Included in operating
expenses and taxes $ 58.3 $ 25.3 $ 22.9
- ------------------------------------------------------------------
Total current taxes 58.3 25.3 22.9
- ------------------------------------------------------------------
Deferred taxes -
Included in operating
expenses and taxes
Property related differences 60.0 72.3 73.2
Alternative minimum tax (50.4) (31.8) (31.4)
Gain/loss on reacquired debt - 16.5 4.8
Take-or-pay charges - .3 2.3
Net operating loss carryforward 62.0 22.8 18.3
Internal Revenue Service
interest on tax issues 7.5 (1.9) .7
Misc. book/tax recognition
differences (7.8) 3.8 (4.1)
Included in other income
and deductions
Property related differences 10.0 6.0 9.2
Net operating loss carryforward (17.4) (15.4) (15.5)
Misc. book/tax recognition
differences (.7) (2.5) .4
Disallowed Clinton costs - (62.2) -
- ------------------------------------------------------------------
Total deferred taxes 63.2 7.9 57.9
- ------------------------------------------------------------------
Deferred investment tax credit - net
Included in operating
expenses and taxes (11.3) (.8) (.5)
Included in other income
and deductions (.3) (.7) (.8)
Disallowed investment tax credit - (8.4) -
- ------------------------------------------------------------------
Total investment tax credit (11.6) (9.9) (1.3)
- ------------------------------------------------------------------
Total income taxes $109.9 $23.3 $79.5
==================================================================
</TABLE>
The reconciliations of income tax expense to amounts computed
by applying the statutory tax rate to reported pretax
results for the period are set forth below:
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------------------------
(Millions of dollars) 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense at the
federal statutory tax rate $91.6 $(20.5) $58.7
Increases/(decreases) in taxes
resulting from -
State taxes, net of federal effect 13.8 5.8 11.3
Investment tax credit -
amortization (7.8) (8.8) (8.4)
Depreciation not normalized 4.3 7.1 9.4
Preferred dividend requirement
of subsidiary 8.7 9.1 9.8
Disallowed Clinton costs
(including ITC) - 27.4 -
Other-net (.7) 3.2 (1.3)
- ------------------------------------------------------------------
Total income taxes $109.9 $ 23.3 $ 79.5
==================================================================
</TABLE>
Combined federal and state effective income tax rates
were 42%, (39.8%) and 46% for the years 1994, 1993 and 1992,
respectively. The negative effective tax rate for 1993 is a
result of the loss recorded by IP due to the Rehearing Order
which denied IP recovery of certain deferred Clinton costs. The
1993 effective tax rate excluding the effect of this loss was
44.2%. At December 31, 1994, Illinova had approximately $29
million of federal income tax net operating loss carryforwards
to offset future taxable income. Approximately $15 million of
these carryforwards expire in 2006, $12 million expire in 2007
and $2 million expire in 2008.
Illinova is subject to the provisions of the Alternative
Minimum Tax System (AMT). As a result, Illinova has an alternative
minimum tax credit carryforward at December 31, 1994, of
approximately $186 million. This credit can be carried forward
indefinitely to offset future regular income tax liabilities in
excess of the tentative minimum tax.
The Internal Revenue Service (IRS) has completed its audit of
IP's federal income tax returns for the years 1986 through
1988. IP and the IRS have reached
an agreement on all audit issues. The results of the agreement
did not have a material effect on Illinova's or IP's
consolidated financial position or results of operations.
NOTE 8 CAPITAL LEASES
- ---------------------
Illinois Power Fuel Company (Fuel Company), which is 50%
owned by IP, was formed in 1981 for the purpose of leasing nuclear
fuel to IP for Clinton. Lease payments are equal to the Fuel
Company's cost of fuel as consumed (including related financing
and administrative costs). Billings under the lease agreement
during 1994, 1993 and 1992 were $52 million, $45 million and $43
million, respectively, including financing costs of $7 million, $6
million and $8 million, respectively. IP is obligated to make
subordinated loans to the Fuel Company at any time the obligations
of the Fuel Company that are due and payable exceed the funds
available to the Fuel Company. IP has an obligation for nuclear
fuel disposal costs of leased nuclear fuel. See "Note 4 -
Commitments and Contingencies" for discussion of decommissioning
and nuclear fuel disposal costs. Nuclear fuel lease payments are
included with fuel for electric plants on Illinova's Consolidated
Statements of Income.
At December 31, 1994 and 1993, current obligations under
capital lease for nuclear fuel are $33.3 million and $41.6
million, respectively. Over the next five years estimated payments
under capital leases are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(Millions of dollars)
- ------------------------------------------------------------------
<S> <C>
1995 $39.2
1996 34.6
1997 26.7
1998 13.0
1999 8.5
Thereafter 2.9
- ------------------------------------------------------------------
124.9
Less: Interest 13.4
- ------------------------------------------------------------------
Total $111.5
==================================================================
</TABLE>
<PAGE>
NOTE 9 LONG-TERM DEBT OF SUBSIDIARY
- -----------------------------------
<TABLE>
<CAPTION>
(Millions of dollars)
- --------------------------------------------------------------------------------
December 31, 1994 1993
<S> <C> <C>
First mortgage bonds--
5.85% series due 1996 $ 40.0 $40.0
6 1/2% series due 1999 72.0 72.0
6.60% series due 2004 (Pollution Control 7.0 7.2
Series A)
9 7/8% series due 2004 - 10.0
7.95% series due 2004 72.0 72.0
6% series due 2007 (Pollution Control Series B) 18.7 18.7
11 5/8% series due 2014 (Pollution Control - 35.6
Series D)
10 3/4% series due 2015 (Pollution Control - 84.1
Series E)
7 5/8% series due 2016 (Pollution Control 150.0 150.0
Series F, G and H)
8.30% series due 2017 (Pollution Control 33.8 33.8
Series I)
7 3/8% series due 2021 (Pollution Control 84.7 84.7
Series J)
8 3/4% series due 2021 125.0 125.0
5.7% series due 2024 (Pollution Control Series K) 35.6 -
7.4% series due 2024 (Pollution Control Series L) 84.1 -
- --------------------------------------------------------------------------------
Total first mortgage bonds 722.9 733.1
- --------------------------------------------------------------------------------
New mortgage bonds--
6 1/8% series due 2000 40.0 40.0
5 5/8% series due 2000 110.0 110.0
6 1/2% series due 2003 100.0 100.0
6 3/4% series due 2005 70.0 70.0
8.0% series due 2023 235.0 235.0
7 1/2% series due 2025 200.0 200.0
Adjustable rate series due 2028
(Pollution Control Series M, N and O) 111.8 111.8
- --------------------------------------------------------------------------------
Total new mortgage bonds 866.8 866.8
- --------------------------------------------------------------------------------
Total mortgage bonds 1,589.7 1,599.9
- --------------------------------------------------------------------------------
Short-term debt to be refinanced as long-term debt 125.0 125.0
8 1/2% debt securities due 1994 - 100.0
Medium-term notes, series A 100.0 100.0
Variable rate long-term debt due 2017 75.0 75.0
- --------------------------------------------------------------------------------
Total other long-term debt 300.0 400.0
- --------------------------------------------------------------------------------
1,889.7 1,999.9
Unamortized discount on debt (21.6) (15.4)
- --------------------------------------------------------------------------------
Total long-term debt excluding
capital lease obligations 1,868.1 1,984.5
Obligation under capital leases 111.5 129.5
- --------------------------------------------------------------------------------
1,979.6 2,114.0
Long-term debt and lease obligations
maturing within one year (33.5) (187.7)
- --------------------------------------------------------------------------------
Total long-term debt $ 1,946.1 $1,926.3
================================================================================
</TABLE>
In May 1994, $35.6 million of 11 5/8% Pollution Control Bonds
Series D due 2014 were retired with the same principal amount of
5.7% Pollution Control Bonds Series K due 2024. In December 1994,
$84.1 million of 7.4% Pollution Control Bonds Series L due 2024
were issued. The proceeds and additional funds were placed in an
irrevocable trust and invested in U. S. Treasury securities, and
will be used to extinguish the outstanding $84.1 million 10 3/4%
Pollution Control Bonds Series E due 2015 on March 1, 1995. This
resulted in an in-substance defeasance in accordance with Statement
of Financial Accounting Standards No. 76, "Extinguishment of Debt."
The $84.1 million of 10 3/4% Pollution Control Bonds Series E due
2015 have been removed from the consolidated financial statements.
Short-term debt to be refinanced as long-term debt consists of
commercial paper that will be renewed regularly on a long-term
basis. Ongoing credit support is provided by Illinova's and IP's
revolving credit agreements of $43 million and $250 million,
respectively. In 1989 and 1991, IP issued a series of fixed rate
medium-term notes. At December 31, 1994, the maturity dates on
these notes ranged from 1996 to 1998 with interest rates ranging
from 9% to 9.31%. Interest rates on variable rate long-term debt
due 2017 are adjusted weekly and ranged from 5.25% to 5.6% at
December 31, 1994.
For the years 1995, 1996, 1997, 1998 and 1999, IP has long-term
debt maturities and cash sinking fund requirements in the aggregate
of (in millions) $.2, $61.7, $10.8, $68.8 and $72.8, respectively.
These amounts exclude capital lease requirements. See "Note 8 -
Capital Leases." Certain supplemental indentures to the First
Mortgage require that IP make annual deposits, as a sinking and
property fund, in amounts not to exceed $.4 million in 1995, $1.8
million in 1997, $1.8 million in 1998 and $1.8 million in 1999.
These amounts are subject to reduction and historically have been
met by pledging property additions, as permitted by the First
Mortgage.
At December 31, 1994, the aggregate total of unamortized debt
expense and unamortized loss on reacquired debt was approximately
$107.4 million.
IP's first mortgage bonds are secured by a first mortgage
lien on substantially all of the fixed property, franchises and
rights of IP with certain minor exceptions expressly provided
in the First Mortgage. In 1992, the Board authorized a new
general obligation mortgage, which is intended to replace the
First Mortgage. Bonds issued under the new mortgage were
secured by a corresponding issue of first mortgage bonds under
the First Mortgage. The remaining balance of net bondable
additions at December 31, 1994, was approximately $1.0 billion.
<PAGE>
NOTE 10 PREFERRED STOCK OF SUBSIDIARY
- -------------------------------------
<TABLE>
<CAPTION>
(millions of dollars)
- -----------------------------------------------------------------
December 31, 1994 1993
SERIAL PREFERRED STOCK OF SUBSIDIARY,
cumulative, $50 par value --
Authorized 5,000,000 shares; 3,325,815 and 4,150,000 shares
outstanding, respectively
<S> <C> <C> <C> <C> <C>
Series Share Redemption prices
4.08% 300,000 $51.50 $15.0 $15.0
4.26% 150,000 51.50 7.5 7.5
4.70% 200,000 51.50 10.0 10.0
4.42% 150,000 51.50 7.5 7.5
4.20% 180,000 52.00 9.0 9.0
8.24% 600,000 51.90 30.0 30.0
7.56% 675,040 51.685 33.8 35.0
8.00% 693,975 52.29 34.7 50.0
7.75% 376,800 50.00 after 18.8 43.5
July 1,2003
Net premium on preferred stock 0.8 0.7
- -----------------------------------------------------------------
Total Preferred Stock of Subsidiary,
$50 par value 167.1 208.2
- -----------------------------------------------------------------
SERIAL PREFERRED STOCK OF SUBSIDIARY,
cumulative, without par value--
Authorized 5,000,000 shares; 1,512,550 and 2,390,300 shares
outstanding, respectively (including 360,000 and 480,000 shares,
respectively, of redeemable preferred stock)
Series Share Redemption prices
A 742,300 $ 50.00 37.1 50.0
B 410,250 ($51.50 prior to May 1, 1995, 20.5 45.5
$50 thereafter)
- -----------------------------------------------------------------
Total Preferred Stock of Subsidiary,
without par value 57.6 95.5
- -----------------------------------------------------------------
PREFERENCE STOCK OF SUBSIDIARY,
cumulative, without par value --
Authorized 5,000,000 shares; none outstanding --- ---
PREFERRED SECURITIES OF SUBSIDIARY
(Illinois Power Capital, L.P.)
Monthly Income Preferred Securities 97.0 ---
- -----------------------------------------------------------------
Total Serial Preferred Stock, Preference
Stock and Preferred Securities
of Subsidiary $321.7 $303.7
- -----------------------------------------------------------------
MANDATORILY REDEEMABLE SERIAL PREFERRED
STOCK OF SUBSIDIARY, cumulative --
Series Share Par Value
8.00% 360,000 none $36.0 $48.0
=================================================================
</TABLE>
Serial Preferred Stock ($50 par value) is redeemable at the
option of IP in whole or in part at any time not less than 30
days and not more than 60 days notice by publication.
Quarterly dividend rates for Serial Preferred Stock, Series A,
are determined based on market interest rates of certain U. S.
Treasury securities. Dividends paid in 1994 and 1993 were $.75
per quarter. The dividend rate for any dividend period will not
be less than 6% per annum or greater than 12% per annum applied
to the liquidation preference value of $50 per share.
Quarterly dividend rates for Serial Preferred Stock, Series B,
are determined based on market interest rates of certain U. S.
Treasury securities. Dividends paid in 1994 and 1993 were $.875
per quarter. The dividend rate for any dividend period will not
be less than 7% per annum or greater than 14% per annum applied
to the liquidation preference value of $50 per share.
Illinois Power Capital, L.P., is a limited partnership in which
IP serves as a general partner. Illinois Power Capital issued
$97 million of tax-advantaged monthly income preferred
securities (MIPS) at 9.45% (5.67% after-tax rate) in October
1994. The proceeds were loaned to IP and were used to redeem
$79.1 million (principal value) of higher-cost outstanding
preferred stock of IP. The excess of carrying amount of redeemed
preferred stock over consideration paid amounted to $6.4
million, which was recorded in equity and included in net income
applicable to common stock. IP consolidates the accounts of
Illinois Power Capital.
In February 1993, IP redeemed $10 million of 8.52% and $12
million of 8.00% mandatorily redeemable preferred stock. In July
1993, IP redeemed the remaining $30 million of 8.52% mandatorily
redeemable serial preferred stock. In February 1994 and 1993, IP
redeemed $12 million of 8.00% mandatorily redeemable serial
preferred stock. For each year, 1995 through 1997, IP is required
to redeem $12 million of mandatorily redeemable preferred stock
outstanding at stated value.
NOTE 11 COMMON STOCK
AND RETAINED EARNINGS
- ---------------------
IP has an Incentive Savings Plan (Plan) for salaried
employees. IP's matching contribution is used to purchase
Illinova common stock. Under this Plan, 27,545 shares of common
stock were
designated for issuance at December 31, 1994.
IP has an Incentive Savings Plan for Employees Covered Under
a Collective Bargaining Agreement. IP's matching contribution is
used to purchase Illinova common stock. Under this plan, 69,167
shares of stock were designated for issuance at December 31,
1994.
Illinova has an Employees Stock Ownership Plan (ESOP) that
includes an incentive compensation feature which is tied to
achievement of specified corporate performance goals. This
arrangement began in 1991 when IP loaned $35 million to the
Trustee of the Plans, who used the loan proceeds to purchase
2,031,445 shares of IP's common stock on the open market. The
loan and common shares were converted to Illinova instruments
pursuant to formation of the Holding Company in May 1994. These
shares are held in a suspense account under the Plans and are
being distributed to the accounts of participating employees as
the loan is repaid by the Trustee with funds contributed by IP,
together with dividends on the shares acquired with the loan
proceeds. IP financed the loan with funds borrowed under its
bank credit agreements.
For the year ended December 31, 1994, 42,008 shares were
allocated to salaried employees and 47,530 shares to employees
covered under the Collective Bargaining Agreement through the
matching contribution feature of the ESOP arrangement. Under the
incentive compensation feature, 184,079 shares were allocated to
employees for the year ended December 31, 1994. During 1994, IP
contributed $5.5 million to the ESOP and using the shares
allocated method, recognized $5.6 million of expense. Interest
paid on the ESOP debt was approximately $2.5 million in 1994 and
dividends used for debt services were approximately $1.6
million.
Illinova has an Automatic Reinvestment and Stock Purchase
Plan and an Employees Stock Ownership Plan for which at December
31, 1994, 3,270,236 and 29,115 shares, respectively, of common
stock were designated for issuance. Illinova has the
responsibility for administering both of these plans. The plans
allow purchases of shares on the open market, as well as
purchases of new issue shares directly from Illinova.
In 1992, the Board of Directors adopted and the shareholders
approved a Long-Term Incentive Compensation Plan (the Plan) for
officers or employee members of the Board, but excluding
directors who are not officers or employees. The types of awards
that may be granted under the Plan are restricted stock,
incentive stock options, non-qualified stock options, stock
appreciation rights, dividend equivalents and other stock-based
awards. The Plan provides that any one or more types of awards
may be granted for up to 1,500,000 shares of Illinova's common
stock. The following table outlines the activity thus far under
this plan:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Year Options Grant Year
Granted Granted Price Exercisable
- -----------------------------------------------------------------
<S> <C> <C> <C>
1992 62,000 $23 3/8 1996
1993 73,500 $24 1/4 1997
1994 82,650 $20 7/8 1997
- -----------------------------------------------------------------
</TABLE>
The provisions of Supplemental Indentures to IP's General
Mortgage Indenture and Deed of Trust contain certain restrictions
with respect to the declaration and payment of dividends. IP was
not limited by any of these restrictions at December 31, 1994.
Under the Restated Articles of Incorporation, common stock
dividends are subject to the preferential rights of the holders
of preferred and preference stock.
NOTE 12 PENSION AND OTHER BENEFIT COSTS
- ---------------------------------------
IP has defined-benefit pension plans covering all officers
and employees. Benefits are based on years of service and
compensation. IP's funding policy is to contribute annually at
least the minimum amount required by government funding
standards, but not more than can be deducted for federal income
tax purposes. Pension costs, a portion of which have been
capitalized, for 1994, 1993 and 1992 include the following
components:
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------
(Millions of dollars) 1994 1993 1992
- -----------------------------------------------------------------
<S> <C> <C> <C>
Service cost on benefits earned
during the year $11.9 $11.3 $ 9.4
Interest cost on projected
benefit obligation 21.8 20.8 18.3
Return on plan assets (7.9) (28.1) (20.9)
Net amortization and deferral (19.2) 1.9 (5.0)
- -----------------------------------------------------------------
Total pension cost $ 6.6 $ 5.9 $ 1.8
=================================================================
</TABLE>
The estimated funded status of the plans at December 31,
1994 and 1993, using discount rates of 8.75% and 7.75%,
respectively, and future compensation increases of 4.5% was as
follows:
<TABLE>
<CAPTION>
Balances as of December 31,
- -----------------------------------------------------------------
(Millions of dollars) 1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $(209.6) $(231.9)
- -----------------------------------------------------------------
Accumulated benefit obligation $(220.8) $(233.6)
- -----------------------------------------------------------------
Projected benefit obligation $(267.3) $(285.8)
Plan assets at fair value 284.0 281.4
- -----------------------------------------------------------------
Excess (deficit) of assets over projected
benefit obligation 16.7 (4.4)
Unamortized net (gain) loss (38.8) 9.1
Unrecognized net asset at transition (15.0) (43.1)
Prior service costs 24.5 23.9
- -----------------------------------------------------------------
Accrued pension cost included in
accounts payable $ (12.6) $ (14.5)
=================================================================
</TABLE>
The plan assets consist primarily of common stocks, fixed
income securities, cash equivalents and real estate. The
actuarial present value of accumulated plan benefits at January
1, 1994 and 1993, were $230 million and $205 million,
respectively, including vested benefits of $213 million and $203
million, respectively. The pension cost for 1994, 1993 and 1992
was calculated using: a discount rate of 7.75%, 8.25% and 8.5%,
respectively; future compensation increases of 4.5% for 1994 and
5.5% for 1993 and 1992; and a return on assets of 9% for 1994,
1993 and 1992. The unrecognized net asset at transition and prior
service costs are amortized on a straight-line basis over the
average remaining service period of employees who are expected to
receive benefits under the plan. IP did not make any cash
contributions during 1993 for the pension plan due to its
overfunded status. IP made a cash contribution of $10 million in
1994 and $3 million in 1992.
IP provides health care and life insurance benefits to
certain retired employees, including their eligible dependents,
who attain specified ages and years of service under the terms of
the definedbenefit plans. Postretirement benefits, a portion of
which have been capitalized, for 1994 and 1993 included the
following components:
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------
(Millions of dollars) 1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Service cost on benefits earned
during the year $ 3.3 $ 2.9
Interest cost on projected benefit
obligation 6.2 5.9
Return on plan assets .2 (.5)
Amortization of unrecognized
transition obligation 2.1 3.3
- -----------------------------------------------------------------
Total postretirement cost $11.8 $11.6
- -----------------------------------------------------------------
</TABLE>
The net periodic postretirement benefit cost in the table
above includes amortization of the previously unrecognized
accumulated postretirement benefit obligation, which was $55.2
million and $63.9 million as of January 1, 1994 and 1993,
respectively, over 20 years on a straight-line basis.
IP has established two separate trusts for those retirees
who were subject to a collectively bargained agreement and all
other retirees to fund retiree health care and life insurance
benefits. IP's funding policy is to contribute annually an amount
at least equal to the revenues collected for the amount of
postretirement benefit costs allowed in rates. The plan assets
consist of common stocks and fixed income securities at December
31, 1994 and 1993. The estimated funded status of the plans at
December 31, 1994 and 1993, using weighted average discount rates
of 8.75% and 7.75%, respectively, and a return on assets of 9%
was as follows:
<TABLE>
<CAPTION>
Balances as of December 31,
- -----------------------------------------------------------------
(Millions of dollars) 1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation
Retirees $(26.7) $(29.2)
Other fully eligible participants (11.6) (14.0)
Other active plan participants (27.3) (38.0)
- -----------------------------------------------------------------
Total benefit obligation (65.6) (81.2)
Plan assets at fair value 15.2 10.1
- -----------------------------------------------------------------
Funded status (50.4) (71.1)
Unrecognized transition obligation 52.3 60.6
Unrecognized net (gain) loss (7.8) 7.4
- -----------------------------------------------------------------
Accrued postretirement benefit cost
included in accounts payable $ (5.9) $ (3.1)
- -----------------------------------------------------------------
</TABLE>
The assumed 1995 weighted average health-care-cost trend
rate used to measure the expected cost of benefits covered by the
plans is 11%. This trend rate decreases through 2005 to an
ultimate weighted average rate of 5% for 2005 and subsequent
years. The effect of a 1% increase in each future year's assumed
health-carecost trend rates increases the service and interest
cost from $9.4 million to $11.4 million and the accumulated
postretirement benefit obligation from $65.6 million to $75.4
million.
EARLY RETIREMENT
In December 1994, IP announced plans for a voluntary early
retirement program. Approximately 200 salaried employees would
qualify for early retirement under this program. The offer will
be made to employees during the fourth quarter of 1995. A
similar program for union employees is the subject of contract
negotiations currently underway between IP and the International
Brotherhood of Electrical Workers. Approximately 450 union
employees would qualify for the program if current negotiations
result in the same package as offered to salaried employees. At
December 31, 1994, IP employed 4,350 people, as compared to
4,540 at December 31, 1993.
The early retirement program for salaried employees is
expected to generate a pre-tax charge of approximately $22
million against fourth quarter 1995 earnings and to generate savings of
approximately $15 million annually beginning in 1996. A combined
early retirement program for both salaried and union employees,
based on the same package as announced for salaried employees,
would generate a pre-tax charge of approximately $42 million
against fourth quarter 1995 earnings and would generate savings
of approximately $35 million annually beginning in 1996.
<PAGE>
NOTE 13 SEGMENTS OF BUSINESS
- ----------------------------
Illinova's primary subsidiary, Illinois Power 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. The following is a
summary of operations:
<TABLE>
<CAPTION>
(millions of dollars)
- ------------------------------------------------------------------------------------------------------------
1994 1993 1992
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 $1287.5 $302.0 $1,589.5 $1,266.4 $314.8 $1,581.2 $1,190.9 $288.6 $1,479.5
Operating expenses, excluding
provision for income taxes
and deferred Clinton 872.6 274.7 1,147.3 873.9 286.2 1,160.1 831.3 264.7 1,096.0
Deferred Clinton costs 3.5 - 3.5 9.3 - 9.3 11.2 - 11.2
- ------------------------------------------------------------------------------------------------------------
Pre-tax operating income 411.4 27.3 438.7 383.2 28.6 411.8 348.4 23.9 372.3
Allowance for funds used
during construction 8.9 0.4 9.3 6.2 1.0 7.2 4.5 0.7 5.2
Disallowed Clinton costs - - - (200.4) - (200.4) - - -
- ------------------------------------------------------------------------------------------------------------
Pre-tax operating income,
including AFUDC and disallowed
Clinton costs $420.3 $ 27.7 $ 448.0 $ 189.0 $ 29.6 $ 218.6 $ 352.9 $ 24.6 $ 377.5
- ------------------------------------------------- -------------- ---------------
Other deductions, net 17.5 15.6 7.2
Interest charges 143.9 164.9 168.6
Provision for income taxes 109.9 93.9 79.6
Preferred dividend requirements
of subsidiary 24.9 26.1 28.9
- ------------------------------------------------------------------------------------------------------------
Net income (loss) 151.8 (81.9) 93.2
Excess of carrying amount over consideration paid
paid redeemed preferred stock of subsidiary 6.4 - -
- ------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ 158.2 $ (81.9) $ 93.2
============================================================================================================
Other information -
Depreciation $ 156.1 $ 21.1 $ 177.2 $ 148.2 $ 21.0 $ 169.2 $ 141.3 $ 20.0 $ 161.3
- ------------------------------------------------------------------------------------------------------------
Capital expenditures $ 173.7 $ 20.8 $ 194.5 $ 221.3 $ 56.4 $ 277.7 $ 203.1 $ 41.3 $ 244.4
- ------------------------------------------------------------------------------------------------------------
Investment information -
Identifiable assets* $4,589.0 $442.6 $5,031.6 $4,526.8 $406.4 $4,933.2 $4,602.9 $355.4 $4,958.3
- ------------------------------------------------- --------------- ---------------
Nonutility plant and other investments 37.2 19.9 9.3
Assets utilized for overall Company operations 507.9 470.4 364.1
- ------------------------------------------------------------------------------------------------------------
Total assets $5,576.7 $5,423.5 $5,331.7
============================================================================================================
</TABLE>
*Utility plant, nuclear fuel, materials and supplies, deferred Clinton costs and
prepaid and deferred energy costs.
NOTE 14 FAIR VALUE OF FINANCIAL INSTRUMENTS
- -------------------------------------------
<TABLE>
<CAPTION>
1994 1993
- ------------------------------------------------------------------
(Millions of dollars) Carrying Fair Carrying Fair
Value Value Value Value
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nuclear decommissioning
trust funds $ 22.4 $22.9 $17.2 $18.3
Cash and cash equivalents 50.7 50.7 9.9 9.9
Mandatorily redeemable
preferred stock of
subsidiary 36.0 36.0 48.0 48.5
Long-term debt of
subsidiary 1,868.1 1,750.7 1,984.5 2,048.6
Notes payable 238.8 238.8 92.3 92.3
- ------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments listed in
the table above:
NUCLEAR DECOMMISSIONING TRUST FUNDS - The fair values of
available for-sale marketable debt securities and equity investments held
by the Nuclear Decommissioning Trust are based on quoted market
prices at the reporting date for those or similar investments.
CASH AND CASH EQUIVALENTS - The carrying amount of cash and cash
equivalents approximates fair value due to the short maturity of
these instruments.
MANDATORILY REDEEMABLE SERIAL PREFERRED STOCK OF SUBSIDIARY AND
LONG-TERM DEBT OF SUBSIDIARY - The fair value of IP mandatorily
redeemable preferred stock and IP long-term debt is estimated
based on the quoted market prices for similar issues or by
discounting expected cash flows at the rates currently offered to
IP for debt of the same remaining maturities, as advised by IP's
bankers.
NOTES PAYABLE - The carrying amount of notes payable approximates
fair value due to the short maturity of these instruments.
<PAGE>
NOTE 15 QUARTERLY CONSOLIDATED FINANCIAL INFORMATION AND
COMMON STOCK DATA (UNAUDITED)
- --------------------------------------------------------
<TABLE>
<CAPTION>
(Millions of dollars except per common share amounts)
- ------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
1994 1994 1994 1994
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $442.9 $349.6 $428.9 $368.1
Operating income 71.3 72.2 112.2 64.7
Net income 27.3 29.5 71.8 23.2
Net income applicable
to common stock 27.3 29.5 71.8 29.6
Earnings per common share $ .36 $ .39 $ .95 $ .39
Common stock prices and dividends
High $22 1/2 $22 5/8 $21 1/2 $21 7/8
Low $19 7/8 $18 1/4 $18 1/8 $18 7/8
Dividends declared $ - $ .20 $ .20 $ .25
First Second Third Fourth
Quarter Quarter Quarter Quarter
1993 1993 1993 1993
- ------------------------------------------------------------------
Operating revenues $395.1 $350.5 $452.4 $383.2
Operating income 68.3 67.9 114.3 54.8
Net income (loss) 21.0 22.5 (130.2) 4.8
Net income (loss) applicable
to common stock 21.0 22.5 (130.2) 4.8
Earnings (loss) per common share$ .28 $ .30 $(1.72) $ .06
Common stock prices and dividends
High $ 24 $25 3/4 $25 7/8 $24 7/8
Low $21 3/4 $22 1/2 $24 1/2 $20 1/8
Dividends declared $ .20 $ .20 $ - $ -
</TABLE>
The 1994 fourth quarter earnings per share include $.08 per
sharefor the excess of carrying amount over consideration paid
for redeemed preferred stock of IP.
The 1993 third quarter loss reflects the write-off of disallowed
Clinton costs of $200 million, or $2.65 per share, net of income
taxes. See "Note 3 - Clinton Power Station."
The common stock is listed on the New York Stock Exchange and
the Chicago Stock Exchange. The stock prices above are the
prices reported on the Composite Tape. There were 38,750
registered holders of common stock at January 10,1995. On May
31, 1994, common shares of Illinois Power began trading as
common shares of Illinova.
<PAGE>
selected consolidated financial data*
- -------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1984
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues
Electric $1,177.5 $1,135.6 $1,117.9 $1,101.2 $1084.6 $810.3
Electric
interchange 110.0 130.8 73.0 85.5 73.8 21.1
Gas 302.0 314.8 288.6 288.2 311.1 470.2
- -----------------------------------------------------------------
Total
operating
revenues $1,599.5 $1,581.2 $1,479.5 $1,479.9 $1,469.5 $1,301.6
- -----------------------------------------------------------------
Net income (loss) $151.8 $(81.9) $93.2 $78.4 $(115.3) $210.2
Effective income
tax rate 42.0% (39.8)% 46.0% 48.6% (23.0)% 37.0%
- -----------------------------------------------------------------
Net income (loss)
applicable to
common stock $158.2 $(81.9) $93.2 $78.4 $(115.3) $210.2
Earnings (loss)
per common
share $2.09 $(1.08) $1.23 $1.04 $(1.53) $4.02
Cash dividends declared
per common share $.65 $.40 $1.40 $.40 --- $2.64
Dividend payout
ratio
(declared) 30.7% N/A 112.9% 38.4% --- 66.6%
Book value per
common share $19.17 $17.46 $18.81 $19.25 $18.70 $23.71
Price range of
common shares
High $22 5/8 $25 7/8 $25 1/8 $24 1/8 $19 3/8 $23 7/8
Low $18 1/8 $20 1/8 $19 1/4 $15 3/8 $12 3/4 $17 5/8
Weighted average
number of common
shares outstanding
during the period
(thousands) 75,644 75,644 75,644 75,644 75,613 52,315
- -----------------------------------------------------------------
Total
assets**$5,576.7 $5,423.5 $5,331.7 $5,271.8 $5,345.5 $4,086.5
- -----------------------------------------------------------------
Capitalization
Common stock
equity $1,450.2 $1,321.0 $1,422.7 $1,456.1 $1,414.9 $1,337.1
Preferred
stock of
subsidiary 321.7 303.7 303.1 303.1 308.9 265.2
Mandatorily
redeemable
preferred stock
of subsidiary 36.0 48.0 100.0 110.0 140.0 86.0
Long-term debt
of subsidiary 1,946.1 1,926.3 2,017.4 2,153.1 2,198.9 1,621.0
- -----------------------------------------------------------------
Total
capitalization**
$3,754.0 $3,599.0 $3,843.2 $4,022.3 $4,062.7 $3,309.3
- -----------------------------------------------------------------
Embedded cost
of long-term
debt 7.6% 7.5% 8.3% 8.7% 9.3% 10.1%
- -----------------------------------------------------------------
Retained earnings
(deficit) $58.8 $(64.6) $41.0 $75.8 $1.2 $350.6
- -----------------------------------------------------------------
Capital
expenditures $193.7 $277.7 $244.4 $141.2 $130.6 $553.4
Cash flows
from
operations $268.6 $369.7 $344.8 $281.3 $215.4 $235.5
AFUDC as a
percent of
earnings applicable
to common stock 5.9% N/A 5.6% 3.7% N/A 56.6%
Return on average
common equity 11.0% (6.0)% 6.5% 5.5% (7.8)% 17.0%
Ratio of earnings
to fixed charges 2.56 0.66 1.87 1.70 0.54 3.15
=================================================================
</TABLE>
* Millions of dollars except earnings (loss) per common share,
cash dividends declared per common share, book value per common
share and price range of common shares
** Restated for the effect of capitalized nuclear fuel lease.
<PAGE>
selected illinois power company statistics
- ------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1984
- -----------------------------------------------------------------
ELECTRIC SALES IN KWH (MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Residential 4,537 4,546 4,138 4,620 4,223 3,977
Commercial 3,517 3,246 3,055 3,111 2,981 2,698
Industrial 8,685 8,120 8,083 7,642 7,751 6,968
Other 536 337 466 699 987 1,822
- -----------------------------------------------------------------
Sales to
ultimate
consumers 17,275 6,249 15,742 16,072 15,942 15,465
Interchange 4,837 6,015 2,807 3,360 2,715 762
Wheeling 622 569 402 292 19 -
- -----------------------------------------------------------------
Total
electric
sales 22,734 22,833 18,951 19,724 18,676 16,227
- -----------------------------------------------------------------
ELECTRIC REVENUES (MILLIONS)
Residential $471 $463 $435 $447 $411 $279
Commercial 295 269 263 251 246 179
Industrial 378 360 381 355 373 277
Other 30 40 38 47 55 76
- -----------------------------------------------------------------
Revenues from
ultimate
consumers 1,174 1,132 1,117 1,100 1,085 811
Interchange 110 131 73 86 74 21
Wheeling 3 3 1 1 - -
- -----------------------------------------------------------------
Total
electric
revenues $1,287 $1,266 $1,191 $1,187 $1,159 $832
- -----------------------------------------------------------------
GAS SALES IN THERMS (MILLIONS)
Residential 359 371 339 339 322 399
Commercial 144 148 138 133 134 183
Industrial 81 78 136 98 99 230
- -----------------------------------------------------------------
Salesto
ultimate
consumers 584 597 613 570 555 812
Transportation
of customer-
owned gas 262 229 204 253 269 -
- -----------------------------------------------------------------
Total gas
sold and
transported 846 826 817 823 824 812
Interdepart-
mental sales 5 7 12 8 18 1
- -----------------------------------------------------------------
Total gas
delivered 851 833 829 831 842 813
- -----------------------------------------------------------------
GAS REVENUES (MILLIONS)
Residential $192 $200 $181 $184 $180 $248
Commercial 66 68 61 61 62 99
Industrial 31 34 37 31 42 110
- -----------------------------------------------------------------
Revenues from
ultimate
consumers 289 302 279 276 284 457
Transportation
of customer-
owned gas 9 8 7 9 10 -
Miscellaneous 4 5 3 3 17 13
- -----------------------------------------------------------------
Total gas
revenues $302 $315 $289 $288 $311 $470
- -----------------------------------------------------------------
System peak demand (native load) in kw (thousands)
3,395 3,415 3,109 3,272 3,394 3,371
Firm peak demand (native load) in kw (thousands)
3,232 3,254 2,925 3,108 3,180 3,217
Net generating capability in kw (thousands)
4,121 4,045 4,052 3,909 3,891 3,774
- -----------------------------------------------------------------
Electric customers (end of year)
553,869 554,270 549,391 565,421 560,045 533,364
Gas customers (end of year)
388,170 394,379 386,261 401,763 398,891 381,710
Employees (end of year)
4,350 4,540 4,624 4,514 4,402 4,236
=================================================================
</TABLE>
<PAGE>
