18
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to __________
Commission Registrants; State of Incorporation; IRS Employ
er
File Number Address; and Telephone Number Identification No.
1-11327 Illinova Corporation 37-1319890
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525
(217) 424-6600
1-3004 Illinois Power Company 37-0344645
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62525
(217) 424-6600
Indicate by check mark whether the registrants (1) have
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) have
been subject to such filing requirements for the past 90
days.
Illinova Yes X No
Corporation ---- ----
Illinois Power Yes X No
Company ---- ----
Indicate the number of shares outstanding of each of
the issuers' classes of common stock, as of the latest
practicable date:
Illinova Corporation Common stock, no par value, 75,681,937
shares outstanding at October 31, 1996
Illinois Power Company Common stock, no par value, 72,233,040
shares outstanding held by Illinova
Corporation at October 31, 1996
ILLINOVA CORPORATION
ILLINOIS POWER COMPANY
This combined Form 10-Q is separately filed by Illinova
Corporation and Illinois Power Company. Information
contained herein relating to Illinois Power Company is filed
by Illinova Corporation and separately by Illinois Power
Company on its own behalf. Illinois Power Company makes no
representation as to information relating to Illinova
Corporation or its subsidiaries, except as it may relate to
Illinois Power Company.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PAGE NO.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Illinova Corporation
Consolidated Balance Sheets 3 - 4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Illinois Power Company
Consolidated Balance Sheets 7 - 8
Consolidated Statements of Income 9
Consolidated Statements of Cash Flows 10
Notes to Consolidated Financial Statements of
Illinova Corporation and
Illinois Power Company 11 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for Illinova Corporation
and Illinois Power Company 13 - 17
Part II. OTHER INFORMATION
Item 1: Legal Proceedings 18
Item 6: Exhibits and Reports on Form 8-K 18
Signatures 19 - 20
Exhibit Index 21
<TABLE>
PART I. FINANCIAL INFORMATION
ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
ASSETS (Unaudited)
(Millions of Dollars)
<S> <C> <C>
Utility Plant, at original cost
Electric (includes construction work
in progress of $245.9 million and
$199.8 million, respectively) $ 6,298.5 $ 6,189.0
Gas (includes construction work
in progress of $16.2 million and
$10.2 million, respectively) 637.4 625.9
---------- ----------
6,935.9 6,814.9
Less-Accumulated depreciation 2,379.9 2,251.7
---------- ----------
4,556.0 4,563.2
Nuclear fuel in process 5.4 5.7
Nuclear fuel under capital lease 95.2 95.2
---------- ----------
Total utility plant 4,656.6 4,664.1
---------- ----------
Investments and Other Assets 132.2 65.8
---------- ----------
Current Assets
Cash and cash equivalents 32.3 11.3
Notes receivable -- 6.1
Accounts receivable (less allowance
for doubtful accounts of $3.0 million)
Service 136.5 129.4
Other 38.5 13.2
Accrued unbilled revenue 86.2 89.1
Materials and supplies, at average cost 113.1 111.1
Prepayments and other 32.7 40.4
---------- ----------
Total current assets 439.3 400.6
---------- ----------
Deferred Charges
Deferred Clinton costs 104.7 107.3
Recoverable income taxes 93.9 128.7
Other 218.9 243.3
---------- ----------
Total deferred charges 417.5 479.3
---------- ----------
$ 5,645.6 $ 5,609.8
========== ==========
</TABLE>
<TABLE>
ILLINOVA CORPORATION
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
SEPTEMBER 30, DECEMBER 31,
1996 1995
CAPITAL AND LIABILITIES (Unaudited)
(Millions of Dollars)
<S> <C> <C>
Capitalization
Common stock -
No par value, 200,000,000 shares authorized;
75,681,937 and 75,643,937 shares outstanding,
respectively, stated at $ 1,425.7 $ 1,424.6
Less - Deferred compensation - ESOP 15.2 18.4
Retained earnings 234.0 129.6
Less - Capital stock expense 8.2 8.8
Preferred stock of subsidiary 96.6 125.6
Mandatorily redeemable preferred stock of
subsidiary 197.0 97.0
Long-term debt of subsidiary 1,649.4 1,739.3
---------- ----------
Total capitalization 3,579.3 3,488.9
---------- ----------
Current Liabilities
Accounts payable 136.1 119.9
Notes payable 322.9 359.6
Long-term debt and lease obligations
maturing within one year 94.7 95.0
Other 114.4 173.0
---------- ----------
Total current liabilities 668.1 747.5
---------- ----------
Deferred Credits
Accumulated deferred income taxes 1,024.1 1,012.8
Accumulated deferred investment tax credits 217.6 222.8
Other 156.5 137.8
---------- ----------
Total deferred credits 1,398.2 1,373.4
---------- ----------
$ 5,645.6 $ 5,609.8
========== ==========
</TABLE>
<TABLE>
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
(Unaudited)
(Millions except per share)
<S> <C> <C> <C> <C>
Operating Revenues:
Electric $ 377.1 $ 410.5 $ 938.4 $ 977.2
Electric interchange 43.3 40.8 108.8 87.8
Gas 38.0 34.8 223.6 190.9
----------- ----------- ----------- -----------
Total 458.4 486.1 1,270.8 1,255.9
----------- ----------- ----------- -----------
Operating Expenses and Taxes:
Fuel for electric plants 59.8 77.2 185.9 199.8
Power purchased 25.0 20.3 48.1 49.4
Gas purchased for resale 12.8 15.2 118.6 94.4
Other operating expenses 62.9 66.2 181.9 193.9
Maintenance 21.1 20.0 65.9 76.8
Depreciation & amortization 48.5 45.4 144.9 136.0
General taxes 32.6 34.7 102.0 104.0
Income taxes 62.4 69.9 127.2 119.0
----------- ----------- ----------- -----------
Total 325.1 348.9 974.5 973.3
----------- ----------- ----------- -----------
Operating Income 133.3 137.2 296.3 282.6
----------- ----------- ----------- ------------
Other Income and Deductions:
Allowance for equity funds
used during construction -- 0.2 -- 0.5
Miscellaneous - net (5.3) (6.3) (13.1) (7.2)
----------- ----------- ---------- -----------
Total (5.3) (6.1) (13.1) (6.7)
----------- ----------- ---------- -----------
Income Before Interest Charges 128.0 131.1 283.2 275.9
----------- ----------- ----------- -----------
Interest Charges:
Interest on long-term debt 28.8 33.4 90.0 101.2
Other interest charges 4.3 3.5 10.6 11.3
Allowance for funds
used during construction (1.6) (1.5) (5.2) (4.0)
Preferred dividend
requirements of subsidiary 5.5 5.8 16.8 18.8
----------- ----------- ----------- -----------
Total 37.0 41.2 112.2 127.3
----------- ----------- ----------- -----------
Net Income 91.0 89.9 171.0 148.6
Carrying amount under
consideration paid for
redeemed preferred stock
of subsidiary (0.3) -- (0.8) --
----------- ----------- ----------- ----------
Net Income applicable to
common stock $ 90.7 $ 89.9 $ 170.2 $ 148.6
========== =========== ========== ===========
Earnings per common share $1.20 $1.18 $2.25 $1.96
Cash dividends declared
per common share $0.28 $0.25 $0.84 $0.75
Cash dividends paid per
common share $0.28 $0.25 $0.84 $0.75
Weighted average number of
common shares outstanding
during period 75,681,937 75,543,937 75,679,472 75,643,937
</TABLE>
<TABLE>
ILLINOVA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(See accompanying Notes to Consolidated Financial Statements)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
(Unaudited)
(Millions of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 170.2 $ 148.6
Items not requiring cash, net 192.8 195.9
Changes in assets and liabilities (24.9) (41.8)
-------- --------
Net cash provided by operating
activities 338.1 302.7
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (129.2) (143.3)
Other investing activities (66.8) (16.9)
-------- --------
Net cash used in investing
activities (196.0) (160.2)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on common stock (63.6) (56.7)
Exercise of stock options 1.1 --
Redemptions -
Short-term debt (351.4) (154.3)
Long-term debt of subsidiary (92.1) (5.2)
Preferred stock of subsidiary (29.1) (39.2)
Issuances -
Short-term debt 314.7 77.1
Preferred Stock of subsidiary 100.0 --
Other financing activities (0.7) 1.6
--------- ---------
Net cash used in financing
activities (121.1) (176.7)
--------- ---------
NET CHANGE IN CASH AND
CASH EQUIVALENTS 21.0 (34.2)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 11.3 50.7
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 32.3 $ 16.5
========= =========
</TABLE>
<TABLE>
ILLINOIS POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
ASSETS (Unaudited)
(Millions of Dollars)
<S> <C> <C>
Utility Plant, at original cost
Electric (includes construction work
in progress of $245.9 million and
$199.8 million, respectively) $ 6,298.5 $ 6,189.0
Gas (includes construction work
in progress of $16.2 million and
$10.2 million, respectively) 637.4 625.9
------------ ------------
6,935.9 6,814.9
Less-Accumulated depreciation 2,379.9 2,251.7
------------ ------------
4,556.0 4,563.2
Nuclear fuel in process 5.4 5.7
Nuclear fuel under capital lease 95.2 95.2
------------ ------------
Total utility plant 4,656.6 4,664.1
------------ ------------
Investments and Other Assets 15.4 16.4
------------ ------------
Current Assets
Cash and cash equivalents 19.7 4.3
Accounts receivable (less allowance
for doubtful accounts of $3.0 million)
Service 136.5 129.4
Other 27.3 18.2
Accrued unbilled revenue 86.2 89.1
Materials and supplies,
at average cost 112.3 111.1
Prepayments and other 32.1 40.4
------------ ------------
Total current assets 414.1 392.5
------------ ------------
Deferred Charges
Deferred Clinton costs 104.7 107.3
Recoverable income taxes 93.9 128.7
Other 231.4 258.2
------------ ------------
Total deferred charges 430.0 494.2
------------ ------------
$ 5,516.1 $ 5,567.2
============ ============
</TABLE>
<TABLE>
ILLINOIS POWER COMPANY
CONSOLIDATED BALANCE SHEETS
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
CAPITAL AND LIABILITIES (Unaudited)
(Millions of Dollars)
<S> <C> <C>
Capitalization
Common stock -
No par value, 100,000,000 shares
authorized; 75,643,937 shares issued,
stated at $ 1,424.6 $ 1,424.6
Retained earnings 244.6 129.6
Less - Capital stock expense 8.2 8.8
Less - 3,410,897 and 2,696,086 shares of
common stock in treasury, respectively,
at cost 86.2 67.3
Preferred stock 96.6 125.6
Mandatorily redeemable preferred stock 197.0 97.0
Long-term debt 1,649.4 1,739.3
------------ ------------
Total capitalization 3,517.8 3,440.0
------------ ------------
Current Liabilities
Accounts payable 115.9 119.9
Notes payable 265.9 359.6
Long-term debt and lease
obligations maturing
within one year 94.7 95.0
Other 113.9 173.0
------------ ------------
Total current liabilities 590.4 747.5
------------ ------------
Deferred Credits
Accumulated deferred income taxes 1,038.4 1,019.1
Accumulated deferred investment
tax credits 217.6 222.8
Other 151.9 137.8
------------ ------------
Total deferred credits 1,407.9 1,379.7
------------ ------------
$ 5,516.1 $ 5,567.2
============ ============
</TABLE>
<TABLE>
ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
(Unaudited)
(Millions of Dollars)
<C> <C> <C> <C> <C>
Operating Revenues:
Electric $ 377.1 $ 410.5 $ 938.4 $ 977.2
Electric interchange 43.3 40.8 108.8 87.8
Gas 38.0 34.8 223.6 190.9
---------- ----------- ----------- -----------
Total 458.4 486.1 1,270.8 1,255.9
---------- ----------- ----------- -----------
Operating Expenses and
Taxes:
Fuel for electric plants 59.8 77.2 185.9 199.8
Power purchased 25.0 20.3 48.1 49.4
Gas purchased for resale 12.8 15.2 118.6 94.4
Other operating expenses 62.9 66.2 181.9 193.9
Maintenance 21.1 20.0 65.9 76.8
Depreciation & amortization 48.5 45.4 144.9 136.0
General taxes 32.6 34.7 102.0 104.0
Income taxes 62.4 127.2 119.0 69.9
----------- ---------- ------------ -----------
Total 325.1 348.9 974.5 973.3
----------- ---------- ------------ -----------
Operating Income 133.3 137.2 296.3 282.6
----------- ----------- ----------- -----------
Other Income and Deductions:
Allowance for equity funds
used during construction -- 0.2 -- 0.5
Miscellaneous - net (1.2) (3.8) (2.5) (0.2)
----------- ----------- ---------- ----------
Total (1.2) (3.6) (2.5) 0.3
----------- ----------- ---------- ----------
Income Before Interest
Charges 132.1 133.6 293.8 282.9
___________ ____________ __________ _________
Interest Charges and
Other:
Interest on long-term debt 28.8 33.4 90.0 101.2
Other interest charges 4.3 3.5 10.6 11.3
Allowance for borrowed funds
used during construction (1.6) (1.5) (5.2) (4.0)
----------- ----------- ----------- ----------
Total 31.5 35.4 95.4 108.5
----------- ----------- ----------- ---------
Net Income 100.6 98.2 198.4 174.4
Preferred dividend
requirements 5.5 5.8 16.8 18.8
Carrying amount under
consideration paid for
redeemed preferred stock (0.3) -- (0.8) --
of subsidiary ---------- ----------- ----------- -----------
Net Income applicable to
common stock $ 94.8 $ 92.4 $ 180.8 $ 155.6
========== =========== ========== ===========
</TABLE>
<TABLE>
ILLINOIS POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(See accompanying Notes to Consolidated Financial Statements)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
(Unaudited)
(Millions of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 198.4 $ 174.4
Items not requiring cash, net 200.8 198.6
Changes in assets and liabilities (39.7) (17.0)
------------- ------------
Net cash provided by operating 359.5 356.0
activities ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (129.2) (143.3)
Other investing activities 0.6 (4.7)
------------- ------------
Net cash used in investing (128.6) (148.0)
activities ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on preferred and common (81.1) (75.5)
stock
Repurchase of common stock (18.9) (49.0)
Redemptions -
Short-term debt (351.4) (154.3)
Long-term debt (92.1) (5.2)
Preferred Stock (29.1) (36.0)
Issuances
Short-term debt 257.7 77.1
Preferred Stock 100.0 --
Other financing activities (0.6) (1.8)
------------- ------------
Net cash used in financing activities (215.5) (244.7)
------------- ------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 15.4 (36.7)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 4.3 47.9
------------- ------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 19.7 $ 11.2
============= ============
</TABLE>
ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
Financial Statement note disclosures, normally included
in financial statements prepared in conformity with
generally accepted accounting principles, have been omitted
from this Form 10-Q pursuant to the Rules
and Regulations of the Securities and Exchange Commission.
However, in the opinion of Illinova Corporation (Illinova)
and Illinois Power Company (IP), the disclosures and
information contained in this Form 10-Q are adequate and not
misleading. See the consolidated financial statements and
the accompanying notes in Illinova's 1995 Annual Report to
Shareholders (included in the Proxy Statement), the
consolidated financial statements and the accompanying notes
in IP's 1995 Annual Report to Shareholders (included in the
Information Statement), Illinova's and IP's 1995 Form 10-K
filings to the Securities and Exchange Commission, and
Illinova's and IP's Report on Form 10-Q for the quarters
ended March 31, 1996 and June 30, 1996 for information
relevant to the consolidated financial statements contained
herein, including information as to certain regulatory and
environmental matters and as to the significant accounting
policies followed.
In the opinion of Illinova, the accompanying unaudited
consolidated financial statements for Illinova reflect all
adjustments necessary to present fairly the Consolidated
Balance Sheets as of September 30, 1996 and December 31,
1995, the Consolidated Statements of Income for the three
months and nine months ended September 30, 1996 and 1995,
and the Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995. In addition, it
is Illinova's and IP's opinion that the accompanying
unaudited consolidated financial statements for IP reflect
all adjustments necessary to present fairly the Consolidated
Balance Sheets as of September 30, 1996 and December 31,
1995, the Consolidated Statements of Income for the three
months and the nine months ended September 30, 1996 and
1995, and the Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995. Due to
seasonal and other factors which are characteristic of
electric and gas utility operations, interim period results
are not necessarily indicative of results to be expected for
the year.
ACCOUNTING MATTERS
CONSOLIDATION
The consolidated financial statements of Illinova
include the accounts of Illinova, IP, Illinova Generating
Company (IGC), Illinova Power Marketing, Inc. (IPMI) and
Illinova Energy Partners, Inc. (IEPI). 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
Illinova's and IP's Consolidated Statements of Income.
Investments and Other Assets - The increase in
Investments and Other Assets of $66 million reflects
Illinova's increase in subsidiary investment.
The consolidated financial statements of IP include the
accounts of Illinois Power Capital, L.P. and the accounts of
Illinois Power Financing I (IPFI). All significant
intercompany balances and transactions have been eliminated
from the consolidated financial statements.
IP's consolidated financial position and results of
operations are currently the principal factors affecting
Illinova's consolidated financial position and results of
operations.
REGULATORY AND LEGAL MATTERS
MANUFACTURED GAS PLANT SITES
IP's liability for Manufactured Gas Plant (MGP) site
remediation is $72.4 million. This amount represents IP's
best estimate of its remaining costs to remediate the 24 MGP
sites for which it is responsible. Because of the unknown
and unique characteristics of each site, IP is not able to
determine its ultimate liability for remediation. IP is
recovering MGP site cleanup costs from its customers through
tariff riders approved by the Illinois Commerce Commission
(ICC) in March 1996. In anticipation of full recovery of
MGP site costs, IP has recorded a regulatory asset
equivalent to its liability.
IP is continuing settlement discussions with its
insurance carriers regarding the recovery of estimated MGP
site remediation costs. A settlement has been reached with
six carriers, and negotiations are scheduled with four other
carriers. Litigation related to a suit filed by IP in
October 1995 seeking a declaratory judgment and damages
regarding insurance coverage for four MGP sites is in
progress. Any insurance recoveries received will cause the
regulatory asset to reduce by a corresponding amount.
TREASURY STOCK
IP repurchased 714,811 shares of its common stock from
Illinova during the six months ended June 30, 1996. There
were no additional purchases of treasury stock in the third
quarter of 1996. Through September 30, 1996, IP has
purchased 3,410,897 shares of its common stock, all of which
are held as treasury stock and are deducted from common
equity at the cost of the shares.
ENHANCED SEVERANCE
IP offered a voluntary enhanced severance program to
certain eligible employees during the fourth quarter of
1995. In December 1995, IP recorded a liability of $11.0
million to reflect the anticipated costs of the program,
based on the number of employees accepting severance.
Payments made to severed employees during the first nine
months of 1996 have reduced the liability by $8.9 million.
ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to the Notes to the Consolidated
Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations
presented in Illinova's 1995 Annual Report to Shareholders
(included in the Proxy Statement), the Consolidated
Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations
presented in IP's 1995 Annual Report to Shareholders
(included in the Information Statement), and Illinova's and
IP's Form 10-K for the year ended December 31, 1995, and
Illinova's and IP's Report on Form 10-Q for the quarters
ended March 31, 1996 and June 30, 1996.
ILLINOVA SUBSIDIARIES
IP is the primary business and subsidiary of Illinova
and engages in the generation, transmission, distribution
and sale of electric energy and the distribution,
transportation and sale of natural gas in the State of
Illinois.
IGC is a wholly-owned independent power subsidiary of
Illinova and invests in energy supply projects throughout
the world. IGC's strategy is to invest in and develop
"greenfield" power plants, acquire existing generation
facilities and provide power plant operations and
maintenance services.
IPMI is a wholly-owned subsidiary of Illinova and
engages in the brokering and marketing of electric power and
gas. IPMI commenced operations in wholesale electricity
transactions in the western United States in September 1995.
In May 1996, IPMI expanded operations to include the
Midwestern United States.
IEPI is a wholly-owned subsidiary of Illinova formed in
May 1996. IEPI develops and markets energy-related services
to the unregulated energy market throughout the United
States. IEPI has incorporated the project management
practice of the Illinova Energy Services group, a division
within Illinova.
Illinova Insurance Company (IIC) is a wholly-owned
subsidiary of Illinova and was licensed by the State of
Vermont as a captive insurance company in August 1996. The
primary business of IIC is to insure certain risks of
Illinova and its subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL RESOURCES AND REQUIREMENTS
Cash flows from operations during the first nine months
of 1996 provided sufficient working capital to meet ongoing
operating requirements, to service existing common and IP
preferred stock dividends and debt requirements and all of
IP's construction requirements. Additionally, Illinova
expects 1996 cash flows will enable it to meet operating
requirements and continue to service IP's existing debt,
IP's preferred and Illinova's common stock dividends, IP's
sinking fund requirements and IP's anticipated construction
requirements. IP periodically repurchases shares of its
common stock from Illinova to provide Illinova cash for
operations, in accordance with authority granted by the ICC.
During the first nine months of 1996, IP made purchases of
714,811 shares.
IPFI is a statutory business trust in which IP serves
as sponsor. IPFI issued $100 million of trust originated
preferred securities (TOPrS) at 8% (4.8% after-tax rate) in
January 1996. IPFI issued the TOPrS and invested the
proceeds in an equivalent amount of IP subordinated
debentures due in 2045. IP used the proceeds to repay short-
term indebtedness on varying dates on or before March 1,
1996. IP incurred the indebtedness in December 1995, to
redeem $95.3 million (principal value) of higher-cost
outstanding preferred stock of IP.
Since the beginning of 1996, IP has redeemed
approximately $121 million of bonds and preferred stock
through open-market purchases and the May 15, 1996 preferred
stock redemption. In addition, on October 1, 1996, $40
million of IP's 5.85% first mortgage bonds matured. IP has
been actively reducing its long-term debt as cash flows from
operations and short-term debt borrowings allow.
IP's capital requirements for construction were
approximately $129 million and $143 million during the nine
months ended September 30, 1996 and 1995, respectively.
Illinova and IP currently have total lines of credit
represented by bank commitments of $150 million and $354
million, respectively. Both Illinova and IP have adequate
short- and intermediate-term bank borrowing capacity.
Illinova has borrowed $57 million under its line of credit
to support financing requirements of its non-regulated
subsidiaries. Currently, Illinova is reviewing additional
financing alternatives to provide cash for operations.
Presently, IP's mortgage bonds are rated Baa1 by
Moody's, BBB+ by Duff & Phelps, and BBB by Standard &
Poor's. IP's preferred stock is rated Baa2 by Moody's and
BBB- by both Duff & Phelps and Standard & Poor's.
In September 1996, Illinova and IPMI announced an
agreement in principle with Soyland Power Cooperative, Inc.
(Soyland) addressing potential changes to the Clinton Power
Station (Clinton) joint ownership agreement and power supply
agreement between IP and Soyland. Soyland's ownership share
of Clinton is expected to be transferred to a subsidiary of
Illinova and IPMI is expected to become an agent of Soyland
for administration of the IP-Soyland power supply agreement
and for meeting Soyland's other capacity and energy needs.
Illinova, IP, IPMI and Soyland are negotiating a definitive
power supply agreement.
ACCOUNTING ISSUES
IP is considering seeking regulatory approval to
increase the rate at which its generation-related assets are
expensed. Because this change is viewed as discretionary,
and subject to regulatory approval, the rate of such
increase, if any, will be based on then current conditions
and financial performance. The increase in expense could
begin as early as the first quarter of 1997 and could amount
to at least $400 million in the aggregate through the year
2001, and potentially more thereafter, depending on changes
in regulation, the marketplace, and financial performance.
This reduction in the installed cost of IP's generating
assets should help position the Company to operate
competitively and profitably in the changing business
environment. This acceleration of expense would have a
direct impact on earnings but not on cash flow.
REGULATORY MATTERS
NUCLEAR REGULATORY COMMISSION REVIEW OF CLINTON POWER
STATION
On September 6, 1996, leakage at a recirculation pump
seal caused IP operations personnel to shut down Clinton.
This event prompted two special teams inspections by the
Nuclear Regulatory Commission (NRC). The first inspection
covered the events associated with the leaking pump seal and
the shutdown, while the second focused more broadly on
operations at Clinton. In a public meeting held on October
4, 1996, the NRC discussed its findings, expressing concern
over both the handling of the pump seal problem and general
operating philosophies but also commending subsequent
actions taken by IP to address the issues raised by the
inspections.
Clinton has been shut down since the September 6 event.
On October 4, IP announced that the station would not be
restarted prior to the refueling outage that began on
October 13. The outage plan calls for Clinton to be back on
line by the end of 1996. Currently, the Company does not
expect the shutdown to have a material impact on the
consolidated financial position or results of operations.
OPEN ACCESS AND WHEELING
IP continues to work with other interested parties in
the state to propose legislation that would allow a managed
transition to direct access for all consumers. Such
legislation would be designed to provide an orderly
transition to direct access for all customers, and balance
financial stability for current utility providers with
customer choice. Although there is support for such
legislation among a number of constituencies, there are no
assurances that such legislation will be introduced or be
adopted, or what its final form may be.
ENVIRONMENTAL MATTERS
GAS MANUFACTURING SITES
See "Manufactured Gas Plant Sites" under "Regulatory
and Legal Matters" of the Notes to Consolidated Financial
Statements on page 11.
NITROGEN OXIDE
Regulators in the Chicago and metropolitan areas of the
Northeast are examining potential approaches for compliance
with current federal ozone level requirements impacted by
nitrogen oxide (NOx) emissions. A regulatory initiative is
underway to examine recommendations on reducing the amount
of ozone transported across the eastern United States. Such
actions could make IP's fossil-fuel generating plants less
competitive.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Electric Operations - The electric margin (revenue less
cost of fuel and purchased power) for the third quarter of
1996 decreased by $18.2 million compared to the third
quarter of 1995. This decrease in margin was primarily
caused by a decrease in electric revenues for the current
quarter of $33.4 million, representing a 6.4% decrease in
kwh sales. There were approximately 270 fewer cooling degree
days in the third quarter of 1996 compared to the same time
frame in 1995, resulting in a 12.4% decrease in kwh sales
and $22.7 million decrease in revenues to the temperature-
sensitive residential market. The industrial and commercial
revenue markets decreased $6.2 million and $3.8 million
respectively, representing decreases of 3.2% and 3.7% in kwh
sales. Costs of fuel for electric plants decreased $17.4
million during the third quarter due to decreased sales and
the impacts of the Uniform Fuel Adjustment Clause (UFAC).
The equivalent availability of IP's Clinton Power
Station (Clinton) was 71.5% and 94.2% for the three months
ended September 30, 1996 and 1995, respectively. The lower
equivalent availability for Clinton in 1996 was due to an
unscheduled outage which began September 6. The equivalent
availability for IP's coal-fired plants was 88.1% and 91.8%
for the three months ended September 30, 1996 and 1995,
respectively.
Gas Operations - Gas revenues increased $3.2 million
in the third quarter of 1996. Although therms transported
decreased 10.5% (6.4 million therms) and therm sales
decreased 2.2% (1.0 million therms) resulting in a total
decrease in gas consumption of 7.1% (7.4 million therms), an
increase in the Purchased Gas Adjustment(PGA) price resulted
in an overall increase to gas revenues. A revision in the
methodology of the PGA calculation in the third quarter
resulted in an increase to the Uniform Gas Adjustment Clause
(UGAC) underrecovery of $4.0 million.
Operation and Maintenance Expense - The current quarter
decrease of $2.2 million dollars is primarily due to lower
labor expenses resulting from IP's reengineering efforts.
These savings were partially offset by increased MGP
remediation costs. While this has had the effect of
increasing operation expense, the increase has been offset
by increased revenues collected under the riders.
Interest Charges - Total interest charges decreased by
$4.2 million due to lower short-term interest rates and the
impact of refinancing efforts and capitalization reduction
during the third quarter of 1996.
Earnings per Common Share - The earnings per common
share for Illinova during the third quarter of 1996 and 1995
resulted from the interaction of all other factors discussed
herein.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Electric Operations - The electric margin (revenue less
cost of fuel and purchased power) for the first nine months
of 1996 decreased by $2.6 million compared to the same
period of 1995. This decrease in margin was primarily
caused by a decrease in electric revenues of $38.8 million.
This was partially offset by the greater availability of
IP's generating stations by improved sales opportunities in
1996 which resulted in an $21 million increase in
interchange revenues. Additionally, the same increase in
availability also allowed IP to cut the cost of purchased
power by $1.3 million during the current period.
Revenues were unfavorably impacted by a decrease in
industrial sales. Led by declining sales in the foods,
metals and mining segments, industrial revenues decreased by
6.9%. Total residential revenues decreased 4.3% while
commercial revenues remained relatively constant. The
decrease in residential revenue is largely due to 206 fewer
cooling degree days in the first nine months of 1996.
The equivalent availability of Clinton was 87.9% and
71.5% for the nine months ended September 30, 1996 and 1995,
respectively. The lower equivalent availability for Clinton
in 1995 was due to a 49-day scheduled maintenance and
refueling outage. The equivalent availability for IP's coal-
fired plants was 83.3% and 81.7% for the nine months ended
September 30, 1996 and 1995, respectively.
Gas Operations - Gas revenues increased $32.7 million
in the first nine months of 1996. Therm sales increased
18.0% (71.0 million therms) and therms transported decreased
resulting in an increase in gas consumption of 7.7% (46.3
million therms). Residential sales increased 16.9% (40.3
million therms), commercial sales increased 20.6% (20.1
million therms) and industrial sales decreased 5.4% (14.1
million therms). The increase in gas sales is due primarily
to colder winter weather as compared to 1995, which had a
milder than normal winter.
The cost of gas purchased for resale increased $24.2
million in the first nine months of 1996. Higher prices
increased the cost of gas by $25.7 million and an increase
in the volume sold further increased the cost of gas. These
increases were partially offset by the effects of the UGAC.
Operation and Maintenance Expense - The decrease of
$22.9 million dollars is primarily due to lower labor
expenses resulting from IP's reengineering efforts and the
absence of costs associated with a Clinton refueling outage
occurring in the first half of 1995. Additionally, new
tariff riders approved by the ICC in March 1996 have
resulted in the accelerated recognition of MGP site
remediation costs. While this has had the effect of
increasing operation expense, the increase has been offset
by increased revenues collected under the riders.
Miscellaneous - Net - The increase in net deductions of
$5.9 million is due to increased operating costs at Illinova
and its unregulated subsidiaries, partially offset by
increased equity earnings of the subsidiaries.
Interest Charges - Total interest charges decreased by
$15.1 million due to lower short-term interest rates and the
impact of refinancing efforts and capitalization reduction
during the first nine months of 1996.
Earnings per Common Share - The earnings per common
share for Illinova during the first nine months of 1996 and
1995 resulted from the interaction of all other factors
discussed herein.
PART II. OTHER INFORMATION
ITEM 1.
Legal Proceedings
See "Notes to Consolidated Financial Statements" in
Part I for a discussion of certain legal proceedings related
to manufactured gas plant sites.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibits filed with this 10-Q are listed
on the Exhibit Index.
(b) Reports on Form 8-K since June 30, 1996:
Report filed on Form 8K on August 21, 1996
Report filed on Form 8K on September 13, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
ILLINOVA CORPORATION
(Registrant)
By
--------------------------
Larry F. Altenbaumer,
Chief Financial Officer,
Treasurer and Controller
on behalf of
Illinova Corporation
Date: November 14, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
ILLINOIS POWER COMPANY
(Registrant)
By
----------------------
Larry F. Altenbaumer,
Senior Vice President,
Chief Financial Officer and
Treasurer on behalf of
Illinois Power Company
Date: November 14, 1996
EXHIBIT INDEX
PAGE NO. WITHIN
SEQUENTIAL
NUMBERING
EXHIBIT DESCRIPTION SYSTEM
27 Financial Data Schedule UT
(filed herewith)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET, INCOME STATEMENT AND CASH FLOW STATEMENT
OF ILLINOVA CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE BALANCE SHEET, INCOME STATEMENT AND CASH FLOW
STATEMENT OF ILLINOVA CORPORATION.
<MULTIPLIER>1,000,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
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<TOTAL-NET-UTILITY-PLANT> 4657
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<OTHER-ASSETS> 0
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197
97
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<CAPITAL-LEASE-OBLIGATIONS> 62
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<OTHER-OPERATING-EXPENSES> 848
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<OTHER-INCOME-NET> (3)
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17
<EARNINGS-AVAILABLE-FOR-COMM> 181
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