Measures of Our Success
Illinova 1995 Proxy Statement
and 1995 Annual Report to
Stockholders
we will be the best by the year 2000
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notice of annual meeting of shareholders
Proxy Statement
Table of Contents
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Notice of Annual Meeting 2
Proxy Statement 3
Appendix:
1995 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 ("Illinova") will be held at 10 a.m. Wednesday, April 10, 1996,
at Shilling Community Education Center, Richland Community College, One
College Park, Decatur, Illinois 62521, 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 12, 1996, 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, 1996
IMPORTANT
Illinova invites each of its approximately 35,000 shareholders to attend the
Annual Meeting. Shareholders will be admitted on 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 Illinova
is enclosed for that purpose.
Return of your executed proxy will ensure you are represented at the Annual
Meeting. Your cooperation is 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 Illinova, for use at the Annual Meeting of
Shareholders to be held at Shilling Community Education Center, Richland
Community College, One College Park, Decatur, Illinois 62521, at 10 a.m.
Wednesday, April 10, 1996, 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 Illinova 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 Illinova's Automatic
Reinvestment and Stock Purchase Plan, and Employees Stock Ownership Plan,
and Illinois Power Company's ("Illinois Power") 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 12, 1996
(the "Record Date"), will be entitled to receive notice of and to vote at the
Annual Meeting. As of such date, Illinova had outstanding 75,674,837 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 Illinova'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 11 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 on 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 Illinova
for the year 1995. This Proxy Statement and accompanying documents are first
being mailed to shareholders on or about March 1, 1996.
Board of Directors
Information Regarding
the Board of Directors
The Board of Directors held six Board meetings during 1995. All directors
attended at least 75% of the aggregate meetings of the Board and Committees
of which they were members during 1995. The Board has four standing
committees: the Audit Committee, the Finance Committee, the Compensation and
Nominating Committee, and the Business Development 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 Illinova'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
Illinova'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 three times during 1995.
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
Illinova's banking relationships, short-term borrowing arrangements, dividend
policies, arrangements with the transfer agent and registrar, investment
objectives and the performance of Illinova'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 during 1995.
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 (until his retirement on December 31, 1995), and Vernon K.
Zimmerman.
Compensation and
Nominating Committee
(1) Review performance and recommend salaries plus other forms of compensation
of elected Illinova officers and the Board of Directors; (2) review Illinova's
benefit plans for elected Illinova 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 Illinova, 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 Illinova not
less than 90 nor more than 120 days prior to the Annual Meeting.
The Compensation and Nominating Committee met four times during 1995.
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.
Business development Committee
(1) Review corporate objectives of Illinova, consider appropriate structure
changes to meet corporate objectives and make recommendations to the Board
concerning such matters; (2) review Illinova'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 Business Development Committee met once during 1995.
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 Illinova 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 650 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.
Illinova 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. On
February 7, 1996, the Board of Directors approved a compensation plan that
eliminates the Retirement Plan. Each former Outside Director whose right
to receive the retirement benefit has vested will continue to receive such
benefits in accordance with the terms of the Retirement Plan. All current
Outside Directors will receive a lump sum payment based on the net present
value of these benefits to them, were they to have retired under the
Retirement Plan, based on the number of years they have served on the Board
but not to exceed 10. Thereafter, each Outside Director will receive an
annual award of stock units having a value of $6,000, to be paid to the
Outside Director in cash on retirement, at once or in installments as the
Director may elect, together with dividend equivalents attributable to such
stock units.
Pursuant to Illinova's Deferred Compensation Plan for Certain Directors, the
Outside Directors may elect to defer all or any portion of their fees and
stock grants until termination of their services as directors. Such deferred
amounts are converted into stock units representing shares of Illinova'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. On
termination of participating directors' services as directors, payment of
their deferred fees and stock grants is made in shares of Common Stock in
an amount equal to the aggregate number of stock units credited to their
accounts. Such payment is made in such number of annual installments as
Illinova may determine beginning in the year following the year of
termination.
Election of Directors
Illinova'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 11 directors
nominated by Illinova's Board of Directors. The names and certain additional
information concerning each of the director nominees is set forth below. 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 Illinova. If any nominee should be unable to serve
as a director, another nominee will be selected by the current Board of
Directors.
Name of Director Nominee, Age, Year in Which First
Business Experience and Elected a Director
Other Information of Illinova
Richard R. Berry, 64 1988
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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, 58 1986
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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.
C. Steven McMillan, 50
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Executive Vice President and Director of Sara Lee Corporation, Chicago,
Illinois, a global packaged food and consumer products company, since 1993.
He had previously been Senior Vice President-Strategy Development from 1986
to 1993. He is Chairman of the Board of Electrolux Corporation and a director
of J. P. Food Service.
Donald S. Perkins, 68 1988
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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 a director of AT&T, Aon Corporation, Cummins Engine Company, Inc.,
Current Assets, Inland Steel Industries, Inc., LaSalle Street Fund, Inc.,
The Putnam Funds, Spring Industries, Inc., and Time Warner, Inc.
Robert M. Powers, 64 1984
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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 a director of A. E.
Staley Manufacturing Company.
Walter D. Scott, 64 1990
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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, 46 1991
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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, a director of McDonnell Douglas Corporation, and a
director of Teachers Insurance and Annuity Association.
Walter M. Vannoy, 68 1990
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Prior to retirement in May 1995, Mr. Vannoy was Chairman and Chief Executive
Officer of Figgie International, Inc., Willoughby, Ohio, a diversified
operating company serving consumer, industrial, technical, and service markets
world-wide, since 1994. He is a director of Figgie International, Inc.
Marilou von Ferstel, 58 1990
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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 1981 to
1990. Ms. von Ferstel is a director of Walgreen Company.
John D. Zeglis, 48 1993
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Senior Executive Vice President-General Counsel, Government Affairs, and
Policy Development of AT&T, Basking Ridge, New Jersey, a diversified
communications company, since 1995. He had been Senior Vice President-General
Counsel and Government Affairs from 1989 to 1995. He is a director of the
Helmerich & Payne Corporation.
Vernon K. Zimmerman, 67 1973
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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 ICH Corporation.
Security Ownership of Management and Certain Beneficial Owners
The following table shows shares of stock beneficially owned as of January 31,
1996, by each director nominee and the executive officers named in the
Summary Compensation Table. To the best of Illinova's knowledge, no owner
holds more than 5 percent of Illinova Common Stock.
Number
of Shares
Name of Class Beneficially Percent
Beneficial Owner of Stock Owned (1) of Class
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Richard R. Berry Common 3,580 (2)
Larry D. Haab Common 10,185 (2)
C. Steven McMillan Common 0 (2)
Donald S. Perkins Common 8,112 (2)
Robert M. Powers Common 7,250 (2)
Walter D. Scott Common 3,850 (2)
Ronald L. Thompson Common 3,127 (2)
Walter M. Vannoy Common 3,350 (2)
Marilou von Ferstel Common 4,112 (2)
John D. Zeglis Common 2,390 (2)
Vernon K. Zimmerman Common 8,401 (2)
Charles W. Wells Common 8,585 (2)
Paul L. Lang Common 2,734 (2)
Larry F. Altenbaumer Common 4,179 (2)
Larry S. Brodsky Common 1,713 (2)
(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) No director or executive officer owns any other equity securities of
Illinova. No director or executive officer owns as much as 1% of the Common
Stock. All directors and executive officers of both Illinova and Illinois
Power Company as a group own 80,299 shares of Common Stock (less than 1%).
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 Illinova and Illinois Power Company, its principal subsidiary, for the years
indicated. The compensation shown includes all compensation paid for service
to Illinova and its subsidiaries, including Illinois Power.
<TABLE>
Summary Compensation Table
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Compensation
_________________________________________________
Annual Compensation Awards Payouts
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Other Restricted Securities LTIP All Other
Bonus Annual Stock Awards Underlying Payouts Compensation
Name and Principal Position (1) Year Salary (2) Compensation (3) Options (4) (5)
Larry D. Haab 1995 $472,250 $76,975 $19,088 $76,975 20,000 shs. $43,597 $2,550
Chairman, President and 1994 451,375 42,881 15,783 20,900 shs. 360
Chief Executive Officer of 1993 437,500 22,531 13,199 20,000 shs. 480
Illinova and Illinois Power
Charles W. Wells 1995 $318,863 $ 33,734 $ 22,342 $ 33,734 -- $ 24,392 $2,470
Executive Vice President 1994 276,625 25,242 12,404 8,500 shs. 330
of Illinois Power 1993 265,875 12,629 9,697 6,500 shs. 357
Paul L. Lang 1995 $ 222,812 $ 20,499 $ 8,265 $ 20,499 6,500 shs. $ 20,360 $ 2,510
Senior Vice President 1994 213,562 20,289 8,672 6,800 shs. 440
of Illinois Power 1993 205,625 9,767 7,508 6,000 shs. 440
Larry F. Altenbaumer 1995 $ 204,937 $ 17,317 $ 7,686 $ 17,317 6,500 shs. $ 16,084 $ 2,378
Chief Financial Officer, 1994 196,562 18,674 8,975 6,800 shs. 400
Treasurer and Controller 1993 187,750 8,918 7,093 6,000 shs. 480
of Illinova, and Senior
Vice President, Chief
Financial Officer, and
Treasurer of Illinois Power
Larry S. Brodsky 1995 $ 196,000 $ -- $ 5,120 $ - 6,500 shs. $ 14,179 $ 2,190
Senior Vice President 1994 $ 174,186 $ 16,548 $ 4,973 4,400 shs. 400
of Illinois Power 1993 157,875 8,131 4,220 4,500 shs. 400
</TABLE>
(1) Mr. Wells retired from Illinois Power on December 31, 1995. Mr. Brodsky
resigned from Illinois Power on January 2, 1996.
(2) 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") for 1995, including amounts deferred under the Executive
Deferred Compensation Plan. See the Compensation Plan description in footnote
(3) below.
(3) This table sets forth stock unit awards for 1995 under the Compensation
Plan. One-half of each year's award under this plan is converted into stock
units representing shares of Illinova 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 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 piad based on the closing price of Common Stock on
the first trading day of the distriubtion year. Particpants (or beneficiears 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. Particpants 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 Illinova, without good cause or by any
participant with good reason, all awards of the paricipant becme fully vested
and payable. As of December 31, 1995, 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, 1995: Mr. Haab, 8,253 units valued at
$247,603; Mr. Wells, 3,758 units valued at $112,759; Mr. Lang, 2,807 units
valued at $84,211; Mr. Altenbaumer, 2,439 units valued at $73,187; Mr. Brodsky,
474 units valued at $14,238. Although stock units have been rounded, valuation
is based on total stock units, including partial shares.
(4) The amounts shown in this column reflect the cash value of the stock units
granted in 1993 for the year 1992, including amounts deferred, under the
Compensation Plan. See the Compensation Plan description in footnote (3) above.
(5) The amounts shown in this column are Illinois Power's contributions
under the Incentive Savings Plan (including the market value of shares of
Illinova Common Stock at the time of allocation).
The following tables summarize grants during 1995 of stock options under
Illinova'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 1995.
Option Grants In 1995
Individual Grants
<TABLE>
Number of Securities % of Total Options
Underlying Options Granted to Employees Exercise or Base Grant Date
Granted(1) in 1995 Price Per Share(1) Expiration Date Present Value (2)
<S> <C> <C> <C> <C> <C>
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Larry D. Haab 20,000 29% $ 24.875 6/14/2004 $ 117,800
Charles W. Wells 0
Paul L. Lang 6,500 9% 24.875 6/14/2004 38,285
Larry F. Altenbaumer 6,500 9% 24.875 6/14/2004 38,285
Larry S. Brodsky 6,500 9% 24.875 6/14/2004 38,285
</TABLE>
(1) Each option becomes exercisable on June 30, 1998. 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 change-in-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. Recipients shall also receive, on or shortly after June
30, 1998, a payment equal to a percentage of the total dividends declared
and paid on Illinova Common Stock during the period between the date of
this grant and June 30, 1998 calculated by multiplying the number of shares
of Common Stock granted hereunder times the total amount of dividends
paid per share of Common Stock during the holding period, times a percentage
based on Illinova total shareholder return ranking relative to the S & P
Electric Utility Group. At the discretion of the Board of Directors, the
foregoing payment may be made in the form of Illinova Common Stock of
equivalent value based on the average New York Stock Exchange price of
the stock during June 1998, or in cash.
(2) The Grant Date Present Value has been calculated using the Black-Scholes
option pricing model. Disclosure of the Grant Date Present Value,
or the potential realizable value of option grants assuming 5% and 10%
annualized growth rates, is mandated by regulation; however, Illinova 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 calculation was based on the following assumptions: (i) An
annual dividend yield on Illinova Common Stock of 3.80%; (ii) A risk-free
interest rate of 6.40%, based on the yield of a zero-coupon government bond
maturing at the end of the option term; and (iii) Stock volatility of 19.73%.
Aggregated Option and Fiscal Year-End Option Value Table
<TABLE>
<S> <C> <C>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options at Fiscal Year-End Options at Fiscal Year-End
Name Exercisable/Unexercisable Exercisable/Unexercisable
Larry D. Haab 0 shs./76,900 shs. 0/$514,212
Charles W. Wells 0 shs./21,000 shs. 0/$154,687
Paul L. Lang 0 shs./24,300 shs. 0/$162,987
Larry F. Altenbaumer 0 shs./24,300 shs. 0/$162,987
Larry S. Brodsky 0 shs./18,400 shs. 0/$119,212
</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
(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 the 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.
Estimated Annual Benefits (rounded)
-------------------------------------
Annual
Average 15 Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs.
Earnings Service Service Service Service Service
$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
The earnings used in determining pension benefits under the Retirement Plan
are the participants' regular base compensation, as set forth under Salary in
the Summary Compensation Table.
At December 31, 1995, for purposes of both the Retirement Plan and the
Supplemental Plan, Messrs. Haab, Wells, Lang, Altenbaumer, and Brodsky had
completed 30, 32, 9, 23, and 21 years of credited service, respectively.
Employee Retention Agreements
Illinova has entered into Employee Retention Agreements with each of its
executive officers and officers of its subsidiaries. Under each agreement,
the officer would be entitled to receive a lump sum cash payment if his or
her employment were terminated by Illinova without good cause or voluntarily
by the officer for good reason within two years following a change in control
of Illinova Corporation (as defined in the Agreement). The amount of the lump
sum payment would be equal to (1) 36 months' salary at the greater of the
officer's salary rate in effect on the date the change in control occurred or
the salary rate in effect on the date of the officer's employment with
Illinova terminated; plus (2) three times the latest bonus earned by the
officer during the three calendar years preceding termination of employment.
Under the agreement, the officer would continue, after any such termination
of employment, to participate in and receive benefits under other benefit
plans of Illinova. Such coverage would contnue for 36 months following
termination of employment, or, if earlier, until the officer reached age
65 or was employed by another employer; provided that, if the officer
was 50 years of age or older at the time of such termination, then coverage
under health, life insurance and similar welfare plans would continue
until the officer became 55 years of age, at which time he or she would
be eligible to receive the benefits extended to the employees of Illinova
who elect early retirement.
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
Illinova'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. Illinova's compensation policy
is to provide a total compensation opportunity targeted to all utilities in
the Edison Electric Institute (EEI) database. Eighty-four percent of the
companies in the S&P Utilities Index are also in the EEI database. The
S&P Utilities Index is used to relate Illinova'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 Illinova's shareholders. The
compensation program is structured so that, depending on the salary level,
between 25 and 45 percent of an officer's total compensation target is
composed of incentive compensation.
Base Salary Plan
The Committee determines base salary ranges for executive officers based on
competitive pay practices of a peer group of utilities. Officer salaries
correspond to approximately the average of the companies in the compensation
peer group. Individual increases are 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.
Annual Incentive Compensation Plan
Annual incentive awards are earned based on the achievement of specific
annual financial and operational goals by the elected officer group as a
whole and consideration of the officer's individual contribution. If payment
is earned under this 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 1995, 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. Up to 25 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 1995 were based on the following results. Earnings per Share, Customer
Satisfaction and Cost Management were at or better than the threshold level
for the award. Employee Teamwork results were not known at the time of printing.
Long-Term Incentive Compensation Plan
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, dividend equivalents or restricted stock grants. The
stock options and dividend equivalents granted to the officers for 1995
represent a long-term incentive award based on Illinova and individual
performance as evaluated by the Chairman and reviewed by the Committee. The
actual number of dividend equivalents earned is determined by Illinova's
total shareholder return compared to the companies in the S&P Utility
Index.
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 Illinova in December 1993. Illinova based Mr. Haab's 1995
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 Illinova. At the
conclusion of the year Mr. Haab reviews his performance with the non-management
directors. The Committee oversees this review and recomends to the board
appropriate adjustments to compensation. In setting the CEO's salary for
1995, the Committee, with the participation of all Outside Directors,
determined that important goals were achieved and the results for Illinova
for the year were excellent. Mr. Haab's vision of the industry's evolution
has led, and is continuing to lead, to appropriate redeployment of Illinova
resources. The Committee concluded that in 1995 Mr. Haab's performance
continued to advance Illinova toward the accomplishment of its strategic
objectives.
The 1995 Annual Incentive 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 2,566 stock units which vest over a
three-year period as described above.
The 20,000 option shares and dividend equivalents granted to the CEO reflect
the Committee's recognition of his work in directing Illinova towards 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
Stock Performance Graphs
The following performance graphs compare the cumulative total shareholder
return on Illinova'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,
1990, through December 31, 1995, and (ii) December 31, 1992, through December
31, 1995.
Comparison of Five-Year
Cumulative Total Return
Among Illinova, S&P 500 Index, S&P Midcap 400 Index, and S&P Utilities Index.
1991 1992 1993 1994 1995
Illinova 146 142 147 151 216
S & P 500 130 140 155 157 215
S & P MidCap 400 150 168 191 185 242
S & P Utilities 114 124 141 130 184
Assumes $100 invested on December 31, 1990, in Illinova's Common Stock, S&P 500
Index, S&P MidCap 400 Index, and S&P Utilities Index.
* Fiscal year ended December 31
Comparison of Three-Year
Cumulative Total Return
Among Illinova, S&P 500 Index, S&P Midcap 400 Index, and S&P Utilities Index.
1993 1994 1995
Illinova 103 106 152
S&P 500 110 112 153
S&P MidCap 400 114 110 144
S&P Utilities 114 105 149
Assumes $100 invested on December 31, 1992, in Illinova's Common Stock, S&P 500
Index, S&P MidCap 400 Index, and S&P Utilities Index.
*Fiscal year ended December 31
Independent Auditors
The Board of Directors of Illinova has selected Price Waterhouse LLP as
independent auditors for Illinova for 1996. 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
Illinova's 1995 Summary Annual Report to Shareholders was mailed to
shareholders commencing on March 1, 1996. Copies of Illinova's Annual Report
on Form 10-K will be available to shareholders, after its filing with the
Securities and Exchange Commission on or before March 31, 1996. Requests
should be addressed to Investor Relations, G-21, Illinova Corporation,
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 Illinova's executive offices not later than November 1,
1996.
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, 1996
appendix: 1995 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
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. A
discussion of the factors having significant impact upon consolidated
financial position and consolidated results of operations since January 1,
1993, is 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; Illinova Generating Company (IGC),
which invests in energy-related projects throughout the world; and Illinova
Power Marketing, Inc. (IPMI), which is in the business of marketing energy,
energy-related services and natural gas.
On May 16, 1995, IPMI gained Federal Energy Regulatory Commission (FERC)
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. In January 1995, IPMI 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 consolidated financial position
and results of operations are currently the principal factors affecting
Illinova's consolidated financial position and results of operations.
Open Access and Wheeling
On March 29, 1995, the FERC issued a Notice of Proposed Rulemaking (NOPR)
designed to encourage a more fully competitive wholesale electric market
through mandated open access to public utility transmission facilities, at
rates to be determined, at the outset, by the FERC. Transmission of
electricity for a customer who is not an end-user, or for delivery to an
end-user who is not a customer of the transmitting utility is called,
respectively, wholesale wheeling and retail wheeling. Under the FERC's
proposal, all transmission-owning public utilities were required to file
nondiscriminatory open-access transmission tariffs, available to all
wholesale sellers and buyers of electric energy.
On March 20, 1995, IP filed three transmission service tariffs that offer
eligible transmission customers the same or comparable transmission service
on terms comparable to service IP provides itself. On May 16, 1995, the FERC
accepted IP's open-access tariff filings. It's too soon to predict the long-
term financial inpact of increasing access and other issues arising from such
access.
Competition
In March 1995, IP was instrumental in developing a legislative proposal,
Energy Choice 2000, which is designed to reform Illinois' regulatory laws
governing utilities. Energy Choice 2000 establishes the framework for a
managed transition for utilities to operate in an increasingly competitive
environment. The proposal outlines a time frame for all classes of customers
to benefit from competition, beginning in the year 2000. In May 1995, the
Illinois General Assembly passed Senate Joint Resolution 21, which established
the Joint Committee on Electric Utility Regulatory Reform and directed it to
use Energy Choice 2000 "as a key element for developing legislative proposals
for reducing regulation, increasing customer choice and promoting and
facilitating competition in Illinois' electirc utility industry." The Joint
Committee on Electric Utility Regulation Reform is directed to proivde a
final legisltaion proposal during the fourth quarter of 1996.
On September 11, 1995, IP filed a proposal with the Illinois Commerce
Commission (ICC) seeking its approval to conduct an open-energy access
experiment beginning in 1996. The experiment would allow approximately 20
industrial customers to purchase electricity and related services from other
sources. IP would transmit (wheel) the electricity over its lines. IP will
seek FERC approval of the experiment after receipt of ICC approval,
anticipated in the second quarter of 1996.
The maximum total load involved in this experiment represents approximately 1
percent of IP's total load, or about $7.5 million in net annual revenue. IP
expects the earnings impact to be immaterial. Any loss of sales would be
partially offset by revenues obtained by selling the surplus energy and
capacity on the open market and by transmission and ancillary service charges
necessary for customers to obtain energy from an alternative supplier, as well
as by corresponding reductions in fuel and other variable operating costs.
The open-access experiment will allow IP to evaluate the financial,
operational and service impacts of transporting power from other suppliers
to customers. Additionally, regulators and legislators will benefit from the
experiment by observing open-energy access in a "laboratory setting" while
they look for ways to bring the benefits of competition to all customers.
Finally, it will give customers opportunity to gain experience in arranging
their power supplies and transmission requirements and managing their
operations under an open-energy access scenario.
The issue of competition is one that raises both risks and opportunities. At
this time, the ultimate effect of competition on Illinova's 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.
Enhanced Retirement
In December 1994, IP announced plans for voluntary enhanced retirement and
severance programs. During the fourth quarter of 1995, 727 employees accepted
enhanced retirement or severance under these programs. At January 1, 1996,
Illinova employed 3,596 people, as compared to 4,350 at December 31, 1994.
The combined enhanced retirement and severance programs generated a pre-tax
charge of $38 million against fourth quarter 1995 earnings and will generate
savings of approximately $36 million annually, starting in 1996.
Consolidated Results
of Operations
Overview
Earnings (loss) applicable to common stock were $148 million for 1995, $158
million for 1994 and $(82) million for 1993. Earnings (loss) per common share
were $1.96 for 1995 ($2.26 before the one-time charge of $38 million for
enhanced retirement and severance), $2.09 for 1994 and $(1.08) for 1993. The
1995 earnings per share include $(.30) net-of-tax for the enhanced retirement
and severance program and $(.05) for the carrying amount under consideration
paid for IP preferred stock redeemed in December 1995. The 1995 earnings also
reflect increased electric sales due to unseasonably warm summer weather,
partially offset by increased operating and maintenance expenses due to the
Clinton Power Station (Clinton) refueling and maintenance outage.
The 1994 earnings per share include $.08 for the carrying amount over
consideration paid for IP preferred stock redeemed in December 1994 and an
increase in gas rates as a result of IP's 1994 gas rate order. The 1994
earnings also reflect increased electric sales, lower operating and
maintenance expenses due to ongoing cost management efforts, no Clinton
refueling and maintenance outage and lower financing costs. In 1993, Illinova's
earnings were $118 million, or $1.57 per common share, excluding the September
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 maintenace
expenses and lower interest expense as a result of refinancing efforts.
The ICC and FERC determine IP's rates, at the retail and wholesale levels,
respectively, for electric service, and the ICC determines IP's rates for gas
service. These rates are designed to recover the cost of service and allow
shareholders the opportunity to earn a fair rate of return. 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 conservation efforts and the overall economy.
Operating Revenues
(Millions of Dollars)
1995 $1,641.4
1994 1,589.5
1993 1,581.2
1992 1,479.5
1991 1,474.9
Illinois Power - Results of Operations
Electric Operations - For the years 1993 through 1995, electric revenues
including interchange increased 8.1% and the gross electric margin increased
8.7% as follows:
- ---------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- ---------------------------------------------------------
Electric revenues $ 1,252.6 $ 1,177.5 $ 1,135.6
Interchange revenues 116.3 110.0 130.8
Fuel cost & power purchased (333.4) (319.2) (313.6)
- ---------------------------------------------------------
Electric margin $ 1,035.5 $ 968.3 $ 952.8
=========================================================
The components of annual changes in electric revenues:
- ---------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- ---------------------------------------------------------
Price $ 13.3 $ (23.2) $ (30.0)
Volume and other 42.7 44.1 72.1
Fuel cost recoveries 19.1 21.0 (24.4)
- ---------------------------------------------------------
Revenue increase $ 75.1 $ 41.9 $ 17.7
=========================================================
1995 - The 6.4% increase in electric revenues was primarily due to a 1.9%
increase in kilowatt-hour sales to ultimate consumers (excluding interchange
sales and wheeling). Volume increases resulted from higher residential sales
(4.8%) and higher commercial sales (8.2%) due to an improving economy and
warmer summer temperatures compared to 1994. Industrial sales remained
essentially unchanged from 1994. Interchange revenues increased $6.3 million
(5.8%) as a result of increased sales opportunities.
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% from 1993 levels primarily due to unusually large sales opportunities
in 1993.
Major Sources of Electric Energy
(Millions of Megawatt-hours)
1995 1994 1993
Fossil 14.5 13.2 13.1
Nuclear 5.3 6.4 5.1
Purchases 3.2 3.1 5.1
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.
The cost of meeting IP's system requirements was reflected in fuel costs for
electric plants and power purchased. Changes in these costs are below:
- ----------------------------------------------------
(Millions of dollars) 1995 1994 1993
- ----------------------------------------------------
Fuel for electric plants
Volume and other $ 9.8 $ 13.8 $ 3.5
Price (35.5) (14.3) 7.4
Emission allowances 18.5 --- ---
Fuel cost recoveries 14.5 32.0 (24.6)
- ----------------------------------------------------
7.3 31.5 (13.7)
Power purchased 6.9 (25.9) 54.5
- ----------------------------------------------------
Total increase $ 14.2 $ 5.6 $ 40.8
====================================================
Weighted average system
generating fuel cost ($/MWH)$ 11.41 $ 12.72 $ 13.88
====================================================
System load requirements, generating unit availability, fuel prices,
purchased power prices, resale of energy to other utilities, emission
allowance purchases and fuel cost recovery through the Uniform Fuel Adjustment
Clause (UFAC) caused changes in these costs.
Equivalent Availability - Clinton and Fossil
Clinton Fossil
1995 76% 81%
1994 92% 78%
1993 73% 85%
1992 62% 82%
1991 76% 81%
Changes in factors affecting the cost of fuel for electric generation are below:
- ------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------
Increase in generation 1.9% 8.2% 2.5%
Generation mix
Coal and other 73% 67% 72%
Nuclear 27% 33% 28%
======================================================
1995 - The cost of fuel increased 2.8% and electric generation increased 1.9%.
The increase in fuel cost was attributable to the effects of the UFAC, the
increase in higher-cost fossil generation and the cost of emission allowances.
Clinton's equivalent availability and generation were lower in 1995 as compared
to 1994 due to the scheduled refueling and maintenance outage. Clinton
returned to service April 29, 1995, after completing its fifth refueling and
maintenance outage, which began March 13, 1995. Power purchased increased
$6.9 million.
Fuel Cost Per Million BTU
Fuel Cost Percent of Generation
Coal $1.34 70.8%
Nuclear .81 27.7%
Gas 2.08 1.1%\
Oil 4.44 .1%
Tires .88 .3%
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 UFAC, 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.
Power purchased for the period decreased $25.9 million. Unusually large
interchange sales opportunities during 1993, which did not recur in 1994, were
the primary cause of the decrease in power purchased.
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 UFAC and
lower generation at IP's largest fossil plant. The decrease was partially
offset by an increase in transportation costs due to flooding in the Midwest
and a 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.
Gas Operations - For the years 1993 through 1995, gas revenues including
transportation decreased 13.4% while the gross margin on gas revenues
increased 4.9% as follows:
- ---------------------------------------------------
(Millions of dollars) 1995 1994 1993
- ---------------------------------------------------
Gas revenues $ 264.5 $ 293.2 $ 306.8
Gas cost (138.8) (172.4) (187.3)
Transportation revenues 8.0 8.8 8.0
- ----------------------------------------------------
Gas margin $ 133.7 $ 129.6 $ 127.5
====================================================
(Millions of therms)
Therms sold 588 584 597
Therms transported 273 262 229
- ----------------------------------------------------
Total consumption 861 846 826
====================================================
Changes in the cost of gas purchased for resale:
- --------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- --------------------------------------------------------
Gas purchased for resale
Cost (excluding take-or-pay) $ (43.1) $ (6.4) $ 13.3
Take-or-pay costs (.4) 2.8 5.3
Volume 25.3 (13.6) (3.4)
Gas cost recoveries (15.4) 2.3 .2
- --------------------------------------------------------
Total increase (decrease) $(33.6) $ (14.9) $ 15.4
- --------------------------------------------------------
Average cost per therm delivered$ .201 $ .261 $ .275
========================================================
The 1995 decrease in the cost of gas purchased was due to lower gas prices
caused by unusually warm winter weather nationwide. The 1994 decrease in the
cost of gas purchased was primarily due to lower gas prices, the expanded
use of additional gas storage and a decrease in therms purchased. Also
contributing to the higher gas margins in 1995 and 1994 was the 6.1%
increase in the 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.
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:
- ---------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- ---------------------------------------------------------
Other operating expenses $(.3) $(9.2) $(2.1)
Maintenance 10.4 (11.2) (1.3)
Depreciation and amortization 7.2 6.4 6.0
==========================================================
The increase in maintenance expense for 1995 is primarily due to the
refueling and maintenance outage at Clinton. 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 1995 and 1994
increases in depreciation expense are due primarily to a higher utility
plant balance in 1995 and1994 as compared to 1994 and 1993.
The 1993 increase in depreciation expense was 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 1994 and 1993 increases in depreciation expense are partially
offset by the decrease in deferred Clinton costs as a result of the September
1993 write-off of disallowed Clinton post-construction costs.
Operating and Maintenance Expenses
(Millions of Dollars)
1995 $359.7
1994 349.6
1993 370.0
1992 373.4
1991 340.6
Other Income and Deductions - Total allowance for funds used during
construction (AFUDC), a non-cash item of income, decreased in 1995 compared
to non-cash item of income, decreased in 1995 compared to 1994 due to
decreased eligible capital expenditures. 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 6.5%, 7.0%
and 7.5% in 1995, 1994 and 1993, respectively. The 1994 increase was primarily
due to a decrease in allocated income taxes.
Interest Charges - Total interest charges increased $4.1 million in 1995, and
decreased $21.0 million in 1994 and $3.7 million in 1993. The 1995
increase was due to increased short-term borrowings at higher rates. The
1994 and 1993 decreases were primarily due to the refinancing with lower-cost
debt and 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, IP issued approximately $1.4 billion of new
debt at a weighted average interest rate of 6.97%.
Inflation - Inflation, as measured by the Consumer Price Index, was 2.5%, 2.5%
and 3.1% in 1995, 1994 and 1993, respectively. IP recovers historical
rather than current plant costs in rates.
LIQUIDITY AND CAPITAL RESOURCES
Regulatory Matters
UFAC Suspension - On June 26, 1995, IP filed a petition with the ICC for
permission to eliminate its UFAC by adjusting base rates to include projected
fuel costs. IP filed its petition under a procedure that allows the ICC
to grant or deny the specific proposal, but not to subject it to
hearings or require that it be modified. IP believes that continuation of
the UFAC creates disincentives to efficient decisions made on a total
cost basis; that the UFAC is inconsistent with a competitive environment;
and that the significance of fuel costs as a component of total costs
has diminished, thereby reducing the need for a UFAC as a risk-reduction
mechanism. On August 8, 1995, the ICC voted three to two to deny IP's
petition. IP is currently reviewing its alternatives in light of the
decision.
1994 Gas Rate Order - On April 6, 1994, the ICC approved an increase of $18.9
million, or 6.1%, in IP's gas base rates. For customers, the increase is
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%.
Dividends
On December 13, 1995, Illinova increased the quarterly common stock dividend
12%, declaring the common stock dividend for the first quarter of 1996 at
$.28 per share, payable February 1, 1996, to shareholders of record as of
January 10, 1996. On October 12, 1994, Illinova increased the quarterly
common stock dividend 25%, declaring the common stock dividend for the first
quarter of 1995 at $.25 per share.
Capital Resources and Requirements
Illinova and IP need cash for operating expenses, interest and dividend
payments, debt and certain 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 on economic and financial market conditions, cash
needs and capitalization ratio objectives. To a significant degree, the
availability and cost of external financing depend on the financial health
of the company seeking those funds.
Cash flows from operations during 1995 provided sufficient working capital to
meet ongoing operating requirements, to service existing common and IP
preferred stock dividends and debt requirements, and to meet all of IP's
construction requirements. Additionally, Illinova expects future cash flows
will enable it to meet future 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 all of IP's anticipated construction
requirements. The current ratings of securities by two principal
securities rating agencies are as follows:
- --------------------------------------------------------
Standard
Moody's & Poor's
- ---------------------------------------------------------
IP first/new mortgage bonds Baa2 BBB
IP preferred stock baa3 BBB-
IP commercial paper P-2 A-2
=========================================================
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 these 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 & 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 "somewhat 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 August 1995, S&P changed the
assessment to "low average" and revised its ratings outlook to positive from
stable. In February 1996, Moody's also revised its ratings outlook to
positive from stable. IP's revised rating assessments reflect prospects for
continued financial strengthening driven by gradual debt reduction, rigorous
cost controls and moderate sales growth.
In February, 1995, IP redeemed $12 million of 8.00% mandatorily redeemable
serial preferred stock. In May 1995, IP redeemed the remaining $24 million
of 8.00% mandatorily redeemable serial preferred stock. In March 1995, IP
redeemed $.2 million of 7.56% serial preferred stock and $3 million of 8.24%
serial preferred stock. In December 1995, IP redeemed $34.7 million of 8.00%
serial preferred stock, $33.6 million of 7.56% serial preferred stock and
$27 million of 8.24% serial preferred stock.
In February 1994, IP redeemed $12 million of 8.00% 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 1994, IP retired
$35.6 million of First Mortgage Bonds, 11 5/8% Series due 2014 (Pollution
Control Series D) with the proceeds of the debt issuance. In August 1994, IP
retired $100 million of 8 1/2% debt securities.
Illinois Power Financing I (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. The TOPrS
were issued by IPFI, which invested the proceeds in an equivalent amount of
IP subordinated debentures due in 2045. The proceeds were used by IP 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. The
carrying amount under consideration paid for redeemed IP preferred stock
amounted to $3.5 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.
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 $97 million (principal value) of higher-cost outstanding
preferred stock of IP. The carrying amount over consideration paid for
redeemed preferred stock 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 Sudsidiary" 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 were used to retire $84.1 million of First Mortgage Bonds,
10 3/4% Series due 2015 (Pollution Control Series E). In August 1995, IP
purchased $5 million of 8.75% First Mortgage Bonds on the open market.
See "Note 9--Long-Term Debt of Subsidiary" of the "Notes to Consolidated
Financial Statements" for additional information.
For the years 1995, 1994 and 1993, changes in long-term debt and IP preferred
stock outstanding, including normal maturities and elective redemptions,
were as follows:
(Millions of dollars)
1995 1994 1993
Bonds $ (5) $ (10) $ 35
Other long-term debt - (100) -
Preferred stock (135) 6 (51)
Total decrease $ (140) $ (104) $ (16)
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 IP's 1943
Mortgage and Deed of Trust. 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, IP executed a new general obligation mortgage (New Mortgage) to
replace, over time, IP's 1943 Mortgage and Deed of Trust (First Mortgage).
Both mortgages are secured by liens on substantially all of IP's properties.
A corresponding issue of First Mortgage bonds, under the First Mortgage,
secures bonds issued under the New Mortgage. At December 31, 1995, based on
the most restrictive earnings test contained in the First Mortgage, IP could
issue approximately $1.2 billion of additional First Mortgage bonds for other
than refunding purposes. The amount of available unsecured borrowing capacity
totaled $144 million at December 31, 1995. Also at December 31, 1995, the
unused portion of Illinova and IP total bank lines of credit was $404 million.
As of December 31, 1995, IP had $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.
Capital expenditures for the years 1993 through 1995 were approximately
$680.7 million, including $22.5 million of AFUDC. Illinova estimates that
$1.56 billion will be required for construction and capital expenditures
during the 1996-2000 period as follows:
Five-Year Period
- --------------------------------------------------------------------
(Millions of dollars) 1996 1996-2000
- --------------------------------------------------------------------
Construction requirements
Electric generating facilities $ 45 $ 236
Electric transmission and
distribution facilities 68 249
General plant 24 86
Gas facilities 28 110
Total construction requirements 165 681
Nuclear fuel 25 135
Debt retirements 62 362
Investments in subsidiaries 77 381
- ----------------------------------------------------------------------
Total $ 329 $ 1,559
======================================================================
See "Note 4--Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for additional information. Internal cash generation
will meet substantially all construction and capital requirements.
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 Matters
See "Note 7--Income Taxes" of the "Notes to Consolidated Financial Statements"
for a discussion of effective tax rates and other tax issues.
Accounting Matters
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of" (FAS 121), effective for
fiscal years beginning after December 15, 1995. FAS 121 requires that an
entity review long-lived assets for impairment when events indicate that the
carrying amount of an asset may not be recoverable. For regulated
enterprises, FAS 121 amends FASB Statement No. 71, "Accounting for the
Effects of Certain Types of REgulation" (FAS71), requiring that an impairment
be recognized for regulatory assets no longer meeting the criteria of
paragraph 9 of FAS 71. This standard is not currently expected to materially
impact the consolidated financial position or results of operations of
Illinova or IP.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123), effective for
fiscal years beginning after December 15, 1995. FAS 123 establishes a fair-
value based method of accounting for employee stock-based compensation plans
and encourages companies to adopt that method. However, it also allows
companies to continue to apply the intrinsic value-based method currently
prescribed under APB Opinion No. 25 and related pronouncements, provided
certain fair-value pro forma disclosures are made. Illinova is continuing to
evaluate its alternatives under this standard.
The FASB continues to review the accounting for liabilities related to
closure and removal of long-lived assets, including decommissioning. See
"Note 4--Commitments and Contingencies" of the "Notes to Consolidated
Financial Statements" for a discussion of decommissioning.
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 its 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.
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 A-31 of this report
present fairly, in all material respects, the financial position of Illinova
Corporation and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is 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.
Price Waterhouse LLP
St. Louis, Missouri
February 2, 1996
Illinova Corporation
consolidated statements of income
(Millions of dollars except per share amounts)
- ------------------------------------------------------------------------------
For the Years Ended December 31, 1995 1994 1993
Operating Revenues
Electric $ 1,252.6 $ 1,177.5 $ 1,135.6
Electric interchange 116.3 110.0 130.8
Gas 272.5 302.0 314.8
- -------------------------------------------------------------------------------
Total 1,641.4 1,589.5 1,581.2
- -------------------------------------------------------------------------------
Operating Expenses and Taxes
Fuel for electric plants 273.9 266.6 235.1
Power purchased 59.5 52.6 78.5
Gas purchased for resale 138.8 172.4 187.3
Other operating expenses 259.7 260.0 269.2
Maintenance 100.0 89.6 100.8
Enhanced retirement and severance 37.8 -- --
Depreciation and amortization 186.5 179.3 172.9
General taxes 135.0 130.3 125.6
Income taxes 125.8 118.3 106.5
- -------------------------------------------------------------------------------
Total 1,317.0 1,269.1 1,275.9
- -------------------------------------------------------------------------------
Operating income 324.4 320.4 305.3
- -------------------------------------------------------------------------------
Other Income and Deductions
Allowance for equity funds used
during construction --- 3.8 2.7
Disallowed Clinton costs --- --- (271.0)
Income tax effects of disallowed costs --- --- 70.6
Miscellaneous-net (7.1) (9.1) (3.0)
- --------------------------------------------------------------------------------
Total (7.1) (5.3) (200.7)
- --------------------------------------------------------------------------------
Income before interest charges 317.3 315.1 104.6
- --------------------------------------------------------------------------------
Interest Charges
Interest expense 148.0 143.9 164.9
Allowance for borrowed funds used during
construction (6.0) (5.5) (4.5)
Preferred dividend requirements of subsidiary 23.7 24.9 26.1
- --------------------------------------------------------------------------------
Total 165.7 163.3 186.5
- --------------------------------------------------------------------------------
Net income (loss) 151.6 151.8 (81.9)
Carrying amount over (under) consideration paid for
redeemed preferred stock of subsidiary (3.5) 6.4 ---
- --------------------------------------------------------------------------------
Net income (loss) applicable to
common stock $148.1 $158.2 $(81.9)
================================================================================
Earnings (loss) per common share $ 1.96 $ 2.09 $(1.08)
Cash dividends declared per common share $ 1.03 $ .65 $ .40
Cash dividends paid per common share $ 1.00 $ .80 $ .80
Weighted average common shares 75,643,937 75,643,937 75,643,937
See notes to consolidated financial statements which are an integral part of
these statements.
Illinova Corporation
consolidated balance sheets
(Millions of dollars)
- --------------------------------------------------------------------------------
December 31, 1995 1994
Assets
Utility Plant, At Original Cost
Electric (includes construction work in
progress of $199.8 million and $202.8 million,
respectively) $6,189.0 $6,023.1
Gas (includes construction work in progress of
$10.2 million and $16.8 million, respectively) 625.9 606.1
- -------------------------------------------------------------------------------
6,814.9 6,629.2
Less -- accumulated depreciation 2,251.7 2,102.7
- -------------------------------------------------------------------------------
4,563.2 4,526.5
Nuclear fuel in process 5.7 6.2
Nuclear fuel under capital lease 95.2 111.5
- -------------------------------------------------------------------------------
4,664.1 4,644.2
Investments and Other Assets 65.8 37.4
Current Assets
Cash and cash equivalents 11.3 50.7
Notes receivable 6.1 -
Accounts receivable (less allowance for doubtful accounts of $3 million)
Service 129.4 110.4
Other 13.2 30.5
Accrued unbilled revenue 89.1 78.9
Materials and supplies, at average cost
Fossil fuel 9.9 18.7
Gas in underground storage 18.5 23.1
Operating materials 82.7 92.1
Prepaid and refundable income taxes 19.6 11.5
Prepayments and other 20.8 23.5
400.6 439.4
Deferred Charges
Deferred Clinton costs 107.3 110.8
Recoverable income taxes 128.7 147.3
Other 243.3 197.6
479.3 455.7
$5,609.8 $5,576.7
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 18.4 23.5
Retained earnings 129.6 58.8
Less -- Capital stock expense 8.8 9.7
Total common stock equity 1,527.0 1,450.2
Preferred stock of subsidiary 125.6 224.7
Mandatorily redeemable preferred stock of subsidiary 97.0 133.0
Long-term debt of subsidiary 1,739.3 1,946.1
Total capitalization 3,488.9 3,754.0
Current Liabilities
Accounts payable 119.9 108.2
Notes payable 359.6 238.8
Long-term debt and lease obligations of subsidiary
maturing within one year 95.0 33.5
Dividends declared 23.0 23.4
Taxes accrued 44.8 32.3
Interest accrued 39.0 38.4
Other 66.2 55.8
747.5 530.4
Deferred Credits
Accumulated deferred income taxes 1,012.8 978.6
Accumulated deferred investment tax credits 222.8 230.9
Other 137.8 82.8
(Commitments and Contingencies Note 4) 1,373.4 1,292.3
$5,609.8 $5,576.7
See notes to consolidated financial statements which are an integral part of
these statements.
Illinova Corporation
consolidated statements of cash flows
(Millions of dollars)
For the Years Ended December 31, 1995 1994 1993
Cash Flows From Operating Activities
Net income (loss) $ 151.6 $ 151.8 $ (81.9)
Items not requiring (providing) cash--
Disallowed Clinton costs,
net of income taxes - - 200.4
Depreciation and amortization 190.0 182.3 176.6
Allowance for funds used during construction (6.0) (9.3) (7.2)
Deferred income taxes 39.1 36.4 67.9
Enhanced retirement and severance 37.8 - -
Changes in assets and liabilities --
Accounts and notes receivable (7.8) (18.2) (21.3)
Accrued unbilled revenue (10.2) (29.9) 42.9
Materials and supplies 22.8 (2.3) 6.2
Accounts payable (13.6) (20.6) 13.8
Interest accrued and other, net 9.5 (21.6) (27.7)
Net cash provided by operating activities 413.2 268.6 369.7
Cash Flows From Investing Activities
Construction expenditures (209.3) (193.7) (277.7)
Allowance for funds used during construction 6.0 9.3 7.2
Other investing activities (34.9) (19.7) (8.2)
Net cash used in investing activities (238.2) (204.1) (278.7)
Cash Flows From Financing Activities
Dividends on common stock (75.6) (60.5) (60.5)
Redemptions --
Short-term debt (213.6) (259.3) (254.5)
Long-term debt of subsidiary (5.2) (230.0) (832.0)
Preferred stock of subsidiary (134.5) (91.0) (94.4)
Issuances --
Short-term debt 209.5 405.8 279.7
Long-term debt of subsidiary - 119.8 866.8
Preferred stock of subsidiary - 97.0 43.5
Discount (premium) paid on redemption of
long-term debt of subsidiary -- - (2.8) (25.8)
Other financing activities 5.0 (2.7) (12.6)
Net cash used in financing activities (214.4) (23.7) (89.8)
Net change in cash and cash equivalents (39.4) 40.8 1.2
Cash and cash equivalents at beginning of year 50.7 9.9 8.7
Cash and cash equivalents at end of year $ 11.3 $ 50.7$ 9.9
Illinova Corporation
consolidated statements of retained earnings (deficit)
(Millions of dollars)
For the Years Ended December 31, 1995 1994 1993
Balance (deficit) at beginning of year $ 58.8 $ (64.6)$ 41.0
Net income (loss) before dividends 175.3 176.7 (55.8)
234.1 112.1 (14.8)
Less --
Dividends --
Preferred stock of subsidiary 23.6 11.1 20.1
Common stock 77.4 48.6 29.7
Plus --
Carrying amount over (under) consideration
paid for redeemed preferred stock of subsidiary (3.5) 6.4 -
(104.5) (53.3) (49.8)
Balance (deficit) at end of year $ 129.6 $ 58.8 $ (64.6)
See notes to consolidated financial statements which are an integral part of
these statements.
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 (Illinova), a holding company, Illinois
Power Company (IP), a combination electric and gas utility, Illinova
Generating Company (IGC), a wholly owned subsidiary that invests in energy-
related projects throughout the world and competes in the independent power
market and Illinova Power Marketing, Inc. (IPMI), a wholly owned subsidiary
in the business of marketing energy and energy-related services to various
customers. See "Note 2--Illinova Subsidiaries" of the "Notes to Consolidated
Financial Statements" 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 nonutility operating transactions are included in the section titled
Other Income and Deductions, "Miscellaneous-net" in the Consolidated
Statements of Income. Preparation of financial statements in conformity with
generally accepted accounting principles requires the use of management's
estimates. Prior year amounts have been reclassified on a basis consistent
with the December 31, 1995, 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 requires that the
effects of the ratemaking process be recorded. Such effects primarily concern
the time at which various items enter into the determination of net income
in order to follow the principles of matching cost 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 non-cash charge to income would be recorded in
order to remove the effects of the actions of regulators from the
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 Significant regulatory assets include deferred Clinton
Power Station (Clinton) post-construction costs, unamortized losses on
reacquired debt, recoverable income taxes 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 1995, 1994 and 1993, the
pre-tax rate used for all construction projects was 6.5%, 7.0% 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 1995, 1994 and 1993, provisions
for depreciation were 2.8% of the average depreciable cost for Clinton.
Provisions for depreciation for all other electric plant were 2.6% in 1995
and 2.5% in 1994 and 1993. Provisions for depreciation of gas utility plant,
as a percentage of the average depreciable cost, were 3.4% in 1995 and 1994
and 4% in 1993.
Amortization of Nuclear Fuel IP leases nuclear fuel from Illinois Power Fuel
Company (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" of the "Notes to
Consolidated Financial Statements" 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 began. 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.
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 1995, 1994 and 1993 in the amount of $66 million, $66 million
and $65 million, respectively. The cost of fuel for the generation of
electricity, 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 gas base rates. The increase to customers is 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" of the "Notes to Consolidated Financial Statements"
for additional discussion.
Preferred Dividend Requirements of Subsidiary Preferred dividend requirements
of IP reflected in the Consolidated Statements of Income 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 flows increased
by $19 million, $28 million and $27 million during 1995, 1994 and 1993,
respectively. Income taxes and interest paid are as follows:
Years ended December 31,
(Millions of dollars) 1995 1994 1993
Income taxes $ 64.7 $ 71.1 $ 26.0
Interest $ 152.4 $ 165.9 $ 166.4
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 financial
position or results of operations. See "Note 7--Income Taxes" of the "Notes
to Consolidated Financial Statements" for additional information.
Interest Rate Cap Premiums paid for the purchased interest rate cap
agreements are being amortized to interest expense over the terms of the
caps. Unamortized premiums are included in Current Assets, "Prepayments and
Other," in the Consolidated Balance Sheets. Amounts to be received under the
cap agreements are recognized as a reduction in interest expense.
Note 2--Illinova Subsidiaries
Illinova, a holding company, is the parent of IP, IGC and IPMI. 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,
Illinova's wholly owned independent power subsidiary, invests in energy-
related projects throughout the world and competes in the independent power
market. IPMI, Illinova's wholly owned subsidiary, is in the business of
marketing energy and energy-related services to various customers.
In 1993, IGC invested in a 168 MW co-generation project in Teesside, England.
In 1994, IGC became an equity partner with Tenaska, Inc., in four natural
gas-fired generation plants, of which two are in operation, one is under
construction and one is suspended. 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 80 MW
operating diesel engine-powered generating plant in Puerto Cortez, Honduras.
In March 1995, IGC invested in Brazos, a 258 MW plant located near Claiborne,
Texas. In May 1995, IGC became an equity partner in the Indeck North American
Power Fund (Fund). The Fund's first project, in June 1995, a 70 MW plant, was
the Harbor Cogeneration Project in Long Beach, California. In August 1995,
the Fund acquired the Pepperell Cogeneration Project, a 38 MW gas-fired
combined cycle facility located in Pepperell, Massachusetts. In the fourth
quarter of 1995, IGC completed its first investment in the People's Republic
of China by investing in the Xinchang Project, a 24 MW coal-fired plant
located in Zhejiang Province. Additionally, IGC invested in the Carbontec
Project located near Gillette, Wyoming. This coal-drying facility will
utilize a recently developed proprietary CARBONDRY process to dry moderate to
high moisture coals. In December 1995, IGC signaled a limited liability
company agreement to complete an initial investment in a 146 MW power project
located near Aguaytia, Peru. Also, in December 1995, IGC invested in the
Jamaica Energy Partners Project, a 74 MW barge-mounted facility located in
Old Harbour, Jamaica. In 1996, IGC plans to make an equity investment in a
400 MW operating plant located in Columbia. See "Note 4--Commitments and
Contingencies" of the "Notes to Consolidated Financial Statements" for
information about IGC contingencies.
At December 31, 1995, Illinova's net investment in IGC was $49 million.
On May 16, 1995, IPMI obtained approval from the FERC to conduct business as
a marketer of electric power and gas to various customers outside IP's
present service territory. In September 1995, IPMI began buying and selling
wholesale electricity in the western United States. IPMI acquired 50 percent
ownership in Tenaska Marketing Ventures (TMV) on April 17, 1995, with the
ownership interest retroactive to January 1, 1995. In October 1995, IPMI and
TMV formed a natural gas company, Tenaska Marketing Canada, to market gas in
Canada. IPMI secured sales commitments of $12 million for 1996. See "Note
4--Commitments and Contingencies" of the "Notes to Consolidated Financial
Statements" for information about IPMI contingencies.
At December 31, 1995, Illinova's net investment in IPMI was $9 million.
In December 1995, Illinova established a new division, Illinova Energy
Services, to provide energy-related services to customers inside and outside
IP's service territory. These services involve the ways energy is used and
distributed after its delivery at the meter.
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 51% of Illinova's total assets at December 31, 1995. IP's
86.8% share of Clinton-related costs represented 34% of Illinova's total 1995
other operating, maintenance and depreciation expenses. Clinton's equivalent
availability was 76%, 92% and 73% for 1995, 1994 and 1993, 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 prevent IP from doing so, Illinova
and IP would be materially adversely affected. See "Note 4--Commitments and
Contingencies" of the "Notes to Consolidated Financial Statements" 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 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 on 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.
Note 4--Commitments
and Contingencies
Commitments
Estimated capital requirements in 1996 are $267 million, which includes $113
million for electric facilities, $28 million for gas facilities, $25 million
for nuclear fuel, $24 million for general plant and $77 million for non-
regulated subsidiary activities. The estimated five-year construction program
for 1996 through 2000 is $1.2 billion. These expenditures do not include
capital expenditures for full compliance with the Clean Air Act, as discussed
below.
In addition, IP has substantial commitments for the purchase of coal under
long-term contracts. Estimated coal contract commitments for 1996 through
2000 are $664 million (excluding price escalation provisions). Total coal
purchases for 1995, 1994 and 1993 were $168 million, $191 million and $184
million, respectively. IP has contracts with various natural gas suppliers
and interstate pipelines to provide natural gas supply, transportation and
leased storage. Estimated committed natural gas, transportation and leased
storage costs (including pipeline transition costs) for 1996 through 2000
total $39 million. Total natural gas purchased for 1995, 1994 and 1993 was
$150 million, $168 million and $188 million, respectively. IP's share of
estimated nuclear fuel commitments for Clinton is approximately $26 million
for uranium concentrates through 1998, $7 million for conversion through
2002, $47 million for enrichment through 1999 and $213 million for
fabrication through 2017. IP is committed to purchase approximately $74
million of emission allowances through 1999. IP anticipates 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 on 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 station site in accordance with the 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 will cover 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 would
materially exceed the limits of current or available insurance coverage. IP
also covers 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 coverage, involving Clinton or other stations insured
by the industry-owned mutual insurance company would result in retrospective
premium assessments of up to approximately $13 million. IP would allocate
this assessment between IP and Soyland based on their respective ownership
interest in Clinton.
All United States nuclear power station operators are subject to the Price-
Anderson Act. This act currently limits public liability for a nuclear
incident to $8.9 billion. Private insurance covers the first $200 million.
Retrospective premium assessments against each licensed nuclear reactor in
the United States provide excess coverage. 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 that
applies to the commercial nuclear industry as a whole. If the policy pays,
then a provision for automatic reinstatement of policy limits up to an
additional $200 million takes effect. 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. IP and Soyland would
allocate, based on their respective ownership in Clinton, any retrospective
premium assessments pertaining to the Master Worker Policy or the Price-
Anderson Act.
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 may have a substantial adverse
effect on Illinova's and IP's 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 electric 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 estimates
its 86.8% share of Clinton decommissioning costs to be approximately $376
million (1995 dollars) or $692 million (2026 dollars, assuming a 2% inflation
factor). The NRC bases the minimum only on the cost of removing radioactive
plant structures. IP is concluding a site-specific study to estimate the
costs of dismantlement, removal and disposal of Clinton. This study is
expected to result in projected decommissioning costs higher than the NRC-
specified funding level.
External decommissioning trusts, as prescribed under Illinois law and
authorized by the ICC, accumulate funds based on the expected service life of
the plant for the future decommissioning of Clinton. For the years 1995, 1994
and 1993, IP contributed $5.0 million, $5.5 million and $3.9 million,
respectively, to its external nuclear decommissioning trust funds. The
balances in these nuclear decommissioning funds at December 31, 1995, and
1994, were $32.7 million and $22.4 million, respectively. IP recognizes
earnings and expenses from the trust fund as changes in its assets and
liabilities relating to these funds. In November 1994, the ICC granted IP
permission to invest up to 60% of the nuclear decommissioning trust assets in
selected equity securities.
The FASB is reviewing the accounting for removal costs of nuclear generating
stations, including decommissioning. Changing current electric utility
industry accounting practices for such decommissioning may result in: 1)
increasing annual provisions for decommissioning through increases in
depreciation; 2) recording the estimated total cost for decommissioning as a
liability with a gross-up to plant balances; and 3) reporting trust fund
income from the external decommissioning trusts as investment income rather
than as a reduction to decommissioning expense. Changes to current electric
utility industry accounting practices for decommissioning will likely be
effective in 1997. IP believes that, based on current information, these
changes will not have an adverse effect on results of operations due to
existing and anticipated future ability to recover decommissioning costs
through rates.
In 1992, the ICC entered an order in which it expressed concern that IP take
all reasonable action to ensure that Soyland contributes its ownership share
of the current or any revised estimate of decommissioning costs. The order
also states that if IP becomes liable for decommissioning expenses
attributable to Soyland, the ICC will then decide whether that expense should
be the responsibility of IP stockholders or its customers. If Soyland were to
fail to meet these or other obligations related to its ownership of Clinton,
then IP could become liable for such payments.
Under the Nuclear Waste Policy Act of 1982, the Department of Energy (DOE) is
responsible for the permanent storage and disposal of spent nuclear fuel. The
DOE currently charges one mill ($.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. At December 31, 1995,
approximately $24 million in costs for the suspended Baldwin scrubber program
continue to be recorded by Illinois Power as plant held for future use. After
suspending scrubber construction, IP reconsidered its alternatives for
complying with Phase I of the 1990 Clean Air Act Amendments.
To comply with the sulfur dioxide (SO2) emission reduction requirements of
Phase I (1995-1999) of the 1990 Clean Air Act Amendments, IP continues to
purchase emission allowances. An emission allowance is the authorization by
the United States Environmental Protection Agency (U.S.EPA) to emit one ton
of SO2. The ICC approved IP's Phase I Clean Air Act compliance plan in
September 1993, and IP is continuing to implement that plan. IP has acquired
sufficient emission allowances to meet most of its anticipated needs for 1996
and will purchase the remainder on the spot market. In 1993, the
Illinois General Assembly passed and the governor signed legislation
authoirzing, but not requiring, the ICC to permit expenditures from emission
allowance purchases and sales to be included in rates charged to customers as
a cost of fuel. In December 1994, the ICC approved the recovery of emission
allownace costs through the Uniform Fuel Adjustment Clause. IP's compliance
plan will defer, until at 2000, any need for scrubbers or other capital
projects associated with SO2 emission reductions. Phase II (2000 and beyond)
SO2 emission requirements of the Clean Air Act will require additional
actions and may result in capital expenditures.
To comply with the Phase I nitrogen oxide (NOx) emission reduction
requirements of the acid rain provisions of the Clean Air Act, IP installed
low-NOx burners at Baldwin Unit 3 and Vermilion Unit 2. On November 29, 1994,
the U.S. Appellate Court remanded the Phase I NOx rules back to the U.S.EPA.
On April 13, 1995, the U.S.EPA reinstated, with some modifications, the Phase
I NOx rules effective January 1, 1996. IP was positioned to comply with these
revised rules without additional modifications to any of its generating
plants. The U.S. EPA will issue Phase II NOx emission limits by January 1,
1997.
IP anticipates additional capital expenditures prior to 2000 to comply with
the Phase II NOx requirements, as well as potential requirements to further
reduce NOx emissions from IP plants to help achieve compliance with air
quality standards in the St. Louis and 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.
IP is monitoring the developments of several emerging clean air compliance
issues which could have a significant impact on its fossil-fueled generating
plants. These issues include global climate change (theorized to result from
emissions of "greenhouse gasses" such as carbon dioxide), controls on
"hazardous air pollutants," and standards for fine particulates. Compliance
with potential new regulations in these areas may require significant
expenditures prior to 2000.
Manufactured-Gas Plant (mgp) In September 1995, IP increased its liability
for MGP site remediation by $41 million to a total of $76 million. This
amount represents IP's current best estimate of its cost to remediate MGP
sites for which it is responsible. This estimate reflects the results of a
site-by-site survey utilizing current site information and remediation
techniques. The estimate, determined by IP with assistance from several
external environmental consultants, is in accordance with Electric Power
Research Institute guidelines. Because of the unknown and unique
characteristics of each site and uncertain regulatory requirements, IP is
not able to determine its ultimate liability for remediation of the 24
sites. The previously recorded liability of $35 million was an estimate of
the minimum cost based on ongoing remediation efforts at eight sites and
ongoing investigations of the remaining 16 sites.
IP is currently recovering MGP site cleanup costs from its customers through
tariff riders approved by the ICC in April 1993. On April 20, 1995, the
Illinois Supreme Court issued a ruling that upheld the ICC authorization of
cost recovery and reversed the ICC's disallowance of carrying costs,
mandating the ICC to reissue an order providing for recovery of prudently
incurred MGP site cleanup costs, including carrying costs. On November 20,
1995, the ICC issued an order on remand allowing full recovery of all such
MGP site cleanup costs. Accordingly IP has recorded a regulatory asset in
the amount of $76 million, reflecting management's expectation that
remediation costs will be recovered from customers.
IP has begun settlement discussions with its insurance carriers regarding
the recovery of estimated MGP site remediation costs. A settlement has been
reached with one carrier and an agreement in principle has been reached with
two other carriers. On October 17, 1995, IP filed a lawsuit in the Circuit
Court of Macon County seeking a declaratory judgment and damages regarding
insurance coverage for four MGP sites. Any insurance recoveries received will
be credited to IP's customers through the tariff rider mechanisms.
Electric and Magnetic Fields (EMF) The possibility that exposure to 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 and IP's consolidated financial
position.
Other
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 the
consolidated financial position or the results of operations.
Accounts Receivable - IP sells electric energy and natural gas to residential,
commercial and industrial customers throughout Illinois. At December 31,
1995, 67%, 17% and 16% of Accounts receivable--Service were from residential,
commercial and industrial customers, respectively. IP maintains reserves for
potential credit losses and such losses have been within management's
expectations.
Contingencies
IPMI is a 50% partner with TMV which markets natural gas. At its April 1995
meeting, the Illinova Board authorized IPMI to provide certain guarantees on
its behalf in the performance of IPMI's business. Illinova guarantees the
performance of TMV up to an aggregate of $50 million for net accounts payable
or delivery obligations incurred during the ordinary course of purchasing and
reselling natural gas. The level of payable guarantees in place during
December 1995 peaked at $19 million. Illinova also guarantees performance
by TMV of all obligations to parties providing price-hedging services. The
guarantees to the parties providing heding services are a function of the
market price of gas. Management believes that the exposure is minimal. See
"Note 2--Illinova Subsidiaries" of the "Notes to Consolidate Financial
Statements" for additional information about IPMI.
IGC has signed equity contribution agreements up to an aggregate amount of
$32 million secured by Illinova Corporation parent guarantees. See
"Note 2--Illinova Subsidiaries" of the "Notes to Consolidated Financial
Statements" for additional information about IGC.
Note 5--Lines of Credit
and Short-Term Loans
IP has total lines of credit represented by bank commitments amounting to
$354 million, all of which were unused at December 31, 1995. These lines of
credit are renewable in May 1996, August 1996 and May 2000. 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 .175% per annum on $350 million of the total
lines 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 million and pays fees up to .45% per
annum on the unused amount of credit.
In addition, IP Fuel Company has a short-term financing option to obtain
funds not to exceed $30 million. IP Fuel Company pays no fees for this
uncommitted facility and funding is subject to availability upon request.
For the years 1995, 1994 and 1993, 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:
- -----------------------------------------------------------------
(Millions of dollars, except rates) 1995 1994 1993
- -----------------------------------------------------------------
Short-term borrowings
at December 31, $ 359.6 $ 238.8 $ 92.3
Weighted average interest
rate at December 31, 6.0% 6.2% 3.5 %
Maximum amount outstanding
at any month end $ 359.6 $ 238.8 $ 123.7
Average daily borrowings
outstanding during
the year $ 306.5 $ 165.4 $ 85.0
Weighted average interest
rate during the year 6.2% 4.6% 3.5 %
- ------------------------------------------------------------------
Illinova's total lines of credit represented by bank commitments amount to
$50 million, all of which was unused at December 31, 1995. Illinova's letters
of credit total $6.5 million.
Illinova has derivative financial instruments, however, it does not use them
for trading purposes. Illinova uses them to manage well defined interest rate
and commodity risks.
Interest rate cap agreements are used to reduce the potential impact of
increases in interest rates on floating-rate debt. IP has two variable rate
interest rate cap agreements covering up to $189 million of commercial paper.
These agreements entitle 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. On December 31,
1995, the cap rates were set at 6.25% and 7.0% while the current market
rate available to IP was 5.9%.
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 is required to provide Soyland
with 12.0% (436 megawatts) of the electrical capacity from its fossil-fueled
generating plants 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 subtrasmission systems. Under provisions of the PCA, Soyland has the
option of participating financial 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" of the "Notes to Consolidated
Financial Statements" for discussion of the Clean Air Act. At any time after
December 31, 2004, either IP or Soyland may 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 12 months after receiving
notice.
Note 7--income taxes
Deferred tax assets and liabilities were comprised of the following:
Balances as of December 31,
- ----------------------------------------------------------------------------
(Millions of dollars) 1995 1994
- ----------------------------------------------------------------------------
Deferred Tax Assets:
- ----------------------------------------------------------------------------
Current:
Misc. book/tax recognition differences $ 26.1 $ 19.7
- ----------------------------------------------------------------------------
Noncurrent:
Depreciation and other property related 45.5 52.6
Alternative minimum tax 183.1 186.0
Tax credit and net operating loss
carryforward 32.4 27.6
Unamortized investment tax credit 126.1 122.0
Misc. book/tax recognition differences 66.7 57.0
- ----------------------------------------------------------------------------
453.8 445.2
- ----------------------------------------------------------------------------
Total deferred tax assets $ 479.9 $ 464.9
============================================================================
Deferred Tax Liabilities:
- ----------------------------------------------------------------------------
Current:
Misc. book/tax recognition differences $ 6.5 $ 8.2
- ----------------------------------------------------------------------------
Noncurrent:
Depreciation and other property related 1,303.5 1,252.0
Deferred Clinton costs 60.1 62.1
Misc. book/tax recognition differences 103.0 109.7
- ----------------------------------------------------------------------------
1,466.6 1,423.8
- ----------------------------------------------------------------------------
Total deferred tax liabilities $ 1,473.1 $ 1,432.0
============================================================================
Income taxes included in the Consolidated Statements of Income consist of the
following components:
Years Ended December 31,
- ----------------------------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- ----------------------------------------------------------------------------
Current taxes--
Included in operating
expenses and taxes $ 98.6 $ 58.3 $ 25.3
Included in other income
and deductions (20.3) -- --
- ----------------------------------------------------------------------------
Total current taxes 78.3 58.3 25.3
- ----------------------------------------------------------------------------
Deferred taxes--
Included in operating
expenses and taxes
Property-related differences 62.2 60.0 72.3
Alternative minimum tax 2.9 (50.4) (31.8)
Gain/loss on reacquired debt (1.9) -- 16.5
Net operating loss
carryforward (.2) 62.0 22.8
Enhanced retirement
and severance (15.0) -- --
Misc. book/tax recognition
differences (13.9) (7.8) 4.1
Internal Revenue Service
interest on tax issues -- 7.5 (1.9)
Included in other income
and deductions
Property-related differences 9.7 10.0 6.0
Net operating loss
carryforward -- (17.4) (15.4)
Misc. book/tax recognition
differences (1.2) (.7) (2.5)
Disallowed Clinton costs -- -- (62.2)
- -----------------------------------------------------------------------------
Total deferred taxes 42.6 63.2 7.9
- -----------------------------------------------------------------------------
Deferred investment
tax credit--net
Included in operating
expense and taxes (6.9) (11.3) (.8)
Included in other income
and deductions -- (.3) (.7)
Disallowed investment
tax credit --- -- (8.4)
- ----------------------------------------------------------------------------
Total investment tax credit (6.9) (11.6) (9.9)
- ----------------------------------------------------------------------------
Total income taxes $ 114.0 $ 109.9 $ 23.3
=============================================================================
The reconciliations of income tax expense to amounts computed by applying the
statutory tax rate to reported pretax results for the period are set below:
Years Ended December 31,
- ----------------------------------------------------------------------------
(Millions of dollars) 1995 1994 1993
- ----------------------------------------------------------------------------
Income tax expense at the
federal statutory tax rate $ 92.9 $ 91.6 $ (20.5)
Increases/(decreases) in taxes
resulting from--
State taxes,
net of federal effect 12.4 13.8 5.8
Investment tax credit
amortization (6.9) (7.8) (8.8)
Depreciation not normalized 7.4 4.3 7.1
Preferred dividend requirement
of subsidiary 5.8 8.7 9.1
Disallowed Clinton costs
(including ITC) -- -- 27.4
Other--net 2.4 (.7) 3.2
- -----------------------------------------------------------------------------
Total income taxes $ 114.0 $ 109.9 $ 23.3
=============================================================================
Combined federal and state effective income tax rates were 42.9%, 42.0% and
(39.8%) for the years 1995, 1994 and 1993, 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 is
44.2%.
Illinova is subject to the provisions of the Alternative Minimum Tax System
(AMT). As a result, Illinova has an AMT credit carryforward at December 31,
1995, of approximately $183 million. This credit can be carried forward
indefinitely to offset future regular income tax liabilities in excess of the
tentative minimum tax.
In 1994, the Internal Revenue Service (IRS) completed its audit of IP's
federal income tax returns for the years 1989 through 1990. IP and the IRS
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
positions 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 1995, 1994 and 1993 were $41 million, $52 million and
$45 million, respectively, including financing costs of $7 million, $7 million
and $6 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" of the "Notes to Consolidated Financial
Statements" 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, 1995 and 1994, current obligations under capital lease for
nuclear fuel were $33.3 million.
Over the next five years, estimated payments under capital leases are as
follows:
- ---------------------------------------------------------------------------
(Millions of dollars)
- ---------------------------------------------------------------------------
1996 $ 37.9
1997 31.1
1998 17.3
1999 12.4
2000 4.5
Thereafter 1.9
- ---------------------------------------------------------------------------
105.1
Less: Interest 10.0
- ---------------------------------------------------------------------------
Total $ 95.1
===========================================================================
Note 9--Long-Term Debt of Subsidiary
(Millions of dollars)
_____________________________________________________________________________
December 31, 1995 1994
First mortgage bonds--
5.85% series due 1996 $ 40.0 $ 40.0
61/2 % series due 1999 72.0 72.0
6.60% series due 2004 (Pollution Control Series A) 6.8 7.0
7.95% series due 2004 72.0 72.0
6% series due 2007 (Pollution Control Series B) 18.7 18.7
75/8% series due 2016
(Pollution Control Series F, G and H) 150.0 150.0
8.30% series due 2017 (Pollution Control Series I) 33.8 33.8
73/8% series due 2021 (Pollution Control Series J) 84.7 84.7
83/4% series due 2021 120.0 125.0
5.70% series due 2024 (Pollution Control Series K) 35.6 35.6
7.40% series due 2024 (Pollution Control Series L) 84.1 84.1
_____________________________________________________________________________
Total first mortgage bonds 717.7 722.9
_____________________________________________________________________________
New mortgage bonds--
61/8% series due 2000 40.0 40.0
5.625% series due 2000 110.0 110.0
61/2% series due 2003 100.0 100.0
63/4% series due 2005 70.0 70.0
8% series due 2023 235.0 235.0
71/2% 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 1,584.5 1,589.7
_____________________________________________________________________________
Short-term debt to be refinanced as long-term debt - 125.0
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 175.0 300.0
_____________________________________________________________________________
1,759.5 1,889.7
Unamortized discount on debt (20.3) (21.6)
_____________________________________________________________________________
Total long-term debt excluding
capital lease obligations 1,739.2 1,868.1
Obligation under capital leases 95.1 111.5
_____________________________________________________________________________
1,834.3 1,979.6
Long-term debt and lease obligations
maturing within one year (95.0) (33.5)
_____________________________________________________________________________
Total long-term debt $ 1,739.3 $ 1,946.1
_____________________________________________________________________________
In August 1995, $5.0 million of 8 3/4% First Mortgage Bonds due 2021 were
purchased on the open market.
Short-term debt to be refinanced as long-term debt consisted of commercial
paper that would be renewed regularly on a long-term basis. In September
1995, IP reclassified the $125 million to short-term debt in accordance with
Statement of Financial Accounting Standards No. 6, "Classification of Short-
Term Obligations Expected to be Refinanced." In 1989 and 1991, IP issued a
series of fixed rate medium-term notes. At December 31, 1995, 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 5.3% to 5.5% at December 31, 1995.
For the years 1996, 1997, 1998, 1999 and 2000, IP has long-term debt
maturities and cash sinking fund requirements in the aggregate of (in
millions) $61.7, $10.8, $68.8, $72.8 and $150.8, respectively. These amounts
exclude capital lease requirements. See "Note 8--Capital Leases" of the "Notes
to Consolidated Financial Statements." Certain supplemental indentures to
the First Mortgage require that IP make annual deposits, as a sinking and
property fund, in amounts not to exceed $1.8 million in each of the years
1997 through 2000. These amounts are subject to reduction and historically
have been met by pledging property additions, as permitted by the First
Mortgage.
At December 31, 1995, the aggregate total of unamortized debt expense and
unamortized loss on reacquired debt was approximately $105.8 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, 1995, was
approximately $1.4 billion.
Note 10--Preferred Stock of Subsidiary
(Millions of dollars)
December 31, 1995 1994
Serial Preferred Stock of Subsidiary,
cumulative, $50 par value--
Authorized 5,000,000 shares; 1,356,800 and
3,325,815 shares outstanding, respectively
series shares 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% - - - 30.0
7.56% - - - 33.8
8.00% - - - 34.7
7.75% 376,800 50.00
after July 1, 2003 18.8 18.8
Net premium on preferred stock .2 .8
______________________________________________________________________________
Total Preferred Stock of Subsidiary,
$50 par value $ 68.0 $ 167.1
______________________________________________________________________________
Serial Preferred Stock of Subsidiary,
cumulative, without par value--
Authorized 5,000,000 shares; 1,152,550
and 1,512,550 shares outstanding,
respectively (including 0 and 360,000
shares, respectively, of redeemable
preferred stock)
series shares redemption prices
A 742,300 $50.00 $ 37.1 $ 37.1
B 410,250 50.00 20.5 20.5
______________________________________________________________________________
Total Preferred Stock of Subsidiary,
without par value $ 57.6 $ 57.6
______________________________________________________________________________
Preference Stock of Subsidiary, cumulative,
without par value--
Authorized 5,000,000 shares; none outstanding - -
______________________________________________________________________________
Total Serial Preferred Stock, Preference
Stock and Preferred Securities of Subsidiary $ 125.6 $ 224.7
______________________________________________________________________________
Company Obligated Mandatorily Redeemable
preferred Securities of
Illinois Power Capital, L.P.
Monthly Income Preferred Securities,
cumulative, $25 liquidation preference--
3,880,000 shares authorized and outstanding $ 97.0 $ 97.0
Mandatorily Redeemable Serial
Preferred Stock of Subsidiary, cumulative --
series shares par value
8.00% - - - 36.0
______________________________________________________________________________
Total Mandatorily Redeemable
Preferred Stock of Subsidiary $ 97.0 $ 133.0
______________________________________________________________________________
Serial Preferred Stock ($50 par value) is redeemable at the option of IP in
whole or in part at any time with 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 1995 and 1994 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 1995 and 1994 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. In October 1994, Illinois Power Capital issued $97 million
of tax-advantaged monthly income preferred securities (MIPS) at 9.45% (5.67%
after-tax rate) with a liquidation preference of $25 per share. The proceeds
were loaned to IP and were used to redeem $97 million (principal value) of
higher-cost outstanding preferred stock of IP. The 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 1995 and 1994, IP redeemed $12.0 million of the 8.00% mandatorily
redeemable serial preferred stock. In May 1995, IP redeemed the remaining
$24.0 million of the 8.00% mandatorily redeemable serial preferred stock.
In March 1995, IP redeemed $.2 million of the 7.56% serial preferred stock
and $3.0 million of the 8.24% serial preferred stock. In December 1995, IP
redeemed $34.7 million of its 8.00% serial preferred stock, $33.6 million of
its 7.56% serial preferred stock and $27.0 million of its 8.24% serial
preferred stock. The carrying amount under consideration paid for redeemed
preferred stock amounted to $3.5 million, which was recorded in equity and
included in net income applicable to common stock.
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,
1995.
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, 1995.
Illinova has an Employees' Stock Ownership Plan (ESOP) that includes an
incentive compensation feature which is tied to employee achievement of
specified corporate performance goals. This arrangement began in 1991 when IP
loaned $35 million to the Trustee of the Plans, which 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 with the
formation of Illinova 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, 1995, 75,729 shares were allocated to
salaried employees and 70,830 shares to employees covered under the
Collective Bargaining Agreement through the matching contribution feature of
the ESOP arrangement. Under the incentive compensation feature, 109,662
shares were allocated to employees for the year ended December 31, 1995.
During 1995, IP contributed $6.0 million to the ESOP and using the shares
allocated method, recognized $4.4 million of expense. Interest paid on the
ESOP debt was approximately $2.1 million in 1995 and dividends used for debt
service were approximately $2.0 million.
Illinova has an Automatic Reinvestment and Stock Purchase Plan and an
Employees' Stock Ownership Plan for which, at December 31, 1995, 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:
_____________________________________________________________________________
Year Options Grant Year
Granted Granted Price Exercisable
_____________________________________________________________________________
1992 62,000 $ 233/8 1996
1993 73,500 $ 241/4 1997
1994 82,650 $ 207/8 1997
1995 69,300 $ 247/8 1998
_____________________________________________________________________________
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, 1995. 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 1995, 1994 and
1993, include the following components:
Years Ended December 31,
______________________________________________________________________________
(Millions of dollars) 1995 1994 1993
______________________________________________________________________________
Service cost on benefits
earned during the year $ 10.4 $ 11.9 $ 11.3
Interest cost on projected
benefit obligation 23.6 21.8 20.8
Return on plan assets (58.3) (7.9) (28.1)
Net amortization and deferral 29.6 (19.2) 1.9
Effect of enhanced retirement
program 15.7 - -
_____________________________________________________________________________
Net periodic pension cost $ 21.0 $ 6.6 $ 5.9
_____________________________________________________________________________
The estimated funded status of the plans at December 31, 1995 and 1994, using
discount rates of 7.75% and 8.75%, respectively, and future compensation
increases of 4.5% was as follows:
Balances as of December 31,
_____________________________________________________________________________
(Millions of dollars) 1995 1994
_____________________________________________________________________________
Actuarial present value of:
Vested benefit obligation $ (276.8) $ (209.6)
_____________________________________________________________________________
Accumulated benefit obligation $ (297.5) $ (220.8)
_____________________________________________________________________________
Projected benefit obligation $ (343.6) $ (267.3)
Plan assets at fair value 331.5 284.0
_____________________________________________________________________________
Funded status (12.1) 16.7
Unrecognized net (gain)/loss (5.1) (38.8)
Unrecognized net asset at transition (34.6) (15.0)
Unrecognized prior service cost 21.2 24.5
_____________________________________________________________________________
Accrued pension cost included in
accounts payable $ (30.6) $ (12.6)
_____________________________________________________________________________
The plan's 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, 1995 and 1994, were $258 million and
$230 million, respectively, including vested benefits of $239 million and
$213 million, respectively. The pension cost for 1995, 1994 and 1993 was
calculated using: a discount rate of 8.75%, 7.75% and 8.25%, respectively;
future compensation increases of 4.5% for 1995, 4.5% for 1994 and 5.5% for
1993; and a return on assets of 9% for 1995, 1994 and 1993. The unrecognized
net asset at transition and unrecognized prior service cost 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 plans due to its overfunded
status. IP made cash contributions of $2 million in 1995 and $10 million in
1994.
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 defined-benefit plans.
Postretirement benefits, a portion of which have been capitalized, for 1995
and 1994 included the following components:
Years Ended December 31,
- -----------------------------------------------------------------------------
(Millions of dollars) 1995 1994
- -----------------------------------------------------------------------------
Service cost on benefits earned
during the year $ 2.1 $ 3.3
Interest cost on projected
benefit obligation 5.5 6.2
Return on plan assets (4.7) .2
Amortization of unrecognized
transition obligation 6.3 2.1
Effect of enhanced retirement program 9.5 --
- -----------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 18.7 $ 11.8
- -----------------------------------------------------------------------------
The net periodic postretirement benefit cost in the preceeding table includes
amortization of the previously unrecognized accumulated postretirement benefit
obligation, which was $52.3 million and $55.2 million as of January 1, 1995 and
1994, 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. IPs 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, 1995 and 1994.
The estimated funded status of the plans at December 31,
Balances as of December 31,
- ------------------------------------------------------------------------------
(Millions of dollars) 1995 1994
- ------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation
Retirees $ (54.5) $ (26.7)
Other fully eligible participants (3.0) (11.6)
Other active plan participants (27.5) (27.3)
- ------------------------------------------------------------------------------
Total benefit obligation (85.0) (65.6)
Plan assets at fair value 25.6 15.2
- ------------------------------------------------------------------------------
Funded status (59.4) (50.4)
Unrecognized transition obligation 44.2 52.3
Unrecognized net (gain)/loss -- (7.8)
- ------------------------------------------------------------------------------
Accrued postretirement benefit cost
included in accounts payable $ ( 15.2) $ ( 5.9)
- ------------------------------------------------------------------------------
The pre-65 health-care-cost trend rate decreases from 7.6% to 5.5% over nine
years and the post-65 health-care-cost trend rate is level at 1.5%. A 1
percent increase in each future year's assumed health-care-cost trend rates
increases the service and interest cost from $7.6 million to $8.5 million and
the accumulated postretirement benefit obligation from $85.0 million to $93.0
million.
Enhanced Retirement
In December 1994, IP announced plans for voluntary enhanced retirement programs.
During the fourth quarter of 1995, enhanced retirement and severance reduced the
number of employees by 492 and 235, respectively. At January 1, 1996, Illinova
employed 3,596 people, as compared to 4,350 at December 31, 1994. The enhanced
retirement and severance programs generated pre-tax charges of approximately
$26 and $12 million, respectively, against fourth quarter 1995 earnings and
will generate savings of approximately $36 million annually, starting in 1996.
Note 13--Segments of Business
<TABLE>
(Millions of dollars)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993
Total Total Total
Electric Gas Corporation Electric Gas Corporation Electric Gas Corporation
- ----------------------------------------------------------------------------------------------------------------------
Operation information --
Operating revenues $1,368.9 $272.5 $1,641.4 $1,287.5 $302.0 $1,589.5 $1,266.4 $314.8 $1,581.2
Operating expenses, excluding
provision for income taxes
and deferred Clinton costs 942.7 245.0 1,187.7 872.6 274.7 1,147.3 873.9 286.2 1,160.1
Deferred Clinton costs 3.5 - 3.5 3.5 - 3.5 9.3 - 9.3
- -----------------------------------------------------------------------------------------------------------------------
Pre-tax operating income 422.7 27.5 450.2 411.4 27.3 438.7 383.2 28.6 411.8
Allowance for funds used
during construction (AFUDC) 5.5 .5 6.0 8.9 .4 9.3 6.2 1.0 7.2
Disallowed Clinton costs (net of taxes) - - - - - - (200.4) - (200.4)
- ------------------------------------------------------------------------------------------------------------------------
Pre-tax operating income, including
AFUDC and disallowed
Clinton costs $428.2 $28.0 $456.2 $420.3 $27.7 $448.0 $189.0 $29.6 $218.6
- -------------------------------------------------------------- ----------------- -----------------
Other deductions, net 18.9 17.5 15.6
Interest charges 148.0 143.9 164.9
Provision for income taxes 114.0 109.9 93.9
Preferred dividend requirements
of subsidiary 23.7 24.9 26.1
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) 151.6 151.8 (81.9)
Carrying value over (under)
consideration paid for redeemed
preferred stock of subsidiary (3.5) 6.4 -
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable
to common stock $148.1 $158.2 $(81.9)
===========================================================================================================================
Other information --
Depreciation $161.4 $21.6 $183.0 $156.1 $21.1 $177.2 $148.2 $21.0 $169.2
- ---------------------------------------------------------------------------------------------------------------------------
Capital expenditures $185.7 $23.6 $209.3 $173.1 $20.6 $193.7 $221.3 $56.4 $277.7
- ----------------------------------------------------------------------------------------------------------------------------
Investment information --
Identifiable assets* $4,580.4 $446.3 $5,026.7 $4,589.0 $442.6 $5,031.6 $4,526.8 $406.4 $4,933.2
- --------------------------------------------------------------- ------------------ ----------------
Nonutility plant and other investments 65.5 37.2 19.9
Assets utilized for overall operations 517.6 507.9 470.4
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $5,609.8 $5,576.7 $5,423.5
==============================================================================================================================
*Utility plant, nuclear fuel, materials and supplies, deferred Clinton costs
and prepaid and deferred energy costs.
Note 14--Fair Value of
Financial Instruments
1995 1994
- ----------------------------------------------------------------------------
(Millions of dollars) Carrying Fair Carrying Fair
Value Value Value Value
- -----------------------------------------------------------------------------
Nuclear decommissioning
trust funds $ 32.7 $ 32.7 $ 22.4 $ 22.4
Cash and cash equivalents 11.3 11.3 50.7 50.7
Mandatorily redeemable
preferred stock
of subsidiary 97.0 108.2 133.0 133.0
Long-term debt
of subsidiary 1,739.2 1,855.8 1,868.1 1,750.7
Notes payable 359.6 359.6 238.8 238.8
- ------------------------------------------------------------------------------
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.
Note 15--quarterly consolidated financial information and common stock data
(unaudited)
(Millions of dollars except per common share amounts)
- ---------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
1995 1995 1995 1995
- --------------------------------------------------------------------------------------------------
Operating revenues $425.5 $344.3 $486.1 $385.5
Operating income 78.3 67.1 137.2 41.8
Net income 32.4 26.3 89.9 3.0
Net income (loss) applicable to common stock 32.4 26.3 89.9 (.5)
Earnings per common share $.43 $.35 $1.18 $ .00
Common stock prices and dividends
High $23 5/8 $26 $27 1/4 $30
Low $21 1/4 $22 3/4 $24 1/4 $27
Dividends declared $.25 $.25 $.25 $.28
First Quarter Second Quarter Third Quarter Fourth Quarter
1994 1994 1994 1994
___________________________________________________________________________________________________
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 $ .00 $ .20 $ .20 $ .25
The 1995 fourth quarter earnings include $23 million net of tax, $(.30) per
share, for the enhanced retirement and severance program and $3.5 million,
$(.05) per share, for the carrying amount under consideration paid for
redeemed preferred stock of IP.
The 1994 fourth quarter earnings include $6.4 million, $.08 per share, for
the carrying amount over consideration paid for redeemed preferred stock of
IP.
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 35,035 registered holders of common stock at
January 10, 1996. On May 31, 1994, common shares of Illinois Power began
trading as common shares of Illinova.
Illinova Corporation
__________________________________________________________________________________________________________
selected consolidated financial data*
(Millions of dollars)
1995 1994 1993 1992 1991 1985
__________________________________________________________________________________________________________
Operating revenues
Electric $ 1,252.6 $ 1,177.5 $ 1,135.6 $ 1,117.9 $ 1,101.2 $ 766.5
Electric interchange 116.3 110.0 130.8 73.0 85.5 36.0
Gas 272.5 302.0 314.8 288.6 288.2 400.9
___________________________________________________________________________________________________________
Total operating revenues $ 1,641.4 $ 1,589.5 $ 1,581.2 $ 1,479.5 $ 1,474.9 $ 1,203.4
___________________________________________________________________________________________________________
Net income (loss) $ 151.6 $ 151.8 $ (81.9) $ 93.2 $ 78.4 $ 207.2
Effective income tax rate 42.9% 42.0% (39.8)% 46.0% 48.6% 29.1%
____________________________________________________________________________________________________________
Net income (loss) appli-
cable to common stock $ 148.1 $ 158.2 $ (81.9) $ 93.2 $ 78.4 $ 207.2
Earnings (loss)
per common share $ 1.96 $ 2.09 $ (1.08) $ 1.23 $ 1.04 $ 3.48
Cash dividends declared
per common share $ 1.03 $ .65 $ .40 $ 1.40 $ .40 $ 2.64
Dividend payout ratio
(declared) 52.3% 30.7% N/A 112.9% 38.4% 76.6%
Book value per common
share $ 20.19 $ 19.17 $ 17.46 $ 18.81 $ 19.25 $ 24.51
Price range of common shares
High $ 30 $ 22 5/8 $ 25 7/8 $ 25 1/8 $ 24 1/8 $ 27 1/2
Low $ 21 1/4 $ 18 1/8 $ 20 1/8 $ 19 1/4 $ 15 3/8 $ 21 3/8
Weighted average number
of common shares outstanding
during the period
(thousands) 75,644 75,644 75,644 75,644 75,644 59,619
______________________________________________________________________________________________________________
Total assets** $ 5,609.8 $ 5,576.7 $ 5,423.5 $ 5,331.7 $ 5,271.8 $ 4,894.6
______________________________________________________________________________________________________________
Capitalization
Common stock equity $ 1,527.0 $ 1,450.2 $ 1,321.0 $ 1,422.7 $ 1,456.1 $ 1,539.3
Preferred stock of
subsidiary 125.6 224.7 303.7 303.1 303.1 315.2
Mandatorily redeemable
preferred stock of subsidiary 97.0 133.0 48.0 100.0 110.0 86.0
Long-term debt of
subsidiary** 1,739.3 1,946.1 1,926.3 2,017.4 2,153.1 1,997.5
___________________________________________________________________________________________________________
Total capitalization** $ 3,488.9 $ 3,754.0 $ 3,599.0 $ 3,843.2 $ 4,022.3 $ 3,938.0
___________________________________________________________________________________________________________
Embedded cost of
long-term debt 7.9% 7.6% 7.5% 8.3% 8.7% 10.0%
____________________________________________________________________________________________________________
Retained earnings
(deficit) $ 129.6 $ 58.8 $ (64.6) $ 41.0 $ 75.8 $ 398.8
_____________________________________________________________________________________________________________
Capital expenditures $ 209.3 $ 193.7 $ 277.7 $ 244.4 $ 141.2 $ 870.7
Cash flows from
operations $ 413.2 $ 268.6 $ 369.7 $ 344.8 $ 281.3 $ 242.7
AFUDC as a percent of
earnings applicable
to common stock 4.1% 5.9% N/A 5.6% 3.7% 78.2%
Return on average
common equity 10.2% 11.0% (6.0)% 6.5% 5.5% 14.4%
Ratio of earnings to
fixed charges 2.56 2.56 .66 1.87 1.70 2.66
===========================================================================================================
* 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.
Illinova Corporation
selected illinois power company statistics
1995 1994 1993 1992 1991 1985
- ------------------------------------------------------------------------------------------------------------
Electric Sales In KWH (millions)
Residential 4,754 4,537 4,546 4,138 4,620 3,927
Commercial 3,804 3,517 3,246 3,055 3,111 2,706
Industrial 8,670 8,685 8,120 8,083 7,642 6,933
Other 367 536 337 466 699 861
____________________________________________________________________________________________________________
Sales to ultimate consumers 17,595 17,275 16,249 15,742 16,072 14,427
Interchange 4,444 4,837 6,015 2,807 3,360 1,692
Wheeling 642 622 569 402 292 -
____________________________________________________________________________________________________________
Total electric sales 22,681 22,734 22,833 18,951 19,724 16,119
____________________________________________________________________________________________________________
Electric Revenues (millions)
Residential $ 500 $ 471 $ 463 $ 435 $ 447 $ 276
Commercial 321 295 269 263 251 179
Industrial 392 378 360 381 355 277
Other 37 30 40 38 47 34
____________________________________________________________________________________________________________
Revenues from ultimate consumers 1,250 1,174 1,132 1,117 1,100 766
Interchange 116 110 131 73 86 36
Wheeling 3 3 3 1 1 -
_____________________________________________________________________________________________________________
Total electric revenues $ 1,369 $ 1,287 $ 1,266 $1,191 $ 1,187 $ 802
_____________________________________________________________________________________________________________
Gas Sales In Therms (millions)
Residential 356 359 371 339 339 365
Commercial 144 144 148 138 133 166
Industrial 88 81 78 136 98 136
______________________________________________________________________________________________________________
Sales to ultimate consumers 588 584 597 613 570 667
Transportation of customer-owned gas 273 262 229 204 253 -
_______________________________________________________________________________________________________________
Total gas sold and transported 861 846 826 817 823 667
Interdepartmental sales 21 5 7 12 8 1
_______________________________________________________________________________________________________________
Total gas delivered 882 851 833 829 831 668
_______________________________________________________________________________________________________________
Gas Revenues (millions)
Residential $ 173 $ 192 $ 200 $ 181 $ 84 $ 228
Commercial 60 66 68 61 61 89
Industrial 24 31 34 37 31 68
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Revenues from ultimate consumers 257 289 302 279 276 385
Transportation of customer-owned gas 8 9 8 7 9 -
Miscellaneous 7 4 5 3 3 16
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Total gas revenues $ 272 $ 302 $ 315 $ 289 $ 288 $ 401
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System peak demand (native load)
in kw (thousands) 3,667 3,395 3,415 3,109 3,272 2,929
Firm peak demand (native load)
in kw (thousands) 3,576 3,232 3,254 2,925 3,108 2,771
Net generating capability
in kw (thousands) 3,862 4,121 4,045 4,052 3,909 3,770
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Electric customers (end of year) 529,966 553,869 554,270 549,391 565,421 537,047
Gas customers (end of year) 374,299 388,170 394,379 386,261 401,763 382,442
Employees (end of year) 3,559 4,350 4,540 4,624 4,514 4,550
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