ML19337A051

Amend 3 to Application for Ol.Requests Authorization to Operate for 40 Yrs at Power Levels Up to 2,894 Mwt Per Unit

ML19337A051
Person / Time
Site:	Clinton
Issue date:	08/31/1980
From:	ILLINOIS POWER CO.
To:
Shared Package
ML19337A050	List: ML19337A049 ML19337A051
References
NUDOCS 8009080197
Download: ML19337A051 (140)

Text

_ _ _ _.. _. _. _....

Q CPS Amendment No. 3 August 1980 ILLINOIS POWER COMPANY CLINTON POWER STATION APPLICATION INSTRUCTIONS FOR UPDATING " APPLICATION" Amendment No. 3 to the CPS licensing document entitled " Application" is a complete revision of the general information and related exhibits to update overall the application filing for the Clinton Power Station operating license.

,7 g

To update the application ' remove'.and-insert-pages and exhibits:

as indicated below:

Remove Insert Entire application pages Completely revised application and Exhibits A through N pages including Exhibits A through as updated through O identified as Amendment No. 3 Amendment No. 2 (5/28/75).

(August 1980).

rL i

, w..

k a

4

.c

, ~.. -

(

~.

l l

._f

_ici.

8009080197

AMENDMENT NO. 3

< ~s

(_)

August 1980 UNITED STATES NUCLEAR REGULATORY COMMISSION In the Matter of

)

the Application of

)

ILLINOIS POWER COMPANY

)

Docket No. 50-461 SOYLAND POWER COOPERATIVE, INC.

)

50-462 WESTERN ILLINOIS POWER COOPERATIVE, ING. )

FOR CONSTRUCTION PERMIT AND LICENSE

)

FOR UTILIZATION FACILITY

)

O APPLICATION FOR CONSTRUCTION PERMIT AND UTILIZATION FACILITY LICENSE UNDER THE ATOMIC ENERGY ACT OF 1954, AS AMENDED, FOR CLINTON POWER STATION -

UNIT 1 & UNIT 2

AMENDMENT NO. 3 August 1980 Q

V Application for Clinton Power Station Units 1 & 2 CONTENTS Page APPLICATION DOCUMENTS 1.

APPLICANT 2

2.

LICENSE CLASS 3

3.

FINANCIAL QUALIFICATIONS 4

4.

CONSTRUCTION COMPLETION DATE 6

5.

REGULATORY AGENCIES 6

6.

RESTRICTED DATA 6

7.

COMMUNICATIONS REGARDING APPLICATION 7

EXHIBITS A IP Board of Directors and Principal Officers A Soyland Board of Directors and Principal Officers A WIPCO Board of Directors and Principal Officers B

- Illinois Power Company Annual Report 1979 C

- Balance Sheet, Statements of Income and Retained Earnings (March 31, 1980)

D

- Financial and Operating Forecast (1979-1984), February 21, 1980 E

- Generating Unit Additions f'/

F Prospectus (March 6,1980) Cumulative Preferred Stock i

F Prospectus (March 6, 1980) Common Stock s-G

- Construction Cost Breakdown (Unit 1)

H

- Plant Capital Investment Summary (Unit 1)

I

- Monthly Cash Flow for 12 Months Ended March 31, 1980 l

J

- Officers' Certificate for Issuance of Mortgage Bonds l

K

- Excerpt from Restated Articles of Incorporation of IP 1

L

- Financial Analysis (1979-1980)

M

- Illinois Commerce Commission Order 79-0071 N

- Rate Developments 0

- Area News Publications 1

AMENDMENTS No. 1 (3/30/74) - Transmittal letter, instruction sheet and Questions /

Responses No. 2 (5/28/75) - Transmittal letter, instruction sheet and Questions /

Responses No. 3 Aug.1980 - Transmittal letter for docketing updated general information and application exhibits, O

-i-

AMENDMENT NO. 3 August 1980 O

N/

CPS APPLICATION To the United States Nuclear Regulatory Commission:

Illinois Power Company on behalf of itself, and as agent for Soyland Power Cooperative, Inc. and Western Illinois Power Cooperative, Inc., hereby applies for a construction permit and utilization facility license for the Clinton Power Station, under the Atomic Energy Act of 1954, as amended.

Clinton Power Station (CPS) will be a nuclear power station at a site in Harp Township, DeWitt County, Illinois.

The station will consist of two units, designated as Clinton Power Station, Unit 1 and Unit 2, each utilizing a General Electric Company BWR/6 boiling water reactor.

Each of the two units of the Clinton Power Station is designed to operate at a rated power of 2894 hegawatts thermal (MWt) with a gross electrical output, of 985 megawatts electrical (MWe).

The contents of this application provide the general informa-tion pursuant to Title 10, Code of Federal Regulations, Part 50, Section 50.33.

i Submitted in support of the application and made a part hereof l

are the following documents for the Clinton Power Station:

(a) -Preliminary Safety Analysis Report, pursuant to 10 CFR 50.34.

as amended through Amendment No. 34, May 28, 1976.

(b)

Environmental Report-Construction Permit Stage, pursuant to Appendix D, 10 CFR 50, as amended through Supplement No. 6, October 3, 1975.

(c)

Information Requested by the Attorney General for Antitrust Review, pursuant to 10 CFR 50.33a, as amended by Supplement No.

1, January 29, 1974.

(d)

Information for Antitrust Review of Operating License Appli-cation, Fhy 23, 1980.

(e)

Application for Amendment to Construction Permit No.

CPPR-137 for Clinton Power Station, Unit 1, January 31, 1978, as amended March 22, 1978.

(f)

Final Safety Analysis Report, pursuant to 10 CFR'50.34(b).

(g)

Environmental Report-Operating License Stage, pursuant to 10 CFR 51. !

4

-w

AMENDMENT NO. 3 August 1980 CPS O

1.

APPLIC' ANT Clinton Power Station Unit 1 is owned by Illinois. Power Company (IP) (80%); Soyland Power Cooperative, Inc.

(Soyland) (10.5%); and Western Illinois Power Cooperative, Inc. (WIPCO) (9.5%) as tenants in common.

Illinois Power Company is sole owner of Clinton Power Station Unit 2.

Illinois Power Company in filing this application is act-ing as agent and representative of Soyland and WIPCO pur-suant to the Ownership Participation Agreement (Exhibit A of item (e) above).

IP is solely responsible for the design, construction, operation, staffing, and licensing of the facility.

a)

Ill'inois Power Company Illinois Power Company is the exact legal name of the first of the three applicants.

Illinois Power Company was incorporated under the laws of the State of Illinois on May 25, 1923.

The address of Illinois Power Corapany and the location of its executive offices is 500 South 27th Street, Decatur, Illinois 62525.

The names, addresses and citizenship of the directors

{T and principal officers of Illinois Power Company are given in Exhibit A-1.

Illinois Power Company is not owned, controlled, or dominated by an alien, a foreign corporation, or foreign government.

Illinois Power Company (IP) is engaged in the generation, transmission, distribution and sale of electric energy and the distribution and sale of natural gas in the State of Illinois.

The percentages of total operating revenues of Illinois Power Company for the twelve months ended December 31, 1979,- by classes of service, were as follows:

Electric 63.7% and nas 36.3%.

At December 31, 1979 IP was owned by about 75,000 common stockholders, employed approxi-mately 3,900 persons and operated in over one-fourth the Illinois land area.

It served more than 516,000 electric customers and 377,000 gas customers.

The IP service area encompasses about 15,000 square miles in northern, central and southern Illinois with a population of approximately 1.6 million.

A map of the territory served by Illinois Power Company is depicted on the inside back cover of the IP 1979 Annual Report (see Exhibit B) and it shows the principal conmu-nities served with electricity and gas, the power stations and the principal electrical and gas lines.

e -.

~..

ANENDMENT NO. 3 August-1980 CPS b)

Soyland Soyland Power Cooperative, Inc. is the exact legal name of the second of the three applicants.

The address of Soyland is P.O. Box A1606, Decatur, Illinois 62525.

Soyland is a not-for-profit corporation organized under the laws of the State of Illinois to generate, acquire, transmit and distribute electrical energy on a coopera-tive basis for its members.

Soyland has no prior operating history and does not now generate or distribute any electric energy.

Soyland has fifteen distribution cooperative members to whom it will be distributing bulk power.

The names, addresses and citizenships of Soyland's directors and principal officers are given in Exhibit A-2.

Soyland is not owned, controlled, or dominated by an alien, a foreign corporation, or foreign government.

c)

WIPCO

, ()

Western Illinois Fower Cooperative, Inc. is the exact legal name of the third of the three applicants.

The address of WIPCO is P. O. Box 609, Jacksonville, Illinois 62651.

WIPCO-is.a not-for-profit corporation organized under the laws of the State of Illinois and is engaged in the gen-eration, transmission and distribution of electric ener-gy'in the State of Illinois.

WIPCO has over 50 employees and provides bulk power to seven distribution cooperative msmbers in west central Illinois.

The names, addresses and citizenships of WIPCO's directors and principal offi-cers are given in Exhibit A-3.

.WIPCO is not owned, controlled or dominated by an alien, a foreign corporation, or foreign government.

I 2.

LICENSE CLASS Applicants propose to construct and operate the Clinton Power 4 -

Station, a utilization facility, for the generation of com-mercial electric power.

IP is repsonsible for the design, construction and operation of the Clinton Power Station.

-Illinois Power Company requests that the Nuclear Regulatory Commission l grant for the Clinton Power Station:

O,.

s-1.. - -.,

= _ _ - -

. -.. - -. ~

AMENDMENT NO. 3 August 1980 Q

CPS U

a)

A construction permit pursuant to 10 CFR 50.23 and a class 103 operating license pursuant to 10 CFR 50.22, said operating license to be effective for a period of forty (40) years, and including b)

Such additional source material (10 CFR 40), special nuclear material (10 CFR 70) and byproduct material (10 CFR 30) licenses as may be necessary and appro-priate to the operation of the Clinton Power Station.

3.

FINANCIAL QUALIFICATIONS Illinois Power's financial position is shown on the finan-cial statements contained in the 1979 Illinois Power Company Annual Report, designated Exhibit B,

and its March 31, 1980 Statement of Income, Balance Sheet and Statement of Retained Earnings which are designated Exhibit C.

Exhibit D is IP's Financial and Operating Forecast dated February 21, 1980, which includes the estimated capital requirements, sources of capital and financing require-ments.

This exhibit is a published report released periodi-cally in the Company's normal course of doing business.

()

Exhibit E is a listing of projected generating units.

Exhibits F-1 and F-2 are the most recent prospectuses pre-pared by Illinois Power Company.

At December 31, 1979, IP's total assets were $2,214,652,000 (Exhibit B, page 14).

IP's operating revenues during 1979 were $751,822,000 and its net income was $91,3.35,000 for the same period (Exhibit B, page 16).

At March 31, 1980, IP's total assets were $2,272,822,000 (Exhibit C) and its operating revenues and net income for the twelve months ended March 31, 1980, were $787,288,000 and $92,275,000 respectively (Exhibit C).

The basic cost of Clinton Unit 1 is estimeted to be

$1,509,907,000 (see Exhibit G).

- A breakdown of the estimated construction costs for Unit 1 Clinton Power Station is tabulated in Exhibit G.

The basis for the estimated construction cost is the most recent proj ect cost breakdown as developed for IP by the architecti engineer, Sargent & Lundy.

Effective May 1, 1980, IP increased the Allowance for Funds Used During Construction rate from 7% (compounded semi-annually) to 7 3/4% (compounded semi-annually).

Footnotes have been added on the appropriate (J~)

exhibits to reflect this change. -

e w

t

AMENDMENT NO. 3 August 1980 CPS f~/)

The Plant Capital Investment Summary for Unit 1 is provided as Exhibit H.

IP had outstanding $882,200,000 principal amount of First Mortgage Bonds, 4,280,000 shares of serial preferred stock, cumulative, $50 par value not subject to mandatory redemption -

$215,171,000 (including $1,171,000 premium), 720,000 shares of serial preferred stock, cumulative, $50 par value, subject to mandatory redemption beginning in 1988 - $36,000,000, and 32,921,441 shares of Common Stock, no par value, with a total common stock equity of $714,881,000 at March 31, 1980.

At March 31, 1980, Illinois Power Company had authorized but unissued 5,000,000 shares of serial preferred stock, cumulative without par value, 5,000,000 shares of Preference Stock cumulative, without par value, and 7,078,559 shares of Common Stock, no par value, without further authorization of its stockholders.

Illinois Power Company forescas no problems in obtaining stock-holder consent to increase the authorized numbers of shares of Preferred, Preference and Common Stock as needed.

Additional first mortgage bonds of any series may be issued under the Mortgage in a principal amount equal to (1) 60%

of the net bondable value of property additions not subject gg to an unfunded prior lien; (2) the principal amount of bonds x,/

retired other than out of trust estate moneys; and (3) the amount of. cash deposited with the Trustee for such purpose (which may thereafter be withdrawn upon the same basis that additional bonds are issuable except that no net earnings requirements is applicable).

Additional bonds may be issued as specified in (1) and (2) above only if a) net earnings available for interest and property retire-ment appropriations (as defined in the Mortgage) for 12 consecutive months within the 15 konths immediately pre-ceding the month in which application for such additional bonds is made, shall have been equal to at least the greater of two and one-half times annual interest charges on, or 10% of the principal amount of, and b) net earnings available for interest after property re-tirement appropriations (as defined in the Mortgage) for the same 12 months' period shall have been equal to at least two times the annual interest; charges on, all bonds which will be outstanding under the Mortgage immediately after the issue of the additional bonds applied for and all prior lien bonds, if any.

f)

The remaining balance of net bondable additions at March 31, 1980 was approximately $522,000,000.

N' AMENDMENT NO. 3 August 1980 (O

CPS A/

Illinois Power Company had authorizations of its Board of Directors and the Federal Energy Regulatory Commission at March 31, 1980 to make short-term borrowings up to a maxi-mum of $175,000,000 either through bank loans or the issuance of commercial paper.

Illinois Power Company had firm commit-ments'from a group of Illinois banks at March 31, 1980 to make short-term bank loans from time to time up to a maximum of $109,125,000.

Applicants, by utilizing funds generated by operations and issuing securities as needed, feel they have reasonable assurance of the availability of sufficient funds to cover the estimated constcaction costs, related fuel cycle costs and estimated operating costs relating to the nuclear units at the Clinton Power Station.

Exhibit I is a tabulation of Monthly Cash Flow for the twelve months ended March 31, 1980.

Exhibit J is a copy of the most recent Officers ' Certificate in connection with the issuance of mortgage bonds.

Exhibit K is an excerpt from the Restated Articles of Iacorporation of Illinois Power Company which shows how r-)x preferred stock coverage is calculated.

is.

Exhibit L is a completed form entitled, " Financial Analysis" for twelve months ended December 31, 1979 and March 31, 1980.

Exhibit M is a copy of the Illinois Commerce Commission Order No. 79-0071, Proposed general increases in electric and gas rates and revisions of the Electric and Gas Rules, Regulations and Conditions of Service.

Exhibit N is a table on Rate Developments.

4.

CONSTRUCTION COMPLETION DATE The scheduled completion and fuel loading for Unit 1 is April 1, 1982 with commercial operation scheduled for December 1, 1982.

The scheduled completion of Unit 2 has been deferred because the earliest proj ected requirement for additional generating capacity on the Illinois Power Company system is now estimated to be 1991.

5.

REGULATORY AGENCIES (Rates and Services Jurisdiction) a)

The regulatory agencies which have jurisdiction over the rates and services incident to the Clinton Power Station are:

C AMENDMENT No. 3 August 1980

/7 CPS

\\~)

Illinois Commerce Commission Federal Energy Regulatory 527 East Capitol Avenue Commission Springfield, Illinois 62706 825 North Capitol St., N. W.

Washington, D. C.

20426 Rural Electrification Administration United States Department of Agriculture Washington, D. C. 20250 b)

Exhibit 0 is a list with addresses'of news publications (including present frequency of publication) which circulate in the area where the Clinton' Power Station will be constructed and operated.

These publications may be considered appropriate to give reasonable notice to municipalities, private utilities, public bodies, and cooperatives which might have a potential interest in the Clinton Power Station.

6.

RESTRICTED DATA The application for the Clinton Power Station contains no Restricted Data or other defense information.

Pursuant to 10 CFR 50.37, Illinois Power Company, Soyland

("}

and WIPCO agree that they will not permit any individual x-to have access to Restricted Data until the Civil Service Commission shall have made an investigation and report to the Nuclear Regulatory Commission on the character, associa-tions, and loyalty of such individual, and the Nuclear Regu-latory Commission shall have determined that permitting such person to have access to Restricted Data will not endanger the common defense and security.

7.

COMMUNICATIONS REGARDING APPLICATION The name, title, and post office address of the persons to whom correspondence and communications in respect to this application are to be addressed are:

a)

Illinois Power:

Leonard J. Koch Vice President Illinois Power Company 500 South 27th Street Decatur, Illinois 62525 b)

George E. Wuller Supervisor - Licensing Illinois Power Company Generation Engineering Department 73) 500 South 27th Street

('^'

Decatur, Illinois 62525 AMENDMENT No. 3 August 1980 q

CPS N.)

c)

Attorney of Record for Illinois Power:

Peter V. Fazio, Jr.

Schiff Hardin & Waite 7200 Sears Tower 233 South Wacker Drive Chicago, Illinois 60606 d)

Soyland:

Royal B. Newman Executive Vice President and General Manager Soyland Power Cooperative, Inc.

P. O. Box A1606 Decatur, Illinois'62525 e)

Attorney of Record for Soyland:

French L. Fraker Dobbins, Fraker & Tennant 501 West Church Street Champaign, Illinois 61820

(')

f)

WIPCO:

3 Donald B. Bringman Executive Vice President & General Manager Inc.

Western Illinois Power Cooperative, P. O. Box 609 Jacksonville, Illinois 62651 g)

• Attorney of Record of WIPCO:

Theodore C. Rammelkamp Rammelkamp, Bradney, Hall & Dahman 11 Dunlap Court P. O. Box 446 Jacksonville, Illinois 62650

~

240 240

[:

f

=

220 220 J

DJ~

A; 5:r a-J Er 200 200

) %.,;

t;

+-

f 180 180 W.

)

,J

,g 160 y

160 140 140 120 j

120 p.

80 80

.p R

c g

a.

0",

s r

v.p 60 60

.m x

r 40 J

r::.

40 v

20 20 b I2 h

"M*A A" A*'

' E

~"'l #"'"

0 0

70 71 72 73 74 75 76 77 78 79 70 71 72 73 74 75 76 77 78 79 Electric Peak Loads Gas Peak Loads (IN THOUSANDS OF KW)

(IN THOUSANDS OF THERMS) 3200 9600 I

I I

3@0 90 %

l l

A l

84m j gg 28m

'~ t 7800 2600 l

i l

_ y 2400 7200 Je rw 2.,

N6 l

2 paw <

A l

l s

6600 gg g; 2200 y,

m7 en cm 2000 l y y g y y m-6000 saw m,;,,n,, j s.

,;g y y & x & Q

' 8*

y a n

.c

e..

4800 1600 4n 4200

,G,' :

}?, :L%,j K.; V

~ >s L

1400

? %.

F 5:. K W 'iQ $

yt1 W w

M 3600 1200

' g St Lw S:t ;w g

'; c6

,nw g

d=- & ?

M R &

s s:<

w

.s,

+:~

2400

=

800

=8

+-

m yd

-<w;.*n p-..te ;rd

>(

en.

1800

- -v

.w A:1 *c, i4.u v R

.< ;9 600 s

,c W

1200 400 i

W W W

A- @

M of

,W J. ;,;

mM 200 bm hha*

games mi-600

'N h D

0 0

70 71 72 73 74 75 76 77 78 79 70 71 72 73 74 75 76 77 78 79 5

m.1 y

cy gg e

j y my.

-1 %. g e

a, c;n~ ~

o 4e.

gmq 3p s

b j.

~ g m

-y p

Iry

^'

'-l

> : Q4 M,

v

-t, k;; n a @, ~

=

r V.'-

W --

v. %,

m%Q%%,

13 i

hW 7

= _ _,

- t>q s

~

/t-pu w

Qh, w% &;WA

.w.a M LEVELDUT 1

e&c jf$y sts y

YOURMONmy %

w 1

t, n

y s

c j

1

~ ~,.,

QQ l-

?

,Y}

Q']jS3 ^

~y

[d # ~

e"

,y,

^g4pk%.l,

1 s p h T @?: % L,

,/

, WA

@ @h,-

dtW -

Md

%Me d.n Qyw/w 7 @ W g $.s ? $ $..

pj t

~

h 2

Budget billing, Project HELP and improved communications are among services provided to Ilunois Power Company customers.

I

)

120 feet horizontally to the center of the containment alternative generating plans being considered by building, and lowered 125 feet in its upright oosition the Board of Directorc would increase the estimated onto its pedestal.

expenditures by more than $100 million. These ex-Electrical switchyard construction at the Clinton penditures do not include the financial participation power station was started during 1979. Construction by two electric cooperatives which have a combined also began on about 35 miles of 345 kilovolt lines 20 per cent interest in Clinton Unit 1.

to deliver the power generated at the Clinton power station into our electrical transmission system.

We anticipate construction expenditures for 1980 of approximately S303 million for electric facilities Impact of Three Mile Island Accident and 517 million for gas facilities, for a total of $320 million. For the five-year period,1980 through 1984, construction expenditures are estimated at $1.2 bil-On March 28, 1979, the U.S. commercial nuclear lion. Since our current estimate of projected growth power industry experienced the most serious acci-of electric demand indicates that no additional elec-dent in its history at the Metropolitan Edison Com-tric generating facilities beyond Clinton Unit 1 are pany's Three Mile Island Unit 2 in Pennsylvania.

l i

needed prior to 1991, no expenditures for additional That accident had a serious impact on nuclear power f

generating facilities are reflected in the estimated activities in this country. Investigations of the cause j

expenditures for the five year period. None of the and recommendations for changes have been made 7

peak firm demand experienced in 1978.

Company was cited as among the best investor-We expect our load factor to increase in the years owned utilities in the nation in terms of power plant ahead as a result of our continuing load management productivity and one of the top five nationally in terms program. Kilowatt-hour consumption in the 1980's of productivity from large coal units.

is expected to grow at a rate one per cent per year We were able to provide assistance to capacity-greater than that of peak demand.

short systems. Net interchange deliveries reached a Our gas supplies improved during the year. This maximum level of 410,202,000 kilowatt hours in De-and another colder-than-normal winter resulted in a cember and totaled 2,009,542,614 kilowatt hours for gas sales record for the second consecutive year.

the year. Most of this was produced by our coal-fired Three releases of natural gas were made during generating units and was used, to a large extent, by the year. All space heating applicants and all com-other utilities to replace oil.

mercial and industrial non-space heating applicants using up to 150 therms per hour who applied by October 15,1979, and all commercial and industrial Fuel Supply non-space heating applicants using more than 150 ther ns per hour who applied by May 30,1974, were Coal accounted for 95.9 per cent of the fuel we used offered gas service. The gas releases were made possible by improved long-term forecasts of gas for generating electricity in 1979, with 76.2 per cent of it from Illinois mines. We also used low-sulfur coal supply, the continuing effects of conservation and the conversion of some industrial customers from from Kentucky and Colorado. Oil provided 3.0 per limited firm service to interruptible service.

cent of our generation, and other fuels were used for We entered into a long-term contract with Pan-1.1 per cent. We wiii nave a more baianced mix of handle Eastern Pipeline Company for one billion fuels when Clinton Unit 1 goes into service, with cubic feet of underground storage capacity. This is nuclear generation accounting for 16.6 per cent of in addition to similar storage agreements with Natural our generating capability.

Gas Pipeline Company and the capacity of our eight Over the next 10 years our estimated average re-underground storage fields. The new leased storage quirement for coal is 7.7 million tons annually. Fu-capacity will insure our ability to meet the peak ture coal needs for existing coal-fired units are i

demands of our gas customers and enhance our estimated to be 170 million tons. Contracts in effect flexibility in purchasing natural gas supplies when-as of December 31, 1979, including extension op-ever they are available, tions, provide for delivery of approximately 167 Steps were taken in 1979 to develop a new electric million tons.

and gas dispatch center which will be completed in Fuel for the Clinton nuclear power station will be 1983. This center will have supervisory control and supplied by Kerr-McGee Nuclear Corporation under data acc;uisition equipment which will allow the dis.

the terms of two contracts. The contracts provide patchers to directly monitor and control the electric for the purchase and conversion of approximately and gas systems and take immediate action in 5.4 million pounds of uranium to be delivered to the response to known or forecasted conditions. It will Department of Energy, with whom we have 30 year contracts for our enrichment requirements. The further improve our ability to insure continued high reliability of electric and gas service.

"Long Term Fixed Commitment Contracts" with the Department of Energy for enrichment services have been replaced with long term " Adjustable Fixed Systems Reliability Commitment Contracts" with schedules for enrich-ment services adjusted to suit current operating needs. A contract with the General Electric Com-We constantly review the planning, design and op-pany provides approximately 15 years of fuel fabri-erating reliabil;ty of our electric and gas systems to cation requirements.

provide continuous service to our customers. We in 1979, in response to a request from the federal work closely within the Illinois Missouri Pool (ILLMO),

govemment to ease the demand for some types of the Mid-America Interpool Network (MAIN), and the oil, we installed a new supply pipeline and fueled National Electric Reliability Council (NERC) to insure three generating units at the Wood River power sta-that the interconnected electric system can reliably tion and two combustion turbine peaking units with deliver bulk power to large regional areas. The Illi-natural gac, during the summer months. We have re-nois Commerce Commission is currently eviewing tained the capability to switch these units from oil the reliability practices of all Illinois utilities.

to gas and have continued to do so when gas is In testimony presented by lilinois Commerce Com-available from the gas pipeline supplier. This change mission staff during our rate case, Illinois Power conserves number 2 distillate fuel oil.

9

notice.

Impr vements were made in our computerized Consumer Services system of customer mformation, including installa-tion of a new computer to further insure the prompt availability of account information and instaflation of the on-line information system in five more customer The Company provided "ree home energ/ audits of service center offices.

13,859 residential units in 1979 as part of the electric utilities' National Energy Watch program. More than 300 cther inspections of com,mercial establishments, Legislation and Regulation schools, and other public buildings were conducted.

We have done more than 50,000 on-site energy audits for customers since 1977.

The major public utility federal legislation affecting We joined the National Energy Watch commercial-the Company is the National Energy Act passed in industrial program, which was begun nationally dur-November,1978.

ing the year.

The Act consists of four parts. The National Energy We sponsored our third, and largest, conference Conservation Policy Act provides federal subsidies on energy efficiency for industrial and commercial to encourage energy conservation, improvements in customers in October. Fifty-two manufacturers of efficiency, and expansion of solar energy. The Power energy efficient equipment displayed and discussed Plant and Industrial Fuel Use Act requires major new their products for 260 participants at the conference, industrial boilers to use coal rather than oil or nat-which was held on the campus of Illinois State ural gas. The Public Utilities Regulatory Policy Act University.

(PURPA) establishes standards for electric rate de-1979 started with a New Year's Eve ice storm in sign and utility practices to be considered by state southwestern Illinois. In late February another ice regulatory agencies. The Natural Gas Policy Act pro-storm struck in the Sparta and Mt. Vernon service vides federal jurisdiction, including price coreols, areas. The severe ice storms in 1978 and 1979 over both interstate and intrastate natural gas sales.

caused the worst winter damage in Illinois Power The National Energy Act is certain to add an ad-Company history. Ten of our 12 service areas were ministrative burden to our industry which already is affected by these storms.

burdened with needless paperwork. We are working Two new lilinois Commerce Commission orders with the various regulatory agencies to minimize any adverse effects of this legislation.

governing relations between utilities and customers The major state legislation affecting the Company were issued in 1979. One is the result of more than two years of deliberations; it further restricts utility is a replacement tax for the corporate personal collection activities. Several provisions of the order property tax and capital stock tax which were elim-were in line with existing Ilknois Power Company inated January 1,1979, as mandated by the current practices. The other order, enacted in response to state Constitution. The replacement tax package 1979 legislative resolutions, restricted curtailment of imposed a tax on invested capital at the rate of 0.8 utility service for nonpayment from December 1, per cent and an income tax increase of 2.85 per cent 1979 to April 1,1980.

until January 1,1981, and 2.5 per cent thereafter.

In order to further assist persons on fixed incomes These replacement taxes became effective July 1, and other customers, we began a program entitled 1979 and resulted in a decreased tax liability for the Project HELP, With this program, we have increased year 1979 since they were effective for only six cooperation with govemmental agencies administer-months. We anticipate an increased tax burden in ing federal bill payment assistance programs. Also, future years as a result of the replacement tax.

additional office hours were offered in the fall so in matters of state regulation, the lifinois Com-customers could make payment arrangements or merce Commission has conducted six investigative start budget billing before high winter heating billing proceedings affecting all major utilities in the state.

These are to determine an appropriate level of re-began.

We made improvements during the year in our liability for the major electric generating utilities, billing system and employee training activities. A reconcile revenues collected under fuel and gas booklet with basic information about our services, adjustment charges with actual costs, investigate billing, and the Company was developed for distri.

adoption of uniform purchased gas and fuel adjust-bution to customers. We added information to help ment clauses, consider the application of peak load customers better understand our bill and we pricing concepts, and investigate electric load fore-changed our final notice form to add consumer infor-casting procedures. Other Commission actions are mation and to emphasize the importance of this reported in the Consumer Services section.

11

Board of Directors Officers Robert J. Burow Wendell J. Kelley Consultant and Retired Pu*>lisher Chairman and President The Commercial-News William C. Gerstner Charles W. Wells Danville, filinois Executive Vice Executive Vice President President W am C. Gerstner Arthur E. Gray James O. McHood gxec ive ce President of the Company p

pg Larry D. Haab William E. Warren Vice President Vice President George E. Hatmaker

$',PngNd l$n$

Leonard J. Koch Porter J. Womeldorff Vice President Vice President D.F. Meek J. B. Burdick Wendell J. Kelley Secretary and Treasurer Assistant Treasurer Chairman and President of the Company Decatur, Illinois John H. Leslie Chairman of the Board of Signode Corporation (manufacturer of steel and plastic strapping and packaging systems)

Glenview, filinois Continental lilinois National Bank and Trust Keith R. Potter Company of Chicago Vice Chairman of 231 South LaSaile Street, Chicago, Illinois 60693 International Harvester Company (manufacturer of trucks: agricultural, construction, Stockholder Records and Divuend and industrial equipment; and gas turbines)

Chicago, Illinois Disbursing Office D. F. Meek, Secretary and Treasurer tilinois Power Company Boyd F. Schenk 500 South 27th Street President and Chief Executive Officer of Decatur, Illinois 62525 Pet incorporated (217) 424-7154 d

$her.onsu The annual stockholders' meeting will be held rg ds)

March 27,1980, at the executive ottice of the St. Louis, Missc ari Company at 10 A M. Proxies for this meeting will be requested by the Board of Directors. A proxy statement will be mailed to stockholders about Richard P. Stone pes,ua,y 29, gggo, Grain and Seed Farm Operator

. Springfield, Illinois This report and the financial statements con-tained herein are submitted for the general in-formation of the stockholders of the Company as such and are not intended to induce, or to Charles W. Wells be used in connection with, any sate or pur-Executive Vice President of the Company chase of securities.

Decatur, Illinois Gordon R. Worley Executive Vice President-Finance of Montgomery Ward & Co., incorporated Chicago, Illinois Vernon K. Zimmerman ILLINOIS POWER COMPANY Dean, College of Commerce and Business Administration Principal Office University of Illinois Monticello, Illinois 61856 Urbana, lihnois hecube Mce Note: The principal occupation of each director and officer of Illinois Power Company is 500 South 27th Street, Decatur, Illinois 62525 that listed following his name.

Phone (217) 424-6600 13 l

ILUNOIS POWER COMPANY / ANNUAL REPORT 1979 Long-Term Gebt, Preferred and Preference Stock December 31, 1979 1978 (Thousands of Dottars)

ONG-TERM DEBT First mortgage bonds *-

$15,000 2%% series due 1979 10,000 10,000 2%% series due 1980 20,000 20,000 3%% series due 1982 20,000 20,000 3% % series duo 1983.............................

20,000 20.000 3%% series due 1986.

25,000 25.000 4% series due 1988 35,000 35,000 4%% series due 1993 40,000 40,000 5.85% ceries due 1996 25.000 25,000 6%% series due 1998 45,000 45,000 6%% series due 1998 35,000 35,000 8.35% series due 1999 35,000 35,000 9% series due 2000..............

35,000 35,000 7.60% series due 2001.....

60,000 60.000 7%% series due 2003...

8,500 8.500 6.60% series due 2004 (Pollution Control Series A) 100,000 9%% series due 2004 50,000 50,000 10%% series due 2004 100,000 100,000 8%% series due 2006 18,700 18,700 6% series due 2007 (Pollution Control Series B) 100,000 100,000 8% % series due 2007 100,000 100.000 8%% series due 2008 882,200 797.200 Total long-term debt (5,453)

(5.641)

Unamortized premium and diccount on debt

_876,747 791.559 10,000 15,000 Less first mortgage bonds classified as a current liability

$863,747

$776,559

• The above bonds are secured by a rirst mortgage tien on substantialty all of the rixed property, tranchiss: and rights of the Company with certain minor exceptions expressly provided in the mortgage securing the bonds.

The remaining balance at net bondable additions at December 3t.1979 was approximately $506 000,000.

PREFERRED AND PREFERENCE STOCK Ser;al preferred stock, cumulative, $50 par value-Authorized 5,000,000 shares; outstanding 4,280.000 shares.

Series Shares Redemption prices

$ 15,000

$ 15,000 4.08 %

300,000

$51.50....................

7,500 7.500 4.26 %

150,000 51.50...........................................

10,000 10,000 4.70 %

200,000 51.50...........................................

7,500 7,500 4.42 %

150,000 51.50................................................

9,000 9.000 4.20 %

180,000 52.00................................................

53.96 prior to August 1,1981

]

30,000 30,000 8.24 %

600,000 52.93 thereafter and prior to August 1,1986 51.90 thereafter 53.575 prior to July 1,1982 i

35,000 35,000 7.56 %

700,000 52.63 thereafter and prior to July 1,1987 51.685 thereafter

' 55.55 prior to March 1.1981" 54.25 thereafter and prior to March 1.1986 50,000 50,000 8.94 %

1,000,000 52.90 thereafter and prior to March 1,1991 51.60 thereafter 55.29 prior to August 1.1982" 54.29 thereafter and prior to August 1,1987 50,000 50,000 8.00 %

1,000.000 53.29 thereafter and prior to August 1.1992 52.29 thereafter 1,171 1,171 Premiu m on pref erred stock.................................................

Serial preferred stock, cumulative, without par value-Authorized 5.000,000 shares in 1979; none outstanding...

215,171 215.171 Total preferred stock Preference stock, cumulative, without par value-Authorized 5,000.000 shares in 1979; none outstanding.........

$215,171

$215.171 Total preferred and preference stock................

• • Not redeemable through a refunding operatson at a cost to the Company of less than 8 92% per annum prior 35 to March 1.1981 for the 8.94% series and 7.93% per annum pnot to August 1, t982 for the 8.00% series.

ILLINols POWER COMPANY / ANNUAL REPORT 1970 1976 1975 1974 1973 1972 1971 1970 (Thousands of Dollars)

$303,066

$275,809

$221,126

$199.489

$177,209

$159,175

$149,046 158,595 133,142 108,789 94,953 95.445 86,173 81,221 48 166 461,661 408,951 329.915 294,442 272,654 245,396 230,433 123,782 88,725 63,013 41,408 34,470 31,892 23,518 7,092 5,591 4,727 4,179 3,671 3,156 4,726 (51,484)

(29,522)

(18,321)

(10,547) 266 (9,806)

(6,886) 91,476 71,288 56,539 47,728 46,469 40,722 35,140 53,295 49,631 41,083 37,649 32,302 29,737 27,598 25,726 19,506 17,584 16,131 15,500 13,583 11,327 45,556 42,911 39,282 36,103 32,178 30,230 25,667 40,368 37,036 31,210 28,833 26,282 23,719 22,425 2,444 2,381 1,717 1,732 1,479 1,868 2,340 1,199 1,166 817 813 714 702 191 16,001 11,575 15,831 14,099 15,265 20,711 23,450 11,433 11,681 7,367 7,199 6,938 4,342 3,993 10.994 15.034 1,706 5,118 1,567 395 3,935

_377,882 327,003 262,555 230,445 217,001 191,251 177,424 83.779 81,948 67,360 63,997 55,653 54,145 53,009 10,533 7,459 7,960 7,189 7,339 4,018 6,089

~ 3,174 1,967 2,231 2,143 2,101 1,174 1,842

.677 9.426 10,191 9.332 9,440 5,192 7,931

~ 97.456 91,374 77,551 73,329 65,093 59,337 60,940 35,927 33,144 28,779 s,237 22,810 20,615 17,486 1,744 1,508 4,122 891 1,079 1,511 1,432 37,671 34,652 32,901 26,128 23.889 22,126 18,918 59,785 56,722 44,650 47,201 41,204 37,211 42,022 c

10,606 7,229 7.229 7.229 5,729 3,078 2.111

$ 49,179

$ 49,493

$ 37,421

$ 39,972

$ 35,475

$ 34,133

$ 39,911

20,369,958 18,277,397 16,544,110 15,940,000 14,887,945 13,946,849 13,801,644

$2.41

$2.71

$2.26

$2.51

$2.38

$2.45

$2.89

$2.20

$2.20

$2.20

$2.20

$2.20

$2.20

$2.10 kee r

aterhouse84Ca

%~~

t To the Board of Directors of Illinois Power Company:

in our opinion, the accompanying balance sheets and related ctatements of income, of retained earnings and of sources of fur.ds provided for gross property additions present fairly the financial position of Illinois Power Company at December 31,1979 and 1978, and the results of its operations and the sources Report of of funds provided for gross property additions for the years then ended, in conformity with generally accepted accounting principles consistently applied. Also, in our opinion, the statements of income and Independent of sources of funds provided for gross property additions for the eight years ended December 31,1977.

e Accountants which have been prepared from the applicable statements covered by our reports on each of those years, present fairly the financial information included therein. Our examina3ons of these statements L

were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the t

circumstances.

k February 7,1980 g

17 e

ILLINOIS POWER COMPANf/ ANNUAL REPORT 1979 IIFl

?976 1975 1974 1973 1972 1971 1970 (Thousands of Dollars)

S 59,785

$ 56,722

$ 44,650

$ 47,201

$ 41,204

$ 37,211

$ 42,022 49,845 44,810 41,216 37,532 33,351 31,460 26,930 12.632 12,847 8,184 8,012 7,552 5,044 4,184 10.994 15,034 1,706 5,118 1,567 395 3,935 (10,503)

(7,459)

(7,960)

(7,189)

(7.339)

(*,018)

(6,089) 122,753 121,954 87,796 90,674 76,335 70,092 70,982 (10,979)

(7,229)

(7,229)

(7,229)

(5,950)

(3,284)

(2,111)

(45,226)

(41,338)

(36,993)

(35,068)

(33,418)

(30,778)

(29,064) 66,548 73,387 43,574 48,377 36,967 36,030 39,807 63,712 47,256 27,894 43.306 20,400 15,737 50,100 35,177 30,129 (525)

(166)

(139)

(242)

(193)

(80) 100,000 58,500 60,000 35,000 35,000 27,199 (10,000)

(12,000) 19,000 (6,000) 8,000 (14,000) 3,000 (45,000) 185,486 35,070 105,255 54,000 86,241 71.336 53.657 (13,177) 7,378 (27,781) 4,546 (160) 788 (3,096) 965 (407)

(1,238)

(1,743) 5,523 (1,399) 64 (12,212) 6,971 (29,019) 2,803 5,363 (611)

(3,032) 239,822 115,428 119,810 105.180 128,571 106,755 90,432 10,503 7,459 7,960 7,189 7,339 4,018 6.089

$250,325

$122,887

$127,770

$112,369

$135,910

$110,773

$ 96,521

$(17,997)

$ 1,996

$ (3,873)

$ 1,985

$ (2,278)

$ (1,520) 283 (8.313) 12,749 (25,792) 1,842 (4,077) 26 344 (11,149)

(9,134)

(11,944)

(1,348)

(3,685)

(2,367)

(1,917) 6,429 6,983 3,186 (2,896) 8,321 421 (5,557) 2.533 1,210 962 1,487 948 942 5.529 (6.330) 5,101 4,094 (1,023) 2,540 1,872 6,520 (402) 2,827 379 (2) 660 468 3,271 306 1,752 490 1,097 80 469

$(13,177)

$ 7,378

$(27,781)

$ 4.546

$ (160) 788

$ (3,096) 1976 1975 1974 1973 1972 1971 1970 (Thousands of Dottars)

$239,936

$112,234

$116,637

$ 98,646

$119,893

$ 94,524

$ 82.858 10,389 10,653 11,133 13,723 16,017 16,249 13,663

" 50,325

$122,887

$127,770

$112,369

$135,910

$110.773

$ 96,521

. - 8,010 5 7,420

$ 6,264

$ 5,742

$ 6,532

$ 4,645

$ 3,736 2,034 1,695 2,014 2,126 2,369 1,358 1,460 514

$ 10.044

$ 9,115

$ 8.278

$ 7,868

$ 8.901

$ 6,517

$ 5,196 19

computed for the Havana power station unit No. 6 of issuance and carry an interest rate equivalent to which was placed in service on June 22,1978. Since the prime rate in effect at the time of issuance, adjusted th:se orders authorized the inclusion of such expendi-to the prime rate in effect on the first day of each tures in the rate base upon which the Company realizes calendar quarter thereafter The Company has unwrit-r: venues, there was no material effect on net income.

ten agreements with banks committed for $80,000,000 of the total bank commitments to maintain average Unbilled Revenue-The Company records revenue as checking account balances equivalent to 10% of the billed to its customers on a monthly cycle billing basis.

commitments for borrowings from the banks or 15%

At the end of each month, there is an undetermined of the borrowings outstanding, whichever is greater.

cmount of unbilled electric and gas service which has The maximum aggregate amount of short-term bor-been rendered from the latest date of each cycle billing rowings at any month-end during 1979 and 1978 was to the month-end. Revenues as determined by meters

$34,145,000 and $21,465,000, respectively. The aver-r:ad but not billed at year-end are subject to income age daily short-term borrowings during these periods taxes. The income tax effect of this book-tax timing approximated $12,000,000 and $13,100,000, respec-difference,n the recognition of revenues is normalized.

i I

W as a mg d h hih WWs outstanding), with a weighted average interest rate Debt Premium and Discount-Bond premium, discount UI and 7.9%, respectively (calculated by divid-and related expenses are being amortized on a straight-ing the. terest expense during the period for such in line basis over the lives of the related issues.

borrowings by the average short-term borrowings ind,-

i Note 2-investments and Other Assets:

investments and Other Assets are carried at cost, Note 4-income Taxes:

except for the Company's investment at December 31, income taxes included in the Statements of Income 1979 and 1978 of $3,995,000 and $3,983,000, respec_

tively, in IP Gas Supply Company, a wholly-owned consist of the following components:

cubsidiary. The investment in IP Gas Supply Company Year Ended Deceeer 31, is for the purpose of acquiring interests in gas and oil leases. In accordance with an order from the 1979 1s7s lilinois Commerce Commission, the accounts of the (Thousands of subsidiary are not consolidated with the accounts of Donars)

Current taxes-the Company but are accounted for as an investment on the equity accounting method, included in Operating Expenses and Taxes.

$19,051 $ 9,509 Note 3-Short-term Loans and Compensating included in Other income-Balances:

Miscellaneous-net (9.037) (4.899)

At December 31, 1979 notes payable consisted of Total current taxes 10,014 4,610

$34,145,000 in commercial paper bearing interest at Deferred taxes-an average rate of 13.9% and maturing between Janu-Book-tax depreciation

[

cry 2,1980 and February 29,1980. At December 31.

differences-net 14,240 15,764 1978 notes payable consisted of $10,000,000 in com-Certain overhead and m rcial paper bearing interest at an average rate of dismantling costs 10.7% and maturing between January 29,1979 and capitalized-net.....

4,395 4,511 February 13,1979.

Book-tax revenue The Company had unused commitments of recognition differences..

(1,216) 209

'$105,775,000 for short-term bank borrowings at De-Total deferred taxes 17,419 20,484 c:mber 31,1979. Unused bank commitments are hep!

Investment tax credit-available to support the amount of commercial paper deferred (net).......

21,958 22,793 cutstanding at any time. Bank borrowings under such commitments have a 360-day maturity froni the time Total income taxes.... $49,391 $47,887

.p 21 t

(

1979 197s cnd $490,152,000, respectively. The sales agreements include the provisions that the Company will exercise (Thousands of Dollars control over construction and operation of the generat-Except Earnings ing station, the parties will share electricity generated Second quarter in proportion to their interests and the Company will Operating revenues

$164,445 $148,632 have certain obligations to provide replacement power Operating income 22,430 23,818 to the cooperatives when the units are out of service.

Net income 19,151 20,981 Net income applicable to Note 8-Commitments:

common stock 15,226 17,056 Reference should be made to " Construction Pro.

Earnings per common share 54c 71C gram" and " Financing" in the forepart of this annual report for information concerning construction expendi-Third quarter tur:s.

Operating revenues 167,929 160,458 Operating income 27,560 26,085 Note 9-Quarterly Financial Information Net income 24,428 21,513 (Unaudited):

Net income applicable to The following information, in the opinion of the Com.

common stock 20,504 17,589 pany, includes all adjustments (which include only Earnings per common normal recurring adjustments) necessary for a fair share 71c 70c statement of the results of operations for the period-Fourth quarter 1979 1978 Operating revenues 190,253 164.999 Operaung income.

22,072 17,643 (thousands of Dollars Net income 17,976 13,401 Except Earnings Per Common Share)

Net income applicable to pe at n revenues...... $229,195 $197,925 Ea ni gs pe co rnon Operating income.........

34,256 30,376 Sh a re * * * * ' ~ * * * * * * * * *

• 48C 37c Net income...........

29,780 26,406 Net ini:ome applicable to Quarterly earnings per common share are based ori common stock 25,855 22,482 weighted average number of shares outstanding during the quarter and the sum of the quarters may not equal Eamings per common share

$1.01 990 annual eamings per common share.

23

M:nagement's Discussion and Analysis of the Statements of income Reference is made to the Statements of Income, Notes to Financial Statements, Electric Operating Statistics and Gas Operating Statistics for information concerning the results of operations for the period 1975 through 1979. The factors having significant impact on the results of operations and earnings per common chare since January 1,1977 are as follows:

Cperating Revenues Electric revenues increased 568.6 million in 1978 and 526.8 million in 1979. These increases were the result of general rate increases of 11.3% effective June 16,1977 and 10.9% effective November 30,1979; rate increases to nine wholesale electric cooperative customers of 30% effective June 1,1977 and 14.5% effective October 1, 1978; increases in kilowatt-hour sales of 4.8% in both 1978 and 1979; and the recovery of increased fuel costs.

The rate increases, increased kilowatt-hour sales and the recovery of mereased fuel costs (calculated on the base cost of fuel in effect January 1,1977) accounted for approximately 23%,17% and 60%, respectively, of the 1978 revenue increase and 12%,45% and 43%, respectively, of the 1979 revence increase.

The major factors accounting for the $36 million and $53 million increases in gas revenues in 1978 and 1979, respectively, were the recovery of the increased cost of natural gas in both years and a 10.3% increase in therm sales in 1978. Other factors affecting gas revenues were the rate order effective June 16,1977, the 7.9%

gas rate increase effective November 30,1979 and changes in the limited firm gas service rate in August,1977, 1978 and 1979.

Cperating Expenses and Taxes The cost of fuel for electric plants increased $58.5 million in 1978 reflecting the continuing escalation of fuel prices as well as an increase :n kilowatt-hour generation. The increase of $18.5 million in 1979 resulted from higher fuel costs and increased generation partially offset by the greater use of lower cost generating units.

'The credit for power interr. hanged-net increased about S16 million in 1978 as'a result of the increased gen-erating capacity availab'e for such sales to other utilities, a favorable market for interchange sales and higher prices for the energy sold due to increased fuel costs. The increase of $11 million in 1979 resulted principally from the continuing high level of sales to other utilities.

The cost of gas purchased for resale increased in 1978 as a result of higher prices paid for gas amiincreased therm sales. The 1979 increase primarily reflects higher prices paid for natural gas.

The increase in other operating and maintenance expenses during 1978 and 1979 reflects increased wages and employee benefits as well as the continuing effect of the inflationary trends on all costs and expenses. Other operating expenses for 1978 also reflect the expenses incurred in the testing of Havana power station unit No. 6 prior to commercial operation on June 22,1978. In addition, the 1978 maintenance expenses reflect the costs associated with the March and December,1978 ice storms. Maintenance expenses in 1979 reflect the increased cost of maintaining our generating capacity.

Depreciation expense in 1978 and 1979 increased primarily as a result of the addition of Havana unit No. 6.

General taxes increased in both years primarily due to higher state and municipal public utility taxes result-ing from increased revenues and hicher real estate taxes reflecting both increased assessed valuation and higher tax rates. The 1979 increase was moderated by the elimination of the personal property and capital stock tax as of January 1,1979, partially offset by the replacement tax on invested capital effective July 1,1979.

The investment tax credit-deferred (net) fluctuates based upon the level of construction expenditures, and was higher in 1978 due to the completion of Havana unit No. 6 and the ongoing construction of Clinton unit No.1.

For a detailed analysis of income tax components, see Note 4 of " Notes to Financial Statements" Other income The changes in the allowance for funds used during construction in 1978 and 1979 relate to the amount of

.onstruction work in progress; the discontinuance of the capitalization of a!!owance for funds used during con-struciion on approximately $80 million of cor.struction work in progress included in the rate base between June 16,1977 and June 22,1978 for Havana unit No. 6, and approximately 597 million of construction work in progress 25

Supplementary Information to Disclose the Effects of Changing Prices Th3 following unaudited supplementary information is supplied in accordance with the requirements of the State-m:nt of Financial Accounting Standards No. 33 for the purpose of providing certain information about the effects of chinging prices. This information should be viewed as an estimate of the approximue effect of inflation.

The scope of this accounting requirement encompasses the restatement of fru Company's utility plant on both a constant dollar and a current cost basis. Constant dollar amounts represent histvical costs stated in terms of dol-lirs of equal purchasing power, as measured by the Consumer Price index for all Uen Consumers (CPI-U). Cur-r:nt cost amounts reflect the changes in specific prices of plant from the date the plant was acquired to the present.

Constant and current dollar amounts differ to the extent that specific prices have increased more or less rapidly thin prices in general.

The current cost of utility plant, which includes land, land rights, intangible plant, property held for future use, construction work in progress, and nuclear fuel in process represents the estimated cost of reproducing existing

,lant assets and was determined by indexing surviving plant using the Handy-Whitman index of Public Utility Con-

.ruction Costs. Accumulated depreciation was calculated by applying the historical depreciation rates to the esti-mated current costs of depreciable properties by year of addition. The current year's provision for depreciation stated in constant dollars and current costs was determined by applying the Company's composite depreciation racs to the indexed utility plant amounts.

Fuel inventories, the cost of fuel used in generation, and gas purchased for resale have not been restated from their historical costs. Regulation limits the recovery through the operation of adjustment clauses in basic rate sched-ults to the actual costs of fuel and purchased gas. For this reason, fuel inventories era considered monetary assets.

As prescribed in Financial Accounting Standards No. 33. incorne taxes were not adjusted.

Under the rate-making procedures prescribed by the regulatory commissions to which the Company is subject, only the historical cost of utility plant in recent years has been reflected in the rate base used in determining the amount of return to which the Company is entitled. Therefore, the excess of the cost of utility plant stated in terms of constant dollars or current cost that exceeds the historical cost of utility plant is not presently being recovered in the Company's rates, and is reflected as a reduction to net recoverable cost. However, the Illinois Supreme Court issued a ruling in late 1979 which, in essence, required the Illinois Commerce Commission to utilize " fair value" concepts in computing the value of property, plant and equipment to be used for the purpose of establishing rates.

Th3 effect of this ruling on future rate-making cannot be predicted.

To properly reflect.the economics of rate regulation in the Statement of Income Adjusted for Changing Prices, th3 reduction of net utility plant to net recoverable cost should be offset by the gain from the decline in purchasing power of net amounts owed. During a period of inflation, holders of moretary assets suffer a loss of general pur-chasing power while holders of monetary liabilities experience a gain. The gain from the decline in purchasing power of net amounts owed is primarily attributable to the substantial amount of debt and preferred stock which has been used to finance utility plant.

The Company is no longer required by Securities and Exchange Commission (SEC) regulations to report re-

'Ircement cost data. Under SEC regulations the concept of " replacement cost" represented the amount that would

,cve to be paid to obtain a new asset of equivalent operating or productive capacity, giving recognition to techno-logicalimprovements. As stated above, the data presented herein reflects only the costs, adjusted for price level changes, of reproducing existing utility plant.

27

Fiva Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices (IN THousANO^ oF AVERAGE 1979 DOLLARS)

For the Years Ended December 31, 1975 1976 1977 1978 1979 Operating revenues-Adjusted for general inflation $552.033

$589,193

$680,239

$748,364

$751,822 Historical cost information adjusted for ger. oral inflation income from operations (excluding reduction to 37,647 net recoverable cost) income per common share (after preferred stock dividend requirements and excluding reduc-

.78 tion to net recoverable cost) 617.585 Net assets at year-end at net recoverable cost..

Current cost information income from operations (excluding reduction to 20,386 net recoverable cost)

Income per common share (after preferred stock dividend requirements and excluding reduction

.17 to net recoverable cost)...

Excess of increase in general price level over in-crease in specific prices after reduction to net 175,539 recoverable cost...

617,585 Net assets at year-end at net recoverable cost Ceneral Information Gain from declin-in purchasing power of net 153.833 amounts owed Cash dividends declared per common share-Adjusted for general inflation 2.97 2.81 2.66 2.54 2.28 Market price Der common share at year-end-35.00 34.33 30.99 24.40 18.00 Adjusted for general inflation.

Average consumer price index 161.2 170.5 181.5 195.4 217.6*

• Estimated.

29

ILLINOIS POWER COMPANY / ANNUAL REPORT 1979 IIFl Gas Operating Statistics 1979 1978 1977 1976 1975 Revenues (Thousands of Dol!3rs)

Residential -without space heating 2,056 1,758 1,819 1,801 1,909 with space heating 124,354 105,484 91,798 74,521 65,398 Commercial-without space heating 2,858 1,722 1,469 2,005 1,508 with space heating 46,010 37,536 31,098 24,905 21,939 Industrial -non.interruptible 43,714 30,910 25,641 20,325 16,476 interruptible.

51,354 40,906 33,376 35,083 26,459 270,346 218,316 185,201 158,640 133,689 Revenues-ultimate consumers Interdepartmental revenues-interruptible 2,365 1,058 75 60 42 Miscellaneous 59 433 (1,456)

(105)

(589)

$ 272,770

$ 219,807

$ 183,820

$ 158,595

$ 133,142 Customers at End of Year Residential -without space heating 18,251 19,834 21.377 23,204 24,133 with space heating 326,816 319,968 313,900 308,578 302,772 2,048 2,112 2,192 2,465 2,507 Cunimerc;al-without space heating with space heating 30,032 29,522 29,116 28,771 28,767 Industrial -non-interruptible 480 470 457 457 223 interruptible.

58 80 102 1C3 101 377,635 371,986 367,144 363,578 358,503 Sales in Therms (Thousands)

Residential -without space heating 6,231 6,172 6,840 8,321 10,175 with space heating 459,329 469,906 436,838 433,993 420,819 Commercial-without space heating 10,586 7,986 7.554 12,820 11,441 with space heating 182,212 181,960 166,455 171,562 165,192 Industrial -non-interruptible 194,310 181,029 172,089 178,637 168,290 interruptible.

186,264 180.138 147,205 181,784 185,695 Sales-ultimate consumers 1,038,932 1,027,191 936,981 987,117 96*,612 13.141 8,034 693 720 654 Interdepartmental sales-interruptible......

1,052,073 1.035,225 937,674 987,837 962,266 Purchased and Produced-Therms (Thousands)

Purchased 1,118,246 1,087.749 1,024,805 1,012.047 1,009.171 Storage-net of (injected) and withdrawn (30,203)

(14.998)

(57,182) 28,269 (340)

Purchased gas delivered 1,088,043 1.072,751 967,623 1,040,316 1,008,831 Produced 89 24 2.417 91 36 Total 1,088,112 1,072,775 970.040 1,040,407 1,008,867 Less-used and unaccounted for....

36,039 37.550 32,366 52,570 46,601 1,052,073 1,035.225 937,674 987.837 962,266 31

i

IIFl

'erritory Served By e

lilinois Power Company cmcaso cs /

..e

1. s !

e

'V

~

-- - d NNYPINb Y;-0 OTYWA.

f ptRu e

/

---h

1. "" ?'

STA TION W -'.

,/

/

U SA M _j

,/

' l;, f(.j.T f_; $'g[fyfg-~~ -- r*

.t.

~

i

///.,'

fj ep

.h.

OAL66 BURO l'/ I MONMOUTH

+'t-

~

f-l

+

/

,. --- ',y. [

j w.

f4 y I

l

.*l~

f

,---1--

/.

l

.l l

l-

/

'j

~

r,

f. -1 k

,,nORyW' k [ /.', -

l

/sf. _

.. u :~ w BL OOMm,rGrv, AYM l}

TA fj

, //

,/

~ ~ ~} '*_ _ _ _ _

l

)

'l '

INTON.'

l A f

l'%

lll-f

-)

~__g"h*

'"* %eAN U & E' N

i

/'

oV

/

%h K

/

g i

--t. _

l DAIVVKzE.l s-.,r.NE4wth, dl yl.--

-]

fi

• l 1weaS_zz i: -

_:_ g

.;. 'y' ;jj

/

}s,'s.

/,

7 j

" 99 i

/

j'

w. cu

f.l

'\\

~'~

~

---[

/ '

,g

• )

,4 l,q==ff -

'A*

I,HILLSBOROl y

iO ?..g '.f/h',-" ' b, l -

)-

l~

^

.Y

~

1. =*

9 FOOD RIVEM d,

y _

j. f**,

p

(DW'WDSvillf.

/

, '.. y+ l..

et

.... z,,

'!N % !ESITY.

. Q. : y.#1o p sner Q)}n' 4 A1W j

'OLLINSl?CtE, *

. ^LEN

~ ', f g t toury-,* -:, pP u. _co.T;f-ST. LOUIS

• - J,s,W;'].'

BELLEvtli

\\ -

~

4-

_j,_

VERNON

~ $l

'f...

..., 'f' '?'~/

3_

g BA LD WIN,

^ 'Y--K'j,

\\

-/

-m S TA TION TA,g t

, b,,

• '. y.

Area served

/*

l./,

~ L"ig _

ELECTRIC sYsrEM l

l ;,

Pnncipal corrpany knes

'~

Lones or other ut.ht:es

,, l l}. - s.

N Maior gene'at'ng stat'on p

~

^

l h6 Lcles' generating stat'on

'I C Generating stavan - ot'er uMity

[1 04s sysrEM Punc: psi company knes

- - - - - - Pipennes supp!yong the company w:!n gas

@ Sto age toeld j

l

]

iD CPS IL1,INOIS POWER COMPA51 COMPARATIVE STATEMENT OF INCOME Three Monthe Ended Twelve Monthe Ended March 31, March 31, 198o 1979 1989 1979 (Thousands of Lollars)

(Thousanos of Dollars)

Operating Revenues:

Electric 134,607 118,208 495.450 466,365 Cas 130.055 110.987 291,n38 236.919 Total 264,662 229,195 7=7_?nn 703,284 Operating Expenses and Taxes:

Puel for electric plante 62.902 56,257 232.266 211.240 Power purchased f or ressie 1.92S 1,428 6,671 6.309 Power interchanged-net

(

12,401)

(

13.218)

(

57.682)

(

47,417)

Cao purchased for resale 66,531 70.625 207.201 161.076 Other operating expenses 21.022 19,621 74,931 73,386 Ma int ena xe 10,396 9,010 39.149 33,451 Depreciation 14.300 13,831 56.435 53,358 Ce wral taxes 20,597 17.507 58,315

$6,342 State incase taxes - current 2,526 1,353 5.993 2,793

- deferred (net) 804 405 2,489 1,896 Federal inco:ne taxes - current 10,772 8,664 16,340 8.892

- deferred (net) 4.174 3.771 15,734 19,167 Investment tax credit deferred - net 4,930 5.644 21.204 20,999 Total 228,481 194.938 Operating income 679_o4e 601.482 36.181 34.257 loe,242 101.802 Other Income:

Allowance for other funds used during construction 7.233 6,065 28,689 22.461 Miscellaneous. net 3.018 2,0 68 10,993 9.519 Total 10,251 8,133

19. ha ?

31.980 Income before interest charges 46,432 42.390 147,924 133,782 Interest Charges:

Interest on long-tern debt 16,937 14,576 64,366 54,632 Other interest charges 1,981 604 3.128 1,864 Allowance for borrowed funds used during construction

(

3.205)

(

2,570)

{

11,845)

(

8,448)

Total 15,713 12.610 55.649 48,048 Net incow 30.719 29.780 92.275 85.734 Preferred Dividend Requirement 4,146 3.925 15,921 15,63 Earnings for Coarmon Stock 26,573 25.855 6

76,354 70,035 Earnirgs per Common Share (based on weighted average number of sha.ee outstandtrg during the period)

.87 1.01 2.62 S

2.80 Number of Common Shares -

N D

,2= h Weighted average 33.444.907 25,579.937 D $c 4 29.183.383 25,031.840 Outstanding at end of period 32.921,441 25,623,314

$ py @

32.921.441 25,623,314

( ) Denotes credit.

ne y" h O

- :/

m O to d os 4J OZ

.O

~ _

q n

f,}'\\

\\

CPS

\\ )

\\

}

y III.INol$ PoidEg CDwPANT SALANCE SIEEET March 31. 1980 (Thousands of Do!!sre)

Assete Ceriret and 1. labilities Utility Plant. at originet costa Electric (includes construction work in Capitalisation:

common steek.

progrees of $752.004.000)

$2.267.913 Cae (includes construction work in No par value 40.000.000 shares authorised; 32.921.441 shares progrees of $6.903.000) 115,621 outstanding, stated at S 543.234 2.583,534 metained earnings 175.993 Imes - Accumnalated depreciation 364.772 tass - Capital stock expense 4.346 2.016.762 Total c-etock equity

$ 714.881 Nuclear feet te process 33.741 Acquisition adjustmen. (less amortisation Preferred stock subject to mandatory redemption (see detalt) 36.000 of $1.495.000) 2.437

$2.050.940 Preferred stock not subject to mandatory redeep-I tion (see detail) 215.171 Preferred stock without par eelue (see detail)

Investments and Other Assets 8.427 8.42 7 Preference stock (see detail) long-tera debt (see detail)

Current Assets:

Total capitalisattee

_ 866.794 1.832.846 Cash 14,374 Current Liabilities:

Temporary cash investments, at cost, which Accounts payable 65.073 approximates market 3.500 lang-term debt maturing withis one year 10.000 Deposit with mortgage tavstee 45 Dividende payable 23.279 Accounts receivable (less allowance Federal and State income taxes accrued 7.342 of 72.000,000 for doubtful accounts) 73,409 Ceneral taxes accrued 22.008 Materials and supplies, at everage cost 103.716 Interest accrued 20.882 Prepayments and elecellaneous accounts receivable 9.463 204,507 Other 17.125 166.509 Deferred Charges:

Other:

Unamortised debt expanse 2.606 Accumulated deferred income taxes 158.277 Other 6.W 8.948 Accuenalated deferred investment teu credit 113.190 273,467

$2.272.822

$2.272.822 Preferred Stock. Preference Stock and Long-Tern Debt March 31. 1980 (nuussade of Dollars)

Preferred Stock:

Long-Tera debt:

Serial preferred stock. cumulative. $50 par value -

First mortgage bonds -

Authorised 5.000.000 shares 2 3/41 series. due April I 1980 10,000 Preferred stock subject to mandatory redemption -

3 1/21 series. due March I. 1982 20.000 II.661 settee. 720.000 sharea outstanding 9

36 000 3 1/21 series, due November 1. 1983 20.000 3 3/4% eerles, due July I.1986 20.000 Preferred stock not subject to mandatory redemption -

4.00 % series. due May 1.1988 25.000 4.08% series, 300,000 shares outstanding 5

15.000 4 1/41 series, due January 1. 1993 35.000 4.261 series. 150.000 shares outstanding 7.500 5.85 % series, due October I.1996 40.000 4.70% settee. 200.000 shares outstanding 10,000 6 3/81 series, due January 4.1998 25.000 4.421 series. 150.000 shares outstanding 7.50 )

6 3/41 series, due Octs.6er 1. 1998 45,000 4.20% series. 180.On0 shares outstanding 9.000 8.35 % sectes. due October 1999 35.000 8.247, certes. 600.000 ehares outstanding 30.000 9.00 % series, due Nevestm ' 1. 2000 35.000.O tT2 *.>

7.56% series. 700.000 shares outstanding 35.000 7.60 % series. due Octoben I. 2001 35.000 m gMC B.941 series. 1.000,000 shares outstanding 50.000 7 5/81 series. due June 1. 2003 60.000 M 8.00% series, 1.000.000 shores outstanding 50.000 6.60 % series due May 1. 2004 (Pollution control Series A) 8.500 yh h 0

Preutus on preferred stock 1.171 9 7/8% sortes, due July 1. 2004 100,000 to N rt %

Total

$ 2ti.171 10 1/21 series, due September 1. 2004 50.000

>i t*1 8 5/8% eertes. due July I. 2006 200.000 0 Serial preferred stock, cumulative without per valu,.

6.00 % series, due May 1. 2007 (Pollution Control Series 8) 18.700 " O $

Authorized 5.000.000 shares; none outstanding 3

8 1/4% eerles, due November 1. 2007 100,000 g,4 c) gg 8 7/81 eerles, due August 1. 2008 100.000 Q

Preference Stock:

Totat long-term debt 442.200 Preference stock, without par value -

Unamortised praetum em debt 243 Authertred 5.000.000 shares; mone outstanding 5

Chamortised discount om debt f

5.64M y

476.79e 1mse 2 3/4% series, due Aprt! 1.1980 cleastfied as a current liability 10.000

$ 864.794

G 9

G CPS I

l 1

J l

I a

l LI ILLIN0!$ POWER COMPANY i

$7ATDENTS OF RETAINED EARNINGS i-1 Three Months Ended Twelve Monthe Ended March II.

Merc h St.

1480 1979 1490 1979 (Thousands of Dottere)

(iheusando of Dollars)

Balance at Beginning of Period

$168.551

$157.332

$168.770

$156.703 s

Add.

Net income 30.719 29.780 92,273 g3,734 Total 144.272 187.112 261.445 242,437 J

Deduct -

Cash Dividends -

Preferred stock 4.696 3.925 16.270 15,499 Ceannon stock 14,781 16.6t?

64.787 97,e69 Total 23,279 1R.562 83,o$2 7),667 Balance at End of Period 9175.94)

$ 168,7 70

$175,g43

$168,770 l

?

f 1

1 i

i l

m M c

=

.s Oc M M

@Z C

H=

e u

H d

O "Z$H m O 4

il W

ZO I

l 4

4 I

i l

1

)

i 1

1

i AMENDMENT NO. 3

)

August, 1980 l

Exhibit D l O 1

i l

l l

O IP I

ILLINDIS POWER COMPANY FINANCIAL AND OPERATING FORECAST O

FEBRUARY 21,1980 I

2LI.INOIS POWER COMPANY FINANCZAL AND OPERATING FORECAST Data listed herein is estimated based on current electric and gas rates with an increase in electric rates in 1992 (Note A).

This forecast is subject to change as future outlook changes.

Actual Fo reca st 5 Tear 1979 1980 1981 1982 1983 1984 Total SALES AND 14AD DATA Efectric Sales - KMI (Million) (Note B)..

14.226 14.605 15.695 16.250 15.895 16.525 Percent increase (decrease) over previous year.

4.8%

2.71 7.52 3.52 (2.2)I 4.01 Cao Sales Excluding Interdepartmental Sales -

The ras (Million )...........

1.039 1.085 1.090 1.095 1.090 1.090 Percent increase (decrease) over previous year.

1.22 4.4%

0.52 0.52 (0.5)I

- 1 Elec t r ic Feak Load - W - Sumer (Not e 3 )....

3.019 3.100 3.270 3.395 3.280 3.390 Percent increase (decrease) mr previous year.

6.9%

2.7%

5.51 3.82 (3.4)%

3.4%

Electric Cenerating Summer Capability - W (Note B).

3.815 3.815 3.815 3.815 4.575 4.575 CAPITAL REQUIRDENTS (Million)

Construction Expenditures Electric (Note C).

$ 2 70.8

$ 30 3

$ 360

$ 223

$ 117

$ 127

$1.130 Ga s.......

20.8 17 20 22 18 18 95 Total............

$291.6

$ 320

$ M6

$ 245

$ 135 T~

i

$1.225 Bond Maturities.....

15.0 10 20 20 50 Total Capital Requirements...

5306.6 W

{_380 W

Q M

,Q, SOURCES OF CAPITAL (Million)

Internal Cash - Af ter Dividends (Note A)

Depreciation Accruals..

$ 57.7

$ 59

$ 63

$ 81

$ 141

$ 147

$ 491 Othe r In ternal Ca sh..........

49.5 71 80 67 133 106 457 Change s in Work ing Cap i tal..........

(7.3)

(15)

(33)

(58)

(29)

(18)

(153)

Sub-Tota1.......................

$ 99.9

$ 115

$' 110

$ 90

$ 245

$ 235

$ 795 Outside Financing (Notes A & D)..

206.7 21 5 270 175 (90)

(90) 480 Total Sources of Capital.

WOG

$ 330

$ 380

$ 265

$ 155

$ 145

$1.275 SIQI1FICANT INCOME ITEMS (Million)

Deferred State and Federal Income Taxes from Libera 11 sed Depreciation and Rapid Amortisation - Net (Normalized).....

$ 17.4

$ 19.9

$ 20.8

$ 48.5

$ 47.9

$ 43.2 lavestment Tax Credit Deferred -

Ne t fNormalise d) (Notes A & E)..............

$ 22.0 Allow ~nce for Funds Used During Construction

$ 18.8

$ 20.3

$ 24.5 2.3 6.4 (No t e F)..................

$ 38.7

$ 47.6

$ 63.3

$ 69.7 1.9 2.6 Power Intercharged - Net Sales capacity - Net Sales..

$ 7.8

$ 6.8

$ 4.7

$ (0.6)

$ 15.1

$ 22.4 Energy - Net Sales.........

50.7 53.2 56.5 44.4 85.2 109.3 Total.....

TWT

$ 60.0

$ 61.2

$ 43.8 WO63

$131.7 NOTES:

(A) This forecast assumes an electric rate increase (13.5% return on equity) effective December 1.1982 in the amount of $263 million to reflee.t the increase in the electric rate base coincident with the scheduled in-service date of Clinton Unit 1.

If no allowvce la made for rate relief in 1982. the amount of internal eash provided would be reduced from $795 million to $445 millinn for the 5-year l

period. Pe annual reoction in the aarnait sf taternal cash prJvided without the assumed rate increase would be $10 million in 1982

$185 million in 1983 and $155 millim in 1"84. with wkresponding increases in the amount of outside financing required in each of these years. In addition. Investment Tax Credit Deferred - Net would be reduced by $4.5 million in 1982. $18.7 elition in 1983 and

$23.2 million in 1984.

(B) A 950 MV nuclear unit located nest Clinton. Illinois and scheduled for commercial operation in December,1982 is jointly owed by the CcNany (8CI). which will operate this unit, and two electric cooperatives (20%). The Company's share of the capacity is 760 W.

Electric sales and peak los i for 1983 reflect a decrease in sales to cooperatives resulting from their ownership in the Citaten Power Station.

Me 1979 forecasted fire peak deasad==s 3.075 W and the actual 1979 fire peak demand was 3.019 W reached on August 8.1979. The j

generating reserve on this date oss 14.4% due primarily to temporary capacity reductions of 406 W.

Projected reserves af ter giving ef fect to agreements with other utilhies covering the purchase and sale of capacity, are 27.61 in 1980, 24.61 in 1981, 27.8% ta 1982 36.1% in 1983 and 11.3% in 1984. The Company expects to sell some of its excess reserve capacity in each of the years 1980 through 1984.

(C) No er7anditures for generating capacity other than Clinton Unit No. I are reflected in the estimated expenditures for the five-year perioC rince the Company's current electric load forecast indicates that no additional generating capacity will be needed util 1991.

j It will not be assessary to make a decision for several years whether additional capacity will be Clinton Unit No. 2 or a fossil unit.

i None of ':he kiternative generating plans being considered we n1d increase the estimated expenditures by sure than $100.000.000.

(D) About e-half of the five-year requirements will come from the sale of long-term debt. with the balance obtained from the male of preferred and comemon stocka and f rom short-term borrowings.

(E) Investment Tax t edit is calculated using a 10% rate for each year.

(F) Allowance for Funfo Used During Car truction is calculataJ at an anraal rate of 7%. compounded semi-annually.

RATE PROCEEDINGS a

On January 9.1979. the Cospany filed revised schedules of electric and gas rates with the Illinois Commerce Commission (111. C.C.) which based on 1978 usage were estimated to increase electric revenues by approximately $64 million or 15.02 and gas (m) revenues by approsiastely $20 million or 9.33.

The coupany requested that $240 million of construction Work In Progress (CWIF) be U

included in electrie rate base. On Noveneer 28.1979. the 111. C.C. granted approximately 75% of that request which based on the twelve month historical test period ended December 31, 1978, providas an estimated increase of $45.7 million or 10.91 ano-117 in electric operating revenues and $16.9 million or 7.9% arnually in gas operating revenues. The Commission allowed $97 mil ion of I

CVIP to be included la electric rate base.

Ef fective May 1.1979. the Company began serving certain municipal electric utilities under a partial requirements whole-mais rate which has been accepted by the Federal Energy Regulatory Commission. These unicipalities had formerly purchased power under L.terchange agreements. This rate provided a rate reduction for these customers of approximately $237.000 emually.

4 i

i FUEL SUFFLY v

The Coenany believes that its existing contracts and spot purchases will provide it with adequate fuel supplies for this five-year period. The Company's generating requireeents will be provided by using a combination of coal, oil naturs1 gas and nuclear fuel. The estimated fuels to be utilized for electric generation (based on 8tu's consumed) for the 1980-1984 period are as follows:

4 I

Actual Foreca st Type of Fuel 1979 1980 1981 1982a 1983 1984

[

1 Coal 95.9%

%1

%1 893 792 782 011 3.0 3

4 3

2 2

Natural Gas 1.1 1

Nuclear 8

19 20

• Reflects estimated nuclear fuel consumed during Clinton Unit 1 pre-comercial and coussercial operation.

l A

CAS SUFFLY leprovements la the short and long-term forecasts of gas supplies. the conservation efforta of our custammte and the election of limited fire customers to change to the interruptible rate have enabled significant volumme of gas to be ave 11able for issuance la 1980 to appiteants under the Company's system of priorities for gas service. This system of priorities proviens that customers needing additional gas for new or expanding uses - with the exception of gas to be used for cooking. unter heettag.

clothes drytag and similar residential uses, are required to submit a written application.

The Company has announced that it will be releasing gas on March 8,1980 to firm and interruptthis applicants &

i requested gas service on or before February 6,1980 and to certain applicants for non-space heating fire volemme ases311mg 150 theres per hour who requested gas service on or ' efore March 28, 1979. The unserved firm applicants who requested gas marwice e

subsequent to March 28. 1979 will be offered interruptible service on an interim basis as aupply conditions permit.

l 1

i f

- -., ~ - ~ _ - -

CPS l

1 I

ILLINOIS POWER COMPANY l

Generating Unit Additions i

Estimated Annual Expenditures (Millions of Dollars)

Scheduled Net Total i

Service Capability Construction Unit Type Date (MW)

Costs 1980 1981 1982 1983 1984 Clinton #1 Nuclear 12-1-82 760(1)

$ 1160(

$ 221(2)

$ 221

$ 85(

1

}

l l

~

Clinton Site Acquisition 11 (1) Net capability and estituted construction expenditures reflect participation of 20% by certain electric cooperatives in the construction of the Clinton Nuclear Power Stat. ion.

(2) Effective May 1, 1980 1111nois Power Company increased the Allowance for Funds Used During Construction (AFUDC) rate from 7% (compounded semi-annually) to 7 3/4% (compounded semi-annually). This change in the AFUDC rate will increase the total estimated construction cost by approximately $18 million - $3 million in 1980; $7 million in 1981; and $8 million in 1982.

l 1

15i! !;!

M !i!

H M

M 8

I l

AMENDMENT NO. 3 August, 1980 Exhibit F-1 PROSPECTUS 720,000 Shares Illinois Power Company 11.66% Cumulative Preferred Stock

($50 Par Value Per Share)

Redeentable on at least 30 days' notice at any tinte, at the option of the Cornpany, as a tehole or in part, at $55.83 ter share if redeented prior to February 1,1985, at $52.50 per share if redeemed on and after February 1,1985 and prior to February 1,1990,at $5t.50 ter share if redeented on and after February 1,1990 and prior to February 1,1995, and thercafter at $50.00 per share, tlus in cach case an antount equal to dividends accrued to the redemptien date; provided, hoteever, that no redentption may be made prior to February 1,1995 through certain refunding operations. See " Description of the New Preferred Stock."

The New Preferred Stock teill be subject to mandator: redemption in an amount suficient to retire on each February 1, beginning in 1958, 19.800 shares and on February 1, 2020, 86,400 shares, at $50 per share t!us accrued dividends, and the Company will have the noncumulative option to re-deem up to 19,800 additional shares in each such year. The Company scill have the option to satisfy the mandatory redemption requirement in tehole or in part by crediting shares of the New Preferred Stock acquired by the Company.

Application stillbe made tolist the New Preferred Stock on the New York Stock Exchang.

TIIESE SECURITIES IIAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCIIANGE COM511SSION NOR IIAS TIIE COAIMISSION PASSED UPON TIIE ACCURACY OR ADEQUACY OF TIIIS PROSPECTUS.

ANY REPRESENTATION TO TIIE CONTRARY IS A CRIMINAL OFFENSE.

Price to Underwriting Proceeds to Public(1)

Com missions (t)

Company (1)(3)

Per Share

$50.00

$.55

$49.45 Total

$36,000,000

$396,000 l

$35,604.000

^

(1) Plus accrued dividends, if any, from date of original issue.

(2) The Comtany has agreed to indemnify the several Underwriters against certain civil liabilities, in-cluding liabilities under the Securities Act of 1933.

(3) Before deduction of extenses rayable by the Company estimated at $135,000 The shares of New Preferred Stock are offered by the several Underwriters when, as and if issued by the Company and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that the New Preferred Stock will be ready for delivery on or about Jiarch 13,1980.

The First 130ston Corporation Alerrill Lynch White Weld Capital Alarkets Group Merrill Lynch. Pierce, Fenner & Smith Incorporated C)

The date of this Prospectus is 3farch 6,1990.

IN CONNECTION WITII TIIIS OFFERING, TIIE UNDERWHITERS 5 FAY OVER-ALLOT Olt EFFECT THANSACTIONS WIIICII STABILIZE OR A1AINTAIN TIIE hlARKET PRICE OF TIIE NEW PREFEHHED STOCK OF TIIE C051PANY AT A LEVEL ABOVE TIIAT WIIICII MIGIIT OTIIERWISE PREVAIL IN TIIE OPEN MAllKET. SUCII TRANSACTIONS 51AY BE EFFECTED IN TIIE OVER-TIIE-COUNTEli MARKET OR OTIIERWISE. SUCII STAlliLIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TISIE.

AVAILABLE INFORMATION lilinois Potter Company (" Company") is subject to the informational requirements of the Securities Exchange Act of 1931 and in accordance theretcith files reports and other information teith the Securities and Exchange Commission. Information, as of particular dates, concerning directors ar;d oficers, their remuneration, and any material interest of such persons in tramactions trith the Company is disclosed in proxy statements distributed to stockholders of the Company and filed scith the Commission. Such reports, proxy statements and other information may be inspected amicopied at the offices of the Com-mission, Room 6101,1100 L Street, N.W., Washington, D.C.; Everett McKinley Dirksen Building, 219 South

Dearborn Street,

Chicago, Illinois; Boom 1100, Federal Building, 26 Federal Plam, New Yoik, New York; and Suite 1710, Tishman Building,10960 Wilshire Bondevard, Los Anacles, California; and copies of such material can be obtained from the Public Reference Section of the Comminion at 500 North Capitol Street, Washington, ITC. 20549, at prescribed rates. Such reports, proxy aatements and other information concerning the Company may also be inspected at the ofices of the Netc York Stock Exchange, 20 Broad Street, Neso York, New York and Midacest Stock Exchange.120 South La Salle Street, Chicago, Illinois, on schich exchanges certain of the Company's securities are listed.

DOCUMENTS INCORPORATED BY REFERENCE The following documents filed by the Company with the Securities and Exchange Commission are incorporated herein by reference:

(a) The Company's Prospectus dated April 19,1979 filed pursuant to Hule 121(b) under the Securities Act of 1933 ( File No. 2-63873).

(b) The Company's definitive proxy statement dated February 29,1980 for the annual meet-ing of stockholders to be held on March 27,1950 (File No.1-3001).

(c) The Company's Quarterly Reports on Form 10-Q for the quarters ended Niarch 31,1979, June 30,1979 and September 30,1979 (File No.1-3004).

(d) The Company's Current Reports on Form 8-K dated January 9, June 4, September 10, and December 12,1979 ( File No.1-3001).

(e) The Company's Current Report on Form 8-K dated February 15, 1950 containing the Company's December 3I,1979 audited financial statements (File No.13001).

All documents subsequently filed by the Company pursuant to Sections 13 or 11 of the Securities Exchange Act of 1931 prior to the termination of this offering shall be deemed to be incorperated by reference in this Prospectus from the date of filing of such documents.

The Company hereby undertakes to provide without charge to each person to whom a copy of this Prospectus has been delivered, on the written request of any such person, a copy of any or all of the documents referred to above which have been or may be incorporated in this Prospectus by refer-enee, other than exhibi;s to such documents. Written requests for such copies should he directed to Mr. D. F. Meek, Secretary and Treasurer, Illinois Power Company,500 South 27th Street, Decatur, Illinois 62525.

G 2

s O

su==^ar>"roa=^rio" The material below is qualifed in its entirety by the detailed information and Snancial state-ments (including the notes thereto) appearing elseschere in the Prospectus or included in the docu-ments incorporated in this Prospectus by reference..

TIIE OFFERING Securities offered.720,000 shares of 11.66% Cumulative Preferred Stock ($50 par value per share)

Mandatory Sinking Fund

. Sufficient to retire in each year starting in 1988, i

2.75% of the shares originally is ued Offering Date

. March 6,1980 J

i ILLINOIS POWER COMPANY Business

. Electric and gas utility 15,000 square miles in the State of Illinois j

Service Area Service Area Population (approximate)

Electric-1,395,000; Cas-1,000,000 i

Customers at December 31,1979 Electric 416,858; Gas 477,685 Reven e Distribution for 1979 63.7% electric and 36.3% gas Net Electric Generating Capacity (summer) 3,815,000 kilowatts Fuels Used in Electric Generation during 1979 Coal-95.9%; Oil & Cas4.1%

FINANCIAL INFORMATION (Thousands except per share amounts) l INconc STAmfFNr INFO!GtADON:

2

\\

Year Ended December 31 j

1975 1976 1977 1978 1979

)

Operating Revenues

$408,951

$461,661

$567,3S7

$672,014

$751,822 Net Income

$ 56,722

$ 59,785

$ 73,664

$ 82,361

$ 91,335 Preferred Dividend Requirements.

$ 7,229

$ 10,606

$ 13,257

$ 15,699

$ 15,699 i

Net Income Applicable to Common Stock..

$ 49,493

$ 49,179

$ 60,407

$ 66,662

$ 75,636 Earnings Per Share of Common Stock.

$2.71

$2.41

$2.68

$2.74

$2.70 Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Re-quirements l

Actual 2.74 2.44 2.45 2.31 2.30 Pro Forma 1.91 CAPfrAI.rZADON, December 31, 1979, as adjusted for the estimated proceeds of $36,000,000 from this Preferred Stock issue and $45,000,000 from the proposed sale of Common Stock at approximately the same time:

4 Amount Percentage Long-Term Debt

$ 866,747 47.7 %

Preferred Stock (not subject to mandatory redemption) 215,171 11.8 Preferred Stock (subject to mandatory redemption) 36,000 2.0 Common Stock Equity 700.297 38.5 Total Adjusted Capitalization

$1,818,215 100.0 %.

l

TIIE COMPANY Illinois Power Company is herein referred to as the

• Company". The Company was incorporated under the laws of the State of Illinois on May 25,1923. It is engaged in the generation, transmission, distribution and sale of electric energy and the distribution and sale of natural gas in the State of Illinois. Its service area is a widely diversified industrial and agricultural area comprising approxi-mately 15,000 square miles in northern, central and southern Illinois. Electric service is provided at retail to 311 incorporated municipalities, adjacent suburban and rural areas and numerous unin-corporated municipalities having an aggregate population of approximately 1,395,000. Cas service is provided to 256 incorporated municipalities, adjacent suburban areas and numerous unincorporated mimicipalities having an aggregate population of approximately 1,000,000. The larger cities served include Decatur, East St. I ouis (gas only), Champaign, Danville, Belleville, Granite City, Blooming-ton (electric only), Calcsburg, Urbana and Normal. The executive offices of the Company are located at 500 South 27th Street, Decatur, Illinois 62525, and its telephone number is 217 424-6600.

%e Company has an Automatic Heinvestment and Stock Purchase Plan whereby holders of its securities have an opportunity to purchase new issue shares of its Common Stock by having their cash dividends and bond interest automatically reinvested in such stock. The price to be paid for each share of Common Stock purchased with cash dividends and bond interest under such Plan will be 957c of the average of the high and low prices of such stock on the Composite Tape on the first day on which the New York Stock Exchange is open for trading in each month. The Company reserves the right to suspend, modify or terminate such Plan at any time.

USE OF PROCEEDS AND CONSTRUCTION PROGRAM The net proceeds. estimated at $36,000,000 from the sale of 720,000 shares of Cumulative Pre-ferred Stock ("New Preferred Stock") will initially become part of the general funds of the Com-g pany through reimbursement of its treasury for capital expenditures previously made primarily for W

new facilities. The proceeds will be used to repay a portion of the outstanding short-term borrow-ings estimated at $S3,000,000 at the time of issuance of the New Preferred Stock.

The Company plans to issue 3,000,000 shares of Common Stock at approximately the same time as the offering of the New Preferred Stock. The proceeds, estimated at $45,000,000, will be used to re-pay a portion of the outstanding short-term borrowings. Neither offering is contingent upon the other.

The cost of the Company's construction program during the period January 1,1950 to December 1

31, 1934 is estimated as follows:

Five Year Period 19S0 1980-19S4 (in thousamis)

Electric generating facilities

$ 234,178

$ 631,782 Nuclear fuel 3,831 150,618 Electric transmission and distribution facilities 6-1,991 347,600 Gas facilities 17,000 95,000

$ 320.000

$1.225,000 The construction expenditures for the five year period reflect revised cost estimates recently completed. The new estimate of $1,225,000,000 reflects a reduction of $115,000,000 from the previous estimate. The major changes result from the deferment of the in-service date of Clinton Unit No. 2 until at least 1991 partially offset by an increase in the cost of Clinton Unit No.1. No expenditures for generating capacity other than Clinton Unit No. I are reflected in the estimated expenditures for the five year period since the Company's current electric load forecast indicates that no additional generat-ing capacity will be needed until 1991. It will not be necessary to make a decision for several years h

whether additional capacity will be Clinton Unit No. 2 or a fossil unit. None of the alternative generat-4

q) ing plans being considered would increase the estimated expenditures for the five year period by more than $100,000,000.

The construction expenditures during the period January 1,1980 to December 31,1984, together with the repayment of First Afortgage Bonds aggregating 550,000,000 which mature during the period, including $10,000,000 maturing during 19S0, will require gross expenditures by the Company of ap-proximately $1,275,000,000. It is estimated that about $795,000,000 of the required amount will be provided by internally generated funds which will leave about $450,000,000 to be derived from ex-ternal financings. The types, amounts and timing of future financings cannot be fixed at this time.

These estimates reflect an increase in electric rates in 19S2 coinciding with the in-service date of Clinton Unit No.1. If no allowance is made for rate relief during the period, the amount p ovided by internally generated funds would be $445,000,000. The estimates will be affected by cost changes, kilowatt-hour sales levels and rate increases, if any. Actual results may vary materially from the esti-mates. The issuance of additional securities will depend upon the capacity of the market to absorb new utility issues and the ability of the Company to meet the interest and preferred stock dividend cover-age requirements and other covenants contained in the Company's hlortgage and Restated Articles of Incorporation.

The construction program includes expenditures to complete the construction of a 950,000-kilowatt nuclear unit at a new site near Clinton, Illinois, scheduled for operation in Decernber,1982.

The Clinton Unit No. I estimates set forth below reflect the Company's 50% ownership interest.

The remaining 20Tc is owned by two electric cooperative associations. The costs exclude costs for land, substation and nuclear fuel. Reference is made to the caption "Recent Develop :ents" for a further discussion of the Clinton Power Station cost estimate.

Construction Costs (Millions of Dollars)

Expended (n)

Net Scheduled Estimated Estimated Through V

Capability Energy Date in Cost per Total December Unit (Kilowatts)

Source Service Kilowatt Cost 31,1979 Clintbo.1 760,000 Nuclear December 19S2

$1,526

$1,160

$632 The Company recently anwunced that its architect engineer for Clinton Udt No.1, Sargent &

Lundy Engineers, has advised it of an error in the design of piping, ventilation and electrical support members. The design of buildings and structures is not affected. As a result, it vill be necessary to l

reevaluate some engineering analyses. Preliminary review indicates the eiIect of the error may increase l

costs, but by no more than $10,000,000 Little or no delay in the December 19S2 scheduled in-service date is expected.

The Nuclear Regulatory Commission has annoimced a moratorium on issuing construction per-mits and the licensing of nuclear power plants while it completes its review of the accident at the l

Three hiile Island ("Thil") nuclear plant in hfarch,1979. President Carter stated in December,1979 l

that the moratorium will not last more than six months. Although the Clinton units are of a different design and manufacture than the ThfI units, the Company established a task force to collect and l

evaluate the information as it becomes available from Th1I. Preliminary conclusions indicate that it will not be necessary to make significant changes in the design of the Clinton station. The Company cannot predict, however, the ultimate effect that the investigations resulting from Th!I will have on l

Clinton's construction schedule, costs, licensing or future operations.

The extended time required for planning, licensing, regulatory proceedings and construction of l

new facilities requires the Company to make substantial expenditures and contractual commitments in connection with the construction of such facilities prior to completion of licensing and regulatory l

proceedings. Under present procedures of the Nuclear Regulatory Commission, operating licenses are not issued until construction of nuclear tmits has been completed in accordance with approved p

specifications. Contractual commitments and expenditures have been made for the Clinton Power Sta-l V

tion in advance of the issuance of an operating license. Although no assurance can be given that all necessary licenses and approvals will be obtained, the Company anticipates that they will be obtained.

5 l

The Company's presently scheduled construction program, including the size, type and timing of new generating units, may changa because of load growth changes, fuel and construction costs, and regulatory contingencies. Estimated expenditures may be affected by greater than anticipated cost escalation, additional expenditures for environmental and other facilities, and acceleration or delay of portions of the program. The Company is keeping its construction plans as flexible as practicable with the intention of accommodating any of those factors that may develop.

RECENT DEVELOPMENTS On January 9,1979, the Company fded an application to increase its electric and gas rates with the Illinois Commerce Commission. On November 28, 1979, the Illinois Commerce Commission entered an order granting the Company an increase of $62/>10,000in its electric and gas revenue. Revised electric and gas rate schedules became effective November 30,1979. The amount of increase requested and granted based on 1978 consumpiion is summarized below.

Increase Increase Ilequested Cranted Dollars Percentage Dollars Percentage Electric

$63,814,000 15.0

$45,6S3,000 10.9 Gas 19,969,000 9.3 16,927,000 7.9 Total

$S3,783,000

$62,610,000 The Commission allowed $97,064,000 of construction work in progress in the Company's electric rate base, which was approximately 10% of the electric rate base. In accordance with the provisions of the Commission's decision and effective with the implementation of the new rates, the Company has excluded $97,0M,000 of electric plant construction workin progress from the amount on which the g

allowance for funds used during construction is computed, and the Company is normalizing the tax effect resulting from the difference in book and tax depreciable lives of gas plant not previously nor-malized. These accounting changes have no material effect on net income because they were taken into account in the level of electric and gas rates approved by the Commission. The Commission denied petitions for rehearing and reconsideration filed by certain intervenors who appealed the Com-mission order. Appeals are pending in the circuit court.

The Commission's decision also directed the opening of a new proceeding to evaluate the imple-mentation of an incentive scheme for cost control at the Clinti, Power Station. The separate proceed-ing willinclude evaluation of an incentive system that relates

• I!owable equity portion of AFUDC to the future cost increase of Clinton; the evaluation of inherent pm : ems associated with incentive schemes including the quantification of scope changes caused by changes in regulatory safety standards; and the need for a management audit. The order provides that the Company will submit to the Commission beginning in January 19S0 monthly reports on the cost and construction status of Clinton Unit No.1.

The order a!so required the Company to submit a new cost estimate for Clintan Unit No. I to the Commission, t hich has been done. This new estimate has been reflected in the cost of the construc-tion program under the caption "Use of Proceeds and Construction Program".

DESCRIPTION OF TIIE NEW PREFERRED STOCK General. The authorized capital stock of the Company consists of 5,000,000 shares of Serial Pre-ferred Stock of the par value of $50 per share, 5,000,000 shares of Serial Preferred Stock without par value,5,000,000 shares of Preference Stock without par value and 40,000,000 shares of Common Stock without par value. The following statements are summaries of certain provisions which are contained in (i) the Company's Restated Articles of Incorporation and resolutions of the Board of Directors establishing presently outstanding series of Serial Preferred Stock, (ii) the resolution of the Board of Directors establishing the New Preferred Stock, and (iii) the Supplemental Indentures to the Mort-gage and Deed of Trust of the Company securing its outstanding First Mortgage Bonds, copies of 6

which documents are illed with the Registration Statement as exhibits. The following summaries are not complete descriptions of the provisions contained in such exhibits and are qualified in their en-tirety by this reference thereto.

The Board of Directors is authorized to divide the Serial Preferred Stock into series and, with respect to shares of any series so established, to fix the number of shares constituting the series, the annual dividend rate, redemption price (not exceeding 120To of the consideration received therefor),

liquidation preference and conversion rights and sinking fund provisions, if any. All shares of Serial Preferred Stock of the par value of $50 per share and Serial Preferred Stock without par value (which are herein referred to collectively as the Serial Preferred Stock") are of equal rank and confer equal rights upon the holders thereof except as to variations between different series and the relative rights and preferences thereof so fixed by the Board of Directors.

Dividend Rights. IIolders of each series of the Serial Preferred Stock will be entitled to receive, when and as declared, cumulative disidends at the stated annual rate fixed for such series, and no more, payable quarterly on the first days of February, May, August, and November. Dividends will s:crue on the New Preferred Stock from the date of issue, and the first dividend will be payable on

.Nf ay 1, 1050. Subject to the limitations summarized under the next sub-caption, whenever divi-i dends on all outstanding shares of each series of the Serial Preferred Stock for all previous quarter-j yearly dividend periods and the current quarter-yearly dividend period shall have been declared and paid or set aside for payment, the Board of Directors may declare dividends on the Preference Stock and the Comnmn Stock out of surplus legally available therefor. No dividend shall be declared on any series of the Serial Preferred Stock in respect of any quarterly-yearly dividend period unless there shall likewise be declared on all shares of Serial Preferred Stock of each other series dividends ratably in p oportion to the respective annual dividend rates thereof. Accumulations of dividends do not bear interest.

O i

t

' Limitations and Restrictions on Dividends. Under the SupplementalIndentures referred to above, 1

the Company covenants that no dividends or distributions (except in Common Stock) on, or pur-chases or redemptions of, capital stock will be made if after giving effect to such action the sum of 1

j (1) the excess of dividends or distributions (except in Common Stock) subsequent to January 1, 1916, over amounts received on settlement of claims of the Company against others pending on that date, and (2) the excess of funds applied to the purchase or redemption of capital stock subsequent l

to January 1,1916, over net cash proceeds from the sale of capital stock (other than Common Stock) of the Company subsequent to January 1,1916, shall exceed the sum of (a) $1,500,000, (b) net cash i

proceeds of the sale of Common Stock subseiuent to January 1,1916, and (c) plus net earnings or l

i minus net losses (both as defined in said Supplemental Indentures) of the Company subsequent to January 1,1916. None of the retained earnings of the Company at December 31,1979 were restricted by the above provisions.

4 The Illinois Public Utilities Act provides thct no utility shall pay any dividend upon its common stock or preferred stock unless (i) the utility's earnings and earned surplus are sufIlcient to declare and pay same after provision for reasonable and proper reserves, (ii) the' dividend proposed to be i

paid on common stock can reasonably be declared and paid without impairment to the ability of the utility to perform its duty to render reasonable and adequate service at reasonable rates, and (iii) the utility shall have set aside the depreciation annuity prescribed by the Illinois Commerce Commission or a reasonable depreciation annuity if none has been prescribed. At December 31,1979, the payment of dividends on the Company's Common and Serial Preferred Stock was not restricted by these pro-visions.

Redemption Provisions. Except as otherwise provided by the Board of Directors in respect of the i

I shares of a particular series of the Serial Preferred Stock, shares of any one or more of such series may be redeemed, on not more than 60 or less than 30 days notice by publication and by mail, in whole at any time or in part from time to time, at the option of the Company, or pursuant to any sink-ing fund provisions for the redemption or purchase of such shares, in each case by payrnent of the 7,

then applicable redemption price of the shares to be redeemed. Provision is made whereby, subject h

to certain limitations, all rights of the holders of shares called for relemption (except the right to exercise any then effective privilege of conversion and the right to receive the redemption monies) will terminate before the redemption date, upon the deposit with a bank or trust company of the funds necessary for redemption. The redemption prices of the New Preferred Stock are set forth on the cover page of this Prospectus. No share of the New Preferred Stock shall be redeemed prior to February 1,19S3 if such redemption is for the purpose or in anticipation of refunding such share through the use, directly or indirectly, of funds borrowed by the Company, or through the use, di-rectly or indirectly, of funds derived through the issuance by the Company of stock ranking prior to or on a parity with the New Preferred Stock as to dividends or distributions, if such borrowed funds have an effective interest cost to the Company (computed in accordance with generally accepted finan-cial practice), or such stock has an effective dividend cost to the Company (so computed), ofless than the effective dividend cost to the Company of the New Preferred Stock.

The redemption prices of the outstanding series of Serial Preferred Stock are set forth in the Notes to Financial Statements incorporated by reference herein and included in the Company's 1979 Annual Report to Stockholders. The Common Stock of the Company is not redeemable.

Sinking Fund Provisions. On February 1,19SS and on each February 1 thereafter to and includ-ing February 1,2019 the Company is required to redeem 19,800 shares of the New Preferred Stock and on February 1, 2020 the Company is required to redeem 86,400 shares of the New Preferred Stock, or such lesser number of shares as shall be outstanding on any such date, at a sinking fund redemption price of $50 per share, plus any accrued dividends thereon to the redemption date. At its option, the Company may redeem through the sinking fund on February 1 of each year, commencing February 1,195S, not more than 19,S00 additional shares of the New Preferred Stock at tha sinking fund redemption price. The right to redeem such additional shares shall not be cumulative and shall not reduce the sinking fund requirement in any subsequent year. The sinking fund requirement may h

he satisfied in whole or in part by shares of the New Preferred Stock redeemed other thc.n through the sinking fund, or otherwise purchased or acquired by the Company. Redemptions pursuant to the sinking fund shall be on not more than 60 nor less than 30 days notice. No sinking fund redemptions or purchases in respect of New Preferred Stock may be made, or funds set aside for such purposes, unless dividends on all shares of Serial Preferred Stock for all past dividend periods shall have been paid in full or declared and funds set aside for their payment.

Liquidation Rights. On any liquidation of the Company the holders of Serial Preferred Stock at the time outstanding shall be entit!cd to be paid in cash, after payment of all indebtedness, in the case of outstanding Serial Preferred Stock and the New Preferred Stock, the sum of $50 per share, and in the case of any other series, such amount per share as may be fixed by the Board of Directors upon estab-lishing such series but not in excess of the par value thereof, if any, together with accrued and un-paid dividends thereon, and the remaining assets of the Company shall be distributable among the holders of the Preference Stock and the Common Stock. On any liquidation of the Company, in the event that the amounts payable with respect to all series of Serial Preferred Stock are not paid in full, the shares of all series of the Serial Preferred Stock shall share ratably in accordance with the respec-tive amounts which wouhl be payable on said shares if all amounts payable were discharged in full.

Voting Rights. By statute, holders of each class of capital stock are entitled to one vote per share on all matters submitted to the vote of shareholders, with the right to cumulate votes in the election of directors and the right to vote as a class on certain questions.

Charter Restrictions. The consent of holders of a majority of the Serial Preferred Stock outstand-ing is necessary before the Company may issue or assume securities representing unsecured indebt-edness for purposes other than the refunding of unsecured indebtedness, or the retirement of any g

indebtedness with the approval of any regulatory body, or the retirement of all Serial Preferred Stock W

or other stock ranking prior thereto or on a parity therewith, where immediately after such issuance 8

~ ;

or assumption the total amount of such unsecured indebtedness exceeds 20% of the aggregate of secured indebtedness outstanding and the stated capital and surplus of the Company.

Additional shares of Serial Preferred Stock or any other class of stock ranking prior to or on a parity therewith as to dividends or distributions may not be issued by the Company without the con-sent of the holders of two-thirds of the Serial Preferred Stock then outstanding, unless the net income (including net income of new property, if any, to be acquired in connection with such issuance) of the Company, determined in conformity with generally accepted accounting principles, adjusted for miscellaneous income and expense net, plus the gross amount deducted for interest on all interest bearing indebtedness of the Company in determining net income, for a period of twelve consecutive months within fifteen months immediately preceding such issuance, shall have been at least one and one-half times the sum of the annual interest charges on allinterest bearing indebtedness of the Com-pany and the annual dividend requirements on all outstanding Serial Preferred Stock and any such other stock which is not to be retired in connection with such issuance.

The Company may not create any new class of stock havings rights and preferences prior and superior to the Serial Preferred Stock or change the preferences, qualifications, limitations, restrictions or special or relative rights of the Serial Preferred Stock, without (i) the consent of the holders of two-thirds of the Serial Preferred Stock then outstanding, and (ii) in the case of any change afIecting less than all series of Serial Preferred Stock, like consent of the holders of the particular series of Serial Preferred Stock so affected.

Other Provisions. Neither the New Preferred Stock nor any class of securities of the Company presently outstanding has any conversion or pre-emptive rights.

The outstanding shares of Serial Preferred Stock of the Company are, and the shares of New (N

Preferred Stock when issued and sold will be, full-paid and non-assessable.

V The Restated Articles of Incorporation of the Company do not restrict or prohibit the repurchase or redemption of shares of capital stock of the Company while there is an arrearage in the payment of dividends or sinking fund installments on the shares of Serial Preferred Stock.

The Transfer Agent and Registrar for the New Preferred Stock will be the Continental Illinois National Bank and Trust Company of Chicago,231 South La Salle Street, Chicago, Illinois 60693.

LEGAL OPINIONS AND EXPERTS

'lle validity of the New Preferred Stock will be passed upon for the Company by Schiff liardin

& Waite, 7200 Sears Tower, 233 South Wacker Drive, Chicago, Ulinois 60606, and for the Under-writers by Bell, Boyd, Lloyd, IIaddad & Burns,135 South La Salle Street, Chicago, Illinois 60003.

The statements as to matters of law and legal conclusions made in this Prospectus under the cap-tien " Description of the New Preferred Stock" and in the prospectus dated April 19,1979 (which is incorporated in this Prospectus by reference) under the caption " Rates" and under the sub-captions

" Regulation", " Environmental hlatters", " Litigation" and " Franchises" under the caption " Business" were prepared under the supervision of and reviewed by Schiff IIardin & Waite, counsel for the Company, and such staten.ents were made on the authority of that firm. At December 31,1979, two 4

attorneys with Schiff Ilardin & Waite participating in the work on this financing each owned 200 shares of Common Stock of the Company.

The audited financial statements included in the Company's Prospectus dated April 19,1979 and the audited financial statements for the years ended December 31,1978 and 1979 included in the O

Company's Current Report on Form S-K dated February 15,10S0 incorporated herein by reference V

have been so incorporated herein by reference in reliance on the reports of Price Waterhouse & Co.,

independent accountants, as experts in auditing and accounting.

9

h UNDERWRITING The Underwriters named below have severally agreed to purchase from the Company the follow-ing respective numbers of shares of New Preferred Stock:

Number of Number of t'nderw rites Shares Underwriter Shares The First Boston Corporation 123,375 Josephthal & Co. Inwrporated.

2,500 hierrill Lynch, Pierce, Fenner & Smith Kidder, Peabody & Co. Incorporated 12,000 Incorporated 123.375 Kirkpatrick, Pettis, Smith, Polian Inc.

1,500 Advest, Inc, 6,250 Ladenburg, Thalmann & Co. Inc.

6,250 American Securities Corporation 2,500 Laidlaw Adams & Pc(k Inc.

1,500 Bache Ifabey Stuait Shields Incorporated 12,000 Lazard Freres & Co.

12,000 Bawn, Whipple & Co.

6,250 Legg blason Wood Walker, Incorporated 6,250 Robert W. Baird & Co. Incorporated 6,250 Lchman Brothers Kulm Ioeb Incorporated 12,000 Bateman Eichler,1h11 Richards, Incorporated 6,250 hlanley, Bennett, hicDeald & Co.

1,500 Bear, Stearns & Co.

12,000 hicDonald & Company 6,250 William Blair & Company 6,250 Nfoore & Schley, Cameron & Co.

1,500 Blunt Ellis & Loewi Incorporated 6,250 N!oseley, Itallgarten, Estabrook & Weeden Inc.

6,250 Blyth Eastman Paine Webber Incorporated 12,000 Newhard, Cook & Co. Incorporated 6,250 Boettcher & Company 2,500 The Ohio Company 6,250 J. C. Bradford & Co.

6,250 Oppenheimer & Co., Inc.

6,250 Alex. Brown & Sons 6,250 Philips, Appel & Walden, Inc.

1,500 Bruns, Nordenon, Rea & Co.

2,500 Piper, Jaffray & Ifopwood Incorporated 6,250 Butcher & Sinzer Inc.

6.250 Prescott, Ball & Turben 6,250 The Chica::o Corporation 6,250 Rauscher Pierce Refsnes, Inc.

6,250 City Securities Corparation 1,500 The Robinson-Ilumphrey Company, Inc.

1,250 Cmven & Company 2,500 Rodman & Renshaw, Im.

2,500 Cralgie Incorrorated 2,500 Rotan Atosle Inc.

6,250 Dain Bosworth Incorporated 6,250 L F. Rothschild, Unte berg, Towbin 12,000 R. G. Dickinson & Co.

2,500 H. Rowland & Co., Inc orporated 6,250 Ddlon, Read & Co. Inc.

12,000 Salomon Brothers 12,000 Donahbon, Lufkin & Jenrette Securities Scherck, Stein & Franc, Inc.

I,500 Corporation 12,000 Shearson Loeb Rhoades Inc.

12,000 Dresel Burnham Lambert incorporated 12,000 h hi. Simon & Co.

1,500 A. G. Fdwards & Sons, Inc.

6,250 Smith Barney' IIanis Upham & Co.

First Albany Corporation 1,500 Incurporated 12,000 First of Alichigan Corporation 2,T200 Smith, Afoore & Co.

1,500 First Southwest Company 1,500 Stern Brothers & Co.

2,500 Foster & hfarshall Inc.

2,500 Stifel, Nicolaus & Company Incorporated 6,250 J. A. Cl> nn & Co.

1,500 Stuart Brothers 6,250 Goldman, Sachs & Co.

12,000 Sutro & Co. Incorporated 2,500 Gruntal & Co.

2,500 Thomson htcKinnon Securities Inc.

6,250 IIer7feld & Stern 2,500 Traub and Company, Inc.

1,500 Ilowe, Barnes & Johnson, Inc.

1,500 Tucker, Anthony & R. L. Day, Inc.

6,250 E. F. Ilutton & Company Inc.

12,000 Warburg Paribas Becker Incorporated.

12,000 The Illinois Company Incorporated 2,500 Wertheim & Co., Inc.

12,000 Interstate Securities Corporation 2,500 Wheat, First Securities, Inc.

6,250 Janney hfontgomery Scott Inc.

6,250 Dean Witter Reynolds Inc.

12,000 Edward D. Jones & Co.

2,500 Total.

720 000 The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, and that the Underwriters will be obligated to purchase all of the shares if any are purchased.

The Company has been advised by The First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Representatives of the Underwriters, that the Underwriters propose to offer the shares of New Preferred Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and, through the Representatives, to certain dealers at such price less a concession of $.30 per share; that the Underwriters and such dealers may allow a discount of g

$ 9 per share on sales to other dealers; and that the public offering price and concession and discount to dealers may be changed by the Representatives.

10

O l

No dealer, salesman or other person has been authorized to give any infonnation or to make cny repreentations, other than those contained in this Prospetus, in connection with the offer-ing made by this Prospectus, and if given or

]Q QQQ gggeg made, such infonnation or representations must not be relied upon. This Prospectus does not constitute an offering of any securities other than those to which it relates, or an oilering of those to which it n' elates to any person in any 1((InO1S I)OWer jurisdiction in which such offering may not law.

fully be made. The delivery of this Prospectus at any time does not imply that the information CQ$pdQy herein is correct as of any time subsequent to its date.

11.66o3 Cumulative Preferred Stoc$

($50 Par Value Per Share)

CONTENTS 1

Page j

Available Information 2

Documents Incorporated by Reference 2

Summary Infonnation 3

FR OSPE C TUS i

The Company 4

Use of Proceeds and Construction Program 4

Recent Developments 6

Description of tho New Preferred Stock 6

Legal Opinions and Experts 9

Underwiiting 10 l

91 La Salle Street Press - Chicago Printed in U.S.A.

F AMENDMENT No. 3 August, 1980 Exhibit F-2

/%

i v

PROSPECTUS 3,000,000 Shares Illinois Power Company Common Stock (IVithout Par Value)

Outstanding shares of Common Stock are, and the shares oilered hereby will be, listed on the New York and 31ldwest Stock Exchanges. The reported last sale price of the Common Stock on the New York Stock Exchange on 31 arch 6,1980 was $15% ter share.

TIIESE SECURITIES IIAVE NOT BEEN APPROVED OR DISAPPROVED BY THE p

SECURITIES AND EXCIIANGE COSIMISSION NOR IIAS TIIE COhihilSSION v

PASSED UPON TIIE ACCURACY OR ADEQUACY OF TIIIS PROSPECfUS.

ANY REPRESENTATION TO TIIE CONTRARY IS A CRISIINAL OFFENSE.

Underwritins Price to Discounts and Proceeds to Public Commissions (1)

Comt anytt)

Per Share

$15.875 S.85

$15.025 Total

$17,625,000

$2,550.000

$15,075 000 (1) The Countany has agreed to indemnify the sezeral Underwriters against certain cizilliabilities, in-ciuding liabilities under the Securities Act of 1933.

(2) Before deduction of expenses payable by the Company estin ated at $165,000.

The shares of Common Stock are oilered by the several Underwriters when, as and if issued by the Company and accepted by the Underwriters and subject to their right to reject orders in whole or in part.

It is expected that the Common Stock will be ready for delivery on or about 31 arch 13,1980.

The First Boston Corporation Merrill Lynch White Weld Capital Markets Group Merrill Lynch, Pierce, Fenner & Smith Incorporated V~

The date of this Prospectus is Afarch 6,1980.

IN CONNECTION WITli TIIIS OFFERING, TIIE UNDERWRITERS AfAY OVER-ALLOT h

OR EFFECT TRANSACTIONS WIIICII STABILIZE OR hfAINTAIN TILE AIARKET PRICE OF TIIE C05thf0N STOCK OF TIIE CONfPANY AT A LEVEL ABOVE TIIAT WIIICII AflGIIT OTIIERWISE PREVAIL IN TIIE OPEN AfARKET. SUCII TRANSACTIONS SIAY BE EF-FECTED ON TIIE NEW YORK STOCK EXCIIANGE, ON TIIC AlIDWEST STOCK EXCIIANGE, IN TIIE OVEll TIIE-COUNTER AIARKET OR OTIIERWISE. SUCII STABILIZING, IF COht-5 FENCED, AIAY RE DISCONTINUED AT ANY TI5fE.

AVAILABLE INFORhfATION lilinois Potter Company (" Company") is subject to the informational requirements of the Securities Exchange Act of 1934 and in accordance therencith fles reports and other information teith the Securities and Exchange Commission. Information, as of particular dates, conccining directors and ofiters, their remuneration, and any rnaterialinterest of such persons in transactiora scith the Company is disclosed in proxy statements distr 1buted to stockholders of the Company and filed scith the Commission. Such reports, proxy statements and other information may be trupected and copied at the ofices of the Corn-mission, Room 6101,1100 L Street, N.W., Washington, D.C.; Everett SicKinley Dirksen Building,219 South

Dearborn Street,

Chicago, Illinois; Room 1100, Federal Building, 26 Federal Pla:a, New York, New York; and Suite 1710, Tishman Building,100GO Wilshire Boulevard, Los Angeles, California; and copics of such material can be obtained from the Public Reference Section of the Commission at 500 North Capitol Street, Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and other information concerning the Company may also be inspected at the ofices of the New York Stock Exchange,20 Broad Street, Netc York, New York and Slidtcest Stock Exchange,120 South La Salle Street, Chicago, Illinois, on schich exchanges certain of the Compcmy's securities are listed.

g DOCU5fENTS INCORPORATED BY REFERENCE The following documents filed by the Company with the Securities and Exchange Commission are incorporated he-cin by reference:

(a) The Company's Prospectus dated April 19, 1979 filed pursuant to Rule 421(b) under the Securities Act of 1933 (File No. 2-63S73).

(b) The Company's definitive proxy statement dated February 29,1950 for the annual meet-ing of stockholders to be held on Afarch 27,1980 (File No.1-3004).

(c) The Company", Quarterly Reports on Form 10-Q for the quarters ended Afarch 31,1979, June 30,1979 and September 30,1979 (File No.1-3004).

(d) The Company's Current Reports on Form S-K dated January 9, June 4, September 10, and December 12,1979 (File No.1-5004).

(e) The Company's Current Report on Form 8-K dated February 15, 1950 containing the Company's December 31, 1979 audited financial statements (File No.1-3004).

All documents subsequently filed by the Company pursuant to Sections 13 or 14 of the Securities Exchcnge Act of 1934 prior to the termination of this offering shall be deemed to be incorporated by reference in this Prospectus from the date of filing of such documents.

The Company hereby undertakes to provide without charge to each person to whom a copy of this Prospectus has been delivered, on the written request of any such person, a copy of any or all of the documents referred to above which have been or may be incorporated in this Prospectus by refer-ence, other than exhibits to such documents. Written requests for such copies should be directed to Afr. D. F. Afeck, Secretary and Treasurer, Illinois Power Company,500 South 27th Street, Decatur, Illinois 62525, 2

i SUhihfARY INFORhfATION The material below is qualified in its entirety by the detailed information and financial state-ments (including the notes thereto) appearing else*chere in the Prospectus or included in the docu-ments incorporated in this Prospectus by reference.

TIIE OFFERING Securities offered

.3,000,000 shares of Common Stock Shares of Common Stock Outstanding as of December 31,1979

.29,487,643 Offering Date

.hf arch 6,19SO Listed

. New York and Afidwest Stock Exchanges (symbol: IPC)

Price Range from January 1,1979 through Alarch 6,19S0

$23%-15%

Book value per share of Common Stock as of December 31,1979

. $22.22 ILLINOIS POWER COh1PANY Business

. Electric and gas utility Service Area.

15,000 square miles in the State of Illinois Service Area Population (approximate)

Electrio-1,395,000; Gas-1,000,000 Customers at December 31,1979 Electric-.-516,85S; Gas-377,6S5 Revenue Distribution for 1979 63.7% electric and 36.3% gas Net Electric Generating Cmacity (summer) 3,815,000 kilowatts Fuels Used in Electric Cencration during 1979 Coal-95.9Tc; Oil & Gas-4.1%

FINANCIAL INFORhfATION (Thousands except per share amounts) d INoohtE STATDIENT IM ORAtATION:

Year Ended December 31 1975 1976 1977 1978 1979 Operating Revenues

$408,951

$461,661

$567,3S7

$672,014

$751,822 Net Income Applicable to Common Stock

$ 49,493

$ 49,179 3 60,407

$ 66,662

$ 75,636 Average Shares Outstanding.

18,277 20,370 22,521 24,302 27,9S0 Earnings Per Share of Common Stock

$2.71

$2.41

$2.68

$2.74

$2.70 Dividends Per Share of Common Stock

$2.20

$2.20

$2.22

$2.28

$2.28 CArrrAUZATmN, December 31,1979, as adjusted for the estimated proceeds of $15,000,000 from this Common Stock issue and $36,000,000 from the proposed sale of Preferred Stock at approximately the same time:

Amount Percentage Long-Term Debt S 666,747 47.7 %

Preferred Stock (not subject to mandatory redemption) 215,171 11.8 Preferred Stock (subject to mandatory redemption) 36,000 2.0 Common Stock Equity 700.297 38.5 Total Adjusted Capitalization

$1, SIS.215 13 7o o

u 3

TIIE COAIPANY g

Illinois Power Company is herein referred to as the " Company". The Company was incorporated und r the laws of the State of Illinois on Afay 25, 1923. It is engaged in the generation, transmission, distribution and sale of electric energy and the distribution and sale of natural gas in the State of Illinois. Its service area is a widely diversified industrial and agricultural area comprising ap'iroxi-mately 15,000 square miles in northern, central and southern Illinois. Electric service is provided at retail to 311 incorporated municipalities, adjacent suburban and rural areas and munerous unincor-porated municipalities having an aggregate population of approximately 1,395,000. Gas service is provided to 250 incorporated municipalities, adjacent suburban areas and numerous unincorporated municipalities having an aggregate population of approximately 1,000,000. The larger cities served in-

{

clude Decatur, East St. I oals (gas only), Champaign, Danville, Belleville, Granite City, Bhmming-ton (electric only), Galesburg, Urbana and Normal. The executive offices of the Company are located at 500 South 27th Street, Decatur, Illinois 62325, and its telephone number is 217-121-6600.

USE OF PilOCEEDS AND CONSTIlUCTION PilOGilA51 i

The net proceeds, estimated at $15,000.000 from the sale of 3,000,000 shares of Con, mon Stock j

("New Common Stock") will initially become part of the general funds of the Company through re-(

imbursement of its treasury for capital expenditures previously made primarily for new facilities. The proceeds will be used to repay a port:on of the outstanding short-term borrowings estimated at

$85,000,000 at the time of issuance of the New Common Stock.

The Company plans to issue $30,000.000 of Preferred Stock at approximately the same time as the offering of the New Common Stock. The proceeds will be used to repay a portion of the outstand-ing short-term borrowings. Neither offering is contingent upon the other.

The cost of the Company's corstruction program during the period January 1,1950 to December 31,1981 is estimated as follows:

icive Year I

Period 1950 1950-1981 (in thousands)

Elcctric generating facilities

$ 231,178

$ 631,782 Nuclear fuel 3,831 150,618 Electric transmission and distribution facilities 61,991 317,600 Gas facilities 17,000 05,000

$ 320,000

$1,225,000 The construction expenditures for the five year period reilect revised cost estimates recently completed. The new estimate of $1,225,000,000 reilects a reduction of $115,000,000 fmm the previous estimate. The rwk. changes result from the deferment of the in-service date of Clinton Unit No. 2 tmtil at least 1991 partially offset by an increase in the cost of Clinton Unit No.1. No expenditures for generating capacity other than Clinton Unit No. I are reflected in the estimated expenditures for the five year period since the Company's current electric load forecast indicates that no additional generat-ing capacity will be needed until 1991. It will not be necessary to make a decision for several years whether additional capacity will be Clinton Unit No. 2 or a fossil unit. None of the alternative generat-ing plans being considered would increase the estimated expenditures for the five year period by more than $100,000,000.

The construction expenditures during the period January 1,19SO to December 31,1931, together with the repayment of First Afortgage Bonds aggregating $50,000,000 which mature during the period, including $10,000,000 maturing during 1950, will require gross expenditures by the Company of ap-proximately $1,275,000,000. It is estimated that about $795,000,000 of the required amount will be pro-vided by internally generated funds which will leave about $1S0,000,000 to be derived from external 4

financings. The types, amounts and timing of future financings cannot be fixed at this time. These estimates reflect an increase in electric rates in 19S2 coinciding with the in-service date of Clinton Unit No.1. If no allowance is made for rate relief during the period, the amount provided by internally generated funds would be $445,000,000. The estimates will be affected by cost changes, kilowatt-hour sales levels and rate increases, if any. Actual results may vary materially from the estimates. The is-suance of additional securities will depend upon the capacity of the market to absorb new utility issues and the ability of the Company to meet the Interest and preferred stock dividend coverage re-quirements and other covenants contained in the Company's hfortgage and Restated Articles of In-I corporation.

The construction program includes expenditures to complete the construction of a 950,000-kilowatt nuclear unit at a new site near Clinton, Illinois, scheduled for operation in December,1982.

The Clinton Unit No.1 estimates set forth below reilect the Company's 80% ownership interest. The remaining 20% is owned by two electric cooperative associations. The costs exclude costs for land, sub-station and nuclear fuel. Reference is made to the caption "Recent Developments" for a further discus-sion of the Clinton Power Station cost estimate.

Constniction Costs (Millions of Dollars)

Expended Net Scheduled Estimated Estimated Through Capability Energy Date in Cost per Total December Unit (Kilowatts)

Sc.arce Service Kilowatt Cost 31,1979 Clinton No.1.

760,000 Nuclear December 1982

$1,526

$1,100

$632 The Company recently announced that its architect engineer for Clinton Unit No.1, Sargent &

Lundy Engineers, has advised it of an error in the design of piping, ventilation and electrical support members. The design of buildings and structures is not affected. As a result, it will be necessary to reevaluate some engineering analyses. Preliminary review indicates the effect of the error may increase costs, but by no more than $10,000,000. Little or no delay in the December 19SS scheduled in-service date is expected.

The Nuclear Regulatory Commission has announced a moratorium on issuing construction permits and the licensing of nuclear power plants while it completes its review of the accident at the Three hiile Island ("Thil") nuclear plant in hfarch,1979. President Carter stated in December,1979 that the moratorium will not last more than six months. Although the Clinton units are of a different de-sign and manufacture than the Th!I units, the Company established a task force to collect and evalu-ate the information as it became available from ThlI. Preliminary conclusions indicate that it will not be necessary to make significant changes in the design of the Clinton station. The Company cannot predict, however, the ultimate ciIcet that the investigations resulting from Thil will have on Clinton's construction schedule, cmts, licensing or future operations.

The extended time required for planning, licensing, regulatory proceedings and construction of new facilities requires the Company to make substantial expenditures and contractual commitments in connection with the construction of such facilities prior to completion of licensing and regulatory proceedings. Under present procedures of the Nuclear Regulatory Commission, operating licenses j

are not issued until construction of nuclear units has been completed in accordance with approved specifications. Contractual commitments and exnenditures have been made for the Clinton Power Sta-tion in advance of the issuance of an operating license. Although no assurance can be given that all necessary licenser and approvals will be obtained, the Company anticipates that they will be obtained.

The Company's presently scheduled construction program, including the size, type and timing of new generating units, may change because of load growth changes, fuel and construction costs, and regulatory contingencies. Estimated expenditures may be affected by greater than anticipated cost escalation, additional expenditures for environmental and other facilities, and acceleration or delay of O-pottions of the program. The Company is keeping its construction plans as flexible r; practicable with the intention of accommodating any of those factors that may develop.

-5

RECENT DEVELOPAfENTS i

On January 9,1979, the Company filed an application to increase its electric and gas rates with the Illinois Commerce Commission. On November 28,1979, the Illinois Commerce Commission en-tered an order granting the Company an increase of $62,610,000 in its electric and gas revenue. Re-vised electric and gas rate schedules became effective November 30, 1979. The amount of increase requested and granted based on 1978 consumption is summari cd below.

Increase Increase llequested Granted Doliars Percentage Dollars l'ercentage Electric.

$63,814,000 15.0

$45,633,000 10.9 Cas 19,969,000 9.3 16,927,000 7.9 Total

$S3,783,000 562,610,000 The Commission allowed $97,061,000 of construction work in progress in the Company's electric rate base, which was approximately 10% of the c!cetric rate base. In accordance with the provisions of the Commission's decision and effective with the implementation of the new rates, the Company has excluded $97,061,000 of electric plant construction work in progress from the amount on which the allowance for funds used during construction is computed, and the Company is normalizing the tax effect resulting from the difference in book and tax depreciable lives of gas plant not previously nor-malized. These accounting changes have no material effect on net income because they were taken I

into account in the Icvel of electric and gas rates approved by the Commission. The Commission denied petitions for rehearing and reconsideration filed by certain intervenors who appealed the Com-mission order. Appeals are pending in the circuit court.

The Commission's decision also directed the opening of a new proceeding to evaluate tha imple-mentation of an incentive scheme for cost control at the Clinton Power Station. The separate g

proceeding will include evaluation of an incentive system that elates the allowable equity portion of AFUDC to the future cost increase of Clinton; the evaluation of inherent problems associated with inecntive schemes including the quantification of scope changes caused by changes in regulatory safety standards; and the need for a management audit. The order provides that the Company will submit to the Commission beginr,ing in January 1950 monthly reports on the cost and construction status of Clinton Unit No.1. The order also requirnl the Company to submit a new cost estimate for Clinton Unit No. I to the Conunission, which has been done. This new estimate has been reficcted in the cost of the construction program under the caption "Use of Proceeds and Construction Program" COA 1AION STOCK DIVIDENDS AJD PRICE RANGE The Company has paid quarterly cash dividends on its Common Stock in each year &

1947.

m A quarterly dividend of 574 per share was paid on February 1,1950. It is anticipated that the next quar-tecly cash dividend wCl be payable on hiay 1 1980 to stockholders of record on April 10,19S0.

Ilo!ders of the New Common Stock will be entiud to receive this dividend. The Company intends to continue to pay quarterly cash dividends on its Common Stock but the amount and timing of such dividends will depend upon the Company's earnings, capital requirements, fbancial condition and other factors.

The following table indicates the reported hich and low sales prices of the Common Stock of the Company on the Composite Tape as reported in the Afidwest Edition of The Wall Street Journal:

1978 1979 1950 Ifigh low liigh Iew Iligh Low First Quarter 26 %

24 %

23 %

21 %

19%*

15% "

Second Quarter 25 %

23 %

23 %

20 h

Th:rd Quarter.

25 %

23 23 %

21 Fourth Quarter.

25 %

21 %

22 17 %

• Through Afarch 6,19S0 6

The reported last sale price of the Common Stock on the New York Stock Exchaage on Af arch 6, 1950, was $15rs per share. The book value of the Common Stock at December 31,1979, was $22.22 per share.

The Company has an Automatic Reinvestment and Stock Purchase Plan whereby holders of its securities have an opportunity to purchase new issue shares ofits Common Stock by having their cash dividends and bond interest automatically reinvested in such stock. The price to be paid for each share of Common Stock purchased with cash dividends and bond interest under such Plan will be 95% of the average of the high and low prices of such stock on the composite Tape on the first day on which the New York Stock Exchange is open for trading in each month. 'Ibe Company reserves the right to suspend, modify or terminate such Plan at any time.

LEGAL OPINIONS AND EXPERTS The validity of the New Common Stock will be passed upon for the Company by Schiff Ilardin

& Waite,7200 Sears Tower,233 South Wacker Drive, Chicago, Illinois 00606, and for the Under-writers by Bell, Boyd, Lloyd, lladdad & Burns,135 South La Salle Street, Chicago, Illinois 60603.

The statements as to matters of law and legal conclus ons made in the prospectus dated April 19, 8

1979 (which is incorporated in this Prospectus by reference) under the captions " Rates" and "Descrip-tion of the Common Stock" and under the sub-mptions " Regulation", " Environmental hfatters", "Liti-gation" and " Franchises" under the caption " Business" were prepared under the supervison of and re-viewed by Schiff Ilardin & Waite, counsel for the Company, and such statements were made on the authority of that firm. At December 31, 1979, two attorneys with Schiff Ilardin & Waite participat-ing in the work on this financing etch owned 200 shares of Common Stock of the Company.

A The audited financial statements included in the Company's prospectus dated April 19,1979 and V

the audited financial statements for the years ended December 31,1978 and 1979 included in the Com-pany's Current Report on Form 8-K dated February 15,19S0 incorporated herein by reference have been so incorporated herein by reference in reliance on the reports of Price Waterhouse & Co., inde-pendent accountants, as expert in auditing and accounting.

UNDERWRITING

'Ihe Underwriters named below have severally agreed to purchase from the Company the follow-ing respective numbers of shares of New Common Stoek:

Number Number Underwriter of Shares Underwriter of Shares The First Boston Corporation 401,250 Boettcher & Company 12,000 hierrill Lynch, Pierce, Fenner & Smith J. C. Bradford & Co.

22,500 Incorporated 401,250 K. J. Brown & Co., Inc.

6,000 Advest, Inc.

22,500 Bruns, Nordeman, Rea & Co.

12,000 American Securities Corporation 12,000 Butcher & Singer Inc.

22,500 Arnhold & S. Bleichroeder, Inc.

12,000 The Chicago Corporation 22,500 Atlantic Capital Corporation 22,500 City Securities Corporation 6,000 Bache IIalsey Stuart Shields Incorporated 51,000 Cowen & Company 12,000 Bacon, Whipple & Co.

22,500 Craigie Incorporeted 12,000 Robert W. Baird & Co. Incorporated 22,500 Dain Bosworth Incorporated 22,500 Basle Securities Corporation 22,500 Daiwa Securities America Inc.

12,000 Bateman Eichler, Ild! Richards, Incorporated 22,500 R. G. Dickinson & Co.

12,000 Bear, Stearns & Co.

51,000 Dillon, Read & Co. Inc.

51,000 g

Birr, Wilson & Co., Inc.

12,000 Donaldson, Lufkin & Jenrette Securities

()

William Blair & Company 22,500 Corporation 51,000 Blunt Ellis & Loewi Incorporated 51,000 Drexel Bumham Lambert Incorporated 51,000 Blyth Entman Paine Webber Incorporated.

51,000 A. G. Edwards & Sons, Inc.

51,000 7

Number Number Underwriter of Shares Underwriter of Shares Eppler, Guarin & Turnes, Inc.

12,000

%e Nikko Securities Co. International, Inc.

12,000 First Albany Corporation 6,000 Nomura Securities International, Inc.

12,000 F.rst of hiichigan Corporation 12,000 The Ohio Cortpany.

22,500 First Southwest Company 6,000 Oppenhcimer & Co., Inc.

22,500 Foster & h!,.rshall Inc.

12,000 Parker /Ilunter Incorporated.

12,000 J. A. Clynn & Co.

6,000 Philips, Appel & Walden, Inc.

6,000 Goldman, Sachs & Co.

51,000 Piper, Jaffray & Ilopwood Incorporated 22,500 Cradison & Company Incorporated 0,000 Prescott, Ball & Turben.

22,500 Gruntal L Co.

6,000 Hauscher Pieres Refsnes, Inc.

22,500 Ilambrecht & Quist 12,000 W. IL Reaves & Co., Inc.

12,000 The IIcitner Corporation 6,000 The Robinson-IIumphrey Company, Inc.

22,500 IIerzfeld & Stem 0,000 Rodman & Renshaw, Inc.

12,000 J. J. B. Ililliard, W. L. Lyons, Inc.

22,",00 Wm. C. I 1. ey & Co.

12,000 Ilowe, Barnes & Johnson, Inc.

6,000 Rotan AfoU Inc.

22,500 E. F. Ilutton & Company Inc.

51,000 L. F. Rothschild, Unterberg, Towbin 51,000 The Illinois Company Incorporated 12,000 R. Rowland & Co., hcorporated 22,500 Interstate Securities Corporation 12.000 Salomon Brothers.

5;,000 Janney hfontgomery Scott Inc.

22.500 Scandinavian Securities Corporation 12,000 Edward D. Jones & Co.

12.000 Scherck, Stein & Franc, Inc.

6,000 Josephthal & Co. Incorporated 6,000 Shearson Loeb Rhoades Inc.

51,000 Kidder, Peabody & Co. Incorporated 51,000 I. hl. Simon & Co.

6,000 Ladenburg, Thalmann & Co. Inc.

22,500 Smith Barney, IIarris Uphe.m & Co.

Lazard Freres & Co.

51,000 Incorporated 51,000 Legg hiason Wood Walker, Incorporated 22,500 Smith, IIague & Co., Inwrporated 6,000 Lehman Brothers Kuhn Loeb Incorporated 51,000 Smith, hfoore & Co.

6,000 Afanley, Bennett, hicDonald & Co.

6,000 M el, M us &

npany IncorpaW M,E Stix & Co. Inc.

12.000 A. E. 51asten & Co., Incorporated 6.000 hicCourtney-F eckenridge & Company 6,000 Thomson hicKinnon Securities Inc.

22,500 KfcDonald & Company 22,500 Traub and Company, Inc.

6,000 hiesirow & Company 6,000 Tucker, Anthony & R. L. Day, Inc.

22,500 ne Afilwaukee Company 6,000 Burton J. Vincent, Chesley & Co.

12,000 Afoore & Schley, Cameron & Co.

6,000 Warburg Paribas Becker Incorporated 51,000 Afoselay, IIallgarten, Estabrook &

Weintith-Zitimann-Whitehead Inc.

6,000 Weeden Inc.

22,500 Wertheim & Co., Inc.

51,000 W. II. Newbold's Son & Co., Inc.

6,000 Wheat, First Securities, Inc.

22,500 New Court Securities Corporation 22,500 Dean Witter Reynolds Inc.

51,000 New Japan Securities International Inc.

6,000 Yamaichi International ( America), Inc.

12.000 Newhard, Cook & Co. Incorporated.

22,500 Total 3,000,000 The Underwriting Agreement provides that the obligations of the C.r'vniters are subject to certain conditions precedent, and that the Underwriters will be obligated to purchase all of the shares if any are purchased. >

The Company has been advised by The First Boston Corporation and Merrill Lynch, Pierce, venner & Smith Incorporated, as Representatives of the Underwriters, that the Underwriters propose to offer the shares of New Common Stock to the public initially at the offering price set forth on the cover page of this Prospectus and, through the Representatives, to certain dealers at such price less a concession of $ 60 per share, that the Underwriters and such dealers may allow a discount of S.375 per share on sales to other dealers; and that the public offering price and concession and discount to i

dealers may be changed by the Representatives.

g 8

O i

No dealer, salesman or other person has been authorized to give any information or to make any representations, other than those contained in this Prospectus, in connection with the offer.

3,000,000 Shares Ing made by this Prospectus, and if given or made, such information or representations must not be relied upor. This Prospectus does not constitute an offering of any securities other Illinois Power than those to which it relates, or an offerm, g of those to which it relates to any person in any jurisdiction in which such offering may not law.

On1pany fully be made. The delivery of this Prospectus at any time does not imply that the information herein is correct as of any time subsequent to its date.

Common Stock (IVithout Par Value)

O CONTENTS r.a PROSPECTUS Available Information 2

Documents Incorporated by Reference.

2 Summary Information 3

The Company 4

Use of Proceeds and Construction Program.

4 Recent Developments 6

Common Stock Dividends and Price Range.

6 Legal Opinions and Experts 7

Underwriting 7

O

<......a.,....,...-_...

_._a

0 0

0 CLINTON POWER STATION CONSTRUCTION COST BREAKDOWN

• Estimated Construction Cost (1)

Unit 1 a)

Total nuclear production plant costs

$ 1,388,387,000 (2) (3) (5) b)

Nuclear fuel inventory cost for first core load 82,376,000 (2) c)

Land costs 14,300,000 (5)

Sub Total

$ 1,485,063,000 d)

Transmission Clinton Unit 1 Substation 14,113,000 (2)

Other transmission facilities 10,731,000 (4)

Total Estimated Cost S 1,509,907,000 (6)

Notes:

(1)

Dollars are stated on future dollar basis.

(2)

Allowance for funds used during construction was computed at a rate of 7.0% compounded semi-annually, based on the Company's ownership interest of 80%.

(3)

Allowance for funds used during construction was reduced to reflect the inclusion of $97 million of Construction Work in Progress in the electric rate base as authorized by the Illinois Commerce. Commission.

h g$ D M

(4)

Allowance for funds used during construction was com-Q puted at a rate of 7.0% compounded semi-annually.

(5)

Land improvement costs are included in the nuclear m

m er production plant costs, y

" si (6)

Effective May 1, 1980 Illinois Power Company increased the G%

a Allowance for Funds Used During Construction (AFUDC) rate 82 from 7% (compounded semi-annually) to 7 3/4% (compounded o

semi-annually).

This change in the AFUDC rate will increase the total estimated cost by approximately $19 million.

Unit 2 has been deferred because additional generating capacity is now projected to not be required bcfore 1991.

New cost estimates have not been prepared for a deferred Unit 2.

CPS AMENDMENT NO. 3 1980 Aun$ustEX IBIT H PLANT CAPITAL INVESTMENT Page 1 of 2 7-

SUMMARY

(as of June, 1980)

BASIC DATA Clinton Power Station Name of Plant (Unit 1)

Cost basis:

approved estimate Net capacity 933.4 MW(e)

Reactor type BWR-6 Location Clinton, 11.

Type of cooling Run of river Natural draft Design and construction period ~~~

cooling towers Month,-year NSSS order Mechanical draft placed Dec. 1972 cooling towers Month, year of commercial Other (describe)

Lake operation Dec. 1982 Length of workweek 40 hours4.62963e-4 days <br />0.0111 hours <br />6.613757e-5 weeks <br />1.522e-5 months <br /> Interest rate, interest during construction 7% compounded semi-annually (l)

COST

SUMMARY

Account Number Account Title Total Cost (thousand dollars) es DIRECT COSTS (v) 20 Land and land rights..

25,946 PHYSICAL PLANT 21 Structures and site facilities..

304,344 22 Reactor plant equipment..

61,045 23 Turbine plant equipment.

192,331 69,142 24 Electric plant equipment...

25 Misc. plant equipment.

30,205 Subtotal.....

S 657,067 Spare parts allowance........

3,356 Contingency allowance...

..... Subtotal..

E 660,423 INDIRECT COSTS 91 Construction facilities, equip't, and 222,017-services.

92 Engineering and const. mg't. services 194,975 54,182 93 Other costs.

245,144 (1) 94 Interest during construction..

Subtotal...

L_

7 l_6 31f a

Start of construction cost.

1,40.I,687 Escalation during construction.

-0_ (2)

Total plant capital investment

(-sv)

($1502/KW).

1.402,687 (Footnotes attached)

AMENDMENT NO. 3 CPS August 1980 EXHIBIT H Page 2 of 2

/-m U

Footnotes for Exhibit H (1)

Effective May 1, 1980 Illinois Power Company increased the Allowance For Funds Used During Construction (AFUDC) rate from 7% (compounded semi-annually) to 7 3/4% (compounded semi-annually).

This change in the AFUDC rate will increase the total estimated construction cost by approximately $18 million.

(2)

Escalation to completion is included in the above costs.

It is based on actual contract escalation rates and 8% on all other.

-m

%s n

v

.-m.

CPS 11.LIN01S M%IER Cot 4FAbT Monthly Cash Flow for. the Twelve Months Ended March 31, 1980 (1housands of Dollare)

Tw *.ve I990

" < th s 1979

! aei r.h 3 M April May June July pugust Septemtce Octotwr November Dec c4nber January Mcg-ry 5.

n

.f Gh

%,.c Is.e : v

$ 8.369 3 5,613

$ 5.169

$ 7,948

$ 7,667

$ 6,s14

$ 4,088

$ 5,786

$ 8,102

$ 8,115

$10,988

$11,s!6

! M,275 berre 1.*t i n 4,6?b 4,639 4,654 4,671 4,680 4,692 4,706 4,723 4,742 4,755 4,7 %

4.777 M,4J5

2. i t..! r ace 1,529 1,420 1,405 1.191 1,437 2,116 1,372 1,519 1,255 1,660 1,637 1.8A 1

19. 22 2d r J-Lt 1 9J 1 921 1 923 1,92_3 da222 2,631 1,950 2,719 L6}9)

J,513 1 *> 2 7 ly

_2j,2lj Im.et. - Tas t'redit

gt ik,447

$13,593

$13,151

$15,733

$15,700

$18,253

$12.118

$14,747 413.461

$16,043

$t9,020

$19,u S

$1-a,137 A-atteitt a of runds Tre.. rreJ S t.'sk

$ 3,925 8 --

S 3,925

$ 3,924

$ 3.925 5 --

3 15,t Vs rivide.Js en -

C. me st uk 14,617 16,432 16,668 16.9%

' 4,*.15

2. Mr; *enstru tten jdO2 1 070 1 43 3,%6 3,457 15J8

_li J 3,712 1 23

_3.,289 3 527 38.2_2 4',dsj Al b.6; u

'.r f%nJs l' sed S

2 Tetst

$ 2,702

$21,618

$ 3,481

$ 3,346

$23,814

$ 3,538

$ 3,570

$24,304

$ 3.214

$ 3,259

$24,350

$ 3,8,22 512 '., * -?

Ce.crat<J jlMi5

${$,ND

$ M Q__,__.j Ua3d7 AIaN IUsIN 8 0d$9 UIa55 "

IbN

• b D8 III* b Inter.21 Cash

.'t i ; 1 t v M aat

$18,320

$21,est

$24,757

$22,972

$28,243

$25,715

$34,059

$24,935

$37,336

$30,890

$23,621

$21,616 1310,111 Cress.t!'1tices to

'.s ed Nr ine C. as true t t an 2J02 3,076 3,481 3,346 3,457 3,536 3@

3.712 1 21_4 1 289 3,527 1 622 4: !?4

1. se Allesaaee (cr l'unds Iotal fil,Gj

$11//5

$11/s,D _ f12. Q _ 13.3,.I M _ _ I U,177 Ma.bD

• N3 83 N WaN S*D UMS bM m

ts

= 4

n m c 'd 2l H

t:c r,n H

et X H

m e--

H

%D' CD O 'A

.O N

s

EXHIB1T J OFFICERS' CERTIFICATE AMENDMENT NO. 3 to Sections 3, 4 and 6 of Article III of the Indenture ^{t y f9h g Pursuant

%(d To Harris Trust and Savings Bank as Trustee under the Mortgage and Deed of Trust dated November 1, 1943 (herein called the " Indenture")

of Illinois Power Company:

LARRY D. HAAB, Vice President, and D. F. MEEK, Treasurer, of Illinois Power Company (hereinaf ter called the " Company"), in support of the request and order of the company for the authentication and delivery of $100,000,000 aggregate principal amount of First Mortgage Bonds, 9 7/87. Series due July 1, 2004 (hereinafter called the "New Bonds"), $85,000,000 principal amount of which are to be authenticated and delivered pursuant to the provisions of Section 4 of Article III of the Indenture in an amount equal to sixty percent (607.) of net bondable value of property additions. not subject to an unfunded prior lien, and $15,000,000 principal amount of which are to be authenticated and delivered pursuant to the provisions of Section 6 of Article III of the Indenture, on the basis of the payment at maturity of all of the $15,000,000 principal amount of First Mortgage Bonds, 2 7/87. Series due 1979, do hereby make this certificate in accordance with the provisions of paragraph (b) of rection 3, part. graph (h) of Section 4, and paragraph (a) of Section 6 of Article III of the Indenture, and certify as follows:

1.

That. the net earnings of the company availabic for interest and property retirement appropriations for the twelve months ended April 30, 1979, have been in the aggregate equal to not less than the greater of (i) two and one-half times the amounts of the annual.-interest charges on, or (ii) ten percent (107.) of the principal g

amount of, all bonds outstanding under the Indenture as of the date hereof and the Q

New Bonds applied for, as shown by the following computation:

(a) Total operating revenues

$713,012,620 Deduct: Fuel for electric plants

$ 211,465,505 Power purchased for resale 6,525,593 Power interchanged - net

( 46,364,105)

Gas purchased for resale 166,222,970 All other operating expenses 73,591,858 Maintenance 34,251,566 Taxes (other than income and excess or other profits, taxes which are imposed on income af ter the deduction of interest charges) 57,049,882 502,743,269 Net operating revenues before depreciation and income taxes 210,269,351 Net non-operating revenues 67,024 Net earnings of the company available for interest and property retirement appropriations 1210.336.375 4

EXHIBIT J AMENDMENT NO. 3 Auguat 1980 (b) Principal amount of all Bonds outstanding as of the date bereof are:

(Page 2 of 4)

. r"]

First Mortgage Bonds outstanding

$782,200,00G

(_/

First Mortgage Bonds, the New Bonds applied for 100,000,000 1882.200.00Q (c) Annual interest charges on'

$782,200,000 principal amount of First Mortgage Bonds outstanding as cf the date hereof-

$ 57,874,250

'700,000,000 principal amount of rirst Mortgage Bonds, the New Bonds, applied for 9,875,000

.$_6LI49.2 M

+

(d) Two and one-half times the annual interest charges on bonds outstanding as of the date hereof and applied for

$169,373,125 107. of the principal amount of bonds outstanding as of the date hereof and applied for

$ 88,220,000 2.

That the net earnings of the Company available for interest after property retirement appropriations for the twelve months ended April 30, 1979, have been in the aggregate equal to not less than two times the amount of the encual interest charges on all bonds outstanding under the Indenture as of the date hereof and the Neu Bonds applied for, computed as follows:

Total operating revenues

$713,012,620 Deduct: Fuel for electric plants

$ 211,465,505 fs

' ')

Power purchased for resale 6,525,593

(

Power interchanged - net

( 46,364,105)

Gas purchased for resale 166,222,970 All other operating expenses 73,591,858 Maintenance 34,251,566 Taxes (other than income and excess or other profits, taxes uhich are imposed on income after the deduction of interest charges) 57,049,882 Provisions for depreciation (amount provided on the books of the Company, being the greater of the two calculations provided in the definition of net earnings available for interes t after property retire-ment appropriations in Article I of the Indenture) 53,953,804 556,697,073 Net operating revenues before income taxes 156,315,547 Net non-operating revenues 67,024 Net earnings available for interest after property retirement appropriations

$156.382.571 Two times total annual interest charges on all bonds outstanding as of the date hereof f~')'

and applied for

$135.498.500 x-

EXMIBIT J ASINDMENT NO. 3 Augus t 1980 (Page 3 of 4 3.

That the net earnings of the Company available for interest and I) property retirement appropriations and the net earnings of the company available

~#

for interest af ter property retirement appropriations have been calculated in accordance with the definitions.thereof contained in Article I of the Indenture.

4.

That the aggregate principal amount of the First Mortgage Bonds, 2 7/87. Series due 1979, which were paid at maturity on July 1,1979, and in substitution for which addi:ional Bonds are to be authenticated and delivered, was $15,000,000; an5 that no part of the First Mortgage Bonds, 2 7/8% Series duc 1979, made the basis for this application has heretofore been made the basis for the authentication and delivery of additional Bonds pursuant to Section 6 of Article III cf the Indenture, or for the withdrawal of cash included in the trust estate or for the reduction of the amount of cash required to be deposited in the trust estate under any proviaion of the Indenture.

5.

That no part of the First Mortgage Bonds, 2 7/8% Series due 1979, made,the basis for the application were paid or redeemed or purchased with moneys included in the trust estate.

6.

That no part of the First Mortgage Bonds, 2 7/8% Series due 1979, made the basis for the application were paid or redeemed or parchased pursuant to, or used in anticipation of the requirements of, the provisions of any sinking fund or analogous fund established by any indenture supplemental to the Indenture which does not permit the authentication of additional Bonds upon the basis of Bonds paid, redeemed, purchased or used for such sinking fund or analogous fund.

7 f~}

7.

All of the First Mortgage Bonds, 2 7/8% Series due 1979, were here-tofore issued by the company.

8.

That the Company is not, and by the making or granting of this application will not be, in default in the performance of any of the terms and covenants of the Indenture.

9.

The nature and scope of the examinations or investigations which ue have made for the purpose of rendering this certificate are as follows: We are generally f amiliar with and have read the terms and provisions of the Indenture.

Ue have particularly read and examined Article I and Sections 3, 4 and 6 of' Article III of the Indenture. We are also generally familiar with, and have read, the terms and provisions of a supplemental indenture dated July 1, 1979, providing for the issuance of the New Bonds. We have also examined appropriate records of the Company with respect to its financial condition as of April 30, 1979. We have also reviewed the various certificates, opinions and resolutions transmitted with the Request and Order to Trustee to Authenticate the New Bonds. We have made such examinations or investigations as, in our opinion, are necessary to enable us to express an informed opinion as to whether or not the conditions precedent provided i

fs 4

t

)

i s/

\\

j l

i

EXHIBIT J AMENDMENT NO. 3 August 1980 (Page 4 of 4) for in the Indenture relating to the authentication and delivery of the New Bonds (N

have been complied with, and, in our opinion, all such conditions have been complied with.

DATED this 17th day of July, 1979.

~f y.p l

i

/w.

Larry D Hhab, Vice President Illinois Power Company

'lLLL !L i

D. F. Meek, Treasurer Illinois Power Company STATE OF ILLINOIS

)

v/

) SS COUNTY OF MACON

)

LARRY D. HAAB AND D. F. MEEK, personally known to iae to be the persons designated in the foregoing certificate, personally appeared before me this 17th day of July,1979, and each on his individual oath severally says that he executed the foregoing certificate and the f acts set forth therein are true to the best of his knowledge, information and belief.

'v_ c /r,/

h.

7L 4 [ 0 4 4.,

Notary Public

'/

My Commisrion expires

,,.[ c,_ 4f / O 'i '

o

.o()

1

CPS 3

AMENDMENT NO.

August 1980 EXHIBIT K O

y Excerpts from RESTATED ARTICLES OF INCORPORATION OF ILLINOIS POWER COMPANY.

ARTICLE V - 1(f)(2)

The Corporation shall not, without the consent (given by vote at a meeting called for chat purpose) of the holders of at least two-thirds of the total number of shares of Preferred i

Stock then outstanding, issue, sell, or otherwise dispose of any shares of Preferred Stock, or of any other class of stock ranking prior to, or on a parity with, Preferred Stock as to dividends, in liquidation, dissolution, winding up or distribu-tion, unless the net income of the Corporation determined in conformity with generally accepted accounting principles, adj usted for miscellaneous income and expense net, plus the gross amount deducted for interest on all interest bearing indebtedness of the Corporation in determining net income for a period of twelve (12) consecutive calendar months within the fifteen (15) calendar months immediately preceding the issuance, sale or disposition of such stock, to be available for the payment of interest shall have been at least one and one-half (1 ) times the sum of (a) the annual interest charges on all interest-bearing indebtedness of the Corporation and (b) the annual dividend requirements on all outstanding shares of Pre-(_)s ferred Stock and of all other classes of stock ranking prior to, or on a parity with, Preferred Stock as to dividends or distri-butions, including the shares proposed to be issued; provided that, there shall be excluded from the foregoing computation, interest charges on all indebtedness and dividends on all shares of stock which are to be retired in connection with the issue of such additional shares of Preferred Stock or other class of stock ranking prior to, or on a parity with, Preferred Stock as to dividends or distributions; and provided, further, that in any case where such additional shares of Preferred Stock or other class of stock ranking prior to, or on a parity with, Preferred Stock as to dividends or distributions, are to be issued in connection with the acquisition of new property, the net income of the property to be so acquired, determined and adjusted in the same manner as the net income of the Corporation is to be determined and adjusted as set forth above, may be included on a pro forma basis in the foregoing computation.

(O v

a

CPS AMENDMEKr NO.- 3 August 1980 ILLINDIS POWER COMPANY FINANCIAL ANALYSIS EXHIBIT L 1

Y-Twelve Months Ended March 31, 1980 December 31, 1979 (dollars in thousands)

Earnings available to common equity 76,354 75,636 Average common equity (1) 644,266 607,245 Rate of return on average common equity 11.9%

12.5%

Net income before total interest charges 159,769 155,092 Total interest charges 6'/,494 63,757 Times total interest charges earned 2.37 2.43 Net income before total interest charges 159,769 155,092 Interent on long-term debt 64,366 62,005 Times long-term interest charges earned (2) 2.48 2.50 Gross income after taxes 159,769 155,092 Total interest charges & preferred dividends 83,415 79,456 Preferred stock coverage (3) 1.92 1.95 AFUDC 40,534 38,731 Net income after preferred dividends 76,354 75,636 53.1%

51.2%

O

(, Operating expenses (less depr. & total taxes) 502,537 475,884 Operating revenues 787,288 751,822 Operating ratio 63.8%

63.3%

Market price of common 16.50 19.13

-Book value of common 21.71 22.22 Market-book ratio 76.0%

86.1%

Cash earnings available for common (4) 35,820 36,905 Common dividends 68,781 64,615 Ratio 52.1%

5'.1%

Capitalization (Amount & Percent)

Long-term debt 866,794 47.3%

866,747 49.9%

Preferred stock 251,171 13.7 215,171 12.4 Common equity 714,881 39.0 655,297 37.7 S1,832,846 100.0%

$1,737,215 100.0%

(1)

Average of common equity at beginning and end of year.

(2)

Exhibit J is a copy of the most recent Officers ' Certificate in connection with the issuance of mortgage bonds.

(3)

Exhibit K is an excerpt from Restated Articles of Incorporation of Illinois Power Company which shows how preferred stock coverage is calculated.

(-)(4)

Earnings available for common stock less AFUDC.

J.

4 A

aw

._1i h

mW e

v.

AML'NDMENT NO. 3 August, 1980 EXHIBIT M STATE OF ILLINOIS ILLINOIS CCMMERCE COMMISSION Illinois tower Company Proposed gene <al increases in electric 79-0071

+

and gas rates and revisions of the Electric and Gas Rules, Xegulations and Conditions of Servic3.

QgDgg By the Commission:

1 On January'9, 1979, Illinois Power Company (" Company",

" Respondent" or " Illinois Power") filed Title Sheet, Ori-j ginal Sheet A - Cancellation Sheet, Original Sheet Nos. 1 i

through 40, Title Sheet - Appendix to Schedule of Rates, Table of Contents - Appendix to Schedule of Rates, Original Sheet No.15 of Section 1 of Appendix, Original Sheet Nos. 1 through 8 of Section 2 of Appendix and lith Revised Exhibit B to Agreement approved in Docket No._S3475, all of Ill.

C.C. No. 23 - Electric Schedule of Rates Title Sheet A -

4 Cancellation Sheet and Original Sheet Nos. I through 73, all of Ill. C.C. No. 24 - Electric Rules, Regulations and Condi-t tions of Service, hereinafter referred to as " Filed Tariff Schedule Sheets", in which it proposed general increases in its electric and gas rates and revisions to its Electric and i

Gas Rules, Regulations and Conditions of Service, effective February 9, 1979,

-Notice of the proposed general rate increase was posted 4

in a conspicuous place in each of Respondent's business offices and published in newspapers of general circulation 3

throughout the company's service area pursuant to the re-3 quirements of Section 36 of the Illinois Public Utilities Act and the provisions of General Order 157 of the Commis-sion.

An examination of the filed tariff revisions resulted

(

in a determination by the Commission that hearings shculd be j

held concerning -the propriety and reasonableness of the

+

proposed general increases and revisions and that, pending i

hearing and decision thereon, the proposed filed tariff j

schedule sheets should not become effective. Therefore, on i

February 7, 1979, the Commission entered an order suspending the effective date of the proposed filed tariff schedule sheets to and including June 8, 1979, and on May 23, 1979, the Commission resuspended the effective date of the filed tariff schedule sheets to and including December 8, 1979.

Petitions to Intervene were filed on behalf of Central Illinois Consumer Energy Council (Consumer Energy Council);

Illinois Association of Community Action Agencies; Georgia

~

Hampton, Birdie Wellmaker, et al; Brian L. Crissey Ph.D, pro se; A.E. Staley Manufacturing Company; Prairie Alliance, Inc.; Vermilion County Citizens Action; Committee for Eco-nomic Opportunity, Inc.; susan O'Neal, pro se; Citizens for j

a Better Environment (CBE); Mrs. Terry Richert and Mrs.

. Linda Richert, pro se; McLean County Economic Opportunity Corporation; Department of Air Force and the Department of Defense (Federal Agencies); PPG Industries. Inc.; An Asso-ciation Concerned for Utility Stockholders Equity; Soyland

. Power Cooperative, Inc. ; and, Granite City Steel Division of s/

National Steel Corporation, Jones and Laughlin Steel Corpo-ration, Olin Corporation,. Wagner Castings Company, American t

4-m b m

79-Ow'l Steel Foundclea, div; :en of Hamst/m i industiles (desig-n ndted a9 " Industrial Fuer Cansumerv i lh in addition the felivwing municipalities f21ed Pe-titions to Intervene et become formal intervenors by causing to be filed the w::tten appearance et its attorney: City of Urbana, City of Champaign, City of vanv111e, Town of Normal, VtI 1 age of th I': a 1 o iind the Village of Bt oadlandr.

All perrons and entities hereinbefore listed were otanted intetven*lon by order of this Commission and allowed f all opportunt t y to participate in these prcceedings.

Pursuant to notice as requited by law and the rules and regulations of this Commission, the initial hearing and plehearing conference was held at the of fices of the Commis-sion in Springfield, Illinois on March 5, 1979 before a duly authorized Examiner. Subsequent to the initial hearing approximately 55 additional hearings were held at the offices of the Commission or elsewhere on the days shown by the decket sheets maintained by the Secretary of this Commission for purposes of this cause and a part of the record in th.c case.

Local hearings were held in the municipalities of East St. Louls, Bloonington, Champaign, Urbana, Decatur and Danville, Illinois at which times statements were made by and on behalf of certain persons and entities having an interest in the subject matter of this proceeding.

On October 25, 1979, at the conclusion of full and public hearings, the :e<:ord was malked " Heard and Taken" by the examiner assigned ' hereto.

Oral argument was heard by the Commission on Nove:ier

'A, 1979,

=.t which time the mat-ter was marked " Heard >::c Taken 'Jnde t Advluemant" The record contains u excess of 9,000 pages of tran-script and numerous ! -m " of prepared written testimony and statistical and othe: exh:L;t Th~ record provides a detailed ar.alys:s et tua

. a::clal a f f ai rs o f the Company, its oper at: 1g t eve nues and expenses, *he originc. cost and asSoClated accrued depr eciatinn of the Company property, the cost of capital and other matters relating te rate of leturn and othat' issues raised in this case.

NA r 1Rh OF RESPONDENT' S OPERAT WJ Illinois Power Company furnishes electric and aco setetre within an area comprising approximately 15,0c0 squate miles.

At Decembet 31, 1978, the Conpany furnished elect r ic service to approximately 503,000 electric customers in 422 communities. In areas having a population of approxi-mately 1,350,000.

The largest cities in which electric service is provided are Monmouth, Galemburg, Kewanee, La-Salle, and Ottawa in north central Illinois; Bloomington, Normal, Jacksonville, Decatur, Champaign. Urbana, and Dan-ville in central Illinois; and Wood River, Granite City, Collinsville, Belleville, Centralia, and Mt. Vernon in southwest Illinois.

At December 31, 1978, the Company supplied gas service to approximately 372,000 gas customers in 321 communir ?s, in areas having a total population of approximately 970,000.

Gas service is provided in the City of East St. Louis, Illinois and aforenamed municipalities except Ottawa, Bloom-ington and Normal.

The annual report (Form 21) of Illinois Power indicates that the Company's electric generating facilities, as of year end 1978, had a net plant capability of about 3,E62,000 KW, with about 3,223,000 KW in six conventional steam gen-erating plants and the rest in other generating facilities, O

79-0071 including internal combustion and hydro units. The Com-pany's sixth generating unit, having a capacity of 450,000 KW,.was placed in service during June, 1978 at Respondent's Havana, Illinois station.

PROPOSED CHANGES IN RATE SCHEDULES i

Electric Rate Schedules t

Customers of Illinois Power Company presently enjoy the lowest retail electric service rates, available from a privately owned public utility based in the State of Illi-nois. Respondent proposes a general. increase in its charges for retail electric service. The proposed electric rate increase, exclusive of additional charges under Riders A and AA, is approximately $69.1 million based on estimated usage for the calendar year 1980. Respondent also proposes cer-tain changes to its rules, regulations and conditions appli-e cable to electric service., ice are set forth in IP ExhibitRespondent's proposed schedule of rates for electric serv 8.5 admitted in evidence.

)

l Respondent claimed that the tariff filing would provide approximately $69.1 million of additional annual electric operating revenue for an averatie annual increase of 14.0%.

l The proposed increase in elect:ic charges for electric service include general increases for all retail service classifications. The proposed iacrease for the residential customer class is 14.6%, for the general service customer class 13.4% and for the industrial customer class 13.9%.

Residential Service Classifications l

The Company proposes increases in facilities charges and energy charges for all rate blocks, except the winter season tail block, of its Service Classifications 1 and 2.

Other proposals include modification of the availability provision of Service Classification 1 and withdrawal of o

Service Classification 3, " Energy Management Residential Service".

The Company has also proposed a new Service Classifi-cation 4, " Time-of-Day Residential Service" which has a facilities charge higher than those in other residential I

rates,=and Ir;orporetes energy charges which vary by time of use.

The Company ststes that it is proposing this rate to get firsthand experience with residential customer reaction to a time-of-day rate. For administrative reasons, the Company desires to restrict this rate to the first 5,000 applicants.

Service classification 4 is proposed to have energy charges during peak periods approximately 3 to 3.7 times higher than its off-peak energy charges. The Company states, in effect, that these charges will provide customers with an i

incentive to shift usage from peak to off-peak periods without unduly burdening customers unable to alter their usage sufficiently. The company's proposal required a i

customer to remain subject to the rate for a minimum period l

of cne year.

The Electric Engineering Staff proposed no changes to Service Classifications 1 and 2.

However as to Company 4

proposed Service classification 4, Staff suggested modifying i

the peak /off-peak hours. Such modification results in a 4

slight change in the energy charges to Service Classifi-cation 4.

Staff also proposed that a provision be added to Service Classification 4, allowing customers who elect to go 1

on Service Classification 4 an opportunity to withdraw from i

the rate at any time if they pay a special service charge.

N-

]

The concern of the Staff pertains to the mandatory one-year i

79-0071 W

stay on the rate which could create a hardship on customers who either misunderstood the rate or over-estimated their ability to shift usage to off-peak periods.

Electric Engineering Staff also proposed a new Resi-dential Service Classification entitled 4L.

Staff proposed Rate 4L is a mandatory time-of-day rate applicable to large residential customers whose average daily usage.during any of the four summer billing periods equaled or exceeded 150 KWH per day.

Staff testified that there were approximately 1,000 customers in this category during 1978.

In proposing Service Classification 4L the Staff noted in testimony that for these large residential customers the additional metering costs represent a small percentage of their bills, and the usage patterns of these customers seem to indicate a sizeable stock of appliances and electrical Staff proposed an implementation program for equipment.

these customers which included a 12-month period during which custamer bills would. show both time-of-day charges and Service Classification 2 charges. During that period cus-tomers would pay a charge no higher than rates contained in Service Classification 2 thereby providing a period of time to facilitate understanding of the rate.

The Company, in its rebuttal testimony, takes issue with proposed Service Classificatien 4L noting that a size-able portion of these large customers are farmers who may not be able to shift electrical usage related to farming equipment. The Company questioned the merits of Staff's proposal and the cost Justification for the expenditure of approximately S230.000 of additional expense required for more sophisticated metering. The Commission is of the opinion that the Cor.pany's position relative to proposed Service Classification 4L is correct and that Service Clas-sification 4L as proposed by Staff should not be implemented by the Company at th; s time.

The Commission is of the opinion that the peak /off-peak period as proposed by Staff should be implemented for Service Classification 4.

Customers electing to take service under this Classification should be allowed to withdraw from such rate at any time. However, if a customer chooses to with-draw from the rate during the first 12 months of service thereunder, the Company should be allowed to recover a meter-removal cost of $15 plus S3 a month for each month of the initial 12 month period the customer did not remain on Rate 4.

A witness testifying on behalf of Georgia Hampton et al. contended that additional metering costs, required by time-of-day rates for large use customera, including resi-dential customers, are not significant when compared to a customer's total bill and that rapid movement toward time-The of-day pricing for such customers should take place.

witness also asserted that Respondent's proposed residential winter energy charges, which decline, with usage and the proposed facilities, applicable to Residential ServiceSaid Classifications 1 and 2, charges are inappropriate.

testimony proposed a facilities charge of $2.22 per month for Service Classification 1 and 2.

The Commission, earlier in this Order addressed time-After considering of-day pricing for residential customers.the Residential Intervenor's other proposals, the Co is of the opinion that the Company's proposed rate structure for Service Classifications 1 and 2 is just and reasonable and should be adopted. Service Classification 3, an experi-mental energy management residential rate, has not proven to be cost effective because of low customer acceptance and should te withdrawn from Respondent's electric tariff.

79-0071 General service Classifications The Respondent proposed various changes to Service Classifications 10, 11 and 13.

Changes were also proposed in the availability provision of this rate.

Increases in the energy charges of each block were proposed for Service Classification 11.

In addition, the contract to be used to bill SeIvice Classification 11 cus-tomers was proposed based on maximum summer season demands.

A time-of-day metering option was also proposed to be added.

In addition an increase in the facilities charge was proposed for Service Classification 13.

Within Service Classification 13, the present energy charge applicable to non-controlled unmetered service was eliminated and replaced with a flat KWH charge.

i The Commission is of the opinion that the proposed rate

~

structure for the general service classifications is just and reasonable and should be adopted.

Industrial Service Classifications The Company proposed increases in demand and energy charges and the blocking of Service Classification 21.

The summer-winter demand charge differential is proposed to be replaced with a provision for the deteImination of billing demand only during on-peak hours in the saraer season. The Company proposes demand and energy charget.hich will differ according to the voltage level at which service is taken by the customer.

Regarding Service Classification 24, increases in the capacity reservation charges and energy charges were pro-

,t posed by the Company. The capacity reservation was proposed to be based on maximum demands measured during summer on-peak hours.

For Service Classification 30, a decrease in the initial

~

block of the capacity charge and an increase in the energy i

charges were proposed.

Industrial Intervenors once again introduced the testi-mony of a witness who prepared a cost of service study. The witness proposed that any rate increase granted to the Company be allocated in such a manner was to tend to equalize the rate of return earned by the Company for each class of customer.

The Commission adopts the language set forth on pago 3 of the Order entered April 8,1977, in Central Illinois Public Service Company, Docket No. 76-0304 in disposition of the Industrial Intervenors' position:

"The Commission has previously observed the importance of cost-of-service studies in rate proceedings and has indicated in other rate cases, and continues to be of the opinion, that there are many factors, other than cost of service, which properly should be taken into account in setting rates.

In Docket No. 58340, the Commission stated the following:

'The determination of just and reasonable rates is admittedly not an exact science but embodies managerial discretion, innovative regulation, and general acceptance by the public and the customer served.

Cost-of-service studies utilize the factual inform-s, ation of the past and cannot incorporate a

matters of public policy, social, industrial I $

79-0071 or potitical changes which will occur in the future. Cost analysis cannot establish the value of a utility service to a customer or a class of customers. Regardless of the method used, cost of service studies should be considered only as a guide.'

The Commission also reiterates that there are many acceptable methods of developing cost-of-service studies, no one of which can be said to be free of predisposition or arbitrariness or eliminates the need for judgement with respect to questions of public policy and economics."

Such studies as are now provided by Illinois Power, are an important input into proper rate design if rates are to meet the test of fairness and reasonableness.

Industrial Intervenors also claim that Respondent has proposed increases in the energy charge portion of large power rates in excess of what is needed to recover variable costs. They recommend that any rate increase to Rates 21 and 24 be allocated solely to the demand charge portion.

Electric Engineering Staff testified that time-of-day energy charges should be implemented for Service Classifi-cations 21 and 24.

Staff contended that the Company's Long Run Incremental Cost Study (Staff Exhibit 2.3) shows a marked variation in energy costs between off-peak and peak periods during the day.

Staff proposed this rate to be filed within 90 days after the Commission's order in this case to allow for certain administrative and data require-ments.

The Company in rebuttal did not take exception to Staf f's proposal but requested the extension of the filing l

requirement until July 1, 1980.

The Commission is of the opinion that Respondent, as proposed by Staff should be required to design and file redesigned rates applicable in Service Classification 21 and 24 having energy charges which vary by time of day on or before July 1, 1980; such rates should not produce revenues in excess of that allowed by virtue of this Order for Ser-Vice Classification 21 and 24.

Pending the implementation of redesigned rates for Service Classifications 21 ano 24, this Commission is of the opinion that the rate structures proposed by Respondent for Service Classification 21 and 24 is Just and reasonable.

Lighting Service Classification Respondent proposes increases in all charges for incan-descent area lighting and for certain mercury vapor area lighting under Service Classification 39.

Increases were also proposed for various lighting charges in Service Classi-fication 45.

Municipal Service Classifications The Company proposes a facilities charge of $2.00 per month per delivery point and revised energy charges for Service Classifications 41 and 42.

The Company in addition proposes increasing the deduction from energy charges related to the contract discount frcm 0.33C per KWH to 1.14C per KWH.

Electric Engineering Staff took exception to the pro-posed increases to municipal service classifications, especially the proposed contract term discount.

ll c,

79-0071 Staff testified that it is inappropriate to include C*

franchise provisions in the rate schedule, and that the contract discount should be eliminated. Staff also testi-fied that some franchise agreements include provisions for a certain amount of energy to be provided free of charge. The Company in rebuttal noted that elimination of the contract term discount would result in a 25.6% increase instead of the 17.9% increase requested for rate 41 customers.

The Commission is of the opinion that Staff's proposal would unreasonably impact municipal customers and should therefor not be implemented at this time.

The Commission is of the opinion that the practice of providing municipalities with free or discounted electricity or gas in recognition of franchise considerations may be inappropriate and discriminatory. The Commission is of the opinion that the Company should review its practice of offering free or discounted electricity or gas in return for franchise considerations.

Proposed Rider Revisions Respondent proposes to withdraw Rider K, the off-peak rider to Service Classifications 21 and 24.

Respondent proposes to incorporate such off-peak provisions into those specific service classification rates. The Commission approves the proposed charges to Service Classifications 21 and 24.

Conclusion Except as otherwise provided herein, the Company should be required to file new electric rate schedules, incorpo-j-

rating the changes directed herein by the Commission and otherwise conforming in all respects with the " Filed Tariff Schedule Sheets" filed January 9, 1979, applicable to elec-tric service. The Commission is of the opinion that the increase in electric operating revenues, allowed by virtue 4

I of'this Order, be applied to the various customer classes in the manner proposed by Respondent.

Under electric rates allowed to become effective by virtue of this Order residential customers of Illinois Power Company will still enjoy reliable electric service at rates which are comparable to or lower than residential rates of any other privately owned public utility providing service in Illinois.

Gas Rate Schedules Proposed Gas Rate Increase The proposed gas rates, filed by Illinois Power Company in -this case, will produce approximately $22,600,000 of additional annual operating revenues or an increase of 7.9%

based on therm sales for the year 1980. The estimated revenue increase based on 1978 sales data is about S19,969,000 or 9.3%.

Cost of Service Study Illinois Power Company submitted a fully-allocated, embedded-cost cost-of-service study based on 1977 data to determine the rates of return currently being earned for each of the Company's existing customer classes. The gas cost of service study was considered but was not the. sole basis used to determine the relative percentage increases to be assigned the various rate classifications.

s. -

7

e 79-0071 Cas Rate Structure - Present and Proposed The Company has proposed in this proceeding two major changes to its gas rate structures: (1) rate schedules containing a facilities charge designed to recover fixed costs which do not vary with consumption; and (2) rate schedules containing a flat commodity charge designed to recover the cost of gas purchased from its pipeline sup-pliers, plus certain unrecovered variable costs. The Com-pany's proposed rate design would eliminate the monthly minimum charge and the declining block commodity charge from its present rate schedules. In addition, the Company pro-posed a new method for calculating and applying the pro-visions of its Rider R which will be covered in another section of this order. The Company's objective in devel-oping its new rate schedules was to: (1) minimize future revenue deficiencies, and (2) recover 1980 revenue require-ments.

PROPOSED RATE REVISIONE Residential Service Classifications The Company proposes to replace Service Classification 50 with Service Classification 51 - Residential Gas Service.

The charges for the proposed rate classification would be a

$9.25 per month facilities charge and a 17.240 per therm commodity charge. Customers taking service under this rate would receive Rider R refunds.

A new Service Classification 55, available only to residential non-space heating customers, is also being proposed. This rate has a commodity charge of 17.24C per therm and a facilities charge of 55.45 per month until December 31, 1980; S7.35 per month until December 31, 1981; and S9.25 per month thereafter. Customers taking service under this rate would also receive the benefits of Rider R refunds.

General Gas and targe Volume Gas Service Classifications The Company proposes to replace Service Classifications 60 and 65 with Service Classifications 63, General Gas Service, and 66, Large Volume Gas Service. Service Classi-fication 63 would be available to any customer whose peak month consumption is no more than 15,000 therms, while Service classification 66 would be for any customer whose consumption (a) has exceeded 15,000 therms in any month and (b) is subject to the base period volume provisions in the Company's Rules, Regulations and Conditions Applying to Gas Service.

Service Classification 63 was proposed to have a facil-itles charge of $11.40 per month and a commodity charge of 19.18C per therm. Customers taking service under this rate would receive Rider R refunds.

Service Classification 66 was proposed to have a facil-ities charge of $300 per month and a commodity charge of 17.240 per therm.

The Company had proposed to replace the present demand charge and annual minimum charge provisions of Service Classification 69 with a block demand charge of S90,000 per billing period for the first 30,000 therms of daily contract capacity, and $2.58 per billing period for each therm of daily contract capacity in excess of 30,000 therms. The proposed demand charge would include payment for the first 18 therms concumed in each billing period per therm of daily contract capacity. A Commodity charge of 16.95C per therm has also been proposed for this service classification.

l i

79-0071 rg During the proceedings, A. E. Staley Manufacturing

(

)

Company objected to the monthly load factor rate form pro-posed by Illinois Power Company. Illinois Power reviewed the rate and agreed to amend its proposal during rebuttal by adding a new provision so that each December, an annual load factor credit be determined for each customer. This credit would be approximately equal to the commodity charge of 16.95C per therm for each therm previously billed in excess of a 60% annual load factor. The Commission is of the opinion that the latter proposals of the Company is just and reasonable and should be implemented.

Interruptible Service Classification The Company proposes to replace the minimum charge and block commodity charges of Service classification 75 with a facilities charge of $500 per month and a commodity charge of 16.95C per therm, and to increase the charge for storage field gas to 21.53C per therm.

Seasonal Gas Service Classification The Company proposes to replace the minimum charge and block commodity charges of Service Classification 85 with a commodity charge of 17.240 per therm and a facilities charge of $500 per month during the seven month summer season. The facilities charge would not apply to any extension of the summer season.

Revisions to Rider R The Company proposes a new Rider R under which excess revenues would be determined as revenues received from Service Classification 79 customers less the revenues which es would have been received for the same consumption had those

(

)

customers been billed at the rates proposed in Service A/

Classification 75.

Estimated excess revenues, forecasted each November for the upcoming calendar year and adjusted for any over-or under-refund during the preceding twelve months, would be refunded on a levelized monthly basis during the upcoming year as a credit to the facilities charges under Service Classifications 51, 55 and 63.

In addition, the balance in the "Special Fund" would be refunded as a $0.50 per month credit against the facilities charges due under Service Classifications 51, 55 and 63, until exhausted. Until such time as the facilities charge under Service Classification 51 or the "Special Fund" is exhausted, the company would recover the difference in the facilities charge froni the "Special Fund".

After the "Special Fund" is exhausted, the Company would recover any difference between these facilities charges from Service Classification 79 excess revenues.

Cas Engineering Section Position The Gas Engineering Section submitted testimony in this proceeding which did not dispute the Company's basic rate objectives. However, the Gas Staff is of the opinion that the proposed rate forms would fall short of certain desired goals, namely the revenue stability within residential service classifications and customer acceptability criteria in rate design. Illinois Power Company's proposed commodity charge is based upon the Company's highest incremental cost of gas under its winter service contract with Natural Gas Pipeline Company of America for the 1978-79 heating season.

The amount of gas purchased by the Company under the winter service rate is approximately 9,000,000 therms which repre-sents roughly 1% of the total sales of the Company for eg calendar year 1978. The Gas Staff estimated that, of the

(

)

Company's total gas sales, approximately 60% is represented x'

by space heating sales. In calculating its total revenue

_g_

79-0071 requirement, the Company, by using the highest priced gas,

.s also spreading the recovery of certain fixed costs (oper-ation and maintenance expense) to its commodity charge which, under a mild weather season, could crea*e a revenue deficiency. Conversely, under an abnormally cold weather season, a revenue excess could be developed for recidential services.

The Staff witness also testified that the proposed facilities charge for lesidential service would not be accepted by the general public, especially Icw-use customers and space heating customers during the non-space heating peliods. The proposed rates could incur a high degree of adverse custc.ner reaction because no commodity is associated or included in the facilities charge.

If the Company pro-posed charges are accepted as filed, Illinois Power will have the highest facilities charge of any 111inois utility.

The Commission is of the opinion that a proper return on Illinois Power's investment, in addition to stabilizing revenue, customer bills and providing customer acceptability, can be accomplished by a restructuring of the present declining block rate structure.

The Commission is of the opinion that the rate design proposed by the Gas Engineering Staff clearly demonstrates that a revision of the existing declining block structure will accomplish the same objectives as proposed by Respond-

-n* as well as meet other rate considerations, i.e.,

public acceptability.

The Commission is of the opinion that a facilities charge of $3.75, applicable to all residential customers and a facilities charge of $4.62 applicable to general service customers is just and reasonable. The balance of any remaining fixed costs associated with making gas service available to residential and general service customers should be properly incorporated in the initial blocks in the manner shown by the rates for service classifications 51 and 63 set forth in Appendix A, attached hereto and incorporated as a part of this order.

The Commission is of the opinion that Service Classifi-cation 55, applicable to non-residential space heating customer is no longer required inasmuch as all residential customers will be served under Service Classification 51.

Except as otherwise herein provided the Company should be required to file new gas rate senedules conferming to the provisions of this Order and incorporating the rates set forth in Appendix A and otherwise conforming in all respects with the Filed Tariff Schedule Sheets filed January 9, 1979 applicable to rates for gas service; provided that the revenues produced by all rates do not exceed the gas oper-ating revenues allowed by this order on a pro forma basis.

Rules, Regulations and Conditions Applying to Gas and Electric Service General The Company proposed various modifications and revi-sions to its Rules, Regulations and Conditions applying to Electric and Gas Service (" Rules").

Ill.C.C. No. 24 was filed to replace the Company's existing Rules, Regulations and Conditions applying to Electric Service, Ill.C.C. No.

20, Ill.C.C. No. 26 was filed to leplace the Company's existinc Rules, Regulations and Conditions applying to Gas Service, Ill.C.C. No. 22.

The proposed Rules include many revisions that are intended to clarify, simplify and reor-ganize the exising Rules, Regulations and Conditions.

79-0071 On March 13, 1979 Illinois Power filed Rules, Regula-

[%

tions and Conditions applying to Electric and Gas Service, (s /

Ill.C.C. Nos. 19, 20, 21 and 22 to comply with the provi-sions of General Order 172, Second Revised. On April 3, 1979, Illinois Power filed a petition requesting the with-drawal of certain sheets filed on March 13, 1979, and replacing them with revised sheets. On April 11, 1979, the Commission allowed the proposals to become effective along with the withdrawal and replacement of various sheets as requested. Illinois Power should provide in its gas rod electric lules all of the provisions approved by the Com-mission on April 11, 1979, regarding compliance with General Order 172, Second Revised.

A new provision (Subsection 2.392) has been added in recognition of Public Act 80-1454 concerning the investi-gation of high bill complaints. The reconnection charges specified for gas and ele tric service in Subsections 2.61 and 2.62 for reconnection at the meter have been revised to

$8.00 during regular working hours and $16.00 outside regular working hours. Subsections 2.61 and 2.62 have also been amended to specify that a customer whose service is discon-nected and reconnected must pay applicable fixed charges for the period of disconnection. Subsection 2.62 has been further revised to provide that a customer disconnected for non-payment of past due bills is responsible for the actual costs of disconnection and reconnection if effected other than at the meter; and Subsection 2.64 has been amended to provide that the one annual waiver of reconnection charges applies only to reconnection at the meter.

The amended rules provide that a customer whose service i

has been disconnected and reconnected within a one year period must pay all applicable fixed charges (facilities charges) for the period of disconnection.

O

\\,/

The Company's witness, on cross-examination, indicated that additional revenues to be received from implementing these rule changes would be minimal and in fact, less than 100 customers could be affected. The Commission is of the opinion that the adoption of such rules would merely serve to aggravate a customer (s) and not resolve a major revenue deficiency problem. The Commission is of the opinion that Respondent's proposed Subsections 2.61 and 2.62 should not be implemented in either gas or electric rules.

Electric Service Staff testimony was presented requesting that the term

" Excess Cost" as used throughout the electric Rules, be de fined. In Exhibit 7.21, a company witness responded to this request with proposed additions to Subsections 3.12, 3.21(d), 4.42(b) and 6.14.

These additions state the

" utility shall upon request and before performing any work involving excess cost for which Customer may be charged, submit to Customer a summary of the charges and obtain Customer's agreement to pay such charges. Such charges shall cover only the cost of facilities required to serve Customer". These additions are acceptable as a definition of " Excess Cost" and should be required to be included in the Rules, subsequently filed by Illinois Power.

Illinois Power Company's present Subsection 6.32(a) 4 provides for the utility to install the first 100 feet of single phase underground service, as measuled from the applicant's property line, at no charge. Any excess length is charged to the applicant at a rate of 70 cents per foot.

Subsection 6.54 provides for the utility to charge an appli-cant' for three phase underground service the cost differ-("'j ence between overhead and underground service less an amount

(/

equal to Ib times the applicant's estimated annual revenue. 4

,e

,,e n-~-

r

79-0071 IP's proposed Subsection 6.3 does not separate single phase and three phase underground service. The length of service installed at no Charge to applicant under the pro-posed provisions, is set at 70 feet, as measured from appli-cant's property line. The current cost of the excess length over 70 feet will be charged to the applicant in lieu of the 70 cent charge per foot now in use for single phase under-ground services.

Staff testimony supported retention of the 100 feet 1.imit en underground service at no charge to the applicant; the Conmission is of the opinion that Respondent has not adequately supported the need far the reduction to 70 feet and rejects such proposal.

While it appears to be true that 100 amp and 200 amp services have different costs, the difference is not large enough to be given considerable weight. Keeping in mind that the existing charge is 70 cents per foot for single phase service, the Commission is of the opinion that a charge of $1.40 per foot in excess of the 100 foot allowance should be implemented Tbr single phase service. For three phase service, the commission is of the opinion the cost should be based on the current underground costs when the length is in excess of the 100 foot allowance.

In response to testimony from the Commission Staff, Illinois Power presented a change to its Subsection 6.21(a) for underground distribution to less than four contiguous lots. The revision provided for a refundable deposit to be returned to the original depositor on a Pro Rata basis if a new applicant receives service trom a portion or all of the existing underground line for which the original depositor has provided a deposit. The Pro Rata refund made to the original depositor would be supplied by the new applicant.

The Commission does not agree with this proposal because the new applicant is receiving service from an existing line and should not be required to make a deposit for the use of the line. Illinois Power should reconsider its proposal and investigate other methods of refunding an ep ropriate por-tion of the deposit to the original depositor, without directly charging new applicantc. The company should file Subsection 6.21(a) consistent with the original proposal and investigate other methods in cooperation with the Commis-sion's Electric Engineering and Rate Section.

Gas Service Illinois Power Company proposed numerous revisions to its Rules, Regulations and Conditions Applying to Gas Ser-vice. Many of the proposed changes have been made in order to simplify and clarify the Company's gas rules. The r=jor changes in gas rules are hereinafter discus;ed.

Changes have been made in the Rules concerning the amount of service pipe (Section 3) and nain extension (Section 4) which the Company will provide free of charge.

The maximum amount of free main extension has been changed from 200 feet to 100 feet for space heating applicants and 50 feet for non-space heating applicants.

A new subsection 5.73 has been added tt cover the rental of faci.ities to customers. A new ctbparagraph has been added to subsection 6.51 to clarify that developers may transfer permits for gas servi;e among premises within a subdivision, but not to premises outside the subdivision for which the permits were issued.

The amended rule affecting Subsection 3.11 (main and service extensions) provides for a reduction in the length of free main extension for applicants from: (1) the 200 79-0071 O. -

feet specified in Rule 21(a) of General Order 159, and (2) use annual net revenue rather than annual revenue as the method for determining free extension limits to serve non-residential customers.

For residential space heating customers, the maximum amount of free main extension has been changed from 200 from to 100 feet and 50. feet for non-space heating customers.

Non-residential customers will receive 100 feet or a free main extension and service pipe, and have a total cost of no more than 5 times their annual net revenue.

[

The Commission is of the opinion that Respondents amended main extension rules should not be adopted for the following reasons: (1) If the 200 feet of free main exten-sion as specified in General Order 159 is no longer cost-justified for Illinois Power Company, a change should be considered to to all gas utilities, and (2) Although exemp-tions or deviations are permitted under General Order 159, the Commission is of the opinion that extensions of utility's distribution facilities are a matter of Commission policy and therefore, should also be reviewed in a generic proceeding with all gas utilities participating and not on a case-by-case basis.

Conclusion Except as otherwise provided herein, the Commission is of the opinion that the Company's proposed changes in gas and electric Rules, Regulations and Conditions of Service relating thereto s' auld be approved. Respondent should be directed to file with this commission new gas and electric Rules, Regulations and Conditions of Service similar in provision to those " Filed Tariff Schedule Sheets" filed O

' January 9, 1979, including the changes thereto approved by virtue of this Order.

TEST YEAR Witnesses testifying on behalf of Respondent provided for this record, substantial reliable evidence concerning the budgeting.and forecasting procedures utilized for esti-mating operating results and original cost rate base of the Company at given points in time through DecemDer 31, 1982, and the effect of certain operating results on various financial indicators considered by the financial community in making investment decisions.

Company witnesses suggested that the Commission use a forecast test year ended December 31, 1980, for rate making purposes in this case.

- During the rubuttal stage of this proceeding, Respond-ent updatec the forecast operating results for the proposed test yest ended December 31, 1980, utilizing actual operating data for the first 6 months of 1979, as well as updating other forecast test year periods.

A Staff member of the Accounts and Finance Section of i

the Commission testified that a letter dated November 29, 1977, (Staff Exhibit 4.1), and mailed to all utilities by a former Chairman of the Commission, mandated, in effect, the Staff's use of a test-year which would be the latest caler-dar year for which year-end data was available either at the time new rates were filed or within three months thereaf ter.

i On the basis of the letter, Staff recuested and the ex-aminer directed that Respondent submit a filing utilizing f}

actual operating data for the year ended December 31, 1978,

(,j adjusted for known changes which have occurred during the

-calendar year or known change which may have occurred prior to the entry of an order in this cause. -

t-a 7

g

,a v.--

se# 3 + -...

.<wrwp

--y-,.,,y9-.,,

.,_.,e,,

ver-,.e

.-,-.eer,e--,,.,

c.*,--

.n r~.--,y w

~.-

79-0071 Rule making action has not been taken by the Commission which would foreclose the right of a utility to propose a forecast test year period or a historical test year period other than year end.

In the instant case, the Commission adopts the reason-ing contained in the letter dated November 29, 1977 (Staff Exhibit 4.1), as justification in part for utilizing a test year ended December 31, 1978, as the appropriate test year for rate making purposes.

The Conmirsion, however, has examined all accounting data, forecast, actual and historical, filed in this cause in the determination of the issue in chts case. The fore-cast data submitted by the Company was subjected to thorough cross-examination and is reasonably indicative of the future for many purposes.

The Commission is of the opinion that a properly ad-justed and normalized historical test year ended December 31, 1978, is the appropriate test year for rate making purposes in this cace.

ORIGINAL COST RATE BASE (ELECTRIC)

Utilizing December 31, 1978, br. lance sheet accounts, shown by the Form 21 Annual Report of Illinois Power Company to this Commiss;on filed on or before March 31, 1979, Respond-ent derived an electric utility eriginal cost rate base, before adjustment, consisting of the following components:

ORIGINAL COST RATE BASE BEFORE ADJUSTMENTS ELECTRIC UT1',ITY DECEMBER 31, 1 778 Particularc Amounts Plant in Service

$1,445,524,315 Less: Reserve for Depreciation 427,252,645 Net Plant in Service S1,018,271,670 Additions:

Land and Land Rights Held for Future Use 15,601,511 Construction Work in Progress which Does not Include an Allowance for Funds Used During Construction 485,332 Materials and Supplies Exclus:ve of Merchandise 15,186,713 Electric Fuel 52, 959,649 Subtotal S1,102,504,875 Deductions:

Accumulated Provision for Delerred inccme Taxes 110,371,434 Contributions in Aid of Construction 8,230,411 Customer Advances for Construction 1,226,907 original Cost Rate Base S 982,676,123 (IP EXflIBIT 9.14)

In arriving at an original cost rate base for its electric utility, the company proposed an adjustment for the raduction in rates of the Federal Inco;u-rax which became effective January 1, 1979.

The adjustment tedeced the accumulated provision for deferred income taxes and in-creased electric rate base by S835,069.

Respondent also proposed an annualization of its Havana Unit. Number 6, which was placed in service during June of 197o The annualiza-7 79-0071 tion included an addition of $2,545,410 to the depreciation

-CsI reserve for the pro forma depreciation expense on Havana Unit Number 6 for the period January through June of 1978.

This adjustment also reduced the accumulated provision for deferred income taxes by $1,126,029, as the Company actually used a full year's depreciation for income tax purposes while recording approximately six months' depreciation on its books. The provision for deferred income taxes was further reduced by $287,648 for overheads capitalized during the period January 1 through June 21, 1978, which the Com-pany contends it would have expensed on its books. The Com-pany proposed the inclusion of $240,000,000 of construction work in progress in its electric rate base to increase its cash flow and assure that its financing needs can be met.

After making the foregoing :Jjustments, the Company

~

suggested use of an electric utility original cost rate base of S1,222,379,459, as shown by I.P. Exhibit 9.14 and 9.15.

~

A staff member of the Accounts and Finance Section of the Commission proposed certain adjustments to Respondents suggested electric utility rate base identified in Staff Exhibit 6.3 Revised.

Land and Land Rights Held for Future Use in the amount of $3,348,234 were deducted from rate base as -these parcels of land would not be in service within ten years from the end of the test year 1978, a time span used by this Commis-sion in past dockets. The Commission is of the opinion that it is fair and reasonable to exclude from rate base for ratemaking purposes amounts representing land and land rights held for future use inasmuch as an estimated in-service date beyond 10 years would be extremely speculative.

The Staff witness proposed that the coal component of O

electric fuel, which was the company's year-end balance, be equated to a 70 day supply based on average daily burn allowance at all plants, except' Havana and Hennepin, for which it recommended a 90 day average daily burn for the three winter months due to freezing conditions on the rivers on which coal is shipped by barge. Staff computation of 70 and.90 day supply based on average daily burns were based on the Company's 1979 fuel budget. Staf f recommended the use of its computation of average daily burn figures based on the Company's 1979 fuel budget because this removed the effects of the 1978 coal strike and included a full year of operation for the Havana Unit Number 6.

Staff's adjustment to the coal component of electric fuel inventory reduced the Company's rate base by $10,237,153.

The Staff witness also proposed that the fuel oil at the Havana and Wood River plants be equated to a 70 day supply bcsed on average daily burn as computed from the company's 1979 fuel budget. The staff proposed ad3ustment reduced the electric fuel and rate base by $1,772,847.

An adjustment was made.to remove land at the generating stations which was not used by the Company for utility operations. The land at certain plants was being farmed or rented to other parties. The Staff recommended that

$2,424,248 of such land be ramoved from plant in service.

The Staff witness also recommended that the leased appliances and the related reserve for depreciation should be eliminated from the plant in service. Staff contended that as the leasing of appliances was not subject to Commis-sion regulation, that the cost of the appliances be removed j-from rate base. The cost of the appliances was $1,160,862,

-~g while the related depreciation reserve was $6,489.

% >l

?

l I

i,

79-0071 The inclusion of the $240,000,000 of construction work in progress (CWIP) was eliminated by Staff to segregate that issue. An accounting staff member submitted a separate exhibit showing the impact on revenues and operating income due to the inclusion of various amounts of construction work in progress at varying rates of return on rate base. Other staff testimony suggested that CWIP should not be allowed as a component of the electric original cost rate base for rate making purposes.

Staff proposed to reverse the Company's adjustment to the provision for deferred income taxes based on the facts that pro forma adjustments do not alter the actual defer-rals, do not generate cash flow, and do not conform to the necessary underlying criteria for a valid rate base deduc-tion. Staff proposed that the $1,413,677 and $835,069 be restored to the accumulated provision for deferred taxes associated with the Havana Unit Number 6.

Staf f's reversal of the Company adjustment to the 6epreciation reserve for Havana Unit No. 6 was prompted by the same logic advanced for the accumulated provision for deferred income taxes. The Staff adjustment increased rate base by $2,545,410.

The accounting Staff witness also proposed an adjust-ment modifying the depreciation reserve in the amount of

$454,575, which for rate base purposes is in recognition of the depreciation accruals on contributed property at Decem-ber 31, 1978 which have not been reccvered through the rates since depreciation expense on contributed property was dis-allowed as a recoverTble operating expense in Docket 76-0435.

Staff's proposed adjusted rate base consisted of the following components:

CRIGINAL COST RATE BASE AS ADJUSTED EY STAFF ELECTRIC UTILITY AT DECEMBER 31, 1978 Particulars Amount Plant in Service

$1,441,939,205 Less: Reserve for Depreciation (426,791,581)

Net Plant in Service S1,015,147,624 Additions:

Land and Land Rights Held for Futurc Ute 12,253,277 Construction Work in Progress which Does not Include an Allowance for Funds Used During Construction 485,332 Materials and Supplies Exclusive of Merchandise 15,186,713 Electric Fuel 40,949,649 Deductions:

Accumulated Provision for Deferred Income Taxes (110,371,434)

Contributions in Aid of Construction (8,230,411)

Customer Advances for Construction (1,226,907)

Original Cost Rate Base t 964,193,843 Intervenors, Citizens for a Better Environment (CBE) proposed reductions in electric rate base totating

$255,023,888 and consisted of: removal of all Land Held for Future Use, $15,127,511; removal of construction work in progress; $240,000,000; and an addition to rate base of

$103,623 for merchandising, Lobbing and contract work inven-O

.t>

g

1. ++<%>,$< #4 b

'4

,. eE Ev <eA1,em TEST TARGET (MT-3) l.0 552 E4 W M B=u m as

=

l,l 5 D IN l.8 1.25 1.4 1.6 e.,

MICROCOPY RESOLUTION TEST CHART 4#ll4R >,f Q+:h4 4%

3-w<>

o i.

m

_x.

,m..

4 (4

(>.

'4$f TEST TARGET (MT-3) 1.0 l#HEHM y y EE I.i L'n llilM 11 j'I.25jli2_

i.6 4

6"

=

MICROCOPY RESOLUTION TEST CHART hpV 61

&;+;p+

siy

r 1

79-0071 tories. The Intervenors proposed an adjusted rate base of m

S967,355,571.

7 In rebuttal testimony, Respondent accepted for rate-making purposes the foregoing Staff adjustments relating to:

(1) exclusion from rate base of land held for future use in the amount of S3,348,234: (2) exclusion of leased appliances and the related reserve for depreciation in the amount of

$1,160,862 and $6,489 respectively; (3) reductions of the reserve for depreciation in the amount of $2,545,410 for the Havana Unit Number 6 annuclization and $454,575 for depre-ciation on contributed property which the Commission dis-allowed in Docket 76-0435; (4) increases in the accumulated provisions for deferred inccme taxes in the amount of

$1,413,677 for the Havana Unit Number 6 annualization of depreciation and expensing of certain capitalized overheads; and (5) $835,069 due to the reduction in federal income tax rates.

The Company opposed Staff's adjustment which removed rented land from in service plant sites.

The Company also prepared an adjustment which included a reinstatement of the

$2,424,248 of land and the associated revenues and expenses.

Respondent proposed that the coal inventories be increased to allow a 90 average daily burn at the Havana and Hennepin Stations for a 5 month period as opposed to Staff's adjust-ment which reflected a 90 day average burn for only 3 months.

Along with the increased coal quantity the company proposed that the weighted average cost per books at June 30, 1979 be used. A Company witness testified that this was a known change in price which should be incorporated into rate base.

Respondent also proposed that the oil inventory quanti-ties be established at the December 31, 1978 level and priced at the Company's weighted average price at June 30, 1979.

[D A Company witness testified that Staff's oil allow-

\\_ /

ance based on average daily burn was inappropriate, as the Company used the oil for peaking or cycling purposes or to provide necessary generation in case of an outage at a coal-fueled unit. The witness contended the Staff 70 day allowance at average daily burn for the Havana and Wood River units would only be sufficient to operate these units for ab,ut 15 days and 11 days respectively, at maximum daily turn lates.

The Company's suggested electric original cost rate base for the test year ended December 31, 1978 (with the inclusion of $240,000,000 of Clinton I construction work in progress) was $1,211,487,515 as shown on IP Exhibit 1.44, page 4.

The Commission, after reviewing the entire record of this proceeding is of the opinion that certain acreage at the Vermillon Power Station, in the amcunt of $477,112 should be excluded from Respcndent's plant in service. The remaining aereage at other power plant stations is currently being used by the Respondent for utility purposes, and is properly includable as a component in arriving at an original cost rate base. The coal inventory quantitles proposed by staff are lessonable and should be included as a component of rate base for rate making purposes. The pricing of coal inventory quantities, using the June 30, 1979 costs proposed by the Reupondent, is a known change, and should be accepted as an adjustment. The coal quantity recommended by staff, priced at tne June 30, 1979, weighted average cost would add Sl.207,522 to the fuel inventory component. Staff's recom-mendation for oil inventory quantities is inappropriate in that the company uses its oil fired units on an emergency basis, whereas Staff's recommendation, based on an average 7-s daily Duin, would be appropriate for base loaded units. The i

4 Q,/

79-0071 December 31, 1978, oil quantities priced at Respondent's June 30, 1979 weighted average costs should be included as a component of rate base thereby increasing the rate base by

$3,290,046 as proposed by Staff.

The Commission is of the opinion that $97,063,855, representing a portion of the Company's total construction work in progress at December 31, 1978, should be included as a component of the electric utility rate base for ratemaking purposes in this case; justification for this determination is based upon reasoning hereinafter stated.

5 Af ter incorporating the foregoing adjustments, the Com-mission is of the opinion that the original cost rate base of the Respondent's electric utility at December 31, 1978 consists of the following compenents:

Original Cost Rate Bate Electric Utility At December 31, 1978 Particulars Amount Plant in Service S1,443,886,341 Less: Reserve for Depreciation (426,791,581)

Net Plant in Service 51,017,094,760 Additions:

Land and Land Rights Held for Future Use 12,253,277 Construction Work in Progress Which Does Not Include an Allowance for Funds Used During Construction 485,332 Construction Work in Progress Which No Future Allowance for Funds Used During Construction Will be Charged 97,063,855 Materials and Supplies Exclusive of Mer-chandise 15,186,713 Electric Fuel 45,447,217 Deductions:

Accumulated Provision for Deferred Income Taxes (110,371,434)

Contributions in Aid of Construction

( 8,230,411)

Customer Advances for Corstruction

(

1,226,907)

Original Cost Rate-Base

$1,067,702,402 ELECTRIC UTILITY OPERATING REVENUES, EXPENSES AND INCOME Respondent utilized actual operating data for the year ended December 31, 1978, which appears in the Form 21 Annual Report to this Commission, at the request of Staff, as the basis for an adjusted 1978 test year; actual operating data is summarized as followt:

.m 79-0071 ELECTRIC UTILITY OPERATING RESULTS w

ACTUAL i

TWELVE MONTHS ENDED DECEMBER 31, 1978 I

?

Particulars Aaount

. Operating Revenues-

$452,207,186 i

Operating Expenses:

Fuel for Electric Plants

'207,082,512 Power Purchased for Resale 5,505,011 Power Interchanged - Net (47,077,437)

Operation and Maintenance Expense 79,886,305 Depreciation and Amortization Expense 43,316,250 Taxes other Than Income Taxes 38,661,130 v

Federal Income Taxes - Current 2,124,924

~

State Income Taxes - Current 2,166,636 Provision for Deferred Income Taxes 22,446,953 s

Income Taxes Deferred in Prior Years (3,115,182) i Investment Tax Credit Deferced - Net 21,579,105 Total Operating Expense

- t 5372,576,207 Operating Income S 79,630,979 The Company proposed adjustments which reduced its operating expenses for membership dues and fees in civic clubs (S2,565), and the cost of analysis of proposed legis-lation and certain public information costs ($18,149). The operating expenses were increased for the merchandising activities (revenues less expenses of $50,173) which is corollary to the Company's exclusion of merchandise inven-i.

tory from rate base. The income taxes were reduced by

$15,000 for the above adjustment.

The Company adjusted its Federal Income Tax to reflect 1

the reduction in rates from 48% to 46%. This adjustment in-creased operating income by $1,576,696.

Tne Company's proposed annualization for its Havana

. Unit Number 6 reduced operating revenues by $1,078,000 for reduced fuel clause revenues, increased fuel expense by S2,322,000,. decreased power interchanged by $4,862,000 for greater interchange sales and reduced interchange purchases, decreased operation and maintenance expense by $458,819, depreciation and amortization expense were increased by

$2,545,410, taxes other than income taxes were increased by.

$611,275 for additional real estate taxes, Federal and State l

Income Taxes were reduced by $1,487,123, for'a total in-j crease of $251,257 to operating income.

The Cor ;any also annualized a rate increase for its electric cooperative customers. The adjustment increased operating income by $1,003,104.

I Alcng with the inclusion of the $240,000,000 of con-struction work in progress, the Company included the reduced Federal and State Income Tax associated with the deduction of interest expense as a corponent used to calculate income taxes. Tnts adjustment increased operating income by

$3,640,215.

The Corapany also proposed an adjustment of its opur-atton and maintenance expense to 1980 levels. The adjustment was based on the operation and maintenance expense per kilowatt-hour projected for 1990 multiplied by the 1978 kilowatt-hours sold. The impact of this adjustment was to decrease operating income by S2,489,200.

p-

..a L l w

n

-. g m,

-en m,,..w-.m.--.nw mn

,, -,-, m-g

,m, e -

79-0071 The electric operating results as presented by the Com-pany at present rates pro forma were shown to be substantially as follows:

ELECTRIC UTILITY OPERATING RESULTS PROFORMA PRESENT RATES TWELVE MONTHS ENDED DECEMBER 31, 1978 Particulars Amount Operating Revenues S 453,064,186 Operating Expenses:

Fuel for Electric Plants 209,404,512 Power Purchased for Resale 5,505,011 Power Interchanged - Net (51,939,437)

Operation and Maintenance Expense 84,258,732 Depreciation and Amortization Expense 45,861,660 Taxes Other Tian Income Taxes 39,272,405 Federal Income Taxes - Current (3,301,854)

State Income Taxes - Current 1,742,525 Provision for Deferred Income Taxes 20,198,207 Income Taxes Deferred in Prior Years (3,115,182)

Investment Tax Credit Deferred - Net 21,579,105 Total Operating Expenses S 369,465,594 Operating Income

$ 83,598,59[

(IP Exhibit 9.15)

The Accounts and Finance Section of the Commission proposei adjustments to operating revenues for the Company's annualization of its Havana Unit Number 6 which included

$367,000 of additional revenue through collections of the fuel clause adjustment for the period July through December 1978 and a reduction of $827,000 in fuel clause revenues due to a greater displacement of oil fired generation by the coal fired Havana Unit Number 6.

Staff also reduced oper-ating revenues by $1,765 for the revenues received from Land Held for Future Use which Staff excluded from sate base:

$164,353 for lental revenues from various in-service plant acreage excluded from rate base, $125,296 of revenues from leased appliances excluded by Staff from rate base and S9,909,854 for the 2% add-on Illinois Public Utility Tax and the various municipal utility taxes. Staff's removal of the 2% add-on Illinois Public Utility Tax and the various municipal utility taxes was proposed for the reason that these taxes would not be embodied in the rates approved by this Commis-sion.

The Staf f Adjustment which removed various municipal taxes from revenues, also reduced taxes other than income taxes, and state and fedelal income taxes. The adjustment to remove the 2% add-on tax reduced taxes other than income taxes, but had no effect on federal or state income taxes.

1 Staff proposed to reduce fuel for electric plants by S1,490,000 for the reduction in oil fired generation by the annualization of the coal fired Havana Unit Number 6.

Staff also reduced fuel for electric plants cy S1,933,182 for the coal shortage at the baldwin plant which was applicable to 1977.

Staff proposed to increase power interchanged-net by

$89,000 and to increase operation and maintenance expense by

$7,000 as an additional part of its computation of the an-nualization of the Havana Unit Number 6.

O F

79-0071 Staf f proposed several additional adjustments to the O

company's pro forma operation and maintenance expense.

(,,)s Staf f. disagreed with Company's pro forma adjustment in the amount of $4,801,697, which restated the operation and maintenance costs on a kilowatt-hour basis to 1980 levels.

Staff contended that the Company was mixing 1980 expenses with 1978 revenues. Staff proposed to normalize the Ice storm damage experienced by the company in March and Decem-ber of 1978, as a recoverable cost over a three year period.

Staff's adjustment for the ice storm reduced operation and maintenance expense by $2,856,898, or two-thirds of the actual expense of $4,285,347.

Staff proposed to eliminate

$55,050 of expenses associated with in service plant sites which were used for non-utility purposes and $104,582 of expenses associated with the leased appliances. Both the plant sites and the leased appliances were excluded by Staff from electric rate base.

A Staff member of the Electric Section proposed that operation and maintenance expense be reduced by $125,687 for advertising which was felt to be goodwill or image building advertising.

Staff disallowed depreciation expense of $296,777 on contributed property as a recoverable expense. The Commis-sion disallowed depreciation on contributed property in the Company's last rate case, Docket 76-0435.

Additional Staff adjustments to taxes other than income taxes reduced this expense by: $7,230 for real estate taxes 4

on tand Held for Future Use; and $15,918 for real estate tay.es on in-service plant sites used for non-utility func-tions.

Staff proposed that interest expense on long-term debt

("%

be annualized at year-end levels. The additional interest

()

on long-term debt applicable to electric rate base reduced state and federal income taxes by $121 and $1,339 respec-tively. Staff summarized the state and federal income tax 4

effects of their adjustments on Staff Exhibit 5.16.

Along with Staff's adjustment removing construction work in progress from rate base, Staff also removed the related state and federal income tax effects of the interest expense related to the CWIP.

Staff's adjustment decreased operating income by $3,640,215.

A Staff member of the Accounts and Finance sponsored Staff Exhibit 5.7 which listed the revenue requirement, utility taxes (excluding the 2% add-on and various municipal utility taxes), income taxes and operating income associated with the inclusion of various amounts of CWIP included as a component of the electric rate base. Staff also proposed that with the annualization of the Havana Unit Number 6, the Company should amortize a full year of investment tax credit; this adjustment reduced income taxes by $572,890.

i The Staff-adjusted electric utility operating income statement under present rates, appeared substantially as follows:

O) l i

x_ _ _ _ _ _ _

79-0071 ELECTRIC UTILITY OPERATING INCOME STATEMENT PRESENT RATES TEST YEAR ENDED DECEMBER 31, 1978 Particulars Amount Operating Revenue

$442,402,919 Fuel for Electric Plants 205,981,330 Power Purchased for Resale 5,505,011 Power Interchanged - Net (52,028,437)

Operation and Maintenance Expense 76,321,818 Depreciation and Amortization Expense 45,564,883 Taxes Other Than Income Taxes 29,463,398 Federal Income Taxes - Current 4,659,485 State Income Taxes - Current 2,463,660 Provision for Deferred Income Taxes 20,485,855 Income Taxes Deferred in Prior Years (3,115,182)

Investment Tax Credit 21,006,215 Total Operating Expenses

$356,308,036 Operating Income S 86,094,883 Citizens for a Better Environment (CBE) proposed nu-merous adjustments to decrease operation and maintenance expense which consistea of: A reversal of Respondent's adjustment for merchandising income, membership dues and fees in civic clubs, and the cost of analysis of proposed legislation and certain public information costs totaling S29,459; reversal of Respondent's adjustment to operation and maintenance to 1980 costs per kilowatt-hour in the amount of $4,801,697; reduction of March and December ice storm damage expenses in the amount of S3,893,124; removal of all advertising applicable to electric in the amount of

$358,249; removal of $84,322 of charitable contributions, with the allocation based on revenues between electric and gas; social and service organization dues and fees in the amount of $2,565; removal of legislative and public inform-ation expenses in the amount of $18,149; (these adjustments were already included in CBE's adjustment for merchandising activities); removal of trade and industry association dues in the amount of $83,785.

The effect on state and federal income taxes due to adjustments was shown on CBE Exhibit 9.4 Revised.

CBE's adjusted operating income was $83,598,592.

The rate of return on rate base using CBE's developed rate base and operating income was 8.64%.

CBE's accounting witness recommended a rate of return of 9.39% on its rate base. This would require an increase in operating income of

$7,236,096.

The Commission is of the opinion that the adjustments proposed by CBE in arriving at Respondents electric oper-ating income under present rates for the test year are not in all respects acceptable for ratemaking purposes.

During the rebuttal stage of this proceeding, the Respondent accepted the following staff proposed adjust-ments: Removal of revenues and expenses associated with leased appliances; reduction of expense for the depreciation on contributed property; reduction of fuel expense for the Baldwin coal shortage applicable to 1977; reduction of 79-0071 operation and maintenance expense for the March and December ice storms; removal of the 2% add-on public utility tax and

'the various municipal utility taxes; annualized interest allocations for all additions and deductions to rate base; and, the annual amortization of unamortized investment tax credit associated with Havana Unit #6.

The Company opposed:

part of Staff's reduction of operation and maintenance expense due to disallowed advertising expense in the amount of $18,572; reduction of operation and maintenance expense to adjusted 1978 levels; staff's annualization of the Havana Unit #6, and removal of revenues and expenses associated with the rental of plant site land.

The Respondent proposed to increase operation and maintenance expense by $9,198,447 to give effect to known wage, pension and other increases through 1980 and incre.se taxes other than income taxes by 5709,635 for known char.ges in the employer's Federal Insurance Contribution Act (FICA) 1 contribution through l!80. The Respondent's rebuttal testi-mony, concerning the annualization of Havana Unit #6, increased income before income taxes by $456,000 from its initial testimony, which was $656,000 less income before ir..ome taxes than proposed by staff in staff's Exhibit 4.2.

Scaff during surrebuttal suggested that equalizing the coal quantities at various generating stations, the Company could have produced adalitional generation from coal at the Havana Unit #6 during tne coal strike. Staff's surrebuttal testi-mony showed less-operating income than Staff;s original testimony by $6C,435.

The Company proposed that the interest annualization include a July, 1979 bond issuance which would reduce federal and state income taxes. The new state tax on invested capital and the new state income tax rate which became effective July 1, 1979, were also annualized as an expense

{

item - for test year purposes.

l The Company's electric operating income statement, without construction work in progress, was shown on Illinois Power Company Exhibit 1.44, page 4 Column 30.

Pro Forma ouerating income under present rates was calculated to be

$70,426,602 for the test year.

1 The Commission having examined the complete record in this proceeding is of the opinion that known changes which the Respondent can quantify should be incorporated in deter-mining the proforma operating income under present rates, and that the new state tax on invested capital should be substituted for the discontinued tax on capital stock and personal property, as should the effective state income tax i

rate. The increase in wage rates, pensions and employer's F.I.C.A. contributions which have accrued and will accrue during the calendar year 1980 and prior years should be i

included as adjustments in arriving at electric operating income. Other increased operation and maintenance expenses were sufficiently identified by Respondent to justify 4

inclusion as an annualized expense for ratemaking purposes.

l The Commission is or the opinion that advertising expense of $18,572 should be reinstated as an operating expense, such amount being a portion of advertising expense allowed by this order representing advertising directed to conservation of. energy or safety information deemed reason-able and in the public interest.

i The Commission is also of the opinion that $149,481 should be included in operating revenues and $97,824 should i

ce included as an operating expense in arriving at operating income for ratemaking purposes. The difference of such

-( }

amounts represents income from leased land used and useful 79-0071 in the Company's operations. Such amounts represent the revenues and expenses associated with all power plant sites except the Vermillion Power Plant.

The Commission is of the opinion that the adjustment suggested by Staff Exhibit 4.0, modified by Staff on surre-buttal, is appropriate. Operating income, therefore, should be increased by S60,435 being the difference between Company and Staff proposed annualization of Havana Unit 6.

For ratemaking purposes, the ef fect of the interest allocation on an annualized basis resulting from Respondent's July 1979 issuance of long term debt should be included in the computation of income taxes. Such annualized interest allocation is proper in that the portion of rate base fi-nanced by debt should receive an appropriate part of the income tax deductability of interest.

The Commission is of the opinion that the foregoing adjustments result in the appropriate pro forma electric operating results of the company under present rates. The components of such operating results are as follows:

Electric Operating Income Statemant Test Year Ended December 31, 1978 Particulars Amount Operating Revenues

.$443,249,400 Fuel for Electric Plants 5205,981,330 Power Purchased for Resale 5,505,011 Power Interchanged - Net (52,028,437)

Operation and Maintenance Expense 86,398,865 Depreciation and Amortization Expense

.45,564,883 Taxes Other Than Income Taxes 32,072,575 Federal Income Taxes - Current (4,065,548)

State Income Taxes - Current 2,900,584 Provision for Deferrcl Income Taxes 20,485,855 Income Taxes Deferred in Prior Years (3,115,182) l Investment Tax Credit Deferred - Net 21,006,215 Total Operating Expenses 360,706,151 Operating Income S 82,543,294 For electric operations, the resulting rate of return on the rate base approved herein for rate making purposes under prestit rates for the test year ended December 31, i

1978, exclu ling consideration of the net adjustment for non-jurisdi tional allocation hereinafter determined appro-priate, wou.d be 7.73%.

The Commission is of the opinion that such amount of operating income and resultant rate of return are inade-I quate, unfair and unreasonable and the existing tariff containing rates which produce such operating results and rates of return is not in all respects fair, just and rea-sonable in that it does not produce a fair and reasonable return to Respondent on its investment in plant together with the recovery of operating costs of electric service furnished to customers. Such existing tariff and certain rates contained therein should therefore be permanently cancelled and annulled ef fective at sucn time a.s filed rate schedule sheets approved herein are filed with this commis-sion and made applicable to the Company's service area.

GRIGINAL COST RATE EISE _{ PAS)

Utilizing December 31, 1978 balance sheet accounts, shown by the Form 21 Annual Report of Illinois Power Company to this Commission filed on or before March 31, 1979, Re-79-0071 4

spondent derived a gas utility original cost rate base, L

before adjustment, consisting of the following components:

O ORIGINAL COST RATE BASE BEFORE ADJUSTMO3TS~

CAS UTILITY DECEMBER 31, 1978 Particular Amount original Cost of Plant in Service

$307,787,408 Less: Reserve for Depreciation 79,968,003 Net Plant in Service S227,819,398 Additions:

Land and Land Rights Held for Future Use 55,250 Construction Work in Progress which Does not Include an Allowance for Funds Used During Construction 619,698 Investment in IP Gas Supply Company 3,982,597 Materials and Sup" lies Exclusive of Merchandise 1,869,020 Gas and Propane in Storage 23,593,920 Subtotal S257,939,883 Deductions:

Accumulated Provision for Deferred Income Taxes 20,435,857 Contributions in Aid of Construction 4,229,301 Customer Advances for Construction 1,482,048 Original Cost Rate Base S231,792,677 The Respondent. proposed an adjustment for reduction in rates of the Federal Income Tax which became effective January 1, 1979. The adjustment reduced the accumulated provision for deferred income taxes and increased gas rate base by $92,885. The weather normalization of gas utility O~

cperations, proposed by the Company, reduced rate base by S130,000 due to a decrease in the cost of gas in underground storage. Respondent also proposed an increase in accumulated provision for deferred income taxes which would decrease rate base in the amount of $1,155,000 representing Respond-

-ent's proposal to normalize the difference between straight-line book life and tax life differences used for calculating depreclation of gas utility plant assets.

After incorporating the foregoing adjustments, Respond-ent suggested use of a gas utility original cost rate base of $230,600,562 as shown by IP Exhibit 9.14 and 9.16.

Staff utilized Respondent's adjusted gas rate base as the basis for its proposed adjustments. Staff proposed that the leased appliances in the amount of S481,567, and the related depreciation reserve of $30,174 be excluded from Respondent's gas rate base. Staff advanced the argument that the leasing of appliances was not regulated by the Commission, and therefore should not be included in rate base. Staff also proposed to exclude land and land rights held for future use which exceeded an in-service use date of ten years from the end of the test year. The Commission is of the opinion that it is-fair and reasonable to exclude frca rate base for ratemaking purposes amounts representing i

land and 149d rights held for future use inasmuch as an j

estimated in-service date beyond 10 years would be specu-lative. This adjustment reduced rate base by $55,250.

The l

urevious order for Illinois Power Company excluded same land held for future use using the ten year period as a criterion.

Staf f added back to the rate base $162,146 for the depreci-l ation which had accumulated in the reserve account due to de-preciatioa on contributed property in recognition of depre-(

ciation accruals on contributed property at December 31 i

i

- - - - - - - - ' - ~

- ~ ~ ~ ' " ^ ~ ~ ' ' '

79-0071 1978, which have not been recovered through the rates'since depreciation on contributed propert:' was disallowed as a recoverable operating expense in Docket No. 76-0435.

Staff proposed to reverse the Company's adjustment to the provision for deferred income taxes based on the facts that pro forma adjustments do not alter the actual deferrals, do not generate cash flow, and do not conform to the neces-sary underl'ying criteria for a valid rate base adjustment.

Staf f proposed that the $92,885 be restored to the accumu-lated provision for deferred taxes.

Staff reduced the gas utility rate base by deducting from the same the deferred Rider R refund in the amount of

$4,572,951.

The Commission in Respondent's last rate case order, Doexet 76-0435, used the deferred Rider R refund as a rate base. deduction. Staff contended that the collections from Rate 79 customers which had not been refunded at December 31, 1978 could be presumed to be represented in plant addi-tions. Staff conceded that any overrefunds in the Rider R refund account should be offset against the deferred refund acccunt before the deferred account is deducted from rate base.

Staff's proposed adjusted rate base consisted of the following components:

Original Cost Rate Base As Adjusted by Staff Gas Utility At December 31, 1978 Particulars Amount Plant in Service

$307,305,834 Reserve for Depreciation (79,775,683)

Net Plant in Service 227,530,151 Additions:

Land and cand Rights Held for Future Use Construction Work in Progress which Does not include an Allowance for Funds Used During Construction 619,698 Investment in IP Gas Supply Company 3,962,597 Materials and Supplies Exclusive of Merchandise 1,869,020 Gas and Propane in Storage 23,463,920 Deductions:

Accumulated Provision for Deferred Income Taxes (21,590,857)

Contributions in Aid of Construction (4,229,301)

Customer Advances for Construction (1,482,048)

Deferred Rider R Refund (4,572,951)

Original Cost Rate Base

$225,590,229 In rebuttal testimony, despondent accepted for rate-making purposes the foregoing Staff adjustments relating to:

(1) exclusion from rate base of leased appliances and the related reserve for depreciation in the amount of $481,567 and $30.174 respectively; (2) exclusion of land held for future use, in the amount of $55,250; (3) a reduction in the reserve for depreciation in the amount of $162,146 for depreciation on contributed property; and, (4) an increase 79-0071 of $92,885 in the accumulated provision for deferred income

(

taxes.

The Company opposed Staff's adjustment which reduced rate base by $4,572,951 for the unrefunded deferred Rider R Refund Account. The tempany contended that this account would be refunded to ratepayers, and therefore should not be used as a rate base deduction.

Respondent proposed that the gas quantity in storage should be priced at the cost per books as of June 30, 1979.

A Company witness contended that this was a known change i

which should be incorporated into rate base. The change in price to June 30, 1979 would add $3,777,364 to rate base.

The Company's suggested original cost gas rate base for the test year. ended December 31, 1978, 1978 was'$233,940.544 as shown on I. P. Exhibit 1.45.

The Commissien, after reviewing the entire record, is of the opinion that the deferred Rider R balance of S4,095,761 should accure interest at an annual rate equal to the rate of return allowed herein for gas operations com-puted monthly on the unrefunded balance of the defetied Rider R special fund, commencing with interest computed on the date of this Order. The Commission is of the opinion that the special fund, including interest as specified, should be refunded by deducting equal amounts each month for 12 months from each bill issued under Service Classifi-cations 51 and 63.

The Special Fund should no longer be deducted from rate base for ratemaking purposes.

The Commission agrees with the Respondent's position of incorporating a known change in the repricing of the gas O

quantities in storage to June 30, 1979. Such adjustment increases the rate base by $3,777,364.

Af ter incorporating the foregoing adjustments, the Commission is of the opinion that the original cost rate j

base at December 31, 1978 is $233,940,544 and consists of the following components:

Original cost Rate Base J

Gas Utility at December 31, 1978 Particulars Amount Plant in Service

$307,305,834 Less: Reserve for Depreciation (79,775,683)

Net Plant in Service

$227,530,151 Additions:

Construction Work in Progress which does not include an allowance for funds used during construction 619,698 Investment in I.P. Gas Supply company 3,982,587 i

Materials and Supplies, exclusive of Merchandise 1,869,020 j

Gas and Propane in Storage 27,241,284 Deductions:

Accumulated Provision for Deferred Income Taxes (21,590,857)

Contributions in Aid of Construction

( 4,229,301)

Customer Advances for Construction

( 1,482.048)

Original Cost Rate Base S233,940,544 4,

79-0071 Gas Utility Operating Revenues, Expenses and Income l

Respondent utilized actual operating data for the year ended December 31, 1978, which appears in the Form 21 Annual Report to this Commission, at the request of Staff, as the basis for an adjusted 1978 test year. Actual operating data is summarized as follows:

Gas Utility Operating Results Actual Twelve Months Ended December 31, 1978 Particulars Amount Operating Revenues

$219,807,071 Operating Expenses:

Gas Purchased for Resale 145,485,762 Operation and Maintenance Expense 24,530,387 Depreciation and Amortization Expense 8,252,577 Taxes Other Than Income Taxes 15,663,925 Federal Income Taxes - Current 4,687,000 State Income Taxes - Current 530,000 Provision for Deferred Income Taxes 1,730,027 Income Taxes Deferred in Prior Years (577,932)

Investment Tax Credit Deferred - Net 1,214,506 Total Operating Expenses 201,516,252 Operating Income

$ 18,290,819 The Company proposed the following adjustments to the operating income for 1978: reduction of operating expenses by $1,119 for membership dues and fees in civic clubs,

$10,253 for the cost of analysis of proposed legislation and certain public information costs, $16,390 for merchandising activities (revenues less expenses), resulting in a total reduction of $27,762.

The adjustment, net of income taxes increased operating income by $13,762.

The Company proposed an adjustment which reduced Federal income taxes - current, and the provision for deferred income taxes in the amounts of $244,036 and $92,885 respectively, resulting in an increased operating income of $336,921.

The Company proposed a weather normalization which reduced revenues by $7,506,000; gas purchased for resale by $3,338,000; taxes other than income taxes by $479,000; Federal income taxes by $1,629,000; and Etate income taxes - current by $148,000.

The net adjust-ment decreased operating income by S1,912,000.

Respondent proposed to increase the provision for deferred income taxes in the amount of $1,155,000, due to a norualization between straight-line book lives and tax lives used for calculating depreciation for the gas utility. This adjustment reduced operating income by said amount. Respondent also proposed an ad ustment to operation and maintenance expense based on J

the operation and maintenance expense per gas customer restated to 1980 cost levels The adjustment re duced oper-ating income by $2,249,769.

Aftet incorporating the above proposed adjustments, Respondent's operating results appeared as follows:

O 79-0071 Gas Utility Operating Results Pro Forma Present Rates Twelve Months aided December 31, 1978 Particulars Amount Operating Revenues

$ 212, 3 01, 0'.

?perating Expenses:

Gas Purchased for Resale 142,147,762 Operation and Maintenance Expense 28,842,457 Depreciation and Amortization Expense 8,252,577 Taxes Other Than Income Taxes 15,184,925 Federal Income taxes - Current 910,494 State Income Taxes - Current 209,407 Provision for Deferred Income Taxes 2,792,142 Income Taxes Deferred in Prior Years (577,932)

Investment Tax Credit Deferred - Net 1,214,506 Total Operating Expenses 198,976,338 Operating Income

$ 13,324,733 (IP Exhibit 9.16) 3 Staff proposed numerous adjustments to Respondent's ad-justed operating results. Revenues from leased appliances of $78,991 were removed from operating revenues as a corol-lary adjustment to Staff's removal of the cost of appliances from rate base. Staff also reduced operating revenues by

$5,539,304 for the 2% add-on Illinois Public Utility Taxes and the various municipal utility taxes, since these taxes will not be incorporated into the rates approved by this Commission.. Staff reversed Respondent's adjustment to increase operation and maintenance expense on a per customer basis, to 1980 cost levels. This adjustment reduced oper-sl ation and maintenance expense by $4,339,832.

Staff reduced operating expenses by $4,768 and depreciation expense by S30,174 for the expenses associated with leased appliances.

The Staff adjustment which removed various municipal taxes from revenues also' reduces taxes other than income taxes and state and federal income taxes. The adjustment to remove the 2% add-on tax reduced taxes other than income taxes, but had no effect on Federal or State income taxes.

Staff also reduced taxes other than income taxes by $601 for thc property taxes on Land Held for Future Use, which Staff removed from rate base. Staff reduced depreciation expense in the amount of $108,967 representing depreciation on contributed property.

4 Staff also proposed that interest expense on long-term dcot be annualized at year-end levels.. The additional interest or long-term debt applicable to gas rate base reduced State and Federal income taxes by S39,810 and

$439,504 respectivelf. Staff summarized the State and v deral income tax effect of their adjustments on Staff e

exhibit 5,22.

Staff's acjusted gas utility operating income statement j

under present rates, appeared as follows:

i l

1 l-i L -

-1

~.. -.. - -. -

79-0071 Gas Utility operating Income Statement Present Rates Test Year Ended December 31, 1978 Amount Particulars

$206,682,780 Operating Revenues Operating Expenses:

Gas Purchased for Resale

$142,147,762 Operation and Maintenance Expense 24,497,857 Depreciation and Amortization Expense 8,113,436 Taxes Other Than Income 9,745,788 Federal Income Taxes - Current 2,323,774 State Income Taxes - Current 337,421 Provision for Deferred Income Taxes 2,792,142 Income Taxes Deferred in Prior Years (577,932)

Investment Tax Credit Deferred - Net 1,214,506 Total Operating Expenses

$190,594,754 S 16,088,026 Operating Income In rebuttal testimony Respondent accepted the following staff adjustments: removal of revenues and expenses associated with leased appliances; reduction of expense for the depre-ciation on contributed property; removal of the 2% add-on public utility tax and the various municipal utility taxes; and the allocation of annualized interest on long-term debt.

Respondent opposed Staff's reduction of operation and maintenance expense to 1978 cost levels. In rebuttal, the company proposed to increase operation and maintensnce expense by $4,293,151 representing wage, pension and other unidentified increases through 1980. The company also proposed to increase taxes other than income taxes by

$224,096 for the known changes in the employer's F.I.C.A.

contribution through 1980. The company prepared an interest allocation for its additions to rate base, and also proposed an interest allocation based on its latest long-term debt issuance of July,1979.

The new state tax on invested capital and the new effective state income tax rate which become effective July 1, 1979, were also annualized as an expense item for test year purposes.

The Company's gas operating income statement, was shown on Illinois Power Company Exhibit 1.45, page 3, column 23.

Pro forma operating income under present ra+es was cal-culated to be $13,858,749 for the test year.

The Commission, is of the opinion that known changes which the Respondent can quantify should be incorporated in determining the pro forma operating income under present rates and as also of the opinion that the new state tax on invested capital should be substituted for the discontinued tax on capital stock and personal property, as should the effective state income tax. The increase in wage rates, pensions and employer's F.I.C.A. contribution which have occurred or will occur during the calendar year 1980 should also be included as adjustments in arriving at gas operating income. Other increased ooeration and maintenance expenses 79-0071 were sufficiently identified by Respondent to justify in-O clusion as an annualized operating expense for ratemaking purposes.

For ratemaking purposes, the effect of the interest allocation on an annualized basis resulting from Respond-ent's July 1979 issuance of long term debt should be included in the computation of income taxes. Such annual-ized interest allocation is proper in that the portion of rate base financed by debt should receive an appropriate part of the income tax deductability of interest.

The Commission -is of the opinion that the foregoing adjustments result in the appropriate pro forma gas oper-ating results of the company under present rates for rate i

making purposes. The components of gas operating results are as follows:

Gas Utility Operating Incoce Statement 4

Pro Forma Present Rates Test Year Ended December 31, 1978 Particulars Amount i

Operating Revenues

$206,682,780 i

Gas Purchased for Resale 142,147,762 Operation and Maintenance Expense 28,791,008 Depreciation and Amortization Expense 8,113,436 Taxes Other Than Inccme 10,613,045 Federal Income Taxes - Current (613,715) i State Income Taxes - Current 123,590 Provision for Deferred Income Tates 2,792,142 Income Taxes Deferred in Prior Years

( 577.932)

Investment Tax Credit Net 1,214,506

()

Total Operating Expenses

$192,603,842 Operating Income

$ 14,078,93t For gas operations the resulting rate of return on the rate base approved herein for rate making purposes under present rates for the test year ended December 31, 1978 would be 6.02%.

The Commission is of the opinion that such amount of operating income and resultant rate of return are inadequate unfair and unreasonable, and the existing tari ff containing rates which produce such operating results and rates of return is not in all respects fair, just and rea-sonable in that it does not produce a fair and reasonable return to Respondent on its investment in plant togethet-with the recovery of operating costs of gas service fur-nished to customers. Such existing. tariff and certain rates contained therein should therefore be permanently cancelled and annulled effective at such time as filed rate schedule i

sheets approved herein are filed with this Commission and are made applicable ' to the Company's service area.

Combined gas and electric Illinois operating results for the Company under present rates pro forma for the test year ended December 31, 1978, would be as follows:

4 k

e i

p 4

I

-31 r

,o,w,.

,y m

79-0071 Combined Operations Pro Forma Present Rates Test Year Ended December 31, 1978 (5000 Omitted)

Particulars Amount Operating Revenues (1)

$649,932 Operating Expenses (2) 553,309 Operating Income S 96,823 (1) Excluding consideration of a net adjustment for non-jurisdictional allocation hereinafter determined appro-priate.

(2) Includes Federal and State Income Tax computations at 1979 rates and annualization of taxes on invested capital.

The resulting rates of return on the original cost rate bases approved herein for ratemaking purposes under present rates for the test year ended December 31, 1978 would be:

Item Rates Gas Operations 6.02%

Electric Operations (1) 7.73%

Combined Operations 7.42%

(1) Excluding consideration of a not adjustment for non-jurisdictional allocation hereinafter determined appro-priate.

The Commission is of the opinion that such amounts of operating income and resultant rates of return are inade-O quate, unfair and unreasonable and that the existing tariff W

containing rates which wculd produce such operating results and rates of return is not in all respects fair, just and reasonable in that such rates do rot produce a fair and reasonable return to Respondent on its investment in plant together with the recovery of operating costs of providing electric and gas service to Illinois customers.

Certain portions of the existing tariff s'd certain rates contlined therein should therefore, be permanently cancelled and annulled when rates allowed to become effective by virtue of this Order become effective.

If the late schedule sheets file. January 9, 1979, were incorporated into the tariff applicar ts Illinois cas-tomers, assuming the appropriateness c. the Company's ad-justments to 1978 actual operating data as indicated by IP Exhibits 1.44 Page 4 of 4 and Exhibit 1.15. Page 3 of 3 Respondent's pro forma test year operating results would be as follows:

Combined Operations S000 Omitted Electric Gas Combined Operations Operations Operations Operating Revenues (1)

$512,244 S226.652

$739,095 Operating Expenses (2) 395,122 201,631 596,753 Operating Income S117,322 6 25,021 5142,343 (1) Excluding consideration of a net adjustment for ron-jurisdictional allocation hereinaftel cetermined appro-priate.

(2) Includes Federal and State Income Tax computations at 1979 rates and annualization of taxes en :nvested capital.

79-0071 f"T-Operating electric income of $117,322,000 and gas

• f operating income of $25.021,000 and a combined operating income of $142,343,000 would result in the following rates of return on the respective original cost rate bases approved l'

herein:

Combined operations i

' Pro Forma Proposed Rates j'

Test Year Ended December 31, 1978 q

Description Return Gas Operations 10.70%

Electric Operations (1) 10.99%

Combined Operations.(2) 10.94%

y (1) Excluding consideration of a net adjustment for non-jurisdictional allocation hereinafter determined appro-g priate.

(2) Includes Federal and State Income Tax computations at 1978 rates and annualization of taxes on Invested capital.

4 The Commission is of the opinion that such amounts of 4

operating income and the resultant returns on the respective original cost rate bases approved herein for rate making purposes would be excessive, unfair and unteasonabic and the filed rate schedule sheets proposed by Respondent's January 9, 1979, filing which would produce such operating results are therefore unreasonable and unjust and the same shoubt be permanently cancelled and annulled.

s ELECTRIC NON-JURISDIOTIONAL ALLOCATION 1 ()

The Respondent in. :s filed exhibits and testimony did i

not present a non-jurisd.ctional allocation for its whole-sale v '. ass of customers which is regulated by the Federal Energy hegulatory Commission (FERC) for the 1978 test year.

1 The cost of Service Study, (IP Exhibit 6.2), which was for the twelve month period ended December 31, 1977, indicated a rate of return of 6.93% on assets dedicated to non-Jurisdic-tional sales. However, Respondent did include a Pro Forma Adjustment to electric operating income (IP Exhibit 1.37) in the amount of $1,003,104 representing the rate increase, recently granted by FERC to the wholesale cl. as of cus-tomers. Sales to the wholesale class of customers repre-sented about 5% of total electric sales for the test year ended December 31, 1978.

During cross examination Staff sought to determine the rate of return earned on the wholesale class of customers.

Staff Cross Examination Exhibit Number 8, prepared by Respondent at the request of Staff, indicated an estimated rate of return on assets dedicated to the wholesale class of customers of 8.93%.

The Commission is of the opinion that Respondent should be required to perform a cost of service study in all future electric rate increase requests which will enable the Commis-sion to properly remove non-jurisdictional operations for rate making purposes. Such a study will ensare that the rate of return allowed in each case will apply only to that property used and usef in rendering service to the juris-dictional customers.

The Commission is of the opinion that, based upon the

- estimated wholesale cost of servic, study provided by Re-spondent (Staff Cross-Examination Exhibit No. 8), $668,000 should be removed from the electric revenue requirement of i%

79-0071 the Company for test year purposes. Such amount represents k

a reasonable estimate of the revenue requirements which should be derived from Respondent's non-jurisdictienal electric operations.

The Company should be required to prepare and file rate schedule sheets incorporating the rates contained in Appendix A, attached hereto, and complying with the other terms and provisions of this order, which when combined with the remainder of the tariff of Respondent applicable to gas and electric service will produce electric operating revenues of

$45,683.255 and gas operating revenues of $16,926,606, which amounts exclude the 2% add-on utility tax.

The Commission is of the opinion that such rates will reasonably enable the company to achieve the following operating results:

Utility Cperations

($000 Omitted)

Gas Clectric Combined Particulars Operations Operations Operations Operating Revenues

$223,609 S488,933 S712,542 Operating Expenses (1) 201,268 384,101 585,369 Operating Income S 22,341 S104,832 S127,173 (1) Includes Federal and State Income Tax computations at 1979 rates and annualization of taxes on Invested capital.

The commission is of the epinion that Illinois Power could be expected to attain the following rates of return on the original cost rate bases approved herein:

Rate of Particulars Return Cas Operations 9.55%

Electric Operations 9.85%

Combined Operations 9.80%

Contrary to the testimor.y of the Company witness, the Commission is of the opinion that a higt.er return is required from Respondent's electric operations then flom its gas operations due to the company's current ecastruction of electric generating facilities. By comparison, only a small amount of Respondent's requ11ed financing is required for its gas utility. The Company's existing minimal cost flow and retained earnings position is due in large part to its electric construction program rather than being related to its gas utility operating and construction lequirements.

The foregoing rates of return on the respective gas and electric original cost rate bases and an overall rat. of return of 9.80% on Company's combined gas and electric original cost rate base of S1,301,642,946 approved herein are fair and reasonable in the opinion of the Commission.

Fair Value On October 15, 1979, the Company filed replacement cost evidence with the Commission contending that such evidence was a conservative estimate o' reproduction cost and, there-fore, appropriate for use in catermining the " fair v.alue" of the Company's rate base.

Priol to the Illinois Supreme Court's decision in Union Electric, et el v. Commerce Commission et al, - TTI. 2d - (Oct. 2, 1979). 411 rate base 79-0071 I')

testimony in this record was directed toward an original

\\m/

cost rate base determination.'

In the instant case, this commission is of the opinion that the rates approved by virtue of this Order will produce a fair and reasonable rate of return on the respective gas and electric original cost rate base approved for ratemaking purposes.

In view of the fact that Petitions for rehearing before the Supreme Court of Illinois have been filed and are now pending decision by the Court and the fact-that a severely limited time for examination of the company's fair value testimony was available to the Staff as well as to inter-venors, this Commission is of the opinion that in this case an original cost determination should be made. The Commis-sion is of the opinion that the " original cost" method of rate-making better serves the public interest.

CLINTON NUCLEAR UNIT #1 CONSTRUCTION COSTS Unquestionably, the driving force for the requested electric rate increase is the Company's need to generate revenue to support the construction of Clinton Unit #1.

Illinois Power is the operating partner of the consortium building Clinton Unit #1 and is 80% owner of the unit. The Company has testified that, as of December 31, 1978, the ex-penses for the construction of Clinton Unit #1 are approxi-mately $500 million and that the final cost will be $1,286 billion when the plant is completed in December 1982.

Illinois Power, with a 1978 electric rate base of

$970,638,547, has had rd will continue to have difficulty

(~'

in financing this constraction project. The traditional method of financing cons.truction projects-coupled to the capitalization of inters:st and return to equity using AFUDC is particularly difficalt when the costs of the construction are near parity with the existing rate base of the company.

Need for CWIP in the Rate Base

[

A major issue of the proceeding was whether the Commis-sion should allow up to a maximum of $240 million of Con-struction Work in Progress (CWIP) in the Company's electric rate base. This would constitute approximately 25% of the Company's proposed electric rate base as of the end of 1978.

Testimony by Staff, intervenors and the Company contain much

(

discussion, both generically and as it relates to the spe-cific issues of these proceedings, favoring and opposing the

)

inclusion of CWIP in the rate base.

f The Company testified that its request to include CWIP i

in the rate base is the result of the construction of Clinton f

Unit #1.

The Company contended that, if the Commission re-jects this request, then the Company may have serious dif-l ficulties obtaining ad*quete funding of its construction program. The Company atu) testified that without the inclusion of CWIP their bond rating would probably fall which would increase the cost of debt on new issues of First Mortgage Bonds. (IP Exh. 9.1 - 9.20)

Furthermore, the company argues that the cost of capital on future construction expenditures would rise since the Company would be seriously limited in financing its con-struction program from the issuance of First Mortgage Bonds because of the projected coverage ratio, and retained earnings because of. deficient cash flow..The Company, as it argued, would. then need to depend more on equity funding to finance O'\\

its construction program. (IP Exh. 1.1 - 1.17) l

79-0071 In summary, the Company's position is that if the Ccm-lk mission refuses to allow the inclusion of up to $240 million of CWIP in the rate base, the Company at worst may not be Able to tc: row enough money to finance future constructicn, and at the very least, it would have to pay a higher return to investors. In either case, the Company argues, the rate-payers as well as the stockholders would suffer.

Staff cestimony pointed out that the issue of CWIP should be coupled with the cost control performance of the Company in the construction of Clinton Unit #1.

Staff testimony recommended that no CWIP should be allowed in the electric rate base since the Ccmpany's cost control per-formance is suspect. The Staff feels that c'..e necessary condition.or including CWIP in the rate brae is the display of good crat control performance by a uti'.ity.

The testimony and briefs of intervenors with the excep-tion of Staley, recommend that no CWIP be included in the rate base. The industrial intervenors, in their brief, argue that the projected financial condition of the Company does not warrant the allowance of CWIP.

They contend that the adverse repercussions, such as the issues relative to intergenerational equity and mismatching of revenue and expenses, are sufficient reasons for the commission to disallow any amount of CWIE in the rate base.

A CBE-sponsored witness, a Senior Energy Specialist from the California Public Utilities Commission, testified to the negative effects of the allowance of CWIP in the electric rate base. He stated CWIP would injure the rate-payers of the Company since the present value of the revenue requirements would be higher if a consumer discount rate of 17.66 percent, which he calculated, is used. Further, he noted that the inclusion of CWIP would create an intergener-ational equity problem and would reduce the incentive of the Company to control future costs of construction. (CBE Exh.

2.1)

Staff testimony also warned that allowing CWIP in the rate base would circumvent the role of regulatory lag in controlling future construction expenditures.

CBE, in its brief, argued that the Company does not need any CWIP in the rate base since there is lack of suffi-cient evidence that show the Company would experience financial difficulties without CWIP.

CBE also contended that the Commission must investigate the prudency and efficiency of the Company's construction program before allowing any CWIP in the rate base. CBE feels that the proceedings presented sufficient evidence of poor management by the company in the construction of Clinton Unit #1 to warrant the allowance of no CWIP.

A CBE witness alleged that the Company erred in con-structing a nuclear facility rather than a coal facility at the Clinton site.

He contended that it would have been cheaper for the Company to construct a coal facility. In summary, CBE argued that the Company acted unreasonably in both its decisions to construct a nuclear facility and in its management of the construction of the Clinton facility.

In addition, CBE argues the Ccmpany's claim of the need for CWIP because of the company's financial condition is unsup-ported by the evidence presented in these ploceedings, The Commission has long allowed property held for future use to be included in the rate base even though it was not expected to be put in use for some years. The Commission has also stated in other rate cases that CWIP may be as used and useful and to the benefit of the customer as property held for future use.

79-0071

,e~x The Commission views the investment of funds in CWIP as

)

used and useful to the benefit of the customer which may be N/

included as a component of the rate base when, pursuant to a certificate of convenience and necessity granted by the Commission for construction of such plant, the investment grows to a point where its significance is so great that it could impair financing. To what extent such investment, if any, should be included in the rate base for a particular public utility must, however, be determined by the specific circumstances in each rate proceeding and will be considered by the Commission on a case by case basis.

After review of the record in this proceeding, the Com-mission is of the opinion that the Company will require a portion of the CWIP requested in order for the Company to maintain an acceptable level of financial integrity. The exclusion of all CWIP from the rate base, from the evidence presented in this proceeding, could place the Company in a financial position that could cause a further delay in the completion of Clinton Unit #1, and thus magnify extreme fi-nancial problems which have a direct adverse effect on rate-payers and investors alike.

The Commission is also of the opinion that measuring the overall effect on ratepayers of allowing CWIP in the rate base is hindered by insufficient evidence on the deter-mination of the consumer discount rate; therefore, any deci-sion made by the Commissior, regarding CWIP carries with it an uncertainty as to the effect on the ratepayers. The only conclusion that can be made about CWIP is with regard to the consequences on the financial condition of the Company.

Historical Cost of Clinton Unit #1 Staff witnesses have noted that the cost overrun in

,~s

(

)

terms of S/KW for Clinton Unit #1 is approximately 200%,

Nm/

whereas for another nuclear unit in Illinois of identical vintage, cost escalation is 106%. In addition, intervenor witnesses have contended that the expenditures for Clinton Unit #1 were excessive and out of control. In the commis-sion's view, because the costs of Clinton Unit #1 are to a large degree responsible for the Company's need for the rate increase, an investigation of Clinton Unit #1 costs is mate-rial to this proceeding.

The capital cost of Clinton Unit #1 has been increasing since the Certificate of Public Convenience and Necessity was issued by this Commission on November 21, 1973. The tarious cost estimates presented by the company are sum-marized below.

% Change From Cost Previous Estimate Official Date Number Dollars Estimate Feb. 1, 1973 7092

$ 429,438,000 Sept. 13, 1974 7092-1 559,383,000 30.3 Aug. 18, 1975 7092-2 684,147,000 22.3 Aug. 15, 1976 7092-3 814,286,000 19.2 Sept. 27, 1977 7092-4 1,041,303,000 27.9 May 22, 1978 7092-5*

1,346,000,000 Oct. 1, 1978 7092-6 1,286,820,000 23.5

• Prepared by Sargent and Lundy at the request of Illinois Power but ultimately rejected by the Illinois Power Board of j

Directors. This is not an official Illinois Power estimate.

/~h V

l,

79-0071 The official Clinton Unit #1 cost estimates have been increasing at a compound rate in excess of 20% for the last six years despite an allowance for inflation in each cost estimate. This cost escalation is disturbing to the Com-mission, particularly when nuclear electric generation capacity of the same vintage is being constructed elsewhere in Illinois at a significantly lower cost in terms of dollars per kilowatt (S/KW).

However, numerous company executives have testified that after sli years of cost escalation in excess of 20% per year, the latest estimate of approximately $1.3 billion an accurate estimate of the final cost. The Commission finds it difficult to believe that the latest cost estimate for Clinton Unit #1 will be the ultimate cost of Clinton Unit

1. 1.

Therefore, the Commission is of the opinion that the company should within 60 days of the date of this order and annually thereafter submit a cost estimate for Clinton Unit

1. 1 using the method of the last official cost estimate 7092-6 noted in the previous table.

Staf f witnesses have contendea that the present cost estimate for Clinton Unit #1 is significantly higher than that of other Illinois n2 clear plants of identical vintage and designed by the same architect-engineer. It is staff's position that the key parameters in comparing Clinton on a S/KW basis to other nuclear units are start of construction date, in-service date, state and national regulatory climate during construction period and geographic Iccation. Staff recognizes technical differences between pressurized water reactors (PWR) and boiling water reactors (RWR), but also notes that extensive studies by the Nuclear Regulatory Com-mission and independent studies by architectural-engineering firms comparing coal and nuclear generation have consis-tently failed to identify capital cost diffelences on a $/KW basis between PWR's and BWR's.

Fu r the rmore, staff has noted that the Certificate of Public Convenience and Necessity cost estimates before this Commission for Clinton were higher than other plants of the same vintage, thus recog-nizing known factors such as the inexperience of Illinois Power, the construction of multiple units of the same design and differences in steam pressure.

The Company has testified that the cost differences between Clinton Unit #1 and other plants are due to the building of multiple units simultaneously compared to the time between completion dates of Clinton Units #1 & #2, the different accounting for certain expenses, different experi-ence levels, lower AFUDC rates, lower escalation rates and different designe The company has offered IP Exhibit 14.4 which compares the Clinton Unit #1 cost overrun to those of six BWR one-unit plants. All six plants are of different vintage, have a longer time period between date of original cost estimate to the date of the present costs, have been subject to longer delays, and are located in different states.

It appeals from the evidence that many of the reasons cited by the Company for the cost differences between Clinton and other plants in Illinois were known at the time of the original cost estimates and that the remaining differences are not sufficient to explain the difference between a 200%

cost overrun for Clinton Unit #1 and a 106% overrun for the Commonwealth Edison Byron Station.

Intervenor witness testimony has suggested that even at this stage of construction, coal may be a viable cost effec-tive option. The company countered with their own study presented by a company executive. The commission is of the opinion that uncertainties associated with each study over-79-0071 whelms the conclusions, therefore there exists insufficient

[~'}

information to alter existing construction plans.

clinton Unit #1 Cost Control Over a dozen witnesses in this proce2 ding commented on the company's ability te manage the expenditures of Clinton Unit #1.

In conjunction with this testimony, a motion to strike the testimony of one witness, for an in camera hear-ing and for a management audit were introduced.

A witness, formerly employed by Illinois Power, testi-fying on behalf of Intervenor CBE as a certified cost engi-neer, identified CBE Exhibits 4.0 through 4.9.

The witness contended that his responsibilities were to implement and maintain the Company's project control system which was in-tended to integrate cost and schedule inf>rmation for all facets of the Company's major construction projects, in-cluding the Clinton Power Station. The witness also claimed responsibility in other areas of the Company's major con-struction projects.

Upon cross-examination (TR. P. 4118) the counsel for Respondent inquired as to the qualification of the witness.

At the conclusion of cross-examination by counsel for Re-spondent, a motion was made to strike the witness' testimony and an objection made to the admissibility of exhibits spon-sored. The witness was cross-examined by other parties and staff counsel and redirect conducted by counsel for CBE.

Subsequently, an opportunity was provided to present argument on the motion of Respondent's counsel and the Exam-iner (TR. P. 4449) ruled on the motion. The Commission affirms the ruling of the Examiner since as was noted by the Examiner, although the witness was not qualified by education

("N or work experience to be permitted to testify as an " expert",

g,^,)

he was an employee of the Company engaged in duties relating tc the Clinton construction project and as such observed and participated in the preparation of many documents and other information eventually utilized by management personnel in the decision-making process.

Therefore, as ruled by the Examiner, a large portion of his testimony and the exhibits sponsored by this witness are relevant, material and competent. The Commission, there-fore, has given full consideration to the testimony and ex-hibits sponsored by this witness according such weight thereto deemed advisable.

On July 23, 1979, Prairie Alliance filed a Motion for an in camera hearing to receive evidence and a motion for a management audit of Clinton Power Station Unit #1.

On October 22, 1979, a motion for an investigation or inquiry to receive evidence, similar to the former was also filed by Prairie Alliance, which motion was properly taken with the case by the Examiner.

Sections 8, 15, 21, 60, 63 as we'l as other sections delegate to this Commission the authority to hold an in camera type inquiry or investigation as suggested by Prairie Alliance and to enter upon an inquiry, investigation or hearing into the management practices and costs incurred by a utility in the construction of plant to be utilized in providing service to the public.

The Commission has reviewed the ruling of the Examiner and the record relating to the motion for an in camera hearing and is of the opinion that the ruling properly disposed of the motion at the Examiner level. Furthermore,

[']I the Commission is of the opinion that the need for the a

79-0071 management audit must be considered in the context of other incentives for cost control. Therefore, the motion for a management audit is denied and the subject of a management audit will be considered in the separate inquir3 on incentives for cost control at Clinton which will be discussed in subsequent sections of this Order.

Extensive testimony was presented regarding the Com-pany's managerial approach in controlling the costs of the Clinton Unit #1 project. Embodied in the Company's ability to control costs is the accuracy of schedules and managerial technique.

Staff witnesses cited the lack of evidence regarding documentation of the decision procesc. lack of evidence of managerial accountability for cost and schedule performance, non-Clinton responsibilities of the IF Clinton Project Manager and the lack of cost-control incentives in Clinton construction contracts as contributing to cost escalation of Clinton Unit #1.

In addition, Staff questioned the selection of a general contractor for the project with no nuclear project management experience by a utility with no previous nuclear construction experience. (Staff Exh. 8.0 and 7.0)

Intervenor witnesses questioned the accuracy of the con-struction schedule citing several conflicting internal schedulce, one indicating that the project was 165 work days or 8 months behind schedule (TR. 6021) and past schedule slippages. In addition, the company's projected time from

" setting the pressure vessel" to " cold hydro" was challenged because the required activities have never been accomplished in the timeframe planned by anyone in the nuclear industry, much less a general contractor in his first role as a nuclear project manager. An intervenor witness testified that the Clinton Unit #1 schedule was 11\\ months less than the industry average (CBE Exh. 4.5 P. 2).

Furthermore, witness noted that the Nuclear Regulatory Commission submitted to Congress a report which estimated. fuel load date of July 1984 (CBE Exh. 4.0 P. 9) rather than April,1982, as the Company has contended. The central theme was how can IP, who has never met industry average times for construction tasks, now beat the industry averages.

Intervenor witncsses questioned the Company's ability to transfer information internally regarding Clinton Unit #1 costs and schedules. Also, the Conlany's Executive Vice Fresident and Project Manager were cross'-examined exten-sively on their knowledge of and utilization of computer-generated costs and scheduling reports. In general, Staff and intervenor witnesses challenged the effectiveness of the management practices employed at the Cliaton project Unit

1. 1.

In addition to the seven Company witnesses who offered rebuttal testimony regarding Clinton Unit #1 cost control, the Soyland Power Cooperative, representing the remaining 20% ownership of Clinton Unit #1, presented an expert witness from Gibbs and Hill who had been retained by soyland to study the Clinton project. -The Soyland witness stated the intent of the study was to visit the Clinton Nuclear Power Station and determine the status of the station's construction progress compared with the present construction schedule.

(Soyland Exh. 3 P.

1) He further Indicated that the request by Soyland Power Cooperative was initiated as a result of a statement made by the Nuclear Regulatory Commission following a recent visit to the plant to evaluate scheduled progress.

He continued the NRC had stated the plant was 14 months be-hind the present schedule and recommended that licensing hearings be delayed. (Soyland Exh. 3 P. 1) 79-0071 The Soyland witness concluded that there was a 95%

1

/-s) probability that the current "29 weeks late" schedule can be t,/

)

maintained if seven activities, such as no major engineering changes are made and delays are immediately recognized and counteracted. The witness made nn attempt to assess the probability of his caveats being actually realized. The witness also noted that a" improvement (50% confidence factor) in the present "29 weeks late" schedule can be made, if certain tasks were initiated.

The Company Project Manager and Director of Project Controls testified that the April 1982 fuel loading data is feasible and commercial operation will commence in December, 1982. The company offered a recovery schedule to make up the 165 days of negative float or the 8 months behind sened-ule.

A partner in the architectural-engineering firm of Sargent and Lundy described the cost-estimating progress for Clinton Unit #1.

He cited escalations due to inflation and schedule changes ($215,707,000), changes in scope

($268,653,000), changes in indirect expenses ($129,888,000) and changes in AFUDC ($242,734,000) as reasons for the cost increases at Clinton (IP Exh. 13.7).

Efforts to relate cost increases to specific events met with little success due to the highly aggregated numbers available. For example, the coct of specific design changes requested by IP, General Electric, the Nuclear Regulatory Commission or Sargent and Lundy could not be identified; only the numbers noted above were provided. The Sargent and Lundy expert testified that the BWR-6 with a Mark III containment ordered by IP was a new G.E. design conce;t which contained many unresolved issues. (IP Exh. 13.1, P. 9)

Unfortunately, no estimate of the cost of the resolu-

[f

)

tion of the design changes was made. The Sargent and Lundy x_

partner further stated that his firm did not of fer recommen-dations to rP regarding the selection of nuclear steam sup-ply vendors because it was not requested by IP to do so.

The company sponsored a witness, a partner in the firm of Theodore Barry and Associates, who analyzed the Clinton Project Control performance. The witness stated: " Theodore Barry & Associates was engaged to present testimony for in-clusion in this proceeding with a major focus on the manage-ment and organization, the contractual agreements, and the management systems, particularly project control systems, amployed in the management of Illinois Power Company's Clinton project."

(IP Ex. 15.1, P. 3)

The witness praised the Company for its overall manage-ment cf the Clinton project, particularly in the areas of contracting, project organization, the availability of com-puter programs such as Project Evaluation and Review Tech-nique (PERT), PERT-COST (a complimentary program to the PERT planning and scheduling system), and the Cost Planning and Evaluation System (COPES). -(IP Exh 15.1, P. 20).

The wit-ness disagreed with the intervenor characterization as poor management the fact that the Company relied upon oral re-porting of the IP Vice President / Project Manager to the Executive Vice President and the Board of Directors.

Inquiry to Establish Cost Incentives In view of the insufficient evidence concerning the cost control performance of the Company in the construction of Clinton Unit #1 and the urgency of controlling future costs of the Clinton Unit #1 project, the Commission believes l

that formal proceedings should be conducted to evaluate the

[~s l

implementation of an incentive scheme for cost control at

' / L

79-0071 Clinton. The Commission is of the opinion' that the evaluation of potential incentives for cost control is beyond the scope of a rate case proceeding and a separate inquiry should be initiated.

The proceedings will include evaluation of an incentive system that relates the allowable equity portion of AFUDr to the future cost increase of Clinton; the evaluation of inherent problems associated with incentive schemes including the qusntification of scope changes caused by changes in regulatory safety standards; the feasibility of implementing some type of incentive scheme for the Clinton project; and the need for a management audit.

A number of parties have petitioned the Commission to order an audit of the management and construction practices at the Clinton station. In the past the Commission has ordered general mana9ement audits of certain utilities within its jurisdict2on and is currently evaluating the usefulness of such requirements in providing incentives for utility cost control. Clearly, there is a need to determine the specific underlying causes for the cost escalations at Clinton Unit #1.

The Commission is of the opinion that the value of the audit of Clinton must be evaluated in the context of other possible incentives. The re fo re, the need for a management audit will be considered in the separate inquiry on incentives for cost control at Clinton.

The objective of incentive schemes, as seen by the Commission, would be to control the remaining cost of the entire Clinton Project and the total costs of future major construction projects by other utilities. The incentives would benefit both ratepayers and investors. The Company,

wrald be rewarded and penalized, respect ive.l y, for superior and poor cost control.

Under the provisions of Section 36 of the Public Utili-ties Act, the Comaission is obligated to " establish the rater or other charges, classifications, contracts, prac-tices, rules or regulations proposed, which are found to be just and reasonable, when " Filed Tariff Schedule Sheets" are suspended and hearing is entered upon, in an effort to determine the propriety thereof. The determination of a just 404 reasonable tariff implicitly requires the Commis-sio.4 to provide a fair and reasonable overall return to the debt and equity investors of a utility, as well as to es-tablish rates or other charges, classifications of service, contractual practices, operating practices and rules or regulations under which utility service is provided which are just and reasonable for rate payers located in the service area of a utility. The Act as well as case law pro-vides the guidelines for such determinations.

A witness experienced in the operations of Illinois Power, testified on behalf of An Association Concerned for Utility Stockholders Equity ("icates a 67 4% inflation factor Association"). Exhibit 1.3 sponsored by this witness ind increase from 1970 through 1978 based upon the Consener Price Index (1967 equal to 100) and a 66% inflation factor increase based upon the Gross National Product-Implicit Price Deflator during the same period (1972 equal to 100).

While the company's common stock earnings fell from $2.89 per share in 1970 to $2.26 per share in 1974, earning per share have increased to $2.74 per share as of December 31, 1978. The Company was able to increase its dividend from

$2.10 in 1970 to $2.28 in 1978, an increase of about 8.5%.

Admittedly such an increase does not keep pace with the inflation which has occurred during the period of time 79-0071 discussed. In part, the dividend policy of the Company, while acc3pted as reasonable for purposes of this discussion,

-'p has been maintained by increasing the payment ratio frc' N

72.7% in 1970 to 83.2% in 1978. During 1974 and 1976 n excess of 90% of the earnings available for common equiiy i

holders was required to maintain the dividend policy of the Company. As the payout ratio increases, the amount of retained earnings available for investment in. required new construction decreases. The downgrading of the company's stock in June of 1974 by a security rating agency from "A"

to "A " is'an understandable. consequence of the high payout i

ratio pursued during the period since 1970.

I The Commission is of the opinion that Respondent should be provided an opportunity to earn sufficient income to maintain a reasonable dividend policy while maintaining a payout ratio of less than 80%, thereby providing reasonable retained earnings for future investment in plant, reasonably enabling the Company to provide service to existing and future generations of rate payers. This Commission cannot, however, guarantee that shareholders of the company will not suffer, from the current inflationary trend.

Testimony and exhibits, Industrial Power Consumers, Exhibit JWB Exhibits 1, 2 and 3, were identified and spon-sored by a qualified economist on behalf of the " Industrial Power Consumers" previously identified herein. The witness j

provided evidence relating to the cost of capital of Il-linois Power Company and addressed a topic entitled " Econ-omics of Rate Determination".

In arriving at hir opinion that a fair rate of return on an original cost rate base would be 9.15%, the witness cited Company Exhibits as the source of his determination of the appropriate capital structure and embedded costs of debt and preferred stock at December 31, 1978 and estimated

()

capital structure and costs at December 31, 1980.

In estimating the overall cost of capital to Respon-dent, the witness relied upon his version of the discounted I

Cash flow (DCF) method in his determination of the cost of equity. In addition, he presented a supplementary analysis, l

in arriving at the current cost of equity.

4 While the Industrial Power Consumer witness adequately addressed his use of the DCF method in arriving at his opinion of a fair rate of return for use by the Commission in this cause, other economic issues, necessarily required to be considered by this Cor. mission in the determination of a reasonable range of return in this case, were not dis-cussed either directly or implicitly. For example: the appropriateness of the existing or forecast capital struc-ture was not discussed; the reasonableness of the dividend policy of Respondent, past, present and future; quality of

{

earnings, as it relates to the inclusion or exclusion of l

construction work in progress from the rate base; the cash i

flow position of the company, historical and forecast; other economic indicators which.could have a bearing on the appro-priateness of a fair and reasonable return opportunity.

While the testimony and evidence was appropriately conceived and set forth, the Commission is of the opinion that the t

witness does not fully address the necessary economic issues comprehensively enough to warrant adoption of his suggested rate of return for purposes of this case.

Citizens for a Better Environment (CBE) presented two witnesses sponsoring testimony relating to the overall rate of return appropriate for purposes of this proceeding, each qualified to'tcstify as an expert witness. Both witnesses analyzed the cost of equity capital for the coupany's elec-I'l tric utility.

i U

i i n

-n n

79-0071 One witness identified CBE Exhibits 6.0 and 6.1, ad-lh mitted into evidence. The purpose of his testimony was to review the Company's rate of return testimony and prepare an independent estimate of Respondent's fair rate of return for purposes of this case. The witness chose to utilize several methods to estimate the cost of equity capital stating that in his opinion, the application of finance theory can provide help and guidance in the decision process, but that the issue of the fair rate of retu n is still largely judg-mental. He emphasized that with respect to the return on the equity component of the overall rate of return allowable each finance theory necessitates making crucial assumptions requiring judgment in the process of its application. The witness contended that utilization of several methods of estimating the cost of equity capital enables one to check the reasonableness of all methods and arrive at a range of reasonableness.

The witness adopted the capital structure of the Com-pany at December 31, 1978, and utilized the embedded costs of Respondent's debt and preferred stock at December 31, 1978. The witness suggested that projecting the costs of long-term debt and preferred stock to year end 1979 ar.d 1980 is fraught with uncertainty and speculation, but reasoned that the assigned cost rate for debt and equity could be adjusted if known changes occurred between the date of his testimony and the time a decision is rendered for rate making purposes. Utilizing various methods of estimating the cost of Respondent's equity capital, a finance theory method involving discounted cash flow, a coverage ratio method and a comparable earnings method, the range of overall rate of return for the Company at December 31, 1978 was calculated to be as follows:

COS*r OF CAPITAL COMPUTATION h

Component Capital Structure Cost Rate Product Long-Term Debt 50.7%

7.42%

3.76%

Preferred Stock 13.7%

7.33%

1.00%

Common Equity TB(,;a 13.0%-13.3%

4.64%-4.75%

3 7Y 0%

9.40%-9.51%

On cross-examination ond after suggesting other corrections or changes, the witness lowered his range of recommended return on equity to between 12.5% and 13%. The record is not clear as to the reasons which would 3ustify the latter conclusion.

A second witness identified CBE Exhibits 8.0 through 8.4, admitted into evidence. The purpose of his testimony was to discuss the importance of financial variables and to comment on the stated financial goals of the Company to examine recent bond financings of Respcndent and compare the pricing with comparably rated bonds, and examine whether there are minimum bond rating standards for financial vari-ables that must be maintained by the Company to retain a double A rating for future bond issuances.

After examination of the testimony in t.5is cause, the Commission is of the opinion that minimum standard require-ments, if any there may be, are not susceptible to definitive listing and even if such standards were completely identifiable by definition it would be impessible to assign the weighting to be assignei each standar. which would enable one to determine whe:her or not a given bond rating would be upgraded or downgraded by a rating agency.

A independent economist provided testir.mny and exhibits on behalf of Respondent (IP Exhibits 5 1 through 5.16, 79-0071 P

admitted) relating to the cost of capital of the Company.

/N His recommendation was that the range of overall fair return

(

)

on Respondent's combined gas and electric original cost rate

' ~ '

base should between 10.10% and 10.30%.

The witness suggested that the cost of capital to Respondent is the number of cents that it takes to attract a new investment dollar to the enterprise. The components of Respondent's total capital structure are debt, preferred stock and common equity. The witness stated that the cost of debt and preferred stock capital may be expressed either as a current cost, namely, the amount that it would take to attract new dollars in today's markets, or the embedded or historical cost, namely, the percentage cost of the debt and preferred stock now outstanding.

The witness utilized Company exhibits, actual and fore-cast, operating data of Respondent, and acceptable statisti-cal data in determining the embedded costs and cost rates of the debt and preferred stock components of Respondent's capital structure at December 31, 1978, December 31, 1979 and December 31, 1980.

(IP Exhibits 5.14, pages 2 and 3 respectively). A discussion was presented concerning the effect of increasing interest rates on the various com-ponents of capital and the tests of a fair return. The witness stated that the tests of a fair return are the comparative earnings test, the attraction of capital test and the financial integrity test and that while all tests are different they are consistent and ncne should be used to the exclusion of others.

The witness provided testimonf relating to the factors, which in his opinion, were important in arriving at his recommendations and opinions.

(g An examination of IP Exhibit 5.12 discloses that the

()

Company's dividend pay-out ratio has been substantially higher than the ratios for certain Federal Power Commission Class A and B Electric Utilities and cert ain Standard and Poor Industrials.

The Company's dividend pay-out ratios during the period 1975 through 1977 averaged 85.1% compared to the utility in-dustry average in the range of 70 to 75%, and Standard and Poor's Industrial Companies ratio in the area of 40% (IP Exhibit 5.1 pp 26-27; IP Exhibit 5.12).

For the year ended December 31, 1978, Respc3 dent's pay-out ratio was 83.2%.

The Commission is of the opinion that any increase in the pay-out ratio is highly detrimental to the Company's financial viability, increases the risk of a further down-grading of Pespondent's common stock and enhances the probability of a downgrading of its senior securities. Such a result at best could only lead to a higher cost of debt and equity which must inevitably be borne by the rate payer or result in an inability to finance its present construction program and lead to a deterioration of service to present and future customers which would not be in the economic interest of the area served by Respondent.

While the Company has had nominal dividend growth in recent years it may be concluded from an examination of IP Exhibit 5.11 that the real value of Respondent's dividend has actually declined as a result of inflation. Of more serious import is the fact that the amount of retained earnings which are available for financing the Company's construction program are substantially declining and increase the magnitude of future debt and equity financing.

While the pay-out ratio remains excessive, the non-cash

-w portion of earnings has become an increasing proportion of v -

79-0071 the Company's net income. An allowance for funds used during construction ( AFUDC) is accrued annually and ir-luded as a component of the Company's electric and gas utility net income. Such accruals are non-cash items and are an increasing portion of the company's net income.

Wage and Price Guidelines On June 6, 1979, this Commission, by resolution, an-nounced its policy to address the Council on Wage and Price Stability's guidelines in its rate decisions. We directed that the record in all rate increase proceedings contain utility testimony directed to compliance of the proposed increase in rates with the guidelines. The Council, in its guidelines, admits that the standards do not supplant this commission's statutory duties and responsibilities as defined by the Illinois General Assembly.

Evidence in this record submitted by this Company indicates that, prior to the Council's second program year standards issued September 28, 1979, the Company's rate increase requeat met not only the price deceleration stan-dard, but also the gross margin standard and the profit margin standard. Due to the changes in the second program year standards, alllowable increases under the price deceleration and profit margin standard would be approxi-mately $76 million, with that allowable under the gross margin standard somewhat less.

Since the overall increase i rstes is below $76 million, this commission finds, based on tae evidence, that the allowed increases will not violate the wage and price guide-lines as heretofore set forth.

The Commission, having examined the record herein, and k

now being fully advised in the premises, is of the opinion and finds that:

(1) Illinois Power Company, an Illinois corporation, is engaged in the gener-ation and supply of electric energy and the distribution and sale of gas in Illinois, and, is a public utility within the meaning of an Act entitled I

"An Act concerning public utilities," as amended; (2) the Commission has jurisd.ction over Respondent and of the subject matter herein; (3) on January 9, 1979, Respondent filed with this Commission Filed Rate Schedule Sheets containing rate schedules and other tariff provisions by which it proposed certain changes and a general increase in gas and electric rates for various classificatians of service, effective February 9, 1979; said tariff filing was accompanied by an appropriate supplemental statement in accordance with the rules of the Commission; (4) due notice of the filing of said Filed Rate Schedule Sheets was given pursuant to law and the rules and regulations of this Commission; (5) on February 7, 1979, the Commission lh suspended the proposed Filed Rate Sche-79-0071 fs dule Sheets to and including June 8, 1979, and on May 23, 1979, resuspended said Filed Rate Schedule Sheets to and including December 8, 1979, all in accordance with provisions of Section 36 of the Act; (6) notice of the initial hearing held in fAie cause was mailed by the Secretary of the Commission to Respondert, the Mayor, City Attorney, and ClerA of the municipalities located within the Com-pany's service areas in Illinois, and to such other persons or entities as shown by the docket sheets maintained by the Secretary of the Commission,'all in accordance with the rules and regula-tions of this Commission; notice of subsequent hearings was mailed by the Secretary of the Commissic, all in accordance with the rules and regula-tions of this Commission; notice of subsequent hearings was mailed by the Secretary of the Commission to such parties as are shown by the docket sheets maintained by the Commission for purposes of this case; (7) statements of fact and conclusions reached in the prefatory part of this order are amply supported by the evi-dence of record and are hereby adopted as findings of fact; (8) use of a pro forma test year ended O

December 31, 1s78, based upon actual operating data is appropriate for rate making purposes in this case; i

(9) the original cost rate base for the Company's electric operrtions for the test year ended December 31, 1978 is

$1,067,702,402; (10) the original cost rate base for the Company's gas operations for the test year ended December 31, 1978, is c'33,940,544; (11) the original cost rate base of the Company's combined electric and gas utility operations for purposes of this proceeding is $1,301,642,946, which amount is the "value of Respondent's Illinois gas and electric properties for ratemaking purposes in this proceeding; (12) rates which are in effect for electric service furnished to the customers of Respondent are inadequate, unjust and unreasonable in that they do not produce a fair and reasonable return to Respon-dent on its investment in electric plant used and useful in its operations and recovery of operating costs of electric service furnished to its customers; existing rates which result in such unjust and unreasonable operations are es not in all respects just and reasonable (x -)

and should be permanently cancelled and 1

79-00 %

annulled when rates allowed to become effective by virtue of this order become effective; (13) rates proposed herein by Respondent for its electric operations in Illinois would produce a rate of return of about 10.99% on the Original Cost Rate Base approved herein; such return is exces-sive, unfair and unreasonable and the proposed rates are therefore not in all respects just and reasonable and should be permanently cancelled and annulled; (14) the Respondent should be required to file " Filed Tariff Schedule Sheets",

containing rates that will produce annual operating electric revenues of approximately $488,932,655 and result in annual jurisdictional operating income of approximately $104,831,520 for its electric operations in Illinois; such annual jurisdictional operating income would, in turn, provide Respondent with a rate of return of approximately 9.85%

on the C*iginal Cost Rate Base of

$1,067,

'02; such amounts of operating income an n are fair, just and reasonable; (15) Respondent should prepare and place on file with this commission new electric rate schedule sheets, complying with the other terms and provisions contained in this order which the Company is directed to incorporate into its electric tariff; said new ra.tes are just and reasonable and would er.able the Company to reason-ably obtain the following electric operating results:

Illinois Electric Operations Particulars Amount Operating Revenues

$488,932,655 Operating Expenses 384,101,135 Operating Income 3104,831,520 (16) rates which are now in effect far gas service furnished to the Illinois cus-tomers of Respondent are inadequate, unjust and unreasonable, in that they do not produce a reasonable return to Respondent on its investment in gas plant used and useful in its Illinois operations and recovery of operating cost for gas service furnished to its Illinois customers; such rates should be permanently cancelled and annulled; (17) under the filed tariff schedule sheets proposed herein by Respondent for its gas operations in Illinois, Respondent would reasonable expect a rate of return of 10.70% on the Original Cost Rate Base of $233,940,544 approved herein; such return is excessive, unfair and unreason-able and the proposed rates are there-79-0071 fore not in all respects just and rea-O sonable and should be permanently can-celled and annulled; (18) Respondent is ordered to prepare and place on file with this Commission new Filed Tariff Schedule Sheets incorpo-rating the rates in Appendix A and otherwise conforming ia all other respects with the Filed Tariff Schedule Sheets filed January 9, 1979, and other provisions of this Order; said new rates should be sufficient to increase the existing gas operating revenue from

$206,682,780 to $223,609,386 for an allowed increase of $16,926,606 of operating revenues, excluding State Revenue taxes; said new rates are deemed just and reasonable and would enable the company to reasonably obtain the following Illinois gas operating results:

Illinois Gas Operations

• articulars Amount j

Operating Revenues

$223,609,386 Operating Expenses 201,268,336 Operating Income 5 22,341,050 (19) such amount of operating income and the resultant rate of return of 9.55% on the gas original cost rate base approved herein are fair, just and reasonable; (20) under rates allowed to become effective by virtue of this order, Respondent should reasonably be able to earn about

$127,172,570 on its combined Utility Operations or an overall return of 9.80%

on the Combined Original Cost rate base of $1,301,642,946 approved herein; such amount of operating income, resultant return and the rates producing same are fair, just and reasonable; (21) Illinois Power should be ordered and directed to perform a cost of service study in all future Illinois electric rate increase requests whien will enable the Commission to more properly remove non-jurisdictional operations from Respondent's Illinois jurisdictional operations; such study should be per-formed in accordance with FERC guide-lines and made a part of the record in each succeeding general rate increase request; (22) Illinois Power should be ordered and directed to provide the Commission, within 60 days of the date of this Order, a new cost estimate of the Clinton Unit #1 project; the cost estimate should be performed by Sargent and Lundy in accordance with the last official cost estimate 7092-6; the Commission should commence a formal investigation of incentives for cost

.O control dealing with those matters set l

l l -

i

79-0071 forth in the prefatory portion of this Order within a reasonable time after receipt of the cost estimate; (23) Illinois Power Company should provide to the Commission, commencing January, 1980, and continuing monthly for the duration of the Clinton Unit #1 project, 20 copies of the Monthly Reports that are identified in Appendix B, attached to this Order; _nd (24) any objections and motions made in this proceeding that remain undisposed of should be considered disposed of in a manner consistent with de ultimate conclusions herein contained.

IT IS THEREFORE ORDERED by the Illinois Comme.4e Commis-sion that the " Filed Rate Schedule Sheets" filed Jmnuary 9, 1979, on behalf of Illinois Power Company be, and the same are hereby, permanently suspended, cancelled and annulled, effective upon the date of this order.

IT IS FURTHER ORDERED that Respondent be, and it is hereby, directed to prepare and file with this Commission new electric rate schedule sheets, conforming to the pro-visions of Finding (14) together with other applicable provisions of this order, and new gas rate schedule sheets containing the rates set forth in Appendix "A" attached hereto and otherwise conforming to the provisions of Finding (18) of this order, together with other applicable provisions of this order, all of which will enable the company to reasonably obtain the electric and gas operating results approved herein; said electric and gas rate schedule sheets to become effective for service rendered on and after the day subsequent to the date of filing same with this commission.

IT IS FURTHER ORDERED that the existing gas and electric

" Filed Rate Schedule Sheets", for those service classifications for which new gas and electric rate schedule sheets are to be prepared and filed, be and the same are hereby, permanently cancelled and annulled, effective at such time as h e new gas and electric " Filed Rate Schedule Sheets" are allowed to become effective by virtue of this order.

IT IS FURTHER ORDERED that Illinois Power Company be, and it is hereby, ordered and directed to perforn a cost of service study in all future Illinois electric rate increase requests which will enable the Commission to more properly remove non-jurisdictional operations from Respondent's Illinois jurisdictional operations in the manner set forth in Finding (21) hereof.

IT IS FURTHER ORDERED that Illinois Power is directed to provide the Commission, within 60 days of the date of this Order, a new cost estimate of the Clinton Unit #1 project; the cost estimate shall be performed by Sargent and Lundy in accordance with the last official cost estimate 7092-6.

The Commission will commence a formal investigation of incentives for cost control dealing with those matters set forth in tre prefatory portion of this Order within a reasonable time after receipt of the cost estimate.

IT IS FURTHER ORDERED that Illinois Power Company shall provide to the Commission, commencing January,1980, and continuing monthly for the duration of the Clinton Unit #1 i

project, 20 copies of the Monthly Reports that are identified j

in Appendix B, attached to this Order.

.. -. =. - - _ - _. - - - -.... _ _ _.. - -.

i 1a-

)f 79-0071 i

s i

j IT IS FURTHER ORDERED that any motions or objections, 1

1 made by any party hereto during the course of this pro-ceeding, which remain undisposed of be, and the same are j

hereby, disposed of in a manner consistent with the rulings j

and ultimate conclusions contained in this order.

By order of the Commission this 28th day of November, i

[

d 4

(SIGNED) MICHAEL V. HASTEN l

q Chairman 3

(S E A L) i i

i 1

i 3

f 3

V i

]

J j

i 1

l, i

4 i

i i

i

+

j l

l

..___,_;_,._,._.._,.,-._,..,-..._,....a_..-._....,

i 1

i 1

APPENDIX A MS MMS i

Service classification 51 j

Residential Service i

Facilities Charge - $3.75 per month Comunodity charge -

I First 30 therus - 28.73C per therm Next 60 therus - 22.910 per therm 4

over 90 theras - 17.240 per thern Service Classification 63 General Service i

Facilities Charge - $4.62 per month

}

Commodity charge -

First 30 therms - 31.05C per therm j

Next 70 therms - 25.790 per therm Over 100 theras - 19.18C per therm i

4 4

4 f

a I

I t

I i

e 4

a

'~}

APPENDIX B The company shall report, in detail and with full supporting documents, the following information to the Commissions (1) Monthly Summary Status Report: the report shall be divided into the following sections:

a.

Schedule Status description of work done for the current months significant events, and key milestone dates experi-enced during the current month, b.

Cost Performances current month actual and projected labor and material expendi-tures; current month actual and projected labor man-hours expended; and 1

c.

Problem Areas: identification of con-struction problems experienced during the current month.

(2) Monthly Project Cost Status Report: original and current cost estimates at the two digit account level; AFUDC, and other costs not included in the two digit accounts shall also be provided.

(3) Monthly Summary Time Scale Network Report:

Bar-Chart comparing the actual start and finish dates for project activities with target dates which were effective as of December, 1979.

(4) Monthly Safety Evaluation Report: identify the specific commitmeats with regard to safety standards that O's were made to the National Regulatory Commission (NRC) at the time when the construction permit was issued (provide only for the first reporting month) and identify the commitments that have not been fulfilled.

(5) Monthly Variance Reports:

a.

Explanation for differences between monthly actual and projected expendi-tures; this section of the report need be filed only if actual exceed projected cost by 2 percent or more; and b.

Explanation for differences between actual start and finish dates for pro-ject activities and target dates, which were effective as of December,1979.

1 I

i l

G l

t

-.m.._

CPS AMENDMENT NO. 3 August 1980 EXHIBIT N

-.A Rate Developr.-*a Cranted*

Electric Cas Steam Annual amount - test year basis (000's)

$45,683

$16,927 No Percent increase 10.9%

7.9%

Service Effective date 11/30/79 11/30/79

. Rate of return on rate base authorized 9.85%

9.55%

Rate of return on common equity 13.61%

12.78%

Revenue Effect (000's)

Amount received in year granted

$ 2,475 S

917 Amount received in subsequent year 43,208 16,010 (N

Pending Requests (NONE)

U) s 1

• Copy of latest rate order (Ill. C. C. 79-0071) - Exhibit M l

\\

<J

CPS AMENDMENT No. 3 Aunust 1980 Exhibit 0 AREA NEWS PUBLICATIONS Clinton Daily Journal, 117 W. Main St.,

T inton, Ill. 61727 (DAILY)

Decatur Herald & Review, 601 E. William St.,

Decatur, Ill. 62523 (DAILY)

Decatur Tribune, P.O. Box 1489, Decatur, Ill. 62525 (WEDNESDAYS)

DeWitt County Observer, 500 W.

Side Square, Clinton, Ill. 61727 (THURSDAYS)

Maroa Prairie Post, Box 428, Maroa, Ill. 61755 (THURSDAYS)

The Daily Pantagraph, 301 West Washington, Bloomington, Ill. 61701 (DAILY)

Normalite, 106 Broadway, No rmal, Ill. 61761 (FRIDAYS)

Champaign-Urbana News-Gazette, 48 W. Main St.,

Champaign, Ill. 61820 (DAILY)

Piatt County Journal Republican, 113 E. Washington, Monticello,

(

,)

Ill. 61856 (WEDNESDAYS)

Cerro Gordo News, 217 E. South, Cerro Gordo, Ill. 61818 (THURSDAYS)

Farmer City Journal, 115 W. Green St., Farmer City, Ill. 61842 (THURSDAYS)

LeRoy Journal, 207 E Center, LeRoy, Ill. 61752 (WEDNESDAYS)

Heyworth Star, 105 S. Buchanan, Heywor th, Ill. 61745 (THURSDAYS)

Lincoln Courier, Courier Building, Lincoln. Ill. 62656 (DAILY)

Lincoln Graphic, 711 Broadway, Lincoln, Ill. 62656 (FRIDAYS)

Benent Register, 207 East Bodman, Bement, Ill. 61813 (WEDNESDAYS)

Mahomet Citizen, Box 507, Mahomet, Ill. 61853 (THURSDAYS)

~

,' )

Atlanta Argus, Atlanta, Ill. 61723 (THURSDAYS)

Mt. Pulaski Times News, 209 S. Washington, Mt. Pulaski, Ill. 62548 (THURSDAYS)

State Journal-Register, 313 S.

Sixth St.,

Springfield, Ill. 62705 (DAILY)