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Illinova Corp 1995 Annual Rept
	ML20108C856
Person / Time
Site:	Clinton
Issue date:	12/31/1995
From:	Haab L; ILLINOIS POWER CO.
To:	;
Shared Package
ML20108C780	List: ML20108C856; ML20108C867; U-602578, Forwards Illinova Corp 1995 Annual Rept & Soyland Power Cooperative 1995 Annual Rept;
References
	NUDOCS 9605070188
	Download: ML20108C856 (61)
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fif ILLINOVA 199S ANNUAL REPnmT g$ l',',e', MEASURES OF OUR SUCCESS IN 1995, BY NEAMLY EVERY CO N C EIV A B LE

MEASURE, WE WERE BETTER THAN WE WERE 8N 1994 TD BE THE BEST BY THE YEAR 2000, WE MusT BE BETTER THAN DUR C O M P E TIT O R S.

THAT'S THE DNE MEABURE ALL DTHER MEABUREE MUST LEAD US TD. l en x.g. a k i ( "'((ft i .. j$}

l l a l ILUNO V A 1995 ANNUAL REpont ~n~ -q' ' c }, {' ; 4 h', o much for sophomore jinx. an annualized basis beginning with the ( i in our second year as an energy ser-February 1,1996, payment. ., vices holding company, the employees of Yet not withstanding our many suc-m - Illinova turned in another outstanding cesses in 1995,I'm certain that we have t g' K performance. In fact. our successes in 1995 potential for even greater results. We are wire so coinprehensive that the market, still reshaping ourselves, re-engineering which had been skeptical of our prospects, our processes, and redefining our markets. [f y rewarded Ildnova stockholders with a 37-We're moving forward quickly, to be sure, b percent inc'rease in their investment. but I don't think we've hit our stride yet. \\ N _.s I ~'" MEASURING PROGRESS

t. A Y I N G GROUNDWORK i

TOWARD 200t" FOR FUTURE SUCCESS g Annual reports have a reputation for Over the past few years, we've proven putting the best possible face on things our ability to reduce costs and we have - emphasizing good points; down. completed many of our efforts to do so. playing or ignoring bad ones. But this Now, we has e a solid foundation in place year,I believe we can Ims at virtu-to build the human skills necessary to ally any measure from almost any excel in a competitive marketplace, and perspective and be pleased with our plans to grow our business through the results. new subsidiaries and new energy services From the financialcommunity's in our utility business are well underway. j perspective,we made the key num. rm particularly optimistic about our bers: we showed revenue growth potential because so much of what we without a rateincrease,we reduced accomplished in 1995 will have its biggest operatingandmaintenaxeexpemes impact in subsequent years. enough to absorb most of the cost perhaps the most prominent are our of a refueling outage at our nuclear enhanced retirement and severance pro-plant, and our earnings per share were grams.The $38-million price tag of these up by a double-digit margin before reflect, pr grams in 1995 obscures their true value, which is $36 million in ongoing ing our fourth-quarter enhanced reare-annualized savings beginning in 1996. i ment and severance programs and the Investors who have followed us for awhile charge for the premium for redeeming will recall that in 1989 we also offered Ilhnm. power preferred stock. s an early retirement program. That pro-I. rom our customers, perspective, we gram was unsuccessful because we were revamped our approach to serving them, 6M d M Wie we earned improved overall scores on our ing employees. Thir time, however, we customer satisfaction surveys, and we re-engineered our processes to substan-proposed legislation that would revolu-tially reduce - and in some cases com-tionize electric service in Illinois. pletely eliminate-the work proportional And from our stockholders' perspec-to the numirr of retiring or severed employ-tive, our share price appreciation and div-ces. This time we are prepared, and we idend provided a total return in 1995 of will reap significant benefits. j 42 percent, and in December our Board Also, to help sharpen our focus on cre-j of Directors voted to raise the common ating value for our shareholders,in 1995 j j stock dividend 12 percent to $1.12 on we began implementing a financial per- ) i

success ls Measuars or aus CH AIR M AN'S LETTER TO STOCKHOLDERS er formance measurement called shareholder = Working together as a team vah&ded, and we should v:e increas-a Finding new ways to do things ing benefit s in 1996 and beyud. e Buildmgtrustbasedonintegrity ( I.ast se mmer, we negotiated new con-and honesty C ~~ tracts wir' our unions. Aking with a good e Beingcourageous a wagn and bene 6ts package, these new Adopting hse beliefs won't transform contracts include provisions that will allow our compa vr our corporate culture our union employees to be more flexible overnight. But adop*ing them will help us and more responsive in meeting our cus-make the transition to a company that tomers' needs. lhese agreements are good longs to compete -and expects to wm. for Illinova, good for our employees, and, especially, gcxid for our customers. In 1995, we also reorganized the As I said at the beginning of this letter, way we interact with our customers. 1995 was a great year for Illinova: by g Instead of maintaining high-cost offices, almost every conceivable measure, we we arranged with scores of kical retail, met or exceeded our own very high expec-ers to accept customers' bill payments. tations. And we are poised to repeat that j; We discuss these and our other efforts performance in 1996 with a third straight { j to improve opera tions la ter in the report, ye r of double-digit growth in earnings ) ~ x but you can see even from these few and common stock dividends. py briefexamples that we have much to look Still, in spite of the good results in e forward to in 1996 and beyond. 1995,there is work ahead of us. We remain f, committed to being the best by the year g r" y L",]8] 7; 2000. To do that, we must stick to our Implementing new systems and re-engi. course, developing human resources with j neering old ones, searching out new busi-the necessary skills and abilities, becom-ness opportunities and servicing old ones ing a low-cost and low-price provider, - "g] I will be exciting and challenging work. and identifying and explomng new mar-0 But I think our greatest challenge will kets, new opportunities. come within Ilhnova, within ourselves. Ikcause we have set a high standard That challenge is focusing on our s ision for ourselves - that of being the best - mitment to achieve that vision - keep enormous pride and a well earned sense .) . f to be the best and maintaining our com. I think we can look back at 1995 with ing our eye on the prize. That challenge of achievement, but perhaps not with is for every individual employee to accept complete satisfaction. I think we can look i and ta meer. back with complete satisfaction only when To help guide each of us toward our we can also kiok back and see the rest of vision and to help us maintain our focus, the industry - following us to be the best. K we developed eight corporate behefs: Sincerely, a Doing better today than we l&) did yesterJay \\, e Serrmg customers better than any other Larr> D. Ilaab e Alaking the company ours Chairman, President, and e Knowmg that our employees make ChiefExecutive Officer the difference February 15,1996

l c l e t o.~ o va j iees a-~uat ac oor 1995: ANOTHER STEP TOWARD i B EI N G THE BEST BY THE YEAR 2000 4 i or Illinova,1995 was an exceptional year. In our industry,Illinova is unique for f s Earnings per share for the year were its ability in recent years to grow earn- $1.96. However, that figure includes ings at a double-digit rate and to make " a one time expense of $.30 per share, simila r increases to its dividend while still recorded in the fourth quarter, for our maintaining a strong financial position. enhanced retirement and severance pro-ELECTRIC SALES MOVE grams, as well as a 5.05 per share charge roawAeo M ooEayLv y for the premium for redeeming IP pre-Illinois Power, Illinova's electric and ferred stock in December. Without natural gas utility, had higher electric Lr u o v c u.c., v-e ' ase expenses, earnings per share for sales in 1995. The 2-percent increase, waoo s,aec1 aouau o 1995 would have been $2.31, a nearly though, was modest compared to the 6-ouoyeo..ouo 15-percent increase over the earnings per percent rise a year earlier. The increase .~oy.v ..,,uo, share from operations in 1994. in 1995 sales was led by strong growth in 1995, we also maintained our pol. in the commercial segment, where kilo-of aestaties: Those having icy of raising common stock dividends in wart-hour sales were up more than 8 per-no upside. and ihose step with our earnings growth. In Decem-cent, and the residential segment, where haeing only domnside.. ber, the Illinova Ikiard of Directors voted sales climbed almost 5 percent. These to increase dividends 12 percent to $ 1.12 results received a boost from unusually "'"*" "^** '""' on an annualized basis beginning with warm weather during the third quarter. the February 1,1996, payment. Electric sales to the industrial segment, Even after raising the dividend, our meanwhile, remained virtually flat as dividend payout level remains at approx. growth in the regional economy leveled imately 50 percent of earnings. We esti-off after two years of solid expansion. mate this is the level at which we can Natural gas sales to commercial and sustain payments and still allow maxi-residential customers decimed nominally mum flexibility to meet the challenges in 1995,0.5 percent and 0.8 percent, presented by the rapidly changing elec-respectively. But these results were off-tric and natural gas utility industry. set by a better than 9-percent increase in therms sold to industrial customers (excluding gas transported for others). L

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f es lfLLsNOVA 1995 ANNUAL R.PDNT l 1 oo.~~ o ~.ow, coeT MANAoEuENT the NRC boosted Clinton's rating for coNTONUES To E x c E L. sh,/t khuun. n.wmu Pow star'"" maintenance from good to excellent. Several years ago we mapped out a strat-y,, egy to maintain solid earnings growth, Ch,num's outage pufonnance was a OPPORTuN.TY 70 des ire the twin pressures of relativel. c mp ny record, but our liavana plant BNDADEN MY BKILLE. slow growth in our utility territory and did Clinton one better by setting a world IT OPENS LOTS increasing hostility to rate increases from reenrd.The production team at the Havana Or oODNS." regularors and, of course, customers. Our Pow er Station started Unit 6 for the 2,500th strategy is three-fold, emphasizing human time, a world record for coal-fired boil- ,,.,, c o u..., Reh.chus rnwa Meuger. resources, aggressive cost management, ers of its size and type. y ch,on emYr si."'"" and market expansion. As the benefits in all, the efforts to cut costs while "5 from cost management begin to diminish maintaining high efficiency and excellent r ou= aw~ Pca"'" from natural limitations, the benefits from customer service reduced year-to-year vo eououot a u ra n r 5, our market expansion efforts will grow O&M expenses by 3 percent excluding awo we'ar o c re wit c Lv to take their place. 1995's refueling ourage ar Clinton. In 1995,Illinova saw substantial w

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benefits from its early efforts to rrim WHERE WE BTANo ON JANUARY 1, 1996 costs. Perhaps the best example of this is After watching Illinova turn in tw o con-A last spring's refueling outage at Clinton secunve years of exceptional performances, Power Stanon. investors who are familiar with our indus-Clinton replaced one-third of the fuel try's history of conservative growth may bundles in its reactor and completed an be tempted to think that the best is now aggressive maintenance schedule in just behind us. We couldn't disagree more. 49 days,35 percent fewer than were nec-essary for its previous outage. Thanks to We began 1995 with strong momen-the shorter outage duration, the plant cut tum, excellent cash flows, superior cost its outage expenditures by nearly a fifth. management, improving customer ser- '#" E '#~#"N""#""E' '#"" The Clinton Power Station's extraor-site marketing, and growing independent dinary - and successful-efforts to trirn subsidiaries. We finished 1995 exactly as costs did not come at the expense of effi-ciency or safety. In August, the Nuclear we started - only better. Regulatory Commission issued its latest We begin 1996 poised to match and Systematic Assessment of Licensee Per-then surpass our 1995 performance, and formance in which it gave Clinton all we explain how we will do that in the ' excellent' and ' good' mar ks. In its report, following pages.

~ MEAsunga or Dum Buccres 7 ' 4C M AKIN G 3U R TRADITIO N AL BUSINESS BETTER f 1 l CavsTAL RDas* SMITH Custumn Relatmm Managn. I.ut St. Loun Several years ago, we recognized that the increase shareholder value, but Illinova ground was shifting under our industry is taking cost reduction a step further. and that before it was finished shifting Shareholder value-added, or SVA, is -if ever - the nature of our business a financial performance measure that would be dramatically different. helps crisure that every dollar we spend in this new industry, familiar ways achieves the maximum return for our of doing things will be replaced by new shareholders by focusing our resources and diffictdt challenges. Regulated monop-squarely on greater growth and more olies? Gone. Rate base, rate-of-return efficient asser management. We've devel-ratemaking? Gone. Friendly exchanges oped three principal strategies for increas-of technical and marketing ideas and ing our SVA. l tirst, we will ma ke decisions ~ data? Gone. that grow economically profitable busi-In their place: competition. ness. Second, we will invest more in exist- " ' ' " ' ^"""' ' We're not there yet, not completely, ing husinesses with higher rates of return. but the movement in that direction is And third, we will reduce investments inexorable and it is picking up speed. in projects that return less than our cost AND IT'E A GREAT To prepare ourselves fortheday when f capital. u p p u _, u n,, y ,u. we must sink or swim in the free mar. SVA eventually will guide the dispo-ketplace, we developed a model of the sition of every dollar at Illinova. This ,,m,,,,, energy services company of the future-focus on shareholder value-added has low-cost and low-price, opportunistic, been the sprir.,, board for outstanding entrepreneurial, customer-focused, fast, financial performanees at other large itoeuoie and flexible. We also created a vision: companies, and we expect nothing less N,*y',"c, To meet customers' energy and than that at Illinova. TERR 1 TORY related sertice needs better than CUSTOMER S E RVIC E GETS any other. To be the best by ti c nso,Cau n e.e u a,n e e R s u o year 2000. In 1995, Illinois Power rolled out major We are making outstanding progress portions of its ambitious project to toward making ourselves into that model re-engineer its business. The benefits - a company and achieving that vision. and challenges - of this project will emerge clearly in 1996. M A tt l N G EVERY DOLLAR CDUNT Among the many steps we're taking Reducingtheamountof money wespend to improve our customer service is the to conduct our business is one way to com!' te overhaul of our area offices.

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l l These offices,32 in all, were scattered At the other end of the spectrum, we patch Center to help respond to our cus-1 ) throughout our service territory and have customers who not only do not wish tomers' nceds more efficiently and quickly. served mainly as bill collection centers. to pay their bills in person, but also find ^ ^ " " C"^"""' Ilut because they served only a small per-regular mail unsatisfactory. For them, centage of our customers, we closed the we're PurCn8 electronic funds transfer, Our vision to be the best, as well as or EIT, through its paces. If tbe pilot competitive pressures from neighbor-offices and made arrangements for EIT programs run smoothly, lilinois ing utilities with low generation costs local merchants to collect bill payments and from. dependent power produc-Power will offer EIT to all custoniers. m for us. Now,instead of having to go to We're also implementing some it.no-ers with newer technology and lower an Ilk.nms Power office during daytime vative work practices. For example, seme

- P""* '*'IV#'"d """ ""d"'8" business hours, customers can go to any significant re-engineering of our own maintenance and construction crews will one of approximately 100 designated be driving directly to lob sites, rather than generating system.

local retailers with extended hours. i first reporting to an Illinois Pow er facil. The first major changes were made This new arrangement should be good ity and then driving to the site, in some as a result of the effect our Clean Air for customers as well as for Illinois Powet cases saving more than an hour each day. Act compliance strategy had on plant An additional benefit is that the man-V,e,re experimenting electromcally, as operations. We closed down or sharp v i, l agers and other staff from many of those well. In 1996, some of our trucks will be cut back operations at smaller units with ck> sed offices are now serving as ombuds-equipped with terminals that employees high costs and emissions levels or plants l men and key parts of our sales force, vis-can use to record the work as soon as it's with low production levels. iting customers and h> cal efficials and done, giving dispatchers real-time infor-Next we tackled the structure of our l acting generally as representatives at large marion to help send the crews to other fossil system, realigning major functions l 1 for Illinois Power. jobs. We've also created a Central Dis-into three groups: plants, plant services, i

L ......... m / and business center. These latter changes E"E"ay cwQecE 2ooo LEADS REDULATORY were made possible by a labor agreement REFQRM CFFDRT whose centerpiece is efficiency, flexibil-Illinois Power has been particularly aggres-ity, teamwork, and customer service. sive in its efforts to reform the regulations Now,using 20-percent fewer employ-and la ws governing Illinois utilities. In the ees, the plants are leading the way by first half of the year, we proposed form-operating with empowered employees ing a generating division or company that on multi-disciplinary teams, competitive would own all of Illinois Power's gener-maintenance forces freed from traditional ating assets. We've also proposed aban-craft and department boundaries, work, (kiningthe Uniform Fuel Adjustment Clause, ing supervisors, and engineering that is which would provide incentives for utili-in the field, closer to the work. ties to better manage their fuel costs. At Chnton, our re-engineering efforts Thm efforts were ad hoc proposals, over the past 18 months have led to ffering incrementalimprovements to a improved operations, including lower regulatory system decades old and ill-suited t accommodate anindustry run-costs and an approximately 10-percent reduction in staff. ning headlong into competition. 1995 In the last two months of 1995, we last spring, however, Illinois Power oiaeOamOw OF REVENUE conducted a diagnostic review of the plant. intr duced legislation to make sweep-Based on the results of that diagnostic,in ing and comprehensive changes to the gp% P 1996 and beyond we expect to make sig. way Mmus electric utihnes are regu-pp gg;jj nificant improvements in our mainte-lated. The plan, called Energy Choice y f] 4 y{g.h nance, modification, and commitment 2000,is unique among competing pro-0 systems. In maintenance, we will continue posals within the state-and even nation- ",gge to identify ways to make our activities wide - because it is comprehensive, it more efficient and more cost-effective, balances the interests of energy suppli-mamtenance - 22% We will also streamline the analysis and ers and their customers, and it was crafted { 3]a"]d """"'c"r - 2% simplify the administrative procedures in cooperation with representatives from purchasca power - 20% that go into our modification program, large industrial customers throughout ]a" ) which involves the design of new or replace-the state and supported by an aliiance of

r. twranon and

{ am""""" - " % ment equipment for the plant. more than 4,000 medium and large man-G. Intunt and other - 11,. " """E '"* E# ***

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) The third major area we'll seek to common stotk 9"' improve is our aimmitment systems. Clin-Energy Cho. ice 2000 offers alterna-j ton and all other nuclear facilities work rive regulation. competitive services, direct with the Nuclear Regulatory Commis. access to suppliers, the formation of elec-sion and other agencies to develop com. tric generating companies, recovery of mitments-awnmitments for performance, transition costs, and a streamlined reg-maintenance, etc. Now, working with ulatory process. With Energy Choice these agencies, Clinton is reviewing the 2000, Illinois Power hopes to clear the administrationof thesecommitments,as way for competing effatively in the emerg-well as the commitments themselves, ing energy services marketplace. retaining those that add value to our oper-ation of the plant and eliminating those l oflesser value. l

l f 10 l s o t e w o v a 1995 Awwuat RaronT l l ~A i l l E X PA N DIN G OUR UNIVERSE U TI LIT Y M A R K E TIN GI l LLIN O V A ENERGY DXYMORON NO MDRE B E R ViC E s RESPONDS TO CUSTOMER NEEDs With the exception of a handful of large in a further effort to expand its markets, iadustrial companies, Ilh.nois Power,s ( Illinova launched the Energy Services divi-1 customers aren't free tochoose the.ir energy sion to seek opportunities inside as well senices supplier. Howet er, that will change as outside our traditional service territory. sometime in the next decade, perhaps sometime in the next several years. Illinova Energy Senices is going beyond the delivery of kilowatt-hours and therms We have been anticipating the advent to provide customers with custom, turn-l Last November of choice in our industry for several vears key solutions to their energv-related needs. I in a page 1 article tstled and recently we accelerated our efforts to Concentrating on the commercial and "Neu Blood Ncededt adapt ro the change. Our marketing orga-industrial customer markets, Illinova Pou er Companics nization is surveying customers to iden-Energy Services is offering engineering, ) Look outside for rify needs and discover opportunities, construction, operations and maintenance, Executives,' the Wall putting employees chrough rigorous sales and financing services related to light-street Journal noted traimng, assigning account executives to ing, motors, energy management systems, specific customer segments - all fairly and heating and cooling systems at cus- " RALPH F. TsCHANTZ ordinary marketmg activities, except in tomers' facilities. a o oo Tioc, er asi A=o the utihty industry. Tsew xcceoea Coox-Commercial and ind ustrial customers Oneillustration of our new approach ie.. Now we i..eot-faced with increasingly constrained cap-is our research into a concept called I N EB EILoWATT*HoURe ital and human resource budgets are hxik. ,, premise management.,, i, ears ago we AT iooinov A eo., ing for alternate ways to manage their conceived a time when, instead of pur-o, c, u,,,,,,,, energy-related needs. This presents Ilk.- chasing kilowatt-hours and therms, cus-nova Energy Services with a significant romers would purchase something hiosely opportunity for growth. defined as, energy comfort,, - perhaps a package offering a consistent indoor ] remperature, appliances that are moni-tored and serviced, and other energy-I related sen ices. Whatever shape the future of energy sen ices takes, Illinois Power is preparing to be the provider of choice.

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12 lLLINOVA 199S ANNUAL R E P D ft ? i 1 -comeA~E. ARE Menacas comuourcace, ings from etiminating duplicate functions. i BUT NOT CoMPULBORY [ D,s,s a Va!id Consideration. NoWeVer, ! i GOING TO MAVE TO Years ago when we first began talking our re<ngineering efforts over the past co-eiuE To.uRvivE. about competition in the electric utility few years Will produce Cumulative saV-THERE ANE 15o industry, we pointed to the airline, 3 mgs over the next 10 years of more than cow A~iE= i~ TwE trucking, telecommunications, natural l i~ou=Tav. A~o TwERE $600 million.This relative level of 0 %M gas, and banking industries as examples l savin = ev~*Ms tb, 4ued for rirtually suouLo eE 5o." of what to k>ok forward to. In each 4 ersy one of the more than 20 utility I dwa r d 7,,,Ilo. a,,.s m a l t, t o ' those industries we saw an explosion of x, u o, s,. .,,m, a e,,d,. mergers that have already been announced ,,I,,o,,,,,,,,,,,,.,,>m.,,,,',' product offerings and a decline in prices, r,,,.- a.,...,,.i o, a.,4,,,,a o or completed in our industry. e,unomreuo.,reh as well as a spare of mergers and acqui-sitions. For instance, of the 50 less-than. We believe that the real benefit of a truckload trucking companies operating merger is its adding significant value to in 1967, fewer than 10 remained in 1990. our primary strategy of becoming a pre-l

i *"EY Vi ' *P'"I' In 1995, consolidation in the electric utility industry began in earnest. Some mergers were far flung, as when Texas aoea otoea' l

Ut<4ies Co. purchased Eastern Energy, Two years ago, Illinova announced the l a state-owned Australian electricity formation of a subsidiary to operate in l distributor. Others were closer to home: the independent power industry. Today, Union Ek ctric, headquartered in St. Louis, Illinova Generating Company has invest-announced it would merge with Spring-ments totaling more than 300 megawatts field,Ill.-based CIPSCO, two utilities of electric generating capacity stationed l whose service territories adjoin our own. in seven countries on four continents. In One of the traditional reasons for merg-the last half of l 995 alone, the company f ing with or acquiring another company closed deals ij the U.S., China, Jamaica, -s 1 is the prospect of creating substantial sav-an'd Peru. l l qfghd

WE'RE TRYtNG TO REFORM ETA *fUTEB AND REDULATORY 8 m Fling e Erg 8,I.lfury Erher.pt l'ropect AI.itWger, LAWS, AND TO DD THAT, ALL OF THE B T A K E. H D L D E R S l'i,U7s(MI flmstertsi C7tm,ft MUBT ALBO 8E ARTNENB 1N THE REF0RM."

I L' "= = IR - =' a"- l l

- T H 4 9 (B EMCITING AND CHALLENDING WORK WECAuBE WE'RE DD8ND BOMETHING DIFFERENT EVERY D A Y.

Y' Despite its relatively short existence, tion in Omaha-based Tenaska Marker-the independent power producer indus-ing Ventures, a firm whose natural gas try is crowded with players. Illinova Gen-sales in 1995 exceeded $360 million. In erating is keeping its principal focus on short, IPMI has already positioned itself three regions - Latin America, the Far to be a strong energy and energy services East, and the U.S. - and it is distin-marketer in the Western United States. guishing itself from competitors by its in 1996 and beyond, IPMI will sig-small but broadly experienced staff. Illi-nificantly expand its wholesale electric nova Generating's employees have si - business and will begin marketing energy 8 nificant technokigical experience in natural and energy-related senices to retail cus-gas and coal generation and extensive tomers throughout the United States. expertise in orchestrating difficult and in January 1996, IPMI announced .us woCo,.o complex transacnons. the formation of a consortium with North hadaddaax"- The subsidiary's staff has set a goal American Energy Senices and Utility Net-to be among the top 25 independent work Services that will bring a utility power producers in the world by the year resource management senice-covering 2000, and they are well on their way to electric, gas, water, and waste - to indus-achieving that goal. trial and commercial customers under the By limiting its ir. vestments to projects senice mark SourceCom.This senice will in which the risk-adjusted return is greater include real-time measurement and mon-than that offered by similar investments itoring of utility usage and two-way inter-in Illinois Power's business,Illinova Gen-active communications systems to help the '" " ^*" erating expects to begin making contri-customer become a more sophistiated util-butions to Illinova's bottom line as soon ity resource consumer. SourceCom* will as 1997, also provide billing consolidation, two-g way paging, real-time wireless messaging S"c c Nu o, Iw"c", or dispatching, and security monitoring. MA Last summer,Illinova Power Marketing, The first SourceCom* customers are the our energy marketing subsidiary, began liospital Association of Northern and Cen-executing wholesale electric transactions. tral California's 200 member hospitals. ta n.n fn.af Later, IPMI established a presence in the IPMI will continue to promote dereg-xi~Cs4~o, c~i~a natural gas market by taking a 50-per-ulation of the electric utility markets and ta~oiruoE i a i c, cent ownership and management posi-will work ck>sely with other Illinova sub-taviruoE 2o N, sidiaries to expand the portfolio of value-o- = a u u a ov w tr added energy senices offered to customers. a waaoo aw*v.

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l [ BoEc...lml o, oo. POWER TO THE PEOPLE It's a delightfulirony that one of the catch-decisions are freed to do other things. The phrases of the '60s counter-culture - result is a structure that requires far fewer Power to the people-should find itself traditional managers and that consequently embraced, a generation later, by an elec-has far fewer " career tracks" - which is tric and gas utility, the epitome of cor-another way of saying there are fewer car. porate conservatism. It's not quite so ironic rots to motivate employees. as it appears, though, because Illinova, while not exactly counter <ulture,is increas_ We're replacing those old carrors with ingly something very different from the such new ones as broader salary bands. traditional utility. By reducing the number of salary bands No one at Illinova - no one we're from 16 to just four, we've created plenty awarc of, anyway-uses the sk van " Power of room within each band for employees to the people." But regardless of how we to continue increasing their financial describe it, thar is exactly what we're doing: rewards without necessarily changing ii giving power to the people, to our empk>y-jobs. The new salary bands also allow ees. We're doing it through empowerment employees to move withm. the company and through dozens of other sma; ; un-to explore different interests or to broaden named, unheralded, inconspicuous ways, all with the goal of putting more respon-their base of experience. This system obvi-sibility and authority in the hands of the ously is good for employees, and it's also people closest to the work. good for the company because it encour-Gettingempowermentto work rquires ages employees to gain bmad experience gT~ {5 flattening the organization. When deci. and it also rewards specialists who oth-U sions are being made at the front line, erwise might have felt forced to go into 4 managers who traditionally made those management to advance their fortunes. T.nav r e n w n. 5, 5mse hner ScIlmIle "COMMUNiCATIONE AND C D O PE R AT t D N ARE THE KEYS TD DUR S U C C E 5 5. " DDr T O L p y. R. I2nerrun, GMHtfulgn "WE*Rr ALL w r, R K I N G HARD TO MAKE THIS N E 'N SYSTEM wuRK."

~ RT<<.~.o. ]! ,,,e .~~<o. v f.) ) usu PREFERRED {g'7g 3]so placing a strong emphasis lic Affairs to publicize an increase in stock D4ViDEND REQUtREMENT on teamwork, and we're trying to facil-dividends, we're breaking down the walls (malmns of dollarsi itate it n a number of ways. One way is between employees who need to work 31 by establishing teamwork as a basis for with each other to get the job done fast, 29 part of our employee incentive compen-cost-effectively, and right. 26-25 24 sation program. Another is that we're These new ways of doing things rede-using Full Circle Feedback, a tool that, fine the traditional relationship between unhke the traditional top-down review, companies in our industry and their allows team members to receive input on employees. Utilities customarily provided l their work from each other, from the bot-relatively steady, predictable work. But tom up, and from the top down-Illinova has ambitions h:gher than being We're dissolving the barriers betw een steady and predictable. We expect great I managers and line employees, and things from our employees. In return, [ we're also dissolving the barriers between we offer employees the chance to grow ,3 4,, departments. through training and cross-functional Many tasks at Illinova require input experience, to become owners of the I from more than one department or even company through 401(k) matches, and TDTAL iNTEREeT more than one business group. Whether to receive healthy incentive compensa-(malEnsY/ IUI rs it's linemen working with gas crews to tion payouts. install utility service in a new subdivision in short, we recognize that for Illi-181 or Financial Services working with pub-nova to meet its commitment to be the 16 9 g 148 best, our employees must also be the 94 best. To us, the best employees are the ones who are multi-skilled, flexible, com-petitive-spirited, and tea m-oriented, and we certainly are trying to attract and retain employees who are all of those things. We will do whatever it takes to build and retain a w ork force that is com-mitted and prepared to be the best by the year 2000, ,i.: 9a .4 l

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i lI hel % ~a. ioco 4 uu s aa m, ,m, R ES PO N SIBILITY FOR I N FO R M ATI O N j The condensed consolidated financial safeguarded against loss from enautho-nal auditors and makes recommenda-statements in this summary annual report rized use or disposition and that the finan-tions to the ik>ard of Directors concerning were derived from the consolidated finan-cial records are reliable for preparing the the appointment of the independent I cial statements that appear in the Appen-consolidated financial varements, accountants and services to be performed. dix to the proxy statement for the 1996 The consolidated financial statements Additionally,the Audit Committee meets i annual meeting of shareholders. Man-with Price Waterhouse LLP to discuss have been audited by Illinova's inde-agement is responsible for preparing the results of their annual audit,Illinova's o ' rid'aterhouse the consolidated financial statements and i P,inaaordm withgenerally ampred internal accounting controls and finan-for maintaining and monitoring Ilknova s cial reporting matters.The Audit Com-auditing standards. Such standards include system of internal accounting controls. mittee meets with the internal auditors the evaluation of internal accounting The consolidated financial statements controls to establish a basis for devel-to assess the internal audit work per-are in conformity with generally accepted formed, includmg tests of internal aaount-oping the scope of the examination of accounting principles applied on a con-ing controls. the consolidated financial statements. In sistent bas.is and include amounts based addition to the use of independent accoun-on management's best estimates and judg-ments. Management also prepared the tants,Illinova maintains a professional st U of internal auditors who conduct y other information in the annual report and is responsible for its accuracy and financial, procedural and special audits. Larry D. Haab consistency with the consolidated finan. To assure their independence, both Price Chairman, President, Waterhouse LLP and the internal audi-cial statements. In the opinion of man. and Chief Executice Officer agement, the consolidated financial tors have direcr access to the Audit Com-statements fairly reflect Illinova's finan. mittee of the Ikiard of Directors. cial position, results of operations, and The Audit Committee is composed [ cash flows. of members of the ik>ard of Directors Illinova believes its accounting and who are not active or retired employees Larry E Altenbaumer internal accounting control systems pro-ofIllinova.The Audit Committee meets Chief FinancialO//icer, i vide reasonable assurance that assets are with Price Waterhouse LLP and the inter-Trcasurer, and Controller su,=ov. c o m p u n.v o = l REPORT OF INDEPENDENT ACCOUNTANTS price WAT E R H O U S E LLP .7, oU.'"c o [ [.'."v'io, "" ment for the 1996 annual meeting of in conjunction with the consolidated o shareholders of the Corporation (which financial statements from which it has We have audited,in accordance with gen-statements are not presented hereinh and been derived,is fairly stated in all mate-erally accepted auditing standards, the m our report dated February 2,1996, rial respects in relation thereto. consolidated financial statements of we expressed an unqualified opinion on Illinova Corporation and its subsidiaries those consolidated financial state-g as of December 31,1995 and 1994, ments. In our opinion, the information and for each of the three years in the set forth in the accompanying condensed Price Waterhouse LLP period ended December 31,1995, appear-consolidated financial statements appear-St. inuis, Missouri ing in the Appendix to the proxy state-ing on pages 19 through 22, when read February 2,1996 l l

L [ + o u c c ee e lie l N anounce or ouz .m............... CONDENSED C O N S O LI D AT E D STATEMENTS OF INCOME fMdhuns of dollars except per share amounts) I or the Years Inded December 31, 1995 1994 1993 O PEnat N G REVENUES lhtric 5 1,252.6 5 1,177.5 5 1,135.6 13cctric interchange 116.3 110.0 130.8 Gas 272.5 302.0 314.8 Total 1,641.4 1,589.5 1,581.2 D PEG ATIN G EXPENSES AND TAXES i ucl for electnc plants 173.9 266.6 235.1 Power purchased 59.5 52.6 78.5 Gas purchased for rewle 138.8 172.4 187.3 Other operation and maintenance 359.7 349.6 370.0 Imhanced retirement and severance 37.8 Deprecianon and amortuation 186.5 179.3 172.9 General taxes 135.0 130.3 125.6 Income taxes 125.8 118.3 106.5 'Iotal 1,317.0 1,269.1 1,275.9 Operatmg income 324.4 320.4 305.3 DTHEnlNCDME AND DEDUCTtDNS Allowance for equny funds used during construction 3.S 2.7 Disallowed Chnton costs (271.0) Income tax effects of disallowed costs 70.6 Miullaneouswt (7.1) (9.1) { 3.0) Tocal (7.11 (5.3) (200.7) Income lyh>re interest charges 317.3 315.1 104.6 INTEREST CHARGES Interest expenw 148.0 143.9 164.9 Alkmance for lxn mwed funds uwd dunng construction (6.01 (5.5) (4.5) Preferred diviJend requirements of subsidiary 23.7 24.9 26.1 Total 165.7 163.3 186.5 Net inconr (hiss) 151.6 151.8 181.9) Carrying amount over (under) consideranon paid for redeemed rieferred atock of subsidiary (3.51 6.4 Net income thiss) applicable to common stal 5 148.1 5 158.2 5 181.9) farnings (kas) per common share 5 1.96 5 2.09 5 (l.08) Cash dmdends declared per common share 5 1.03 5 .65 5 .43 Cash dw! ends pud per common share 5 1.00 5 .80 5 .80 Weighted average common shares 75,643,937 75,643,937 75,641,937 See the accompanying Londensed htes to Condensed Consolidated Financial Statements [

fi ILLeNOW& 1300 ANNUAL TJ E P O Ci T im..... CONDENSED C O N S O LI D AT E D BALANCE SHEETS fAfdhorn ofdulbrs) December 31, December 31, 1995 1994 ACsETs Plant and property 1 6,814.9 $ 6,629.2 Ins-accumulated depreciation 2,251.7 2,102.7 Net utihry plant 4,563.2 4,526.5 Nuclear fuel under capitallease 100.9 117.7 investmenu.ad other assets 65.8 37.4 Cash and cash equivalents 11.3 50.7 Other current assets 389.3 388.7 Deferred charget 479.3 455.7 Total $ 5,609.8 $ 5,576.7 C APlTAL AND LI ABl lTIE S Common stock $ 1,415.8 $ 1,414.9 Deferred compensation -130P (l 8.4) (23.5) Retained earnings 129.6 58.8 Preferred stak of subsidury 125.6 224.7 Mandatorily redeemable preferred stock of subsidury 97.0 133.0 Inng-term debt of subsidiary 1,739.3 1,946.1 ) Total capitahzanon 3,488.9 3,754.0 Current liabihties 747.5 530.4 Deterred credits and other noncurrent habihties 1,373.4 1,292.3 1 Total $ 5,609.8 $ 5,576.7 CONDENSED C O N S O LI D AT E D STATEMENTS OF CASH FLOWS fAldhons ofdulbrst For the Years Ended December 31, 1995 1994 1993 CASH FLOWS FROM D P E R ATIN G ACTIVITIES Net income (kiss) 151.6 151.8 (81.9) Items not requinng (providing) cash, net 260.9 209.4 437.7 Changes in assets and habihties .7 (92.6) 13.9 Net cash prosiJed by operanng activities 413.2 268.6 369.7 CASH FLOWS FROM $NVESTING AC TIVITIE S Constniction expenditures (203.3) (184.4) (270.5) Other mvesting activities (34.9) (19.7) (8.2) Net cash used in investmg attmnes (238.2) (204.1) (278.7) CASH F a. Q W B FROM FIN ANCIN D ACTIVlTIE S Dividends on common stak (75.6) (60.5) (60.5) Renrement of bonds and other debt of subsidury (353.3) (580.31 (1,180.9) Imiances of beds and other debt of subsidury 209.5 622.6 1,190.0 Other financing activines 5.0 (5.5) (38.41 l l Net cash used m financing activities (214.4) (23.7) (89.8) Net change in cash and cash equivalents (39.41 40.8 1.2 l Cash and cash equivalents at beginning of year 50.7 9.9 8.7 I Cash and cash equivalents at end of > ear 11.3 50.7 9.9 See the accompanying Condensed Notes to Gmdensed Gmsolidated Financial Statements l

r c u c cene l mil ~ l Mcaeuzao or oua ,m. C O N S O LI D AT E D STATEMENTS OF R ETAI N E D EARNINGS ( D E FI C IT) (Mditons ofdurs) I or the Years Ended December 31, 1995 1994 1993 Niance (deficit) at begmning of year 5 58.8 (64.6) 41.0 Net.incomeilowlbefore d vidends 175.3 176.7 (55.8) t 234.1 112.1 (14.8) 1.eu-Dwidends-Preferred stock of subsidiary 23.6 11.1 20.1 Common stock 77.4 48.6 29.7 Plus-Carrying amount over f under) consideration paid for rcJecmed preferred stock _of subsidiary (3.5) 6.4 (104.51 (53.3) (49.8) blance (defoo at end of year 129.6 50.8 (64.6) See the accompanying Condensed Notes to Condensed Consolidated Financial Statements CONDENSED NOTES TO CONDENSED C O N S O LI D AT E D FIN AN CI AL S TAT E M E N T S This 1995 Summary Annual Report to o% 7",d g,c[g", MARY 8 IP is subject to regu-R c G U L A riO N Shareholders provides an overview of ^c c o u N TIN O P o LiciE a lation by the Illinois Commerce Com-the consolidated financial position and mission (ICC) and the Federal Energy PmNcinc s or c o w e o u o^- TION Theconsolidated financial state-Regulatory Commission (FERC) and, results of operations of Illinova Corpo-ration and its subsidiaries. Aiore detailed ments include the accounts of Illinova, accordingly, prepares its consolidated financial information appears: 1) within Illinois Power (IP), Illinova Generating financial statements based on the con-the Illinova Proxy Statement mailed with Company (IGC)andIllinova Power Atar-cepts of Statement of Financial Account-this Summary Annual Report to all com. keting, Inc. (IPAll). IP, the primary busi-ing Standards No. 71, " Accounting for mon shareholders of record at the close ness and subsidiary ofIllinova,is engaged the Effects of Certain Types of Regula-of business on February 12,1996,and in the generation, transmission, distrih-tion," which requires that the effects of

2) within the Illinois Power Company ution, and sale of electric energy and the the ratemaking process be recorded.

Information Statement mailed with this distribution, transportation, and sale of Accordingly, IP records various regula-Summary Annual Report to all Illinois natural gas in the State of Illinois. IP's tory assets and liabilities to reflect the Power Company preferred sharehold-consolidated financial position and results actions of regulators. Illinova's principal ers of record at the close of business on of operations are currently the principal accounting policies are: February 12,1996, in accordance with factors affecting Illinova's consolidated The cost of addi-uriuvv e i. ~ r the regulations of the Securities and financial position and results of opera-tions to utility plant and replacements Exchange Commission. tions. IGC is a wholly owned subsidiary for retired property units is capitalized. of Illinova that invests in energy-related Cost includes labm, materials, and an alk> projects a nd competes in the independent cation of general and administrative costs, power market. IPhil is a wholly owned plus the cost of borrowed funds used for subsidiary of Illinova that is in the busi-construction purposes and a reasonable ness of marketing energy and energy-rate on other funds when so used ( AIUDC). related services to various customers out-side the Illinois Power franchise territory.

l22lscuw2ve ] 1cac ANNUAL $3PDOT Signifi-Ownership of an operating nuclear from customers. lP is currently recov neauoayaav 4eaera cant regulatory assets include deferred generating unit exposes IP to significant ing MGP site clean-up costs from its cus-i Clinton Power Station (Clinton) post-risks, including increased and changing romers as approved by the ICC. construction costs, unamortized losses regulatory, safety and environmental on reacquired debt, recoverable income requirements and the uncertain future E,7 5,,,,;, N s 4 s' ^" l taxes and manufactured-gas plant ;ite cost of closing and dismantling the unit. i g clanup costs. IP expects to continue to operate Clin-fd d 1995 IP offered vol-oee=cciarioN For financial state-ton; however,if any unforeseen or unex-untary enhanced retirement and sever-ment purposes, IP depreciates the vari-pected developments prevent IP from doing so,Illinova and IP would be mate-ous dasses of depreciable property over combined enhanced retirement and sev-rially adversely affected. their estimated usefullives by applym.g erance programs generated a pre-tax composite rates on a straight-line basis. charge of $38 million against fourth quar-NaTe 2 - CauuiTueNTs AND C D N TIN G E N CiE S ge7 }993 ga7njngs 2nd are expected to REVENUE AND ENERaY Co5T generate annual savings of approximately IP records revenue for services provided cc wwieai NiNa aN $36 million, beginning in 1996. N" ^" F" D'"" "^' but not yet billed. lP is allowed to recover IP is responsible for its own-fuel-related costs, purchased power and .r. ieo4 aae aare oaoe-On gas purchased from its customers pur-ership share of the costs of decommis-April 6,1994, the ICC approved an suant to the electric fuel and purchased sioning Clinton and for spent nuclear increase of $18.9 million, or 6.1%, in gas adjustment clauses. fuel disposal costs. A liability for decom-gp.s gas base rates. missioning costs is being accrued ratably iNcouc Taxc. Under Statement asocu rioN orin paarenaro over the expected senice life of Clinton. of Financial Accounting Standards No. s r o e ic IP redeemed $95.3 million IP is collecting future decommissioning 109, " Accounting for income Taxes," and $79.1 million (principal value) pre-costs through its electric rates based on deferred tax assets and liabilities are rec-ferred stock and recorded the $(3.5) mil-an ICC-approved formula that allows IP ognized for the tax consequences of trans-lion and $6.4 million carrying amount to adjust rates annually for changes m. actions treated differently for fi'ancial over (under) consideration paid in equity decommissioning cost estimates. reporting and tax return purposes, and also included these amounts in net "^""'^ '""" ' ^" "'^"' income applicable to common stock in measured on the basis of the statutory IPis responsible for saree a M o ei December 1995 and December 1994, potential environmental impairment at spiv4 24 f"ImeI maUufactuIcd'bab P ant bitcb' l NOTE :: - CUNTON POWER S T ATiO N Ikcause of the unknown and unique char-In the third quarter of 1993, IP recorded IP owns 86.8% of Clinton, which was acteristics of each site and uncertain reg-a I"" Pc' placed in senice in 1987 and represents ulatory requirements, IP is not able to net ofinc me t xes, f r the write-off of approximately 18% ofIP's installed gen-determine its ultimate liability for reme-cration capacity.The investment in Chn-diation of the sites. IP recorded a liabil_ deferred Clinton post-construction cost, ton and its related deferred costs represented ity of $76 million, representing its best as a result of a September 1993 lilinois approximately 51% of Illinova's total estimate of the cost to remediate MGP Appellate Court decision. assets at December 31,1995. Clinton-sites for which it is responsible. A regu-related costs represented 34% of Illi-latory asset in the same amount has been nova's total 1995 other operating, main-recorded, reflecting management's expec-tenance and depreciation expenses. tation that these costs will be recovered

_.m L [ s u c c e s s j zal McAsunes or oun $ b 4140 G W A COnPDnATION AND iLblNOIP POWEn C D ee P A M V DOARD O F' DIR ECTO R S RicMAno R. Benny, 64 dl. l. fi l g ~ j 9 g l g Retired Executive Vice President and Director D ' 4, .W,A p of Ohn Corporanon, Stamford, Conn. .~- h.

i. 1 1 3

g i (diverufied manufacturer concertrated in v A I< ( j chemicals, metals and aerospace / defense j. pr xiucts). Ilected 1988. s LAnny D. HAAs,380.4.D

I

] 4 Chairman, President, and Chief Execunve h. Officer of the Company, Decatur, Ill. r Elected 1986. 4 aI I ca ALo E. LAmAvsn.70aue Retired Chairman of the Board and ~l ' Chief Execuuve Of6cer of Niercantile Bancor-g poration, his.. St. louis, Mo. (bank holdmg company). Elected 1981. L. omwALo n. Psanium,6#<1u Renred Chairman of the Board and Chief Executive Officer of jewel Companies,Inc., Chicago, Ill. (diveru6ed retailer). Elected 1958. I RosEnT M. PowEns, 64 1 3.47 Retired President and Chiei f xecutive Oi6cer fLeft to right) Walter M. Vannoy, Marilou von Ferstel, Donald S. Perkins, Robert M. Pouvrs,

of A.E. Staley Ntanufacturing Company, Larry D. !laab, Ronald L. Thompson, Vernon K. Zimmerman, Charles W Wells, Decatur,Ill. (gram and oil seed procasork Richard R. Berry Walter D. Scott, andJolm D. Zeg'is, (Not pictured: Donald E. Lasater)

Ilected 1984. ILLIN oV A-B o A n o I W A Lv E n D. E c c T T. 64 f f. 3. d' MAneLou von FE m m T E L, 3# 'L I d> Professor of Management and Senior Austm Executive Vice President and General Manager (1) Finance Committee Fellow, J.L Kellogg Graduate School of of Ogilvy Adams & Rinehart (public relanons (21 Audit Committee Management, Northwestern Umversity, firm), Chicago,111. Elected 1990. (3) Compensanon and 1 i Evanston, Ill. Elected 1990. Nommatmg Committee ,j aoww o. z e o L i n. 4# < 8.d. (4) Business Development Commutee RoNALA L. T H a M P S o N, 46 < 0 4I benkor EXccutive Vice Iresident

General (5) Nuclear Operations Committee Chairman and Chief Executive Offiter of Counsel, Government Affairs and Pohcy tilhnois Power only)

Midwest Stamping and Manufactunng Co. Development of AT&T, Basking Ridge, N.J.

Chairman of comminee (nunufacturer of automotive parts),

Elected 1993. g- ,g based in Bowling Green, Ohio. Elected 1991.

o. L i w a v A ae~s=Av.~o VEnNoM K.

Z i M M E n M A N, 67 I b l** II COMPANY j wALvsa M. vA~wav,68d.m Director of the Center for International larry D. llaab, Chairman l Retired Chairman and Chief Executive of6cer Educanon Research and Accounnng and David W. Butts I

of Figgie Internanonal,Inc. (diveru6ed company Distinguished Service Professor of Accountancy, Donald S. Perkms I scrying consumer, mdustnal, technical, and University of Ilhnois, Urbana, Ili. Elected 1971.

Walter D. Scott l senice markets worldwiJc), Willoughby, Ohio. Ronald L Thompwn Elcard 1990. Waher M. Vannoy j John D. Zeglis oAn o O n c na CHARLES W. WELLS R ETlR E D rROM ILLlN O V A AND THE ILLiN O V A BQARD Dr DIR ECTD R 5 brQ u lbb, Chaiman DonaM i Pedins k -, AT THE ENo or 1995. WE ARE D E E P LT Walter D. Scott i V oRATErut roR was 40 YEARS or m ERviCE Ronald L Thompson 4 7Q THE COMPANY AND Hsa 2O vsARa or Waher M. Vannoy g h { Y1 John D. Zeghs NERV8CE AB A DIR E C T O R Dr THE COMPANY.

l 24 l I L L s N e v e. l tCCO ANNUAL QMPQoT 8 IL LiN D V A CD#PONAT4ON PRINCIPAL O FFI C E R S LAmmy D. H A A s, 88 LAmay r. A L T E N m A u M E n, 4 7 LEAM MANNING STETENt!N,47 Garrman, President. and Gief Executus Officer Guef knancial Offscer, Treasurer, and C<mtroller General Counseland Corporate Secretary tLLtNose POWER COMPANY PRINCIPAL O FFIC E R S LANNy D. H A A W. 38 JOMN G, C a n u,48 RfCMAND W. EIMaN JW.,47 Garrman, President, and Giefixecutus Oit cer Senior Dce President %ce President i Employed 1961. Responub!e for electric generation, electric acd Responsible for fossil tower generation, gas supply, power plant engineering, and train-including power plants, fuel, and planning. LAr=v r. A Lv E N e A u M E n 4 7 ing, and fuel purchasmg. Employed 1975. Emphrved 1971. Semor Uce President, Gief hnancial Officer, and Treasurer PAUL L. L A N =, 51 LEAw MaNNeN= a v E v E N E sir, 4 7 Responsible ior financial, regulatory, tax, and Senior %cc President %ce President, General Counsel, and legal maners; auditing, investor relations, and Responsible for customer s rviLe, electric Corporate Secretary corporate development. Employed f 970. and gas operations, marketing, energy services

Responsible for corporare secretary activities economic development, and transmission and and legal matters. Employed 1989 OAyea w.

m u v v e e 41 distribution engineermg. Employed 1966. Senior Uce President RALem r, T. C - A N, E, 4 2 Retponsible for public affairs, information wiLra r o c o N N E L '. 58 Mce Presdent technology, environmental affairs, employ ee Uce Presdent Responsible for sales and marketing. services, supply services, admmistrative Responsible for ope; ations, maintenance, Employed 1995. services, and research and development. radiation pratection, and trainmg at Chnton Employed 1978. Power Stanon. Employed 1981 cvNvwsA a. s tE w A mo 38 Contn.ller Responsible for accounting, budgeting, risk nutigatirn, and fmancial reporting. Employed I o80. ILLINOVA GENERATING COMPANY PRINCIPAL O FFI C E R S LAnav O. H A A s, 58 ALEC a. O m E v E n,37 pans L. H i C x E v, 44 Gainnan Presdent Vice Presdent-Pruiect Development Employed 1965 Employed 1942. Employed 1976. MICHAEL R. HENEO%AN.4Y M IC H A E L Se B E E N, 37 Dce President - hnnce, and Treasurer Corporate Secretary Employed 1985. Employed 1992. ~ tLLINDVA POWER MARKETING. INC. PRINCIPAL O FFIC E R S LAnny D. H A A s, i# RosEm' A. S C H u LT E 35 TMDMAm W R AIN W A T E n. 37 Gairman Presdent %ce Presdent - blJrketmg Employed 196E Emphryed 1986. Ergle sd 1995. GEmALD P. O ' C O N w o n, 44 McCMAEL S. B E E n,37 Uce Pressdent - hnance a d Admmurratson Corporate Secreta y Employed I99L Lmployed 1992. i

-. _ _. _ _ _ _ _ _ ~ _ _ _ , esse o y A C O a P Q R A fIO % A fe C 1L L p N OIS POWEp C O e4 P A N Y FOCKHOLDER IN FO R M ATIO N I )NUAL M E E TIN G {rinen communication regarding Illinova TAX l N F O R M ATI O N Annual Meetings of Ilhnova Corpora-Corporation and Illinois Power Company Illinova Corporation and Illinois Power j , and ilhnois Power Company will he held stock should be addressed to: Company estimate that 100 percent of the i 0 a.m. Wednesday, April 10,1996, at dividends paid to reockholders in 1995 is . ling Au6torium on the campus of Rich. Patricia E. Perkins fully taxable as dividend income for Federal l ' CommunityCollege,OneCollegePark, S" Pen isor-ShareholderSenice' Income Tax purposes. Form 10995 were I tur, Illinois 62525. Directions to Shilhng lilinois Power Company mailed to all registered common and ~itorium are provide.lin Illinova's Proxy 500 South 27th Street preferred stockholders in January 1996 show-I Notes to Financial Statements. Decatur,Ilhnois i,F25 !805 ing dividends paid during the year. Partici-pants in the Automatic Reinvestment and oex cxeNANoE cNANGE oF ADDREaa Requests for address changes must be sub-Stock Purchase Plan who reinvested cash 7'""* va's common stock islisted on the New mitted in writing anLhould include old and dividends or made optional cash payments Stock Exchangeand theChicago Stock * '#* * ** *"# I" P'" new addresses, exact name(s) in which the f ange. Illmois Power's preferred stock, I stock is registered, and Social Security or tax the exception of the 7.75% issue, is identification number on the account. An onthe NewYork Stock Exchange.ne ' I New York Stock Exchange symbol address change form is mailed quanerly to share of any brokerage fees all registered stockholders. incurred to purchase such shares as stated linova is ILN, but its stock is listed in i in the Plan prospectus. Stockholders should i newspapers as ILNova. The official consult with their own tax advisors for A u7o wATie York Stock Exchange symbol for REfNVESTMENT AND further knformation on tax consequences. l BTocK PURCNABE PLAN is Power is 'IPC,' but the Company's < s are also listed in some newspapers If you hold certificates in your own name TRANSFER AGEN7 & 'IllPwr.' rather than through a broker, you are R EGisTR AR roR 1 LL.N o v A i c D R PQ R AT 4 O N ANO cligible to participate in the Automatic 1LuNcia POWER CDMPANY ,,yg,uy Reinvestment and Stock Purchase Plan. He Illinois Power Company F0RMATtON plan offers stockholders a convenient and Shareholder Semices } holders more promptly,Illinova has dis' effort to make information available t economical way to increase their investment 500 South 27th Street in Illinova. Under the plan, d:vidends from Decatur, Illinois 62525-1805 nued its Quanerly Report to Stock-Illinova common and Illinois Power preferred and begun placing Snanciahnfonnation shares may be automatically applied toward Foam 1OK home page on the World Wide Web. the purchase of Illinova common stock. Stockholders may obtain, without charge, l holders can access this information at Through an optional cash feature, stock. a copy of Form 10K as filed with the Secu-I /www.iilinova.com. Shareholders with-holders may also purchase additional rities and Exchange Commission by send-1 to the Internet may call Illinova sbs 60 M without paying ing a request to Shareholder Services. . !ider Senices at 1800-800 8220 for "'I " "'**'i "' brokerage fees. Transactions are subject '"*'*' " "^ "* I tMimitatims set fonh in & Plan pgc-EuYRNs tus. For more m. formation, please contact CherylL Nalefski Shareholder Services. E'"#"' - I'#" 'I##'""* fholders desiring assistance with lost Participants in the Plan may also deposit 500Sous 27th Street ten erk cenificates or dividend checks, the common stock certificates they are Duatur, Ilknois 625254805 changes, stock transfers,informatim holding into their Plac accounts for safe-Telephone 1-217-424-8715 e Automatic Reinvestment and Stock keeping. If you are a Plan participant and Fax nuinber 1-217-424-6913 se Plan, or other matters may con-are interested in this service, please send a This repon and the condensed consolidated hareholder Services during their office written request to Shareholder Senices for financial statements contained herein are of 7 a.m. to 4:45 p.m., Central time, additional information. ay through Friday. submitted for the general information of the stockholders of Illinova and Illinois Power free telephone. 1-800-800-8220 Company and as such are not intended to tur, Illinois, area - . 424-6464 sohcit or to be used in connection with any 1-217-424-6913 sale or purchase of securities. ne pues of shu annul rey are prmted on m vled pper Dessnedandpraluedby Osborn c DeLong

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. _ ~ _ -. l l2l.co.uov. l i es .o, svaveu.~1 NOTICE OF ANNUAL M E ETI N G OF GHAREHOLDERS PROMY STATEMENT TO THE SHAREHOLDERS TAcLE Or CONTENTS OF l L LIN O V A C O R PO R ATIO NI Notice of Annual hiceting 2 Notice is Hereby Given that the Annual Ateering proxy 5tatement.. 3 of Shareholders of Illinova Corporation FIllinova) will l be held at 10 a.m. Wednesday, April 10,1996, at Shilling 1 l 9$ ual Report to Shareholders - A-1 Community Education Center, Richland Community College, One College Park, Decatur, Illinois 62521, for the following purposes: (1) To elect the Ibard of L)irectors for the ensuing year. (2) To transact any other business which may properly E [ come before the meeting or any adjournment. f Shareholders of record at the close of business on [ChryJfy }f, }hhh, Will be entitled to notice of and to vote RIC H L AN D i Mound Rd. CDMMUN17Y cDooeaE at the Annual Alecting. a j By Order of the Ibard of Directors, ee,a... o nu, rnay Ra. i j S i 3 I , u.I ~s, - g./ g,_,,_%, Le h Alanning Sterzner, W s General Counsel and Corporate Secretary [ Ncaw, Enois s.,og, m eshon s'[t* Q [ g Alarch 1,1996 4, l N Ag 1 M P O RTA NT Illinova invites each of its approximately 35,000 share-n N holders to attend the Annual hiceting. Shareholders will l be admitted on verification of record share ownership at the admission desk. Shareholders who own shares through banks, brokerage firms, nominees or other account custodians must present proof of beneficial share ownership (such as a brokerage account statement) at the l admission desk. If you are unable to be present at the meeting, it is important that you, whether the owner of one or many shares, sign and return the enclosed pmxy. An envelope on which postage will be paid by lilinova is enclosed for that purpose. Return of your executed proxy will ensare you l are represented at the Annual Ateeting. Your cooperation i is appreciated.

l l success lal Mramunce or oun PROXY STATEMENT IS D L I C I T A T I O N AND ANNUAL REPORT, R E V O C ATIO N Dr PROXIES PRDxY AND PRDXY STATEMENT l This Proxy Statement is furnished in connection with a Accompanying this Proxy Statement, which includes i solicitation of proxies by the ik>ard of Directors ofIllinova, Consolidated Financial Statements,is a Notice of Annual j for use at the Annual Meeting of Shareholders to be held Meeting of Shareholders, a form of Proxy and the l l at Shilling Community Educatbn Cent'r, Richland Summary Annual Report to Shareholders covering opera-Community College, One College Park, Decatur, Illinois tions of Illinova for the year 1995. This Proxy Statement 62521, at 10 a.m. Wednesday, April 10,1996, and at any and accompanying documents are first being mailed to I adjournment thereof (the " Annual Meeting"). Any share-shareholders on or about March 1,1996. holder giving a proxy may revoke it at any time by giving a later proxy or by giving written notice of revocation to g g,, the Corporat. Secretary J lilinova prior to the Annual Meeting. All duly executed proxies received prior to the 'a r o a a^no~ a ca^a o'~a THE BOARD OF DIRECTDRS Annual Meetmg will be voted. The Iknrd of Directors held six Ikiard meetings during Shares credited to the accounts of participants in 1995. All directors attended at least 75% of the aggregate Illinova's Automatic Reinvestment and Stock Purchase meetings of the Ik>ard and Committees of which they were Plan, and Employees Stock Ownership Plan, and Illinois members during 1995. The Ik>ard has four standing com. Power Company's (" Illinois Power") incentive Savings mittees: the Audit Committee, the Finance Committee, the Plans will be voted in accordance with the instructions of Compensation and Nominating Committee, and the the participants or otherwise in accordance with the terms Business Development Committee, of such plans. The duties and members of the standing committees are: VO TIN G RSGHTs AUD4T COMMtTTEE Shareholders of record at the close of business on (1) Review with the Chairman, President and Chief Monday, February 12,1996 (the " Record Date"), will be Executive Officer and the independent accountants the entitled to receive notice of and to vote at the Annual scope and adequacy of Illinova's system of internal con-Meeting. As of such date, Illinova had outstanding trols: (2) review the scope and results of the annual exam-75,674,837 shares of Common Stock. Shareholders who ination performed by the independent accountants; (3) are present at the Annual Me: ting in person or by proxy review the activities of Illinova's internal auditors: (4) will be entitled to one vote for each share of Illinova's report its findings to the ikiard and provide a line of com-Common Stock which they held of record at the close of munication between the Ikiard and both the internal audi-business on the Record Date, tors and the independent accountants; and (5) recommend When soting for candidates nominated to serve as '" "' Ik'ard the appointment of the independent accoun-directors, all shareholders will be entitled to 11 votes (the tants and approval of the services performed by the inde-pendent accountants, considering their independence with number of directors to be elected) for each of their shares regard thereto. and may cast all of their votes for any one candidate whose name has been placed in nomination prior to the The Audit Committee met three times during 1995. voting or distribute their votes among two or more such candidates in such proportions as they may determine. In voting on other matters presented for consideration at the Annual Meeting, each shareholder will be entitled to one vote for each share of Common Stock held of record at the close of business on the Record Date. The affirmative vote of the holders of a maiority of the shares of Common Stock present in person or represented by proxy and enti-tied to vote at the Annual Meeting is required for the elec-tion of directors.

j. jeu,~ov, l

i..s p oxv sv.ve-ew, This Committee consists of the following non-employee The Compensation and Nominating Committee will directors ("Outside Directors"): Vernon K. Zimmerman, consider shareholders' recommendations for nominees for Chairman, Richard R. Berry, Donald E. Lasater, Robert director made pursuant to timely notice in writing M. Powers, Walter A1. Vannoy, and Marilou von Ferstel. addressed to the Chairman of the Committee at the exec-utive offices of Illinova, together with a full description of riuauoe couu rree the qualifications and business and professional experi-(1) Review management's capital and operations and ence of the proposed nominees and a statement of the maintenance expenditure budgets, financial forecasts and nominees' willingness to serve. To be timely, the notice financing program, and make recommendations to the shall be delivered to or mailed and received at the execu-Board regarding the approval of such budgets and plans; tive offices of Illinova not less than 90 nor more than 120 (2) review lilinova's banking relationships, short-term days pric :o the Annual Ateering. borrowing arrangements, dividend policies, arrangements The Compensation and Nominating Committee met wah the transfer agent and registrar, investment objectives four times during 1995. and the performance of Illinova's pension funds, evaluate i fund managers, and make recommendations to the Board This Committee consists of the following Outside concerning such matters; and (3) act in an advisory capac-Directors: Donald S. Perkins, Chairman, Robert M. ity to management, the Board of Directors, and the Powers, Walter D. Scott, Ronald L Thompson, Marilou Chairman, President and Chief Executive Officer on other von Ferstel, and John D. Zeglis. financial matters as they may arise. The Finance Committee met three times during 1995. (1) Review corporate objectives of Illinova, consider This Committee consists of the following members of appropriate structure changes to meet corporate objec-j the Board: Donald E.12sater, Chairman, Richard R. tives and make recommendations to the Ibard concerning j Berry, Larry D. Haab, Walter D. Scott, Charles W. Wells such matters; (2) review Illinova's program for long-term l (until his retirement on December 31,1995), and Vernon corporate activities and make recommendations to the K. Ziremerman. Board regarding the approval of such programs; and (3) act in an advisory capacity to management and the Board e o u Iu'4 r. u u" " ^ ' ' c~o ^ "u Ur r e e of Directors on corporate development. (1) Review performance and recommend salaries plus The Business Development Committee met once other forms of compensation of elected Illinova officers during 1995. and the Board of Directors; (2) review Illinova's benefit This Committee consists of the following members of plans for elected Illinova officers and make recommenda-the Board: Robert M. Powers, Chairman, Larry D. Haab, tions to the Board regarding any changes deemed neces-Donald S. Perkins, Walter D. Scott, Ronald L. Thompson, sary; (3) review with the Chairman, President and Chief Marilou von Ferstel, and John D. Zeglis. Executive Officer any organizational or other personnel matters; and (4) recommend to the Peard nominees to stand for election as director to fill vacancies in the Ibard of Directors as they occur. i

I . m.. H ,o...... - om. coano o " " * " " ^ " " Pursuant to Illinova's Deferred Compensation Plan for The Outside Directors of Illinova receive a retainer fee of Certain Directors, the Outside Directors may elect to defer $18,000 per year. Outside Directors who also chair Ik>ard all or any portion of their fees and stock grants until ter-Committees receive an additional $2,000 per year mination of their senices as directors. Such deferred retainer. Outside Directors receive a grant of 650 shares of amounts are com erted into stock units representing shares Common Stock on the date of each Annual Shareholders of Illinova's Common Stock with the value of each stock Meeting, representing payment in lieu of attendance-unit based upon the last reported sales price of such stock i based fees for all hard and Committee meetings to be at the end of each calendar quarter. Additional credits are held during the subsequent one-year period. Outside made to the participating director's account in dollar Directors elected to the Board between Annual amounts equal to the dividends paid on Common Stock Shareholders Meetings are paid $850 for each Board and which the director would have received if the director had Committee meeting attended prior to the first Annual been the record owner of the shares represented by stock Shareholders Meeting after their election to the hard. units, and are converted into additional stock units. On Illinova has a Retirement Plan for Outside Directors. termination of participating directors' services as directors, Under this plan, each Outside Director who has attained payment of their deferred fees and stock grants is made in l age 65 and has served on the Board for a period of 60 or shares of Common Stock in an amount equal to the aggre-more consecutive months is eligible for annual retirement gate number of stock units credited to their accounts. Such i benefits at the rate of the annual retainer fee in effect when payment is made in such number of annual installments as l the director retires. These benefits, at the discretion of the Illinova may determine beginning in the year following the hard, may be extended to Outside Directors who have year of termination. attained the age of 65 but not served on the Board for the i specified period. The benefits are payable for a number of c i. c c y, o u o, o,,ecyo,, months equal to the number of months of Ik>ard senice, 11inova's entire Nard of Directors is elected at each subject to a maximum of 120 months, and cease upon the Annual Meeting of Shareholders. Directors hold office death of the retired Outside Director. On February 7, until the next Annual Meeting of Shareholders and until 1996, the Board of Directors approved a compensation their successors are elected and qualified. At the Annual plan that eliminates the Retirement Plan. Each former i Meeting a vote will be taken on a proposal:o elect the 11 Outside Director whose right to receive the retirement directors nominated by lilinova's Board of Directors. The benefit has vested will continue to receive such benefits in names and certain additional information concerning each j accordance with the tenns of the Retirement Plan. All cur-of the director nominees is set forth below. The dates rent Outside Directors will receive a lump sum payment i shown for senice as a director include senice as a direc-based on the net present value of these benefits to them, tor of Illinois Power prior to the May 1994 merger in were they to have retired under the Retirement Plan, which Illinois Power became a wholly owned subsidiary based on the number of years they have ser ed on the of Illinova. If any nominee should become unable to serve Board but not to exceed 10. Thereafter, each Outside as a director, another nominee will be selected by the cur-l Director will receive an annual award of stock units hav-rent Board of Directors. ing a value of $6,000, to be paid to the Outside Director in cash on retirement, at once or in installments as the j Director may elect, together with dividend equivalents attributable to such stock units. i

l 6 l 8 L LIN O V A1995 PacKY STATEMENT N AME Or DenE CTom NousNEE, AGE, YEAN IN WHICH rses? N AME or OswECTOR NOMINEE, AGE, YEAR $N W HICM Fan sT sus 4NE se EXPENIENCE AND ELECTED A DanECTOR Bus 6 Nebs E XPERIENCE AND ELECTED A DanECTOR OTHE R INFQlWM ATION Or OLL4ND'/A OTHER INrowM AtsoN orILL NOVA RBCHARD R. BERRY, 64 1988 ROsERT M. Powers, 64 1984 pr Prior to retirement in February 1990, (v Prior to retirement in December 1988, hir. Powers was President and Chief Executive hir. Berry was Executive Vice President q g and director of Olin Corporation, h Officer of A. E. Staley hianufacturing n 1 Stamford, Connecticut, a diversified Company, Decarm; lilinois, a processor of grain and oil seeds, since 1980. lie is a manufacturer concentrated in chemi-cats, metals and aerospace / defense director of A. E. Staley hianufacturing products, since June 1983. Company. LARRY D. HAAs, 58 1986 W A LT E R D. BCDTT, 64 1990 Chairman, President and Chief Professor of Management and Senior ]' Executive Officer of Illinova since g Austin Fellow, J. l Kellogg Graduate h( School of hianagement, Northwestern Jf December 1993, and of Illinois Power 4 since June 1991, and an employee of University, Evanston, Illinois, since 1988.

llinois Power since 1965. Ile is a direc-Previously, Mr. Scott served as Chairman tor of First Decatur Bancshares, Inc.,

of GrandMet USA, from 1984 to 1986, The First National Bank of Decatur and and as President ar.d Chief Executive Firstech, incorporated. Offier of IDS Financial Services, from 1980 to 1984. Mc Scott is a director of Chicago Title and Trust Company, Chicago Title Insurance Company, Intermatic

c. 8TEVEN MCMiLLAN, 5O Incorporated, and Orval Kent Food Company, Inc.

Executive Vice President and Director aj of Sara 1 ee Corporation, Chicago, f Illinois, a global packaged food and RDNALD L. THOMPeON, 46 1991 ,W consumer products company, since g ' u Chairman and Chief Executive Officer of Midwest Stamping and Manu-1993, lie had previously been Senior jf g Vice President-Strategy Development l l facturing Co., Bowling Green, Ohio, a from 1986 to 1993. lie is Chairman manufacturer of automotive parts, since of the Ibard of Electrolux Corporation and a director of 1993. He was President and Chief J. P. Food Service. Executive Officer and a director of The GR Group, Inc., St. I ouis, Missouri, a DONALo B. PERKINs, 68 1988 I ng and service activities, from 1980 to 1993. He is i Prior to retirement in June 1983, as Chairman of the ikiard of The GR Group, a director of Chairman of the Executive Committee, McDonnell Douglas Corporation, and a director of '~t Mr. Perkins was Chairman of the Ibard i Teachers insurance and Annuity Association. y and Chief Executive Officer of jewel l Companies, Inc., Chicago, Illinois, a l W A LT E R M. VANNOY, 68 199O diversified retailer, from 1970 to 1980. ! lie is a director of AT&T, Aon l Prior to retirement in May 1995, Mr. s 9 Vannoy was Chairman and Chief Exec-Corporation, Cummins Engine Company, Inc., Current ; Assets, Inland Steel Industries, Inc., LaSalle Street Fund, utive Officer of Figgie International, Inc., The Putnam Funds, Spring industries, Inc., and Time l Inc., Willoughby, Ohio, a diversified oper-ating company serving consumer,indus-Warner, Inc. ( l 1 trial, technical, and service markets l world-wide, since 1994. He is a director l of Figgie International,Inc. I

i success l7l MEAmuute Or oun t ( l NAME Dr DinECTDR N OMINE E. AGE, Yr An W WHacM FiesT E; E D U R 0 T Y DWNERsHIP OF BUSINE SS E MPE nttNCE AND ELECTED A OtNECTOR MANAGEMENT AND C E RT A 4 N OTHER BNFDNM AT f DN OF O LLIN DV A The following table shows shares of stock beneficially owned as of January 31,1996, by each director nominee j MARILOu v0N FERSTEL, 58 199o e ' 79 Executive Vice President and General and the executive officers named in the Summary i I A Manager of Ogilvy Adams & Rinehart, Compensation Table. To the best of Illinova's knowledge, no hf Inc., a public relations firm in Chicago, owner holds more than 5 percent of Illinova Common ! lilinois, since June 1990. She had previ_ Stock. l ousiv been Managing Director and l)'"j,j'", Senior Vice President of Hill and Lme of CLss Benefcu#y n'rcent I nenefuul ouver Oumed m k.nowlion, Chicago, Illinois, a pubh.e; -- ~ ~ - of.\\ tuck- - - - <4 Cbss l relations consulting firm, from 1981 to 1990. Ms. von Ferstel l Richard R. P,erry Common 3.5 k0 (2) is a director of Walgreen Company. j larry D. liaab uimmon 10J 85 (2) C. $tnen Skilillan Common 0 (2) l JOHN D. ZEGLis, 48 1993 Donald S Perk..s Common 8.112 (2) I Senior Executive Vice President-Rohen st. Power, o,mmon ,,250 (2) General Counsel, Government Affairs, wahn Di>n 0>mmon 3mo m 4 4 and Policy Development of AT&T, ' 5' +,. g flasking Ridge, New Jersey, a diver-Ronald L Thompson Common 3.127 (2) M sified communications company, Wah" h133"""Y U"""'"" 33M W i since 1995. He had been Senior stank.u mn ierstet 0,mmon 4,112 (2i Vice President-General Counsel and John D. zeghs Common 2,390 (2) i Government Affairs from 1989 to 1995. He is a director Vernon K. Zimmerman Common 8All (2) of the Helmerich & Payne Corporation. Charles W. Welk Common 8,585 (2) VERMON K. ZIMMERMAN, 67 1973 larry I. Ahenbaumer Common 4,179 (2) Director of the Center for International r"ry 1 i Education Research and Accounting, 12rr3 $. nn,J,Ly Common i,7:3 i2 1 A ' and Distinguished Service Professor of (1) The nature of beneficial ownership for shares shown Accountancy, University of Illinois, is sole voting and/or investment power, except for Urbana, Illinois, since August 1985. He Mr. Wells, who disclaims beneficial ownership of is a director of ICH Corporation. 1,000 shares held in the name of his wife. j (2) No director or executive officer owns any other equity securities of Illinova. No director or executive officer owns as much as 1% of the Common Stak. All direc-tors and executive officers of both Illinova and Illinois Power Company as a group own 80,299 shares of Common Stock (less than 1%). i t I l l f I

l 2 l 0 4 L LIN O V A 1995 Paoxy BTATEMENT 1 CutcuTevc C D M P C N S AT 4 O N 1 l \\ The following t;.ble sets forth a summary of the compensation of the CNef Executive Officer and the four other most i highly compensated executive officers of Illinova and Illinois Power Company,its principal subsidiary, for the years indi-cated. De compensation shown includes all compensation paid for service to Illinova and its subsidiaries, including l Illinois Power. S UMM AnY C o M PE N S ATIO N TABLE Long-Term Compensation i Annual Crnnpensation Awards Payouts l l Other Restricted Securities LTIP All Other t Bonus Annual Stock Awards Undetlying Payouts Compensation Name and Principal Posinon (1) Year Salary (2) Compensation (3) Options (4) (5) Laaay D. HaAe 1995 $ 472,250 $ 76,975 $ 19,088 $ 76,975 20,000 shs. $43,597 $ 2,550 Chairman, President and 1994 451,375 42,881 15,783 20,900 shs. 360 I Chief Executive Officer of 1993 437,500 22,531 13,199 20,000 shs. 480 Ilbnova and libnois Power i cwanoes w. wcLLs 1995 $ 318,863 $ 33,734 $ 22,342 $ 33,734 $24,392 52,470 Executive Vice President 1994 276,625 2332 12,404 8,500 shs. 330 ofIllinois Power 1993 265,875 12,629 9,697 6,500 shs. 357 r paut L.Lawa 1995 $ 222,812 5 20,499 $ 8,265 $ 20,499 6,500 shs. $20,360 $ 2,510 Senior Vice President 1994 213,562 20,289 8,672 6,800 shs. 440 of !!hnois Power 1993 205,625 9,767 7,508 6,000 shs. 440 i Laony r. i A or e N e a u u e n 1995 5 204,937 $ 17,317 $ 7,686 517,317 6,500 shs. $ 16,084 $ 2,378 f Chief I mancial Officer, 1994 196,562 18,674 8,975 6,800 shs. 400 Treasurer and Controller 1993 187,750 8,918 7,093 6,000 shs. 480 of Illinova, and Senior r Vice President, Chief 1:mancial Officer, and Treasurer of Ilhnois Power LAnav s.eaooascv 1995 $ 196,000 $ 5,120 6,500 6hs. $14,179 $ 2,190 Senior Vice President 1994 $ 174,186 $ 16,548 $ 4,973 4,400 shs. 400 of Ilhnois Power 1993 157,875 8,131 4,220 4,500 shs. 400 (1) Mr. Wells retired from lllinois Power on December 31,1995. Mt Broe.ky resigned from Ilhnois Power on January 2,1996. (2) The amounts shown in this column a e the cash award portion of grants made to these individuals under the Executive Incentive Compensation Plan FCompensatum Plan 7 for 1995,includmg amounts deferred under the Executive Deferred Compensation Plan. See the Compensation Plan descripnon m footnote (3) below. i3) This table sets forth stock umt awards for 1995 under the Compensation Plan. One-half of each year's award under this plan is converted into stock units representing shares of Ilhnova Common Stock based on the chning price of Common Stock on the last tradmg day of the award yeat The other one-half of the award is paid to the recipient in cash and is included under Bonus in the Summary Compensation Table. Stock units awarded in a given year, together with cash representmg the accumulated dividend eqmvalents on those stock units, become fully vested after a three-year holding period. 5tock units are converted into cash and paid based on the closing price of Common Stock on the first trading day of the distnbunon yeat Participants (or benenciaries of deceased participnts) whose employment is terminated by retirement on or after age 55, dis-abihty, or death receive the present salue of all unpaid awards on the date of such termination. Participants whose employment is terminated for reasons other than retirement, disabihty, or death forfeit all unvested awards. In the event of a termination of employment within two years after a change in control of Ilhnova, wahout good cause or by any parucipant with pod reason, all awards of the parncipant become fully vested and j payable. As of December 31,1995, named encunte officers were credited with the following total aggregate number of unvested stock units ( under the Compensation Plan since its inception, valued on the basis of the ckising price of Conunon Stock on December 31, 1995: Mr. Ilaab,8,253 umts valued at $247,603; Mr. Wells,3,758 units s alued at il 12,759; Mt lamg,2,807 units vakied at $84,211; Mr. Altenbaumer, ( 2,439 umts valued at $73,187; Mr. Brodsky,474 umts valued at $14.238. Ahhough stock units have been rounded, valuation is based on total stock units, mchidmg parnal shares. i I H) ne amounts shown in this column reflect the cash value of the stak units granted m 1993 for the year 1992,includ ng an ounts deferred, under the Compensation Plan. See the Compensation Plan descripnon in foomote (3) above. (5) The amounts shown in this column are Ilknois Power's contnbutions under the incennve Savings Plan (includmg the market value of shares of Ilhnova Common Stock at the time of alkwatun). p l l l

l socoe..l.l -e.so.e. . oo. The following tables summarize grants during 1995 of stock options under Illinova's 1992 Long-Term Incentive Compensation Plan ("LTIC") and awards outstanding at year end for the individuals named in the Summary Compensation Table. No options were exercisable or exercised during 1995. OPTION GRANTsSN 1995 IndividualGrants Number of Securines % of Total Options Underlying Opnons Granted to Fanployees Exercise or Base Grant Date Granted (1) in 1995 Price Per Share (1) Expiranon Date Ibent Value (2) LAeav D. H A Aa 20,000 29 % $ 24.875 6/14/2004 $ 117,800 cNanLEs w. WELLS 0 PAUL L. LA N D 6,500 9% 24.875 6/14/2004 38,285 LM R v F. A LT E N s A u M E R 6,500 9% 24.875 6/14/2004 38,285 L.=nv s. eaooaxv 6,500 9% 24.875 6/14/2004 38,285 (1) Each optain lxxornes exercisable on June 30,1998. In addition to the specified expiration date, the grant expires on the first annive.sary of the recipient's death and/or the 90th day following reurement, and is not exercisable in the event a recipient's employment terminates. In the event of certain change-in-control circumstances, the Compensation and Nominating Committee may declare the option immedntely exercisable. The exer-cise price of each option is equal to the fair market value of the Common Stock on the date of the grant. Recipients shall also receive, on or shortly after June 30,1998, a payment equal to a percentage of the total dividends declaied and paid on Illinova Common Stock during the period between the date of this grant and June 30,1998 calculated by multiplying the number of shares of Common Stock granted hereunder times the total amount of dividends paid per share of Common Stock dunng the holding period, times a percentage based on lihnova total shareholder return ranking rela-tive to the S & P Electric Utility Group. At the discretion of the Board of Directors, the foregoing payment may be made in the form of Ilknova Common Stock of equivalent value based on the average New York Stock Exchange price of the stock during June 1998, or in cash. (2) ne Grant Date Present Value has been calculated using ne Black-Scholes option pricing model. Disclosure of the Grant Date Present Value, or the potential reahzable value of option grants assuming 5% and 10% annualized growth rates, is mandated by regulanon; however, Illinova does not necessarily view the Black-Scholes pricing methodology, or any other present methodoksv, as a vahd or accurate means of valuing stock option grants. The calculation was based on the following assumptions: (i) An annual dividend yield on !!!inova Common Stock of 3.80%; (ii) A risk-free interest rate of 6.40%, bsed on the yield of a terr > coupon government bond maturing at the end of the option term; and (iii) Stock volatihty of 19.73%. Aeo n t o AT ED O PTIO N AND FescAL Y E A R

E~ N D O PTION VALUE TABLE Number of Securities Underlying Unexercised Value of Unexercised in-the-Money Options at Fiscal Year-End Options at Fiscal Year-End Name Exercisable /Unexercisable Exercisable /Unexercisable LAnay D. HAAe 0 shs/"'6,900 shs.

0/5514,212 c N Aa LE s W. wE LL s O shs121,000 shs. 0/$154,687 paul L. L4No o shs>24,300 shs. 0/5162,987 LARay F. A LT E N B A u M E R 0 shs124,300 shs. 0/5162,987 LAnav 9. BaaoaKy 0 shs/l8,400 shs. v51,9,212

l pojem~ ova iees P.ou s van u ~r s= E N a e o N eENEn7* l At December 31, 1995, for purposes of both the l Illinois Power maintains a Retirement income Plan for Retirement Plan and the Supplemental Plan, Messrs. Haab, Salaried Emplo>ces (the " Retirement Plan") providing Wells, Lang, Altenbaumer, and Brodsky had completed 30, pension benefits for all eligible salaried employees. In 32,9,23, and 21 years of credited service, respectively, addition to the Retirement Plan, Illinois Power also main-tains a nonqualified Supplemental Retirement income EMPLOYEE R E T E N TIO N AGREEMENTS Plan for Salan,ed E,mployees (the " Supplemental Plan") that covers all elected officers eligible to participate in the Illin va has entered into Employee Retention Agreements t with each of its executive officers and officers of its sub-Retirement Plan and provides for payments from general funds ofIllinois Power of any monthly retirement income sidiaries. Under each agreement, the officer would be enti-not payable under the Retirement Plan because of benefit tied to receive a lump sum cash payment if his or her I l limits imposed by law or because of certain Retirement empi yment were terminated by Illinova without good i Plan rules limiting the amount of credited service accrued cause or voluntarily by the officer for good reason within two years following a change in control of Illinova by a participant. Corporation (as defined in the Agreement). The amount The following table shows the estimated annual pen-of the lump sum payment would be equal to (1) 36 sion benefits on a straight life annuity basis payable upon months' salary at the greater of the officer's salary rate in retirement based on specified annual average earnings and effect on the date the change in control occurred or the l years of credited service classifications, assuming continu-salary rate in effect on the date the officer's employment ation of the Retirement Plan and Supplemental Plan and with Illinova terminated; plus (2) three times the latest employment until age 65. This table does not show, but bonus earned by the officer during the three calendar any actual pension benefit payments would be subject to, years preceding termination of employment. Under the the Social Security offset. agreement, the officer would continue, after any such ter-Y '" ' ' E# ' # Estmuted Annual Benefas (rounded) benefits under other benefit plans of Illinova, Such cover-A"""JI age would continue for 36 months following termination Average H Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs. Earnings 5 nice Sen se Sen ke sente Senice of employment, or, if earlier, until the officer reached age 65 or was employed by another employer; provided that, $ 125,000 5 37,500 5 50,000 5 62,500 5 75,000 $ 87,500 150,000 45,000 60,000 75,000 90,000 105,000 f the officer was 50 years of age or older at the time of 17s,000 52,500 70,000 87,500 105,000 122,500 such termination, then coverage under health, life insur-200,000 60,000 80,000 100,000 120,000 140,000 ance and similar welfare plans would continue until the 250,000 75,000 100,000 125,000 150,000 175,000 fficer became 55 years of age, at which time he or she 300,000 90,(xx) 120,000 150,000 180,000 210,000 350,000 105,000 140,000 175,000 210,000 245,000 would be eligible to receive the benefits extended to the 400,000 120,000 160,000 200,000 240,000 280,000 employees of Illinova who elect early retirement. 450,000 135,000 180,000 225,000 270,000 315,000 500,000 150,000 200,000 250,000 300,000 350,000 l 550,000 165,000 220,000 275,000 330,000 385,000 600,000 180,000 240,000 300,000 360,000 420,000 650,000 195,000 260,000 325,000 390,000 455,000 The earnings used in determining pension benefits under the Retirement Plan are the panicipants' regular l base compensation, as set forth under Salary in the Summary Compensation Tt ble. i I

_ ~ j .o...H N... ...., Oo. c ""'""^ " ^" "'"^7'" The compensation program for officers consists of base c c M MITT c t REPORT DN O FFIC E R c o Mecu 4Y,o u salary, annual incentive and long-term incentive compo-The six-member Compensation and Nominating nents. The combination of these three elements balances Committee of the Board of Directors (the " Committee") sh rt and long-term business performance goals and is composed entirely of Outside Directors. The aligns officer financial rewards with those of Illinova's Committee's role includes a review of the performance of shareholders. The compensation program is structured so the elected officers and the establishment of specific offi-that, depending on the salary level, between 25 and 45 cer salaries subject to Peard approval. The Committee percent of an officer's total compensation target is com-establishes performance goals for the officers under the posed of incentive compensation. Compensation Plan, approves payments made pursuant .,,,,pt., to the Compensation Plan and recommends grants under The Committee determines base salary ram;es for execu- { the Long-Term 1ncentive Compensation Plan approved by tive officers based on competitive pay practices of a peer 1 the shareholders in 1992. The Committee also reviews group of utilities. Officer salaries correspond to approxi-other forms of compensation and benefits makmg recom-mately the average of the companies in the compensation mendations to the Board on changes whenever appropri-peer group. Individual increases are based on several fac-ate. The Committee carries out these responsibilities with tors including the officer's performance during the year assistance from an executive compensation consulting and the relationship of the officer's salary to the market firm and with input from the Chief Executive Officer and salary level for the position. management as it deems appropriate. ANNUAL INCENTIVE C O M PEN E ATIO N PLAN O r re c E R COMPENS ATION PNILOMOPNY Annual incentive awards are earned based on the achieve-Illinova's compensation philosophy reflects a commitment ment of specific annual financial and operational goals by to compensate officers competitively with other compames the elected officer group as a whole and consideration of in the electric and gas utility indusuy while rewarding exec-the officer's individual contribution. If payment is earned utives for achieving levels of operational excellence and under this Plan, one-half of the bonus is payable in cash financial returns consistent with continuous improvement during the year following the award year and one-half is in customer satisfaction and shareholder value. Illinova's credited to the participant in the form of Common Stock compensation pobcy is to provide a total compensation units, the number of which is determined by dividing half opportunity targeted to all utilities in the Edison Electric of the earned bonus amount by the ek> sing price of the Institute (EEI) database. Eighty-four percent of the compa-Common Stock on the last trading day of the award year. nies in the S&P Utilities Index are also in the eel database. The officer's interest in the stock units vests at the end of The S&P Utilities Index is used to relate Illinova's share-the three-year period which begins the year after the i holder value in the following performance graphs. The S& P award year. The officer receives this award in cash equal index covers the utility industry broadly including electric, to (1) the closing stock price on the first trading day of the gas, and telecommunications utilities. After careful consid-distribution year times the number of units held plus (2) eration, the Committee has decided to maintain a separate dividend equivalents that would have been received if the peer group limited to electric or combination electric and stock had actually been issued. gas companies for compensation purposes.

lisl it e ~ o v. j i ,s ..ov sv ve- ~r For 1995, awards under the Compensation Plan are The Committee invokes the active participation of all based on achievement in the performance areas: earnings non-management directors in reviewing Mr. Haab's per-per share, customer satisfaction, employee teamwork, cost formance before it makes recommendations regarding his management and operating effectiveness. Up to 25 per-compensation. The Committee is responsible for adminis-cent of the awarded amount is based on an assessment of tering the processes for completing this review. The the individual officer's performance during the year. process starts early in the year when the Board of l Awards shown under Bonus in the Summary Directors works with Mr. Haab to establish his personal Compensation Table for performance during 1995 were g als and short-and long-term rtrategic goals for Illinova. based on the following results. Earnings per Share, At the conclusion of the year Mr. Haab reviews his per-Customer Satisfaction and Cost Management were at or f rmance with the non-management directors. The Committee oversees this review and recommends to the better than the threshold level for the award. Employee Teamwork results were not known at the time of printing. Board appropriate adjustments to compensation. In set-ting the CEO's salary for 1995, the Committee, with the

i. o u..T e n u inecuvive cou cu. AT.o" P'^N participation of all Outside Directors, determined that Awards under the LTIC Plan are made to individual offi-important goals were achieved and the results for Illinova cers based on their contribution to corporate performance for the year were excellent. Mr. Haab's vision of the indus-based on the review of this Committee. The Committee try's evolution has led, and is countinuing to lead, to may grant awards in the form of stock options, stock appropriate redeployment of Illinova resources. The appreciation rights, dividend equivalents or restricted Committee concluded that in 1995 Mr. Haab's perfor-stock grants. The stock options and dividend equivalents mance continued to advance Illinova toward the accom-granted to the officers for 1995 represent a long-term plishment of its strategic objectives.

incentive award based on Illinova and individual perfor-The 1995 Annual Incentive Compensation Plan award mance as evaluated by the Chairman and reviewed by the for the Chief Executive Officer was calculated consistent Committee. The actual n saber of dividend equivalents with the determination of awards for all other officers. earned is determined by 'llinova's total shareholder return Under the terms of the plan, one-half of the award was paid compared to the companies in the S & P Utility Index. in cash and one-half was convened to 2,566 stock units which vest over a threeyear period as described above. e c o eou cu. ATiou Larry Haab became Chairman, President, and Chief The 20,000 option shares and dividend equivalents Executive Officer rCEO") of Illinois Power on June 12, granted to the CEO reflect the Committee's recognition of 1991, and Chairman, President and Chief Executive his work in directing Illinova towards its long-term objec-Officer of Illinova in December 1993. Illinova based Mr. tives of outstanding customer satisfaction and sustained Haab's 1995 compensation on the policies and plans growth in shareholder return. described above. 1 c O M PcN. ATIO N AND N OMIN ATING C O M MITT e c Donald S. Perkins, Chairman Robert M. Powers Walter D. Scott Ronald L Thompson Marilou von Ferstel John D. Zeglis l

I .mm..jlI o.. CToCK PERFGRMANCE GRAPH $ C D M P A R I Si D N OF THRE E-Ys AR C u M uL ATivE TOTAL RETURN The following performance graphs compare the cumula-tive total shareholder return on Illinova's Common Stock Am ng Illin ru, S&P 500 Index, S&P Midcap 400 Index, and S&P Utilities index. to the cumulative total return on the S&P 500 Index, S&P MidCap 400 Index and S&P Utilities Index from (i) iso December 31,1990, through December 31,1995, and (ii) g December 31,1992, through December 31,1995. COMPARISON OF Fe v E-YE AR / C u M U L ATIV E TOTAL RETUNN Among Illinotu, S&P 500 Index, StrP Midcap 400 j ' *" l Index, and S&P Utilities index. 51zo h.- e 25o ,,o zes /A ~ / 9a p175 '. / 199T 1993 1994 1995 a 3 i.o A _n / e tilinova a suP500 A s&P Malcap 400 x s&P Utilities 1., Assumes $100 invested on December 31,1992, in Illinova's Common Stock, S&P 500 Index, S&P MidCap t oo _ _ - 400 Index, and S&P Utilities Index. 7s 1990 1991 1992 1993 1994 1995 O lllinova O s&P Soo A s&P Midcap 400 x s&P Urilities Assumes $100 invested on December 31,1990, in Illinova's Common Stock, S&P 500 Index, S&P MidCap 400 Index, and S&P Utilities Index.

=.. jicl e tt.~ ov. l i,.. eaan, sv.ve-cu, l l INDEPENDENT A U olT O R s l The Board of Directors of Illinova has selected Price Waterhouse ll.P as independent auditors for Illinova for l 1996. A representative of that firm will be present at the Annual hieeting and available to make a statement and to respond to appropriate questions. OTHER M ATT E R s Illinova's 1995 Summary Annual Report to Shareholders was mailed to shareholders commencing on klarch 1, 1996. Copies of Illinova's Annual Report on Form 10-K will be available to shareholders, after its filing with the Securities and Exchange Commission on or before March 31, 1996. Requests should be addressed to Investor Relations, G-21, Illinova Corporation, 500 South 27th Street, Decatur, Illinois 62525-1805. Any proposal by a sharehuder to be presented at the next Annual Meeting must be received at Illinova's execu-tive offices not later than November 1,1996. 1 OTHER B U SIN E S S Afanagement does not know of any matter which will be presented for consideration at the Annual Meeting other than the matters described in the accompanying Notice of I Annual Meeting. Ily Order of the Ik>ard of Directors, leah Manning Sterzner, General Counsel and Corporate Secretary Decatur, Illinois March 1,1996 j l 1 i e l

l l43 l ss..uar. or ou. succc.. APPENDIX: 1995 ANNUAL REPORT TO SHAREHOLDERS TABLE OF CONTENTS Management's Discussion and Analysis. ... A-2 Responsibility for Information.. ... A-10 Report ofIndependent Accountants .. A-10 Consolidated Statements of Income. .... A-11 Consolidated Balance Sheets. . A-12 Consolidated Statements of Cash Flows .. A 13 Consolidated Statements of Retained Earnings (Deficit).. A-13 Notes to Consolidated Financial Statements. . A-14 Selected Consolidated Financial Data . A-31 Selected Illinois Power Company Statistics .. A-33

{A a l I L L e N o v a 1995 ANNUAL REPQHT I M AN AG E M EN T'S DISCUSSIDN AND A N A LY S I S PEN ACCEBB AND WHEEUNG In this report, we make reference to the Consolidated Financial Statements, related Notes to Consolidated On hiarch 29, 1995, the FERC issued a Notice of Financial Statements, Selected Consolidated Financial Proposed Rulemaking (NOPR) designed to encourage a Data and Selected Illinois Power Company Statistics for more fully competitive wholesale electric market through information concerning consolidated financial position mandated open access to public utility transmission facil-and results of operations. A discussion of the factors hav-ities, at rates to be determined, at the outset, by the FERC. ing significant impact upon consolidated financial position Transmission of electricity for a customer who is not an i and consolidated results of operations since January 1, end-user, or for delivery to an end-user who is not a cus-i 1993,is below. tomer of the transmitting utility is called, respectively, wholesale wheeling and retail wheeling. Under the FERC's P' P"S*I' all transmissi n-wning public utilities were ieuNovA s u o eioi AaiE e required to file nondiscriminatory open-access transmis-The Consolidated Financial Statements include the sion tariffs, available to all wholesale sellers and buyers of accounts of: I!!inova Corporation (Illinova), a holding electric energy. company; Illinois Power Company (IP), a combination electric and gas utility; lllinova Generating Company On hiarch 20,1995, IP filed three transmission service (IGC), which invests in energy-related projects throughout t riffs that offer eligible transmission customers the same the world; and Illinova Power Marketing, Inc. (IPMI), r c mp rable transmission service on terms comparable t service IP provides itself. On May 16,1995, the FERC which is in the business of marketing energy, energy-related services and natural gas. accepted IP's open-access tariff filings. It's too soon to pre-dict the long-term financial inpact of increasing access and On May 16,1995, IPMI gained Federal Energy other issues arising from such access. l Regulatory Commission (FERC) approval to buy electrie ity from various producers not affiliated with IP and r C MPE W DN sell electricity at market rates to such wholesale customm as utilities, electric cooperatives and municipalities. In in March 1995, IP was instrumental in developing a leg-January 1995, IPMI established operating headquarters in islative proposal, Energy Choice 2000, which is designed to Salt Lake City, Utah. reform Illinois' regulatory laws governing utilities. Energy See " Note 2-Illinova Subsidiaries" of the " Notes to Choice 2000 establishes the framework for a managed tran-Consolidated Financial Statements" for additional informa-sition fce utilities to operate in an increasingly competitive tion. IP's consolidated financial position and results of oper-esimnment. The proposal outlines a time frame for all classes f cust mers t benefit from competition, begimung in the ations are currently the principal factors affecting Illinova's consolidated financial position and results of operations. year 2000. In May 1995, the Illinois General Assembly passed Senate Joint Resolution 21, which established the Joint Committee on Electric Utility Regulatory Reform and directed it to use Energy Choice 2000 "as a key element for developing legislative proposals for reducing regulation, increasing customer choice and promoting and facilitating competition in Illinois' electric utility industry" The Joint Committee on Electric Utility Regulatory Reform is directed to provide a final legislative proposal during the fourth quarter of 1996. L

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On September 11,1995, IP filed a proposal with the ENHANCED RETeRmENT lilinois Commerce Commission (ICC) seeking its approval In December 1994, IP announced plans for voluntary to conduct an open-energy access experiment beginning in er.hanced retirement and severance programs. During the ] 1996. The experiment would allow approximately 20 fourth quarter of 1995, 727 employees accepted enhanced l industrial customers to purchase electricity and related retirement or severance under these programs. At January services from other sources. IP would transmit (wheel) the 1,1996, Illinova employed 3,596 people, as compared to j electricity over its lines. IP will seek FERC approval of the 4,350 at December 31, 1994. The combined enhanced i experiment after receipt of ICC approval, anticipated in retirement and severance programs generated a pre-tax ] [ the second quarter of 1996, charge of $38 million against founh quarter 1995 earn-The maximum total load involved in this experiment ings nd will generate savings of approximately $36 mil-l represents approximately 1 percent of IP's total load, or li n annually, starting in 1996. about $7.5 million in net annual revenue. IP expects the earnings impact to be immaterial. Any loss of sales would coNaoeioaTEo R E s u er a be partially offset by revenues obtained by selling the sur-F ""^o"" plus energy and capacity on the open market and by trans-o y c.vic w mission and ancillary service charges necessar> for customers to obtain energy from an alternative supph;er, as Earnings (loss) applicable to common stock were $148 million for 1995, $158 million for 1994 and $(82) million well as by corresponding reductions in fuel and other vari-for 1993. Earnings (loss) per common share were $1.96 for able operatmg costs. 1995 ($2.26 before the one-time charge of $38 million for The open-access experi,aent will allow IP to e~aluate enhanced retirement and severance), $2.09 for 1994 and the financial, operational and senice impacts of c insport- $(1.08) for 1993. The 1995 earnings per share include ing power from other suppliers to customers. Additionally, $(.30) net-of-tax for the enhanced retirement and sever-regulators and legislators will benefit from the experiment ance program and $(.05) for the carrying amount under i l by obsening opeh-energy access in a " laboratory setting" consideration paid for IP preferred stock redeemed in i while they h>ok for ways to bring the benefits of competi-December 1995. The 1995 earnings also reflect increased tion to all customers. Finally, it will give customers oppor-electric sales due to unseasonably warm summer weather, tunity to gain experience in arranging their power supplies partially offset by increased operating and maintenance l and transmission requirements and managing their opera-expenses due to the Clinton Power Station (Clinton) refuel-tions under an open-energy access scenario. ing and maintenance outage. The 1994 earnings per share The issue of competition is one that raises both risks include $.08 for the carrying amount over consideration and opportunities. At this time, the ultimate effect of com-paid f r IP preferred stock redeemed in December 1994 l petition on Illinova's consolidated financial position and and an increase in gas rates as a result of IP's 1994 gas rate j results of operations is uncenain. See " Note 1-Summary order. The 1994 camings also reflect increased electric of Significant Accounting Policies" of the " Notes to sales, I wer operating and maintenance expenses due to Consolidated Financial Statements" for additional discus-ngoing cou management effons no Clinton refueling and sion of the effects of regulation. maintenance outage and lower financing costs. In 1993, Ilhnova's earnings were $118 million, or $1.57 per com-mon share, excluding the September write-off of disal-lowed Clinton post-construction costs of $200 million, or $2.65 per share, net of income taxes. The 1993 earnings before the write-off reflect increased electric and gas sales due to closer-to-normal temperatures, increased inter-change sales, lower operating and maintenance expenses and lower interest expense as a result of refinancing efforts. 1 l

I A lLL1 NOVA 1,,5 ANNUAL REPONY l l The ICC and FERC determine IP's rates, at the retail i 9 9 s The 6.4% increase in electric revenues was pri-j and wholesale levels, respectively, for electric service, and marily due to a 1.9% increase in kilowatt-hour sales to the ICC determines IP's rates for gas service. These rates ultimate consumers (excluding interchange sales and are designed to recover the cost of sen ice and allow share-wheeling). Volume increases resulted from higher residen-holders the opportunity to earn a fair rate of return. tial sales (4.8%) and higher commercial sales (8.2%) due Future electric and natural gas sales, including interchange to an improving economy and warmer summer tempera-sales, will continue to be affected by an increasingly com-tures compared to 1994. Industrial sales remained essen-petitive marketplace, changes in the regulatory environ-tially unchanged from 1994 Interchange revenues ment, increased transmission access, weather conditions, increased $6.3 million (5.8%) as a result of increased sales competing fuel sources, interchange market conditions, opportunities. plant availability, fuel cost recoveries, customer conserva-The 3.7% increase in electric revenues was pri-j tion efforts and the overall economy. i994 marily due to a 6.3% increase in kilowatt-hour sales to ultimate consumers (excluding interchange sales and o PE R ATIN G REVENUEB @1dlums of dollars) mercial sales (8.3%) and higher industrial sales (7.0%) 51.641.4 due to an improving economy. Residential sales remained ,. I i s i,s s9.5 essentially unchanged from 1993 primarily due to milder ,a 51,s81.2 temperatures in 1994 as compared to 1993. Interchange ,z 1 1 51,479.s sales decreased 19.6% from 1993 levels primarily due to 9i $ 1,474.9 unusually large Sales opportunities in 1993. MAOR SOURCES I L LIN Ol e POWER - R E m u LT E Or OPER ATION S 6fdisons of megJWJll-inatr$) For the years 1993 E LECT mic oPEnATiON. I ' 4 through 1995, electric revenues including interchange u increased 8.1% and the gross electric margin increased i I 3.2 8.7% as follows: y 33 [Afdhons of dollars) 1995 1994 1993 ,4 ,, 4 l'lectnc revenues 5 1,252.6 $ 1,177.5 $ 1,131.6 I I33 Interchange rnenues 116.3 110.0 130.8 l l 13.1 fuel cost & pimer purchased 0 33.4) (319.2) 0 13.6) ,a s.1 1 I I il Eleetne martin $ 1.03s.$ $ 968.3 $ 052.8 D l ussil E Nuclear O Purchases 'Ihe components of annual thanges in electric revenues: @fdhons of JollarsI 1495 1994 1993 Prke 5 13.3 5 (2L2) $ 00.0) i99s The 1.6% increase in electric revenues was pri- $s, marily due to a 3.2% increase in kilowatt-hour sales to --~ ~ ultimate consumers (excluding interchange sales and Kn enuc int rease 75.1 41.9 17 7 gg. g g the summer season. Volume increases resulted from higher residential sales (9.9%), commercial sales (6.3%), and industrial sales (.5%). The increase in electric revenues was partially offset by the reduction in rates resulting from the August 1992 ICC Rehearing Order. Interchange revenues increased $57.8 million (79.2%) primarily as a result of increased sales opportunities.

l l4.s l u ..u.c. or ou. succ... The cost of meeting IP's system requirements was i 9 9 s The cost of fuelincreased 2.8% and electric gen-refketed in fuel costs for electric plants and power pur-eration increased 1.9%. The increase in fuel cost was chased. Changes in these costs are below: attributable to the effects of the UFAC, the increase in (Afd/ sons o/ dollars) 1995 1994 1993 higher-cost fossil generation and the cost of emission Fuci for clearie plant, Ikiwances. Clinton's equivalent availability and genera-Voluine and other 5 9.8 5 13.8 5 3.5 tion were lower in 1995 as compared to 1994 due to the Pnce 05.5) (14.3) 7.4 scheduled refueling and maintenance outage. Clinton $crIs E.o $16) returned to service April 29,1995, after completing its f uel ir 14 5 fifth refueling and maintenance outage, which began 7.3 31.5 (13.7) h5 1991 Power purchased increased $6.9 millic.n. Power purchased 6.9 (25.9) 54.5 Total increase 5 14.2 5 5.6 5 403 ruEL coat PEN M iL L1o N OTu Weighted average system fI'creent o/generatrimi generating fuel cost (5/N1Will 5 11.41 5 12.72 5 13.88 c oat. 51.34 (70.8" ) System load requirements, generating unit availability, u i a- -'u fuel prices, purchased power prices, resale of energy to 3, other utihties, emission allowance purchases and fuel cost sy, recovery through the Uniform Fuel Adjustment Clause 1,... 5.8 s u s ) - - --- I (UFAC) caused changes m. these costs. EQulVALENT A V AIL A B ILIT Y - c Liu T o u Awo roseiL i994 The cost of fuel increased 13.4% and electric generation increased 8.2% The increase in fuel cost was attributable to the effects of the UFAC, partially offset by 81"o a decrease m. fossd. generation and an increase in lower-cost nuclear generation. Clinton's equivalent availability i i 192"" and generation were higher in 1994 as compared to 1993 f ,1-i 73 % due to no refueling and maintenance outage. Power pur-i chased for the period decreased $25.9 million. Unusually 1 1 62 % !arge interchange sales opportunities during 1993, which 82 " did not recur in 1994, were the primary cause of the i 1 me decrease in purchased power. si gis a cimion a lossil i992 The cost of fuel decreased 5.5%, while electiic generation increased 2.5% The decrease in fuel cost was attributable to the effects of the UFAC and lower genera-tion at IP's largest fossil plant. The decrease was partially Changes in factors affecting the cost of fuel for electric offset by an increase in transportation costs due to flood-generation are belor: ing in the Midwest and a United Mine Workers' strike. 1995 1994 1993 Power purchased for the period increased $54.5 million. Coal delivery con: erns and coal conservation measures Increase in generanon 1.9% 8.2% 2.59 stemming from the United Mine Workers' strike, com-Generatmn mix bined with favorable interchange prices and increased Coal and other 73 % 67 % 72 % Nudear 27 % 33 % 28 % sales opportunities, contributed to Ip's increase it: pur-chased power. Clinton returned to senice December 10, 1993, after completing its fourth refueling and mainte-nance outage, which began September 26,1993.

lA-6 l$LL1NDVA ) 1996 ANNUAL REPumT For the years 1993 through Clinton, partially offset by increased fossil plant mainte-oAs o Pc= Aria u m 1995, gas revenues including transportation decreased nance. The 1995 and 1994 increases in depreciation 13.4% while the gross margin on gas revenues increased expense are due primarily to a higher unlity plant balance 4.9% as folks in 1995 and 1994 as compared to 1994 and 1993. The iAtallons 2/ollarsi ~ ~ ~ ~ 75 ~~ 1994 - ~~i993 1993 increase in depreciation expense was due principally / 19 Gas revenues 5 264.5 $ 293.2 5 306.8 to the effects of the adoption of Statement of Financial Gas cost (138.8) (172.4) (187.3) Accounting Standards No.109, " Accounting for Income Transportation revenues 8.0 8.8 8.0 Taxes." See " Note 1-Summary of Significant Accounting Gas rnarein 5 133.7 5 129.6 5 127.5 Policies" of the " Notes to Consolidated Financial IAtalions o/dyrm,; Statements" for additional information. The 1994 and Therms sold 588 584 597 1993 increases in depreciation expense are partially offset Therms transported 273 262 229 by the decrease in deferred Clinton costs as a result of the Total consumption 861 846 826 September 1993 write-off of disallowed Clinton post-con-struction costs. Changes in the cost of ga purchased for resale: (Alsllsons o[ dol /Jrs] 1995 1994 1993 OPERATlNG ANO M AiN T E N AN C E E" X P c N B E B Gas purchased for resale M1disms W 4 dies; Cost (excludmg take or-pay) $ (43.1) $ (6.4) 5 13.3 Take-or-pay costs (.4) 2.8 5.3 o $ 3 59 -, Volume 25.3 (13.6) (3.4)

- I I 5I49 6 Gas cost recmcries (15.4) 2.3

.2 Total increasc tdecreasel 5 (31M $ (14.9) 5 1 s.4" 92 1-1 $1-'3.4 Average cost per therm drhvered 20.le 26.1 c 27.Sc The 1995 decrease in the cost of gas purchased was due to lower gas prices caused by unusually warm winter weather nationwide. The 1994 decrease in the cost of gas orsea e~co=c A~o o e ou erio u. Total purdiased was primarily due to lower gas prices, the allowance for funds used during construction (AFUDC), a expanded use of additional gas storage and a decrease in non-cash item of income, decreased in 1995 compared to therms purchased. Also contributing to the higher gas mar-1994 due to decreased eligible capital expenditures. The gins in 1995 and 1994 was the 6.1% increase in gas base 1994 increase was due to higher construction work-in-rates approved by the ICC in April 1994.The 1993 increase progress balances eligible for AFUDC, partially offset by m the cost of gas purchased was primarily due to an a lower AFUDC rate. The AFUDC effective rate was increase in the price of purchased gas and take-or-pay costs. 6.5%,7.0% and 7.5% in 1995,1994 and 1993, respec-tively. The 1994 increase in Miscellaneous-net deductions A comparison of was primarily due to a decrease in alkicated income taxes. orsc. E=Pcw.c. ANoTAEo. significant increases (decreases) in other expenses and deferred Clinton costs for the last three years is presented ,~rc.c.r cwa =ac. Total interest charges in the following table: increased $4.1 million in 1995, and decreased $21.0 mil-(Af,Ilmn_s o/Jollars) _ 1995 1994 1993 lion in 1994 and $3.7 million in 1993. The 1995 increase other operanng espenses 5 (.3) 5 (9.2) 5 (2.1) was due to increased short-term borrowings at higher Mamienante 10.4 (11.2) (1.3) rates. The 1994 and 1993 decreases were primarily due to Depreciation and amortization 7.2 6.4 6.0 &d dk hd& M The increase in maintenance expense for 1995 is pri-debt from 1992 through 1994. From 1992 to 1994, IP marily due to the refueling and maintenance outage at retired or refinanced approximately $1.5 billion of long-Clinton. The decrease in operating and maintenance term debt, excluding revolving loan agreements, with a expenses for 1994 is due to ongoing re-engineering efforts, weighted average interest rate of 9.27% During this time, improved operating efficiencies at IP's fossil plants and at IP issued approximately $1.4 billion of new debt at a Clinton, and no refueling and maintenance outage at weighted average interest rate of 6.971 Clinton. The decrease in operating and maintenance expenses for 1993 is primarily due to decreased costs at

l j l umuu. or au-succ... .a inflation, as measured by the Consumer ily on economic and financial market conditions, cash iurtav.ou Price Index, was 2.5%,2.5% and 3.1% in 1995,1994 needs and capitalization ratio objectives. To a significant and 1993, respectively. IP recovers historical rather than degree, the availability and cost of external financing current plant costs in rates, depend on the financial health of the company seeking those funds. uouioiTy Awo c A P 17 A L REsouncEe Cash flows from operations during 1995 provided sufficient working capital to meet ongoing operating neauoavoay Mavvcn. requirements, to service existing common and IP preferred urAc su.ec~..ou On June 26,1995, IP filed a stock dividends and debt requirements, and to meet all of petition with the ICC for permission to eliminate its UFAC ~ IP's construction requirements. Addhionally, Illinova by adjusting base rates to include projected fuel costs. IP expects future cash flows will enable it to meet future oper-filed its petition under a procedure that allows the ICC to ating requirements and continue to service IP's existing grant or deny the specirc proposal, but not to subject it to debt, IP's preferred and Illinova's common stock dividends, hearings or require that it be modified. IP believes that jp.s sinking fund requirements and all of IP's anticipated continuation of the UFAC creates disincentives to efficient construction requirements. The current ratings of securities decisions made on a total cost basis; that the UFAC is by two principal securities rating agencies are as follows: inconsistent with a competitive environmentt and that the 5BHJaKr significance of fuel costs as a component of total costs has h>4's & Pmr's diminished, thereby reducing the need for a UFAC as a IP first/new mortgage bonds Baa2 BBB risk-reduction mechanism. On August 8,1995, the ICC IP referred sa bw BBB-P voted three to two to deny IP's petition. IP is currently IP mmmercial paper P-2 A-2 reviewing its alternatives in light of the decision. These ratings are an indication of Illinova's and IP's On April 6,1994, the financial position and may affect the cost of securities, as 1994 GA. RATc ONDeR ICC approved an increase of $18.9 million, or 6.1%, in well as the willingness of investors to invest in these securi-IP's gas base rates. For customers, the increase is partially ties. Under current market conditions, these ratings are offset by savings from lower gas costs resulting from the unlikely to impair Illinova's or IP's ability to issue, or signif-expansion of the liillsboro gas storage field. The icantly increase the cost of issuing additional securities approved authorized rate of return on rate base is 9.29%, through external financing. Illinova and IP have adequate with a rate of return on common equity of 11.24%. shon-term and intermediate-term bank borrowing capacity. Concurrent with the gas rate increase, IP's gas utility plant composite depreciation rate decreased to 3.4%,, In 1993, Standard & Poor's (S&P) published revised standards for review of utility business and financial risks, omoc~o= based in part on a subjective evaluation of such factors as On December 13,1995, Illinova increased the quarterly anticipated growth in service territory, industrial sales as a common stock dividend 12%, declaring the common proportion of total revenues, regulatory environment and stock dividend for the first quarter of 1996 at 5.28 per nuclear plant ownership. S&P's preliminary assessment share, payable February 1,1996, to shareholders of placed IP, along with approximately one-third of the indus-record as of January 10,1996 On October 12,1994, try, in the "somewhat below average" category. On April Illinova increased the quarterly common stock dividend 13,1994, S&P lowered IP's mortgage bond rating to BBB 25%, declaring the common stock dividend for the first from BBIk. This action came after S&P reviewed IP's spe-quarter of 1995 at $.25 per share. cific business position in light of the revised standards. In August 1995, S&P changed the assessment to " low aver-

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,, g g. gg g gg Illinova and IP need cash for operating expenses, interest in February 1996, Moody's also revised its ratings outkiok and dividend payments, debt and certain IP preferred to positive from staNe. IP's revised rating assessments stock retirements, and construction programs. To meet ref'ect prospects for continued financial strengthening dri-these needs, Illinova and IP have used internally generated ven by gradual debt reduction, rigorous cost controls and funds and external financings including the issuance of IP moderate sales growth. preferred stock, debt and revolving lines of credit. The timing and amount of external financings depend primar-

['& s T m ~ u u l isos u~uu m.o r In February 1995,IP redeemed $12 million of 8.00% lllinois Power Capital, LP., (IP Capital), is a limited mandatorily redeemable serial preferred stock. In Alay partnership in which IP serves as a general partner. IP 1995, IP redeemed the remaining $24 million of 8.00% Capital issued $97 million of tax-advantaged monthly mandatorily rcJeemable serial preferred stock. In Alarch income preferred securities (A11PS) at 9.45% (5.67% 1995, IP redeemed $.2 million of 7.56% serial preferred after-tax rate) in October 1994. The proceeds were loaned stock and $3 million of 8.24% serial preferred stock. In to IP and were used to redeem $97 million (principal December 1995,IP redeemed $34.7 million of 8.00% ser-value) of higher-cost outstanding preferred stock of IP. ial preferred stock, $33.6 million of 7.56% serial preferred The carrying amount over consideration paid for redeemed stock and $27 million of 8.24% serial preferred stock. preferred stock amounted to $6.4 million which was in February 1994, IP redeemed $12 million of 8.00% recorded in equity and included in Net income applicable to cornmon stock. See " Note 10--Preferred Stock of mandatorily redeemable serial preferred stock and issued $35.6 million of First Alortgage Ikmds,5.7% Series due Subsidiary" of the " Notes to Consolidated Financial Statements" for additional information. 2024 (Pollution Control Series K). In hlay 1994,IP retired $35.6 million of First hlortgage lkinds,115/8% Series in December 1994, IP issued $84.1 million of First duc 2014 (Pollution Control Series D) with the proceeds htortgage Ikmds,7.4% Series due 2024 (Pollution Control of the debt issuance. In August 1994,IP retired $100 mil-Series L). In alarch 1995, the proceeds of the debt issuance lion of 81/2% debt securities. were used to retire $84.1 million of First h!ortgage Ikmds, Illinois Power Financing 1 (IPFI), is a statutory business 10 3/4% Series due 2015 (Pollution Control Series E). In trust in which IP serves as sponsor. IPFI issued $ 100 million August 1995, IP purchased $5 million of 8.75% First of trust originated preferred securities (TOPrS) at 8% hiongage Nnds on the open market. See " Note 9-Long-(4.8% after-tax rate) in January 1996. The TOPrS were Tenn Debt of Subsidiary" of the " Notes to Consolidated Fin ncial Statements" for additional information. issued by IPFI, which invested thc pmceeds in an equivalent amount of IP subordinated debentures due in 2045. The For the years 1995,1994 and 1993, changes in long-term proceeds were used by IP to repay short-term indebtedness debt and IP preferred stock outstanding, including normal on varying dates on or before Alarch 1,1996. IP incurred maturities and elective redemptions, were as follows: the indebtedness in December 1995, to redeem $95.3 mil-iwil,ons o/ s<st,rs; ~' f $]o[ $ ~ 199s 1994 1993 lion (principal value) of higher-cost outstanding preferred pg 33 stock of IP. The carry ing amount under consideration paid Other lonperrn debt On0) for redeemed IP preferred stock amounted to $3.5 million Mfernd staC __ P 35L_ 6 which was recorded in equiry and included in Net income Tomi detrease 5 040) 5 0041 5 06i applicable to common stock. See " Note llLPreferred .The amounts shoyvn m. the preceding table for debt Stock of Subsidiary" of the " Notes to Consolidated renrements do not melude all mortgage sinking fund Financial Statements" for additional infonnation. requ rements. IP has gerierally met these requirements by pledging property additions as permitted under IP's 1943 Atortgage and Deed of Trust. For additional information, see " Note 9-long-Term Debt of Subsidiary" and " Note 1(L Preferred Stock of Subsidiary" of the " Notes to Consoli-dated Financial Statements." See " Note 4-Commitments and Contingencies" of the " Notes to Consolidated Financial Statements" for information related to coal and gas purchases, nuclear fuel commitments and emission allowance purchases. ~

F ---!H In 1992, IP executed a new general obligation mort-7^* "^ gage (New Mortgage) to replace, over time, IP's 1943 See " Note 7-Income Taxes" of the " Notes to Consolidated Mongage and Deed of Trust (First Mortgage). Both Financial Statements" for a discussion of effective tax mortgages are secured by liens on substantially all of IP's rates and other tax issues. properties. A corresponding issue of First Mortgage bonds, under the First Mortgage, secures boids issued under the New Mortgage. At December 31,1995, based in. Mad N, ik EnancW Axoundng Mandad on the most restrictive earnings test contained in the First Bo rd (FASB) issued Statement of Financial Accounting Mortgage, IP could issue approximately $1.2 billion of Standards No.121, " Accounting for the Impairment of additional First Mortgage bonds for other than refunding b>ng-Lised Assets to be Disposed of" (FAS 121), effective purposes. The amount of available unsecured borrowing for fisc 1 ye rs beginning after December 15,1995.FAS capacity totaled $144 million at December 31,1995. Also 121 mqu res that an entity mview long-lived assets for at December 31,1995, the unused portion of Ilknova and impainnent when events mdicate that the carrying IP total bank Ines of credit was $404 million. As of amount fn wet may n t be acoverable. For regulated December 31,1975,IP had $120 million of unissued debt enterprises, FAS 121 amends FASB Statement No. 71, securities and $f 6.5 million of unissued preferred smck "Aaounting for the Effects of Certain Types of authorized by the Securities and Exchange Commission in Regulation" (FAS 71), requiring that an impairment be September 1993 and August 1993, respectisely. recognized for regulatory assets no longer meeting the cri-Capital expenditures for the years 1993 through 1995 teria of paragraph 9 of FAS 71. This standard is not cur-were approximately $680.7 million, including $22.5 mil-rently expected to materially impact the consolidated lion of AFUDC. Illinova estimates that $1.56 billion willfinancial position or results of operations of Illinova or IP. be required for construction and capital expenditures dur-In October 1995, the FASB hsued Statement of ing the 1996-2000 period as follows: Enanc a Aaounting Standards No.123, " Accounting the-Year Permd for Stock-Based Compensation" (FAS 123), effective for fiscal years beginning after December 15,1995. FAS 123 @fM " 5"fd"Il"4 ____ _ _ _ _ 1996 _ !"_96-2000 Ginstruenon requirements establishes a fair-value based method of accounting for employee stock-based compensation plans and encour-thctrie generating facihries s 4< $ 2h Electnc transnnssion and ages companies to adopt that method. However, it also distnbunon facihties allows companies to continue to apply the m.tnnsic value-68 249 c,eneral riant 24 86 based method currently prescribed under APB Opinion cas fadhris 28 110 No. 25 and related pronouncements, provided certain Total wnstruction requirements 165 681 fair-value pro forma disclosures are made. Illinova is con-Nudear fuel tinuing to evaluate its alternatives under this standard. 23 135 Debt retirements 62 362 Insestments in subsiduries The FASB continues to review the accounting for liabili- - ~ --381 ties related to closure and removal of long-lived assets, Tntal $ 329 1 1.H 9 including decommissioning. See " Note 4-Commitments See " Note 4-Commitments and Contingencies" of and Contingencies" of the " Notes to Consolidated the " Notes to Consolidated Financial Statements" for Financial Statements" for a discussion of decommissioning. additional information. Internal cash generation will meet substantially all construction and capital requirements. E N V 1 R O N M E N T A L. M ATTE R5 See " Note 4-Commitments and Contingencies" of the " Notes to Consolidated Financial Statements" for a discus-sion of the Clean Air Act and manufactured-gas plant sites.

{ Aao [5 LL IN u v A 1995 ANNUAL REPanT R E S PO N SI BILITY FOR REPORT OF INDEPENDENT IN FO R M ATIO N AC C O U N TA N T S PRICE WATERHOUsE LLP 1 The consolidated financial statements and all information j in this annual report are the responsibility of manage-To me so Ano oF o,.c cr o. OF M H40VA C DR PQ R ATION ment. The consolidated financial statements have been prepared in conformity with generally accepted account-In our opinion, the consolidated financial statements of ing principles applied on a consistent basis and include Illinova Corporation and its subsidiaries appearing on amounts that are based on management's best estimates page< A-11 through A-31 of this report present fairly, % and judgments. Management also prepared the other all material respects, the financial positi m of Illinova information in the annual report and is responsible for its Corporation and its subsidiaries at December 31,1995 accuracy and consistency with the consolidated financial and 1994, and the results of their operations and their statements. In the opinion of management, the consoli-cash flows for each of the three years in the period ended dated financial statements fairly reflect Illinova's financial December 31, 1995, in conformity with generally position, results of operations and cash flows. accepted accounting principles.These financial statements Illinova belieses that its accounting and internal are the responsibility of the Company's management; our responsibility is to express an opinion on these financial accounting control systems are maintained so that these statements based on our audits. We conducted our audits systems provide reasonable assurance that assets are safe. of these statements in accordance with generally accepted guarded against loss from unauthorized use or disposition auditing standards which require that we plan and per-and that the financial records are reliable for preparing the form the audit to obtain reasonable assurance about consolidated financial statements. whether the financial statements are free of material mis-The consolidated financial statements have been audited statement. An audit includes examining, on a test basis, by illinova's independent accountants, Price Waterhouse evidence supporting the amounts and disclosures in the LLP, in accordance with generally accepted auditing stan-financial statements, assessing the accounting principles dards. Such standards include the evaluation of internal used and significant estimates made by management, and accounting controls to establish a basis for developing the evaluating the overall financial statement presentation. scope of the examination of the consolidated financial state ~ We believe that our audits provide a reasonable basis for ments. In addition to the use of independent accountants, the opinion expressed above. Illinova maintains a professional staff of internal auditors who conduct financial, procedural and special audits. To assure their independence, both Price Waterhouse LLP and Mg the internal auditors have direct access to the Audit Committee of the ik>ard of Directors. Price Waterhouse LLP .Ihe Audit Committee is composed of members of the St. Louis, Missouri ikiard of Directors who are not active or retired employ-February 2' 1996 ees of Illinova. The Audit Committee meets with Price Waterhouse Li P and the internal auditors and makes rec-ommendations to the Ikiard of Directors concerning the appointment of the independent accountants and services to be performed. Additionally, the Audit Committee meets with Price Waterhouse 1 LP to discuss the results of their annual audit, Illinova's internal accounting controls and financial reporting matters. The Audit Committee meets with the internal auditors to assess the internal audit work performed, including tests of internal accounting controls. sy &% %J 7 Larry D. llaab Larry 1. Altenbaumer Chairman, President Chief Financial Officer, and Chief Executive Officer Treasurer and Controller

l l u cA.unes or oua succean A i / Set 4 NOVA C O M P D e A FION C O N S O LI D AT E D STATEMENTS OF INCOME 1 Aldhons of dollars excepi tier share amounts) lor the Years Ended December 31, 1995 1994 1993 O P E R A T I N ta R E V E N U E S Electric $ 1,252.6 $ 1,177.5 $ 1,135.6 Electric interchange 116.3 110.0 130.8 Gas 272.5 302.0 314.8 Ti>tal 1,641.4 1,589.5 1,581.2 o PER ATING E. x P E N S E E AND TAxEE f uel for electric plants 273.9 266.6 235.1 Power purchased 59.5 52.6 78.5 Gas purchased for resale 138.8 1 72.4 187.3 Other operating expenses 259.7 260.0 269.2 Maintenance 100.0 89.6 100.8 Fnhanced retirement and severance 37.8 Depreciation and amortization 186.5 179.3 172.9 General taxes 135.0 130.3 125.6 Income taxes 125.8 118.3 106.5 li;tal 1,317.0 1,269.1 1,275.9 Operatmg income 324.4 320.4 305.3 OTHCR $NCOME AND DEDUCTIONS Allowance for equity funds used during construction 3.8 2.7 Disallowed Clinton costs (271.0) Income tax effetts of disallowed costs 70.6 Miscellaneous-net (7.1I (9.11 (3.0) Total (7.1) (5.3) (200.7) Income before interest charges 317.3 315.1 IM6 INTERENT CHARGES Interest expense 148.0 143.9 164.9 Allowance for borrowed funJs used during construction (6.0) (5.5) (4.5) Preferred disidend requirements of subsidiary 23.7 24.9 26.1 Total 165.7 163.3 186.5 Net income (loss) 151.6 151.8 (81.9) Carrying amount over (under) consideration paid for redeemed preferred stock of subsidiary (3.5) 6.4 Net income (loss! applicable to common stock $ 148.1 $ 158.2 $ (81.9) Earnings (less) per common share 1.96 2.09 $ (l.08) Cash dividends declared per common share 1.01 .n5 .40 Cash dividenJs paid per common share 1.00 .80 .80 Weighted average common shares 75,641,937 75,641,937 75,641,937 See notes to consolidJted finJncid$ stJtements whiLh are an mtegrJ$ pJrf of these stJtements.

. - _ _ _ _. _ m .- _.- -. _. ~ _, l . j A.i z l l t o. m o v a leesAu~uat ac='o.r e m av. c a.....u a n l C O N B O LI D AT E D BALANCE SHEETB tMdhons of d<dlars) December 31, ~ 1995 1994 t . Ane eta - utsurY PLANT,.AT O nlGON AL CDsT l i j - Electric (includes construction work in progrew of $199.8 million and $202.8 million, respectively) $ - 6,189.0 $ 6,023.1 l .. Gas ync!udes.constructjan work in progreu of $10.2 milhon and $16.8 milhon respectively} 625.9 606.1_ l 1 l-6,814.9 6,629.2 l. Im - gcumula.ted depreciation 2,251.7 2,102.7_ l l 4,563.2 4,526.5 ( Nuclear fuelin process 5.7 6.2 Nuclear fuel under capitallease ' 95.2 11Li l l 4,664.1 4,62J[ l, i suvesturwTo Awo OTurn AsscTs 65.8 37.4 j CunnswT AussTo t Cash and cash equivalents 11.3 50.7 .l Notes receisable 6.1 l Accounts receivable (less allowance for doubtful accounts of $3 million) - [ Service 129.4 110.4 - j Other 13.2 30.5 i i Accrued unbilled revenue 89.1 78.9 l Materials Sad supphes, at average cost Frasil fuct 9.9 18.7 [ Gas in underground storage 18.5 -- 23.1 Operating materials 82.7 92.1 - Prepaid and refundable income tases 19.6 11.5. j Prepayments'and other 20.8 13.5 400.6 439.4 [

l. ' orrenpro CH AnGEs h

Deferred Clinton costs ~ 107.3 110.8 I Recoverable income tases 128.7' 147.3 [ 243.3 197.6 Other ' ~ 479.3 455.7 [ 5.609.8 5 5.576.7 t C APITAL A b.) LI AssLaTics I C APnTAur AT(DN Common stock - No par value,200,000,000 shares authorized; 75,643,937 shares outstanding, stated at $ 1,424.6 5 1,424.6 [ I cw - Deferred compensation -ISOP 18.4 23.5 - l Retained earnings 129.6 58.8 .l l Ins - Capital stock expense 8.8 9.7 Total common stock equity 1,527.0 1,4 50.2 ? Preferred stock of subsidiary 125.6 224.7 Mandatorily rrJeemable preterred stock of subsidiary 97.0 133.0 long-term debt of sulsidiary 1,739.3 1,946.1 l Total capitabration 3,488.9 3,754.0_ CunnENT LIAstLeTers Accounts payable 119.9 108.2 Notes payable 359.6 238.8 l Inng-term debt and lease obligations of subsidiary maturing within one year 95.0 33.5 ? i Dividends declared 23.0 23.4 l l Taxes accrued 44.8 32.3 l Interest accrued 39.0 38.4 Oth!_ l ocrannco Cacotra i ( Accumulated deferred income taes 1,012.8 978.6 l Accumulated deferred investment tax credits 222.8 230.9 l l Other 137.8 82.8 } l (Commitments and Omtmpencus Note 4) . 1,373.4 ___1,292.3, 5 5.609.8 $ 5.576.7 = i l See notes to ams<dukted financialstasements which are an integralpart of these statements. t I -u ew-i--s-- -,-.rs+w-. m

i l A.ta l l usamunas or oun success 4-l + espuovs caneansnau i l C O N S O LI D AT E D S TAT E M E N T S. D F CASH FLOWS ' fMilhons ofdollars) I'or the Years Ended D2ein~ber 31, 1995 1994 1993-l. caos roows rnou opEnATeNo ACTivsTets Net ir.ome (km) $ 151.6 $ 151.8 $ (81.9) ltems not requiring (providing) cash - i Disallowed Clmton costs, net of income taxes 200.4 l Depreciarmn and amortization 190.0 1823 176.6 l . 93) (7.2) l Allowance for funds used during construction (6.0) ( Deferred income taxes 39.1. 36.4 67.9 . Enhanced retirement and severance 37.8 i 1 Changes in assets and liabilities - [ Accounts and notes receivable (7.8) (18.2! (21.3) Accrued unbilled resenne (101) (29.9). 42.9 Materials and supplies 22.8 (2.3) 61 l Accounts payable (13.6) (20.6) 13.8 l Interest accrued and other, net : 9.5 (21.6) (27.7) j i l Net cash provided by operating activities 4132 268.6 369.7 j CAsN Flows FnoM I N V E s T B N 89 AC Tt VITIE s Construction expenditures. (2093) (193.7) (277,7) Allowance for funds used during construction 6.0 93 7.2 Other investirrg activities (34.9) ~ (19.7) (8.2) f l Net cash use3 in investmg activities (238.21 (204.1L (278.7) l l Cash Flows FnoM F4N ANCING ACTevlTIEs Dividends on common stock (75.6) (60.5) (60.5) t Redemptions - - Short-term debt (213.6) (2593) (254.5) Inng-term debt of subsidiary (5.2) (230.0) (832.0) Preferred smck of subsidiary (134.5) - (91.0) (94.4) Issuances - Shortaerm debt 209.5 405.8 279.7 - tamg-term debt of mulwidiary 119.8 866.8 Preferred stak of subsi&ary 97.0 43.5 l Discount (premium) paid on redemption of long-term debt of subsidiary ' (2.8) (25.8) Other financing act vities 5.0 (2.7) (12.6) i Net cash used in financing activities (214.4) (23.7) (89.8) - l Net change in cash and cash equivalents (39.41 40.8 1.2 i Cash and cash equivalents at beginninr.of year 50.7 9.9 8.7 l Cash and cash equivalents at end of year 5 113 50.7 9.9 l- $u.ava canea. naw l l C O N E O LI D AT E D STATEMENTS OF R ETAI N E D E ARNIN G S ( D E FI C IT) l tMilhons ofdollars1 For the Years 1:nded December 31, 1995 1994 1993 l IHance (deficit) at beginning of year SN.8 $ (64.6) 41.0 Net inconpe.1km) hfore dividends 1753 176.7 (55.81 134.1 112.1 (14.8) trss. Dividends - Preferred stock of subsidiary 23.6 11.1 20.1 Ctmimon stock 77.4 48.6 29,7 i Plus-Carrying amount over (under) consideration _ paid for redeemedyreferred stak of subidiary (33) 6.4 (104.5) (53.3) (49.8) lulance 66cir) at end of vear ~-- $ 129.6 5 5 14. 8 5 4 4.61 %s m>tes to consohJared finanaal statemntes which are an sntegralpart of clicse statements.

j.u l u m. o u l ins .-uu n o,n NOTES TO C O N S O LI D AT E D FIN AN CI AL S TAT E M E N T S moyc i-a u u u a ay ar a i a N i ri c ^ "' include: 1) whether rates set by regulators are designed to ACCOUNTING Po LiCiE B recover the specific costs of providing regulated services emuaue. ar c o u ou o.Tio u The consoli-and products to customers and 2) whether regulators con-i dated financial statements include the accounts of Illinova tinue to establish rates based on cost. In the event that Corporation (Illinova), a holding company, Illinois Power management determines that IP no longer meets the crite-Company (IP), a combination ekctric and gas utility, ria for application of FAS 71, an extraordinary non-cash lllinova Generating Company (IGC), a wholly owned sub_ charge to income would be recorded in orde: to remove i sidiary that invests in energy-related projects throughout the effects of the actions of regulators fron, the consoli-the world and competes in the independent power market dated financial statements. The discontinuation of appli-and illinova Power Marketing, Inc. (IPA 11), a wholly owned c tion of FAS 71 would likely have a material adverse subsidiary in the business of marketing energy and energy. effect on Illinova's and IP's consolidated financial position related services to various customers. See " Note 2-and results of operations. Ilknova s prmcipal accounting Illinova Subsidiaries" of the " Notes to Consolidated policies are: Financial Statements" for additional information. The cost of additions to utdity plant u r,u r y et ~r IP's consolidated financial position and results of oper-and replacements for retired property units is capitalized. ations are currently the principal factors affecting Illinova s ~ Cost includes labor, materials and an a!kication of general consohdated financial position and results ot operations. and administrative costs, plus an allowance for funds used All significant intercompany balances and transactions during construction (AFUDC) as described below. have been eliminated from the consolidated financial state-Alaintenance and repairs, including replacement of minor ments. All nonutility operating transactions are included in items of propeny, are charged to maintenance expense as the section titled Other income and Deductions, incurred. When depreciable property units are retired, the "Atiscellaneous-net" in the Consolidated Statements of original cost and dismantling charges, less salvage value, income. Preparatmn of financial statements m conformity are charged to accumulated depreciation. with generally accepted accounting principles requires the i use of management's estimates. Prior year amounts have Significant regulatory assets aeouo.1oav 4..ev. been reclassified on a basis consistent with the December include deferred Clinton Power Station (Clinton) post-31,1995, presentation. construction costs, unamortized losses on reacquired debt, recoverable income taxes and manufactured-gas plant site a e a ucariou IP is subject to regulation by the Illinois cleanup costs. Commerce Commission (ICC) and the Federal Energy Regulatory Commission (FERC) and, accordingly, pre-Aeoawa~cc roa ruao. uaeo o uaiw a pares its consolidated financial statements based on the eou,youcy,ou The FERC Uniform System of concepts of Statement of Financial Accounting Standards Accounts defines AFUDC as the net costs for the period of No. 71, " Accounting for the Effects of Certain Types of construction of borrowed funds used for construction Regulation" (FAS 71), which requires that the effects of purposes and a reasonable rate on other funds when so the ratemaking process be recorded. Such effects primar-used. AFUDC is capitalized at a rate that is related to the ily concern the time at which various items enter into the approximate weighted average cost of capital. In 1995, i determination of net income in order to follow the princi-1994 and 1993, the pre-tax rate used for all construction ple of marching costs and revenues. Accordingly, IP projects was 6.5%, 7.0% and 7.5%, respectively. l records various regulatory assets and liabilities to reflect Although cash is not currently realized from the the actions of regulators. Atanagement believes that IP allowance,it is realized under the ratemaking process over currently meets the criteria for continued apphcation of the service life of the related property through increased FAS 71 but will continue to evaluate significant changes revenues, resulting from a higher rate base and higher in the regulatory and competitive environment to assess depreciation expense. IP's overall compliance with such criteria. These criteria l

1 [ I ,s j m.e-. e, oo .m m.. For financial statement purposes, IP aevcwue auo e~c av co.1 IP records revenue o e,.e emy o u depreciates the various classes of depreciable property for services provided but not yet billed to more closely over their estimated useful lives by applying composite match revenues with expenses. Unbilled revenues repre-rates on a straight-line basis. In 1995,1994 and 1993, sent the estimated amount customers will be billed for ser-provisions for depreciation were 2.8% of the average vice delivered from the time meters were last read to the depreciable cost for Clinton. Provisions for depreciation end of the accounting period. Operating revenues include for all other dectric plant were 2.6% in 1995 and 2.5% related taxes that have been billed to customers in the in 1994 and 1993. Provisions for depreciation of gas util-years 1995,1994 and 1993 in the amount of $66 million, ity plant, as a percentage of the average depreciable cost, $66 million and $65 million, respectively. The cost of fuel were 3.4% in 1995 and 1994 and 4% in 199.1. for the generation of electricity, purchased power and gas i purchased for resale is recovered from customers pursuant l au o=v r aviou or nucoc a rueo IP leases to the electric fuel and purchased gas adjustment clauses. ) nuclear fuel from Illinois Power Fuel Company (Fuel Accordingly, allowable energy costs that are to be passed Company) under a capital lease. Amortization of nuclear on to customers in a subsequent accounting period are i fuel (including related financing costs) is determined on a deferred. The recovery of costs deferred under these unit of production basis. See " Note 4--Commitments and clauses is subject to review and approval by th.1CC. Contingencies" of the " Notes to Consolidated Financial On April 6,1994, the ICC approved an increase of Statements" for discussion of decommissioning and $ 18.9 million, or 6.1 %, in IP's gas base rates. The increase nuclear fuel disposal costs. A provision for spent fuel dis-to customers is partially offset by savings from lower gas posal costs is charged to fuel expense based on kilowatt-costs resulting from the expansion of the Hillsboro gas stor-hours generated. age field. The approved authorized rate of return on rate base is 9.29%, with a rate of retum on common equity of oere==co auuvow comv. In accordance with 11.24 % an ICC order in April 1987, IP began deferring certain Clinton post-construction operating and financing costs ~co-e v xc. Under Statement of Financial i until rates to reflect such costs became effective (April Accounting Standards No.109, " Accounting for income 1989). After issuance of the March 1989 ICC rate order, Taxes" (FAS 109), deferred tax assets and liabilities are deferral of Clinton post-construction costs ceased and recognized for the tax consequences of transactions that i amortization of the previously deferred post-construction have been treated differently for financial reporting and costs over a 37.5-year period began. Although cash is not tax return purposes, measured on the basis of the statu-currently realized from these deferrals, it is realized under tory tax rates. In accordance with FAS 71, a regulatory I the raremaking process over the service life of Clinton asset (recoverable income taxes) has been recorded repre- ) through increased revenues, resulting from a higher rate senting the probable recovery from customers of addi-base and higher amortization expense. tional deferred income taxes established under FAS 109. Investment tax credits used to reduce federal income u ~au o a vi1 e o oc.1 oi.e o u ~ v, p=eu.u- .wo exer ~.c Discount premium and expense asso_ taxes have been deferred and are being amortized to ciated with long-term debt are amonized over the lives of income over the " service life" of the property that gave rise to the credits. Illinova and its subsidiaries file a con-the related issues. Costs related to refunded debt are solidated federal income tax return. Income taxes are allo-amortized over the lives of the related new debt issues or the rer..aining life of the old debt if no new debt is issued. cated to the individual companies based on their respective taxable income or loss. See " Note 7-Income Taxes" of the " Notes to Consolidated Financial Statements" for additional discussion. pacronaco oiviocuo n e ouincuc uve or Preferred dividend requirements of IP sus.ommy reflected in the Consolidated Statements of income are recorded on the accrual basis and relate to the period for which the.1vidends are applicable.

1 A I ts ILLtNOVA 199% ANNUAL REPOHT cowmoteoarco avarcucurs or casw g j9g jg g.md b a W AN'ammatb Fm Cash and cash equivalents include cash on hand ject in Teesside, England. In 1994, IGC became an equity ruow. and temporary investments purchased with an initial partner with Tenaska, Inc., in four natural gas-fired gen-maturity of three months or less. Capital lease obligations eration plants, of which two are in operation, one is under not affecting cash flows increased by $ 19 million, $28 mil-construction and one is suspended. Tenaska, Inc. is an lion and $27 million during 1995,1994 and 1993, respec-Omaha, Nebraska-based developer of independent power tively, income taxes and interest paid are as follows: projects throughout the U.S. In August 1994, IGC pur-Yem ended December 31, chased 50 percent of the North American Energy Services (Mdlums of d<dlars) 1995 1994 1993 Company (NAES). NAES supplies a broad range of oper-Income taxes 64.7 $ 7L1 26.0 ations, maintenance and support services to the world-Interest $ 152.4 5 165.9 5 166.4 wide independent power generation industry and will The increase in income taxes paid from 1993 to 1994 operate the Tenaska generation plants in which IGC pur-was due to an increase in taxable income and the settle-chased an equity interest. In November 1994, IGC ment of an IRS audit. The results of the settlement did not became an equity partna in an 80 MW operating diesel have a material effect on Illinova's or IP's financial posi-engine-powered generating plant in Puerto Cortez, Honduras. tion or results of operations. See " Note 7-Income Taxes" of the " Notes to Consolidated Financial Statements" for In March 1995, IGC imested in tirazos, a 258 MW additional information. plant kicated near Claiborne, Texas. In May 1995, IGC became an equity partner in the Indeck North American Premiums paid for the pur. Power Fund (Fund). The Fund's first project, in June mvsacev navc c4-chased interest rate cap agreements are being amortized to 1995, a 70 MW plant, was the Harbor Cogeneration interest expense over the terms of the caps. Unamortized Project in Long lleach, California. In August 1995, the premiums are included in Current Assets, " Prepayments Fund acquired the Pepperell Cogeneration Project, a 38 and Other," in the Consolidated llalance Sheets. Amounts MW gas-fired combined cycle facility kicated in Pepperell, i to be received under the cap agreements are recognized as Massachusetts. In the fourth quarter of 1995, IGC com-a reduction in interest expense, pleted its first investment in the People's Republic of China by investing in the Xinchang Project, a 24 MW c al-fired plant located in Zhejiang Province. NDTE 2 - h. L I N O V A S o B B1Di A RIE 5 Additionally, IGC invested in the Carbontec Project Illinova, a holding company, is the parent of IP, IGC and located near Gillette, Wyoming. This coal-drying facility IPMI. IP, the primary business and subsidiary of Illinova' will utilize a recently & eloped proprietary CAR-is engaged m the generation, transmission, distnbution llONDRY process to dry moderate to high moisture coals. and sale of electric energy and the distribution, trans-In December 1995, IGC signed a limited liabi:ity company portation and sale of natural gas m the state of Ilhnms. a reement to complete an initial investment in a 146 MW IGC, Illinova's wholly owned mdependent power sub-power project h>cated near Aguaytia, Peru. Also, in sidiary, invests in esgy-related projects throughout the December 1995, IGC invested in the jamaica Energy world and competes m the mdependent power market. p pgc -,4 MW barge-mounted facility h>cated IPMI, Illinova's wholly owned subsidiary, is in the busi-in Old Harbour, Jamaica. In 1996,IGC plans to make an ness of marketing energy and energy-related services to equity investment in a 400 MW operating plant kicated in various customers. Colombia. See " Note 4-Commitments and Contingen-cies" of the " Notes to Consolidated Financial Statements" for information about IGC contingencies. j b i

l.e l I ~..... - om. m_.. i [ N"'" -C"' " **" s v4Tio u At December 31, 1995, Illinova's net investment in IGC was $49 million. IP and Soyland Power Cooperative, Inc. (Soyland) share On Alay 16,1995, IPhil obtained approval from the ownership of Clinton, with IP owning 86.8% and Soyland ITRC to conduct business as a marketer of electric power wning 13.2%. IP's ownership percentage is reflected in Utility Plant, at Original Cost, and in accumulated depre-and gas to vious customers outside IP's present service ciation in the Consolidated Balance Sheets. Clinton was territory. In September 1995, IPhil began buying and sell-ing wholesale electricity in the western United States. placed in service in 1987 and represents approximately IPhil acquired 50 percent ownership in Tenaska 18% of IP's installed generation capacity. The investment l' in Clinton and its related deferred costs represented hlarketing Ventures (Th1V) on April 17,1995, with the approximately 51% of Illinova's total assets at December ownership interest retroactive to January 1,1995. In October 1995, IPhil and TA1V formed a natural gas com-31,1995. IP's 8&8% share of Clinton-related costs repre-sented 34% of Illinova's total 1995 other operating, main-pany, Tenaska Atarketing Canada, to marke gas in Canada. IPhil secured sales commitments of $12 million tenance and depreciation expenses. Clintons ec3uvalent j for 1996. See " Note 4-Commitments and Contingen, availability was 76%,92% and 73% for 1995,1994 and cies" of the " Notes to Consolidated Financial Statements. 1993, respectively. Clinton's equivalent availability was higher in 1994 due to no refueling outage. for information about IPhil contingencies, Ownership of an operating nuclear generatmg umt At December 31, 1995, Illinova's net investment in exposes IP to signific nt risks, including increased and IPA 11 was $9 million. changing regulatory, safety and environmental requirements In December 1995, Illinova established a new division, and the uncertain f'uture cost of ckising and dismantling the Illinova Energy Services, to provide energy-related services unit. IP expects to be allowed to continue to operate Chnton; to customers inside and outside IP's service territory. These however,if any unforeseen or unexpected developments pre-services involve the ways energy is used and distributed vent IP from doing so, Illinova and IP would be materially after its delivery at the meter. adversely affected. See " Note 4--Commitments and Contingencies" of the " Notes to Consolidated Financial l Statements" for additional information. RATE AND R Ea uL ATO RY M ATTER5 A September 1993 decision by 1992 RATE OmoEe the Illinois Appellate Court, Third District (Appellate Court Decision), upheld key components of the August 1992 Itchearing Order (itehearing Order) issued by the ICC. The Itchearing Order denied IP recovery of certain deferred Clinton post-construction costs, which were recorded from the time Clinton began operations (April 1987) to the time the ICC allowed IP to begin recovering l these deferred costs in rates (hiarch 1989), otherwise known as the regulatory lag period. Based on IP's assessment of the Appellate Court j Decision and in accordance with FAS 71, IP recorded a i loss of $271 million ($200 million or $2.65 per share, net of income taxes) in September 1993. i I l l 1

laneje<<.~ov. [ ,,.s a~~u.t nr.o., 4 "" " NTS ggyepage laye7 g{ gj } gjjjjgn ppgyjgej hy an jngustry, A D CO I GE C EB owned mutual insurance company. In the event of an acci-dent with an estimated cost of reactor stabilization and i cowwaTwewTS site decontamination exceeding $100 million, Nuclear Estimated capital requirements in 1996 are $267 million, Regulatory Commission (NRC) regulations require that which includes $113 million for electric facilities, $28 mil-insurance proceeds be dedicated and used first to return i lion for gas facilities, $25 million for nuclear fuel, $24 mil. the reactor to, and maintain it in, a safe and stable condi-l lion for general plant and $77 million for non-regulated tion. After providing for stabilization and decontamina-subsidiary activities. The estimated five-year construction tion, the insurers would then cover property damage up to i program for 1996 through 2000 is $1.2 billion. These a total payout of $1.38 billion. Second, the NRC requires i expenditures do not include capital expenditures for full decontamination of the reactor station site in accordance ) compliance with the Clean Air Act, as discussed below. with the plan approved by the NRC. The insurers would in addition, IP has substantial commitments for the provide up to $220 million to cover decommissioning purchase of coal under long-term contracts. Estimated c sts in excess of funds already collected for decommis-coal contract commitments for 1996 through 2000 are si ning, as discussed later. In the event insurance limits are $664 million (excluding price escalation provisions). Total n t exhausted, the excess will cover a portion of the value i coal purchases for 1995,1994 and 1993 were $168 mil-f the undamaged property. In addition, while IP has no lion, $191 million and $184 million, respectively. IP has reason to anticipate a serious nuclear accident at Clinton, i contracts with various natural gas suppliers and interstate if such an incident should occur, the claims for property pipelines to provide natural gas supply, transportation and gam ge and other costs would materially exceed the lim-j as of current r vailable insurance coverage. IP also car-i leased storage. Estimated committed natural gas, trans-portation and leased storage costs (including pipeline [ies approximately $.9 million per week of business transition costs) for 1996 through 2000 total $39 million. mtenupuon msur ncmwer ge f r as ownerdup share of Total natural gas purchased for 1995,1994 and 1993 was Clinton through the industry-owned mutual insurance $150 million, $168 million and $188 million, rfspectively. comp ny in the event of an extended shutdown of Clinton duet accidental property damage. This insurance does IP's share of estimated nuclear fuel commitments for Clinton is approximately $26 million for uranium con-n t provide coverage until Clinton has been out of service i centrates through 1998, $7 million for conversion for 21 weeks. Thereafter, the insurance provides up to 156 through 2002, $47 million for enrichment through 1999 weeks of coverage, l and $213 million for fabrication through 2017. IP is com. Multiple major losses, covered under the current prop-mitted to purchase approximately $74 million of emission erty damage and business interruption insurance cover-allowances through 1999. IP anticipates that all of these age, involving Clinton or other stations insured by the costs will be recoverable under IP's electric fuel and pur. industry-owned mutual insurance company would result i chased gas adjustment clauses, if found by the ICC to be in retrospective premium assessments of up to approxi-prudently incurred. mately $13 million. IP would alkicate this assessment between IP and Soyland based on their respective owner-iwauaa~cc IP maintains insurance on behalf of Ip ship interest in Chnton. and Soyland for certain losses involving the operation of Clinton. One insurance program provides coverage for physical dar are to the plant. liased on a review of this insurance. :? 'aas reduced its limits from $2.7 billion to $1.6 billie effective December 15,1994 IP's insurance program has two layers: 1) a primary layer of $500 mil-tion provided by nuclear insurance pools; and 2) an excess i

1 l j l .,oo. All United States nuclear power station operators are EC MM455 N NG AND NUCLEAR FUEL IP is responsible for its ownership subject to the Price-Anderson Act. This act currently lim- '"" "^' C "'. l its public liability tv a nuclear incident to $8.9 billion. share of the costs of decommissioning Clinton and for l Private insuran:e covers the first $200 million. spent nuclear fuel disposal costs. IP is wilecting future l Retrospective premium assessments against each licensed decommissioning costs through its electric rates based on l nuclear reactor in the United States provide excess cover-an ICC-approved formula that allows IP to adjust rates nnually for changes in decommissioning cost estimates. l age. Currently, the liability to these reactor operators / owners for such an assessment would be up to Based on NRC regulations that establish a minimum $79.3 million per incident, not including premium taxes funding level, IP estimates its 86.8% share of Clinton which may be applicable, payable in annual installments decommissioning costs to be approximately $376 million of not more than $10 million. (1995 dollars) or $692 million (2026 dollars, assuming a A Master Worker Policy covers worker tort claims 2% inflation factor). He NRC bases the minimum only alleging bodily injury, sickness or disease as a result of ini-n the cost of removing radioactive plant structures. IP is tial radiation exposure occurring on or after January 1, concluding a site-specific study to estimate the costs of dis-1988. He policy has an aggregate limit of $200 million mantlement, rem val and disposal of Clinton. This study that applies to the commercial nuclear industry as a whole. is expected to result in projected decommissioning costs if the policy pays, then a provision for automatic reinstate-higher than the NRC-specified funding level. I ment of policy limits up to an additional $200 million External decommissioning trusts, as prescribed under j l takes effect. There is also a provision for retrospective Illinois law and authorized by the ICC, accumulate funds assessment of additional premiums if claims exceed funds based on the expected service life of the plant for the available in the insurance company's reserve accounts. The future decommissioning of Clinton. For the years 1995, maximum retrospective premium assessment for this con-1994 and 1993,IP contributed $5.0 million, $5.5 million tingency is approximately $3 million and may be subject to and $3.9 million, respectively, to its external nuclear state premium taxes. IP and Soyland would unte, based decommissioning trust funds. The balances in these on their respective ownership in Clinton, any retrospective nuclear decommissioning funds at December 31,1995, l premium assessments pertaining to the Master Worker and 1994, were $32.7 million and $22.4 million, respec-l Policy or the Price-Anderson Act, tively. IP recognizes earnings and expenses from the trust IP may be subject to other risks which may not be fund as changes in its assets and liabilities relating to these insurable, or the amount of insurance carried to offset the funds. In November 1994, the ICC granted IP permission various risks may not be sufficient to meet potential lia-to invest up t 60% of the nuclear decommissioning trust bilities and losses. There is also no assurance that IP will assets in selected equity securities, be able to maintain insurance coverages at their present levels. Under those circumstances, such losses or liabilities may have a substantial adverse effect on Illinova's and IP's financial position. A l

.. -~..- - l l.solitt~ov. i.,s 4~~u.o ar.o., 2 " " ' " " " " " " ' ' ' " ^ " ' " " The FASB is reviewing the accounting for removal 4 In August 1992,IP announced that costs of nuclear generating stations, including decommis-CLEAN AIR ACT sioning. Changing current electric utility industry account-it had suspended construction of two scrubbers at the ing practices for such decommissioning may result im 1) Baldwin Power Station. At December 31,1995, approxi-increasing annual provisions for decommissioning mately $24 million in costs for the suspended Baldwin j through increases in depreciation; 2) recording the esti-scrubber program continue to be recorded by Illinois Power mated total cost for decommissioning as a liability with a as plant held for future use. After suspending scrubber con-gross-up to plant balances; and 3) reporting trust fund struction, IP reconsidered its alternatives for complying income from the external decommissioning trusts as with Phase 1 of the 1990 Clean Air Act Amendments. investment income rather than as a reduction to decom-To comply with the sulfur dioxide (50 ) emission 2 missioning expense. Changes to current electric utility reduaion requirements of Phase 1 (1995-1999) of the industry accounting practices for decommissioning will 1990 Clean Air Act Amendments, IP continues to pur-likely be effective in 1997. IP believes that, based on cur-chase emission allowances. An emissinn albwance is the rent information, these changes will not have an adverse authorization by the United States Environmental effect on results of operations due to existing and antici-Protection Agency (U.S. EPA) to emit one ton of 50. The 2 pated future ability to recover decommissioning costs ICC approved IP's Phase I Clean Air Act compliance plan through rates. in September 1993, and IP is continuing to implement that in 1992, the ICC entered an order in which it expressed plan. IP has acquired sufficient emission allowances to concern that IP take all reasonable action to ensure that meet most of its anticipated needs for 1996 and will pur-Soyland contributes its ownership share of the current or chase the remainder on the spot market. In 1993, the any revised estimate of decommissioning costs. The order Illinois General Assembly passed and the governor signed also states that if IP becomes liable for decommissioning legislation authorizing, but not requiring, the ICC to per-enpenses attributable to Soyland, the ICC will then decide mit expenditures and revenues from emission allowance whether that expense should be the responsibility of IP purchases and sales to be included in rates charged to cus- ~3 steckholders or its customers. If Soyland were to fail to tomers as a cost of fuel. In December 1994, the ICC meet these or other obligations related to its ownership of approved the recovery of emission aliowance costs Clinton, then IP could become liable for such payments. through the Uniform Fuel Adjustment Clause. IP's com-pliance plan will defer, until at least 2000, any need for Under the Nuclear Waste Policy Act of 1982, the scrubbers or other capital projects associated with SO2 Department of Energy (DOE) is responsible for the per-emissi n reductions. Phase II (2000 and beyond) 502 l manent storage $nd disposal of spent nuclear fuel. The em ssi n requirements f the Clean Air Act wdl require DOE currently charges one mill ($.001) per net kilowatt-dditional actions and may result in capital expenditures. hour (one dollar per MWH) generated and sold for future disposal of spent fuel. IP is recovering these chargn To comply with the Phase I nitrogen oxide (NOx) through rates. emission reduction requirements of the acid rain provi-sions of the Clean Air Act, IP installed low-NOx burners at Baldwin Unit 3 and Vermilion Unit 2. On November 29,1994, the U.S. Appellate Court remanded the Phase i NOx rules back to the U.S. EPA. On April 13,1995, the U.S. EPA reinstated, with some modifications, the Phase I NOx rules effective January 1,1996. IP was positioned to comply with these revised rules without additional modi-fications to any of its generating plants. The U.S. EPA will issue Phase 11 NOx emission limits by January 1,1997.

l l a.zi l l [ sc munsa or own suceram 1 IP anticipates additional capital expenditures prior to IP is currently recovering MGP site cleanup costs from 2000 to comply with the Phase 11 NOx requirements, as its customers through tariff riders approved by the ICC in l well as potential requirements to further reduce NOx April 1993. On April 20,1995, the illinois Supreme Court I emissions from IP plants to help achieve compliance with issued a ruling that upheld the ICC authorization of cost I air quality standards in the St. Louis and Chicago metro-recovery and reversed the ICC's disallowance of carrying l politan areas. IP has installed continuous emission moni-costs, mandating the ICC to reissue an order providing for toring systems at its major generating stations, as required recovery of prudently incurred MGP site cleanup costs, by the acid rain provisions of the Clean Air Act. including carrying costs. On November 20,1995, the ICC IP is monitoring the developments of several emerging issued an order on remand allowing full recovery of all clean air compliance issues which could have a significant such MGP site cleanup costs. Accordingly IP has recorded I impact on its fossil-fueled generating plants. These issues a regulatory asset in the amount of $76 million, reflecting include global climate change (theorized to result from management's expectation that remediation costs will be recovered from customers. emissions of " greenhouse gasses" such as carbon dioxide), I controls on " hazardous air pollutants," and standards for IP has begun settlement discussions with its insurance fine particulares. Compliance with potential new regula-carriers regarding the recovery of estimated MGP site reme-l tions in these areas may require significant expenditures diation costs. A settlement has been reached with one carrier prior to 2000. and an agreement in principle has been reached with two other carriers. On October 17,1995, IP filed a lawsuit in the ua~uraovuaeo.GA5 P L A N v (M G P) fn beptCm* Circuit Court of Macon County seeking a declaratory judg-l ber 1995, IP increased its liability for MGP site remedia-ment and damages regarding insurance coverage for four l tion by $41 million to a total of $76 million. %is amount MGP sites. Any insurance recoveries received will be cred-represents IP's current best estimate of its cost to remedi-ited to IP's customers through the tariff rider mechanisms. l ate MGP sites for which it is respcmsible. His estimate l reflects the results of a site-by-site survey utilizing current coeaya,o a~o uaoueric rieooa ie u ri site information and remediation techniques. He esti-He possibility that exposure to EMF emanating from l mate, determined by IP with assistance from several exter-power lines, household appliances and other electric nal environmental consuhants, is in accordance with sources may result in adverse health effects continues to be l Electric Power Research Institute guidelines. Because of the subject of litigation and governmental, medical and the unknown and unique characteristics of each site and media attention. Litigants have also claimed that EMF uncertain regulatory requirements, IP is not able to deter-concerns justify recovery from utilities for the loss in value mine its ultimate liability for remediation of the 24 sites. of real property exposed to power lines, substations and He previously recorded liability of $35 million was an other such sources of EME Scientific research worldwide estimate of the minimum cost based on ongoing remedia-has produced conflicting results and no conclusive evi-tion efforts at eight sites and ongoing investigations of the dence that electric and/or magnetic field exposure causes l remaining 16 sites. adverse heahh effects. Research is continuing to resolve scientific uncertainties. It is too soon to tell what, if any, impact these actions may have on Illinova's and IP's con-solidated financial position. i i

=. - l&aa}to,~o.. l i ,s a~~u.6 nr.o., o'"5" amount of unused bank commitments, and are available l tcoao e a o o e e o.~ o. Illinova and IP are involved to support other IP activities, in legal or administrathe proceedings before various IP pays facility fees up to.175% per annum on $350 courts and agencies with respect to matters occurring in million of the total lines of credit, regardless of usage. The the ordinary course of business, some of which involve interest rate on borrowings under these agreements is, at substantial amounts of money. Management believes that IP's option, based upon the lending banks' reference rate, l the final disposition of these proceedings will not have a their Certificate of Deposit rate, the borrowing rate of key material adverse effect on the consolidated financial posi-banks in the london interbank market or competitive bid. tion or the results of operations. IP has letters of credit totaling $204 million and pays fees IP sells electric energy and up to.45% per annum on the unused amount of credit. -oeou~v. R c c c.v4. o e natural gas to residential, commercial and industrial cus-In addition, IP Fuel Company has a short-term financ-tomers throughout Illinois. At December 31,1995,67%, ing option to obtain funds not to exceed $30 million. IP l 17% and 16% of Accounts receivable-Service were from Fuel Company pays no fees for this uncommitted facility residential, commercial and industrial customers, respec-and funding is subject to availability upon request. tively. IP maintains reserves for potential credit losses and For the years 1995,1994 and 1993, IP had short-term such losses have been within management's expectations. borrowings consisting of bank loarn, commercial paper, extendible floating rate notes and other short-term debt cQNTINGENClES outstanding at various (kmes as follows: (htdliuns of dollars. except rates) 1995 1994 1993 IPMI is a 50% partner with TMV which markets natural Short-term borrowings gas. At its April 1995 meeting, the Illinova Board autho-at December 31, 5 359.6 $ 238.8 5 92.3 i rized IPMI to provide certain guarantees on its behalf in Weighted average interest l the performance of IPMI's business. Illinova guarantees rate at N mber 31, 6.0% m 3.5% l the performance of TMV up to an aggregate of $50 mil-Maximum amount outstandmg l lion for net accounts payable or delivery obligations s at any month end $ 359.6 $ 238.8 $ 123.7 incurred during the ordinary course of purchasing and i Aserage daily borrowings reselling natural gas. The level of payable guarantees m outstanding dunng place during December 1995 peaked at $19 million. the year S 306.5 5 165A $ 85.0 lilinova also guarantees performance by TMV of all oblig-weighted average interest ations to parties providing price-hedging services. The rate deing the year 6.1% 4.6% 15% guarantees to the parties providing hedging services is a Illinova's total lines of credit represented by bank com-function of the market price of gas. Management beheves mitments amount to $50 million, all of which was unused t that the exposure is mmimal. See " Note 2-Ilhnova at December 31, 1995. Illinova's letters of credit total Subsidiaries" of the " Notes to Consolidated Financial $6.5 million. Statements" for additional information about IPMI. Illin va has derivative financialinstruments, however,it IGC has signed equity contribution agreements up to an aggregate amount of $32 million secured by Illinova does not use them for trading purposes. Illinova uses them Corporation parent guarantees. See " Note 2-Illinova to manage well defined interest rate and commodity risks. Subsidiaries" of the " Notes to Consolidated Financial Interest rate cap agreements are used to reduce the Statements" for additional information about IGC. poter.tial impact of increases in interest rates on floating-rate debt. IP has two variable rate interest rate cap agree-ments covering up to $189 million of commercial paper. NOTE 5-L s N C E OF C R E o4T 4No sHORT* TERM LQAN5 These agreements entitle IP to receive from a counterparty n monMy se amount, any, by wM M intee IP has total lines of credit represented by bank commit-ments amounting to $354 million, all of which were est paymems on a nominal amount of commercial paper exceed the interest rate set by the cap. On December 31, unused at December 31,1995. These lines of credit are 1995, the cap rates were set at 6.25% and 7.0% while the renewable m. May 1996, August 1996 and May 2000. cumnt market rate available to IP was 5.9%. Rese bank commitments support the amount of com-mercial paper outstanding at any time, limited only by the

=. - f A 23 f MEAstare or Dum Buccras L NOTE 6 - F' A c 4 t s T e E a A til R E E M E N T B l IP and Soyland share ownership of Clinton, with IP own-ing 86.8% and Soyland owning 13.2% Agreements between IP. and Soyland provide that IP has control over construction and operation of the generating station, that the parties share electricity generated in proportion to l their ownership interests and that IP will have certain obligations to provide replacement power to Soyland if IP l ceases to operate or reduces output from Clinton. Under the provisions of a Power Coordination Agreement (PCA) between Soyland and IP dated October 5,1984, as amended, IP is required to provide Soyland with 12.0% (436 megawatts) of the electrical capacity from its fossil-fueled generating plants until the agreement expires or is terminated. This is in addition to the capacity i Soyland receives as an owner of Clinton. IP is compensated with capacity charges and for energy costs and variable operating expenses. IP transmits energy for Soyland through IP's transmission and subtransmission systems. l Under provisions of the PCA, Soyland has the option of l l participating financially in major capital expenditures at the fossil-fueled plants, such as those needed for Phase II l Clean Air Act compliance, to the extent of its capacity enti-j slement with each party bearing its own direct capital i costs, or by having the costs treated as plant additions and I billed to Soyland in accordance with other billing provi-sions of the PCA. See " Note 4-Commitments and i Contingencies" of the " Notes to Consolidated Financial Statements" for discussion of the Clean Air Act. At any time after December 31,2004, either IP or Soyland may terminate the PCA by giving not less than seven years' i prior written notice to the other party.The party to whom termination notice has been given may designate an earlier effective date of termmation which shall be not less than 12 months after receiving notice. l l I 1 I l i'

l434l.u ~ov. l i.e

~~u.6 as o v NOTE 7-I N C D M E taxes

[ncome taxes included in the Consolidated Statements Deferred tax assets and liabilities were comprised of the of Income consist of the following components: followmg: Years Ended December 31, t Mames as of December 31, (Mdisoars ofdollars) 1995 1994 1993 I (Mdlums ofdollars) 1995 1994 Current taxes-Deferred Tax Assets: Included in operating l expenses and taxes 98.6 58.3 25.3 i Current: Included in other incese Misc. book / tax recognition differences 26.1 19.7 and deductions (20.3) Noncurrent: Total current taxes 782 58.3 25.3 Depreciation and other property related 45.5 _52.6 Alternauve minimum tax 183.1 186.0 Deferred taxes-Tax credit and net operating kiss Included in operating carryforward 32.4 27.6 expenses and taxes l Unamonized investment tax credit 126.1 122.0 Property.related differences 62.2 60.0 72.3 Misc. book / tax recognition differences 66.7 57.0 Alternative minimum tax 2.9 (50.4) (31.8) 453.8 445.2 Gainbss on reacquired debt (1.9) 16.5 Net operatingloss Total deferred tax assets $ 479.9 $ 464.9 carryforward (.2) 62.0 22.8 l Enhanced retirement and severance (15.0) I Defened Tax 1.iabihties: Misc bookhax recogr ition I differences (13.9) (7.8) 4.1 '"['"*""# ",f' 73 g,9) lisc. lxxik/ tax recognition differences 5 6.5 8.2 ' Noncurrent: Included in other income I Depreciation and other property related 1,303.5 1,252.0 and deductions i Deferred Omton costs 60.1 62.1 Property-related differences 9.7 10.0 6.0 Misc. book / tax recognition differences 103.0 109.7 Net operating loss I 1,466.6 1,423.8 carryforward (17.4) (15.4) Total deferred tax liabihties $ 1.473.1 $ 1.432.0 Misc. book / tax recognition differences (1.2) (.7) (2.5) i Disallowed Clinton costs (62.2) l Total deferred taxes 42.6 63.2 7.9 I t Deferred investment tax credit-net Included in operating 7 expense and taxes (6.9) (11.3) (.8) Included in other income j and deductions (.3) (.7) Disallowed investment tax credit (8.4) Totalinvestment tax credit (6.9) (11.6) (9.9) Totalincome taxes $ 114.0 $ 109.9 23.3 f i i t t I

l ...... !.. H m...... o, o. The reconciliations of income tax expenie to amounts N t3 T E B-C A P t T A L LEAaEa computed by applying the statutory tax rate to reported Illinois Power Fuel Company (Fuel Company), which is pretan results for the period are set below: 50% owned by IP, was formed in 1981 for the purpose of Years Ended December 31, leasing nuclear fuel to IP for Clinton. lease payments are equal to the Fuel Company's cost of fuel as consumed (wllmns ordollars) 1995 1994 1993 l (including related financing and administrative costs). f)erIsta uNtIx rate Billings under the lease agreement during 1995,1994 and 5 92.9 '5 91.6 5 (20.5) 1993 were $41 million, $52 million and $45 million, j'[* ld'[h" **' respectively, including financing costs of $7 million, $7 I ( state uxes, million and $6 million, respectively. IP is obhgated to ner of federat effect 12.4 13.8 5.8 make subordinated loans to the fuel Company at any nNat$ E "E (6.9) (7.8) (8.8) i Depreciation not normahzed 7.4 4.3 7.1 payable exceed the funds available to the Fuel Company. Preferred dividend requirement IP has an obligation for nuclear fuel disposal costs of of subsidiary 5.8 8.7 9.1 leased nuclear fuel. See " Note 4-Commitments and Diullowed Clinton costs Contingencies" of the " Notes to Consolidated Financial (includmg ITC) 27.4 Other--net 2.4 (.7) 3.2 Statements" for discussion of decommissioning and wahncome taxes 5 114.0 5 1093 5 2{ nuclear fuel disposal costs. Nuclear fuel lease payments are included with Fuel for electric plants on Illinova's Combined federal and state effective income tax rates Consolidated Statements of income. were 42.9%, 42.0% and (39.8%) for the years 1995, At December 31,1995 and 1994, current obligations 1994 and 1993, respectively. The negative effective tax under capital lease for nuclear fuel were $33.3 million. I rate for 1993 is a result of the loss recorded by IP due to the Rehearing Order which denied IP recovery of certain Over the next five years, estimated payments under deferred Clinton costs. The 1993 effective tax rate exclud. capital leases are as follows: l ing the effect of this loss is 44.2% (Miltons of dollars) lilinova is subject to the provisions of the Alternative 1996 5 37.9 Minimum Tax System (AMT). As a result,Illinova has an ljy y AMT credit carryforward at December 31,1995, of 1999 12.4 approximately $183 million. This credit can be carried 2000 4.5 forward indefinitely to offset future regular income tax P'f'er l# l liabilities in excess of the tentative minimum tax. 105.1 l Less: Interest 10.0 l l in 1994, the Internal Revenue Service (IRS) completed 5 '5 its audit of IP's federal income tax returns for the years j 1989 through 1990. IP and the IRS reached an agreement on all audit issues. The results of the agreement did not have a material effect on Illinova's or IP's consolidated financial positions or results of operations. I

) A 28 ILLONOVA 1995 ANNUAL REPORT a NOTE 9-LONG* TERM DEST or S ue stos ARY (Mdhans ofdo!Lirs) 1 December 31, 1995 1994 first mortgage bonds-5.05% series duc 1996 40.0 40.0 6% % series due 1999 72.0 72.0 6.60% series due 2004 (Pollution Control Series A) 6.8 7.0 7.95% series due 2004 72.0 72.0 6% series due 2007 (Pollution Control Series B) 18.7 18.7 7%% series duc 2016 (Pollution Control Senes E G and 11) 150.0 150.0 l Q.30% series due 2017 (Pollution Control Series 1) 33.8 33.8 7%% series due 2021 (Pollution Control Series J) 84.7 84.7 0%% series due 2021 120.0 125.0 5.70% series due 2024 (Pollution Control Series K) 35.6 35.6 7.40% series due 2024 (Pollution Control Series L) 84.1 84.1 Total first mortgage bonds 717.7 722 9 New mortgage bond >-- 3 6%% series due 2000 40.0 40.0 5.625% series due 2000 110.0 110.0 6%'4 series due 2003 100.0 100.0 6%% series due 2005 70.0 70.0 j 2% series due 2023 235.0 235.0 7%% series due 2025 200.0 200.0 i Adjustable rate series due 2028 iPollution Control Series M, N and O) 111.8 111.8 Total new mortgage bonds 866.8 866.8 Total mortgage bonds 1,584.5 1,589.7 i Short-term debt to be refinanced as long-term debt 125.0 i Medium-term notes, series A 100.0 100.0 1 Variable rate long-term debt due 2017 75.0 75.0 Total other long-term debt 175.0 300.0 1,759.5 1,889.7 Unamortized discount on debt (20.3) (21.6) i ~ Total long-term debt excludmg capital lease obhgations 1,739.2 1,868.1 Obhgation under capitalleases 95.1 111.5 1,834.3 1,979.6 L.ong-term debt and lease obligations maturing within one year (95.0) (33.5) Total long-term debt 1,739.3 1,946.1 in August 1995, $5.0 milhon of 8 3/4% First Mortgage ik nds duc 2021 were purchased on the open market. Short-term debt to be refinanced as long term debt consisted of commercial paper that would be renewed regularly on a long-term basis. In September 1995, IP reclassified the $125 million to short-term debt in accordance with Statement of Financial Accounting Standards No. 6, " Classification of Short-Term Obligations Expected to be Refmanced." In 1989 and 1991,IP issued a series of fixed rate medium-term notes. At December 31,1995, the maturity dates on thew notes ranged from 1996 to 1998 with interest rates ranging from 9% to 9.31%. Interest rates or. variable rate long-term debt due 2017 are adjusted weekly and ranged from 5.3% to 5.5% at December 31,1995. r For the years 1996,1997,1998,1999 and 2000, IP has long-term debt maturities and cash sinking fund requirements in the aggregate of (in mil-hons) $61.7, $10.8,568.8,572.8 and $150.8, respectively. These amounts exclude capital lease requirements. See " Note 8-Capital leases" of the " Notes to Consolidated Financial Statements " Certain supplemental indentures to the First Mortgage require that IP make annual deposits, as a sinking and propeny fund,in amounts not to exceed $1.8 million in each of the years 1997 through 2000. These amounts are subject to reduction and historically have been met by pledging property additions, as permitted by the First Mortgage. At December 31,1995, the aggregate total of unamortized debt expense and unanmrtized hus on reacquired debt was approximately $1Hg e whon. IP's First Mortgage bonds are secured by a first mortgage hen on substantially all of the fixed property, franchises and rights of IP with certain minor exceptions expressly provided in the First Mortgage. In 1992, the Pioard authorized a new general obligation mortgage, which is intended to replace the first Mortgage. Ikmds issued under the New Mangage were secured by a corresponding issue of First Mongage bcmds under the First Mortgage. The remaining balance of net bondable additions at December 31,1995, was approximately $1.4 bilhon.

-m.. m j l A*27 l MEAsunca or oun success NOTE 10-P a t r E n n E D STOCK or S ussep4 AnY fMalwns ofJoh s) December 31, 1995 1994 i den AL P n E r E n n E o s T o c x o r s t u s s i os A n y, cumulative, $50 par value- ) Authorized 5,000,000 6 hares; 1,356,800 and i 325,815 shares outstanding, respectively l SERIE5 BHARES ,'E dim P TI O N PNid E S 1 4.08 % 300,000 $ 51.50 $ 15.0 $ 15.0 4.26 % 150,000 $1.50 7.5 7.5 4.70 % 200,000 5130 10.0 10.0 4.42 % 150,000 31.50 7.5 7.5 4.20% - 180,000 ' 52.00 9.0 9.0 8.24S' 30.0 i 7.56 % 33.8 l 8.00 % 34.7 l 7.75 % 376,800 50.00 after July 1,2003 18.8 18.8 l Net premium on preferred stock .2 .8 l t Total Preferred Stock of Subsidiary, $ 50 par value $ 68.0 $ 167.1 t SEnsAL P m E r E n n E o a T o c x a r a u e e i o i A = v, cumulative, without par value-Authorized 5,000,000 shares; 1,152,550 and 1,512,550 shares outstanding, respectively (including 0 and 360,000 shares, respectively, of redeemable preferred stock) i sE ntE s SHAnEs RE DE MPTeON PRICE B A 742,300 $50.00 $ 37.1 $ 37.1 B 410,250 30.00 20.5 20.5 l f Total Preferred Stock of Subsidiary, without par value J 57.6 $ 57.6 PmErEaEwcE s T o c x o r a u e e i al A n y, cumulative, without par value-Authorized 5,000,000 shares; none outstandmg ' Total Serial Preferred Stock, Preference Stock and Preferred Securities of Subsidiary 5 125.6 $ 224.7 l COMPANY OnLinATED M A N D AT o RILY REDEEMABLE j PRErERRED sEcualTIES or ILLINOIS power C APIT AL, L.. P. - Monthly income Preferred Securities, cumulative, $25 hquidation preference-- 3,880,000 shares authorized and outstanding 5 97.0 $ 97.0 l M AN D AT o NiLv R E DE E M A B LE s ERI AL PRErERRED s T o o m o r S U N alpi A m y, cumulative - mE nee S SHANES PAN WALUE 8.00 % 36.0 Total Mandatorily Redeemable Preferred Stock of Subsidiary $ 97.0 $ 133.0 t r Serial 6ferred Stock ($50 par value) is redeemable at the option of IP in whole or in part at any time with not less than 30 days and not more than { 60 4 notice by publication. 4 - Quarterly dividend rates for Serial Preferred Stock, Series A, are determined based on market interest rates of certain l'.5. Treasury securities. l Dividends paid in 1995 and 1994 were 5.75 per quarter. The dividend rate for any dividend period will not be less thaa 6% per annum or greater l than 12% per annum applied to the liquidation preference value of $50 per share. . Quarterly dividend rates for Serial Preferred Sic.ck, Series B, are determined based on marker interest rates of certain U.S. Treasury securities. Dividends paid in 1995 and 1994 were 5.875 per quarter. The dividend rate for any dividend period will not be less than 7% per annum or greater than 14% per annum applied to the liquidation preference vahie of $50 per share. Illinois Power Capital, L.P.,is a hmited partnership in which IP serves as a general partner. In October 1994, I!!mois Power Carital is"ued $97 mil-tion of tax-advantaged monthly income preferred securities (MIPS) at 9.45% (5.67% after-tax rate) with a hquidation preference of $25 per share. He proceeds were loaned to IP and were used to redeem $97 milhon (principal value) of higher. cost outstandmg preferred stock of IP. The carrying amount of redeemed preferred stock over consideration paid amounted to $6.4 milhon, which was recorded in equiry and included in Net income applicahic to common stock. IP consolidates the accounts of Illinms Power Capital. in February 1995 and 1994,IP redeemed $12.0 milhon of the 8.00% mandatordy redeemable serial preferred stock, in May 1995,IP redeemed the remaining $24.0 million of the 8.00% mandatorily redeemable serial preferred stock. In March 1995, IP redeemed 5.2 milhon of the 7.56% serial preferred stock and $3.0 million of the 8.24% serial preferred stuk. In December 1995, IP redeemed $34.7 million of its 8.00% serial preferred stock, $33.6 nullion of its 7.56% serial preferred Stock and $27.0 million of its 8.24% serial preferred stock. The carrying amount under consideraten paid for redeemed preferred stock amounted to $3.5 nuthon, which was recorded in equity and included in net income appbcable to common stock. i l

A 28 ILLsNowA 199S ANNUAL REPQRT i l NOTE 11-CDMMON stock in 1992, the Board of Directors adopted and the share-i c ed o RETASNEo E* A R N I N G S i holders approved a Long-Term incentive Compensation l IP has an Incentive Savings Plan (Plan) for salaried Plan (the Plan) for officers or employee members of the employees. IP's matching contribution is used to purchase Board, but excluding directors who are not officers or li;inova common stock. Under this Plan,27,545 shares of employees. The types of awards that may be granted l common stock were designated for issuance at December under the Plan are restricted stock, incentive stock 31,1995, options, non-qualified stock options, stock appreciation IP has an incentive Savings Plan for Employees rights, dividend equivalents and other stock-based l Covered Under a Collective bargaining Agreement. IP's awards. The Plan provides that any one or more types of matching contribution is used to purchase Illinova com-awards may be granted for up to 1,500,000 shares of mon stock. Under this plan,69,167 shares of stock were Illinova's common stock. The following table outlines the designated for issuance at December 31,1995. activity thus far under this plan: lilinova has an Employees' Stock Ownership Plan Year Opnons Grant Year "*"d ""d I'i ""'"h'" l (ESOP) that includes an incentive compensation feature which is tied to employee achievement of specified corpo. 1992 62soo s 23w 1996 rate performance goals. This arrangement began in 1991 [ l[ [ l when IP loaned $35 million to the Trustee of the Plans, i995 69,3no g 2n i998 which used the loan proceeds to purchase 2,031,445 shares of IP's common stock on the open market. The loan The provisions of Supplemental Indentures to IP's and common shares were converted to Illinova instru-nu 1 Mongage Indentun and Deed of Trust contain ments with the formation of Illinova in May 1994. These cenain restriaions with respect to the declaration and shares are held in a suspense account under the Plans and payment of dividends. IP was not limited by any of these restrictions t December 31, 1995. Under the Restated are being distributed to the accounts of participating employees as the loan is repaid bv the Trustee with funds Anicles of Ina>rporation, aimmon snick dividends are contributed by IP, together with ' dividends on the shares suNea to the preferential rights of the holders of preferred i acquired with the loan proceeds. IP financed the loan with nd preference stock. l funds borrowed under its bank credit agreements. For the year ended December 31,1995,75,729 shares NOTE 12 M ENS 1ON AND c) T H E R E3 E N E 8" i T CDSTS were allocated to salan,ed employees and 70,830 shares to employees covered under the Collective Bargaining IP has defined-benefit pension plans covering all officers Agreement through the matching contribution feature of and employees. Benefits are based on years of service and i the ESOP arrangenient. Under the incentive compensation a>mpens tion. IP's funding policy is to contribute annu-feature, 109,662 shares were alk>cated to employees for ally at le st the minimum amount required by government the year ended December 31,1995. During 1995, IP con-funding standards, but not more than can be deducted for tributed 56.0 million to the ESOP and using the shares federal income tax purposes. j alkicated method, recognized 54.4 mdlion of expense. Pension costs, a portion of which have been capitalized for ] Interest paid on the ESOP debt was approximately $2.1 1995,1994 and 1993, include the following components: million in 1995 and dividends used for debt services were Years i nded I)ecember 31 ) approximately $2.0 million. g3 afy,y, of sofg7,;.- - i993- _- -i994 3993 Illinova has an Automatic Reinvestment and Stock serme cost on bi nein Purchase Plan and an Employees' Stock Ownership Plan earned danng the year 10.4 5 11.9 5 11.3 l for which, at Decemher 31,1995,3,270,236 and 29,115 '"'" '"" "" P" 'i'd henc6t obligation 23.6 21.8 20.8 shares, respectively, of common stock were designated for wrn on r n auts g 3) g.9, (2sm s u issuance. Illinova has the responsibility for administering mi arnortizanon and deferral 294 (19.2) 1.9 ) both of these plans. The plans allow pu chases of shares Mect of enhanced renrenient on the open market, as well as purchases of new issue P'"8'"!" C - shares directly from Illinova.

' Perh"""n cost 5 2 Ln 5

u $ 19 l

%l l m.o.c. - oo. .u m.. The estimated funded status of the plans at December The net periodic postretirement benefit cost in the pre-31,1995 and 1994, using discount rates of 7.75% and ceeding table includes amortization of the previously 8.75%, respectively, and future compensation increases of unrecognized accumulated postretirement benefit obliga-4.5% was as follows: tion, which was $52.3 million and $55.2 million as of Babnen as of December 31, January 1,1995 and 1994, respectively, over 20 years on a straight.line basis. (Malmm o/ dot!.,rs; IP has established two separate trusts for those retirees 1995 1994 Actuarial prnent value of: Vested bencht obhgation 5 (276.8) 5 (209.6) who were subject to a collectively bargained agreement Accumulated beneht obhgation 5 (297.5) 5 (220.8) and all other retirees to fund retiree health care and life . $l"""d[""['[fj'["" N 5 $ insurance benefits. IP's funding policy is to contribute l'unded status (12.1) 16.7 annually an amount at least equal to the revenues col-Unremgnized net (gain)/ loss (5.1) (38.8) lected for the amount of postretirement benefit costs e] allowed in rates. The plan assets consist of common pr r XEJe'd penuun mst inclJJid ;ir stocks and fixed income securities at December 31,1995 aaouno payable 5 (30.6) 5 (12.6) and 1994. The estimated funded status of the plans at December 31,1995 and 1994, using weighted average The plan's assets consist primarily of common stocks, discount rates of 7.75% and 8.75%, respectively, and a fixed income securities, cash equivalents and real estate. return on assets of 9% was as follows: The actuarial present value of accumulated plan benefits Balances as of Dunnber 31, at January 1,1995 and 1994, were $258 million and $230 million, respectively, including sested benefits of (Mdimm of dolbr51 1995 1994 $239 million and $213 million, respectively. The pension Accumulated postretirement cost for 1995,1994 and 1993 was calculated using: a dis-Irnc6r obhgation Retirees 5 (54.5) 5 (26.7) count rate of 8.75%, 7.75% and 8.25%, respectively; Other tully chgible participants (3.0) (11.6) future compensation increases of 4.5% for 1995,4.5% other active plan participants (27.5) (27.3) ) for 1994 and 5.5% for 1993; and a return on assets of 9% 'lotal bencht obhgation (85.0) (65.6) for 1995,1994 and 1993. The unrecognized net asset at rainalue_ g 5 transition and unrecognized prior service cost are amor. J}an a tued on a straight-line basis over the average remammg unrmignized tranution obhgation 44.2 52.3 service period of employees who are expected to receive unrecognized net (gainvlo,s (7.8j benefits under the plan. IP did not make any cash contri-Accrued postretirement benent cost '""d"d I" """una payaw 5 ( 15.21 5 (w butions during 1993 for the pension plans due to its over-funded status. IP made cash contributions of $2 million in The pre-65 health-care-cost trend rate decreases from 1995 and $10 million in 1994. 7.6% to 5.5% over nine years and the post-65 health-care-IP provides health care and life insurance benefits to cost trend rate is level at 1.5%. A 1 percent increase in each certain retired employees, including their eligible depen. future year's assumed health-care-cost trend rates increases the service and interest cost from $7.6 million to $8.5 mil-dents, who attain specified ages and years of service under the terms of the defined-benefit plans. Postretirement ben. lion and the accumulated postretirement benefit obligation from $85.0 million to $93.0 million. efits, a portion of which have been capitalized, for 1995 and 1994 included the following components: cu~.~ceo aevi.s=c~r In December 1994, IP announced plans for voluntary i (Mdlems of dolbrs) _. _ 1995 1994 enhanced retirement programs. During the fourth quar *er of semcc cost on benefits earned 1995, enhanced retirement and severance reduced the number during the year 5 2.1 5 3.3 of employees by 492 and 235, respectively. At January 1, fiIfbUga I#"E ' "' '"*P 5.5 6.2 4,350 at December 31,1994. ne enhanced retirement and Return on plan awers (4.7) .2 Amortuanon of unrecognized severance programs pe%ated pre-tax charges of approxi-uanution obhgation 6.3 2.1 mately $26 and $12 million, respectiveh, against fourth ((S[n n[ quarter 1995 earnings and will generate savings of approxi-r bene 6: mst 5 18.7 5 11.8 mately $36 million annually, starting in 1996. k

A 30 BLLINOva 1995 ANNUAL REPOmf NOTE 13-S E G M E N T S OF B U SIN E S S (Millions ofdollars) 1995 1994 1993 Total Total - Total Electric Gas Corporation Electric Gas Corporation - Electric - Gas - Corporation Operation informatmn - Operating revenues $ 1,368.9 $ 272.5 $ 1,641.4 $ 1,287.5 $ 302.0 $ 1,589.5 $ 1,266.4 $ 314.8 $ 1,581.2 Operating expenses, excluding provision for income taxes ~ and deferred Clinton costs 942.7 245.0 1,187.7 872.6 274.7 1,147.3 873.9 ' 286.2 1,160,1 Deferred Chnton costs 3.5 3.5 3.5 3.5 9.3 9.3 Pre. tax operating income 422.7 27.5 450.2 411.4 27.3 438.7 383.2 28.6 411.8 Allowance for funds used during construction {AFUDC) 5.5 .5 6.0 8.9 .4 9.3 6.2 1.0 7.2 - Disallowed Clinton costs (net of taxes) (200.4) (2(n4) Pre-tax operating income, including AFUDC and disallowed Clinton costs $ 428.2 5 28.0 $ 456.2 $ 420.3 $ 27.7 $ 448.0 $ 189.0 $ 29.6 $ 218.6 - Other deductions, net 18.9 17.5 15.6 Interest charges 148.0 143.9 164.9 Provision for income taxes 114.0 109.9 93.9 Preferred dividend requirements of subsidiary 23.7 24.9 26.1 Net income (loss) 151.6 151.8 (81.9) Carrying value over (under) consideration paid for redeemed preferred stock of subsidiary (3.5) 6.4 Net income (loss) applicable to common steck $ 148,1 $ 158.2 $ (81.9) Other information - Depreciation 5 161.4 $ 21.6 5 183.0 $ 156,1 $ 21.1 $ - 177.2 $ 148.2 5 21.0 $ 169.2 ~Capitaiexpenditures $ 185.7 $ 23.6 $ 209.3 $ 173.1 $~266 3 -'193.7 $ 221.3 I 56A $ 277.'T ~ Investment information - IdentifiaNe assets * $ 4,580.4 $ 446.3 $ 5,026.7 $ 4,589.0 $ 442.6 $ 5,031.6 5 4,526.8 5 406.4 5 4,933.2 Nonutihty plant and other investments 65.5 37.2 19.9 Assets utilized for overall operations 517.6 507.9 - 470.4 Total assets $ 5.609.8 1 5.576.' $ 5.423.5

Utihty plant, nuclear fuel, materuls and supplies, deferred Cimson costs and prepasd and deferred energy costs.

J

%l 1 m.o.e. o, oo. .occe.. ) NOTE 14 - FA 8 R VALUE DF Decommissioning Trust are based on quoted market prices FIN A N CI AL lNBTRUMENTS at the reporting date for those or similar investments.

399, 3,94 (Afdisons o[ dollars)

Carrying Fair Carrying l' air Value Value Value Value CAnw aw Cass cousvateNTs The carrying i ~ ) amount of cash and cash equivalents approximates fair Nuclear decommissionmg trust funds $ 32.7 $ 32.7 $ 22.4 $ 22.4 value due to the shon maturity c' these instruments. Cash and cash equivalents 11.3 11.3 50.7 50.7 Mandatorily redeemable M4woaToaiLv REoecw4 ele eeaiaL ' """"' '^"* ** sul ry 97.0 108.2 133.0 133.0 long-term debt L0NG* TERM DEBT OF SUBSID8ARY The fair of subsidiary 1,739.2 1,855.8 1,868.1 1,750.7 value of IP mandatorily redeemable preferred stock and IP Notes payable 359.6 359.6 238.8 238.8 long-term debt is estimated based on the quoted market l The following methods and assumptions were used to prices for similar issues or by discounting expected cash estimate the fair value of each class of financial instru. flows at the rates currently offered te IP for debt of the ments listed in the table above: same remaining maturities, as advised by IP's bankers. j he carrying amount of notes NOTES PAYABLE nucle An D EccMM pa alD NiNG TNUST FUNDB The fair values of available-for-sale marketable debt secu. payable approximates fair value due to the short maturity j of these instruments. j rities and equity investments held by the Nuclear l NOTE 15-Q U A R T E R LY C O N S D Ll D AT E D FIN A N CI A L iNFORMATEDN AND COMMON O T D C IC DATA t W N A U DIT E DI (hidikms of dollars except per common share amounts) First Quarter Second Quarter Third Quaner Fourth Quarter 1995 1995 1995 1995 Operatmg revenues $ 425.5 5 344.3 5 486.1 $ 385.5 i Operating income 78.3 67.1 137.2 41.8 Net income 32.4 26.3 89.9 3.0 Net income (loss) appheable to common stock 32.4 26.3 89.9 (.5) i Earnings per common share .43 .35 1.18 .00 Common stock prices and dnidends I-bgh $ 23 % 26 $ 27% 30 low $ 21 % $ 22 % $ 24W 27 l l Dividends declared .25 .25 5 .25 .28 First Quarter Second Quarter Third Quarter Fourth Quarter 1994 1994 1994 1994 i Operating revenues $ 442.9 $ 349.6 $ 428.9 $ 368.1 i Operating income 71.3 72.2 112.2 64.7 Net income 27.3 29.5 71.8 23.2 l Net income appbcable to common stot L 27.3 29.5 71.8 29.6 Larnings per common share .36 .39 95 .39 l Common stock pnces and d,videnJ, thgh $ 22 % $ 22 % $ 21 % 217. tow 19 3 18% 18 % 187: Dividends declared 5 A) .20 .20 .25 ne 1995 fourth quarter carnings include $23 milhon oct of tas, $(.30) per share, for the enhanced retirement and wverance program and $3.5 md-lion, $(.05) per share, for the carrying amount utJer consideration paid for redeemed prefened stock of IP. The 1994 fourth quarter earnings include $6.4 mdhon, $.08 per share, for the carrying amount over consideration paid for redeemed preferred 1 stock of IP. The common stock is hsted on the New York Stock Exchange and the Chicago Stock Exchange. The sto k prices above are the pnces reported on i the Composite Tape. Acre were 35,035 registered holders of common stock at January 10,1996. On May 31,1994, common shares of Ilknois Power began tradmg as common shares of Ilhnova. l

3 A-3 2 4LLINova 199S ANNUAL R E p o so v .m..... i GELECTED C O N S O s_I D AT E D F"l N A N C I A L DATA

thlillions of dollars) 1995 1994 1993 1992 1991 1985 Opcratmg revenues Electric

$ 1,252.6 5 1,177.5 $ 1,135.6 $ 1,117.9 5 1,101.2 5 766.5 Electric interchange 116.3 110.0 130.8 73.0 85.5 36.0 Gas 272.5 302.0 314.8 288.6 288.2 400.9 Total operating revenues 5 1.641.4 $ 1,589.5 $ 1,581.2 5 1,479.5 5 1,474.9 $ 1,203.4 f$ 207.2 I Net income (loss) 5 151.6 5 151.8 (81.9) 93.2 78.4 fifective income tax rate 42.9 % 42.0 % (39.8f% 46.0 % 48.6% ! 29.1 % Ner income (loss) apphcable to common stmk 148.1 158.2 5 (81.9) 5 93.2 5 78 4 5 207.2 Earnings (loss) per common share 1.96 2.09 5 (1.08) 5 1.23 1.04 ,5 3.48 Cash dwidends declared per common share 5 1.03 5 .65 .40 1.40 5 .40 l$ 2.64 Dnidend payout ratio (Jeclared) 52.3 % 30.7 % N/A 112.9 % 38.4% ! 76.6*'6 lbok value per common share 20.19 5 19.17 17.46 18.81 5 19.25 }$ 24.51 Pnce range of common shares liigh 5 30 22 % $ 25 % $ 25 % 5 24 % 5 27 6 low 21 % 5 18 % 5 20% 5 19% $ 15 % 21 % Weighted average number of common shares outstanding during the perimi(thousands) 75,644 75,644 75,644 75,644 75,644 ! 59,619 Total awets" $ 5,609.8 5 5.576.7 5 5,423.5 5 5,331.7 $ 5,271.8 l 5 4,894.6 Capitalaation j $ 15393 Common stock equity 5 1,527.0 5 1,450.2 5 1,321.0 5 1,422.7 $ 1,456.1 Preferred stock of subsidiary 125.6 224.7 303.7 303.1 301.1 315.2 Mandaronly redeemable preferred stak of subsidiary 97.0 133.0 48.0 100.0 110.0 86.0 1ong-tenu debt of subsidiary" 1,739.3 1,946.1 1,926.3 2,017.4 2,153.1 1,997.5 Total capitalization" $ 3,488.9 $ 3,754.0 $ 3,599.0 5 3,843.2 $ 4,022.3 l $ 3,938.0 Embedded cost of long-term debt 7.9% _ 7.6% 7.5% 8.3% 8.7% ' 10.0 % Retained earnings (deficit) _1_29.6.__5__. 58.8 5 (64.6) 41.0 75.8 398.8 Capital espenditures 5 209.3 5 193.7 2-'7.7 5 244.4 5 141.2 j$ 870.7 Cash flows from operations 5 413.2 5 268.6 5 369.7 5 344.8 5 281.3 l5 242.7 AIUDC as a percent of earnings l apphcable to common stock 4.1% 5.9% N/A 5.6% 3.7% 78.2 % Return on aserage common equity 10.2 % 11.0 % (6.01% 6.5% 5.5% 14.4 % Ratio of earmngs to 6 sed sharges 2.56 2.56 .66 1.87 1.70 2.66 Milhons of dollars except earnings (loss) per common share, cash dividends dedared per common share, book value per common share and pnce range of common shares. l Restated for the effect of capitalued nuclear fuel lease. l ) I i i

MtASUREe or Dun SuccEs4 A 33 e s. L e m o w a C o moomat tom a OELECTED I L LI N D I S POWER CD, PANY S TATI S TI C S 1995 1994 1993 1992 1991 1985 CLECT8 tic S ALE S $N KW H (MILLION S) i Residential 4,754 4,537 4,546 4,138 4,620 3,927 Commercial 3,804 3,517 3446 3,055 3,111 2,706 ) Industrial 8,670 8,685 8,120 8,083 7,642 6,933 {

pyher,

_. _ 367 _ _ 536 _ 317 466__6_W_ 861 Sales to ultimate consumers 17,595 17,275 16,249 15,742 16.072 14,427 Interchange 4,444 4,837 6,015 2,807 3,360 1,692 Theeling_. _ _ _ 622. _ __ _ 569_..____ _2_ _ _292. _ 642 40 Total electric sales 22.681 22,734 22,833 18,951 19,724 l 16,119 ELEctaic R EVENUE S (MILLIONS) Residential 5 500 5 471 5 463 $ 4 35 5 447 5 276 Commercial 321 295 269 263 251 179 Industrial 392 378 360 381 355 277 j Other 37 30 40 38 47 34 Revenues from ultimate consumers 1,250 1,174 1,132 1,117 1,100 766 Interchange 116 110 131 73 86 36 Theeling 3 3 3 1 1 Total electric revenues 5 1,369 5 1,287 5 1,266 5 1,191 5 1,187 5 802 D As O ALES IN THENMB (MILLIO N S) Residential 356 359 371 339 339 365 Commercial 144 144 148 138 133 166 Industdal 88 81 _ 78_,_ _ 136 98 136 Sales to ultimate consumers 588 584 597 613 570 667 Transprtation of customermwned gas 273 262 229 204 253 Total gas sold and transported 861 846 826 N17 823 667 Interdepartmental sales 21 5 7 12 N 1 Total gas delivered 882 851 833 829 811 668 gas REVENUES (MILLIO N S) Residential 5 173 5 192 5 200 5 181 5 184 5 228 Commercial 60 66 68 61 61 89 Industrial 24 31 34 37 31 68 f Revenues from ultimate consumers 257 289 302 279 276 385 i Transportation of customer-owned gas 8 9 8 7 9 e l hiiscellaneous 7 4 5 3 3 16 Total gas revenues 5 272 5 302 5 .115 5 289 5 288 l5 401 System peak demand inatise load) m Lw (thousands) 3,667 3,395 3,415 3,109 3,272 2,929 l Firm peak demand (native loadiin kw (thousands) 3,576 3,232 3,254 2,925 3,108 2,71 __ _..._121_ _ _ _._4,04 5._.__._____2__ . _ __. _Ht9 l _Ne,t ge_nerating capab_il_ity in Lw (thousandu__ __ __3,8_62 4, 4,05 3,. 3,7 _._'.O. F.lectric customers (cod of year) 529,966 553,869 354,270 549,391 565,421 l 537,047 Gas customers (end of year) 374,299 388,170 394,379 386,261 401,763 382,442 Employees (end of year) 3,559 4,350 4,540 4,624 4,514 4,550

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I i 1 1 i I s 1995 A n n ualReport 9605070192 960502 PDR ADOCK 05000461 I PDR y m-r Tvw -w- -y v----- w, m-

i 1 l Soyland i l Soyland equipment throt'gh a trained and certified j In traduct/on Power dealer network. This network extends l Coopera-throughout Illinois, the eastern half of Mis-

tive is a member-owned, not-for-profit elec-souri and eastern third ofIowa. Applied j tric generation and transmission coopera-Energy Systems is pursuing other business

) tive which produces and supplies electric-opportunities to assist Soyland's members j ity to 21 member distribution cooperatives. meet the needs of the consumers they l These distribution cooperatives provide re-serve. j tall electric service to approximately one-Soyland and its 21 member distribu-j half million member consumers within their tion cooperatives are united through a com-l local service territories. Soyland is one of mon purpose of making rural Illinois a bet-l m >re than 60 generation and transmission ter place in which to live. We remain com-(G&T) cooperatives that supply wholesale mitted to enhancing community and eco-electric power to rural utilities in the United nomic development opportunities in rural States. areas. l ion cooperatives in September,1963, un-Soyland was organized by six distribu-Since its inception in 1963, Soyland's j t goal has been to provide a dependable l der the General Not For Profit Corporation source of wholesale electric power to its l Act of the State ofillinois. Leaders of those member systems at a competitive cost. To-cooperatives saw Soyland as a way to gain day, through its unique blend of fuels and

energy independence and control over elec-generating plants, Soyland has built a j tric power costs. In 1975, nine additional stable base from which to meet the electric l cooperatives joined the original six (two energy requirements of its member sys-ti have since merged), and plans were tems.

l launched to develop a reliable and economi-l cal power supply system. Western Illinois qg) - jeg ! Power Cooperative, with seven member dis-

p

. %,,[ ". i (,y E...., ' tribution cooperative systems, merged into 7 . i-Soyland in March,1989, to form the coop-l erative federation that today supplies the ! electric power needs of nearly two-thirds of the land mass of the State ofIllinois. { Applied Energy Systems ofIlinois,Inc., ' the parent company of WaterFurnace Mid-west, is a wholly owned for-profit subsid-lary of Soyland Power Cooperative. ! WaterFurnace Midwest markets and sells soyland's main headquarters are located at 788 North i geothermal heating. cooling and hot water sunnyside Road in Decatur. Illinois. f 1

Soyland Rura1 cept the challenge of the changing utility Executive Report Electric industry. As part of Soyland's financial Coopera-planning, we explored ways to cut costs tive men and women have historically been and encourage development of our mem-the motivators ofchange. In the 1940s, the bers. Soyland's Board and staff took a hard landscape and lives of rural America were look at day to day operations, streamlin-forever altered by those men and women ing costs wherever possible and pursuing united and working together for a better every avenue to increase our competitive future. With deregulation of the electric edge. Together, we continue to evaluate al-utility industry on the horizon, and the con-ternatives for the future of Soyland. stant threat of federal bud-Knowing the suc-get cuts to eliminate or re-cess of Soyland depends IU ' M# ###UE-duce programs, now, more upon the success of our than at any time since our one members of mem3er cooperatives, humble beginnings, elec. Soyland Power Con-Soyland implemented a triccoopreativesare push-tinued their Commit-new rate in 1995 to en-ing towards rapid change, ment to have Control courage economicdevelop-i in

1995, the over the destiny of ment and help our mem.

twenty-one members of their Cooperative. ro-ber cooperatives retain at risk" loads. The benefit of i gethel; wecontinueto this large load incent,ve ) i CValuate alternatiVCs W '" ? " W ~"^'G"y rate (LLrider)was realized g for the future of within a short period of u j Soyland. time with the application of the LL rider to retain a

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5-MW load for one mem-9 S oy1a n d ber cooperative and the contract extension 1 Power contin-of an 18-MW municipal system by another ued their member. By providing economic develop-i committment ment and marketing programs to our mem-to have con-bers, Soyland has further assisted them in j trol over the their goals of increased sales of electricity destiny of and/or energy services. With the uncertain EXECUTIVE CONNITTEE (left to r/ght): Robert their coopera-future of the electric utility industry, our Sm/th, v/cc Cha/rman; //m Coleman, Secretary; tive. Soyland member cooperatives have taken a pro-ac-Joe Firlit. President and CE0; Steven Schertz, Assistant Secretary; Eldon Noore, Assistant and its mem. tive approach to their future, along with i \\ Treasurer; Ed Gant, Treasurer. Not pictured: Jim yg7g 7ggggg gnylggg, g gggggg gg gggg gggggg ggg }eg 79 liinman, Chairman; and Jeff Reeves, immediate rast Cha/rman. united to ac-internal cost cutting and the exploration 2 l

soyland I i I l of mergers or sharing of services among member cooperatives in the areas of mar-l local cooperatives. keting, economic development and engi-l While the Soyland board worked on neering was a major emphasis of Soyland ! accepting the challenges of the changing staffin 1995. Soyland developed a new and industry, Soyland's staff continued the comprehensive marketing program in con-l business of being a generation and trans-junction with member-cooperatives which j mission cooperative for its twenty-one focuses on market-j members. Severe spring flooding and an ing and sales of f l extended heat wave resulted in record tem-electric technology. peratures. Soyland's coincident peak de-Soyland conducted i mand of 634 MW surpassed the previous a seminar in No- ',( e ' t* peak set in 1991 by nearly 11%. The vember showcas- '4-g Soyland integrated system handled the ing energyefficient f ~ peak loads even with a June fire at the Win-construction prac- [ j, l chester 34 kv substation that caused sub-tices and electric r stantial damage. Soyland's record energy technologies. This 3 ' sales of 2,751,000 MWh was attributable seminar promoted .f, A to the severe weather of 1995. the geothermal j Negotiations for coal supply resulted t ec h n o1ogy EXECUT/VE STAFF (left to right): Alice

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' in a contract which will provide Soyland adopted by many i ney; Ken Kammeter, Vice President / Finance l with a quality source of coal until the end member coopera. a uarketinge /cannte Rade, Administrative f of the century. Soyland also addressed the tives. Applied En-dent / ngi e ri g 9 era / '. ^ ' ' ' s l concerns of planning for the decommis-ergy Systems of 11-i sioning of the nuclear Clinton Power Sta-linois, Inc., dba tion by entering into a new investment WaterFurnace Midwest, a wholly owned agreement which is anticipated to earn a subsidiary of soyland, was a co-sponsor higher return and enable the trust to grow of the program. Promotion of geothermal

at an increased rate to fund the eventual heating and cooling systems resulted in decommissioning of the plant. Soyland also 285 system installations on Soyland mem-

' took advantage of an economical source ber distribution system lines in 1995 and of energy available from newly organizing increased Waterfurnace Midwest's market i j power marketing firms.Soyland purchased share from 78% to 82%. ! nearly 352,000 MWh, or 12% of our en-Our continued commitment to develop ergy needs, from the power marketing firms our rural areas resulted in the adoption of j of LG&E Power Marketing and Enron Power a community and economic development j Marketing. Soyland will continue to avail business plan with five major areas ofcon-l itself of these cost-efficient energy sources. centration. Those include community de-1 Providing support and assistance for velopment, community development corpo-l l a 3 4 I

Soyland rations, advertising, economic development state cooperative associations, is an active network and new program development. participant in these developments as we Soyland's support of economic develop-strive to protect the interests of our mem- ) ment was recognized this year by the Na-bers, and to pursue any opportunities tional Rural Electric Development Associa-which may result from the changing regu-tion for the leadership we provided to RU-latory environment. RAL PARTNERS, the Illinois Private Public 1995 has been a year of change, activ-i Partnership for Rural Community Develop-ity and unity for Soyland and Soyland i ment. members. When Board chairman James Sweeping changes in the electric util-Hinman became ill mid-year, the board was ity industry have been initiated in 1995.- unified and supported Vice Chair Robert on a national level, the Federal Energy Smith. The strength of our organization lies Regulatory Commission put forth it:, in our ability to control the destiny of our MegaN0PR covering the regulation of cooperative, rather than to allow outside l wholesale power transactions with the goal forces to control it for us. The Soyland of providing open transmission access, al-board and staff are committed to making lowing a transition from regulated to mar-the necessary decisions to adapt our coop-ket-based generation transactions. On the erative to meet the challenges which face state level, a study was begun into the con-us. It is with this determination that we cept of retail wheeling which will allow for look forward to the opportunitics that will various levels of customer choice for power be presented to us in 1996. supply. Soyland, along with its national and i _ l lll l + r. k kt / 1 7 "' ti ) James E. Hinman Robert D. Smith Joseph F. Ftrlit Ch airman Vice Chairman President and CEO 4

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-.. - ~ - - - Soyland availability of 81.5% and a capac-Engineering and Operations ity factor of 74.7%. These continu-l ingimprovements are the result of i l Soyland has a broad mix ofgenerating concerted joint efforts between Soyland and j capacity to meet its twenty-one member Illinois Power for improving plant perfor-( cooperatives' power supply needs. Soyland mance. Total operation and maintenance { owns 13.21% of the Clinton Nuclear liower expenses were on budget and capital im-i Station, which is operated by lilinois Power provements were under budget for the 1995 (IP), owner of the balance of the plant. This year. Staffing level reductions to 840 post-l 123 MW of nuclear capacity was 17% of tions at year end are indicative of the man-the available Soyland gen-agement goal at both IP erating capacity in 1995, and Soyland to reduce I j-Clinton provided 806,617 The Soyland-Owned costs while improving op-MWh or28% ofsoyland's to-JStem, compr/ Sing erational efficiencies. l talenergyrequirement.The about 600 milc5 of The 22 MW Pearl fifth refuelingsince Clinton tranSm/SSlon //neS station coal fired plant began commercial opera-and nearl 100 Sub-Provided nearly 117,092 y tion in 1987 was com. MW hours toward meeting i f Stations, per ormed pleted on April 29,1995 Soyland's energy require-0 u (S t a n dinglf ment. Operating at 66% ca-l after the plant's best ever outage duration of only 49 through Severejl00dS, paci,y roc,,,,,3,,ni, 3,3 days. The plant achieved tornadocS, /ccSto.'zS an equivalent availability high performancelevels in and TcCord clectrical of 70% during the year, de- } 1995 with an equivalent demand. spite record floodinglevels on theIllinois River which t Soyland Pdwer Coincident Pleak Demand mvered the toal storage area and disrupted 8"[ the trucked coal supply to the plant in May and June. The 22 MW combustion turbine, j ,y m,, e which is also located at the Pearl station, I L 60c

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sy m y ho N/" is available to provide support during sys- ','7 o tem emergencies or for power pool use, if 40o.o N N2 di 4* g necessary. The combustion turbine and the j E 2m Pittsfield diesels were called upon during the summer to provide generation when the extreme heat and humidity across much o' 985 1980 i9st 1988 1989 1990 i99i 1992 1995 1994 2995 of the eastern two-thirds of the United o summe

wimer States created record electrical demand.

Soyland set a record coincident peak de-i 6 l [

Soyland i l i, I@@fg Yjp' Q.n a b?ff[ M 'I,/f U f7 %+/ 7 "5 i mand of 634 MW, surpassing the previous h, s 4.pg o j'fg9.<y..er- - P h M,a 'Yg J

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peak set in 1991 by nearly 11%. During the oa g ?I M 23 6 h peak hour of the IP/Soyland pool, Soyland's l$ 1 demand was 545 MW, taking advantage of 44 p .g?g, 0%, ' W#x, ?y 'bp j l Soyland's diversity with its pool partners C ' di 9 + 3 and load curtailed by its members due to p i l Soyland peak warning. "tj l In addition to the Clinton and Pearl 1! plants, Soyland has long term power sup-ply contracts with Illinois Power and Cen-tral Illinois Public Service Company (CIPS) for use of their fossil fuel capacity and l transmission systems on a fully allocated, cost of service basis. The Soyland percent-age share of the IP fossil plants increased o 50% in 1995, from 8% to 12%, due to con-tractual changes. Approximately 1,336,000 MWh, which is 46% of Soyland energy. was POWER SUPPLY COMMITTEE (seated, left to righ t): Tim provided by the lP fossil generation and ap-Ch ris t en s en, Chairman; and Doug Acil;s, Vice Chairman. (Standing, left to right): Joe Welsh; Don Gleiber and Ken l Heintm an. _ i&. J ' _**: r_ _C... - p;, ; _ ~ , =- y__ = 3_ W g.y , =. r: {cHw ~.~ ~&~_ ~e-. Ii ' Qt s V"Y-5 a,l* net *~~g~p'p};- I :?.' . J. %n f 2d.d . y,.. WM? .Q -m,e d b . A$ Y "ErE ,, G ~ ~ a.. l The 950 megawatt Clinton Power Station, near Clinton. Illinois. 7

~. 1 I l l Soyland i proximately 352,000 MWh, equaling 10% of substations, approximately five miles of Soyland energy, was provided by CIPS' fos-transmission lines, and provided countless j sil generation. In addition, Soyland pur-hours of construction and maintenance i chased approximately 352,000 MWh, or support to the member systems. With the i 12% ofits energy, from the power market-design projects in process and the need to ing firms LG&E Tbwer Marketing and Enron replace and upgrade transformation capac-Power Marketing. ity to handle expected summer distribution The Soyland-owned system is com-substation loading,1996 will be a challeng-prised of approximately 600 miles of trans-ing construction year. j mission lines and nearly 100 substations. Design assistance was also provided by i The Soyland Operations Department per-the Engineering Department to member I formed in outstanding fashion operating systems. This included 19 miles of 69kv and maintaining the system this year, bat-and 34.5kv transmission line, two distri- ] tling severe floods, tornadoes, winter ice bution substations, and two capacitor bank storms, and record electrical demand, and installations, in addition to providing rou-rebuilt a 34kv substation at Winchester,11-tine technical support. Projects under way linois, which sustained substantial fire for 1996 include four distribution substa-damage. Clean up and repair of the dam-tions, and approximately 15 miles of 69kv l age required approximately one month. The transmission line. 1 crews also constructed two distribution ln e ~ + i w i 1 4 j i i l I l l i i l The 22-megawatt fearl Station, located on the Illinois River. 8

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Soyland were implemented in 1995 by Soyland and Marketing Programs its member cooperatives. Another key fo- ~ cus of these committees was tile develop-Soyland took an aggressive posture to ment of a 1996 Marketing Program Busi-marketing in 1995 with the development ness Plan for Soyland and its~ member co-of an aggressive marketing program. The operatives. function of marketing electric technologies Major marketing activities completed was separated from economic development in 1995 included continuation of the activities. Matching Grant Ad Program and System The mission of the marketing program GT Rebates, in addition to implementation is defined as "to increase of a " Designing for Energy the short and long term fi-Efficiency Seminar,"

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nancial integrity of " Wholesale / Retail Rate Soyland and its member marketingprogram is Seminar," Night Light Pro-de nedas "toincrease f motional Blitz, Co Detec-i cooperatives through the increased sale ofelectricity the short and long tors Program and a Mar-and/or energy services." tennfnanClal integ-keting & Sales Survey of An integral step in the de-TityOfS0ylandandits member cooperatives' mar-velopment and implemen-Member Cooperatives keting activities and pro-tation of the Marketing through theincreased sr^mS over$2 o-n Program was the forma-MatchingGrant Ad monies saleofelectn..tyand/ ci tion of were distributed to mem-an Advi-

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bercooperatives to support sory marketing initiatives in- ~f Market-cluding technology adver-ing Committee comprised tising, rebates, development of marketing I }} : 1, of Marketing and Mem-brochures, homebuilders' events and trade .j ber Services representa-shows, and geothermal open houses. The tives from member coop-program leveraged over $237,000 for mar-eratives. This committee keting materials and activities which in-served in an " advisory" creased member and trade ally awareness role to Soyland's Market-of the benefits of electr!c technologies. ing Committee. Through System:GT rebates for member pur-the combined efforts of chases of geothermal heating and cooling the 1995 marketing program included 'Y ' "O I"'" brochurcs and posters d/stributed ingCommittees a variety member cooperatives related to geothermal cis a'n 'handou s by' fm mbc-f existing and new joint technology resulted in 285 geothermal sys-A cooperatives, marketing strategies tem installations in the Soyland member 10

Soyland distribution system in 1995. While these ""F""~" sales fell just short of 1994 system sales of ...g g j 290 units, the sale of MiciFutnace units NCE increased by 3% and market share increased from 78% to 82%. WaterFurnace Midwest, Soyland and its l8i member cooperatives also hosted tncir first l energy efficiency seminar in 1995 to pro-l mote geothermal technology and strengthen trade ally relationships. The Designing for Energy Efficiency Seminar" conducted in November, drew nearly 200 j trade allies representing builders, HVAC i dealers, bankers, realtos, architects and I l new home owners to Decatur. Nationally i known energy consultant and architect. MARKETING COMMITTEE (seated, left to right): Dennis Keiser, Chairman; Dave Champion Vice Doug Rye, informed and entertained the Chairman; and David White. (Standing, left to audience on energy efficient construction right): Jim Campbell. Dave Bergland and Stuart Yago w. f practices arid electric technologies. The i seminar reinforced the Certified comfort cient mortgages and dealer opportunities. Home Program adopted by member coop-Attendees' evaluations of the Seminar were eratives and promoted geothermal technol-excellent, providing Soyland and its mem-ogy. The Seminar generated inquiries re-ber cooperatives with very positive recog-garding geothermal and other heat pump nition as energy experts among trade al-systems, cellulose insulation, energy effi-lies and members. Co-sponsors for the Seminar included l Nu Wool Company, First of America p. [ ", g 58

fBank, Illinois Power Company

and WaterFurnace Midwest.

I A "Whole-sale / Retail Rate 4 i Seminar" con-j ducted in Decem-a Several Soyland marketing progranas encourage people to beg, p7ayided coop. avoid high electric bills by building energy efficient homes. erat,ve stafTand d,- i i 11 1 1w - -

Soyland i t I i d rectors with an overview of rate philoso-ogy rebates to other technologies beyond l l phies, structures, changing pricing strate-geothermal hem. ting and eccling splems, i gles and an outlook on deregulation of the the need for technology financing programs l electric utility industry in the future. to assist in member purchases of electric To assist in the development of a 1996 technologies, more formalized marketing. i Marketing Program Business Plan, Soyland sales and technology training, additional conducted a Marketing Survey of member market research, cooperative advertising, l cooperatives in the fall of 1995. The Sur-and further emphasis on trade ally devel-vey was intended to idemify cooperatives' opment efforts. These suggestions and oth-marketing personnel, progams, interests ers have been incorporated into soyland's and successes. The results of the Survey 1996 Marketing Program. suggested the need for expanding technol-4 l l .r:-7 - V W @ Q $ 7t ? "'7 T.7 ' ? "3'" 4-2, k g, '.. ; x-g. s q. x. f /, / ,1 - y. (v 4 l Q 215% N. F j l h-L. r a l l The 'Designingfor Energy Efficiency Seminar' hosted by nationally-known consultant Doug Rye, was very l well attended in November. Repeat performances are planned in 1996. l i '1 i l l 12

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Soyland i opment organizations, identified industrial f Economic Development sites and numerous other activities that I represent the groundwork for economic de-l During 1995, Soyland continued to velopment. pursue an aggressive position in its com-In 1995 Soyland developed a Commu-munity and economic development pro-nity and Economic Development Business j gram. During the past several years, Plan that emphasizes five major areas of Soyland has laid a solid foundation on concentration. These areas include: Com-which future load growth will continue to munity Development, building the infra-develop. In today's competitive environ-structure for future economic development ment, Soyland and its 21 activities: Community De-member distribution coop-velopment Corporations, Soyland and itS 21 eratives are prepared to regional financial entities member d/Stribution meet the challenges that which identify and assist face utilities. The coopera. CooperativcS are pre-in funding economic de-tives have become actively paredtomeetthechal-velopment projects: Adver- [ involved in such activities lenges thatface utili-tising, focused on national i as Community Develop-

tieg, and statewide projects to ment Corporations, RURAL promote business develop-PAP.r;ERS, assumed posi-ment in cooperative ser-

[ tions of responsibility in economic devel-vice territories: Economic Development l Network, utilizes the professional net-work to facilitate every aspect of retain-l ing, expanding and attracting electric

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load to cooperative service area's; and = 1 l New Program Development, identifying ~- p new initiatives to enhance both life and j s, economic growth in rural Illinois. Ali r these components represent opportuni-i k ties for distribution cooperatives to in-teract in the economic development pro-cesses. b' M As in the past,1995 had several sig-nificant accomplishments despite the V potential deregulation of the utility in-4 1 LEGAL COMMITTEE (s e a t ed, left to righ t): Dorland Smith, dustry. Soyland*s participation in com-Chairman; Joe Fellin, Vice Chairman; and French Fraker, Attorney. mygggy geygggp mcgg ggg 7e(9g9g7eg j (Standing, left to right): frv Stattford, Alan Libbra and Tom Hentz. nationally by the National Rural Eco-a 14

i ? Soyland

nomic Development Association. An award Electric Cooperative. Heartland Fork Enter-l was presented to Soyland at the NREDAs prises, a pork production facility, located
annual meeting in Austin, Texas, for east of Paris in Eastern Illinois employs 60 Soyland's leadership role in the innovative people, Another new 70,000 square foot

! and creative RURAL PARTNERS /Kellogg facility was built for Paper Production in Foundation " Helping Prepare Rural Com-Martinsville, a company that supplies coin l munities For Economic Development Pro-wrappers to several industries. This com-( gram." This ten-county demonstration pany employs 65 individuals and uses ap-4 project extended over four years and cost proximately 1.6 megawatts of energy from in excess of $1.5 million. Edgar Electric. Two pork production facili-Around the state many cooperatives ties became operative in Western Illinois were successful with both attraction and namely: Hanor Industries and Land of a i expansion of businesses in their service Lakes. These companies made capital in-i j areas. Yale South Haven Company, a rub-vestments exceeding $4-million and will be l ber resin facility located in Carmi, employs in full operation in early 1997 on Illinois f 50 people and utilizes as proximately 3 Rural Electric Co.'s and Menard Electric j megawatts of energy from Wayne-White Cooperative's lines. In central Illinois, Nor-i // i \\ + t ~ i i n,% [ c.mv. ' * [ w.e .,,7~.,.cF M "" l jf ' 8.. ,f l'; _ . -g - A' '...h ? .) h l T l l b f L.caded with coalfrom the mines of Illinois, a truck arrives with fuelfor Scyland's Pearl Plant. 15 h

d I l Soyland i i mal Community West High School came on-Soyland's Spec Building Program that will i i line and Vuquetec Industrial, a supplier for capitalize on the critical shortage of qual-j Diamond Star Motors, expanded for the ity industrial facilities throughout the State j third time. These projects accounted for 45 ofIllinois. Utilizing a competitive and sys-l new jobs and 450 KVA on Corn Belt Elec-tematic approach, Soyland will select no l tric Cooperative's system. Several commer-more than three distribution cooperatives l cial companies came on line this past year to participate in this program. Soyland and f in Mt. Vernon providing employment for 55 the distribution cooperatives will be minor-individuals and requiring 850 KVA of elec-ity participants that will share their exper-l trical energy from Tri-County Electric Co-tise and experience with other investors l operative. and developers to construct economical and f Several new economic development quality facilities at strategic locations for initiatives were developed in 1995 and will potential new or expanding businesses. i be aggressively continued during 1996. Overall 1995 has been successful for Soyland submitted an application to the Soyland and many of the distribution co-Rural Utilities Service (RUS) for funding a operatives. The attraction and expansion l Statewide Revolving Loan Program. This of businesses, the RURAL PARTNERS } project will provide Soyland with $400,000 Award and new initiatives in 1996 will to be utilized for assisting new and expand-serve as the building blocks for continued i ing businesses in cooperative territory. future Economic Development in the rural Another new initiative in 1996 will be areas ofIllinois. l l 0 m g$ _-h y ~fp f ,-'~*% -:~~_~__~-

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1 Soyland i i interruptable rates, all electric rates, elec- ] Cooperat/ve It[ formation tric heat rates, energy credits for controls j on electric appliances and equipment and j Sales of electric energy increased last off-peak rates for residential consumers. j year throughout Soyland's market area in These rates are designed to encourage cus-a 1 1995 as 17 of 21 member electric distribu-tomers to utilize electricity and to utilize it tion cooperatives experienced load growth. efficiently by providing control incentives. l The increase was do in part to the extreme For the commercial and industrial user, weather of 1995 but also to the marketing member-cooperatives ofter a variety of time j efforts of member-systems and the attrac-sensitive commercial rates along with cus-l tion ofnewdevelopment to tom rates tailored to shape their service areas. and manage loads while oyland memh-co-Providing their con-meeting the energy needs sumers with different elec-Operatives arefu//ill-of the individual user. In tric rate structures is an ing their prom /Se of order to assist members in l important element in the being theprimary ru-attracting and retainingin. l electric distribution coop-ra/ utility Scry/Cepro-dustry, Soyland introduced l eratives' marketing pro-Vider in their Scrvice a large load incentive rate grams. All 21 distribution in 1995 for loads of 250 arcaS. cooperatives ofrera variety kilowatts or larger. This of rate schedules to their rate has been utilized by j members. These rate schedules include: two member-systems to help expand or re-I tain approximately 23 mega- - m m~ m m r - z, ~ ^ watts of electric load among Mb g [ existing customers. %}Y w Numerous member-coop-J g g eratives are activelylooking at a, ways to market electricity and W T $? j y[? 3 to encourage its efficient use

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tk byconsumersin their homes ) ] l hhl j r* and businesses. Marketing strategies include the promo-j 'W tion of geothermal heating j and cooling systems, air-to-4 4 N air heat pumps and other .as electric heat systems, electric PollCY COMMITTEE (seated, left to right): Joe Danielson, Jim Riddle, Chair. Water heating, electric tech-man; and Dale Warren, Vice Chairman. (Standing, left to right): Bill Griswold Dick Dunsworth and Paul Dion, nology demonstration 18 l

Soyland projects, geothermal subdivision develop-

i. ' Wg T"T ment, customer education seminars, com-h

? munity development and new business de- [ velopment. These strategies are all em- [~ ployed by distribution cooperatives to in-crease energy sales and help Soyland Ibwer g" - achieve its financial ot.. ctives. e The goal of the rural electrification pro- ~ gram has always been to improve the qual- ~ ity oflife in the electric cooperatives'ser-y vice territories. In recent years that goal f has lead many cooperatives into exploring g 3 propane gas sales, rural television satellite systems, mobile communications, rural M e m assist rural farms, homes and businesses. gj water systems and other ventures that will By diversifying into other services, FARAf COAfAflTTEE (seated, left to right): Gene Warmbir, Chair. Soyland's member-cooperatives are fulfill-f"g"f,"j""" hht "lif/olb^jadv'a r d Co ins. Ing their promise of being the primary ru-Soyland AnnualEnergySales 3000 2,751 2,469,408 2,581 2,596 2,346 2,343 2.337 g 2,323 2,297 2,286 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 YEAR 19

P' Soyland ral utility service provider in their service our rural service territories and are poised areas. Soyland's member-cooperatives and to meet the coming challenges of the elec-Soyland Power Cooperative are united in tric utility industry, meeting the ever-changing requirements of , - upo p - q + W~ .( ' kN1 I ). .g. g ~ .n . { l 3 -Y.. ~ e;.-:,. 4 . \\.;k; 'l '. -.. '.. . 5 I . l.'j. '.. = y s. ~,, ..? '.... ' ln .,~niygh $4 a_ ;_ JML.h Qh Severe spring flooding again took its toll on rural Illinois as evidenced at this substation near Kampsville. The water was to rise another twofeet shortly after this photograph was taken in early June. 20 1

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50yland of them being active WaterFurnace install-Applied Energy Systems ers. Our continued goal is to increase the sales of our dealers and to offer more as-Applied Energy Systems ofIllinois, Inc. sistance/ incentives to all of our dealers. We d/b/a WaterFurnace Midwest, the wholly-will also be pursuing the establishment of owned subsidiary of Soyland, finished new dealers in areas where there are none. 1995 with strong sales. The year started our training facility in Greenville con-very strong but sales were hampered in tinues to play an important role for our mid-year by heavy rain folbwed by a hot dealer network. There were several service / dry summer. There were a total of 743 units installation schools provided during 1995 sold in 1995 with sales of with over 40 technicians $2,980,000 and a net mar-taking part. WaterFurnace gin of $102,000. Units sold Midwest has one of the were slightly below the toincreaScthcSalcSof lowest percentages of war-record 770 units sold in ourdealerS and to of ranty claims and installa-1994. fer MOrc assistance / tion problems compared to incentivcS toallofour any other WaterFurnace ~ dealers. We W//l alSo distribution area, which is 7 ? bepurSuingtheeStab. testimony to the training provi ed. lishment ofnew dcal- .O '4 Local and regional crS in arCaS Where L ~'

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f I to be an excellent source for leads. Another source has been the Field Days / { g j ,V The net-Open Houses which was utilized by ten g, g work of autho-Soyland distribution cooperatives in 1995. rized dealers There were also three energy seminars fea- [ continues to turing Doug Rye, a noted energy expert, 9 g.g g g ? grow through-during the year that were well attended. outIllinois, east-Soyland distribution cooperatives had ern Missouri an increase in WaterFurnace sales over the and eastern previous year with 226 in 1994 and 233 lowa. There are in 1995. F/ NANCE CONN /TTEE (front ro w, left to approximately in 1996 we will enhance our market-righ t): Ed Gant, Ch airm an: Bob Delp, Vice Chairman; vel England and Norm svetzel. 90 authorized ing efforts to our authorized dealers and (Back row, left to right): Nike Carls and dealers with contractors and, coupled with the Soyland Curtis Endsley. Not pictured: Bob Primmer. over two-thirds marketing plan, we will provide enhanced 22

Soyland marketing strategies. Sales incentives willalso beimplemented and the out-look for 1996 is that total units sold will increase about 20 percent. 'i Our authorized dealers will be as. ' q sisted by our staff in establishing a - N ..Q.4 detailed marketing plan for 1996 that ~ -sM 32 . - will give direction and be a source for ~ ; additional leads. -< ~ , v.C f -5E ,,,,: Yk.\\, ~ /- .et h1.4 c~ + Y ,..?{ - .) W ._ y Jq, ' ' % - - ~ (9 Waterfurnace installations were strong once again in 1995, despite nature's interference. 'I f 'l\\ fy'.. Y g 4 ]. I 4,., p k s ~ g [ i 5. s ~ f + 4. c g.. l Unit sales are expected to increase by 20 percent in 1996. 23

Soyland Member Cooperatives 1995 Operating Statistics Clinton Coles-STATEMENT OF OPERATIONS: Adams Clay County Moultrie (In $1,000) operating Revenue... $10,028 $4,095 $8,906 $13,845 Purchased Power......... $6,539 $2,711 $6,700 $9.527 Operating Expenses... 1,871 841 1,327 2.600 Depreciation Expenses. 587 S07 357 684 Tax Expense..... 160 68 92 190 Interest.. 707 210 286 401 7btalCost-Electn'c Service.. $9,864 $4,137 $8,762 $13,402 Operating Margins.. $164 $(42) $144 $443 Non-Operating Margins & Capital Credit.;.. 188 36 142 74 TotalRttronage CapitatorMargins. $352 $(6) $286 $517 ASSETS & OTHER DEBITS Total Utility Plant.. $22,942 $10,841 $12,656 $23,852 Accumulated Provision for Depreciation & Amortization. 5,971 3,266 4,329 6,940 Net Util/(yPlant.. $16,971 $7,575 $8,327 $ 16,912 Total Other Property & Investments. $1,544 $409 $ 1,971 $ 1,364 Current & Accrued Assets.. 1,980 828 1,070 3,007 Deferred Debits. 601 15 122. 7bta/ Assets..... $21,096 $8,827 $11,490 $21,283 LIABILITIES & OTHER CREDITS Margins & Equities. $6,926 $3,926 $4.603 $10,466 Long Term Debt. 12,863 4.041 5,142 7.141 Current & Accrued Liabilities. 1,155 853 501 2,841 Deferred Credits.. 152 7 1,244 835 76talliabilities........... $2i,096 $8,827 $ 11,490 $21,283 OTHER STATISTICS Miles of Line. 2.099 929 974 1,799 Consumers Served.. 7,110 2,971 5.088 8,081 Consumers Per Mile... 3.39 3.20 5.22 4.49 KWH Sold Per Consumer. 12.694 10,779 19.061 16.952 Total MWH Sales.. 90,251 32,023 96.983 136.989 Annual Revenue Per Consumer.. 1,410 1,378 1,750 1,713 Plant Investment Per Consumer. 3,227 3,649 2,487 2,952 24

Member Cooperatives 1995 Operating Statistics Eastern Illinois lilinois Corn Belt Illini Edgar Farmers Rural Valley McD0nough M.J.M. $25,222 $20,119 $7,262 $ 1,896 $13,166 $9,100 $6,645 $10,356 $15.499 $12,813 $4.583 $1,373 $8,249 $4,965 $5,009 $7,460 3,858 4,164 1,931 284 2,303 1,762 1,316 1,730 1,413 1,491 358 101 632 473 272 509 530 173 106 29 180 135 63 160 1,699 1,384 429 79 774 1,570 93 386 $22,999 $20.025 $ 7,407 $1,866 $12,138 $8,905 $6,753 $10,245 $2.223 $94 $(145) $30 $1,028 $195 $(108) $111 436 (449) 189 18 132 395 125 130 $2,659 $(355) $44 $48 $1,160 $590 $17 $241 $54,308 $52,793 $16.012 $4,093 $27.173 $22.017 $9,868 $ 19.090 13,564 13,610 4,399 1,460 8,180 1,666 4,562 5,929 $40,744 $39,183 $11,613 $2,633 $18,993 $20,351 $5,306 $ 13,161 $2,106 $2,544 $1,446 $241 51,566 $945 $445 $ 1,277 9,083 2,670 1,256 142 3,207 2,068 1,962 1,938 35 1,319 880 17 427 24 40 $51,968 $45,716 $15,195 $3,033 $24,193 $23,388 $7,713 $16,416 $19,067 $15,407 $6,310 $1,372 $8,292 $ 1,008 $5,564 $7,398 28,935 25,967 6,460 1,503 14,728 21,220 1,758 7,564 2,466 2,975 1,981 146 1,188 770 115 803 1,500 1,36'r 444 12 (15) 390 276 651 $51,968 $45,716 $15,195 $3,033 $24,193 $23,388 $ 7,713 $ 16,416 2,961 4,489 1,488 342 2,833 1,769 1.366 1,722 15,911 12,884 5.014 1,321 9,890 5,913 4,708 7,874 5.37 2.87 3.37 3.86 3.49 3.34 3.44 4.57 14,212 14,007 12,298 11,528 10,585 11,951 13.388 11,630 226,120 180,465 61,662 15,228 104,685 70,667 63,033 91,571 1,585 1,562 1,448 1,435 1,331 1,539 1,411 1,315 3,413 4,098 3,193 3,098 2,748 3,723 2,096 2,424 25

Soyland Member Cooperatives 1995 Operating Statistics Rural STATEMENT OF OPERATIONS: Menard Monroe Electric Shelby (in $1,000) operating Revenue.... $14,244 $7,779 $8,748 $16,785 Purchased Ibwer.. $9,636 $5,308 $5,959 $12,066 Operating Expenses. 2,533 1,043 1,812 2,787 Depreciation Expenses. 867 458 446 951 Tax Expense.. 164 89 113 695 Interest. 592 528 303 457 7Dtal Cost-Electn'c Scrvice.... $13,792 $7,426 $8.633 $16,956 P Operating Margins. $452 $353 $115 $(171) Non-Operating Margins & Capital Credits... 105 65 46 311 7btalItitmnage CapitalorMargins. $557 $418 $161 $140 ASSETS & OTHER DEBITS Total Utility Plant.. $26,708 $ 17,407 $ 16,752 $26,872 Accumulated Provision for Depreciation & Amortization. 6,793 4,685 5,599 10,500 Net Utili(yrlant... $19,915 $ 12,722 $11,153 $ 16,372 Total Other Property & Investments. $ 1,539 $540 $583 $2.221 Current & Accrued Assets.. 2,382 2,379 1,396 1.411 Deferred Debits. 18 44 128. 7Dta/ Assets....... $23,854 $15,685 $13.260 $20,004 LIABILITIES & OTHER CREDITS Margins & Equities.... $8,966 $4,429 $4,462 $11,834 Long ~lerm Debt. 12,943 10,455 7,546 7,128 Current & Accrued Liabilities. 1.376 706 1,066 898 Deferred Credits. 569 95 186 144 7btaluabiliticS. $23.854 $15,685 $13,260 $20,004 OTHER STATISTICS Miles of Line..... 2,473 1,061 1.296 2,129 Consumers Served. 8,990 5,188 5,158 8,833 Consumers Per Mlle. 3.64 4.89 3.98 4.15 IGVH Sold Per Consumer. 15,903 13.459 15,051 20.327 Total MWil Sales. 142,970 69.826 77.632 179,546 Annual Revenue Per Consumer.. 1,584 1,499 1,696 1,900 Plant Investment Per Consumer. 2.971 3,355 3,248 3,042 26

Member Cooperatives 1995 Operating Statistics b S0uth-Spoon Tri-Wayne-western River C0unty White Western Total Average $25,748 $5,576 $24,793 $22,569 $4,519 $261,401 $12,448 $17,754 $3,531 $17.632 $16,765 $2,820 $176,899 $8,424 3,784 1,176 3.946 3,058 826 44,952 2.141 1,363 369 1,314 1,148 316 14,416 686 382 113 278 209 84 4,013 191 1,565 339 1.541 872 343 14,558 693 $24,848 $5,528 $24,711 $22,052 $4,389 $254,838 $12,135 $900 $48 $82 $517 $130 $6,563 $313 (46) 133 267 140 111 2,548 121 $854 $181 $349 $657 $241 $9,111 $434 $55,063 $14,187 $46,289 $40,034 $11,284 $530.241 $25,250 14,759 4,133 11,425 12,664 3,264 147,698 7,034 $40,304 $10,054 $34,864 $27,370 $8,020 $382,543 $18,216 $1.870 $1.875 $2,918 $1,883 $710 $29.997 $1,428 7,180 1,089 752 4,359 2,073 52,232 2,488 722 150 31 29 4,602 219 $50,076 $13,018 $38,684 $33,643 $10,832 $469,374 $22,351 $16,473 $4,867 $10,880 $15,217 $3.816 $171,283 $8,156 29,026 6,111 25,782 16.010 6,567 258,890 12.328 2,238 638 1,654 1,151 449 25,970 1.237 2,339 1,402 368 1,265 13,231 630 $50,076 $13,018 $38,684 $33,643 $10,832 $469,374 $22,351 3,140 1,189 2,807 3,229 1,177 41.274 1,965 15,688 4,203 13,866 13,330 3,298 165,317 7,872 5 00 3.53 4.94 4.13 2.80 4.01 16,296 11,261 18.587 22,601 10,755 15.347 255,648 47,329 257,723 301,271 35,471 2,537,093 120,814 1,641 1,327 1,788 1,693 1,370 1,581 3.510 3,375 3.338 3,003 3,421 3.207 27 l

Soyland Member Cooperatives And Board of Directors 1. ADAMS EEGRICAL C0-0 PERATIVE Po. Box 247 Camp Point 62320 Douglas Aellts, Managet Director; Robert D. Smith, Director 2. CLAY ELEGRIC CO-OPERATIVE, INC. P0. Box 517, Flora 62839 James E. Campbell. Manager Director; H. Clifford Cammen. Director 3. CLINTON COUNTY ELEGRIC COOPERATIVE, INC. P0. Box 40, Breese 62230 james B. Riddle. Managet Director; Kenneth G. lieinzmann. Director 4. COLES-MOULTRIE ELEGRIC COOPERATIVE E0. Box 709.Mattoon 619384709 David Collins Director: Norman Wetzel, Director: David G. Findley, Manager 5. CORN BELT ELECTalC COOPERATIVE INC. P0. Box 816. Bloomington 61702-0816 JefferyD. Reeves, Manager Director;StephenSchertz Director 6. EASTERN ILLINI ELEGRIC COOPERATIVE 12 18 21 P0. Box 96. Paxton 60957 5 6 Wm. David Champion. Jr. Managet Director: Gene P Warmbir. Director 7. EDGAR EECTRIC CO-OPERATIVE ASSOCIATION 1 13 [ / E0. Box 190. Paris 61944 Thomas J. Hentz, Manager. Director; Joe Welsh, Direcor 8. FARMERS MUTUAL ELEGRIC COMPANY E0. Box 43.Geneseo 61254-0043 9 15 16 4 7 Robert L Delp, Manager. Director 9. ILLIN0IS RURAL ELEGRIC CO. 2 12 South Main Street, P0. Box 80. Winchester 62694 11 Robert "Ed* Gant, Manager, Director; William Griswold Director

10. ILLINOIS VALEY ELEGRIC COOPERATIVE, INC.

P0. Box 70 Princeton 61356 IL " Kris

Christensen. Manager. Director: Joe Danielson. Director 3

11. M.J.M. ELECTRIC COOPERATIVE, INC.

19 P0. Box 80.Carlinville 62626 14 20 Dennis A. Keiset Managet Director: Eldon E. Moore. Director

12. MCDONOUGH POWER COOPERATIVE P0. Box 352, Macomb 61455 0352 Dickson Dunsworth. Managet Director: William ibliock, Director

13. MENARD EEGRIC COOPERATIVE P0. Box 200.Ittersburg 62675-0200 Dorland W Smith, Managet Director; Michael E. Carls Director

S0YLAND HEADQUARTERS Decatur

14. MONR0E COUNTY ELEGRIC CO 0 PERATIVE, INC.

Po. Box 128. Waterloo 62298 e DISTRICT OFFICE Joseph j Fellin, Managet Director; Donald L Gleiber. Director

15. RURAL ELECTRIC CONVENIENCE COOPERATIVE C0.

P0. Box 19. Auburn 62615 Del England, Managet Director; David E. White Director

16. SHELBY EECTRIC COOPERATIVE

19. TRI-COUNTY ELEGRIC COOPERATIVE, INC.

P0. Box 560.Shelbyville 62565

00. Box 309, Mt. Vernon 62864-0309 James E. Coleman. Managet Director; Robert H. Pr:mmet Director lames E. Hinman, Manager. Director; Irvin Stanford, Director

17. SOUTHWESTERN ELECTRIC COOPERATIVE, INC.

20. WAYNE WHITE COUNTIES ELECTRIC COOPERATIVE

00. Box 409.Greenville 62246 P0. Drawer E. Fairfield 62837 Alan G. Libbra. Director; Stuart Yagow, Director: Gary Woblet Manager Dale Warren, Manager, Director: Curtis Endsley. Director

18. SPOON RIVER ELEGRIC C0 0 PERATIVE, INC.

21. WESTERN ILI.IN0!S ELECTRICAL COOP P0. Box 340, Canton 61520 P0. Box 338, Carthage 62321 W Edward Cox. Manager. Director: David M. Bergland. Director Paul M. Dion. Manager Director Haven D. Wughn, Director 28

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Deloitte& ToucheLLP Suite 645 Telephone:(217) 753-1375 First National Bank Building Facsimile: (217) 744-0193 Springheld. Illinois 62794-9428 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Soyland Power Cooperative, Inc. and Subsidiary Decatur, Illinois We have audited the accompanying consolidated balance sheets of Soyland Power Caoperative, Inc. and subsidiary (the " Cooperative") as of December 31,1995 and 1994, and the related consolidated statements of revenues and expenses, of members' equities (deficit) and of cash flows for the years then ended. These financial statements are the responsibility of the Cooperative's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Cooperative as of December 31,1995 and 1994, and the results ofits operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying consolidated financial statements for the year ended December 31,1995 have been prepared assuming the Cooperative will continue as a going concern. As discussed in Note I A. to the consolidated financial statements, the Board of Directors and management of the Cooperative have determined the Cooperative cannot operate on a long-term basis pursuant to the Superseding Debt Restructuring Agreement (see Note 5) and that u holesale power rates being charged by the Cooperative to its members must be reduced to a competitive level, w hich raises substantial doubt about the ability of the Cooperative to continue as a going concern Management's plan with regard to this matter is also discussed in Note 1 A. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. In accordance with Government Auditing Standardr. we have also issued a report dated February 29,1996 on our consideration of Soyland Power Cooperative, Inc.'s internal control structure and a report dated February 29,1996 on its compliance with laws and regulations. b l0%C LLh February 29,1996 DeloitteTouche Tohmatsu international

Soyland Consolidated Balance Sheets v December 31, 1995 1994 ASSETS (Note 5) ELECTRIC UTILITY PLANT AT COST (Note 2): In service $ 1,015,215.079 $ 1.013,874,229 Less acctmulated depreciation 215.076.942 189.376.951 Total. 800,138,137 824,497,278 Construction work in progress 5,609,639 2,969,254 Nuclear fuel, at cost (less accJmulated amortization - 1995, $43,929,805: 1994, $38,683,194). 13,075,274 14,521,536 Plant site held for future use.. 7.271.619 7.262.285 Net electric utility plant 826.094.669 849.250.353 INVESTMENTS: Investment in associated organizations, at cost (Note 3). 10.044,185 8,746,446 Marketable securities - decommissioning trust (Note 4).. 4,543,015 3,161.302 Note receivable (Note 8); 6.000.000 Total. 20.587.200 11.907.748 CURRENT ASSETS: Cash... 195,918 173,251 Temporary investments.. 8,069,414 2,548.508 Accounts receivable, members. 15,886,622 16.334,198 Other receivables = 645,608 499,431 Inventories.... 8,666,379 9,417,819 Prepayments and other assets. 289.791 312.680 Total. 33.753.732 29.285.887 DEFERRED CHARGES: Deferred DOE assessment (Note 1). 967,995 1,067,650 Deferred interest (Note 5). 44.610.440 45.962.236 Total. 45.578.435 47.029.886 TOTAL $ 926.014.036 $ 937.473.874 See notes to consolidated.fnancialstatements. 30 l

Soyland Consolidated Balance Sheets December 31, 1995 1994 MEMBERS' EQUITIES (DEFICIT) AND LIABILITIES MEMBERS' EQUITIES (DEFICIT): Membership fees. 1,675 1,675 Patronage capital. 2.779,263 2,779,263 Other equity.. 191,929 191,929 Unrealized holding gains (losses) on securities. 358,760 (58,113) Deficit. (91,678,420) (86,371,584) Total members' deficit.. (88,346,793) (83,456,830) LONG-TERM DEBT (Note 5). 947,964,715 954,577,366 CURRENT LIABILITIES: Current installments oflong-term debt (Note 5). 26,487,572 19,368,607 Line of credit (Note 5). 12,656,252 Accounts payable. 13,749.220 17,011,641 Member prepayments.. 2,386,242 9,145,570 Accrued interest (Note 5). 11,164,561 1,178,557 Accrued expenses.. 7,207,488 3,381,806 Excess recoverable energy costs (Note 1). 677,735 Total current liabilities. 61,672,818 62,742,433 DECOMMISSIONING LIABILITY (Note 4). 4,435,086 3,219,414 DEFERRED REVENUE (Note 1). 288,210 391,491 COMMITMENTS AND CONTINGENCIES (Notes 8 and 9) TOTAL $ 926.014,036 $ 937,473.874 i see notes to conscadatedJnancialstatements. 31

Soyland Consolidated Statements of Revenues and Expenses Years ended December 31, 1995 1994 oft. RATING REVENUES: Electricenergy sales $ 178,086,890 $ 177,084,239 Sales ofground source heat pumps, net.. 2,979,842 2,899.519 Distributionrevenue 859,801 882,402 Rentofelectric property. 53.580 54.801 Tbtal _ 181.980.113 180.920.961 OPERA 11NG EXPENSES: Operations Purchased capacity (Note 8)- 47,862,668 45,417,282 Energycosts(Note 8). 45,914,485 45,663,407 Production -other. 8,729,149 11,273,161 Transmission 2,287,114 2,210,927 Distribntion. 302,7_22 316.493 Total 105.096,138 104,881,270 Cost ofground source heat pumps sold - 2,130,682 2,053,440 Maintenance _ 4,741,081 2,821,426 Administrative and general (Note 6) 4.108,895 4,079,249 Depredation and amxtization (Note 5) - 26,987,328 26,928,565 Property and other taxes (Note 7). 3,014,674 2,926,591 Decommissioningprovision - 1.215.672 916.517 lbtal.. 147.294.470 144.607.058 NET OPERATING MARGIN. 34.685.643 36.313.903 ODIER REVENUE: Interest and other patronage apital income 3,313,781 2,339,446 Other 178.757 Total 3.313.781 2,518,203 NETMARGIN BEFOREINTERESTOIARGES 37.999.424 38.832,106 INTERESTOIARGES: Interest on long-term debt (Note 5)- 43,164,995 42,034,783 Other. 1.322,750 1,336,720 Miowance for borrowed funds used during construction (428,824) (275,171) Interest allocated to nuclear fuel expense..... (752.661) (741.165) Tbtal 43.306.260 42,355,167 ..... ~... NET (DEFICTI)- $J,306 836) $_(312_3 06J See notes to wnsolidatedfinancialstatements. 32

Soyland Consolidated Statement: of Members' Equities (Deficit) Years ended December 31,1995 and 1994 Unrealized holding Total Membership Patronage Other Gains (tosses) members' fees capital equity on securities Deficit (deficit) Balan:es, January 1,1994 $ 1,675 $2.779,263 $ 191,929 $(82.848.523) $(79,875,656) Cumulative 8f;ct of adn,nting SFAS No.115 (Note 1) $ 35.501 35,501 Changein net unrealized holding (losses) (93,614) (93,614) Net (deficit) (3.523.061) (3.523 0611 Balances, December 31,1994 1,675 2,779.263 191,929 (58,113) (86,371,584) (83,456,830) Changein net unrealized holdinggains 416,873 416,873 h*ct (deficit) (5.306E6) (5306.R36) Balances, Dacember 31,1995 $_1125 52.779.263 M $J511M $/91.678 420) 5788 346.793) l l l l l 1 i f 4 Sec notes to consolidatedjinancialstatements. 33 l

Soyland Consolidated Statements Cash Flows l Years ended December 31 1995 1994 CASil FLOWS FROM OPERATING ACTIVITIES: l Net deficit $ (5,306,836) $ (3,523,061) Adjustments to reconcile net deficit to net cash flows from operating activities: Depreciation and amortization of electric utility plant 25,635,532 25,576,770 Amortization ofdeferred interest 1,351,796 1,351,795 Amortization of nuclear fuel and deferred DOE assessment 5.346,266 6,414,216 l Decommissioning provision 1,215,672 916,517 Patronage capital allocations not received in cash (111,108) (157,367) Aliowance for funds used during construction (428,824) (275,171) Interest allocated to nuclear fuel expense (752,661) (741,165) Gain on sales of securities (454) less on sales of securities 116.267 Change in assets and liabilities: Accounts and other receivables 301,399 369,607 l Inventories 751,440 75,776 Prepayments and other assets 22,889 (86,027) Investments in associated organizations (40,331) 552,727 Recoverable energy costs 677,735 3,085,746 Accornts payable and accrued liabilities 11,932,218 (465,161) Deferred revenue (103,281) (108,509) NET CASil FLOWS FROM OPERATING ACTIVITIES 40,491,906 33.102,506 CASil FLOWS FROM INVESTING ACTIVITIES: Additions to electric utility plant, net (3,722,002) (3,397,670) Additions to investments in associated organizations (271,300) (24,500) Purchases of securities - decommissioning trust, net (964,840) (1,032,330) Purchases of nuclear fuel (5,080,926) (1,424,169) Additions to note receivable _(@.000.000) NET CASil FLOWS FROM INVESTING AGIVITIES (16.039,068) (5,878,669) CASil FIDWS FROM FINANCING ACTitTTIES: Proceeds from capital addition loans 15,300,000 Payments on line of credit borrowing, net (12,656,252) (5,843,748) Principal payments on long-term debt (14,793,685) (21.129,810) ) Increase (decrease) in member prepayments (6,759.328) 1.473.327 NET CAS!! FLOWS FROM FINANCING ACTIVITIES (18,909,265) (25,500,231) NET INCREASE IN CASil AND CASil EQUIVALENTS 5,543,573 1,723.606 CASil AND CASf! EQUIVALENTS, BEGINNING OF YEAR 2.721.759 998.153 CASil AND CASil EQUIVALENTS, END OF YEAR $8.265,332 _$ 2.721.759 Supplemental disclosure: The Cooperathe made interen y syments totallint,533,178,991 and 842,735,423 in 1995 and 1994, respeethcly. The Cooperathe's subsidiary made income tax pa3ments of $188,741 and $38,(XX)in 1995 and 1994, rapeethtly. See notes to consolidatedjinancialstatements. 34

Soyland l l I Notes to Consolidated Financial Statements l Years ended December 31,1995 and 1994 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES l I A. Organ /zat/on The consolidated financial statements reflect the accounts of Soyland Power Cooperative, Inc. and its wholly-owned subsidiary, Applied Energy Systems of Illinois, Inc., ("the Cooperative"). The subsidiary was created in 1987 for the purpose of selling ground source heat pumps to rural consumers. All significant intercompany transactions have been eliminated in consolida-tion. The Cooperative is a nonprofit organization engaged primarily in the generation and transmission of wholesale electric service to its twenty-one members located in central and southern Illinois. The Cooperative has entered into wholesale power agreements with each ofits members which require the members to buy and receive from the Cooperative all of their power and energy requirements and require the Cooperative to sell and deliver power and energy in satisfaction of such requirements. The wholesale power agree-ments with the members extend to various dates from years 2015 to 2017. The Cooperative's rates are established by the Board o.' Directors and are subject to approval by the Rural Utilities Service (*RUS*). Wholesale power rates charged to members are determined based on cash requirements, including debt service requirements. The Cooperative is not subject t the regulatory authority of the Illinois Commerce Commission. The preparation of financ nents in conformity with generally accepted accounting principles requires management to make estimates and assumptions T. affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabill-ties at December 31,1995 and 1994 and the reported amounts of revenues and expenses during the years then ended. Actual results could difTer from those estimates. Bas /s e/hrsentation - The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction ofliabS! ties in the normal course of business. The Board of Directors and management believe the effect of deregulation and retail wheeling in the utility industry will significantly increase competition between the Cooperative and its competitors. The Board of Directors and management of the Cooperative have determined the Cooperative cannot operate on a long-term basis pursuant to the Superseding Debt Restructuring Agreement (see Note 5) and that wholesale power rates being charged by the Cooperative to its members must be reduced to a competitive level. The Cooperative is considering various alternatives in order to achieve competitive rates. These alternatives include the sale of all or a portion of the Cooperative's assets, renegotiation of power supply contracts, reorganization pursuant to Chapter 11 of the U. S. Bankruptcy Code, restructuring of debt and buy-out of existing debt. The Board of Directors and management believe that without a competitive rate charged to its members the Cooperative will be unable to compete for a new load or maintain its existing load and, therefore, will have difficulty in generating sufficient cash flow to meet debt service requirements and sustain operations. This difficulty, if not relieved by one or a combination of the aforementioned alternatives being considered, raiscs substantial doubt about the Cooperative's ability to continue as a going concern. l All of the above alternatives are currently being considered by the Board of Directors and management as possible solutions. l Implementation of any of the alternatives will have an impact on the Cooperative's financial statements. l Management of the Cooperative has asserted that the Cooperative has sufficient cash flows for the 1996 fiscal year to meet operating expenses and debt service requirements. Management has also asserted that the current wholesale power rates required under the l terms of the Superseding Debt Restructuring Agreement will remain in effect pending the outcome of alternatives being considered. l The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification 35

Soyland 8 of recorded asset amounts or the amounts and classification ofliabilities that might be necessary should the Cooperative be unable to continue as a going concern. B. Basis e/Aavuntir(g - The accounting records of the Cooperative are maintained in accordance with the Uniform System of Ac-counts prescribed by RUS. C. Electric Utili{y Plant - Depreciation of electric utility plant in service is provided over the estimated t.seful lives of the respective assets en the straight-line basis at rates as follows: Production plant: Nuclear 2.5% Steam 3.1% - 4.0% Gas turbine and diesel 2.0% Transmission plant 2.75% Distribution plant 3.0% General plant 2.5% - 20% Based upon guidelines provided by the Nuclear Regulatory Commission ("NRC"), which establish a minimum funding level, and in conjunction with Illinois Power (principal owner and operator of the Clinton nuclear generating facility - see Note 2), the Coopera-l tive estimates that its portion of the costs to decommission the Clinton facility, which will not begin until the year 2027, will be I approximately $57,200,000 (in 1995 dollars). A site-specific study to estimate the cost ofdismantling. removing and disposing of the Clinton generating facility is nearing completion. This study is expected to result in projected decommissioning costs higher than the NRC-specified funding level. The future decommissioning costs are being recovered over the life of the facility using the sinking fund method. In 1996, the Financial Accounting Standards Board ("FASB") issued an exposure draft on accounting for liabilities related to closure and removal oflong-lived assets. This exposure draft would change the wg the Cooperative accou nts for nuclear decommissioning costs and fossil plant dismantling. The exposure draft calls for recording as a liability the present value of estimated future cash flows to decommission nuclear power plants and dismantle fossil plants. Maintenance and repair of propeny and replacements and renewals of items determined to be less than units of property are charged to expense. Replacement and renewals ofitems considercd to be units of property are charged to the property accounts. At i the time propenies are disposed of, the original cost, plus cost of removal less salvage of such property, is charged to accumulated depreciation. D. AllowanwforBorrowedhnds UsedDuring Construction - The allowance for borrowed funds used during the period of construc-tion represents the estimated interest cost of borrowed funds used for construction purposes. The composite rate used to calculate the allowance approximated 6.7% and 5.2% for 1995 and 1994, respectively. E. Nuacathcl-The cost of nuclear fuel, including capitalized interest and overhead, is being amortized to fuel expense on the basis of the number ofunits of thermal energy produced in relation to the total thermal units expected to be produced over the life of the fuel. Nuclear fuel expense includes a provision for estimated spent nuclear fuel disposal cost which is being collected currently from members and remitted to the U. S. Department of Energy (" DOE"), which is responsible for the disposal of the spent nuclear fuel. The Energy Iblicy Act of 1992 established a fund to pay for the decontamination and decommissioning of three nuclear enrichment facilities operated by DOE. A portion of the fund is to be collected from electric utilities that have purchased enrichment services from DOE. Each utility is being assessed an annual fee for a period of 15 years beginning in 1994. The Cooperative recorded a { regulatory asset and a liability representing an estimate of its total required contribution to this fund, as determined by DOE, l related to the nuclear fuel used in the Clinton nuclear generating facility (See Notes 2 and 5). The regulatory asset is being 36

Soyland amortized to nuclear fuel expense and collected in rates charged to mem > cts. E NarketableSecuritics-IVcommissioning 7tust - In May 1993, the FASB issued Statement of Financial Accounting Standards No.115

Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.115*). This statement requires that debt and equity securities be classified into one of three categories: held to-maturity, available for-sale, or trading. The Cooperative adopted SFAS No.

115 effective January 1,1994. In accordance with the provisions of this statement, prior years' financial statements have not been restated. At January 1,1994, the adoption of SFAS No.115 resulted in a $35.501 net unrealized holding gain being recorded in members' equitles. All marketable debt and equity securities have been classified as available-for-sale based on the Cooperative's intent and ability to sell the securities in response to changes in interest rates, investment risk and the availability of and yield on alternative investments. In accordance with SFAS No.115, these securities are carried at fair value, with the net unrealized holding gains and losses excluded from earnings and reported as a net amount in a separate component of members' equities, until realized. The average cost method is used to compute realized gains or losses on the sale of securities. 6. 7PmporaryInrcstments - Temporary investments consist of an interest bearing sweep account ari are stated at cost which approxi-d mates market. The Cooperative considers all highly liquid investments with original maturities of three m nths or less to be cash equivalents. The Cooperative *s banking arrangements require the maintenance of a $100,000 compensating balance. H. Inventories - Inventories consist of fuel (including 502 allowances) and materials and supplies and are stated at moving average cost. I. Ncmber Prrpayments - Member prepayments represent cash advances from members. The Cooperative uses these advances to pay down line-of-credit borrowings. The Cooperative pays interest on member advances at a rate lower than that on the line-of-credit. Such interest payments on member advances totalled approximately $769,000 and $688,000 for the years ended December 31,1995 and 1994, respectively. /. /bwcrSupply /tryments - Payments made under power supply agreements (see Note 8) are classified as purchased capacity, energy costs and transmission expense in the consolidated statements of revenues and expenses. K. DrferrrdRcrenue-Deferred revenue consists of discounted advanced interest payments received on the Cooperative's National Rural Utilities Cooperative Finance Corporation ("CFC") capital term certificates. Such payment was made by CFC to the Cooperative pursu-dnt to the terms of the Superseding Debt Restructuring Agreement (see Notes 3 and 5). The amount of this deferred revenue will be amortized over the period during which it would have been earned (1995 through 1999). L Presentation - Certain amounts reported for 1994 have been reclassified to conform to the 1995 presentation. 1 37

Sqyland 2. ELECTRIC UTILITY PLANT IN SER VICE The major classes of electric utility plant in service at December 31,1995 and 1994, are as follows: 1995 1994 Nuclear plant and related facilities $ 970,955,231 $ 969,929,730 Steam and other production plant 13,285,388 13,273,770 Transmission plant 17,334,718 17,231.036 Distribution plant 7,697,290 7,668.123 General plant 5,942,452 5,771,570 Total $ 1,015.215,079 $ 1,013.874,229 The Cooperative has a 13.21% interest in the 950 megawatt Clinton nuclear generating facility ('Clinton-) located in Clinton, Illinois which was completed and placed in seivice in 1987. The Cooperative's share of operating expenses associated with this facility is included with the appropriate operating expenses in the consolidated statements of revenues and expenses. 3. INVESTMENTS IN ASSOCIA TED ORGANIZA TIONS lavestments in associated organizations consisted of the following at December 31: 1995 1994 CFC: Membership fees 2,000 2,000 Patronage capital 3,630,459 3,479,020 Capital term certificates 5,047,654 5,047,654 Loan capital term certificates 1.050.000 l I Total 9,730,113 8,528,674 other associated organizations 2.272 2.272 i Total 9,732,385 8,530,946 Investments in economic development organizations 311,800 215.500 TOTAL 10.044,185 8.746,446 Loan capital term certificates mature in the year 2022 and do not bear interest. Capital term certificates at December 31,1995 bear interest at 5% and mature at various dates from years 2070 to 2080, Interest on CFC capital term certificates for the ocriod from 1995 through 1999 has been prepaid, at a discount, by CFC and recorded as deferred revenue (see Note 1). 38

Soyland 4. AfARKETABLE SECURITIES - DECOAfAflSSIONING TRUST Marketable debt and equity securities have been classified as available-for sale in 1995 according to management's intent. The amortized cost and estimated fair values as of December 31,1995 are as follows: UNREALIZED ESTIMATED AMORTIZED GROSS GROSS FAIR COST GAINS LOSSES VALUE U.S. Treasury debt securities 531,506 7,947 27,843 511,610 Corporate debt securities 50,787 479 50,308 Convertible equity securities 102,026 12,701 114,727 t Equitysecurities 2.761.690 387.128 20.694 _ 3,128,124 Total $ 3,446 0M 407.776 49.016 3,804,769 1 Cash and non-debt / equity securities, at cost 738,246 TOTAL $ 4,543,015 The amortized cost and estimated fair values as of December 31,1994 are as follows: UNREALIZED ESTIMATED AMORTIZED GROSS GROSS FAIR COST GAINS LOSSES VALUE U.S. Treasury debt securities $ 1,703,582 921 31,902 $ 1,672,601 Corporate debt securities 164,746 8,447 156,299 Debt securities issued by foreign governments 18,300 600 18,900 Convertible debt securities 176,545 5,306 7,876 173,975 Convertible equity securities 96,412 629 5,841 91,200 Equity securities 796.583 25.088 36.591 785.080 Total _ $ 2,956,168 3254_4 90 M 2.898,055 Cash and non-debt / equity securities, at cost 263.247 TOTAL $ 3.161,302 The amortized cost and estimated fair value of debt securities at December 31,1995 and 1994 by contractual maturity are shown below. Expected maturities maydifTer from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 1995 1994 Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value Duc in one year orless 278,912 250,590 $ 1,121,101 $ 1,121,567 Due after oneyear through fiveyears 303,381 311,328 784,877 745.620 Due after five years through ten years 157,195 154,588 39

Soyland 5. DEBT AND DEBT RESTRUCTURING Long-term debt at December 31,1995 and 1994, consists of the following: 1995 1994 Superseding Restructured Debt-imputed interest at 4.2%, due in quarterly installments through 2018 $ 893,095,255 $ 906,836,968 CFC variable rate (6.2% at December 31,1995) mortgage notes payable, due in various quarterly installments through 2006 49,387,640 49,387,640 RUS - 2% and 5% notes payable, due in quarterly installments through 2018 15,753,424 16,732,500 CFC - variable rate (6.2% at December 31,1995) capital addition loan notes payable, due in quarterly installments through 2022 14,947.853 U, S. Department of Energy - Decommissioning and Decontamination Fund, due in equal annual l Installments through 2008 971,890 988,865 Federal Financing Bank - 7.674% note payable, due in quarterly installments through 2017 296,225 i Totallong-term debt 974,452,287 973,945,973 Less current installments 26.487,572 19,368,607 Long-term debt, excluding current installments $ 947,964,715 $ 954.577,366 On December 15,1993 the Cooperative entered into a Superseding Debt Restructuring Agreement ("the Agreement ~) with the United States of America (acting thro, ugh the Administrator of RUS and CFC) efTective as of January 1,1993. The Agreement related to approximately $944,756,000 of recorded, outstanding debt (including related accrued interest and certain interest credits) on varl-ous loans and previously restructured debt guaranteed by RUS. The loans and previously restructured debt were originally obtained to finance construction costs relating to the Clinton nuclear generating facility. Under the agreement, the debt was restructured into two notes payable to RUS: Note A for $730,596,406 and Note B for $363,982,707. Note A bears interest at 7.5% and is due in quarterly installments through 2018. Note B bears interest at 7.5% and requires the Cooperative to make annual Energy Sales Payments and Ibwer Cost Savings Payments (for principal and interest) through 2029. The amount of the Energy Sales Payment is based on a load growth formula (as determined by the Agreement) which will result in a payment if, and only if, future load growth is achieved. The amount of the Power Cost Savings Payment is based on a cost savings formula (as determined by the Agreement) and will result in payments if, and only if, power cost savings occur. To the extent that interest on Note B for any calendar year is not required to be paid, such unpaid interest is added to the unpaid principal balance of Note B.The amount of Note B not repaid by April 30,2029 will be forgiven. Management of the Cooperative projects stable growth and stable power costs in future years and therefore anticipates that payments under Note B will be minimal. At December 31,1995 and 1994, the Cooperative has accrued and charged to interest expense approximately $1,360,000 and $700,000, respectively, for Energy Sales Payments due April 30,1996 and 1995, respectively. There have been no Ibwer Cost Savings Payments made, not are there any due. The Cooperative has accounted for the restructuring in its financial statements in accordance with the provisions of Statement of Financial Accounting Standards No.15, Accounting by Dchtors and Creditorsfor Troubled Dcht Restructuring (~ STAS 15'), as a 40

1 Soyland. I modification of terms. Under a modification of terms, the carrying value of the debt at the time of restructuring is not changed unless it exceeds the future cash payments, excluding amounts contingently payable, specified by the new terms. Future minimum cash payments required under the terms of the Agreement totalled $1,586,205.000, excluding amounts contingently payable. Because of l the contingent nature of the Cooperative *s obligation to make principal and interest payments on Note B, only the required principal l and interest payments on Note A were used at the date of the restructuring to impute the interest rate (4.2%) on the restructured debt. l 1 I In accordance with SFAS 15. unpaid interest on Note B is added to the t:npaid principal balance of Note B and not recorded in the accompanying financial statements. The amounts due on Note A and Note B, including amounts contingently payable, according to the terms of the debt restructuring plan discussed above, total $ 1,136,642,750 (Note A, $708,584,808, and Note B, $428,057.942, including unpaid interest) at December 31,1995. As part of a previous debt restructuring, dated March 29,1989, the Cooperative recorded $107,366,810 of prior period unp l interest on that restructured debt. The Cooperative included $53,294,999 of this amount in electric plant (re'iting to the period the plant was under construction) and $54,071,811 as deferred interest. The deferred interest will be amortized xliccted through rates oser the life of the related debt restructured by the Agreement. l Annual maturities oflong-term debt for each of the five years subsequent to December 31,1995, are as follows: 1996, $26,487,572; 1997, $30,237,294; 1998, $26,655,808; 1999, $26,194,968: 2000, $34,691,319. The Cooperative had $15,000,000 of unadvanced funds available at December 31,1995 from long-term loans approved by CFC for capital additions and a $30,000,000 operating line of credit approved by CFC, of which $12,656,252 had been drawn down at December 31,1994. The interest rate on the CFC line of credit fluctuates monthly based on CFC's Intermediate-term Interest Rate (6.5% at December 31,1994). All assets of the Cooperative are pledged to secure the long-term debt to RUS and CFC. l The Cooperative has not completed the management audit required by the " Management Consultant" provision of Section 5.01(q) of the Agreement and has not received a written waiver of the requirement from RUS. The Cooperative has received written notice from RUS that RUS will not take action under the enforcement provisions contained in Section 2.10 of the Agreement through February 28,1996. Management expects to complete the management audit and believes no enforcement action will occur. 6. PENSION PLANS The Cooperative participates in a multi-employer defined benefit pension plan and a 401(K) defined contribution plan which covers substantially all employees. The Cooperative makes annual contributions to the plans equal to the amount accrued for pension expense. Total pension expense for both plans amounted to $156,166 and $197,801 for the years ended December 31,1995 and ~ 1994, respectively. i 7. INCOME TAX STA TUS The Cooperative is a nonprofit corporation organized under the Statutes of the State ofIllinois and is exempt from Federal and state income taxes under applicable tax regulations. Applied f 'rgy Systems ofIllinois, Inc. is subject to corporate income taxes. Income tax expense recorded by Applied Energy Systems of T u ' ,c. for the years ended December 31,1995 and 1994 totalled approxi-raately $79,000 and $114,000, respectively. l t \\ 1 8. COJITMENTS l The Cooperative anticipates that the Clinton nuclear generating facility will furnish approximately 30% ofits energy requirements. The current and additional long-term energy requirements will be furnished through power supply agreements with Illinois Power Company ("!P") and Central Illinois Public Service Company ("CIPS") as discussed below. 41 i

Soyland 1 The Cooperative *s share of n 2 clear fuel commitments for Clinton is approximately $3.4 million for uranium concentrates through 1993, $.9 million for conversion through 2002, $6.2 million for enrichment through 1999 and $28.2 million for fabrication through 2017. l The Cooperative has contracted to purchase 435 MW of capacity annually from IP's fossil fueled generating plants through 2011. The Ccoperative has committed to provide emission allowances related to its power supply agreement with IP lt is anticipated that all of these costs will be recoverable through rates charged to members. The Cooperative has also contracted to purchase 102 MW of capacity annually from CIPS' fossil fueled units through 1999. la addition, the Coop;.tive has purchased transmission capacity from IP through 2011 and from CIPS through 2014. The contract payments to IP and CIPS are determined on an as if owned basis and include capacity charges (consisting of production, operation and maintenance costs) and energy charges. The approximate fixed capacity charges and energy cost data under these contracts for the years ended December 31,1995 and 1994 are as follows: IP CIPS Contracted Total Fixed Contracted Total Fixed Purchase Capacity Energy Purchase Capacity Energy Year Capacity Charges Costs capacity Charges Costs 1995 435 $ 29,400,000 $18,700,000 102 $ 18,500,000 $ 7,000,000 1994 288 18,700,000 24,700,000 206 26,700,000 6,600,000 At December 31,1995, the Cooperative had a 6.6% demand note receivable from IP for $6,000,000 for working capital advances related to the fossil-fueled plants under the power supply agreement described above. 9. CONTINGENCIES Under the Price-Anderson Act, as amended in 1988, all nuclear power station operators are subject to public liability for a nuclear inddent (currently limited to $8.9 billion per incident). Coverage of the first $200 million is provided by private insurance with the balance provided by retrospective premium assessments against each licensed nuclear unit in the United States. As a joint owner of the Clinton nuclear facility, the Cooperative is a party to the insurance policies which are maintained by illinois Power Company (86.79% owner and operator of Clinton) and is charged for its proportionate share of such insurance costs. In the event cf an incident at any nuclear plant in the United States in excess of $200 million, the Cooperative could be assessed a maximum of $10,500,000 per incident, with a maximum assessment of $1,300,000 per incident per year. IP maintains insurance on behalf ofIP and the Cooperative for certain losses related to the operation of Clinton. The msurance coverage limit for physical damage to the plant is $1.6 billion efTective December 15,1994. This insurance includes a primary layer of $500 million provided by nuclear insurance pools and an excess layer of $ 1. I billion provided by an industry-owned mutual Insurance company. In the event of an accident with an estimated cost of reactor stabilization and site decontamination exceeding $100 million, NRC regulations require that insurance proceeds be dedicated and used first to return the reactor to, and maintain it in, 4 a safe and stable condition. After providing for stabilization and decontamination, the insurers would then cover property damage up to a total payout of $1.38 billion. Second, the NRC requires decontamination of the reactor station site in accordance with the plan appved by the NRC The insurers would provide up to $220 million to cover decommissioning costs in excess of fands already collected for decommissioning. In the event insurance limits are not exhausted, the excess will cover a portion of the value of the undamaged property. In addition, while the Cooperative has no reason to anticipate a serious nuclear accident at Clinton, if such an incident should occur, the claims for property damage and other costs would materially exceed the limit of current or available Insurance coverage. 42

Soyland Multiple major losses, covered under the current property damage and business interruptions insurance coverage, involving Clinton would result in retrospective premium assessments of up to approximately $13 million. IP would allocate this assessment between IP and the Cooperative based on their respective ownership interest in Clinton. The Cooperative is a defendant in various claims and lawsuits arising in the ordinary course of business. Based on discussions with legal counsel, management believes that the final settlement of these actions will not have a material adverse efTect or, the Cooperative's financial position or results of operations. During 1990, the U.S. Congress passed the Clean Air Act of 1990 (the " Clean Air Act") which, among other things, promulgated certain emission standards within the electric utility industry. The Clean Air Act requires reductions in sulfur dioxide and nitrogen oxide emissions from power plants and has two phases for compliance. Phase I, which took effect January 1,1995, is not expected to have a significant impact on Cooperative operations related to Cooperative-owned plant. The impact of Phase 11, which is elTective January 1,2000, has not been determined by Cooperative management. The impact of the Clean Air Act on purchased power could be significant. The Cooperative expects that any additional cost incurred will be recovered through rates charged to members. 10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS ? The estimated fair value amounts have been determined by the Cooperative, using available market information and appropriate valuation methodologies, flowever, considerable judgment is necessarily required in interpreting market data to develop the esti-mates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Cooperative could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated value amounts. The following methods arid assumptions were used to estimate the fair value of each class of financial instruments: Assets + NarketaNe securitics - decommissioning trust - Trust investments are carried at fair value based on quoted market prices for each specific investment instrument.

Investments - The December 31,1995 and 1994 investment balances comprise the following:

1995 1994 CFC capital term certificates (1): Revenue certificates 5 2,252,049 $ 2,252,049 lean certificates 3,845,605 2,795,605 6.097.654 5,047,654 Patronage capital certificates (1): Refinancing pauonage 1,046,531 1,006,200 Other patronage 2.583.928 2,472.820 3,630,459 3.470,020 Memberships and miscellaneous patronage (2) 4.272 4,272 Other associated organizations (3) 311,800 215.500 Total $ 10.044.185 $ 8.746,446 43

Soyland I l l l Fair value for investments is estimated as follows: 1, The Cooperative considers CFC capital term certificates to be a condition of borrowing and patronage capital to be directly l related to borrowing. As described below, Cooperative management believes the fair value of the related debt is not determin-able and thus the fair value of the CFC capital term certificates is not determinable. ( 2, The carrying amount of these items is a reasonable estimate of fair value. l l

3. Management was not able to estimate the fair value of these investments which represent the Cooperative's investment in economic development companies.

1

Cash and Temporary /m>cstments - The carrying amounts of these items are a reasonable estimate of their fair value due to the short term nature of the instruments.

l Liabilities l

Iogg-Term Debt - Due to alllong term debt being either with or guaranteed by the United States Government and due to l

the unique nature of the debt instrument resulting from the debt restructuring, management believes the fair value of the Cooperative's debt is not determinable. 1995 1994 l Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Milue l l Assets: l Marketable securities - decommissioning trust $ 4,543,015 $ 4,543,015 $ 3,161,302 $ 3,161,302 l Investments 10,044,185 (see above) 8,746,446 (see above) Cash and temporaryinvestments 8,265,332 8.265,332 2,721,759 2,721,759 Liabilities -leng-term debt 947,964,715 (see above) 954,577,366 (see above) Fair value estimates presented herein are based on pertinent information available to management as of December 31,1995 and 1994. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have notbeen comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair value may difier significantly from the amounts presented herein. 44

I i i i l Soyland Power Cooperative, Inc. ( 788 North Sunnyside Road a Decatur, Illinois 62522 (217) 423-0021 1 \\.--

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