Text

Illinois Power Co Annual Rept,1991
	ML20210D454
Person / Time
Site:	Clinton
Issue date:	12/31/1991
From:	Haab L; ILLINOIS POWER CO.
To:	;
Shared Package
ML20210D453	List: ML20210D454; ML20210D464; U-601993, Forwards Illinois Power Co Annual Rept 1991 & 1991 Annual Rept Soyland Power Cooperative,Inc;
References
	NUDOCS 9206160011
	Download: ML20210D454 (51)
	v • d • e

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1 F F/nnnc/al ill G ill,1 G ilTS t. I ur strategic plan has begun paying divkiends - the dividen'ds-I1 common stock payout..We beli of improved customer service, improved teamwork, and a : 4 ~ strategic plans clearly on customer servic' e, a strung empk yee team f and financial rsults, we can recover oiir financiai health and increase - common stock dividends at a inte greater than the hidustry average. + b ~ (Mitthms excettfwr sows amemnts ' % intnwe ; emt tummon stenk j"1ces) I991 - . 1990- tl M n ase). l'inancial liighlights Operating revenues '2,5-1;lectric (including interchange)......;.....$ 1,187i }$l.158 Gas........................;.....................w.$ _ 288-

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Operating expenses and taxes.....,.............$ 1.183 ' $ 1,215 -(2.6); Operating income.................,.................. A $ ? 292 } -251, n i 5.0 Net income (loss)...................................i.$ ;.109f c 5 ; (78) Tot al asset s........ a.................................,....... $ 5.272. ? $ 5.345 (1A); Common stock Datd Average number of common shares outstanding (thousands).. 4...........s.....L 75,6 (4 i + 75,613 ~ 1:arnings (loss) per common share.s............$ - ! 1.0 i i $ (1.53). 2a- ~ lteturn on average common equity............ 5.5%i

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llook value per common shareaA.4..;c.....a.$ 19.25 i _ $ 18.70 -

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Clo se........... ;............................... $ 23 0 41.16L 44.6? Dividendi deciated..;......................... $ i.40

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e-c Volume Sales ' 1:lectric sales in kilowatt hours ' (including interchange)...........,...s....., 19,4 32 18,657; 4.2i Gas sales in therms >

(Wold and transported)........./................. 1823

- 824' i(0.1); .Capitallration Common stock equity..............a........ :36%L 35% + ' Preferred st oc k...................................... .10% 11%. 1-- - long term debt,.. .......a.6........,.....a. 54 % - 54%. Total...... i........,..,.. u.... 100%: 1100%_ C-E . M11 -c 7 tt y. ..A\\ T T '," r k: : _ 7 -. ^ ~ ../.e.

Finnur/n/111 G 111,1 G 11 T S s ur strategic plan hits begun paying dividends - the dividends of improved customer service, improved teamwork, and a common stock payout. We believe that by focusing our strategic plans cleatly on customer service, a strong emplo)ce team l and financial results, we can recover our financial health and increase conunon stock dividends at a rate greater than the industry' average. c.usmom e.u n o tmauv aamo,unta sina. ; tend s omentni stmk futwsh ley! j y9() glMmut.) l'inancial liighlights Operating revenues 13cetrie (including interchange)..... ...$ - 1,lH7 $ 1,158 2.5 Gas.,........ 288 3II (7A) Operating expenses and ta Aes,............. $.1.183 $ 1,215 (2.6) - Operating income.. ,... $ 292 $ 251 15,0 Net income (low)... 109- $. (78) Total awets,. ............. $ 5.2 7 2. ~$ 5.315. ' (1 A) C4munon Stock 1)ata Average number of common shares outstanding (thousands)............. 75.6 I I - 75,613 Earnings (low) per conunon share..............$ 1,0 I $ (l 53) Iteturn on average conunon equity...... 5.5% (7.8)W. ik>ok value per common share......,,...$ 19.25 : $ 18.70 2,9 Common stock prices and dividends - I l igh................................... $ 24% 5 19%- 24.5 1x nv........,... 15% 12% ' 20.6 - Ciose....... 23V $. 16% 44.6 I)ividends declared..............,.. A0

Volume Sales llectrie sales in kilowatt hours.

(including interchange)...............,, 19,432 1 H,657. 4.2 Gas sales in thenns (sold and transported).. l823. - 824 (0,1) ;

Capitalization Common stock equity,...,,...,,., ' 36%

'35%c Preferre i stock., 10% 1196' 14>ng term debt. 54% 54% Total..,. 100"6 100% I.. -1 g c w

f 7h Ottr S T O C K 11 O 1. D 11 R S L I t 1 I l t Two 3 cars ago, we began this report h) acknowl-MA_.,, jl # mg edging that, financially,1989 was the worst year in "T our company's history.1)uring 1990 we saw some x# y improsement. In 1991, I am extremely pleased to report that we made significant progress - finan-I y, ciali), and in many other ways - toward regaining g M; v. the ground we lost two years ago. Our principal athlesement in 1991 was foHowing l ei. ,I p. ' [, through on our commitment to resume a conunon stock dividend. In October, the hoard of !)lrectors I voted to pay a 20 cents per share quarterly common stock dividend. Our goal now is to grow the divi. dend at a rate better than the industry average. At the same time, we have in place a strategy aimed at l l accelerating our positive earnings momentum. Financial Results Improve in 1991 i Chief Executive Ollicer Larry D.Haab outside Our mnings of M8 mHHon, m $121 pn Ware, the Clinton Power ended two consecutive years of losses. In 1991, we Station did not have to write off plant costs as we did the l l previous two years. A second major contributor to l our return to prolltability was our focus on control-i ling operating and maintenance expenses. In 1991, l these costs were approximately $25 million below 1 g 1990 levels, largely due to the refueling outage and IP Stock Price vs. Standard & Poor's 500 inrien " " " " " " ' ' ' "" "" "I

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j For the year, we had nominal sales growth. The j $73.50 recession, which became more severe in our ser-r j L~,E,~,; n,,,., ~ ~ " ~ ' - - ~~To vice territory as the year progressed, triggered a i I " 8 '* 5*' 1J percent drop in industrial electric sales. l . _ _ _. _ _ _. _130 llowever, this decline was more than offset by strong residential demand prompted by warmer-than normal summer temperatures. Also, inter-110 change revenues were $86 million,16 percent above the total for 1990. 16.62 100 Oterall gas sold and transported in 1991 remained j a. . _ _. a l eries - due to bypass and the recession - offset a 2 4 ---,yg, ..+-rwem,. m -,_mm,e-.w,..n.-.-.e_ ~v~.<._.-.,..m.,---.n..-.w._o_-=. ~ .~- -. us- . ~ -m m

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5 percent boost in trsidential sales. pan) goals, and fairly recognited and compensated Our aggrcune nnancing activities continue to lower for their wor k. our interest expense and preferred dividendt I.ast in 1991, we became one of the few utilities to > car we were able to reduce long-term interest include all its emplo)ers as participants in an incen-expense by $1% million and preferred dividends by the compensation plan. Although we didn't meet all almost $6 million. of our goals, the results were impressive - we made significant improsements in nearly escry Rate Order Closes Major Clinton issue aspect of our hustnew. in l'chruary 1992. the Illinois Commerce Comtniwlon approved am annual increase in elec. Investing in Clean Air tric revenues of $100 million, or 9.2 percent. In a lilinois Power's compliance program for the first positive step, the ICC concluded that Clinton phase of the federal Clean Air Act is underway, in Power Station's generating capacity is 100 percent December, we began site preparation for the con-uwd and useful? struction of clean air systems at two of our llaldwin However, the Commbslon's order does not settle units. We estinnte the compliance cost of this ini-whether deferred Clinton post construction costs tial phase at approximately 5250 million to $350 should be included in rates. The Commission million, which w e expect to fund internally. delayed the decision on these drferred costs until a rehearing process. We anticipate a decision from Commilled to Service, Winning Team, and the ICC on this matter within six months. Stockholder Value Our goah for 1992 and beyond remain unchanged. We Quality Service and a Winning Team Build Value want to enhance our financial strrngth, to build earn-Even though our nnancial successes were hupressive ings that will suppon regular dividend increases, and - as Wall Street indhputably affirmed - it h our to genemte excellent total return for our investors. I successes in impnning all aspects of customer ser-believe we made a great start on these in 1991, vice and our own total team effort that helped us What has changed over the past few years - what turn the corner in 1991. 'Ihese are the areas that will drove our turnaround in 1991 - is our approach to lead to increased stockholder value in the coming achieving these strategic goals. 'Ibday, Illinois Power 3 ca s, and these are the areas I'd like to highlight. is truly a new and revitalized company. We enter During the past two years, we have been working 1992 more committed than ever to meeting our very hard to enhance our customer-focused culture goah thmugh continuing improvements to our cus-at IP, We centralized our customer service opera-tomer service, our cost management, and our win-tions and made our representatives available to cus-ning team programs. I am convinced that our con-tomers 21 hours a day 365 days a year via a toll-free tinued successes in these areas will generate excel-number. We also established a Customer Awlstance lent stockholder value in the future. Advisory network to give individuali/ed help to res-idential customers with special needs. The results Sincerely, of these initiatives are better response times, better customer service. f We have strengthened our efforts to foster a " win-ning team' attitude among our 1,500 employees, it 1.arry D. Ilaah is a deliberate change in our corporate culture. A Chairman, President and Chief fixecutive Ofneer winning team isn't complex: To make it work, we I'chruary 21,1992 must create an environment in which employees at all lesels are treated with respect, encouraged to contribute individually to the achievement of com. 3

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b Comni//nient to I N Y E S T O R VA L U E Fouowing an adverse ruling from the Illinois Commerce Commission (ICC) in the spring of 1989, IP's lloard of Directors suspended the common stock dividend. The price of Illinois Ibwer common stock had already collapsed. O lilinois Power management pledged then to take the aggressive measures necessary to steadily rebuild stock-holder value. Ill.inois Powe* In 1991, those aggressive measures began to pay _ divi-dends: the price of Illinois Power shares climbed almost Reliistates as percent - more than doubic the average for electric Stock Dividend uunnes - and the Board of Directors restored a 20 cents .1"#flJC"157.7"d%"= per share quarterly common stock dividend.

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The major theme underlying Illinois Power,s financial y g; .n_ =,n"a.,.a"uln*" "'%"'"' turnaround in 1991 was not revenue growth, but I "TirJ.*l0, Illinois Power reduced expenses and the absence of plant cost write-

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offs. Operating income for the year climbed to $291.8 ~ ~~- ; Bounces Back m muumi.neadris er-atheuerinaa i99ms rnesona n 'We've Done A Good Job' Pf"'* *"'" h"" * d "'"'d ""'"'" 8" "' F# ' " '"d '" $75.8 million, from just over $1 million at the beginning ,,c,.,,,,,,,,,c, ,t aTn?:"T ll"%f.?l'?'" of the } car' ~~ '*?J". ":'"

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The Company's plan is to generate substantial carnings 3:3.n. '.5 -f . - 2.: growth that will a.pport growing the dividend at a rate ""'* := -.= A *! ll;': higher than the industry average. l::" lt;. :.,., :.:.M.. n o 'Q'[" """ "q.":9 For the year, electric sales (excluding interchange) E E O M "l",ll:!~"- M "5 inched ahead 0.8 percent, largely on the strength of higher r 2.,6,.3.3 $~1'~N residential use due to warmer than normal sununer weather. = ll:,*t..~."l:'.~. ". ::.gl=, t..,.".'..-a'--* Overall sales growth was slowed by a revised contract

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with municipal customers. While industrial sales were ...e .~ 1,... off 1.4 percent due to the recession, commercial sales advanced 4,4 percent and residential sales were up Newspapers from more than 9 percent over last yeark-The WallStreetJournalto The Chicago Tribune The negathe impact of the economy on our industrial 5 followed illinois Power's _ segment - especially among our rubber, automotive, turnaround, and heavy machinery customers -- was diminished by strong demand from grain processors. In fact, because business in IP's service territory is diversified, the 5

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s s s N f. 'e After meeting with Company is looking forward to better than 1991 sources ot investors, Treasurer Electric Revenues onuncini 2 percent annual growth in electric sales through 1996. Robert SA"It$ aad chief Financ', e h Honi share of that gmwm is expected to come fmm AllenWu. c industrial customers, with the corv.mercial and residen-atr 't the !!et tial segments making smaller contributions. S The total of gas se,ld and tnmsported in 1991 was 823 9-million therms. virtually unchanged from a year ago. Several of IP's large industrial customers elected to pur. chase their gas supplies directly from pipeline suppliers. m Residential.. .r - Illinois Power's gas sales to industrial customers were E commercial.. ...' u also hurt by recessionary pressures in 1991. These nega. " I"d"8'i'83 - 25 Interchange.. tive impacts on our deliveries to industrial customers off-a Other.. .ao set a 5.2 percent increase in residential sales. Although IP is projecting level natural gas sales through the middle of the decade, the Company has begun 1991 sources at reshaping the pas business to take better advantage of its Da: Revenues unpencine expanded storage tapabilities. The new Natural Gas Division has the potential to make significant improve-ments in earnings over the next two or three years. Aggressive cost management produced signincant results in 1991. Compauywide efforts to improve operations and reduce expenses resulted in operating and maintenance costs being approximately $25 million below 1990 and a Residential., . 6J o about $10 million below the amount budgeted for 1991. e commercial.. ..m Strict cost controls and lower refueling expenses at a industrial.. .. in - im Transportation.. . J.' Clinton produced the bulk of these reductions. IP's plans M Other.. . I.' for the next several years call for limiting growth of operating and mainten.tnce expenses to one half of the rate of inflation. 6

c-CHnton Powwstpon During 1991, Illinois Power retired $113,2 million oflong-N)[ term debt,' including $58 million under our revolving cred-it agreements, and retired $35.8 million of preferred stock.- ~' The Company also refinanced $84.7 million of highrost j 4 tax' exempt debt, taking advantage of declining interest rates. These actions produced annualized interest and pre- ~ ~, - 'c ferred dividend savings of $21.2 million. In addition,- the Company expects to further reduce annut.1 interest and - ~ preferred dividend payments over the next three years. Rate Order Concludes Clinton Fully "Used and Useful" On February 11,1992, tt e Illinois Commerce Comm!ssion 3 issued an order on IP's March 1991 request for an increase in electric rates. the order provides a 9.2 percent revenue increase of $100 million and allows a 12.4 percent return - on stockholders

equity.

Equivalent availab!Ilty The ICC% ruling also recognizes the Clinton Power Station measure) climbed mo as 100 percent "used and useful" hased on tests upheld by_ than 60 percent at the Illinois Supreme Court. Clinton in 1991. However, the ruling does not settic.whether deferred Clinton post construction costs should be included in rates. The ICC has determined that'a rehearing is neces- ? sary to examine this critical issue. A ruling is expected ~ within six months. Uumes Ewnt Reputs Power Stations Achieve High Marks - u. IP achieved excellent performance at all its power stations in 1991. Despite a planned refueling outage that kept it out of ser - vice until March 9. the Clinton Power Station attained over - 75 percent equivalent availability for the year, This levelc far exceeds its marks of 47 percent in 1990 and 40 percent e 3-in 1989. g The plant also set a U.S. record in 1991 for its class of reae-tor, oper: ting 253 consecutive days. I 8' At tiie llaldwin Power Station, the return to service of its Unit'3 contributed to a sharp rise in power generation, Systemwide equhalent availability rose 13 percent for tiie A* s year, from 70.8 percent in' 1990 toj79.7 percent in 1991. ' Licensee Event The increase at IP's six major power generation stations' 1 Reports at Clinton~ reflects the Companfs emphasis on continued mainte. tave dropped nance and operations training. 5p At Clinton, the. Nuclear Regulatory Commission closely ~ each of the last ; monitors daily operations. In 1991, the number of minor? ltwo vers. ~: . operational problems -- called IAensee Event Reports - . that were reported to the NRC fell to eight, less than half 7

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~ V of the industry average in thcl previous year. Clinton's I. Notices of Violation - also an NRC report on safety or operating issues - fell from 28 in 1989 and 15 ' h 1990 - l to eight in 1991. 'the number of notices is well below the industry average a year ago.: z Demand Side Management /Co Generation Strategy Set - c.,, Illinois Power's decisioni to ' accommodate incremental: demand other than through building major new power plants is one that'trilects the Company's determination to build stockholder value through improved customer : service. IP's demand / supply strategy in the 1990s has two comi ponents. The first is deniand side management,'or DSM: - working with customers to promote more efficient-energy use. Through DSM, IP expects to

manage down

its customers' ar.nual electric demand. In 1992, IP will-begin to develop several pilot programs that will caourc a age commercial and industrial customers to purchac high efficiency lighting and moton 'Ihese programs wih help evaluate DSM's potential profitability and riik;- These pilot programs are just one part of IP's evaluation ~ of DSM options. The Company is studying hundreds of" potential efficiency, options," many of them similar.to After a slight dip in those implemented by utilities in California and the-1990, fossil system Northeastern statesc Q'f,',I',[(*W The second part of IP's demand / supply strategy calls for. . normallevelin 1991. developing co-generation partnerships with large indus, trial companies. Typically, co-generation is the simultane *:- ous production of electricity and steam that can be used. U"Imr"U in industrial processes.1 Illinois Power has considerable expertise;in operating, si si '6 - . power generation systems, and that expertise can help 1 expanding industrial companies makelco-generation;a - viable alternative. By adopting a resource strategy for the L 1990s that includes demand side' management and co c generation, Illinois Power. is planning to meet increasing : -1 -energy demand lwithout adding major new generating.

capacity,

~ Clean Air Act Compliance IJnderway ? lilinois Power is on schedule for meeting Phase I compli; 3, ,9 g

ance requirements for the: 1990 Clean Lair Act. :In1 December, the Company began site preparation for

, scrubbers at two of its llaldwin units. Phase 1 compliance.is : j scheduled Ibr compiction by early 1995. at a cost estinhted, 8 ~

1991 Disposition of Revenues between 5.!50 tuillion and $350 million, wnnmn in July 1991, the Illinois staw legislature p;:ssed a law permitting the Company to recover in rates its invest- ]h ment in pollution control equipment. The law allows the ICC to establish a ceiling up front on prudent expen-ditures. The state also provided a 535 million grant to s uD/ offset a portion of the compliance costs. .6 D a rni a Power Natural Gas Business Reshaped to Meet New Challenges Iv chdid.. '.'iZ Although natural gas revenues made up one-fifth of IP's D u operations a total revenues in 1991, the gas business did not make a a e[fc s't o$ & proportionate contribution to earnings. The decision by Amortuation.. . m. commercial and industrial customers to bypass Illinois nte$st a ctner.. '.'.i_ Power by accessing regiona' nipeline supplier, O Lividends.. .4i squec/cd the division's profitability. To combat these n Retained tarnings...H pressures, Illinois Power has restructured its gas business for future growth. In October 1993, IP will complete work on an expansion of its storage field in Ilillsboro, along with the pipeline connecting it to Natural Gas Pipeline's supply. This system will allow IP to build its gas inventory during the summer when prices e are typically lower and ~ 3 then sell the gas to its customers at competi- .4 tive prices during the p winter. This project is a major step toward + lowering gas costs for the Company's cus-l tomers. IP is also constructing a state-of the-art com-pressed natural gas fill-ing station in the metro St. Louis area. Tlie llelleville, Illinois site will mea-Illinois Power is sure the feasibility of offering natural gas as an alternative bringing a state of-t ' fuel for fleet vehicles in Central Illinois. atu I I ng station to the metro - St. Louis area. 9

Conantilnient to 8 EllV l C E Our service mission statement is straightforward: "The 2O j customer must come first. We are committed to provid-ing reliable, 24-hour, personalized service with caring l l employees dedicated to meeting or exceeding our cus-tomers' expectations." in 1991, the challenge of meeting or exceeding cus-tomer expectations was made especially difficult by the -m mes

. ma=

recession. With this in mind, Illinois Power redoubled-its efforts to provide excellent service. The Company's 24 Ilour Customer Center boosted its [: staff to handle the increased volume of incoming cus.. if, hg tomer calls - more than 1.3 million in 1991. IP also y*y implemented new training programs to ensure that Customer Center representatives provide callers with uniform and efficient service. In 1992, the Company will.further improve service response by bringing its Trouble Outage System on line. This program uses a computer to analyze incoming calls, allowing IP to pinpoint affected areas and to alk>- cate crews and other resources where they will pro-duce optimal results. Customer Service flepresentative in 1991, IP's Customer Assistance Advisor program Joseph McCaskill takes expanded the services it provides. This program is one of the more thr.n one designed to give personal attention to residential cus- ' million calls handled by tomers who have special needs or are facing a crisis. the 24 Hour Customer Center in 1991. I;ast year, the staff worked individually with more than 1,300 lilinois Power customers. Innovative Economic Development Helps Build the Market lilinois Power's economic development team increased its efforts overseas in 1991 as the pace of new domestic business opportunities slowed due to the recession. R Economic Development is focusing on Europe and'the ~ Pacific Rim, where it has had representatives working for the past three years. The Company develops rela-tionships with overseas industries whose business needs can be met by the Illinois compa:Qs IP serves. To date, IP has acted as liaison and advisor on more 10 j

than 50 overseas projects involving 25 IP customers. Export deals for Illinois companies will mean more busi-ness for customers, whose increased production will prompt more energy sales for IP. 1 Addressing Community Needs ThrouDh involvement Illinois Power's presence in the communities it serves goes hand in hand with its commitment to increase stockholder value through quality customer service. Through its Energy Assistance Foundation, the Warm Neighbors program helped pay heating bills for more Line Foreman Gordon than 1,200 needy families last year alone. In addition, Hicklin (left) and more than 1,000 homes of the elderly, low-income, and Journeyman Lineman Alan Pfeiffer rebuild a disabled have been weatherized over the past 10 > cars. circuit in Decatur. in 1991,15,0(x) customers and employees made contri. butions and pledges totalling more than $335,000 to this program. IP contributed $ 100,000 in matching funds. Approximately one-quarter of IP's residential customers are senior citizens, and the Company conducts several programs for them each year. 4-p4w l P's coucational and ygg? A scholarship programs g gw ( .[ are designed to encour-i w { age academic excellence " *3 and help reduce dropom .8, J,(, rates in the communities 7 $1gyph it serves. The Company ?.,.wj ?" takes a further interest 6

+

g*, Jpglw in quality education by k' sponsoring CllOICES, a v' twoday presentation for I L, /-,8)ll[flil}I:ll Illo, MiflMllill:II.1,Illt)llT] middle and high school

M,ill 4 students demonstrating 3"L"J!%" " %%*n=%"* 'OM?A Ess? rap /

M C*Cf how, etgucation increases M=ld,'"m 'Y%*.1 ?.0*JO2l* ". Z7 77~;;*t2*r'"".' EC21* %, FTfi,5 % W&L / m e ~v m ~.- % Last year, Illinals Power volunteer as math tutors b Decatur middle schools. customers and employees Students are tutored during their study hall periods and helped more than 1,200 have shown significant improvement in their grades. h ontr but a sto he 111 nois Power firmly believes that by taking a strong role - Warm Neighbors program, in education, it will be able to look fomard not only to a better educated work force, but also to improved leader-ship in its communities. 11

1 Providing Leadership on Environmentailssues lilinois Power has set a strategic g goal to be one of the top utili-M ties in the country." To meet this goal, it is necessary to aggres- ['g sively address environmental issues. IP believes that this is good business practice - as well as st d public policy - serving ths oest interests 01 its Dispatcher Claude customers, its stockholders, and its employees. Bedwell monitors in IP's corporate environmental principles statement, the electric disPibution for Company's Board of Directors pledges: Illinois 1buvr IP's service territory-g,t'll clernonshat< our cornnaitruent to a better enchon-an area the size of Massachusetts, nu>nt by finging partnerships trith custanters anct Connecticut, and encouraging ensplowes to be steuards of our natural Rhode Island combined. resources. Wi uill strive to minimi:e the enthunmen-tal hnpact of'past, present ur future operallons, anti trill take a leadership n>le he encinnunental activities. IP's achievements in waste minimization are among the positive results of this commitment, in November, Illinois Gov Jim Edgar awarded IP the Governor's Pollution Prevention Award. IP's extensite recycling programs include plastic gas pipe, concrete and asphalt from construction sites, used utility poles, scrap metal, and paper. IP re-uses antifreeze, burns used oil as fuel to make electricity, and carefully restricts the use of industrial cleaning solvents. Illinois Power is also taking steps to reduce the state's escalating landfill problem. Last year IP conducted two test hurns of 500 tons of used tires at the Baldwin facility, using one ton of shredded tires for every 50 tons of coal. If future large-scale tests are successful, IP may be able to burn up to 60 percent of the state's used tires. lP is also he. ping Illinois agricultural companies dispose of their outdated, chemically treated seed corn by burn. ing it at the llavana Power Station. The state Environmen-tal Protection Agency has issued permits for IP to burn up to 100,000 bushels of the seed corn, which would pro-duce enough electricity to power the homes of 3,300 families for a month. Itoth shredded tires and seed corn rep-resent small, but no-cost fuel sources for Illinois Power. As part of its pledge to minimize the adverse impact of past operations. IP is conducting clean-up projects at for-mer coal gas sites throughout its territory. 12

Earlier in the century, Illinois Power acquired a number of smaller utilities in the cent'ral and southern parts of the state. Some of these properties included coalgas manu-facturing sites used by small town gas companies some 60 to 70 years ago. Although they do not pose an inunediate threat to people or to ground water supplies, IP has taken the initiative on this issue by conducting tests at each of the sites to deter-mine w hat additional actions, if any, might be required. Promoting Gootl Government lilinois Power maintains an active government relations program at both the state and federal levels. The Company also encourages employee participation in the political process, sponsoring frequent forums for state and federal elected officials to meet with IP employees. Membership in the Company's state and federal political action committees has doubled since 1989. In 1991, Illinois Power's governmental affairs staff played a significant role with state legislators to balance the financial impact of 1990 Clean Air Act compliance between the interests of customers and stockholders. At the federal level, IP representatives are urging lawmakers to consider favorable tax treatment of utilities' capital investment in Clean Air Act compliance. Execullve Vice President Charles Wells (right) ?..i Of} receives the Pollution a i Prevention AwardItom g4% lilinois Governor Jim .%.g* Jq N

Edgar, Mb a

na < ~g; -y, }y::'y ='

i

~h, 4., se 13

- Comm/tinent to T E A M W O R K I Winning Team The final component of IP's strategic plan to increase stockholder value is teamwork. Illinois Power believes that it cannot provide quality service without the full O participation of the " winning team? Winning team at Illinois Power is the spirit of employees who understand the Company's goals and work with uma

= = = = = = =

their fellow employees to achieve them. IP developed five measures to track the success of its winning team r O): &, $ ~. efforts: Job Satisfaction; Employee Communication; _$j Quality, Pnuluctit'lty, anti Customer Sert' ice; Employee ~ Development anci Recognition; anci ik amtrork. Throughout 1991, IP surveyed employees and found that the results mirrored the Company's financial suc-cess. Employees are increasingly enthusiastic about all m y aspects of building a winning team, sg i f,- 2: lilinois Power is in the fifth year of its successful Quality by Y hh-j ' Y and Productivity initiative This program emphasizes h '[Qh* :sf team building and customer service, and it has played a 6 significant role in improving the way IP serves its cus-tomers, both internal and external. Responding to storm Employee Teams Help Improve Profitability damage is an important In September, Illinois Power launched a wide-ranging es o [e spirH ot 10-week progmm in which nearly 500 teams of employ-ces volunteered to participate. The teams proposed more than 5,0(X) ways to improve customer service and profitability throughout the Company. The program was a tremendous success. It produced hundreds of work-process improvement suggestions, and IP is projecting annual benefits of more than $15 million in 1993 and beyond from ideas generated by the employee teams. The program contributed to IP's winning team goals by bringing together employees from various areas of the Company and improving communication between dif-ferent departments and divisions. i 14

' Vg 5 Howard Wiss, regulator repairman, dN surveys a repalt for an C industrial customer ' W 4 ~k in Decatur. ye rfQ.. p i n:w-p} <iah ja k Sqfl Y ?~~'manaeui :.;kY m 1 ya +.. %y ^ ,qq e p. f _v ~ 'n Empowerment-Tapping the Full Potential of Employees in 1991, groups of IP meter readers set their own work schedules and efficiency soared. At the llaldwin plant, emplo3ces were gisen control over safety budgets, and in on S ear produced a 50-percent drop in the ftc-quency of injuries. At Clinton. supervisors and their staf fs were encouraged throughout the year to take greater control of their work. As a result, Clinton's overall performance was its best 3ct. Each episode had one thing in conir:on: it was a part of IP's ongoing efforts to promote emplo)ce empowerment and teamwork. Illinois Power is committed to an envi-ronment in which people have input into decisions affecting them and have authority to make decisions to achieve agreed upon objectiscs. lilinois Power devotes significant resources to hiring and developing talented employees. Ily empowering this a work force, IP is attempting to tap its full potential. The positise results of this effort are visible in IP's improved customer service and in its rmancial results. l 15 l

Bonni gf D i ll l! C T o ll S , s' . \\, n y m s 1 Ik htrd ( =om nlit ters ( l ) I inJnce ( ~ommitter i (2) Audit tlontmitter / % ( 4) Compensation and N(inunJting ( otUnuttet' ( t ) Corporate Strateg) Comimitec

6) Nut icar Operations

'h,_. .h., M_ ___ AM Comnuttec m hW fo right Wted ikmaid I teater, uarilou wn ivrstrl IMrY ll llaab. lu n a 1. schcuk te /t f a n;#1 stumhny Onn er J llamen. clurtes % % < Ib. 4 ahrt si s annm, Roben M 1% < n Honald I. T hompmn Irank 4 ( onwhne. Ihmaid s l*rrkm, Rnhard k iktry M alkt D % ott. \\ crnon K hmmennan Michard R.15crry, N1" Donald I.1.asater,66 "' lloyd I'. Schenk. 69 "' Walter M. Vannoy,6i ' ' Retired I xecutn e Vwe Retired Chairman of the lloard President of The Ito>d Group, President of Vannoy Associates President and thrector of Ohn and Chief laccutne Offker inc, Chicago,11. (prn ate (a consulting company) Corporation. Stamford CT. of Mercantile liancorporation, insestment and consulting 1.)nchburg. VA., and former (dnersified manufactim r con-Inc.. St. I ouis MO. compan)), and retired Yke Vitc Chairman of MtDermott centrated in thenucals metals (bank holdmg compan)). Chairman of Whitman International (dn crsified and acrospact/dctense pnKhictst 1:lected 19Hl. Corporation engineering energy equipment i.lected 19MM (dncrutied manufacturer, and services company ) Donald i Perkins. 6-4 ' ' marketer of consumer and llected 199n. I' rank W. Considine, 0 "' Retired Chairman of the ikurd commercial products) Retired Chairman and and Chiet IAccutisc Of ficer of Elected 19" Marilou too I erstel. i n " Chairman of the Executive .lewel Companies, Inc., Executisc Vice President and Committer of Amencan Chicago. IL Walter D. Scott 60 " ^ Gcneral Manager of Ogih) & National Can Company. (dnersified rc tailer) Professor of Management and Mather, Inc, Chicago, IL Chicago. IL llected 19MM 5enior Austin Icllow. (pubhc relations firm). (p.u kaging m mufacturert ,! L Kellogg Graduate School llected 1990. Ilected 1988, retiring in 1991 Hohert M. Powers. N)" ' of Management, Retired President and Chief Northw estern linis ersity. Charles W. Wells, 5- + larry D. !!aab. 5 i ' IActutisc Offiter of A E 5 tale) IN anston, IL liccutive \\ ke President of the Ch.iirman. President and Manufacturing Company llected 1990 Company, Decatur, IL Chief I xecutise Otficer of the Decatur. IL Llected 19'6. Compan). Decatur, IL (grain and oil seed processor) Ronald I., Thompson, 42 " ' Elected 1986. I lected 198 i President, Chief Executis c Vernan K.7immennait 63 "" Officer. and a director of Director of the Center for GroverJ. Ilansen. 68 ' The GR Group, Inc. Imcrnational Education Retired President and Chief St. Louis MO, Rescarch and Accounting and Operating Otficer of I'irst (manufacturer of special-Distinguished Sen-ice Professor Federal sasings and luan purpose transportation of Accountant). Awtiation of Chicago. equipmenD. I'nn ersity of Illmois Chicago, IL Elected 1991. I'rhana,IL 1lected 19M1. 1:lected 19'i 16

i Pr/nc/ pal O F F I C E R S 1 4 t 1-1.arry D. Ilaali 4 Wilfrrd Connell,54 - Robert A. S(huhr,51 - Chairman. Vice President Treasurer I President and Chief Resp <msible for fowil power Responsible for financial Executhe Officer generation and clean air _ matters and risk managment y,, 1.mployed 19M. compliance. Employed 1986. 1 Employed 198,L } Charlo W. Wells, 57 Rodney A. Smith,44 : 1 1.secutis e Vice President larry 1 Idleman,53 - Vice President Responsible for ftmil gener-Vice President Responsible for public ation. corporate and techni-Responsible for corporate affairs and government cal wrs ices and gas acrvices : relations. Employed 1956. Employed 1969J Employed 1988. i 12rry F. Altenbaumer,43 Patd L lang,5I leah Manning Stetener,43 Vice President. Chief Yke President ' . General Counsel and 4 i l'inancial Oftker and. Responsible for customer Corporate Secretary-Controller service, operating divisions. - Responsible for corporate - Responsible for accounting. Inarketing and economic secretary acthities and legal auditing, budgs ting, finan- - development.- matters.- cial matters, tax matters and Employed 1986. Employed 19894 l corporate deselopment. Emplo)ed 1970. J. Steplien Perry. 53 Porter J. Wemeldot ff, 58 Vice President -Vice President larry S.11rodsky. 43 Responsible for nuclear Resp (msible for Vice President power generation. emironmental affairs, Responsible for engineering. ~ Employed 198L system planning and electric system operations - planning activities. and natural gat-Employed 1954._ Employed 1975. i Stockholder i N F O R M A TI O N I - Annu.d Meeting paid to stockholders in 1991 . Stockholders should wasult The annual meeting of stuck. are fully taxable as dividen !- with their own tax advisors for holders will tw held at to a.m. incomc for Federal income ' . further information with : on Thursday, April 9,1992, at. . Tax purposes. respect to tax con. sequences. . the Company's headquarters.

The Company mailed all regiv Stockholders nuy obtain, with-500 South 27th Street Decatur, tered common and preferred

. out charge, a copy of 12orm ' Illinois 62525. stockholders a Form 1099 in . ItvK as filed by the Company January P)92 showing divdends. vith the Securtties and Simk Euhange 1.hting . paid during the > car. Enhange CommAsion, by' illinois Power 4 common and. Participants in the Automatic -

sendmg a request to the <

preferred stocks are listed on Reinvestment and Sunk Corporate Secretary. Irah - the New York Stock Exchange Purcluse Plan who reinvested Manning Stetzner. - and the Midwest Stock. - cash dividends or made optional - : This report and the financial Exchange, The official New

cash guyments for shares that.

statements contained herein York Stock Exchange symbol is m ere purQsed on the open; iinformation of the simkholders are submitted for the general

1PC
but the Company's market were i. ailed a l'orm stocks are also listed in some

! 1099 to recognize as federal of the Company and as such 1 newspapers under *lllPwr." tuable income the ai;xable.. and are rmt intended to solicit,- share of any brokerage les and or to be used in connection - Tax Infunnadon commissions incurred to per-with. any sale or purchase of 11tinois INjwer estinutes that chase such shares ay stated in securities. 100 percent of the dividends the Plan prospectus. 17'

= financial AYport MANAGEMENT'S DISCUSSION AND ANAINSIS Reference is made to the Financial Statements, related maintenance expenses and lower interest on long term. i Notes to Financial Statements, Selected Financial Data debt. As discussed more fully in " Note 2 - Clinton and Selected Statistics for information concerning power Station" of the " Notes to Financial Statements," financial condition and results of operations. The factors the Company recorded a loss of $137 million or $1.82-having significant impact upon financial mndition and per share, net of income taxes and $346 million or $4 61 j results of operations since January 1,1989 are discussed per share, net ofincome taxes in the fourth quarter of below. 1990 and in the first quarter of 1989, respectively, for disallowed Clinton power Station (Clinton) plant-related costs as a result of the March 1989 Illit ois 4 Commerce Commission (ICC) rate order and the Results of Opetations February 1991 tilinois Appellate Court decision. As a result of the ICC's February 1992 rate order, which Onm.m affirmed that Clinton is 100% used and useful and incorporated Clinton plant costs, including $233 million. Net income applicable to common stock was 578 million net of income taxes, of post construction cost deferrals, for 1991, compared to a net loss applicable to common into rates, carnings are expected to improve, flowever, stock of $115 million for 1990 and a net loss of 5326 future carnings may be allected either positively or million for 1989. Earnings per common share were $ 1.04 - negatively by the ultimate outcome of various proceed-for 1991 compared to a $1.53 loss per common share in ings addressing Clinton.related rate decisions. These 1990 and a $4.34 loss per common share in 1989. On include any Illinois Supreme Court action regarding the October 9.1991, the 11oard of Diredors voted to resume appeals of the Company's 1989 and 1990 rate orders, the ]- payment of a common stock dhidend at 20 cents per ICC rehearing on deferred Clinton post construction share per quarter, which was paid on Nowmber 1,1991, costs and the probable appeal of the 1992 rate order. This was the first common stock dividend paid since May The operating revenues of the Company are based on 1989. In December 1991, the lloard also declared a rates, authorized by the ICC and the Federal Energy common stock dhidend of 20 cents per share which was Regulatory Commission ( FERC), charged for the sale and paid on February 1,1992. delivery of electricity and natural gas. These rates'are The increase in the Company's earnings for 1991 was designed to recover the cost of service and to allow primarily due to a write off recorded in 1990, an increase stockholders a fair rate of return. Future natural gas and in kilowatt hour sales, the effect of the June 1990 rate electric sales, including interchange sales, will continue increase, increased availability of generating units, lower to be affected by weather conditions, competing fuel sources, interchange market conditions, plant availabil. Income from 0perations ity, gas b) pass, customer and Company conservation (=di w of, tela m efforts and the overall economy of tiie Company's service } territory. 1 o Electric Operations For the three-year period 1989 through 1991, electric revenues (including interchange) e increased 12% and the gross margin on electric revenues increased as follows: 4 1 (Milikms ofadkus) 1991 1940^ 19Q Electric revenues...- $ 1,101 31,085 $ 988 Interchange rewnues.z 86 73 81 Fuel cost & power purclused.. (292) (311) (30I) Electric margin. $ 895 i 817 8 768 4 9 ww *

The components of annual changes in electric revenues i

are summarized as follows: 18 filmois Pour Company

i Ariniora rydonars )

99 19E fvy Changes in the above costs were caused by system load Euln[r$ases..

5 9 5 is s 36 requirements, availability of generating units to meet Volume and other-33 in 3 those requirements, fuel prices, purchased power prices luci cost recoveries. (26) 12 (t) and recovery of fuel costs through the fuel adjustment unenue hwrraw. 16 s 97 s 38 clause. Over the period 1992 through 1996 electric sales, Changes in factors atlecting the cost of fuel for electric excluding interchange, are expected to grow approxi-generation are summarized as follows: mately 2.NL per year. e 1997 The Company experienced a 1.5% increase in electric revenues primarily due to an increase in 1991 19<x; inw kilowatt-hour sales to ultimate consumers of O H L, increase (derrease) in reflecting a warmer summer season and the etTect of the generation... 16.91 (l44.) (1581) 1990 rate increase, partially othet by lower fuel cost Generation mix recoveries under the liniform f uel Adjustment Clause. Coal and other., 7W Hi% Hit N"'IC*' - 27

19*

15' Volume increases were due to higher re.idential sales (9A%) and comm :ial sales (4.4%), partially offset by I' tant ectuhatent ava lahihty ,d'h,, Q l decreased industrial sales ( l A%) and decrrased sales to municipalities (45.yt). The decrease in sales to municipalities was a result of their decision to be served by other suppliers as permitted under the applicable Major Sources of contract. The 15.9% increase in interchange revenues [8 {"%.g was attributable to the higher availability of some of the Company's generating units. p e 1990 The Company experienced a 9.8% increase in N, 7( p-ym (4 electric revenues primarily due to the 7.7% rate increase b in June 1990 and the 6 9% rate increase in April 1989 being reflected in rates for ihe entire year. Kilowatt-hour sales to ultimate consumers were relathrly unchanged from 1989 The 9.1% decrease in interchange revenues was attributable to the lower availability of some of the Company's generating units. g e 1989 The Company experienced a 4.0% increase in electric revenues due to the April 1989 rate increase and i increased sales to industrial customers The industrial kilowatt hour salt, nercase was partially offset by decreased residential ' ales due to more moderate s> i w w w w summer weather in 1989. Interchange revenues a %g decreased 26 0% due to lower avelability of the g y,ei,,, Company's generating units. 23 Purchases The cost of meeting the Company's system requirements was reficeted in the cost of fuel for electric plants and

1991 The increase in fuel for electric plants reticcted power purchased. Changes in these costs are summar.

higher generation, partially otTset by the effects of the ized as follows: Uniform l'ucl Adjustment Clause and lower average fuel costs. Following a scheduled refueling outage, Clinton returned to senice on March 9,1991 and was in senice prinioru r:f a<grars) 199i 1990 iw9 substantially throughout the remainder of the year. 'Ihe 1-uct for electric planis Volumc and other... -.... 31 8 (12)s (33) decrease in power purchased was attributable to the ence.. (8) H t higher availability of some of the Companys generating Fuct cost recoveries.- (15) 1I (3) units. H 7 (40) A Clinton refueling and maintenance outage is scheduled ther purchased.. ]27) 3 21 to begin in March 1992 and end in May 1992. Total increase (decrease). $_ (13) $ 10 $ (19) Weighted average ytem .1990 The increase in fuel for electric plants reflected generating fuci cos: (s mtw it).. $ t wo s is o6 s 15 10 higher fuel costs, partially offset by lower generation l Illmois Power Company 19

reflecting the lower ajuhalent availability of some of the - punk >ru of d<alain 1991 19<x) twt 9 Company % fossil generating units and Clinton. 'the low Gas purchased for resale. equivalent availability of Clinton was affected by sched-cat (excluding uled and unscheduled outages, including a refueling and take-or-pay ) -- $ (10)$ 13 8 (7) maintenance outage that began on Or.ober 14,1990 and ', PC"'[ continued until March 9,1991, gas cos:,c,,,, eg _3, (g3) (37) Total decrease. e 1989 The decrease in fuel for electric plants reflected herage cmt per thenn delnrred -_$ d t()8 (21)8 (H) reduced generation associated with scheduled and I"[iN"ng't 8 i unscheduled plant outages including an extended refueling and maintenance outage at Clinton. The s increase in power purchased was due to the lower Purchased Gas Cost availability of some of the Company's generating units. '""#'""' "/ #"#d " > e Ons Opvatins for the three year period 1989 through 1991, gas revenues decreased 13.9% and the gross margin on gas rnenues changed as follow t (Milhorn ofdonars) 1991 IVX) IWl9 Gas tornuen.. _ ... $ 279 8 301 8 314 i Gas cost.. (168) (lH2) (203) Transportation restnues..- -.... 9 in iI Gas enrnue crt@t... (l3) 5 Gas margin. $ 120 $ 116 8 127 QHHsorn of rhmru) Therms sold-570 555 642 1henm transported-..- 253 269 265 91 NO 'H9 'MM 'H7 Total consumption... J23 H24 907 Even though there have been no revisions to the During 1991, approximately 37% of the total natural gas Company's retail base gas rates, overall gas re rnues have purchased was purchased on the spot market. Spot been negatively alIccted by special contracts with large m rket purcha3cs are expected to remain at this level as industrial customers In addition, gas bypass (ic.,- long as m rket prices maintain their cu rent locl. Over connection by the natural gas customer directly to a the period 1992 through 1996, total gas sales, including pipeline, " bypassing" the Company's transportation therms transported, are expected to remain relatively senice ) continues to be aethrly consideral and utilized constant. nc 1991 decrease in the cost of gas purchased by several of the Company's large customers. The is due to lower amortization of previousiy deferred take. Company is aggressively competing with the bypass or pay costs, lower cost of purchased gas, partially offset optiens available to these customers in an attempt to by the effects of the Uniform Gas Adjustment Clause. Fac. minimize the potential loss in earnings. %e major factors tors affecting the 1990 decrease in the cost of gas pur. affecting therm sales for the three year period were chased were decreased sales to customers and the etfrets economic conditions, weather, improved efficiencies, of the Uniform Gas Adjustment Clause, partially offsc, special contracts, ps bypass and gas transportation an increase in the cost of purchased gas. De decrease in arrangements, in May 1990, the Company recorded a 1989 cost of gas purchased was attributable to the effects - credit for natural gas revenues collected pursuant to an f the Uniform Gas Adjustment Clause, decreased sales to - ICC order but not reported as income fromJanuary 1987 cust mers and decreased cost of purchased gas, partially - through April 1990, as a result of an ICC decision offset by amortization of deferred take or pay costs, following its analysis of a change in the corporate federal income tax rate. The 1990 impact of this credit was an e Other Expenses and Taxes A comparison of significant increase of $13.2 million in re enues. increases (decreases) in other expenses and deferred Changes in the cost of gas purchased for resale are Clinton costs for the last three years is presented in the summarized as folkms following table: to Illmois Power Company -l

e Other Incorne and Ocductions Total allowance for funds t Atanam of aunan t At jn> t< m used during construction ( AIUDC), a non cash item of other ogwrating expenn. 5 N8 ti 5 9 stainte nant e. tm 32 4 income, remained relatively unchanged from 1989 to Defctred Chnion town O) 9'i 1991.1hc AIUDC cffective before tax rate was 8.25% in 1991 and 10% in 1990 and 1989. in accordance with an ICC order, a total of $201 million For 1991, the combined decrease of other operating and of Clinton deferred financing costs was recorded for the maintenance expenws reflects a more normal operating year than 1990 and 1989, primarily due to lower period April 2L 1987 dnough March 31,1989. Such linancing costs were calculated on Clinton deferred costs and plant costs not included in retail rate base, the amount recorded in 1989 was $14 million. After the Operating 8 Maintenance Espenses twatw.n an.go March 1989 ICC rate order was issued, deferral of Clinton financing costs ceased and amort;zation of 3 previously deferred post construction costs over a 37.5 @i]6 }y 3 The primary reason for the 1991 change in Miscellane-year period commenced. W j ous net was the recording of 54 million for the q Q y h Company's share of the cost of settling the llauman i ] ( litigation pursuant to a settlement agreement filed with M:!d b h the Court on December 2,1991.1he 1991 change also N k ) k i reflected less interest income on short-term investments. 1 9 In 1989 and 1990, the reduction in Miscellaneous-net ~ k k I was primarily due to the reduction in the alkication of !G tax benefits to the stockholders as a result of the March M h 1989 ICC rate order that placed the Clinton plant in rate 1 y $ I hase. The 1990 change also reflected less interest N income on short term investments, partially olfset by the g$ expenses related to the determination of the Soyland M,,.,, y I ower Cooperative, Inc. (Soyland) ownership percent-age in Clinton. The 1989 change also reflected additional maintenance expenws in the service areas and at both interest income on short term investments that was par-Clinton and the fossil power plants. 'lhe increase in 1990 tially olfset by the determination of the Soyland owner-other operating and maintenance expenws was due to ship percentage in Clinton. the Clinton refuehng and maintenance outage, the 1990 ice storm and increased fossil power plant expenses, e intuest Charges Interest charges decreased $20 million including the expenses for the llaldwin Unit 3 outage, in Imth 1991 and 1990 The 1991 decrease uns due partially oliset by the impact of the early retirement program implemented in 1989. 'the increase in 1989 in Tenn Debt other operating and maintenance expenses was primarily l",((" due to the Clinton refueling and maintenance outage. In 1989, the Company also incurred an early retiremem expense of approximately $12 million. In conjunction with Clinton being declared in service for accounting purposes on April 24,1987, the Company recorded s t 15 million and 529 million as a reduction to expenses in 1988 and 1989, respectively, to reflect the portion of Clinton depreciation and real estate taxes deferred for future recovery in accordance with an ICC order. After s issuance of the March 1989 ICC rate order, such a deferrals ceased and amortization of the previously I i deferred post construction costs over a 37.5 year period commenced. Amortiration of $11 million, SIS million l f and 58 million were recorded in 1991,1990 and 1989, = respectively. i for a detailed analysis of income tax components, sec " Note 6 - Income Taxes" of the " Notes to Financial 91 '90

- T Statements."

llhnois nmer Company 21

primanly to the early retirement of certain debt and the to 27.2% in the ICCs March 1989 order, but did not refinancing of other existing higher cost debt. The 1990 allow the Company to carn a common equity return on decrease was due primarily to the early retirement of the 39.3% of Clinton determined to be not "used and debt During the three year period, the Company retired useful." $326 million oflong term debt (excluding re uhing loan On July 16,1990, the Company appealed the June 1990 agreement retirements) with a weighted average interest rate order to the Illinois Appellate Court, Third District. rate of 10.9% Other parties also appealed. On June 14,1991, the Appellate Court, among other things, roersed and e inflation inflation, as measured by the Consumer Price remanded the ICCs "used and useful" determination on Index, was 4.2%,5.4% and 4.8% in 1991,1990 and 1989, the same grounds as it did in its opinion on the appeal of respectively. %e primary effect of inflation on the the March 1989 rate order, as described below. Company is that historical plant costs rather than current Several parties, but not the ICC, have filed petitions for l plant costs are recovered in the Company's rates. leave to appeal with the Illinois Supreme Court, I challenging the Appellate Court's determination of the Uquidity and Capital Resources "used and useful" issue and two related issues. The Company did not seek Supreme Court review and is Regulatory Matters opposing these petitions. The %preme Court has not yet agreed to hear these petitions. e 1992 Rate Order On February 11,1992, the ICC issued an order in the Company's 1991 electric rate case e 1989 Rare aider The March 30,1989 rate order from apprming an increaw in electric rates of $100 million or the ICC granted a one time increase of $60.5 million, or 9.2% Re Company had requested an cle-tric rate increase of $182.5 million or 16.7%- 6.9%, that became efIcctive April 4,1989. The ICC order The order concluded that Clinton is fully "used and included various disallowances of Clinton-related costs, useful" in providing utility service to the Company's due to alleged " unreasonable" expenditures, as well as ratepayers. %c order also included in rate base a total of the disallowance of the equity return component of $233 million, net of income taxes, of deferred Clinton Climon post. construction cost deferrals from Janaary 1, 1988 through March 31, 1989. Els order also found posRonstruction costs, confirming the position taken by the ICC in the Company's two prior e!cctric rate orders. approximately $2.3 billion (72.8%) of the reasonable %e ICC order did not include in rate base $102 million Clinton costs to be not "used and useful" and denied a common equity return thereon. of deferred equity return incurred during the period January 1988 throue,h March 1989. Ris amount had not in February 1991, the-Appellate Court reversed the heen previously included in rate base in acmrdance with portion of the ICC order which had found 72.8% of a prior ICC order. %e order referred to a December Clinton not "used and useful," and remanded this 1991 tilinois Supreme Court decision in a Common

portion of the order to the ICC to determine whether and/or what portion of Clinton is "used and useful" wealth Edison (CE) proceeding that miews, among other things, proper regulatory treatment of CE's based on established pre 1986 standards. He Court also deferred post-construction costs. As a result, the ICC has reversed the portion of the order which had denied the recommended that the proper regulatory treatment for Company recovery of an equity return on _ deferred all Clinton post construction cost deferrals be addressed Clinton post construction costs after January 1,1988 in a rehearing proceeding Wis rehearing process should (approximately $102 million). Ilowever, the Court did be concluded in approximately six months. An adverse not overturn the order with respect to - the ICC's determination that a portion of the cost of Clinton was ruling by the ICC in the rehearing proceeding could result in additional write oth See discussions of 1990

" unreasonable cost" and should not be included in rate -

base, Rate Order and 1989 Rate Order below. He Company.

Following the March 1989 rate order, the Company expects to request rehearing and reconsideration of the. order. Other parties are expected to file applications fot recorded a ims in the first quarter of 1989 of $346 rehearing. requesting, among other things, that the ICC million, net ofincome taxes, or 54.61 per share. Further, disallow additional amounts of the deferred Clinton post' as a resuh of the February 1991 Appellate Court construction costs. decision, the Company recorded an additional h>ss in the - fourth quarter of 1990 of $137 million, net of income taxes or $1.82 per share. We losses recorded in both - e 1990 Rate Order On June 6,1990, the ICC issued an 1990 and 1989 reflect the dist'swance of Clinton order in the Company's 1989 electric rate case " unreasonable costs" from rate base. approving an annualized increase in electric rates of The Company, the ICC and certain other parties have approximately $75 million, or 7.7% The order, as appealed various aspects of the February 1991 Appellate amended onJuly 13,1990, found that Clinton was 60.7% Court decision to the Illinois Supreme Court. He "used and useful" for rate making purposes, as compared Company has appealed the Appellate Court's allirmance 22 Ilhnois Power Company - ~ - - - - - - - - ' ^ - - - - - - -

of the ICC's "unreasoruble cost" disallowoce. The ICC balance of nuclear fuel im entory during the same period has appealed the Appellate Court's "usal and useful" in accordance with a previous ICC order were decision but not the determination with respect to the imprudent and that the balance of recoverable nuclear Company's recovery of an equity return on deferred fuel cost should be reduced by that amount. The Clinton post construction costs. Other parties haw Company believes the conclumn in the ICC order lacks epealed both the "used and useful" and the deferred legal and factual foundation.1he Company intends to Clinton i.et sonstruction equity return issues, as well as request the ICC to grant rehearing in this docket and to other issues presioush* raised in their initial appeals.1he substantially modify its order on rehearing in order to Illinois Supreme Court has not yet a mt to hear these climinate the disallowance. If the ICC order is not y petitions. substantially modified, the Company will appeal the ICC On December 16, 1991, the Illinois Supreme Court order to the courts. Ilowever, if the February 5 order is issued its decision regarding appeals from a March 1991 not modilled and is ultimately aflirmed on appeal, the order of the ICC in the CE rate proceeding In that Company would be required to record a loss of decision, the Illinois Supreme Court held, amocg other approximately $28 million, net of income taxes. things, that the Illinois Appellate Court had erred in ruling in the February 1991 decision on the appeal of the o NaturalGas Tale-or Pay Chupes in accordance with FERC ICC's March 1989 rate order for Illinois Power that the Order 500, issued in August 1987, the O'mpany's reserve margin and economic benefits test ceuld not be pipeline suppliers were allowed to b'll the Company for applied by the ICC in determining the extent to whiu a their take or-pay costs.1he Company settled its take or-generating station under construction prior tojanuary l, pay obligations in 1991; however, the Company will 1986 was "used and useful." likely incur some additional take or pay costs. These issues have been raived in the appeals of the Appellate amounts are not expected to be significant. Based on an Court's February 8,1991 and June 14, 1991 decisions ICC order, future take ;r pay costs will continue to be which may be affected by one or more aspects of the billed to the Company's customers. For a detailed Illinois Supreme Court's CE decision. lhese issues in-discussion of natural gas take-or pay matters see " Note clude the Appellate Court's ' used and useful" determi-3 - Commitments and Contingencies" of the " Notes to nation and the Company's ability to reuwer deferred Financial Statements." Clinton post construction costs. The ICC, in its 1992 rate order, stated that Clinton is 100% "used and useful" and

Afega-NOPR On July 1,1991 FERC issued a notice of as such, the entire trasonable cost of Clinton can be proposed rulemaking (NOPR) commonly referred to as included in rate base. The ICC order did not include in Mega NOPR. The principal subject of Mega NOPR is to rate base $102 million of deferred equity return. The provide comparable service between traditionally order refers to the December 1991 lilinois Supreme interstate pipeline companies and other service Court decision in the CE proceeding that trviews, among providers. This is a continuation of FERC's efforts to other things, proper regulatory treatment of CE's prmide competition in the natural gas indu*try. To deferred post construction costs As a result, the ICC has accomplish the goals of this NOPR, pipelines would be recommended that the proper regulatory treatment for required to "unbundle" services that they provide today all Clinton post construction cost deferrals be addressed so that purchasers of natural gas can select senices as in a rehearing proceeding. Management is unable to needed. It is not possible to predict the ultimate predict the ultimate outcome of these proceedings at outcome of this NOPR, but it would increase the this time.

complexity of providing firm gas service to the Company's cusmmers. o 1987 Umfortn fuel Adjustment Clause Reconciliation On Feb-ruary 5,1992, the ICC issued an order in the Company's Dividends annual Uniform Fuel Adjustment Clause reconciliation proceeding initiated by the ICC in a docket pertaining to The lloard of Directors voted at its October and the twelve months ended December 31,1987. Such December 1991 meetings to declare quarterly common proceedings are required by law to be conducted stock dividends of 20 cents per share which is equivalent annualy by the ICC to reconcile revermes collected by to an annualized rate of 80 cents. Payments et the utilitics from their customers through operation of the dividends were made on November 1,1991 and Uniform Fuel Adjustment Clause portion of the utility's February 1,1992. The October dividend was the first rate structure with actual costs of fuel prudently common stock dividend paid by the Company since May purchased. 1989. The Company intends to continue to rebuild the The February 1992 order states that carrying costs in the common equity component of its capital structure by amount of $29,3 million incurred by the Company's retaining some portion ofits current earnings. nuclear fuct afliliate, Illinois Power Fuel Company, As a result of the February 1992 ICC rate order between August 1985 and April 1987 and added to the incorporating Clinton into rates the Company's earnings Ilhnod Power Company 23

will be favorably impacted, howcwr, future carnings may conditions these rating 2 are unlikely to impair. the - be impacted-cither paithcly or negathrly-by any Company's ability to obtain additional-permanent Illinois Supreme Cmrt decision rqtarding the Com. financing at a reasonable cost. Ilowever, these ratings panys 1989 and 1910 rate orders and the reheating and could n!Iect the Company's ability and/or cost to obtain probable appeal of the 1992 rate order, additional permanent financing during adverse market - periods 'the Company has adequate short and interme. Capital Resourus and Requirements diate-term bank borrowing capacity. The Company's future financial integrity depends on the ultimate outcome of the petitions that seek resiew by the Securitics and Exchange Commission (SEC) regulations Illinois supreme Court of the February 1991 and June define " liquidity" as "the ability of an enterprise to 1991 Appellate Court decisions relating to the March-generate adequate amounts of cash to meet the 1989 and June 1990 rate orders, respectively, and the enterprise's need for cash" 'ihe Company needs cash for outcome of the rehearing proceeding and any appeals operating expenses, the payment of interest and from the February 1992 r.de order, as discussed disidrnds, retirement of debt and certain preferred previously. stocks and for its construction program. To meet these in December 1991, the Company's lloard of Directors needs, the Company has used internally generated funds authorized a program to retire and/or refinance up to and external financings such as the sale of common and $400 million of high-cost debt before December 31, preferred stock, debt instruments, and installment loans. 1993. These repurchases can be made through open 'Ihe timing and amount of external financings depend market purchases, privately negotiated transactions or primarily ulxm economic and financial market condi-redemptions, among other things. In December 1989, tions, the Company's cash needs and capitalization ratio the Company filed a $300 million shelf registration of objectives. To a significant degree, the availability and debt securities with the SEC for the purpose _of. cost of external financing depends uptm the financial refinancing high cost and maturing debt. At December health of the company sceling those lunds. 31, 1991, the_ Company had issued $100 million of Short. term debt is used to meet temporary cash needs medium. term notes covered by this registration and used for operations or to meet capital requirements until the the proceeds to refund a portion of its bank debt and timing is considered appropriate to issue longer. term higher cost debt. During 1991, the Company retired $84 securities. million of high cost pollution control bonds and issued - Cash liow from operations during the current year $84 million of lower cost pollution control bonds. 'the prmided sutlicient working capital to meet ongoing Company also retired the entire issue of the 10.5% fht operating and construction requirements, to allow for mortgage bonds duc 2004. Further, the. Company the resumption of a common stock dividend and to purchased $5.8 million ofits H.94% preferred stock and senice existing preferred suwk dividends and debt redeemed the entire issue of its _11,75% mandatorily requirements. Additionally, the Company expects that redeemable preferred stock duricg 1991. For the years current rates (after tbc 1992 rate order) will enable it to 1991,- 1990 and 1989 the Company's reduction in debt meet future operating requirements and continue to and preferred stock outstanding, including normal senice its existing debt, preferred stock and common maturities and elective redemptions, was as follows stock dividend 3 and sinking fund requirements. The Company's debt securities were upgraded by F Standard & Poor's and Fitch after the receipt of he 1992 t gggg ,,3, _ fg pf rate order. In addition, Duff & Phelps and Moody's upgraded the Company's debt _ securitic during' the g, gg 3 g RevoMng loan agreements 58 77 second quarter of 1991. The current ratings of the Preferred stock 26 Company's securities by three principal securities rating Tutsi $ u9 s -124-s tos s... agencies are as folknvs: Duff a standard - In addition,- in February 1992 the Company redeemed Pljelpt htomi/s & l'wr's $10 million of mandatority redeemable 8.52% serial first mortgage lionds--..._ BBB Baa2 _BBB+ preferred stock. Preferred stock.a -._.. BB+ baa3 BBB. - At December 31,1991, based up(m the mort restrictive Commercial paper....._ N/R' P2 A.2 carnings test contained in the Company's Mortgage and '""*d Deed of Trust, the Company could issue approximately 5509 million of additional first mortgage bon <ls for other These ratings he an indicator of the Company's financial than refunding purposes The amount of available integrity and may affect the wtllingness of investo.s to unsecured borrowing capacity totaled $179 million at imrst in the Companys securities. Under current market December 31,1991. At December 31,1991, the unused 24 -I!!mois Poner Company 1 1

1 l l l portion of the Company's total bank lines of credit was units at llaldwin Power Station to enable the Company to i121 million continue to burn Illinois coal at those units, (ii) provides in October 1990, the Itoard of Directors authorized for a $35 million grant from the state for the construction amendments to the Company's two inantive Savings of scrubbers,(iii) establishes a procedure for regulatory l Plans (the " Plans") to provide for the implementation of review of the estimated cost of the scrubbers at the l employee stock ownership plan arrangements Under outset of construction and (iv) requires the il C to allow this arrangement, the Company, pursuant to authoriza-construction work in progress for the scrubbers in tion granted by the ICC in January 1991, loaned $35 electric rates if requested by the Company. million to the Trustee of the Plans, who used the loan The Company's current estimates for total capital proceeds to purchase approximately two million shares expenditures, including those for the installation of of the Company's common stock on the open market, erubbers on the two llaldwir units, which are necessary the Company finanetst the loan with funds borrowed to achieve the emission reductions set forth in the acid under its bank credit agreements. rain section of the Clean Air Act, would be between 3250 Construction expenditures for the years 1989 through million and $350 million through the year 1995.1he 1991 were apr oximately 5369 million, including estimated expenditures shown above exclude Soyland's approxitmtely 59 million of AIUDC. participation but include the $35 million state grant. The Company estinutes that $1.773 billion will be Soyland shares in the capacity of the Company's fossil-required for construction and capital requirements fueled generating plants through a Power Coordination during the 199bl996 period as folkms Agreement and will share in the total capital expendi-tures. Soyland has the option of providing funding during fu % construction or paying " owning" costs af ter the facilities i>crsoa are in service.1he estimated expenditures shown above pimums of +uarsj 1992 1991 1996 include costs for switching from high-sulfur to low sulfur construction rey irements coat or fuel blending and the installation oflow-nitrogen-ucctric gruerating facibiico.. .s 72 s 246 oxide burners at some generating units and continuous e.lecent generating facihtes-clean air comphance.. 38 310 cmission monitoring systems on most of the Company's Ucctric transmission and distnbution generating units. Additional capital expenditures are facihtics_ 58 271 anticipated prior to the irar 2(K)0 to comply with the second phase of the Clean Air Act. The installation of two f 1 I scrubbers at Italdwin will result in additional annual Total constructiori icquittmentu 272 1,147 Nud ar fuct 14 125 other operating and maintenance expenses of approxi-Detx retirement i4 413 mately $20 million beginning in 1995. Preferred stoa retirement to 88 The estimates noted above will be periodically updated LtaL 310 8 im as regulations are finalized, estimates are refined and contracts are awarded. At this time it is not possible to predict how much of these costs, if any, may not be The above estimates include potential costs which may recovered from ratepayers. In addition, the Company is be required to comply with the Clean Air Act as currently uncertain of the number of emission allow-discussed below in " Environmental Matters." The ances that it expects to receive from the Emironmental Comptny expects to meet its construction and capital Protection Agency under the provisions of the Clean Air requirements through internal cash get.cration. Act. The amounts shown in the table above for debt retirements do not include all sinking fund require-ments. 'lhe Company has generally met these require-e Gas Maufscruting Sitrs The Company, through its ments by pledging property additions For additional predecessor companies, is identifia on a State of Illinois information see " Note 8 - Debt Retirement Prosisions" list as a responsible party for potential emitonmental and " Note 9 - Mandatority Redeemable Preferred imp irment at 25 former manufactured gas plant sites. Stock" of the " Notes to Financial Statements" he Company is imrstigating each site to determine: the See " Note 3 - Commitments and Contingencies" of the type and amount of wastes; whether the wastes " Notes to I:inancial Statements" for information related constitute environmental risks; and whether the to coal, gas purchase and nuclear fuel commitments. Company has any responsibility for remedial action. Because of the unknown and unique characteri* tics of each site (such as amount and type of wastes present, Environmental Matters physica! characteristics of the site and the environmental risk), the impacts on remediation cost of evobing e Cle.in Air Act The Illinois state legislature passed a billin technok>gies and uncertain regulatory requirements, the July 1991 which breame law in August 1991 that (i) Company is not able to ottermine its ultimate liability for marwtates installation of scrubbers at two of the three the investigation and remediation of the 25 sites. The Illmois hmer Company 25 l

3 Company, howe vr, has estimated that the liability la at a 3rars 1986 through 1988. As of December 31,1991 no minimum $26 milliott 1herefore, in acwrdance with substantial adjustments have been proposed. The major generally accepted accounting principles, the Company issues being addressed relate to Clinton. At this time, recorded a liability of $26 million as of December 31, management is unable to determine the ultimate 1991.1hc Company is unable to determine at this time outcome of this audit; however, management does not i how much of these costs, if any, will le eligible for expect the results will have a material adverse effect on d recovery from insurance carriers. the Compan>'s financial position or results of operations. The Company aho recorded as of December 31,1991 a The Unancial Accounting Standards lloard (FASil) issued regulatory asset in the amount of $26 mih,on, reflecting Statement of Financial Accounting Standards No.109, management's expeaation that it will be allowed to " Accounting for income Taxes" (FAS 109) in February recover such costs from its customers in future 1992. This standard adopts a " liability method" of tax regulatory per:cedings. The Company has not yet alk) cation relating to transactions that affect book and specifically requested rate recovery of these costs; tax income in different reporting periods. The Company however, the Company is a participant in a generic must adopt this standard in January 1993. Although hearing being conducted by the ICC on this subject. This adopting this standard may result in a significant increase 4 generic proceeding was initiated to consider whether in assets and liabilities, the Company does not expect it 4 lilinois utilities should be allowed to recover from their to have a material etTect on earnings. customers the costs related to the remediation and in December 1990, FASil issued Statement of Financial restoration of the sites and what recovery mechanism Accounting Standards No.106 (FAS 106), " Employers' should he used if the ICC determines that the costs are Accounting for Postretirement Ilenefits Other Than recoverable. In January 1992, the llearing Examiner Pensions," which requires the recognition of postretire-assigned to the case issued a proposed order. Among ment benefits, including health and welfare benefhs, on other things, the llearing Examiner cited the ICC's an accrual basis.1he Company provides health care and conclusions for two other Illinois utilities that these life insurance benefits to certain retired empk>yees who costs are current and legitimate business expenses attain specified ages and years of service, in 1991 and which should be recovered from the companies' prior years, the cost of such benefits was recognized as customers. Further, the proposed order allows for the claims were paid.1hc Company adopted FAS 106 as of deferral of these costs. January 1, Ip92 and its estimate of 1992 net periodic Based upon the expected regulatory treatment for these postretirement benefit cost for its i. rent and retired costs, as referred to above, management does not expect employees is 8II million comraa to 84 million that is that the settlement of these obligations will have a currently recognized under " pay as you go" accounting. ma*erial auverse effect on the Comixtny's financial This amount includes amortization over twenty years of - condition or results of operations. the previously unrecognized accumulated postretire-ment obligation, which was $66 million as ofJanuary 1, 1992. Adoption of FAS 106 will not have a material Tax and Accounting Mattets adverse effect on earnings because the February 1992 ICC rate order allowed the Company to recover these Many aspects of the Tax Reform Act of 1986 ( Act) have costs through its electric rates, affected the Company during the pet;od 1989 through 1991.1hese include the corporate income tax rate reductions, repeal of the investment tax credit, a new depreciation system for tax purposes, ami a corporate alternath'c minimum tax. The Alternative Minimum Tax (AMT) provisions of the Act resulted in an AMT net operating loss carryhack in 1989, and the Company recchrd refunds of approximately $23 million in 1990 for a portion of the.AMT previously paid in 1987 and 1988. The Company was also subject to the AMT provisions of the Internal Revenue Code for 1990 and 1991. As a res at, the 1990 and 1991 federal income tax liabilities were approximately $16 million _ and $28 million greater than they would have been under prior law. In accordance with Internal Revenue' Code requirements, depreciation related deferred tax balances will continue to tx: normalized at the weighted average tax rates at which they were provided. The Internal Revenue Service is currently auditing the 28 Rhnois Power Company

Resjnmsibility _jbr lNF0RMATl0N The financial statements and all information in this auditors who conduct financial, procedural and special annual report are the responsibility of management.1he audits. To assure their independence, both Price financial statements have been prepared in conformity Waterhouse and the internal auditors have direct access with generally accepted accounting principles applied to the Audit Committee of the ikiard of Directors, on a consistent basis. 'the financial statements include The Audit Committee is composed of not less than three amounts that are hard on management's best estimates members of the lloard of Directors who are not active or and judgments. Management also prepared the other retired employees of the Company. The Audit Commit-information in the annual report and is responsible for its tee meets with Price Waterhouse and the internal accuracy and consistency with the financial statements. auditors and makes recommendations to the lloard of in the opinion of management. the financial statements Directors concerning the appointment of the independ-fairly reflect the Company's financial position, results of ent accountants and services to be petformed. Addition-operations and cash flows ally, the Audit Committee meets with Price Waterhouse The Company belines that it maintains accounting and to discuss the results of their annual audit, the Com-internal accounting control sprems that provide rea-pany's internal accounting controls and financial sonable assurance that assets are safeguarded against loss reporting matters. The Audit Committee meets with the from unauthorized use or disposition and that the finan-internal auditors to roiew the proposed audit plan and cial records are reliable for preparing financial state-assess the internal audit work performed, including tests ments. of internal accounting controls. The financial statements have been audacd by the Com-pany's independent accountants, Price Waterhouse, in accordance with generally accepted auditing standards. W W. Such standards include the evaluation of internal accounting controls to establish a basis for developing larry D. llaab larry F. Altenbaumer the scope of the examination of the financial statements. Chairman, President Vice President, Chief Financial in addition to the use of independent amountants, the and Chef dc tive Officer and Controller Company maintains a professiona! staff of internal 09:cr Refx>rf of INDEPENDENT ACCOUNTANTS Price llitterhotwe To the Board of Directors of Illinois Power Company estimates made by management, and evaluating the overall financial statement presentation. We believe that a our opinion, the financial statements of Illinois Power our audits provide a reasonable basis for the opinion Company appearing on pages 28 through # of this expressed above. report present fairly, in all material respects, the financial As described more fully in Note 2, there are significant position of Illinois Power Company at December 31, uncertainties with respect to various matters related to 1991 and 1990, and the results of its operations and its the Clinton Power Station including the determination of cash flows for each of the three years in the period ended the extent, method, and timing of recovery of its related December 31, 1991 in conformity with generally costs, and obtaining rates which provide adequate cash accepted accounting principles. These financial state-tiows to allow the Company to maintain financial ments are the responsibility of the Company's manage-integrity. Management is unable to determine the ment; our responsibility is to express an opinion on these ultimate autcome of these uncertainties. Accordingly, no financial statements based on our audits. We conducted provision for any liability or additional loss that may our audits of these statements in accordance with result upon resolution of these matters has been made in generally accepted auditing standards which require that the accompanying financial statements. we plan and perform the audit to obtain reasonable assurance about whether the financial statements are ) ) free of material misstatement. An audit includes " C-examining, on a test basis, nidence supporting the Price Waterhouse amounts and disclosures in the financial statements, St. louis, Missouri assessing the accounting principles used and significant February 12,1992 Ilknan Power Company 21

Statelnents of INCOME (rivstusruts of nkallart v.rsegettw shar eso,ussents) lbr the l'atrs Erutatihrernh<r 31, 1991 1990 1989 o Operating Ravenues* Electric.. $ 1,101,223 $ 1,084,620 987,985 Electric interchange. 85,517 73,790 81,148 Gas - 288,165 311,070 324,645 Total... 1,474,905 1,469,480 1,393,778 e Operating Expenses and Taxes l'uel for electric plants. 266,597 259,346. 252,712 Power purchased.. 24,751 51,79 0 47,872 Gas purchased for resale,. 167,829 182,070 203,197 Other operating expenses._ 253,35* 244,875 233,784 Maintenance. 87,235 120,699 88,988-Depreciation.. 176,7"'5-172,827 176,383 3,824-6,379-Amortization of abandoned plant (4,254) Amortization of excess unprotected deferred taxes.. (5,618) - (5,582 ) . 123,856 General taxes.- 125,659-126,789 Deferred Clinton costs...... 1L181 14,619 (20,584) Income taxes..- 75,348 43,731 39,400 Total.. 1,I83,114 1,214,992 1,147,733 Operating income 291,791; 254,488 246,045 e Oihar income and Deductions Allowance for equity ftmds used during construction. - 1,488 . (160,377) (451,244) 1,663 1,689 Disallowed Clinton plant costs Income tax effects of disallowed costs 24,759 105,482 Miscellaneous-net... (4,479) 323 14,752 Total - (2,991) (133,632) -(329,321) Income (lofo) before interest charges ~ 288,800 120,856 (83,276) e laterest Charges Interest on long term debt-176,179 191,559 216,029 Other Interest charges-- 4,754 9,274 4,566 Allowance for borrowed furnis-Construction-- (1,377) (1,493) _ (1,503) Deferred Clinton financing costs (13,936) Total 179,556 199,340 205,156 Net income (loss) 109,244 (78,484) (288,432) Preferred diddend requirements-30,866. 36.839 37,365 Net income (k>ss) applicable to conunon stock - ~$ -78,378 8- (l15,323) 5 (325,797) Weighted average number of common shares outstanding .75,612,759 ' 75,052,141 - during the period. 75,643,937 1.04 5 (l.53) 8' - (4.34) Earnings (loss) per common share-Ca3h diddends declared per common share .40 ' '.66.

Incitutes artenue.relatal tsues sukicci to custorner bstlings in each of theystrs 1991,1990 anti 1989 in the arnount of161,268AXX),.

159,62HJK)0 avut 159.33]JXXk respectitvly. See notes tofinancialstaternents uNcb are an integralJxtrt of these staternents. 2e lilinnb Power Company

/heltence SilEETS (lhuunub of & uns) f)ccevnha J /, f991 19W A%I '1 % o Otthty Plat, at ongmal cost o I.lectric (int ludes construction work in progrew of SM8.221 and $70.886, respectively)... $ 5,390.0M & 5.2H5,79H Gas (includes construaion w ork in progrew M 813,799 and $6,?80. regoctively). %03r; 478.625 79 GO/ 5,76iM N 1 A8d93 1.533,2H5 Irw Accumulated deprnciation. 7208;96 7 1,231,138 Nuticar fuel in pmtew.. Sh09 Nuticar fucl under capital icasc.. 162.2'O 175 l88 t i, P l.'21"6 4 ffl.9 R o investments and Other Ar. set.;.............- MR1 25~150 a Curteat Assets ~ ~ ~ ~7,923 4, lFf o Nuclear Derommissioning Trust fund.. Cash and cash equivalentt. I1,001 19,V'. Accounts ret civable (less allow ance for doubtful accounts of $6,500 ) Serdce. %,322 101,95H Other.. 2*,9 % H I3,709 Accrued unhilled resenue.. K',233 103,879 Notes receivabic... 2.300 11,978 Materials and wpphes, at average cost I owil fucL. 33,731 25,492 Gas in underground storage.. l}',451 16,122 Operaung materialt. M,6%8 76.887 Iwpakt and refundable income taxes... I H,H +b 18,712 Prepayments and other........ 10.943 10,552 390gii3 398,8 % o Deferred Charges Deferred Chnton custo. 389,267 400,449 85 48,065 Dcferred purt hawd gas ants... 65,319 47,357 l'namortired dcht expenw.. Oiher... _,_ 3x 897 9gt 59 4n%%9 505 330 2It.802 8 5.345,.403 C.APIT AI AND 1l AhllIlll A e Capitahzation Common stock-No par value, IOOM00,txx) shares authorized. 75,M3.937 shares outstanding, stated at... $ 1,-a24.bO7 8 1,424 A07 Less-Deferred compenstion-DOP... 32.654 Other paid in capital... 106 1,254 Rcta ned carningt.. 75,80 t 1,179 frw-Capital stock expeme... I1, 09 12,146 Total common stock equity.. .,4 %,61 1,414,8VI Preferred and preference stock.. 303,087 308.H90 Mandatorily redermable preferred stock.. I10,000 140,000 Iong tcrm debt.. 2,15L091 2,198.880 Total capit,tlization... jm22y9 WKT2I66i o Accumulated Provision for Nuclear Decommissionmg Ttust Fund.. ~~ ~,923 4.161 7 o Current liabilities ~~ Accounts payabic.. 108,318 120,863 1,000 3,000 Notes paphic... 58,629 81.598 long-term debt and lease obligations nuturing wWtin one p ar... Dividends declared... 22,696 35,I37 Taxes accrued.... 48,149 41,107 Interest accrued.. 63,340 66M 2 Accrued purchased gas cmts.. '3.507 49,543 52,720 Other... 35i',6 5 424,574 o Deterred Credits Accumulated deferred ino>me taxes......-... 612,250 567,009 Accumulated deferred inwstment tax credits 242,4*'7 242,551 Accrued purchased gas cmts... 26,270 Other........ 39,148 18.2M _ _h8.W3 nim Commitments and Contingencies (Notes 2 and 3) i 8 5,345,493 U.._2]pfg See notes tofinandalstaternents uhich art an integralfxtri of!bese statnnents. Illinois Power Company 29

i i. a. 1 Statenients of CASIl Fl.OWS (linessemis of sh An) Ibr the ) hrs 1 ruhylthwanberJ1, 199I I990 19S9 e Cash Flows from Operating Activities Net income (loss)m 4 Items not requiring (pnr.iding ) cash-. _. - $ 109,244 $ (78,4R4 ) $(288,432) ' } Disallowrd Clinton plant costs, net of income taxes.... ~.....- 135.618 345,762 i-Depreciation and amortization.._.... _.. .174,922 178.M 6--. 182,31I 1 Alkmance for funds usn! during construction...... - j Deferred taxes on income, net.... (2,865) (3,156) (3,192) 45,288 30,786 75,959 Deferred imrstment tax credit...... _ - l Deferred Clinton costo e ..,,e (73) (14,121) (8,787) I1,181. 14,619 (20,584)' 4 Dcferred Clinton financing costs.. { Amortization of deferred gas costs-take-or pay 8,281 26.867 - .(13,936) 29,562 i - Changes in assets and liabilities-Acmunts recchuble (H,613) (2,827) '6,595. Accrued unbilled restnue 16,M6 (l3,564)- 4 Note $ recchable-- 9,678 (11,978) ' (16,585) i Materiah and supplies .(21.130) (12,944) 4,416-Accounts payable j interest accrued., (36,052) 4,920-33,582 (3,302) (1,055) (9,164) Taxes accrued and other, net - 9J62 -(777) (45,404)' s 1 j Net cash prmided by operating activities.. 313.067-252,610 272.103 { e Cash Flaws fin inesting Activities Construction expenduures. (141,212)- (130,647) (96,781) j-Allowance for funds uwd during construction. 2,865 . 3,156 3,192 Other imrsting acthities 14.397 (13,843) 92I l' Net cash med in imesting acthities. e Cash Flows from Finncing Activities .(123,950) -(141.334) - (92,668) ] Dividends on preferred and common stock. .(46,874) (37,253) l Redemptions - ~ (135,021)- Short. term debt,.. (120,672) (37,600) (16,765) long. term debt. Preferred stock (MH,205) - (213,650). _(228,350)- (35,792) -(26,278) Issuances - Short term debt 118,672 38.000 t long-term debt - 291,530 .-116,200 -223,500 1 Common stock-1,377 - 33,448 l loan to trustee-ESOP. (35,000) Premium paid on redemption of long-term debt (19,124) - ( l.500) Other financing actMtics - (2,220) I,244 - ( l,349) i j. Net cash used in financing actMties._ (197,6H5) -(157,960); (126,037) = Net Change in Cash and Cash Equhulents... (8,568) (46/>84 ) -

53,398 j

Cash and Cash Equhulents at Beginning of Year 19,569 66.253-12,855 i. Cash and Cash Equivalents at End of Year......... $ 11,00L 8' 19,569 $ - 66,253 4 J l Staternents of RETAINED EARNINGS 4 ' ( T1wasamds of thun) _;( Ibr the Years frukst DewmherJ1, -1991 1990- -1989 i ). Italance at Beginning ofYear 1,179 5 143,046. $ 517,910 Net income ( kus)-- '109,244 (78.484) (288,432)- g,ess _ 110,423 64,562 229,478 i Dhidends-Preferred stock.-, -- 4,513 63,383 37,340 Common stock 30,109-j 49.092-J,622 63,383 86.432 Italance at l'nd of Year... $' 75.M01 - 1,179 - 5 143,046 5

~xu==

j See notes tofinancial staternents ithich are an integralpart of these staternentsl 4 4 l 30 linnois l'oser Compesy 4 i 1 r .., - - - ~...,..,..., ,,.c

Statenwnts of PRl!HIRRl!D AND PRl!FliRI!NCI! STOCK IWusanas of adt,ws} Deurnber31, 1991 IWO e Serial Pteletted Stock, cumulative,850 par vahr (l#2)- Authorized 5.000,000 shares; 4,12H.320 and 4,244,150 shares outstanding. respectively Series Sharts Redemption prices 1 OH% 300,000 851.50.._ 15,000 15.000 4 26% 150m) 51 50.;. 7,500 7,500 4.70% 200h00 51.50 _ 10,000 10,000 442% I50.000 51 50., m. 7,500 7,500 4 20% 180.000 52 00.. .. ~. -. _ 9,000 9,000 824% 600.000 $ 1 M10.. 30,000 30.000 7.56% 700,000 $ l.685m. 35.000 35,000 - H 94%(3) 848.320 51 60 ... ~. 42,416 48.208 800% 1,000,000 l 53 29 prior to August 1,1992 ].. 50,000 50 000 t 52,29 thereafter ) Premium on preferred stock..... 1,156 1,167 Total Preferred Nock,850 par ulue.. 207,572 213,375 e Serial Pteferred Stock, cumulauve, witimut par value-Authorieed 5,000,000 shartw J,510,300 and 4,110.300 shares outstandmg. respectively (including 1,600,000 and 2.200fMX) shares, respectively of micemable preferred stock)(2) Series Shares Redemption prices A(4) 1.000fx)0 851.50 prior to l'chruary 1,1993 50,000 50,000 50 00 thereafter B(5) 910,300 { 51.50 prior to May l,1995 } a g,g g 5 45,5 g 5. t 50 00 thereafter I Total Preferred Mock, without par value. 95,515 95,515 ~1 e Preference Stock, cumulathr, mthout par mhr- ) Authorized 5.000,000 shares, none outstanding. Total Preferred and Preference Stock 03,(m 8 308B90 e Mandatotify fledeemable Setial Prefetted Stock, cumulative (2) - Series Shares Par Value - 11.75%(6)

name, 8

30,tMX) 8.52%(7) 1,000,000 none-_ 50,000 50AX) 8 00%(s) 6003XM) mme 60,000 60,000 $ 110,000 8 140.000 Total Mandatorily Redermable Preferred Stock (I) Rakvnutble at the opnm of the Comfuny in ubole or in jurt at any time upm not less than thirty days amt not more them sixty skeys notice bypuhlwattem. (2) In ikwnher 1991, the Boani ofiknstors skshuvd thefirst quarter 1992fntfsmd stock dawkwuls. Ibe miesfte the Adjustable Rate 5svies A and B um dwlamt at K175 arul 10.873, regurthtly. In Iksembsv 1990, the Board ofIkrtrtcws dakawlfour quarterly prefermi stock disklemts Ibe rulesfor the AdjustaNe Rate Series A toul B um skvlamiat the nuLvimum rate of $1.50 and $1.8l25 pv shne, ngntisslyfor mcb of the hut three quartern Actualamounts fuhl um louvr, basalon market interest rates on the nornutidwksmthm dates (3) In Aprilamtblay 1991, II5,830 shows uminuvhuaiat a price of $1H%per sharv on the cgwn rruntet. (4) Adjustable Rate Series A issualon Atevb 3, IWl3. Quartswiy cuthierulrutes are detenninedbasalon nuarketinterest rates ofcertain US Trmsury secunten Ratesfor dukkwuls thshawlin 1991 amt 1990 stvry 30.75, 40.73, 30.75 and $0.7$ in thefirst, second thurd arulfumrth quarters, reg - tavly. Ibe ekskler,d ratefor any diskiendjnst<ul uill rmt be less thsn 6'C fwr annum norgmater than 12% fnv annurn q(Ydini to the ikpaaatitm prvference tehte of 550pnv shn. ( 5) Adjustable Rate Series Bissuedon Sfay 15,1985 Qtuntsily thstidendrates env detersninalbasaion market intervst rates ofcertain U.S 1husury sentrities. Rates for ditik nds declarut in I99I uerv StkWalR. 10.9121 Stk90tM) aml $0,9313 in thefirst, secomt, therd amtfourth <purters, respwtitely Rates for distdemte declamiin 1990 um StJH75,10.9373. $U9313 and Stk9688 in thefirst, secomt tbtrd andfourth quarters, respwtitely. Ibe duidend rutefor any ditsderuf fsviod uilt not be itss than 7% lns annum ruwgreatsv Iban i4WE per annum affdialIn the liqukkstitm prvference mkae of 3$Ufer shors. (6) Subject to mamkators miempthm in an amemnt suffisient to retire on mcb Notvrnber 1,200AXx)shuvs at 350pershnvf>lus accrued 4tn'1eruls. - On 1%ruary 15,1991,600,fxx) shows um mkvmalfor $5L96pv shn. (7) Subject to mamlatory miemptkm in an amount suffident to retire on mcb February 1, beginning in 1992, 200JXX1 shares at 150per shareplus accrued <bsudemis. Alur bnyinning Febnuny I I992, the Company may mieem up to 2tx)Jxx) cuktitional shavs eachyear at 150per shstr. On. fshnuary 18,1992,200JXxt sharts um mkvmal}w $50per shuv. ? (8) Subject to nuuukstory miemption in an amount sufficient to retire on nach 1%rruny 1, beginning in 1993,120JMx) shurs at $100 fnr share - plus accmalduklends. ALn beginning hbruary 1, !993. the Onnpany rnay redeem up to 12OJXM) ad&tiomn shares each yvar at $100 pr shar. i See twies tofirumcialstatements tebuch are un integrutpart of these statements. Illinois Power Company 31 I -l

Xtaterilents of 1.ONG Tl!!tM Dl!!!T t nvuwa,.nu,> ikandnr 31, I991 ITX) l'irst mottgage bonds-44% wries due 1993.. 35,000 5 35.O(K) 5 H5% series due 1996._....... 40,000 40JKK) 6h wnet due 1998.....~.. 2%,000 25XMX) 10% series duc 199M.. 75.000 75,000 ... ~.... 6h series due 199H... 45,000 45,000 H 35% serin duc 1999... 35,000 35,000 ~ _m.__... 91 series duc 2000-.._... 35,000 35JXX) l 7.60Vwries duc 2001.... 7%% wrics duc 2003._ .. -.. ~ 35,000 35JXXI ... _... ~ 60,000 60,000 ~.- 6 60 t serien duc 2(K4 (Pollution Gmtrol Series A)..~... 7,575 7,750 9% serin due 2004.~...._... 65)100 70.000 10% wtics due 2001 (i J. ... -...... _. ~.. 50,000 HW wries duc 2006._. 100,000 100,0(M) ~ . - ~. ~. - - 6% series duc 2007 (Pollution Conttul Series ll)_..- ..m x m...... IH,700 1H,700 HW wrics duc 2007--- m._._...__ 100,000 lOOJKX) HVL series duc 2(MR-100,000 LOO,0(K)- 10% series due 2013 (Pollution Control Series C ). 11 n770 125fMK) 1 IW wrics due 2014 (l%>llutloa Control Series D)_.. 35,615 754KK) 10W serin duc 2015 (Pollution Control Serin E)_... 84,150 l 16.2 45 ~ l0W wrses duc 2016i 11H,000 11HJKX) ...._...__.._...-.m...~....._........_ 9h M1 0 due 2016..... _.., 66,500 66,500 1 9% y Les due 2016_ __. _......-......_ _ I25,000 125JX)0 7h xties duc 2016 (Pollution Omtml Series F, O and 11). 150,000 150JXX) H.30% series duc 2017 (Pollution Control Series I)......... _- 33,755 33,755 7W series duc 2021 (Ikillution Control Series A) ui H4 710 t Total first mot 1 gage bondo..-._. 1,5H5,775 - 1,640,950-Ruohing loan agreements (.1)...._..._ ..m.... -182,000 240JKX) 10.75% hun agreemmt due 1992-- 8,930 H 930 MW debt securities duc 1994....~... 100,000 100AXX) m Medium-term notes, serin A (4).. 100j)De 43,500 Variable rate long term debt due 2017 (5). _ 7h000 75jXK) 2,051,705 2,108,380 Unamortlied premium and discount on debt..... I- _ _,3f)46) (H,543) 2,042.659 2,099.837 Obligation under capital ican.- _169f*61, 180,641 2,211,720 2,280,478 f ong. term debt and lease obligations maturing within one year J 5Hf629) (H 1,598) Totallong-term debt... Q1_5109i. $_2,198.880 _. -..... ~... (1) limg.terrn de'-: ' n trtirnt on May 30.1991. (2) Onpay 10,19%, dw Q>nguny rett *utnmiafortion of thew soin of high<ostfwdlution mntml datit.1145 rrfimnuing totaint. S8t 7 rniuion arut newjndlution mntnd Exaruh dur 2021 in the same arnount utst issualat an anntud rute of M (3) 11w Osm/unny carutiksia $)75 rutillon nswdring loan sugrwment on Stfsterninr 1,1991. Ilds agrrarwnt uvu nfJacalby a new _ 3)00 mduon renddng inan agmnwn! on Septendnr $, 1991.11e new agewrnent unsfonnat e'n tuufuerts.',a $XIO ndulon agnsmmtforfhr)wts and a $14n) miHion tgwmentfor 361 dan. A s ofikundnr)l,1991, tow Q>nywry luul $1N2 rnillion outstanding relatal to tie $200 rniluon tv*vking agrwrm nt.11w i,nerrst ruta at ihretningjl,1991 mngnifnun 3 (Kd % in 6 $00%. (4) in 19H9 artl 1991, the O>rnrusny enterntinto a snies offixal tute anatium term noon. At ihrember 3I,1991, Ilw maturity ' danes on these notes tungnifnnn 19% 599Narut the intarst ruta nmgalfrom 9,00% to 9.3I%. ($) Intmut rain adjratala atly arul mngniftvm ) 65% to 64GLst skurnins jl,1991. Sec notes tafinarwlal statnneras uNcb are an integrulfw1 ofIlvse stahvnks. 11 IHimas 1%wer Company I -_L_-__..

Nofes to I;1NANCIAl. STATliMI'NTS Note 1 Summay of Significant % counting Poin: . ArgulANM Ihe Company is subject to regulallons of the pitywrty over their estimated useful thra by applying Illinois Commerce Commission (ICC) and the l'ederal cornpisite rates on a straight line basis. In 1991,1990 I nergy Regulatory Cornmiulon (ITRC) and acrordirVv, and 1989 pnnislom for depreciation were 2.786% of the prepares its financial statements bawd upon the astrage depreciable cost hir the Clinton Powrr Station concepts of 5tatement ofI'inancial Accounting Standards (Clinton). Prmisions for depreciation for all other Na 71 "Acuiunting for the 111ects of Crrtain T) pes of electric plant urre 3 5% 3A and 3A in 1991,1990 Regulation" (I AS 71 h which requires tlut the effects of and 1989, respecthrly, lleginning in 1992, the comp & 1Se ratemaking procco be reonJed. Such effects alte rate granted in the 1992 rate order for other electric concetn mainly the time at which various items enter plant will be 2.3% Pnnisjons.'or depreciation of gas into the determinatica of net in,ume L. ader to follow utility plant, as a percentage of the average depreciable the nrinciple of nutching costs and rnrnues.1he cost, were equivalent to 40% in 1991,1990 and 1989. Compmys prinepd accounting pollocs are described e Amertintion of Nuclest hel The Company leaws nutfeat fuel from Illinois Power l'uct Company under a capital e hinciples AppA, din consddstien The 11nandal statements lease. Amorttiation of nuclear fuel (including related include the accounts of IPI: (Illinois Ibwer I1 nance) financing costs) in determined on a unit of pnnluction u inpany NN., a wholly owned subsidiary. Mi intercom. basis. A pnwision for spent fuel disp > sal o>sts is charged paay transactions hine been climinated in September to fuel expense basetl on kilowatt hoem generated. 1990, IPI: was diwihrd and the net aucts were tranferred to Illinoh Power Company. . Deferred chnson cast Aco>rding to an Icc order, in April 1987 the Company began deferring ce" rain Clinton o utildr Plant The cost of additium to utility plant and post. construction operating and financing costs until replacements for retired property units h capitallied, rates to reflect such costs were effecthr (April 19H9), Cost includes labor, noterial and an alh> cation of general After issuance of the March 30,19H9 ICC rate order, and administrathe ne,ts plus an allowance for funds used deferral of Clinton Imst<unstruction costs ceased and during comtruction ( AIUDC) as described below. umortization of the prniumly deferred postromtrue. Maintenance and repairs, including replaecment oC tion costs mrr a 37,5 year perkxl commenced.1hc 1992 minor items of propeny, are charged to maintenanct rate older includert in rate base a total of $233 milhon expense as incurred. When units of deprtriable property (net utincome taxes) of these deferred onts. Ahhough are retired, the original co.t and dismantling charges, ,*1% not currently reallied from these deferrals,it is less sahage, are charged to accu e alated depreciation. reanted under the ratemaking process over the service life of Clinton through increased rnrnues resulting from o Allowante for funds Used During Cestration The IIRC a higher rate base and higher emortization expense. Uniform System of Accounts defines AIUDC as the net During the deferral perimi, a deferred financing cost was costs for the perimi of constrt lion of borrowed funds computed on Clinton plant not in rate base and the' used for construction purposes and a reasonable rate on deferred costs. 'the deferred financing emt for ratemak-other funds when so used. AIUDC is capitallied at a rate IDH purposes was capitalized at a rate that is similar to-that is related to the approximate weighted average cost AIUDC. Pursuant to generally accepted accounting of capital. In 1991,1990 and 19H9, the rate used for all principles, for financial statemem purposes during the constration projects was H.25% 10.0% and 10.0% (pre. perhxl January 1,1988 through March 31,1989, the tax), respecthrly. Ahhough cash is not currently reahzed Clinton deferted financing costs were calculated using a from the allowance,it is realized under the ratemaking 2.75% net of income tax rate refluting the debt process over the service hfe of the related property component of the Company % financing costs. through increased tornues resuhing fnxn a higher rate base and higher depreciation expetoes. e Unamortised Defmed Abandoninent cast The ICC order of August 7,1985, authorized the Company to amortlic and o Depterlation For financial statement purposes, the recover through rates $31.9 million of its imrstment in Company depreciates the various classes of depreciable Clinton Unit 2 over the five-year perial which ended in Illirwis Power Comparty 33 i

Augtnt 1990 'the Ownpany was not alhmed a return on uanstruction in capitallied for tax purimws in accor. the tinamortired inetment balance. dance with applicable tax law. Imentment tax credits, which reduce federal inuime e Unmoisind Debt Duran hemme ud fapnu Diwount, taxes, haw twt n deferred and are being anmrtired to premium and expenw awociated with hing term dcbt income ou r the life of the property which gave rise to are amortired art the thrs of the related twucs. Onts the investment tax credits-related to refunded debt are amortired mer the thrs of Federal and state income taxn are allocated between the related new debt twurs or the remaining life of the operating and rmnopcrating income and expenses. 'the old debt luue if no new dcht is (wurd tax eticcts relating to nonoperating arthities are - included in Other income and ikductions-Miweltane-e Reerm ud leerfr Cut The Gimpany rnvrds rnrnue ""'"CL for services pnnided but not )rt billed to more chnely ruatch revenues with expenws. Unbuted rnenues

h'It"'d Ohidtad #rfuh""'ars Preferrn.1 dhidend re, represent the estimated annxmt ettstomers will be billed quirements reflected in the innime statement are for service delivered from the tirne meters were last resd recorded on the accrual basis and rdste to the period for to the end of the armunting period. 'Ihe cost of fuel for which the dhidends are applicable.

the generation of citttridty, put hawd powrr and gas purchased for resale is recovered inun custorners e Statements of Coh //ms Cash and cash equhairnts pursuant to the dectric fuel adjustment and purchawd indude cash on hand and temporary investtuents gas adlustment dauws. Accordingly, alkneable energy purdtawd with an initial maturity of three months or costs that are to be p4wed on to ettstomers in a leu. Capital lease obligations not allecting cash flow subsequent accounting period are deferred. The Increawd by $35,749,0tK),823,942AM41 and $25,H67,0(K) reontry of costs deferred under ther dauws are during 1991,1990 and 1989, respecthrly. Income taxes subject to review and apptwal by the ICC. See "Noic and interest paid are as followw 2 - Clinton Power $tation" for diwuwkwi of the 19H7 (?niform l'uel Adjustment CLmse Reoriciliation $ce ya,n t nanf ths emsw 11, " Note 3 - Comtnitments and Contingendes" for discuwlon of natural gas take or pay diarges ( U"'""*d/ '* A'" ) 8"3 1990 19' income taus ~.- $ 25W 8 2n321' 8 W e locome Tare The Ownpany normallies the inu>me tax l'"C "' $19L2n 82nL126 8229m5 ~~ - cflects of tramactions causing timing differences 'twh.tes wfumh ofjerymn* 4 mom, smn en u 6 of sty p,n between indelon in the financial statements and IW1. IWo nna lwev an tiv amouns o/ st2nnnt sniin.rnut amt taxable income. The Company computes deferred 8A W'*4 men nnn income taxn bawd on the statutory inonne tax rates in eticct during the perimi that the timing differences e Isasacial Statement Reclnssheatin Certain reclassifica-originate. Deferred income taxes are amortired to tions have been made to prior years' financial statements income as the underlylag timing differentrs rnrrse. to conform to the 1991 prnentation, Operating Prindpal sourcn of timing differences ghing riw to tornun and power purchased expenses for the. prior deferred taxn are as follows perknis have been adjusted to show the reclaulfication- ""N# T'"""N """" o be of the most hberalised depreciable thrs and '" E E '"E# methmis allowed by the Internal Rnrnue Code, recorded as a credit to power purchawd. o Disallowed Clinton costs not recognized for tax purpows as a current deduction. o Capitalitation of certain construction overheads, Note 2 dismantling, and other nnts for imok purposes that are Cimten Power Station claimed as current deductions for income tax P" W o Rntnues and energy unts rec wnized in different The Company owm M79% of the = Clinton nuclear ,g gg g, g 39g g perimis for financial statement purpmes than for income tax purposes represents approximately 19% of the Company's o Alternative mimmum tax payable in the current year installed generation capacity.- During 1991, Clinton that can be uwd to offset future tax liabilities. pnnided 27% of the Compmy's total electric generation e townt fuel W per megawadmur genemhn-an o Otillration of net tperating lowes available to reduce current tax liabilities, conped to au m Onupanywned (wer Mation ; ike imrst'nent ir. Clinton and its related deferred costs for income tax retum purposes, net depreciable utillef tepresented approximately 6n of the Company's total plant does not include the AIUDC that is capitalired for awets at December 31,1991, and Clinton rebted costs financial statement purposes. Ilownrr, interest on repree.cnted 37% of the Company's total 1991 other 34 filmolt Pnct Company ~ a

operating, maintenance and depreciation espenws. Matt h 19H9 order, but did not allow the Company to carn Clinton's cyuicalent availability was 76%,47% and 40% a common equity return on the 39.3% of Clinton for the ) cars 1991,1990 and 19H9, resprt thrly, determined to be not *uwd and uwful." Clinton's equivalent amilability was lower in 1990 and On July 16,1990 the Con pany appealed the June 1990 19M9 due, in part, to extended refueling and mainte-rate order to the Illinois Appellate Giurt,lhltd Dhtrict, nance outages in thow yeart Other parties also appealed On June 14,1991, the Ownerwhip of an operating nuclear gerrrating unit Appellate Court, among other things rntrwd and expwes the Company to significant risks including remanded the ICCs "used and uwful" determination on increawd and changing regulatory, safety and emirore the same grounds an it did in its opirdon on the appeal of mental requirements lhe Company espects to be the March 1989 rate order, as descritwo Iwlow, allowed to continue to operate Clinton, hownrr, if any Snrral parties, but not the ICC, have (Hed pet tions for unforeseen or unchpried doeloprnents would prnrnt leave to appeal with the lilinoit supreme Court, the Gimpany from doing 30, the Comtuny could be challenging the Appellate Court's determination of the materially adstrw'y aficcted "used a uwful"(wuc and two relat(d Awuet 1hc Com-pany did not seek Supreme Ontri rniew and is opposing these petition ( Ihe Supreme Giurt has not yet agreed to Rats ud Ryhttitt Madrs hear these petitiont 1991 n,re 0, der On l'ebruary 11,1992, the ICC iwued . Ips, n,,, org,, lhe March 30.1989 rate order from an order in the Osmpany's 1991 electric rate case the ICC granted a one time increase of $603 million, or apprming an increaw in cicetric rates of $100 million or 6.9%, that became effecthe. April 4,1989.1ht; ICC order 9 2% 1he Company had requested an dectric rate included various disallowances of Clinton-related costs, increaw of $1H23 million or 16.7% due to alleged _"unreau nable" expenditures, as well as The order umcluded that Clinton is fully "uwd and the disallowance of the equity return component of useful" in prsnidmg utlhty servi e te, the Company'5 Clinton pnt construction ctat deferrals from January le ratepayers the order alm included in rate haw a total of 1988 through March 31,1989.1his order also found $233 million; net of income tases of dderred Clinton approximately $2 3 billion (72.8%) of the reaumable post construction costs confirming the pnition taken by Clinton costs to be not "used and uwful" and denied a the ICC in the Gimpany's two prior electric rate orderA common equity return thereon. 1he ICC order did not include in rate baw $102 million in l'ebmary 1991, the Appellate Court rnrrwd the of deferred equity return incurred during the perkad pinion of the ICC order which had found 72.8% of January 1988 through March 1989.1his amount had not Clinton not "uwd and uwful," and remanded this portion prniously been included in rate base in acairdance with of the order to the ICC to detertnine whether and/or what a prior ICC order.1hc order referred to a Decernber portion of Clinton is "used and useful" based on 1991 tilinois Suprenx. Court decision in a Comrnon-estabihhed pre.1986 standards the Court also teverwd wealth Edison (CE) proceeding that reviews, among the p>rtion of the order which had denied the Company other things, proper regulatory treatment of Cl?s reemtry of an equity return on deferred Clinton post-deferred post construction unts. As a result, thr iCC has construction onts after January 1,198M (appiuximately recommended that the proper regulatory treatment for $102 million), llowncr, the Court did not serturn the all Clinton pnt construction cost deferrals be addrewed order with ret.pect to the ICCs determination that a in a rehearing proceeding. 'thh rehearing procew should pinion of the cost of Clinton wm " unreasonable cost" and be concluded in appruximatdy si - anhs An adscrse should not be included in rate base, ruling by the ICC in the rehearing proceeding could Following the March 1989 rate order, the Company result in additional write-ofh See dismwlons of 1990 recorded a loss in the first quarter of 1989 of $346 Rate Order and 1989 Rate Order bcksw 1he Company million, net ofincome taxes, or $161 per share, l'urther, expects to request rdiearing and reconsiocration of the as a result of the 1chruary 1991 Appellate Court order Other parties are expected to file applications for decision, the Company recorded an additional loss in the rehearing, requesting among other things, that the ICC fourth quarter of 1990 of $137 million, net of income disallow additional amounts of drferred Clinton post-taxes, or $1.82 per_ share.1he lowes recorded in both construction costt 199d and ' 1989 reflect the disallowance of Clinton "unreaumable costs" from rate base. The Compan), the ICC and certain other parties have e i5s0 Ante 0, der On June 6,1990, the ICC issued an appealed various aspects of the Feb vary 1991 Appellate - order in the Company's 1989 electric rate one apprming Court decision to the Illinois Supreme ' - art. The Com-an annualtied increase in electric rates of approximately pany has appealed the Appellate Court's affirmance of the $75 million, or 7.7% 1he order, as amended on July 13, ICCs " unreasonable cost" disallowance, lhe ICC has 1990, found that Clinton was 60.7% "used and useful" for appealed the Appellate Court's "used and useful" deci, rate making purposes, as aimpared to 27.2% in the ICCs slon but not the determination with respect to the Com-Rhrwh hmer Comparty 36

t pany% rennery of an equity return on delened Clinton The l'chtuary 1992 order states altat carrying costs in the Pnt comtruction costs other parties tuse appealed armumt of $293 million incurred by the Company % both the "uwd and uwful" and the deferred Clinton nuclear fuel a!!iliate, Illinoh Poner l'oel Company, be. pnt+omanntion equity retum twucs, as well as ottwr tween August 19M and April 19H7 and added to the twues previoudy raisst in thtir initial appeals, The balance of nuclear fuel linrntory during the same perimi Illinois Supreme Giurt has not yet agrent to hear these in accordance with a proious ICC order were impru. petitium dent and that the balance of recoverable nuticar fuel On Decemtwr 16, 1991, the Illinoh Mpreme Coun tost should be reduced by that amount, 'ihe Company iwurd its decision rtyarding appeak from a March 1991 believes the concludon in the ICC order lacia legal and order of the ICC in the CF. rate procenimg in that factual fourulation 'the Company intends to request the dechion, the Illinois Supreme Court held, annong other 100 to grant rehearing in this dmket and to substantially things that the Illinois Appellaec Gnutt had erred in modify its oidt r on rehearing in order to eliminate the ruling in the iebruary 1991 dechion on die appeal of the dhallowance if the ICC order is not substantially ICCi March 19H9 rate order for Illinois Power that the tuodified, the Company will appeal the ICC order to the ersene margin and nunomic twnefits test could not lie courtv flowever,if the I(bruary 5 order h not nuklilled apphed by the ICC in determining die estent to whkh a and h ultimately affirmed on appeal, the Qimpany would generating station under comtnation prior toJanuary 1, he F"luired to record a loo of apprnimately $28 1986 was "used and uwful" miHlon, net of income tases lwucs have twen ralwd in the appeals of the Aplwllate Court % lebruary H,1991 and June 14, 1991 deckiom Accountmg WHus which may be aflected by one or more aspxts of the Illinois Supreme Osuns CL decidon.1 hew issues inc lude The Company currently prepares its finaricial Matements the Appellate QiuttYusnt and uwful" detennination and in accordance with i Ah 7I and, therefore, accounts for the Company % ability to reonrr defctrni Clinton pmt. dw effens of the rate making pnwess. Accordingly, the comtruction cmts lhe ICC in its 1992 rate order, statal Conipany recordwarious regulatory assets and liabilitics, that Clinton b Itm "uwd and useful" and as such. the such as deferred Clinton ctnts and over/under recover. entire reasonable cmt of Clinton can be included in inte les of fuel costs, in order for a company to report under base. The ICC order did not include in rate base $102 l'AS 71, the company % rates mmt be designed to reemer milhon of deferred nlusty return. The order refers to the hs mis of pnniding senice, and the company must be December 1991 tilinois Supreme Court decision in the Cl! able to coHect diose rates from cmtomers. Management proceeding that rniews, among other things, proper bckrs that the Company cuendy meets We uHeda regulatory treatment of C0% deferred pmt. construction for mndnued appheadon of W 71, but wG condnue to costs As a result, the ICC has recomnwnOd that the evaluate signmcant changes in the regulatmy and proper regulatory treatment for af CFnton post. comoed&e nnuunnwnt tu awee dw Gunpanys meraH comtruction ont deferrals be addressed 60 a rehearing comphance wWi dw etheda of N 71. proceeding Managenent h unable to predict the ultimate outcome of these pnwredings at thh time. The increased rates authorized by the March 1989 rate order are being bilkst and collected subject to refund The Company believes that Clinton is needed to meet pending h outcome of the appeal. the total amount of current demand and that it has managed the construe. revenues billni and mllected subject to ttfund for 1991, Hon of Chnton prudently and etliciently. 'Iherefore, tbc Company believes it should be allowed to recover the 1990 and 1989 are appmsimately $53 million, $55 million and $36 million, respecthrly, liased on the cmt of that power station and nuclear fuel costs, througl. hsrates 1chruary 1991 Appellate Court decision, the Company Management is unable to predict the ultimate outcome would not be requiral to refund these rntnues. of the uncertainties discussed in this note which could have a material adverse effect on the Company % carnings o im Umfum /pl Admmuf Clan Snesolisoea On f ebruary 5, and/or financial position. Accordingly, no pnnbion for 1992, the ICC iwued an order in the Company's annual any liability or additional loss that may result upon Uniform fuel Adjmtment Clause reconciliation proceed, resolution of these matters has been made in the ing initiated by the ICC in a docket pertaining to the accompanving financial statements. twelve months ended December 31,' 1987 Such proceedings are required by law to be conducted Note 3 annually by the ICC to reconcile revem es collected by utilities from their customers through operation of the Commitments and Contingencies Uniform Fuel Adjustment Clause portion of the utility % e Commitments The 1992 estimated capital expenditures rate structure with actual costs of fuel prudently pur-are $286 million, which includes $168 million for chased. electric facilities (including $38 million for clean air D flimois tunn Company i .J

E compliance),8%6 million for gn fxilities,814 million for up to the next 52 weeks, and 331, of the Wet Lly Qists nuclear fuel and $4H million for general plant.1he (he-for up to the next 52 wcelt ) car construction pnigram for 1992 thniugh 19% is A maior low untred under the current property damage l cstinuted to be 51.272 bilhon. or " extra expenw" insurance emerages invohing in addition, the Com[uny hn substantial tonunitruents Clinton or other stations imured b) the indmtryowned l for the purchaw of out under long term omtracts. Qui mutual insurance company could result in additional (ontract commitments for 1992 through 1996 are esti-premium asscumentri to the Company of up to mated to be $720 million (excluding contract evalatiori approximatel) $N 3 ruillion. In addition, while the Com-pnnislom L Total coal purchases foi 1991,1990 and l9H9 pany ha no reawn to anticipate a serious nuclear g wcre $Ih4 milhon, $1H2 million and $l80 million, incident at Clinton,if such an incident should occur,Ihe respectively. the Qvupany al o has existing umtracts daims for property damage " extra expeme" costs, and! with the pipeline supphets to nrmide natural gas supply or other onts and expenws could materially exceed the in addition to spot nurLct purchaws Total natural gn limits of insurance untrage anilable. purchawd for 1991,1990 and 1989 wn $163 nuthon, All nuclear pnver station operators are subject to the $167 million and $173 milhon, respecthrly. Contracted Price-Anderson Act. In acuerdance with that Act, public natural gas supply owts for 1992 through 1996 are liability for a nuclear incident is currently limited to estimated to be $534 mdllon. In addition to cual and $7.807 billion. C nrrage of the first $200 millbn is natural gas, the Company 3 share of nuclear fuel prmided by private imurante.1:ucw cmcrage is commitments for Clinton are approximrtely $37 million pnnided by retrospective pretnlum aswssments against for uranium concentrates through 1997,$13 million for each licenwd nuclear reactor in the United States. The conversion through 2n01, $56 million for entithment Company's liability for such an awewment woubt be up through 1999 and 8%4 million for fabrication through to $63 million per incident payable in annual imtalb 2001. All of thew cmts are reantrable under the Q ru-ments of not more than $10 million. Additionally, if the panyi electric fuel and purchawd gas adiustment dauws. sum of all public Ilabihty claims and legal costs arising from a nuclear incident exceed the amount of primary o hourme The Comguny has insurance for low imuhing and excess untrage in force, each licemcc can be the operation of Clinton lhe imurance for phpical awcwd an additional 5 percent (53.15 million) of the damagc is structured throi a a level of primary coverage

- "** Y*I* i"# ""#"*C"

A Masta oda Po&T cown claims by wodas who provided by nuclear insurance pools and exccu coverage from a combination of nuclear irr,urance pools claim talily injury, sickness, or diwaw as a result of and an indmtry<murd mutual imurance company, ihe inhial radiation exposure occurring on or afterJanuary 1, primary unrrage pnmden limits of $500 million and the 19MM %e pilky has an aggregate limit of $200 million extew coverage currently prmides limits of $2.01% appWng to the conuundal nudcar Muq as a whole. bilhon, for a total anilable untrage of 82 515 billion As claims are paid under the polky, there 4 a provision NRC regulations require that,in the ornt of an accident, for automatk rdmtatenwnt of poH(y un3s up to an whenn er the estimated a>sts of reactor stabilintion and additional $200 million. There is also a provisloc for w site decontamination exceed $ 100 million, the insurance scenwm of ad(HHonal premiums if claims exceed funds proceeds must be dedicated, and used first, to return the available in the insurance company 4 rewn e accounts to reactor to, and maintain it in, a safe and stable condition pay clainn Gnupants maxhnum share of additicnal - and, second, to decantaminate the reactor and reactor premiums in future yean for tW conungency b approv unate $12 mHHon. station site in accordance with a plan approved by the NRC.1he imurers then would indemnify the Company for property damage up to $2.215 billion less any e Decommissionig and #uclear hel Disposel Casts The Com. amounts used for stabilization and decontamination. The pany is respomible for its owmcrship share of the costs of remaining $300 milhon would cover deuimmiuloning decommissioning Clinton and for spent nuclear fuel costs in excca of funds already collected for decommis-dispmal omts. A l'ebruary 1991 ICC order states that it sioning, as discuwed later in this note, in the nrnt the will look to the Company to emure that Soyland has insurance limits are not exhausted, the exceu coverage contributed its fair share toward complete decommis-may also be applied to a portion of the ulue of the sioning costs and that if the Company becomes liable for undamaged property. The Company has " extra expense" any decommlutoning costs attributable to Soyland, such insurance coverage through the industry <mmed mutual costs will be the responsibility of the Company's imurance company in case of an extended accidental stockholders and not its ratepayers. There is currently shutdown of Clinton This imurance does not cowr pending before the ICC, however, a rnised form of the " extra expeme" costs until Clinton has been out of lebruaty 1991 order (which has been agreed upon by tervice for 21 weeks 1hereafter, the insurance cmtrs the ICC and the Company but which is subject to final 100% of the estimate of the plant's weekly " extra action by the ICC after other parties.have had an expense" costs statt d in the polky dedarations (Wn kly opportunity to comment) in which the ICC would Costs) for up to 52 wreks,67% of the Wnkly Costs for express concern that the Company take all reasonable Ilknoh hwer Company n } i

attton to ensure flut Ni) land contributes its ownership the Company to fully renner these (osts One of the share of the current estinute of decommiwloniny (mts parties w ho lud apgwaled the ICC onter to the App llate and that if the Company became liable for any Court has filed a gwtition for rniew with the l'nited dnonnulwloning expense attributable to So> land the Atates supreme Court, whk h is pending before that Commiwlon will then decide whether that ngwnse

Court, should be the respinwhility of the Grupany's stock.

At the federal inct, the District of Columbia Court of I holders or its ratepa)vrs l'inal action on the proposed Appeals has declared illegal the 'pur(hase deficiency" i rmsed order is s(Irduled to be taken by the 100 no nwthat uwd by most pipelines for allocating tckcair pa) later than Man h 30, 1992.14ternal trust funds, costs to local distribution companies (su(h as the Com. authortied by the 1C0. were established for accumulat-pany). 11w th Supreme Court has denied further ing the funds for future disnuntlernent and decommio review. In testwinse to these actions, I'l itC iwurd Order sioning costs of Chnton (estimated to be $150 million in No-528 which stayed further collections under the 1991 dollars) 1he Gimpany began recovtring decom- " pun base deficiency" mettunt and pertuitted pipchnes miwioning expense in its rates in April 1989 In iebruary to file new renntry mechanisms 1992, the ICC appnnrd an intrease in rates which Pursuant to Order No. 52H, the Company's pipeline perm,ts full reon ety of annual decommisioning funding suppliers filed new take-or pay cost reuntry mecha. requirements based on 1990 unt len ts and apponed a nisms t nder the new allocation methodology of Order nder to permit future reuncry shoukt the annual No 528, the Company % pipeline r,uppliers reduced the requiremems thange.1he Company untributed $3 H total take or pay obligation io approxinutely $5H million. million and $2

milhon to the extenulinnt fund for de-1hc Company paid approxinutely $26 rnillion, $24 commiwinning in 1991 and 1990, res[wrthely, and will million and $8 million in 1990, 19H9 and 1988, contobute 13 H millkn annuall) in 1992 and thereaft(r respectively, related to ns take-or pay obligations; thus, in accordant c with the I ebnury 199210C order, subject eliminating the liability for su( h costs as of December 31, to annual adjustments based on operathm of the rider lhe external innt consists of twu trust funds, one to 1991. llowever, aher further negotiations with the pipehnes, the Company befinrs that its totalliability rnay ret the contnbutions that quahfy for current federal and be reduced to approximately 814 million As a result, the state income in dnluctions and the other to receive contributions that do not qualify for a current income Company is cuttently recching refunds from some in deduction p pelines for payments on previously Hled li;bilities and Under the nuticar M aste Policy Act of 1982, the la these refunds are being passed on to the Company %

Department of incrgy (IX)l:) is resgensible for the tustomers. The Company will likcly incur some additional take or pay costs.1hese amounts are not [wrnunent storage and disposal of spent nuticar fuct IX)l: currently (harges one mill re net kilowatt-hour eccted to be significant. t generated and sold for future dnposal of tent fuel 1he Company is rewvenng this amount through its rates bunnmW Wum e bruelCas Take or Far Chages in accordance with !! RC o Clm An Art The Ilhnois state legislature passed a billin bly 1991 which became law in August 1991 that (i) Order 500, issued in August 1987, the Company % nundates installation of scrubbers at two of thr three pipeline supphers were allowed to bill the Company for their take or pay costs Pursuant to Order ".00, the Cum-units at llaldwin Power Station to crable the Cortpany to pany% pipeline supphers set the Company % total take or. continue to burn llhnois coal at those units, (ii) pnnides for a $35 million grant from the state for the construction pay obbgations at appnixinutely $H7 millioit in November 198N, the ICC issued an order that allowed of scrubbers, (lin) estabhshes a procedure for regulatory rniew of the estimated cost af the scrubbers at the the Company to reunrr fully take-or pay costs alkicated outset of construction and (ic) requires the ICC to allow to it under rate schedules approved by the IIRC. In construction work in progress for the scrubbers in accordance with the ICC order, the Company twgan electric rates if requested by the Company. billing its etntomers for nh costs on iebnury 1,19H9. The Company % current c>timates for total capital Under pnnisions of filed tarith certain industrial expenditures, including those for the installation of customers are esc!uded from twing billut take or pa) scrubbers on the two llaldvin units, w hich are necessary charges. On Decemtwr 5,1989, the Illinois Appellate to athint the emission reductions set forth in the acid Court rnersed the ICC order and remandal this matter rain section of the Clean Air Act, would be between $250 to the ICC for further pnweedings lhe Illinois Supreme million and $350 million through the year 1995. 'lhe Court granted petitions filed by the Company, the ICC estimated expenditures shown above exclude Soyland's and certain other utilities for leave to appeal the participation but include the $35 million state grant. Appellate Court decision. In June 1991 the Illinois Soyland shares in the capacity of the Company's fossil-Supreme Court re ersed the Appellate Court decision fueled generating plants through a Power Coordination and upheld the ICC's November 22,198H order allowing Agreement and will share in the total capital expendi-35 Hhwn Poner Cornywn

turet So) land has the option of priniding fimding during restoration of the sites and what renntry mechanism comtruction or paying " owning" costs af ter the facilitin should be up if the ICC determines that the costs are are in ser it c. Ibc estimated exgwnditurn shown alxnr tenntrable. In January 1992, the llearing 1:xaminer include costs for switching from high-sulfur to low 4ulfur awigned to the case twurd a p opowd order Among coal or fuci biending and the installation of low-nitrogen-other things, the llearing 1:xaminer cited the ICC's oxide Imrners at sonc generating units and continuous conclusions for two other Illinois utilities that these emiulon monitoring systems on most of tic Company's costs are current and legitimate business expenses generating units. A(klitional capital exgynditures are w hich should be reunrred from the companies' custom-anticipated prior to the year 2000 to nunply with the ers l'urther, the propowd order allow s for the deferral of second phaw of the Clean Air Act We irwallation of twu these costo scrubbers at Italdwin will result in atklitional annual Basnt upon the expected regulatory treatment for these other operating and maintenance expenws of approxi' costs, as referred to alxnr. management does not expect mately $20 million beginning in 1991 that the settlement of these obligations will have a The evimatn noted ahne will be perkxtically updated n aterial aem eHect on the Company 4 Anancial condi-as regulations are nnalind, estimates are refined and tion or resuit, af operations, contracts are awardd At this time it is not powible to predict how much of these costs, if any, may not be recovered from rattpa)ers in addition, the Company 1, o UnM and Opetic fire The poulbility that exposure cunently uncertain of the number of emi+lon allowan. to electric and magnetic fields emanating from power ces that it expects to receive ftom the Emironmental lines, household appliances and other electric sources Protection Agency under the pnnisions of the Clean Air may result in adverse health cifects has been a subject of Act. increased public, govenunental and media attention. A considerable amount of scientific research has been o Gn Wufurwing Sites The Company, through its - conducted on this topic without definithe results. predecewor companks b identified on a State ofIllinals Rcwatch is continuing to resolve scientific uncertainties. list as a responsible party for potential emironmental it is too soon to tell what, if any, impact these actions impairment at 25 former manufactuned gas plant sites. anay have on the Company % financial condition. De Company b investigating each site to determine: the type and amount of wastes; whether the wastes tegal Procudsgs and Related Matters constitute emironmental risks; and whether the Com-pany has any responsibility for remedial aalon. Because

H##"" #### A "#IIIC*C"I "E'CC*C"I *** IIICd ""

of the unknown and unique characteristia of raich site (such as amount and t>pe of wastes prewnt, physical December 2, M wM We Unhed Main Md Coun characteristics of the she and the emironmental risk), for the Central Dhtrict of Illinoh in a clan action the impacts on remediation cost of evohing technologies senrules fraud lawsuit nini in May 19H9. by two and uncertain regulatory requirements, the Company is purchasers ohhe Compants mnen sud purponing not able to determine its ultimate liability for the to act as representatives of a class of such purchasers imestigation and remediation of the 25 sites. He Com, against the Company, the Company %_ independent pany, howewr, has estimated that the liability is at a accountants and one current and three funner ollicers of minimum $26 millhtt %erefore, in acmrdance with the Company. %c settlement agreement proposes to generally accepted awounting principles, the Company estabihh an $11 million fund to pay plaintiffs' legal recorded a liability of $26 million as of December 31, expenses and to compensate class members who bought 1991. We Company h unable to determine at this time the Company's common stock between March 31,1987 how much of these costs, if any, will be eligible for and April 20,1988 and still owned such stock on the reem ery from insurance carriers, latter date. A hearing on final court approval of the The Company aho remrded as of December 31,1991 a settlement is scheduled for April 1992. regulatory asset in the amount of $26 million, reflecting Insurance will cover $7 million of the settlement; the management 3 expectation that it will be allowed to _ remaining $4 million will be paid by the Company but recover such costs from its' customers in future will not be passed through to ratepayers. Performance of regulatory proceedings. The Company has not yet the Company's obligations under the settlement specifically requested rate recovery of these costs; agreement will not have a material adwrse effect on the however, the Company is a participant in a generic Company's financtal condition or results of operations. hearing being conducted by the ICC on this sub}ect. nis - The Powell, Soyland and Weiland suits as discuued in generic proceeding was initiated to ctmider whether predous annual reports have all been resolved and did - Illinois utilities should be allowed to recurr from their - not have a material adverse effect on the Company's customers the costs related to the remediation and . financial condition or resulta of operations Illmois Pont Company 39

. m The Compan) sclh electric energy and naturat '" Dank bort mings under sus h conmutments base a l gas to residential, mmmer(ial and indmt.tal cunomers rnaximum 360da) maturity from the time of issuance I throughout Illinok At 1)cccmlwr 31.1991, en 23%, and at the Company % option, catry an interest rate and 2h of acuiunts re(chable were inun residential. equhalent to the prime rate in eHect at the time of wmmerual, and industrial cuuomer% retectnely. 'the twuance, adpisted to the prime rate in etinI on the first Compan) pertorrm imigoing credit enluatiom of its day of e.n h calendar quarter thereafter or at a lower r,ite customers and generally does not require collateral or agreed to by the banks dernits 'Ihr Company m:intaim reserm for pitential The Company has letters of credit in the total amount of credit lowes and such losses have twen within 87.0 69. % 0 from the Indmirial llank of Japan whhh management's espectatiom utpport self insurance prosistom for workers' mmpenu. The Company b inwhed in legal or adminktr.ithe tion and general liability imurance.1hc Company pays a poictedings before canom courts and agen(ies with fee of UA651% lwr annum on the unused amount of resp (t to nutters occurring in the ordinary course of credit. Interest rates on unreimbursed drawings tinder bmituw some of which invohr subvantial amounts the letters of (redit are at the lederal l'unds rate as M.magement believes that the final disprition of these defined b) the bank plm L% per annum until paid in pnweedings will not h.ne a material adurse c* lect on full. the financial pnition or results of operatic of the Com. In addition, the Company has letters of credit in the total pany. amount of 8H0.547,9 4H from the Mitsubkhi llank that support $75 million Pollution Control Variable Rate l)ebt.1he Company pays 2 fee of 0 3% [wr annum on the Note 4 unmed amount of the credit. Interest rates on untrim-tmo of Lich v4 Shod Tom ices bursed drawings under the letters of credit are at the l~cdcral lunds rate as defined by the bank plus 0.% per The Company has total lines of credit r< presented by annum for up to 30 days, at the bank % prime rate for 31 bank commitments amounting to $303 mdlion. of whh h days through one year and at the bank's prime rate plm

h. per annum for over one vrar.

8121 nullion was unmed at 1)cocmber 31 1991, lhese bank mmmitments utpport the amount of commercial Drecthe hguv 1,1991 dE Compny cancelled a $100 dhon mo loan agrecanent that was to expireJune paper outvanding at any time and are available to support other Compan) arth1 tics. Additional informa. 41991 S borrowings were made under ihn agree. tion on lines of credit a shown in the following table m m dudng 1991.1k Company paid a fee of 3/16% per annum on the unused line of (redit. In addition, the Company cancelled a $375 million revolving loan .uiw eman u. twi agreement on Nptember 5,1991.1hc weighted average uno ol t rean urighico 4,rr.u, borrowings dudng dw year were M36 milHon, beadng t uial tsed Av.itahic turnmin,3 staic interest at a weighted average interest rate of 7.3% 1hc n.imora or tuttari) Company paid a fee of I/16% on the unused portion and swar remMng k,a" 1/H% on the entire facility amount. These cancelled agru meni' $10n liH2 8 ih ll2s sM4 gfrIn n inn no revohing loan agreement on Mytember 5,1991, t unmeroanuna tor For the years 1991,1990 and 19H9, the Quupany had short. term borrowings comisting of bank loam and ,non u nn turn m ing" ) commercial paper outstanding at varium times as 1 0:41 s3o4 nst un follows: 'Eticcthe through Mytember 5,19% lin Company 33 _8* _89a9 pays a facility fee of 1/4% per annum, regardlew of mage. D"*"'"""*"- 'td r*'") The interest rate on borrowings under these agrecments D'$"""'" , 3 , 3 is at the Company % opti<nt based ugen the lending unmen ial paper i bank 3' referente rate, their Certificate of Deposit rate, Inn tr41 redC Al nG ohhtf 3 l sM W. 9% the borrowing rate of key banks in the Inndon interbank vaumum amouni masianng ruarket or competitbr bid. at any month end 5n sw

ii "Diettive through kptember 3,19911he Company Au rve d441=nmmg*

pap a fa cility fee of 3/16% regardlew of usage lhe [*/'"8 """"8 , 3., ,g ,g interest rate on borrowings under these agreements is at U Wed my mim the Company % opthin, based upon the lending banks' r,ic annng the g,r oot sas 9u reference rate, their Certificate of Deposit rate, the borrowing rate of key banks in the interbank market or The Company calculated the weighted userage interest competitive bid. rates by dniding the interest expense during the petiod so I!! mon nmer compam

for such Imrnnvings by the average short4erm imrrow-been ghrn may designate an earlier eft' cthe date of e ings indleated abinr. termination whkh shall be not Icw than twehe months after the date of receipt of such notice. Note 5 f acilities Agtesments Note 6 laceme Tames The Company and Soyland Powrr nioperative, Inc. (Soyland ) sharc ouncrship of Clinton with the Company Income taxes included in the Statements of Income owning 86.79% and Soyland owning 13 21% So>iand has consist of the following componento an investment of $450 million in the direct etwts of placing Clinton in mmmercial operathst 'the Com. t am ina.w tw

n pany's ownership percentage of 86.79% is reflected in e n. unai n/in,u.m >

int im im utility plant (at original cost) and in accumulated depteriation on the balance sheet. Each owner is '"[7"j"a'*i, bum, responsible for its share of nuclear fuel, decomminion. i spene and Tam-- 8 M.S'c 8 2:3* 8 H 337's imlu&d in ottet innanc smi ing, ongoing construction. financing and operating and naa,n. %iu,__ maintenance costs. 'the Company's sture of Clinton rrt. o Dan

W 6AW operating expen'.es is included in the wrresponding loca tuntni tasci..

n?" N 6?5 Own) operating expenses on its income statement. t*knto inses-The Company's net inwstment in Clintun, including "" ',,"'.,*!*1 "'., a a;.% ,7m AltDC, land and related facilities at December 31,1991, Iwmto chmani am ne.- s o.m UA6u umsm d was approximately $3.2 billion, net of recorded ""o*[",""g,'y,'i, 7,'y"d g,, ,3 diullowed plant costs.1he Company's accumulated ticierrest riiniinm-i.. m ora 21 0.o94 ) 7.2 u depreciation for Clinton was $420 million at December ^h'a""""'"""""""'""" D'N 0 85863 36A"' thn int rew enic and espense 31, 1991. Agreements between the Company and m ugimion dawreu r.. io.n2s _ (634u umu $c> land pnnide that the Compaisy has control sner """"0""3**"4*""'"....... om um-Takc4e psy stwyn.. VI.9An (4An2) 103N construction and operation of the generating station, sn ope, ming s,m orrg,n.,o -. aun puou pl.wo j that the parties share electricity generated in pnportion 1ma oruna um.. 4uu ina*o 02m to their ownership interests, and that the Company will nrena inmm,m uun.on-nn, on 002i) mm-have certain obligatims to pnnide replattment power D'*ned imewarm us "td't-to Soyland at certain times if the Conpany ceases to U *"I'"",'",P,"' om gymg3 m operate or reduces output from Clintott ima ime.inwm unmto. en on49 _ otan> tlnder the pnnisions of a Power Coordination Agree-ment between Soyland and the Company dated October ~~wio s 2iMi e Otw) t 5,1984, as amended, the Company pnnides Soyland with 10.7% (372 megawatts) of electrical capacity from The reconcilianons of income tax expense to amounts - its fossil-fueled generating plants through 1992,8% in computed by applying the statutory tax rate to reported 1993 and 1994 and 12% in 1995 until the agreement pretax results for the period are set fimh below. expires or is termiruled.1his is in addition to the capacity soyland recchts as an owner of Clinton. The ' "" ' "dd. '. * ""'* R Company is compenuted with capacity charges and for Uh**mds o/ima,s i mr im im energy costs and variable operating expenses. the imonw ui np= m ow Company transmits energy for Soyland through the k*ra unutury isi eme.. s suo3 09.34n s o23Aw) Company's transmission and subtransmission systems.- '*/"$j,"*" "*" 1.'nder punisions of the Power Coordination Agreement, we uses. net d k*ral Soyland will share in the total capital expenditures, yDyl,'f,;g;,g ' "3' ' U """ ' including those for the installation of sembbers on the aning uinuruoka two Italdwin units, which are necessasy to achieve the Q*j,[2 um m9, m g3 eminion reductions wt fonh in the acid rain section of An-nte se runa.usca the Clean Air Act. Soyland has the optim of pnwiding Defened c"neim financin"g n' ats.',. d"""8 N WM ON h (4?)9) funding during construction of these scrubbers or paying imrunwm aumini. their pn>portionate share rf the overall ownership costs

j'ard""'y"f g,

g and expenu through the INmtr Coordination Agree-imeanwni uu rcon. (9393) ' t a.i6? >

p. wi

~, ment after the facilities are in service. At any time after tviveo non na tmwmalard.,.. IIA 23 10,030 10322 - December 31, 2004, either the Company or Soyland can ortenea anu,n terminate the Power Coordination Agreement, by ghing n=- -un uss. (wo not less than sewn trars' prior written notice to the other party. The party to whom termination notice has lilinois lwer Company 41 - ~

Combined federal and state effecthe inmme in rates Oser the next ihr grats estimated payments under w cre 40.4%,(37.9%) and 20.7% for the >vars 1991,1990 capital leases are as followw and 1989, respecthcly. Imestment tax tredit carr>for-wards, unrecorded at December 31,1991, were approximate)y $26 million. 'lhese credits are available to offwt future income in liabilities Of these tredits, IWL ssum approximately $16 million expire in 2002 and approxi. IN R 8 "' -~ l mately $10 million expire in 2033. At December 31, N - ] ] T";"""' ~ 1. N 1991, the Company had approximately $198 inillion of wxL federalinwme tax rat operating loss carr) forwards avail. 1herraher_. ir21 24un able to othet future taable income. Appruximately $ 154 19av44 milhon of thew cart) forwards expire in 2005 and $i4 IN Intete't-3"" ' a million expire in 2006, lhe Cornpany also has an haal s a vgi, alternative minimum tax credit cart)fotward at Decem- ~ ber 31,1991 of approximately $68 rnillion w hich may be ,g g carried forward indefinitely. 'this credit is availab!c to ollwt future regular income in liabilities in excess of Debt 11ethement Provisions the tentative minimum sat Statement of financial Acwunting Standards No.109 Certain supplemental indentures to the Mortgage and (yAS 109), " Accounting for income Tnes" issued in Deed of Trust require that the Company make annual icbruary 1992 adopts a liability method of tu allocation deposits, as a sinking and property fund, in amounts not relating to transactium that allect book and in inctyne to exceed $6,100,000 in 1992, $5,750.tXXI in 1993, in dillerent reporting gwriodt 1he Gimpany must adopt $ 7,000,000 in 1994, 89,250,000 in 1995 and this standard in January 1993 $10,100,000 in 1996. lhese amounts are subject to reduction and historically have generally been met by pledging property additions, as perrnitted by the Note 7 Mortgage and Deed of Trust. Capital leases During the five 3ran6 after December 31,1991, the amounts of debt maturing annually are as follows lilinois Power f uel Gimpany (luel Company), which is 50% owned by the Company, was forned in January 1981 for the purpow of leasing nuclear fuel to the %gm Company for Clinton. Icase payments are equal to the ,,$y1 u,,. y,,, fuel Compmy's cost of fuel as consumed (including p,9 n T"sg Tgj g-~ igog related financing and administrative wsts). Ilillings mL.- 3sne sm 40 m under the lease agreement during 1991,1990 and 1989 [Q; "7'"" '$j 3"y] g were $54 million, $33 million and $29 millis tw 20.suo 5 225 - 24ay2s respecthriy, including $9 million, $7 million and $8 han.. pc.4 +o s2to25 s4:uss t million, respecthely, of financing costs 1he Company is -"~ ~ '~~ obligated to make subordinated loans to the fuel Company at any time the obligations of the f uel These amounts exclude capital lease requirements See Company that are due and payable excwd the funds " Note 7 - Capital Irases." available to the fuel Company, At December 31,1991. The Company'ri first Mortgage lionds are secured by a and 1990 the Company had notes recchable from the first mortgage lien on substantially all of the lhed Fuel Company in the amount of $2,300,000 and property, franchises and rights of the Company with $11,978,(XX), respecthrly. lhe Company has an obliga. certain minor exceptions expressly prodded in the tion for spent nuclear fuel disposal msts of leased Mortgage and Deed of Trust. The remaining balance of nuclear fuel. Nuclear fuel lease payments are included net bondable additions at December 31,1991, was with fuel for electric plants on the Compan>% Statements approximately $ 1,300,(XX),0(X) of income. Irase payments for other pruperty under capital leases are included with other operatina Note 9 expenses on the Om1pany's Statements ofincome. At December 31,1991 and 1990, current obligations Mandatorily Redeemable Preicned Stock under capital lease for nuclear fuel are $39,761,000 and $45,037,000, resperthely. At December 31,1991 and in 1990, the Gimpany redeemed $20 million of i1,75% 1990, current obligations for other pmperty under mandatority redeemable serial preferred stock. In capital leases were $4,763,000 and $1,386 000, respec-Ichruary 1991, the Company redeemed the remaining tively. 530 million of i1,75% mandatorily redeemable serial - at Ilknob 1%er Company

preferred stock. In Iebruary 1992, the Company acmunt under the Plans and are being distributed to the l redeemed $10 million of 8 $2% mandatority redeemable accounts of participating emplo)ces as the l'un is repaid l serial preferred stock. During the Ihr > cars after by the Trmtee with funds contnbuted by the Company, December 31, 1991, the amounts of mandatority together with dividends on the shares acquired with the redeemable preferrnt stock outstanding at such date loan prtweeds.1hc Company financed the loan with (including the February 1992 redemption) required to funds borrowed under its bank credit agreements l be redeemed at stated ulue art as followv As of December 31, 1991, 29,198 shares have been alkwated to salaried emplo)ces and 30,336 shares l. alkicated to emplo)ees covered under the Collecthe IWL - 8 uum liargaining Agreement, through the matching contribu-

2]

tion feature of the LM)P arrangement. Under the iwC mm incenth e compensation feature,44,179 shares have been alhicated to emplo>res. During 1991, the Company t wn.. nwrutier_ mm mm contributed $2.2 mlDion to the LM)Pi and using the Tout _ _

ogm shares alkwated method, recognited 54.1 million of

~ ~ " ~ expense. Interest incurred on the ISOP debt was approximately 82.9 million in 1991 and dividends used for debt service were approximately 5820JXML Note 10 in February 1969, the Company tenninated the Tax Common Stuli and fittained (ausings Reduction Act Stock Ownership Plan (TRASOP). Under this plan, Company contributions of common stock were The Company has an incentive Savings Plan (Plan) for based on a percentage of payroll cmts. Due to the 1986 salaried employees.1he Company % matthmg contribu. Tax Refonn Act repeal of tax benefits for Company tion is used to purchase common stock. Ibder this Plan, contributiom,1987 was the last year the Company 27,545 shares of common stock wcre designated for contributed stock to the plan. At termination, all assets of - issuance at Decemtwr 31,1991. the plan were either distributed to the participants or The Company has an incentive Savings Plan for transferred to the participant's account in the Company's Employees Covered Under a Collecthr liargaining incenthr Sasings Plam at the election of the participants. Agreement. At Deretnber 31, 1991. 69,167 shares of the 72,250 uniwued shares of common stock remaining stock were designated for issuance. Effective January 1, in the plan at tennination were transferred to the 1991, the Company's matching contribution was Company's incentive Savings Plan for salaried employees. extended to include the employees covered under a The Company has an Automatic Reinvestment and Stock Collecthr llargaining Agreement. Purchase Plan and an Employees Stock Ownership Plan in October 1990, the floard of Directors authorlied for which at December 31,1991,3,270,236 and 29,115 amendments to the Company % two inanthe Savings shares, respectively, of common stock were designated Plans to pnnide for the implementation of an Empknvc for issuance. Stock Ownership Plan (LSOP) arrangement.1his in September 1990, the Company assumed the resp (msi-arrangement includes an incenthr compensation feature bility for adruinistering both the stock purchase plan for which is tkxl to employee achlesement of specified employees and the automatic reimestment and stock performance goals. Under this arrangement, the purchase plan.1hese two plam were also amended to Company, pursuant to authorization grantni by the ICC, allow purchases of shares on the open market as weil as inJanuary 1991, k aned $35 million to the Trustee of the purchases of new issue shares -directly from the Plans, who used the loan proceeds to purchase Company. 2,049,975 shares of the Company % common stock on the Changes in common stock during 1991,1990 and 1989 open market.1hese shares -are held in a suspense were as followw INI 1990 19N9 shares Amount' shares Amount' W arcs Amount' Niant r iqtirinuy nt nar.............. m.

144 )M3' 8 13243.o?

7%,5%d,2M $ lA2129 ?i4tWaut I t.LMS?M2 Autunutic Rrtmratment and hani Purthaw l%n, s %M7 -. 91 ) ' t,917,9') 30A % t hol'.. 18 197 1k2 34.2 AM - 954 T1tAsor,,,, M+47 1.262 Intentrve %ninya Ptann. ~ 17910 2H2 ?M3 1.171 - N!asc ond of year. l %f _9 @ * $ _1.4_JMS7.. _ _ _ _ ?% M 4.937 8 1 A24M? ?%. iia 2t> $ 1.424.240 - 4.

n..m.u a. 4 ean 4

flhnois Power Company 43

The punisions of $upplemental indenturn o Ihe The plan aswis conskt pfimarily of common siocks, fixed Company 4 Mortgage and Deed of Tnnt mntain certain income securities, cash equhalents and real estate.1he j restrictions with respect to the declaration and papnent actuarial present value of accumulated plan Iwncfits at of dhidendt 'Ihe Ctwnpany was not limited by any of January 1,1991 andJanuary 1,1990, wrre $169,009 000 these restrictions at December 31, 1991. Under the and $153.244 AMX), respecthcly (including rested bene. Restated ArtitIcA of IncorporJtion, common stock fhs of $167,965 000 and $146,254 000, respecthrly). dhidends are subject to the preferential nghis of the The pension cost for 1991,1990 and 1989 was holders of Preferred and Preference Stock calculated using measurcruent dates of December 31, 1990 December 31,19H9 and January 1,19H9, respecthrly, a discount rate of 9% for 1991 and H%% for Note 11 1990 and 1989, rate of increde of future compensation Perman and Other Benet,t Cosa loris of 6%, and a return on assets of 9%% for 1991 and 9% for 1990 and 19H9. The unrecogniicd net asset at The company ha denned benent pension plans cintring trainition and prior senice costs are amortlied on a all officers and emphr)res. lienefits are bawd on ) cars of straight line bash over the average trmaining senice senice and the emplo)ce's carnings lhe Company's period of emph>)en who are expected to receive funding policy b to contribute annually at least the benefits under the platt 1he Company did not make any minimum amount required by govenment funding cash contributions during 1991,1990 and 1989 for the standards, but not more than can be deducted for federal pension plan due to its mrrfunded status. income tax purposeg in 1989, the Company ollered an enhanced retirement Pension costs. a portion of which has twen capitalized. for P"' gram as a special incentive for early retirement to all 1991,1990 and 19H9 im iuded the following components: emphr>ro who met certain eligibility requirements. In accordance with the requirements of Statement of l'inancial Accounting Standards No. MH, "limployers' i mio.wiwe un . Accounting for Settlements and Curtallments of Defined' ( nuuwmts y.m ) 199i sus iw; llenclit Pension Plans and for Termination lienefits," the unu not on twrurii. W@ *" IN #

"O F

cO%! iU i989 f cpresenting the chlimated present value of carned dunng the wn. 1 M.i22 i RO2M $ 9.02 t 8 interre ont on pnnied the cost of the program. ta nchi nhttptha. I',224 1%Mu 14.0*6 In addition, the Company pn,vides certain health care I)ia aYar siemE [6th s ti 6m $ $,7 and hfe insurance benefhs for substantially all active and s retired employees. These benefits are pnnided through Tioi penwin um owntno L r s) an insurance company and premiums are based on actual claims experience. 'the Company recornlies the cost of these benefits as premiums are paid. Costs for 1991, The 1989 pension cost does not include approximately 1990 and 1989, net of contributions by both acthr and $12 million for the enhanced retirement program as retired employees, were 517.724,000,815,077,000 and more fully discussed later in thh note, 512.613,000, respecthely.1bc 1991 cost of pnniding The estimated funded status of the plans at December 31, these benefits for 1,352 retirees and 4,250 active 1991 and December 31,1990, using measurement dates employees is $3,361,000 and 814,363,000, respectivelv. of September 30,1991 and September 30,1990, dis-In December 1990, FASil issued Statement of l'inancial ~ count rates of 8%% and 9% respecthrly, and a 6% rate of Accounting Standards No.106 (l'AS 106), " Employers' increase of future compensation lewis were as follows: Accounting for Postretirement lienefits Other 1han Pensions," which requires the recognition of postretire. ment benefits, including health and welfare benefits, on i m inwwma.m an accrual basis. ~lhe Company provides health care and i Tb=wmis opstan t t~n sus life insurance benefits to certain retired employees who Actuarut prneni value of attain specified ages and years of service. In 1991 aiul vested benent ohhpihm s ing s162dL2 prior years, the cost of such benefits was recognized as Accurnulated benen obhpsn...... $ 186mN 8 16t651 ci,ilms were paid. The Company adopted I AS 106 as of January 1.1992 and its estimate of 1992 net perlmlic Pnijected benent obhpum $(222,m2) s(192,272) gmstretirement benefh cost for its (urrent and retired-run asscu at f.ur vahie_.

agi+4 229.29i

~ ~...... empla>ces is $11 million. 'Ihis amount includes amortira-pI u,262 5tmv tion mrr twenty years of the prniously unrecognized tJnanunued nei pm,.._, (i t,tiso) (wo accumulated postrctirement obligation, which was $66 t'nicuignved net awei at iransabn. (51,495) ( *s.72M million e ofJanuary 1,1992. Adoption of FAS 106 will not swri.cnuc ona. 2tMi t wat have a material adverse effect on earnings because the Acmacd prmon one kludol m Atuuna pegg,1992 ICC rate order allowed the Company to Paysite.- s_.--( 9.n2) s 19.507) recowr these costs through its electric rates. 64 filowb hmer Company I

L Note 12 L Segments of Boness t i I ihr (.ontpany is a public utshty engaged in the p in ration, transmisshal, thstribution and wie of t'icctric rncrgy, and the tbstribution. transportation and une of tutural gh (ikuease of 4diars) Int lY'M /*29 Tinal 1stal Tidal lintrk 6as nunpang I.ledr4c han GunpanL _ lintrk bas ___ gpenL (garrath m infornutum- ..8 1,th6,*40 8 2%Ifi% 8 f.4*4.004 8 1.14N.410 8 3tl.U?O 8 f.469 4HO $ [M,9,133 ( 324 64% $ 139(7*H (girraung etarnurs. ( geraurig esprnws. tu hkhng pnnwon for trwimw tases and deferred Chnho e ones........ N 44.l et, 2%A A 39 IpM,4N9 HM9,290 26?392 1.1 % fd 2 N3N,6HM - /% 229 1,12N.917 I IMfetted unton ( 20.%M1) --. 8.M" 8 _. _ L. _I 8.y 1 i4 619 14M (20 M lye tas <gwratmg inn er...... ~.. 3 4T,4.13 tt*26 %*.1 19 244.901 43*lN JVM.2 3 9 291.029 3{416 2N4,44 % Albwarne kw fune .i" uwd thering om+ strut tum ( A1114:), 1 969 296 2.A6% 2NJ 2H9 Al% 2.942-240 . 3.192 Ikfertrd (brme r 1.4936 -13.936 fiturk tr4 6 mas.... a+ thulkmed (hnetm plant ( 949.?61 ) { unts,. (134.6 t H ), (139.6111) -(344 *62) lte in (geraung tru ome, includmg AlOIX; tktfred (hntun tinarwing - umas and da alksrd thnum - [ 8 3*0M4 8 121.?%0 8 44.097 169,797._ 8 (??)t44)8 34.6 % (4 4,1N9) j 99.042 $_4gD22 plant umts.., Other (linnrne ) and deductions,. 9,A2? ( 2.931) ( 9,44 %) intero,t (turges,,.., ino,933 200,833 220,$9% PttnWon fiar trutune ~ turs..

4.tMMI 46,449 30M4 l

Nrt irsunw (liwn). 8 199 244 8 ( ?M 4M4 ) 8 (JMN,4 42) l ( Mhrt infortMW st- ....8 197,2% $_ l%4,MI $_l]h '"%, 8 144.?06 8 IN124 $__ I?2.N27 17,199 8 I ?6AN 4 _ 199.224 8 IkTerettathm. _.m..- (captial caperkhtures..., $ 116.254 8 24,92N $ 141.212 8 IO4.9%N $ 24fM) 8 130,647 8

6.l?48 20 h)7 8 96,?M 1 anvrenwns inh.cnutwo-Identifiath awts',,.83%?' 2ta 8 j2k,_942 $ 1,9%,mo 8 4.613.477 8 469.lH9 8 4,9M2Nih 8 4M?,472 8 379.02% 8 %,216397 Nonutiht) (Aant and i

oltre innstrnents. na$4 1M,509 9 6HH Awets utshird for 7 merau nr.yany uprratums, 3i*,j kN il43iR 4M2.HH2 Total awls..... $ %,rijtoJ $ 534%494 8 4.(cM.9ta.

litilityplant, nuchurfiset and acquisition adysstment (less acctanulatal<k1wrciation and anmrtization), trutterkds and sytdies, unarnortizal defsmvl thandonment cost, defsmt! Cinton msts, jmtvid and thfesmi energy costs.

t I h t flimob Power Company es .w, ce m- ,,, m e et +-r w, s e-

v44=yVte wa t*

p-m W, w -r = w p -et r w W er -1.-7 e e-e- +++v n e v-i-w.w o w eeny t eh 'at e,++.e..e -.iwe v-e een-r y v c o-y - +--v,-wn*--e -di.my eu r- - e C* +,

m.- - -, _ _ _ _ _ _ _. _. - - .-~._--.--.__...-.m -m m, 1 4 I Note 13 Owarierly finer >tiallatornation siid Correon Stod Data (Unaudited) i < nauwus yaus n tne sw.m aar smeern - Iltwt QuaNrr Semnd Quaner lhlttl Quarter l'ounh Quarter l 1991 1991 1991 IW1 Chierating rtTenuca............ $377 NV7 $327,989 $ 402.9% 1 $366,018 (hierating inmrne.............. $6.2 % 64.0$U 107,387 64,1 ON Net Irwurnr................. N.883 19,216 63,923 17,212 Wt incorne applicable to comumn Mock................., 697 11.590 96,314 9l'77 h i arnings per cornmon dure...... .01 .15 74 .13 Gerunon Wwi Prkes armi DMdends l ligh........... $ IN b $ 20 $ 21% $ 24 % Inw. $ 15 % $ IN % $ IM % $ 20 e t DMdends Declarni.......... $ A0 ? First Quarter hemnd Quarter lhlrtl Quarter iourth Quarter. 1990 1990 1990 1990 Operating tonmen.. 83 % 771 8323,9M $441,H57 8366,HN7 Openting inmme............... % 517 93.479 12N,$2 l 35,971. Net tru ome ( k m)............... (13.0H0) 3.667 80,724 _(149.795) Net incore (km) apphcalde to mrumon ww. k................ (22.363) (5,699) 71.3H3 (l$H,6H4) 1.arnings (lou) per omunon diart...... 8 (.30) 8 (.07) .94 8 ~ (2.10) Common %1 IWu armi DMdends l i igh............. 8 19 % 8 19 8 16 % $ 16 % + low....,,......... 8 17 % 8 14 % 8 12 % 8 12 % DMdends Declared...,..... 8-8- i Qtuartwly mmings (lon)lns comnunt sinry are luual on uttghtni at mage numbsv of Alures outstaruling sluring Ilw quarter and tiw sum of the quarters truzy not njtutt mrmal wrnings (loss)lnr common slum As tvfavrunt in ' Note ! - Summary of hignificant 4cwunting IblMes" quarterly <quvuting n'tvnues tuse Invn ndusiflat)twintmlunge sales. Hw 1990 fourth youtste loss tvflects tuvnlirW tlw tart >t1sion fit disaltouvance of Olnton / dant wsts of $IJ 7 rnifikm or $1R2 lnr slure. net ofincorrn* t<Ltes, kg ' Note 2 ~ Otnton (UtarStation." He common stock is listal on the New I*ork Stock litclunge arulIbe Midurst Stock ikclustge. He stock jwices almte are the jnices nyorfat on the Cimqvsite T4w. Hong niv 5) 417 n*gistms!iv!dm of mmnon statk atJanuary 10,1992, He lksent of Dinstors avtalon Octdur 9,1991 to trsumefu)<ng a common stock siktdend I - r 40 filinois Power Compesy e-,M ee ,y w .e-- e I ->ir,,ve- ,wi w covs- -1.rsv.,- -r-e's-,,-,ve,ws= r v.w-r---+- -, + - - e,a--y -m g-g r >sv=--e w.-er- .e-rwv y

W/ertet/ I IN AN(~l Al. DATA' int 1990 1%V9 IwM IWe' IWs 1%41 Operating te enun l lett rit m

1. l( l 8 1,0M%

9HH 950 911 Hl4 5 621 I lot tric init ft hange. H6 73 Hl i10 92 77 7H Gn.. 2hN 311 ____3 2_% 445 ___ _309 3_*O ___3_4 3 Total operating rotnun $ IM 8 1469 8 1996 8_1395 f,1312 8 I 261 8 _l,042 g Not moime (low) htfore muutntmg tfunge $ I W3 8 (7H) 8 (2HN) 5 1% 290 8 293 8 127 Net unome (law) after awounhng change. 5 107 8 ("H) 8 (2HH) $ 189 8 290 8 293 8 127 I fic(the income las rate... 60.4 1 (379)L 2071 2941 19 1% 20 D' 34 4% Net mcome (l<m) appikahic to comrnon stutk befor, amamung tiunge. $ 'M $ (l1%) 8 (326) $ Ith 8 2%2 8 2% 5 10H Net income (low ) apphcable to comraon stock after aconmting (lunge $ "N 8 (l1%) $ (326) $ 152 8 252 2%6 8 10H I arrungs (low) pc r tummon share twforr auuunung change _ 1.04 8 (193) 8 (4 34) $ l ld 8 37% 3 9H I 2.H 4 Earnings (low ) per conanon shart aftt r a(counting change-1.06 5 (l%3) 8 (434) 8 2 14 3 37% 8 3 9H 8 2 H1 Cash dwidends dn lated por tommon sharr - a0 8 8 66 8 2 64 8 2 66 8 2 64 8 2.405 Dividend payout ratio (declared ) - .Wn N/A 124 3% 70 9% 66 7% 863% IkmL wiue per common share.. $ 19.25 8 lH 70 8 20 %6 8 25 HO $ 26 H5 8 2579 8 21.42 Price range of mmrnon sharn t hgh._ $ 24 % 8 19 % 21 % 5 25 % 8 31 % $ 32 8 21 % low.- $ 15 % 8 12 '. 13 % 16 % i 21 % 8 23 % 8 16 % Wrighted average nunder of common sharn outstanthng during the period (tlu nnands). M N4 7 %613 75,0%2 70900 67,2%I 64,%03 37,844 Total awets' 8 %,2? 2 8 5345 $ %fdn 8 6,053 5 %.923 8 5.623 8 2,722 Capitaltution Common stutL ryuit)_ $ 1 A% $ 1.41% $ 1.%4 8 1,H96 $ 1,842 8 iA92 i H% Preferred stoc k - 303 309 315 315 31% 31% 21% Mandaturdy redermable preferred stin k. 110 140 160 160 160 1% 36 lung term debt" 2,153 2.199 2 447 2,3 % 2.274 2,241 1,047 Total capitahration" $ +022 5 4.063 8 4 376 5 0 07 5 4.991 8 4.444 8 2,156 I mhedded ont of long term debt.. H.% 9.3% 94% 9 %, 9.3% 9.1% H4% Retained carningt, 76 8 1 8 143 8 SlH 4H1 19H Capital expenditures...... 141 8 131 8 97 5 115 8 23M 8 706 8 350 Coh flon from operationt 313 8 253 8 271 8 223 5 2%I 246 8 191 AIUDC as a percent of rarnings applicable to common sto(L-..... 3,7 % N/A N/A 4031 803% H5 % 57,1% Return on average aimmon equit).. SM (7H)t ( lN 9)% h1% 143% 15 9 k 13 4% Ratio of earnings to fixed chargn'* 1.H 5 0 70 'n%2) LH3 2 %1 2 57 3 16 Atatioru of d<dlars enefst sandngs (luu)jns omtmon sker nub shnderuts Au 'mitus common shwe, book tulue jus nommon sker und fru e range of symrrum shers Restatalfor ik effat of nyttaltzest nutlastJhet lanx

" nw ratw of namngs to fsmi ctwges npersents alw nuenbes t Imws IMt nonungs twfuw income hLtes andfLmt tharges aw skfitni tharges laansings sant in Ik odas'athm of' tlw ahots ratknt Klude alksuuru e for funds s'est dunng turutrut tion and defesmt Cienton fhwu sng costs and avr twfort ik deducthm of bn smw t.Ltes arktJimi t hwges IMI trulude interas on kmg Imn Mt. rvlatal amortstation of debt dLuDunt, [WVrntum arut e.Qn9Lse. OtheY inlm51, Gnl IMIlMst11tm t![ r19st e.QN4Ue $Mt h estirrW1'd to be nfWsentallt V of the INierrSt amyument lerstngs atuikshle wflted tharges exdudes IN cumulattee effssI as offanuary 1,1%%4 of armemg mhlted transuurs Dw raha of earnings tufLmt t Mrgss for %0 and lW) tof 030 asut(U $2 A regnwtinly truitsales IMt niinings uen 'rwasjuale to tatvrflmi e barges Dw doller amount of the annwnge dsficsesuyfor IVD and 1%49 snst sg ruxtmately ShN rnilhon urut l.175 ml'iton, tysfurikely. l.nhutsng thr b us on disauauntjdant outs of II,$ 7 rrullkm, tut t$ toscorrw isLtes rtYors 'st irt thefourth quartti of 19'ML IN ris'gu Of ntnurigs to fl.tniil% wyes uvuld Mt r been 14 Ifor IVal Lxt luang ik loss on duallounilssnt nuts of l1% millsoon. rwt of incorne cars nrordat on IMftrst quiwter of IWA tk rutw of nanslogs softmltMrges uvsdd Mtv bnws i 3Ifor 1%49 j

11 wis l'oner comptmy 41

Ac/erted kl'ATbTICS lyyl__j'PhD l'hW 1%4 19N' l'h46 l'h% l Iintrk Nales in MA11(Mlltiom) Rcudential 4,620 4.223 4,2H3 4.411 4.241 4,19H 3,74I ( nmmert ial 3,111 2,9HI 2,902 2.93H 2.862 2.H21 2,4 %0 Indui.ttnal "'M 2 7.741 7,M 3 7,41% 7.323 7.341 6.9 % Other. 439 42H 444 44H 422 320 296 _m Mles ultimate runsumers, l%,712 1% 2H3 15,231 1%,102 14,74 H 14,680 13M42 Ritral nu gwrativos. Imann spal and othor utthlics.- 3?20 _fu] _ h9lj %,% 29 4,2'O 12HI _MM 4 lotal tir(trK ulch. 19,432 lHJj] l.9 l 4 4 20641 ljJjnlH 1] Mil , 1( H.17 q I h (tric lies enues (Millione Residential. - 447 8 411 8 374 8 473 I 352 193 209 Commerdal-241 246 225 21% 20" 187 13% Industnal. Othor=. 39% 373 339 312 32% 290 224 25 24 22 21 20 17 12 Rnenuts ultimate omwimero 1.0'M l 054 9%9 921 906 787 ihu Rur,d um perettvts, municipal and other uttbues.. 102 99 106 134 116 99 114 Mr.( tilaneout. (3 6 5 (19) _ lotal clntnc rttrnurs-S I,1 H? I 1,1 %9 $ 1 069 8 IJM i IJKt3 4 H91 5 699 s,as ules la therms (Milliom) RcMdential_.. 339 322 379 367 342 357 391 Commerdal. 133 134 149 14H 137 161 172 Irwtustriek 9H 99 114 194 96 19H 38% Mies ultimate wrnumert 570 5% 642 669 %65 716 94H Transportalion of customer owned gat 193 269 26% 23% 327 2%j Total gas sold and tranported. H23 H26 907 9M 892 969 94H Interdepartmental salco _____ H IH 10 9 i 1 4 Total g*

tvered.

H31 _ H42 917 _ 913 _ HU _ 9:0 952 Ga, Hrs e nues ( 4tillium) Residential. Commercial 1Hi 180 Jill 5 207 8 192 8 206 8 1%9 61 62 68 71 66 78 61 Industrial

_31, 42 46 4H 44 73 122 halevultimair consumrit.

276 2H4 31', 326 292 357 342 Transportation of customcr owned gat 9 to 11 13 is 11 Interdepartmental rnuiues. 2 3 3 2 1 I Miscellaneout _. _ 1 14 _J ) (6) 1 2 Total gas tnenes_ 5 2kN $ _._,jp 8_j25 8, 33% 8 Jo() $ _ j'O 443 Sptom peak denund (tuthr load ) in kw ( thousands k 3,272 3,394 1245 3,%08 3.0H 3' 3,176 3,165 Iirm peak denund (nathe load) in kw ( thouunds b.-... 3.108 3,l Hu 3 009 3.077 2,923' 2,949 3SH5 Net generating capability in kw (thousands L 19u9 3,H91 3,HMS 3.938 3,400 3,397 3,672 1.lectric customers (end of year).. 56%,;21 SM045 54 H,738 $46,443 542,84 H 540,607 925,438 Gas customers (end of) var)... 401,763 398.H91 3H6,960 385,336 381,091 3H1201 383,474 I;rnployers (end of ) car).. 4,514 4,402 4,242 4/63 4,616 (593 (023

5ptem peak and firm peak demand for 19H7 did not occur on the same hour.

48 Illmou 1%er Company

Sharebottler S llit V l C llS 1ransfer Agenb and

5. Send the certincate by also resluired.1he cost of eligible to participate m the neghtrar registered or restined mall the twmd b alxvit two per-Automatic Reintestment l

Contmental hank N.A. to Sharehokler Senkes. We cent of the market value of and Stak pun hase Plan l c/o Mrlton $ccurities recommend the mailing be the missing certincate, lhe Plan allows common (. Attn:1ransfer Department insured for two percent of calculated at time the and prefened Sun kholders H5 0.lullenger Road the nurket value of the indemnity kmd in inued to reimrst their dividends (h t rpet k Center httu k to cover tertiticate information regarding lost in the purchase of Illinois Ridp field Park, icplacenwnt thould it be or ntolen cettificates should Pow er cotumon htig k, in NewJersey P7WI lost in the mall, he *cnt to Shareholder atkhtion, stockholders may

6. If >ou want to dunge Senices.

pun tuse shares of rommon lilinob Power Gimpany the reghtration of Auto-htock through an optional Slurchokter Sen ks a ' nutic Reinvestment and Crrillicate $alchecping cash feature. MMI South 27th Street Simk Punhaw Plan Slures Owneni should $r,feguard if 3ou are interested in par, Decatur, Illinois 6252% letween exhting accounts, Stm k (crtlfkates by Leep-Ikipatingin the Automatic submit rnjuchts to share-ing them f secure place Itcinvcstment and hitKk Transler of Stock holder Sen ken. Such as a wak hafety Purchase Plan, contact To transfer sim k or to

7. The requirements and degelt box. Owners should Shareholder Senkea for change the reghtratiou, documentation m transfer aho maintsin a separate eer-more infomuuon.

send the stak certincate stock from an estate sary tincate record that includes along w ith a transmittal let-derwnding ugwm the State cach certincate numler, Stockhohice 1 ugulries ter to Sharehokler Servicet of residemr. Omtact purchase date, datr of iwue, lilinob Power maintains a 1here h no Single sim k Sharefreter Settices or am<mnt paid, and exact reg-toll free telephone numler transfer pnxedure that cm-Omtinental llank its more h:tation.1he Company for stockholdern to une ern all pouihte tircum-Infomutton. does not hafeguant sertifi-when nuking inquiries stances lloweser, for most cates for atmkholders-almut atmk tranuctions, transfers sharrholders Purchasc/$ ale of Stock The number is IMim should follow thh png c-Except for 6 harts held in Chatige of Addrew H220. Shareholder Servicch dure: the Automauc Reinvest. Heouests for addresuhange office hours are H 15 a m to

1. Sign the back of the ment and Stmk Purtbase must be submitted in writ 145 p ta, Central Time, stal certificate exactly as Plan. Illhmis Power thics ing and hhould include old Monday thrt ogh I rida).

tour name appean in print not buy or $cil its own secu. and new addrenws, exact on the fmnt, if there h ritten. Such tranuttion$ name($)in whkh the Stock Principal and more tuan one ow ner, all must be handled throueth a bi reghtered, and Social IAccutive Of fices pen.ons must sign. regktered Securitieri dealer. Security or talt identincation MMI South 27th Street

2. llage the signature (s) number on the account. A Decatur,Ilunob 6252t 1805 guaranteed by an author-lawl or Stolen thange of address 1orm is Telephone (217) 424&fX) lied representative of a Certificates hicated on the back page of commetrial bank or trust if a 6tmk tentricate is lost the Quarterly Report to

. Stodholder Records company or b) a stockbro er stolen, notification Stxkholders. and Dividend ker who is a member of one should be sent immcdiately Dishursing Of fire of the ma}or htock to Shareholder St rvices no a Duplicate htallings Patricia IL Perkins Because or shght thffer. Supen bor.Sharehokler exchanges.1here is umahy Stop* can be placed on the a no charge for this servkc, mhsing certificate. *Ihe let. ente in your name, addrew Servkes (The signature of a notary ter should describe the cer. or tas identt0 cation num-90 South 27th Street public h not acceptabled tificate in as much detail as twr, we may have more Decatur, Illinois 6252&l805

3. thi on the back of the ponible, including the cer, than one xcount for you.

dl free triephone certificate the full name in tificate number, date ksued We will consolidate these IMH00 H220 whkh the shares are to be and registration.

sccounts for ulum you reghtered as well as the Once a stop* has been hold the stock certincates invretor Relations addrew and Social Security placed on the mhsing cer. upon toccipt of a written . Ann 11. h1clivoy Number or other taxpayer tificate, the stockholder will request to Sharehohler Assistant Treasurer identlfication number of the be sent an af0 davit that Services signed by all regis-Director-investor Itelations new owner. must be completed, signed, tered owners of the stock. 500 South 27th Sueet

4. If you transfer fewer notarized and retunted in Decatur. Illino's 6252&l805 than the number of 61ures accontance with the trans.

Autontatic .Tslephone (217) 424 8715 - represented by the original fer agent's instructions McInvestnient and certificate, indicate on the before a replacement certin, Stocl' piirchase Plan hack of the certificate the cate can be hwed. An irre. If h and mufkW b exact number to be trans-vocanle indemra) bond for your own name, rather than

ferred, the lost stock certificate is through a bruker, you are}}

ML20210D454

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