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Illinois Power Co 1988 Annual Rept
	ML20246C329
Person / Time
Site:	Clinton
Issue date:	12/31/1988
From:	Kelley W; ILLINOIS POWER CO.
To:	;
Shared Package
ML20246C321	List: ML20246C323; ML20246C329; U-601518, Forwards Soyland Power Cooperative,Inc 1988 Annual Rept & Illinois Power Co 1988 Annual Rept;
References
	NUDOCS 8908240323
	Download: ML20246C329 (44)
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? M ,'yp;qcgy 4m n... ~. + .s. a ' i," pins ICCerddrbd prudence audit of Clinton wks M Tbf*1b Rosi& Coland Tlie'NieldenMster GEoup over a peri $d 6f almost L d50$M5ri$ndmmph Mpril,19882That audit considd2 thh ot@mESil'malingeine = ]ddlin$NhnstruhtionMheYallhffe$dMdditiodalls5e iddit'orscdndluded@ i;, k[t$iMtN$ percent of Clithdtic6stNE re$s6nE15 and "U i$cli'iddn rais0Ti$$ilditon did recommend, honever, a didllodnce of alimtE, ' M%nt2t!'dhr$)Acdcost311inoihlbwcr'islis i M Nht$E$42imilliSriN## A-A I.NI -. , ~ h 3e w gf gebmary 9, a heanng exanuner for the ICC issued la proposed onier with which? 4 ]y ~u py kwe sharplydisagni Our phase-iri nie plan wahejected in favor of a singlefearincrease / f ($M8 ?niilliondhsh$hird examinet' rec $mrhended Mudence d i ui %ddNion;whiM5}erchin highkthanihat 6f thd ICC's uniauditors. He also con. 1 i Duded htf 'm of Cl,ihtor is notl"uNd and u.sefub uhder state law an assertion h -s W r y~ d 8gyfthat wohld.have a sebere af.wfinancidlimp 1 '!Mdhidnhllyf if de proposed order wem adopted by thE ICC, the CothpanyN - M s#rsidgspould be' reduced to the point where its cSnmon stock 5vidend wdild S l + e hmikb$niially less3f paid at all/I urgeyoti to keep inhiind, however, this is a p6p j ~ Msrddfthat is subject to change by the Commission.' Lehne emphasze againkthat wel u ho%ly(disagres with the poposed Nder, and ws still believe that our rate-moderation - ] [hlan is fhe most appmpriaslong-term solution i r h earning suffen d in !?88 primarily because mtve than 523 billion of 1 y(- us. j iClintonfcostshave not. beeni x @Mh,are fot 1?88, c6mpared to.$s.ncluded in our ates. Earnirg n; .75 for 1987. y hiin[ny hope us'to be Ab$ to n part tb p in' this leuer the end of our financial ' ~ 1 r uncertainty Unfortunately, the neptiveimpact on earnings will continue unti' we get a ffinal brder fmm the C6mmission later in the year. a n ,x. Rih, ' Op. j = ..._...-..........................,,,.....]

pp - - g@wpgpM; $ 7 g ~ -_ a ngy .,,g, e .. m. sg. 4-. u, .m S dypf1DW [m w w.. e v x$. 'N ~m _ E5_ r MD F, b , ~ rv u N A,, N' 4 ~4 w%h&e h,' w% ' j g@ &g;+g. j'N 'O.L Q NG y 4 y g$@fWh% q# l ' A P R: anhhkge $i MbbnddfiehbNtb ik MMepn t v www gww u e .YA decasum m.se exwwadividenddec. mew.t a.isionswdlllependonhowourr > J p aournierasesfutu wm nu gav aves,tment'mClinton,)w mg ag www@o ~ %w V <v v', T, y@ m suestedag simr a' 4 nma w 4 $sy?hnygg$Nh fh)$(forlus fmanclallyaiyas. yQLan outstep;mgW, > ~ . i. n $h! h h 4hiQ - 3 j, : QL. ? y '1988 wasnot a-setsfymg) ear l i mu.. m

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yMom q m e% w m.; q "% y ihcad W W - m a~wwwNpqI+ m admwydne w M 81 $1 Watt M an nuclear,generatmg umts have outperform @Med-eihey A;# 9 e Company eoa n by xm mmuwethnton's performance durm. w ~w a mgitsSrstcalendars Ay gm ~nse tByyirtu every#we measureswwww ~ms-m we u <.m a 5 Yypr ofopera,non was outnandr ydts equivalent availability, at 74J pescents was.180 '., wue mg wwmn_wmlugiser an thc364 percent fir +stryear average fo;r s, a y +.hwmular bot ngN. @p-k vann m wxm n n. 1 1 percentage pomis mwmanww memwy w# %myu u4 water wactors.put in operanon smce1984g yW@ v1T 4 MkaMiNOb65hdEm$n$1[o1 IlM$ihtor[pla$t1mceivedMdJ [s MENerformhn' e mport.inE, d l$ theT f ' v e n $,$ $ 7 ~ M - @ w M c r-an g a' '. w thmC lintonteamed theNIO n x. m.'n.,gimd abmeM:um)1ast November $ww a. {Nucled gsm ar,g highestraungknecunty erage atmgs m all btherl aspects ofop..emtenst j i k idOperahodNMI65Nd%ersiinptdtigMIM idghest rafink s n:w n.ammm mm w w : xn m, L. Gnfmnted guh ext hot weather last summer, ou. r customen broke. records e fisdemandimdMadx,n~n s i;weSniplywouldnothaveha+d:. w- ~: =- nw w w uctswithout ~- elect. snwww www,mw.Cli

s. m ;Le nany Ep h genemtmg.capacuy p meet customer; demand on 44; days; coug hh

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w wm mm w:n m:vw wwthe$awand evidencem thecaseqfith wn n.ac w w-conclusonsareconmnfto both l Gi M is) Ef$ 9 ad$1/0 q y@a s p%glgg$n ESM2irfdisidrnid$$$fMdki g qq 7 pg ggg* &gqQiw & vQg, ggfe, kmN -, ? am lie ~ pW w a a .e w n mau u@)w+4thd: nCQ topluseln the temaininglosts 6f thegM e raisRlir s L on Rmerstanonma pars. m n v m 92 Me $m j m wwwww qw~penod 6,ftwn to 10mv. The+ plan pwndes forLa $nm.+g' ,6 w wmn -w;9n a wm o milhon mmase m electne nwnues W about 10.5 pestent -m ns fast sear annualm o iw.::w. n~SS w www m'wwwwu-n n 8m;m i wmr awwww w mhan$hn, ate ofinflaten for theparhous year but not: ncreases would on the r than0 L - +u w ymw m.nnw y ,.sw w ca:4, ww percenTIhe pmposal melddes a semor d:uzen discountra wpm pen:entand nota t 4 specialratef iment dwdlers and th:ree billmg;op~uom fo;r residential customers:m*' uww w. n wac w som m .~n R spatedec.w,or> ~ folkwthephase-m penod~/ 5 w wwn . ~ w ne w wa ag i t trase y~+ l m I hh@kT!ENoN$$hiridEshe lhstdof susismers andiiuckhd!ders afild51tkoug Y Mi ep@hnnMistidruilratemaldi@pmeticeatidsomewhddeh'sreco cryofc6ssM q $w%sMgikdtof & w J aha t en :nc pw t& MMmaintamU+nandalsmbilny.t,,... aner.gy yW f H ' ' 6ep%ces v,on'p#9 g, &eetliNMthth6se ofother~utilhies and the price of alternstik y % ltifesi y& 4 - g our

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i m,m A+g u -: w MONTROLLINGDOSTSL 6 4 x ;*im A gpm < y - s ww4 s, A R S caNSils sre h s w) and revenues are on the nse:w~n C~ompanyiw w nn}I howni h con ta ww w n.,, n a s aa n a c d dM309MndlNonMn'n38s(vntendstokeepotheroperatm nm sTh j $%g MdalisnaO6Yxpenseurj5ktM,e i ~O v ;n w m m a w s /~ ptClompleu. he nerauon expanston program eh>tmnated more than a half billionL ~g ng t , ~ypww a ww - 1,,, ~~g e.m w w meu liars 3annualcap :spendmg;. Construccon $1dgets mil remam at much lowery #n w' ' v f MMerMink$N351111$a$edd$ingEMMesew [wnnsMi tl6i6NMeehIonfk : nwn 4 9 'nfnn no pcid ram legidn m(the Com~pany d~oesn i expect av major generstmg p auon h - w asy,wn .. +l of: energy necessary10,4 aw w m n untfwlter>theam,lhnois;worken on,the jobnow and in the futureis availa .,n nd41990smeCompanye y m behevesthat the leve d a wm mm m amax.nw w n cm wwdownstateI -, an ~ ~ ar N p . w n a w.y nAr w nvewvfocuso:ny; ~ wn 89conunueto 4, p::nancmgstrategies s w~n u w u wm w ww e nemg!the co,um ~bt.and increasmg hquidityJDunng,s storde a w ym. rs am a maan a Constnation Expenditun,s i hepast,yearithe Company completed A~revo~lving;n. s ?* umru e ah c loan? 2 m.mxx en mw Dwun Sagreementwithww w we mhat reducesthegnterest- ,nme maar banks,t se e ma : = ~n w w . uun ~75 million)nlang;terml~ans bjih~reocighths off

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t rate m~ ~decm.,on and ; @ m,the unc_ertamty surmund,icial flexibility lthe Company m } l J

n mm o g[hsstM $75 miludriinl103ead ist moitgage bonds afa rate

~. b the ned for gmatstfmar %,of:lu ~perc,entt i l P l w e w op;,. gp' N, e w p n age ' L u _ m g? / ost controlis inherentjn all of the Company's ' F P P Pl-P' s 9 > Pbusiness decisio,n(During 1988,forexampleithe Company w m i* w w ~r~.. ~,- k; upgrad.ed data sp. ems equipment and consolidated all : wmvw" am.e- - $anahmentinformanon functions intojone' building The 1 %pp@SMd Me proElshs[helpsd the cityWeonomyand co ' ~ dedigi6n balanced prudent spending and effective use of lM 061dalternativesdenovating En existing building in downtown DecaturJ [$[ MIS $n Isss thAcdnstructing a new facility or expanding 'the bxis s 4 I; ;p; M13}nkit a$cnabled thEconsolidation of einplopes'imm several rented locati6nsg [ pbb upgrade and consolidation address the incmasingly'c6mplex management information i k fris6dsof thMuse?andimexpected toreducethecostofprwidinginfdhation%illingl ' # MNandpdMidi@cbssindfunctichs, hk diniboiklhveralsdihstalledimajoricomponensofacomputer-contmiledenergy Snidajement % tem during 1988/ Called Supervisory Control and Data Acquisition, m dj( 5 DdD$$e systeniconsolidates power producuan operauons and imprmes the A y ny h , + &_ < _, L

h h h b h h h k k b M;@ m w w< p A@ w~ n%~ % lh b 2 s mqwg%@pg g e n, w y m, m v qJ w 3M"Nb N kb@g g% oqpe f g e 9pMW $ yMM: s a ~' A M EM jje hSM hhMkr Sk [Mds!'iver%fenergy'to'custoMeniiWdliSCAI1 'M i ,' NkW N I h Mieliab1 h$ $ddEsI$oidtoIarh NiudfkNmm $ centralYdi$ 6$hedahsrNIN:bgd 1 gw$xvw + - m:m :m u w!I allow dispatch.w:mm4$ s r mnwx-v w compl elytytalled later thisyearithe system wi ersto monM cgm wm% % me = ; o mmoy s gma p g% +alinndya,nalym and resim4 ext:eme scather condsped pomeronagesu d 4 hhd[MMhkhhg$hkk@sdhhhhhh$h' j Inlat % beviewof the/ z arc w a m (name;forinmdepende gg d:mm ~eOctoberianbutsideconstihari wasretair wmnem n 4 a most suitable orgamzanonal structure and: size to nach thep %u:55%:v$dahdineetNsshnMiiihdEISiMdhinorsniSU ' i C s i Q> Ms gomp on elsew+here, mhe md~ustryThe pesent busmeas'c 3mnmwmmx m a mt as H awm wswxu;n i ,, ; forced o,ne m fouru..w_ e mm:me wbest compames mig a u tihuesimchidugmanypfihd hn wwm1 mmw wyxnmm mem A pndustry, to reduce the ovemil number ofsmp% cm,oa unithoseL T loyees and refoc qwu ennw ww a m W cactivm. =m : m u x wha. = fin ~a,nctal success and es that are most enubalto ac ievmg a hm'e(service 7oblisatio6h%hph%$h@h j % @~ n,hunpany fruze nirmg m earlyfantF The str cturmg g

%+brev nsi e

wm n m m e wn menn ;, 7 pyMjse@iew are still:bemg co r,dend a 1;" MMNh m%idd$00nNhetMiN6$L4td$d$1Ef$Nibdt5ihd p on3 5 l an x-wa wwww k w:4 and to;tmpue curtomer,semce; More than70 per tmatenal a 1 mnw x; m:ncy w em namn panys e oyees s wm awe m wry. num w_ aym t n w@mhave:ecei,ved~s;omttype of QP+trammgeSixtynf a wwn sm n m wa ~ewwwn mbwm m m epplaye. dave made more than 170 mcommend g1 ent es $ %3MNh[$hhdhIhM j h&[hnalnyandPrdductmtyteamrecommenhauonsra d,v$drhanaMrd$tnisiquesArid$ din 1%dluhSidMinI{$ N CI vsw.amhn wengmeermg work t at was previously contracted outnQP; teams have been 1 .- w w m m u m am . me mlishmgaindlicsecuontomomis.py mgdievelo%rm wwy{ y f, e w ww 1. w w l e qmestab iterght costs pingssemee area

upw w, w,. - w ny.

a s na vu wmuwm n 1

% pconstrt>cuon center to expedite ongo+mg projects and unprovmg storeroom se a a es e a w wwsa.ms n:u s ag va O aTins cc istant effort to impue customer lsemce and efficiency a. helpm,v. xdnu, + y gie uce?@a, am. e W]; QUgingih'eMP)ppmaMj > 4 4,gW3 g$$$Epa +,x n = n m , m(y . y mu y gopemtmdexpensess m , g&yw s y ,i c E nlndidngobstind$scisio sbme$ S ayemg g/m ww mme w mm W,ww r exampl,e, s~ mducmg~the amo. # m i F,o 4 ~ n n n pt on hand at po..~wer plants reduced thea o. & unt of coalke - mmg w WCompany's f$1 pumliasesb n ~ ~. M, NidosbhlOM.illhjddins$ymoreh$16millionIn?i988? r$1[ich. arryI$ga$dishnliEhh_arhe N e ceach year <The Co_m. ~. -. -pany also w. yL e % piphlines inL1988(a m{we that' saved inom'than Si0 midioni,jh[' j +m ~ P/ , 6.[$p '?N OINCREASINGcSALESj 7 , py gg + hsdinpan/s?marketingeffortsarkbasedlonmakindindustrial)custondershf Qf (9elmoreifncienkincreasing sales an 4 l New industrial gas sales'were 29.1 million therms f y@ewisales of electricity forj988 eseded%rgepibyndre Umn;202 millis @ikeutt obs f]4 Mwere citated,dming 1988 as a remh of:27 new i'ndustriEl

m. exisung businessesi mym ;v}

s e f M [ [In 1989[th(d3mpany. hopes to inemase total electr g thours., add 30 million therms of hew gas sales to iriddstrial customers) a$d lielp creat( " 32,750 newlladustri. al ahd eommercial jobs m ns semce terntory. Qditifrankl$ h6weverf L m Ethe barriers facing all utilities -including fuel switchingfcogenerations transmission H ,,\\ 3 q ? l h y 3 .~ .D g. ,s

hh hhk k Yk h h ? YkkYhYkh ~ g yqpppg$gg@heDompapqq p]4 Nbdb $ NM kNhb@ NN# sccessa$ p M"y -m thesenerdeconany ndpotennh .wwwg qu, ~&-pould,tedscety p w v w; N;A g unwwxawytgure earnmgs g g g

rnaapug and W[Qglgg!titeigrge$ggd@y@gespy pg$gM gg g

g Mgg [ I twerhas s pnvatenector econonne.d@elopinent staff ta diek p tate &n,llno f 'L L memewmn 4 NeCorppartworksclos.cxg%%wg swwm n +wo Om& y e dyp he 11hnots Department of Commerce and ng e w g 1; www wdocaltwwnww : xww wwwwwndMp;H y anumtyAffatts developmentymmuttees and other allies to strengthen local an i a R fgyg }w$gdg6pm_eniefforthashap#gg3 ggom49 gpMfh wg% ggh@@ewggp fjjt. p -% n e m m xuam1 edpM<linish'coatofpamt! k N u mny n @s Ng Thiikombm econonddden mont erRustBeh iSmce Januarf 1986;wwawww ag ocate ouwwmc)wumhswiwnd y w ?g g l s h morethanW5 usmesses ) wwo 4mn:ww ng nexyaridedw;nois Wwerkterysce terrnoryicreauagtnore than 14800 obsf Reente ut Ilh J i l i pnam wMopmentsuccesseshaverangedv umanwwdemlacturm@gapa n4 g i n i ammm mmm 1 p xcunomic dev from newsautoddate manu g yacennhnwwwx m m.1y %p g ag{py:"q9ggy 3 m g gh tedmologyem y h }hEbmpanfAcoononne{gg9ggggfg { f h compruesto 4 W%%gggggg evelopmentstrategymvohesIourbasicelements-R g r A a. w w w wn uMms g gprepanngw emIww sww>mwww wwwwlopmentag s g commumnes or dewlopmentiworbng closely wnh econonne deve k@ nan a mwfa nwwwm m wso m b u - tione gthout them; m efectnelypackaged 'I u m n wwp w; area mformation and h+ a

w mmmhhusmesspm;aytshereand a+

w y. vel ncrumn w m n; yi 9 %a yfL E-% ww g 4 s wmmwgW m nwnwnmx 2 m+jheMniversnygAwe cwwmmww ww.www%m owm4thnogeadinewwg ;,,;i ~ g g rdmg to teseanh compded by g p: ' S ananufacturmpob, creates atravenge of12 s+upport postuons fmm banbng to)gmmw men g:m' sum ~u m mnme pwdood sestaurantsgDitefibrts:of hundreds of econonne development or y 41 g% eows e.ew~lped reduce unempIovment m Ilhn%gank fds s wwwwewwy sw H 'y +tha;dgme,onomp,;hmehen percentsfinnta htshp +14 pett.ent m 19 a s anda rtsmg ec ots103 x, _#2nw m n y less-hf1 ,s a e m 3 + gwwgwa mm w nn x s v; M Jn+;1988yJ11moidbwer helpeil underwnte a feasi6thty stud for'a research% % f# yQM$,ies,estch,p, ark"mm$MhhshomidtheNa'ti,on,al $, s j$${@h1 nim DM@lM, $effhjM $_ ! m n -m.v k ((p6l cpu,als~ foMe + Iscause thy n. sh~ n gwamwegewm,eMidol i j a wme emy awm n enterfor Supercomputmg Apphcations andjtile $50 million Becht an Institutey _ u g k %hkM [%$% g$M@etEr$TeMiifQ $$$Q@ddevhlopgententnenmers dngjeemellentreseandhan %&Qj@%# g1 timvenaty h MndYN%wnm$$ ins 4MMMyhnologymiternatraml(nc;a;ecethdENEihEyMSEMid, iEnE ybg g. 7 % orrucdhelopment agencyMg. amygw a m amn n euehrm mm nw wn$w@w w pn wWThecomp;aya q c a wW y mnw %nwmm m to C uterg m imavedtheir eadqtunersfmmSurmyvale h r w-nm a w mmunlanstybuGdy :e,a 9milhon plantfcreatmg atxmtE0new jobs 6 <y: mductscompanyp f p p % e e u s aI e % +5 gMemorgStorapeDences nc4a ~ am a wya s ma m y }byQnyieMi%Michimykf$ wholly;ownedabsidiargwdlm m gj% anc nwy n3 y m y W m %pg >g gM ,~ @ >dM_M~DiamondfstarMMorifsh_intis_nturM_IChrysl_e(Ca% 9

. A rp M fj

~~ d uOllandM!tsu6 s,l~ Motors that b an mWe < b hSOl}ow!sy # -omlurmgfl988, heganpmducu. he g,0 - m c w ws g.y hom ngton Normah as been thenrgesthewi WW+'mdustrytolocateheryOtherautoyupply:mdustneshavegp ?g gg wammmmnupwna, nww < b$ h $$11MNdib@TAs$$31kNNi$sNBSdnNUtMNEhdg $ i %itMsi$sw%en mmwan intMikEdGeMNdsMiG6ssliiE&M p!taMawnm mn a, 4 8 Canadian Duto parts manufacuttergM04 [n %a,hb1$hN,gnalMernsthhkMaN$ NM,,dbrNIIlhNi(D$dKINifsNIdM p. we g maa a a y k paDe(mnnifIR0ndm10Rn AutoAtfm idOneN[g# firmstecCut Cond 1 h k [ M M y $8In g hi $ i @ h b k D h d N$$Mgf %Q?b. fMdiG Mhbbk r Wuensweriamuidatomnse w1 h 'ybsinesenrepinifeR6Edi@g$gggg?g% es fanifisEpaymEsdWQ p q v g g g g$ $ 6 R ?W& AMgMjR&%W&&2D%akW& R, lhs h 3M

WWMMEM P' MOEN' MARK 9?W"M W+94%##ME2m %w;;.s4%.wmk w$ww?pq? Y gp wn f f Y 'h N "f ghhh?Ykff y &kg&w?i a n WW .9 .l fl ax Lg&y Q @ i f p)W.gy&__1Oh f [g,,. r l' + 9

3

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4. 5 ment

.: v !yp tw g e y v, mg. _I M hk ba k pmducu. M;;\\ %- 7:% y Mdisi$6thddiAh15O06Nhnip1 Mss $d c-- 4 o.

energyusa6e: Centra!IlhnoisW Capuol Records.. stepped up.

on ocompact hb p Mddl%ddh6$eNjbEMNOd EUNnoidGEneradu$pan Id$ nil CMjdDMiddjNWit$EP?dIndtMi$AsirdNs uhsscsastMetio6%dkrenhejdocasMaddindhsMWeshiN 4 M3 m iuon(p/ grams opented b~y the Comparp-m ywm y servicearea markermg departAp xd gne-www u p .+anw w F h1 add e xJ.nmw. ro m -w wwww mm u s v ments added mowthan 27million kilowatt-hours mielectac sales during the pa_ star.9 eM. n . kmghtjijlitifoh6de$s$cdrityAtidlafeiMIEctN . piNrElsiSi$$de$iY$1NIEmmeinsal$dsfoEEidrfmirYl?thed L hi k ww s wx wm.m m wm :m m e' "& w , &ydalbagsandytheag&*Wr8energyprog%s y.ww ram created to help keep fumers competiuven E *T Ly 4 >b;: N5ll[@?$ H f A $ g, ddO W W $i 4 ;p-yQj p y - ; ngpg ya a ymu g m &, ;g yd y Mry Choose:(Il,knod, Pow,?_: 2 ,Fm 1 n er DHinsis16ver'sindtsialiate.sastheJowsdf o e & .y 3,M g .. Y y%pgg_y Q y&% lgi J flowerhaSL28'of tb-50 larged uti,litiesfirithe;tiatio m. ~... of thEd_nilties bsdd mi,h'e state and- ,n +. c w 1515$iMurbaid by inilhitridilssuinierfdrOped io18eentds!988Niownftsout% g [jd:EntMA4 centspeddhatS$u5rd987MCAmkih$,wn m idhiAbmes ~wy 4 -...wnw www w :.w nwa : n .M us for pmspecuw,employeesL are among the lowest m the state a. n.d less,than those g M, w.m . 'r9m o yC < m - W~ w M Ag.u m -- m e +ycustomers of Midwestern utilitiesM e C b V 4.m # sm y, intes m,- r w w.m ~ y can offeirindustrial,u. stomen.n thaty4 q

Wiih flexible ratd designsithe%,

Com 0 compete lfavoiably with their o,wn abiliti; ~ c my 4

c. -.

~~. ~ > w - typi M

$dtkEONuddd$NNINnois Ibweir and AD5Isigdid sliv$NeorisdUhiihalldoh QlAlectri8M~eddSideO9874 ADM had

[ M k $ M u%ph$kjoni6: @ h$ir n mehiing most ofits energyneeds with hsl i m um x 2s y wm a mg; r.4 town:coalsfigcogen,erauong ntg, s - n ya ,gg 4 t s + v u JQgf,Q 4 q- >) d m9 e8: W N.' y i hf hbidf111Ntois ibwer receivehhe propos;ed increase, iales me e' pbered g) x fMremain' competitive?About sne fourth of the7 energy thattustomers usedJin :1988 v0asn,] ^$ igenerated by ClintonyThe semainder came ; primarily fmni 10 mal-fued generating units'. N Companwn of.II'IndusDial l-lf""'" Analysts believe thai the deli 6ed : cost ofenergy 9 Awragc Electnc l'ncc to fmm a system based on a mix ofcoal and nuclear Midwest /ndustnul AmraRc l j f,u"'mo fuels will thmain relatively stabl for the next-' ? e ( e Po bl u u he tinee to five ye.ars. The Compan. y agrees. ' h,j ^m.e-, l I 7 . k business pmspectsare as concemed ] W j q ,F. f.-. l" about supply as they are about priceMith l c s a sm _ c_ Clinton in operation, Illinoishwer has enough ? r - e a .a' generating ca.pabilityto meet gmwing customer v u needsiAnd, when economically attractive, 1 4 f f 7

m F

I connections to 11 other electric utilities allmv - ~ I l C fmancia3y sound power purchases. g <m .m a l. w w w w w

},n 8

l F -j ?I ( i s

g. Q9apQq +m a-%~ n-p ,y y M; 'k Q' lhl\\' t a O' d_j { MAINTAINING SAFEfRELIABIiEl I'ERATIONSi s dl& W M 1F,*csdivith hot, ary weather 1his past summer, xidwestem;1s rumed to' the , [DrSfodbf air conditishing'in their homes and offices. Asthe mercury mse, Illinois ilbdr customers bmke the pevious all-timd peali demand for electricity.12 times i 4 / bSneed late-June and mid-Aujust.The heat wave of 1988 pushed customer demarid X Mtol levels not expected.until 19981. G iTlie dAmand for electricity mached 1775 millionL % [ldilowatts dtiring the" afternoon of A0 gust 16 - 11.5! Electnc Peak Demand ' fphrceiit highef th'an the 1986 record and 14 percentf h w m'nt w w "i'" M w o I _[ hhshee fomesst[Cusiomers also broke the daily usage. c;q i,,ryyjg Jrecordfusin' 75.4 million kilowatt hours--.12 percenty l i i s c gg , ;above the 1986 record.M { i mou, fa is i TDunng the week df August 14-20, customer use of l 1 , 4 electricity mached 468.5 million kiknvatt-hours -- thei b -- F

thins successive week'that the 1986 record was bmksn.

~ ht k l l % fE4iectrichy fmm Ciinen made oie afifemoce [~' D summer. The dsmand for electricity on Illinois Ptker's ? ~ L ~ _,,g l Mtween fSiling short and meeting customer needs last b j { R 6systemwas so great'that etistomeri set four successively. p l 'I"'("' [ higher phaksLWiihdut eleciricits from Chnton,

( between latsLJutie and midiAugust would have been

~ ~l 3, ydemand ion;44 days during the eight9veck period l l c,, D Ihighef than ihe Campany's ability to generate. Without k ) k V L { Clinton(the Company would have been forced 101 ,w w w w ,m $ interrupt power to 88 majorLindustrial gustomers - l employing more than 51,000 people on 12 of those days. Customer demand and inemased intentange sales pushed electric generation up ; Lby mom th'an 11,5 pement dsring 1988. Fhr this reason, the Company's total fuel bill. mss to $292.8 million'in 1988, up fmm $262.6 million the year before. With Clinton iri ! operation [howevu, coal purchases declined to about 6.3 'million totis, down about 16' ~ s percent'from neaily 7.6 million tons in 1987. Nevertheless, the Company continues to. ibe one of the largest users of Illinois coal, buying mon thaa 5.5 million tons in 1988. 1The clinton byer Station also gives Illinois Pbwer the opportunity to mduce

power purchases and sell more electricity on the interchange market. The amount of '

fpower sold to these interchange customers incremed by more than $17.3 million in '

1988,phile purchases declined about SM.5 million for the year.

m,; MAchieving OperatingExcellence H, g-

E;en though the Company spends less, on a per customer basis, for unii mainte, u

l < nance than the average for utilities in the state and the industry, the equivalent availability: E Ef the Company 1s coal-fued units was a healthy 81 percent in 1988.From 1983 to 1987, the i equivalent availability for Illinois hvert fbssil-fired units also averaged 81 pement, JGcompared to a five-year industrywide average of about 76 percent for units of similar cize. m, P$ , y. i

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.m vf R;,, t Jrhe Clinton Rmer Station also operated at levels far above the national average for MNnucleaiNetAd/CIStont eqdivalent availability Ja measure ofhow well a plant is N Thiill/operaEd and maint$nedM was 74.7 percent during its first calendar year of hd %n[similsrl[sizbd boiling waterfeahtokk in th'eit first year cf tidrEThis is well SSve the ind0stry average of 56.4 percent s j k,jopeMion a6d the 71 Nrcem equivalAnt availebiliiY experienced U, ".'f'"' M 'W l(.""'N * "I 10 Adlh"ld DM nddstrywide thrdugh SEptembeil9881 ^ NR F" ' " '" / " '""" '" .glWgMW ^Wl l. 0 =E ~~

^ ' '

l7 Q f i,,, L s~r ~. E f nNovember,thsNuclearRegulatory Commission (NRC)- h Mold ihh 6mfany"tha'tDibtonipedi$mance was good and getting Equimicnr amilabilityfaaor U% 56A % @M heuer. In presenting'itslYstanatic' A$essmeni of Licensee Itriiir-9d[mance'(SAIE)y an anhualespcat"caid MRC Regional Adminis-Unplanned automatic 2 5# i yk$ratofn Bert Davis'said["I,believeLyour performance during the shurdowns %/dillich emiddonhfsompleting power iscension testing and hMmoving intolcomrdercialfoperation widcommendable Your close - Unplannedsafervsystem f 3,9 "#d"d'"" y ynehtidio pmblems and phrs rmanceis tecost ized, dmtinuing @kthispractic' ahd attunding t6 those areas discussAd in the SALP " b ' h = h! ffovekvisw shouldl serve you wellin your pursuit ofexchilence ".. linredinnage rare 6.5% 10.9 % %[NactiNt}ss End a generally'conservativEoperating philosophy, Diis also praised attentive' management involvement over licensed $g M 4 In th'e report, co ering operations imm September 1987 thmugh August 1988, M CliEton carned ths highe'st Eating in security and above-average ratings in all other al spens ofoperatidns. Plant'operationkthe NRC said, were impmving towant the NMhighest rating. h.'

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.h a W [ rdanh1989, the Clinton Rmer Station began its first refueling outage. @WThe plant generated about 6,6 billion kilowatt-hours since it was placed in service in b < [ April 1987. About 27" percent of th' initial core-J168 fuel bundles-will be replaced e II With'nen fuAl liundlesla'nd the plant will be placed back into service by early spring. % ;b '~ s 4 o .3 / .5 a .,g 4 jQnintegratsdNatural Gas System y= 3 p p h m) > Illinois Rmer delivers natural gas to more than 385,300 customers ewry day. In D / fact, ths amount ofnatural gas dehvered on the coldest winter days has an % (energy equivalent three times greater than our customers' highest demand f ifot electricity on the hottest days of summer. .g & (In order to contml costs, remain competitively priced and retain major ,[ customers, Illinois Rmer continues to take the. fullest admntage of price 9(7 competition through its connection to five maior pipeline companies, an I $[(hitaconnbeted distribution system and eight stomge fields developed in } [ CerArAl add Southhni Illinois. Using this portfolio appmach has kept the price p /of gas compeiltivE and saved customers more than $160 million over the last six g deaslIn addition, direct sales to industrial customers increased more than 59 $g $nillion therms,up about 61.7 percent tium gas sales to these customers in 1987. ff t incidding natural gas transported for customers, the amount of gas 7 i delivered increared more than 1.5 percent in 1988. Competitive gas prices and b icooler winter weather, however, helped increase direct sales to customers by W, r, 1; 29;. f: - z ll ll ?. uI l

ebout 18.6 pement. Sales to weather-sensitiw residential customers ruse by about 35.4 million therms, or about 10.7 percent abcne 1987. And deliveries to commertial customers in 1988 climbed about 6.4 percent. Rewnues fmm the sale of natural gas } increased about 8.5 percent compared to 1987, to nearly 5334.8 million. l ENHANCING PUBLIc UNDERSTANDING -.) 'np r g gj 1mpaning public pemeption and understanding of Illinois lher as a fp senice-oriented, competitively priced pnwider of electric and gas service is -y an essential element in ensuring the Company's future financial heahh. The hey to Illinois Iber's strategy is prosiding more effective communi-cations to the public, state and federal legislators, the financial community MN and the news media. Enhancing public understanding begins with every customer contact. The Company began the "Custemer Connection" program in 1988 to pmmote quality senice. Monitoring customer satisfaction after senice installations or outages is part of this effort. Going the " extra mile" extends to customers in need. This past 3 ear, the Company began assigning trained customer assistance advisors to senice area offices to help these people find appmpriate public and private assistance programs. And, speakers from the Company's senice areas reached about 113,000 customers in 1,900 public forums during the 3rar. In addition, the Company launched an ambitious communications impnnement program in early 1988. It includes personal visits to key congressmen, senators and state legislators who represent the Illinois Iber senice territory. Additionally, Company representatnrs met with newspaper editors, reporters and television news directors thmughout the senice area. Reaction to these visits was positive, and the Company plans to continue them thmughout 1989. In an effort to better understand the concerns of customers, the Cempany established two consumer advisory councils: a 12-member !}N l'll [ l l-council in the Bellesille senice area and a 13-member council in the I.' Oiampaign-Urbana senice area. These councils are composed of members who represent a bmad cross-section of business, consumer, social senice, g senior citizen, minority and educational interests. Y\\ ( 3\\d \\ s3 g O f Last May, the Company launched a new advertising campaign [ designed to make customers more aware of Companv-sponsored senices ] and programs available to them by calling their local office. Consistent with these efibrts, the Company also has sought to impruve the eflirtiveness of all ofits customer communications materials, including bill insens um and the billitself. Ongoirg consumer research conducted by the Company indicates that j these efTorts are producing positive results in terms of achieving a modest impnnement in public attitudes and a better understanding of the need fiir Clinton. I knvever, Illinois ihrr fully understands that reaching an acceptable level of public understanding can ~ only be achieved over time through systematic, candid customer communication. IMbiL f

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l FINANCIAL REPORT Ranagement's Discussion and Analysis of Financial Condition and Results of Opera: ions l Reference is made to the Financial Statements and electric rate moderation plan to incorporate Clinton into Electric and Gu Statistics for information concerning rates. In Illinois, the ICC may include in a utility's rates financial conditioe and results of operations. The factors only those costs of a new electric generating plant that are having significant impact upon financial condition, changes determined to be reasonable. Therefore, an audit of in finan.ial condition, and results of operations since Clinton construction costs was cenducted by auditors January 1,1986 are discussed below. under contract with the ICC. The Clinton audit proceeding has been consolidated with the rate proceeding, and an ICC order covering both cases is expected by March 31, 1989. The Company has met with the ICC Staff (Staff) and E!qu!dify and Capital Resources other interveners in an attempt to reach a settlement of The Company has had adequate short end interme-these proceedings, diate term bank borrowing capacity and flexible access to The Company's rate moderation request includes a the permanent capital markets. The Company's first first-year electric revenue increase of 10.5%, producing mortgage bonds, however, are currently rated BBB+/ approximately 592 million of revenue annually, net of Baa2, and the Company is on both Moody's and Standard anticipated fuel savings and a senior citizen discount. This & Poor's list for possible downgrading. The Company's first-year increase would be followed by annualincreases future financial integ-ity depends on a number of factors beginning in 1990, for six to nine years. These annual including the ultimate outcome of the pending rate increase increases would be tied to the rate ofinflation and would and construction audit proceeding discussed below and in range from a minimum of 3.8% to a maximum of 5.9%. " Note 3 -Clinton Power Station" of the " Notes to The Company's rate moderation plan requests recovery of Financial Statements". Evidence has been presented in the all ofits share of the cost of Clinton because management proceeding, which indicates that the Company's financial believes that those costs were prudently incurred. Under integrity may be seriously jeopardized if the response of the the deferred return provisions of the phase-in plan, cash Illinois Commerce Commission (ICC) does not result in a flow of approximately $250 million would be delayed reasonable return on common equity and sufficient cash during the first five years for recovery during the remaining flow to cover current and future cash requirements. In years of the plan. view of the climate sc.ounding the proceedings and the On February 9,1989, the ICC hearing examiner in outcome of other utilitiet rate proceedings,it is probable the Company's pending electric rate and constaction audit that the ICC order on our rate rcquest will not provide for proceeding issued a proposed order. The Company's full recovery of all Clinton Power Station (Clinton) costs or management was extremely disappointed with the the rate increases requested. However, the Company is proposed order, as it rejects the multi-year, phase-in rate unable to determine the ultimate outcome of the plan, recommends a construction cost disallowance much proceeding and, accordingly, no provision for loss has been higher than that of the ICC's own auditors, and allows a recorded in the financial statements. The treatment of the common equity return on only 24% of the reasonable cost g Company's investment in Clinton and the amount of the of constructing Clinton because only this portion was E rate increase granted may adversely affect future dividend considered to be "used and useful" by the hearing h decisions.

examiner, Specifically, the hearing examiner proposes a one-2 Regulatory Matters - Electric rate increases of 9% each time increase in electric rates of 544.8 million annually, or h

became effective in October 1986 and April 1987. Both 5.1%, to take effect in April. This recommendation is based s increases were authorized by an August 1985 ICC rate on a proposed construction cost disallowance of 5712 k order and increased the amount of construction work in million. Following three years of scrutiny, the auditing g progress (CTIP)in rate base by $384 million end $352 firms retained by the ICC-Touche Ross/ Nielsen-million, respectively. At December 31,1988, the Company Wurster-concluded that $459 million of the cost of E had 51.54 billion, or 40%, of Clinton costs in rate base. Clinton was unreasonable. Auditors separately retained on f These rate increases represented additional annualized behalf of the Company to evaluate management of the w revenue of approximately $125 million. Clinton project concluded that the Company's manage-h In November 1987, the company requested an ment of Clinton was generally reasonable. 4

p 4 m 4 %d h 1s ONO %A EMW 4 N V N o ' ' ?*h W 5 h 45 '- -4 L% W i -- " ~ < JOMM The "used and useful" disallowance permits recovery rates to reflect the lower federal income tax rates under the of all costs except a common equity retur i on the 76% Tax Reform Act of 1986 during the deferral period. As a investment in Clinton deemed to be not "used and useful" result of this order, earnings were decreased $14 million in other words, the examiner recommends that the (20e per share) and $19 million (28e per share)in 1988 and Company be allowed to recover all Clinton operating costs 1987, respectively, and will continue to be decreased by and full depreciation phis the debt and preferred stock about $1 million per month until the electric rate order is return on reasonable Clinton costs. The proposed order effective. permits the Company to request periodic electric rate The Company adopted Statement of Financial increases as Clinton satisfies the "used and useful" Accounting Standards No. 92, " Regulated Enterprises-standard proposed by the hearing examiner. Accounting for Phase-in Plans"(FAS 92)in January 1988. The Company believes that the hearing examiner's FAS 92 does not permit an allowance for return on conclusions are contrary to both the law and evidence in shareholders' investment to be recorded for financial the case. If the "used and useful" disallowance is found to statement purposes as a component of post-construction be unlawful, the rate increase in the examiner's order cost deferrals. The amount not recorded was $121 million would be increased by about $200 million. The Company in 1988 and will be about $10 million per month until the will ille a formal reply to the proposed order on February electric rate order is effective. Cash flow in 1988 was

23. If the proposed order is adopted by the ICC, it would unaffected by this change in accounting.

have a devastating effect on the financial condition of the Company. The Company projects that up to $1.3 billion would be required to be written off as a loss. At that time, Capital Resources and Requirements While cash the Company would have to evaluate whether it continues flow from operations declined in 1988, cash flow from to qualify for reporting as a regulated enterprise. See " Note operations, net of dividends, amounted to $73 million for 3-Clinton Power Station-Accounting Matters"in " Notes the years 1986 through 1988. Funds obtained from to Financial Statements" for further discussion of this external sources during this three-year period totaled $1.7 matter. Although the Company projects that it would have billion, of which $986 million were used for debt the ability to service its existing debt and preferred stock retirements and a preferred stock redemption. requirements, common stock equity and earnings would During the three-year period, temporary cash be reduced to the point where common stock dividends, if requirements were provided by short-term borrowings. At paid at all, would be substantially reduced. Further, the December 31,1988, the unused portion of our total bank Company could be severely restricted with respect to line of credit was $326 million. issuing first mortgage bonds and unsecured debt. In June 1988, the Company issued $75 million of 10% Should the ICC ultimately determine that a portion of First Mortgage Bonds, to pay off short-term loans and for Clinton construction costs not be allowed for ratemaking the Company's continuing construction program. At purposes, the disallowance would have to be recorded as a December 31, 1988, based upon the most restrictive loss. Such a loss may be material in relation to earnings and earnings test contained in our Mortgage and Deed of Trust, financial pos. ion. Cash flow, however, would not be approximately $273 million of additional first mortgage reduced immediately as a result of such a loss, but would bonds could be issued at an assumed interest rate of 10.5%. g be reduced over the life of the plant. Construction expenditures for the years 1986 through g A November 1987 ICC order provided for the 1988 were $1.1 billion, including approximately $296 y deferral of Clinton related depreciation, real estate taxes, million of allowance for funds used during construction j and financing costs until a rate order, expected in March (AFUDC). 1989, reflecting the inclusion of Clinton in rate base Construction of Clinton was completed in 1987. The j becomes effective. The order specifies that such deferred Company owns 86.6% of Clinton and two cooperatives = costs and the related financing costs ($380 million at own the remainder. The Company's investment in the December 31,1988) will be recovered, only to the extent plant is $3.9 billion. y that total Clinton costs are allowed in rate base, over the The Company estimates that $715 million will be 2 remaining life of Clinton. The cash flow associated with required for construction during the 1989-1993 period, y these deferrah will be delayed until the deferred costs are including about $106 million for nuclear fuel. The recovered in rates. Under this order, Clinton operation and retirement at maturity of currently outstandmg long-term j maintenance com are being expensed currently without an debt and redeemable preferred stock and sinking fund increase in electric rates to cover such costs. However, the payments on first mortgage bonds will require approxi- ) ICC did not require the Company to reduce its electric mately $706 million during the 1989-1993 period.

l Tax and Accounting Matters - Many aspects of the Tax The Company faces many issues related to Clinton. Reform Act of 1986 (Act) have affected our Company in See Note 3 in " Notes to Financial Statements" for .1987 and 1988. These include the corporate income tax information regarding these matters, which could. rate reductions, repeal of the investment tax credit, a new - materially adversely affect financial liquidity, results of ' depreciation system for tax purposes, and a corporate _ operations, and financial position. citernative minimum tax. Although the statutory federal corporate income tax rate decreased from 46% to 40% for 1987, and to 34% for 1988, cnd the Company's total book Results of Operations tax provisions correspondingly decreased, the Company's current federal income tax liability was greater than it Earnings for the years 1986' through 1988 were would have been under prior law, by about $33 million in significantly supported by non-cash items such as 1987 and $9 million in 1988. This results primarily from AFUDC, allowance for deferred Clinton financing costs, the Alternative Minimum Tax (AMT) provisions of the and the deferral of Clinton operating costs. Earnings Act. The amounts paid as AMT will be used as credits to declined in 1987 and 1988 and will continue to be offset regular income tax liabilities in future years, in depressed until the operating and capital costs of Clinton accordance' with Internal Revenue Service requirements, are fully reflected in our rates. The decline in 1988 earnings depreciation-related deferred tax balances will continue to was offset somewhat by a change in accounting for unbilled be normalized at the weighted average tax rates at which revenues. The after-tax effect of the accounting change for ~ they were provided. 1988 is an increase in net income of $43.6 million (61r per Pursuant to an ICC order, the Company has recorded share). This increase is a combination of an increase of $34 the benefit of the lower federalincome tax rates collected million (48e per share) attributable to the cumulative effect from our gas utility customers as a liability subject to of the accounting change to January 1,1988, and an refund (58.1 million at December 31,1988). Uhimate increase of $9.6 million (13e per share) in the current disposition of this liability will not be determined until the results of operations. ICC completes a review of the overall impact of the new ton act and the financial condition of gas operations. Electric Operations - For the three. year period 1986 The Financial Accounting Standards Board has issued through 1988, electric revenues increased 23.9%, the Statement Fmancial Accounting Standards No. 96' components of which are summarized as follows: - " Accounting for income Taxes" (FAS 96), dated December 1987. This new standard adopts a " liability less 1987 lee 6 method" of tax allocation relating to transactions that affect (Mimona or poum) book and tax income in different reporting periods. The Rare increases,.... $ 23 5102 irapact this standard will have on the Company's earnings Volume & other......... Is 6 47 fuel eost remeria. (2) 01) I and financial position depends in part on actions to be $g g Revenue increase (decrease).... 8 9 taken by the regulators. Although adopting this standard may result in a significant increase in assets and liabilities, the Company does not expect a material effect on earnings During the above periods, kilowatt hour sales have i if the Company continues to meet the criteria for reporting been affected by weather, by economic conditions within our service terri ory, and by ongoing conservation efforts. %-l under FAS 71. The statement must be adopted no later t then 1990. Ilowever, depending upon the ICC's actions in in 1986, the Company experienced a 5.6% increase in p: the pending electric rate moderation plan, the Company kilowatt hour sales, primarily due to warmer summer C may adopt FAS 96 prior to 1990. weather. Due to the seasonal rate design, the revenue effect l! The Company currently prepares its financial of the October 1986 rate increase was minimalin 1986. In Pe stetements in accordance with FAS 71 and therefore 1987, the Company experienced an 11.9% increase in 5l accounts for the effects of the ratemaking process. The revenue primarily due to the increases in rates in October i! ) Company will evalua'e the fimal ICC order in the rate 1986 and April 1987, partially offset by a provision for rate j proceeding to determine whether it continues to. wt the reduction of approximately $23 million. This amount t> E criteria of FAS 71. See " Note 3-Clinton Power Station-reduced electric revenues during 1987 and was credited to E 'l Accounting Matters" in " Notes to Financial Statements" residential electric customers' 1988 summer bills. This rate for further discussion of this matter. reduction, as approved by the ICC, provided a temporary solution to the residential electric summer / winter rate differentialissue. A permanent solution has been proposed ,1

~3, y y g 3y n MsdidaaL shudM&M mA%%MAM%&% Land &da k%AMM&M in the Company's electric rate moderation plan. In 1988, net increased $13.4 million. Lower fuel prices in 1987 the Company experienced a 4.3% ircrease in revenue resulted from coal contract renegotiations and a favorable primarily due to a 2.6% increase in kilowatt-hour sales and spot market for coal purchases. The increase in inter-the absence of the prior year reduction in revenues by 523 change sales is primarily due to greater availability of the taillion for a provision for rate refunds. These increases Company's lower cost generating units and market demand were partially offset by recoveries oflower fuel costs under for electricity. the Uniform Fuel Adjustment Clause. The increase in sales During 1988, fuel for electric plants increased $30.2 reflects the extremely hot weather during the summer, as million (11.5%). The credit for power purchased and evidenced by a 4.0% increase in kilowatt-hour sales to interchanged-net increased 531.8 million (62.4%). The residential customers. increase in cost of fuel of $30.2 million reflects an 11.5% The cost of meeting the Company's system require-increase in electric generation, partially offset by the fuel ments is reflected in the cost of fuel for electric plants and cost savings from the operation of Clinton. The increase in power purchased and interchanged-net. Changes in these interchange sales is primarily due to greater availability of costs are summarized as follows: the Company's lower cost generating units and market demand for electricity. (Millions of Dottars) Gas Operations - Effective October 31,1985, the Fuel for electric plants. $ 30.2 5 (2.2) 5 (8.9) Power purchased and Federal Energy Regulatory Commission (FERC) issued an interchanged. net. ( 31.8) (13 4) 11.4 order that established new rules for transportation of natural gas by interstate pipelines. One effect of the order Totalincrease(decrease). $ (1.6) 5(15 6) 5 2.5 was that pipeline companies cancelled agreements with cena wr cut mers t uanspon gas oW h sud Changes in the above costs are caused by system load customers. As a result of this order and because of requirements, availability of generating units to meet those requirements (including Clinton generation in 1987 and decreased gas costs for astomers on the Company,s 1988), fuel prices, purchased power prices and volumes, system, certain cust rrert esumed purchasing gas directly power interchange market conditions, a power coordina-from us, as reflected in 1986 gas sales statistics. In 1987, tion agreement with two cooperatives, and recovery of fuel m te liberalized interim transportation rules used by the costs through the fuel adjustment clause. mai r pipelines caused transported therms to increase Megawatt-hour generation increased 1.4%, 5.1%, and again. In 1988 transported therms decreased because a un er customers ekcW to pudase gas kom 6e 11.5% in 1986,1987, and 1988, respectively. During 1986, coal-fired generation averaged more than 99% of the Company rather than use gas transportation arrangements. Company's total generation. During 1987 and 1988, coal-Fees for gas transportation service provided an operating ma n c mpara et at wM wd have been camed fired generation averaged 91% and 74%, respectively, and nuclear generation 9% and 26%, respectively, of the fr m making direct gas sales. Company,s total generation. The weighted average cost per Gas revenues decreased 16.5% during the three-year megawatt-hour generated was $15.30,515.10, and 514.50 peri d 1986 through 1988, tne components of which are summarized as follows: in 1986,1987, and 1988, respectively. During 1986, fuel for electric plants decreased 58.9 1988 1987 1986 g million. The credit for power purchased and interchanged-(Millions or Dottars) net decreased Si1.4 million. Lower fuel pnces in 1986 .a f resulted from coal contract renegotiations and a favorable "h* s 3[g 5 52 ) z spot market for coal purchases. Reduced availability of the c s cost recoveries (7) (5) (48) { Company's lower cost generati;ig units in 1986 contributed Revenue increase (decrease). s 26 5 <61) 5 (31) m to decreased interchange sales. Increased customer

=

5 requirements and increased sales under the power f coordination agreement, coupled with greater availability Therm sales, which exclude therms transported, e of low-cost generation from other utilities in the increased 7.3% in 1986, decreased 21.1% in 1987, and j interchange market, caused increased interchange increased 18.6% in 1988. The major factors affecting therm 3 purchases. sales for the three-year period were changes in economic During 1987, fuel for electric plants decreased 52.2 and weather conditions, custorner conservation, and gas g million. The credit for power purchased and interchanged-transportation arrangements as discussed above. In 1986, I

the combination of therms sold and transported repres. ICC, was $804 million January through September 1986, ented an increase in gas consumption of 0.5%. In 1987, the $1.156 billion October through April 1987, and $1.54 combination of therms sold and transported represented a billion May through December 1988. The AFUDC decrease in gas consumption of 8.0%, reflecting mild effective after-tax rate was 9%% in 1986. In 1987, the winter weather and the impact of several industrial AFUDC effective rate was 9%% after-tax for Clinton and customers using alternate energy sources. In 1988, the 11% before-tax for all other construction. AFUDC on combination of thctms sold and transported represented an Clinton was discontinued effective with the April 24,1987 increase in gas consumption of 1.5%. Therms of gas in. service date. In 1988, the AFUDC effective before-tax transported for customers were 253 million in 1986,327 rate was 10%. million in 1987, and 235 million in 1988. In accordance with a negotiated settlement, $129.2 The cost of gas purchased for resale, which reflects million was recorded as Clinton deferred financing costs for volumes of gas delivered to customers, decreased $25.0 the period April 24, 1987 through December 31, 1987. million and $50.2 million in 1986 and 1987 respectively, During 1988, $57.8 million of Clinton deferred financing 4 cad increased $21.9 million in 1988. The average cost per costs were recorded. Such financing costs are calculated on therm delivered to customers decreased 12.6% in 1986, Clinton deferred costs and plant costs not in rate base 3.1% in 1987, and 11.2% in 1988, reflecting declining subject to ICC jurisdiction. Clinton deferred financing prices, advantageous use of spot market purchases of gas, costs were calculated using a 9%% after-tax rate through and changes in the Company's gas contracts with pipelines. October 1987 and 8%% in November and December 1987. During 1988, Clinton deferred financing costs were calculated using a 2.75% net ofincome tax rate reflecting Other Expenses and Taxes - A comparison ofincreases the debt component of the Company's financing costs. in other expenses and the credit for deferred Clinton costs , AMC and deferred Clinton financing costs for the last three years is presented in the following table: decreased $141.1 million due primarily to completion of construction of Clinton in 1987 and amendments to GAAP, 1988 1987 1986 which prohibit the capitalization of an allowance for return (Minisons or Donan) on shareWers' inwument in pomeonstrudon cost Other scrating expenses. $M $58 518 deferrals. Montenance.. 5 22 8 Depreciation.. M 76 2 Il 11 1 Interest Charges - Interest charges increased $24.0 General axes. Deferred Chnton costs. (37) (78) million, $4.5 million, and $8.7 million in 1986,1987,and 1988, respectively. These increases primarily reflect the The changes in other operating expenses reflect the $1.189 billion of long-term debt issued during the three-impact ofinflation, increased employee wages and benefits, year period at a weighted average interest rate of 8.4%. and increased insurance costs in 1986. The increase in 1986 During this period the Company retired $840 million of maintenance expenses primarily reflects power plant long-term debt with a weighted average interest rate of maintenance requirements. The main reason for the 1987 9.4%. and 1988 increase in other operating expenses, mainte-nance, depreciation, and general taxes is the beginning of Earnings per Common Share - The changes in net Clinton operations on April 24, 1987. In addition, the income applicable to common stock in 1986 through 1988 Wl Company recorded a S78.3 million and $115.4 million resulted from the interaction of all the factors discussed ,[ redaction to expenses in 1987 and 1988, respectively, to herein, including the issuance and retirement of preferred E reflect the portion of Clinton depreciation and real estate stock. Changes in earnings per common share also reflect 3 taxes deferred for future recovery in accordance with the the increased number of common shares outstanding in E' negotiated settlement. each year. See Notes 12 and 13 in " Notes to Financial hl For a detailed analysis ofincome tax components, see Statements" and Statements of Preferred and Preference Note 8 in " Notes to Financial Statements" ggg g E' Other Income - Total AFUDC increased $57.2 m21 ion in inflation - Inflation, as measured by the Consumer Price 1986, decreased $146.1 million in 1987, and decreased hMex, was 1.9%,3.7%, and 4.1% in 1986,1987, and 1988, E $69.7 million in 1988. Changes in AFUDC relate to the respevively. The primary effect of inflation on the E amounts of CTIP not included in rate base. The amount of Company is that historical plant costs are recovered in the j Clinton plant cost included in rate base, as approved by the Company's rates rather than current costs. g i

MMMM&Rgyg&E;iyLEEL;pgggwdWghdMMdMdjrawgM&l&dEMh2M5fg Responsibilityfor Infonnation unanciai records are reiiabie fo, preparing financiai state. The financial statements and allinformation in this annual

ments, report are the responsibility of management. The financial The financial statements have been audited by the statements have been prepared in conformity with generally Company's independent accountants, Price Waterhouse, in accepted accounting principles consistently applied except accordance with generally accepted auditing standards. Such for changes described in Note 2 in " Notes to Financial standards include the evaluation of internal controls to

' St:tements". In the opinion of management, the financial establish a basis for developing the scope of the examination statements fairly reflect the Company's financial position, of the financial statements. In addition to the use ofindepen-results of operations, and cash flows. dent accountants, the Company maintains a professional staff The Company maintains accounting and internal control of internal auditors who conduct financial, procedural, and systems that it believes are adequate to provide reasonable special audits. To assure their independence, both Price assurance that assets are safeguarded against loss from Waterhouse and the internal auditors have direct access to the unauthorized use or disposition; and it believes that the audit committee of the board of directors. Report ofIndependent Accountants \\ Price Waterliouse To the Board of Directors ofIllinois Power Company In our opinion, the financial statements ofIllinois Power Company appearing on pages 23 through 38 of this report present fairly, in all material respects, the financial position of Illinois Power Company at December 31,1988 and 1987, and the results ofits operations and its cash flows for each of the three years in the period ended December 31,1988 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our l audits provide a reasonable basis for the opinion expressed above. g As described more fully in Note 3, there are significant uncertainties with respect to various matters related to the Clinton 3 Power Station including the determination of the extent, method, and timing of recovery ofits related costs, litigation, and I obtaining rates which provide adequate cash flows to allow the Company to maintain financial integrity. Management is unable to determine the ultimate outcome of these uncertainties. Accordingly, no provision for any liability or loss that may result upon resolution of these matters has been made in the accompanying financial statements. { As discussed in Note 2, the Company changed its method of accounting for unbilled revenues, and adopted the new g eccounting standards relating to post-construction cost deferrals and disallowances of plant costs in 1988. ? htA:.2. &

- O l

St. louis, Missouri ]. February 13,1989 l

For the Years Ended December 31, xStatements ofIncome i,8 - 1,871 1,86 e usands oNan). . Operating Revenues. - Electric........................................................ 949,931 5 910,844 5 814,144 Gas............................................................. 334,789 308,679 '369,721 Total................................................... 1,284,720 1,219,523 1,183,865. ' Operating Expenses and Taxes Fuel for electric plants....................................... 292,772 '262,592 264,807 Power purchased and interchanged-net......................... (82,798) . (50,975) - . (37,553) G as purchased for resale -...................................... 210,917 188,994 l 239,214 Other operating expenses...................................... 224,679 190,990 133,275 Mxint enanc e................................................... 85,049-80,332 58,590.' Depreciation................................... 183,700 147,408 71,732 Amortization of abandoned plant costs............................ 6,379 6,379 6,380 General tax es................................................. 127,367 115,989 105,310 Deferred Clinton costs...................... (115,345) (78,264) Income taxes 106,081 122,756 134,652 Total............................................. 1,038,797 986,201 976,407 Operating income...........,............................... 245,923 233,322 207,458' . Other Income < Allowance for equity funds-Construction............................................... I,702 51,523 158,238 91,726 Deferred Clinton fmancing costs............................. Miscellaneous-net................................. 60,084 57,083 64,679 Total......................................... 61,786 200,332 222,917 Income before interest charges................. 307,709 433,654 430,375 - ht: rest Charges Interest on long. term debt......,............. 195,438 188,762 186,781 l L Other interest charges............ 16,307 14,309 11,786.. Allowance for borrowed funds-Construction.................................... m. (1,634) (21,532) (60,913) Deferred Clinton financing costs........................... (57,820) (37,441) Total........................... 152,291 144,098 137,654 Income before cumulative effect of accounting change......... 155,418 289,556 292,721 Cumulative effect as ofJanuary 1,1988 of accruing unbilled revenues, net ofincome taxes of $26.5 million (Note 2)................. 34,012 Net income................... 189,430 289,556 292,721 g' . Preferred dividend requirements......................... 37,540 37,697 36,242 Net income applicable to common stock.......................... $ 151,890 5 251,^59 5 256,479 [ l' i Weighted average number of common shares outstanding ~, during the period..... 70,900,081 67,250,913 64,502,690 Earnings per common share before cumulative effect of accounting change.................................... $1.66 $3.75 $3.98 l Cumulative effect as ofJanuary 1,1988 of accruing .48 ll unbilled revenues.......................... . Earnings per common share......... 82.14 $3.75 $3.98 I; Cash dividends declared per common share............. $2.64 $2.64 $2.64 E

lncludes reunue.related taxes added to customer billings in each of theyears 1988,1987, and 1986 in the amount of $62,660,000, $59,201,000, and

$58,997,000, respectiwly. 1 See notes tofinancial statements which are an integralpara of these statements. l 1 _________)

Balance Sheets December 31, 1988 1987 ) . ASSETS (Thousands of Dollars) Utility Plant, at original cost Electric (meludes construction work in progress of $69,743,000 and $45,753,000, respectively).... $ 5,789,084 5 5,704,616 Gas (includes construction work in progress of $6,450,000 and $5,591,000, respectively). 442,702 423,892 6,231,876 6,128,508 1,254,853 1,082,208 less-Accumulated depreciation.. 4,977,023 5,046,300 Nuclear fuel under capitallease.. 176,590 200,034 5,153,613 5,246,334 9,723 10,105 lavestments and Other Assets...... Current Assets 12,855 72,706 Cash and cash equivalents.. Accounts receivable (less allowance for doubtful accounts of $6,500,000) 65,576 75,480 Service... 33,859 41,161 Other..................... 73,730 Accrued unbilled revenue (Note 2)...,.. Materials and supplies, at average cost 27,175 39,012 Fossil fuel... 15,837 17,972 Gas in underground storage.. 67,001 60,743 Operating materials. 53,877 72,075 Prepaid and refundable income taxes 12,561 7,654 Prepayments and other.. 382,471 386,803 Deferred Charges 380,5 % 207,431 Deferred Clinton costs.... Deferred purchased gas costs. 62,916 10,202 16,581 Unamortized deferred abandonment cost.. 51,246 52,233 f Unamortized debt expense. 2,321 3,247 Other.. i 507,281 279,492 8 6,053,088 5 5,922,734 CAPITAL AND LIABILITIES Capitalization Common stock-No par value,80,000,000 shares authorized, $ 1,389,782 5 1,298,207 73,463,988 and 68,588,901 shares outstanding, respectively, stated at. 517,910 554,815 J Retained earnings.. 12,084 11,634 less-Capital stock expense.. 1,895,608 1,841,388 Total common stock equity. 315,171 315,171 Preferred and preference stock 160,000 160,000 ) Redeemable preferred stock. 2,341,231 2.279,219 Long-term debt. 4 4,712,010 4.595,778 Total capitalization. I Current Liabilities 2. Accounts payable.. 120,797 109,778 19,365 103,170 y Notes payable............... 42,063 81,174 .a Long. term debt And lease obligations maturing within one year.. -j Dividends payable.... 57,872 54,963 37,450 34,878 z General taxes accrued. 76,862 69,138 Z Interest accrued.... Provision for rate reduction.. 23,129 h Other.... 71,872 59,955 426,281 536,185 g 5 Other 2 Accumulated deferred income taxes..... 588,720 443,494 3 . Accumulated deferred investment tax credits. 286,906 347,277 39.171 g Accrued purchased gas costs 914,797 790,771 ) g 1 Commitments and Contingencies (Notes 3 and 4) 5 6,053,088 5 5,922.734 l r~ La Sa notes tofinancial statements tuhich are an integralpart of these statements. l ) i l

\\ 1 Statements ofLong-Term Debt i o,e,,,,,,,. 3,, 1,0, 1,n_ 1 First mortgage bonds-(Thousands of Dollars) { 25,000 ^ - 4 % series d ue 198 8....................................................... ~ 4 M% series d ue 1993......................................................... 35,000 35,000 L 5.85 % series d ue 1996...................................................... 40,000 40,000 6%% series d ue 1998..,.................................................... 25,000 25,000 j 10 % series d ue 1998....................................................... 75,000 l 6%% series d ue 1998....................................................... 45,000 45,000 I-8.3 5 % series d ue 1999.................................................... 35,000 35,000 9 % series d u e 2000....................................................... 35,000 35,000 7.60% series d uc 2001.................................................... 35,000 35,000 7%% series d ue 2003...................................................... 60,000 60,000 6.60% series due 2004 (Pollution Control Series A).............................. 8,050 8,050 9%% series d ue 2004...................................................... 80,000 85,000 10M% series d ue 2004....................................................... 50,000 50,000 8%% series d ue 2006....................................................... 100,000 100,000 6 % series due 2007 (Pollution Control Series B)............................... 18,700 18,700 8 M% series d ue 2007....................................................... 100,000 100,000 8%% series due 2008....................................................... 100,000 100,000 .10%% series due 2013 (Pollution Control Series C)............................... 125,000 125,000 11%% series due 2014 (Pollution Control Series D)............................... 75,000 75,000 10%% series due 2015 (Pollution Control Series E)............................... 116,245 116,245 10%% series due 2016...................................................... 125,000 125,000 9%% series d ue 2016....................................................... 75,000 75,000 9%% series d ue 2016....................................................... 125,000 125,000 7%% series due 2016 (Pollution Control Sesies F, G, and H)...................... 150,000 150,000 8.30% series due 2017 (Pollution Control Series 1)..................... 33,755 33,755 Total first mortgage bonds............................................. 1,666,750 1,621,750 12%% debentures due 1992 m.................................................... 100,000 100,000 Revolving loan agreements m................................................... 200,000 200,000 10.75% loan agreement due 1992...............................,................ 8,930 8,930 Long-term loan agreement due 1992 (3)............................ 60,000 60,000 . 85% debt securities due 1994.................................................... 100,000 100,000 Variable rate long-term debt due 2017(41........................................... 75,000 75,000 Total long-t erm debt.................................................. 2,210,680 2,165,680 Unamortized premium and discount on debt........................................ (9,554) (9,584) (33,333) Long. term debt maturing within one year......................................... 2,201,126 2,122,763 Obligation under capital leases.noncurrent........ 140,105 156,456 $ 2,341,231 5 2,279,219 M F Czo (1) The debentures, issued by IPF, are guaranteedas to payment ofprinq'paiandinterest by the Company. 3 (2) in 1988, the previous $175,000,000 and $180,000,000 rewivmg loan agreements were replaced by a $375,000,000 three-year rewiring loan f agreement uith the provision for conversion to a nwyear smn loan. TIwre was a $200,000,000 loan outstanding under the new agreement at g IXtember 31,1988. Rmayment of the $200,000,000 loan is required to bmin ikccmber 9,1991 with seven subsequent quarterly payments. If the y Company's bond rating drops below imiestment grade, the loan becomes due immediately. Interest rates on the borrowings are, at the Gnnpany's g option, based upon the banks' prime rate, their 30.,60, 90-day Certificate ofIkposit rate, the borrowing rate at key banks in the London interbank y market, or a bid option. The interest rates at ikcember 31,1988 rangedfrom R. 7125% to 9.8% x C ' (3) Interest rates are adjusted on a one, two, three, or cix month basis at the Company's option and rangedfrom 8.965% to 9.51% at ikccmber 31, p 19LB. nm (d) !nterest rate is adjusted weekly and was 7.45% at ikcember 31, I988. g See notes tofmancial statements which are an integralpart of these statements. G

iStatements ofPreferred andPreference Stock II' l. Serial Preferred Stock, cumulative, $50 par value (1)-Authorized 5,000,000 shares; .4,280,000 shares outstanding : 100g 1987 - Series - Shares Redemption prices . (Thousands orDollars). '4.08% : 300,000 $51.50......;.............,..................................... 8 ' 15,000.$ 15,000 4.26 % - 150,000 51.50............,................................................ 7,500 7,500 4.70% : 200,000 51.50............. 10,000 10,000 2

4.42%

150,000 .51.50............................................................. 7,500 7,500 4.20% - 180,000' 52.00......................................................... 9,000 9,000

8.24% '

600,000 51.90............................................................ 30,000 30,000 ' 7.56%. 700,000 51.685.......................................................... 35,000 35,000 8.94% ' . 1,000,000 J 52.90 prior to March 1,1991 }...... 50,000 50,000 ( $1.60thereafter J 8.00 % 1,000,000 53.29 prior to August 1,1992 }................................... 50,000 50,000 52.29 thereafter i Premium on preferred stock..................................................................... 1.171 1,171 Total Preferred Stock, $50 par value....................... 215,171 215,171 Serial Preferred Stock, cumulative, without par value-Authorized 5,000,000 shares; 4,600,000 shares outstanding (including 2,600,000 shares ofiedeemable preferred stock) . Series. Shares Redemption prices {$g5m g + uarx1,1993 }...... x, i,.,. ,0,000 50 -l 1 51.50 after May 1,1990 and . B(3) 1,000,000 J prior to May 1,1995 50,000 50,000 . - ~ ". ~. ~ ~ ..o." [ ' 50.00 therekfter Total Preferred Stock, without par value.................. o.. 100,000 100,000 Preference Stock, cumulative, without par value-l Authorized 5,000,000 shares; none outstanding................ Total Preferred and Preference Stock............................................. 315,171 $ 315,171 1 J Redeemable Serial Preferred Stock, cumulative-Series - Shares Par Value 11.75%(4) ' 1,000,000 none....................................... 8 50,000 $ 50,000 8.52%(5) 1,000,000 none.................................. 50700 50,000 l ~ 8.00%(6) 600,000 none........................................................ 60,000 60,000 .I To:al Redeemable Preferred Stock.......... 8 160,000 $ 160,000 i .g (1) Redeemable at the option of the Company in tahole or in part at any time upon not less than thirty days and not more than sixty days notice by publication. i 9 (2) Adjustable Rate Seria A issuedon March 3,1983. Quarterly dividend rates are determined based on market interest rates ofcertain U.S. Treasury l securities. See "Two. Year Divsdends and Stock Prices by Quarters" on page 39for the 1988 quarterly dividend rates. The dwidend ratefor any ikI dividendperiod will not be less than 6% per annum nor greater than 12% per annum applied to the liquidation preference talue of $50 per share. l (3) Adjustable Rate Series B issued on May 15,1985. Quarterly dwidend rates are determined based on market interest rates ofcertain U.S. Treasury l securities See "Two. Year Dividends and Stock Pnces by Quarters" on pque 39for the 1988 quarterly dividend rates. The dividend ratefor a ty 'l, ' ' (4) Subject to mandatory redemption in an amount sufficient to retire on each November 1, beginning in 1V)0, 200,000 shares at $50per share plus dwidendperiod will not be less than 7% per annum nor greater than 14%% per antrum applied to the liquidation preference value of $50per share. l accrued dividend;. Beginning November 1,1990, the Company may redeem up to 200,000 additional shares each year at $50per share. (5) Subject to mandawry redemption in an amount sufficient to retire on each February 1, bminning in i992,200,000 shares at $50 per share plus -l accrued dividends. Beginning February 1,1992, the Company may redeem up to 200,000 additional shares each year at $50 per share. (6) Subject a mandatory redemption in an amount sufficient to retire on each February 1, begmning in 1991,120,000 shares at $100per share plus accrued dividends. Beginning February 1,1993, the Company may redeem up w 120,000 additumal shares each year at $100 per share. 0 See notes wfinancial statements which are an integralpart of these statements.

1[ F:r the Yers End:d December 31, . Statements of Cash Flows (Thousands of Dollars) ~ .^ Cash Flows From Operations . $ 289,556 . 5 292,721 Netincome............................................................ $ 189,430 Items not requiring (providing) cash-E Cumuletive effect as ofJanuary 1,1988 f-of accruing unbilled revenues............................................ (34,012)- Depreciation and amortization............................................ ' 193,692 157,399 82,368 Allowance for funds used during construction............................... (3,336) (73,055) (219,151)' 142,885 86,730 46,313 Deferred taxes on income, net.........,.......... Deferred investment tax credit........................................... - (60,371) 1,283 61,590 Deferred Clinton costs................................................ (115,345) .(78,264)- Deferred Clinton financing costs....................................... (57,820) (129,167) Changes in assets and liabilities-Accounts receivable...... (2,793) (33,208)- 8,291 (13,219) U billed revenue................. Materials and supplies................................................. 7,714 (14,841) 2,610 ' Accounts payable............................... 11,019 (13,051). (23,231) ' Interest and dividends accrued or declared.................................. 10,634 6,843 5,200 ' - Accrued ta xes........................................................ 2,572 -(798) . 450. (45,824) 51,884 : (10,842).. Other, net............... I Net cash provided by operations...................... 225,226 251,311 246,319 Cash Flows From lavesting Construction expenditures................................................ (115,465) (237,614) (705,519) 3,336 73,055 219,151-Allowance for funds used during construction. 7,000 14,000 ' Sale of bank notes....................... Net cash used in investing activities... (112.129) (157,559)- (472,368) Cash Flows From Financing (226,335) (215,933) (207,956) Dividends on preferred and common stock..... Redemptions - Short-term debt................. (83,805) (25,693) (230,000) (276,235) ' (333,870) leng term debt........ (36,000)- Preferred stock....................................................... Issuances - 128,863 Short-term debt................................. Common stock.................................... 91,575 76,369 71,216 110,000 Preferred stock....... Capital stock expense............................................... (451) (482) (1,061). 275,000 338,755 575,000 Long-term debt............. 1,068 (4,264) (27,214) Miscellaneous, net......... ~ 143,483) 314,978 ( . Net cash (used in) provided by financing activities........... (172,948) Net Change in Cash and Cash Equivalents................................... (59,851) (49,731) 88,929 Cash and Cash Equivalents at Beginning of Year........................... 72,706 122,437 ' 33,508 . Cash and Cash Equivalents a End of Year.............. $ 12,855 $ 72,706 $ 122,437 k Statements o Retained Earnings ,',g *"c*" ;*n "ccc""" ',',, (Thousands of Dollars) B21ance nt Eeginning of Year........................... 8 554,815 5 481,192 $ 398,755. J N e t income........................................... 189,430 289,556 292,721 744,245 770,748 691,476 l - Less-i 1 Cash dividends- . Preferred st,. k... 37,472 37,440 36,845 j Common stock.................... 188,863 178,493 171,111 1 2,328 j Reacquisition costs of preferred stock................ 226,335 215,933 210,284 j Balance at End of Year......................... $ 517,910 $ 554,815 $ 481,192 { k See notes tofinancialstatements tchich are an integralpart of these statements. o

x= ud$Q ~ a,M.n inNA > n 0lw $ sL.G s n r-4.x. < s.sw 2 ww n a aal: L ;&d. &.adsw e r + NOTES To FINANCIAL STATEMENTS Note 1-Summary of from the Company's filed tariffs are passed on to customers. 3 ^"d*8'Y> *"""ab e energy c sts that are to be passed on Si mficant Accountino Policies; b 6 to c istomers in a subsequent accounting period are deferred. The Company is subject to regulations of the Illinois Similarly, take.or pay charges from pipeline suppliers are Commuce Commission (ICC) and the Federal Energy deferred for subsequent recovery from customers. Regulatory Commission (FERC) and accordingly, prepares Allowance for Funds Used During Construction - The its financial statements based upon the concepts of Statement FERC Uniform System of Accounts defines AFUDC as the of Financial Accounting Standards No. 71 " Accounting for net costs for the period of constructbn of borrowed funds the Effects of Certain Types of Regulation"(FAS 71), which used for construction purposes and a reasonable rate on other requires that the effects of the ratemaking process be funds when so used. AFUDC is capitalized et a rate that is recorded. Such effects concern mainly the time at which re!ated to the approximate weighted average cos: of capid. various items enter into the determination of net income in Prior to 1987, the rate was reduced by the income tax effect order to follow the principle of mctchmg costs and revenues. of the mterest portion thereof. In 1987, AFUDC on Clinton The Company's principal accounting policies are described continued to be capitalized at a net-of-tax rate, but AFUDC 3,3, on all other construction was capitalized at a pre-tax rate, and Principles Applied in Consolidation - The Financial the associated tax effects were defured. The rate used in Statements include the accounts of IPF (Illinois Power computing AFUDC was 9%% throughout 198o. In 1987, the Finance) Company N.V., a wholly owned subsidiary. All rate used was 9%% for Clinton construction and 11% for all significant inter-company transactions have been eliminated. other construction projects. In 1988, the rate used for all Utility Plant - The cost of additions to utility plant and construction projects was 10.0% (pre-tax). Although cash is replacements for retired property units is capitt'ized. Cost not currently realized from such allowance,it is realized under includes labor, material, and an allocation of general and the ratemaking process over the service life of the related administrative costs plus an allowance for funds used during property through increased revenues resulting from a higher construction (AFUDC) as described later in this note. rate base and higher depreciation expenses. Maintenance and repairs, including replacement of minor in accordance with ICC rate orders, the Company items of property, are charged to maintenance expense as excluded a portion of construction work in progress (CTIP) incurred. When units of depreciable property are retired, the from the base on which AFUDC was computed and included origiral cost and dismanthns charges, less salvage, are that CWIP in rate base. The amount of Clinton costs in rate charged to accumulated depreciation. base was increased to $1.156 billion from $804 million effective October 4,1986 and to $1.54 billion effective April Depreciation - For financial statement purposes, the 22, 1981 Both of these increases were authorized in the Company depreciates the various classes of depreciable August 1985 ICC rate order. Because these orders authorized property over their estimated lives by applying composite that Clinton costs be included m the rate base upon which the rates on a strught-line basis. Provision for depreciation of Company realized revenues, these orders caused no material electric utility plant in 1986 was equal to 3.4% of the average effat on net income. On April 24,1987, Clinton was placed depreciable cost. In 1987 and 1988, provisions for depre-in service and AFUDC thereon ceased. ciation were 2.786% of the average depreciable cost for the Clinton Power Station (Clinton) and 3.4% of the average Deferred Clinton Costs - A November 1987 ICC order depreciable cost for all other electric plant. Provisions for specifies the deferral of certain Clinton post-cos.struction g depreciation of gas utility plant, as a percentage of the average operating and financing costs, until rates to reflect such costs 2 depreciable cost, were equivalent to 4.0% m 1988,1987, and are effective. These deferred costs may be recovered over the h remaining life of the plant only to the extent that Clinton 1986. g Revenue and Energy Cost - Prior to 1988, the Company construction costs are included in rate base. While cash is not z recorded revenues as billed to its customers on a monthly currently realized from these deferrals, it is realized under the cycle bilhng basis. At the end of each month, there was an ratemaking process over the service life of Clinton through y amount of unbilled electric and gas service that had been increased revenues resulting from a higher rate base and rendered from the latest date of each cycle billing to the month higher amortization expense. y end. Effective January 1,1988, the Company began recordmg During the deferral period a deferred financing cost is 2 revenues for services provided but not yet billed to more computed on Clinton plant not in rate base and the deferred y closely match revenues with expenses. Adoption of the new costs. The deferred financing cost for ratemaking purposes is j5 accounting policy is discussed in " Note 2-Changes in capitahzed at a rate that is similar to AFUDC. The net of y Accou' ting" income tax rate used to compute deferred Clinton financing The electric fuel adjustment and purchased gas adjust-costs was 9%% through October 1987 and 8% in November 4 ment clauses provide that changes in allowable energy costs and December 1987. Beginning January 1,1988, in k

l l l accordance with Statemem of Financial Accounting Standards purposes; however, interest on construct.on is capitalized for No. 92, " Regulated Enterprises-Accounting for Phase-in tax purposes in accordance with applicable tax law. Plans" (FAS 92), for financial statement purposes, the Inveament tax credits, which reduce federal income Company is prohibited from capitalizing an allowance for taxes, have been deferred and are being amortized to income ) earnings on shareholders' investment as part of post-over the life of the property which gave rise to the investment construction cost deferrals. Effective Janusry 1,1988, the tax credits. l Clinton deferred financing costs were calculated using a 2.75% Federal and state income taxes are aUocated between l net ofincome tax rate reflecting the debt component of the operating and non-operating income and expenses. The tax l Company's financing costs, effects relating to non-operating activities are included in Other income -Miscellaneous-net. Clinton Power Station Decommissioning - De. ammis-sioning of Clinton will be funded by contributions to an S:atements of Cash Flow - The Company has adopted the external trust fund in accordance with an ICC order issued Statement of Financial Accounting Standards No. 95, July 15,1987. The order provides for an annual contribution " Statement of Cash Flows" (FAS 95) for the year ended of 52.1 million over 39W years as estimated to be required to December 31, 1988. The Statements of Cash Flows for the decommission the Company's share of Clinton. years 1987 and 1986 have been restated to reflect the implementation of FAS 95. Cash and cash equivalents include Am:rtization of Nuclear Fuel-The Company leases cash on hand and temporary investments purchased with a nuclear fuel from Illinois Power Fuel Company. Amortization maturity of three months or lecs. Capitallease obligations not of nuclear fuel is determined on a unit of production basis. A affecting cash flow increased by 511,365,000, 524,540,000, provision for spent fuel disposal costs is charged to fuel and 519,633,000 during 1988,1987, and 1986, respectively. expense based on kilowatt hours generated. Income taxes and mtetest paid are as fouows: Unamortized Deferred Abandonment Cost - The ICC Years Ended order of August 7,1985 authorized the Company to amortize necer 2ber 31, and recover through rates $31.9 million ofits investment in i,ss 1987 1986 Clinton Unit 2 over a five-year period. No return was allowed (Thousands or p.11ars) on the unamortized investment balance. Income Taxes s 21,12c $ 33,421* 5 10,175* Unamortized Debt Expense - Debt issuance costs are Interesi 5207,102 5207,000 5192,186 amortized over the lives of the related issues. Costs related t

Excludes refunds of prior years' income taxes in each of the years refunded debt are amortized over the lives of the related new 1988,1987, and 1986 in the amount of $45,250,000, $40,601,000, i

debt issues. and $43,874,000, respectively. 1 inc me Taxes - The Company normalizes the income tax effects of transactions causing timing differences between NOl6 2--bbdN888 M ACCOUUlfM82 inclusion in financial statement and taxable income. The Unbilled Revenues - Effective January 1,1988, the Com-Company computes deferred inceme taxes based on the pany began recording revenue for services provided but not statutory income tax rates in effect during the period that the yet billed to more closely match revenues with expenses. This timing differences originate. Deferred income taxes are change also serves to conform the Company's accounting amortized to income as the underlying timing differences treatment with the treatment of unbilled revenues as taxable reverse. under the Tax Reform Act of 1986. Previously, the Company Principal sources of timing differences giving rise to recognized revenues when services were billed. Unbilled M deferred taxes are as follows: revenues represent the estimated amount customers will be - Use of the most liberalized depreciable hves and methods billed for service delivered from the time meters were last read p . allowed by the Internal Revenue Code, to the end of the accounting period. The after-tax effect of the j - Capitalization of certain construction overheads, disman-accounting change for the twelve months ended December 31, i;; tling, and other costs for book purposes that are claimed as 1988 is an increase in net income of $43.6 million (61e per F current deductions for income tax purposes, share). This inctease is a combination of an increase of $34 - Lvenues and energy costs recognized in different periods million (48e per share), attributable to the cumulative effect of E for financial statement purposes than for income tax the accounting change to January 1,1988, and an increase of purposes, and $9.6 million (13e per share) in the current results of opera-7 -Alternative minimum tax payable in the current year that tions. Implementation of this accounting change does not g can be used to offset future tax liabilities. affect cash flow. Had this change been in effect in prior years, p For income tax return purposes, net depreciable utility the Company's net income would not have been materially y plant does not include the allowance for funds used during different from that shown in the accompanying financial 3 construction that is capitalized for financial statement statements. i

i l l l Pcst-Construction Costs - Effective January 1,1988, the Rate md Regulatory Matters - In November 1987, the Company adopted FAS 92 under which an allowance for Conaany requested an electric rate noderation plan to shareholders' investment can no longer be recorded for finan-incorporate Clinton into rates. In Illinois, the cost of a new ) I cial statement purposes as a component of Clinton post-con-electric generating plant may not be recovered in a utility's struction cost deferrals. Amounts not recorded were $121 rates unless it is determined to be reasonable based upon an f million in 1988. See " Note 3-Clinton Power Station", for audit. The audit of Clinton construction costs was conducted l further discussion of this matter. by Touche Ross & Co. and The Nielsen-Wurster Group under contract with the ICC. The Clinton audit proceeding Di: allowances of Plant Costs - Effective January 1,1988, has been consolidated with the rate proceeding, and an ICC the Company adopted Financial Accounting Standard No. 90 order covering both cases is expected by March 31,1989. The " Accounting for Plant Abandonments and Disallowances of order may be challenged in the courts. The Company has met Plant Costs" (FAS 90) under which a partial disallowance of with the ICC Staff (Staff) and other interveners in an attempt plant costs by a regulatory commission must be recorded as a to reach a settlement of these proceedings. loss when such disallowance becomes probable and a reason-The Company's rate moderation request includes a first-able estimate can be made. As discussed more fully in " Note year electric revenue increase of 10.5%, producing approxi-3-Clinton Power Station", no loss provision for a dis-mately 592 million of revenue annually, net of anticipated fuel allowance was recorded in the 1988 financial statements savings at.d a senior citizen discount. This first-year increase because no reasorable estimate of the kr, can be made-would be followed by annual increases beginning in 1990, for l Under generally accepted accounting principles effective six to nine years. These annualincreases would be tied to the i through 1987, a disallowance would not have required an rate ofinflation and would range from a minimum of 3.8% to l immediate charge to income unless it rend:ed in a negative a maximum of 5.9%. The rate of return requested in the plan l rate of return on the Company's investment. If the Company reflects current capital cost and is 10.27% compared to the had adopted FAS 90 prior to 1988, the Company believes tut i1.95% currently allowed. Under the deferred return no loss provision for a disallowance would have been requireo provisions of the phase-in plan, cash flow of approximately in prior financial statements because no reasonable estimate of $250 million would be delayed during the first five years for loss can be made. recovery during the remaining years of the plan. I The Company's rate moderation plan requests recovery of all ofits share of the cost of Clinton because management believes that those costs were prudently incurred. However, l\\ote 3-Clinton Power Station: at the conclusion of their management audit on construction I costs, the auditors recommended a disallowance of Clinton's The Company owns 8o.6% of the Clinton nuclear power costs of $459 million. The auditors for the Commission found I station, which was piaced in service in 1987. During 1988, that $3.766 billion of Clinton's costs were reasonable. The l Clinton provided 26% of the Company's total electric Company calculates that its share of the recommended generation. The investment in Clinton and its related costs disallowance is $421 million. If the disallowance recom-represented about 70% of the Company's total assets at mended by Touche Ross/ Nielsen-Turster were to be December 31,1988 and 40% of the Company's total 1988 accepted by the ICC (assuming no other modifications to the l other operating, maintenance, and depreciation expenses. Company's request), the Company's financial condition During 1988 and 1987, Clinton-related deferrals would be weakened, and the effect on dividends would be h represented 86% and 61% of the Company's 1988 and 1987 uncertain. [ net income before the effect of an accounting change. At Auditors separately retained on behalf of the Company to 2, December 31,1988 and 1987, $1.5 billion of Clinton's costs evaluate management of the Clinton project concluded that j were included in rate base and earning a return. The outcome the Company's management of Clinton was generally reason-g ei the Company's pending rate request, discussed below, will able. determine the extent to which the investment in Clinton is On February 9,1989, the ICC hearing examiner in the included in rate base and Clinton operating expenses are Company's pending electric rate and construction audit ] recovered. proceeding issued a proposed order, recommending an is Ownership of an operating nuclear generating unit increase in electric rates of $44.8 million, or 5.1%. This 2 exposes the Company to significant risks including increased recommendation is based on a proposed disallowance of regulatory, safety, and environmental requirements. The Clinton construction costs of $712 million. The hearing i5 Company expects to be allowed to continue to operate examiner also recommended that only 24% of Clinton j Clinton; however, if any unforeseen or unexpected develop-generating capacity be considered as "used and useful" at this ments would prevent the Company from doing so, the time. The proposed order permits the Company to request Ll Company could be materially adversely affected. periodic rate increases as Clinton satisfies the "used and

useful" standard proposed by the hearing examiner. Illinois law requires that the fir.ancialimplications of any Fol!owing three years of scrutiny, the auditing firms order be considered by the ICC in its decision. The retained by the ICC - Touche Ross & CoJNielsen-Wurster Company's testimony in the rate proceeding indicates that a Group - concluded that $459 million of the cost of rate increase in the magnitude of the Company's request in the I constructing Clinton was unreasonable. The hearing initial year of the rate moderation plan is required to maintain { examiner, however, recommended that the ICC find that the Company's financialintegrity. there were 18 months of unreasonable delay m 1982 and 1983 A November 1987 ICC order approved the provisions of due to quality assurance problems, rather than 12 months as a negotiated settlement reached by the Company and several recommended by the auditors retained by the Commission. interveners. The order provided for an in-service date of April Also, the hearing examiner utilized a different method than 24,1987 and the deferral of Clinton.related depreciation, real that used by the auditors far calculating the amount of estate taxes, and financing costs (similar to AFUDC) until a allowance for funds used during construction resulting from rate order reflecting the inclusion of Clinton in rate base the unreasonable delay. becomes effective. The order specifies that such deferred The hearing examiner further recommended that the costs and the related financing costs will be n covered, only to Company be allowed to recover all of the operating costs of the extent that total Clinton costs are allowed in rate base, Clinton plus full depreciation and the debt and preferred stock ver the remaining life of Clinton. During 1988 and 1987, the return on the $3.1 billion of Clinton's costs found to be Company recorded post-construction cost deferrals and reasonable, but that the Company not earn a common equity related financing costs of $173 million ($134 million, net of return on $1.4 billion or 76% of the reasonable Clinton costs. income taxes) and $207 million ($177 million, net ofincome The Company believes that the hearing examiner's taxes), respectively. Under this agreement, Clinton operation conclusions are contrary to both the law and evidence in the and mamtenance costs are being expensed currently without case, and if adopted by the ICC, the Company intends to an increase in electric rates to cover such costs. Ilowever, the appeal the decision in the courts. If the "used and useful" test ICC did not require the Company to reduce its electric rates is found to be unlawful, the rate increase in the examiner's to reflect the lower federal income tax rates under the Tax order would be increased by about $200 million. The Reform Act of 1986 during the deferral period. As a result of proposed order is the hearing examiner's recommendation to this negotiated settlement, earnings were decreased $14 the ICC, not a final dechion. The Company will file a formal million and $19 million in 1988 and 1987, respectively, and reply to the proposed order on February 23,1989 and will will c ntinue to be decreased by about $1 million per month until the electric rate order is effective. also present oral arguments before the ICC with respect to this proceeding. As discussed in Note 2, beginning in 1988, the Company if the proposed order were to be adopted by the ICC, the can no longer record an allowance for return on shareholders' Company would be required to evalum whether it continues investment for financial statement purposes as a component of to qualify for reporting under FAS 71. Ifit does, the Company p st-construction cost deferrals. The amount not recorded would be required to record a loss of up to $1.3 billion, net of was $121 mil! ion in 1988 and will be about $10 million per income taxes, resulting from the recommended disallowance month until the electric rate order is effective. of Clinton construction costs, related deferred Clinton costs, Accounting Matters - Effective January 1,1988, the and the present value of annual revenue requirements rel.,ted Company adopted FAS 90. This statement requires that a tc Clinton not being fully "used and useful" partial disallowance of plant costs by a regulatory commission if the proposed order is adopted by the ICC, it will have be recorded as a loss when such a disallowance becomes a severe adverse effect on the financial condition of the probable and a reasonable estimate can be made. No loss k,'. Company. While the Company's projections indicate that it provision for a disallowance was recorded in the 1988 will have the ability to service its existing debt and preferred financial statements because no reasonable estimate of the loss E' stock requirements, common stock equity and earnings could can be made. E be reduced to the point that common stock dividends,if paid The Company currently prepares its financial statements ( at all, would be substantially reduced. Further, the Company in accordance with FAS 71 and therefore accounts for the g could be severely restricted with respect to issuing first effects of the ratemaking process. Accordingly, the Company g mortgage bonds and unsecured debt. records various regulatory assets and liabilities (such as g 4 The Staff filed evidence in the proceeding making a deferred Clinton costs and overrecoveries of gas costs). In 88 recommendation that electric rates be reduced by between order fc a company to report under FAS 71, the company's $56 million and $71 million annually. Other interveners in the rates must be designed to recover its cost of providing service, rate proceeding have recoramended rate reductions of as and the company must be able to collect those rates from E much as $377 million. Such recommendations,if accepted by customers. The Company will evaluate the fimal ICC order in p' the ICC, would result in greater write-offs than in the hearing the rate proceeding to determine whether it continues to meet 3 examiner's proposed order. the criteria of FAS 71. E

my_ - -,_ _ _ _ _ _ __ _.m_ _ _,_._ _ __ _ _ _ _ _ The potential financial statement impacts of the issues and construction of Clinton,(3) that at the time the OPA was discussed above assume the Company will continue to meet entered into and during its performance, the Company made the criteria for reporting uader FAS 71. If it is ultimately statements to Soyland and WIPCO that constituted either determined that the Compan, no longer meets the criteria for negligent or fraudulent misrepresentations, and (4) that the the preparation ofits financial statements in accordance with Company fraudulently concealed from the cooperatives the FAS 71, the Company could not record any regulatory assets causes of action herein set forth, and seeks as relief" damages or liabilities in the financial statements and would be required in excess of $15,000 and sufficient to compensate plaintifTs for to write off such amounts previously recorded under FAS 71. their injuries, together with prejudgment interest and costs of The Company would not, however, restate its plant balances stiit." The Company has been ordered to file an answer to the or record the effects of any regulatory disallowance of plant Soyland complaint by February 22, 1989. Discovery is costs as a loss and reduction to plant in service except to the proceeding. extent that a portion of the costs of the plant in service is The Board of Directors received a letter from a written off because it is permanently impaired (unable to earn shareholder demanding that the Company either commence a positive rate of return). litigation or investigate claims made by the shareholder against Cash flow is unaffected by whether the Company certain directors for breaches of fiduciary duties and bad faith continues to qualify for reporting under FAS 71. The net in connection with the construction and licensing of Clinton. A write-off of regulatory assets and liabilities could be Special Committee of the Board consisting of directors not substantially less than the write-off required under FAS 71 named in the demand is investigating the claim. based upon the proposed order. As a result, the immediate reduction in equity available for dividends under provision of the mortgage would be lower. The difference in the write-off, The Company believes that Clinton is needed to meet however, would for the most part be reflected through lower current demand and that it has managed the construction of earnings over the life of the Clinton plant. Clinton prudently and efficiently. Therefore, the Company I believes it should be allowed to recover the full cost of that Legal Proceedings and Related Matters - On September 22, 1986, members of 22 lilinois rural electric power unit through its rates. Recent cases of which the Company is distribution cooperatives filed a lawsuit (Powell complaint) aware in which regulatory commissions have conducted against the Company concerning the Company's construction prudence audits in connection with placing new generating management of Clinton. The action purported to be brought umts m rates have resulted in some investment being derivatively on behalf of the member cooperatives of Western disallowed, proposed to be disallowed, or temporarily lilinois Power Cooperative, Inc. (WIPCO) and Soyland excluded from rate base. In many such cases, the amounts Power Cooperative, Inc. (Soyland) and, in turn, on behalf of involved were significant. In view of the climate surrounding l WIPCO and Soyland, and as a class action on behalf of the this proceeding and the outcome of other utilities' rate 4 individual members of the distribution cooperatives. On Aprij proceedings, it is probable that the ICC order on the j 14, 1988, the Circuit Court for Sangamon County, I!!inois Company's rate request will not provide for full recovery of all (Court) granted the motion of Soyland and WIPCO to dismiss Clinton costs or the rate increase as requested. the derivative claims of the Powell complaint and realign Management is unable to predict the ultimate outcome of wlPCO and Sovland as plaintiffs. In the only remaining count the uncertainties discussed in this note, which could have a ut the Powell complaint, the Powell plaintiffs seek to proceed material adverse effect on the Company's earnings and/or or behalf of a class of all customers of cooperatives that obtain financial position. Accordingly, no provision for any liability D power from the Company, who, it is alleged will be required or loss that may result upon resolution of these matters has 2 to pay increased energy supply costs as a result of the been made in the accompanying financial statements. E Company's alleged mismanagement of the construction of d Clinton. The Powell plaintiffs have appealed the trial court's Note 4-Commitments and '.f dismissal of their derivative claims. {gg7[gggggjggy e On August 22,1988, the Company filed its answer to the l 12 only remaining count of the Powell complaint, denying all Construction Program - The 1989 construction budget is 'E $110 million, which includes $74 million for electric facilities, material allegations. h On September 12, 1988, Soyland and WIPCO filed a 521 million for gas facilities, and $15 million for nuclear fuel. I 2 First Amended Complaint (Soyland complaint). The Soyland The five-year construction program for 1989 through 1993 is y complaint alleges (1) breach of contract because of claimed estimated to be $715 million. E violations by the Company of the Clinton Power Station Insurance - The Company has insurance coverage for loss d Ownership Participation Agreement (the OPA), (2) breach of due to physical damage, including contamination, to Clinton. i~ fiduciary duties supposedly created by the OPA because of This insurance is structured through a level of primary X various acts or omissions by the Company during the design coverage provided by nuclear insurance pools and excess IL

coverage from a combination of nuclear insurance pools and dismantlement and decommissioning costs of Clinton an industry-owned mutual insurance company. The primary (estimated to be $91.1 million in 1988 dollars). In accordance coverage provides limits of $500 million and the excess with an ICC order, decommissioning costs are currently being coverage currently provides limits of $1.075 billion, for a total deferred ($2.0 million in 1988 and $1.4 million in 1987) and available coverage of $1.575 billion. In addition, the Company will begin to be collected through rates upon approval of the has replacement power insurance coverage for the extra cost electric rate request before the ICC. Current Nuclear to purchase replacement power in case of a temporary Regulatory Commission regulations may incrase the funding cccidental shutdown of the plant. requirements, A major loss due to physical damage, including Under the Nuclear Waste Policy Act of 4982, the U.S. contamination, involving Clinton or other stations insured by Departmem of Energy (DOE) is responsible for the the industry-owned mutual insurance company could result in permanent storage and disposal of spent nuclear fuel. DOE additional annual premium assessments to the Company of up currently charges one mill per kilowatt. hour generated for ' to approximately $10.2 million. In addition, while the future disposal of spent fuel. The Company is recovering this Company has no reason to anticipate a serious nuclear amount through its rates. incident at Clinton, if such an incident should occur, the Take-or-Pay Charges - In accordance with a FERC order claims for property damage, replacement power costs, and/or issued in 1988, the Company's pipeline suppliers have been other costs and expenses could materially exceed the limits of allowed to bill the Company for their take-or-pay costs. At insurance coverage available. December 31,1988, the Company's obligation for such costs All nuclear power station operators are subject to the is $56.5 million. Over the next five years, estimated payments Price-Anderson Act (Act). In accordance with the Price-under this obligation are $17,286,000 in 1989; $15,357,000 in Anderson Amendments Act of 1988, public liability for a 1990; $13,227,000 in 1991; $5,874,000 in 1992; and nuclear incident is currently limited to $7.279 billion. $4,713,000 in 1993. Coverage of the first $160 million is provided by private The ICC has issued an order that will allow the Company insurance. This limit ofinsurance increased to $200 million on to recover these costs from customers over the period which January 1,1989. Excess coverage is provided by retrospective the Company is scheduled to make monthly payments to the premium assessments against each licensed nuclear reactor m pipeline suppliers. Billings to customers began in February the United States. The Company's liability for such an 1989. Accordingly, take-or-pay costs have been deferred assessment would be $63 million per incident payable in pending recovery from customers. At December 31, 1988, ennual installments of not more than $10 million. Addit on-such deferred costs are $62.9 million. Certain parties have ally, if the sum of all public liability claims and legal costs appealed this order in the courts. arising from a nuclear incident exceed the amount of primary Other - The Company is mvolved in legal or administrative and excess coverage in force, each licensee can be assessed an proceedings before various courts and agencies with respect additional 5 percent ($3.15 million) of the maximum to maners occurring in the ordinary course of business, some retrospective assessment. f which m, volve substantial amounts. Management believes Effective January 1,1988, a new Master Worker Policy that the final disposition of these proceedmgs will not have a wes issued to cover workers who claim bodily injury, material adverse effect on the fmancial position of the sickness, or disease as a result of initial radiation exposure Company. occurring on or after January 1,1988. The policy has an aggregate limit of $160 million applying to the commercial nuclear industry as a whole. As claims are paid under the Note 5-Facilities Agreements y policy, there is a provision for automatic reinstatement of Pursuant to agreements as amended, Soyland and policy limits up to an additional $160 million. The policy's WIPCO have an investment of $450 million in the direct costs I of placing Clinton in commercial operation. The cooperatives aggregate limit and the amount available for automatic reinstatement increased to $200 million on January 1,1989. have paid their portion of construction expenditures. This m There is also a provision for assessment of additional premium results in an ownership in Clinton of 7.05% for Soyland and E if claims exceed funds available in the insurance company's 6.37% for WIPCO. The Company's ownership percentage of N reserve accounts to pay claims. The Company's maximum 86.58% is reflected in utility plant, at original cost; and E share of additional premium in future years for this accumulated depreciation on the balance sheet. Each contingency could be up to approximately $3.2 million. respective participant is responsible for their share of nuclear ? Decommissioning and Nuclear Fuel Disposal Costs - fuel. The Company's share of Clinton operating expenses is The Company is responsible for its ownership share of the included in the corresponding oper+ing expenses on its s costs of decommissioning Clinton and for spent nuclear fuel income statement. See " Note 3-Clinton Power Station" for R' disposal costs. The establishment of an external trust fund was information relating to a lawsuit filed September 22, 1986 3l authorized by the ICC to invest funds for the future against the Company. 4

1 l Each party is responsible for its pottion of financing, Company's option, based upon the banks' prime rate, their construction, and operating expenditures. The Company's 30,60,90-day Certificate of Deposit rate, the borrowing investment in Clinton including AFUDC and laisd at rate at key banks in the London interbank market, or a bid December 31,1988 is $3.9 billion. The agreements include option. There was a $200 million revolving loan outstanding the provisions that the Company has control over construc-under this agreement at December 31,1988. . tion and operation of the generating station, that the parties The Company also has lines of credit totaling ap-share electricity generated in proportion to their interests, proximately $61 million with commercial banks for short-and that the Company will have certain obligations to provide term bank borrowings. Bank borrowings under such replacement power to the cooperatives when the unit is out of commitments have a maximum 360-day maturity from the service. time of issuance, and at the Company's option, carry an in a related agreement, the cooperatives and the interest rate equivalent to the prime rate in effect at the time Company signed a Power Coordination Agreement in ofissuance, adjusted to the prime rate in effect on the first day October 1984. Under the agreement, which was effective of each calendar quarter thereafter or at a lower rate agreed to January 1,1985, the Company will provide the cooperatives by the banks. At the beginning of 1988, loans outstanding i with 10.7% (372 meg.iwatts) of electrical capacity from its under these agreements totaled approximately $48 million. Of fossil-fueled generating plants through 1992,8% in 1993 and this, $42 million was paid offin the first quarter of 1988. The 1994, and 4% in 1995 through 2004 and will transmit energy outstanding balance was reduced to zero on July 29, 1988. for the cooperatives through the Company's transmission and The borrowings had a weighted average interest rate of 8.2% subtransmission system. This will be m addition to the during 1988. cepacity the cooperatives receive as part-owners of Clinton. In December 1987, the Company obtained letter of The Company is compensated with capacity charges and for credit agreements in the total amount of $80,547,948 from the l energy costs and variable operating expenses. Mitsubishi Bank in support of the issuance of $75 million Pollution Control Variable Rate Debt. The Company pays a Note 6-Short-Term Loans fee of.3 % per annum on the unused amount of the credit. Interest rates on unreimbursed drawings under the letters of GMd Lin6S o[CTCdifl credit are at the Federal Funds rate as defined by the bank The Company had total lines of credit represented by plus.5% per annum for up to 30 days, at the bank's prime bank commitments amounting to $586 million of which $326 rate for 31 days through one year and at the bank's prime rate million was unused at December 31, 1988. These bank plus 1% per annum for over one year. commitments stipport the amount of commercial paper Notes payable at December 31,1988 consisted of about outstanding at any time and are available to support other $19 million in commercial paper bearing interest at a Company activities. weighted average rate of 9.9% and maturing between January The Company has a $50 million revolving loan 5 and January 13, 1989. At December 31,1987, notes commitment through November 13, 1992. No borrowings payable consisted of about $48 million of commercial bank were made under this agreement during 1988. The agreement borrowings and $55 million in commercial paper bearing is on a fee basis of.15% for the unused ime of credit. In interest at a weighted average rate of 7.8%, which matured addition, the interest rate under this agreement on funds between January 5 and January 29,1988. At December 31, borrowed is based upon the borrowing rate of key banks in 1986, notes payable consisted of about $52 million in l the London interbank market. commercial bank borrowings and aboat $77 million in h In addition, the Company has a $100 million, five-year commercial paper, bearing interest at a weighted average 2 revolving loan commitment through June 4,1992. There was interest rate of 6.0%, which matured between January 15 and 5 a $60 million revolving loan outstanding under this agreement January 29,1987.

s at. year end. For the unused portion of the commitment, the The maximum total amount of short-term borrowings at j

Company pays a fee of 3/16% per annum on the amount of any month end during 1988,1987, and 1986 was $119.7 j available credit. The interest rate on borrowings under this million, $124.9 million, and $230.6 million, respectively. The 28 agreement is, at the Company's option, based upon the average daily short-term borrowings during these periods E lending banks' reference rate, their Certificate of Deposit approximated $73.1 million, $104.3 mi!! ion,.:vl $111.2 f rate, the borrowing rate of key banks in the London million, respectively, with a weighted average interest we of 2 interbank market, or a bid option. 7.6%, 7.3%, and 7.3%, respectively. The Company calculated e In 1988, the Company entered into a $375 million three-the borrowings as an average of the daily borrowings l year revolving loan agreement with the provision for outstanding. The Company calculated the interest rates by -j conversion to a two-year term loan. Fees for this agreement dividing the interest expense during the period for such are 1/16% on the unused portion and 1/8% on the entire borrowings by the average short-term borrowings indicated ~~ g facility amount. Interest rates on the borrowings are, at the above. I .J

1 Note 7-Capital Leases:

l renci ensed December 31, Illinois Power Fuel Company (Fuel Company), which is i 50% owned by the Company, was formed in January 1981 for the purpose of financing a portion of the nuclear fuel II " * * * ' ' *

"*")

computed iam expenw ai statutory requirements of Clinton. The Company entered into a lease lederai and state mcome ian raici, s o2,s17 s 156,691 s is2,045 i ogreement with the Fuel Company under which the "",d","",'["'"'"'H"'"'""*"' , n Company leases nuclear fuel. Lease payments, which are All=nce for funds und durms equal to the Fuel Company's cost of fuel as consumed nl,,",'7a"$,Qrsancms cosa., 22,$ h,U Y (including related fmancing costs), began in 1987 when other-ne. 994 272 (1.711) Clinton began pre-commercial operation. Billings under the Tomiincome unn.

7s,77:

s 68.242 s 75,373 lease agreement during 1988 and 1987 were $58.7 million and $26.5 million, respectively, including $8.3 million anct $9.2 Combined federal and state effective mcome tax rates were million, respectively, of financing costs. The Company is 29.4%,19.1%, and 20.5% for the years 1988,1987, and 1986, obligated to make subordinated loans to the Fuel Company at respectively. Investment tax credit carryforwards, unrecord-any time the obligations of the Fuel Company that are due ed at December 31, 1988, were approximately $38 million and payable exceed the funds available to the Fuel Company, and may be utilized by the Company to reduce future income The Company has an obligation for spent nuclear fuel tax liabilities through 2002. disposal costs ofleased nuclear fuel. Statement of Financial Accounting Standards No. 96, At December 31,1988 and 1987, current obligations " Accounting for income Taxes" adopts a liability method of under capital lease for nuclear fuel are $40,528,000 and tax allocation relating to transactions that affect book and tax $46,150,000, respectively. At December 31,1988 and 1987, income in different reporting periods. The matement must be current obligations for other property under capital leases are adopted no later than 1990. See discussion of this item in $1,535,000 and $1,691, #00, respectively. Management's Discussion and Analysis on page 19. Over the next five years, projected lease payments under capitel leases are $42,063,000 in 1989; $41,542,000 in 1990; $39,701,000 in 1991; $37,834,000 in 1992; and $43,219,000 in '993-Note 9-Debt Retirement Note 8-Income Taxes: Provisions: Income taxes included in the Statements of income During the five years from December 31,1988, the consist of the following components: amounts of debt maturing annually are $25,000,000 in 1991; $268,930,000 in 1992; and $110,000,000 in 1993. No debt yg Decemhee si, matures in 1989 and 1990. These amounts exclude capital lease requirements. See " Note 7-Capital leases". im im im in addition, certain supplemental indentures to the curnniaxei-Mortgage and Deed of Trust require that the Company make n sN"!.. annual deposits in cash as a sinking fund. For the 9%% series s 35,i94 5 42,224 5 38,2ii Induded in other income - due 2004, an annual deposit of $5,000,000 is required. For sceuaneou-net. (51,690) (s4,124) (67,4623 the 6.60% series due 2004 (Pollution Control Series A), an annual deposit of $150,000 in 1989, increasing $25,000 every M, Toial current taxes. (18.496) (11.900) (29,251) $*fu'7nciauon dirrerene_nei. two years thereafter is required. These amounts are not j 29,o72 as.702 12,376 p cerna overhead, dimirumilms and subject to reduction. p e ain der supdemeMal denwes re@e annual g De d Cl n un s 7 24 76 Ahermuve nummum un. (9,773) (32,699) deposits, as a sinking and property fund, in amounts not to IE i a-, ax n;enu and exceed $6,600,000 in 1989 and 1990, $7,100,000 in 1991 and fi n ddierene. 17,324 (4,491) 9.340 Chnion IJmi 2 abandonment. (1, 73) (3,165) (3,169) 1992, and $7,500,000 in 1993. These amounts are subject to en $ li Total deferr:d taxes. 157,618 78,860 43,034 reduction in accordance with the mortgage, and historically Deterred inve iment iax credii-nei. (so,sti) 1.282 61.590 have been met by pledging property additions. N s 78,771 5 68,247 s 75.373 The above bonds are secured by a first mortgage lien on Il substantially all of the fixed property, franchises, and rights E income taxes are less than the amount which would be of the Company with certain minor exceptions expressly p computed by applying the statutory federal and state incoin provided in the mortgage securing the bonds. The remaining R tax retes to pre-tax income (38.2% in 1988,43.8% in 1987, balance of net bondable additions at December 31,1988 was 3 l and 49.5% in 1986); the principal differences are as follows: approximately $1,922,000,000. 4 I

1 i l: ) Note 10-Segments ofBusiness: j The Cornpany is a public utility engaged in the generation, transmission, distribution, and sale of electric energy and the ) distribution and sale of natural gas. 1 I 1998 1987 1986*' Total Total Total Electric Gas Company Electric Gas Company Electric Gas Company (Thousands of Dollars) (Thousands of Dollars) (Thousands of Dollars) Operation information-Operstmg revenues.. 949,931 8 334,789 $ 1,284,720 910,k44 5 308,679 $ 1,219,523 814,144 5 369,721 5 1,183,k65 Operaung expenses, excludmg provismn for arome taxes and I deferred Chnton 748,744 299,317 1,048,061 667,519 274,190 941,709 518,559 323,196 841,755 costs........ Deferred Chnton

costs, (115,145)

(185,345) C8,264) (78,264) i i Pre-tax operstmg Allowance for funds 316,532 35,472 352,004 321,589 34,489 356,078 295,585 46,525 342,110 income........... used durmg con-strucuan (AFUD('). 3,le5 171 3,336 72,871 164 73,055 218,977 174 219,151 Deferred Chnton fmancing costs. 57,820 57,820 129,167 129,167 Pre-tax operating income,includmg l AFUDC and deferred Cimton fmancing 377,517 $ 35,643 413,160 5 523,627 5 34.673 558,300 5 514,562 5 46,699 561,261 costs., Other (mcome) and deductions. (60,084) f57,083) (64,679) Interest charges. 211,745 203,071 198,567 Provision for mcome taxes........ 106,0H1 122.756 134,652 Net income before cumulative effect of accountmg change. 155,418 5 289,556 5 292,721 Net income after cumulative effect of accounung change. 3 189,430 5 289,556 5 292.721 Other informanon-Deprecianon. 167,260 $ 16,440 $ 183,700 $ 131,596 5 15,812 5 147,408 5 56,507 5 15,225 5 71,732 Cap,.al expenditures. 91,996 3 23.469 $ 115,465 5 217,921 5 19,693 5 237.614 5 680,789 5 24,730 5 705,519 investment informaunn-Idenufiable assets'. 5.345,882 $ Mt.337 $ 5,707,219 5 5,285,930 5 300.265 5 5,566,195 5 4,952,694 5 300,144 5 5,252,838 Nonutihty plant and other investments. 9,318 9,697 14,934 Assets utihzed for overall Company 336,511 326,842 355,270 g opersoons. g Total assets. $ 6,053,088 5 5.922,734 5 5,623.042 .a< Dzz< oo E 2*C Cz 3

Utilsty plant, nuclearfueland acquisition adjustment (less accumulated dmra iati<m and amornzation), matenals and supplies, unamortized deferred abandcmment cost, deferred Clinwn costs, prepaid and deferred erwrgy costs.

-(+N

- Restairdfor the efect of capitahzed nuclearfuellanc.

i

Note 11-Pension and Other The plan assets consisted primarily of common siocks,-

iPost-Employment Benefit Costs: 'i'ed i"c =' $ecuritie$> c'$h *9"iva cat 5 *"d ' e' tate The actuarial present value of. accumulated plan benefits at The Company has defined benefit pension plans - January 1,1988 and January 1,1987 were $123,327,000 and covering all ofIicers and employees. Benefits are based on $107,189,000, respectively. (including vested benefits of' years of service and the employee's earmngs. The Company's $399,749,000 and $93,825,000, respectively). funding policy is to contribute annually at least the nummum The pension cost for 1988 was calculated using a i tmount required by government funding standards, but not measurement date of January 1,1988, a discount rate of l more than can be deducted for federal income tax purposes. 8%%, rate ofincrease of future compensation levels of 6%,' I In 1987, the Company adopted Statement of Financial and return on assets of 9%. The pension cost for 1987 was i Accounting Standards No. 87 " Employers' Accounting for calculated using a measurement date of January 1,1987, a I Pensions" (FA5 87). Adoption of FAS 87 decreased 1987 discount rate of 8%, rate ofincrease of future compensation - annut.! pension costs by approximately $5.6 million, a portion levels of 6%, and return on assets of 9%. The Company's of which was capitalized. pension costs prior to 1987 were accounted for in accordance Pension costs for 1988 and 1987 included the following with previous accounting principles. These costs were components: $3,136,000 in 1986. The Company did not make any cash j contributions during 1988,1987, and 1986 for the pension. I plan due to its overfunded status. Years Ended In addition, the Company provides certain health care December 31, and life insurance benefits for substantially all active and less les7 retired employees. These benefits are provided through an (Thousands of Dollars) insurance company, and premiums are based on actual claims Service cost on benefits earned during the experience. The Company recognizes the cost of these In[crNi cds't An3r'o5ct212efit 5hgdi$n. '.. t!, benefits as premiums are paid. Costs for 1988,1987,' and ~ I, - Return en plan assers................. 8,e65 (42,713) 1986, net of contributions by both active and retired Net amortization and deferral............. ( 33,180) 20,110 employees, were $11,050,000, $8,469,000, and $8,341,000, Totar pension cost < benefit).. s (3,957) s (7,470) respectively. The cost of providing those benefits for 1,088 retirees is not separable from the cost of providing benefits for 4,551 active employees. The estimated funded status of the plans at December 31,1988 and December 31,1987 using measurement dates of Note 2-Redeemable Preferred September 30,1988 and September 30,1987, discount rate of 8%% and rate ofincrease of future compensation levels of $[gck; ) 6%, were as follows: The Company issued $50 million of 8.52% redeemable serial preferred stock and $60 million of 8.00% redeemable serial preferred stock in 1986. In 1987, the Company redeemed $36 million of 11.66% redeemable serial preferred Years Ended stock

TS l

December 31, During the five years from December 31,1988, the ,,,7 amounts of redeemable preferred stock outstanding at such { @*"""d' *' D*II"") date, required to be redeemed at stated value are $10 million T 1 in 1990, $10 million in 1991, $20 million in 1992, and $32 t r fit obi"ga ifn... s 110,263 5 95,471 'cs million in 1993. No shares are required to be redeemed in 7 Accurnulated benefit obliganon........ $ 124,505 5 108,828 g 39g9 E Projected benefit obhgation.... S(158,186) 5(140,460) - Plen aswts at fair value. 229,664 244.336 l '7b'"ln'."".'.."".'".'""."c"' Note 13-Common Stock and i ,1,45, t o,,,,6 Unarnortized net gain... (10,132) (40,472) Retained Earnings pc Unrecogruzed net asset at transition..... (64,178) (68,406) I,807 The Company has an Automatic Reinvestment and f' Prior service costs... Accrued pension cost incluid in Acounts Stock Purchase Plan and an Employees Stock Ownership 3 8 (1,045) 5 (5.002) Payable........... Plan (ESOP) for which at December 31,1988,1,244,816 and 4

I r ( T ) 1 74,510 shares, respectively, of common stock were desig-Plan,135,897 shares of common stock were designated for nated for issuance. issuance at December 31,1988. The Company also has a Tax Reduction Act Stock The Company also has un incentive Savings Plan (Plan) Ownership Plan (TRASOP) pursuant to federal income tax for salaried employees. Under the Plan, the Company i 1:ws, under which Company contributions of common stock matches a portion of the employee contributions. The were based on a percentage of payroll costs. Because the tax Company's matching contribution is used to purchase benefit for contributions to the Plan was repealed under the common sto:k. Under this Plan,20,789 shares of common 1986 Tax Reform Act, 1987 was the last year for stock were designated for issuance at December 31,1988. contributions. The Company has received the approval of the Changes in common stock during 1988,1987, and 1986 Internal Revenue Service to terminate this Plan. Under this were as follows: 1988 1967 1986 St, ares Amount

b res Amount'

$hnres Amount' 68J88,901 5 1,298,207 65,608,876 5 1,221,636 62,800,583 5 1,t50,622 Balance begmning of yes:r. ~.................. Automauc Remvesm.cnt and Stuck Purchase Plan. 4,575,719 85JM 2,723J49 69,457 2,573,622 64,854 ESoP.... 46,251 885 33,388 858 28,675 759 TRASoP... 230,4H 4,699 199,659 5,397 194.218 5.279 incenuve Savmgs Plan. 22,683 45} 23.629 657 11,778 324 Balance end of year. 73.463,988 8 1,389,742 68.588.901 5 1.298.207 65,608,876 5 1,721.838 {

Thousands ofdollars None of the Company's retained earnings at December 31,1988 was restricted with respect to the declaration or payment ofdividends.

Note 14-Quarterly Financial Information (Unaudited): First Quarter Second Quarter Third Quarter Fourin Quarter 1988 1987 1988 1987 1988 1987 1988 1987 (Thousanda or Donars Escept Earnings Per Common Share) Operstmg revenues. 8333,657 5325,701 827d,879 5253,727 8391,961 5347,735 $288,223 5292 3 60 Operaung income................ 51,860 51,3s4 46,492 50.272 119,138 98,775 29,133 32,891 Net mcotas before cumulauve effect of account. mg change... 28,266 71,*42 25,M3 63,427 95,9M 113,764 5,853 40,',23 Net mcome after cumulauwe effect d account-ug change........... f,2,278 72,742 25,363 63,427 95,936 113,764 5,853 40,623 N2 income (kas) apphcable to common stuck he. fore cumulauve effect of accountas change.. Ik,8M 62,108 16,01I 54,144 h6J53 104,464 (3J20) 31,143 Net mcome (loss) apphcable to commun sim;k after cumulauve effect of accountng change.- 52 sd 62.108 16,018 54,144 86J53 104,464 (3,520) 31,143 Earturgs (loss) per common share before g cumulauve effcci of accountug change. $.27 5.94 8.23 5.61 8 1.21 5 134 8 (.05) 5.=6 Earmngs (loss) per conunon share after --{ cumunauve effect of accountug change.. S.74 5.94 8.23 5.61 8 1.21 51.s4 8 (.05) 5 46 ad N Quarterly earnings per comnum share tre based on txxghted average number ofshares outstandmg during the quarter and the sum of the quarters j may not equal annual camings per comnuri share. O c s., E The 1987 fourth quarier net income was reduced by $19 Clinton cost deferrals the portion of the Company's electric h million (28e per share) d,se to the provisions of the negotiated utility business not under the jurisdiction of the ICC, because j settlement. See " Note 3-Clinton Power Station". Addition. the November 1987 retail rate filing excluded that ponion of l ally, the 1987 fourth quarter net income was reduced by $11 the Company's operations. C, million (16e per shwe) due to the effect of excluding from the i

a Two-Year Dividends and Stock Prices by Quarters The common stock is listed on the New York Stock Exchange and the Midwest Stock Exchange. The prices below are the . prices reported on the Composite Tape. The preferred stocks are listed on the New York Stock Exchange and the price *, below ) - r.re the prices on that Exchange. 1988 Enock Prices 1987 Stock Prices I 2 3 4 3 2 3 4 Dividend 41) High imw High law High 14w High imw High Emw High 14w High Emw High Emw Common 5 46 25% 22 % 22 % 16% 20% 18 20 18 % 31 % 27% 28 % 25 % 27 24h 27 21 % ) 4.0F% Md. .51 21 % 19 % 20% 36% 19 % 18% 20% 18 % 25 % 23 24 % 21 22 % 19% 20% lil% 4.26% Md .53% 23 20% 20h 19 204 19 % .20% 19% 25% 24 24 % M4 23% 21 22% 20 4.70% Md. .58% 25 22 % 23 % 20% 22 % 21 23 % 21 % 28 26 % 26b 23 25% 22 % 24 % 21 4.42% Nd. .55% 23 % 21 21 % 19 % 21% 20 22 20 % 26% 24 25 % 21 % 23 % 21 % J2% 19 % 4.20% Nd. .52% 23 20 23h 19 22b 20 21 % 19 26 24 % 254 21 % 24 21 % 23% 19 8.24% Pid. 1 03 43% 39 % 40% 34 % 40% .,4% 41% 37 % 49% 45% 47% 42 44 39 41 % 36 7.56% Md. .94% 39 35% 37 33 % 36 % 34 37b 34 45 % 41 % 44 % 36% 40% 35 % 41 30 8.94% Md. 1.11 % 44 % 40% 43 % ' 39% 4th 39 42% 40% $1% 47% 48 % 41% 46 % 41 % 42 % 37 8.00% Md. 1.00 40 37% 39 % 36 % 37% 35 % 38 % 36 47% 44 % 47 39% 41% 37% 38% 33 l II.66% NJ. (4) 1 45% 54 % 52 4 - I Ado Rate Pld A (2) 39 % 32 % 35 29 31 % 28 31 % 27h 43 38 % di 37% 41% 38% 42 38 % Ado Raw Pfd. B (3) 50 % 45% 42% 3B 40 36% 38 % 35% 51 % 47 50% 46 51 49% 51 48 11.75% Pid. 1.46% 56% 54 % 36 54 % 54 % 52 % 54 % 52 % 62 56% 58 % 55 58 % 54 % 57% 55 6.52% Pld 1.065 48% 45 48-46% 48 47 54 54 53 50 50 47 B.Or% Pfd 2.00 99 % 98 % 96% 91 % 91 % 80% B5 85 102 % 97% 99 % %% %% 96% (1) The amount declared in each quarter durste 1988 and 1987. (2) Dwidend rate changes quarterly. Ratesfor dwiknds declared in 1988 txre 50. 75, $0.75,50. 7563, and $0 75 in theprst seamd, third, andfounh quarters, respectably. Ratesfor dwidends declared m 19871wre 50.75,50.75,50.75, and $0 8375 in thefsrst, second, third, andfourth quarters, respectiwly. (3) lhvidend rate changa quarter &. Ratesfor dwulends declared in 1988 twre 50.9563, 50.9375,50.9875, and 50.95 in thefurst, seamd, ihird, and fourth quarters, respecute&. Ratesfor dividends dedared en i987 twre 50.875,50.875, $0 90(1, and $1.0688, in ihefsrst, second, thard, andfourth quarters, respectively. (4) Shares txre sedeemedon February 1,1987at $52.50per share. There were 95,887 registered holders of common stock at January 10,1989. ? Selected Financial Data 1988 1987 1986 1985 1984 Total operatmg revenues............................. 81,284,720 $1,219,523 51,183,865 51,167,364 51,280,537 Net income before cumulative effect of accounting change. $ 155,418 5 289,556 5 292,721 5 239,999 5 235,478 Net income after cumulative effect of accountmg change.... 8 189,430 5 289,556 5 292,721 5 239,999 5 235,478 Net income apphcable to common stock gi before cumulatwe effect of accounting change........ 8 117,878 5 251,859 5 256,479 5 207,240 $ 210,221 Net income applicable to common stock g-j after cumulative effect of accountmg change. 8 151,890 5 251.859 5 256,479 5 207,240 5 210.221 h; Er.rmngs per common e, hare before g ! cumulative effect of accounting change............... 5 1.66 5 3.75 5 3.98 5 3.48 5 4.02 E Earnings per common share after i fl cumulauve effect of accounting change.............. 8 2.14 5 3.75 5 3.98 5 3.48 5 4.02 Cssh dmdends declared pet common share...... 5 2.64 5 2.64 5 2.64 5 2.64 5 2.64 Total asseis"............................... 56,053,088 55.922,734 55.623,042 54,894,388 54,083,670 s l Long-term debt"............................. 52,341,231 52,279,219 52,246.367 52,012,672 51,621,201 "f' Redeemable preferred stock........................ 8 160,000 5 160.0D0 5 196,000 5 86,000 5 86.000 a Ratio of carnings to fixed charges *"....... 1.83 2.51 2.57 2.66 3.15 g)

TIunnands of d diars exwpt aurnings per wmnum share, cask daderub dedaredper wm"um share, and rauw of earneres sofixed charges.

7 i

Restatedfor she efect of capssahzed nurkar fuel kase.

{ l

- The rate qfeartures to fixed charges reprewnts the numb:=r of tsmes that arrnergs 14we sumne taxes andfixedsharen cover thefixedsharges Earnmes used m the r

caksdatwn cf the ahow ntusc smiuk allowancefarfuni sued dururg wnstruaum and deferrrd Chnum fmauste costs and are before she deduaum of snwmc taan andfixed charga that snduk muerest on form.serm debt, related amortszatum of debt duwunt. premsum mad expense, other muerest, and that portum of rent exj,eru i that is esumated to be repreuntame of the mserest wmpawnr. Larnstgs avadabkforfard sharges exduda che cumulatnw cffea as of.7anuary 1,1%B of auruurg i unbdkd rewnues. See " Note 2-Changa m Aaounnrg". I

1 i .I Electric Statistics Revenues (Thousands of minars). 372,535 5 351,910 5 293,041 l Residential................................................... ' Commercial..........., c.................................... 215,411 208,527 I87,592 Ind ustrial................................................... 312,165 325,454 290,321

Other................,.....................................

21,187 19,8S5 16,60' Revenues-ultimate consumers............................... 921,298 905,616 787,555 Rural co operatives, mtmicipal and other utihties................... 24,008 23,541 21,611 Miscellaneous................................................ 4,625 - (18,513). 4,978 8 949,931 '910,S44 5 814,144 Customwes at End of Year j Residential.................................................. 487,959 484,809 482,802 Comme rcial................................................. 57,367 56,958 56,734 Ind ustrial................................................... 385 354-339 Other..................................................... 720 715 720 546,431 542,S36 540,595. Se3es in KWH Otousands) Residential........... 4,411,100 4,240,938 4,197,687 Commercial................................................. 2,938,577 2,661,725 2,821,3361 I nd ustrial................................................... 7,414,664 7,323,167 7,341,567 Other...................................................... 338,132 321,697 320,121 1 Sales-ultiinate consumers.................................... 15,102,473 14,747,527 ~ 14,680,711 Rural cooperatives, municipal and other utilities................... 626,015 588,179 554,746 15,728,488 15,335,706 15,235,457 Gas Statistics ,,,6 i Revenues (Thousands of N11ars) Residential.................................................. $ 267,274 5 191,555 5 205,814-Co mmercial.................................................. 70,910 66,225 77,832 Ind ustrial.................................................. 47,655 34,506 73,163 ( Revenues-ultimate consumers............................... 325,839 292,2S6 356,809 Interdepartmental revenues...................................... 2,375 1,272 355 Miscellaneous................................................ 6,575 15,121 12,557 8 334,789 5 308,679 369,721 .g Custonners at End of Year E Residential................................................. 351,515 350,334 349,691 "d Commercial................................................ 33,332 33,271 33,027 -d - I nd ustrial.................................................. 489 486 483 385,336 384,091 383,201 x $45th in Timerens O'housands) l k Resi dential.................................................. 367,013 331,640 356,965 Comm ercial................................................. 147,769 137,232 161,0!! Ind u strial.................................................... 154,716 95,690 197,815 Sales-altimate comumer$*............................... 669,498 564,562 715,791 Interdepartmemal sales........................................ 8,523 5,122 1,232 ]' 678,021 569,684 717,023 0

Exdudes slems trawporwdfor ottan arrwunting to 235,318,000 in 1988. 326,801,000 m 1987, auf 253,280.C00 m 1986.

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