ML20248L671
| ML20248L671 | |
| Person / Time | |
|---|---|
| Site: | Clinton  |
| Issue date: | 12/31/1997 |
| From: | Haab L ILLINOIS POWER CO. |
| To: | |
| Shared Package | |
| ML20248L670 | List: |
| References | |
| NUDOCS 9806110296 | |
| Download: ML20248L671 (74) | |
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s On December 16,1997, competition in the electric t k ._ , . t g y
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. f etilityindustry became law in Illinois. Now, after .
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! Financial Overview f Operating revenues l'lectne anJ ricerric imerchange $ 1,420.0 $ 1,340.5 5.9 Gas $ 353.9 $ 348.2 1.6 Divenafed enterrnws 5 735.4 5 57.6 - 3 Operating exprme. $ 2.185.1 $ 1,274.1 71.5 ) Ogeratmg uwmr 5 324.4 5 472.0 1.11.1) Net mconw (ke.s) apphcal:le tu ounmon stut k 5 (90.4) $ 190.1 (l47.5) . Nc iimmw (caciudmg citr,wirdmary item in 1997 and excludmg f carrt mg anwmnt over (under) comideratLm p nd fut rederned preferrtd I stuck of subsuhary in 1997 and 1996) 5 104.4 $ 191.0 (45 1) Tuul aww 5 5.183.0 $ 5,712.H d.1) e Common Stock Data Eghted averay numler of comnum shares out>iardng (thouunds) 73,992 75,6H2 (2.2) Earnmp (Im4 per cumnum share (hade and diluicd) $ (1.22) $ 2.51 (148.6) 1
- 1.arnings per cannnwm share (basic and diluicd -excludmg extraurdmary item in 1997 and exchang carrying anneum over (under) consnieratkm paid for redcenn!
I preferred niotk of subsidiary in 1997 and 1996) $ 441 $ 2.52 l44.0) Return on average cumnum comty (includmg extraordmary item in 1997 and including carrying amount over imider) cimsicratLm paid for redccrned preferred amtL of subsidiary ir 1997 and 1996) (6.0)% 12.0 % - Ikuk value per comnum share $ 19.1i $ 21.62 (l I .6) Cnmnum simk prices High $ 27 % $ 30 % - 1.ow $ 20 W $ 24 % - Ckme $ 26 n/i. $ 27 W (2.0) Dividends Cash dividends declared per comnwin share $ l.24 5 1.15 7.N Cash divklends p.nJ ptf conmum share 5 1,24 5 1.12 10.7 Capitalization C4wnmuntimk ! 41% 46 % - 1' referred suwk ui subuddy 8% N% ~ 14mg term debt 51% 46 % -
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L Larry D. Haab Chairman, President, and chief hecutive 0fficer UN L0CKING THE POWER I . v '. e _.~ g rv r e l l l t t***1 l / p [ l 'L ; i S. ""'" .(e g % J y m- % ~%- ' f ' kh$ / l yn NMMQ4 e6 Og - m- ' _m 9 we M i.M52Lghdid.A&$)ra, $]5 WA& *
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~- ' , t 5 l 1 ' t i After thre years of increasing earnings per share ] f at double-digit rates, in 1997 we turne.1 in a set-l . per $namclat performance Nev+theless, we had I signLarit achievements to be truly proud of - espacichy ou employees' extraordinary effons to , help pass regulatcry reform legidation and Illinova l Generating Comparr/s first year of profitability. ? Financial results in 1997 were hurt by cwo things: = , the write-down of c,ur generathn assets in response a to regulatory reform and our inability to bring + Clinton rower Station bar.K into service. However, a j sa 1 record performance from our fossil system allowed ' us to proorle our customers with reliable electric o service tivoughout the year. We were aided in this a effort by our prompt restoration of the Word River Power Station following a December 1995 fire. D m We still ha** the job of bringing Clinton back into sent. To help accomptish that, we have brought o , in a management team from one of the industry's o premier nuclear piograms. Obviously, how we handle Clinton is citical to our future success. so I have $ told the Nuclear Regulawry Commission, or board of directors, and our emplo;ees, and now I am telline you: returning Clinton to excellence is my hp personal priority., As a company, our greatest challenge in 1998 will he meeting the demands or' Illinois' newly competi-tive electric utility industry. In the past, our employees have nsen to meet every new challange we've encountered. Today, we all understand that we are entering a new era in our industry - one that will present new and difficult challenges. More impertant, we understand what we must do to meet the e challenges, and we are eager to prove we car. For our customers, this r;ew era means the power to choose. For us, it means we must do whatever is necessary to ensuie that cor customers choose us. , As the first page of this report says, We have the pnwer to compete.* I invee 1 +- g xxN N / / / O a w / i / '.d ,A, R;, e, h d' se
- i. ,
S 4 9 r , 4 v . T H E Pj\0W ER T0 C H OO5E W he - o .. me !@r s a X tens bi suteed u- tem new 'ndustS we Itn our residential t ustome's the -y t ir "n e. t f mf ean t he n.jnt tc i ont us ,p :. m ,,at n e M. -a e. opt ton to c hoose ( omes in May 2002 pe; , c : . . 1 or to toe !.r.qv t ,et c o q oa- : atie m < o >,t ome 's Howevet hve then industnat coun r,.e g . . . ~ ., .";r".'., % o' He y 'od t hat we quo h arn Anat I t" p a r t s our resident bd! ( u'.t omer s ' I i.i,;g. o* up 9 119 (U t ilme' . i t ), a' .e 'l ' !W !' t i '- t a i<si'e n .dP e' A'- De hhCDPin9 beiU'e IMe lh .u- ,u". . ' ' n ... 4 .p mcn<q e, r .o ineu .o., af t y ' 1997 we began prepanng by improv ~ .. ..e., ,. . . . . a,e r - , mg ('rto abiht'y to ident dy weak nesse) . .a :- . t si a t So t. ,1, k e c e')t . , he uoi a g rimp ,e of hoa "- M elett'u sVsterti rehabdit y d) , 'tts # this r as be Da ing t he Wel as D) beefing up sgJkit es at ou' j i<e t*m :, ..prm- n+ a . e n' , c , oui 19 % 47 heating sed'.o . n'at ural qds k"> ^e' f e"tey
- a t < me . 'm+ been i m ed e. 't. a D' H es spned and r ugomers ti nis nibs ,- - i' i"e t rie ,oi a, ,' o it y y e.e at ntdingh I!1t 'esuU A a '. .l o n l" edfly 144) we ldu'nt hed a pro- c 6
1 not iu e. bJ , o ' 6me n, v ue, 6 th n arn tm c ustome' sat t tm t ier,. and giam tt 't plar e 1 1 mToop gas and
- r aba ::- 7m,e thei upp e and tea e ubiei ' te . ,m a i a o t re ne elec t n rner e r s with new two way
.s a a.r ec.- 'vo hv. w w '1 go +o p m p w me .e;se .3.* .'ac+6 o~ mu n u at .o m ru. ter s I tje ,%e w h i +.. ' . , ' fr e,esB, a' oie ,..J he rearket ./ce ene'. nec met e" e il' pio .1de up t (i the r . 4 ',e d i t f t(; '1 );1tulo d ', a QP i niot mdt 101 WhMh Mb a n. a g, . .m ' .me's bu. ne v e-be mML abte to us and to ou rf ve a ...%e ,e : dic o n ; the ' ' 6 est f .e ne pae- ..i<>m.e,t ' he- aptcr ti inmet - r a : ompetit we market pta: e ,au. .n e he ! a.'n,ygh ,r r , n , n ao .. e me N. it s '.o p ue r De. < ene e tr e a m .e . t. ae t eri a e rn , .m poi .! , ro Wo e U- (h t :iber ;944 But t hei 't a ' e ' t'nt vedi W e. A m suppienmfV 0 m' AH t e, erg ie'au b u t.14e' ecce l A M UniC t hen t o makt at then the ,e quahlative impTuvements witt , nre [J m :,e s 1 M(bonaid a t v Wa. v. rid - man, <re ape d Wopp na' a un, int' tat've one beg in nj ng in %d" e '. o ja e a r m nq ' Se e t us Io l'em at neJ y, tm ' b m.e w in A u me.' we niu rPGm e re',icentia; ' on WI . ' . i . . . el ' '; .t Du f % ' 'l'ai ' fuseill ,t afit d ve' he VP 1 rrated t >le i o u t c a me' . ete(tik'tg ' lates ib per .rm ea c 9 wvet endum s dution lentm wn .tt i ded). died 11 - (et he r . n. May 2002 dt the sdme , ':!;fni and inee.f ing t'le nepj (d 4dr tiff re ret,Ident gl ( g<f or11ers die oNef ed $ (pn (' M Dme r s I': a wnw. AP f t; trg [hpyp 1p %dDD I Ief s We a l{I feudse mg to mdke thee shopping eauer then idtes b, another 5 perc ent 3 a 9 n. 4 r l _ We're Here tn Re Heard I ' .f $ ~ Employees from all parts of the Company - from the power plants, from the gas t)usiness, from the electric business, f'om ;/ Y- teft: Les storm
- i. jn Gas Joumeymon headquarters. from everywhere - rallied around regulatory reform. On October 29.1997, our employees literally circled ,
( urbono Champorgn .. Center: EHzabeth Bradford the capitol building in Springfield in an extraordinary display q of determination to give our Customers choice. > Pubtrc Afforts Assouote Pub!rc Afforts , t i
- 1
'*,, Right: Phil Breezeel j Basmess Consultant 3 % kegulatory Serwtes i I live ) !$ . . ,:.. .. - .. . ,r . , , .. . l ) en . 1 n 1 . f .. , p . 3 , l Putting the vean ad we rewgmzed tst ~ as the umted states, England. Brakes on 1)RCellaifLScienCE k e ope,ortornties ir our industry didn t end at the edge of ou r J a ms:(,e Honduras. China. V Peistar Peru and Lolombia. # ' we
- sever 'ternt or y I.'n fact
. g-JUinova Generating isn't sa . that the best opportumties Ir. 1998 Illinova Generatinar the only part of Illinova e notpnly gt the coge of wm get a fun year o' produc - with a world view. our servue terrpry, but also tion f rom the 400. megawatt 4 '# past the edge of our co'ntment. ' Termo Flores plant in Colomina. ' '+ Illinois Power represented - -ane it wilt begin reaping the much of the U.S. electric .. utility industry - the ., , . .Noos bencrahnm our, M . bene 6t s trom two earher most efficient energy . . pendent power subddlary has . o vest ment s. the B5- mega-producers in the world - , ~ in internation&l negotiat. t**" "P *D "9 P0d 9.um a t 'w att Aguaytia plant in Peru bg sessions and other - apacu%e.s vnn 199 3 M esme on hoe in the first forums leadinrj up to last b- . ;99, , htn wm r *un b ddY hk' '586-megawatt - December's atobal warming a j" d *" 4F""dP['*"' '"'*'" 'l'" ** treaty ( Aks in Kyoto, . e - and amumed its rpie at ocie at : ome on tnie pround miwear j- Japan,In these sessions, j we fought for a careful the 'Los vWy1 f ptge .earmng', ) ! review of treaty provisions amwth doveE Vrttn now Hhna,a Generatmg ~ - that would unfairly ham- - .! per our nation's global $ ' las i onc entrated jatgely on j competitiveness without nui stratch un the .indepen 'r; dependent power ' protects, , , I 4 ProVidiA9 Si 9 "ififant dent power mqt is i,trarp ' Hhevet
- the40mpany rs kmk environmental benefits.
fo ward. We c ntent rate on ' 'mq at expanding operations to f 6 m vest ment opWrt unthes m 'nnode elet toc t r a nsmiss ron Nortt Arverus, Snath Amern a - and distnbutwn in places where anc Ava whh.h offe' a unod g tt tw an estantrehed present e min o + s t a b i H t. y and raptd As. part of thn expriaon effort 4 I growth opporton'ille5. We seek . in 1998 Ilhnova beneratmq
- s wdt pur sue pt vat tzation of
' an optimal ma of investments r- m exts' tang plants for immed i selet,ted verticaHV integrated ste ca.sh flow and in eenheld LJtin Amencan ubbties. j ! 6 projects for longpr term ,( growth. And we maintain strinI luih (seneratingys on target . '. gerrt guidehnes for ace @t4ble for-contributing more. than 10 . risk and rates of return. D) grcent t>f our tots earnings by 2000, the samp year in . ( . , , . Follomng this strategy. Illmova whiCN 5t pxpects to .becom , '. - %enerating has ac' cumulated one of tg top 25 indeperulent . ; ' e ownership of appmximately 830 power pioducers ,m the world. . e 3ene Robinson g,,, megawatts png capac-twonmental assances .4 { [fty in indepshdent power pro . , 4 jects totating nearly 5.100' , ' ] j rneyawsits iri such countries . y k e A - . .. g;s ~ ' p g .. ' ,s- ' ~,g * ,, . ' Y['n o ~ I u. 3 a P yg, . D l
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I ' N a ' ' #t g . g __ . t y a. (- C,. a 'M 's-N. ., j. 37 s ie" ~ 4 . 1 i i ..... i D 4: , 4 ...,f" O ' Ef- i r t ,yg - e r- = a, 4 i etena ) m e,whJWo +mpeg..m 3%~v9p dom 9%e ,ema&, wer :;yA { 4 g,;pg.. s x , ~ g r ,wx. .. r g W " jj -p o ,orfMwe Myypic % p} . . gug;1 g +{; g . - .8 ,5 _. tg q; c u &gu. , .i ..c ;% w * @kkp ~%gg,gggg%d Um (Eb b ,u-t:0$1 WN .C 0 S Tp[P!O W E R @7 g y,d h [$M k? M ag%ygggg#y&y m , gg.gqyy spyy p, _ ,h g o m %y gg A h em waam ue e s . g S,. M kMggOur3hief, goal'for the fossil.aceN 3#"/"#"% mas y y plant and to-year records at our ?c* Left: sryan xitzmtuer 3 4 %
- genelatibn[s rh 1 y ew~ystA,m[str'aigd BaldEiri and Hennepin plants..
em h n ne -- . ~ - . wood ner Station %4 V"., forward: maintai.n a low-co+st37 Our performance was espe.cial!y _ , . u~ unr,n -..m g ..,,,e ; noteworthy ('"* g" ""*.9 n y,. NQ,, n,. generation .v. capability to sup-An., . ~ . . - . . ~ w - ~ n for its safety ^ i u off,ce supervisor 4, %4 port I!!inois Powe(sfefforts t@. employees at our fossil generat- W ber station m m m --a -w - y + . .~ - n w w@m - r mesucc.eed;in a competitive elec,. ping pla.nts went an entire year ~ z w F3%p. .s . %~r -- qa. s . w w. m. Jright: stephen Harrison " . with no lc;t workdays 9 , , d Mig ts , b^ Cerd % tewer 4 ~#%nn"s .jgty marketplace!Inji99hp -~~- . ~ ~ ~ Rc ' s.'e. Twe %. - achieved th:is n goal /despiteD.4 u wood her station u.NQ7j some formidable obstar!es.n 7 On top of those successes, we - , Q. _ . , ,,, m ?^-io " also continued working toward dk< khh. .. m . principal'obstaclel .o oui [, . hee, ting Phase II requirements 1 - I, ~ q @y - t, .q goal was the Dece.m,ber 1996 ' of the.1990 a, %. go into f" . Cle.an Air Act n . ~; un .. ~ f Amendments,"which ,3 p[.f,j fin thatirought down two of e f. V* 6 + 77,8,Q/? Q gplantt0ut'of ..e _ n we e thatlnwdisaster,Mplan will' provide' esufficient $the imNs at'u ,m ,y .v~ ..,w-. -., . ..* g# though,p.m .came _ success. a,y~ On the # NOx red Tn , w. . a,9 v -mn ,
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W. g ~&..yM,3@ymn.m,v.w www g.w n.uctions. ,to meet those,g; st th; nn ,ren, g m., o,f aitremendou. n n e n n .s mD ~. requirements limpro,ve. ,opacityi ; p [b#M~g/W# , WWQ;.c R w iver and brought the unitse future fuelchange+s.M , e% ~, ~~ w , ' xM team! effort," ,m- k N.,N a Le bh,k Y.o ~ % -g .ll M -. M .. Schedul s M. W $ h. x4Wh0Nb.:$' l l { 7 W and under budget. ; Ag1.q s In the~ wake bf the'reguhtory' u; - w % P N. e. s j I 7- P..h' awM .Ng $"Q jdNW ye %w M hp fonnjegp.a w. MMyM'. n ggntep<g W { f@;q:%m 4 ThaIcomes'close to'describingry sifying'our emphasis on oury ~ y,w.w w wwm w a + n ? -w- c { M sy M. 4,a$_;gour,en, w ~~.a.. tire fossil .nv generating .. @ fossil . .:.. system's chief goal-- tos g. j ;QQi . ..;% Aw. system in 1997. To n take .up the%~ - ~ .c be a low ~-co.st energy pro.ducer. j ..~. , V ,Shstw k:e...~.. mmnm r r mm v a., t.e.r..i.r'1998, we will com . ,' ~- mm a l Ag ng,ac. Qy e_left bithe, Wood'Riv.er,T.And__mynnri e la.x The Phoem.x vRw.er-M and Clinton outage , Partners'. . l . ;; 4 , h9 .g sentin,g gng a~ .outnone-thir d of a pcynN wmarketmg mm F.itif s -wittithe, 7 ' w . . . . .. ...s..-.%.~ ,,_. / , ce total : _ gen ~ erat:ng - , .. s capEcit'y).'our t - - ~- r, fossil generatior .o . system's low > c 25 percent of your When f, . -emp}oyees system vide werej generating capacity is idled, l W M, ,gy/p - fq under heavy pressure .v--- ~. a to perg{ a competithe suppber .m. cost to the capability 3, and thentofiremakedisables two Illinova; j '4%py yu.n, form, and tdey did n ~ m., -Mid-Atlantic and Western states.,n more generatm.g umts, and ~[5 s 6-superbly.Mq , the high-demand sumrner { *' We finished the year w.th i our as well as the Midwest.- i months are just around , I fossd system' operations,and ' the corner, the pressures f maintenance expense under - to rebuite - to rise from i budget, and we set new gerer- the ashes - are especially keen. An Illinois Prwer ation records at our Havana recovery team shrugged off the pressure and put . g' one unit of Wood River ; ! 4 back into service just J , six months after the fire. i Within 10 months of the j l l l fire, the entire fant was j j { , , ., back in service. l j 4 I , ) I i~ i ! \ l l # , t eine 1 u_ k . , ed ff_y[1;, (' / _ c - ~
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c - ' m. *- :. :c ~ . ; .* .. ; e. O - O O O A .I Keeping the Supply land Communications) lines Open Natalie Herrmer in 1997, with Midwestern electricity RegionoI Monoger supplies tight and a third of our genertting Galesburg capacity on the sidelines, our power purchasers had to go into overdrive. Our customer service team also went into overdrive, working with businesses and community officials to increase awareness of potential shortages and to help develop strategies for mitigating their impact. a { teetoe j - - - - - - - - - - - ~ - _ s N '4 b, 1 1 l Y ,f I l a y a ,"l&' 'Ifk ll:,, r n 0
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/ l! 6 , I / ; 6 ..? f oi yve, we vKipown that the - ledeiat Way % hoots m .[ mgton. we leveraged those relationsbp[to emerging enerhervKes market and t he Ar ttona Dep#t rnent of begm participating in retail hedru , p: a t e e. o u ! d J e r est ac'd'nar, MrinobhaUm . - e=penmenty the Paritu hortherpt ( ;4 p r* a ' c . . but Cad, t o t@,q [ ' , f <. h o i n i t, where to lool 10 ; * ""N *' """o vee . and servu es , 'if P s enetgy servites aisd irit}ude j ' te ne noptanpes and ti- h y " " ' ' " * " ' " ' ** # " ' tab . nakup gas. and sate . ( or1tinited to f' 0.ct,vW and ter ad centat( n' - e aum hee Imno o { nem, # "U "e and pqm t ana p nt ' ' ' ' " '" ' " ' ' ' ' '" 4 growin 19h ba4 Oupngs to ',bdyrestein c uotomen reac hed or$ .+ror 'a f(P lh tha' roh Jif I tMm n (ubu eet . and c o '.t h m e r s ', k.{ :ps" ' o p. tau h it. set' o- a hg.s ,c c t ir Pom a M be bar rament o . ' indude su(h jnarabee retsHyrs as N - ias Agas Ne, l e me "tJ99, k, <.,i a ,o l' v me , ( a n' lj ' _ laroet and Horfie Depot g J , o a6e i % i ma na Neb Det rm t .- ', 4 . i f !+ Lad lng hmentu n i . 4'!n l
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't he powe r ngarket mq and enegy 'ame Mt[ with its Nilotec Y INS E'*d@ dM MdM $ Q'Vit es businesses rema n ve'y Me"q7 no:ut torts hale' U: t'oS area < >enpng. W, ernerging mdu',t ry , / ! m ,q j e t s tuvely smah but ,he a.P t ph aer rrgarketmo sales grew to '"""' "td" t onstantf( redefin mg it jelf as i en@ 7r "' ale m en9meen am W "" t""5 "
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-e (n% eHuwn g o a . ar rt of f y f"d" "' Ih" PM' "C " '"n4 among energy rnarket* . , f den u; i 4 u'.au a r .c1 .n ,t it o t% ' c y. b e pwm mawig t on- .nh < a *. mv m ade and otn of pa"w ' - t he **" i a nd mon 4 1"" we must over(Ome these okar (et no- n ter s 'ranaiona: m otors' t uS :D nanonauv R ue n,un< tant a 'mt by' helpmq c ustome bet te' ' J .e t".i'r. ib e popuia r befause tasy"' x abou' ' he 'io of the u nderstand ther ene'o e needs and nes hem , wito veo save money even tuohh vn<at ne Westen mei t m it S 'he new opportumties ottered D, x ,'e T',m e m u o.- eie . t . n w cqutatna annt. j, p , g ,,5 made' . deregulation. and set und bs proemy 'nem t o Ol<y tw h>wer elect o: iat e . , g,e g t paintes3 J, ;ggg wp a' Ilbdka can meet t hose necas , . der oraec trmes of $18 h munor. ' net Amnu with oso enumeennq npe, better than any of ou' c ompetitors b # mc.ome taxes int ioch ng reserve le tact. this is the ame str4teav we k;se 40 tru oed energs solutiom, t ont:act penod , mtt. 19CN Btp fi s 9 m es . % % o' [nergs Ouot mut se'se ie:, sore. d. pWe mtt r amtMtd yil pursue tnroughout itonova Th n 1 4 . ,iF ,1 es ,i nese udude handt. - the powe' f o 40mpete . i 0 7 our suc c es'. When similar markey ;$umnq je 4eu a< soft w are o s Aqr un r a. the u t il t' y " " " '" ' h" W ' U * "'# O '" d 5" O' v : kur ' ! n r F -ip i r u t t o me lthese tes ,ans we have ref oc used ou' pt r at ec , mak ing power manet mq H hr uth% he audd energy . .M ann oncemtand t he impar t 3 ornphmentary f o Jour t a nored a derhgualmn ( estorne6 fos nu r t energs solutions Larry D.14aab ' O seM( e! ini tude Nohl s Depart . (hammar Piendent 'n e n t $tm es Huches flertronu s As Il P's salet. v$urne grew so did our and (hpef f xet utwe Ofpre-( mp., Texas lerhnu al l niversity. strategu relationships en6 m 1997 f ebruary 17.1995 i m The (Energy) 4 (' hec.k'5_in_the_ mar - F Illinova Energy Partners is helping one of the U.S. David Forney Postal Service's processing and distribution centers Cut Semor Projd Manager costs, control consumption, and improve indoor comfort flimovo Enew Partners l by, among other things, replacing the cooling system, retrofitting lighting, aryl introducing a computerized . temperature control system, . Michael Floyd, facilities Manager for the Bloomington, !!!., Post Office, says it's "the most hassle-free project t I've worked on."In other words, typicalIllinova. l fiftees j i ; E [ ; . .* b. .. b.. ,
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111IheVA ( O k P 0 8i A f 10 N R E 5 P 0 N 5 I 8 I t I i 17 f0R IN f 0 R M A T I O t, The condensed consohdated (man. provide reasonable assurance that who are not acrise or retired emplop cial statements in this summary assets are safeguarded against tw ces of Ilknova. The Audit Comm<ttee annual report were denved from the from unauthorized use or disposi- meets with Price Waterhouse LLP consolidated financial staremtnts tion and that the hnancial records and the internal auditors and makes that appear in the Appendix to are reliable for prepanng the consol- recommendat;ons to the l',oard of the proxy statement for the 1998 idated finanual staterwnts. Directors concerning the app untment annual meeting of shareholders. of the independent accountants and Management is responsible for The consolidated financial state- services to he performed. Additionally, preparing the consolidated financial ments have been audited by lilinova's the Audit Committee meets with Price statements and for maintaining and independent accountants. Price Waterhouse LLP to discuss the results enonitoring Illinova's system of inter- Waterhouse LLP,in accordance with of their annual audit, Ilhnova's inter-naf accounting controls. The consoli- generally accepted auditing stan- nal accounting controls and financial dated financial statements are in dards. Such standards include the reporting matters. The Audit Com-conformity with generally accepted evaluation of internal accounting mittee meets with the internal audi-accounting principles and include controk m establish a basis for desel~ tors to assess the internal audit work amounts based on managements oping the scope of the examination of performed, includmg tests of internal best estimates and judgments. Man- the consolidated financial statements. , ,; 9 9; agemer.t also prepared the other in addition to the use of independent information in the annual report accountants, Illinova mamtains a pro- , and is responsible for its accuracy fessional staff of internal auditors and consistency with the consoli- who conduct financial, procedural Larry D. Haab dated financial statements, in the and specid audits. To assure their Chairman, President opinion of management, the consol- independence, both Price Waterhouse and Chief hecutive Ofcer idated financial statements fairly LLP and the internal auditors have reflect Illinova's financial position, direct access to the Audit Committee results of operations and cash flows. of the lkiard of Directors. /[ Larry F. Altenbaumer Illinova believes its accounting and The Audit Committee is composed Chief financial 0fcer, internal accounting control systems of members of the Ibard of Directors Treasurer and Controlier IL LIN O V A _C O R P O R At t 0 h I REP 0RT 0F "I N DEFEN DENT ACC0UNTANT5 I PRICE WATERHOUSE LLP 10 the Board of Directort and Shareholders of Illinova Corporation j We hace audited, in ac'cordance unqualified opinion on those con- Company discontinued applying the with generally accepted auditing solidated fmancial statements. In provisions of Statement of Financial standards, the consolidated financial our opinion, the information set Accounting Standards No. 71, i statement. of Illinova Corporation forth in the accompanying con- - Accounting for the Effects of and its subsidiaries as of December densed consolidated (mancial state- Certait Types of llegulations, for i 31,1997 and 1996, and for each of menis aprearing on pages 18 its pencration segment of the busi- I the three years in the period ended through 21, when read in coniune- ness in December 1997. December 31,1997, appearing in tion with the consolidated financial the Appendix to the proxy state. statements from which it has been ment for the 1998 annual meeting derived, is fairly stated in all mater- g g of shareholders of the' Corporation ial respects in relatiorrthereto. (which statements are not presented Pric Waterhouse LLP herein); and in our report dated As discussed in Note I to the con- St Louis, Missoun February 12,1998, we expressed an solidated financial statements, the restuary 12,1998 i.....i...i l 1 1 I I ! 1 2 : s o L s, : s e i: 6a>;oh ( 0N 0Eh 510 ( 0h 50LIOATi 0 5iA1 EM tN T5 0F 1N ( 0M t iMdle m> vt J. .llan exs rt.t twr slwr amams0 ~ hw tha har. I ndcd i)ccernlu ll, l997 19 % Iws I Operating Revenues l 1 kytric $ l.244.4 5 1,202.9 5 1,252 s l 11rnie interclungc . 1754 117.6 116.1 Gas 353.9 348.2 272.5 Diverufied enterprises 7354 57.6 2o Total 2.509.5 1,74r.1 1.#.41.4 Operating Expenses Fuel f w ekvrne plants 232.4 248.1 273.9 l'ower purchascJ 217.9 61.2 59.5 Gas purchancJ for rnale 207.7 202.6 118.8 Ibersified enterpne 792.3 k7.5 15.2 Oilwr onratum and nueniename 402.2 349.6 359.7 I nhanccJ rreirenwns and wwrance - - 37.8 Depreu. nam and annertuarum its.s 19(un I d,.5 Gnwral taxn 133.8 111.3 135.0 Tutal 2,185.1 1,274.1 1.206.4 Oprratmg ieumr 324.4 472.0 417.0 Other Income and Deductiois Macellaneous-net (3.9) (9.0) (7.1.) li uiry t carmngs in offihain 17.5 6.4 2.7 ligal 13.6 (2.6) (5.1) Inumw trfore mierest charges and itemw taxn 318.c 469.4 411.9 Interest Charges interest essvw 1308 1 14.7 14X.6 Alkmance for lurn.wed funJs uscJ Junng wnstracium (1.0) (6 4) (6.01 thierred JmJend requirenwnn of sulwhary 21.5 22.3 23.7 Tigal 153.3 150.5 166.3 inamic lefore mcome tan 184.7 31 H.9 265.6 , inconwtaes ' 80.3 127,9 114.0 Net numw befors extraordmary acm 104.4 191.0 151.6 Extraordmary nem net of mconw in Lenefs of 511N.0 millur (Note il (195.0) - - Net incimw (inssi (9C.6) 191.0 151.6 Carrying anwmnt in er (unders conwkr.onm guid for redwmed preferrcJ semL nf sulw, Jury .2 1.7) 13.5: Net mumw flow) apphe de in commun stuck $ (90A) 5 190.3 5 144.1 l arning per wmnmn share Ivtore estuurJman item alus and Jilutedi $ 1.41 5 2.5 I ( I.96 I stranrdinary nem per comnwm dure eh.34 and dikned; $ (2.63) 5 - 5 - larmnguhiwiler aimuum dure ibam and Jiluicdi $ (1.22) 5 2.41 5 1.9 Lash JnidenA dedtrvd per o nmwin durc $ l.24 5 1.15 5 1.oi L wh Jnideixk paul por common slurr $ l.24 5 1.12 5 1.lu s Weq.,htcJ a crage uwnnwin dufu 73,991,651 Ti 6X I,91- 7 V41.917 kg the aanmpartreng GmJenwd %cs in GerJenwJ Gnur:hdated I unanaalStatements l'nnr years restateJ to o unpnvu to ncn- {manaal f..nnat e s i eletteen 1 i . . ~"
- Ii41%DiA ( 0 # F ft a A l l 0 se
( 0N D1N5ID ( 0N5CL10AftD 8A L A hcl 5H f( T5 e \ldinu ,,f al dla >
- lh u m!ws ll, 1997 im i
A5$ets l Plant and prolerty 5 7,3s3.4 5 6,Wi l .4 j irw - accumut.ited deprecurn'en 2,808.1 2,4 I v.7 I I Net utihry plant 4,545.3 4,(61.8 j Nuclear lucl under capital teaw 131.0 101.~ insnrments and other aswn 198.8 146.2 Cash and ush equivalents 33.0 24.6 Other current awets 487.2 444.1 l i Deferred charges 185.7 4 14.4 Total 5 5,583.0 $ 5,712.N Capital and liabilities Gunnumsusk $ 1,488.4 5 i,d 17.4 Ocitrred unnpcusnum - l AOP (10.2) 04.3) ik1arol carninp 51,7 211.ti 1rcasury sinck (90.4) - Preferrcti stack nf suhidury 57.1 96.2 Mandannity redcenuble pedened sud of sukidur3 197.0 197.0 long-term dcht 1,717.5 1.616 A Total capitahzation 3,141.t 1, Sed.N Current habihnes 861.7 74X.0 lkferred credits and exhrt ew,ncurrent habihnn 1,380.2 1,399.0 Tmal 5 5,583.0 5 5,712.8 ( ILL!h0VA ( O R P 0 a A 10 N C0NDEN5ED C0N50LIDATED 5 TAT [ MENT 5 0F CA5H FL0W5 fW.%ms of J,dl.srs! For the h:s Enikd ikccmier TI, 1997 19W. lYv.5 Cash Flows from Operating Activities j Net income (km) 5 (90.6) 5 191.0 $ 141.6 l henn not requinng cash, net *
- 422.9 246.2 260.9 l
. Changn in auch and luhihto 36.0 cv.lo Net cash pnnided by nperatmg activmn 368.3 497.4 411.2 Cash Flows from Invef ting Activities Construenon exprishturn~ * (218.9) t l ku.M (20 L1: Orher intntmg actninn (33.5) 47 4.D' t4%1 Net cash uwi' m invnnng aaninn (252.4) (2 5 5.M (2 18.2 Cash Flows from Financing Activities lin edenJ, on enmnuin wd (92.4) E x4.~i i~N l(cpurchaw sd uunnw n stock (90A) - - 14etirenwns of bonds and other dcht (440.9) t 519.1h i151.1. lauanet oflunds and nrher delw 519.5 4 x4.1 2n9.5 Odwr (mancmg aetn mes (3.3) 1.1 -4n Net cash uwd m Imancmg aern mn (107.5) Ii A h (214.4i Net change in cash and caderqunalents a, 8.4 i L1 (39.41
- tu,"
Cash and cash equa alents at bepmnmg of year 24.6 11.1 Cash and cash equivalents ai rnd of year 5 33.0 5 24.e. 5 11.1 See the accompanying Cnndensed Notes an Camdensed Consohdated hnanck! Statement, t .i...... I litshova (okec*attos C0N 50LIDATED 5TATIM fNT5 0f RETAIN ID EAR N I N G5 t A1dinu ed Jull.urs) Iur dr Wars 1.nded Ise6cinher 31 I997 Iwo Iws blance at beginning of year 5 233.0 5 129.6 5 38.8 Net income (lon) before dividends and carrying anw> uni adiusinwne (69.1) 2133 1753
- 163.9 342.9 2RI Les-Dividende Preferred stuck of su6idiary 2 f.7 22.6 23.6 Onnmon saxk 90.7 86.6 77A Plus-Carrying annunt over (under) consideration paid for enicemed preferred snick of subidiary .2 (.7) (3.3)
(112.2) (109.9) (104.5) NLmer at end of year 5 51.7 5 231.0 5 1294 r - See the accomparrynty Condensed Notes to Conderused Consohdated hnancial Statements ~ C0ND1N51D NO7E5 T0 -C0NDEN5ED C0N50LIDAT[D FINANCIAL 57ATEMENT5
- His 1997 Summary Annual Report pany, which invests in, develops, and service obligations and prices are reg-to Shareholders provides an - operates independent power projects olated to maintain on their balance overview rf the consolidated finan- and facilities; lilinova insurance sheets sssets representing costs they cial position and results of opera- Company, which insures the risks of expect to recover from customers tions of !!!inova Corporation and its Illinova's subsidiaries and their busi- through inclusion in futuie rates. In subsidiaries. More detailed financial ness enterprises and Illinova Energy July 1997, the Fmancial Accounting information appears in the accom- Partners, Inc. (IEP), which markets Standards floard Emerging 1 sues panying Illinova Proxy Statement to electricity, natural gas, and energy- Task Force concluded that, when holders of Illinova common shares related services in the unregulated deregulation legislation is enacted, and in the Illinois Power Company energy market. On February 12, business segments for which a dereg-Information Statement to holders of < 1997, the lilinova ikiard of Directors ulation plan has been established Illinois Power preferred shares. In approved a merger ofIEP and a previ- . should at that time discontinue appli-accordance with Securities and ous subsidiary, Illinova Power cation of FAS 71.The task force fur-Exchange Commission regulations, . Marketing, Inc. (IPMI), in which ther concluded that regulatory assets these documents are mailed to all . IPMI wss the surviving entity but and liabilities originating in the por-shareholders of record at the ch>se changed its name to Illinova Energy tion of business being deregulated of business February s,1998. Partners Inc. should be written off unless future i cash flows from a regulate'd portion Note 3- Itegulation IP is regulated by the of the business specifically provide
$uenina ry. of Significant Illinois Commerce Commission for their recoverv. ~ Accounting Policier (ICC) and the Federal Energy Prin'cipies of (onsotication The Regulatory Commission (FERC). Ikcause Ilhnois'.new law provides for consolidated financial statements Prior to the December 1997 enact- market bawd pncing of electrie gener- . include the accounts of Illinova ment of An Act in Relation to the ation scrWees, IP discontinued apply-Corporation, a holding company, Competitive Provision of Utility ing FAS 71 for its generating segment and its subsidiaries: Illinois Power Services, IP prepared its consolidated in December 1997. IP also evaluated Company flP), whose business is financial statements in accordance the regulatory assets and liabilities generation, transmission, distribu- with Statement of Financial associated with its generating segment ; tion, and sale of clptricity and distri- Accounting St,andards No. 71, and de' ermined that recovery of these bution, transportation, and 'sale of "Accountir,g idr the Effects of costs through rates charged to trans- . natural gas within the State' of Certain Types of Regulation" (FAS mission and distribution customers - Illinois; lilinova Generating Com- 71). FA$ 71 allows companics whose was not probable. Consequently, IP i i.e o I w rote ntt generaterdaicJ reguia- formanse. 'l hc IsA was sonducted ut< a tor- aswis and habihne,, of approw by a team ut M mJmJuals uith ' * " ~ " ' ' " " * ' ""d
- Contingencies mately $195 milhon inct of income extent,ive nuclear expenence and no taxed in December 1997. Illinova's substantial prnious mvolvement at 0"'"*'""*""d""d'"d pnncipal accounting pokeies are: Chnron.%eir report concluded that mpu i tas s IP is responsible for the underlying reasons for the per- the costs of decommissioning g utility Plant The cost of additions Clinton and for spem nuclear fuel formance problems at Clinton were dispmal costs. A hability for decom-3 to utility plant and replacements for ineffective leadership throughout J retired property is capitalized. Cost the organization in providmg stan- missioning costs is being accrued ,
includes labor, materials, an alloca- dards of excellence; complacency rataNy over Clinton's expected ser- J tion of general and administrative throughout the organization; bar- Vi Iif' II i' '"III"E I " ' " - costs, the cost of borrowed funjs rir weaknesses; and weaknesses duommiwinning cmts through its } used for construction purposes, and in teamwork. Subsequently, a 10- electric rates based on an ICC- 7 a reasonable rate on other funds member NRC Special Evaluation appmved formula. when so used (AFUDC). Team concluded that the ISA's find-Environmental Matters IP s.s respon- , [ . ings accurately characterized the . nogulatory Assets 5gmficant regu- . . .. . sible for potential environmental . station s performance deficiencies . . , latory assets melude unamortized impairment at 24 former manufac- .." and their causes. e losses on reacquired debt and man . tured-gas plant (MGPhites. liccause factured-gas plant site cleanup costs. On September 26,1997, the NRC of the unknown and unique charac-issued a Demand for Information teristics of each site and uncertain Depreciation For financialstatement requiring IP to submit information 8"I*'"'Y 9 "I* *"' I I I' " ' purposes, IP depreciates its various able to determine its ultimate habil- a on the corrective action progrsm to classes of depreciable property over ity f r remediation of the sites. IP is resolve issues at Clinton. their estimated usefullives by apply- recovering MCP site cleanup cocts d. ing composite rates on a straight- On January 5,1998, IP announced from its customers as approved by line basis. the ICC. } that PECO Energy Company will , provide management services for 4 Revenue and Energy Cost IP records in November 1997, the United Clinton. lP wili continue to maintain revenue for services provided but not Clinton's operating license and retain Stares Environmental Protection yet billed. Under the electric fuel and Agency pmposed rules that would ultimate oversight of the plant. purchased gas adjustment clauses, IP require substantial reductions o' . is allowed to recover from its cus- On January 21,1998, the NRC nitrogen oxide (NOx) emissions in romers the cost of fuel, purchased placed Clinton on its watch list lilinois and 21 other states. power, and purchased gas. In of nuclear plants that warrant Preliminary estimates indicate the September 1997, the ICC hpproved increased regulatory attention. additional controls would cost $130 IP's petition not to charge customers million to $150 million more than J M for certain additional costs of energy in March 1997, the NRC approved what is already needed to comply incurred due to Clittron Power transferring to IP the Clinton operat- with Phase 11 of the 1990 Clean Air Station (Clinten) being out of service. ing license related to Soyland Power Act amendments. A number of utili-Cooperative, inc/s (Soyland) 13J'% ties, including IP, expect to challenge Note 2- j ownership, in connection with the the legahry and technical feasibility (11nto n Po w er 5ta ti[n transfer to IP of al! Soylandiinterest of this proposal. In September 1996, IP operations in Clinton. In May 1997 Soyland's i personnel shut down Clinton because title to the piant and its directly in Decenber 1997, international i of a leak in a recirculation pumr seal. related assets was transferred to lP. negotiations to reduce greenhouse .As of the date of this report, Clinton ga emissions concluded with the has not resumed operation. In July 1997 FERC approved an adoption of the Kyoto Protocol. IP amended Power Coordination estimates that, if ratified, these pro-In January 1997 and again in June Agreement iPCA) that obligates posed regulations would require sig-1997, the Nuclear Regulatory Soyland to purchaw all its capacity nificant capital outlays and annual Commission (NRC) named Clinton and energy needs from IP for at operating expene that could have among plants having a trend of least to years and to pay IP a con- a material adverse impact on declining performarsce. In June tr.act cancellation fee.if any Soyland Illinova and IP. i 1997, IP committed to conduct an member terminat}s its memlwrship Independent Safety Assessment (ISA) from Soyland. l to thoroughly assess Clinton's per-t ; I. I twenty see ) : I ) . .16064 ( <. 6 + e A A : o r, asa : r. o : s s o v. i . (cu+Asv B0AR D 0i DIR EC10R 5 J. Joe Adorja n, 59 n n $heti Z. R ose n be r g. % .t r. Walt e r M. Va nnoy. 70 tr * > Chairman and Chief becutive Offxer President and Chief inecutive Of'icer of Equity Retired Chairman and Chief Czecutive Officer of of Borg-Warner Secunty Co poration Group Investments. Inc. (busmess conglomerate Figgie International, Inc. (diversifed company (security systems services hrm). ChKago !!L that holds controlhng interests in nine publicly serving consumer, industrial technic 3L and fJccicJ tw7, e traded corporations). Chicago. Ill. service markets wwldwide), Willoughby, Ohio, g IlectrJ tw7 Ilected Iwn. larry D. Haab, 60 si o Chairman, President, and Chief Executive Watter D. Scott, 66 n u " ,;itou voi. f erstel, 60 tt a n Officer of the Company Decatur.11L Professor of Management and Senior Austm Retired becutive V<e President and Fellow. J L. Kell gg Graduate School of Manage- General Manager of Ogilvy Adams & Rinehart DecrcJ 194. ment, Northwestern (Jniversity, [vanston, !!L (public relations hrm). Chicago,11L IlecscJ two. Iketed Inu. - C. Steven McMillan 5Z n a n President. Chief Operating Officer, and Director of Sara Lee Corporation (gtobal packaged food 3oe J. 5tewart, 59 n o John D. Zegiis, 50 t t o and consumer products). Chicago, llL President of BWX Technologies, Inc. (energy President of AT&T, Basking Ridge. N.J. f IlectcJ Iwh. '*"N"*"' ""0 "'**' h""I '"d l*""* IlecteJ lwI. Vice President of McDennott International, Inc. (parent of Swx Technologies). Lynchburg, Va. Robert M. Powers. 66 stt.a o Retired President and Chief becutiv: Othcer of A.C. Staley Manufacturing Company (grain and oil seed processor). Decatur, llL Ronatd L. Thompson, 48 ow g, j ,,g Chairman and Chief Executive O'ficer of Mdwest Stamping and Manufacturing Co. (manufacturer of automotive parts). - Bowling Green, Ohio. IkctcJfwl. 1 i i ~ I l lilinova-Board Committees Board of Directors - A c A n o wle dgme n t s (1) Finance Commrttee Illinova Er ergy Partners, Inc. Larry D. Haab, Chairman Ric h a rd R. B e r ry retired from the Bord (2) Audit Committee l J. Joe Adogan of Di'ec'ers in December 1991. He served on (3) Compensation and tbr Finance Audit, and Nucleat Operat ons Nominating Committee ' C. Steven McMillan g,,,,tt,,,, ,, ,,,,,ci,,, g,, g,yy.s contribu. (4) Nuclear Operations Committee Robert M. Powers tions dunng his to years of service as a Director. (Illinois Power only) Sheli 2. Rosenberg
- Chairman of committee Watter D. Scott Ronald t.. Thompson D n a1d 5. Pe r k i n s retred in April 1997 aher nme years on the Board of Directors. He Watter M. Vannoy served with distinction on t'ie Compensation Board of Director 5 - John D. Zeghs and Nnminating Committee and as its chairman.
Illinova Generating Company p Larry D. Haab. Chartman i J. Joe Adogan B ard of Directors - C. Steven McMillar, litinova insurance Company . Robert M. Powen i,,,ry D. Haab. Chairman ! SheliZ Rosenberg Lany F. Attenbaumer j Watter D. Scott Peter A. Joy Ronald L. Thompson ' C. Steven McMillan Walter M. Vannoy l Watter D. Scott , t John E Zeghs o
- 4 s
( t we nt y.t.e 1 , e!h0VA (Okr06Allph PR1N CIPAL 0FF1CER5 Larry D. Haab, 60 Larry I. Altenbaumer, 49 Leah Manning Stetiner, 49 Uairnun. I'rcudent. and ( Jxi l m. ins ul t hflu ct.1rca>urcr. General G oun<cl and t orp.a.ste kcrcurs Uncf I xecutur ( Iffi. er and ( nntroller l ILLlh015 P0wth COMPANY PRINCIPAL 0FFICER5 Larry D. Haab, 60 Ric h s td W. Eimer J r.,4 9 Leah Manning Stet:ner, 49 Garrnun. Presulent, and Yhe l'rcudort Ywe rren,Init. Generat o,unsel. OnciLxecutur O//acer Responsible for fossit power generation, ""U"P'#d" k""9 I b"E"" I ' includmg power plants, fuel, and planning. Responsible for legat matters, claims. shareholder services, and corpotate Lntplowd 1471. Larry F. AItenbaumer, 49 governance functions. Senuw Vice Prnulent and Kim B. Lef twich, 50 yn,punggygn-g Gu / h,uncy' O//aer ] Respormible for fmancial, regulatory, tan, and ## I"" #"# CynthIa G, 5teward, 40 I legal matters: and auditing, investor relations, Responsible for information technology, Gentroller and corporate development activities. environmental affairs, employee servKes, I i'mplnwd 1970. supply services. administrate services, mance planning, fmancial reportmg, and income j and research and development. tan activities. j Pa ul L. La ng, 5'l I"'UI"*d I'79- agg ;9m
- l Senun Ywe Preudent obert D, ReynoId5, 41 Eric B, Weekes, 46 Responsible for customer service, electrF and gas operations, marketing, gas supply.
,Er ("' Treauner economk development, and transmission and Responsible for marketing functions and Responsible for financial planning, cash distribution engineering. transmission operations. manaoement, and risk management activities. I nsploycJ lv86. LnspimrJ l48I- Lo,,pimsJ lv47 Robert A. Schuits,57 Walter G. MacFarland IV. 48 Senue Ywe Preudent and Ywe PreuJost One/Nucicar O//wer Respons ble for investor relations, treasury. Responsible for operations and support and controller activities. fanctions at Clinton Power Station. tyrpimed19A6. Gmtractedfrom Pt CO f nergy G,mpa,ry 1M Itt1 NOVA GE N E R AflhG COM P A N Y PR1NCIPAL 0fFICER$ Larry D. Haab,60 Michael R. Heneghan, 51 John D. Prunkt, 32 Oairnun, Lmpinved 19M. Senue Yuce Preudent. Lmployed lyk t. Ywe Vresdent - Operatums. tsnpimvd 1446. Alec G, Dreyer. 39 Gary L. Hickey, 46 Leah Manning Stetrner, 49 trendent, l>npimed Iv4L Ywe Picudent - Iwuness Iherrlopment. Gwporate &creury. l.mployed 14X4, I mpimeJ Iv~s. I e i l ILL!h0V A thfRGV PARfNERS. INC. PRINCIPAL 0FF1CER$ Larry D. Haab,60 Laurie 0. McTavish. 41 Thomas M. Rainwater, 39 j iJwenun. I mployed Ivfd. Yu e I'vendent-u estern licyu,m. Yu e Vreudent - ( entr.J lupon. i ImpbncJlu% I mplaycJ Ivu t. l l Da vid W. B utt s,4 3 Leah Manning Stetzner,49 i trcsdnit. f mplorcd iv A. Ge rald P. O'C on nor, 4 6 Ywc l'rcudent - brunce and AJunnurrato,m. ("V"k NT I *P I"?'d I"N"- Ralph F. Tschantz,44 I "'PI "*d I"" b hemor he Vrcadent.1 mpl.nrJ InM. l e ILLIh0VA IN5URAhCf COMPANY PRINC1 PAL 'OFF1CER5 Larry F. Attenbaumer,49 Elizabeth A. O'Donnell 55 Prendent anJ Treauner. t nrpimrd Ivm. GwInsate &creurr. Lmphord 194L I saeatr three 1 i s .. . a 4oais ..- s n. 4. :so:s io,,,. i n v a r. s . 5HA Ri H OLDER IN F 0RM ATION Annual Meeting Written communication regarding shareholders in January 1996 showing The Annual Meetings of Illinova Illinova Corporation and Illinois Power dividends paid during the year. Corporation and Illinois Power Company stock should be addressed to: Participants in the Illinova Investment Company will be held at 10 a.m. Patricio E. Perkins Plus Plan who reinvested cash divi-Wednesday, April 8,1998, at Shilling Supervisor - Shareholder 5ervices dends or made optioM cash payments Auditorium on the campus of Richland Illinois Power Company for shares that were purchased on the Community College, One College Park, 50050uth 27th Street open market were mailed a Form 1099 Decatur, Illinois 62521. Directions to Decotur, Illinois 625212200 to recognize as federal taxable income Shilling Auditorium are provided the allocable share of any brokerage in Illinova's Proxy and Annual Report Change of Address fees acd commissions incurred to pur-to Shareholders. Requests for address changes must be chase such shares as stated in the Plan submitted in writing and should prospectus. Shareholders should con-5tock Exchange Listings include old and new addresses, exact sult with their own tax advisors for fur. Illinova's comrNn stock is listed on name(s) in which the stock is regis- ther information on tax consequences, the N;w York Stock Exchange and the tered, and Social Security or tax iden-Chicago Stock Exchange. Illinois tification number on the account. An Transf er Agent & Registr,ar Power's preferred stock, with the address change form is mai!ed quar- nd lin P e C p ny exception of the 7.75% issue, is listed terly to all registered shareholders. . . on the New York Stock Exchange. The Illinoya Investment 50#'#h####'I""IC'# official New York Stock Exchange sym-Plus Plan 500 South 27th Street bot for Ilb. nova is 'ILNl but its stock is Decatur, Illinois 62521-2200 The Illinova Investrnent Plus Plan pro-listed in some newspaper > as 'ILNova., vides investors a convenient way to The official New York Stock Exchan9e Form 10K purchase shares of common stock symbol for luinois Power is 'IPCl but directly through the Company without Shareholders may obtain, without the Company's stocks are Mso listed in brokerage commissions. Under the Plan, charge, a copy of form 10K as filed some newspapers under 'IllPwr., investors can purchase shares through with the Securities and Exchange cash investments, through automatic Commission by sending a request to 0uarterty Information mn% cdons from a bad hbb ML In an effort to make information avail-act unt, or by automatically reinvest-able to shareholders promptly, Illinova Investor Madons ing all r a p rtion of cash dividends places financialinformation on its fr m Illin va common and Illinois Paul 6. Blair home page on the World Wide Web. Power preferred stock. Transactions are Director -Investor Relations Shareholders can access this informa-subject to limitations set forth in the 50050uth 27th Street tion at http://www.illinova.com. Plan prospectus. For more information, Decotur, Illinois 625212200 Shareholders without access to the Telephone .. please c ntact Shareholder Services. . 1 217-424 8715 Internet may callIllinova Shareholder mk. . 24-m3 Services at 1-800-800-8220 for quar- . . * * " ~ " P*"I bloir@illinovo.com terly information. deposit the common stock certificates they are holding into their Plan This report and the condensed consoli-Shareholder Inq;uiries - accounts for safekeeping. If you are a dated financial statements contained Shareholders desiring assistance with Plan participant and are interested in herein are submitted for the general lost or stolen stock certificates or div- this service, please send a written information of the shareholders of idend checks, name changes, stock request to Shareholder Services for Illinova and Illinois Power Company transfers, information on the Illinova additionalinformation, and as such are not intended to solicit Investment Plus Plan, or other matters or to be used in connection with any may contact Shareholder Services Tax Information sale or purchase of securities. dur'ng their office hours of 7 a.m. to Illinova Corporation and Illinois Power 4:45 p.m., Central tirre, Monday Company estimate that 100 percent of through Friday- the dividends paid to shareholder; in Toll-free telephone .. . 1 800-800-8220 1997 i5 fully taxable a5 dividend Decotur, Illincis, orea'. . 4244464 income for Ftder'al Income Tax pur-for . 1-217 424 4913 poses. Form 10995 were rnailed to all E mail ..shoreholdecservices@illinovo.com registered common and preferred - [ tweaty f ese j ~ ~ ~ * - - * " ~ . , . 9 ,p. .m,. ; - -4 s. +- - 4- 3 & JQ4 h .ry. 'un' $5kjL,:bk &"fWNU hiA R.W!fNNQWQ;&&hMQ m+7g &*,,yh,m$,fm&Pnw@m.nWWS.ww(c~'W &g.<pv,W:e'YNb.:2Y.$ S9 g. %p%g WCGr Wp4-@Ciy DOh..*+a*= > :$%g% $%, 9 b 6m.g.ww.m m VM .,e w r7 mem.co , . x m.~ -e-, CW. mm m * .fm . h y. y.4 .* @md _4*9= 4.mp v % **l p "-.m+,g>. ggnywas wr.gspigygggy.w.;qg*yQp,a y +R. } }l
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\; .ij.. , , y, { e- 4 -) .9 i .. 'Y q, g >[ , - -.g ' ' 3)' .; .. , ., i ,* u ;... . . i .~ &- , , t , \fy .- ^ a- ,, .>k ( 'l, -~-' e .' ' > j ' ...x , .., y - n .x . 2'" . g( ; p . '. .k * 'f .. . c < - \. - t6 g i '- C, . ,e ' .' .t } ; ', ' !.. '.i '. (' , g . . r ., \i .-*~ '.,' '. ;f' ., [ .. ' . ,; ...... \ [. v y . s ~ c. , g. . .( , - y - . :g (( ' +, - - ( -l ' ' ;. . _. . . . . a, m. . t m A+_g. 39. c , . 31 Oho!$ P0dli 19&7 l b f D R if A l l D 4 sIATIPIhi N0?!CE OF ANNUAL MEET]NG Of 5 01 A R E H O L D E R 5 Inf o r m a tio n St a te rne n t To the Shareholders l Table of Contents of litinois Power: ' Notice of Annual Merting . .2 Notice is Hereby Given that the Annual Meeting of Shareholders of Illinois Power Company ('lllinois Power") Information Statement ..... .3 will be at 10 a.m, Wednesday, April 8,1998, at Shilling Appendiy: 1997 Annual Report to Shareholders . . a-1 Community Education Center, Richland Community College, One College Park, Decatur, Illinois 62521, for the following purposes: d) /g (1) To elect the Board of Directors for the ensuing year. (2) To transact any other business which may properly u,,,,,,m // N" 5o Nit u y come before the meeting or any adjournment, t, - g E"'9' Shareholders of record at the close of business on wh~ " k= *+ k' February 9,1998, will be entitled to receive notice of and to I " , y j vote at the Annual Meeting. ! I g By Order of the lioard of Directors, q ma u _ _ g ll:/G-p $;'$h leah Manning Sterzner, #,,l , y Vice President, Ger:eral Counsel and Corporate Secretary Decatut, Illinois g\ March 10,1998
- k N IMPORTANT' Only shareholders of Illinois Power are entitled to attend the Annual Meeting. Shareholders will be admitted on ver-ification of record share ownership at the admission desk.
Shareholders who own shares through banks, brokerage firms, nominees or other account custodians must present proof of beneficial share ownership (such as a brokerage . , account staterrent) at the admission desk. o1. e s
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C i81 Iti NCls POWtk 144/ ! % I 6 k w A f 10 % siAllriA1 .I A F 0 E M A T I O h 5 tai! MENT I March 10, 1996 (Date first sent or given to set urity holders) We are not asking ynu for a proxy and you are requested not to send us a proxy. This Information Statement is furnished in connection with When voting for candidates nominated to serve as the Annual Meeting of Shareholders ofIllinois Power.The directors, all shareholders will be entitled to 11 votes (the Annual Meeting will be held at 10 a.m. Wednesday, April number of directors to ir elected) for each of their shares 8,1998, at Shilling Community Education Center, and may cast all of their votes for any one candidate whose
- _ Richland Community College, One College Park, Decatur, name has been placed in nomination prior to the voting, or lilinois 62321, for the purposes set forth in the accompa- distribute their votes among two or more such candidates nying Notice of Annual Meeting of Shareho
- ders. in such proportions as they determine. In voting on other On February 9,1998 (" Record Date"), Illinova maners presented for consideration at the Annual Meeting, Corporation (*lllinova") beneficially owned all of the each shareholder will be entitled to one vote for each sbare 66,215,292 shares of Illinois Power Common Stock then or Stock held of record at the close of business on the outstanding and there were 1,139,110 shares of Illinois Record Date.
Power Preferred Stock then outstanding, none of which was held by lilinova. Annual Report and Information Statement Voting Rights Accompanying this information Statement, which includes Consolidated Financial Statements,is a Notice of Annual Shareholders of record at the close of business on the Meeting of Shareholders and the Summary Annual Report Record Date will be entitled to receive notice of and to vote to Shareholders covering operations of Illinova for the year l at the Annual Meeting. Shareholders who are present at ! 1997.This Information Statement and accompanying doc-the Annual Meetmg wdl be entitled to one vote for each uments are first being mailed to shareholders on or about i share of Illinois Power Stock which they held of record at March 10,1998. the close of business on the Record Date. l r O s + E i ] 1 l I 4 f \ i I (:) ti.:s :s tais : ss , rsio6 aira s* ate is: Boee of D i e n t <m The l'inance Comm, we met thice times during 1997. bononen neutem te, to. # < o e t> " " t m His Committee consists of the following members He Ikurd of Directors held 10 Ikurd meetings in 1997. of the Ikard: Walter D. Scott, Chairnun, J. Joe Adorian, l' Richard R. lierry, larry D. Ilaab, C. Steven Mehfilian, l Other than hir. Adoriad, who joined the Ikard in August '997, and hic Berry, who retired from the Ikord December Sheli Z. Rosenberg, Marilou von Ferstel, and John D. Zeghs. l 1,1997, all directors attended at ten .5% of the aggre- g ,, y ,,, m,,, m m m u n g u nnio n c e - gate meetings of the Board and Committees of which they (1) Rev.iew performance and recommend salaries plus were members during 1997. The Board has four standing other forms of compensation of elected Ilk.nms Power off.i-committees: the Audit Committee, the Finance Comminee, . cers and the Ikurd of Directors; (2) review Ilk.nois Power,s j the Compensation and Nominating Comminee and the benefit plans for elected Illinova officers and make recom-Nuclear Operations Comminee. }' mendations to the ik ard regarding any changes deemed The duties and members of the standing comminees are: necessary; (3) review with the Chairman, President and w u m nu u n. Chief Executive Officer any organizational or othep per-sonnel matters: and (4) recommend to the ik ard nominees , (1) Review with the Chairman, Prnident and Chief r stand for election as director to fill vacancies in the Executive Officer and the independent accountants the floard of Directors as they occur. i scog and adequacy of Ilknoa Power's system of internal " The Compensation and Nominating Committee will controls: (2) review the scope and results of the annual examination perfor.ned by the independent accountants; consider shareholders' recommendations for nominees for l (3) review the activities ofIllinois Power's internal auditors; director made pursuant to timely notice in writing addressed (4) report its findings to the lkurd and provide a line of to the Chairman of the Comminee at the executive offices of communication between the Ik ard and both the internal Illinois Powec The recommendation should include a full auditors and the independent accountants; and (5) recom- description of the qualifications and business and profes- , mend to the Ikurd the appointment of the independent sional experience of the proposed nominees and a statement of the nominees' willingner.s to serve. To be timely, the notice ! accountants and approval of the services performed by the independent accountants, considering their independence must be delivered to or mailed and received at the executive 4 I with regard thereto. offices of IlUnois Power not less than 90 nor more than 120 days prior to the Annual Meeting. The Audit Commi+ tee met three times during 1997 The Compensation and Nomir.aring Committee met His Committee consists of the folknving non<mphwee
- directors FOutside Direc,i."h Robert M. Powers. Chairman, f"' "*** d"'I"E 1997* )
Richard R. Berry, CJ; ' icMillat 3 di Z. Rosenberg, This Comminee consists of the following Outside Walter M. %nnoy, and Marilou von Ferstel. Directors: Ronald L Thompson, Chairman,J. Joe Adorjan, C. Steven McMillan, Robert M. Powers, Walter D. Scott, j rmm t c um Marilou von Ferstel, and John D. Zeglis. ! (1) Review management's cash flow forecasts, financial , forecasts and financing program, and make recommenda- '"" h " * * ( " "" " " I tions to the ikord regar4ng the approval of such plans:(2) '(1) Review the safety, reliabihty and quality of nuclear l redew Ilknois Power's lunking relationships, start term operations; (2) review the effectiveness of the management borrowing arrangements dividend policies, arrangements of nuclear operations: (3) review the strategic plan for with the transfer agent and registrar, investment objectives nuclear operations: (4) review various nuclear reports; and 1 and the performance of Ilknois Power's pension and other (5) report its findings to the ikurd. trust funds, evaluate fund managers, and make recommen- The Nuclear Operations Committee met four times dations to the ikurd concerning such matters; (3) review - daring 1997 Illinois Power's risk managemem programs, including . 1 This C.omminee consists of the tallowing members ; insurance coverage, and make recommendanons to the of the ikurd: Waher M. Wnnoy, Chairman, Richard R. i . Board; and (4) act in an advisory capacirt to management, 1 lierry, larry D. Haab, Robert M. Powers, Walter D. Scon. l the Board of Directors, and the Chairman, Preudent and ' i and Ronald L Thompson. Chief E.xecutive Officer on other fmancial maners as they may arise. . a h.4_3 . _ _ _ _ _ _ _ _ _ _ _ _ _ - - _ _ _ _ - _ _ _ - _ _ _ _ - _ _ _ _ _ - _ _ - _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ \ i i t t i. e : s e o n e s :a> i ,, i n i r a t : , , , st,,ivis: weG* *'* Pursuant to 1lhnma's Deferred Compensanon Plan for The Outside Directors of Illinois Power, all of whom also Certain Directors, Outside Directors of Ilhnois Power may L . serve on the Board ofillinova, receive a total retainer fee of elect to defer all or any portion of their fees and stock 518,000 per year for their service on these Imards. Outside grants until termination of their services as directors. Such Directors who also chair Ibard Committees receive an deferred amounts are converted into stock units represent-additional $2,000, increased in February 19P to $2,500, ing shares of IUinova Common Stock with the value of l per year retainer. Outside Directors receive's grnnt of 650 each stock unit based on the 1.ist reported sales price of ) ' thares of Illinova Common Stock on the date of each such stock. Additional credits are made to the participctic.g
- - Annual Shareholders Meeting, representing payment in director's account in dollar amounts equal to the dividends b
' lieu of attendance based fees for all ibard and Committee paid on the Common Stock which the director would have meetings to be held during the subsequent one-year period. recewed if the director had been the rewrd owner of the Outside Directors elected to the Ibard between Annual shares represented by stock units, and these a .ounts are Shareholders Meetings are paid $850 for each Board and converted into additional stock units. On termination of Committee meeting attended prior to the first Annual the participating directors' services as directors, payment - Shareholders Meeting after their election to the Board. of their deferred fees and stock grants was made in shares Illinova had a Retirement Plan for Outside Directors. of IHinma Cmumon Stock in an amount equal to the aggregate number of stock units credited to their accounts. Under this plan, each Outside Director who attained age The plan was amended in 1997 to provide for a payout in l ' 65 and served on the Board for a period of 60 or more con. secutive months was eligible for annual retirement benefits cash instead of shares of Common Stock. Deferred amounts are stiu converted into stock units representing shares of at the rate of the annual retainer fee in effect when the director retired. In 1996, the Board of Directors adopted a Common Stock with the value of each stock unit based on Comprehensive Deferred Stock Plan for Outside Directors, the last reported sales price of such stock. Payment is made replacing the Retirement Plan. Each former Outside in cash, in a lump sum or installments, as soon as practical Director whose right to receive the retirement benefit had f H wing a director's termination.He cash paid on termi-nati n equals the number of stock units times the share . vested continues to receive such benefits in accordance price at the close of market on the last bus; ness day of the with the terms of the Retirement Plan. All Outside Directors serving at the time this new plan was adorted m nth preceding termination. No other payments are made after service on the Board ceases. were granted a lump sum amount based on tne net present value of these benefits to them, were they to have retired tmtwr aomnm under the Retirement Plan, based on the number of years Illinois Power's entire Board of Directors is elected at each they have served on the Board but not to exceed 10. his Annual Meeting of Shareholders. Directors hold office dollar amount was converted into stock units, based on the until the next Annual Meeting of Shareholders or until then market value of Illinova Common Stock, and placed their successors are elected and quahfied. At the Annual - into an account. He value of these stock units is to be paid Meeting a vote wiu be taken on a proposal to elect the 11 out to the director in cash 'on termination of service, based directors nominated by lilinois Power's Board of Directors. on the then market value of liiinova Common Stock, plus ne names and certain additional information concerning dividend equivalents, in a, lump sum or installments. In each of the director nominees is set forth on the following addition, each Outsih Director receives an annual award pages. If any nominee should become unable to serve as a of stock units having a value of $6,000, to be paid to the director, another nominee may be selected by the current Outside Director in cash on retirement, at once or in Board of Directors. Olter M. Vannoy normaHy would ' installments as the Director may elect. wich the amount of have not been ehgible for election as a director at the such payment determined by multiplying the number of Annual Meeting of Shareholders pursuant to a Bylaw pro-stock units in the account times the then market value of s ision which mandates retirement from Board service at age Illinova Common Stock, and adding the dividend .cquiva- 70. Because there is a current need for his nuclear expertise, j lents attributable to such stock units. the Ibard of Directors has ekcred to waive this requirement in Mr. Vannoy's case, and he has agreed to serve if elected. 4 i ,s, t t wers.ionin 3 . i. , isie5s'!os sta?ivist EOARD Of D I E I C T O F. 5 Adrae of Dwector hoanace. Age. Ye as in Which fir.1 hanw of Doectos hornmee. Age, vear in which first tasmess tapenence and Dected a Duector Busmen taperierxe and Elected a Duettor Other intovmation of lilmors Pueer Other information of nimois Power J. Joe Adorjan. 59 1997 S heli ?. Ros e n be r g. 5 6 1997 Chairinan and Chief Executive Officer President and Chief Executive Officer I , of Borg-Warner Security Corporation, since 1994 and General Counsel 1980 ! . Chicago,111., a security systems ser- to 1994 of Equity Group investments, f 'g vices firm, since 1995. He was
- Inc., Chicago,111., a privately held l President of Emerson Electric .,
business conglomerate holding con-Company from 1993 to 1995. Prior to trolling interests in nine publicly that, he was Chairman and Chief traded corporations involved in basic Executive Officer of ESCO Electronics Corporation. He manufacturing, radio sations, retail, insurance, and real ! is a director of The Earthgrains Company, ESCO estate. She is a direcme of American Classic Voyages Electronics Corporation and Goss Graphics Systems,Inc. Company; Quality Food Centers, Inc.; J,acor Communications, Inc.; Anixter international,'Inc.; I Larry D. Haab, 60 1986 Equity Office Properties Trust; Equity Residential Chairman, President, and Chief Properties Trust; CVS Corporation; and Manufactured # Hmne Canmunities, Inc Executive Officer of Illinova since I l December 1993, and ofIllinois Power since June 1991, and an employee of Walter D. Scott. 66 1990 l l lilinois Power since 1965. He is a . Professor of Management and Senio, director of First Decatur Bancshares, / Austin Fellow, J. L Kellogg Graduate Inc.; The First National Bank of m School of Management, Northwestern Decatur; and Firstech, Incorporated. , . University, Evanston, Ill., since 1988. He was Chairman of GrandMet USA C. Steven McMillan. 52 1996 - e from 1984 to 1986 and President and Chief Executive Officer of IDS President, Chief Operating Officer, Financial Senices from 1980 to 1984. He is a director of and Director of Sc a Lee Corporation, Chicago, Ill., a global packaged food Chicago Title and Trust Company, Chicago Title ~ insurance Company, Neodesic Corporation, Orval Kent and consumer products company, Holding Company, Irn, and Intermatic Incorporated. since 1997. He was Executive Vice President of Sara Lee from 1993 to 1997 and Senior Vice President. Joe J. Stewa rt. 59 Strategy Development from 1986 to 1993. He is President of BWX Technologies,Inc., Chairman of the Board of Electrolux Corporation. formerly The Babcock N Wilcox Government Group, Lynchburg, Va., Rebert M. Powers. 66 19 E 4. a diversified energy equipment and sernces e mpany, and Executive Vice From ' 1980 until retirement in ~ President of McDermott international, s December 1988, Mr. Powers was j Ms President and Chief Executive Officer Inc. (parent f BWX Technologies, Inc. and The Babcock N Wilcox Company), since 1995. of A. E. 5talev' Manufacturing Compant He was President and Chief Operating Officer of The grain anU. Decatur, oil seeds. He is a directorIll..of a processor B bcock &of Wilcox Company and Executive Vice President of McDermott International, Inc., from 1993 A. E. Staley Manufacturing Company. ' to 1995 and Executive Vice President of the Power Generation Group of The Babcock N Wilcox Company from 1987 to 1993. g e 4 e ie] ii i tu:s >oai6 : <. o : : ,, i o i ,, a : o ,, s i , , i ,, , ,, i ham, or owector hoevunce. Age. trae in wnn ti first $ g. ( p r i t y 0anership of M a r. o g e m e ri t Dt r 1n m to i no o ,'" and Certain Beneficial On ners he table Ixlow shows shares of Ilhnova Common Stock Ronaid L'. T h o m p 5 o n , 48 1991 beneficially owned as of January 31,1998, by each d; rector Chairman and Chief Executis e nominee and executive officers named in the Sumnury 2 Officer of Midwest Stamping and O mpensation Table. All of Illinois Power's Comnnn Stock is Manufacturing Co., liowling Green, owned by Illinova. To the best of Illinois Power's knowl. Ohio, a manufacturer of automotive edge, no owner holds more than 5 percent of Illinois paits, since 1993. He was President Power Preferred Stock. and Chief Executive Officer and a ' - Nund>rr Number of Stud directar of The GR Group, Inc., . of 53,,,, Dmi, m uctened St. Louis, Mo., from 1980 to 1993. He is a director of 8 i 3,,,[d"J'[,, , g0'/$,; U""C'"* , 7a"', Teachers Insurance and Annuity Association, and ' J jur Adormn 0 0 Of Ryerson Tull. larry D. Haab 68,250 0 g) Walter M. Vaancy 70 1990 en A an 1,300 2n 0) i Chairman until retirement in May ""h*" " P"*m 8,550 2n s) A 1995 and ' Chief Executive Officer ; Sheh Z. Rosenberg 0 1,539 Ol h
- from May 1994 untilJanuary 1995 of i raker D. scon 5,150 2n 0)
Figgie International, Inc., Willoughby, ' jo,. p ,,,n o o g3 Ohio, a diversified operating company Ronald L Thomrwn 3.677 3,275 D) serving consumer, industrial, techn:- cal, and service markets world- *'k" "'"""y Sm 2n 0; ' A12rda an I"Sel wide. From 1980 to 1988 he was President and Chief d 420 1603 0) Operating Officer, He Babcock & Wilcox Company, and John D. zegia 2.626 1,603 0) Vice Chairman of McDermott International, Inc. p,oit tang 2i,3i6 g, o j tarry F. Ahenbaurr.cr 13,092 0 0; Marilou von Ferstel. 60 1990 11,n4 John G. Gok 0 01 Executive Vice Presidert and General 9,,, ,, 3,, 3,,,7 g g; Manager of Ogihy Adams & Rinehart, re. Inc., a public relations firm in Chicago, (1) With sole voting and/or inv stment power. 111., from June 1990 until retirement in (2) Includes the follrwing shares issuable pursuant to April 1997. She was. Managing Director stock options exercisable Wtch 31, 1998: Mr. ,, j and Senior Vice President of Hill and Haab,56,900; Mr. Lang,17,800; Mr. Altenbaumer, N 4 Knowlton, Chicago,111., from 1981 to 17,800; Mr. Cook,9,900; and Mr. Burts,7,900. 1990. She is a director of Walgreen Company. (3) No director or executive officer owns any other equity securities ofIllinova or as much as 1% of the ;ohn t. :eg1is, 5t 1993 Common Stock. As a group, directors and excuutive . d President of ATAT.15asking Ridge, fficers of Illinova and 111inois Power owr IC,021 W N.J., a diversified communications shares of Common Stock (less than 1%). '9 company, since October 1997. He 5 was Vice Chairman from June 1997 to October 1997, Senior Executive Vice President and General Counsel, from 1995 to June 1997 and Senior 1 Vice President - General Counsel and Government Affairs from 1989 to 1995. He is a director of the Helmerich & Payne Corporation. 4 k i *i . minrn m ai n ms l u te s::o u u tut,- [ ACcUtis t ( u m h t' D i a *
- o n 1
-The following table sets forth a summary of the compensation of the Chief Executke Officer and the four other rnost highly
- cotapensated executive officers of blinois Power (or the years indicated The compensation shown includes all l compensation paid for senice to ilhnois Power, its parent and subsidiaries.
Summ.ry Compensation Table - Lemg-Term Compensatims A,nualCompensatmn Auards l Other P,estricted . Secunnes All Other ikmus - Annual Stock Awards . Underlying Gunpensation Entr and Prmcipal Posirmn - Year' ~ Salary (1) Onnpensation (2) Optkm (3) latry D. Wb . 1997 5 $14,952 $41,840 $ 16,557 $41,840 20,000 shs. $ 2,614 19% . 493,709 s,9.267 15,973 69,267 22,t00shs. ' 2,615 Chairman. Prnident and , '1995 472,250 91.f 44 19,088 . 91,144 20,000 shsf 2,550 l Chief Executive Offwer of Ilhnova and llhmeis Power i; r : . Fa ul' L. Lat g 1997 $ 242,325 . $10.602 $ 8,305 $19,601 6,500 shs. $ 2,615 , I
- Senior Mce President 1996 233,450 19.747 8.863' 19,747 6,500 shs. 2,595 of !!hnoh Power 1995 222.812 2.1341 8,265 23.841 6,500 shs. 2,511 j i tarry IC AHenbaume - 1997 $ 231,048 $ 8.992 5 9,521- $ $,992 6,500 shs. $ 1,905 -
- Chief Financial Officer, 1996 222,374 19,832- H,459 19,832 7,500 shs. 1,976 Treasurer and Controller 1995 204,937 ' 20,391 7,686 '20.391 6,500 shs. 2,378 - of Ilhnova, and Senior . .j Vice Preudent and Chief , Financial Of6cer of Illinois Power - $ 203,413- $ - $ 7,642 $ 6,000 shs. $ 2,575 Jotin G. Con . 1997 - Senior Vice President . 1996 196,474 16.293 7,409 16,293 6,500 shs. - 2,575 and former Chief Nucicar 19*5 179,069 16,620 ' 6,930 16.620 4,500 shs. '2,530 ; . Of6cer of Illman Power j . 'Isa n d W . Id. 1997 $ 18tt,227 ' $ 7,529 $ 7,145 $ 7,52f ' 6,000 shs. $ 2.595 ) L President of ilhnova 1996 IMl,402 17,314 7,350 17,314 6,500 shs. 2,595 j
- Ene gv Pmners, formerle 1995 153,333 18,132 6.990 IE,132 5,000 shs. 2,540
, Senior We President of q Ilhnon Power - !!) ne amoun s shown m thh column are the vested sher a tfree-year holdmg period. ~ under the Gunpensation Plan since its
- cash award pntum of grantiinade to these Stuck umth are cuaverted into cash hased mception, valued on the hesis of the closing
. indwiduals under the Executive incemive on the cloung pnce of Common Stock on. pnce of Gunmon Surk on Ikcember 31, . Compenution Plan -(" Compensation the fu tradmg day of the datribution 1997: Mr. Haab, 7,619 units valued s ' Plan *) for 1997 . includmg amuunts year. - Parucients int benencianes of at 5205.241; Mr. Lang 2.044 umts valued deferred under the Executne Ikterred dncawd panuranto whme employment at $55,071: Mc Mtenbaumer,1,662 urun , Gunpensatum ibn.5cc thdompensatmn h tere mated bs retsement on or after age . valued at $50,151; Mr. Cook,1.250 units I > Plan drwnpron m fontnme 12) beks. 55, daaNhn, or death nxeive the present valued at $33.685; Mr. Iturn,1.626 umts - (2) Du table was Nrth std:k snut awards tur 'salue of all unpad awards on the da? valued at $43,787. Although snwk umts 1997 under the Compensium 1%n One ' of sudt termmatum. Panopann whme ' have twen routsded. valuanon is based em half of caeh3cari swarJ under ihn pl.m es emph es nwnt is termmated for reawm uther total stock umn. uwludmg partial shares. converted mtu 'suwk umts reprewntmg th.m recuenwnt. Jaahhn, or death furieu W The annums shown in tb,s column are 1 sharn niIllawa Gunmun huwk bawd un all umewed anards. In the event of a ter-mm.aum ni emplutment withm two yean IN"" I"*'I* omenhutums under the the chung pnce of Conurum suwL on the aner a shange m omtrol of Ilkruwa. unb. In:entwe 5annps Plan (includmg the mar- , last tradmg d.u of the award sear. Th othe one haft ui the amarJ s wh .md i - uui gmd uine or b* any panicip.mt uith La cahr of shares of Illnuwa Comm<m un1 reawn, ali auards of the pancipnt . 5ngt at the time of alkwatrmt included under. linnu+ m the- Summan . l Gunpermuun Table 5%L umn awarded twow fuly ic.ird and payablo As of j ~ in a givett year, sugether with chh repre, lhemiwr 31. IW,narrrd esecuene otti- ; senting the accumulated dnidend equiva. .cer= were crcJitrd with the following total . .{ . lents on tkne suwl etut,. bemow Mit aggreg.ite rmmber ui unrested stiwk umts - ) l 1 ft t 4 7.1 s lj ;1 wihnis 00 % i n I er s r l h i O rt v a 1 l ti k s l a ' t u i ti l %e folk > wing taNes summarize grants during 1997 of stock options under ilhnova's P92 innpTerm lxentive Onupensation - Man FLBC") and awnds outstanding at year end for the indniduals nanej in the Summary Compensadon TaNe. Option Grants in 1997 , indnklaa! Grants Numberof Securities % of Total Optum Underlymg Opnons Granted to Emt & nm Excrase or Base Gram Date Granted (l) in 1997 Price Per Share t ti bpvanm Dare Prewnr W:ve f 2) Larry D. Haat: 20.000 . 24 % $26.123 2/12/1007 $ 10',200 Pa u l L L a'n g 6,300 . 8% 26.125 ' 2/12/2007 34,H40 Lae#y F. AItenbaumer. 6,300~ ~ N% 26.123 2/12/2007 34,840 ,1ehn G.tnon 6,000 7% 26.123 2/12/2007 32,160 Dasid Wf Butts 6,000 7% 26.123 2/12/2007 32,160
- 11) Each i em becomes . exercisable on that of a peer group and reducing or Date Present blue, or the ptennal reahr-February 12,2000. In addaion to the spec- increasmg the target award depending on able value of opton grants assunung 3%
ified expiration date, the gr it expires on llhncra's relme performance, but not and 10% anmnhud growth rates,is man. the first anniversary of the recipient's death reducing the payment below zero. The tar. dated by regulation; however, librxwa does and/or five years following date nf retire- get award is equal to one-half of the mid- not necessanly view the Black Scholes pric. ment, and ss not exerc: sable in the event a toim of etwnpensanon for exh of6cer's ing methodology, or any other present recipient's employment termmnes, hi che - salary grade (a market hawd number) methodok,gy, as a vahd or accurate means event of certain change-in<:ontrol circum- times a percentage, determined by the of valuing stock oprinn grants. The ca lcu-stances, the Compensation ad ' Comunsanon and Nominatmg Committee. Lston was based on the following assump. Nominating Comnuttee may declare che in 1997 those percentages ranged between t. ora: (i) As of the gram date, Ilhnova's option immediately exercisable, The exer- . 20 and 45 percent. At the discretion of the calculated Black Scholes ratm was ,2248, cise price cJeach option is equal to the fair L.md of Dircaors, the foregoing payment After discounting for risk of forfeiture at 3 market value of the Common Stock or Ae may be made in the form of 13mora percent per year over !!hnova's three-year date of the grant. Recipients shidi also Common Stock of equwalent value based veuing schedule, the ratio is reduced to receive, on or shortly after February 12, on the average New York Stock Exchange .2052; tii) An annual dwidend yieu on 2000, a target perfe,rmance award, deter. pnce of the stua dunng February 2000,or !!bnova Common Stock of 4.11%;(iii) A mined by calculating the ddference between m cash. - nsk free imerest rate of 6.57%, based on the t;surn earned by llhnova on its invested the yield of a zero. coupon government (2) The Grant Date Prewnt Wlue has been capital and - its cost . of capital (the ~ cakulated using the Bhck Scholes opion nd matunng at the end of the opnon Spread"), r. ben wparmg this spread pncmg model Daciosure of the Grant term; and frd Stock volatihry of 19.34% A0gregated Option and fiscal Year-End Option value table Number of $ccurmes Underlymg Unexercaed blue of Uneserased in-the.%mey Opikva of Fncal Yearbd Opnons at bseal Year-Lnd Name bercnanAlnexerasahk- ExcrasahicAinexcrenahic i, ,e 56,WM)shs/62JXX) sht $237,414/$37,4;M) .L 9er N i o m. lJui0 sht/19,300 sht $?$,14K/$18,631 . ~/~ 1s r ;r< !*,ku0 shs/20jahhs, $~3,14 N/$ 1h.635 s L . ( ud v.W shsfi7,000 sh,. 541.04/$14.130 l l o,c.t- ,900 shsfi7,stx .h,. $t ,u4/$i3, ion L , I h ( ai I' j ,. ! s n : a is S ,, + c is o v = s i n g s t a,i n i g F e r, s i o n Bengtnts 6 mug,J A,mu,d benefas enoundeJ! lllinois Power maintains a Retirement lacome Plan for Aneuul 15 Yrs, 20 Frs. 2f irs. 30 l'rs. 35 Yrs. An y Credard Credncd Credard Cm/acd Credacd Salaried Employees (the " Retirement Plan') providmg pen- Senue brrnce 5ernce Sernce Senter -Lornmp< sioti benefits for all ebgible salaried employees. In addition stu am 5 37soo s soJxu $ 62,500 s 4000 $ s7soo to the Retirement Plan, Illinois Power ab o maintains a non- 75 m 90 s iosno 150 m 45Ao #,0,000 qualified Supplements! R#sement income Plan for Salaried n5Ao 52,500 70pm 87,500 to5.om in500 Employees (the " Supplemental Plan') that covers certain . 2mm om soAo impo 120Ao 140 m ; 250.tW1 75 m 100/xio 125Ao 150,000 173Jx0 officers eligible to participate in the Retirement Plan and 3mno 90,n00 120a'o sfoso 180A o ziego provides for payments from general funds of Illinois Power 350Ao 105,000 140,000 175fxx) 210,000 245,000 *oAm 120,n00 If.opo 200,000 240,000 280 5)0 ci any monthly retirement income not payable under the 450Ax 135/oo 180,000 223,000 270,000 315/100 Retirement Plan because of benefit hmits imposed by law or SooAn i50,000 200fxx) vooco 300,000 350 orx) because of certa;n Retirement - Plan rules limiting the 550Mo 16sJxm 220A o 275Jxo 330,000 3 54xo amount of credited service accrued by a panicipant, 600A o ik0px1 240,000 3coJoo 360fxx) 420,000 . 650,000 195Ax) 260 ot:0 325 / o 0 390,000 455,n00 The following table shows the estimated annual pension 7toAx) 211/on 2xoAx) 350,000 420,0(xi 4waAx) benefits on a straight hfe annuity basis payable upon retire- The carnings used in deterrrdning pension benefits ; mentbased on specified annual average earnings and years under the Retirement Plan are the participants' regular of eredited service classifications, assuming continuation of base compensation, as set forth under Salary in the the Retirement Plan and Supplememal Plan and employ-Suramary Compensation Table, ment until age 65. This table does not show, but any actual pension benefit payments would be subject to, the Social At December 31, 1997, for purposes of loth the Renrement Plan and the Supplemental Plan, Messrs. Haab, Security offset. Lang, Altenbaumer, Cook and Butts had completed 32,16, 25,23 and 19 years of credited service, respectively. ]'- h' e l 2 0 e e i > f. {L)6 ]' l, h i t' t 1 A 01 s t r e i k 14*r thionwat:vh 51 A t t a t h 1 I l ~lmployee f Rete ntie n Agtrements t e m p e r: s a t i e n and N o m e r:a t in g C o m mitte e !!Iinova has entered into Employee Retention Agreements ' " " ' " "* " 5 8 U " The seven-member Compensation and Nominating I l with each of n4 executive officers and with officers of its subsidiaries. Under each agreement, the officer would 14 Comrumee of the Ikaard of Directnrs (the " Committee") is entitled to receive a lumb sum cash payment if his or her - composed entirely of Outside Directors. The Committee's employment were terminated by Illinova without good r le includes an assessment ' of Illinova's and Illinois causa or voluntarily by the officer for good reason within Power's Compensation Stra:egy, a review of the perfor-two years following a change in control of Illinova (as mance of the elected officers and the establishment of spe-defined in the Agreement) or terminated prior to a change cific officer salaries subject to Boa'rd approval. The of wn.rol at the request of a potential acquiren %e amount Committee establishes performance goals for the officers I of the lump sum payment would be equal to (1) .16 under the Compensation Plan, approves payments made j months' salary at the greater of the officer's salarf rate in pursuant to the Compensation Plan and recommends i effect on the date the change in control occurred or the grants under the long-Term lncentive Com;>ensation Plan l salary rate in effect on the date the officer's employment approved by the shareholders in 1992. The Committee with Illinova terminated; plus (2) three times the latest also revieus other forms of compensation and benefits bonus earned by the officer during the three calendar years making recommend,,tions to the Ikaard on changes when. j preceding tctmination of employment. Under the agree- ever appropriate. The Comminee carries out these respon-J ment, the officer would continue, after any such termina, sibilities with assistance from an executive compensation tion of employment, to participate in and receive benefits c nsulting firm and with input from the Chief Executive l under other benefit plcms of Illinova and/or Illinois Power, Officer and management as it deems appropriate. Such coverage would continue for 36 months following ortic,, com pens tio n, e nitoso phy termination of employment, or, if earlier, until the officer Illinova's compensation philosophy reflects a commitment reached age 65 or was employed by another employee; . to compensate officers competitively with other companies provided that,if the officer was 50 years of age or older at while rewarding executives for achieving levels of opera-the time of such termination,' then coverage unJer health, tiona! and financial excellence consistent with continuous life insurance and similar welfare plans would continue improvement. Illinova's current compensation policy is to until the officer became 55 years of age, at which time he provide a total compensation opportuni.y targeted to the or she would be eligible to receive the benefits extended to median of all utilities in the Edison Electric Institute (EE!) the employees of Illinova and its subsidiaries who elect database. All but one of the electric power companies in the early retirement. S&P Utilities Index are also in the eel database. The S&P , index covers the industry broadly including electric and gas utiliaes. After careful consideration, the Committee has decided to maintain a seperate compensation peer group , limited to electric or combination electric and gas compa-nies for reference purposes. While the philosophy described abore was used by Illinova in 1997 as an indicator of future , utility pay practices, as the industry migrates toward dereg- l j ulation avj diversification, it is anticipated that the com-pany wi:1 broaden its competitive reference beyond the regulated utihey industry in order to compete sufficiently for talent in the deregulated environment of the future. e e i I l l i i j J
- tirsen;eonis :c5: i si c s nius s m e n t e. -
The compensation pn> gram for officers consists of base The off ceri interest in the stock units vests at the end of sidary, annual incentive and long term incentive compo- the three-year period, which begins the year after the nents. The combination of these three elements baiarces award year. The officer receives this award in cash equal to shbrt- and long-term I;unness performance goals and (1) the closing stock prin on the first trading day of the aligns officer financial rewards with those of Illinova's distribution year times the number of units held plus (2) shareholders. The compensation program is structured so dividend equivalents that would have been received if the that, depending on the salary level, between 25 and 45 per- stock bd actually been issued. Maximum awards under cent of an officer's total compensation targer is composed the plan may be up to 150 percent of target; threshold of mcentive compensation. awards are 50 percent of target. sase s m ey rian For Illinois Power officers,1997 awards under the The Committee determines base salary ranges for executive Compensation Plan are based on achievement in the p:r-formance areas: earnings per share, customer satisfaction, officen based on competitive pay practices of similarly sized utilities. Officer salaries correspond to approximately the safety and employee teamwork, cost managenaent and shareholder vabe added. Up to 50 percent of the awarded median of the companies in the corr.pensation peer gmup. Individual increases are based on several factors, including amount is based on an assessment of the individual offi-cer's performance during the year. the officer's performance during the year, the rdationship of the officer's salary to the market salary level for the position Awards shown under Bonus in the Summary and competitive' industry salary increase practices. Compensation Table for performance during 1997 were based on achievement of officers' individ"al goals. There Annual Intentive tompen5ation Pian Annual incentive awards are earned based on the achieve- ** " I'I"" ** P"'""*"" mer t of specific annual financial and operational goals by the Illinois Power officer group as a whole and considera-tion of the officer's individual contribution. If payment is . carned under this Plan, one-half of the bonus is payable in cash durire the year following the award year, and one-halfis' credited to the participants in the form of Common Stock units, the number of which is determined by dividing half of the carned bonus amount by the closing price of the Common Stock on the last trading day of the award yezr. i f a r 0 t 4 1 I se- J j it t:m s ronin in) issou ujos s uii n i - l 1 i i ; .1 c e .c I m e r r m t c n n n u t no, aUg eu t- He Comrnittee invokes the active panicipation of all ' Awards under the ITIC plan are based on corporate non-management directors in reviewing Air. Haab's perfor-performance as well as individual officers' contributions to mance before it makes recommendations regarding his com-corporate performance subject to th review of this pensation. The Committee is responsible for administering Committee. In 1997,it w'as determined that awards under the processes for completing this review. The process stans , - the ITIC plan be delivered in two components. One-half of early in the year when the Ikiard of Directors works with I cach officer's LTIC plan award is delivered in the form of Mc Haab to establish his personal goals and short- and stock options granted at fair market value. The stock long-term strategie goals for Illinova and Illinois Power. At i- options granted to the officers for 1997 represent an award the conclusion of the year, Mr. Haab reviews his perfor-based ~on Illinova, Illinois Power, and individual perfor- mance with the non-management directors. The Committee mance as evaluated by the Chairman and reviewed by the oversees this review and recommends to the Ikaard appro-Committee. The other half of the LTIC plar, award is dis _ priate adjustments to compensation. In setting the CEO's
- i. tributed to . officers in cash based upon Illinova's salary for 1997, the Committee, with the participation of all Shareholder Value-Added (SVA) performance relative to a Outside Directors determined that Mr. Haah had provided peer group of utility companies, nr measured in overlap. very strong Icadership in promoting electric deregulati6n in .
ping three-year periods. SVA measures Illinova's return on the State of !!!inois. The continuing outage at the Clinton , ' the Company's weighted average cost of capital. SVA per. Power Station was a major setback. Significant progress was . fuemance at the median of the peer group will result in tar. made in advancing other strategic objectives of the
- l. s A
get award levels. Per.'armance above the median will result Company. ~in payouts greater than target to a maximum of two times The 1997 AnnualIncentive Compensation Plan award - target; performance significantly below the median results for the Chief Executive Officer was calculated consistent in no payouts. Since 1996 represented the first year of the with the determination of awards for all other !!!inois SVA plan's first three-year measurement cycle, no awards Power officers. Under the terms of the plan, one-half of the are due to be paid out under the plan until 1999. award was paid in cash and one-half was converted to tiO Compensation 1,539 stock units which vest over a three-year period as " *~ L.arry Haab became Chairman, President, and Chief Executive Officer ("CEO") of Illinois Power on June 12, The 20,000 option shares granted to the CEO reflect the 1991, and Chairman, President and Chief Executive Committee's recognition of this work in directing Illinova Officer of Illinova in December 1993.111inova based Mr. and Illinois Power towards its long-term objectives. Haab's 1997 con vnsation on the policies and plans ton g,, % ,r n i u , ,n. % c ,, ,,n . i , described above. - Ronald L Thompson, Chairman J. Joe Adorjan C. Steven McMillan Robert M. Powers Walter D. Scott Marilou von Ferstel i John D. Zeglis i e -} l 13 1 ..;iu:, >1ste :. r i siv**u:os sminis- } #1 d e p e O C r H t AbCiiUfs . The ikiard of Directors of Illinois Power has selected Price . Waterhouse LLP as independent auditors for the Company for 1998. A representarise of that firm will be present at the Annual Meeting and available to make a statement and to respond to questions. Other Matters Illinova's 1997 Summary Annual Report to Shareholders was mailed to Illinois Power's shareholders commencing on or about h1 arch 10,1998. Copies of Illinois Power's Annual Report on Form 10-K will be available to share-holders after its filing with the Securities and Exchange Comnasion on or before hiarch 31, 1998. Requests e should be addressed to investor Relations, G-21, Illinois Power Company,500 South 27th Street, Decatur, Illinois 62521-2200. Any proposal by a shareholder to be presented at the next Annual Aleeting must be received at Illinois Power's enecutive offices not later than November 12,1998. Other Business hianagement does not know of any matter which will be presented for consideration at the Annual hicering other than the matters described in the accompanying Notice of ' Annual hiecting. By Order of the Board of Directors, l.eah hianning Sterzner, . Vice President, General Counseland Corparate Secretary Decatur,Illinnis hiarch 10,1998 4 4 4 4 l-Ia i 11&140!$ 6' 0 6 i k 15 9 t AhhgA; WtPORr AFFEND11 1997 ANNUAL REPORV TO SHAREHOLDERS l 1 . Tatte of Contents Abbreviations Used Throughout this Report l Management's Dncuwion and Analysis , , . .a 2 AFUDC Allowance for Funds Used During Construction Responsibihty for information . . a t'? Ba P r Sution Report of Independent Accountants . . a 10 Clinton Clinton Power Statu>n Consolidated Statements of Income . . a 11 DOE Department of Energy EITF Emerging issues Task Force of the h Consolidated Balance Sheets . . . . a 12 Financial Accounting Standards lloard Consolidated Statements of Cash Flows . . a 13 . . EMF Electne and Magnetic Fields Consolidated Statements of Retained Earnings . a-13 EPS Earnings Per Share I Notes to Consolidated Financial Statements . . a-14 ESOP Employees
- Stock Ownership Plan FA5 Statement of Financial
- Selected Ccmsolidated Financial Data . a-32 Accounting Standards Selected Illinois Power Company Statistics. . a-33 FASB - Financial Accounting Standards Board FERC Federal Energy Regulatory Commission Fuel Company !!!inois Powe Fuel Company HB362 House Bill 3(', An Act in Relation to the Compative Provision of Utihty Servict ICC 111inois Commerce Commission
!!!inova Illinova Corporation IP !!!inois Power Company ipr! lilinois Power Financing i ISA Integrated Safety Assessment kw Kilowatt kwh Kilowatt-Hour MGP Manufactured-Gas Plant MIPS Monthly income Preferred Securities MW Megawatt MWH Megawatt-Hour NOPR Notice of Proposed Rulemaking NOx Nitrogen Oxide NRC Nuclear Regulatory Commission , PCA Power Coordination Agreement PECO PECO Energy Company 5&;P Standard & Poor's
- 50; Sulfur Dioxide j Soyland Soyland Power Cooperative,Inc. L i
TOPr5 Trust Origmated Preferred 5ccurities - UI-AC Uniform Fuel Adiustment Clause i-UGAC Uniform Gas Adiustment Clause U.S. EPA Umred States Environmental Protection Agency Vermihon Vermibon Power Station hd River hJ River Power Station 's e i I e.s 3 itti6cisromis *** 466ca: 6its 61 M A f, A G E M E N T ' S D I S C U S. 5 1 0 N AND ANALYSIS in this repon, we refer to the Consolidated Financial The move to open access transmission service hkely will Statements, related Notes to Consolidated Financial increase competition in the wholesale energy market, but this Statements, Selected Consohdated Financial Data and alone is not expected to have a significant financia! impact. Selected Statistics for information concerning consolidated financial position and results of operations. This report compr titio n contains estimates, projections and other forward-looking On December 16,1997, Illinois Governor F2pr signed statements that involve risks and uncenainties. Actual electric deregulation legislation. HB 362 guarantees IP's results or outcomes could differ materially as a resuh m residential customers a 15 percent decrease in base electric such important factors as: the outcome of state and federal rates beginning August 1,1998, and an additional 5 per-regulatory proceedings affecting the restructuring of the cent decrease effective on May 1,2002. Tb occreases electric and gas utility industries; the impacts new laws and are expected to result in revenue re' was of approxi-regulations relating to restructuring, environmental, and mately $40 million in 1998, approximately $80 million in other matters have on IP; the effects of inercased competi- each of the years 1999 through 2001 and approximately rion on the utility businesses; risks of owning and operat- $100 million in 2002, based on currer.t consumption. ing a nuclear facility; changes in prices and cost of fuel; Customers with demand greater than 4 MW at a single site construction and operation risks; and increases in financ- will be free to choose their electric generation suppliers ing costs. Below is discussion of the factors having signifi- (" direct access") staning October 1999. Customers with at cant impact on consolidated financial position and results least 10 sites which aggregate at least 9.5 'MW in total of operations since January 1,1995' demand also will have direct access starting October 1999. Illinois Power Company is a subsidiary of Illinova Direct access for the remaining non-residential customers Corporation., a holding company. lilinova Generating will occur in two pha>es: customers representing one-third Company, Illinova Energy Partners, Inc. and Illinova of the remaining load in the rion-residential class in Insurance Company are wholly owned subsidiaries of October 1999 and customers representing the entire Illinova. IP is engaged in the generation, transmission, dis- remaining non-residential load on December 31, 2000. tribution and sale of electric energy and the distribution, Direct access will be available to all residential customers transportation and sale of natural ps in the State of Illinois, in May 2002. IP remains obligated to serve all customers who continue to take service from IP at tariff rates, and 0 pen Acce5s and Wheeling remains obligated to provide delivery service to all at regu-On March 29,1995, the FERC issued a NOPR initiating I3d '"I"S-the process of mandating non-discriminatory open access Although the specified residential rate reductions and to public utility transmiss' ion facilities at cost-based rates, the intn> duction of direct access will lead to lower electric Transmission of electricity for a reseller or redistributor of service revenues, HB 362 is designed to protect the finan-energy is called wholesale wheeling. Transmission of elec- cial integrity of electric utilities in three principal ways: tricity for end-use customers is known as retail wheeling. 1) Departing customers are obhgated to pay transition On April 24,1996, FERC issued Orders 888 and 889 charges, based on the utility *5 lost revenue from that which established the Final Rule resulting from the NOPR. customer, adjusted to deduct: 1) delivery charges the The Orders became effective July 9,1996. The Rule utility will continue to receive from the customer. and requires all public utilities under FERC jurisdiction that 2) the market value of the freed-up energy net of a mit-own transmission facihties to file transmission service tar- igation factor, which is a percentage reduction of the iffs that comply with Pro Forma Tariffs attached to the transition charge amount. The mitigation factor is Orders. FERC ako requires that all wholesale sales made designed to provide incentive for management to con-by a utility provide for trannksion of the power under the tinue cost reduction efforts and generate new sources prescribed terms and conditions. IP made a compliance fd- of revenue. ing as required on July 9,1996, which has been accepted 2) Utihties are provided the opportunity to lower their by FERC. financing and capital costs through the issuance of Public utilities serving customers at retail are not "securitized" innds; and required, at this time, to abide by FERC. mandated terms 3) Utilities are permitted to seek sate rehef in the event and conditions. FERG does not require public utilities to - that the change in law leads to their return on equiry give retail customers access to ahernate energy suppliers Or falling below a specified minimum based on a pre-direct trammission sertice. scribed test. .. 3 -_ _ l1.!%O!s I fAfk ;4* A4%UAi bl3 Lh? The extent to which revenues are lowered will depend in addmon, IP cvaluated its generation segment plant on a number of factors including future market prices for investments to determine if they had been impaired as wholesale and retail energy, and load growth and demand defined in FAS 121, " Accounting for the Impairment of levels in the current IP service territory. The impact on net Long.l.ived Assets and Long-1.ived Assets to lle Disposed income will depend on, arnong other things, the amount of Of
- This evaluation determined that future revenues were revenues carned and the ongoing costs of doing business. expected to % sufficient to recover the costs of its genera.
In 1996,IP received approval from both the ICC and tion segrnent plant investments and as a result, no plant FERC to conduct an open access experiment beginning in write-d wns were necessary. However, ultimate recovery 1996 and ending on December 31,1999. The experiment depends on a number of factors and variables ir .uding allows certain industrial customers to purchase electricity marker mnditions and IP's ability to operate its generation and related services from other sources. Currently,17 cus- assets efficiendy. tomers are participating in the experiment. Since inception, The provisions of HB 362 allow an acceleration in the the experiment has cost IP approximately $11.2 million in rate at which any utility-owned assets are expensed without lost revenue net of avoided fuel cost and variable operating regulatory approval, provided such charges are consistent expenses. This loss was partially offset by selling the sur- with generally accepted accounting principles. Underf this plus energy and capacity on the open market and by 52.7 legislation, up to an aggregate of 51.5 billion in additional rnillion in transmission service charges. expense for the generation-related assets could be acceler-ated through the year 2008. This reduction in the net book Accounting Matters value of IP's generation-related assets should help position Prior to the passage of HB 362, IP prepared its consolidated Wt opeare mmpetitively and profitably in the changing financial statements in accordance with FAS 71, business emimnment. Es acceluated charge would have " Accounting for the Effects of Certain Types of Regulation.. a direct impact on earnings but not on cash flows. Reporting under FAS 71 allows companies whose service The FASB continues to review the accounting for liabil-obligations and prices are regulated to maintain on their bal- ities related to closure and removal of long-lived assets, ance sheets assets representing costs they expect to recover including decommissioning. See " Note 3 - Commitments from customers, through inclusion of such costs in their and Contingencies" for a discussion of decommissioning. future rates. In July 1997, the EITF concluded that applica^ See " Note 1 - Summary of Significant Accounting tion of FAS 71 accounting should be discontinued at the date Policies" for a discussion of other accounting issues. of enactment of deregulation legislation for business seg-ments for which a plan of deregulation has been established. p,yy(,,,,y g ,11,,, The EITF funher concludea that regulatory assets and lia-bilities that originated in the portion of the business bein,, in September 1996, a leak in a recirculation pump seal deregulated should be written off unless their recoverv i caused IP operations personnel to sht.t down Clinton. ~ specifically provided foc through future cash flows from the Clinton has not resumed operation. regulated portion of the business. In January and again in June 1997, the NRC named Because HB 362 provides for market-based pricing of Clinton among plants having a trend of declining perfor-mance. In June 1997, IP c mmitted to conduct an ISA to electric generation services, IP discontinued apphcation of FAS 71 for its generatinghegment. IP evaluated its regula- thoroughly assess Clinton's performance. The ISA was tory assets and habilities associated with its generation seg-mnducted by a team of 30 mdividuals with extensive ment and determined that rewverv of these costs wa<. not nuclear experience and no substantial previous involve-probable through rates charged to transmission and distri- ment at Chnton. Their report concluded that the underly-bution customers, the regulated portion of the business, ing n asons for the performance problems at Clinton were ineffective leadership throughout the organization in pro-IP wrote off generation-related regulatory assets and ha-viding standards of excellence, complacency throughout bihties of approximately 5:95 milhon (net of income the organization, barner weaknesses and weaknesses in taxes) in December 1997. These net assets related to previ. teamwork. In late October, a team commissioned by the ou.dy incurred costs that were expected to be collected NRC performed an etaiuation to vahdate the ISA results. through futare revenues, including deferred costs for in Decembei, this team concluded that the findsgs of the Clinton, unamortized losses on reacquired debt, recmer-
- ISA accurately characterized Clinton's performance defi-able income taxes and*other genervion-related regulatog ciencies and their causes.
assets. At December 31,1997, IP's net investment in gen-eration facilities was 53.5 billion and was reflected in " Utility Plant, at Original Cost" on IP's balance sheet. . IM 1 > .iue ,, 6++ us, a s e. o t i sit e.' On januar> 5,1998,lP and Plf 0 announced an.igrw- acquiring N>ybodi share of Chnron with the remaining ment under which PECO will preide management ser- $ 17.9 million recorded as interchange revenue. In Dwember vices for Clinton. Although a PLCO team will help manage 1997, Soyland Ugned a letter ofintent to pay in advance the the plant, IP will continur to maimain the operating license remainder of its base capacity charges in the PCA. %e fee of for Clinton and retain ultimate oversight of the pbnr. approximately 570 million will be deferred and recognized PECO employees will assume senior positions at Clinton, as interchange revenue over the initial term of the PCA. He but the plant will remain primarily staffed by IP employ. payment is contingent on Soyland obtaining the necessary ca. IP made this decision based on a belief that bringing in financing and regulatory approvals in 1998. PECO's experienced management team would tw the mos' in September 1997, the ICC approved a petition filed by efficient way to get Clinton back on line and operating at IP which stipubtes customers will not be charged for certain a superior level as quickly as possible. additional costs of energy incurred as a result of Clinton On January 21,199H, the NRC placed Clinton on its being out of service. IP did not collect from its customers Watch List of nuclear plants that require additional regu. 536.3 million for higher. cost repbcement power in 1997. lP latory oversight because of declining performance. Twice a will forego recovery of additional fuel costs as the Climon year the NRC evaluates the performance of nuclear power outage continues into 1998. Under the petition, fuel costs plants in the United States and identifies those which charged to customers will be no higher than average 1995-require additional regubtory oversight. Once placed on the 1996 levels until Clinton is back in semce operating at least Watch List a plant must demonstrate consistent improved at a 65% capacity factor for two consecutive months. performance before it is removed from the list. The NRC Under HB 362,lP may choose to ehminate application of will monitor Clinton more closely than plants not on the the UFAC. IP's base rates will still include a component for Watch List. This may include increased inspections, aJJi- some level of recovery of fuel costs, but IP would not be able tional required documentation, NRC-required approval of to pass through to customers increased costs of purchasing processes and procedures, and higher-level NRC oversight. fuel, emission allowances, or replacement power. On elimi-he NRC has advised IP that it must submit a written nation of the UFAC, base rates will include a fixed fuel-cost report to the NRC at least two weeks prior to restarting factor equivalent to the average 1995 - 1996 fuel cost levels. Clinton, giving the agency reasonable assurance that IP's Future recovery of fuel costs is uncertain, as IP will decrease actions to correct recurring weaknesses in the corrective base electric rates to residential customers beginning in action program have been effective. After the report is sub August 1998 and certain customers will be free to choose mitted, the NRC staff pbns to meet with IP's management to their electric generation suppliers beginning in October discuss the pbnti readiness for restart. 1999. The extent to which fuel costs are recovered will depend on a number of factors including the future market in March 1997, the NRC issued an order approving prices f r wholesale and retail energy, when Clinton returns transfer to IP of the Clinton operating license rebted to Soyland's 13.2% ownership,in connection with the trans-fer from Soyland to IP of all of Soybndi interest in Chnton. Soylandi title to the plant and directly related - assets such as nuclear fuel was transferred to IP in May in November 1996,IP deployed a project team to coordi-1997. Soylandi nuclear d' ecommissioning trust assets were nate the identification, evaluation, and implementation of transferred to IP in Ma) [997, consistent wnh IPi assump. changes to computer systems and applications necessary to tion of all of Soylandi ownership obligations including achieve a year 2000 date conversion with no effect on cus- ' those related to decommissioning. tomers or disruption to business operations. The FERC approved an anwnded PCA between IP and The,e acti6ns are necessary to ensure that systems and Soybnd in July 1997.The amended PCA obhgates soybnd appbcations will recogniee and process coding for the year to purchase all of its capacity and energv needs from IP for 2000 and beyond. Major areas of potential business at least 10 years. The amended PCA provides that a contract impact have been identified and initial conversion efforts cancellation ice will be paid by Soyland to IP in the e ent are underway. IP also is communicating with third parties that a Soyland Cooperative member terminates its member- "ith whom itikses business to ensure continued business
- ship from $oybnd. On May 31, 1997, three distribution operanons. The cost of achieving year 2000 compliance is cooperative members teminated membership by buying out cui ated to be at least 514 million through 1999.
l of their long-term wholesale power contracts with soybnd. Contingency plans for operating without year 2000 His action resuhed in Soybnd paying a fee of S20.N mi: lion compliance have not been developed. Such activity will . to IP in June 1997 to reduce its base capacity charges. Fee depend on asses 3 ment of progress. Project completion is proceeds of 52.9 million were used to offwt the costs of ' planned for the fourth quarter of 1999, a 73 j_ li4 : uis u ti. ioo< asse,i si m i i { f nancce Retirement transmission access, weather conditions, competing fuel in December 1994, IP announced plans for voluntary sources, interchange market conditions, plant availability, ! enhanced retirement and severance programs. During the fuel cost recoveries, customer conservation efforts and the ! founb quaner of 1995,727 employees accepted enhanced overall economy. retirement or severance 'under these programs. The com- n,ci,a op,,ations For the years 1995 through 1997, bined enhanced retirement and severance programs gener- ekctiic revenues including interchange increased 3.7% and ared a pretax charge of $38 million against fourth quaner the gross electric margin decreased 6.4% as follows: 1995 earnings. Midlums, o[d.dlars) 1997 1996 1995
- Consolidated Results of 0perations 11ectne revenues $ 1,244.4 5 1,202.9 5 1.25L6
[ Imerchange revenues 175.6 137.6 1163 Onrdee g uel cust 5; power Earnings (loss) applicabic to common stock were $(65) P""h2'ed (450 3) (1833) (333Al million for'1997, $206 million for 1996 and $156 million Ucerne marem s 969.7 5 1.n27.2 5 1.n3 U for 1995. The decrease in 1997 carmngs compared to r 1996 was due primarily to the extraordinary item related The components of annual changes in electric revenues were: to discontinued application of FAS 71 for the generation , segment, higher operation and maintenance expenses due sfah.ms ordollarsi 1997 1996 1995 to Clinton, higher power purchased costs due to Clinton rnee s (u.s) 5 p.2) 5 133 and Wood River outages and an increase in uncollectible volunum!mher 9.7 6.4 42.7 accounts expense. The increase in 1996 net income over Fuel c"5t r*e"e5 d33 (48 ') l' l 1995 was due primarily to the one-time charge in 1995 for nevenue increase the enhanecd retirement and severance programs, lower Mec'e' 5 di 5 5 '49 78 5 75 1 operations expense due to the employment decrease and lower financing costs. The 1995 iesults include $(22.8) n97 Electric revenues excluding interchange sales million per-of-tax for the enhanced retirement and sever- increased 3.4%, primarily due to an increase in revenues ance programs and $(3.5) million for the carrying amount under the UFAC and increased whccling revenues. under consideration paid for preferred stock redeemed in Interchange revenues increased 27.6% due to the receipt of December 1995. an opt-out fee from Soyland per the amended PCA and increased interchange activity. Electric margin decreased 0perating Revenues primarily due to increased power purchased costs as a ; (Mdhems o/ dollars) result of outages at the nuclear and fossil facilities. 5'*773 ' un Electric revenues excluding interchange sales
- v. - si. ass.7 decreased 4.0%, primarily due to reduction in revenues
" 5d'd under the UFAC. Volume changes by customer class were v4 - s t.ssu insignificant, as kwh sales to ultimate consumers (exclud- 5'*58'A ing interchange sales and wheeling) decreased .3%. + , Interchange revenues increased 18.3% as a result of higher
- plant availabihty in the first half of the year.
llegulators historicaliy have determined IP's rates for electric service, the ICC at the retail level and the FEltC at - the wholesalc level. The ICC determines IP's rates for gas . m,m, m,y service.These rates have been designed to recover the cost gtdlum, of meuwans..mru of service and allow shareholders the opponunity to earn i s.7 a fair rate of return. As described under " Competition * 0 0 t m o ra 2 , 10.2 above, Illinois electric deregulation legislation phases in a competitive marketplace for electric generation while ' %- u maintaining cost-based regulation for elrctric delivery ser- 3a. vices and gas service, protecting the financial integrity of -- su the company during the transition period. Future electri,e u. s.3 3.2 and natural gas sales. including interchange sales, will con, tinue to be affe. ted by an increasingly competitive market. e MI C Nuda l'ugham place, changes in the regulatory environment, increased - - - i..i '. q ,n u v... :o rt e si+ost i i 2 993 The 6.4% increase in riectric revenues was pnmanh-due to'n 1.9% increase in kwh sales to ultimate consumers '(excluding interchange sales and wheeling). Volume h' * ,f ['[ t increases resulted from h,igher residential sales (4.8%) and coat St.34 (97%) higher commercial sales (8.2%) due to an improving econ-l Other $ 1.68 (3%) omy. and warmer summer temperatures compared to . ' 1994. Industrial sales remained essentially unchanged from 1994. Interchange revenues increased $63 million (5.8%) -.. as a result of increased sales opportunities. . 1996 The cost of fuel decreased 9.4% and electric genera- i The ' cost of meeting il,.s system requ rements was . j ti(m increased 5.4%. The decrease in fuel cost was primarily l reflected in fuel costs for electric plants and power pur- attributable to the effects of the UFAC, as well as a favorable ;
- chased. Changes m. these costs are detaded below: . .
rnce vanance. These factors were partially offset by an i ~ 6i5- increase in fuel cost due to the increase in generation. Power - j (AtA n/Itura ~ i,if ivve,~- purchased increased $5.7 million primarily due to the tei iur ciectric ciam, extended Clinton outage. Clinton's equivalent availability - Volume and <alwr 5 ' (37.7) $ 15.4 $ 9.8 - ~ Price (8.5) (12.0) (35.3) and generation were lower than in 1995 due to that outage. . Emmion allowances - 12.3 .s 18.3 - Fuelcost recovenes 18.2 (30.0) '14.3 '1995 The cost of fuel increased 2.8% and electric genera. 7.3 tion increased .7%. The increase in fuel cost was attribut-(tl.7) (218) able to the effects of the UFAC, the increase in higher-cost . Power purchawd . 152.7 17 6.9 137.0 5 i2u.11 $ 14.2 fossd. generation and the cost of emission allowances. Total mcre.ne tdecreawl - $ Cl nton's equivalent availability and generation were lower Weighted average wuem . generanng 6wi cimi in 1995 as compared to 1994 due to the scheduled refuel-striii s- 12.06 5 ti.m s 11.41 ing and maintenance outage. Clinton returned to ervice April 29,1995, after completing its fifth refueling and . i maintenance utage, vhich began March 12,1995. Power System load requirements, generating unit availability. fuel prices, purchased rower prices, resale of energy to Purchased increased $6.9 million. other utilities, emission allowance costs and fuel cost Ga5 0perat6cas For the years 1995 through 1997, gas rev-recovery through UFAC caused changes in these costs. enues including transportation increased 29.9%, while the gr ss margin n gas revenues increased 93V. as follows: ~ Changes in factors affecting the cost of fuel for electric generation are below: 1997 1996 1995 (M&ms o/dolbrs) g,,, 3,93 39,3 Gas revemses 5 345.2 $ 341.4 5- 24.5 Gas cost (207.7) (202.6} . (138.8) lacreaw (decreaw) Trarvpurtation revenues 8.7 ' 6.8 8.0 n generatiim .. (25.4)% , 14% *% - Generaron nn * . Cnal and awher ' 'R* - 73 % 'AIO* "O*N .* 100% Thernnold .537 703 3E8 ,gcy, 0% ' 22" 2% Therms transported 309 251 273 . . . hnal consumr non 846 944 861 w The cost of fuel decreased 63%and electric genera- . tion decreawd 25.4"a. The decrease in fuel cost was pri- - marily attributable to decreased generation and a favorable . Chang s in the cost of gas purchased for resale were: price variance. These factori were partially offset by effects g ,, of the UFAC and increawd emission allowance costs. ~ ' Power purchasedincreased $152.7 milhon primaril3 due 6'[h'*d 6" "I' s u 5 m s m to Cliitton and Tuck.l l{iver he.mg out of Service. %,lunw (30.0) h.5 25.3 Gas cost reenverws 27.1 es.3 115.41 Toral ancreaw idecreanci 5 ' 5.1 5 63.8 $ 1316 . Average cast ocr therm F delnered 28.0< 26.7c 2u.le . j l:4.si. ._ .:sois u nts : u,1 assua. atro The 1997 increase in gas costs was due to slightly higher etui imu m oceumons -- vi The IW7 decrease prices from suppliers and effects of the UGAC, offset by a of $2.1 milhon in Other income and Deductions, Net is due decrease in volume. The 1996 increase in gas costs was pri- primarily to 1996 accruals recorded for the planned dispo-marily due to higher prices from suppliers and the effects sition of property. The 1996 increase was due primarily to of the UGAC. The 1995, decrease m :he cost of gas pur- a decrease in the credit for alkicated income taxes. chased was due to lower gas prices caused by unusually The 1995 change in Other income and Deductions, Net warm winter weather nationwide. Also. contributing to the was negligible. higher gas margins in 1995 was the 6.1% increase in gas i ,,, , ,e s t th ,ges Interest charges, including Al'UDC, base rates approved by the ICC in April 1994- decreased $2.8 million in 1997, decreased $15.5 million in 0ther Iapensea A comparison of significant increases 1996, and increned $3.6 million in 1995. The 1997 (decreases) in other operating expenses, maintenance and decrease is primarily due to the continued benefits of IP depreciation for the last three years is presented in the fol- refinancing effons and capitalization reductions panially lowing table: offset by increased IP shen-term borrowings and lower AFUDC. The 1996 decrease was due to lower short-term (Malum, n/dottars; t997 1996 1995 interest rates and the impact of IP refinancing efforts'and other operanng espenm $ 40.6 $ (9.8) $ (3) capitalization reduction during 1996. The 1995 increase Maintenance t 2.0 (3) 10.4 Depreciation and was due to increased short-term borrowings at higher amortuation s.8 3.5 interest rates, 7.2 innation inflation, as measured by the Consumer Price The increase in operating and maintenance expenses for Index, was 2.3%, 3.3%, and 2.5% in 1997,1996, and 1997 is primarily due to increased company and contrac- 1995, respectively. IP recovers historical rather than cur-tor labor at the nuclear and fossil plants. An increase in rent plant costs in its regulated rates. uncollectible .tccounts expense and disposal of surplus ' inventory also contributed to the increase. Liquidity and Capita 1 Resources The decrease in operating expenses for 1996 is due pri- Dbid'"d$ marily to the savings from the enhanced retirement and On December 10,1997,IP declared the quanerly common severance program, partially offset by the costs of tlye stock dividend for the first quarter of 1998. On December extended Clinton outage and increased amortization of 11,1996,IP increased the quanerly common stock divi. MGP site expenses. The ICC approved tariff riders in dend by 11% declaring the common stock dividend for the March 1996 that resulted in the current recognition of first quarter of 1997. On December 13,1995, IP increased MGP site remediation costs in operating expensn. The the quarterly common stock dividend 12%, declaring the 1996 increase amounted to $5.5 million. This increase is con mon stock dividend for the first quarter of 1996. offset by increased revenues collected under the riders. , n , , , , , , , % , , ,, n g , The increase in main'tenance expenses for 1995 is pri-IP needs cash for operating expenses, interest and dividend marily' due to the refueling and maintenance outage at payments, debt and certain preferred s ock retirements and Clinton. The increases irt depreciation and amortization construction programs. To meet these needs, IP has used for each of the three year) were due to increases in utihty internally generated funds and external financings, includ-plant balances. ing the issuance of debt and revolving lines of credit. The timing and amount of external financmgs depend primar-l 0 n r atin g a r e F.* te r n c e r rpense5 ilv on economic and financial market conditions, cash f (Millums ofdullars; needs and capitalization ratio objectives. 97 $402.2 %- $ 349.6 95 $359.7 94 < =2 $349.6 93 umme $370.0 1- j i a 4 t ..ti
- scis sosis : 66 : assosi 56so-
- j. 1P eash flows f rom operations during 1997 provided suli lor the years 1997,1996 and 1995, changes in long-ficient working capital to meet ongoing operating require- term debt and preferred stock, including aormal maturities l ments, to service existing common and IP preferred stock and elective redemptions, were as follows:
dividends and debt requirements and to meet ai. J IP's con- _ _ _ _ _ __ struction requirements. Additionally,IP expects that future Waau. _ "I_d"lla' _ _ _ _ .l"7 19
- 1995 cash flows will enable it to meet operating requirements and imgerm <kk s (ii) s (154> 5 (si continue to service IP's existing debt, preferred stock divi-PI""'d '"d (") 7I !!25L.
dends, Fs sinking fund requirements and all of IP's antici- Tout decrene s (so) 5 00) 5 040) pated construction requirements. Continned sufficiency of l - cash flows for these purposes vill depend on a number of The amounts shown in the preceding table for debt l . fac7tts and variables, including market conditions, business retirements do not include all mortgage sinking fund expenses and the ability to compete
- requirements. IP generally has met these requirements by To a significant degree, the availability and casi of exter- pledging property additions as permitted under IP's 1943 l nal financing depend on the financial health of the company Mongage and Deed of Trust and the 1992 New Mortyge.
seeking those funds. Secunty ratinp are an indicati,n of a For additional inbrmation, see " Note 8 - long-Term company's financial position and may affect the cost of Debt" and " Note 9 - Preferred Stock." securities, as well as the willingness of investors to invest in During 1997, IP redeemed $34.9 million (all of the these securities. The current rating of IP's securities by remaining) Adjustable Rate Series A serial preferred stock. three principal securities rating ag:ncies are as follows: IP also redeemed $4.2 million of various issues of serial l preferred stock,in addition, $10.5 million of medium-term < Sundard Duff N notes matured and were retired. During the year IP . issued
- Mmidis & Punr's Phcl iw
- $150 million of Adjustable Rate Pollution Control t Ent/New mongage lunds Baal BBh BBib Preterred smck haa2 BBB- BBB. Revenue Bonds, due April 1,2032. The proceeds were CommerM paper P-2 A-2 D-2 used on June 2,1997, to retire $150 million of IP's 7 5/8%
l
- Pollution Control First Mortpge Bonds due 2016.
I Under current market conditions, these rating would During 1996,IP redeemed $2.2 million of Adjustable afford IP the ability to issue additional securities through Rate Series A serial preferred stock, $20.5 million (all of external financing. IP has adequate short-term and inter- the remaining) Adjustable Rate Series B serial preferrtd mediate term bank borrowing capacity, stock and $6.7 million of 7.75% serial preferred stock. ' Based on its 1993 revises! standards for review of utility During the year, IP also retired 562.9 million of 8.75% business and financial risks, S&P placed IP, along wit}} First M ng ge B nds due 2021, $6 million of 8% New l . approximately one-third of the indunty, in a "somewhat Mong ge Bonds due 2023 and 523 million of 7.5% New below average" category. in April 1994. SNP lowered IP's Mangage Bonds due 2025. The 540 million of 5.85% l i' mortgage bond rating to BBB from Bl%. In August 1995, First Mongage Bonds matured and were retired. In addi-i SAP revised its rating ourkok from stable to positive. In tion 521.5 million of medium-term notes matured and l. h . F.bruary 1996. Moody's,also revised its ratinp outkiok were retired. ,- from stable ;o posinve. f in February 1995, IP redeemed 512 million of 8.00% Moodyi upgraded I'P$ securnies on July '.,1996. The mandatorily redeemable serial preferred stock. In May l ratmg for mortgage bonds was raised from Baa2 to Baal, 1995, IP redeemed the remaining $24 million of 8.00% - while preferred stock ratinp went from baa3 to baa2. Duff mandatorily redeemable serial preferred stock, in March L & Pnelps has indiented that it expects IP's rating to remain 1995. IP redeemed 5.2 million of 7.56% serial prefened !- stable. reflecting a modestly strengthening financial profile stock and 53 million of 8.24% serial preferred stock. In characterized by good cash flow md an average business August 1995, IP redeemed 55 million of 8.75% First risk profile. Mortgage bonds. In December 1995, IP redeemed $34.7 million of S.00% serial preferred stock, $33.6 million of 7.56% serial preferred stock ana 527 million of 8.24% serial preferred stock. L e- . e } I a.s i is0' B ' (. ! 6 L 1. A s s1: A; 61l'( h! IPFI is a statutort busmew trust m which IP serves as Constriction expenditures for the years 1995 through sponsor. IPFI issocd $100 milhon of 'IDPr5 at 8%, (4.8'N 1997 were approximately 5620.5 milhon, including 517.5 after-tax rate) in January 1996. The TOPr5 were issued by rnillion of AFUDC. IP estimates that it will spend approx-IPFI, which invested the proceeds in an equivalent amount imately 5225 million for construction expenditures in of IP subordinated delurures due in 2045. The proceeds 1998. IP construction expenditures for the period 1998-were used by IP to repay shon-term indebtedness on varying 2002 are expected to total about Si billion. Additional dates on or before March 1,1996. IP incurred the indebted- expenditures may be required during this period to accom-ness in December 1995 to redeem $95.3 million (principal modate transitional expenditures related to a competitive value) of higher-cost outstanding preferred stock of IP. environment, environmental compliance costs and system in 1992, IP executed a general obligation mortgag, upgrades, which cannot be determined at this time. (New Mortgage) to replace, over time, IP's 1943 Mortgage IP's capital expenditures for the years 1998 through and Deed of Trust (First Mortgage). Both mortgages are 2002, in addition to its construction expend:tures, are secured by liens on substantially all of IP's propenies. A expected to include $119 million for nuclear fuel and 5291 correspondmg issue of f irst Mortgage bonds, under the million for mandatory debt retirement. First Mortgage, secures any bonds issued under the New See
- Note 3 - Commitments and Contingencies for Mortgage. In October 1997, at a special bondholders additional information. Internal cash generation will meet meeting, the 1943 First Mortgage was amended to be gen-substantially all construction and capital requirements.
erally consistent with the New Mongage. The New Mortgage provides IP with increased financial flexibility. E n v i r o n m e n t t. I ntc: At December 31,1997, based on the most restrictive See " Note 3 - Commitments and Contingencies" for a camings est contained in the New Mongage, IP could discussion of environmental matters that impact or could issue approximately $800 million of additional New potentially impact IP. Mortgage bonds for other than refunding purposes. Also at December 31,1997, the unused portion of IP total bank 1*" lines of crede was $354 million. The amount of available See " Note 5 -Income Taxes" for a discussion of effective IP unsecured borrowing capacity totaled $168 million at tax rates and other tax issues. December 31,1997. On February 12, 1997, the IP Board of Directors approved a change to the Articles of Incorporation to remove the limitation on the amount of unsecured debt that IP can issue. The change will be voted on by the pre-ferred stockholders at a special meeting planned to be held , in 1998. Under HD 362,11' may issue transitional fundmg instruments for up to 25% of its December 31,1996, capi-tahzation on or after August 1,1998. IP is continuing to review its refinancing plans hit could issue up to 5864 milhon of transitional funding instruments on or arter August 1, 1993, under this provision. In addition, IP woulJ be chgible to issue up to an additional 5864 million of transition fund-irg instruments on or af cr August 1,1999. Of the pniceeds from the issuance of transmonal fundmg mstruments. 80% or more must be used to retire and repurchase IP debt and equity while 20'6 or less can be used to fund cenain 0:her transitio") costs, s e Y
- ;
- i o v. # > ;ss- 4 stt. >iit .-
i6!k e. v r6 wiss-RESPON5]EILIIt fOR INfORMATION The conu>hdated bnanaal starcments ~l he sonuehdated hnancul statements mdependent accountants anJ 6ervices and all informa 4.n in this annual have been audited by illmms Power's to be performed. Additionally, the report are the rewnsihihty of manage. independent accountants, Price Water-Audit Committee meets with Price menr. The consohdated fyuncul state. house LLP, m accordance wnh gener. Waterhouse LLP to discuss the results ments have been prepared in confornury ally accepted audinng standards. Such of their annual auJit, Illinois Power's with generally accepted accounting standards include the evaluation of internal accountmg controls and fman-prinaples and include amounts that are intunal accounnng controls to estabbsh cial reporting matters. 'Ihe Audit Com-based on management's best estimates a baus for dneloping the scope of the mittee meets with the internal auditors end judgments. Management also pre _ exanunanon of the consohdated finan- to aswss the internal audit work per. pared the other information in the 'idI 5'd*""'5 I" ddd"5"" '" 'he use of formed, including tests of internal annual rep ~t and is responsible for its independent accountants, Illinois Power accounting controls, accuracy and constency with the con- nu ntains a profruional staff of intu. solidated (mancial statements. In the n I au don m conduct financial, opinion of management, the conu,H- E" " ' " ' " " 'P""I ""' hts. To assure their mdependence, both Price Water-dated fmancial statemems birly reflect ' lilinois I,ower,s financial position, house LLP and the internal auditors results of operanons and cash flows. have direct auess to the Audit Commit-tee of the ik>ard of Directors. Larry D. Haab lihnms Power beheves that its accounnng Chairman, PrcuJent The Audit Committee is composed of end internal accounting control systems and Cinef Executwe Officer members of the Ikiard of Directors who cre maintained so that these systems pro-are not active or retired employees of vide reasonable assurance that assets are tfcguarded against loss from unautho-Ilhnois Power. The Audit Committee meets with Price Waterhouse LLP and [ rized use or dispodrion and that the the internal audnors and makes recom- Larry F. Altenbaumer hnznaal records are rehable for prepar-mendations to the Ikiard of Directors Senior Vice President ing the consohdated hnancial statements. concerning the appointment of the and Chief finanaal OMccr ILLih0!$ PCulir t ortas y REPORT OF INDEPENDENT ACCOUNTANTS PRICE WATERHOUSE LLP i to tr e u ce a r:m e r o. _ , , rug % ,3 g in our opirnon, the consohJared f nancul dochJ our audas of these statements in As discussed m Note I to the censoh-statements of Ilknois Power Compan) ascordance with nerally accepted dated 6nanaal statemt nts, Ilhnois Power and us subudunes arpcanng on pagn audinng standards which require that discontinued applymg the prowsions of a 11 through .931 of thn repo t prewnt we plan and perform the audit to obram fairh, m all matenal rnpcets, the ima"~ Statement of hnancul Accounting Stan-reamnable assuraner about whether the dards No. 71, " Accounting for the cui position of libnon power Lompan? and ns subudunn ai December 31, tnuncul statements are free of materul Eftects of Certain Types of Regulanons. 1F anJ Im, and the result of their nnsstatement. An auJa meludes exam- for as generation segment of the bud-op: rations and their cash flows for cash '"" "" ""II"* """'"""#* of the three scars in the penod enJed ng e amoums an owes in the December 31, IF, m conformity wnh finan al statenu nts, assessing the generath ancpted accoummg prmen """""""E P""'ipin uwd and sigm6-pies. Tl or hnanaal starcments are the respondbahty of Ulinois powerg onu cso: nates made by management, and oaluating thy overall hnancial Ac,,y,,,, MM ( f. p , management; our te ponubihty is to s:atement prewhtation. We behese that Price Waterhouse LLP c+ prew an opmion on thcsc imancul our audas prouJe a reawnable basis 5t. I oms. Miwouri starements bawd on our arjits. We con for the opuuon esprened above. Iebruary 12,19% i..toi !!1lht!$ e ti n [ $ 1967 AhhLA, REPORf ..o . .. m u... m (ON5CLIDATIC 5 ' A T I V, [ N T 5 Of h: 0Mt (Mdlunn uf dulG-sl For the Years 1.nded Decemtwr 31, 1997 Iv96 1995 Operating Revenues Dectre . 5 1,244.4 5 1,202.9 5 1,252.6 Dectric interchange 175.4 131.6 116.3 Gas 353.9 348.2 272.5 Total 1,773.9 1.688.7 1,641.4 Operating Expenses and f ames Fuel for electnc plants 232.4 248.1 273.9 Power purchased 217.9 65.2 59.5 Gas purchased for resale 207.7 202.6 138.8 Other operanng expenses 290.5 249.9 259.7 Maintenance 1 I l.7 99.7 100.0 l'.nhanced retirenwns and severance - - 37.8 Depreciatum and anuwtuatim 198.s 190.0 1865 General taxes 133.8 131.3 135.0 Ircunw taxes 102.4 140.5 125.8 Tntal 1,495.2 1,327.3 1,317.0 i Opraung menrr.e 278.7 361.4 324.4 Other Income and Deductions. Net (4.2) (6.3) .3 Income before intercsr charges 274.5 355.1 324.7 Interest Charges . Interest expense 128.7 133.0 148.0 Allowance for horrowed funds used during construction (5.0) (6.5) (6.0) Total 123.7 126.5 142.0 Net income before extraordmary item 150.8 228.6 182.7 Enranrdmarv item net of income tax benefte of 5118.0 million (Note 1) (195.0) - - het income (loss) (44.2) 228.6 182.7 Less - Preferred dividend requirements 21.5 223 23.7 Plus - Carrving amount over (underi considerannn paid for redeemed preferred stock .2 (.71 (3.5) Net income (km) applicabic to enmmon stock 5 (65.5) 5 205.6 5 155.5 see notes to wnsoMated (manculstasements usuch are art miegralpart of these statements. l 1 l ! i 1 ! . i ( . i h l l l- 1 a 1s 1 I tt t tso:s roa t s :se s ansui etrost 1661*cis Fon66 Tt>*Pakt CONSOLIDATED EALAhCE SHEtT5 . . .. thidlu.ms of Jahrs.t D2cember 31, 1997 1996 Assets utility Heat, at crig uig t c nt !]cetric (meludes construction work in progress of $214.3 millkm and 5212.5 millum, respecovely ) $ 6.690.4 5 6135.4 Gas (includes construction work in pngress of $10.7 milhon and 521.2 millum, respeenvely) 663.0 646.1 l 7.353.4 6,9N ),5 less-accumulated depreciatum 2,80s.1 2,419.7 ** 4,545.3 4,561.N Nuckear faelin pruens . _ 6.3 5,3 . Nuclearfuelundercapitallease 124.7 96.4 4,61 8.3 4.6633 Investments anit other assets 5.9 14.5 - (verent 4:ets - Cash and cash equivalents 17.8 12.3 Acenunts receivable (less allowance for doubtful accounts of 55.5 millum and 53.0 millnm, respective 19 Service 115.6 138.8 Other - 16.6 51.1 j Accrued unNiled revenue 66.3 106.0 1 Matenals and supphes, at average cost Fossil fuel 12.6 7.9 {. Gas in undergramd storage - 29.3 27.2 i . Operating materials - 75.4 77,1 t Prepayments and other 61.2 23.7 I'
- 1 414.s 444.3 Defetees (harges I Deferred Clinton costs - 103.9 i Recoverable incarne taxes - 101.3 , ~
Other 192.5 243.0 192.5 446.2 5 5.Ni3 5 53683 - Capital and liabilities (aposuration Common sinck - No par value,100,000,000 shares authorized; 75,643,937 shares issued, stated at 5 1,424.4 5 1,424.6 - Retained earnings . 89.5 245.9 less- Capital stock expense 7.3 8.2 less- 9,428,645 and 3.410.897 shares of common stock in treasurv, respectively.at cost 207.7 86.2 ' Total common wock equiry . 1,299.1 1,576.1 Preferred stock 57.1 96.2 Mandatorily redeemable preferred stock 197.0 197.0 long-term debe , 1,617.5 1,636.4 Total capitahzanon 3,170.7 3,505.7 Lurrent lia b flitie s Ascounts payable 102.7 149.7 W:es payable - 376.8 310.0 leg term debt and lease obliganons maturmg withm one year 87.5 47.7 Drvidends declared - 22.9 24.7 Taars accrued 27.5 46.0
- Interest accrued ,
33.0 34.3 Other i 78.7 4.1.1 729.1 655.5 , a', , . . . Accumulated deferred income sain 980.6 th4k.0 p . Accumulated deferred investment tax crede 208.3 215.5 - ~~ ~ ~ ~ _ . , _ . . _ _ . _ _ _ _ . - _ _ . . . < . . . _ . . . _-~ .- ~ . _ _ _ i 9. 1, i. . (Commuments and Contmgenaes Note 31 ' her notes to remsuMated(manaal statements uluch arean miegralpart of these st.rtements. n t e I o. s a l' 1 ) tittsutsrtmit 156- anssa u t s o r t- '4 r . ph pin t eo f s tlw &&n e l- . C O N S O L I D A T. E D ' 5 T A T E M i N T S OF CASHFLOWS l . . . . . . _ . - -.. . . , IMdimm nfd<diars! For the Years laded December 31, s997 1996 1995 ' Cash flows from Operating Activities ( ' . Net inctwne (hiss) - . 5 (44.2) $ 228.6 $ 182.7 'i - hems not requiring (providmrJ ie..nh Depreciation and amortizatim b.'2.1 195.3 190.0 Allowne for funds uwd during construction (5.0) 16.5) (6.0) Deferred incenne taxes 29.4 64.2 42.0 Enhanced retirement and wverance - - 37.8 Extraordinary item : 191.0 - - ' Changes in assets and liabilitvs- - ~ Accounts and notes recemble 57.7 (35.2) 38.7 2 Accrued unbilled revena ? 19.7 (16.9) (10.2) Necriala and supphs .. (5.1) (1.21 22.8 Accounts payable . J (31.2) 29.8 (14.0) Interest accrued and other, net .3 (14.8) (10.I) Net cash provided by rceratir.p sawities 41a.7 443.3 473.7 Cash fic.ws firm Investing Attivities ' Comitructine,expcediturcs (223.9) (187.31 (209.3) Alkmance for funds uwd dering construchun 5.0 6.5 6.0 Other invesung acnvits 27.8 5.0 (7.5) Net cash used in investing acti*ines (191.1) (175.8) - (2I0.8) Cash Flows f rom finanting A'c16vities Dwidmu on comnmn stock and preferred stuck (lI4.6) 1107.9) (100J) ' Repurchase of common stock (128.5) (18.9) 167.3) Redemptions -- 4 Short-term debt ' (164.1) (355.8) (213.6) ' long-term debt E (160.8) (153.7) ($.2) ' Preferred sinck (39.0) (29.5) (1M.5) . Issuances- ' Short-term debt 23I.0 306.2 209.1 long-term debt 150.0 - - Preferred stock ' - 100.0 - Other hnancing activines ' (3.3) .3 5.1 Net cash used in 6nancint; acivities (222.3) - (259.3) (306.5) Net change in cash and cash equivalents 5.3 8.2 (43.6) Cash and cash equivalems at becmning of year ' 12.5 4.3 47.9 Cash and cash equivalems at'end of year $ 17.8 $ 12.5 5 ' 4.3 suinois poeta company'- 4 C O N S O L I D A T E f> J S T A T E M E N T S O 'T RETAINED EARNINGS 1 (Mdlums n(dullsrst hw the Years l'nded Dece nber 31 . 1997- 1996 1995 h21ance at beginning of year , 5 245.9 5 124.6 $ 51.1 . % income 41o561 before dividends and carrtm. g a,_m.uu..a._a.d. i.u..s.t_m._ent (44.2) 228.t. 182.7 7 Dividends - j , Preferred sinck - 21.7 22.6 23.6 ' Common stuck 90.7 E6.6 ~7.1 ' investment trander tu lihnnva - 2.4 - Plu- 1 i Carrjing amount ovs. hmderi consiJerannn paid for redeemed preferred sinck .2 I.71 (3.5) ~ {ll2.2) ~ (112.3) (104.2) ' Ita}.inee at enE vear
- 5 89.5 5 2.l i.'s $ 12W her esores In o es<dsdatedlnwsh,d st.rtements uhn h are on mtegr.slpart of these statems uts.
r I a.s s 3 .________.1_1__________________________ __ _ . _ . _ _ _ _ _ _ _
- bses a < < , aos a seros:
NOTl! TC 00N50L.DAifD F 1 ts ANCIAL STATEMENTS Note . - hrn *s o' s0 * <ot 1;ccause Hli 362 provides for market-based pricmg of A t c. o u t i n s 5 o l u i n k tric prion senices,IP discontinued application of ennops a unst ho t a r. IPis a subsidiary of Illinova, a FAS 71 for its generating segment in December 199" w hen holding cornpany. IP is engaged in the generation, trans- HB 362 was signed by Illinois Governor Edgar. IP evalu-mission, distribution andsale of electric energy and the dis- ated its regulatory assets and liabilities associarcJ with its tribution, transportation and sale of natural gas in the state . generation segment and determined that recovery of these of Illinois. The consolidated financial statements include costs was not probable through rates charged to transmis-the accounts of IP, a combination electric and gas utility, sion and distribution customers, the regulated portion of Illinois Power Capital, L.P. and IPFl. See " Note 9 - its business. Therefore. IP wrote off generation-related reg-Preferred Stock" for additional information. ulatory assets and liabihties of approximately $195 million All significant intercompany balances and transactions (net of income taxes) in December 1997. These net assets have been eliminated from the consolidated financial state. tdated to previously incurred costs that had been expected ments. Preparation of fmancial statements in conformity to be collected through future revenues, including deferred with generally accepted accounting principles requires the Clinton post constrt.crion costs, unamortized losse; on use of management's estimates. Actual results could differ reacquired debt. recoverable income taxes and other from those estimates. generation-related regulatory assets. At December 31, . 1997, IP's net investment in generation facilities was $3.5 ut uutin IP ts subject to regulation by the ICC and the billion and was m.cluded m. "Utihty Plant, at On. .gmal FERC Prior to the passage of H13 362,IP prepared its con-Cost" on IP's Consolidated lialance Sheets, solidated financial statements m accordance with FAS 71, " Accounting for the Effects of Certain Types of IP's principal accounting policies are: Regulation." Reporting under FAS 71 allows companies n gouto,y Amn Regulatory assets represent probable whose service obligations and prices are regulated to main- future revenues to IP associated with certain costs that tain on their balance sheets assets which represent costs are expected to be recovered from customers through they expect ro tecover from customers through inclusion of the raremaking process. Significant regulatory assets are s.,ch costs in their future rates. In July 1997, the EITF con- as follows: cluded that application of FAS 71 accounting should be discontinued at the date of enactment of deregulation leg- Midlusu o/dollmi l7 1996 islation for business segments for which a plan of deregu- Deferred chnion ladon has been established %e EITF further concluded pmi<=mucom com s - 5 W that regulatory assets and liabihties that originated in the portion of the business bemg deregulated should be writ- [""'l") a Wnubcturd p plant sue cleanup com $ 3 ~ H.8 ,3 5 $69.1 ten off unless their ncovery is specifically provided for DOE decantaminanon and through future cash flows from the regulated portion of d""'"""""""'"' * " " the business. i +. The cost of additions to utility plant and replacements for retired property units is capitalized. Cost includes labor, materials, and an alkscatior, of general and ! administrative costs, plus AFUDC as described below. Maintenance and repairs, including replacement of minor items of property, are charged to maintenance expense as incurred. When depreciable property units are retired, the original cost and dismantling charges, less salvage value, are charged to accumulated depreciation. i ) e - 4 F , i I e l4 1 *6i.inois ro.46 i [ a 5 eat se i e o e ; . l t-meom te. 4r e s um t- ho m. 6w. ..m n% o IP records revenue for services - i . The FERC Uniform Systen of Accounts defines AFUDC as provided but not yet billed to more closely match revenues the net costs for the perio:1 of construction of borrowed with expenses. Unbilled revenues represent the estimated funds used for construction purposes and a reasonable rate amount customers will be billed for service delivered from on other funds when so'used. AFUDC is capitalized as the time meters were last read to the end of the accounting e component of construction work in progress by those period. Operating revenues include related taxes that have I business segments applying the provisions of FAS 71. In been billed to customers .a the amount of $71 million in 1997,1996 and 1995, the pre-tax rate used for all con- 1997, $68 million in 1996 and $66 million in 1995. The struction projects was 16%,5.8% and 6.5%, respectively. costs of fuel for the generation of electricity, purchased
- . Although cash is not currently realized from the allowance, power and gas purchased for resale are recovered from it is realized under the raremaking process over the servic- customers pursuant to the dectric fuel and purchased gas life of the related propeny through increased revenues adjustment clauses. Accordingly, allowable energy costs resulting from a higher rate base and higher depreciation that are to be passed on to tustomers in a subsequent
- j. expense. Non-regulated business segments capitalize inter- accounting period are deferred. The recovery of costs est under the guidelines in FAS 34, " Capitalization of deferred under these clauses is subject to review and Interest Cost." r.pproval by the ICC. In September 1997,IP filed a petition
!' tiepretbtion For financial statement purposes,IP depreci, with the ICC that stipulated customers will not be charged , ates the various classes of depreciable propeny over their f r certain additional costs of energy incurred as a result of estimated.useful lives by applying composite rates on a Clinton being out of service. During 1997, as a result of straight-line basis. In 1997,1996 and 1995, provisions for this stipulation. IP did not collect $36.3 million of fuel depreciation were 2.8%,2.8% and 2.8'%, respectively, of c srs. IP will also forego recovery of additional fuel costs the average depreciable cost for Clinton. Provisions for in 1998 for the duration of the Clinton outage. Under the depreciation for all other electric plant were 2.8%,2.6% pm.d n, fuel c sts charged to customers will be no higher and 2.6% in 1997,1996 and 1995, respectively. Provisions than average 1995-1996 levels until Clinton is back in ser-for depreciation of gas utility plant, as a percentage af the vice perating at least at a 65% capacity factor for two average depreciable cost, were 3.3%,3.9% and 3.9% in c nsecutive m nths. 1 1997,1996 and 1995, respectively. Income w Deterred income taxes result from tempo-rary differences between book income and taxable income, uortintion ef hvcim ruei IP leases nuclear fuci from the Fuel Company under a capital lease. Amortization and the tax bases of assets and liabilities on the balance of nuclear ~ fuel (including related financing costs) is . sheet. The temporary differences relate principally to plant . determined on a unit of production basis. A provision for in service and depreciation. spent fuel disposal costs is charged to fuel expense based imestment tax credits used to reduce federal income on kwh generated. See " Note 3 - Commitments and taxes have been deferred and are being amonized to Contingencies". for discussion of decommissioning and income over the service life of the property that gave rise to nuclear fuel disposal costs. the credits. .or e m e ri m e o et tnicount ne r.o r ane L t, m i IP is included in Illinovn consolidated federal income Discount, premium and expense associated with long-term tax rerarn. Income taxes are allocated to the individual debt are amortized over thl lives of the related issues. Costs companies based on their respective taxable income or loss, related to refunded debt for business segments under the See " Note 6 - Income Taxes" for additional discussion. provisions of FAS 71 are amortized over tb lives of the - related new debt issues or the remaining life of the old debt if no new debt is issued. Costs related to refunded debt for the generating segment aie expensed when incurred. ~. t I -15 3 ;iti m s n at. :oi an umi 6: >cs: t i , v . . . c. m , , s.c 6, - r . o Prtierred dmdend he. %%n< cunt, The FASH issued F AS 128,"Earnint:s requirements reflected in the Consolidated Statements of Per Share" m February 1997, effective for (mancial state-f income are recorded on the accrual basis. ments issued after December 15,1997. FAS 128 establishes standards for computing and presenting EPS and replaces coraomico siahn.t ne et am um Cash and cash the presentation of primary EPS and fully diluted EPS with equivalents include cash on hand and temporary invest. a presentation of basic EPS and diluted EPS, respectively. ments purchased with an initial maturity of three months No new requirements are imposed on IP by FAs 128. or less. Capital lease obligations not affecting cash flows increased by $30 million, $31 million and $19 million dur- The FASB issued FAS 129, " Disclosure of information ing 1997,1996 and 1995, respectively. Income taxes and about Capital Structure" in February 1997, effective for interest paid are as follows: financial statements for periods ending after December 15, 1997. FAS 129 establishes nandards for disdosing infor-Yem emini tiecember 31, marion about an entity's capital structure and contains no (Malu m # dlarn . t997 1994 iwL change in disclosure requirements for entities that were income t.un s 94.3 5 t,5.9 5 m previously subject to the requirements of Accounting imernt s 140.o 5 ic4 5 152A Principles Board Opinions 10 and 15 and FAS 47. No new requirements are imposed on IP by FAS 129 Inie,e$t % (ar Generally, premiums paid for purchased The FASB issued FAS 130, " Reporting Comprehensive interest rate cap agreements are being amortized to interest locome" in June 1997, effective for fiscal years beginning after December 15,1997. FAS 130 establishes standards expense are included in over Current the Assets, terms of the " Prepayments andcaps. other," Unamortized premiums _ for reporting and display of com in the Consolidated Balance Sheets. Amounts to be components in a financial statement that is displayed with received under the cap agreements are accrued and recog- the same prominence as other financial statements. IP con-nized as a reduction in interest expense, tinues to analyze FAS 130 and does not expect it to have a wnsuetons eth imnova in addition to transfers of cap- significant impact on its financial statements presentation, ital reflected in the Consolidated Statements of Retained The FASB issued FAS 131, " Disclosures about Segments Earnkgs, IP provided approximately $122 million, 581 of an Enterprise and Related Information" in June 1997, million and $34 million in funds to Illinova for operations effective for periods beginning after December 15,1997. and investments during 1997,1996 and 1995, respectively. FAS 131 supersedes FAS 14 " Financial Reporting for Illinova is paying IP interest on these funds at a rate equal Segments of a Business Enterprise." FAS 131 establishes to that which Illinova wopld have paid,had it used a cur- standards for the way public business enterprises report rently outstandmg line of credit. In addition, Illinova and financial and descriptive information about their IP have recorded an intercompany payable and receivable, reportable operating segments in their financial statements. respectively, for approximately 510.2 million,514.3 mil- Generally, financial information is required to be reported lion and 518.4 million in 1997,1996 and 1995, respec- on the basis that is used internally for evaluating segment rively, in order to recognize the effect on the Employees' performance and deciding how to allocate resources to seg-Stcck Ownership Pian of the conversion of IP common ments. IP continues to evaluate the provisions of FAS 131 stock to Illinova commsi stock concurrent with the for- and determine the impact of the revised disclosure require-marion of Illinova. This'was a noncash transaction. See ments on its 1998 financial statements. " Note 10 - Common Stock and Retamed Earnings" for ' additional information. I c to i Ill]huls N Aik ) le 6 i AhhdAt 6l0041 t.oi. ; _ t iin;o t u e s,,t'" Although a PECO team will help manage the plant,IP oini o o n aei m will continue to maintain the operating license for Clinton in September 1996, a leak in a recircubtion pump seal and retain ultimate oversight of the plant. The plant will remain staffed prirnarily by IP employees. caused IP operations pe,rsonnel to shut down Ginton. Clinton has not resumed operation. . PECO operates two stations, Limerick and Peach in January and again in June 1997, the NRC aamed B tt m, each with two boiling water reactors similar to the one at Clinton. Although PECO's Peach Ikirtom Station Clinton among plants having a trend of declining perfor, monce. In June 1997, IP committed to conduct an ISA to was a troubled plant that experienced a two-year outage, thotoaghly assess Cinton's performance. The ISA was it was turned around, and both plants have set perfor-conducted by a team of 30 individuals with extensive mance records for long operating runs and short refueling nuclear experience and no substantial previous involve- utages, receiving excellent perf rmance ratings from the ment at Cinton. Their report concluded that the underly- NRC and the Institute of Nuclear Power Operations. ing reasons for the performance problems at Clinton were On January 21,1998, the NRC placed Clinton on its ineffective leadership throughout the organization in pro. Watch List. Nuclear p! ants are placed on the Watch,J.ist viding standards of excellence, complacency throughout when the NRC believes additional regulatory oversight is the organization, barrier weaknesses and weaknesses in required because of declining performance. Clinton will teamwork, in late October, a team commissioned by the remain on the Watch List until consistent improved per-NRC performed an evaluation to validate the ISA results. formance is demonstrated. During the period Clinton - In December, this team concluded that the findings of remains on the Watch List, the NRC will monitor it more the ISA accurately characterized Clinton's performance closely than plants not on the Watch List. This may include deficiencies and their causes, increased inspections, additional required documentation, in September 1997, the NRC advised IP that it must NRC-required approval of processes and procedures and higher-level NRC oversight. submit a written report to the NRC at least two weeks prior to restarting Clinton, giving the agency reasonable assurance that IP's actions to correct recurring weaknesses in the corrective action program have been effective. After the report is submitted, the NRC staff plans to meet with IP's management to discuss the plant's readiness for restart. In November 1997, Larry Haab, Chief Executive Officer ofIP, publicly pledged to add ess the findings of the ISA, to improve Qinton, and provide the resources necessary to restart the plant. Further, in January 1998, IP and PECO announced an agreement under which PECO will provide management services fdr Ginton. The new m,nagement team initially will consist of nine people in key positions, including chief nuclear offi.cer and plant manapec I l l e i ..t, , } I I istthe*% t o n i fi 164? A h l, U A L EfFD&t i , .. .m . n ,,,,s , o u ,- 1 u nD IP's Chnton-related costs represented 38% of its total 1 In March 1997, the NRC issued an order approving trans- 1997 other operating, maintenance and depreciation fer to IP of the Cinton operating hcense related to expenses. Cinton's equivalent availability was 0%,66% Soyland's 13.2% ownerghip in con trion with the trans- and 76% for 1997,1996 and 1995, respectively. I fer from Soyland to IP of all of Soyland's interest in Ownership of an operating nuclear generating unit Cinton. Soyland's title to the plant and directly related exposes IP to significant risks, including increased and j assets such as nuclear fuel was transferred to IP in May changing regulatory, safety and environmental require- ; ' 1997. Soyland's nuclear decom nissioning trust ass;ts were ments and the uncertain future cost of closing and disman-transferred to IP in May 1997, consistent with Ws assumP- tling the unit. IP expects to be allowed to continue to tion of all of Soyland's ownershir obligations, includinS operate Cinton; however,if any unforeseen or unexpected those related to deco'mmissioning. developments would prevent it from doing so,IP would be Tne FERC approved an amended PCA in ,luly 1997, materially adversely affected. See Note 3 - Commitments The amended PCA obligates Soyland to purchase all of its and Contingencies" for additional information. capacity and energy needs from IP for at least 10 years. r l The amended PCA provides that a contract cancellation Note 3-Commitments and Contingencies i fee be paid by Soyland to IP in the event that a Soyland %, ,, member terminates its membership from Soyland in May . . . IP estimates that it will spend approximately $225 m.lh. i on 1997, three d.istnbution cooperative members terminated f r c nstructi n expenditures in 1998. IP construction membership by buying out of their long-term wholesale . expenditures for the period 1998-2002 are expected to ; power contracts with Soyland. As a result, Soyland paid a , r tal about $1 billion. Additional expenditures may be , ' fee of $20.8 million to IP in June 1997. Fee proceeds of required during this penod to accommodate transitional $2.9 million were used to offset the costs of acquiring expenditures related to a competitive environment, envi-Soyland's share of Cinton with'the remaining $17.9 mil-r nmental c mpliance c sts and system upgracies, which tion recorded as interchange revenue. cannot be determined at this time. . In December 1997, Soyland signed a letter of intent to #5 capital expenditures for the years 1998 through pay in advance the remainder of its base capacity charges 2002, m. addit on to its construction expenditures, are in the PCA. The fee of approximately $70 million will be , expected to inclade $129 million for nuclear fuel and $291 i deferred and recognized as interchange revenue over the . milli n f r mardat ry debt retirement. j initial term of the PCA. The payment is contingent on Soyland obta:ning the necessary financing and regulatory in addition, P has substantial commitments for the pur-approvals in 1998. chase of coal under long-term contracts. Estimated coal contract commitments for 1998 through 2002 are $619 curter ao or % s . million (excluding price escalation provisions). Total coal ! Clinton was placed in . service in 1987 and represents purchases for 1997,1996 and 1995 were 5181 million, approximately 20.3% of IP's mstalled generation capacirv. 5184 million and 5168 million, respectively. IP has con-The investment m Cinton represented approximately 57% tracts with various natural gas suppliers and interstate . of IP's total assets at December 31,1997. See " Note 1 - pipelines to provide natural gas supply, transportation and l Summary of $lgmficant; Accounting lohcies" for add leased storage. Estimated committed natural pA trans- j uonal information. portation and leased storage costs (including pipeline tran- ~) sition costs! for 1998 through 2002 total $56 million. Total naturd pc purchased for 1997,1996 and 1995 was 51S5 miWon, $207 milhon and $150 million, respectively. J l l ,p e A i .I l; .}s ,[ 3 s wc , h Is)h; i Itilh015 PDu!6 144? AkhuAt $(tOkt IPi estimated nuclear fuel commitments for Clinton are that insurance proceeds be dedicated and used first to approximately $11 million for uranium concentrates return the reactor to, and maintain it in, a safe and stable through 2001, $3 million for conversion ser, ices through condition, and second to decontaminate the reactor station 2002,$35 million for enrichment services through 1999 site. The insurers also provide coverage for the shortfall in and $232 million for fabocation services through 2019. IP the Decommissioning Trust Fund caused by the premature is committed to purchase approximately $20 million of decommissioning of the reactor due to an accident. In the emission allowances through 1999. IP anticipates that all event ir.surance limits are not exhausted by the above, the gas-related costs will be recoverable under IP's UGAC. See remaining coverage will be applied to properry damage the subcaption " Fuel Cost Recovery" below for discussion and a portion of the value of the undamaged property. In of the UFAC. addition, while IP has no reason to anticipate a serious tui cost neomy On September 29, 1997, the ICC nuclear accident at Clinton, if such an incident should . approved an IP petition that stipulates customers will not ccur, the claims for property damage and other costs be charged for certain additional costs of energy incurred could materially exceed the limits of current or available as a resuh of Clinton being out of service. Under the peti- insurance coverage. In the event of an extended shutdown tion, fuel costs charged to customers will be no higher than of Clinton due to accidental property damage, IP also pur-everage 1995 - 1996 levels until Clinton is back in service chases approximately 51.5 million per week of business operating at least at a 65% capacity factor for two con- intempti n insurance coverage through an indestry-secutive months. See " Note 2 -- Clinton Power Station. owne mutual insurance company. This insurance does for additional information about Clinton. n t P ovide coverage until Clinton has been out of service l for 2 weeks. As a resuE of Illinois deregulation legislation, IP may choose to climinate application of the UFAC. IP's base Al United States nuclear reactor licensees are subject to rates would still include a component for some level of the Pdce-Anderson Act. This act currently limits public lia-recovery of fuel costs, but IP would not be able to pass bility 'or a nuclear incident to $8.9 billion. Private insur-l through to customers increased costs of purchasing fuel, ance c > vers the first 5200 million. Retrospective premium , emission a!!owances or replacement power. On elimination assessi tents against each licensed nuclear reactor in the l of the UFAC, btse rates will include a fixed fuel cost factor United States provide excess coverage. Currently, the lia-equivalent to the average 1995 - 1996 fuel cost levels. bility to these nuclear reactor licensees for such an assess-Future recovery of fuel costs is uncertain, as IP will mem would be up to 579.3 million per incident, not decrease base electric rates to residential customers begin- including premium taxes which may be applicable, payable ning August 1998 and certain customers will be free to in annualinstallments of not more than $10 million. choose their electric generation suppliers beginning in A Master Worker Policy covers worker tort claims October 1999. The extent to which fuel costs are recovered alleging bodily ininrn sickness or disease due to the nuclear l will depend on a number of factors including the future energy hazard for workers whose initial radiation exposure market prices for wholesale and retail energv. when occurred on or after January 1,1988. The policy has an Clinton returns to service, and whether IP elects to climi- aggregate limit of $200 million that applies to the com-nate the UFAC. mercial nuclear industry as a whole. A provision provides b - IP maintains iniurance for certain losses involv- f r automatic reinstatement of policy limits up to an addi-ing the operation of Clirbn. For physical damage to the ti nal $200 million. p plant, !P's insurance program has two layers: 1) a primary IP may be subject to other risks that may not be insur-layer of 5500 million provided by nuclear insurance pools; able, or the amount of insurance carried to offset the vari-and 2) an excess coverage layer of 51.1 billion provided by ous risks may not be sufficient to meer potential 1:abiliues an industry-owned mutual insurance company for a total and losses. There is also no assurance that IP will be able coverage of 51.6 billion. In the event of an accident with to maintain insurance coverage at its riresent level. Under an estimated cost of reactor stabihzation and site deconta- those circumstances, such lo- jhties may have a mination exceeding 5100 million, NRC regulations require substantial adverse effec * . nnancial position. p 4 I .is I 1: ! l b f 's P O 6 f 6 's.47 , Ahnts, klPOk1 m en r a m.in i. e i.. m# 11'is respon. The FASli is reviewing the accounting for closure and sible for the co$rs of decommissioning Clinton and for removal costs of long-lived assets. Changes to current elec-spent nuclear fuel disposal costs. In May 1997, consistent tric utihty industry accounting practices for decommission-with IP's assumption of all of Soylandi ownership obliga- ing may result in recording the estimated total cost for tions of Clinton, Soyland's nuclear decommissioning trust decommissioning as a liability and an increase to plant bal-assets were transferred to IP. Future decommissioning costs ances, depreciating the increased plant balances, and related to Soyland's former share of Clinton will be pro- reporting trust fund income from the external decommis-vided through the PCA between Soyland and IP. IP is col- sioning trusts as investment income rather than as a reduc-lecting future decommissioning costs for the remaining tion to decommissioning expense. liased on current portion of Clinton through its electric rates based on an information, management believes that these chang.s will . ICC-approved formula that allows IP to adjust rates annu- not have an adverse effect on results of operations due to ally for changes in decommissioning cost estimates. Illinois existing and anticipated future ability to recover decom-deregulation legislation provides for the continued recov- missioning costs through rates. ery of decommissioning costs from IP's delivery customers. Under the Nuclear Waste Pohey Act of 1982, the DOE IP concluded a site-specific study in 1996 to estimate is responsible for the permanent storage .,nd disposal of the costs of dismantlement, removal and disposal of spent nuclear fuel. The DOE currently charges one mill Clinton. This study resulted in projected decommissioning (50.001) per net kwh (one dollar per MWH) generated costs of $538 million (1996 dollars) or $969 million (2026 and sold for future disposal of spent fuel. IP is recovering dollars, assuming a 2% inflation factor). Regulatory these charges through rates. In 1996, the District eJ approval of this increased decommissioning cost level was Columbia Circuit Court of Appeals issued an order, at the received in August 1997.This estimate is the basis used for request of nuclear-owning utilities and state regulatory funding decommissioning costs through rates charged to agencies, confirming DOE's unconditional obligation to IP's customers and through the PCA with Soyland. take responsibilky for spent nuclear fuel commencing in External decommissioning trusts, as prescribed under 1998, even if it has no permanent repository at that time. Illinois law and authorized by the ICC, accumulate funds Notwithstanding this decision, which the DOE did not for the future decommissioning of Clinton based on the appeal, the DOE has indicated to all nuclear utilities that it expected service life of the plant. For the years 1997,1996 may experience delay in performance. The impact of any and 1995,IP contributed 55.3 million,53.9 million and such delay on IP will depend on many factors, including $5.0 million, respectively, to its external nuclear decom. the duration of such delay and the cost and feasibility of ' missioning nust funds. The balances in these nuclear interim, on-site storage. i decommissioning funds at'Decernber 31,1997 and 1996, were 562.5 million and $41 A million, respectively. Decommissioning funds are recorded as assets on the hal-ance sheet. A decominissioning liability approximately equivalent to trust assets is also recorded. IP recognizes earnings and expenses from the trust fund as changes in its assets and liabilities relating to these funds occur. I j l s l . I . j i c. o 1 ti.'s.Ols l'rElb 144I AhhuAt k ( 8 ty n j t , . m n. .* M'm la adJmon, regulators are continuing to exa nine (ton m m To comply with the 502 emission reduction potential approaches for compliance with current federal requirements of Phase I (1995 - 1999) of the Acid Rain ozone air quality standards. On . November 7,1997, the l' ' Program of the 1990 Clean Air Act Amendments,IP con- U.S. EPA proposed air ponation rules which would require tinues to purchase emission allowances. An emission substantial reductions of NOx emisuuns in Illinois and 21 allowance is the authorization by the U.S. EPA to emit one other states. he pmposal would require the installation of ton of 502. The ICC approved IP's Phase I Acid Rain NOx controls by September 2002. This proposal is Compliance Plan in September 1993, and IP is continuing expected to be finahzed by Novernber 1998 with Illinois to implement that plan. IP has acquired sufficient emission utility reduction requirements specified in 1999, allowances to meet most of its anticipated needs for 1993 Prehminary cost estimates to comply witn the proposed and 1999 and wdl purchase the remainder on the spor . NOx limitations are $130 to $150 million beyond what is snarket. In 1993, the Illinois General Assembly passed and already needed to comply with the NOx requirernents of the governor signed legislation authorizing, but not requir- Phase 11 of the Acid Rain Program.The legality of this pro-ing, the ICC to permit expenditures and revenues from posd along with its technical feasibility is expected to be emission allowance purchases and sales to be included in challenged by a number of utilities and utility groops, rates charged to customers as a cost of fuel. In December includmg IP. 1994, the ICC approved the recovery of emission % g. . a r m i n g On December 11, 1997, intemational allowance costs through the UFAC. See the subcapion negotiations to reduce greenhouse gas emissions concluded " Fuel Cost Recovery'* above for discussion of the UFAC. with the adoption of the Kvoro Protocol. This Protocol IP's compliance plan will defer, until at least 2000, any requires the United States to reduce greenhouse gas emis-need for scrubbers or other capital projects associated with sions to 7% below 1970 levels during the~ years 2008 502 emission reductions. Phase II (2000 and beyond) 502 through 2012 and to make further reductions thereafter. emission reduction requirements of the Acid Rain Program This Protocol mtsst he ratifisd by the United States Senate. could require additional actions and may result in capital United States Senate Resolution 98 (passed 95-0) indicates expenditures and the purchase of emission allowances. the Senate would not ratify an agreement that fails to To comply with the Phase 1 NOx emission reduction invohe all countries or would damage the United States < requirements of the acid rain provisions of the Clean Air economy. Ratification will be a major politial issue as *he l Act, IP installed low-NOx burners at Baldwin Unit 3 and Protocol does not contain key t.lements that Senate Vermilion Unit 2. On November 29,1994, the Phase 1 Resolution 98 said would be necessary for ratification. It is NOx rules were remanded to the U.S. EPA. On April 13, anticipated that ratification will be delayed until after 1998. 1995, the U.S. EPA reinstated, with some modifications, IP will face major changes in how it generates electric-the Phase i NOx rules effective January 1,1996. IP was ity if the Kyoto Protocol is ratiGed, or if the ProtocoPs { positioned to comply with these revised rules without addi- reduction goals are incorporated into other environmental ,l tional modifications to a,ny of its generating plants regulations. IP would have to repower some generating I The U.S. EPA issued rn ised Phase 11 NOx emission lim- units and change from coal to natural gas in other units m its on December 10,1996. IP has prepared a Phase !! reduce grecnhouse gas emissions. IP estimates ther co npli- i' Compliance Plan. Litigation over t' he scope and legahry of ance with these poposed regulations may reqCre signifi. these Phase 11 NOx limits p'recludes a precise quantification cant capital otrdays and annual operating expenses tehteh I 'of anticipated capital costs'for comphanct; however, capi- could have a matenal adverse impact un IP j tal expenditures for IP's NOx Compliance Plan are ] expected to be $100 million prior to the year 2000. The ; majority of this investment wi!! be directed to Baldwin l Units 1 and 2 and will occur in conjunerion with replace- l ment of the sir heaters on these uaits ; i l l e l l l a.v s J it , t h on u m > ius emus, we,ni I i uwmoh .Na IPi catimated hability for MGP %m wee IP scils electric energy and natural j j site remediation is $65 million.This amount represents IP's gas to residential, commercial and industrial customers L currera best estimate of the costs that it will incur in reme- throughout Illinois. At December 31, 1997, 72 %, 17 % l diation of the 24 MGP, sites for which it is responsibic. and 11% of " Accounts receivable - Service" were from Because of the unknown and unique characteristics at each residential, commercial and industrial customers, respec-site,IP cannot presently determine its ultimate liability for tively. IP maintains reserves for pmential credit losses and -t remediation of the sites, such losses have been within management's expectanons. During 1997,IP increased its reserve for doubtful accounts IP n currenriy recovering MGP site remediation from $3.0 milhon to $5.5 million. thmugh rariff nders approved by the ICC. Accordingly,Ip has recorded a regulatory asset on its balance sheet total- cont % , % ing $65 million as of December 31, 1997. Management soy.and In March 1997, the NRC issued an order approv- = expects that cleanup costs will be fully recovered from ing transfer to IP of the Clinton operating license related to IP's customers. Soyland's 13.2% ownership in connection with the transfer To offset the burden imposed on its customers, IP has from Soyland to IP of all of Soyland's interest in Clintiin. ' initiated litigation against a number of insurance carriers. The FERC approved an amended PCA in July 1997. . Any settlement proceeds or damages recovered from the The amended PCA obligates Soyland to purchase all of its
- carriers will continue to be credited to IP's customers capacity and energy needs from IP for at least 10 years (the through the tariff rider rnechanism which the ICC previ- initial term of the PCA) and includes a provision that ously approved. allows Soyland to pay its base capacity charges in advance.
Orctrit Md Magnetit Iielde The possibility that exposure The arnended PCA also provides that a contract cancella. to EMF emanating from power lines, household appliances tion fee will be paid by Soyland to IP in the event that a and other electric sources may result in adverse health Soyland Cooperative member terminates its membership effects continues to be the subject of litigation and govern- from Soyland. In May 1997, three distribution cooperative e mental, medical and media attention. Litigants also have members terminated their membership by buying out of claimed that EMF concerns justify recovery from utilities their respective long-term wholesale power ccatracts with for the loss in value of real property exposed to power Soyland. As a result, Soyland paid a fee of $20.8 million to lines, substations and other such sources of EME The IP in June 1997 to reduce its future base capacity charges. number of EMF cases has dechned in the last few years as in December,1997, Soyland signed a letter of intent to more national and international science commissions have pay in advance the remainder of its base capacity charges concluded that an EMF. health risk has not been estab- in the PCA. The fee of approximately $70 million will be . lished. Additional research is being conclucted to attempt deferred and recognized as interchange revenue over the to rescJve continuing scientific aacenainties. On July 3, initial term of the PCA. The payment will be contingent on
- 19P7, President Clinton signed legislation extending the Syland obtaining the necessary financing and regulatory National EMF Research and Public Information 'appmvals in 1998. .
Dissemination Program through 1998. Research results. . ro.w n.n e See " Note 7-Capital Leases" for dis-prAicy decisirms and public information developments will m n f contingencies related to IP's nuclear fuel lease. i continue into 1994. It' b tco soon to tell what, if any, knpact thesc act&sns ma/havr on IP's finaneirJ position.1P N F " "" N **e The Intemal Revenue continues its commitment to addiess customer and Serie is currently audiring IP's feueral mcome tax retums for emploree concerns rekted to the EMF issue, the years 1991 thruugh $ 993. At this time, the outcome of the audit canno, be determined: however; management does not er;rct that the resuks will have a material adverse effect on i IP is involved in legal or administrative l jp$ financial position or results of operations. For a detailed 3 -4 proceedings before varicus courts and apncies ' wuh discusson of mcome taxes, see " Note 6 -Income Taxes." respect to matters ocetirring in the ord'aary course of busi-ness, so ne of which involve substantial amounts of money. Managemsn, believes that the final dispn.ition of these , preceedmgs will rut have a inatena advem effect on the . cenotidsted firiancialposi t:on or the resuhs r4 uperarqs. .n . .a ' i*/.i ! s i i 3 ,}
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~! 1 Noie 4-line5 c, f G e d > t a n d H o r t 4 r ni i o a rd These agreements entitle IP to' receive from a counterpane . IP.has total hnes of crcdit represented by bank commit. on a quanerly basis the amount,if any, by which IP's inter- 4 ments amounting to $354 million, all of which were: est payments on a nominal amount of commercial paper Eunused at DecemberL31/1997. These lines of credit are ' exceed the interest rate set by the cap. On December 31, ) ~ .- renewab'c in May 1998l. Augu.t 1998 and May 207. 1997, the cap rates were set at 7.75% and 8.0% while the - I ' These bank smmitments suppon the amount of commer. current market rate avadable en IP was 5.8%. l Ecia( paper outmanding at'any time, limited only by the IP also has a 550'mation interest rate swap in effect ll . amount of unused bank commitments, and are available to - through October 1998 where IP pays 5.92% and' receives suppon other IP activities- 'the IDOR varkble rate, payable quarterly. ; IP pays facility fees up to .10% per annum on $350 mil-lics of the total lines of credit, regardless of usage. The 1 Note $~f aeititie5 A g r e e tn e n t s imerest rate on borrowings under these agreements is/at On Mareb 13,1997, the NRC issued an order approving - L IP's option, based upon the lening banks' reference rate, tramfer to 11) ut the Clinton operating beense related to ' their Certificate DepuJr rate, the borrowing rare of key Soyland's 13.2% ownership obligations in connection with - banks in the London interbank market or competitive bid- :he transfer from Soyland so 1P of all of Soylan#3 interet,t .) . IP has ktters of credit totaling $206'million and pays- in Clinton pursuant to an agreement reached in 1996, i ~ fees up to .45 % per annum on the unused amour.: of credit. SoylanWs title to the pLtnt and directly related assets such as' nuclear fuel wa(transferred to JP_ on May 1,'1997, ] In addition, IP and the' Fuel Company each have a { ishort-term fmancing aption to obtain fundt not to exceed . Soylpn#s nuclear decommissioning trust usera were transi -l $30 million. IP and the Fuel Company pay no fees foi this l'"N ' IP on May 19,1997, consistent with IP's assump-l i j uncommitted facility and funding is subject to availability : (i n of a!! of Soylanst, ownenhip obligations includmg - '; upon request'.; f , those related to decommisse.ung. , s j For the years 1997,,1996 imd 1995,IP had short-terrn The FERC approved an' amended PCA between 2 borrowmgs consisting of bank loans, commercial paper, Soyland and IP in July 1997. The .tmended PCA obligates extendible floating rate notes and other short-term debt S yland to Purchase all of .ita capacity and energy needs outstandmg at vanous umes as fo!!awg fmm W f r at least 10 years. The amended PCA provides - that a contract cancellation fee will be paid by Soyland to < ! umem.acer mrea nn. im; sw3 IP in the event that a Soyland member terminates its mem- l Sh bership in Soyland in May 1997, three distribution coop- % : on.emn ca Dnember bwrowing 31 . s - su.a 5 - 310.0 s 359;; - .crative members terminated their membership by buying , z weighad amage imerest t 6 out of their respective long-term wholesale power con. 1 - rare m December 31 : 6.es . sn - : 6.0% tractt with Sayland.This action resulted in Soyland paying , " * * 'i M",m""anding m o a fee of $20.8 million to IP in June 1997 to reduce its i at any momb end 'sX n6a . 5 ' 3mo ' s ' 35u, . future base capacity charges. Fee pmceeds of $2.9 milUon. Amagedaayborrowmp . were used to offset the costs of acquiring Soylants share - oumandmr denns , ,.. . 'of Clintor' with the remaining $17.9 million recorded as l . the year 2e.t.9 5 306.3 .~ Ls42st4 15 interchange revenue. In December 1997, Soyland signed a I i ra u e a s.es m c; - letter f intent to pay in aivance the remainder of its base j ! capacity charges ia -he PCA. The fee of approximately $"'O j million will be deferred and recognized as interchange reu l [. g Interest rare' cap agreements are used to reduce the enue over the initial ter ef the PCA.The payment hil be ypotentialimpact of mcreases m irterest rates on floating-- M on Soyland ontaining the necessary finane'mg l- r 7 rate debt. IIl has two variable rate imerest rate cap agree- and regulatory approvals in 1998. j ments covenng up to 5114.6 million of commercial paper. ; i \ n 8 , s 4 '{ , . I e a L. , i i..n i wn_ ' __ _~:.' . L-_. '.T L_L L . L --. _ - :._ -_. - .. - ._ --.. _- __ __ _ . t i i ; ., c . ec l. : 99, 466uti sitti-Note e - 1 m o n, 1.s = i s inmme taxes included in the Consolidated Statement, Deferred tax assets and liabilities were compriwd of of Income consist of the following components: the fobowing: Ysars Er,Jed thember 31, Llances a> of Dimiber 31, (Afdhons o/dd57 1997 1996' 1995 (Mdlums o(d.krs) _ , _ l991_ . . . . . . .IM Current taxev-included m opnarmg Deferred tax am - ---. - expenws and unes $ 72.7 1 79.2 $ 98.6 Currerit. locluded in other income 7.7 and deductums (.7) (14.5; (20.3) Meie. bml. ham recognitam d4ferences 3, 11.2 5 Total current raxrc 72.0 64.7 78.3 Nimcurrent: j Depreciation and other property related 46.2 42.0 g, g Almin.mvc mammum tax 156.8 198.5 g.yg g Tax rwdit and net ograimg im exg nes and taxes carryforward - 32. 8 Pr.i erry related ddfern.ces 9.2 f.(t 4 C2 Unamurtwed inmtment tas credir I16.9 120.9 Altern.nive mmimum tax 4 f.7 1.6 f 2.9 Mac. bookhas reciy.nwi ddimnces- - - Gam /nm on reacqmred debt .4 (l.6) (l.9) IGrt gratmg Icas Total deferred tan assas 5 371A 5 467.7 carryfurward - -- (.2) Lihan6cd renrcruent cesi severance .5 2.6 (15.0) Deferred tas habiinies. Mic bruditas recogrutrm ~~ ddiercixes (16.7) 6.'. 113.9) i Current: 1 Misc. bankAax remganion ddfemrus 5 .9 5-~ 11.3 halWed m other memne ami dede.ctions Noncurrent: Pr..perty related dd(erer.ces 10.2 9/' t -8) Depreciatum and odier property related . 1,34s.0 1,.? 50.1 %g , g Deferred Cinton cost $ - 58.2 gg , g y ,7 g f Misc. bookhn egn.or.m ddierence- (7.Q_ ' 99.7 Total deferrec, .axm 1.340.9 1.508.0 26 7 815 46.0 Total deterred tax kihdite 5 1,3 a L8 5 L5!9.3 Deterred investmerit tax cre.us-net irKluded in operatmg p F.;J) p.3) (6 Pi _ ex e:t.cs and rases _ Tora! investment,talgeda (73 .. p.3) ,, (6.9i TJ p.come taxe ham enrenuing agratwwr. 5 100.9 $ ?: 7.9 5 117A in.;cer it.x - herarenary nem Curierit tax cr.penw (17.8) - - 1 De#ge,d,tatcyclisc (100.2) - - *otal"ttraurJnvry nen (118.0) - - Ena! mcorne tsres $ (17.8 ) $ 137.9 $ t 17.4 ; . - . - j e e t ; I 4 24 1. [h I l l ! 4 Q ! s P fa e l k 1991 A k h 1J A i E l P'O h 1 l The rectmeiharions of income an etpense to amounts Notc 7 - NitaI Lems h" computed by' applying the' statutory tE x rate to reported The Fuel Company, which is 50% owned by IP, was pretax income from continuing operations for the period- ' formed in 1981 for the purpose of leasing nuclear fuel to i are set below:
- IP for Clinton. Lease payments are equal to the' Fuel
' { Company's cost of fuel as consumed (including related - Yem r.nded Decernbu 31, ~ financing and a administrative costs). Billings under the lease 1 ; ,mefdallan> '1997 1996 1995 agreement during 1997,1996 :nd 1995 were $4 million, Sr.,nc ux expense at the . . $35 milEon and $41 million, respectively, including financ. set scatutory um rate s: 3Al ,1 - 1283 5 105.0 ing costs of $4 million, $5 million and $7 million, respec- ~ s..doeuse) m uri : tively. IP is requiwd to pay (mancing costs whether or not %* ' fuel is consumed. IP is obligated to make t, subordinated
- e
[ nNffbraleika s i.e 13) - 14.0 loans to the Fuel Company at any time the obligations of B: Wi tamenent ux uest the Fuel Conipany that are due and payable exceed the e amortization . . . . . (73) (7,3) -. (6.9) funds available to the Fue? Company. Lease terms stipulate
- -! - Deper.ianon nor normalued ' 9A. 7A -
JI.3 .. igyen ,xpens, on y that m the event that Clinton is out of service for 24 fon. ; . . ; pre:ened swrues - (t9) (6.9) f.1.7' secutive monthw 'P will be obhgatral to purchase Clintons j . ochu-ne- .. 3.9 . .7- te incore nuclear fuel for Sti2 million from the Fuel Company, i Totalimon.e uxa horn' . IP has an obligation for nuclear fue.1 disposal costs ofleased
- ontinuineonnations - s- 16o.9 s. ' w.9 s i17.4 ~
nuclear fuel. See " Note 3 . Commitments and . "k , ~ . Contingencies" for discussion of decommissioning and , l
- 4. ' ; Combinchederal an.) state effective income tax rates nudear fuel disposal costs. Nuclear tuel lease payments are j L ' b were 40,1%,37.6% and 39.1% for the years 1997,1996 included with " Fuel for electric plants" on IP's
' 1
- nnd 1995, respectively. .
. CorMNated Statements of Iticome. IP is subject to the provisions of lthe Alternative. At December 31,1997 and 1996, current obligations f Minimum Tax Syrtkn. As a resuk,l'P'rus an Akernadve under capital lease for nuclear fuei are $18.7 million and . . MinimtCrax credit carryforward at December 31,1997, . $36.9 million, respecthcly. of approximately $1 '6.6 million. This credit eu be carried - Over the next five years estimated partnents under cap- ; ferward indefinitely to effset future regular income tax lia-ird leases are as follow < i bilities in excess of the tentative minimum tax. n : P iThe' Internal Revenue Service is currently auditing IP's ...- (Mf*=3 a/dalld'31 - snachdaied federal income It.x returns for the years 1991 1998 5 23.3 J ; through 1993. At this time, the eutcome of the audinac- 19 " 443 le . not he determined; however the resuks of the audit are not L[s ]xpected to have a re.aterial adverse effect on IP's consoli-2002 16 1 dated financial posthm D* results of operations. Queann 123 14 " h g Beenuse of the passage of HB 362,IP's ciectric genera-frion business no longer myts the criteria for application of gg, ~ e ' 3 g L FAS 71. As required by SAS 101, " Regulated Ernerprises - %, 7 - Accounting for the Discontinuation of Application of l [ FASB Statement No, 71$ the income tax effects of the' N write-off of regulatory assets and liabihties related to elec-U , drie generation'are reflected in the extraordinary item'for ithe cumuErive effect of a change in accounting principle. i- : I y[. q ' s > ^ s I x e g Q' i I e 25 1 p, . . . li t t h e:s co a t s t ie s ahkcAt a t r ti k ! htte f- ir' r. It t Debt 6tdinms of dobrsi December 31, IM7 IN l'irst nxinpge lu dr 6X% serin duc 1999 4 72.0 $ 72.0 6.60% sern duc 2tDJ (Pullutnm Omtro! Sern A) 6.3 6.5 7.95% serin duc 20M 72.0 72.0 6% 18.7 18.7 senes duc 2007 (Pollutum Omtral Series * . 7'#4 scro due 2016 (Poilunon Control Sern I, G nl 11) - 150.0 8.30% sern duc 2017 (Pollutum Gmtml Serin 1) 33.s 33.8 7 X% - sern duc 2021 (Pollutnm Gmtrol henn Ji 84.7 84.7 SX% sern due2021 57.1 $7.1 5.70% senn duc 2024 (Pollutum Gmtral Serin K } 35.6 35 6 84.1 84.1 7.40% serws due 2024 (Pollutum GminJ Si_n.n i i _ . _ _ _ _ _ _ _ Total hrst inonpge Ivmd, 464.3 614.5 New nmnpge lud-6X% senn due M100 4C.0 40.0 5X% series duc 2000 1 Ift0 110.0 6E% scru due2003- 100A 100.0 6%% senes duc 2005 70.0 70.0 8% senes due 2023 229.0 229.0 7W% senes duc 2025 177.0 177.0 Adiustable raw sern duc 2028 (Pollution Gintrol Serin M, N and 0) i i 1.6 111.8 Adiustable race series due 2032 (Pollution Gmarol Sern P Q and R) 150.0 - Total new mortpge bonds 9i7.8 E37.8 Total nmnpge twmds 1.452.1 1,452.3 Medium-term noen, seres A 68.0 78.5 %nable rate long term deh due 2017 75.0 75.0 Tcwal other kmp-term debr i43.0 153.5 1,595.1 1,605.8 Unamortued dkcount on debt - _ (16.8) (18.11 Total long-serm debt excludmg capral lease obhpnans 5.578.3 1,587.7 Ohhganons under capital leases 126.7 96A 1,705.0 1,684.1 Irig-term debt and lease obhgar ons marunny wnhm one year > (87.5) (47.") , Totalianc-rerm debt $ i.6175 $ 1.6 34.4 in Apni la9", IP rc6nanced 5150 mdkon of Er the years 199x.199v. 2000, 2001 and monpge (New Mortgage) ro replace. over imic, 7X% hrst Monnage bonds duc 2016 as 2002,11 has long-term debt matt.nrn and cash IP's 1943 Mortgage and Deed of Trmt (hrst AdiustAJe Rate New Mortpge lauh due 2012. smLmg fund rymrenrntun the aggregate ofim Murtpge). Both mongagn are secured by liem in IVN and 1991, IP issued h senes of 6xed " " ' ' '" ' ""'" I'""* *
- MP'"" ^ # "'"
, rnrectivelt Thew am<,unts exdude s apital lease symdmg wue of brst Monpge bonds, under rate meanm-term notnc Ai Dnxmber 31, '. ce 7 - Capual lrases.- the bru Mortgage, securn any bonds mued 199', these noin had mrernt rain rangmg under the New Mong:ge. In October 1997, at a trom 9% tn'*.31" and wdl mature at taruiu,At luember .11. Iw9 . the aggrepte total of ,, g ggg dates m 1998. Internt rain on sanai?e rwe unanurtued debr espeme and unatmirtued hion age was amended to be generally amsis-hmg term dehs duc 2017 are aJiusied werth h* "" redi45'ed debt was approumately e A N'm %, & sg and ranged t' rom 4.M*. to 4#' at lieecmlwr UHA muun" balance of net bcmdable addithms at Decemkr .I I .199'< in 1942. IP esccmed a new general obhgam e. 31,199', was aptvommatels 51.8 bilhon. e 4 I e.3 6 ) I!lIhDl$ rOhIb 14%1 a h h k. A , klPQk* l ? I I ll I 1 i N o t e ir - i n n t e r r e d 5 t t. c 6 - i%Ilum ofdollary I .i l December 31, 1997 1996 5 e riai P e e f e e e e d 5 t a r k . cifmulative, $50 par valur*- A uthonzed 5,000,000 shares; 1,13%I 10 and 1,221,700 shares outstandmg, enpectively unn wn .....,..roin *n< 4.08 % 283,290 $- 51.50 5 14.1 $ 15.0 4.26 % 1%,000 51.50 6.8 7.5 , 4.70 % 176,000 31.50 8.8 10.0 4.42 % 134,400 31.50 6.7 7.5 ! 4.20 % 167,720 52.00 8.4 9.0 7.75 % 241,700 50.00 afier July 1,2003 12.6 12.1 ) i Negemium on preferred stock .2 .2 Total Preftned 5 tack, $30 par vahie $ 57.1 5 61.3 5.i,ai P e e M r eit si o c 6 . cumulanve, without par value.-- r 'I Authorized 5,090,000 shares; o and 698,200 shares westandmg, respectively 905 s *,,o a.emrtiec ' ni n j A - - $ - $ 34.9 j j Total Preferred Stock., witimur par value '5 - $ 34.9 j > r e f e r e a c e 5 t a c 6. cumulative, without par value- i . Authorized 5.000,000 shares; name outstandmg - - l Total Sertal Preferred Stock, Pref.e.r.e.nce Stock and Preferred Secunties 5 57.1 5 96.2 . C o ns p a ti y O tJ. i g a t e d M a n d a t o r u y Re de e m a tile Pref er re d Se t h ritie s of; Illinois Fom er C a p i t a l., L . P. Monthly income Preferred Secunties, cumulatwe, $25 liquidanon preference-3,85 (DP shares authorized and omstandmg $ 97.0 $ 97.0 j litinois Poeer financing ! Trust Onginated Preferred Secunties, cumulative, $25 heuidanon preference- 1 4,C23,000 shares authomed and outstandmg l 100.0 100.0 Total Mandatorily Redeemable Preferred Stock ' $ 1970 $ 197.0 Senal Preferred 5 rock ($50 p r value) is interen iain of cenam U.S. Treasury secunnes. (1996) $100 malum o ' f TOPr5 at 8% (4.8% after-redeemable at the opnon of IP m whole or m Dividends paid m 1997 and 1996 were 5.75 tax rate). IP conmlidar- 4 aixoonts ofIPil - prt at any nme with not less than 30 days and per share per quaner. On Septernber 29,14.,i asued a notice of not more than 60 days notice by pubhcanon. ham Pwer L.tpaal LP, is a kmned panner- redemptum to all hoidei.of n Adiuv.4 hic Rate i Tt2 MIPS are redeemable et the opnen m whok* ship m wmch IP servn as a geners' partner. Senn A Prefered Sud. All pS,?0 Mares out-or in part on or arter October 6,1W9 wnh not J bas than 30 dm and not more than 60 dan lHmm Pwer Capital twurd (IM Su; n,mn,n standmg were redeemed on November 1,1997, 1 nonce b,: pubhcarun. The TOPr5 mature ot: of tas advantaged M1P5 at 9.43% (5.e'% ann- at the pnce of $50 pei share. In 1997, IP , tax raret with a bquicianon prefererteof $25 per January 31, 2n45 and may be+ tvdrerned in redeemed $4.2 mdhon of varuius asun of 5cna! .I whole or m pm at an) nme on of after Jamury Share. IP consoldain the accounts of 7"<nois Preferred Snick The carrvmg amuum was 5.2 31,2001, Power Capital. millum over conuderanon paid and was Quarterly dmderd rain for senal Preferred Emm Power brunemg I n a statunwt busmev, vecorded m equity and mcluded m Net nunne StcA, Senes A. are determmed bawd on market trust in which IP serves as spowe IP11 iwunt appkcable to cu.nnum and. I 4}}