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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal Year Ended December 31, 1997
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Registrant, State of
Incorporation, Address
Commission of Principal Executive I.R.S. Employer
File Number Offices and Telephone Number Identification No.
1-11327 ILLINOVA CORPORATION 37-1319890
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62521
(217) 424-6600
1-3004 ILLINOIS POWER COMPANY 37-0344645
(an Illinois Corporation)
500 S. 27th Street
Decatur, IL 62521
(217) 424-6600
Securities registered pursuant to Section 12(b) of the Act:
Each of the following securities registered pursuant to Section 12(b) of the Act
are listed on the New York Stock Exchange.
Title of each class Registrant
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Common Stock (a) Illinova Corporation
Preferred stock, cumulative, Illinois Power Company
$50 par value
4.08% Series 4.26% Series 4.70% Series
4.20% Series 4.42% Series
Mandatorily redeemable preferred securities of subsidiary
(Illinois Power Capital, L.P.)
9.45% Series
Trust originated preferred securities of subsidiary
(Illinois Power Financing 1)
8.00% Series
First mortgage bonds
6 1/2% Series due 1999 8 3/4% Series due 2021
7.95% Series due 2004
New mortgage bonds
6 1/8% Series due 2000 6 3/4% Series due 2005
5.625% Series due 2000 8% Series due 2023
6 1/2% Series due 2003 7 1/2% Series due 2025
(a) Illinova Common Stock is also listed on the Chicago Stock Exchange.
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Illinova Corporation Yes [X] No
Illinois Power Company Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Illinova Corporation [X]
Illinois Power Company [X]
The aggregate market value of the voting common stock held by
non-affiliates of Illinova Corporation at February 28, 1998, was approximately
$2.0 billion. Illinova Corporation is the sole holder of the common stock of
Illinois Power Company. The aggregate market value of the voting preferred stock
held by non-affiliates of Illinois Power Company at February 28, 1998, was
approximately $46 million. The determination of stock ownership by
non-affiliates was made solely for the purpose of responding to this requirement
and the registrants are not bound by this determination for any other purpose.
The number of shares of Illinova Corporation Common Stock, without par
value, outstanding on February 28, 1998, was 71,701,937.
The number of shares of Illinois Power Company Common Stock, without par
value, outstanding on February 28, 1998, was 66,215,292, all of which is owned
by Illinova Corporation.
Documents Incorporated by Reference
1. Portions of the 1997 Annual Report to Shareholders of Illinova Corporation
in the appendix to the Illinova Corporation Proxy Statement.
(Parts I, II, III and IV of Form 10-K)
2. Portions of the 1997 Annual Report to Shareholders of Illinois Power
Company in the appendix to the Illinois Power Company Information
Statement.
(Parts I, II, III and IV of Form 10-K)
3. Portions of the Illinova 1997 Proxy Statement.
(Part III of Form 10-K)
4. Portions of the Illinois Power 1997 Information Statement.
(Part III of Form 10-K)
ILLINOVA CORPORATION
ILLINOIS POWER COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 1997
This combined Form 10-K is separately filed by Illinova Corporation and
Illinois Power Company. Information contained herein relating to Illinois Power
Company is filed by Illinova Corporation and separately by Illinois Power
Company on its own behalf. Illinois Power Company makes no representation as to
information relating to Illinova Corporation or its subsidiaries, except as it
may relate to Illinois Power Company.
TABLE OF CONTENTS
Part I Page
Item 1. Business 6
General 6
Open Access and Competition 7
Customer and Revenue Data 8
Accounting Matters 9
Dividends 9
IP Electric Business 9
Overview 9
Soyland Power Cooperative, Inc. 10
Fuel Supply 11
Construction Program 13
Clinton Power Station 14
General 14
Decommissioning Costs 15
Accounting Matters 15
IP Gas Business 16
Gas Supply 16
Diversified Business Activities 16
Environmental Matters 17
Air Quality 17
Clean Air Act 18
Global Warming 18
Manufactured-Gas Plant Sites 18
Water Quality 18
Other Issues 19
Electric and Magnetic Fields 19
Environmental Expenditures 19
Year 2000 Data Processing 19
Research and Development 20
Regulation 20
Executive Officers of Illinova Corporation 21
Executive Officers of Illinois Power Company 21
Operating Statistics 22
Item 2. Properties 22
Item 3. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of
Security Holders 23
Part II
Item 5. Market for Registrants' Common Equity
and Related Stockholder Matters 24
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 24
Item 8. Financial Statements and Supplementary
Data 25
TABLE OF CONTENTS (Continued)
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 25
Part III
Item 10. Directors and Executive Officers of
the Registrants 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain
Beneficial Owners and Management 26
Item 13. Certain Relationships and Related
Transactions 26
Part IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 27
Signatures 29
Exhibit Index 31
PART I
ITEM 1. Business
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General
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This report contains estimates, projections and other forward-looking
statements that involve risks and uncertainties. Actual results or outcomes
could differ materially as a result of such important factors as: the outcome of
state and federal regulatory proceedings affecting the restructuring of the
electric and gas utility industries; the impacts new laws and regulations
relating to restructuring, environmental, and other matters, have on Illinova
and its subsidiaries; the effects of increased competition on the utility
businesses; risks of owning and operating a nuclear facility; changes in prices
and cost of fuel; factors affecting non-utility investments, such as the risk of
doing business in foreign countries; construction and operation risks; and
increases in financing costs.
Illinois Power Company (IP) was incorporated under the laws of the
State of Illinois on May 25, 1923.
Illinova Corporation (Illinova) was incorporated under the laws of the
State of Illinois on May 27, 1994 and serves as the parent holding company of
four principal operating subsidiaries: IP, Illinova Generating Company (IGC),
Illinova Energy Partners, Inc. (IEP), and Illinova Insurance Company (IIC). In
May 1996, another Illinova subsidiary, Illinova Power Marketing, (IPMI),
consolidated its business activities with those of Illinova Energy Services and
with the non-regulated marketing activities of Illinova, in a new company named
IEP. On April 1, 1997, IEP and IPMI merged. In the merger, IPMI was the
surviving corporation and subsequently changed its name to IEP.
IP is engaged in the generation, transmission, distribution and sale of
electric energy and the distribution, transportation and sale of natural gas in
the State of Illinois. IP is affected by changes in the electric utility
industry driven by regulatory and legislative initiatives to introduce
competition and end monopoly franchises in at least the generation side of the
business. One aspect of this change is "direct access," meaning giving customers
the freedom to purchase electricity from suppliers they choose. In December
1997, electric regulatory restructuring legislation was enacted by the Illinois
General Assembly and was signed by the Governor. For a more detailed discussion
of these developments, refer to the "Open Access and Competition" section of
this item.
IP provides funds to Illinova for operations and investments. Illinova
accrues interest due to IP on any borrowed funds at a rate equal to the higher
of the rate that Illinova would have to pay if it used a currently outstanding
line of credit, or IP's actual cost of the funds provided. At the end of each
quarter, if needed, IP effects a common stock repurchase from Illinova by
accepting shares having a market value equivalent to the amount of funds
provided to Illinova during the quarter plus the accrued interest for the
quarter. During 1997, IP provided approximately $122 million in funds to
Illinova through this stock repurchase feature. IP also provides funds to
Illinova in the form of cash dividends payable on the common stock of IP. In
1997, approximately $92 million in such dividends was declared and paid. For
further information on IP common stock repurchases, see Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operation" of this
report.
IGC is Illinova's wholly-owned independent power subsidiary. IGC
invests in energy-related projects throughout the world. For further discussion
of IGC, see the "Diversified Business Activities" section later in this item.
IEP is Illinova's wholly-owned subsidiary that engages in the brokering
and marketing of electric power and gas and the development and sale of
energy-related services. For further discussion of IEP, see the "Diversified
Business Activities" section later in this item.
IIC was licensed in August 1996 by the State of Vermont as a captive
insurance company. The primary business of IIC is to insure the risks of the
subsidiaries of Illinova and risks related to or associated with their business
enterprises.
Open Access and Competition
Competition has become a dominant issue for the electric utility
industry. It has been promoted by federal legislation, starting with the Public
Utility Regulatory Policies Act of 1978, which facilitated the development of
co-generators and independent power producers. Federal promotion of competition
continued with enactment of the Energy Policy Act of 1992, which authorized the
Federal Energy Regulatory Commission (FERC) to mandate wholesale wheeling of
electricity by utilities at the request of certain authorized generating
entities and electric service providers. Wheeling is the transport of
electricity generated by one entity over transmission and distribution lines
belonging to another entity.
Competition arises not only from co-generation or independent power
production, but also from municipalities seeking to extend their service
boundaries to include customers being served by utilities. The right of
municipalities to have power wheeled to them by utilities was established in
1973. IP has been obligated to wheel power for municipalities and cooperatives
in its territory since 1976.
Further competition may be introduced by state action, as has occurred
in Illinois, or by federal regulatory action, although the Energy Policy Act
currently precludes the FERC from mandating retail wheeling. Retail wheeling
involves the transport of electricity to end-use customers. It is a significant
departure from traditional regulation in which public utilities have a universal
obligation to serve the public in return for protected service territories and
regulated pricing designed to allow a reasonable return on prudent investment
and recovery of operating costs.
On December 16, 1997, Illinois Governor Edgar signed electric
deregulation legislation, An Act in Relation to the Competitive Provision of
Utility Services (House Bill 362). House Bill 362 guarantees IP's residential
customers a 15 percent decrease in base electric rates beginning August 1, 1998,
and an additional 5 percent decrease effective on May 1, 2002. The rate
decreases are expected to result in revenue reductions of approximately $40
million in 1998, approximately $80 million in each of the years 1999 through
2001 and approximately $100 million in 2002, based on current consumption.
Customers with demand greater than 4 MW at a single site will be free to choose
their electric generation suppliers ("direct access") starting October 1999.
Customers with at least 10 sites which aggregate at least 9.5 MW in total demand
also will have direct access starting October 1999. Direct access for the
remaining non-residential customers will occur in two phases: customers
representing one-third of the remaining load in the non-residential class in
October 1999 and customers representing the entire remaining non-residential
load on December 31, 2000. Direct access will be available to all residential
customers in May 2002. IP remains obligated to serve all customers who continue
to take service from IP at tariff rates, and remains obligated to provide
delivery service to all at regulated rates. In 1999, rates for unbundled
delivery services will be established in proceedings mandated by the
legislation.
Although the specified residential rate reductions and the introduction of
direct access will lead to lower electric service revenues, House Bill 362
is designed to protect the financial integrity of electric utilities in
three principal ways:
1) Departing customers are obligated to pay transition charges, based on the
utility's lost revenue from that customer, adjusted to deduct: a) delivery
charges the utility will continue to receive from the customer, and b) the
market value of the freed-up energy net of a mitigation factor, which is a
percentage reduction of the transition charge amount. The mitigation factor
is designed to provide incentive for management to continue cost reduction
efforts and generate new sources of revenue;
2) Utilities are provided the opportunity to lower their financing and capital
costs through the issuance of "securitized" bonds, also called transitional
funding instruments; and
3) Utilities are permitted to seek rate relief in the event that the change in
law leads to their return on equity falling below a specified minimum based
on a prescribed test. Utilities are also subject to an "over-earnings" test
which requires them, in effect, to share with customers earnings in excess
of specified levels.
The extent to which revenues are lowered will depend on a number of
factors including future market prices for wholesale and retail energy, and load
growth and demand levels in the current IP service territory. The impact on net
income will depend on, among other things, the amount of revenues earned and the
ongoing costs of doing business.
Within the next several months, IP intends to seek Illinois Commerce
Commission (ICC) approval for securitization financings up to $1.728 billion. It
plans to issue the transitional funding instruments in two steps: 1) up to $864
million on or after August 1, 1998, and 2) the remainder on or after August 1,
1999. The transitional funding mechanism using securitized bonds as authorized
in House Bill 362 is designed to provide these bondholders a prior claim on
future IP revenue. This feature is intended to facilitate a favorable credit
rating which should allow debt to be issued at an interest rate favorable to
that currently available to IP. Proceeds would be used to refinance higher cost
debt and reduce the capital structure through the purchase of outstanding
equity.
For related discussion of accounting implications of
deregulation, see the "Accounting Matters" section under "IP Electric Business"
in this item.
In 1996, IP received approval from both the ICC and FERC to conduct an
open access experiment beginning in 1996 and ending on December 31, 1999. The
experiment allows certain industrial customers to purchase electricity and
related services from other sources. Currently, 17 customers are participating
in the experiment. Since its inception, the experiment has cost IP approximately
$11.2 million in lost revenue net of avoided fuel cost and variable operating
expenses. This loss was partially offset by selling the surplus energy and
capacity on the open market and by $2.7 million in transmission service charges.
Competition creates both risks and opportunities. At this time, the
ultimate effect of competition on Illinova's consolidated financial position and
results of operations is uncertain.
Customer and Revenue Data
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In 1997, approximately 57 percent and 14 percent of Illinova's
operating revenues were derived from IP's sale of electricity and IP's sale and
transportation of natural gas, respectively. Approximately 29 percent of
Illinova's operating revenues came from its diversified enterprises in 1997. The
territory served by IP comprises substantial areas in northern, central and
southern Illinois, including ten cities with populations greater than 30,000
(1990 Federal Census data). IP supplies electric service at retail to an
estimated aggregate population of 1,265,000 in 310 incorporated municipalities,
adjacent suburban and rural areas, and numerous unincorporated communities and
retail natural gas service to an estimated population of 920,000 in 257
incorporated municipalities and adjacent areas. IP holds franchises in all of
the 310 incorporated municipalities in which it furnishes retail electric
service and in all of the 257 incorporated municipalities in which it furnishes
retail gas service. At February 10, 1998, IP served 577,322 active electric
customers (billable meters) and 408,269 active gas customers (billable meters).
These numbers do not include non-metered customers such as street lights. Sales
of electricity and gas sales and transportation are affected by seasonal weather
patterns, and, therefore, operating revenues and associated operating expenses
are not distributed evenly during the year.
For more information, see "Note 13 - Segments of Business" on page a-30
and "Note 2 - Illinova Subsidiaries" on pages a-16 and a-17 of the 1997 Annual
Report to Shareholders in the appendix to the Illinova Proxy Statement which is
incorporated herein by reference.
To the extent that information incorporated by reference herein appears
identically in both the 1997 Annual Report to Shareholders of Illinova
Corporation and the 1997 Annual Report to Shareholders of Illinois Power
Company, reference will be made herein only to the 1997 Annual Report to
Shareholders of Illinova Corporation, and such reference will be deemed to
include a reference to the 1997 Annual Report of Illinois Power Company.
Accounting Matters
- ------------------
The Illinova consolidated financial statements include the accounts of
Illinova Corporation, a holding company; IP, a combination electric and gas
utility; IGC, a wholly-owned subsidiary that invests in energy-related projects
and competes in the independent power market; IEP, a wholly-owned subsidiary
that develops and markets energy-related services to the unregulated energy
market; and IIC, a wholly-owned subsidiary whose primary business is to insure
certain risks of Illinova and its subsidiaries.
All significant intercompany balances and transactions have been
eliminated from the consolidated financial statements. All non-utility operating
transactions are included in the sections titled "Diversified Enterprises",
"Interest Expense", "Income Taxes", and "Other Income and Deductions", in
Illinova's Consolidated Statements of Income.
The IP consolidated financial statements include the accounts of
Illinois Power Capital, L.P., a limited partnership in which IP serves as the
general partner and Illinois Power Financing I, a statutory business trust in
which IP serves as sponsor.
Dividends
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On December 10, 1997, Illinova declared a quarterly common stock
dividend at $.31 per share payable February 1, 1998. On February 11, 1998,
Illinova declared a quarterly common stock dividend at $.31 per share payable
May 1, 1998.
IP Electric Business
--------------------
Overview
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IP supplies electric service at retail to residential, commercial and
industrial consumers in substantial portions of northern, central and southern
Illinois. Electric service at wholesale is supplied to numerous utilities and
power marketing entities, as well as to the Illinois Municipal Electric Agency
(IMEA) as agent for 11 municipalities and to Soyland Power Cooperative, Inc.
(Soyland) for resale to its member cooperatives. For additional information
related to Soyland, see "Note 6 - Facilities Agreement" on page a-23 of the 1997
Annual Report to Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference. In 1997, IP provided interchange
power to 61 entities, including 37 power marketers.
IP's highest system peak hourly demand (native load) in 1997 was
3,532,000 kilowatts on July 26, 1997. IP's record for peak load is 3,667,000
kilowatts, set on July 13, 1995.
IP owns and operates generating facilities with a total net summer
capability of 4,571,250 kilowatts. The generating capability comes from six
major steam generating plants and three peaking service combustion turbine
plants. See Item 2 "Properties" for further information.
IP is a participant, together with Ameren - Union Electric Company
(AmerenUE) and Ameren - Central Illinois Public Service Company (AmerenCIPS), in
the Illinois-Missouri Power Pool which was formed in 1952. The Pool operates
under an interconnection agreement which provides for the interconnection of
transmission lines. This agreement has no expiration date, but any party may
withdraw from the agreement by giving 36 months' notice to the other parties.
IP, AmerenCIPS and AmerenUE have a contract with the Tennessee Valley
Authority (TVA) providing for the interconnection of the TVA system with those
of the three companies to exchange economy and emergency power and for other
working arrangements. This contract has no expiration date, but any party may
withdraw from the agreement by giving five years' written notice to the other
parties.
IP also has interconnections with Indiana-Michigan Power Company,
Commonwealth Edison Company, Central Illinois Light Company, Mid-American Energy
Corporation, Kentucky Utilities Company, Southern Illinois Power Cooperative,
Electric Energy Inc. (EEI), Soyland, the City of Springfield, Illinois and the
TVA.
IP is a member of the Mid-America Interconnected Network, one of ten
regional reliability councils established to coordinate plans and operations of
member companies regionally and nationally.
In January 1998, IP, in conjunction with eight other
transmission-owning entities, filed with the FERC for all approvals necessary to
create and implement the Midwest Independent Transmission System Operator, Inc.
The goals of this joint undertaking are to: 1) put in place a tariff allowing
easy and nondiscriminatory access to transmission facilities in a multi-state
region, 2) enhance regional reliability and 3) establish an entity that operates
independently of any transmission owner(s) or other market participants thus
furthering competition in the wholesale generation market, consistent with the
objectives of the FERC's Transmission Open Access Notice of Proposed Rulemaking,
Order No. 888. The parties have requested that the FERC rule on the joint filing
by no later than September 1, 1998, in order to allow the participants to create
the infrastructure needed to allow the independent system operator to become
operational.
In 1996, IP transferred through a dividend its 20% ownership of the
capital stock of EEI to Illinova. Illinova's interest was transferred to IGC in
1996. EEI was organized to own and operate a steam electric generating station
and related transmission facilities near Joppa, Illinois to supply electric
energy to the U.S.
Department of Energy (DOE) for its project near Paducah, Kentucky.
Soyland Power Cooperative, Inc.
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For discussion of the transfer to IP of Soyland's share of Clinton
Power Station (Clinton) and the amended Power Coordination Agreement between
Soyland and IP, see "Note 6 - Facilities Agreement" on page a-23 of the 1997
Annual Report to Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference.
Fuel Supply
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Coal was used to generate approximately 97% of the electricity produced
by IP during 1997 with other fuels accounting for 3%. Based on current forecasts
through 2002, after Clinton returns to service the percentages of generation
attributable to nuclear fuel is projected to increase to as much as 31% while
projected generation from coal will decline to about 69% during those years in
which there is not a scheduled refueling outage for Clinton.
IP's rate schedules contain provisions for passing through to its
electric customers increases or decreases in the cost of energy provided to its
native load customers under the Uniform Fuel Adjustment Clause (UFAC). Such
costs include fuel and fuel transportation costs, emission allowance costs, DOE
spent fuel disposal fees and costs of power purchased to serve native load.
However, on March 6, 1998, IP made the ICC filing required for elimination of
the UFAC. This will establish a new base fuel cost recoverable in IP's electric
tariffs effective on the date of the filing. As provided in House Bill 362, the
new base fuel cost is 1.287 cents per kwh, which is equal to 91 percent of IP's
average prudent and allowable fuel and purchased power supply costs in the two
most recent years for which the ICC has approved the level of recovery. Every
year UFAC cost recoveries are audited by the ICC in a reconciliation proceeding
in which they may be adjusted upward for actual costs not recovered, or downward
through a disallowance of costs incurred. By opting out of the UFAC, IP
eliminates exposure for potential disallowed replacement power costs for periods
after December 31, 1996, as those years will no longer be subject to the ICC's
annual reconciliation proceeding. This change will prevent IP from automatically
passing through increases in cost and will expose IP to the risks and
opportunities of price volatility in these areas. Prior to the elimination of
the UFAC, under an IP petition approved by the ICC on September 29, 1997, fuel
costs charged to customers were set at a maximum level of 1.291 cents per kwh
until Clinton is back in service operating at least at a 65% capacity factor for
two consecutive months. Whether electric energy costs will continue to be
recovered in revenues from customers will depend on a number of factors,
including the number of customers served, demand for electric service, and
changes in fuel cost components. These variables may be influenced, in turn, by
market conditions, availability of generating capacity, future regulatory
proceedings, and environmental protection costs, among other things. For
additional information see the information under the sub-captions "Revenue and
Energy Cost" of "Note 1 - Summary of Significant Accounting Policies" on page
a-15 and "Fuel Cost Recovery" of "Note 4 - Commitments and Contingencies" on
page a-19 of the 1997 Annual Report to Shareholders in the appendix to the
Illinova Proxy Statement which is incorporated herein by reference.
COAL - Coal is expected to be a major source of fuel for future generation.
Through both long-term and short-term contracts, IP has obtained commitments for
the major portion of future coal requirements. IP has new short-term contracts
with two suppliers which last through 2000 and a third new contract which lasts
through 2002. Contracts renegotiated in 1993 and 1994, which last through 1999
and 2010, are providing for the continued economic use of high sulfur Illinois
coal while IP complies with Phase I of the Clean Air Act Amendments that became
effective January 1, 1995. IP is currently evaluating its fuel options for
compliance with Phase II of the Clean Air Act Amendments that becomes effective
January 1, 2000.
Spot purchases of coal in 1997 represented 9.0% of IP's total coal
purchases. IP believes that it will be able to obtain sufficient coal to meet
its future generating requirements. However, IP is unable to predict the extent
to which coal availability and price may fluctuate in the future. Coal
inventories on hand at December 31, 1997, represented a 20-day supply based on
IP's average daily burn projections for 1998.
IP continues to evaluate fuel options and alternate fuel delivery and
unloading facilities for greater flexibility of fuel supplies. New rail
unloading facilities at the Havana Station became operational in the spring of
1996. In addition, increased availability of nearby coal allowed for the return
of year-round coal generation at the Vermilion Station in June 1997.
NUCLEAR - IP leases nuclear fuel from Illinois Power Fuel Company (Fuel
Company). The Fuel Company, which is 50% owned by IP, was formed in 1981 for the
purpose of leasing nuclear fuel to IP for Clinton. Lease payments are equal to
the Fuel Company's cost of fuel as consumed (including related financing and
administrative costs). As of December 31, 1997, the Fuel Company had an
investment in nuclear fuel of approximately $127 million. IP is obligated to
make subordinated loans to the Fuel Company at any time the obligations of the
Fuel Company which are due and payable exceed the funds available to the Fuel
Company. At December 31, 1997, IP had no outstanding loans to the Fuel Company.
For additional information relating to the nuclear fuel lease, see "Note 8 -
Capital Leases" on page a-25 of the 1997 Annual Report to Shareholders in the
appendix to the Illinova Proxy Statement which is incorporated herein by
reference.
At December 31, 1997, IP's net investment in nuclear fuel consisted of
$65 million of Uranium 308. This inventory represents fuel used in connection
with the sixth and seventh reloads of Clinton. At December 31, 1997, the
unamortized investment of the nuclear fuel assemblies in the reactor was $62
million.
IP has one long-term contract for the supply of uranium concentrates
with Cameco, a Canadian corporation. The Cameco contract was renegotiated in
1994 to lower the price and provide 55% to 65% of Clinton's estimated fuel
requirements through 2000. The decision to utilize Cameco for the additional 10%
of Clinton's fuel requirements is made the year before each delivery and depends
on the estimated price and availability from the spot market versus the
estimated contract price. The contract with Cameco is stated in terms of U.S.
dollars.
Conversion services for the period 1991-2001 are contracted with
Sequoyah Fuels. Sequoyah Fuels closed its Oklahoma conversion plant in 1992 and
joined with Allied Chemical Company to form a marketing company named CoverDyn.
All conversion services will be performed at Allied's Metropolis, Illinois
facility, but Sequoyah Fuels retains the contract with IP.
IP has a utility services contract for uranium enrichment requirements
with the DOE which provides 70% of the enrichment requirements of Clinton
through September 1999. The remaining 30% has been contracted with the DOE
through an amendment to its incentive pricing plan through 1999. This amendment
allows IP to either purchase the enrichment services at the DOE's incentive
price or provide electricity at DOE's Paducah, Kentucky enrichment plant at an
agreed exchange rate.
A contract with General Electric Company provides fuel fabrication
requirements for the initial core and approximately 19 reloads, or through 2019.
Beyond the stated commitments, IP may enter into additional contracts
for uranium concentrates, conversion to uranium hexafluoride, enrichment and
fabrication.
Currently, commercial reprocessing of spent nuclear fuel is not allowed
in the U.S. The Nuclear Waste Policy Act of 1982 (NWPA) was enacted to establish
a government policy with respect to disposal of spent nuclear fuel and
high-level radioactive waste. On July 6, 1984, as required by NWPA, IP signed a
contract with the DOE for disposal of spent nuclear fuel and/or high-level
radioactive waste. Under the contract, IP is required to pay the DOE one mill
(one-tenth of a cent) per net kilowatt-hour (one dollar per megawatt-hour) of
electricity generated and sold. IP had been recovering this amount through its
UFAC subject to UFAC limitations discussed under the heading "Fuel Supply"
previously in this item. With the elimination of UFAC, IP may continue to
recover some portion of these costs through the new base fuel cost included in
electric tariffs.
On June 20, 1994, IP, along with other utilities and state utility
commissions, filed an action in the D.C. Circuit Court of Appeals asking the
Court to rule that the DOE is obligated to take responsibility for spent nuclear
fuel by January 31, 1998 under the NWPA. The utilities asked the Court to
confirm the DOE's commitment and to order the DOE to develop a compliance
program with appropriate deadlines. The utilities also asked for relief from the
ongoing funding requirements or to have an escrow account established for future
funds paid to DOE. Subsequently, the petition was amended to seek, in addition,
relief in the form of specific performance.
A three-judge panel ruled in July 1996 that the DOE's obligation to
take spent fuel, by the January 1998 date specified in the NWPA, is binding and
unconditional. The DOE notified utilities in December 1996 that it may not be
able to meet the 1998 deadline, and solicited utility suggestions on how to
accommodate the potential delay. In January 1997, petitions were filed in the
D.C. Circuit Court of Appeals by IP and other utilities and state utility
commissions, seeking further enforcement of DOE's obligation. In response, the
Court has reaffirmed its ruling that the DOE obligation is unconditional, but
has not granted injunctive relief. This means that the Court has found the DOE
in breach of DOE's obligation but has not literally ordered the DOE to perform.
The litigation is continuing.
IP has on-site storage capacity that will accommodate its spent fuel
storage needs until the year 2007, based on current operating levels. If by that
date the DOE has not complied with its statutory obligation to dispose of spent
fuel, and IP has continued to operate the plant, IP will have to use alternative
means of disposal, such as dry storage in casks on site or transportation of the
fuel rods to private or collectively-owned utility repositories. IP is currently
an equity partner with seven other utilities in an effort to develop a private
temporary repository. Attempts to reach agreement with the Mescalaro Apache
Tribe of New Mexico ended in early 1996; however, the group signed a lease in
December 1996 with the Goshute Tribe to use land on its Utah reservation. A
spent fuel storage license was filed with the Nuclear Regulatory Commission
(NRC) in 1997, initiating a process which will take the NRC up to three years to
complete. Continued participation in the partnership will depend on the
technological and economic viability of the project. Safe, dry, on-site storage
is technologically feasible, but is subject to licensing and local permitting
requirements, for which there may be effective opposition.
Under the Energy Policy Act of 1992, IP is responsible for a portion of
the cost to decontaminate and decommission the DOE's uranium enrichment
facilities. Each utility is assessed an annual fee for a period of fifteen years
based on quantities purchased from the DOE facilities prior to passage of the
Act. At December 31, 1997, IP has a remaining liability of $4.3 million
representing future assessments. IP had been recovering these costs, as
amortized, through its UFAC subject to UFAC limitations discussed under the
heading "Fuel Supply" previously in this item. With the elimination of UFAC, IP
may continue to recover some portion of these costs through the new base fuel
cost included in electric tariffs.
OIL and GAS - IP used natural gas and oil to generate 1.0% of the electricity
produced in 1997. IP has not experienced difficulty in obtaining adequate
supplies of these resources. However, IP is unable to predict the extent to
which oil and gas availability and price may fluctuate in the future.
Reference is made to the section "Environmental Matters" hereunder for
information regarding pollution control matters relating to IP's fuel supply.
Construction Program
- --------------------
To meet anticipated needs, Illinova and IP have used internally
generated funds and external financings. The timing and amount of external
financings depend primarily on economic and financial market conditions, cash
needs and capitalization ratio objectives.
For more information on Illinova's construction program and liquidity,
see "Note 4 - Commitments and Contingencies" on page a-19 of the 1997 Annual
Report to Shareholders in the appendix to the Illinova Proxy Statement which is
incorporated herein by reference; "Note 5 - Lines of Credit and Short-Term
Loans" on page a-23 of the 1997 Annual Report to Shareholders in the appendix to
the Illinova Proxy Statement which is incorporated herein by reference; and
"Capital Resources and Requirements" in "Management's Discussion and Analysis"
on pages a-8 and a-9 of the 1997 Annual Report to Shareholders in the appendix
to the Illinova Proxy Statement which is incorporated herein by reference.
For more information on IP's construction program and liquidity, see
"Note 3 - Commitments and Contingencies" on pages a-18 and a-19 of the 1997
Annual Report to Shareholders in the appendix to the Illinois Power Information
Statement which is incorporated herein by reference; "Note 4 - Lines of Credit
and Short-Term Loans" on page a-23 of the 1997 Annual Report to Shareholders in
the appendix to the Illinois Power Information Statement which is incorporated
herein by reference; and "Capital Resources and Requirements" in "Management's
Discussion and Analysis" on pages a-7 through a-9 of the 1997 Annual Report to
Shareholders in the appendix to the Illinois Power Information Statement which
is incorporated herein by reference.
Clinton Power Station
- ---------------------
General
-------
In March 1997, the NRC issued an order approving transfer to IP of the
Clinton operating license related to Soyland's 13.2% ownership in connection
with the transfer from Soyland to IP of all of Soyland's interest in Clinton.
Soyland's title to the plant and directly related assets such as nuclear fuel
was transferred to IP in May 1997. Soyland's nuclear decommissioning trust
assets were transferred to IP in May 1997, consistent with IP's assumption of
all of Soyland's ownership obligations including those related to
decommissioning.
Clinton was placed in service in 1987 and represents approximately 20%
of IP's installed generation capacity. For more information on the Clinton Power
Station, see "Note 3 - Clinton Power Station" on pages a-17 and a-18 of the 1997
Annual Report to Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference.
In September 1996, a leak in a recirculation pump seal caused IP
operations personnel to shut down Clinton. As of the date of this report,
Clinton has not resumed operation.
In January 1997 and again in June 1997, the NRC named Clinton among
plants having a trend of declining performance. In June 1997, IP committed to
conduct an Integrated Safety Assessment (ISA) to thoroughly assess Clinton's
performance. The ISA was conducted by a team of 30 individuals with extensive
nuclear experience and no substantial previous involvement at Clinton. Their
report concluded that the underlying reasons for the performance problems at
Clinton were ineffective leadership throughout the organization in providing
standards of excellence, complacency throughout the organization, barrier
weaknesses and weaknesses in teamwork. In late October, a team commissioned by
the NRC performed an evaluation to validate the ISA results. In December, this
team concluded that the findings of the ISA accurately characterized Clinton's
performance deficiencies and their causes.
On January 5, 1998, IP and PECO Energy Company (PECO) announced an
agreement under which PECO will provide management services for Clinton.
Although a PECO team will help manage the plant, IP will continue to maintain
the operating license for Clinton and retain ultimate oversight of the plant.
PECO employees will assume senior positions at Clinton, but the plant will
remain primarily staffed by IP employees. IP made this decision based on a
belief that bringing in PECO's experienced management team would be the most
efficient way to get Clinton back on line and operating at a superior level as
quickly as possible.
On January 21, 1998, the NRC placed Clinton on its Watch List of
nuclear plants that require additional regulatory oversight because of declining
performance. Twice a year the NRC evaluates the performance of nuclear power
plants in the United States and identifies those which require additional
regulatory oversight. Once placed on the Watch List a plant must demonstrate
consistent improved performance before it is removed from the list. The NRC will
monitor Clinton more closely than plants not on the Watch List. This may include
increased inspections, additional required documentation, NRC-required approval
of processes and procedures, and higher-level NRC oversight.
The NRC has advised IP that it must 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.
The prolonged outage at Clinton is having an adverse effect on Illinova's and
IP's financial condition, through higher operating and maintenance and capital
costs, lost opportunities to sell energy, and replacement power costs. The
magnitude of these costs and lost opportunities is unknown because of
uncertainty regarding the timing of Clinton's return to service and uncertain
future market conditions.
Decommissioning Costs
---------------------
IP is responsible for the costs of decommissioning Clinton and for
spent nuclear fuel disposal costs. IP is collecting future decommissioning costs
through its electric rates based on an ICC-approved formula that allows IP to
adjust rates annually for changes in decommissioning cost estimates and through
its Power Coordination Agreement with Soyland. Illinois deregulation legislation
provides for the continued recovery of decommissioning costs from IP's delivery
customers. For more information on the decommissioning costs related to Clinton,
see "Decommissioning and Nuclear Fuel Disposal" in "Note 4 - Commitments and
Contingencies" on page a-20 of the 1997 Annual Report to Shareholders in the
appendix to the Illinova Proxy Statement which is incorporated herein by
reference.
Accounting Matters
- ------------------
Prior to the passage of House Bill 362, IP prepared its consolidated
financial statements in accordance with Statement of Financial Accounting
Standards (FAS) 71, "Accounting for the Effects of Certain Types of Regulation."
Reporting under FAS 71 allows companies whose service obligations and prices are
regulated to maintain assets on their balance sheets representing costs they
expect to recover from customers, through inclusion of such costs in their
future rates. In July 1997, the Emerging Issues Task Force of the Financial
Accounting Standards Board (EITF) concluded that application of FAS 71
accounting should be discontinued at the date of enactment of deregulation
legislation for business segments for which a plan of deregulation has been
established. The EITF further concluded that regulatory assets and liabilities
that originated in the portion of the business being deregulated should be
written off unless their recovery is specifically provided for through future
cash flows from the regulated portion of the business.
Because House Bill 362 provides for market-based pricing of electric
generation services, IP discontinued application of FAS 71 for its generating
segment as of December 1997. IP evaluated its regulatory assets and liabilities
associated with its generation segment and determined that recovery of these
costs was not probable through rates charged to transmission and distribution
customers, the regulated portion of the business.
IP wrote off generation-related regulatory assets and liabilities of
approximately $195 million (net of income taxes) in December 1997. These net
assets related to previously incurred costs that had been expected to be
collected through future revenues, including deferred Clinton costs, unamortized
gains and losses on reacquired debt, recoverable income taxes and other
generation-related regulatory assets. At December 31, 1997, IP's net investment
in generation facilities was $3.5 billion and was reflected in "Utility Plant,
at Original Cost" on IP's balance sheet.
In addition, IP evaluated its generation segment plant investments to
determine if they had been impaired as defined in FAS 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This
evaluation determined that future revenues were expected to be sufficient to
recover the costs of its generation segment plant investments and as a result,
no plant write-downs were necessary. However, ultimate recovery depends on a
number of factors and variables including market conditions and IP's ability to
operate its generation assets efficiently.
The provisions of House Bill 362 allow for an acceleration in the rate
at which any utility-owned assets are expensed without regulatory approval
provided such charges are consistent with generally accepted accounting
principles. Under this legislation, up to an aggregate of $1.5 billion in
additional expense for generation-related assets could be accelerated through
the year 2008. This reduction in the net book value of IP's generation-related
assets should help position IP to operate competitively and profitably in the
changing business environment. This accelerated charge would have a direct
impact on earnings but not on cash flows.
IP Gas Business
---------------
IP supplies retail natural gas service to an estimated aggregate
population of 920,000 in 257 incorporated municipalities, adjacent suburban
areas and numerous unincorporated communities. IP does not sell gas for resale.
IP's rate schedules contain provisions for passing through to its gas
customers increases or decreases in the cost of purchased gas. For information
on revenue and energy costs, see the sub-caption "Revenue and Energy Cost" of
"Note 1 - Summary of Significant Accounting Policies" on page a-15 of the 1997
Annual Report to Shareholders in the appendix to the Illinova Proxy Statement
that is incorporated herein by reference.
IP has eight underground gas storage fields having a total capacity of
approximately 15.2 million MMBtu and a total deliverability on a peak day of
about 347,000 MMBtu. In addition to the capacity of the eight underground
storage fields, IP has contracts with various natural gas suppliers and
producers for 9.9 million MMBtu of underground storage capacity and a total
deliverability on a peak day of 160,000 MMBtu. Operation of underground storage
permits IP to increase deliverability to its customers during peak load periods
by taking gas into storage during the off-peak months.
IP owns one active liquefied petroleum gas plant having an aggregate
peak-day deliverability of about 20,000 MMBtu for peak-shaving purposes. Gas
properties include approximately 8,000 miles of mains.
IP experienced its 1997 peak-day send out of 705,725 MMBtu of natural
gas on January 10, 1997. This compares with IP's record peak-day send out of
857,324 MMBtu of natural gas on January 10, 1982.
Gas Supply
- ----------
IP has contracts with six interstate pipeline companies for firm
transportation and storage services. These contracts have varying expiration
dates ranging from 1998 to 2002. IP also enters into contracts for the
acquisition of natural gas supply. Those contracts range in duration from one
month to five months.
Diversified Business Activities
-------------------------------
IGC, a wholly-owned subsidiary of Illinova, invests in energy-related
projects throughout the world. IGC is an equity partner with Tenaska, Inc. in
four natural gas-fired generation plants, of which three plants totaling
approximately 700 megawatts (MW) are in operation and one 240 MW plant has had
construction suspended. Tenaska, Inc. is an Omaha, Nebraska-based developer of
independent power projects throughout the United States. IGC also owns 50
percent of the North American Energy Services Company (NAES). NAES supplies a
broad range of operations, maintenance and support services to the world-wide
independent power generation industry and operates the Tenaska generation plants
in which IGC has an equity interest. IGC is an equity partner in the Indeck
North American Power Fund (Fund). The Fund has generation projects in Long
Beach, California, and Pepperell, Massachusetts. In addition to these ventures,
IGC is involved in generation projects in Teesside, England; Puerto Cortez,
Honduras; Zhejiang Province and Hunan Province, People's Republic of China;
Aguaytia, Peru; Old Harbour, Jamaica; Barranquilla, Columbia; and Balochistan,
Pakistan. In August 1996, Illinova's interest in the 1000 MW coal-fired plant in
Joppa, Illinois was transferred to IGC.
IEP is Illinova's wholly-owned subsidiary that engages in the brokering
and marketing of electric power and gas, respectively; and the development and
sale of energy-related products and services. In May 1995, IEP obtained approval
from the FERC to conduct business as a marketer of electric power and gas to
various customers outside of IP's present service territory. In September 1995,
IEP began buying and selling wholesale electricity in the Western United States.
IEP owns 50 percent of Tenaska Marketing Ventures (TMV). TMV focuses on natural
gas marketing in the Midwestern United States. IEP and TMV have formed Tenaska
Marketing Canada to market natural gas in Canada. In July 1996, IP received FERC
approval to sell electricity to IEP without prior transaction approval from
FERC.
For more information on the activities of the Illinova's diversified
enterprises, see "Note 2 - Illinova Subsidiaries" on pages a-16 and a-17 of the
1997 Annual Report to Shareholders in the appendix to the Illinova Proxy
Statement which is incorporated herein by reference.
Environmental Matters
---------------------
IP is subject to regulation by certain federal and Illinois authorities
with respect to environmental matters and may in the future become subject to
additional regulation by such authorities or by other federal, state and local
governmental bodies. Existing regulations affecting IP are principally related
to air and water quality, hazardous wastes and toxic substances.
Air Quality
- -----------
Pursuant to the Federal Clean Air Act (Act), the United States
Environmental Protection Agency (USEPA) has established ambient air quality
standards for air pollutants which, in its judgment, have an adverse effect on
public health or welfare. The Act requires each state to adopt laws and
regulations, subject to USEPA approval, designed to achieve such standards.
Pursuant to the Illinois Environmental Protection Act, the Illinois Pollution
Control Board (Board) adopted and, along with the Illinois Environmental
Protection Agency (IEPA), is enforcing a comprehensive set of air pollution
control regulations which include emission limitations, permit issuances,
monitoring and reporting requirements.
The air pollution regulations of the Board impose limitations on
emissions of particulate, sulfur dioxide, carbon monoxide, nitrogen oxides and
various other pollutants. Enforcement of emission limitations is accomplished in
part through the regulatory permitting process. IP's practice is to obtain an
operating permit for each source of regulated emissions. Presently, it has a
total of approximately 100 permits for emission sources at its power stations
and other facilities, expiring at various times. In addition to having the
requisite operating permits, each source of regulated emissions must be operated
within the regulatory limitations on emissions. Verification of such compliance
is usually accomplished by reports to regulatory authorities and inspections by
such authorities.
In accordance with the requirements of the Illinois Clean Air Act
Permit Program (CAAPP), IP submitted new air permit applications for each of its
generating facilities in 1995. The IEPA will review these applications and is
expected to issue CAAPP permits in 1998.
In addition to the sulfur dioxide emission limitations for existing
facilities, both the USEPA and the State of Illinois adopted New Source
Performance Standards (NSPS) applicable to coal-fired generating units limiting
emissions to 1.2 pounds of sulfur dioxide per million Btu of heat input. This
standard is applicable to IP's Unit 6 at the Havana Power Station. The federal
NSPS also limit nitrogen oxides, opacity and particulate emissions and imposes
certain monitoring requirements. In 1977 and 1990 the Act was amended and, as a
result, USEPA has adopted more stringent emission standards for new sources.
These standards would apply to any new plant constructed by IP.
Clean Air Act
- -------------
For information on the impacts of the Clean Air Act Amendments of 1990,
see "Environmental Matters" in "Note 4 - Commitments and Contingencies" on page
a-21 of the 1997 Annual Report to Shareholders in the appendix to the Illinova
Proxy Statement which is incorporated herein by reference.
Global Warming
- --------------
For information on the impacts of the international negotiations to
reduce greenhouse gas emissions and the Kyoto Protocol, see "Environmental
Matters" in "Note 4 - Commitments and Contingencies" on page a-21 of the 1997
Annual Report to Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference.
Manufactured-Gas Plant Sites
- ----------------------------
IP's estimated liability for MGP site remediation is $65 million. This
amount represents IP's current best estimate of the cost that it will incur in
remediation of the 24 MGP sites for which it is responsible. Because of the
unknown and unique characteristics at each site, IP cannot presently determine
its ultimate liability for remediation of the sites.
IP is currently recovering MGP site remediation costs through tariff
riders approved by the ICC. Accordingly, IP has recorded a regulatory asset on
its balance sheet totaling $65 million as of December 31, 1997. Management
expects that cleanup costs will be fully recovered from IP's customers.
In October 1995, to offset the burden imposed on its customers, IP
initiated litigation against a number of insurance carriers. As of February
1998, settlements or settlements in principle have been reached with all of the
carriers. Dismissal of the litigation is proceeding pending the necessary
documentation with the court. The settlement proceeds recovered from the
carriers will offset a significant portion of the remediation costs and will be
credited to customers through the tariff rider mechanism which the ICC
previously approved.
Water Quality
- -------------
The Federal Water Pollution Control Act Amendments of 1972 require that
National Pollutant Discharge Elimination System (NPDES) permits be obtained from
USEPA (or, when delegated, from individual state pollution control agencies) for
any discharge into navigable waters. Such discharges are required to conform
with the standards, including thermal, established by USEPA and also with
applicable state standards.
Enforcement of discharge limitations is accomplished in part through
the regulatory permitting process similar to that described previously under
"Air Quality". Presently, IP has approximately two dozen permits for discharges
at its power stations and other facilities, which must be periodically renewed.
In addition to obtaining such permits, each source of regulated
discharges must be operated within the limitations prescribed by applicable
regulations. Verification of such compliance is usually accomplished by
monitoring results reported to regulatory authorities and inspections by such
authorities.
The Clinton permit was reissued in the third quarter of 1995. The
Havana Power Station permit was reissued in the first quarter of 1996. The
Hennepin Power Station permit application for reissuance was submitted in the
fourth quarter of 1996 and is not expected until 1998. The Vermilion Power
Station permit was reissued in the fourth quarter of 1996. The Wood River Power
Station permit was reissued in the first quarter of 1996. The Baldwin Power
Station permit was reissued in the first quarter of 1998.
Other Issues
- ------------
Hazardous and non-hazardous wastes generated by IP must be managed in
accordance with federal regulations under the Toxic Substances Control Act
(TSCA), the Comprehensive Environmental Response, Compensation and Liability Act
and the Resource Conservation and Recovery Act (RCRA) and additional state
regulations promulgated under both RCRA and state law. Regulations promulgated
in 1988 under RCRA govern IP's use of underground storage tanks. The use,
storage, and disposal of certain toxic substances, such as polychlorinated
biphenyls (PCBs) in electrical equipment, are regulated under the TSCA.
Hazardous substances used by IP are subject to reporting requirements under the
Emergency Planning and Community-Right-To-Know Act. The State of Illinois has
been delegated authority for enforcement of these regulations under the Illinois
Environmental Protection Act and state statutes. These requirements impose
certain monitoring, recordkeeping, reporting and operational requirements which
IP has implemented or is implementing to assure compliance. IP does not
anticipate that compliance will have a material adverse effect on its financial
position or results of operations.
Electric and Magnetic Fields
- ----------------------------
For information on Electric and Magnetic Fields, see "Electric and
Magnetic Fields" in "Note 4 Commitments and Contingencies" on page a-22 of the
1997 Annual Report to Shareholders in the appendix to the Illinova Proxy
Statement which is incorporated herein by reference.
Environmental Expenditures
- --------------------------
Operating expenses for environmentally-related activities were $49
million in 1997 (including the incremental costs of alternative fuels to meet
environmental requirements). IP's net capital expenditures (including AFUDC) for
environmental protection programs were approximately $7 million in 1997.
Accumulated net capital expenditures since 1969 have reached approximately $800
million.
Year 2000 Data Processing
-------------------------
In November 1996, Illinova deployed a project team to coordinate the
identification, evaluation, and implementation of changes to computer systems
and applications necessary to achieve a year 2000 date conversion with no effect
on customers or disruption to business operations.
These actions are necessary to ensure that systems and applications
will recognize and process coding for the year 2000 and beyond. Major areas of
potential business impact have been identified and initial conversion efforts
are underway. Illinova also is communicating with third parties with whom it
does business to ensure continued business operations. The cost of achieving
year 2000 compliance is estimated to be at least $14 million through 1999.
Contingency plans for operating without year 2000 compliance have not
been developed. Such activity will depend on assessment of progress. Project
completion is planned for the fourth quarter of 1999.
Research and Development
------------------------
Illinova's research and development expenditures for 1997 included
approximately $5.4 million for IP and $2.0 million for Illinova. In 1996 and
1995, Illinova's research and development expenditures consisting entirely of IP
expenditures, were $5.4 million and $5.5 million, respectively.
Regulation
----------
The Illinois Public Utilities Act was significantly modified in 1997 by
House Bill 362, but the ICC continues to have broad powers of supervision and
regulation with respect to the rates and charges of IP, its services and
facilities, extensions or abandonment of service, classification of accounts,
valuation and depreciation of property, issuance of securities and various other
matters. Before a significant plant addition may be included in IP's rate base,
the ICC must determine that the addition is reasonable in cost, prudent and used
and useful in providing utility service to customers. IP must continue to
provide bundled retail electric service to all who choose to continue to take
service at tariff rates, and IP must provide unbundled electric distribution
services to all customers at rates to be determined in a future ICC proceeding.
Illinova and IP are exempt from all the provisions of the Public
Utility Holding Company Act of 1935 except Section 9(a)(2) thereof. That section
requires approval of the Securities and Exchange Commission prior to certain
acquisitions of any securities of other public utility companies or public
utility holding companies.
IP is subject to regulation under the Federal Power Act by the FERC as
to rates and charges in connection with the transmission of electric energy in
interstate commerce and the sale of such energy at wholesale in interstate
commerce, the issuance of debt securities maturing in not more than 12 months,
accounting and depreciation policies, interaction with affiliates, and certain
other matters. The FERC has declared IP exempt from the Natural Gas Act and
related FERC orders, rules and regulations.
IP is subject to the jurisdiction of the NRC with respect to Clinton.
NRC regulations control the granting of permits and licenses for the
construction and operation of nuclear power stations and subject such stations
to continuing review and regulation. Additionally, the NRC review and regulatory
process covers decommissioning, radioactive waste, environmental and
radiological aspects of such stations.
IP is subject to the jurisdiction of the Illinois Department of Nuclear
Safety (IDNS) with respect to Clinton. IDNS and the NRC entered a memorandum of
understanding which allows IDNS to review and regulate nuclear safety matters at
state nuclear facilities. The IDNS review and regulatory process covers
radiation safety, environmental safety, non-nuclear pressure vessels, emergency
preparedness and emergency response.
Executive Officers of Illinova Corporation
------------------------------------------
Name of Officer Age Position
- --------------- --- --------
Larry D. Haab 60 Chairman, President and Chief
Executive Officer
Larry F. Altenbaumer 49 Chief Financial Officer, Treasurer
and Controller
Leah Manning Stetzner 49 General Counsel and Corporate
Secretary
Mr. Haab was elected Chairman, President and Chief Executive Officer in
December 1993.
Mr. Altenbaumer was elected Chief Financial Officer, Treasurer and
Controller in June 1994.
Ms. Stetzner was elected General Counsel and Corporate Secretary in June
1994.
The executive officers are elected annually by the Board of Directors at
the first meeting of the Board held after the annual meeting of shareholders,
and hold office until their successors are duly elected or until their death,
resignation or removal by the Board.
Executive Officers of Illinois Power Company
--------------------------------------------
Name of Officer Age Position
- --------------- --- --------
Larry D. Haab 60 Chairman, President and Chief
Executive Officer
Larry F. Altenbaumer 49 Senior Vice President and Chief
Financial Officer
Paul L. Lang 57 Senior Vice President
Walter G. MacFarland, IV 48 Senior Vice President and Chief
Nuclear Officer
John G. Cook 50 Senior Vice President
Richard W. Eimer, Jr. 49 Vice President
Kim B. Leftwich 50 Vice President
Robert D. Reynolds 41 Vice President
Robert A. Schultz 57 Vice President
Leah Manning Stetzner 49 Vice President, General Counsel
and Corporate Secretary
Cynthia G. Steward 40 Controller
Eric B. Weekes 46 Treasurer
Each of the IP executive officers, except for Mr. Weekes and Mr.
MacFarland, has been employed by IP or another subsidiary of Illinova for more
than five years in executive or management positions. Prior to election to the
positions shown above, the following executive officers held the following
positions since January 1, 1993.
Mr. Altenbaumer was elected Senior Vice President, Chief Financial Officer
and Treasurer in September 1995. Prior to being elected Senior Vice President
and Chief Financial Officer in June 1992, Mr. Altenbaumer was Vice President,
Chief Financial Officer and Controller.
Mr. Lang was elected Senior Vice President in June 1992. He joined IP as
Vice President in July 1986.
Mr. MacFarland was contracted from PECO Energy Company in Philadelphia
in January 1998. He was elected Senior Vice President in February 1998 after
being named Chief Nuclear Officer in January 1998. Prior to joining IP as a
contractor from PECO, Mr. MacFarland held the positions of Vice President and
Director of Outage Management, both at PECO's Limerick Generating Station.
Mr. Cook was elected Senior Vice President in December 1995. Prior to being
elected Vice President in 1992, Mr. Cook was Manager of Clinton Power Station.
Mr. Eimer was elected Vice President in December 1995. He previously held
the positions of Assistant to the Vice President and Manager of Marketing.
Mr. Leftwich was elected Vice President in February 1998. He previously
held the positions of Managing Director - Customer Management Processes and
Manager of Marketing.
Mr. Reynolds was elected Vice President in May 1996. Prior to his election
to Vice President, Mr. Reynolds served as Director of Pricing and Manager of
Electric Supply.
Mr. Schultz was elected Vice President in February 1998. He previously held
the positions of President of Illinova Energy Partners, President of Illinova
Power Marketing and Treasurer of IP.
Ms. Stetzner was elected Vice President, General Counsel and Corporate
Secretary in February 1993. She joined IP as General Counsel and Corporate
Secretary in October 1989.
Ms. Steward was elected Controller in September 1995. She previously held
the positions of Manager of Employee Services and Director of Accounting.
Mr. Weekes joined IP as Treasurer in January 1997. He previously served as
Director of Financial Analysis, Budgets and Controls with a unit of Kraft Foods.
The present term of office of each of the above executive officers
extends to the first meeting of Illinova's and IP's Board of Directors after the
Annual Election of Directors. There are no family relationships among any of the
executive officers and directors of Illinova and IP.
Operating Statistics
---------------------
For Illinova the information under the caption "Selected Illinois Power
Company Statistics" on page a-33 of the 1997 Annual Report to Shareholders in
the appendix to the Illinova Proxy Statement is incorporated herein by
reference.
For IP the information under the caption "Selected Statistics" on page
a-33 of the 1997 Annual Report to Shareholders in the appendix to the IP
Information Statement is incorporated herein by reference.
Item 2. Properties
- -------
IP owns and operates six steam generating stations with composite net
summer capacity of 4,419,000 kilowatts. In addition, IP owns nine quick start
combustion turbine peaking units at three locations with a combined net summer
capacity of 147,000 kilowatts. All of IP's generating stations are in the State
of Illinois, including IP's only nuclear generating station, Clinton. IP owns
50% of three combustion turbine units, located in Bloomington, Illinois, with
combined net capacity of 5,250 kilowatts. State Farm Insurance Company owns the
other 50% of these units. The total IP available net summer capability is
4,571,250 kilowatts.
The major coal-fired units at Baldwin, Havana, Hennepin, Vermilion and
Wood River make up 3,112,000 kilowatts of summer capacity. Three natural
gas-fired units at Wood River were reactivated in 1997. These units have a
combined net summer capacity of 139,000 kilowatts. Five oil-fired units at
Havana remain in cold standby status, not currently staffed for operation.
In December 1996, the control and computer rooms for Wood River Units 4 and
5 were damaged by an in-plant fire. Unit 4 was returned to service in June 1997
and Unit 5 was returned to service in October 1997.
During 1995, natural gas firing capability was added to the Vermilion
station. Vermilion now has the capability for either coal or natural gas firing
to achieve its summer capacity of 176,000 kilowatts. In June 1997, the Vermilion
units returned to coal as its primary fuel.
IP owns an interconnected electric transmission system of approximately
2,800 circuit miles, operating from 69,000 to 345,000 volts and a distribution
system which includes about 35,800 circuit miles of overhead and underground
lines.
All outstanding first mortgage bonds issued under the Mortgage and Deed
of Trust dated November 1, 1943 are secured by a first mortgage lien on
substantially all of the fixed property, franchises and rights of IP with
certain exceptions expressly provided in the mortgage securing the bonds. All
outstanding New Mortgage Bonds issued under the General Mortgage and Deed of
Trust dated November 1, 1992, are secured by a lien on IP's properties used in
the generation, purchase, transmission, distribution and sale of electricity and
gas. On October 24, 1997, a special meeting of First Mortgage Bondholders was
held. At this meeting the Trustee, holding more that the required two-thirds of
First Mortgage Bonds outstanding, voted in favor of a resolution amending the
Mortgage and Deed of Trust dated November 1, 1943, to conform in certain
respects to the General Mortgage and Deed of Trust dated November 1, 1992. On
December 10, 1997, the IP Board of Directors approved the resolution adopted by
the Bondholders and forwarded a certified resolution approving the Bondholders'
resolution of amendment to the Mortgage Trustee. This resolution was received by
the Mortgage Trustee on December 11, 1997, at which time the amendment became
effective.
Item 3. Legal Proceedings
- -------
See discussion of legal proceedings in "Manufactured-Gas Plant" in
"Note 4 - Commitments and Contingencies" on pages a-21 and a-22 of the 1997
Annual Report to Shareholders in the appendix to the Illinova Proxy Statement
which is incorporated herein by reference.
See "Environmental Matters" reported under Item 1 of this report for
information regarding legal proceedings concerning environmental matters.
See "Fuel Supply" reported under Item 1 of this report for information
regarding legal proceedings concerning nuclear fuel disposal.
Item 4. Submission of Matters to a Vote of Security Holders
- -------
On October 24, 1997, a special meeting of First Mortgage Bondholders was
held. At this meeting the Trustee, holding more that the required two-thirds of
First Mortgage Bonds outstanding, voted in favor of a resolution amending the
Mortgage and Deed of Trust dated November 1, 1943, to conform in certain
respects to the General Mortgage and Deed of Trust dated November 1, 1992.
PART II
- -------------------------------------------------------------------------------
Item 5. Market for Registrants' Common Equity and Related
- ------- Stockholder Matters
For Illinova the information under the caption "Quarterly Consolidated
Financial Information and Common Stock Data (Unaudited)" on page a-31 of the
1997 Annual Report to Shareholders in the appendix to the Illinova Proxy
Statement is incorporated herein by reference.
For IP the information under the caption "Quarterly Consolidated
Financial Information and Common Stock Data (Unaudited)" on page a-31 of the
1997 Annual Report to Shareholders in the appendix to the IP Information
Statement is incorporated herein by reference.
Item 6. Selected Financial Data
- -------
For Illinova the information under the caption "Selected Consolidated
Financial Data" on page a-32 of the 1997 Annual Report to Shareholders in the
appendix to the Illinova Proxy Statement is incorporated herein by reference.
For IP the information under the caption "Selected Consolidated
Financial Data" on page a-32 of the 1997 Annual Report to Shareholders in the
appendix to the IP Information Statement is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations
For Illinova the information under the caption "Management's Discussion
and Analysis" on pages a-2 through a-9 of the 1997 Annual Report to Shareholders
in the appendix to the Illinova Proxy Statement is incorporated herein by
reference.
For IP the information under the caption "Management's Discussion and
Analysis" on pages a-2 through a-9 of the 1997 Annual Report to Shareholders in
the appendix to the IP Information Statement is incorporated herein by
reference.
In March 1995, the ICC approved a program whereby IP will reacquire
shares of its common stock from Illinova, from time to time, at prices
determined to be equivalent to current market value. The reacquired stock will
be retained as treasury stock or canceled. The ICC did not set a limit on the
number of shares of common stock that can be repurchased, subject to meeting
certain financial tests. Authorization for this program expires October 3, 1998.
The repurchase program may be extended subject to ICC approval. During 1997, IP
repurchased 6,017,748 shares for a total of $121.5 million, averaging about $20
per share.
For information regarding the redemption of IP preferred stock, see
"Note 10 - Preferred Stock of Subsidiary" in the "Notes to Consolidated
Financial Statements" on page a-27 in the 1997 Annual Report to Shareholders in
the appendix to the Illinova Proxy Statement or "Note 9 - Preferred Stock" in
the "Notes to Consolidated Financial Statements" on page a-27 in the 1997 Annual
Report to Shareholders in the appendix to the IP Information Statement.
On February 26, 1998, IP issued a redemption notice for all outstanding
bonds of its 6.00% Pollution Control First Mortgage Bonds due 2007 ($18.7
million) and its 8.30% Pollution Control First Mortgage Bonds due 2017 ($33.8
million). The effective call date for both series is April 1, 1998. On March 6,
1998, IP issued $18.7 million of 5.40% Pollution Control First Mortgage Bonds
due 2028 and $33.8 million of 5.40% Pollution Control First Mortgage Bonds due
2028.
Item 8. Financial Statements and Supplementary Data
- -------
For Illinova the consolidated financial statements and related notes on
pages a-11 through a-31 and Report of Independent Accountants on page a-10 of
the 1997 Annual Report to Shareholders in the appendix to the Illinova Proxy
Statement are incorporated herein by reference. With the exception of the
aforementioned information and the information incorporated in Items 1, 3, 5, 6
and 7, the 1997 Annual Report to Shareholders in the appendix to the Illinova
Proxy Statement is not to be deemed filed as part of this Form 10-K Annual
Report.
For IP the consolidated financial statements and related notes on pages
a-11 through a-31 and Report of Independent Accountants on page a-10 of the 1997
Annual Report to Shareholders in the appendix to the IP Information Statement
are incorporated herein by reference. With the exception of the aforementioned
information and the information incorporated in Items 1, 3, 5, 6 and 7, the 1997
Annual Report to Shareholders in the appendix to the IP Information Statement is
not to be deemed filed as part of this form 10-K Annual Report.
Item 9. Changes in and Disagreements With Accountants on
- ------- Accounting and Financial Disclosure
None.
PART III
- -------------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrants
- --------
For Illinova the information under the caption "Board of Directors" on
pages 3 through 7 of Illinova's Proxy Statement for its 1998 Annual Meeting of
Stockholders is incorporated herein by reference. The information relating to
Illinova's executive officers is set forth in Part I of this Annual Report on
Form 10-K.
For IP the information under the caption "Board of Directors" on pages 4
through 7 of IP's Information Statement for its 1998 Annual Meeting of
Stockholders is incorporated herein by reference. The information relating to
Illinois Power Company's executive officers is set forth in Part I of this
Annual Report on Form 10-K.
Item 11. Executive Compensation
- --------
For Illinova the information under the caption "Executive Compensation"
on pages 8 through 12 of Illinova's Proxy Statement for its 1998 Annual Meeting
of Stockholders is incorporated herein by reference.
For IP the information under the caption "Executive Compensation" on
pages 8 through 13 of IP's Information Statement for its 1998 Annual Meeting of
Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- --------
For Illinova the information under the caption "Security Ownership of
Management and Certain Beneficial Owners" on page 7 and the information
regarding securities owned by certain officers and directors under the caption
"Board of Directors" on pages 3 through 7 of Illinova's Proxy Statement for its
1998 Annual Meeting of Stockholders is incorporated herein by reference.
For IP the information under the caption "Security Ownership of
Management and Certain Beneficial Owners" on page 7 and the information
regarding securities owned by certain officers and directors under the caption
"Board of Directors" on pages 4 through 7 of IP's Information Statement for its
1998 Annual Meeting of Stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- --------
None.
PART IV
- ------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- Form 8-K
(a) Documents filed as part of this report.
(1a) Financial Statements:
Page in 1997
Annual Report
to Shareholders
in the appendix
to the Illinova
Proxy Statement*
----------------
Report of Independent Accountants a-10
Consolidated Statements of Income for the
three years ended December 31, 1997 a-11
Consolidated Balance Sheets at
December 31, 1997 and 1996 a-12
Consolidated Statements of Cash Flows for
the three years ended December 31, 1997 a-13
Consolidated Statements of Retained
Earnings for the three years
ended December 31, 1997 a-13
Notes to Consolidated Financial Statements a-14 - a-31
* Incorporated by reference from the indicated pages of the 1997 Annual
Report to Shareholders in the appendix to the Illinova Proxy
Statement.
(1b) Financial Statements:
Page in 1997
Annual Report
to Shareholders
in the appendix
to the IP
Information
Statement**
---------------
Report of Independent Accountants a-10
Consolidated Statements of Income for the
three years ended December 31, 1997 a-11
Consolidated Balance Sheets at
December 31, 1997 and 1996 a-12
Consolidated Statements of Cash Flows for
the three years ended December 31, 1997 a-13
Consolidated Statements of Retained
Earnings for the three years
ended December 31, 1997 a-13
Notes to Consolidated Financial Statements a-14 - a-31
** Incorporated by reference from the indicated pages of the 1997 Annual
Report to Shareholders in the appendix to the IP Information Statement
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- Form 8-K (Continued)
(2) Financial Statement Schedules:
All Financial Statement Schedules are omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
(3) Exhibits
The exhibits filed with this Form 10-K are listed in the Exhibit
Index located elsewhere herein. All management contracts and
compensatory plans or arrangements set forth in such list are
marked with a ~.
(b) Reports on Form 8-K since September 30, 1997:
Report filed on Form 8-K on November 21, 1997
Other Events: IP releases results of independent
assessment of the Clinton Power Station.
Report filed on Form 8-K on January 8, 1998
Other Events: IP selects PECO Nuclear to manage
Clinton Power Station. Impacts
of Illinois House Bill 362 and
returning Clinton to operation
will result in a fourth quarter
1997 charge of $260 million
(net of income taxes).
Report filed on Form 8-K on January 21, 1998
Other Events: The Nuclear Regulatory Commission
places IP's Clinton Power Station on
its Watch List.
Report filed on Form 8-K on January 21, 1998
Other Events: Illinova offers Medium-Term Notes under
its shelf Registration Statement on
Form S-3.
Financial
Statements,
Pro Forma
Financial
Information
and
Exhibits: Exhibits
Report filed on Form 8-K on February 13, 1998
Other Events: Illinova releases 1997 earnings and
discloses that it will not take a
previously announced $40 million charge
(net of income taxes) in 1997 for
returning Clinton Power Station to
operation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ILLINOIS POWER COMPANY
(REGISTRANT)
By Larry D. Haab
Larry D. Haab, Chairman, President
and Chief Executive Officer
Date: March 11, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
Signature Title Date
Larry D. Haab Chairman, President, Chief
Larry D. Haab Executive Officer and Director
(Principal Executive Officer)
Larry F. Altenbaumer Senior Vice President and
Larry F. Altenbaumer Chief Financial Officer
(Principal Financial Officer)
Cynthia G. Steward Controller
Cynthia G. Steward
(Principal Accounting Officer)
J. Joe Adorjan
J. Joe Adorjan
C. Steven McMillan
C. Steven McMillan
Robert M. Powers
Robert M. Powers
Sheli Z. Rosenberg
Sheli Z. Rosenberg Director March 11, 1998
Walter D. Scott
Walter D. Scott
Ronald L. Thompson
Ronald L. Thompson
Walter M. Vannoy
Walter M. Vannoy
Marilou von Ferstel
Marilou von Ferstel
John D. Zeglis
John D. Zeglis
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ILLINOVA CORPORATION
(REGISTRANT)
By Larry D. Haab
Larry D. Haab, Chairman, President
and Chief Executive Officer
Date: March 11, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
Signature Title Date
Larry D. Haab Chairman, President, Chief
Larry D. Haab Executive Officer and Director
(Principal Executive Officer)
Larry F. Altenbaumer Chief Financial Officer,
Larry F. Altenbaumer Treasurer and Controller
(Principal Financial
and Accounting Officer)
J. Joe Adorjan
J. Joe Adorjan
C. Steven McMillan
C. Steven McMillan
Robert M. Powers
Robert M. Powers
Sheli Z. Rosenberg
Sheli Z. Rosenberg
Walter D. Scott
Walter D. Scott Director March 11, 1998
Joe J. Stewart
Joe J. Stewart
Ronald L. Thompson
Ronald L. Thompson
Walter M. Vannoy
Walter M. Vannoy
Marilou von Ferstel
Marilou von Ferstel
John D. Zeglis
John D. Zeglis
Exhibit Index
Exhibit Description
(3)(i) Articles of Incorporation
Illinova Corporation
(a)(1) Articles of Amendment to the Articles of Incorporation of Illinova
Corporation, filed as of October 31, 1994. Filed as Exhibit 3(a) to
the Quarterly Report on Form 10-Q under the Securities Exchange Act of
1934 for the quarter ended September 30, 1994 (File No. 1-11327). *
(a)(2) Statement of Correction to the Articles of Incorporation of Illinova
Corporation, filed as of October 31, 1994. Filed as Exhibit 3(b) to
the Quarterly Report on Form 10-Q under the Securities Exchange Act of
1934 for the quarter ended September 30, 1994 (File No. 1-11327). *
Illinois Power Company
(b)(1) Amended and Restated Articles of Incorporation of Illinois Power
Company, dated September 7, 1994. Filed as Exhibit 3(a) to the Current
Report on Form 8-K dated September 7, 1994 (File No. 1-3004). *
(3)(ii) By-Laws
(a) By-laws of Illinova Corporation, as amended December 14, 1994. Filed
as Exhibit 3(b)(2) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December 31, 1994
(File No. 1-11327). *
(b) By-laws of Illinois Power Company, as amended December 14, 1994. Filed
as Exhibit 3(b)(1) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December 31, 1994
(File No. 1-3004). *
(4) Instruments Defining Rights of Security Holders,
Including Indentures
Illinova Corporation
(a)(1) See (4)(b) below for instruments defining the rights of holders of
long-term debt of Illinois Power Company.
(a)(2) Indenture dated February 1, 1997, between Illinova Corporation and
The First National Bank of Chicago, as trustee. Filed as Exhibit
(4)(a)(2) to the Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 1996. (File No.
1-11327) *
(a)(3) Distribution Agreement dated January 16, 1998, and Officers'
Certificate and Issuer Order of Illinova Corporation, dated January
16, 1998 (with forms of Fixed Rate Note and Floating Rate Note
attached), delivered pursuant to the terms of the Indenture dated as
of February 1, 1997, between Illinova Corporation and The First
National Bank of Chicago. Filed as Exhibit (1) and (4) of Form 8-K
under the Securities Exchange Act of 1934 dated January 21, 1998.
(File No. 1-11327) *
Illinois Power Company
(b)(1) Mortgage and Deed of Trust dated November 1, 1943. Filed as Exhibit
2(b) Registration No. 2-14066. *
(b)(2) Supplemental Indenture dated May 1, 1974. Filed as Exhibit 2(v)
Registration No. 2-51674. *
(b)(3) Supplemental Indenture dated May 1, 1977. Filed as Exhibit 2(w)
Registration No. 2-59465. *
(b)(4) Supplemental Indenture dated July 1, 1979. Filed as Exhibit 2 to the
Quarterly Report on Form 10-Q under the Securities Exchange Act of
1934 for the quarter ended June 30, 1979. *
(b)(5) Supplemental Indenture dated March 1, 1985. Filed as exhibit 4(a) to
the Quarterly Report on Form 10-Q under the Securities Exchange Act of
1934 for the quarter ended March 31, 1985 (File No. 1-3004). *
(b)(6) Supplemental Indenture dated July 1, 1987, providing for $33,755,000
principal amount of 8.30% First Mortgage Bonds, Pollution Control
Series I, due April 1, 2017. Filed as Exhibit 4(ll) to the Annual
Report on Form 10-K under the Securities Exchange Act of 1934 for the
year ended December 31, 1987 (File No. 1-3004). *
(b)(7) Supplemental Indenture dated December 13, 1989, providing for
$300,000,000 principal amount of Medium-Term Notes, Series A. Filed as
Exhibit 4(nn) to the Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 1989 (File No.
1-3004). *
(b)(8) Supplemental Indenture dated July 1, 1991, providing for $84,710,000
principal amount of 7 3/8% First Mortgage Bonds due July 1, 2021.
Filed as Exhibit 4(mm) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December 31, 1991
(File No. 1-3004). *
(b)(9) Supplemental Indenture No. 1 dated June 1, 1992. Filed as Exhibit
4(nn) to the Quarterly Report on Form 10-Q for the quarter ended June
30, 1992 (File No. 1-3004). *
(b)(10) Supplemental Indenture No. 2 dated June 1, 1992. Filed as Exhibit
4(oo) to the Quarterly Report on Form 10-Q for the quarter ended June
30, 1992 (File No. 1-3004). *
(b)(11) Supplemental Indenture No. 1 dated July 1, 1992. Filed as Exhibit
4(pp) to the Quarterly Report on Form 10-Q for the quarter ended June
30, 1992 (File No. 1-3004). *
(b)(12) Supplemental Indenture No. 2 dated July 1, 1992. Filed as Exhibit
4(qq) to the Quarterly Report on Form 10-Q for the quarter ended June
30, 1992 (File No. 1-3004). *
(b)(13) Supplemental Indenture dated September 1, 1992, providing for
$72,000,000 principal amount of 6 1/2% First Mortgage Bonds due
September 1, 1999. Filed as Exhibit 4(rr) to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 1992 (File No. 1-3004).
*
(b)(14) General Mortgage Indenture and Deed of Trust dated as of November
1, 1992. Filed as Exhibit 4(cc) to the Annual Report on Form 10-K
under the Securities Exchange Act of 1934 for the year ended December
31, 1992 (File No. 1-3004). *
(b)(15) Supplemental Indenture dated February 15, 1993, to Mortgage and
Deed of Trust dated November 1, 1943. Filed as Exhibit 4(dd) to the
Annual Report on Form 10-K under the Securities Exchange Act of 1934
for the year ended December 31, 1992 (File No. 1-3004). *
(b)(16) Supplemental Indenture dated February 15, 1993, to General Mortgage
Indenture and Deed of Trust dated as of November 1, 1992. Filed as
Exhibit 4(ee) to the Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 1992 (File No.
1-3004). *
(b)(17) Supplemental Indenture No. 1 dated March 15, 1993, to Mortgage and
Deed of Trust dated November 1, 1943. Filed as Exhibit 4(ff) to the
Annual Report on Form 10-K under the Securities Exchange Act of 1934
for the year ended December 31, 1992 (File No. 1-3004). *
(b)(18) Supplemental Indenture No. 1 dated March 15, 1993, to General
Mortgage Indenture and Deed of Trust dated as of November 1, 1992.
Filed as Exhibit 4(gg) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December 31, 1992
(File No. 1-3004). *
(b)(19) Supplemental Indenture No. 2 dated March 15, 1993, to Mortgage and
Deed of Trust dated November 1, 1943. Filed as Exhibit 4(hh) to the
Annual Report on Form 10-K under the Securities Exchange Act of 1934
for the year ended December 31, 1992 (File No. 1-3004). *
(b)(20) Supplemental Indenture No. 2 dated March 15, 1993, to General
Mortgage Indenture and Deed of Trust dated as of November 1, 1992.
Filed as Exhibit 4(ii) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December 31, 1992
(File No. 1-3004). *
(b)(21) Supplemental Indenture dated July 15, 1993, to Mortgage and Deed of
Trust dated November 1, 1943. Filed as Exhibit 4(jj) to the Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993 (File No.
1-3004). *
(b)(22) Supplemental Indenture dated July 15, 1993, to General Mortgage
Indenture and Deed of Trust dated as of November 1, 1992. Filed as
Exhibit 4(kk)to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993 (File No. 1-3004). *
(b)(23) Supplemental Indenture dated August 1, 1993, to Mortgage and Deed
of Trust dated November 1, 1943. Filed as Exhibit 4(ll) to the
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993
(File No. 1-3004). *
(b)(24) Supplemental Indenture dated August 1, 1993, to General Mortgage
Indenture and Deed of Trust dated as of November 1, 1992. Filed as
Exhibit 4(mm) to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993 (File No. 1-3004). *
(b)(25) Supplemental Indenture dated October 15, 1993, to Mortgage and Deed
of Trust dated November 1, 1943. Filed as Exhibit 4(nn) to the
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993
(File No. 1-3004). *
(b)(26) Supplemental Indenture dated October 15, 1993, to General Mortgage
Indenture and Deed of Trust dated as of November 1, 1992. Filed as
Exhibit 4(oo) to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 (File No. 1-3004). *
(b)(27) Supplemental Indenture dated November 1, 1993, to Mortgage and Deed
of Trust dated November 1, 1943. Filed as Exhibit 4(pp) to the
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993
(File No. 1-3004). *
(b)(28) Supplemental Indenture dated November 1, 1993, to General Mortgage
Indenture and Deed of Trust dated as of November 1, 1992. Filed as
Exhibit 4(qq) to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 (File No. 1-3004). *
(b)(29) Supplemental Indenture dated February 1, 1994, to Mortgage and Deed
of Trust dated November 1, 1943. Filed as Exhibit 4(hh) to the Annual
Report on Form 10-K under the Securities Exchange Act of 1934 for the
year ended December 31, 1993 (File No. 1-3004). *
(b)(30) Indenture dated October 1, 1994 between Illinois Power Company and
the First National Bank of Chicago. Filed as Exhibit 4(a) to the
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994
(File No. 1-3004). *
(b)(31)Supplemental Indenture dated October 1, 1994, to Indenture dated as
of October 1, 1994. Filed as Exhibit 4(b) to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994 (File No.1-3004). *
(b)(32) Indenture dated January 1, 1996 between Illinois Power Company and
Wilmington Trust Company. Filed as Exhibit 4(b)(36) to the Annual
Report on Form 10-K under the Securities Exchange Act of 1934 for the
year ended December 31, 1995 (File No. 1-3004). *
(b)(33) First Supplemental Indenture dated January 1, 1996, between
Illinois Power Company and Wilmington Trust Company. Filed as Exhibit
4(b)(37) to the Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 1995 (File No.
1-3004). *
(b) (34) Supplemental Indenture dated April 1, 1997, to Mortgage and Deed
of Trust dated November 1, 1943 Filed as Exhibit 4(a) to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997. (File No.
1-3004) *
(b) (35) Supplemental Indenture dated April 1, 1997 to General Mortgage
Indenture and Deed of Trust dated November 1, 1992. Filed as Exhibit
4(b) to the Quarterly Report on Form 10-Q for the quarter ended March
31, 1997. (File No. 1-3004) *
(b) (36) Supplemental Indenture dated December 1, 1997 to Mortgage and
Deed of Trust dated November 1, 1943.
(10) Material Contracts
Illinova Corporation
(a)(1) Illinova Corporation Deferred Compensation Plan for Certain
Directors, as amended April 10, 1991. Filed as Exhibit 10(b) to the
Annual Report on Form 10-K under the Securities Exchange Act of 1934
for the year ended December 31, 1991 (File No. 1-3004).~ *
(a)(2) Illinova Corporation Director Emeritus Plan for Outside Directors.
Filed as Exhibit 10(e) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December 31, 1989
(File No. 1-3004).~ *
(a)(3) Illinova Corporation Stock Plan for Outside Directors as amended and
restated by the Board of Directors on April 9, 1992 and as further
amended April 14, 1993. Filed as Exhibit 10(h) to the Annual Report on
Form 10-K under the Securities Exchange Act of 1934 for the year ended
December 31, 1993 (File No. 1-3004).~ *
(a)(4) Illinova Corporation Retirement Plan for Outside Directors, as
amended through December 11, 1991. Filed as Exhibit 10(j) to the
Annual Report on Form 10-K under the Securities Exchange Act of 1934
for the year ended December 31, 1991 (File No. 1-3004).~ *
(a)(5) Illinova Corporation 1992 Long-Term Incentive Compensation Plan.
Filed as Exhibit 10(k) to the Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992 (File No. 1-3004).~ *
(a)(6) Illinova Corporation Comprehensive Deferred Stock Plan for Outside
Directors, as approved by the Board of Directors on February 7, 1996.
Filed as Exhibit 10 (a)(6) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December 31, 1995
(File No. 1-11327).~ *
(a)(7) Form of Employee Retention Agreement in place between Illinova
Corporation and its elected officers, Illinois Power Company's elected
officers, and the Presidents of Illinova Corporation's subsidiaries.
Filed as Exhibit 10(g) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December 31, 1989
(File no. 1-3004).~ *
(a)(8) Illinova Corporation Leadership Incentive Program, effective January
1, 1996.~
(a)(9) Illinova Corporation Retirement Plan for Outside Directors, as
amended by resolutions adopted by the Board of Directors on February
7, 1996.~
(a)(10) Illinova Corporation Employee Retention Agreement, as amended by
resolutions adopted by the Board of Directors on February 7, 1996.~
(a)(11) Illinova Corporation Deferred Compensation Plan for Certain
Directors as amended October 9, 1996, effective January 1, 1997.~
(a)(12) Illinova Corporation Employee Retention Agreement, as amended by
resolutions adopted by the Board of Directors on June 10-11, 1997.~
(a)(13) Illinova Corporation Deferred Compensation Plan for Certain
Directors, as amended by resolutions adopted by the Board of Directors
on June 10-11, 1997.~
Illinois Power Company
(b)(1) Group Insurance Benefits for Managerial Employees of Illinois Power
Company as amended January 1, 1983. Filed as Exhibit 10(a) to the
Annual Report on Form 10-K under the Securities Exchange Act of 1934
for the year ended December 31, 1983 (File No. 1-3004).~ *
(b)(2) Illinois Power Company Incentive Savings Trust and Illinois Power
Company Incentive Savings Plan and Amendment I thereto. Filed as
Exhibit 10(d) to the Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 1984 (File No.
1-3004).~ *
(b)(3) Illinois Power Company's Executive Incentive Compensation Plan.
Filed as Exhibit 10(f) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December 31, 1989
(File No. 1-3004).~ *
(b)(4) Illinois Power Company Incentive Savings Plan, as amended and
restated effective January 1, 1991. Filed as Exhibit 10(h) to the
Annual Report on Form 10-K under the Securities Exchange Act of 1934
for the year ended December 31, 1990 (File No. 1-3004).~ *
(b)(5) Illinois Power Company Executive Deferred Compensation Plan. Filed
as Exhibit 10(l) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December 31, 1993.
(File No. 1-3004)~ *
(b)(6) Illinois Power Company Retirement Income Plan for salaried employees
as amended and restated effective January 1, 1989, as further amended
through January 1, 1994. Filed as Exhibit 10(m) to the Annual Report
on Form 10-K under the Securities Exchange Act of 1934 for the year
ended December 31, 1994 (File No. 1-3004).~ *
(b)(7) Illinois Power Company Retirement Income Plan for employees covered
under a collective bargaining agreement as amended and restated
effective as of January 1, 1994. Filed as Exhibit 10(n)to the Annual
Report on Form 10-K under the Securities Exchange Act of 1934 for the
year ended December 31, 1994 (File No. 1-3004).~ *
(b)(8) Illinois Power Company Incentive Savings Plan as amended and
restated effective January 1, 1991 and as further amended through
amendments adopted December 28, 1994. Filed as Exhibit 10(o)to the
Annual Report on Form 10-K under the Securities Exchange Act of 1934
for the year ended December 31, 1994 (File No. 1-3004).~ *
(b)(10) Illinois Power Company Incentive Savings Plan for employees covered
under a collective bargaining agreement as amended and restated
effective January 1, 1991 and as further amended through amendments
adopted December 28, 1994. Filed as Exhibit 10(p) to the Annual Report
on Form 10-K under the Securities Exchange Act of 1934 for the year
ended December 31, 1994 (File No. 1-3004).~ *
(b)(11) Illinois Power Company Executive Incentive Compensation Plan, as
amended, effective January 1, 1997. ~
(b)(12) Illinois Power Company Executive Deferred Compensation Plan as
amended by resolutions adopted by the Board of Directors on June
10-11, 1997.~
(b)(13) Illinois Power Company Supplemental Retirement Income Plan for
Salaried Employees of Illinois Power Company as amended by resolutions
adopted by the Board of Directors on June 10-11, 1997.~
(b)(14) Retirement and Consulting Agreement entered into as of June 30,
1997 between Illinois Power Company and Wilfred Connell.~
(12) Statement Re Computation of Ratios
(a) Computation of ratio of earnings to fixed charges for Illinova
Corporation.
(b) Computation of ratio of earnings to fixed charges for Illinois Power
Company.
(13) Annual Reports to Shareholders
(a) Illinova Corporation Proxy Statement and 1997 Annual Report to
Shareholders.
(b) Illinois Power Company Information Statement and 1997 Annual Report to
Shareholders.
(21) Subsidiaries of Registrants
(a) Subsidiaries of Illinova Corporation and Illinois Power Company.
(23) Consents of Experts
Consent of Independent Accountants for Illinova Corporation.
(27) Financial Data Schedules
(a) Illinova Corporation
(b) Illinois Power Company
* Incorporated herein by reference.
~ Management contract and compensatory plans or arrangements.