At March 31, 2004, principal outstanding under the Note Receivable from Affiliate approximated $2.3 billion with no accrued interest. We recognized approximately $43 million in interest income from Illinova on the note for each of the quarters ended March 31, 2004 and 2003. In January 2004, Dynegy made an accelerated interest payment of approximately $43 million on its $2.3 billion intercompany note payable to Illinova, which in turn made an interest payment of approximately $43 million to us under our Note Receivable from Affiliate. At March 31, 2004, we carried approximately $128 million in prepaid interest on our Note Receivable from Affiliate, which represents nine months of interest paid before it has been earned. In the same period of 2003, we had no prepaid interest and carried approximately $57 million in interest receivable.
We have reviewed the collectibility of our Note Receivable from Affiliate to assess whether it has become impaired under the criteria of SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.” Under this standard, a loan is impaired when, based on current information and events, it is “probable” that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Please see Note 1 – Summary of Significant Accounting Policies – Note Receivable from Affiliate beginning on page F-9 of our Form 10-K for further discussion as to applicable GAAP requirements regarding impairment of this note. While we believe that our Note Receivable from Affiliate is not impaired and is fully collectible, we continue to review the collectibility of the note on a quarterly basis. Principal payments on our Note Re
ceivable from Affiliate are not required until 2009 when it is due in full; as a result, future events may affect our view as to the collectibility of the remaining principal owed us under the note. It is possible that if negative events affect Dynegy or if we do not receive timely interest payments on our Note Receivable from Affiliate, such matters could cause us to believe it necessary to impair our Note Receivable from Affiliate on our consolidated balance sheet and such action could have a material adverse effect on our financial condition and results of operations. For example, a significant impairment could impact our ability to comply with the financial covenants contained in our Tilton lease agreement and to stay within the utility earnings cap contained in the Illinois Customer Choice Law.
In connection with Dynegy’s agreement to sell our common and preferred stock to Ameren, the Note Receivable from Affiliate is required to be addressed. Pursuant to this requirement, we anticipate that the Note Receivable from Affiliate will be significantly reduced or eliminated from our consolidated balance sheet in exchange for value, in the form of cash and/or other consideration, to be received by us.
We routinely conduct business with other subsidiaries of Dynegy. These transactions include the purchase or sale of electricity, natural gas and transmission services as well as certain other services. Operating revenue derived from transactions with affiliates approximated $6 million for the first quarter of 2004 and $8 million for the first quarter of 2003. Aggregate operating expenses charged by affiliates in the first quarter of 2004 approximated $133 million, including $124 million for power purchased. Aggregate operating expenses charged by affiliates in the first quarter of 2003 approximated $142 million, including $118 million for power purchased. Management believes that the methods of allocating costs, where used, are reasonable and related party transactions have been conducted at prices and terms similar to those available to and transacted with unrelated parties.
ILLINOIS POWER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Interim Periods Ended March 31, 2004 and 2003
We have a PPA with DMG that provides us the right to purchase power from DMG for a primary term extending through December 31, 2004. This right to purchase power qualifies under the normal purchase and sale exemption of SFAS No. 133 and, therefore, we have accounted for the PPA under the accrual method. The PPA defines the terms and conditions under which DMG provides power and energy to us using a tiered pricing structure. The agreement requires us to compensate DMG for capacity charges through 2004 at a total contract cost of approximately $311 million. According to the PPA with DMG, we are to provide a security guarantee of $50 million upon a credit downgrade event. This guarantee is being fulfilled by a $50 million guarantee from Dynegy on our behalf. With this arrangement, we believe we have provided adequate power supply for our expected load plus a reserve supply above
that expected level. Should power acquired under this agreement, when combined with our other power purchase agreements, be insufficient to meet our load requirements, we will have to buy power at current market prices. The PPA obligates DMG to provide power up to the reservation amount even if DMG has individual units unavailable at various times.
Please read Note 2 – Agreed Sale to Ameren for a discussion of a contingent power purchase agreement with a Dynegy affiliate to provide us power following the closing of the sale to Ameren. In the event that the pending sale transaction does not close before the end of 2004, we will enter into an interim power purchase agreement with DPM. The interim PPA was filed with the FERC in April 2004 and will take effect once regulatory approval is obtained, only if the pending sale does not close before year end. It will remain in effect only until the earlier of the closing of the pending sale or December 31, 2006, which latter date coincides with the expiration of the retail electric rate freeze in the State of Illinois. The interim PPA will provide for capacity and energy to serve our customers through 2006 if the sale is not completed and contains terms a
nd conditions, including pricing terms, substantially similar to those contained in the PPA to be entered into upon our sale to Ameren. If we are unable to sufficiently contract for all of our power and energy needs, we would be required to satisfy our needs through open market purchases.
At March 31, 2004, the outstanding balance on our receivable from DMG related to the Tilton lease was approximately $74 million, which will be accreted to approximately $81 million by September 2004. During the first quarter of 2004, we recognized approximately $4 million of interest income from accretion of the receivable. The interest income was offset by corresponding interest expense. Please see Note 4 – Commitments and Contingencies – Capital Leases for further discussion of the Tilton lease.
Effective January 1, 2000, the Dynegy consolidated group, including us, began operating under a Services and Facilities Agreement which was approved by the ICC. Under this agreement, we share facility space and exchange services (such as financial, legal, information technology and human resources) with other Dynegy affiliates. Our services are exchanged at fully distributed costs and revenue is not recorded under this agreement. Management believes that the allocation method utilized under this agreement is reasonable and amounts charged under this agreement would result in costs to us similar to costs we would have incurred for these services on a stand-alone basis.
On October 23, 2002, the ICC issued an order approving a petition submitted by us to enter into an agreement with Dynegy and its affiliates that would allow for certain payments due to Dynegy under the Services and Facilities Agreement to be netted against certain payments due to us from Dynegy, should Dynegy or its affiliates fail to make payments due to us on or before their due dates. However, the PPA with DMG is specifically exempted from this agreement. The agreement also allows Dynegy to net payments in the event we fail to make our required payments to Dynegy. Additionally, under the terms of this petition and the ICC’s approval, we will not pay any common dividend to Dynegy or its affiliates until our first mortgage bonds are rated investment grade by Moody’s Investors Service and Standard & Poor’s Ratings Group and specific approval is obtained fro
m the ICC.
ILLINOIS POWER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Interim Periods Ended March 31, 2004 and 2003
Our financial statements include related-party transactions with IPSPT, our wholly-owned unconsolidated subsidiary, which was deconsolidated in accordance with the adoption of FIN No. 46R effective on December 31, 2003. Please read Note 1 – Summary of Significant Accounting Policies – FIN No. 46R for additional information regarding the deconsolidation of IPSPT. The table below reflects our transactions with IPSPT (in millions).
|
|
|
|
| |
|
|
|
|
|
3/31/04 |
12/31/03 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in IPSPT |
|
$ |
4 |
|
$ |
4 |
|
|
Receivable from IPSPT (noncurrent) |
|
$ |
2 |
|
$ |
2 |
|
|
Long-term debt to IPSPT (including maturing within one year) |
|
$ |
396 |
|
$ |
420 |
|
In addition to the transactions above, we recorded $6 million in interest expense to IPSPT for the first quarter 2004.
Note 4 - Commitments and Contingencies
Commitments
Please see Note 5 – Commitments and Contingencies beginning on page F-20 of our Form 10-K for a description of the material commitments and contingencies affecting us. No material developments affecting us have occurred with respect to such matters since the filing of our Form 10-K except as described herein.
Legal and Environmental Matters
We are involved in legal or administrative proceedings before various courts and agencies with respect to matters occurring in the ordinary course of business. Management believes that appropriate reserves have been recorded and that the final disposition of these ordinary course proceedings will not have a material adverse effect on our consolidated financial position or results of operations. However, management's estimates and assumptions with respect to IP's legal proceedings may, as a result of facts arising prior to the resolution of such matters or other factors, prove inaccurate and investors should be aware that such estimates and assumptions are made subject to the known uncertainty of litigation.
Asbestos Litigation As of March 31, 2004, forty-six lawsuits were pending against us for illnesses based on alleged exposure to asbestos at generation facilities we previously owned. Four of these pending lawsuits were served on us during the first quarter of 2004. We intend to defend against these lawsuits vigorously, but we cannot predict with certainty the outcome of these lawsuits or any similar lawsuits that may be filed. We have recorded a reserve and do not expect to incur any material liability in connection with the pending lawsuits.
Trans-Elect Litigation In October 2003, Trans-Elect, Inc. and Illinois Electric Transmission Company, LLC filed suit against us in the Northern District of Illinois requesting specific performance and estoppel and claiming damages as a result of breach of contract and lost profits. These causes of action allegedly arise from our termination of an asset purchase and sale agreement entered into by the parties in October 2002. Under the terms of the agreement, we agreed to sell our transmission assets to Trans-Elect if, on or before July 7, 2003, the agreement received the required FERC, ICC, SEC and Hart-Scott Rodino approvals. As of July 7, 2003, the agreement had not been approved by, among other entities, the FERC and, as a result, we terminated the agreement in accordance with its terms on
July 8, 2003. Trans-Elect claims that we breached the agreement by failing to use our “best efforts” to obtain the required approvals and/or to negotiate an alternate agreement that could be approved. In April 2004, the plaintiffs amended their complaint to add Dynegy Inc. as a defendant, claiming that Dynegy Inc. tortiously interfered with the asset purchase and sale agreement. Trial has been scheduled in this matter for January 2005.
We deny these claims, in that we believe we complied with the terms of the agreement, and intend to defend against them vigorously. We cannot predict with certainty whether we will incur any liability or estimate the damages, if any, that might be incurred in connection with this lawsuit. However, we do not believe that any liability we might incur as a result of this litigation would have a material adverse effect on our financial condition or results of operations. Additionally, Dynegy has
ILLINOIS POWER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Interim Periods Ended March 31, 2004 and 2003
retained this contingent liability in connection with its proposed sale of our company to Ameren and has stated that it does not expect that the outcome will negatively impact its ability to close the sale.
Kemerer v. Illinois Power Company This case was brought by the wife of a man who died in 2000 when he backed his aluminum ladder into overhead power lines and was electrocuted. In the lawsuit, the plaintiff sought to recover on allegations of wrongful death (including lost wages and pain and suffering), negligent infliction of emotional distress (to the decedent’s wife) and punitive damages. The case was tried to a jury in January 2004, and the jury awarded the plaintiff approximately $1.6 million in actual damages and $3 million in punitive damages. In April 2004, we filed several post-trial motions, including a motion to set aside the verdict based on our belief that insufficient supporting evidence was presented at trial, and will vigorously pursue these issues on appeal. We have recorded a&
nbsp;reserve in connection with this lawsuit.
U.S. Environmental Protection Agency Complaint IP and DMG are the subject of an NOV from the EPA and a complaint filed by the EPA and the Department of Justice in federal district court alleging violations of the Clean Air Act and certain related federal and Illinois regulations. Similar notices and complaints were filed against other owners of coal-fired power plants in what we refer to as the Utility Enforcement Initiative. Both the NOV and the complaint allege that certain equipment repairs, replacements and maintenance activities at the three Baldwin Station generating units constituted “major modifications” under the Prevention of Significant Deterioration (PSD), the New Source Performance Standard (NSPS) regulations and the applicable Illinois regulations, and that the Defendants failed to obtain required o
perating permits under the applicable Illinois regulations. When activities which are not otherwise exempt result in an increase in annual emissions that exceeds the amount deemed significant under the PSD regulations, those activities are considered “major modifications”. When activities meeting this definition occur, the Clean Air Act and related regulations generally subject those activities to PSD review and permit requirements and require that the generating facilities where the activities occur meet more stringent emissions standards, which may entail the installation of potentially costly pollution control equipment.
DMG has significantly reduced emissions of sulphur dioxide and nitrogen oxides at the Baldwin Station since the 1999 complaint by converting from high to low sulfur coal, and installing selective catalytic reduction equipment. However, the EPA may seek to require the installation of the “best available control technology,” or the equivalent, at the Baldwin Station, which we estimate could require capital expenditures of up to $410 million. The EPA also has the authority to seek penalties for the alleged violations at the rate of up to $27,500 per day for each violation.
In February 2003, the Court granted our motion for partial summary judgment based on the five-year statute of limitations. As a result, the EPA is not permitted to seek any monetary civil penalties for claims related to construction without a permit under the PSD regulations. The Court’s ruling also precludes monetary civil penalties for a portion of the claims under the NSPS regulations and the applicable Illinois regulations. We believe that we have meritorious defenses against the remaining claims and vigorously defended against them at trial. The trial to resolve claims of liability began in June 2003 and closing arguments occurred in September 2003. Shortly after closing arguments, several interveners were granted the right to file briefs in support of arguments they believe the United States has ceased to pursue. These interventions and delays in post-tr
ial briefing have postponed the issuance of the liability order, and we cannot predict with any certainty when a decision will be rendered. Dynegy has recorded a reserve in an amount considered reasonable for potential penalties that could be imposed if the Court finds us and/or DMG liable and the EPA prosecutes successfully the remaining claims for penalties.
In August 2003 two significant decisions were handed down in other cases that are part of the Utility Enforcement Initiative. The court in United States v. Ohio Edison, applied the EPA’s narrow interpretation of the “routine maintenance, repair and replacement” exclusion, which defines it with respect to what is routine for the specific unit where the projects occurred, while the court in United States v. Duke Energy Company rejected the EPA’s narrow interpretation, holding that the exclusion should be defined relative to what is routine for the particular industry. The Duke
court also held that the hours and conditions of a unit’s operations must be held constant when measuring emissions increases. Under this rationale, an increase in maximum hourly emissions is required before activities would be considered “major modifications.” We are unable to predict the significance of these cases to the Baldwin Station litigation as they are pending in other jurisdictions and are not binding authority.
Also in August 2003, the EPA issued a new rule, the “Equipment Replacement Provision of the Routine Maintenance, Repair and Replacement Exclusion,” the effectiveness of which has been delayed pending the resolution of an appeal filed by
ILLINOIS POWER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Interim Periods Ended March 31, 2004 and 2003
several northeastern states and environmental groups. The new rule, if sustained, would provide that replacing components of a process unit with identical components (or functional equivalents) falls within the scope of the routine maintenance, repair and replacement exclusion if (i) the replacement cost is less than 20% of the total cost of replacing the unit, (ii) the replacement does not alter the unit’s basic design and (iii) the unit will continue to comply with applicable emission and operational standards.
None of our or DMG’s other facilities are covered in the complaint and NOV, but the EPA previously requested information, which has been provided, concerning activities at DMG’s Vermilion, Wood River and Hennepin plants. The EPA could eventually commence enforcement actions based on activities at these plants, although the uncertainty surrounding the new rule makes it difficult to assess the likelihood of additional EPA enforcement actions.
Manufactured-Gas Plants In the early 1900s, we operated two dozen sites at which synthetic natural gas was manufactured from coal. Operation of these MGP sites was generally discontinued in the 1950s when natural gas became available from interstate gas transmission pipelines. Many of these MGP sites were contaminated with residues from the gas manufacturing process. The Illinois EPA has issued No Further Remediation Letters for three of our MGP sites. Although we estimate our liability for MGP site remediation to be approximately $47 million for our remaining 21 MGP sites, because of the unknown and unique characteristics at each site, we cannot be certain of our ultimate liability for remediation of the sites. In October 1995, we initiated litigation against a number of our i
nsurance carriers. Settlement proceeds recovered from these carriers offset a portion of the estimated MGP remediation costs and are credited to customers through the tariff rider mechanism that the ICC previously approved. Cleanup costs in excess of insurance proceeds are considered probable of recovery from our electric and gas customers, based upon ICC Docket 91-0085.
Regulatory Matters
P.A. 90-561 – ISO Participation Participation in an ISO or RTO by utilities serving retail customers in Illinois was one of the requirements included in P.A. 90-561 and P.A. 92-12.
In May 2004, we submitted a conditional application to the MISO. The application is conditioned in part on FERC approval of the sale of IP to Ameren. Our decision regarding which RTO to join is subject to review and approval by the FERC. We will be making a filing with the FERC in the next few weeks to gain FERC approval of the decision to join MISO and to seek approval from the FERC for recovery of (i) the exit fee we paid to MISO in May 2001 to exit MISO and to join the Alliance RTO and (ii) the Alliance RTO development costs. We cannot predict the outcome of this matter.
Other
Operating Leases There were no material changes in minimum commitments in connection with operating leases from those reported in our Form 10-K. These operating lease payments primarily relate to our material distribution facility, which is a commercial property lease for our storage warehouse, the Tilton land lease and the lease on 15 line trucks.
Capital Leases An off-balance sheet operating lease for four gas turbines located in Tilton, Illinois was reclassified as a capital lease in September 2003, pursuant to the delivery of notice of an intent to exercise an option to purchase the assets when the lease expires in September 2004. The turbine assets are sublet to DMG and we are the capital sublessor. Based upon an independent appraisal, we recorded a receivable from DMG, which is offset by a corresponding liability to the original lessor, at the fair market value of approximately $66 million. The receivable from DMG and payable to the original lessor will be accreted to the $81 million purchase obligation over the remaining life of the lease using the straight line method. The accretion recorded fo
r first quarter of 2004 was approximately $4 million and was recorded as interest income, which was offset by the same amount of interest expense. The net effect on our income statement is zero. As a result of exercising this purchase option, we no longer have any off-balance sheet financing arrangements.
Underground Storage We continuously monitor the operating efficiencies of our underground gas storage fields. In 1999, we reduced the capacity of our working gas in the Hillsboro gas storage field from 7.6 Bcf to 4.0 Bcf, based on results from an engineering study and the annual operating results of the field, thereby increasing the base gas inventory. During 2003, we initiated further engineering studies to analyze the base/working gas ratio and confirm the gas in inventory. In March 2004, as
ILLINOIS POWER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Interim Periods Ended March 31, 2004 and 2003
a result of the studies, we decreased both the base gas and working gas inventories, returning the base gas volume to its pre-1999 level. Because of the increase in gas prices over time, the average price per Bcf of base gas increased as a result of this adjustment. We expect the working gas adjustment to be recovered from our customers through the purchase gas adjustment clause, subject to ICC prudency review.
Please see Note 5 – Commitments and Contingencies beginning on page F-20 of our Form 10-K for a description of the other material regulatory matters affecting us. No additional material developments affecting us have occurred with respect to such matters since the filing of our Form 10-K.
Note 5 – Debt
During each of the quarters ended March 31, 2004 and 2003, we paid IPSPT approximately $22 million, which IPSPT used to pay down the transitional funding trust notes. We estimate that IPSPT will continue to pay down such notes, approximately $22 million per quarter, through 2008. The accounts of LLC and IPSPT, which are VIEs under FIN No. 46R, are separate legal entities from IP. The assets of the VIEs are not available to our creditors and the transitional properties held by the VIEs are not assets of IP.
Tilton Capital Lease Please read Note 4 – Commitments and Contingencies – Capital Leases for a discussion of our Tilton capital lease.
Note 6 – Liquidity
Due to our non-investment grade credit ratings and other factors, we do not have access to the commercial paper markets, and our access to the capital markets is limited. These factors, along with the level of our indebtedness and the fact that we do not currently have a revolving credit facility, will have several important effects on our future operations. First, a significant portion of our cash flows will be dedicated to the payment of principal and interest on our outstanding indebtedness, including the increased interest expense associated with our December 2002 $550 million Mortgage bond financing, and will not be available for other purposes. Second, our ability to obtain additional financing for working capital, capital expenditures, general corporate and other purposes is limited.
For the near term, our debt maturities primarily comprise (i) quarterly payments of approximately $22 million on the IPSPT transitional funding trust notes, for which we receive a separate revenue stream from our customers; and (ii) an $81 million payment on our Tilton lease in September 2004, which we expect to receive from DMG under the sublease agreement. We believe that we have sufficient internal liquidity sources, including Dynegy’s commitment of support, to satisfy these debt maturities and our commercial obligations for at least the remainder of the year. Importantly, while Dynegy’s primary credit facility, which expires in February 2005, prohibits it from prepaying more than $200 million in principal under our Note Receivable from Affiliate during the term of the credit agreement, it does not limit Dynegy’s ability to prepay interest under our Note Rec
eivable from Affiliate. In addition, the indenture governing Dynegy Holdings Inc.’s second priority senior secured notes permits payments of principal on the intercompany note receivable up to $450 million or to the extent that a fixed charge coverage ratio of 2:1 is satisfied. The indenture also permits the prepayment of interest on the intercompany note receivable up to twelve months at any one time.
Over the longer term, our liquidity and capital resources will be materially affected by the outcome of the pending sale of our company to Ameren. If the sale is consummated, Ameren has committed to contribute cash to us in order to support our ongoing operating commitments and to reduce our leverage. If the sale is not consummated, we would explore other liquidity initiatives. These initiatives would include an integration of many processes into those of Dynegy’s, which we expect would yield significant cost savings. Another liquidity initiative could include an issuance of mortgage bonds.
Our ability to consummate other liquidity initiatives, as described above, is subject to a number of risks, some of which are beyond our control. The outcome of the agreed sale to Ameren is also subject to a number of risks, some of which are beyond our control. These risks include, among others, the receipt of required regulatory approvals, particularly from the ICC, and
ILLINOIS POWER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Interim Periods Ended March 31, 2004 and 2003
satisfaction of other closing conditions. We encourage you to read Dynegy’s Quarterly Report on Form 10-Q for the period ended March 31, 2004 for additional information regarding Dynegy and its current liquidity position, as well as its ongoing efforts to restructure its primary credit facility.
Note 7 – Regulatory Issues
We are subject to regulation by various federal, state and local agencies, including extensive rules and regulations governing transportation, transmission and sale of electricity and natural gas, as well as those relating to environmental protection. Compliance with these regulations requires general and administrative, capital and operating expenditures including those related to monitoring, pollution control equipment, permitting, and remediation obligations. In addition, the United States Congress has before it a number of bills that could impact regulations or impose new regulation applicable to us. We cannot predict the outcome of these bills or other regulatory developments or the effects that they might have on our business.
Note 8 – Pension Plan Assets
Our employees are participants in defined benefit plans sponsored by Dynegy, which prior to the Dynegy-Illinova merger in February 2000, were sponsored and administered by us. Please read Note 12 – Employee Compensation, Savings and Pension Plans beginning on page F-35 of our Form 10-K for more information on our pension plans.
Components of Net Periodic Benefit Cost The components of net periodic benefit cost were:
| |
|
Pension Benefits |
|
Other Benefits |
|
| |
|
|
|
| |
|
Quarter Ended March 31, |
|
| |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2004 |
|
|
2003 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Service cost benefits earned during period |
|
$ |
3.9 |
|
$ |
3.4 |
|
$ |
1.2 |
|
$ |
1.0 |
|
|
Interest cost on projected benefit obligation |
|
|
9.3 |
|
|
9.0 |
|
|
2.8 |
|
|
2.6 |
|
|
Expected return on plan assets |
|
|
(11.6 |
) |
|
(12.6 |
) |
|
(1.6 |
) |
|
(1.5 |
) |
|
Amortization of net transition |
|
|
(0.4 |
) |
|
(0.4 |
) |
|
0.5 |
|
|
0.5 |
|
|
Amortization of prior service cost |
|
|
0.4 |
|
|
0.4 |
|
|
0.0 |
|
|
0.0 |
|
|
Amortization of net loss |
|
|
0.8 |
|
|
0.0 |
|
|
1.2 |
|
|
1.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income) |
|
$ |
2.4 |
|
$ |
(0.2 |
) |
$ |
4.1 |
|
$ |
3.8 |
|
| |
|
|
|
|
|
|
|
|
|
Contributions In our Form 10-K, we reported that we expected to contribute approximately $2 million related to our pension plan liability in 2004. However, due to the Pension Funding Equity Act of 2004, we will no longer be required to make estimated quarterly contributions in 2004.
ILLINOIS POWER COMPANY
For the Interim Periods Ended March 31, 2004 and 2003
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read together with the unaudited condensed consolidated financial statements and the notes thereto included in this report and with the audited consolidated financial statements and the notes thereto included in our Form 10-K.
General – Company Profile
We are a regulated utility that serves more than 590,000 electricity customers and nearly 415,000 natural gas customers in northern, central and southern Illinois. We also currently supply electric transmission service to numerous utilities, electric cooperatives, municipalities and power marketing entities in the State of Illinois.
We are an indirect, wholly-owned subsidiary of Dynegy Inc. Dynegy and Illinova recently entered into an agreement with Ameren to sell the shares of our common and preferred stock owned by Illinova, together with Dynegy’s 20% interest in a Joppa, IL power generating facility, for $2.3 billion. The transaction is expected to close before the end of 2004, subject to the receipt of required regulatory approvals and other closing conditions. Please read Note 2 – Agreed Sale to Ameren for further discussion.
Our results of operations and financial condition are affected by the consolidated financial and liquidity position of Dynegy, particularly because we rely on interest payments under a $2.3 billion intercompany note receivable from Illinova, our direct parent company and a wholly-owned Dynegy subsidiary (Note Receivable from Affiliate), for a significant portion of our net cash provided by operating activities. Please read “– Liquidity and Capital Resources – Our Relationship with Dynegy” for further discussion.
Operationally, our performance for the first quarter 2004 was substantially in line with our first quarter 2003 results. Gas revenues were flat quarter over quarter and electric revenues were slightly down in 2004 as compared to 2003 primarily as a result of industrial customers choosing alternative suppliers.
Liquidity and Capital Resources
Our Relationship with Dynegy
As stated above, we are an indirect, wholly owned subsidiary of Dynegy Inc. We are susceptible to developments at Dynegy because we rely on an unsecured Note Receivable from Affiliate for a substantial portion of our net cash provided by operating activities. The note, which had $2.3 billion in principal outstanding at March 31, 2004 and December 31, 2003, matures on September 30, 2009 and bears interest at an annual rate of 7.5%, due semiannually in April and October. Because our operating cash flows, cash on hand and other capital resources were insufficient to satisfy our 2003 debt maturities and other capital resource requirements, Dynegy prepaid approximately $128 million of interest on our Note Receivable from Affiliate in 2003. In January 2004, we received an additional $43 million of prepaid interest on our Note Receivable from Affiliate. At March 31, 2004, we carried approx
imately $128 million in prepaid interest on our Note Receivable from Affiliate, which represents nine months of interest paid before it has been earned. At March 31, 2003, we had no prepaid interest and carried approximately $57 million in interest receivable.
We have reviewed the collectibility of this note to assess whether it has become impaired as required by GAAP. Based upon our assessment, we do not believe that the Note Receivable from Affiliate is impaired. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Note Receivable from Affiliate” beginning on page 23 of our Form 10-K for further discussion as to applicable GAAP requirements regarding impairment of the Note Receivable from Affiliate. Principal payments on the Note Receivable from Affiliate are not required until 2009 when it is
ILLINOIS POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended March 31, 2004 and 2003
due in full; as a result, future events may affect our view as to the collectiblity of the remaining principal owed us thereunder. It is possible that if negative events affect Dynegy or if we do not receive timely interest payments on the Note Receivable from Affiliate, such matters could cause us to believe it necessary to impair the Note Receivable from Affiliate on our consolidated balance sheet and such action could have a material adverse effect on our financial condition and results of operations.
Liquidity
Sources of Liquidity Due to our non-investment grade credit ratings and other factors, we do not have access to the commercial paper markets, and our access to the capital markets is limited. We are currently satisfying our capital requirements primarily with cash from operations, cash on hand, interest payments under our $2.3 billion Note Receivable from Affiliate and liquidity support committed by Dynegy. We believe that we have sufficient internal liquidity sources, including Dynegy’s commitment of support, to satisfy our debt maturities and other capital resource requirements for at least the remainder of the year.
Debt Maturities In each of March 2004 and 2003, we paid approximately $22 million on the IPSPT transitional funding trust notes. For the near term, our debt maturities primarily comprise (i) similar quarterly payments on the IPSPT transitional funding trust notes, for which we receive a separate revenue stream from our customers; and (ii) an $81 million payment on our Tilton lease in September 2004, which we expect to receive from DMG under the sublease agreement.
Contractual Obligations and Contingent Financial Commitments We have entered into various financial obligations and commitments in the course of our ongoing operations and financing strategies. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Financial Obligations and Commercial Commitments” beginning on page 20 of our Form 10-K for a complete listing of our obligations and commitments.
Subsequent to year-end, obligations associated with contracts for firm transportation and storage services for natural gas that have varying expiration dates ranging from 2004 to 2012, increased from $66 million, as reported in our Form 10-K, to $93 million. The increase is the result of the renewal of three contracts under different terms and the signing of an additional contract. There have been no other material changes since the filing of our Form 10-K related to any other contractual obligations or contingent financial commitments.
Dividends There are restrictions on our ability to pay cash dividends, including any dividends that we might pay indirectly to Dynegy. Under our Restated Articles of Incorporation, we may pay dividends on our common stock, all of which is owned by Illinova, subject to the preferential rights of the holders of our preferred stock, of which Illinova owns approximately 73%. However, we are limited in our ability to pay dividends by the Illinois Public Utilities Act and the Federal Power Act, which require retained earnings equal to or greater than the amount of any proposed dividend. Additionally, the ICC’s October 23, 2002 order relating to a netting agreement between us and Dynegy prohibits us from declaring and paying any dividends on our common stock until our mortgage bonds are rated investment grade by both Moody’s and Standard &am
p; Poor’s, and further requires that we first obtain approval for any such payment from the ICC. Please read Note 3 – Related Parties for further discussion of this ICC order.
During each of the three months ended March 31, 2004 and 2003, we paid preferred stock dividends of approximately $1 million. We paid no common stock dividends in the first quarter of 2004 or 2003.
Capital Expenditures Capital expenditures for the three months ended March 31, 2004 were approximately $30 million. Capital expenditures consist of numerous projects to upgrade and maintain the reliability of our electric and gas transmission and distribution systems, add new customers to the system and prepare for a competitive environment.
Conclusion Due to our non-investment grade credit ratings and other factors, we do not have access to the commercial paper markets, and our access to the capital markets is limited. These factors, along with the level of our indebtedness and the fact that we do not currently have a revolving credit facility, will have several important effects on our future operations. First, a
ILLINOIS POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended March 31, 2004 and 2003
significant portion of our cash flows will be dedicated to the payment of principal and interest on our outstanding indebtedness, including the increased interest expense associated with our December 2002 $550 million Mortgage bond financing, and will not be available for other purposes. Second, our ability to obtain additional financing for working capital, capital expenditures, general corporate and other purposes is limited.
For the near term, our debt maturities primarily comprise (i) quarterly payments of approximately $22 million on the IPSPT transitional funding trust notes, for which we receive a separate revenue stream from our customers; and (ii) an $81 million payment on our Tilton lease in September 2004, which we expect to receive from DMG under the sublease agreement. We believe that we have sufficient internal liquidity sources, including Dynegy’s commitment of support, to satisfy these debt maturities and our commercial obligations for at least the remainder of the year. Importantly, while Dynegy’s primary credit facility, which expires in February 2005, prohibits it from prepaying more than $200 million in principal under our Note Receivable from Affiliate during the term of the credit agreement, it does not limit Dynegy’s ability to prepay interest under our Note Rec
eivable from Affiliate. In addition, the indenture governing Dynegy Holdings Inc.’s second priority senior secured notes permits payments of principal on the intercompany note receivable up to $450 million or to the extent that a fixed charge coverage ratio of 2:1 is satisfied. The indenture also permits the prepayment of interest on the intercompany note receivable up to twelve months at any one time.
Over the longer term, our liquidity and capital resources will be materially affected by the outcome of the pending sale of our company to Ameren. If the sale is consummated, Ameren has committed to contribute cash to us in order to support our ongoing operating commitments and to reduce our leverage. If the sale is not consummated, we would explore other liquidity initiatives. These initiatives would include an integration of many processes into those of Dynegy’s, which we expect would yield significant cost savings. Another liquidity initiative could include an issuance of mortgage bonds.
Our ability to consummate other liquidity initiatives, as described above, is subject to a number of risks, some of which are beyond our control. The outcome of the agreed sale to Ameren is also subject to a number of risks, some of which are beyond our control. These risks include, among others, the receipt of required regulatory approvals, particularly from the ICC, and satisfaction of other closing conditions. We encourage you to read Dynegy’s Quarterly Report on Form 10-Q for the period ended March 31, 2004 for additional information regarding Dynegy and its current liquidity position, as well as its ongoing efforts to restructure its primary credit facility.
Please read “Uncertainty of Forward-Looking Statements and Information” below for additional factors that could impact our future operating results, including the pending sale of our company to Ameren.
Factors Affecting Future Operating Results
In “Management’s Discussion and Analysis of Financial Condition and Results of Operations – General – Company Profile” beginning on page 16 of our Form 10-K, we detailed the primary factors that have impacted, and are expected to continue to impact, our earnings and cash flows. Our earnings and cash flows for the remainder of 2004 and beyond may be significantly affected by any or all of these factors, including the following in particular:
-
weather and its effect on demand for our services, particularly with respect to residential electric customers;
-
the number of customers that choose another retail electric provider under the Illinois Customer Choice Law; and
-
general economic conditions and the resulting effect on demand for our services, particularly with respect to commercial and industrial customers.
Please read the section “Uncertainty of Forward-Looking Statements and Information” below for additional factors that could impact our future operating results, including the pending sale of our company to Ameren.
ILLINOIS POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended March 31, 2004 and 2003
Critical Accounting Policies
Please see our Form 10-K for a complete explanation of our critical accounting policies, with respect to which there have been no material changes since the filing of the Form 10-K.
Results of Operations
Overview
Provided below is an unaudited tabular presentation of key operating and financial statistics for the three-month periods ended March 31, 2004 and 2003, respectively.
|
|
|
Three Months Ended March 31, |
| |
|
|
|
|
| |
|
|
2004 |
|
|
2003 |
|
| |
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
Electric Sales Revenues - |
|
|
|
|
|
|
|
|
Residential |
|
$ |
97 |
|
$ |
96 |
|
|
Commercial |
|
|
74 |
|
|
74 |
|
|
Commercial-distribution (1) |
|
|
--- |
|
|
--- |
|
|
Industrial |
|
|
56 |
|
|
62 |
|
|
Industrial-distribution (1) |
|
|
1 |
|
|
1 |
|
|
Other |
|
|
9 |
|
|
9 |
|
| |
|
|
|
|
|
|
Revenues from ultimate consumers |
|
|
237 |
|
|
242 |
|
|
Interchange |
|
|
--- |
|
|
--- |
|
|
Transmission/Wheeling |
|
|
10 |
|
|
9 |
|
| |
|
|
|
|
|
|
Total Electric Revenues |
|
$ |
247 |
|
$ |
251 |
|
| |
|
|
|
|
|
|
Electric Sales in kWh (Millions) - |
|
|
|
|
|
|
|
|
Residential |
|
|
1,455 |
|
|
1,433 |
|
|
Commercial |
|
|
1,054 |
|
|
1,058 |
|
|
Commercial-distribution (1) |
|
|
1 |
|
|
1 |
|
|
Industrial |
|
|
1,320 |
|
|
1,405 |
|
|
Industrial-distribution (1) |
|
|
628 |
|
|
548 |
|
|
Other |
|
|
97 |
|
|
98 |
|
| |
|
|
|
|
|
|
Sales to ultimate consumers |
|
|
4,555 |
|
|
4,543 |
|
|
Interchange |
|
|
1 |
|
|
1 |
|
| |
|
|
|
|
|
|
Total Electric Sales |
|
|
4,556 |
|
|
4,544 |
|
| |
|
|
|
|
|
|
Cooling Degree Days (2) – Actual |
|
|
--- |
|
|
--- |
|
|
Cooling Degree Days (2) – 10 Year Rolling Average |
|
|
1 |
|
|
--- |
|
(1) Distribution of customer-owned energy.
(2) A Cooling Degree Day (“CDD”) represents the number of degrees that the mean temperature for a particular day is above 65 degrees Fahrenheit. The CDDs for a period of time are computed by adding the CDDs for each day during the period.
ILLINOIS POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended March 31, 2004 and 2003
|
|
|
Three Months Ended March 31, |
| |
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
|
|
|
|
| |
|
($ in millions) |
|
|
Gas Sales Revenues - |
|
|
|
|
Residential |
|
$ |
146 |
|
$ |
143 |
|
|
Commercial |
|
|
49 |
|
|
51 |
|
|
Industrial |
|
|
12 |
|
|
12 |
|
|
Other |
|
|
1 |
|
|
1 |
|
| |
|
|
|
|
|
|
Revenues from ultimate consumers |
|
|
208 |
|
|
207 |
|
|
Transportation of customer-owned gas |
|
|
--- |
|
|
--- |
|
|
Sales to affiliates |
|
|
2 |
|
|
3 |
|
| |
|
|
|
|
|
|
Total Gas Revenues |
|
$ |
210 |
|
$ |
210 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Sales in Therms (Millions) - |
|
|
|
|
|
|
|
|
Residential |
|
|
160 |
|
|
185 |
|
|
Commercial |
|
|
58 |
|
|
72 |
|
|
Industrial |
|
|
15 |
|
|
19 |
|
| |
|
|
|
|
|
|
Sales to ultimate consumers |
|
|
233 |
|
|
276 |
|
|
Transportation of customer-owned gas |
|
|
69 |
|
|
65 |
|
| |
|
|
|
|
|
|
Total gas sold and transported |
|
|
302 |
|
|
341 |
|
|
Sales to affiliates |
|
|
4 |
|
|
4 |
|
| |
|
|
|
|
|
|
Total Gas Delivered |
|
|
306 |
|
|
345 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heating Degree Days (1) – Actual |
|
|
2,708 |
|
|
2,935 |
|
|
Heating Degree Days (1) – 10 Year Rolling Average |
|
|
2,678 |
|
|
2,587 |
|
(1) A Heating Degree Day (“HDD”) represents the number of degrees that the mean temperature for a particular day is below 65 degrees Fahrenheit. The HDDs for a period of time are computed by adding the HDDs for each day during the period.
Three-Month Periods Ended March 31, 2004 and 2003
For the quarter ended March 31, 2004, we reported net income of $37 million, compared with first quarter 2003 net income of $32 million.
Operating revenues in 2004 decreased $4 million period to period primarily due to decreased demand. Electric revenues decreased $4 million due primarily to industrial customers choosing alternative electric suppliers. Gas revenues were negatively impacted by warmer than normal winter weather which was offset by higher gas prices, leaving gas revenues flat period to period.
Although total operating expenses, exclusive of income taxes discussed below, remained consistent period to period, the cost for power purchases decreased while other operating expenses increased. Electric power purchases decreased due to lower customer demand, primarily as a result of customer choice activities. Gas costs increased due to higher gas prices partially offset by lower volumes caused by warmer than normal winter weather. Other operating expenses in 2004 were impacted by higher employee pension costs and costs associated with personal injury and other damage claims.
Other income in the first quarter of 2004 and 2003 included interest income associated with our Note Receivable from Affiliate and allocated income taxes, while 2004 also includes interest income on our Tilton capital lease of $4 million.
Interest expense period-to-period decreased $4 million due to lower aggregate outstanding debt balances, partially offset by higher interest rates associated with our December 2002 mortgage bond offering.
ILLINOIS POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended March 31, 2004 and 2003
We reported total income tax provisions of $25 million for the three-month period ended March 31, 2004 and $23 million for the three-month period ended March 31, 2003. The effective income tax rates approximated 40% and 41% in 2004 and 2003, respectively.
We recorded an adjustment relating to our minimum pension funding liability of approximately $1 million in the quarter ended March 31, 2004, to other comprehensive income in accordance with SFAS No. 87, “Employers’ Accounting for Pensions.”
Operating Cash Flow
Cash flow from operating activities totaled $133 million for the three-month period ended March 31, 2004, compared to $27 million reported in the 2003 period. Changes in operating cash flow reflect the operating results previously discussed herein and the following significant factors. In the first quarter 2004, we recognized $43 million of operating cash flow from the prepaid interest on our Note Receivable from Affiliate compared to zero for the same period 2003. Cash flow from operations also benefited by the reduction in gas inventories as a result of the winter heating season and the recovery of prepayments related to our natural gas purchase contracts.
Outlook
Future results of operations for us may be affected, either positively or negatively, by regulatory actions (with respect to rates or otherwise), general economic conditions, weather and customers choosing to utilize competitive alternate electric service providers. We expect 2004 operating income to be similar to actual results for 2003. Cash flow from operations is expected to be higher in 2004 than in 2003 as a result of the delayed recovery from our customers of costs we incurred in 2003 relating to gas inventories and higher prepaid deposits associated with gas purchases. Future results of operations will be significantly impacted by the outcome of the pending sale transaction with Ameren and by the decision of the ICC regarding the gas rate case which we are required to file no later than June 30, 2004 pursuant to the sale agreement. Ple
ase read Note 2 – Agreed Sale to Ameren for further discussion of this pending transaction. Our ability to meet our capacity and energy needs beyond 2004 is partially addressed in connection with the pending sale to Ameren. We also are commencing a required bidding process to replace the AmerGen PPA. Please read Item 1 – Business – Power Supply beginning on page 3 of our Form 10-K and Note 3 – Related Parties for further discussion.
Uncertainty of Forward-Looking Statements and Information This quarterly report includes statements reflecting assumptions, expectations, projections, intentions or beliefs about future events. These statements are intended as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this quarterly report, other than statements of historical fact, that address activities, events or developments that we or our management expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements represent our reasonable judgment on the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our act
ual results and financial position to differ materially from those contemplated by the statements. Important factors that could cause a material difference in the actual results from the forward-looking statements are set forth elsewhere in this quarterly report. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “project,” “forecast,” “may,” “should,” “expect,” “will” and other words of similar meaning. In particular, these include, but are not limited to, statements relating to the following:
-
projected operating or financial results;
-
the consummation of the agreed sale transaction with Ameren;
-
expectations regarding capital expenditures, preferred dividends and other matters;
-
beliefs about the financial impact of deregulation;
-
assumptions regarding the outcomes of legal and administrative proceedings;
-
projections as to the carrying value of our Note Receivable from Affiliate;
-
estimations relating to the potential impact of new accounting standards;
-
our ability to obtain required funding from Dynegy in the short-term and to consummate one or more liquidity initiatives in the long-term;
ILLINOIS POWER COMPANY
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Interim Periods Ended March 31, 2004 and 2003
Any or all of our forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties, including the following:
-
the outcome of the agreed sale transaction with Ameren;
-
our substantial indebtedness and our ability to generate sufficient cash flows either from our operations or other liquidity initiatives to service principal and interest on such indebtedness;
-
the timing and extent of changes in commodity prices for natural gas and electricity;
-
the effects of deregulation in Illinois and nationally and the rules and regulations adopted in connection therewith;
-
competition from alternate retail electric providers;
-
general economic and capital market conditions, including overall economic growth, demand for power and natural gas, and interest rates;
-
the effects of our relationship with Dynegy, our indirect parent company, including the ultimate impact of the legal and administrative proceedings to which it is currently subject;
-
Dynegy’s financial condition, including its ability to continue to support payment to us of principal and interest on our $2.3 billion intercompany note receivable from Illinova;
-
the cost of borrowing, access to capital markets and other factors affecting our financing activities;
-
operational factors affecting the ongoing commercial operations of our transmission, transportation and distribution facilities, including catastrophic weather-related damage, unscheduled repairs or workforce issues;
-
the cost and other effects of legal and administrative proceedings, settlements, investigations or claims, including environmental liabilities that may not be covered by indemnity or insurance; and
-
other regulatory or legislative developments that affect the energy industry in general and our operations in particular.
In addition, there may be other factors that could cause our actual results to be materially different from the results referenced in the forward-looking statements. Many of these factors will be important in determining our actual future results. Consequently, no forward-looking statement can be guaranteed. Our actual future results may vary materially from those expressed or implied in any forward-looking statements.
All of the forward-looking statements contained in this quarterly report are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and we disclaim any obligation to update any forward-looking statement to reflect events or circumstances after the date of this quarterly report except as otherwise required by applicable law.
Our operating results may be impacted by commodity price fluctuations for electricity used in supplying service to our customers. We have contracted with AmerGen and DMG to supply power via PPAs that expire at the end of 2004. Should power acquired under these agreements be insufficient to meet our load requirements, we will have to buy power at current market prices. The PPA with DMG obligates DMG to provide power up to the reservation amount, and at the same prices, even if DMG has individual units unavailable at various times. The PPA with AmerGen does not obligate AmerGen to acquire replacement power for us in the event of a curtailment or shutdown at the Clinton Power Station. Under a Clinton shutdown scenario, to the extent we exceed our capacity reservation with DMG, we will have to buy power at current market prices. Such purchases would expose us to commodity price risk. As
discussed in our Form 10-K, P.A. 90-561 was amended to extend the retail electric rate freeze for two additional years, through 2006.
Our ability to meet our power and energy needs beyond 2004 is provided for in the proposed sale transaction with Ameren. In the event that the pending sale transaction does not close before the end of 2004, we will enter into an interim power purchase agreement with DPM. The interim PPA was filed with the FERC in April 2004 and will take effect once regulatory approval is obtained, only if the pending sale does not close before year end. It will remain in effect only until the earlier of the closing of the pending sale or December 31, 2006, which latter date coincides with the expiration of the retail electric freeze in the State of Illinois. The interim PPA will provide for capacity and energy to serve our customers through 2006 if the sale is not completed and contains terms and conditions, including pricing terms, substantially similar to those contained in the agreement w
ith Ameren described in Note 2 above. If we are unable to sufficiently contract for all of our power and energy needs, we would be required to satisfy our needs through open market purchases.
The ICC determines rates that we may charge for retail gas service. As with the rates that we are allowed to charge for retail electric service, these rates are designed to recover our cost of service and to allow our shareholders the opportunity to earn a reasonable rate of return. Our rate schedules contain provisions for passing through to our customers any increases or decreases in the cost of natural gas, subject to an annual prudency review by the ICC. Rates for gas distribution services are set by the ICC in rate proceedings and are based on the underlying costs. Future natural gas sales will continue to be affected by an increasingly competitive marketplace, changes in the regulatory environment, transmission access, weather conditions, gas cost recoveries, customer conservation efforts and the overall economy. Price risk associated with our gas operations is mitigate
d through contractual terms applicable to the business, as allowed by the ICC. We apply prudent risk-management practices in order to minimize these market risks. However, such risk management practices may not fully mitigate these exposures.
Pursuant to the sale agreement with Ameren, we are required to file with the ICC, no later than June 30, 2004, revised gas service tariffs proposing a general increase in base rates for gas service. The ICC must approve any new rates we could charge in this rate case, which will be the first such case we have filed since 1993.
Evaluation of Disclosure Controls and Procedures Effective as of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the requisite time periods. While our disclosure controls and procedures provide reasonable assurance that the appropriate information will be available on a timely basis, t
his assurance is subject to limitations inherent in any control system, no matter how well it may be designed or administered.
Changes in Internal Controls There was no change in our internal controls over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) identified in connection with the evaluation of our internal controls performed during the first quarter 2004 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
ILLINOIS POWER COMPANY
Please read Note 4 – Commitments and Contingencies – Legal and Environmental Matters for a description of our material legal proceedings.
|
(a) |
The following documents are included as exhibits to this Form 10-Q: |
|
|
|
|
|
|
*10.1 |
Amendment No. 1 to Stock Purchase Agreement dated March 23, 2004 among Dynegy Inc., Illinova Corporation, Illinova Generating Company and Ameren Corporation (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K of Dynegy Inc. filed on March 25, 2004, File No. 1-15659). |
|
|
|
|
|
|
|
Purchase Agreement dated February 2, 2004 among Dynegy Inc., Illinova Corporation, Illinova Generating Company, and Ameren Corporation (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Dynegy Inc. filed on February 4, 2004, File No. 1-15659). |
|
|
|
|
|
|
Severance Agreement and Release dated as of January 27, 2004 among Larry F. Altenbaumer, Dynegy Inc. and Illinois Power Company (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K for the Year Ended December 31, 2003 of Illinois Power Company, File No. 1-3004). |
|
|
|
|
|
|
|
Contract for Services dated as of January 27, 2004 between Larry F. Altenbaumer and Illinois Power Company (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K for the Year Ended December 31, 2003 of Illinois Power Company, File No. 1-3004). |
|
|
|
|
|
|
|
Letter Agreement dated as of March 6, 2003 between Dynegy, Inc. and Shawn E. Schukar (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K for the Year Ended December 31, 2003 of Illinois Power Company, File No. 1-3004). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
†31.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated herein by reference. |
|
|
|
Pursuant to Securities and Exchange Commission Release No. 33-8238, this certification will be treated as “accompanying” this report and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liability of Section 18 of the Exchange Act and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act. |
|
|
|
Filed herewith. |
|
|
|
|
|
(b) |
Reports on Form 8-K filed during the first quarter of 2004: |
Current report on Form 8-K of Illinois Power Company filed February 4, 2004. Items 5 and 7 were reported and no financial statements were filed.
SIGNATURES
Pursuant to the requirements 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 |
| |
|
|
| |
|
|
| Date: May 13, 2004 |
By: |
/s/ Peggy E. Carter |
| |
|
| |
Peggy E. Carter, Managing Director, Controller
(Duly Authorized Officer and Principal Accounting Officer) |
| |
|