0000762129-95-000009.txt : 19950811 0000762129-95-000009.hdr.sgml : 19950811 ACCESSION NUMBER: 0000762129-95-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950810 SROS: CSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CILCORP INC CENTRAL INDEX KEY: 0000762129 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 371169387 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08946 FILM NUMBER: 95560633 BUSINESS ADDRESS: STREET 1: 300 HAMILTON BLVD STE 300 CITY: PEORIA STATE: IL ZIP: 61602 BUSINESS PHONE: 3096758850 MAIL ADDRESS: STREET 1: 300 HAMILTON BLVD STREET 2: STE 300 CITY: PEORIA STATE: IL ZIP: 61602 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL ILLINOIS LIGHT CO CENTRAL INDEX KEY: 0000018651 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 370211050 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02732 FILM NUMBER: 95560634 BUSINESS ADDRESS: STREET 1: 300 LIBERTY ST CITY: PEORIA STATE: IL ZIP: 61602 BUSINESS PHONE: 3096725271 MAIL ADDRESS: STREET 1: 300 LIBERTY STREET CITY: PEORIA STATE: IL ZIP: 61602 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended June 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from ........ to ........ Commission Registrant; State of Incorporation; IRS Employer File Number Address; and Telephone Number Identification No. 1-8946 CILCORP Inc. 37-1169387 (An Illinois Corporation) 300 Hamilton Blvd, Suite 300 Peoria, Illinois 61602 (309) 675-8810 1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050 (An Illinois Corporation) 300 Liberty Street Peoria, Illinois 61602 (309) 675-8810 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. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: CILCORP Inc. Common stock, no par value, shares outstanding at July 31, 1995 13,155,249 CENTRAL ILLINOIS LIGHT COMPANY Common stock, no par value, shares outstanding and privately held by CILCORP Inc. at July 31, 1995 13,563,871 CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1995 INDEX PART I. FINANCIAL INFORMATION Page No. Item 1: Financial Statements CILCORP INC. Consolidated Balance Sheets 3-4 Consolidated Statements of Income 5 Consolidated Statements of Cash Flows 6-7 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets 8-9 Consolidated Statements of Income 10 Consolidated Statements of Cash Flows 11-12 Notes to Consolidated Financial Statements CILCORP Inc. and Central Illinois Light Company 13-15 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations CILCORP Inc. and Central Illinois Light Company 15-24 PART II. OTHER INFORMATION Item 1: Legal Proceedings 25 Item 5: Other Information 25-29 Item 6: Exhibits and Reports on Form 8-K 29 Signatures 30-31 CILCORP INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)
June 30, December 31, 1995 1994 ASSETS (Unaudited) Current assets: Cash and temporary cash investments $ 3,843 $ 1,604 Receivables, less reserves of $2,588 and $2,291 53,768 55,779 Accrued unbilled revenue 33,436 40,474 Fuel, at average cost 11,227 14,765 Materials and supplies, at average cost 18,226 17,173 Gas in underground storage, at average cost 9,810 17,484 Prepayments and other 13,100 12,402 ---------- ---------- Total current assets 143,410 159,681 ---------- ---------- Investments and other property: Investment in leveraged leases 124,094 120,961 Cash surrender value of company-owned life insurance, net of related policy loans of $28,831 2,546 1,637 Other investments 3,334 3,790 ---------- ---------- Total investments and other property 129,974 126,388 ---------- ---------- Property, plant and equipment: Utility plant, at original cost Electric 1,104,443 1,092,382 Gas 365,237 355,270 ---------- ---------- 1,469,680 1,447,652 Less - accumulated provision for depreciation 674,198 653,571 ---------- ---------- 795,482 794,081 Construction work in progress 78,482 71,105 Plant acquisition adjustments, being amortized to 1999 2,999 3,355 Other, net of depreciation 23,767 23,152 ---------- ---------- Total property, plant and equipment 900,730 891,693 ---------- ---------- Other assets: Prepaid pension expense 12,171 13,423 Cost in excess of net assets of acquired businesses, net of accumulated amortization of $3,941 and $3,589 24,196 24,548 Other 22,285 22,651 ---------- ---------- Total other assets 58,652 60,622 ---------- ---------- Total assets $1,232,766 $1,238,384 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
CILCORP INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)
June 30, December 31, 1995 1994 LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) Current liabilities: Current portion of long-term debt $ 19,191 $ 21,200 Notes payable 32,200 29,400 Accounts payable 32,957 51,952 Accrued taxes 8,733 7,729 Accrued interest 9,345 9,024 FCA over-recoveries 996 -- Purchased gas adjustment over-recoveries 3,001 2,142 Other 15,653 16,557 ---------- ---------- Total current liabilities 122,076 138,004 ---------- ---------- Long-term debt 330,696 326,695 ---------- ---------- Deferred credits and other liabilities: Deferred income taxes 248,157 246,815 Net regulatory liability of regulated subsidiary 57,849 59,997 Deferred investment tax credit 25,331 26,178 Customers' advances for construction and other 32,850 29,860 ---------- ---------- Total deferred credits 364,187 362,850 ---------- ---------- Preferred stock of subsidiary 66,120 66,120 ---------- ---------- Stockholders' equity: Common stock, no par value; authorized 50,000,000 shares - outstanding 13,142,604 and 13,035,756 shares 171,864 167,987 Retained earnings 177,823 176,728 ---------- ---------- Total stockholders' equity 349,687 344,715 ---------- ---------- Total liabilities and stockholders' equity $1,232,766 $1,238,384 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
CILCORP INC. AND SUBSIDIARIES Consolidated Statements of Income (In thousands)* (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 Revenue: Electric $ 75,897 $ 78,034 $150,242 $151,741 Gas 24,615 23,471 83,497 95,150 Environmental and engineering services 30,199 33,832 64,873 63,216 Other businesses 1,779 1,809 4,465 4,475 -------- -------- -------- -------- Total 132,490 137,146 303,077 314,582 -------- -------- -------- -------- Operating expenses: Fuel for generation and purchased power 24,875 26,362 52,419 54,274 Gas purchased for resale 9,640 11,413 38,747 54,359 Other operations and maintenance 56,200 57,013 116,118 114,066 Depreciation and amortization 15,813 15,584 31,629 31,056 Taxes, other than income taxes 8,659 8,279 19,777 19,498 -------- -------- -------- -------- Total 115,187 118,651 258,690 273,253 -------- -------- -------- -------- Fixed charges and other: Interest expense 7,452 6,234 14,908 12,750 Preferred stock dividends of subsidiary 833 726 1,667 1,429 Allowance for funds used during construction (66) (79) (297) (169) Other 194 145 385 272 -------- -------- -------- ------- Total 8,413 7,026 16,663 14,282 -------- -------- -------- ------- Income before income taxes 8,890 11,469 27,724 27,047 Income taxes 3,213 4,529 10,573 10,405 -------- -------- -------- -------- Net income available for common stockholders $ 5,677 $ 6,940 $ 17,151 $ 16,642 ======== ======== ======== ======== Average common shares outstanding 13,096 13,036 13,067 13,017 Net income per common share $ .43 $ .53 $ 1.31 $ 1.28 Dividends per common share $ .615 $ .615 $ 1.23 $ 1.23 *Except per share amounts The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
CILCORP INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Six Months Ended June 30, 1995 1994 Cash flows from operating activities: Net income before preferred dividends $18,818 $18,071 Adjustments to reconcile net income to net cash provided by operating activities: Non-cash lease income and investment income (3,466) (3,550) Depreciation and amortization 31,629 31,056 Deferred income taxes, investment tax credit and regulatory liability of subsidiary, net (1,653) 3,738 Changes in operating assets and liabilities: Decrease in accounts receivable and accrued unbilled revenue 9,049 6,502 Decrease in inventories 10,159 6,611 Decrease in accounts payable (18,995) (7,872) Increase in accrued taxes 1,004 2,782 Decrease in other assets 1,181 2,766 Increase in other liabilities 4,262 1,535 ------- ------- Total adjustments 33,170 43,568 ------- ------- Net cash provided by operating activities 51,988 61,639 ------- ------- Cash flows from investing activities: Additions to plant (38,110) (37,327) Proceeds from sale of long-term investments 872 -- Other (3,457) (2,054) ------- ------- Net cash used in investing activities (40,695) (39,381) ------- ------- Cash flows from financing activities: Net increase (decrease) in short-term debt 2,800 (5,900) Increase in long-term debt 19,816 -- Repayment of long-term debt (17,824) (122) Common dividends paid (16,056) (16,036) Preferred dividends paid (1,667) (1,429) Proceeds from issuance of stock 3,877 2,325 ------- ------- Net cash used in financing activities (9,054) (21,162) ------- ------- Net increase in cash and temporary cash investments 2,239 1,096 Cash and temporary cash investments at beginning of year 1,604 1,440 ------- ------- Cash and temporary cash investments at June 30 $ 3,843 $ 2,536 ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 13,721 $ 12,971 Income Taxes $ 8,671 $ 4,351 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets (In thousands)
June 30, December 31, ASSETS 1995 1994 (Unaudited) Utility plant, at original cost: Electric $1,104,443 $1,092,382 Gas 365,237 355,270 ---------- ---------- 1,469,680 1,447,652 Less - accumulated provision for depreciation 674,198 653,571 ---------- ---------- 795,482 794,081 Construction work in progress 78,482 71,105 Plant acquisition adjustments, net of amortization 2,999 3,355 ---------- ---------- Total utility plant 876,963 868,541 ---------- ---------- Other property and investments: Cash surrender value of company-owned life insurance (net of related policy loans of $28,831) 2,546 1,637 Other 1,100 1,041 ---------- ---------- Total other property and investments 3,646 2,678 ---------- ---------- Current assets: Cash and temporary cash investments 1,243 629 Receivables, less reserves of $752 and $600 26,481 30,543 Accrued unbilled revenue 18,212 22,340 Fuel, at average cost 11,227 14,765 Materials and supplies, at average cost 16,796 16,731 Gas in underground storage, at average cost 9,810 17,484 Other 7,492 7,217 ---------- ---------- Total current assets 91,261 109,709 ---------- ---------- Deferred debits: Unamortized loss on reacquired debt 6,258 6,486 Unamortized debt expense 2,311 2,212 Prepaid pension cost 12,171 13,423 Other 13,165 13,957 ---------- ---------- Total deferred debits 33,905 36,078 ---------- ---------- Total assets $1,005,775 $1,017,006 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets (In thousands)
June 30, December 31, CAPITALIZATION AND LIABILITIES 1995 1994 (Unaudited) Capitalization: Common shareholder's equity: Common stock, no par value; authorized 20,000,000 shares; outstanding 13,563,871 shares $ 185,661 $ 185,661 Retained earnings 123,557 122,125 ---------- ---------- Total common shareholder's equity 309,218 307,786 Preferred stock without mandatory redemption 44,120 44,120 Preferred stock with mandatory redemption 22,000 22,000 Long-term debt 282,378 278,359 ---------- ---------- Total capitalization 657,716 652,265 ---------- ---------- Current liabilities: Current maturities of long-term debt 16,000 -- Notes payable 11,200 23,400 Accounts payable 29,238 47,536 Accrued taxes 4,605 4,284 Accrued interest 8,338 8,477 Purchased gas adjustment over-recoveries 3,001 2,142 Level payment plan 1,696 4,155 Other 6,791 6,809 ---------- ---------- Total current liabilities 80,869 96,803 ---------- ---------- Deferred liabilities and credits: Accumulated deferred income taxes 151,773 151,856 Regulatory liability, net 57,849 59,997 Investment tax credits 25,331 26,178 Capital lease obligation 3,214 2,665 Other 29,023 27,242 ---------- ---------- Total deferred liabilities and credits 267,190 267,938 ---------- ---------- Total capitalization and liabilities $1,005,775 $1,017,006 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
CENTRAL ILLINOIS LIGHT COMPANY Consolidated Statements of Income (In thousands) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 Operating revenues: Electric $ 75,897 $ 78,034 $150,242 $151,741 Gas 24,615 23,471 83,497 95,150 -------- -------- -------- -------- Total operating revenues 100,512 101,505 233,739 246,891 -------- -------- -------- -------- Operating expenses: Cost of fuel 22,356 24,517 47,116 50,569 Cost of gas 9,640 11,413 38,747 54,359 Purchased power 2,519 1,845 5,303 3,705 Other operation and maintenance 27,239 26,265 54,554 54,996 Depreciation and amortization 14,171 13,902 28,317 27,654 Income taxes 4,105 4,245 11,620 10,420 Other taxes 7,463 7,114 17,180 16,977 -------- -------- -------- -------- Total operating expenses 87,493 89,301 202,837 218,680 -------- -------- -------- -------- Operating income 13,019 12,204 30,902 28,211 -------- -------- -------- -------- Other income and deductions: Cost of equity funds capitalized -- -- -- 23 Company-owned life insurance, net (194) (145) (385) (272) Other, net 116 (2) 100 (42) -------- -------- -------- -------- Total other income and (deductions) (78) (147) (285) (291) -------- -------- -------- -------- Income before interest expenses 12,941 12,057 30,617 27,920 -------- -------- -------- -------- Interest expenses: Interest on long-term debt 4,942 4,808 9,750 9,604 Cost of borrowed funds capitalized (66) (79) (297) (146) Other 991 271 2,008 790 -------- -------- -------- -------- Total interest expenses 5,867 5,000 11,461 10,248 -------- -------- -------- -------- Net income 7,074 7,057 19,156 17,672 -------- -------- -------- -------- Dividends on preferred stock 832 726 1,667 1,429 -------- -------- -------- -------- Net income available for common stock $ 6,242 $ 6,331 $ 17,489 $ 16,243 ======== ======== ======== ======== The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
CENTRAL ILLINOIS LIGHT COMPANY Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Six Months Ended June 30, 1995 1994 Cash flows from operating activities: Net income before preferred dividends $ 19,156 $ 17,672 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 28,673 28,011 Deferred taxes, investment tax credits and regulatory liability, net (3,078) (1,865) Decrease in accounts receivable 4,062 2,901 Decrease in fuel, materials and supplies, and gas in underground storage 11,147 6,611 Decrease in unbilled revenue 4,128 6,893 Decrease in accounts payable (18,298) (5,406) Increase (decrease) in accrued taxes and interest 183 (1,433) Capital lease payments 267 239 Decrease in other current assets 4,330 336 (Decrease) increase in other current liabilities (1,619) 144 (Increase) decrease in other non-current assets (1,346) 1,372 Increase in other non-current liabilities 1,804 1,714 -------- -------- Net cash provided by operating activities 49,409 57,189 -------- -------- Cash flows from investing activities: Capital expenditures (34,881) (35,406) Cost of equity funds capitalized -- (23) Other (3,540) (2,767) -------- -------- Net cash used in investing activities (38,421) (38,196) -------- -------- Cash flows from financing activities: Common dividends paid (16,056) (8,010) Preferred dividends paid (1,667) (1,429) Long-term debt issued 19,816 -- Payments on capital lease obligation (267) (239) Decrease in short-term borrowing (12,200) (7,800) -------- -------- Net cash used in financing activities (10,374) (17,478) -------- -------- Net increase in cash and temporary cash investments 614 1,515 Cash and temporary cash investments at beginning of year 629 594 -------- -------- Cash and temporary cash investments at June 30 $ 1,243 $ 2,109 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of cost of borrowed funds capitalized) $11,085 $10,623 Income taxes 9,276 12,062 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. Introduction The consolidated financial statements include the accounts of CILCORP Inc. (CILCORP or Company), Central Illinois Light Company (CILCO), Environmental Science & Engineering, Inc. (ESE) and CILCORP's other subsidiaries after elimination of significant intercompany transactions. CILCORP owns 100% of the common stock of CILCO. The consolidated financial statements of CILCO include the accounts of CILCO and its subsidiaries, CILCO Exploration and Development Company and CILCO Energy Corporation. The accompanying unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC). Although CILCORP believes the disclosures are adequate to make the information presented not misleading, these consolidated financial statements should be read with the consolidated financial statements and related notes forming a part of the Company's 1994 Annual Report on Form 10-K. Prior year amounts have been reclassified on a basis consistent with the 1995 presentation. In the Company's opinion, the accompanying consolidated financial statements reflect all normal and recurring adjustments necessary for a fair presentation of the results of operations for the periods presented. Operating results for interim periods are not necessarily indicative of operating results to be expected for the year or of the Company's future financial condition. NOTE 2. Gas Pipeline Supplier Transition Costs In 1992, the Federal Energy Regulatory Commission (FERC) issued Orders 636, 636A and 636B (collectively Order 636). Order 636 substantially restructured the relationship between gas pipelines and distribution companies, such as CILCO, for the sale, transportation and storage of natural gas. These services, which traditionally had been "bundled" by interstate pipeline companies, are now individually arranged by CILCO. CILCO believes it is well-positioned to ensure the continued acquisition of adequate and reliable gas supplies. Order 636 also permitted pipeline suppliers to recover from gas distribution companies prudently incurred transition costs attributed to compliance with Order 636. As of June 30, 1995, pipeline suppliers have billed CILCO, subject to refund, approximately $1.8 million of transition costs, including interest. These charges have been, or will be, recovered from CILCO's customers through its purchased gas adjustment clause (PGA). The PGA allows CILCO to adjust customer billings to reflect changes in the cost of natural gas. Presently, CILCO cannot determine its actual allocation of suppliers' transition costs but believes that it could ultimately be billed up to an additional $2.1 million, excluding interest. During 1994, the Illinois Commerce Commission (ICC) affirmed the right of Illinois gas distribution companies to recover pipeline transition costs from their customers; therefore, management does not expect Order 636 to materially impact CILCO's financial position or results of operations. CILCO has recorded a regulatory asset and corresponding liability of $2 million on the Balance Sheets as of June 30, 1995, representing the minimum amount of the estimated range of costs which CILCO expects to incur related to transition costs. The current portion of this regulatory asset and corresponding liability is $.5 million. NOTE 3. Contingencies Neither CILCORP, CILCO, nor any of their affiliates has been identified as a potentially responsible party (PRP) under federal or state environmental laws. CILCO continues to investigate and/or monitor four former gas manufacturing plant sites (Sites A, B, C and D) located within CILCO's present gas service territory. The purpose of these studies is to determine if waste materials, principally coal tar, are present, whether such waste materials constitute an environmental or health risk and if CILCO is responsible for the remediation of any remaining waste materials at those sites. CILCO previously operated plants at three of the four sites (Sites A, B and C) and currently owns two (Sites A and B). In cooperation with the Illinois Environmental Protection Agency, CILCO completed remedial action in 1991 at Site A, at a cost of $3.3 million. In 1994, CILCO investigated Site B to define the extent of waste materials on site. A risk assessment for Site B is currently being developed, which will be followed by a feasibility study of remedial alternatives in 1995. CILCO has paid to date approximately $357,000 to outside parties for investigating, testing and clean-up of Site B. CILCO has not yet formulated a remediation plan for Site C. Until more detailed site specific testing has been completed, CILCO cannot determine the ultimate extent or cost of any remediation of Site C. CILCO does not currently own Site D and has not yet determined the extent, if any, of its remediation responsibility for this site. CILCO expects to spend approximately $300,000 for former gas manufacturing plant site monitoring, legal fees and feasibility studies in 1995. A $4.7 million regulatory asset and a corresponding liability are recorded on the Balance Sheets representing the minimum amount of coal tar investigation and remediation costs CILCO expects to incur. Coal tar remediation costs incurred through June 1995, have been deferred on the Balance Sheets, net of amounts recovered from customers. Through June 30, 1995, CILCO has recovered approximately $3.9 million in coal tar remediation costs from its customers through a gas rate rider approved by the ICC. Currently, that rider allows recovery over five years, without carrying costs, of prudently incurred coal tar remediation expenses paid to outside vendors. The primary purpose of the five-year recovery period without carrying costs, was to effect a sharing of coal tar remediation costs between Illinois utilities and their customers by disallowing rate recovery of carrying charges on unrecovered balances. However, on April 20, 1995, the Illinois Supreme Court held that Illinois utilities are entitled to recover prudently incurred coal tar remediation costs without any sharing. On June 20, 1995, the matter was remanded to the ICC for further proceedings, consistent with the Illinois Supreme Court's decision. The ICC has until December 20, 1995, to enter its final order in response to the remand. Based upon the Court's opinion issued on April 20, 1995, management continues to believe that the cost of coal tar remediation will not have a material adverse effect on CILCO's financial position or results of operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CILCORP Inc. (the Company) is the parent of two core operating businesses, Central Illinois Light Company (CILCO) and Environmental Science & Engineering, Inc. (ESE). The Company also has two other first-tier subsidiaries, CILCORP Investment Management Inc. (CIM), and CILCORP Ventures Inc. (CVI), whose operations, combined with those of the holding company (Holding Company) itself, are collectively referred to herein as Other Businesses. CILCO, the primary business subsidiary, is an electric and gas utility serving customers in central and east central Illinois. CILCO's financial condition and results of operations are currently the principal factors affecting the Company's financial condition and results of operations. ESE is a national environmental consulting, analytical laboratory and engineering firm serving governmental, industrial and commercial customers. CIM invests in a diversified portfolio of long-term financial investments which currently includes leveraged leases and energy-related interests. CVI invests in new ventures and the expansion of existing ventures in environmental services, energy, biotechnology and health care. Capital Resources & Liquidity Declaration of dividends is at the discretion of the Board of Directors. The Company's ability to declare and pay dividends is contingent upon its receipt of dividend payments from its subsidiaries, business conditions, earnings and the financial condition of the Company. The Company believes that internal and external sources of capital which are, or are expected to be, available to the Holding Company and its subsidiaries will be adequate to meet the Company's capital expenditures program, pay interest and dividends, meet working capital needs and retire debt as it matures. The Company Short-term borrowing capability is available to the Company for additional cash requirements. CILCORP's Board of Directors has authorized it to borrow up to $50 million on a short-term basis. On June 30, 1995, CILCORP had committed bank lines of credit of $50 million, of which $24 million was outstanding. From March 20 through July 31, 1995, the Company issued 119,493 shares of common stock at an average price of $36.16 per share through the CILCORP Inc. Automatic Reinvestment and Stock Purchase Plan (DRIP) and the CILCO Employees' Savings Plan (ESP). Depending on market conditions, the Company may issue additional shares of common stock through the DRIP, the ESP or through a conventional stock offering. The proceeds from newly-issued stock will continue to be used to retire CILCORP short-term debt, to meet working capital and capital expenditure requirements at CILCO and for other corporate purposes. At June 30, 1995, the Company had issued $48 million of medium-term notes under its $75 million medium-term note program. The Company may issue additional notes during 1995 through 1997 under this program to retire maturing debt and to provide funds for other corporate purposes. CILCO Capital expenditures totaled $35 million for the six months ended June 30, 1995, and are anticipated to be approximately $35 million for the remainder of 1995. The installation of electric generating equipment for a cogeneration plant at Midwest Grain Products, Inc. (MWG) is complete. The plant, which began providing steam heat to MWG's Pekin, Illinois, facility in December 1994, also began generating electricity for distribution to CILCO's customers on June 8, 1995. CILCO anticipates the total cost of the project to be approximately $18.1 million. Capital expenditures for the years 1996 and 1997 are estimated to be $64 million and $61 million, respectively. On May 19, 1995, CILCO issued $20 million of secured medium-term notes due May 19, 2025. The stated interest rate on the new notes is 7.73%. These notes are redeemable at a premium after ten years and at par after twenty years. The proceeds from the issuance of the notes will be used to finance capital expenditures and to retire a portion of CILCO's short-term debt. CILCO plans to issue $16 million of secured medium-term notes to retire outstanding long-term debt maturing in 1996. In addition, $25 million of pollution control bonds are expected to be issued in 1996, to finance pollution control facilities, including new solid waste disposal facilities at CILCO's Duck Creek generating station. CILCO intends to finance the remainder of its 1995 and 1996 capital expenditures with funds provided by operations and capital provided by CILCORP. At June 30, 1995, CILCO had bank lines of credit aggregating $30 million which are used to support CILCO's issuance of commercial paper. CILCO had $11.2 million of commercial paper outstanding at June 30, 1995, and expects to issue commercial paper periodically throughout the remainder of 1995. ESE For the six months ended June 30, 1995, ESE's expenditures for capital additions and improvements were approximately $3.2 million. Capital expenditures for the remainder of 1995 are expected to be approximately $.9 million. At June 30, 1995, ESE had borrowed $27.5 million from the Holding Company, an increase of $1.9 million from December 31, 1994. ESE has a $7.75 million bank line of credit, of which $4.4 million was outstanding at June 30, 1995, to collateralize performance bonds issued in connection with ESE projects. ESE expects to finance its capital expenditures and working capital needs during 1995 with a combination of funds generated internally and periodic short-term borrowings from the Holding Company. CIM At June 30, 1995, CIM had outstanding debt of $26.6 million, consisting of $23.6 million borrowed from the Holding Company and $3 million borrowed from banks. CIM expects to finance new investments and working capital needs during the remainder of 1995 with a combination of funds generated internally and periodic short-term borrowings from the Holding Company. Results Of Operations The following table summarizes net income of CILCO, ESE and Other Businesses for the three months and six months ended June 30, 1995 and 1994.
Three Months Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 (In thousands) (Unaudited) Core businesses: CILCO Electric operating income $11,860 $12,887 $20,925 $21,430 Gas operating income (loss) 1,159 (683) 9,977 6,781 ------- ------- ------- ------- Total utility operating income 13,019 12,204 30,902 28,211 Utility other income and deductions (5,945) (5,147) (11,746) (10,539) Preferred stock dividends of CILCO (832) (726) (1,667) (1,429) ------- ------- ------- ------- Total utility net income 6,242 6,331 17,489 16,243 ESE ESE net income (loss) (456) 826 (79) 477 ------- ------- ------- ------- 5,786 7,157 17,410 16,720 Other businesses: Other businesses net (loss) (109) (217) (259) (78) ------- ------- ------- ------- Consolidated net income available to common shareholders $ 5,677 $ 6,940 $17,151 $16,642 ======= ======= ======= =======
CILCO Electric Operations The following table summarizes the components of CILCO electric operating income for the three months and six months ended June 30, 1995 and 1994:
Three Months Ended Six Months Ended Components of Electric June 30, June 30, Operating Income 1995 1994 1995 1994 (In thousands) Revenue: Electric retail $74,961 $75,090 $147,894 $145,095 Sales for resale 936 2,944 2,348 6,646 ------- ------- -------- -------- Total revenue 75,897 78,034 150,242 151,741 ------- ------- -------- -------- Cost of sales: Cost of fuel 22,356 24,517 47,116 50,569 Purchased power expense 2,519 1,845 5,303 3,705 Revenue taxes 3,049 2,913 6,478 5,974 ------- ------- -------- -------- Total cost of sales 27,924 29,275 58,897 60,248 ------- ------- -------- -------- Gross margin 47,973 48,759 91,345 91,493 ------- ------- -------- -------- Operating expenses: Other operation and maintenance 19,206 18,249 38,288 37,934 Depreciation and amortization 10,239 9,887 20,452 19,775 Income and other taxes 6,668 7,736 11,680 12,354 ------- ------- -------- -------- Total operating expenses 36,113 35,872 70,420 70,063 ------- ------- -------- -------- Electric operating income $11,860 $12,887 $ 20,925 $ 21,430 ======= ======= ======== ========
Electric gross margin remained relatively constant for the quarter and six months ended June 30, 1995, compared to the same periods in 1994, mainly due to level retail kilowatt hour (Kwh) sales for these same periods. Industrial sales increased 4% and 6% for the quarter and six months ended June 30, 1995, respectively. Commercial sales were relatively unchanged for the quarter and six months ended June 30, 1995, respectively. Residential sales decreased 4% for the quarter and 5% for the six months ended June 30, 1995, compared to the same periods in 1994. The decline in residential sales was primarily due to cooler weather. Cooling degree days were 33% lower for both the quarter and six months ended June 30, 1995, compared to the same periods in 1994. CILCO's largest customer is Caterpillar Inc. On June 20, 1994, Caterpillar employees, represented by the United Auto Workers Union, began a strike at certain Caterpillar facilities in CILCO's service territory. To date, the strike has not had an adverse effect on CILCO's sales to Caterpillar. CILCO's management cannot predict what, if any, impact a continued strike at Caterpillar will have on CILCO's future revenues or earnings. The overall level of business activity in CILCO's service territory and weather conditions will continue to be the primary factors affecting electric sales in the near term. CILCO's electric sales may be affected in the long-term by increased competition in the electric utility industry (see Part II. Item 5: Electric Competition). Sales for resale decreased during the quarter and six months ended June 30, 1995, due to lower demand for electricity from neighboring utilities. Sales for resale vary based on the energy requirements of neighboring utilities, CILCO's available capacity for bulk power sales and the price of power available for sale. CILCO expects increased competition in the sales for resale and purchased power markets. Substantially all of CILCO's electric generating capacity is coal-fired. The cost of fuel declined 9% during the quarter and 7% for the six months ended June 30, 1995, compared to the same periods in 1994. The decrease was due to lower electric generation by CILCO and reduced coal prices. Purchased power expense increased for the three and six months ended June 30, 1995, compared to the same periods in 1994 due to readily available and reasonably priced wholesale energy, plant maintenance outages and increased capacity charges. Purchased power expense varies based on CILCO's need for energy and the price of power available for purchase. CILCO makes use of purchased power when it is economical to do so and when required during maintenance outages at CILCO plants. Cost fluctuations related to the purchase of power are passed through to CILCO's customers via the fuel adjustment clause (FAC). The FAC allows CILCO to pass increases or decreases in the cost of fuel through to customers. Other operation and maintenance expenses increased 5% for the quarter ended June 30, 1995, compared to the same period in 1994. The increase for the second quarter was primarily due to increased power plant maintenance expenses, overhead line expenses, information systems software expenses, production maintenance expenses at Midwest Grain Products, Inc. and injury and damage claims reserve. Decreased employee benefit costs partially offset the increase. Other operation and maintenance expenses remained relatively constant for the six months ended June 30, 1995, compared to 1994. Depreciation and amortization expense increased, reflecting additions and replacements of utility plant at costs in excess of the original cost of the property retired. Income and other tax expense decreased mainly due to lower pre-tax operating income. CILCO Gas Operations The following table summarizes the components of CILCO gas operating income (loss) for the three months and six months ended June 30, 1995 and 1994:
Three Months Ended Six Months Ended Components of Gas Operating June 30, June 30, Income (loss) 1995 1994 1995 1994 (In thousands) Revenue: Sale of gas $22,783 $21,439 $78,951 $89,848 Transportation services 1,832 2,032 4,546 5,302 ------- ------- ------- ------- Total revenue 24,615 23,471 83,497 95,150 ------- ------- ------- ------- Cost of sales: Cost of gas 9,640 11,413 38,747 54,359 Revenue taxes 1,206 1,303 4,320 4,998 ------- ------- ------- ------- Total cost of sales 10,846 12,716 43,067 59,357 ------- ------- ------- ------- Gross margin 13,769 10,755 40,430 35,793 ------- ------- ------- ------- Operating expenses: Other operation and maintenance 8,033 8,016 16,266 17,062 Depreciation and amortization 3,932 4,015 7,865 7,879 Income and other taxes 645 (593) 6,322 4,071 ------- ------- ------- ------- Total operating expenses 12,610 11,438 30,453 29,012 ------- ------- ------- ------- Gas operating income (loss) $ 1,159 $ (683) $ 9,977 $ 6,781 ======= ======= ======= =======
Gas gross margin increased 28% and 13% for the quarter and six months ended June 30, 1995, compared to the same periods in 1994. Retail sales increased 16% for the quarter and decreased 3% for the six months ended June 30, 1995, compared to the same periods in 1994. Residential sales increased 14% for the quarter and decreased 5% for the six months ended June 30, 1995, compared to the same periods in 1994. Commercial sales increased 16% for the quarter and remained relatively constant for the six months ended June 30, 1995, compared to the corresponding periods in 1994. Heating degree days were 17% higher for the quarter and 5% lower for the six months ended June 30, 1995, compared to the same periods in 1994. Gross margin was positively affected by the December 1994 rate order that increased overall gas base rates approximately 6.7%. For additional rate information, refer to Note 9. Rate Matters in the Company's 1994 Annual Report on Form 10-K. The overall level of business activity in CILCO's service territory and weather conditions will continue to be the primary factors affecting gas sales. Revenue from gas transportation services decreased 10% and 14%, and sales volumes decreased 7% and 10%, for the quarter and six months ended June 30, 1995, compared to the same period in 1994. Revenue declined primarily due to decreased purchases of gas by industrial transportation customers from suppliers other than CILCO and the fact that there are fewer transportation customers. There were 380 transportation customers at June 30, 1995, compared to 666 transportation customers at the end of the same quarter in 1994. As a result of CILCO's new gas tariffs, CILCO's system rates are more competitive with transportation rates and various transportation customers have resumed purchasing gas from CILCO. The cost of gas decreased 16% and 29% for the quarter and six months ended June 30, 1995, compared to the corresponding periods in 1994. The decrease for the quarter resulted from lower natural gas prices, partially offset by increased sales. The reduction for the six months ended June 30, 1995, was principally due to decreased sales and lower natural gas prices from CILCO's suppliers. The lower natural gas prices were passed through to CILCO's gas customers via the PGA. The PGA is the mechanism used to pass increases or decreases in the cost of natural gas through to customers. Other operation and maintenance expenses remained relatively constant for the quarter and decreased 5% for the six months ended June 30, 1995, compared to the same periods in 1994. The decrease for the six months was primarily due to decreased employee benefit costs. Increased outside services expenses from an audit of CILCO's gas operations (see Part II. Item 5: Audit of CILCO's Gas Operations) and higher gas maintenance expenses partially offset the decrease. Depreciation and amortization expense decreased due to a $6.4 million reduction of utility plant. This reduction resulted from a rate base disallowance recorded in 1994 as part of CILCO's gas rate case. For additional information, refer to Note 9. Rate Matters in the Company's 1994 Annual Report on Form 10-K. Additions and replacements of utility plant at prices in excess of the original cost of the property retired partially offset the decrease. Income and other taxes expense increased for the quarter and six months ended June 30, 1995, primarily due to higher pre-tax operating income. CILCO Other Income and Deductions and Interest Expense The following table summarizes other income and deductions and interest expense for the three months and six months ended June 30, 1995 and 1994:
Three Months Ended Six Months Ended Components of Other Income and June 30, June 30, Deductions and Interest Expense 1995 1994 1995 1994 (In thousands) Net interest expense $(5,861) $(4,933) $(11,675) $ (9,911) Income taxes 540 391 1,105 670 Other (624) (605) (1,176) (1,298) ------- ------- -------- -------- Other income (deductions) $(5,945) $(5,147) $(11,746) $(10,539) ======= ======= ======== ========
Interest expense increased primarily as a result of a settlement with the Illinois Department of Revenue related to an audit of the Illinois gross receipts tax and a higher outstanding notes payable balance during 1995. CILCO's Early Retirement Incentive Program In a continuing effort to better position itself for competition in the energy services industry (see Part II. Item 5: Electric Competition), CILCO made available in July 1995, Voluntary Early Retirement Incentive Programs (programs) to eligible employees. Elections to participate are due by November 6, 1995, with retirements effective January 1, 1996. The program offered to the International Brotherhood of Electrical Workers (IBEW) is based upon an agreement made between CILCO and the union. The International Brotherhood of Firemen and Oilers (IBF&O) program is still subject to negotiation (see Part II. Item 5: CILCO's Union Contracts). Another program was offered to all management, office and technical workers. CILCO currently has 1,531 full-time employees of which 257 are eligible for these programs. Management expects the programs to generate an after-tax charge of approximately $5.2 million against fourth quarter 1995 earnings and to generate an annual after-tax cost reduction of approximately $2.7 million beginning in 1996. The annual after-tax charge would increase along with the annual after-tax cost reduction if a greater than anticipated number of eligible employees accepts the early retirement offer. ESE Operations The following table summarizes the components of the environmental and engineering services results for the three months and six months ended June 30, 1995 and 1994:
Three Months Ended Six Months Ended Components of ESE Net Income (Loss) June 30, June 30, 1995 1994 1995 1994 (In thousands) Environmental and engineering services revenue $30,199 $33,832 $64,873 $63,216 Direct non-labor project costs 10,657 13,305 24,617 23,718 ------- ------- ------- ------- Net revenue 19,542 20,527 40,256 39,498 ------- ------- ------- ------- Expenses: Direct salaries and other costs 10,167 9,928 20,315 19,392 General and administrative 7,990 7,276 15,798 15,335 Depreciation and amortization 1,416 1,455 2,859 2,949 ------- ------- ------- ------- Operating expenses 19,573 18,659 38,972 37,676 ------- ------- ------- ------- Interest expense 535 397 1,046 802 ------- ------- ------- ------- Income (loss) before income taxes (566) 1,471 238 1,020 Income taxes (110) 645 317 543 ------- ------- ------- ------- ESE net income (loss) $ (456) $ 826 $ (79) $ 477 ======= ======= ======= =======
ESE's results have fluctuated from quarter to quarter since its acquisition in 1990. Such fluctuations may be expected to continue. Factors influencing such variations include: project delays, which may be impacted by regulatory agency approvals or client considerations; the level of subcontractor services; weather, which may limit the amount of time ESE professionals have in the field; and the initial training of new professionals. Accordingly, results for any one quarter are not necessarily indicative of results for any other quarter or for the year. ESE incurs substantial direct project costs from the use of subcontractors on projects. These costs are passed directly through to ESE's clients. As a result, ESE measures its operating performance on the basis of net revenues, which are determined by deducting such direct project costs from gross revenues. Net revenues decreased by 5% for the second quarter and were relatively unchanged for the six months ended June 30, 1995, compared to the same periods in 1994. The net revenue decrease for the second quarter of 1995 primarily resulted from changes in regulatory requirements of many states, funding delays at the federal level, increased competition in the market for laboratory services and a cost overrun on a single fixed- price project. ESE is not currently pursuing, and is reevaluating its approach to, projects of this type and size. ESE's future operating results may be affected by a number of factors which have softened the marketplace for several of ESE's traditional lines of business. These factors include significant changes in regulatory requirements (cleanup standards), changes in the level of funding of government financed projects and increased price competition in the laboratory business. Revenue and earnings growth has been, and will continue to be, impacted by increased competitive pressures on pricing in both the government and private sectors. ESE continues to position itself for competition in a continually changing business climate by evaluating its traditional business lines and expanding into new markets (see Part II. Item 5: ESE New Subsidiary contained herein and Part I. Item 1: Description of Business of ESE in the Company's 1994 Annual Report on Form 10-K). Direct and indirect salary expense increased slightly for the second quarter and 5% for the six months ended June 30, 1995, compared to the same periods in 1994. These increases are primarily due to wage and salary increases effective March 1995. General and administrative expenses increased by 10% for the quarter and 3% for the six months ended June 30, 1995, compared to the corresponding periods in 1994. These increases are attributable to higher travel- related costs and higher salary and related employee benefits expense resulting from wage increases effective in March 1995. The labor- intensive nature of ESE's business, allows it to adjust staffing levels, and management will make such adjustments, so as to appropriately reflect the changing business climate. ESE had 1,224 full-time equivalent employees at June 30, 1995, compared to 1,239 at June 30, 1994. ESE's interest expense increased for the quarter and six months ended June 30, 1995, compared to the same periods in 1994. This increase was due to higher interest rates and higher average outstanding balances on ESE's short-term line of credit. Other Businesses' Operations The following table summarizes the components of Other Businesses' (loss) for the three months and six months ended June 30, 1995 and 1994:
Three Months Ended Six Months Ended Components of Other Businesses' June 30, June 30, Net (Loss) 1995 1994 1995 1994 (In thousands) Revenue: Other revenue $1,707 $1,742 $4,382 $4,161 ------ ------ ------ ------ Expenses: Operating expenses 457 1,038 1,603 2,347 Depreciation and amortization 49 49 97 96 Interest expense 1,491 758 3,083 1,553 Income and other taxes (181) 114 (142) 243 ------ ------ ------ ------ Total expenses 1,816 1,959 4,641 4,239 ------ ------ ------ ------ Other businesses' net (loss) $ (109) $ (217) $ (259) $ (78) ====== ====== ====== ======
Other revenues were relatively unchanged for the second quarter of 1995, compared to the second quarter of 1994. Other revenues were 5% greater for the six months ended June 30, 1995, compared to the corresponding time period for 1994, primarily due to a one-time preferred dividend in the first quarter of 1995 on a CVI investment and revenues generated by CILCORP Energy Services Inc., a wholly-owned CVI subsidiary, which primarily markets carbon monoxide detectors to utilities for resale. These revenues were partially offset by declining leveraged lease income. Under generally accepted accounting principles pertaining to leveraged leases, income declines as the lease portfolio matures. Operating expenses were lower for the three months and six months ended June 30, 1995, compared to the corresponding periods in 1994, primarily due to several one-time charges during the first and second quarters of 1994 at the Holding Company, including CILCORP's termination of a lease at an ESE facility. The lease was entered into during negotiations which led to CILCORP's 1990 acquisition of ESE. Interest expense increased in the three months and six months ended June 30, 1995, compared to the corresponding periods in 1994, as a result of an increase in long-term debt incurred to fund operations of subsidiaries other than CILCO. Income and other taxes were lower in the first quarter of 1995, compared to the first quarter of 1994, primarily due to lower pre-tax income. PART II. OTHER INFORMATION Item 1: Legal Proceedings Reference is made to "Environmental Matters" under "Item 1. Business" in the Company's 1994 Annual Report on Form 10-K and "Note 3. Contingencies," herein, for certain pending legal proceedings and proceedings known to be contemplated by governmental authorities. The Company and its subsidiaries are subject to certain claims and lawsuits in connection with work performed in the ordinary course of their businesses. Except as otherwise disclosed or referred to in this section, in the opinion of management, all such claims currently pending either will not result in a material adverse effect on the financial position and results of operations of the Company or are adequately covered by: (i) insurance; (ii) contractual or statutory indemnification; and/or (iii) reserves for potential losses. CILCO On July 6, 1994, a lawsuit was filed against CILCO in a United States District Court by the current property owner, Vector-Springfield Properties, Ltd., seeking damages related to alleged coal tar contamination from a gas manufacturing plant. Currently, discovery is being undertaken. CILCO never owned or operated the plant but later owned a portion of the site (Site D). The lawsuit seeks cost recovery of more than $3 million related to coal tar investigation expenses, operating losses and diminution of market value. CILCO is vigorously defending these claims. For a further discussion of gas manufacturing plant sites, refer to Note 3. Contingencies. Management cannot currently determine the outcome of this litigation, but does not believe it will have a material adverse impact on CILCO's financial position or results of operations. ESE At the request of the South Carolina Department of Health and Environmental Control, the U. S. Department of Justice initiated an investigation into an alleged record-keeping violation at an office operated by ESE in Greenville, South Carolina. The office was closed in May 1993. Following its investigation, the U. S. Department of Justice referred this matter to the Attorney General of South Carolina for disposition as a civil matter. Management does not believe this matter will have a material adverse impact on the Company's financial position or results of operations. Item 5: Other Information Public Utility Holding Company Act In June 1995, the SEC issued a report, "The Regulation of Public-Utility Holding Companies," which contained its recommendations as to the future of the Public Utility Holding Company Act (Act). The SEC's recommendations are of two types: legislative recommendations for Congress to consider and proposals for SEC administrative reform of the Act. Three legislative recommendations are contained within the report: conditional repeal of the Act; unconditional repeal of the Act; and broader exemptive authority. Hearings on proposed legislative changes began August 4, 1995, before a subcommittee of the Energy and Commerce Commission of the U. S. House of Representatives. The Company will continue to monitor these legislative proposals as well as administrative changes undertaken by the SEC. Electric Competition The National Energy Policy Act of 1992 encourages competition but specifically bans federally-mandated wheeling of power for retail customers. However, several state public utility regulatory commissions are investigating or adopting pilot programs to initiate retail wheeling. At present, incentive regulation is being implemented, or considered by public utility commissions in over twenty states. Utilities may benefit or lose depending upon their ability to reduce costs and improve efficiency. Illinois Senate Bill 232 was signed by the governor on July 21, 1995, becoming Public Act 89-0194. The new law offers gas and electric public utilities an opportunity to develop alternative regulation and performance-based ratemaking programs by petitioning the ICC. These experimental programs will be subject to standards established by the ICC and restricted to the public utility's service territory. In addition, the programs will not extend beyond June 30, 2000. A report on the results of the programs will be delivered to the Illinois legislature by December 31, 2000. Programs developed under the law may become effective January 1, 1996, with the ICC's approval. CILCO participated in a state-wide "Regulatory Initiatives Task Force" (RITF) to review and analyze regulation in Illinois. The RITF, which examined the status of past and future regulation, presented eight potential competitive scenarios with individual comments from each task force participant as part of its study. The completed text describing this study was printed and provided to the ICC and the Illinois legislature for educational and planning purposes. Legislation was introduced in the Illinois General Assembly in the spring of this year to provide, among other things, an option for electric utilities to lease their generating plants to a subsidiary or other affiliated company, to provide for retail wheeling for larger electric customers within five years, to provide experimental retail wheeling for smaller electric customers, to create a new class or status of "competitive" customers that are permitted to negotiate service contracts with their electric utility suppliers without regulatory oversight and to provide for alternative regulation similar to that contained in Public Act 89-0194. The proposed legislation was supported by at least one major electric utility in Illinois and by a group of Illinois industrial customers. The legislation was not adopted by this year's session of the legislature. Instead, the legislature passed Senate Joint Resolution 21 (SJR 21) on May 25, 1995, creating the Joint Committee on Electric Utility Regulatory Reform (Committee) to study deregulation and increased competition in the provision of electric service in Illinois. The Committee will review reports and studies from a diverse group of organizations. A technical advisory group comprised of representatives from the ICC and various companies, including CILCO, will conduct research and offer testimony. SJR 21 specifically requires the Committee to consider the legislative proposal described at the beginning of this paragraph as a "key element" in its deliberations. A series of workshops will be held to facilitate the Committee's progress. A preliminary report, including specific legislative proposals, is required to be submitted to the Illinois legislature by December 1, 1995; the final legislative package is due on or before November 8, 1996. On March 29, 1995, the FERC initiated a Notice of Proposed Rulemaking (NOPR), which addresses expanded transmission access, recovery of stranded investment due to increased wholesale competition, information sharing and other issues related to expanded competition in the electric utility industry. The FERC's NOPR seeks comments on proposals concerning transaction coordination, record-keeping, reporting, tariffs, state-versus-federal jurisdiction and many other related topics. CILCO is reviewing the NOPR to determine its effect on operations and to develop a strategy for dealing with its provisions. In July 1995, CILCO filed comments with the FERC on its proposal to mandate real-time information networks (RINs). These comments address the implementation of costly programs, such as RINs, which place a disproportionate cost burden on smaller competitive utilities, such as CILCO, which have fewer wholesale transactions of lesser value. In August 1995, CILCO filed comments with the FERC on its proposal to require open access to electric transmission networks and its stranded cost subsidy proposal. CILCO suggests that only partial and not full recovery of stranded costs should be permitted during a limited term. CILCO intends to be an active participant in the new competitive markets and intends to file open access tariffs consistent with those included in the NOPR. With the proposed changes in the regulatory environment and the potential for increased competition in the electric utility industry at both the wholesale and retail levels, CILCO anticipates changes in the manner in which the industry operates in the years to come. Management cannot predict the ultimate effect of these changes, but believes that, at a minimum, larger customers may have increased opportunities to select the electric supplier of their choice and that low operating costs and improved efficiency will be key competitive factors for electric utilities. CILCO management continues to position itself for competition by keeping its costs and prices low, maintaining good customer relations and developing the flexibility to respond directly to individual customer requirements. CILCO's Electric Least Cost Plan The Illinois statute governing public utilities requires the ICC to review and adopt electric least cost energy plans (LCPs) for public utilities. In general, CILCO's LCP consists of customer demand forecasts and the projected resources that CILCO will rely upon to meet that demand. The planning horizon is twenty years, and the LCP is reviewed by the ICC every three years. CILCO filed its most recent electric LCP on June 30, 1995; the ICC is required to make a decision on whether to adopt this or a modified plan after an eleven-month public hearing process. This LCP contains several existing Demand Side Management (DSM) programs, including interruptible and standby generation rates, residential heat pumps, commercial audits and the "In Concert With The Environment" program. The new plan also proposes to add four new DSM programs to help meet system load growth anticipated over the planning period. These include new interruptible contracts, new standby generation contracts, air conditioning cycling and targeted thermal storage cooling programs. Three new informational programs are also proposed, including new construction efficiency, motor efficiency and commercial lighting efficiency programs. Based on a preliminary assessment, electric DSM programs are projected to reduce CILCO's peak demand by 137 MW over the twenty-year planning horizon. Audit Of CILCO's Gas Operations In September 1994, as part of a settlement arrangement with the U.S. Department of Justice, CILCO agreed to underwrite the reasonable expense of an outside expert, selected by the ICC, to examine CILCO's gas operations manuals and systems to ensure they comply with all applicable statutes and regulations. CILCO estimates the cost of the audit will be $350,000 and expects the audit to conclude by the end of 1995. For additional information refer to Note 9. Rate Matters in the Company's 1994 Annual Report on Form 10-K. CILCO Sale Of R. S. Wallace Station In 1994, CILCO entered into an option agreement to sell for $7 million the 95-acre site of the former R. S. Wallace Station, a retired electric generating plant. On January 5, 1995, the ICC approved the sale and the accounting treatment of the proceeds. Various significant terms and conditions must be satisfied in order for the sale to be completed. If such terms and conditions are satisfied, CILCO expects a portion of the sale will be completed in 1995, with the remainder to be completed during 1996 and 1997. Gain on the sale would be included in other income during 1995, 1996 and 1997. CILCO's Coal Contract Arbitration Freeman United Coal Mining Company (Freeman), a coal supplier with whom CILCO has a long-term contract, notified CILCO of its intent to calculate charges related to post-retirement benefits other than pensions (SFAS 106) on the accrual basis and include them in its billings to CILCO based upon a 1986 Coal Supply Agreement. This is a change from the cash method of billing for these expenses. Freeman has billed CILCO an additional $5.1 million for SFAS 106 charges for the period from January 1, 1993, through June 30, 1995. CILCO anticipates that Freeman will continue to bill CILCO on the accrual basis for SFAS 106 expenses. Based upon the language of a 1992 settlement agreement between CILCO and Freeman, CILCO believes it is responsible for paying these SFAS 106 expenses on a cash basis rather than on an accrual basis. To date, no liability for these charges has been recorded and no payments have been remitted to Freeman. This issue has been submitted to arbitration. CILCO believes that any additional charges which may be paid to Freeman are properly recoverable through the fuel adjustment clause. Management cannot currently determine the outcome of this arbitration, but does not believe it will have a material adverse impact on CILCO's financial position or results of operations. CILCO's Union Contracts CILCO is presently engaged in contract negotiations with one of its unions, the IBF&O. The IBF&O agreed to extend its current contract which expired June 30, 1995, on a day-to-day basis with the right of either party to give a ten-day advance notice to terminate the contract. The next contract negotiation meeting is scheduled for August 10, 1995. A two-year contract with the IBEW members was ratified effective July 1, 1995. ESE New Subsidiary ESE formed a wholly-owned subsidiary on May 4, 1995, to engage in the business of removal of unexploded ordnance and related waste from contaminated sites. Employees of this subsidiary are primarily former military personnel who have been trained in unexploded ordnance procedures. ESE's initial equity investment in the subsidiary is $100,000. Item 6: Exhibits and Reports on Form 8-K. (a) Exhibits 27 - Financial data schedules (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the regis- trant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CILCORP Inc. (Registrant) Date August 10, 1995 R. O. Viets R. O. Viets President and Chief Executive Officer Date August 10, 1995 J. L. Barnett J. L. Barnett Controller SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the regis- trant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTRAL ILLINOIS LIGHT COMPANY (Registrant) Date August 10, 1995 T. S. Romanowski T. S. Romanowski Vice President and Chief Financial Officer Date August 10, 1995 R. L. Beetschen R. L. Beetschen Controller and Manager of Accounting EX-27 2
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000762129 CILCORP INC. 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 PER-BOOK 876,963 23,767 143,410 58,652 129,974 1,232,766 171,864 0 177,823 349,687 22,000 44,120 330,696 21,000 0 11,200 19,191 0 3,214 356 431,302 1,232,766 303,077 10,573 258,690 269,263 33,814 (385) 33,429 14,611 18,818 1,667 17,151 16,056 0 51,988 1.31 1.31
EX-27 3
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000018651 CENTRAL ILLINOIS LIGHT COMPANY 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 PER-BOOK 876,963 3,646 91,261 33,905 0 1,005,775 185,661 0 123,557 309,218 22,000 44,120 282,378 0 0 11,200 16,000 0 3,214 356 317,289 1,005,775 233,739 10,515 191,217 202,837 30,902 (1,390) 30,617 11,461 19,156 1,667 17,489 16,056 0 49,409 0 0