-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ghmf7N65jxoEsmylfX2iXFVY7rzY0GcTVHfqeLP14vy4ulPIvVVJGK5MC5w2GX5M ghHKQV1Bd1XKLeYx69EqtA== 0000018654-98-000004.txt : 19980331 0000018654-98-000004.hdr.sgml : 19980331 ACCESSION NUMBER: 0000018654-98-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL ILLINOIS PUBLIC SERVICE CO CENTRAL INDEX KEY: 0000018654 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 370211380 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20455 FILM NUMBER: 98578379 BUSINESS ADDRESS: STREET 1: 607 E ADAMS ST CITY: SPRINGFIELD STATE: IL ZIP: 62739 BUSINESS PHONE: 2175233600 MAIL ADDRESS: STREET 1: CENTRAL ILLINOIS PUBLIC SERVICE CO STREET 2: 607 E ADAMS ST CITY: SPRINGFIELD STATE: IL ZIP: 62739 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to _________ Commission Registrant; State of Incorporation; IRS Employer File Number Address; and Telephone Number Identification No. 1-3672 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 37-0211380 (An Illinois Corporation) 607 East Adams Street Springfield, Illinois 62739 217-523-3600 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title Of Class Cumulative Preferred Stock, par value $100 per share Depositary Shares, each representing one-fourth of a share of 6.625% Cumulative Preferred Stock, par value $100 per share Indicate by check mark whether the Registrant (1) has 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) Aggregate market value at February 1, 1998 of the voting stock held by non-affiliates of Central Illinois Public Service Company (CIPS) - $22,626,000 - Cumulative Preferred Stock (par value $100 per share) [Note: Excludes value of 400,000 shares of Cumulative Preferred Stock for which CIPS has been unable to determine market value.] Number of shares outstanding of each of CIPS' classes of common stock at February 1, 1998: 25,452,373 shares of Common Stock, without par value (all owned by Ameren Corporation). Documents Incorporated By Reference: A portion of CIPS' Proxy Statement relating to its 1998 Annual Meeting of Shareholders is incorporated by reference in Part III. =========================================================================== CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 1997 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I PAGE Item 1. Business Merger . . . . . . . . . . . . . . . . . . . . . . . General. . . . . . . . . . . . . . . . . . . . . . . Construction Program and Financing . . . . . . . . . Rate Matters . . . . . . . . . . . . . . . . . . . . Electric Operations. . . . . . . . . . . . . . . . . Gas Operations . . . . . . . . . . . . . . . . . . . Fuel . . . . . . . . . . . . . . . . . . . . . . . . Regulation . . . . . . . . . . . . . . . . . . . . . Environmental Matters. . . . . . . . . . . . . . . . Competition -- Electric Business . . . . . . . . . . Competition -- Gas Business. . . . . . . . . . . . . Utility Industry . . . . . . . . . . . . . . . . . . Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . Item 4. Submission of Matters to a Vote of Security Holders . . . PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . Item 8. Financial Statements and Supplementary Data . . . . . . . Report of Independent Public Accountants. . . . . . . . . Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . PART III Item 10. Directors and Executive Officers of the Registrant . . . Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . . Item 13. Certain Relationships and Related Transactions. . . . . . PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . Signatures. . . . . . . . . . . . . . . . . . . . . . . . Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . PART I Item 1. Business MERGER. Central Illinois Public Service Company ("CIPS", the "Company" or "AmerenCIPS", as noted) became a subsidiary of Ameren Corporation ("Ameren"), following completion of the merger between CIPSCO Incorporated (formerly the parent holding company of CIPS) and Union Electric Company ("UE") on December 31, 1997. GENERAL. The Company, an Illinois corporation, was organized in 1902. CIPS is a public utility operating company engaged in the sale of electricity and natural gas in portions of central and southern Illinois. CIPS generates, transmits and distributes electricity and, through interchange agreements with other utility systems, purchases and sells power on a firm basis, in emergency situations or when economical to do so. CIPS sells and distributes natural gas which it purchases from natural gas producers and other suppliers and transports natural gas purchased by end- users directly from suppliers. The principal executive offices of CIPS are located in Springfield, Illinois. CIPS furnishes electric service to about 323,000 retail customers in 557 incorporated and unincorporated communities and adjacent suburban and rural areas. CIPS also furnishes natural gas service to about 170,000 retail customers in 267 incorporated and unincorporated communities and adjacent suburban and rural areas and provides gas transportation service to end- users. CIPS furnishes both electric and natural gas service in 236 of the communities served by it. The territory served by CIPS, located in 66 counties in Illinois, has an estimated population of 820,000 and is devoted principally to agriculture and diversified industrial operations. Key industries include petroleum and petrochemical industries, food processing, metal fabrication and coal mining. CIPS recorded an extraordinary charge to earnings in the fourth quarter of 1997 for the write-off of generation-related regulatory assets and liabilities as a result of electric industry restructuring legislation enacted in Illinois in December 1997. The write-off reduced earnings $25 million, net of income taxes. (See Note 2 to the "Notes to Financial Statements" under Item 8 herein.) For the year ended December 31, 1997, the Company derived approximately 82% of its operating revenues from its electric business and 18% from its natural gas business. For 1996 and 1995, the corresponding percentages were 82% electric and 18% natural gas, and 84% electric and 16% natural gas, respectively. The total number of active employees of the Company was 2,230 at the payroll period nearest year-end 1997. Of these, 1,325 employees are represented by unions under collective bargaining agreements. All labor agreements expire on June 30, 1999 with the exception of one agreement which expires February 28, 2001. Effective with the merger, approximately 325 employees transferred to Ameren's subsidiary, Ameren Services Company. CONSTRUCTION PROGRAM AND FINANCING. Total construction expenditures for CIPS for 1998 through 2002 are estimated at $420 million. Capital expenditures for compliance with the Clean Air Act Amendments of 1990 are included in the construction program, but the estimate does not include expenditures which may be incurred to meet new air quality standards - - also see "Environmental Matters" below. (See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.) CIPS has no electric generating units under construction. (See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.) CIPS has filed shelf registration statements with the Securities and Exchange Commission, covering up to $200 million of first mortgage bonds and medium-term notes. The authority remaining under the shelf registration is $75 million. CIPS currently has authority from the Illinois commission to issue or incur up to $200 million of first mortgage bonds, medium-term notes and bank borrowings outstanding at any time through December 31, 1998. Pursuant to this authority, in February 1997 CIPS entered into long-term credit facilities with banks which currently provide for up to $42 million of borrowings. The authority remaining at the Illinois commission will allow the incurrence of $54 million of long- term debt. The issuance by CIPS of first mortgage bonds, medium-term notes and/or other secured debt securities, common stock, preferred stock and certain unsecured debt securities is subject to the receipt of necessary regulatory approvals. (See Business - Regulation.) The Mortgage Indenture of CIPS, as presently operative, permits the issuance of additional first mortgage bonds up to 60% of available net expenditures for bondable property, provided the "net earnings" of CIPS (before income taxes and otherwise as provided in the Mortgage Indenture) for a recent 12-month period equal at least twice the annual interest requirements on all first mortgage bonds outstanding (and on all equally secured and prior lien indebtedness) and on the bonds then to be issued. At December 31, 1997, the more restrictive of these requirements was the "net earnings" test. The "net earnings" of CIPS for the year ended December 31, 1997, so computed, were equal to 5.27 times the interest for one year on the aggregate amount of bonds outstanding under the Mortgage Indenture at December 31, 1997. Based on the "net earnings" of CIPS (so computed) for the year ended December 31, 1997, and the bonds outstanding under the Mortgage Indenture at December 31, 1997, CIPS could have issued about $603 million of additional first mortgage bonds under the foregoing interest coverage provision (assuming an annual interest rate of 7.02% on such bonds). The Articles of Incorporation of CIPS provide, in effect, that so long as any CIPS preferred stock is outstanding, CIPS shall not, without the requisite vote of the holders of preferred stock, unless the retirement of such stock is provided for, (a) issue any preferred or equal ranking stock (except to retire or in exchange for an equal amount thereof) unless the "gross income available for interest" of CIPS for a recent 12-month period is at least one and one-half (1-1/2) times the sum of (i) one year's interest on all funded debt and notes maturing more than 12 months after the date of issuance of such shares and (ii) one year's dividend requirement on all preferred stock to be outstanding after such issue, or (b) issue or assume any unsecured debt securities maturing less than two years from the date of issuance or assumption (except for certain refunding or retirement purposes) if immediately after such issuance or assumption the total amount of all such unsecured debt securities would exceed 20% of the sum of all secured debt securities and the capital and surplus of CIPS. For the year ended December 31, 1997, the "gross income available for interest" of CIPS equalled 2.38 times the sum of the annual interest charges and dividend requirements on all such funded debt, notes and preferred stock outstanding at December 31, 1997. Such "gross income available for interest" was sufficient under the test to support the issuance of additional preferred stock (assuming an annual dividend rate on such preferred stock of 7.00%) in an amount in excess of the maximum amount ($185 million) of authorized and unissued preferred stock under the Articles. RATE MATTERS. In April 1993, CIPS began recovering amounts under environmental adjustment clause riders for the cleanup and restoration of former manufactured gas plant sites (environmental remediation sites). The Illinois commission has instituted a reconciliation proceeding to review CIPS' environmental remediation activities in 1993, 1994 and 1995 and to determine whether the revenues collected under the riders in 1993 were consistent with the amount of remediation costs prudently incurred. The Illinois commission also has instituted a reconciliation proceeding to review CIPS' environmental activities in 1996. The initial proceeding for the years 1993-1995 has been completed and is awaiting Illinois commission action. The second proceeding, for the year 1996, is ongoing. (See Note 8 of Notes to Financial Statements included under Item 8 of this report.) The retail fuel adjustment clause (FAC) of CIPS was consistent with the uniform FAC mandated by the Illinois commission for all electric utilities as applicable to retail electric sales in Illinois. The FAC provided for the recovery of changes in electric fuel costs, including certain transportation costs of coal, in billings to retail customers. On February 13, 1998, CIPS filed with the Illinois commission to eliminate its retail FAC and to roll-in the average FAC amounts for the years 1995 and 1996 into its base rate energy charges, and the request has been approved. The Illinois commission conducts annual proceedings to determine whether the electric fuel and purchased gas charges collected by CIPS in each year pursuant to the applicable fuel adjustment and purchased gas adjustment clauses reflect the actual costs of electric fuel and natural gas prudently purchased in that year and to reconcile revenues collected under the clauses during the year with actual costs incurred. The Illinois commission can order refunds to customers if it determines that actual costs of fuel or purchased gas were less than the amounts charged to customers pursuant to the clauses or if it finds that CIPS was imprudent in its purchases of fuel or gas. The Illinois commission has completed its review of fuel adjustment and purchased gas adjustment charges for all years prior to 1997. No significant refunds or adjustments were required for those years. A fuel reconciliation proceeding for the year 1997 is pending. (See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook and Note 2 of Notes to Financial Statements included under Item 8 of this report.) ELECTRIC OPERATIONS. Since 1977 CIPS has been a net off-system seller of electricity and during 1997 it generated 135% of its system requirements. GAS OPERATIONS. CIPS distributes and sells natural gas to 267 incorporated and unincorporated communities located in 41 counties of central and southern Illinois. The CIPS service territory is predominantly made up of small towns and rural areas. Of the communities served, only 5 have populations greater than 15,000. Customer density on the CIPS gas system is approximately 35 customers per mile of main. The rate schedules of CIPS applicable to all of its gas sales include a uniform purchased gas adjustment clause, which permits CIPS to adjust its rates to its customers to reflect substantially all changes in the cost of purchased gas. (See Note 1 of Notes to Financial Statements included under Item 8 of this report. See Business - Rate Matters.) FUEL. Over 99% of the net kilowatthour generation of CIPS in 1997 was provided by coal-fired generating units and the remainder by an oil-fired unit. The average costs of fuel consumed by CIPS, per ton and per million Btu, for the periods shown were as follows: 1997 1996 1995 Per ton ($) . . . . . . . . . . . . 33.22 36.16 37.69 Per million Btu ($) . . . . . . . . 1.63 1.71 1.76 In 1997, approximately 21.2% of the coal purchased for electric generation was purchased on a spot basis at average delivered costs of $26.61 per ton and $1.20 per million Btu. The amount of coal supplies on hand at the generating stations of CIPS varies from time to time. CIPS generally attempts to maintain a 65-day supply. Approximately 80% of the annual coal requirements of the generating facilities of CIPS are being met by long-term coal contracts expiring at various dates from 1998 to 2010. As contracts approach their expiration, or when appropriate, CIPS evaluates alternative supply arrangements based on then current and expected market conditions for coal. CIPS believes there are adequate reserves reasonably available to supply its existing generating units with the quantity and quality of coal required for the foreseeable future. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources and Note 8 to "Notes to Financial Statements" under Item 8. REGULATION. As a subsidiary of Ameren, CIPS is subject to the provisions of the Public Utility Holding Company Act of 1935. CIPS is subject to regulation by the Illinois commission as to rates, accounting practices, issuance of certain securities and in other respects as provided by Illinois law. The Electric Supplier Act of Illinois permits utilities and electric cooperatives to delineate their respective service areas, subject to the approval of the Illinois commission, and gives the Illinois commission power to determine, pursuant to guidelines provided in the Act, whether a prospective electric customer will be furnished service by a public utility or by a cooperative. The FERC has jurisdiction under the Federal Power Act over certain of the electric utility facilities and operations, accounting practices, issuance or acquisition of certain securities and electric rates of CIPS for resale and interchange customers. CIPS has been classified as a "public utility" within the meaning of that Act. CIPS has been declared exempt from the federal Natural Gas Act. In December 1997, the Governor of Illinois signed the Electric Service Customer Choice and Rate Relief Law of 1997 providing for electric utility restructuring in Illinois. This legislation introduces competition into the supply of electric energy in Illinois and, as a result, prices for the retail supply of electric generation are expected to transition from cost- based regulated rates to rates determined in large part by competitive market forces. For a discussion of the legislation, see Note 2 to the "Notes to Financial Statements" under Item 8. ENVIRONMENTAL MATTERS. CIPS is subject to regulation with respect to air and water quality standards, standards relating to the discharge and disposal of solid and hazardous wastes and other environmental matters by various federal, state and local authorities. The Illinois Pollution Control Board (the "Board") has jurisdiction over all phases of environmental control by the State of Illinois and has authority to grant variances from environmental requirements. The Illinois Environmental Protection Agency (the "Agency") has authority to issue permits, investigate violations and recommend enforcement cases. The Illinois Attorney General has the authority to prosecute enforcement cases. The United States Environmental Protection Agency (the "USEPA") has jurisdiction to promulgate and enforce air and water quality standards in addition to those standards which relate to the discharge and disposal of solid and hazardous wastes. Air pollution control regulations promulgated by the Board impose restrictions on emissions of particulate, sulfur dioxide, nitrogen oxides and other air pollutants and require that CIPS obtain permits from the Agency for the construction and operation of its generating facilities in compliance with these regulations. CIPS has secured all necessary operating permits for all of its existing generating facilities and is in substantial compliance with the provisions contained therein. Future construction projects may require additional construction permits. Under Title IV of the Clean Air Act Amendments of 1990, the Company is required to significantly reduce total annual sulfur dioxide emissions by the year 2000. Significant reductions in nitrogen oxide are also required. By switching to low-sulfur coal, the Company anticipates that it can comply with the requirements of the law without significant revenue increases because the related capital costs are largely offset by lower fuel costs. As of year-end 1997, estimated remaining capital costs expected to be incurred pertaining to Clean Air Act-related projects totaled $72 million. In July 1997, the United States Environmental Protection Agency (EPA) issued final regulations revising the National Ambient Air Quality Standards for ozone and particulate matter. Although specific emission control requirements are still being developed, it is believed that the revised standards will require significant additional reductions in nitrogen oxide and sulfur dioxide emissions from coal-fired boilers. In October 1997, the EPA announced that Illinois is included in the area targeted for nitrogen oxide emissions reductions as part of the EPA's regional control program. Reduction requirements in nitrogen oxide emissions from the Company's coal-fired boilers could exceed 80% from 1990 levels by the year 2002. Reduction requirements in sulfur dioxide emissions may be up to 50% beyond that already required by Phase II acid rain control provisions of the 1990 Clean Air Act Amendments and could be required by 2007. Because of the magnitude of these additional reductions, the Company could be required to incur significantly higher capital costs to meet future compliance obligations for its coal-fired boilers or purchase power from other sources, either of which could have significantly higher operations and maintenance expenditures associated with compliance. At this time, the Company is unable to determine the impact of the revised air quality standards on its future financial condition, results of operations or liquidity. In December 1997, the United States and numerous other countries agreed to certain environmental provisions (the Kyoto Protocol), which would require decreases in greenhouse gases in an effort to address the "global warming" issue. The Company is unable to predict what requirements, if any, will be adopted in this country. However, implementation of the Kyoto Protocol in its present form would likely result in significantly higher capital costs and operations and maintenance expenditures by the Company. At this time, the Company is unable to determine the impact of these proposals on its future financial condition, results of operations or liquidity. Water pollution control regulations promulgated by the Board impose restrictions on effluent discharges, set water quality standards and require CIPS to obtain construction permits for certain facilities and National Pollutant Discharge Elimination System ("NPDES") permits for discharges into public waters. CIPS has secured all necessary NPDES permits for all of its generating units and is in substantial compliance with the currently effective provisions contained therein, except as noted in the following paragraph. On August 2, 1996, the Company received notice that the Illinois Attorney General had filed a complaint with the Board alleging various violations of wastewater discharge permit conditions at the Hutsonville Power Station. The allegations had been the subject of prior pre- enforcement conference letters. The complaint seeks monetary penalties and the award of attorney fees. The Company, the Agency, and the Attorney General are continuing to work on a plan to resolve these issues. While the Company cannot predict the final outcome of this matter, it does not believe that the final resolution will have a material adverse effect on financial position, results of operations or liquidity of the Company. Pollution control regulations promulgated by the Board impose restrictions on the discharge and disposal of solid and hazardous waste, and determine design standards to prevent contamination of groundwater. CIPS has secured all necessary permits and authorizations for disposal and is in substantial compliance with the provisions contained therein. Future construction projects may require additional authorizations or permits. On January 16, 1997, the Agency issued CIPS a notice of violation concerning an incident at the Newton Power Station. On September 9, 1996, a truck driver delivering sodium hydroxide mistakenly unloaded the caustic material into an acid storage tank. When the two chemicals mixed, a violent reaction occurred and the ensuing explosion discharged acid and caustic material into the environment. The Agency is seeking a thorough site investigation followed up by appropriate remedial actions. The site has been extensively cleaned up. The Company believes that sole responsibility for this incident rests with the trucking company and will vigorously defend any further action by the Agency. As of December 31, 1997, CIPS has been designated as a potentially responsible party (PRP) by federal and state environmental protection agencies at three hazardous waste sites. Other hazardous waste sites have been identified for which CIPS may be responsible but has not been designated a PRP. Cost relating to studies and remediation and associated legal and litigation expenses are being accrued and deferred rather than expensed currently, pending recovery through rates. Through December 31, 1997, the total of the costs deferred, net of recoveries from insurers and through environmental adjustment clause rate riders approved by the ICC, was $13 million. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources and Note 8 to Notes to Financial Statements under Item 8. COMPETITION -- ELECTRIC BUSINESS. Competition is increasing in the electric utility business. A description of some of the competitive factors, including state and federal restructuring efforts, and the potential impact of such matters on CIPS, are described in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Electric Industry Restructuring and Note 2 to the "Notes to the Financial Statements" under Item 8. Future regulatory, legislative, technological and economic changes can be expected to further increase competition in wholesale as well as retail markets. (See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook.) COMPETITION -- GAS BUSINESS. Competition in the natural gas industry is increasing. For a number of years, CIPS customers have had the ability to purchase natural gas from producers or other suppliers and transport that gas through the interstate pipelines and the CIPS system. CIPS collects a rate for transportation through its system. Policies of the FERC have increased the competitive nature of the gas business. In certain cases customers have the ability to receive their gas supply directly from pipelines and bypass the CIPS system. Illinois utilities, under special rate provisions authorized by the Illinois Commerce Commission (the "Illinois commission"), are authorized to negotiate special contractual sales arrangements with their larger natural gas customers as a means of retaining such customers. CIPS has negotiated or is currently negotiating with a number of its larger industrial gas customers regarding flexible rates to address the more competitive environment in which CIPS is operating. While CIPS has had to provide lower rates to retain some customers, CIPS has used this same flexibility to obtain some new loads. UTILITY INDUSTRY. CIPS is experiencing some of the problems common to electric and gas utility companies, namely, increased competition for customers, increased construction costs, delays and uncertainties in the regulatory process and costs of compliance with environmental and other laws and regulations. (See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Outlook.) Item 2. Properties. CIPS owns 20%, (Union Electric owns 40% and two other utilities own the remaining 40%) of the common stock of Electric Energy, Inc. (EEI). The owners, including CIPS, are entitled to receive from EEI varying amounts of power. Electric Energy, Inc. owns and operates a 1,015,000 kilowatt coal- fired power station located in Joppa, Illinois. CIPS is a member of the Mid-America Interconnected Network reliability council made up of utilities, public power generators, power marketers and others, which has as its purpose the promotion of maximum coordination of planning, construction and utilization of generation and transmission facilities on a regional basis in order to assure the reliability of electric bulk power supply in the area served. The electric generating facilities of CIPS consist of the following: Estimated 1998 Summer Year Capability Station and Unit Fuel Installed (KW) Newton Unit 1 . . . . . . . . . Coal 1977 555,000 Unit 2 . . . . . . . . . Coal 1982 555,000 Coffeen Unit 1 . . . . . . . . . Coal 1965 340,000 Unit 2 . . . . . . . . . Coal 1972 560,000 Grand Tower Unit 3 . . . . . . . . . Coal 1951 82,000 Unit 4 . . . . . . . . . Coal 1958 104,000 Hutsonville Unit 3 . . . . . . . . . Coal 1953 76,000 Unit 4 . . . . . . . . . Coal 1954 77,000 Diesel Unit. . . . . . . Oil 1968 3,000 Meredosia Unit 1 . . . . . . . . . Coal 1948 62,000 Unit 2 . . . . . . . . . Coal 1949 62,000 Unit 3 . . . . . . . . . Coal 1960 215,000 Unit 4 . . . . . . . . . Oil 1975 168,000 Total . . . . . . . . 2,859,000 ========= All of the generating stations are located in Illinois on land owned in fee by CIPS. CIPS maintains a diversified portfolio of gas supply, transportation, leased storage and no-notice service contracts to reliably serve its gas customers. In addition, CIPS' owned storage and propane-air facilities provide additional reliability and flexibility to meet peak day and peak season requirements. In recent years CIPS has made investments to construct additional pipeline interconnections, increase CIPS owned storage capacity, improve reliability of existing storage facilities, modernize propane-air facilities and improve data acquisition capabilities. At the same time CIPS has reorganized and enhanced its gas supply planning and procurement functions. At December 31, 1997, CIPS owned about 13,100 pole miles of overhead electric lines and about 1,000 miles of underground electric lines. At that date, CIPS also owned 4,800 miles of natural gas transmission and distribution mains, four underground gas storage fields and one propane-air gas plant used to supplement the available pipeline supply of natural gas during periods of abnormally high demands. Substantially all of the permanent fixed utility property of CIPS is subject to the lien of the Mortgage Indenture securing CIPS first mortgage bonds. Item 3. Legal Proceedings. On December 22, 1995, a complaint was filed in the Circuit Court for the Seventh Judicial Circuit, Sangamon County, Illinois against CIPS and several other defendants. The complaint seeks unspecified monetary damages and alleges that, as a result of exposure to carcinogens contained in coal tar at the CIPS Taylorville gas plant site, plaintiffs' children had suffered from a rare form of childhood cancer known as "neuroblastoma." The plaintiffs in this complaint are the plaintiffs who on October 5, 1995 voluntarily dismissed claims in a similar complaint in the Circuit Court for the Fourth Judicial Circuit, Christian County, Illinois. On April 17, 1996, the Seventh Judicial Circuit Court, Sangamon County, Illinois granted approval of the petition by CIPS requesting transfer of this case to the Circuit Court for the Fourth Judicial Circuit, Christian County, Illinois. On March 27 1998, a jury awarded plaintiffs $3.2 million. CIPS continues to believe it has meritorious defenses and plans to appeal the verdict. Management believes that final disposition of this matter will not have a material adverse effect on financial position, results of operations or liquidity of the Company. Reference is made to Note 8 of Notes to Financial Statements for a discussion of the order of the Illinois commission approving a coal contract restructuring, including recovery through the automatic fuel adjustment clause ("FAC"), over a period estimated to be 72 months, of a $70 million restructuring charge and associated carrying costs. On February 28, 1997, a group of industrial customers who had intervened in the proceeding before the Illinois commission filed an appeal of the order with the Illinois Third District Appellate Court. The industrial customers asked the court to reverse or remand that portion of the order authorizing CIPS to recover the restructuring charge through the FAC. On November 24, 1997, the Court reversed the Illinois commission's order, finding that the restructuring charges were not direct costs of fuel that may be recovered through the retail FAC, but rather should be considered as a part of a review of CIPS' aggregate revenue requirements in a full rate case. Restructuring charges allocated to wholesale customers (about $7 million of the total) are not in question as a result of the opinion of the Court. In December 1997, the Company requested a rehearing by the Court; that request was denied. However, the Court did rule that all revenues collected under the retail FAC in 1997 would not have to be refunded to customers. The Company has appealed to the Illinois Supreme Court the Court's decision that restructuring charges may not be recovered through the retail FAC. CIPS is involved in other legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business, some of which involve substantial amounts. CIPS believes that the final disposition of these proceedings will not have a material adverse effect on its financial position, results of operations or liquidity. Statements made in this report which are not based on historical facts, are forward-looking and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those discussed. Although such forward-looking statements have been made in good faith and are based on reasonable assumptions, there is no assurance that the expected results will be achieved. These statements include (without limitation) statements as to future expectations, beliefs, plans, strategies, objectives, events, conditions and financial performance. In connection with the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is providing this cautionary statement to identify important factors that could cause actual results to differ materially from those anticipated. Factors include, but are not limited to, the effects of regulatory actions; changes in laws and other governmental actions; competition; future market prices for electricity; average rates for electricity in the Midwest; business and economic conditions; weather conditions; fuel prices and availability; generation plant performance; monetary and fiscal policies; and legal and administrative proceedings. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to a vote of security holders of CIPS during the three months ended December 31, 1997. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. All the common stock of CIPS, 25,452,373 shares, is owned by Ameren Corporation and is not publicly traded. Item 6. Selected Financial Data. For the Years Ended December 31, 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (in thousands) Operating Revenues $ 852,075 $ 881,102 $ 828,073 $ 835,882 $ 834,556 Operating Income 102,495 116,531 106,029 110,678 113,651 Net Income 38,620 77,393 70,631 81,913 84,011 Preferred Stock Dividends 3,715 3,721 3,850 3,510 3,718 Net Income after Dividends on Preferred Stock 34,905 73,672 66,781 78,403 80,293 Common Stock Dividends 43,300 62,950 71,000 68,600 33,500* As of December 31, Total Assets $1,788,707 $1,795,353 $1,759,838 $1,726,540 $1,720,367 Long-Term Debt** 558,474 421,228 478,926 474,619 494,323 *Reflects the repurchase of common shares of CIPS. **Excludes current portion of long-term debt. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW Central Illinois Public Service Company (AmerenCIPS or the Company) is a subsidiary of Ameren Corporation (Ameren), a newly created holding company, which is registered under the Public Utility Holding Company Act of 1935 (PUHCA). In December 1997, Union Electric Company (AmerenUE) and CIPSCO Incorporated (CIPSCO) combined to form Ameren, with AmerenUE and CIPSCO's subsidiaries, the Company and CIPSCO Investment Company (CIC), becoming wholly-owned subsidiaries of Ameren (the Merger). RESULTS OF OPERATIONS Earnings Earnings for 1997, 1996, and 1995 were $35 million, $74 million, and $67 million, respectively. Earnings fluctuated due to many conditions, primarily: weather variations, competitive market forces, sales growth, fluctuating operating costs, merger-related expenses, changes in interest expense, changes in income and property taxes and an extraordinary charge. The Company recorded an extraordinary charge to earnings in the fourth quarter of 1997 for the write-off of generation-related regulatory assets and liabilities as a result of electric industry restructuring legislation enacted in Illinois in December 1997. The write-off reduced earnings $25 million, net of income taxes. (See Note 2 - Regulatory Matters under Notes to Financial Statements for further information.) Electric Operations The impacts of the more significant items affecting electric revenues and operating expenses during the past three years are analyzed and discussed below: Electric Revenues Variations from Prior Year (Millions of Dollars) 1997 1996 1995 ---- ---- ---- Growth and other $ 5 $ 12 $ 7 Effect of abnormal weather (1) (5) 10 Interchange sales (29) 20 (16) ---- ---- ---- $(25) $ 27 $ 1 ---- ---- ---- The decrease in 1997 electric revenues was primarily attributable to a 19% decrease in interchange sales due to market conditions and differences in the classification of certain interchange and purchase power transactions resulting from Federal Energy Regulatory Commission (FERC) Order 888, as well as a 3% decline in industrial sales. Residential sales remained constant with prior year levels, while commercial sales increased 2% over the same period. The increase in 1996 electric revenues was primarily the result of a 5% increase in kilowatthour sales from the prior year. The kilowatthour sales increase stemmed from colder weather early in the year which increased sales to residential and commercial customers and a 14% increase in interchange sales. The increase in 1995 electric revenues was primarily attributable to warmer weather during July and August, creating increased residential and commercial sales. Fuel and Purchased Power Variations from Prior Year (Millions of Dollars) 1997 1996 1995 ---- ---- ---- Fuel: Variation in generation $ 7 $ 29 $(11) Price (8) 3 3 Generation efficiencies and other (4) - - Purchased power variation (27) (6) 4 ---- ---- ---- $(32) $ 26 $ (4) ---- ---- ---- The decrease in 1997 fuel and purchased power costs was driven mainly by a decrease in interchange sales and lower fuel prices due to the use of lower cost coal. The increase in 1996 fuel and purchased power costs reflected increased kilowatthour sales. The decrease in 1995 fuel and purchased power costs reflected decreased kilowatthour sales, offset slightly by higher fuel prices. Gas Operations Gas revenues in 1997 decreased $4 million primarily due to a milder winter. The introduction of off-system gas sales in 1997 offset the decrease in total sales to ultimate customers. Weather-sensitive residential and commercial dekatherm sales decreased 14% and 18%, respectively, from 1996. Industrial dekatherm sales increased 31% from the same period. Overall, total energy sales were 1% lower than last year. Gas revenues grew $26 million in 1996 as a result of colder weather and higher gas costs. Residential, commercial and industrial dekatherm sales increased 13%, 17% and 9%, respectively, in 1996 versus 1995. Gas revenues decreased $9 million in 1995 as a result of lower gas prices and lower commercial and industrial dekatherm sales of 3% and 27%, respectively, from the prior year. These decreases were partly offset by a 2% increase in weather- sensitive residential dekatherm sales from colder weather in 1995 versus 1994. Gas costs for 1997 remained relatively flat when compared to 1996 costs. Gas costs increased $22 million between 1996 and 1995 due to increased demand related to cooler weather and an increase in gas prices from suppliers. 1995 gas costs, when compared to 1994, decreased $11 million primarily due to lower gas prices. Other Operating Expenses Other operating expense variations in 1995 through 1997 reflected recurring factors such as growth, inflation, labor and employee benefit increases. In 1997, other operations expenses increased $15 million primarily due to increases in labor, various equipment purchases and rentals and information system-related costs. In 1996, other operations expenses decreased $9 million mainly due to several nonrecurring costs incurred in 1995 (see below). The increase of $15 million in other operations expenses in 1995 resulted from the occurrence of several nonrecurring costs, including $6 million related to a voluntary separation program and $6 million related to write-offs of system development costs. Maintenance expense changes between years are due to normal planning and scheduling of major power plant maintenance outages. The 1997 maintenance expense increase of 23% from prior year can be attributed to scheduled outages at three generating plants during 1997. 1997, 1996 and 1995 depreciation and amortization expense fluctuations relate primarily to property additions. Taxes Income tax expense from operations decreased $14 million in 1997 principally due to lower pretax income and a lower effective tax rate. Income tax expense from operations increased $4 million in 1996 due primarily to higher pretax income. Income tax expense from operation decreased $4 million in 1995 due primarily to lower pretax income. Other Income and Deductions Miscellaneous, net decreased $2 million from the prior year primarily due to increased merger-related expenses. In 1996 and 1995, miscellaneous, net, reflects $5 million of merger costs. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities totaled $66 million for 1997, compared to $138 million and $147 million in 1996 and 1995, respectively. Cash flows used in investing activities totaled $111 million, $80 million, and $109 million for the years ended December 31, 1997, 1996, and 1995, respectively. Expenditures in 1997 for constructing new or to improve existing facilities and complying with the Clean Air Act were $116 million. Construction expenditures are expected to be about $80 million in 1998. For the five-year period 1998-2002, construction expenditures are estimated at $420 million. This estimate does not include any construction expenditures which may be incurred by the Company to meet new air quality standards for ozone and particulate matter, as discussed below. The Company's need for additional base load electric generating capacity is not anticipated until after the year 2013. Under Title IV of the Clean Air Act Amendments of 1990, the Company is required to significantly reduce total annual sulfur dioxide emissions by the year 2000. Significant reductions in nitrogen oxide are also required. By switching to low-sulfur coal, the Company anticipates that it can comply with the requirements of the law without significant revenue increases because the related capital costs are largely offset by lower fuel costs. As of year-end 1997, estimated remaining capital costs expected to be incurred pertaining to Clean Air Act-related projects totaled $72 million. In July 1997, the United States Environmental Protection Agency (EPA) issued final regulations revising the National Ambient Air Quality Standards for ozone and particulate matter. Although specific emission control requirements are still being developed, it is believed that the revised standards will require significant additional reductions in nitrogen oxide and sulfur dioxide emissions from coal-fired boilers. In October 1997, the EPA announced that Illinois is included in the area targeted for nitrogen oxide emissions reductions as part of the EPA's regional control program. Reduction requirements in nitrogen oxide emissions from the Company's coal-fired boilers could exceed 80% from 1990 levels by the year 2002. Reduction requirements in sulfur dioxide emissions may be up to 50% beyond that already required by Phase II acid rain control provisions of the 1990 Clean Air Act Amendments and could be required by 2007. Because of the magnitude of these additional reductions, the Company could be required to incur significantly higher capital costs to meet future compliance obligations for its coal-fired boilers or purchase power from other sources, either of which could have significantly higher operations and maintenance expenditures associated with compliance. At this time, the Company is unable to determine the impact of the revised air quality standards on its future financial condition, results of operations or liquidity. In December 1997, the United States and numerous other countries agreed to certain environmental provisions (the Kyoto Protocol), which would require decreases in greenhouse gases in an effort to address the "global warming" issue. The Company is unable to predict what requirements, if any, will be adopted in this country. However, implementation of the Kyoto Protocol in its present form would likely result in significantly higher capital costs and operations and maintenance expenditures by the Company. At this time, the Company is unable to determine the impact of these proposals on its future financial condition, results of operations or liquidity. Cash flows provided by financing activities were $48 million for 1997. This compares to cash flows used in financing activities of $57 million and $38 million for 1996 and 1995, respectively. The Company's principal financing activities during 1997 included the issuance of $152 million of long-term debt, offset by the redemption of $64 million of long-term debt and dividend payments of $47 million. The Company plans to continue utilizing short-term debt to support normal operations and other temporary requirements. The Company is authorized by the FERC to have up to $150 million of short-term unsecured debt instruments outstanding at any one time. Short-term borrowings consist of bank loans (maturities generally on an overnight basis) and commercial paper (maturities generally within 10 to 45 days). At December 31, 1997, the Company had committed bank lines of credit aggregating $80 million (of which $80 million were unused and $15 million were available at such date) which make available interim financing at various rates of interest based on LIBOR, the bank certificate of deposit rate or other options. The lines of credit are renewable annually at various dates throughout the year. At year-end, the Company had $65 million of short-term borrowings. RATE MATTERS See Note 2 - Regulatory Matters under Notes to Financial Statements for a discussion of rate matters. CONTINGENCIES See Note 8 - Commitments and Contingencies under Notes to Financial Statements for material issues existing at December 31, 1997. ELECTRIC INDUSTRY RESTRUCTURING Changes enacted and being considered at the federal and state levels continue to change the structure of the electric industry and utility regulation, as well as encourage increased competition. At the federal level, the Energy Policy Act of 1992 reduced various restrictions on the operation and ownership of independent power producers and gave the FERC the authority to order electric utilities to provide transmission access to third parties. In April 1996, the FERC issued Order 888 and Order 889, which are intended to promote competition in the wholesale electric market. The FERC requires transmission-owning public utilities, such as AmerenCIPS, to provide transmission access and service to others in a manner similar and comparable to that which the utilities have by virtue of ownership. Order 888 requires that a single tariff be used by the utility in providing transmission service. Order 888 also provides for the recovery of stranded costs, under certain conditions, related to the wholesale business. Order 889 established the standards of conduct and information requirements that transmission owners must adhere to in doing business under the open access rule. Under Order 889, utilities must obtain transmission service for their own use in the same manner their customers will obtain service, thus mitigating market power through control of transmission facilities. In addition, under Order 889, utilities must separate their merchant function (buying and selling wholesale power) from their transmission and reliability functions. The Company believes that Order 888 and Order 889, which relate to its wholesale business, will not have a material adverse effect on its financial condition, results of operations or liquidity. In addition, certain states are considering proposals or have adopted legislation that will promote competition at the retail level. In December 1997, the Governor of Illinois signed the Electric Service Customer Choice and Rate Relief Law of 1997 (the Act) providing for electric utility restructuring in Illinois. This legislation introduces competition into the supply of electric energy in Illinois. (See Note 2 - Regulatory Matters under Notes to Financial Statements for further information.) After evaluating the impact of this legislation, the Company determined that it was necessary to write-off the generation-related regulatory assets and liabilities of its retail electric business. This extraordinary charge reduced 1997 earnings $25 million, net of income taxes. The Company has also concluded that its remaining net generation-related assets are not impaired and that no plant write-downs are necessary at this time. The provisions of the Act could also result in lower revenues, reduced profit margins and increased costs of capital. At this time, the Company is unable to determine any further impact of the Act on its future financial condition, results of operations or liquidity. (See Note 2 - Regulatory Matters under Notes to Financial Statements for further information.) INFORMATION SYSTEMS The Year 2000 issue relates to computer systems and applications that currently use two-digit date fields to designate a year. As the century date change occurs, date-sensitive systems will recognize the year 2000 as 1900, or not at all. This inability to recognize or properly treat the year 2000 may cause systems to process critical financial and operational information incorrectly. The Company is utilizing both internal and external resources to identify, correct or reprogram, and test information systems for Year 2000 compliance. The Company estimates that its costs for addressing the Year 2000 issue will range from $3 million to $5 million. These costs will be expensed as incurred. OUTLOOK Significant changes are taking place in the electric utility industry. The Company's management and Board of Directors recognize that competition will likely continue to increase in the future, especially in the energy supply portion of the business. New air quality standards are being considered which could significantly increase capital costs, purchased power expenses and other operations and maintenance expenditures. In addition, electric revenues will be lowered due to a rate decrease in the Company's jurisdiction (See Note 2 - Regulatory Matters under Notes to Financial Statements for further information) and expenditures for information systems are increasing (including those costs associated with the Year 2000 issue). These issues will result in numerous challenges and uncertainties for AmerenCIPS and the utility industry. At this time, management cannot predict the ultimate timing or impact of these matters on its future financial condition, results of operations or liquidity. AmerenCIPS' management and its Board of Directors are taking actions to address these challenges. Efforts are underway to accelerate merger cost savings and other expense reductions. The Company is also analyzing the potential benefits associated with the Illinois electric industry restructuring legislation, including the elimination of the fuel adjustment clause and securitizing certain future revenues. In addition, the Company will continue to focus on developing its core energy business for additional growth opportunities. Through these initiatives and other strategies, the Company intends to address these challenges, maximize the value of its strategic generating assets and enhance stockholder value. ACCOUNTING MATTERS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS 130 establishes standards for reporting and displaying comprehensive income. SFAS 131 establishes standards for reporting information about operating segments in annual financial statements and interim reports to stockholders. SFAS 130 and SFAS 131 are effective for fiscal years beginning after December 15, 1997. SFAS 130 and SFAS 131 are not expected to have a material effect on the Company's financial position or results of operations upon adoption. EFFECTS OF INFLATION AND CHANGING PRICES The Company's rates for retail electric and gas service are regulated by the Illinois Commerce Commission. Non-retail electric rates are regulated by the FERC. The current replacement cost of the Company's utility plant substantially exceeds its recorded historical cost. Under existing regulatory practice, only the historical cost of plant is recoverable from customers. As a result, cash flows designed to provide recovery of historical costs through depreciation may not be adequate to replace plant in future years. However, existing regulatory practice may be modified for the Company's generation portion of its business (see Note 2 - Regulatory Matters under Notes to Financial Statements for further information). Changes in the cost of fuel for electric generation and gas costs are generally reflected in billings to customers through fuel and purchased gas adjustment clauses. However, existing regulatory practice may be modified for changes in the cost of fuel for electric generation (see Note 2 - Regulatory Matters under Notes to Financial Statements for further information). Inflation continues to be a factor affecting operations, earnings, stockholder's equity and financial performance. SAFE HARBOR STATEMENT Statements made in this report which are not based on historical facts, are forward-looking and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those discussed. Although such forward-looking statements have been made in good faith and are based on reasonable assumptions, there is no assurance that the expected results will be achieved. These statements include (without limitation) statements as to future expectations, beliefs, plans, strategies, objectives, events, conditions and financial performance. In connection with the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is providing this cautionary statement to identify important factors that could cause actual results to differ materially from those anticipated. Factors include, but are not limited to, the effects of regulatory actions; changes in laws and other governmental actions; competition; future market prices for electricity; average rates for electricity in the Midwest; business and economic conditions; weather conditions; fuel prices and availability; generation plant performance; monetary and fiscal policies; and legal and administrative proceedings. Item 8. Financial Statements and Supplementary Data. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY BALANCE SHEET (Thousands of Dollars, Except Shares) December 31, December 31, 1997 1996 ------------ ------------ ASSETS Property and plant, at original cost: Electric $2,311,364 $2,244,571 Gas 249,499 242,664 ---------- ---------- 2,560,863 2,487,235 Less accumulated depreciation and amortization 1,132,591 1,099,261 ---------- ---------- 1,428,272 1,387,974 Construction work in progress 59,531 70,150 ---------- ---------- Total property and plant, net 1,487,803 1,458,124 ---------- ---------- Other assets 30,476 27,488 Current assets: Cash and cash equivalents 6,040 2,261 Accounts receivable - trade (less allowance for doubtful accounts of $1,200 and $600, respectively) 67,495 56,627 Unbilled revenue 31,708 30,126 Other accounts and notes receivable 7,760 18,134 Materials and supplies, at average cost - Fossil fuel 24,919 21,610 Gas Stored Underground 14,275 13,361 Other 32,334 38,806 Other 32,637 22,027 ---------- ---------- Total current assets 217,168 202,952 ---------- ---------- Regulatory assets: Deferred income taxes 28,052 42,035 Other 25,208 64,754 ---------- ---------- Total regulatory assets 53,260 106,789 ---------- ---------- Total Assets $1,788,707 $1,795,353 ========== ========== CAPITAL AND LIABILITIES Capitalization: Common stock, no par value, authorized 45,000,000 shares - outstanding 25,452,373 shares $121,282 $121,282 Retained earnings 451,477 459,942 ---------- ---------- Total common stockholder's equity 572,759 581,224 Preferred stock not subject to mandatory redemption 80,000 80,000 Long-term debt 558,474 421,228 ---------- ---------- Total capitalization 1,211,233 1,082,452 ---------- ---------- Current liabilities: Current maturity of long-term debt 9,000 58,000 Short-term debt 64,966 57,768 Accounts and wages payable 89,362 72,522 Taxes accrued 15,869 13,943 Other 21,937 21,996 ---------- ---------- Total current liabilities 201,134 224,229 ---------- ---------- Accumulated deferred income taxes 257,914 303,700 Accumulated deferred investment tax credits 40,369 48,885 Regulatory liability 48,587 100,350 Other deferred credits and liabilities 29,470 35,737 ---------- ---------- Total Capital and Liabilities $1,788,707 $1,795,353 ========== ==========
See Notes to Financial Statements. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY STATEMENT OF INCOME (Thousands of Dollars) December 31, December 31, December 31, For the year ended 1997 1996 1995 ------------ ------------ ------------ OPERATING REVENUES: Electric $700,517 $725,750 $698,463 Gas 151,558 155,352 129,610 -------- -------- -------- Total operating revenues 852,075 881,102 828,073 OPERATING EXPENSES: Operations: Fuel and purchased power 242,256 274,215 248,226 Gas 97,226 96,228 74,054 Other 160,201 145,332 154,014 -------- -------- -------- 499,683 515,775 476,294 Maintenance 75,652 61,458 67,994 Depreciation and amortization 82,689 81,853 77,626 Income taxes 33,661 47,693 43,542 Other taxes 57,895 57,792 56,588 -------- -------- -------- Total operating expenses 749,580 764,571 722,044 OPERATING INCOME 102,495 116,531 106,029 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 783 378 889 Miscellaneous, net (3,800) (2,245) (2,636) -------- -------- -------- Total other income and deductions (3,017) (1,867) (1,747) INCOME BEFORE INTEREST CHARGES 99,478 114,664 104,282 INTEREST CHARGES: Interest 36,791 37,754 33,724 Allowance for borrowed funds used during construction (786) (483) (73) -------- -------- -------- Net interest charges 36,005 37,271 33,651 INCOME BEFORE EXTRAORDINARY CHARGE 63,473 77,393 70,631 -------- -------- -------- EXTRAORDINARY CHARGE, NET OF INCOME TAXES (NOTE 2) (24,853) - - -------- -------- -------- NET INCOME 38,620 77,393 70,631 -------- -------- -------- PREFERRED STOCK DIVIDENDS 3,715 3,721 3,850 -------- -------- -------- NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 34,905 $ 73,672 $ 66,781 ======== ======== ========
See Notes to Financial Statements. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY STATEMENT OF CASH FLOWS (Thousands of Dollars) December 31, December 31, December 31, For the year ended 1997 1996 1995 ----------- ------------ ------------ Cash Flows From Operating: Income before extraordinary charge $63,473 $77,393 $70,631 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 82,689 81,853 77,626 Allowance for funds used during construction (1,569) (861) (962) Deferred income taxes, net (1,686) 1,600 4,575 Deferred investment tax credits, net (8,516) (3,349) (3,361) Changes in assets and liabilities: Temporary investments (14,396) 522 (5,634) Receivables, net (2,076) (12,079) 5,362 Material and supplies 2,249 18,877 (9,365) Regulatory assets - other (50,693) (44,903) (1,494) Accounts and wages payable 16,840 2,411 6,378 Taxes accrued 1,926 2,788 (1,808) Other, net (21,922) 13,609 5,115 -------- -------- -------- Net cash provided by operating activities 66,319 137,861 147,063 Cash Flows From Investing: Construction expenditures (115,551) (106,601) (103,782) Allowance for funds used during construction 1,569 861 962 Other 3,182 25,874 (6,537) -------- -------- -------- Net cash used in investing activities (110,800) (79,866) (109,357) Cash Flows From Financing: Dividends on common stock (43,300) (62,950) (71,000) Dividends on preferred stock (3,638) (3,637) (3,956) Redemptions - Long-term debt (64,000) - (16,000) Issuances - Short-term debt 7,198 9,847 32,936 Long-term debt 152,000 - 20,000 -------- -------- -------- Net cash provided by (used in) financing activities 48,260 (56,740) (38,020) Net change in cash and cash equivalents 3,779 1,255 (314) Cash and cash equivalents at beginning of year 2,261 1,006 1,320 -------- -------- -------- Cash and cash equivalents at end of year $6,040 $2,261 $1,006 =========================================================================== Cash paid during the periods: - --------------------------------------------------------------------------- Interest (net of amount capitalized) $35,363 $36,512 $31,490 Income taxes $36,763 $50,960 $45,550 - --------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION: An extraordinary charge to earnings was recorded in the fourth quarter of 1997 for the write-off of generation-related regulatory assets and liabilities of the Company's retail electric business as a result of electric industry restructuring legislation enacted in Illinois in December 1997. The write-off reduced earnings $25 million, net of income taxes. (See Note 2 - Regulatory Matters for further information.)
See Notes to Financial Statements. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY STATEMENT OF RETAINED EARNINGS (Thousands of Dollars) Year Ended December 31, 1997 1996 1995 -------- -------- -------- Balance at Beginning of Period $459,942 $449,137 $453,463 Add: Net income 38,620 77,393 70,631 -------- -------- -------- 498,562 526,530 524,094 -------- -------- -------- Deduct: Common stock cash dividends 43,300 62,950 71,000 Preferred stock cash dividends 3,638 3,637 3,956 Other 147 1 1 -------- -------- -------- 47,085 66,588 74,957 -------- -------- -------- Balance at End of Period $451,477 $459,942 $449,137 -------- -------- --------
SELECTED QUARTERLY INFORMATION (Unaudited) (Thousands of Dollars) Net Income after dividends on Operating Operating Preferred Quarter Ended Revenues Income Stock - ------------- --------- --------- ------------ March 31, 1997 $220,692 $22,528 $ 13,453 March 31, 1996 234,519 29,758 19,653 June 30, 1997 190,931 21,713 10,902 June 30, 1996 189,668 20,680 10,271 September 30, 1997 224,245 42,923 31,816 September 30, 1996 233,529 45,282 34,029 December 31, 1997 (a) 216,207 15,331 (21,266) December 31, 1996 223,386 20,811 9,719 (a) Loss included an extraordinary charge of $25 million, net of income taxes, and merger costs of $4.6 million. Other changes in quarterly earnings are due to the effect of weather on sales and other factors that are characteristic of public utility operations. See Notes to Financial Statements. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Central Illinois Public Service Company: We have audited the accompanying balance sheets of Central Illinois Public Service Company (an Illinois corporation and a wholly-owned subsidiary of Ameren Corporation) as of December 31, 1997 and 1996, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Central Illinois Public Service Company as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Chicago, Illinois January 30, 1998 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 1 - Summary of Significant Accounting Policies Merger and Basis of Presentation Effective December 31, 1997, following the receipt of all required state and federal regulatory approvals, Union Electric Company (AmerenUE) and CIPSCO Incorporated (CIPSCO) combined to form Ameren Corporation (Ameren)(the Merger). Central Illinois Public Service Company (AmerenCIPS or the Company) is a wholly-owned subsidiary of Ameren Corporation, which is the parent company of two utility operating companies, the Company and AmerenUE. Ameren Corporation is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Ameren Corporation and its subsidiaries are subject to the regulatory provisions of the PUHCA. The operating companies are engaged principally in the generation, transmission, distribution and sale of electric energy and the purchase, distribution, transportation and sale of natural gas in the states of Illinois and Missouri. Contracts among the companies--dealing with jointly- owned generating facilities, interconnecting transmission lines, and the exchange of electric power-- are regulated by the Federal Energy Regulatory Commission (FERC) or the Securities and Exchange Commission. The Company also has a 20% interest in Electric Energy, Inc. (EEI), which is accounted for under the equity method of accounting. EEI owns and operates an electric generating and transmission facility in Illinois that supplies electric power primarily to a uranium enrichment plant located in Paducah, Kentucky. Regulation The Company is regulated by the Illinois Commerce Commission (ICC) and the FERC. The accounting policies of the Company conform to generally accepted accounting principles (GAAP). Property and Plant The cost of additions to and betterments of units of property and plant is capitalized. Cost includes labor, material, applicable taxes and overheads, plus an allowance for funds used during construction. Maintenance expenditures and the renewal of items not considered units of property are charged to income as incurred. When units of depreciable property are retired, the original cost and removal cost, less salvage, are charged to accumulated depreciation. Depreciation Depreciation is provided over the estimated lives of the various classes of depreciable property by applying composite rates on a straight-line basis. The provision for depreciation in 1997, 1996, and 1995 was approximately 3% of the average depreciable cost. Fuel and Gas Costs Changes in the cost of fuel for electric generation and gas costs are generally reflected in billings to customers through fuel and purchased gas adjustment clauses. However, existing regulatory practice may be modified for changes in the cost of fuel for electric generation (see Note 2 - Regulatory Matters for further information). Cash and Cash Equivalents Cash and cash equivalents include cash on hand and temporary investments purchased with a maturity of three months or less. Income Taxes The Company is included in the consolidated federal income tax return filed by Ameren. Income taxes are allocated to the individual companies based on their respective taxable income or loss. Deferred tax assets and liabilities are recognized for the tax consequences of transactions that have been treated differently for financial reporting and tax return purposes, measured using statutory tax rates. Investment tax credits utilized in prior years were deferred and are being amortized over the useful lives of the related properties. Allowance for Funds Used During Construction Allowance for funds used during construction (AFC) is a utility industry accounting practice whereby the cost of borrowed funds and the cost of equity funds (preferred and common stockholder's equity) applicable to the Company's construction program are capitalized as a cost of construction. AFC does not represent a current source of cash funds. This accounting practice offsets the effect on earnings of the cost of financing current construction, and treats such financing costs in the same manner as construction charges for labor and materials. Under accepted rate-making practice, cash recovery of AFC, as well as other construction costs, occurs when completed projects are placed in service and reflected in customer rates. The AFC rates used were 8% in 1997 and 1996 and 9% in 1995. Unamortized Debt Discount, Premium and Expense Discount, premium, and expense associated with long-term debt are amortized over the lives of the related issues. Revenue The Company accrues an estimate of electric and gas revenues for service rendered but unbilled at the end of each accounting period. Long-Lived Assets Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" became effective on January 1, 1996. SFAS 121 prescribes general standards for the recognition and measurement of impairment losses. SFAS 121 requires that regulatory assets which are no longer probable of recovery through future revenues be charged to earnings (see Note 2 - Regulatory Matters for further information). Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. Such estimates and assumptions may affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to prior-years financial statements to conform with 1997 reporting. NOTE 2 - Regulatory Matters In September 1997, the ICC approved the Merger subject to certain conditions. The conditions included the requirement for AmerenCIPS to file electric and gas rate cases or alternative regulatory plans within six months after the Merger became final to determine how net merger savings would be shared between the ratepayers and stockholders. In December 1997, the Governor of Illinois signed the Electric Service Customer Choice and Rate Relief Law of 1997 (the Act) providing for electric utility restructuring in Illinois. This legislation introduces competition into the supply of electric energy in Illinois. The Act includes a 5% rate decrease for the Company's residential electric customers, effective August 1, 1998. The Company may be subject to additional 5% residential electric rate decreases in each of 2000 and 2002 to the extent its rates exceed the Midwest utility average at that time. The Company's rates are currently below the Midwest utility average. The Company estimates that the initial 5% rate decrease will result in a decrease in annual electric revenues of about $10 million, based on estimated levels of sales and assuming normal weather conditions. Retail direct access, which allows customers to choose their electric generation supplier, will be phased in over several years. Access for commercial and industrial customers will occur over a period from October 1999 to December 2000, and access for residential customers will occur after May 1, 2002. The Act also relieves the Company of the requirement in the ICC's Order issued in September 1997 (which approved the Merger), requiring AmerenCIPS to file an electric rate case or alternative regulatory plan in Illinois following consummation of the Merger to reflect the effects of net merger savings. Other provisions of the Act include (1) potential recovery of stranded costs through a transition charge collected from customers who choose another electric supplier, (2) the option to eliminate the retail uniform fuel adjustment clause (FAC) and to roll into base rates a historical level of fuel expense and (3) a mechanism to securitize certain future revenues. The Company's accounting policies and financial statements conform to GAAP applicable to rate-regulated enterprises and reflect the effects of the ratemaking process in accordance with SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation." Such effects concern mainly the time at which various items enter into the determination of net income in order to follow the principle of matching costs and revenues. For example, SFAS 71 allows the Company to record certain assets and liabilities (regulatory assets and regulatory liabilities) which are expected to be recovered or settled in future rates and would not be recorded under GAAP for nonregulated entities. In addition, reporting under SFAS 71 allows companies whose service obligations and prices are regulated to maintain assets on their balance sheets representing costs they reasonably expect to recover from customers, through inclusion of such costs in future rates. SFAS 101, "Accounting for the Discontinuance of Application of FASB Statement No. 71," specifies how an enterprise that ceases to meet the criteria for application of SFAS 71 for all or part of its operations should report that event in its financial statements. In general, SFAS 101 requires that the enterprise report the discontinuance of SFAS 71 by eliminating from its balance sheet all regulatory assets and liabilities related to the applicable portion of the business which no longer meets SFAS 71 criteria. At its July 24, 1997 meeting, the Emerging Issues Task Force of the Financial Accounting Standards Board (EITF) concluded that application of SFAS 71 accounting should be discontinued once sufficiently detailed deregulation legislation is issued for a separable portion of a business for which a plan of deregulation has been established. However, the EITF further concluded that regulatory assets associated with the deregulated portion of the business, which will be recovered through tariffs charged to customers of a regulated portion of the business, should be associated with the regulated portion of the business from which future cash recovery is expected (not the portion of the business from which the costs originated), and can therefore continue to be carried on the regulated entity's balance sheet to the extent such assets are recovered. In addition, SFAS 121 establishes accounting standards for the impairment of long lived assets (see Note 1 - Summary of Significant Accounting Policies for further information). Due to the enactment of the Act, prices for the retail supply of electric generation are expected to transition from cost-based, regulated rates to rates determined in large part by competitive market forces in the state of Illinois. As a result, the Company discontinued application of SFAS 71 for its generating business (i.e., the portion of the Company's business related to the supply of electric energy) in the fourth quarter of 1997. The Company has evaluated the impact of the Act on the future recoverability of its regulatory assets and liabilities related to the generation portion of its business and has determined that it is not probable that such assets and liabilities will be recovered through cash flows from the regulated portion of its business. Accordingly, the Company's generation-related regulatory assets and liabilities of its retail electric business were written off in the fourth quarter of 1997, resulting in an extraordinary charge to earnings of $25 million, net of income taxes. These regulatory assets and liabilities included previously incurred costs originally expected to be collected/refunded in future revenues, such as fuel contract restructuring costs, costs associated with an abandoned scrubber at a fossil fuel plant, and income tax-related regulatory assets and liabilities. In addition, the Company has evaluated whether the recoverability of the costs associated with its remaining net generation-related assets have been impaired as defined under SFAS 121. The Company has concluded that impairment, as defined under SFAS 121, does not exist and that no plant write-downs are necessary at this time. At December 31, 1997, the Company's net investment in generation facilities approximated $602 million and was included in electric plant in-service on the Company's balance sheet. The provisions of the Act could also result in lower revenues, reduced profit margins and increased costs of capital. At this time, the Company is unable to determine the impact of the Act on its future financial condition, results of operations or liquidity. In accordance with SFAS 71, the Company has deferred certain costs pursuant to actions of its regulators, and is currently recovering such costs in electric rates charged to customers. At December 31, the Company had recorded the following regulatory assets and regulatory liability: (in millions) 1997 1996 ---- ---- Regulatory Assets: Income taxes $28 $ 42 Undepreciated plant costs - 41 Unamortized loss on reacquired debt 6 12 Deferred environmental remediation costs 13 11 Other 6 1 ---- ---- Regulatory Assets $53 $107 ---- ---- Regulatory Liability: Income taxes 49 100 ---- ---- Regulatory Liability $49 $100 ---- ---- Income Taxes: See Note 6 - Income Taxes. Undepreciated Plant Costs: Represents the unamortized cost of a generating plant's scrubber costs plus costs of removal. Unamortized Loss on Reacquired Debt: Represents losses related to refunded debt. These amounts are being amortized over the lives of the related new debt issues or the remaining lives of the old debt issues if no new debt was issued. Deferred Environmental Remediation Costs: Represents costs, net of recoveries from insurers, relating to studies and remediation at manufactured gas sites which may be recovered through environmental rate riders. (See Note 8 - Commitments and Contingencies for further information.) The Company continually assesses the recoverability of its regulatory assets. Under current accounting standards, regulatory assets are written off to earnings when it is no longer probable that such amounts will be recovered through future revenues. In April 1996, the FERC issued Order 888 and Order 889 related to the industry's wholesale electric business. In January 1998, Ameren filed a combined open access tariff which conforms to the FERC's orders. NOTE 3 - Preferred Stock At December 31, 1997 and 1996, AmerenCIPS had 4.6 million shares of authorized preferred stock. There were 2 million shares of cumulative preferred and 2.6 million shares of preferred without par value (aggregate stated value not to exceed $65 million) authorized, of which 800,000 shares of cumulative preferred stock are outstanding. Outstanding preferred stock is redeemable at the redemption prices shown below: December 31, 1997 1996 (in millions) ---- ---- Preferred Stock Not Subject to Mandatory Redemption: Preferred stock outstanding, par value $100 (entitled to cumulative dividends) Redemption Price Series (per share) 4.00% - 150,000 shares $101.00 $15 $15 4.25% - 50,000 shares 102.00 5 5 4.90% - 75,000 shares 102.00 8 8 4.92% - 50,000 shares 103.50 5 5 5.16% - 50,000 shares 102.00 5 5 1993 Auction - 300,000 shares 100.00 - note(a) 30 30 6.625% - 125,000 shares 100.00 - note(b) 12 12 ---- ---- Total Preferred Stock Not Subject to Mandatory Redemption $80 $80 ---- ---- (a) Dividend rates, and periods during which such rates apply, vary depending on the Company's selection of certain dividend period lengths. The average dividend rate during 1997 was 3.98%. (b) Not redeemable prior to October 1, 1998. NOTE 4 - Short-Term Borrowings Short-term borrowings of the Company consist of bank loans (maturities generally on an overnight basis) and commercial paper (maturities generally within 10-45 days). At December 31, 1997 and 1996, $65 million and $58 million of short-term borrowings were outstanding, respectively. The weighted average interest rates on borrowings outstanding at December 31, 1997 and 1996 were 6.3% and 5.7%, respectively. At December 31, 1997, the Company had committed bank lines of credit aggregating $80 million (of which $80 million were unused and $15 million were available) which make available interim financing at various rates of interest based on LIBOR, the bank certificate of deposit rate, or other options. These lines of credit are renewable annually at various dates throughout the year. NOTE 5 - Long-Term Debt Long-term debt outstanding at December 31, was: (in millions) 1997 1996 ---- ---- First Mortgage Bonds - Series L 5 7/8% paid in 1997 $ - $ 15 Series X 6 1/8% paid in 1997 - 43 Series W 7 1/8% due 1999 50 50 Series Z 6.00% due 2000 25 25 Series 1997-2 6.73% due 2001 20 - Series Y 6 3/4% due 2002 23 23 Series Z 6 3/8% due 2003 40 40 Series 1995-1 6.49% due 2005 20 20 Series 1997-2 7.05% due 2006 20 - Series X 7 1/2% due 2007 50 50 Series 1997-2 7.61% due 2017 40 - Series W 8 1/2% due 2022 33 33 Other 6.52% - 6.99% due 1999 through 2003 45 - ---- ---- $366 $299 ---- ---- Pollution Control Loan Obligations 1990 Series B 7.60% due 2013 32 32 1990 Series A 7.60% due 2014 20 20 1993 Series C-1 due 2026 - note (a) 35 35 1993 Series C-2 due 2026 - note (b) 25 25 1993 Series A 6 3/8% due 2028 35 35 Other 4.375% - 5.9% due 2028 35 35 ---- ---- $182 $182 Unsecured Loans - note (c) 21 - Unamortized Discount and Premium on Debt (2) (2) Maturities Due Within One Year (9) (58) ---- ---- Total Long-Term Debt $558 $421 (a) The interest rate for the year 1997 was 4.20%. This interest rate will be adjusted to a then-current market rate on August 15, 1998. Actual interest rates, and the periods during which such rates apply, vary depending on the Company's selection of certain defined rate modes. (b) The interest rate for the year 1997 was 5.70%. This interest rate is subject to redetermination at the option of the Company commencing August 15, 2003. Actual interest rates, and the periods during which such rates apply, vary depending on the Company's selection of certain defined rate modes. (c) Bank credit agreements, due 2002, permit the Company to borrow up to $42 million. Interest rates vary depending on market conditions and the Company's selection of various options under the agreements. At December 31, 1997, the average annualized interest rate was 6.15%. Maturities of long-term debt through 2002 are as follows: (in millions) Principal Amount --------- 1998 $ 9 1999 60 2000 35 2001 30 2002 45 NOTE 6 - Income Taxes Total income tax expense for 1997 resulted in an effective tax rate of 35% on earnings before income taxes (38% in 1996 and 37% in 1995). Principal reasons such rates differ from the statutory federal rate: 1997 1996 1995 ---- ---- ---- Statutory federal income 35 % 35 % 35 % tax rate Increases (Decreases) from: Amortization of Investment Tax Credit (3)% (3)% (3)% State tax 5 % 5 % 5 % Other (2)% 1 % - ---- ---- ---- Effective income tax rate 35 % 38 % 37 % ---- ---- ---- Income tax expense components: (in millions) 1997 1996 1995 ---- ---- ---- Taxes currently payable (principally federal): Included in operating expenses $39 $54 $41 Included in other income-- Miscellaneous, net - - 2 ---- ---- ---- $39 $54 $43 ---- ---- ---- Deferred taxes (principally federal): Included in operating expenses-- Depreciation differences $(4) $ - $ 6 Other 2 (3) - Included in other income-- Other - - (1) ---- ---- ---- $(2) $(3) $ 5 Deferred investment tax credits, amortization Included in operating expenses $(3) $(3) $(3) ---- ---- ---- Total income tax expense $34 $48 $45 ---- ---- ---- In accordance with SFAS 109, "Accounting for Income Taxes," a regulatory asset, representing the probable recovery from customers of future income taxes, which is expected to occur when temporary differences reverse, was recorded along with a corresponding deferred tax liability. Also, a regulatory liability, recognizing the lower expected revenue resulting from reduced income taxes associated with amortizing accumulated deferred investment tax credits, was recorded. Investment tax credits have been deferred and will continue to be credited to income over the lives of the related property. The Company adjusts its deferred tax liabilities for changes enacted in tax laws or rates. Recognizing that regulators will probably reduce future revenues for deferred tax liabilities initially recorded at rates in excess of the current statutory rate, reductions in the deferred tax liability were credited to the regulatory liability. Temporary differences gave rise to the following deferred tax assets and deferred tax liabilities at December 31: (in millions) 1997 1996 ---- ---- Accumulated Deferred Income Taxes: Accelerated Depreciation $235 $246 Capitalized taxes and expenses 96 107 Disallowed plant costs - (3) Regulatory liabilities, net (42) (46) Prepayments (32) (11) Other 1 - ---- ---- Total net accumulated deferred income tax liabilities $258 $293 ---- ---- NOTE 7 - Retirement Benefits The Company has a defined-benefit pension plan covering substantially all of its employees. Benefits are based on the employees' years of service and compensation. The Company's plan is funded in compliance with income tax regulations and federal funding requirements. The Company uses a September 30 measurement date for its valuation of pension plan assets and liabilities. Pension costs for the years 1997, 1996 and 1995, were $5 million, $4 million and $6 million, respectively, of which approximately 15% in 1997 and 1996 and 18% in 1995 was charged to construction accounts. Funded Status of Pension Plan: (in millions) 1997 1996 1995 ---- ---- ---- Actuarial present value of benefit obligation: Vested benefit obligation $164 $148 $121 Accumulated benefit obligation $190 $171 $142 Projected benefit obligation for service rendered to date $234 $211 $181 Less: Plan assets at fair value* 315 253 221 ---- ---- ---- (Excess) of plan assets versus projected benefit obligation (81) (42) (40) Unrecognized net gain 76 40 33 Unrecognized prior service cost (11) (11) (5) Unrecognized net assets at transition 3 3 4 ---- ---- ---- Prepaid pension costs at September 30 (13) (10) (8) Expense, net of funding October to December (2) (1) - ---- ---- ----- Prepaid pension cost at December 31 $(15) $(11) $ (8) ---- ---- ----- * Plan assets consist principally of common and preferred stocks, bonds, money market instruments and real estate. Components of Net Pension Expense: (in millions) 1997 1996 1995 ---- ---- ---- Service cost - benefits earned during the period $ 7 $ 7 $ 7 Interest cost on projected benefit obligation 16 13 12 Actual return on plan assets (60) (30) (34) Net amortization and deferral 42 14 21 ---- ---- ---- Pension Cost $ 5 $ 4 $ 6 ---- ---- ---- Assumptions for Actuarial Present Value of Projected Benefit Obligations: 1997 1996 1995 ---- ---- ---- Discount rate at measurement date 7.5% 7.5% 7.5% Increase in future compensation 4.5% 4.5% 4.5% Plan assets long-term rate of return 8.5% 8.5% 8.0% In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees. Substantially all of the Company's employees may become eligible for those benefits if they reach retirement age while working for the Company. The Company accrues the expected postretirement benefit costs during employees' years of service. The Company's funding policy is to fund two Voluntary Employee Beneficiary Association trusts (VEBA) and the 401(h) account established within the Company retirement income trust with the lessor of the net periodic cost or the amount deductible for federal income tax purposes. The Company uses a September 30 measurement date for its valuation of postretirement assets and liabilities. Postretirement benefit costs were $12 million for 1997, $16 million for 1996 and $17 million for 1995, of which approximately 17% was charged to construction accounts in 1997 and 15% in each of 1996 and 1995. The Company's transition obligation at December 31, 1997, is being amortized over the next 15 years. Funded Status of the Plans: (in millions) 1997 1996 1995 ---- ---- ---- Accumulated postretirement benefit obligation: Active employees eligible for benefits $ 23 $ 20 $ 17 Retired employees 47 54 50 Other active employees 67 65 76 ---- ---- ---- Total benefit obligation 137 139 143 Less: Plan assets at fair market value* 106 71 49 ---- ---- ---- Accumulated postretirement benefit obligation in excess of plan assets 31 68 94 Unrecognized - transition obligation (84) (89) (99) - gain 64 38 24 ---- ---- ---- Accrued postretirement benefit cost at September 30 11 17 19 Expense, net of funding, October to December (7) (14) (15) ---- ---- ---- Postretirement benefit liability at December 31 $ 4 $ 3 $ 4 ---- ---- ---- * Plan assets consist principally of common and preferred stocks, bonds, money market instruments and real estate. Components of Postretirement Benefit Cost: (in millions) 1997 1996 1995 ---- ---- ---- Service cost - benefits earned during the period $ 4 $ 4 $ 4 Interest cost on projected benefit obligation 10 11 10 Actual return on plan assets (21) (9) (8) Amortization of transition obligation 6 6 6 Deferred gains 13 4 5 ---- ---- ---- Net periodic cost $ 12 $16 $17 ---- ---- ---- Assumptions for the Obligation Measurements: 1997 1996 1995 ---- ---- ---- Discount rate at measurement date 7.25% 7.5% 7.5% Plan assets long-term rate of return 8.5% 8.5% 8.0% Medical cost trend rate - initial 8.5% 9.8% 10.6% - ultimate 5.5% 4.5% 4.0% Ultimate medical cost trend rate expected in year 2005 2005 2007 A 1% increase in the medical cost trend rate is estimated to increase the net periodic cost and the accumulated postretirement benefit obligation as of September 30, 1997 approximately $3 million and $22 million, respectively. NOTE 8 - Commitments and Contingencies The Company is engaged in a construction program under which expenditures averaging approximately $84 million, including AFC, are anticipated during each of the next five years. This estimate does not include any construction expenditures which may be incurred by the Company to meet new air quality standards for ozone and particulate matter, as discussed later in this Note. The Company has commitments for the purchase of coal under long-term contracts. Coal contract commitments, including transportation costs, for 1998 through 2002 are estimated to total $602 million. Total coal purchases, including transportation costs, for 1997, 1996 and 1995 were $209 million, $217 million and $189 million, respectively. The Company also has existing contracts with pipeline and natural gas suppliers to provide natural gas for distribution and electric generation. Gas-related contract commitments for 1998 through 2002 are estimated at $133 million. Total delivered natural gas costs for 1997, 1996 and 1995 were $97 million, $97 million and $67 million, respectively. During 1996, the Company restructured its contract with one of its major coal suppliers. In 1997, the Company paid a $70 million restructuring payment to the supplier, which allows it to purchase at market prices low- sulfur, non-Illinois coal through the supplier (in substitution for the high-sulfur Illinois coal the Company was obligated to purchase under the original contract); and would receive options for future purchases of low- sulfur, non-Illinois coal from the supplier through 1999 at set negotiated prices. By switching to low-sulfur coal, the Company was able to discontinue operating a generating station scrubber. The benefits of the restructuring include lower cost coal, avoidance of significant capital expenditures to renovate the scrubber and elimination of scrubber operations and maintenance costs (offset by scrubber retirement expenses). The net benefits of restructuring are expected to exceed $100 million over the next 10 years. In December 1996, the ICC entered an order approving the switch to non-Illinois coal, recovery of the restructuring payment plus associated carrying costs (Restructuring Charges) through the retail FAC over six years, and continued recovery in rates of the undepreciated scrubber investment plus costs of removal. Additionally, in May 1997 the FERC approved recovery of the wholesale portion of the Restructuring Charges through the wholesale FAC. As a result of the ICC and FERC orders, the Company classified the $72 million of the Restructuring Charges made to the coal supplier in February 1997 as a regulatory asset and, through December 1997, recovered approximately $10 million of the Restructuring Charges through the retail FAC and from wholesale customers. A group of industrial customers filed with the Illinois Third District Appellate Court (the Court) in February 1997 an appeal of the December 1996 order of the ICC. On November 24, 1997, the Court reversed the ICC's December 1996 order, finding that the Restructuring Charges were not direct costs of fuel that may be recovered through the retail FAC, but rather should be considered as a part of a review of aggregate revenue requirements in a full rate case. Restructuring Charges allocated to wholesale customers (approximately $7 million) are not in question as a result of the opinion of the Court. In December 1997, the Company requested a rehearing by the Court; that request was denied. However, the Court did rule that all revenues collected under the retail FAC in 1997 would not have to be refunded to customers. The Company has appealed to the Illinois Supreme Court the Court's decision that Restructuring Charges may not be recovered through the retail FAC. The recoverability of the restructuring charges under the retail FAC was also impacted by the Electric Service Customer Choice and Rate Relief Law of 1997 (the Act). Among other things, the Act provides utilities with the option to eliminate the retail FAC and limits the ability of utilities to file a full rate case for its aggregate revenue requirements. After evaluating the impact of the Act on the future recoverability of the Company's Restructuring Charges through future rates, the Company concluded that the unamortized balance of the retail portion of its Restructuring Charges as of December 31, 1997, should be written off ($34 million, net of income taxes). See Note 2 - Regulatory Matters for further information. Under Title IV of the Clean Air Act Amendments of 1990, the Company is required to significantly reduce total annual sulfur dioxide emissions by the year 2000. Significant reductions in nitrogen oxide are also required. By switching to low-sulfur coal and early banking of emission credits, the Company anticipates that it can comply with the requirements of the law without significant revenue increases because the related capital costs are largely offset by lower fuel costs. As of year-end 1997, estimated remaining capital costs expected to be incurred pertaining to Clean Air Act- related projects totaled $72 million. In July 1997, the United States Environmental Protection Agency (EPA) issued final regulations revising the National Ambient Air Quality Standards for ozone and particulate matter. Although specific emission control requirements are still being developed, it is believed that the revised standards will require significant additional reductions in nitrogen oxide and sulfur dioxide emissions from coal-fired boilers. In October 1997, the EPA announced that Illinois is included in the area targeted for nitrogen oxide emissions reductions as part of the EPA's regional control program. Reduction requirements in nitrogen oxide emissions from the Company's coal-fired boilers could exceed 80% from 1990 levels by the year 2002. Reduction requirements in sulfur dioxide emissions may be up to 50% beyond that already required by Phase II acid rain control provisions of the 1990 Clean Air Act Amendments and are anticipated to be required by 2007. Because of the magnitude of these additional reductions, the Company could be required to incur significantly higher capital costs to meet future compliance obligations for its coal-fired boilers or purchase power from other sources, either of which could have significantly higher operations and maintenance expenditures associated with compliance. At this time, the Company is unable to determine the impact of the revised air quality standards on its future financial condition, results of operations or liquidity. In December 1997, the United States and numerous other countries agreed to certain environmental provisions (the Kyoto Protocol), which would require decreases in greenhouse gases in an effort to address the "global warming" issue. The Company is unable to predict what requirements, if any, will be adopted in this country. However, implementation of the Kyoto Protocol in its present form would likely result in significantly higher capital costs and operations and maintenance expenditures by the Company. At this time, the Company is unable to determine the impact of these proposals on the Company's future financial condition, results of operations or liquidity. As of December 31, 1997, the Company has been designated as a potentially responsible party (PRP) by federal and state environmental protection agencies at three hazardous waste sites. Other hazardous waste sites have been identified for which the Company may be responsible but has not been designated a PRP. Costs relating to studies and remediation and associated legal and litigation expenses are being accrued and deferred rather than expensed currently, pending recovery through rates. Through December 31, 1997, the total of the costs deferred, net of recoveries from insurers and through environmental adjustment clause rate riders approved by the ICC, was $13 million. The ICC has instituted a reconciliation proceeding to review the Company's environmental remediation activities in 1993, 1994 and 1995 and to determine whether the revenues collected under the riders in 1993 were consistent with the amount of remediation costs prudently and properly incurred. Amounts found to have been incorrectly included under the riders would be subject to refund. In mid-1997, the Company and the ICC Staff submitted a stipulation with regard to all matters at issue which concluded that the amounts collected under the environmental rate riders were appropriate in all material respects. A ruling from the ICC is still pending. The Company continually reviews remediation costs that may be required for all of these sites. Any unrecovered environmental costs are not expected to have a material adverse effect on the Company's financial position, results of operations or liquidity. The International Union of Operating Engineers Local 148 and the International Brotherhood of Electrical Workers Local 702 filed unfair labor practice charges with the National Labor Relations Board (NLRB) relating to the legality of the lockout by the Company of both unions during 1993. The NLRB has issued complaints against the Company concerning its lockout. Both unions seek, among other things, back pay and other benefits for the period of the lockout. The Company estimates the amount of back pay and other benefits for both unions to be less than $17 million. An administrative law judge of the NLRB has ruled that the lockout was unlawful. On July 23, 1996, the Company appealed to the NLRB. The Company believes the lockout was both lawful and reasonable and that the final resolution of the disputes will not have a material adverse effect on its financial position, results of operations or liquidity. Regulatory changes enacted and being considered at the federal and state levels continue to change the structure of the utility industry and utility regulation, as well as encourage increased competition. At this time, the Company is unable to predict the impact of these changes on its future financial condition, results of operations or liquidity. (See Note 2 - Regulatory Matters for further information.) The Company is involved in other legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business, some of which involve substantial amounts. The Company believes that the final disposition of these proceedings will not have a material adverse effect on its financial position, results of operations or liquidity. NOTE 9 - Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Cash and Temporary Investments/Short-Term Borrowings The carrying amounts approximate fair value because of the short-term maturity of these instruments. Preferred Stock The fair value is estimated based on the quoted market prices for the same or similar issues. Long-Term Debt The fair value is estimated based on the quoted market prices for same or similar issues or on the current rates offered to the Company for debt of comparable maturities. Carrying amounts and estimated fair values of the Company's financial instruments at December 31: 1997 1996 ---- ---- (in millions) Carrying Fair Carrying Fair Amount Value Amount Value -------- ----- -------- ----- Preferred stock $ 80 $ 71 $ 80 $ 65 Long-term debt (including current portion) 567 600 479 488 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. DIRECTORS Paul A. Agathen, Senior Vice Richard A. Lumpkin, Chairman President - Energy Supply Services and Chief Executive Officer of of UE Illinois Consolidated Telephone Company, and Vice Chairman of Donald E. Brandt, Senior Vice McLeod USA Inc. President - Finance of Ameren Corporation and UE Hanne M. Merriman, Principal in Hanne Merriman Associates, retail Clifford L. Greenwalt, Retired business consultants President and Chief Executive Officer of CIPSCO and CIPS Charles W. Mueller, Chairman, President and Chief Executive John L. Heath, Retired Chairman Officer of Ameren Corporation and and President of L.S. Heath & President and Chief Executive Sons, Inc., candy manufacturer Officer of UE Robert W. Jackson, Retired Senior Gary L. Rainwater, President and Vice President - Finance and Chief Executive Officer Secretary of CIPS Thomas L. Shade, Retired Chairman of Gordon R. Lohman, Chairman and the Board and Chief Executive Officer Chief Executive Officer of of Moorman Manufacturing Company AMSTED Industries Incorporated James W. Wogsland, Retired Vice Chairman of Caterpillar, Inc. EXECUTIVE OFFICERS Executive Officers of the Registrant (ages at December 31, 1997). Name Age Positions Held - ----- --- -------------- G. L. Rainwater 51 President and Chief Executive Officer W. A. Koertner 48 Vice President Finance & Administration and Secretary J. T. Birkett 60 Vice President Power Operations D. R. Patterson 61 Vice President Regional Operations G. W. Moorman 54 Vice President Regional Operations W. L. Baxter 36 Controller J. E. Birdsong 43 Treasurer The present term of office of the above executive officers extends to the first meeting of the Board of Directors of CIPS after the next annual election of Directors, scheduled to be held on April 28, 1998. There is no family relationship between any executive officer and any other executive officer or any director. Except for Mr. Baxter, each of the officers named above has been employed by CIPS or its affiliates in executive or management positions for more than five years. Mr. Baxter was previously employed by Price Waterhouse LLP. Item 11. Executive Compensation. The information required by Item 11 is to be set forth in the Proxy Statement. Such information is incorporated herein by reference to the material appearing under the caption "Election of Directors -- Executive Compensation" and -- "Directors' Compensation" appearing in the Proxy Statement; provided, however, that no part of the information appearing under the portion of the Proxy Statement entitled "Election of Directors -- Compensation Committee Report on Executive Compensation" or -- "5 Year Cumulative Total Return" is deemed to be filed as part of this Form 10-K Annual Report. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by Item 12 is to be set forth in the Proxy Statement. Such information is incorporated herein by reference to the material appearing under the captions "Voting Securities Beneficially Owned by Principal Holders, Directors, Nominees and Executive Officers" and "Election of Directors -- Director Information" appearing in the Proxy Statement. Item 13. Certain Relationships and Related Transactions. None. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Page of this report on Form 10-K (a) 1. Financial statements Balance Sheet - December 31, 1997 and 1996 . . Statement of Income for the years ended December 31, 1997, 1996 and 1995. . . . . . . . Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995. . . . . . . . Statement of Retained Earnings for the years ended December 31, 1997, 1996 and 1995. . . . . Report of Independent Public Accountants. . . . Notes to Financial Statements . . . . . . . . . (a) 2. Schedules supporting financial statements: All Financial Statement Schedules have been omitted as not applicable or not required or because the information required to be shown therein is included in the financial statements or notes thereto. (a) 3. Exhibits 2.01 Agreement and Plan of Merger, dated as of August 11, 1995, by and among CIPSCO Incorporated, Union Electric Company, Ameren Corporation and Arch Merger Inc. (Exhibit 2(a) filed with CIPSCO's and CIPS' Form 10-Q/A (Amendment No. 1) for the quarter ended June 30, 1995.) Incorporated by Reference . .. . . . . . . 3.01 Restated Articles of Incorporation of CIPS. (Exhibit 3(b) filed with CIPS' Form 10-Q for the quarter ended March 31, 1994.) Incorporated by Reference. . . . . 3.02 Bylaws of CIPS (Exhibit 3(c) filed with CIPS' Form 10-Q for the quarter ended March 31, 1994.) Incorporated by Reference. . . . . . . . . . . . . . . . . 3.03 By laws of CIPS dated February 13, 1998. . Page of this report on Form 10-K Exhibits (Continued) 4 Indenture of Mortgage or Deed of Trust dated October 1, 1941, from CIPS to Continental Illinois National Bank and Trust Company of Chicago and Edmond B. Stofft, as Trustees. (Exhibit 2.01 in File No. 2-60232.) Supplemental Indentures dated, respectively September 1, 1947, January 1, 1949, February 1, 1952, September 1, 1952, June 1, 1954, February 1, 1958, January 1, 1959, May 1, 1963, May 1, 1964, June 1, 1965, May 1, 1967, April 1, 1970, April 1, 1971, September 1, 1971, May 1, 1972, December 1, 1973, March 1, 1974, April 1, 1975, October 1, 1976, November 1, 1976, October 1, 1978, August 1, 1979, February 1, 1980, February 1, 1986, May 15, 1992, July 1, 1992, September 15, 1992, April 1, 1993, and June 1, 1995 between CIPS and the Trustees under the Indenture of Mortgage or Deed of Trust referred to above (Amended Exhibit 7(b) in File No. 2-7341; Second Amended Exhibit 7.03 in File No. 2-7795; Second Amended Exhibit 4.07 in File No. 2-9353; Amended Exhibit 4.05 in file No. 2-9802; Amended Exhibit 4.02 in File No. 2-10944; Amended Exhibit 2.02 in File No. 2-13866; Amended Exhibit 2.02 in File No. 2-14656; Amended Exhibit 2.02 in File No. 2-21345; Amended Exhibit 2.02 in File No. 2-22326; Amended Exhibit 2.02 in File No. 2-23569; Amended Exhibit 2.02 in File No. 2-26284; Amended Exhibit 2.02 in File No. 2-36388; Amended Exhibit 2.02 in File No. 2-39587; Amended Exhibit 2.02 in File No. 2-41468; Amended Exhibit 2.02 in File No. 2-43912; Exhibit 2.03 in File No. 2-60232; Amended Exhibit 2.02 in File No. 2-50146; Amended Exhibit 2.02 in File No. 2-52886; Second Amended Exhibit 2.04 in File No. 2-57141; Amended Exhibit 2.04 in File No. 2-57557; Amended Exhibit 2.06 in File No. 2-62564; Exhibit 2.02(a) in File No. 2-65914; Amended Exhibit 2.02(a) in File No. 2-66380; and Amended Exhibit 4.02 in File No. 33-3188; Exhibit 4.02 to Form 8-K dated May 15, 1992; Exhibit 4.02 to Form 8-K dated July 1, 1992; Exhibit 4.02 to Form 8-K dated September 15, 1992; Exhibit 4.02 to Form 8-K dated March 30, 1993; Exhibit 4.03 to Form 8-K dated June 5, 1995; Exhibit 4.03 to Form 8-K dated March 15, 1997; Exhibit 4.03 to Form 8-K dated June 1, 1997.) Incorporated by Reference. . . . . . . . . . . . . Page of this report on Form 10-K Exhibits (Continued) 10.01 Form of Deferred Compensation Agreement for Directors (Exhibit 10.01 filed with 1990 Annual Report on Form 10-K) Incorporated by Reference. . . . . . 10.02 Amended Form of Deferred Compensation Agreement for Directors (Exhibit 10.02 filed with 1993 Annual Report on Form 10-K) Incorporated by Reference. . . . . . 10.03 Form of Management Continuity Agreement (Exhibit 10.05 filed with CIPSCO's and CIPS' 1994 Annual Report on Form 10-K) Incorporated by Reference. . . . . . . . . 10.04 Form of Director's Retirement Income Plan (Exhibit 10.04 filed with 1990 Annual Report on Form 10-K) Incorporated by Reference. . . . . . . . . . . . . . . . . 10.05 Form of Management Incentive Plan (Exhibit 10.06 filed with 1991 Annual Report on Form 10-K) Incorporated by Reference. . . 10.06 Form of Excess Benefit Plan (Exhibit 10.10 filed with CIPSCO's and CIPS' 1994 Annual Report on Form 10-K) Incorporated by Reference. . . . . . . . . . . . . . . . . 10.07 Amendment to Form of Excess Benefit Plan (Exhibit 10.07 filed with CIPSCO's and CIPS' 1995 Annual Report on Form 10-K) Incorporated by Reference. . . . . . . . . 10.08 Form of Special Executive Retirement Plan (Exhibit 10.11 filed with CIPSCO's and CIPS' 1994 Annual Report on Form 10-K) Incorporated by Reference. . . . . . . . . 10.09 Amendment to Form of Special Executive Retirement Plan(Exhibit 10.09 filed with CIPSCO's and CIPS' 1995 Annual Report on Form 10-K.) Incorporated by Reference . . 10.10 Stock Option Agreement, dated as of August 11, 1995, by and between CIPSCO Incorporated and Union Electric Company. (Exhibit 10(a) filed with CIPSCO's and CIPS' Form 10-Q for the quarter ended June 30, 1995.) Incorporated by Reference. . . . . . . . . Page of this report on Form 10-K Exhibits (Continued) 10.11 Stock Option Agreement, dated as of August 11, 1995, by and between Union Electric Company and CIPSCO Incorporated. (Exhibit 10(b) filed with CIPSCO's and CIPS' Form 10-Q for the quarter ended June 30, 1995.) Incorporated by Reference. . . . . . . . . 12 Computation of Ratio of Earnings to Fixed Charges. . . . . . . . . . . . . . . . . . 21 Subsidiaries of CIPS . . . . .. . . . . . 23 Consent of Independent Public Accountants 24 Powers of Attorney . . . . . . . . . . . . 27 Financial Data Schedule* . . . . . . . . . 99 Description of Capital Stock - CIPS. . . . Exhibits 10.01 through 10.11 are management contracts or compensatory plans or arrangements required to be filed as exhibits pursuant to Item 14(c) hereof. * Included in electronic filing only. The following instruments defining the rights of holders of certain unregistered long-term debt of CIPS have not been filed with the Securities and Exchange Commission but will be furnished upon request. 1. Loan Agreement dated as of March 1, 1990, between CIPS and the Illinois Development Finance Authority (IDFA) in connection with the IDFA's $20,000,000 Pollution Control Revenue Refunding Bonds, 1990 Series A due March 1, 2014 and $32,000,000 Pollution Control Revenue Refunding Bonds, 1990 Series B due September 1, 2013. 2. Loan Agreement dated January 1, 1993, between CIPS and IDFA in connection with IDFA's $35,000,000, 6-3/8% Pollution Control Revenue Refunding Bonds (Central Illinois Public Service Company Project) 1993 Series A, due January 1, 2028. 3. Loan Agreement dated June 1, 1993, between CIPS and IDFA in connection with IDFA's $17,500,000 Pollution Control Revenue Refunding Bonds, 1993 Series B-1 due June 1, 2028 and $17,500,000 Pollution Control Revenue Refunding Bonds, 1993 Series B-2 due June 1, 2028. 4. Loan Agreement dated August 15, 1993, between CIPS and IDFA in connection with IDFA's $35,000,000 Pollution Control Revenue Refunding Bonds, 1993 Series C-1 due August 15, 2026 and $25,000,000 Pollution Control Revenue Refunding Bonds, 1993 Series C-2 due August 15, 2026. 5. CIPS Credit Agreements (effective February 12, 1997) with various banks currently providing $42,000,000 of unsecured long- term lines of credit. (b) Reports on Form 8-K November 24, 1997 Item 5. Other Events: Third District Appellate Court reverses Illinois commission order in coal contract restructuring. December 16, 1997 Item 5. Other Events: Governor signs Electric Service Customer Choice and Rate Relief Law of 1997. December 31, 1997 Item 2. Acquisition or Disposition of Assets and Item 7. Financial Statements and Exhibits: Information and financial data related to completion of the merger. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY (Registrant) By /s/ G. L. RAINWATER _____________________________________ G. L. RAINWATER President and Chief Executive Officer Date: March 27, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated. Signature Title Principal Executive Officer: /s/ G. L. RAINWATER G. L. RAINWATER President and Chief Executive Officer and Director Principal Financial Officer: /s/ W. A. KOERTNER W. A. KOERTNER Vice President and Secretary, and as Attorney-in-Fact* Principal Accounting Officer: /s/ W. L. BAXTER W. L. BAXTER Controller PAUL A. AGATHEN* Director DONALD E. BRANDT* Director CLIFFORD L. GREENWALT* Director JOHN L. HEATH* Director ROBERT W. JACKSON* Director GORDON R. LOHMAN* Director RICHRD A. LUMPKIN* Director HANNE M. MERRIMAN* Director CHARLES W. MUELLER* Director THOMAS L. SHADE* Director JAMES W. WOGSLAND* Director Date: March 27, 1998 EX-12 2 Exhibit 12 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FOR THE FIVE YEARS ENDED DECEMBER 31, 1997 (in thousands) = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 1997 1996 1995 1994 1993 --------- --------- --------- --------- --------- Net income. . . . $ 38,620 $ 77,393 $ 70,631 $ 81,913 $ 84,011 Add--Extraordinary items net of tax 24,853 - - - - --------- --------- --------- --------- --------- Net income from continuing operations . . $ 63,473 $ 77,393 $ 70,631 $ 81,913 $ 84,011 Add--Federal and state income taxes: Current . . . . 38,660 53,847 41,276 38,097 50,441 Deferred (net). (1,665) (2,805) 5,627 13,190 1,674 Investment tax credit amortization . (3,334) (3,349) (3,361) (3,367) (3,366) Income tax applicable to nonoperating activities . . 261 (407) 941 603 631 --------- --------- --------- ---------- --------- 33,922 47,286 44,483 48,523 49,380 --------- --------- --------- ---------- --------- Net income before income taxes. . . . . . 97,395 124,679 115,114 130,436 133,391 --------- --------- --------- ---------- --------- Add--Fixed charges Interest on long-term debt (a) . . . 32,271 31,409 31,168 31,164 32,823 Other interest. 2,875 4,636 853 358 479 Amortization of net debt premium, discount, expense and loss (a) . 1,643 1,709 1,703 1,678 1,598 --------- --------- --------- ---------- --------- 36,789 37,754 33,724 33,200 34,900 --------- --------- --------- ---------- --------- Earnings as defined. . . . . $ 134,184 $ 162,433 $ 148,838 $ 163,636 $ 168,291 ========= ========= ========= ========== ========= Ratio of earnings to fixed charges 3.65 4.30 4.41 4.93 4.82 Earnings required for preferred dividends: Preferred stock dividends. . . $ 3,715 $ 3,721 $ 3,850 $ 3,510 $ 3,718 Adjustment to pre-tax basis. 1,985 2,273 2,425 2,079 2,185 --------- --------- --------- ---------- --------- $ 5,700 $ 5,994 $ 6,275 $ 5,589 $ 5,903 Fixed charges plus preferred stock dividend requirements . . $ 42,489 $ 43,748 $ 39,999 $ 38,789 $ 40,803 ========= ========= ========= ========== ========= Ratio of earnings to fixed charges plus preferred stock dividend requirements . . 3.16 3.71 3.72 4.22 4.12 _________________________
(a) Combined as interest charges on long-term debt on Statement of Income. EX-21 3 Exhibit 21 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY SUBSIDIARIES OF REGISTRANT State or Jurisdiction of Incorporation Subsidiary _____________________ Illinois Steam Inc. Illinois CIPS Energy Inc. Illinois Electric Energy, Inc.* Illinois * Central Illinois Public Service Company owns 20% of the common stock of EEI. EX-23 4 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in and incorporated by reference in this Form 10-K, into Central Illinois Public Service Company's previously filed Registration Statements File Nos. 33-59674, 33-45506, 33-56063 and 333-18473. ARTHUR ANDERSEN LLP Chicago, Illinois, March 27, 1998 EX-99 5 Exhibit 99 DESCRIPTION OF CAPITAL STOCK - CIPS General. The authorized capital stock of Central Illinois Public Service Company (CIPS) consists of 2,000,000 shares of Cumulative Preferred Stock, par value $100 per share, issuable in series, of which 800,000 shares are outstanding; 2,600,000 shares of Cumulative Preferred Stock without par value, issuable in series, of which no shares are outstanding (both such classes of preferred stock being hereinafter collectively referred to as the "Preferred Stock"); and 45,000,000 shares of Common Stock without par value of which 25,452,373 shares were outstanding (all of which were held by Ameren Corporation) at December 31, 1997. The following statements, unless the context otherwise indicates, are brief summaries of the substance or general effect of certain provisions of CIPS' Restated Articles of Incorporation and the resolutions establishing series of Preferred Stock (collectively, the "Articles"), and of its Mortgage Indenture securing its outstanding First Mortgage Bonds. Such statements make use of defined terms and are not complete; they are subject to all the provisions of the Articles or the Mortgage Indenture, as the case may be. Dividend Rights. Whenever dividends on all outstanding shares of the Preferred Stock of all series for all previous quarter-yearly dividend periods and the current quarter-yearly dividend period shall have been paid or declared and set apart for payment, and whenever all amounts required to be set aside for any sinking fund for the redemption or purchase of shares of the Preferred Stock for all previous periods or dates shall have been paid or set aside, and subject to the limitations summarized below, the Board of Directors of CIPS may declare dividends on the CIPS Common Stock out of any surplus or net profits of CIPS legally available for the purpose. Currently, none of the series of the Preferred Stock have a sinking fund for the redemption or purchase of shares of such series. The Mortgage Indenture provides, in effect, that CIPS will not declare or pay any dividends (other than in stock) on CIPS Common Stock, or make any other distribution on or purchase any Common Stock, unless the total amount charged or provided for maintenance, repairs and depreciation of the mortgaged properties subsequent to December 31, 1940, plus the surplus earned during the period and remaining after any such dividend, distribution or purchase, shall equal at least 15% of CIPS' total utility operating revenues for the period, after deducting from such revenues the cost of electricity and gas purchased for resale. The Articles provide in effect that, so long as any Preferred Stock is outstanding, the total amount of all dividends or other distributions on CIPS Common Stock (other than in stock) that may be paid, and purchases of Common Stock that may be made, during any 12-month period shall not exceed (a) 75% of CIPS' net income (as defined) for the 12-month period next preceding each such dividend, distribution or purchase, if the ratio of "common stock equity" to "total capital" (as defined) is 20% to 25%, or (b) 50% of such net income if such ratio is less than 20%. If such ratio is in excess of 25%, no such dividends may be paid or distributions or purchases made that would reduce such ratio to less than 25% except to the extent permitted by clauses (a) and (b). At December 31, 1997, no amount of retained earnings was restricted as to the payment of dividends on CIPS Common Stock under the foregoing provisions of the Mortgage Indenture or the Articles. Voting Rights. Under Illinois law, each share of stock of CIPS, common and preferred, is entitled to one vote on each matter voted on at all meetings of shareholders, with the right of cumulative voting in the election of directors and the right to vote as a class on certain questions. The Articles give to holders of Preferred Stock certain special voting rights designed to protect their interests with respect to specified corporate action, including certain amendments to the Articles, the issuance of Preferred Stock or parity stock, the issuance or assumption of certain unsecured indebtedness, and mergers, consolidations or sales or leases of substantially all of CIPS' assets. Preemptive Rights. Holders of CIPS Common Stock have no preemptive subscription rights. Liquidation Rights. In the event of any liquidation or dissolution of CIPS, holders of Common Stock are entitled to share ratably in the net assets and profits of CIPS remaining after the payment in full to the holders of the CIPS Preferred Stock of the aggregate preferential amount payable in respect of the Preferred Stock in any such event. Miscellaneous. The Transfer Agent and Registrar for the CIPS Common Stock is Ameren Services Company, St. Louis, Missouri. CIPS reserves the right to increase, decrease or reclassify its authorized capital stock or any class or series thereof, and to amend or repeal any provisions in the Articles; and all rights conferred on shareholders in the Articles are subject to this reservation. EX-24 6 Exhibit 24 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint G. L. Rainwater and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1997, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of March, 1998. /s/ Paul A. Agathen _______________________________ (SEAL) Paul A. Agathen Subscribed and sworn to before me this 27th day of March, 1998. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint G. L. Rainwater and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1997, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of March, 1998. /s/ Donald E. Brandt _______________________________ (SEAL) Donald E. Brandt Subscribed and sworn to before me this 27th day of March, 1998. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint G. L. Rainwater and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1997, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of March, 1998. /s/ Clifford L. Greenwalt _______________________________ (SEAL) Clifford L. Greenwalt Subscribed and sworn to before me this 27th day of March, 1998. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint G. L. Rainwater and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1997, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of March, 1998. /s/ John L. Heath _______________________________ (SEAL) John L. Heath Subscribed and sworn to before me this 27th day of March, 1998. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint G. L. Rainwater and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1997, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of March, 1998. /s/ Robert W. Jackson _______________________________ (SEAL) Robert W. Jackson Subscribed and sworn to before me this 27th day of March, 1998. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint G. L. Rainwater and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1997, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of March, 1998. /s/ Gordon R. Lohman _______________________________ (SEAL) Gordon R. Lohman Subscribed and sworn to before me this 27th day of March, 1998. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint G. L. Rainwater and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1997, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of March, 1998. /s/ Richard A. Lumpkin _______________________________ (SEAL) Richard A. Lumpkin Subscribed and sworn to before me this 27th day of March, 1998. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint G. L. Rainwater and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1997, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of March, 1998. /s/ Hanne M. Merriman _____________________________ (SEAL) Hanne M. Merriman Subscribed and sworn to before me this 27th day of March, 1998. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint G. L. Rainwater and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1997, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of March, 1998. /s/ Charles W. Mueller _______________________________ (SEAL) Charles W. Mueller Subscribed and sworn to before me this 27th day of March, 1998. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint G. L. Rainwater and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1997, and any amendments thereto, to be filed under the Securities Exechange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of March, 1998. /s/ Thomas L. Shade ___________________________ (SEAL) Thomas L. Shade Subscribed and sworn to before me this 27th day of March, 1998. /s/ Janet K. Cooper __________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint G. L. Rainwater and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1997, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of March, 1998. /s/ James W. Wogsland ______________________________ (SEAL) James W. Wogsland Subscribed and sworn to before me this 27th day of March, 1998. /s/ Janet K. Cooper _________________________ Notary Public My Commission expires: March 27, 1999 EX-27 7
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. 0000018654 CIPS 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 PER-BOOK 1,487,803 0 217,168 30,476 53,260 1,788,707 121,282 0 451,477 572,759 0 80,000 558,474 64,966 0 0 9,000 0 0 0 503,508 1,788,707 852,075 33,661 715,919 749,580 102,495 (3,017) 99,478 36,005 38,620 3,715 34,905 43,300 33,914 66,319 0 0 INFORMATION NOT NORMALLY DISCLOSED IN FINANCIAL STATEMENTS AND NOTES. INCLUDES INCOME TAX EXPENSE.
EX-3 8 BYLAWS Exhibit 3.03 AS AMENDED TO AND INCLUDING FEBRUARY 13, 1998 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY BYLAWS OF CENTRAL ILLINOIS PUBLIC SERVICE COMPANY ARTICLE I SHARES AND TRANSFERS Section 1. Each holder of duly paid shares of the Company shall be entitled to a certificate or certificates stating the number and class of shares owned by such holder. Such certificates shall be signed by the appropriate officers of the Company (which, in the absence of contrary action by the Board, shall be the President or any Vice President and the Secretary or any Assistant Secretary of the Company); shall be sealed with the corporate seal of the Company, which seal may be facsimile; and shall be countersigned by a Transfer Agent, and countersigned and registered by a Registrar, appointed by the Board. If a certificate is countersigned by a Transfer Agent and countersigned and registered by a Registrar, other (in each case) than the Company itself or its employee, the signature of either or both of such officers of the Company, and the countersignature of any such Transfer Agent or its officer or employee, may be facsimiles. In case any officer of the Company, or any officer or employee of a Transfer Agent, who has signed or whose facsimile signature has been placed upon any such certificate shall cease to be an officer of the Company or an officer or an employee of the Transfer Agent, as the case may be, before such certificate is issued, the certificate may be issued by the Company with the same effect as if such officer of the Company or such officer or employee of the Transfer Agent had not ceased to be such at the date of issue of such certificate. Section 2. Shares shall be transferable only on the books of the Company and upon proper endorsement and surrender of the outstanding certificate or certificates representing such shares. If an outstanding certificate shall be lost, destroyed or stolen, the holder thereof may have a new certificate upon producing evidence satisfactory to the Company of such loss, destruction or theft and upon furnishing to the Company, the Transfer Agent and the Registrar indemnity deemed sufficient by the Company. Section 3. Notwithstanding the foregoing provisions of this Article I, the Board of Directors may also provide by resolution that some or all of any or all classes and series of its shares shall be uncertificated shares, provided that such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Company. Except as otherwise provided by statute, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing shares of the same class and series shall be identical. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. The annual meeting of the shareholders shall be held on the fourth Tuesday in April of each year (or if such day shall be a legal holiday then upon the next succeeding day not a legal holiday) or upon such other day determined by resolution of the Board of Directors. Each such regular annual meeting shall be held at such time and at such location, within or without the State of Illinois, as the Board of Directors shall order. At such annual meeting, a board of directors shall be elected and such other business shall be transacted as may properly come before such meeting. Section 2. Special meetings of the shareholders may be called by the President, by the Board of Directors, by the holders of not less than one- fifth of all the outstanding shares entitled to vote on the matter for which the meeting is called, or in such other manner as may be provided by statute. Each such special meeting shall be held at such location, within or without the State of Illinois, as the Board of Directors shall order. Section 3. Written notice of the place, day and hour of each meeting of shareholders and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each shareholder of record entitled to vote at such meeting. Such notice shall be sent by mail to each such shareholder, at the address of such shareholder as it appears on the records of the Company, not less than ten days or more than sixty days before the date of the meeting, except in cases where some other special method of notice may be required by statute, in which case the statutory method shall be followed. Notice of any meeting of the shareholders may be waived by any shareholder. Attendance of a shareholder (either in person or by proxy) at any meeting shall constitute waiver of notice thereof unless the shareholder (in person or by proxy, as the case may be) at the meeting objects to the holding of the meeting because proper notice was not given. Section 4. At any shareholders' meeting a majority of the shares outstanding and entitled to vote on the matter (excluding such shares as may be owned by the Company) must be represented (either in person or by proxy) in order to constitute a quorum for consideration of such matter, but the shareholders represented at any meeting, though less than a quorum, may adjourn the meeting to some other day or sine die. If a quorum is present (either in person or by proxy) at a shareholders' meeting, the affirmative vote of the holders of the majority of shares represented at the meeting and entitled to vote on a matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes shall be required by law or the Articles of Incorporation. Section 5. The President and Secretary of the Company shall act as Chairman and Secretary, respectively, of each shareholders' meeting, unless the shareholders represented at the meeting shall otherwise decide. ARTICLE III BOARD OF DIRECTORS Section 1. The business and affairs of the Company shall be managed by or under the direction of the Board of Directors consisting of not less than seven or more than twelve members. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors. The Board of Directors shall be elected at each annual meeting of the shareholders, but, if for any reason the election shall not be held at an annual meeting, it may be subsequently held at any special meeting of the shareholders after proper notice. Directors so elected shall hold office until the next succeeding annual meeting of shareholders or until their respective successors, willing to serve, shall have been elected and qualified. Any vacancy occurring in the Board of Directors arising between meetings of shareholders by reason of an increase in the number of directors or otherwise may be filled by a majority of the members of the Board. Section 2. A meeting of the Board of Directors shall be held on the same date as the annual meeting of shareholders in each year, at the same place where such annual meeting shall have been held or at such other place as shall be determined by the Board. Regular meetings of the Board shall be held in such place, within or without the State of Illinois, and on such dates each year as shall be established from time to time by the Board. Notice of every such regular meeting of the Board, stating the place, day and hour of the meeting, shall be given to each director personally, or by telegraph or other written means of electronic communication, or by depositing the same in the mails properly addressed, at least two days before the date of such meeting. Except where required by statute, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in the notice or waiver of notice of such meeting. Section 3. Special meetings of the Board of Directors may be called at any time by the President, or by a Vice President, when acting as President, or by any two directors. Notice of such meeting, stating the place, day and hour of the meeting shall be given to each director personally in writing, or by telegraph or other written means of electronic communication, or by depositing the same in the mails properly addressed, or orally promptly confirmed by written notice in any one of the aforesaid forms, not less than the day prior to the date of such meeting. Section 4. Notice of any meeting of the Board may be waived by any director. Attendance of a director at any meeting shall constitute waiver of notice of such meeting except where a director attends a meeting for the express purpose of objecting to the transaction of any business at the meeting because the meeting is not lawfully called or convened. Section 5. A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board, but less than a majority of the Board may adjourn the meeting to some other day or sine die. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board unless the vote of a greater number or the vote of any class of directors shall be required by the Articles of Incorporation. The President of the Company shall act as Chairman at each meeting of the Board but, in the President's absence, one of the directors present at the meeting who shall have been elected for the purpose by majority vote of those directors in attendance shall act as Chairman; and the Secretary of the Company, or in the Secretary's stead, an Assistant Secretary shall act as Secretary at each such meeting. The members of the Board shall receive such compensation as the Board may from time to time by resolution determine. ARTICLE IV COMMITTEES OF THE BOARD OF DIRECTORS Section 1. A majority of directors may appoint committees, standing or special, from time to time from among members of the Board, and confer powers on such committees and revoke such powers and terminate the existence of such committees at its pleasure. Section 2. Meetings of any committee may be called in such manner and may be held at such times and places as such committee may by resolution determine, provided that a meeting of any committee may be called at any time by the President of the Company. Members of all committees shall receive such compensation as the Board of Directors may from time to time by resolution determine. Section 3. Each committee shall have such authority of the Board of Directors as shall be granted to it by the Board; provided, however, a committee may not take any action not permitted to be taken by a committee pursuant to the Business Corporation Act of 1983, as amended from time to time. ARTICLE V OFFICERS Section 1. There shall be elected by the Board of Directors (if practicable at its first meeting after the annual election of directors in each year) the following principal officers, namely: A President, such number of Vice Presidents as the Board may from time to time decide upon (any one or more of whom may be designated as Executive Vice President, Senior Vice President or otherwise), a Secretary, a Treasurer and a Controller. References in these Bylaws to Vice Presidents shall include any such Executive Vice President, Senior Vice President or other Vice President, however denominated. The Board may in its discretion also elect such other officers as may from time to time be provided for by the Board. Any two or more offices may be held by the same person. All officers, unless sooner removed, shall hold their respective offices until the first meeting of the Board of Directors after the next succeeding annual election of directors and until their successors, willing to serve, shall have been elected, but any officer, including any officer appointed by the President as provided in Section 2 of this Article V, may be removed from office at the pleasure of the Board. Election or appointment of an officer shall not of itself create contract rights. Section 2. The President shall be the chief executive officer of the Company and shall have the general management and direction, subject to the control of the Board of Directors, of the business of the Company, including the power to appoint and to remove and discharge any and all assistant officers, agents and employees of the Company not elected or appointed directly by the Board of Directors. The President may execute for and on behalf of the Company any contracts, deeds, mortgages, leases, bonds, or other instruments and may accomplish such execution either under or without the seal of the Company and either individually or with the Secretary, any Assistant Secretary, or any other officer or person thereunto authorized by the Board of Directors, according to the requirements of the form of the instrument. The President shall have such other powers and duties as usually devolve upon the president of a corporation, and such further powers and duties as may from time to time be prescribed by the Board of Directors. The President may delegate any part of the duties of that office to one or more of the Vice Presidents of the Company. Section 3. Each of the Vice Presidents shall have such powers and duties as may be prescribed for such office by the Board of Directors or as may be prescribed for or delegated to such officer by the President. Each Vice President may execute for and on behalf of the Company any contracts, deeds, mortgages, leases, bonds, or other instruments in each case in accordance with the authority therefor granted by the President or the Board of Directors, which authority may be general or confined to specific instances. Such execution may be accomplished either individually or with any other officer or person thereunto authorized by the President or the Board of Directors, according to the requirements of the form of the instrument. In the absence or inability of the President or in case of the President's death, resignation or removal from office, the powers and duties of the President shall temporarily devolve upon such one of the Vice Presidents as the Board shall have designated or shall designate for the purpose and the Vice President so designated shall have and exercise all the powers and duties of the President during such absence or disability or until the vacancy in the office of President shall be filled. Each Vice President may delegate any part of the duties of that office to employees of the Company under such Vice President's supervision. Section 4. The Secretary shall attend all meetings of the Board of Directors, shall keep a true and faithful record thereof in proper books to be provided for that purpose, and shall have the custody and care of the corporate seal, records, minutes and stock books of the Company. The Secretary shall also act as Secretary of all shareholders' meetings, and keep a record thereof, except to the extent some other person may have been selected to act as Secretary by such meeting. The Secretary shall keep a suitable record of the addresses of shareholders, shall have general charge of the stock transfer books of the Company, and shall, except as may be otherwise required by statute or by the Bylaws, sign, issue and publish all notices required for meetings of shareholders and for meetings of the Board of Directors. The Secretary shall sign all share certificates, bonds and mortgages, and all other documents and papers to which the Secretary's signature may be necessary or appropriate, shall affix the seal, and shall have such other powers and duties as are commonly incidental to the office of Secretary or as may be prescribed for or delegated to that office by the Board of Directors, by the President, or, if authorized by the Board or the President to prescribe such powers and duties, by a Vice President. The Secretary may delegate any part of the duties of that office to employees of the Company under the Secretary's supervision. Section 5. The Treasurer shall have charge of, and be responsible for, the collection, receipt, custody and disbursement of the funds of the Company, and the deposit of its funds in the name of the Company in such banks, trust companies or safety vaults as the Board of Directors may direct which direction may be general or confined to specific depositories. The Treasurer shall have custody of such books, receipted vouchers and other papers and records as in the practical business operations of the Company shall naturally belong in the office or custody of the Treasurer or as shall be placed in the custody of the Treasurer by the Board of Directors, by the President, or, if authorized by the Board or the President, by a Vice President. The Treasurer shall have such other powers and duties as are commonly incidental to the office of Treasurer or as may be prescribed for or delegated to that office by the Board of Directors, by the President, or, if authorized by the Board or the President to prescribe such powers and duties, by a Vice President. The Treasurer may be required to give a bond to the Company for the faithful discharge of the Treasurer's duties, in such form and in such amount and with such sureties as shall be determined by the Board of Directors. The Treasurer may delegate any part of the Treasurer's duties to employees of the Company under the Treasurer's supervision. Section 6. The Controller shall be the principal accounting officer of the Company. Except as otherwise provided in these Bylaws and except as otherwise provided by the Board of Directors, the Controller will be responsible for the direction of the auditing organization of the Company (other than the Internal Audit function), the establishment and maintenance of accounting procedures, the interpretation of all financial statements and accounting reports of the Company and functional supervision over the records of all other departments of the Company pertaining to revenues, expenses, moneys, securities, properties, materials and supplies. The Controller shall have such other powers and duties as are commonly incidental to the office of Controller or as may be prescribed for or delegated to the Controller by the Board of Directors, by the President, or, if authorized by the Board or the President to prescribe such powers and duties, by a Vice President. The Controller may be required to give a bond to the Company for the faithful discharge of the Controller's duties, in such form and in such amount and with such sureties as shall be determined by the Board of Directors. The Controller may delegate any part of the Controller's duties to employees of the Company under the Controller's supervision. Section 7. The Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and Assistant Controllers shall, respectively, assist the Vice Presidents, the Secretary, the Treasurer and the Controller of the Company in the performance of the respective duties assigned to such principal officers and, in assisting the respective principal officer, each assistant officer shall, for such purposes, have the same powers as the respective principal officer. The powers and duties of any principal officer shall, except as otherwise ordered by the Board of Directors, temporarily devolve upon the respective assistant in case of the absence, disability, death, resignation or removal from office of such principal officer. ARTICLE VI MISCELLANEOUS Section 1. The funds of the Company shall be deposited to its credit in such banks or trust companies as the Board of Directors from time to time shall approve, which approval may be general or confined to specific instances. Such funds shall be withdrawn only on checks or drafts of the Company or by direct, wire or other electronic transfer of funds for the purposes of the Company in accordance with procedures relating to signatures and authorizations by officers of the Company which are approved by the Board of Directors from time to time, which approval may be general or confined to specific instances. Section 2. No debts shall be contracted except for current expenses unless authorized by the Board of Directors, and no bills shall be paid by the Treasurer unless audited and approved by the Controller or by some other person or committee authorized by the Board of Directors to audit and approve bills for payment. Section 3. All distributions to shareholders and all acquisitions by the Company of its own shares shall be authorized by the Board of Directors. Section 4. The fiscal year of the Company shall close at the end of December annually. Section 5. All or any shares of stock of any corporation owned by the Company may be voted at any meeting of the shareholders of such corporation by the President, any Vice President or the Secretary of the Company upon any question that may be presented at such meeting, and any such officer may, on behalf of the Company, waive any notice of the calling of such meeting required by any statute or bylaw and consent to the holding of any such meeting without notice. The President, any Vice President or the Secretary of the Company shall have authority to give to any person a written proxy in the name of the Company and under its corporate seal to vote at any meeting of the shareholders of any corporation all or any shares of stock of such corporation owned by the Company upon any question that may be presented at such meeting, with full power to waive any notice of the calling of such meeting required by any statute or bylaw and to consent to the holding of any such meeting without notice. Section 6. (a) The Company shall indemnify any person who was or is a party, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that such person is or was a director, officer, employee or agent of the Company, or who is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, if such person had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, that the person had reasonable cause to believe that such person's conduct was unlawful. (b) The Company shall indemnify any person who was or is a party, or is threatened to be made a party to, any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if such person being indemnified acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Company, provided that no indemnification shall be made with respect to any claim, issue, or matter as to which such person has been adjudged to have been liable to the Company, unless, and only to the extent that, the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. (c) To the extent that a director, officer, employee or agent has been successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in paragraph (a) or (b), or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. (d) Any indemnification under paragraph (a) or (b) (unless ordered by a court) shall be made by the Company only as authorized in the specific case, upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in paragraph (a) or (b). Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the shareholders of the Company. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Company as authorized in this Section 6. (f) The indemnification and advancement of expenses provided by or granted under the other subsections of this Section 6 shall be effective with respect to acts, errors or omissions occurring prior to, on or subsequent to the date of adoption hereof and such indemnification shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action by a director, officer, employee or agent in such person's official capacity and as to action in another capacity while holding such office. (g) The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or who is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Company would have the power to indemnify such person against such liability under the provisions of this Section 6. (h) If the Company has paid indemnity or has advanced expenses to a director, officer, employee or agent, the Company shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders' meeting. (i) For purposes of this Section 6 references to "the Company" shall include, in addition to the surviving corporation, any merging corporation (including any corporation having merged with a merging corporation) absorbed in a merger which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers, and employees or agents, so that any person who was a director, officer, employee or agent of such merging corporation, or was serving at the request of such merging corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section 6 with respect to the surviving corporation as such person would have with respect to such merging corporation if its separate existence had continued. (j) For purposes of this Section 6, references to "other enterprise" shall include employee benefit plans, and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries. A person who acted in good faith and in a manner such person reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Section 6. (k) The indemnification and advancement of expenses provided by or granted under this Section 6 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of that person. ARTICLE VII AMENDMENT OR REPEAL OF BYLAWS These Bylaws may be added to, amended or repealed by the Board of Directors at any regular or special meeting of the Board. STATE OF ILLINOIS ) )SS. COUNTY OF SANGAMON ) I, the undersigned, hereby certify that I am Secretary of Central Illinois Public Service Company and the Custodian of the books and records of said Company. I further certify that the above and foregoing is a true copy of the Bylaws of said Company in effect on , 19 . IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Company this day of , A.D. 19 . (CORPORATE SEAL) -----END PRIVACY-ENHANCED MESSAGE-----