UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                  Form 10-Q/A1

              (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended SEPTEMBER 30, 1998

                                       OR
              ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

             For the transition period from __________to __________

Commission      Registrants; State of Incorporation;            IRS Employer
File Number      Address; and Telephone Number                Identification No.

  1-11327              Illinova Corporation                       37-1319890
                       (an Illinois Corporation)
                       500 S. 27th Street
                       Decatur, IL  62521
                       (217) 424-6600

  1-3004               Illinois Power Company                    37-0344645
                       (an Illinois Corporation)
                       500 S. 27th Street
                       Decatur, IL  62521
                       (217) 424-6600

         Indicate  by check  mark  whether  the  registrants  (1) have filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
registrant was required to file such report),  and (2) have been subject to such
filing requirements for the past 90 days.

                             Illinova        Yes X  No
                             Corporation        ----  ----
                             Illinois Power  Yes X  No
                             Company            ----  ----

         Indicate  the  number of  shares  outstanding  of each of the  issuers'
classes of common stock, as of the latest practicable date:

Illinova Corporation          Common stock, no par value, 71,713,387
                              shares outstanding at October 31, 1998

Illinois                      Power Company  Common stock,  no par
                              value, 65,150,562 shares outstanding
                              held  by  Illinova   Corporation  at
                              October 31, 1998




                                       1




                 ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY
Item 2.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         This report contains estimates,  projections and other  forward-looking
statements  that involve  risks and  uncertainties.  Actual  results or outcomes
could differ materially from those provided in the forward-looking statements as
a result  of such  important  factors  as:  the  outcome  of state  and  federal
regulatory  proceedings  affecting  the  restructuring  of the  electric and gas
utility industries;  the impacts of new laws and regulations on Illinova and its
subsidiaries  relating to restructuring,  environmental  and other matters;  the
effects of increased competition on the utility businesses;  risks of owning and
operating  a  nuclear  facility;  changes  in prices  and cost of fuel;  factors
affecting non-utility investments, such as the risk of doing business in foreign
countries;  construction  and operation risks; and increases in financing costs.
All forward-looking  statements are based upon information  presently available,
and  Illinova  and  IP  assume  no  obligation  to  update  any  forward-looking
statements.

         Reference is made to the Notes to the Consolidated Financial Statements
and Management's  Discussion and Analysis of Financial  Condition and Results of
Operations presented in Illinova's 1997 Annual Report to Shareholders  (included
in the Proxy Statement),  the Consolidated Financial Statements and Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
presented  in  IP's  1997  Annual  Report  to  Shareholders   (included  in  the
Information  Statement),  and  Illinova's  and IP's Form 10-K for the year ended
December 31, 1997 and  Illinova's  and IP's Report on Form 10-Q for the quarters
ended March 31 and June 30, 1998, and Illinova's and IP's 1998 Form 8-K filings.

ILLINOVA SUBSIDIARIES


         IP, a subsidiary of Illinova, engages in the generation,  transmission,
distribution  and sale of electric energy and the  distribution,  transportation
and  sale of  natural  gas in the  State of  Illinois.  IP has  publicly  traded
preferred shares outstanding but its common stock is wholly-owned by Illinova.


         IGC is a  wholly-owned  independent  power  subsidiary  of Illinova and
invests in energy supply  projects  throughout  the world.  IGC's strategy is to
invest in and develop  "greenfield"  power plants,  acquire existing  generation
facilities and provide power plant operations and maintenance services.

         IEP is a wholly-owned  subsidiary of Illinova. IEP develops and markets
energy-related  services to the unregulated  energy market throughout the United
States and engages in the brokering and marketing of electric power and gas.

         IIC is a  wholly-owned  subsidiary  of Illinova and was licensed by the
State of Vermont as a captive insurance company.  The primary business of IIC is
to insure certain risks of Illinova and its subsidiaries.

         IBE is a wholly-owned subsidiary of Illinova and was created to account
for  miscellaneous  business  activities not regulated by the ICC or the Federal
Energy Regulatory Commission (FERC) and not falling within the business scope of
other Illinova subsidiaries.


                                       18


LIQUIDITY AND CAPITAL RESOURCES
         CAPITAL RESOURCES AND REQUIREMENTS

         Cash  flows  from  operations  during  the first  nine  months of 1998,
supplemented by external  financing,  were sufficient to meet ongoing  operating
requirements and to service existing common and preferred stock dividends,  debt
requirements,  IP's construction  requirements and Illinova's investments in its
subsidiaries.  However,  Illinova's and IP's liquidity has decreased as a result
of higher  than  expected  replacement  power  costs and  higher  Clinton  costs
combined  with lower  revenues  caused by the rate  reduction  mandated  by P.A.
90-561 and lower than anticipated subsidiary earnings.

         Illinova expects to use cash flows, supplemented by external financing,
to meet operating  requirements  and to continue to service  existing debt, IP's
preferred and Illinova common stock  dividends,  IP's sinking fund  requirements
and Illinova's and IP's  anticipated  subsidiary  investments  and  construction
requirements for the remainder of 1998.

         On January 28, 1998,  Illinova issued $40 million of 6.46%  medium-term
notes due  October 1, 2002 under an existing  $300  million  shelf  registration
statement.  On September 9, 1998 Illinova  issued an  additional  $30 million of
6.15%   medium-term   notes  due   September  10,  2001  under  the  same  shelf
registration.  Illinova  currently  has  authority to issue an  additional  $130
million  in debt  securities  under  this shelf  registration.  Illinova's  $110
million  revolving  credit agreement is subject to termination if Clinton is not
operational by January 31, 1999. In anticipation of this  possibility,  Illinova
has  initiated  action to replace this  revolving  credit  agreement  with a new
facility.  There is no assurance  that this can be done on terms as favorable as
the current agreement. IP pays Illinova dividends on the IP common stock held by
Illinova  to  provide  Illinova  cash  for  operations.  IP also is  allowed  to
periodically  repurchase  its common  stock from  Illinova  in  accordance  with
authority granted by the ICC,  contingent on IP meeting certain cash flow tests.
Although IP currently  satisfies this cash flow test, it is anticipated  that it
will not satisfy the test at year-end 1998 and for a portion of 1999.  This test
failure will not impact the ability to repurchase  Illinova  equity shares using
securitization  proceeds.  Illinova's  current $130 million  capacity  under the
existing shelf registration should meet its cash requirements  through the first
quarter of 1999.  Illinova is developing  additional  financial  capabilities to
meet future needs.

         IP issued a redemption  notice for all  outstanding  bonds of its 6.00%
Pollution  Control First Mortgage  Bonds due 2007 ($18.7  million) and its 8.30%
Pollution  Control First  Mortgage Bonds due 2017 ($33.8  million).  Both series
were called April 1, 1998.  On March 6, 1998,  IP issued $18.7  million of 5.40%
Pollution  Control  Mortgage Bonds due 2028 and $33.8 million of 5.40% Pollution
Control  Mortgage  Bonds  due  2028.  On May 8,  1998,  IP filed an SEC Form S-3
registration for a $200 million debt shelf authorization. This debt shelf became
effective  May 27,  1998.  On July 21,  1998,  IP issued  $100  million of 6.25%
Mortgage  Bonds due 2002 against this  registration.  On September  16, 1998, IP
issued $100  million of 6.00%  Mortgage  Bonds due 2003  against this same shelf
registration.  On September 28,1998, IP issued a call notice on the 6.60% Series
A  Pollution  Control  Bonds due May 1, 2004.  The bonds  were  called at par on
November 1, 1998.

         IP's capital  requirements for  construction  were  approximately  $190
million and $131  million  during the nine months ended  September  30, 1998 and
1997,  respectively.  Through  2000 IP plans  to  complete  improvements  in its
generation  facilities  including  pollution  control  equipment,  equipment  to
support use of Powder River Basin coal and new combustion turbine peaking units.
These improvements will cost  approximately  $300 million.  In addition to these
investments, IP will be required to deposit $62 million in cash with the IP Fuel
Company Trustee for noteholders and take title to the partially depleted nuclear
fuel in the reactor at Clinton  Power  Station on March 2, 1999 if Clinton  does


                                       19


not return to service by January 31,  1999.  IP currently  has the  authority to
issue $250 million in long-term debt and $500 million in short-term  debt, which
includes  $350 million in committed  bank lines of credit.  Of these  authorized
amounts, IP has $128 million in remaining capacity that may be utilized to issue
commercial  paper and extend  floating  rate  notes.  IP  anticipates  that this
liquidity will be sufficient to address its requirements into the second quarter
of 1999.  IP is  developing  additional  financial  capabilities  to meet future
needs.

         On June 24, 1998, IP filed an application with the ICC seeking approval
for  securitization  notes  totaling $864 million.  This  represents  25% of the
company's  capitalization  at December 31, 1996 as allowed by the 1997  Electric
Utility  Transition  Funding law. The proceeds  from these notes will be used to
lower IP's cost of capital by  repurchasing  stock and  retiring  debt.  The ICC
approved and issued the  Transitional  Funding  Order on September  10, 1998. On
September 16, 1998, IP filed a shelf registration statement on Form S-3 with the
SEC. On September 30, 1998, the Internal Revenue Service issued a private letter
ruling to IP holding that, among other things,  the notes will be obligations of
IP for federal income tax purposes. Interest paid on the notes generally will be
taxable to a United States Noteholder as ordinary interest income.

         Presently,  IP's mortgage bonds are rated Baa1 by Moody's, BBB+ by Duff
& Phelps and BBB by  Standard & Poor's.  IP's  preferred  stock is rated Baa2 by
Moody's and BBB- by both Duff & Phelps and Standard & Poor's.  Illinova's senior
and medium-term  notes have a rating of Baa3 from Moody's and BBB- from Standard
& Poor's.  On July 6, 1998,  a change in outlook  was issued.  The outlook  from
Moody's  changed from stable to negative and the outlook from  Standard & Poor's
changed from positive to stable.


         To avoid any  possible  constraint  imposed by Federal or State laws as
discussed  above,  on October  14,  1998,  the Board of  Directors  declared  IP
preferred  stock  dividends for the first quarter of 1999 and declared IP common
stock dividends which were paid in November totaling $.62 per share.




ACCOUNTING MATTERS

         For further information on accounting issues, see "Accounting  Matters"
under  "Regulatory  and Legal Matters" of the "Notes to  Consolidated  Financial
Statements" on page 13 of this report.










CLINTON POWER STATION

         In  September  1996,  a leak in a  recirculation  pump  seal  caused IP
operations personnel to shut down Clinton. Clinton has not resumed operation.

         In  January  1997  and  again  in June  1997,  the  Nuclear  Regulatory
Commission  (NRC)  named  Clinton  among  plants  having  a trend  of  declining
performance.  In June  1997,  IP  committed  to  conduct  an  Integrated  Safety
Assessment  (ISA)  to  thoroughly  assess  Clinton's  performance.  The  ISA was
conducted by a team of 30 individuals with extensive  nuclear  experience and no


                                       20



substantial  previous  involvement at Clinton.  Their report  concluded that the
underlying  reasons for the  performance  problems at Clinton  were  ineffective
leadership  throughout the  organization  in providing  standards of excellence,
complacency  throughout the organization,  barrier  weaknesses and weaknesses in
teamwork.  In  late  October,  a team  commissioned  by  the  NRC  performed  an
evaluation to validate the ISA results.  In December,  this team  concluded that
the  findings  of  the  ISA  accurately   characterized   Clinton's  performance
deficiencies and their causes.

         On January 5, 1998,  IP and PECO Energy  Company  (PECO)  announced  an
agreement  under  which  PECO will  provide  management  services  for  Clinton.
Although a PECO team will help manage the plant,  IP  continues  to maintain the
operating  license for Clinton and retain ultimate  oversight of the plant. PECO
employees  have assumed senior  positions at Clinton,  but the plant will remain
primarily staffed by IP employees.  IP made this decision based on a belief that
bringing in PECO's  experienced  management team would be the most efficient way
to get  Clinton  back on line and  operating  at a superior  level as quickly as
possible.

         On  January  21,  1998,  the NRC  placed  Clinton  on its Watch List of
nuclear plants that require additional regulatory oversight because of declining
performance.  Twice a year the NRC  evaluates the  performance  of nuclear power
plants in the United  States  and  identifies  those  which  require  additional
regulatory  oversight.  Once placed on the Watch List, a plant must  demonstrate
consistent  improved  performance  before it is removed from the list. The Watch
List  issued on July 29,  1998  still  included  Clinton.  The NRC will  monitor
Clinton  more  closely  than  plants  not on the Watch  List.  This may  include
increased inspections, additional required documentation,  NRC-required approval
of processes and procedures and higher-level NRC oversight.

         On February 19, 1998, IP filed  Clinton's  Summary Plan for  Excellence
with the NRC. The Plan for Excellence provides a comprehensive set of strategies
and associated actions necessary to improve performance,  permit safe restart of
the plant and achieve  excellence in operations.  IP is implementing the actions
required prior to plant restart.  This  recovery/restart  program to get Clinton
back online is going through a formal parallel review process by the NRC.

         The NRC has advised IP that it must submit a written  report to the NRC
at least two weeks prior to  restarting  Clinton,  giving the agency  reasonable
assurance  that IP's actions to correct  recurring  weaknesses in the corrective
action program have been effective. After the report is submitted, the NRC staff
will meet with IP's management to discuss the plant's readiness for restart.

         IP  announced  October 19, 1998 that it now appears  likely the plant's
restart will be after the first of the year.  Moving restart into next year will
increase the expense for the station's  recovery  process.  IP currently expects
Clinton's  1998  operating and  maintenance  expenses to be at least $88 million
more than Clinton's 1997 expenses,  totaling  approximately $210 to $215 million
for 1998.

         The  prolonged  outage  at  Clinton  is  having  an  adverse  effect on
Illinova's  and  IP's  financial   condition,   through  higher   operating  and
maintenance  and  capital  costs,  lost   opportunities  to  sell  energy,   and
replacement power costs. The magnitude of these costs and lost  opportunities is
unknown  because of  uncertainty  regarding  the timing of  Clinton's  return to
service,  the  ultimate  cost of restart and  uncertain  market  conditions.  If
Clinton is not back in service by the end of January  1999,  IP must deposit $62
million with the IP Fuel Co. Trustee for noteholders for the acquisition of core
fuel from IP Fuel Co. Previously disclosed earnings  expectations are subject to
the effects of these uncertainties and changes.


                                       21


REGULATORY MATTERS

         RATE REDUCTION FILING

         IP  submitted  written  filings  with the ICC in June 1998 to begin the
process of implementing a 15 percent residential rate reduction effective August
1, 1998. On July 22, 1998, IP filed a plan with the ICC for a one time reduction
in residential and small commercial  customers'  electric bills of approximately
7.5  percent  for  the  month  of  August  in   consideration  of  their  energy
conservation  efforts  this  summer.  The  reduction  was in  addition to the 15
percent residential rate reduction that was effective August 1, 1998 and had the
effect of beginning the 15 percent residential electric rate reduction two weeks
early.


         ATTORNEY GENERAL COMPLAINT

         On July 17,  1998,  a complaint  against IP was filed at the ICC by the
Illinois State Attorney  General.  The complaint  alleges that IP failed to meet
its statutory obligations to provide adequate and reliable service in connection
with this summer's electric supply situation (for further disclosure, see "Power
Supply and Reliability" on pages 25-26). It asks the ICC to conduct a management
audit of IP and seeks an order  requiring IP to offer  compensation to customers
for voluntary  conservation and service  interruptions.  The Company believes it
can effectively defend itself against these allegations, however, the outcome at
this point is uncertain.


         SOYLAND POWER COORDINATION AGREEMENT

         The FERC approved an amended Power Coordination Agreement (PCA) between
Soyland  and IP in July 1997.  Under the  amended  PCA,  Soyland  was allowed to
prepay an Elected Capacity Reduction Fee associated with a unilateral  reduction
in its base capacity  charge under the PCA. In December  1997,  Soyland signed a
letter of intent to pay in advance the remainder of its base capacity charges in
the PCA.  Soyland  obtained the  necessary  financing and  regulatory  approvals
during the second quarter of 1998. During the first quarter of 1998, IP received
$30 million from Soyland and the remaining  $40 million was received  during the
second quarter of 1998. The prepayment has been deferred and is being recognized
as  interchange  revenue  evenly over the initial  term of the PCA which is from
September 1, 1996 through August 31, 2006.


         UNIFORM FUEL ADJUSTMENT CLAUSE (UFAC)

         Previously,  IP's  rate  schedules  contained  provisions  for  passing
through to its electric  customers  increases or decreases in the cost of energy
provided to its native load customers  under the UFAC.  Such costs included fuel
and allowable fuel  transportation  costs,  emission  allowance costs, DOE spent
fuel disposal  fees and costs of power  purchased to serve native load. On March
6, 1998, IP filed with ICC the necessary  documents  required for elimination of
the UFAC.  This  established a new base fuel cost  recoverable  in IP's electric
tariffs effective on the date of the filing. As provided in P.A. 90-561, the new
base fuel  cost is 1.287  cents per kwh,  which is equal to 91  percent  of IP's
average  prudent and allowable fuel and purchased  power supply costs in the two
most recent years for which the ICC has  approved  the level of recovery.  Every
year UFAC cost recoveries are audited by the ICC in a reconciliation  proceeding
in which they may be adjusted upward for actual costs not recovered, or downward
through  a  disallowance  of costs  incurred.  By  opting  out of the  UFAC,  IP
eliminated exposure for potential  disallowed fuel and purchased power costs for
periods after December 31, 1996, as those years will no longer be subject to the
ICC's  annual  reconciliation  proceeding.  This  change  will  prevent  IP from


                                       22


automatically  passing through increases in cost and will expose IP to the risks
and  opportunities  of price  volatility in the  marketplace.  Whether  electric
energy  costs will  continue to be  recovered in revenues  from  customers  will
depend on a number of factors,  including the number of customers served, demand
for electric service and changes in fuel cost components. These variables may be
influenced, in turn, by market conditions,  availability of generating capacity,
future regulatory  proceedings and environmental  protection costs,  among other
things.


         DEREGULATION RULEMAKINGS AND TARIFFS

         As a result of P.A.  90-561,  ICC  rulemakings  are  underway  covering
issues  such  as  affiliated   interests  and   reliability.   These  regulatory
proceedings, alone or in combination, could significantly impact how IP operates
and is organized, but they are not likely to have a material impact on financial
results.

         Under the new rules,  Illinois utilities must keep records  identifying
service interruptions experienced by each customer. Illinois utilities must also
file an annual report  detailing the  reliability  of its service and explaining
its plans for  reliability  improvements.  In  addition,  each utility must also
report the number  and causes of service  interruptions  that were due to causes
within the utility's  control.  Outage targets were  established  for service to
individual customers and for system performance.


         OPEN ACCESS AND COMPETITION
         In   January   1998,    IP,   in    conjunction    with   eight   other
transmission-owning entities, filed with the FERC for all approvals necessary to
create and implement the Midwest Independent  Transmission System Operator, Inc.
(MISO). On September 16, 1998, the FERC issued an order authorizing the creation
of a MISO. The MISO must now elect a seven-person independent board of directors
within seventy five days of approval.  The goals of this joint  undertaking  are
to:  1) put in place a tariff  allowing  easy and  nondiscriminatory  access  to
transmission facilities in a multi-state region, 2) enhance regional reliability
and 3)  establish  an entity that  operates  independently  of any  transmission
owner(s)  or other  market  participants,  thus  furthering  competition  in the
wholesale  generation  market consistent with the objectives of the FERC's Order
No. 888. Since January 1998, four other transmission-owning  entities joined the
MISO.  Participation in an ISO by utilities was one of the requirements included
in P.A.  90-561  enacted in 1997.  The MISO has a stated  goal to begin  limited
operation in 1999, and to be fully operational in the year 2000.

         See "Open Access and Competition"  under "Regulatory and Legal Matters"
of the "Notes to  Consolidated  Financial  Statements" on page 12 of this report
for additional information.

YEAR 2000 DATA PROCESSING

         In November  1996,  Illinova  deployed a project team to coordinate the
identification, evaluation and implementation of changes to computer systems and
applications  necessary to achieve a year 2000 date conversion with no effect on
customers or disruption to business operations.

         These  actions are  necessary to ensure that  systems and  applications
will recognize and process  coding for the year 2000 and beyond.  Major areas of
potential business impact have been identified.  Illinova has inventoried 99% of
its  systems  and  assessment  is  95%  complete.   Implementation  efforts  are
approximately  34% complete.  Illinova also is communicating  with third parties
with whom it does business to facilitate continued business operations.


                                       23


          The  cost  of  achieving  year  2000  compliance  is  estimated  to be
approximately  $20.4 million through 1999. The amount expended as of October 31,
1998  is $6.4  million.  Contingency  plans  for  operating  without  year  2000
compliance  have not been  developed.  Such activity is expected to begin in the
fourth  quarter of 1998, but exact timing will depend on assessment of progress.
Project  completion  for Illinova is planned for the fourth  quarter of 1999 for
Illinova  overall.  For IP alone,  the  project  is  scheduled  to be  virtually
complete by mid year 1999.

         If  Illinova,  IP or  critical  interfacing  third  parties'  year 2000
efforts are  unsuccessful,  some or all of Illinova's  and IP's  commercial  and
operational  activities could be interrupted for an indefinite time. In addition
to monetary loss,  equipment could be damaged and public safety impaired.  It is
uncertain whether such damage would be catastrophic or minimal. It is impossible
to assess third party performance beyond Illinova's and IP's control.


DIVERSIFIED BUSINESS ACTIVITIES

         IGC, a wholly-owned  subsidiary of Illinova,  invests in energy-related
projects  throughout  the world.  Prior to the fourth quarter 1998, IGC owned 50
percent of the North  American  Energy  Services  Company  (NAES) and in October
1998,  IGC purchased  the  remaining 50 percent.  NAES supplies a broad range of
operations, maintenance and support services to the world-wide independent power
generation  industry and operates the Tenaska generation plants in which IGC has
an equity interest.


ENVIRONMENTAL MATTERS

         GAS MANUFACTURING SITES

         See "Manufactured Gas Plant Sites" under "Regulatory and Legal Matters"
of the "Notes to Consolidated Financial Statements" on page 16 of this report.

         NITROGEN OXIDE

         On  September  24,1998,  the  Administrator  of  the  US  Environmental
Protection  Agency  signed a final  rule  (commonly  known as the NOx SIP  Call)
requiring 22 States and the District of Columbia to submit State  implementation
plans  that  address  the  regional  transport  of  ground-level  ozone  through
reductions  in nitrogen  oxides  (NOx).  The rule  imposes an  ozone-season  NOx
tonnage cap on each state.  States have the ability to choose their NOx emission
reduction strategy;  however,  utility and large industrial sources are the most
likely  targets  for  reductions.  The State  reduction  plans are  required  by
September,  1999 and NOx emission  reduction measures must be in place by May 1,
2003.  Utility NOx  emissions  are expected to be capped based on a NOx limit of
0.15  pounds  per  million  Btu of  heat  input;  this is  equivalent  to an 85%
reduction in utility sector NOx emissions.  IP's preliminary  estimate to comply
with the anticipated  utility NOx limit is $129 to $140 million beyond the $97.5
million cost of the Phase II Acid Rain NOx reduction  requirements.  The NOx SIP
Call is expected to be challenged  by utility and  industrial  organizations  as
well as several states.


         EMISSION ALLOWANCE EXCHANGES

         The  value of  emission  allowances  expected  to be given up in future
periods as the result of exchange  agreements  was recorded in the third quarter
1998 at the current market price and a liability of $9.8 million was recognized.
This  obligation will be adjusted as price  fluctuates  until the allowances are
surrendered.


                                       24


GLOBAL WARMING

         On December 11, 1997,  international  negotiations to reduce greenhouse
gas emissions  concluded with the adoption of the Kyoto Protocol.  This Protocol
requires the United States to reduce  greenhouse  gas emissions to 7% below 1990
levels  during  the  years  2008  through  2012 and to make  further  reductions
thereafter.  This Protocol must be ratified by the United States Senate.  United
States Senate  Resolution 98 (passed 95-0) indicates the Senate would not ratify
an  agreement  that fails to involve all  countries  or would  damage the United
States economy.  Ratification will be a major political issue since the Protocol
does not contain key elements that Senate  Resolution 98 said would be necessary
for ratification. It is anticipated that ratification will not occur in 1998.

         IP will face major changes in how it generates electricity if the Kyoto
Protocol is ratified, or if the Protocol's reduction goals are incorporated into
other environmental regulations.  IP would have to repower some generating units
and change  from coal to natural  gas in other  units to reduce  greenhouse  gas
emissions.  IP estimates that  compliance  with these proposed  regulations  may
require significant capital outlays and an increase in annual operating expenses
which could have a material adverse impact on Illinova and IP.

POWER SUPPLY AND RELIABILITY

         Electricity was in short supply throughout  Illinois and Wisconsin this
summer because of an unusually  high number of plant outages in this region.  IP
was  able to  secure  generation  and  transmission  capacity  in order to guard
against  disruptions in service.  IP took  additional  steps to avoid  potential
shortages,  including inspecting and upgrading transmission lines and equipment,
readying   emergency   procedures   and  restarting  two  plants  that  were  in
cold-shutdown. Expenses incurred as a result of the shortage of electricity this
summer have had a material adverse impact on Illinova and IP.

         IP experienced  unprecedented and unexpected prices for power purchases
during  the last week of June  1998.  Replacement  power  costs  for the  second
quarter of 1998 were $49 million  higher than the second quarter of 1997 and $55
million higher  through June 1998 as compared to 1997. In addition,  during June
1998 IP  recorded  an accrual  of $58.3  million  for  probable  and  reasonably
estimable  losses on power sales  commitments  with scheduled third quarter 1998
delivery  dates.  The earnings  impact of replacement  power costs for the third
quarter of 1998 was in line with July 1998  projections.  The ultimate amount of
1998 losses  associated with power sales commitments and lost margin on sales to
native load customers was largely the result of factors influencing the price of
purchased power such as regional weather,  regional generation capacity,  market
conditions   including   prices  and  liquidity,   generation  and  transmission
availability  as well as factors  affecting  IP's  generating  and  transmission
capacity.  In addition,  IP is subject to future price and capacity risk related
to electric  power supply  contracts  for the years 1999 and 2000. In the fourth
quarter of 1998, IP expects to accrue an additional  amount of approximately $20
million to provide for other 1999 and 2000 sales  agreements  that it previously
expected to fulfill through IP generation.

         The ultimate  financial impact of these contracts will depend on market
conditions  and  IP's  system  availability.  IP will  continue  to  review  its
accounting  treatment of these  commitments as further guidance is issued by the
EITF regarding  issue 98-10,  "Accounting for Energy Trading and Risk Management
Activities."  See  discussion  of EITF 98-10 under  "Accounting  Matters" in the
"Notes To Consolidated Financial Statements" on page 15.

         On July 7, 1998,  IP  testified  before the ICC and July 8, 1998 before
the  Environment and Energy  Committee of the Illinois House of  Representatives


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with regard to the electric  supply  problems of late June and IP's supply plans
for the rest of the summer.  IP stated it was monitoring power plant maintenance
and transmission  system  preparation.  In the third quarter, in response to the
summer supply  situation,  IP increased MWH generation 16.4 percent  compared to
the same quarter of 1997 by running  selected  plants at peak and  re-activating
oil-fired generating plants previously placed in cold shutdown.

         In addition to having Clinton back in service,  IP expects to have more
than 400 megawatts of additional generation on line for the summer of 1999. That
includes  approximately 235 megawatts from five oil-fired units being brought up
from cold  shutdown and 176  megawatts  from four  natural gas turbines  that IP
plans  to  install  before  next  summer.  Total  cost for the two  projects  is
estimated at $87 million.  IP also plans to refurbish nine gas turbines  already
in service at a cost of $13 million.  At a public ICC  proceeding on reliability
on October 4, 1998, IP said that, even though it expects Clinton to be available
by summer 1999, for purposes of advance coverage of anticipated summer demand it
is using the  assumption  that  Clinton  will not be  operating.  Options  being
considered include various demand side management  initiatives,  power purchases
and selected financial and insurance products.


At an ICC proceeding on reliability  October 4, 1998, IP said that,  even though
it expects  Clinton to be  available  by summer  1999,  for purposes of covering
anticipated  summer demand, it is assuming that Clinton will not be operational.
Various demand side management initiatives,  power purchases,  and financial and
insurance  products are being used or reviewed as  approaches to reduce the risk
of supply shortage.







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                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                                     ILLINOVA CORPORATION
                                                           (Registrant)




                                                  By /s/ Larry F. Altenbaumer
                                                     ---------------------------
                                                     Larry F. Altenbaumer
                                                     Chief Financial Officer
                                                     Treasurer and Controller
                                                     on behalf of
                                                     Illinova Corporation







Date: November 19, 1998






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                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                                     ILLINOIS POWER COMPANY
                                                           (Registrant)



                                                  By /s/ Larry F. Altenbaumer
                                                     ---------------------------
                                                     Larry F. Altenbaumer
                                                     Senior Vice President and
                                                     Chief Financial Officer
                                                     on behalf of
                                                     Illinois Power Company










Date: November 19, 1998






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