-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, px81tSUC/0Di0U1z8K9Ao07nvIGJmTjayRuPpmqNDyIvA5M9h9UjHiwp3uQDwelS FfkOM9U82PB6tVKWfcIsFw== 0000052491-94-000023.txt : 19941215 0000052491-94-000023.hdr.sgml : 19941215 ACCESSION NUMBER: 0000052491-94-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941110 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IOWA ILLINOIS GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000052491 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 420673189 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-26675 FILM NUMBER: 94558734 BUSINESS ADDRESS: STREET 1: 206 E 2ND ST CITY: DAVENPORT STATE: IA ZIP: 52808 BUSINESS PHONE: 3193267111 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ IOWA-ILLINOIS GAS AND ELECTRIC COMPANY (Exact name of registrant as specified in its charter) Illinois 42-0673189 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 206 East Second Street, Davenport, Iowa 52801 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (319) 326-7111 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 and 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 the filing requirements for the past 90 days. Yes X No ____ Common shares outstanding at September 30, 1994 29,637,321
Part I. Quarterly Financial Information IOWA-ILLINOIS GAS AND ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF INCOME Third Quarter Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (In thousands, except per share amounts) (Unaudited) OPERATING REVENUES Electric $103,475 $105,324 $277,191 $264,591 Gas 20,446 22,396 146,025 139,614 123,921 127,720 423,216 404,205 OPERATING EXPENSES AND TAXES Operation- Cost of gas sold 10,496 12,330 99,328 94,064 Cost of fuel, energy and capacity 16,669 20,991 52,512 51,949 Other operation 25,544 26,415 79,613 73,983 Maintenance 10,957 10,239 33,239 28,321 Provision for depreciation 15,473 14,771 46,273 43,790 Depreciation and equity funds recovered under Louisa Phase-In Clause - - - 2,370 Income taxes 11,827 10,747 24,868 23,272 Property and other taxes 8,046 8,356 26,078 25,664 99,012 103,849 361,911 343,413 OPERATING INCOME 24,909 23,871 61,305 60,792 OTHER INCOME InterCoast Energy Company - Oil and gas revenues 14,634 12,662 46,196 38,264 Other income 7,787 6,259 25,361 21,611 Expenses, including interest and provision for income taxes (20,386) (17,346) (62,759) (50,330) Net income of InterCoast Energy Company 2,035 1,575 8,798 9,545 Allowance for equity funds used during construction 257 - 288 - Miscellaneous (522) (205) (669) (818) 1,770 1,370 8,417 8,727 INCOME BEFORE UTILITY INTEREST CHARGES 26,679 25,241 69,722 69,519 UTILITY INTEREST CHARGES Interest on long-term debt 5,932 5,731 17,717 18,202 Other interest expense 496 521 1,033 1,316 Allowance for borrowed funds used during construction (379) (174) (959) (758) 6,049 6,078 17,791 18,760 NET INCOME 20,630 19,163 51,931 50,759 PREFERRED AND PREFERENCE DIVIDEND REQUIREMENTS 1,203 1,242 3,610 3,742 NET INCOME ON COMMON SHARES $19,427 $17,921 $48,321 $47,017 AVERAGE COMMON SHARES OUTSTANDING 29,541 29,342 29,429 29,335 NET INCOME PER AVERAGE COMMON SHARE OUTSTANDING $0.66 $0.61 $1.64 $1.60 CASH DIVIDENDS DECLARED AND PAID PER COMMON SHARE $0.4325 $0.4325 $1.2975 $1.2975 The accompanying notes to consolidated financial statements are an intergral part of these statements.
IOWA-ILLINOIS GAS AND ELECTRIC COMPANY CONSOLIDATED BALANCE SHEETS 9-30-94 12-31-93 (In thousands, except share amounts) PROPERTY AND OTHER ASSETS (Unaudited) UTILITY PLANT, at original cost Electric $1,289,041 $1,279,700 Gas 281,861 271,342 1,570,902 1,551,042 Less--Accumulated provision for depreciation 635,401 605,708 935,501 945,334 Nuclear fuel, net of accumulated amortization 27,700 25,120 Construction work in progress 43,230 22,791 1,006,431 993,245 CURRENT ASSETS Cash and cash equivalents 8,104 17,844 Accounts receivable, less reserves of $1,100 and $1,165 34,857 43,389 Accrued unbilled revenues 13,742 22,182 Inventories 39,178 35,597 Deferred gas expense 1,862 5,794 Other 15,982 18,246 113,725 143,052 INVESTMENTS InterCoast Energy Company 521,503 501,829 Nuclear decommissioning trust fund 47,543 39,470 Corporate-owned life insurance 13,381 12,836 582,427 554,135 OTHER ASSETS Regulatory assets 97,565 92,828 Other 11,315 10,303 108,880 103,131 1,811,463 1,793,563 CAPITALIZATION AND LIABILITIES CAPITALIZATION COMMON SHAREHOLDERS' EQUITY Common shares--authorized 80,000,000 shares--outstanding 29,637,321 and 29,352,173 shares stated at 285,932 280,009 Retained earnings 229,504 219,371 Other (5,267) 32 510,169 499,412 PREFERRED SHARES--authorized 400,000 shares, cumulative --outstanding 198,288 shares not subject to mandatory redemption 19,829 19,829 PREFERENCE SHARES--authorized 2,386,250 shares, cumulative --outstanding 500,000 shares subject to mandatory redemption 50,000 50,000 LONG-TERM DEBT First Mortgage Bonds 323,715 323,625 Pollution Control Obligations 48,133 48,275 InterCoast Energy Company 208,000 242,500 579,848 614,400 TOTAL CAPITALIZATION 1,159,846 1,183,641 CURRENT LIABILITIES Short-term debt 80,000 31,000 Debt redeemable within one year 63,145 59,232 Accounts payable 29,304 44,847 Accrued taxes 28,092 24,913 Accrued interest 11,942 11,413 Accrued gas expense 4,342 11,745 Other 16,480 18,322 233,305 201,472 OTHER LIABILITIES Capital lease obligations 9,668 10,036 Accumulated provision for nuclear decommissioning 47,543 39,470 Other 43,768 42,984 100,979 92,490 ACCUMULATED DEFERRED INCOME TAXES 277,599 274,605 ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 39,734 41,355 $1,811,463 $1,793,563 The accompanying notes to consolidated financial statements are an integral part of these statements. -2-
IOWA-ILLINOIS GAS AND ELECTRIC COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 1994 1993 (In thousands) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $51,931 $50,759 Adjustments to reconcile net income to net cash from operating activities - Depreciation 49,315 47,507 Depletion 13,374 9,093 Depreciation and equity funds recovered under Louisa Phase-In Clause - 2,370 Nuclear fuel amortization 5,447 6,093 Deferred income taxes, net 5,799 7,651 Tax credits, net (1,621) (1,667) Net gain on disposition of securities (3,995) (2,234) Allowance for equity funds used during construction (288) - Changes in current assets and liabilities Accounts receivable 8,532 4,784 Accrued unbilled revenues 8,440 8,021 Inventories (3,581) (177) Deferred and accrued gas expense (3,471) 155 Accounts payable (15,643) (5,181) Accrued taxes 3,179 (5,251) Other current assets and liabilities 915 (10,097) Energy-efficiency program cost deferrals, net (5,955) (4,642) Other (2,046) (401) Net cash from operating activities 110,332 106,783 CASH FLOWS FROM INVESTING ACTIVITIES Utility plant expenditures (51,321) (41,218) Nuclear fuel expenditures (8,027) (5,595) Allowance for equity funds used during construction 288 - Nuclear decommissioning trust fund (6,758) (5,932) Oil and gas investments (31,814) (65,270) Purchase of investments (38,607) (55,259) Sale of investments 31,111 60,083 Other 2,639 1,111 Net cash from investing activities (102,489) (112,080) CASH FLOWS FROM FINANCING ACTIVITIES Common shares issued 6,019 - Preference shares redeemed - (575) Long-term debt issued - 75,865 Long-term debt retired (232) (78,143) Increase in short-term borrowings - 6,000 Borrowings of InterCoast Energy Company - Retirement of senior notes (51,000) - Increase in unsecured revolving credit facility 20,500 29,500 Increase in short-term borrowings 49,000 - Dividends paid (41,794) (41,812) Issuance expense (76) (969) Net cash from financing activities (17,583) (10,134) NET DECREASE IN CASH AND CASH EQUIVALENTS (9,740) (15,431) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,844 20,827 CASH AND CASH EQUIVALENTS AT END OF PERIOD $8,104 $5,396 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the periods for - Interest (net of amounts capitalized) $36,521 $40,046 Income taxes 12,003 16,435 The accompanying notes to consolidated financial statements are an integral part of these statements. -3-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (a) The condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The statements reflect all adjustments which are, in the Company's opinion, necessary for a fair statement of the results for the periods presented. The Company believes that the disclosures are adequate to make the information presented not misleading. Certain 1993 amounts have been reclassified to conform to the current year presentation. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto incorporated by reference in the latest annual report on Form 10-K. (b) On July 26, 1993, the Company implemented temporary electric rates in its Iowa jurisdiction designed to increase annual electric revenues by $6.8 million (3.8%). Final rates at the $6.8 million increase level became effective April 15, 1994. (c) On October 17, 1994, the Company filed an application with the Iowa Utilities Board to recover the costs of state-mandated energy-efficiency programs offered to Iowa electric and gas customers since 1992. Costs of the programs are to be recovered over four years, as required by Iowa law. The overall annual increase requested, including a return on deferred amounts and an allowance for performance rewards, is approximately $4.7 million (1.3%). The proposed effective date for cost recovery additions on customer bills is June 1, 1995. (d) In April 1992, the Federal Energy Regulatory Commission (FERC) issued Order No. 636, directing a restructuring by interstate pipeline companies for their natural gas sales and transportation services. The FERC Order contemplated that transitional gas supply realignment costs related to this restructuring may be billed by interstate pipelines to their customers. At September 30, 1994, the estimated remaining liability for transition costs which the FERC may authorize the pipelines to bill the Company is $40 million. The Illinois Commerce Commission (ICC) has allowed the Company to include provisions for such costs in its sales service and transportation customer billings. Provisions for such costs are also being included in sales service customer billings in Iowa. (e) The allowance for funds used during construction (AFUDC) includes the costs of equity and borrowed funds used to finance construction which are capitalized in accordance with rules prescribed by the FERC. The FERC's Uniform System of Accounts defines AFUDC as the net cost of borrowed funds used for construction and a reasonable rate to reflect the costs of other funds so used. In the first nine months of 1994 and 1993, AFUDC rates were 5.2% and 3.3%, respectively, compounded semi-annually. Under FERC rules, if average short-term debt outstanding exceeds construction work in progress (CWIP), all CWIP is assumed to have been financed with short-term debt. This was the condition in 1993. While currently capitalized AFUDC does not represent a current source of cash, it does represent a basis for future sources of cash through the inclusion in rates of depreciation charges and allowance for returns on investment. (f) On January 1, 1994, the Company adopted Statement of Financial Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). Under this statement, investments in debt and marketable equity securities of InterCoast Energy Company (InterCoast), the Company's wholly owned non-regulated subsidiary, are reported at fair value with net unrealized gains and losses reported as a net of tax amount in a separate component of shareholders' equity until realized. The adoption of SFAS 115 did not have a material effect on financial position or results of operations. (g) The Company is investigating five properties currently owned by the Company which were, at one time, sites of gas manufacturing plants. The purpose of these investigations is to determine whether waste materials are present, whether such materials constitute an environmental or health risk, and whether the Company has any responsibility for remedial action. One site is located in Illinois and four sites are located in Iowa. With regard to the Illinois property, the Company has signed a working agreement with the Illinois Environmental Protection Agency to perform further investigation to determine whether waste materials are present and, if so, whether such materials constitute an environmental or health risk. At September 30, 1994, an estimated liability of $3.3 million has been recorded for litigation, investigation and remediation related to the Illinois site. A regulatory asset has been recorded reflecting anticipated cost recovery through rates in Illinois. With regard to the Iowa sites, no agreement or consent order has been negotiated to perform any site investigations or remediation. The Company has recorded a $4 million estimated liability for the Iowa sites. A regulatory asset has been recorded based on the current regulatory treatment of comparable costs in Iowa. The estimated recorded liabilities for these properties are based upon preliminary data. Thus, actual costs could vary significantly from the estimates. In addition, insurance recoveries for some or all of the costs may be possible, but the liabilities recorded have not been reduced by any estimate of such recoveries. Although the timing of incurred costs, recoveries and the inclusion of provision for such costs in rates may affect the results of operations in individual periods, management believes that the outcome of these issues will not have a material adverse effect on the Company's financial position or results of operations. Clean Air Act legislation was signed into law in November 1990. The Company has four jointly and one wholly owned coal-fired generating stations which represent approximately 65% of the Company's electric generating capability. Each of these facilities will be impacted to varying degrees by the legislation. Only one unit at the wholly owned generating station, representing approximately 10% of the Company's electric generating capability, will be impacted by the emission reduction requirements effective in 1995. Beginning in 1995, this unit will be required to hold allowances, issued by the federal government, in order to emit sulfur dioxide. The compliance strategy for this unit includes modifications to allow for burning low sulfur coal, modifications for nitrogen oxide control and installation of a new emission monitoring system. The Company's remaining construction expenditures relative to this work are estimated to be $4.9 million. The four generating stations not affected until 2000 already burn low sulfur coal, so additional capital costs will not be incurred for sulfur dioxide emission reduction requirements. Beginning in 2000, these facilities will be required to hold allowances, issued by the federal government, in order to emit sulfur dioxide. Installation of low nitrogen oxide burners is required at one of these facilities and existing emission monitoring systems at all four facilities require upgrading. The Company's remaining construction cost for this work is estimated to be $1.4 million. It is anticipated that any costs incurred by the Company to comply with the Clean Air Act legislation would be included in the cost of service on which the Company's rates for utility service are based. (h) On September 21, 1994, InterCoast executed a $50 million bridge revolving credit agreement under substantially the same terms of its existing $110 million revolving credit facility. Borrowings under this agreement are without recourse to the parent Company. The purpose of the bridge revolving credit facility was to refinance current maturities of InterCoast's unsecured Senior Notes. The bridge facility has a 364-day term and may be terminated earlier upon notice. At September 30, 1994, InterCoast had $49 million outstanding under the bridge revolving credit facility at an average interest cost of 5.7%. (i) Expenses of InterCoast include interest expense as follows: September 30, 1994 1993 Three Months Ended. . . .$ 6,601,000 $ 6,261,000 Nine Months Ended. . . . $19,259,000 $18,195,000 (j) On July 27, 1994, the Company and Midwest Resources Inc. announced a strategic "merger of equals" to form MidAmerican Energy Company. Under the proposed merger, MidAmerican Energy Company will be structured as a utility with the Company, Midwest Resources Inc. and Midwest Power Systems Inc. being merged into the new company. MidAmerican will be the largest electric and gas utility operating in Iowa with combined utility revenues of approximately $1.5 billion, combined assets of approximately $4.4 billion and total capitalization of approximately $2.7 billion. Midwest's common shareholders will receive one share of MidAmerican for each Midwest share and the Company's shareholders will receive 1.47 shares of MidAmerican for each Company share. It is anticipated that following the merger MidAmerican will initially pay dividends on its common stock at the rate of $1.20 per share per annum, subject to change from time to time by its board of directors based on its results of operations, financial condition, capital requirements and other relevant considerations. The merger is subject to approval by the shareholders of the Company, Midwest Resources Inc. and Midwest Power Systems Inc. Special shareholder meetings for the purpose of obtaining such approval are scheduled for December 21, 1994. Approval is also required of the following regulatory agencies: the Nuclear Regulatory Commission (NRC), the FERC, and the state regulators in Iowa and Illinois. A filing also must be made with the United States Department of Justice and the Federal Trade Commission. Filings seeking such approvals were made on October 28, 1994, in Iowa and Illinois. Other filings are expected to be made in November. Completion of the merger is expected in the second half of 1995. The Company's board of directors approved an amendment of the merger agreement as of September 27, 1994 authorizing, among other things, the call for redemption, prior to the date of the special meeting of shareholders to approve the proposed merger, of each of its series of preferred shares. This call was issued on November 7, 1994, for redemption to occur on December 15, 1994. The redemption will be made at a premium which will result in a charge to net income on common shares of $312,000. The amended merger agreement also provides that, as of the effective date of the merger, each series of Iowa-Illinois preference shares then outstanding will be converted into an equal number of shares of MidAmerican Energy Company preferred stock. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Operating Revenues Electric revenues decreased in the third quarter of 1994 compared to the third quarter of 1993 primarily due to lower sales for resale and lower fuel and energy cost billings to retail customers. These decreases were partially offset by higher retail rates and increased retail unit sales. Variations in fuel and energy cost billings reflect corresponding changes in fuel and purchased energy costs and, thus, do not affect net income. Electric revenues increased in the first nine months of 1994 compared to the first nine months of 1993 primarily due to higher retail rates and increased retail unit sales. These increases were partially offset by lower fuel and energy cost billings to retail customers and lower sales for resale. On July 26, 1993, the Company implemented temporary electric rates in its Iowa jurisdiction designed to increase annual electric revenues by $6.8 million. Final rates at the $6.8 million increase level became effective April 15, 1994. On July 28, 1993, an annual electric rate increase in Illinois of $9.6 million became effective following ICC approval. On January 15, 1994, an additional electric increase of $230,000 related to the increase in the federal corporate income tax rate became effective on rehearing. Also on rehearing, the ICC approved a rate rider which permits the Company to recover costs of investigation, remediation and litigation relating to former manufactured gas plant sites. In addition, on January 1, 1994, nuclear decommissioning costs included in Illinois customer billings through a rate rider were increased by $1.2 million annually. The previously mentioned rate increases were partially offset by a $3.2 million decrease in revenues for the first nine months of 1994 reflecting the expiration of the Company's Louisa Phase-In Clause on June 30, 1993 and by decreases of $240,000 and $440,000 for the third quarter and first nine months of 1994, respectively, related to billings to customers for the costs of energy-efficiency plans in Illinois. Increased revenues collected through rate riders relating to former manufactured gas plant sites and nuclear decommissioning and the decreased revenues from expiration of the Louisa Phase- In Clause and lower energy-efficiency plan billings will not affect net income due to a corresponding increase or decrease in costs. Increased retail unit sales reflect increases in commercial and industrial usage in the third quarter and first nine months of 1994 compared to the corresponding periods in 1993. The changes in electric revenues are shown below: Revenue Increase (Decrease) from Prior Period Third Quarter 1994 Nine Months Sept. 1994 to Third Quarter 1993 to Nine Months Sept. 1993 (In thousands) Change in Retail Fuel and Energy Adjustment Clause Billings $( 500) $( 1,000) Change in Retail Unit Sales 1,200 5,000 Change in Sales for Resale ( 4,800) ( 100) Change Due to the Effect of Higher Rates 2,300 8,700 $( 1,800) $ 12,600 Gas revenues decreased in the third quarter of 1994 compared to the third quarter of 1993. The principal factor contributing to the decrease was lower purchased gas cost billings. In the third quarter of 1994, higher rates in Illinois, as discussed below, were offset by a decrease of $170,000 in energy-efficiency plan billings. Variations in purchased gas cost billings reflect corresponding changes in cost of gas sold and, thus, do not affect net income. Changes in energy-efficiency plan billings do not affect net income due to corresponding changes in costs. Gas revenues increased in the first nine months of 1994 compared to the first nine months of 1993. The principal factors contributing to the increase were higher purchased gas cost billings, higher rates, and increased industrial and transportation sales. Variations in purchased gas cost billings reflect corresponding changes in cost of gas sold and, thus, do not affect net income. On July 28, 1993, an annual gas rate increase in Illinois of $2 million became effective following ICC approval. On January 15, 1994, an additional gas increase of $49,000 related to the increase in the federal corporate income tax rate became effective on rehearing. As noted previously, also on rehearing, the ICC approved a rate rider which permits the Company to recover costs of investigation, remediation and litigation relating to former manufactured gas plant sites. The changes in gas revenue are shown below: Revenue Increase (Decrease) from Prior Period Third Quarter 1994 Nine Months Sept. 1994 to Third Quarter 1993 to Nine Months Sept. 1993 (In thousands) Change in Purchased Gas Adjustment Clause Billings $(1,200) $ 4,800 Change in Unit Sales ( 800) 800 Change Due to the Effect of Higher Rates - 800 $(2,000) $ 6,400 Operation Cost of gas sold decreased in the third quarter of 1994 compared to the third quarter of 1993 primarily due to decreased purchased gas costs from suppliers. Cost of gas sold increased in the first nine months of 1994 compared to the first nine months of 1993 primarily due to increased purchased gas costs from suppliers. Changes in the cost of electric fuel, energy and capacity reflect fluctuations in generation mix, fuel cost and energy and capacity purchases. Decreased fuel, energy and capacity costs in the third quarter of 1994 compared to the third quarter of 1993 are primarily due to lower total sales and lower average unit fuel and energy costs. Other operation and maintenance increased in the first nine months of 1994 compared to the first nine months of 1993 primarily due to increased costs at the Quad-Cities Nuclear Power Station (Quad-Cities). The Company has been advised by ComEd, operator and 75 percent owner of Quad-Cities Station, that the station continues to be included by the NRC on its list of plants with adverse performance trends. The Company anticipates the current increased expenditure levels by ComEd at Quad-Cities Station will continue. Depreciation and Equity Funds Recovered Under Louisa Phase-In Clause The decrease in the amount recovered under the Louisa Phase-In Clause in the first nine months of 1994 compared to the corresponding period in 1993 reflects the expiration of the Louisa Phase-In Clause on June 30, 1993. Oil and Gas Revenues of InterCoast Energy Company Oil and gas revenues of InterCoast increased in the third quarter of 1994 compared to the third quarter of 1993 primarily due to higher production volumes and higher oil prices, partially offset by lower gas prices. Oil and gas revenues of InterCoast increased in the first nine months of 1994 compared to the first nine months of 1993 primarily due to higher production volumes, partially offset by lower oil and gas prices. Other Income of InterCoast Energy Company Other income of InterCoast increased in the third quarter and first nine months of 1994 compared to the corresponding periods in 1993 primarily due to greater income from special purpose funds and increased gains on the disposition of direct holdings in common stock. Expenses of InterCoast Energy Company Expenses of InterCoast increased in the third quarter and first nine months of 1994 compared to the corresponding periods in 1993 primarily due to greater oil and gas expenses. Allowance for Funds Used During Construction The increase in the total allowance for the third quarter and first nine months of 1994 compared to the corresponding periods in 1993 is primarily due to a higher AFUDC rate, 5.2% compared to 3.3%, and higher construction work in progress balances. Under FERC rules, if average short-term debt outstanding exceeds construction work in progress (CWIP), all CWIP is assumed to have been financed with short-term debt. This was the condition in 1993. Other Matters On July 27, 1994, the Company and Midwest Resources Inc. announced a strategic "merger of equals" to form MidAmerican Energy Company. Under the proposed merger, MidAmerican Energy Company will be structured as a utility with the Company, Midwest Resources Inc. and Midwest Power Systems Inc. being merged into the new company. MidAmerican will be the largest electric and gas utility operating in Iowa with combined utility revenues of approximately $1.5 billion, combined assets of approximately $4.4 billion and total capitalization of approximately $2.7 billion. Midwest's common shareholders will receive one share of MidAmerican for each Midwest share and the Company's shareholders will receive 1.47 shares of MidAmerican for each Company share. It is anticipated that following the merger MidAmerican will initially pay dividends on its common stock at the rate of $1.20 per share per annum, subject to change from time to time by its board of directors based on its results of operations, financial condition, capital requirements and other relevant considerations. The merger is subject to approval by the shareholders of the Company, Midwest Resources Inc. and Midwest Power Systems Inc. Special shareholder meetings for the purpose of obtaining such approval are scheduled for December 21, 1994. Approval is also required of the following regulatory agencies: the NRC, the FERC, and the state regulators in Iowa and Illinois. A filing must also be made with the United States Department of Justice and the Federal Trade Commission. Filings seeking such approvals were made on October 28, 1994, in Iowa and Illinois. Other filings are expected to be made in November. Completion of the merger is expected in the second half of 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's current utility construction program forecast calls for expenditures of $87.6 million in 1994. Approximately 65% of these expenditures are expected to be met from cash generated from operations. The Company's utility capital requirements for the years 1994-1998 include budgeted construction expenditures of $319.6 million, expected contributions to nuclear decommissioning trust funds of $45.7 million and maturities, sinking funds and redemptions related to long-term debt of $98.2 million. The Company's board of directors approved an amendment of the merger agreement as of September 27, 1994 authorizing, among other things, the call for redemption, prior to the date of the special meeting of shareholders to approve the proposed merger, of each of its series of preferred shares. This call was issued on November 7, 1994, for redemption to occur on December 15, 1994. The redemption will be made at a premium which will result in a charge to net income on common shares of $312,000. The amended merger agreement also provides that, as of the effective date of the merger, each series of Iowa-Illinois preference shares then outstanding will be converted into an equal number of shares of MidAmerican Energy Company preferred stock. At September 30, 1994 and December 31, 1993, the Company had $80 million and $31 million, respectively, of outstanding short- term debt. The September 30, 1994 balance includes $49 million under a bridge revolving credit facility which relates to InterCoast. In April 1992, the FERC issued Order No. 636, directing a restructuring by interstate pipeline companies for their natural gas sales and transportation services. The FERC Order contemplated that transitional gas supply realignment costs related to this restructuring may be billed by interstate pipelines to their customers. At September 30, 1994, the estimated remaining liability for transition costs which the FERC may authorize the pipelines to bill the Company is $40 million. The ICC has allowed the Company to include provisions for such costs in its sales service and transportation customer billings. Provisions for such costs are also being included in sales service customer billings in Iowa. The Company is investigating five properties currently owned by the Company which were, at one time, sites of gas manufacturing plants. The purpose of these investigations is to determine whether waste materials are present, whether such materials constitute an environmental or health risk, and whether the Company has any responsibility for remedial action. One site is located in Illinois and four sites are located in Iowa. With regard to the Illinois property, the Company has signed a working agreement with the Illinois Environmental Protection Agency to perform further investigation to determine whether waste materials are present and, if so, whether such materials constitute an environmental or health risk. At September 30, 1994, an estimated liability of $3.3 million has been recorded for litigation, investigation and remediation related to the Illinois site. A regulatory asset has been recorded reflecting anticipated cost recovery through rates in Illinois. With regard to the Iowa sites, no agreement or consent order has been negotiated to perform any site investigations or remediation. The Company has recorded a $4 million estimated liability for the Iowa sites. A regulatory asset has been recorded based on the current regulatory treatment of comparable costs in Iowa. The estimated recorded liabilities for these properties are based upon preliminary data. Thus, actual costs could vary significantly from the estimates. In addition, insurance recoveries for some or all of the costs may be possible, but the liabilities recorded have not been reduced by any estimate of such recoveries. Although the timing of incurred costs, recoveries and the inclusion of provision for such costs in rates may affect the results of operations in individual periods, management believes that the outcome of these issues will not have a material adverse effect on the Company's financial position or results of operations. Clean Air Act legislation was signed into law in November 1990. The Company has four jointly and one wholly owned coal- fired generating stations which represent approximately 65% of the Company's electric generating capability. Each of these facilities will be impacted to varying degrees by the legislation. Only one unit at the wholly owned generating station, representing approximately 10% of the Company's electric generating capability, will be impacted by the emission reduction requirements effective in 1995. Beginning in 1995, this unit will be required to hold allowances, issued by the federal government, in order to emit sulfur dioxide. The compliance strategy for this unit includes modifications to allow for burning low sulfur coal, modifications for nitrogen oxide control and installation of a new emission monitoring system. The Company's remaining construction expenditures relative to this work are estimated to be $4.9 million. The four generating stations not affected until 2000 already burn low sulfur coal, so additional capital costs will not be incurred for sulfur dioxide emission reduction requirements. Beginning in 2000, these facilities will be required to hold allowances, issued by the federal government, in order to emit sulfur dioxide. Installation of low nitrogen oxide burners is required at one of these facilities and existing emission monitoring systems at all four facilities require upgrading. The Company's remaining construction cost for this work is estimated to be $1.4 million. It is anticipated that any costs incurred by the Company to comply with the Clean Air Act legislation would be included in the cost of service on which the Company's rates for utility service are based. The forecasted 1994 capital expenditures for InterCoast are approximately $82.6 million. Actual expenditures are dependent on overall InterCoast performance and general market conditions. InterCoast's aggregate amounts of maturities and cash sinking fund requirements for long-term debt outstanding at September 30, 1994 are $8 million for 1994 and $218 million for the years 1995-1998. Amounts due in 1994 are expected to be refinanced with debt instruments and operating cash flow. In January 1994, InterCoast renegotiated its unsecured revolving credit facility agreement. The renegotiation increased the amount of capital available from $65 million to $110 million. The amended credit agreement matures February 14, 1996. Borrowings under this agreement may be on a fixed rate, floating rate or competitive bid rate basis. All such borrowings are without recourse to the parent Company. Borrowings at September 30, 1994 were $65 million at a weighted average interest cost of 5.7%. On September 21, 1994, InterCoast executed a $50 million bridge revolving credit agreement under substantially the same terms of its existing $110 million revolving credit facility. Borrowings under this agreement are without recourse to the parent Company. The purpose of the bridge revolving credit facility was to refinance current maturities of InterCoast's unsecured Senior Notes. The bridge facility has a 364-day term and may be terminated earlier upon notice. At September 30, 1994, InterCoast had $49 million outstanding under the bridge revolving credit facility at an average interest cost of 5.7%. Part II - Other Information Item 5. Other Events Rate Matters See Notes (b) and (c) to the Consolidated Financial Statements contained in Part I of this Form 10-Q for a discussion of an Iowa electric rate filing and an Iowa energy-efficiency program filing. Federal Gas Transition Costs See Note (d) to the Consolidated Financial Statements contained in Part I of this Form 10-Q for a discussion of federal gas transition costs related to Federal Energy Regulatory Commission Order No. 636. Environmental Matters See Note (g) to the Consolidated Financial Statements contained in Part I of this Form 10-Q for a discussion related to manufactured gas plant sites and Clean Air Act legislation. InterCoast Energy Company See Note (h) to the Consolidated Financial Statements contained in Part I of this Form 10-Q for a discussion related to the execution of a bridge revolving credit agreement. Merger Announced See Note (j) to the Consolidated Financial Statements contained in Part I of this Form 10-Q for a discussion related to the announced merger of the Company, Midwest Resources Inc. and Midwest Power Systems Inc. into a new utility, MidAmerican Energy Company. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K A report on Form 8-K dated July 29, 1994 was filed. The report included under "Item 5 Other Events" and "Item 7 Financial Statements and Exhibits" information related to the merger of the Company, Midwest Resources Inc. and Midwest Power Systems Inc. with and into MidAmerican Energy Company. 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. Iowa-Illinois Gas and Electric Company (Registrant) Date: November 10, 1994 By L. E. Cooper L. E. Cooper Vice President-Finance (Chief Financial Officer) Date: November 10, 1994 By K. M. Giger K. M. Giger Secretary and Treasurer EX-27 2
UT This schedule contains summary financial information extracted from the consolidated balance sheet of Iowa-Illinois Gas and Electric Company as of September 30, 1994 and the related consolidated statements of income and cash flows for the nine months ended September 30, 1994 and is qualified in its entirety by reference to such financial statements. 1000 9-MOS DEC-31-1994 SEP-30-1994 PER-BOOK $1,006,431 582,427 113,725 0 108,880 1,811,463 285,932 0 229,504 510,169 50,000 19,829 579,848 49,000 0 31,000 63,145 0 9,668 486 493,051 1,811,463 423,216 24,868 337,043 361,911 61,305 8,417 69,722 17,791 51,931 3,610 48,321 38,146 17,717 110,332 $1.64 $1.64
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