-----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, hKo9WnduMylp0He3YRps/9QfgG5ktim6jS0Iw7gJUCS+AVAYH4fAFSOFrouSCLHT gpk8kpM2wCfExs18Mcd1hQ== 0000860520-94-000011.txt : 19940825 0000860520-94-000011.hdr.sgml : 19940825 ACCESSION NUMBER: 0000860520-94-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIPSCO INC CENTRAL INDEX KEY: 0000860520 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 371260920 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10628 FILM NUMBER: 94543723 BUSINESS ADDRESS: STREET 1: 607 E ADAMS ST CITY: SPRINGFIELD STATE: IL ZIP: 62739 BUSINESS PHONE: 2175233600 MAIL ADDRESS: STREET 1: 607 E ADAMS STREET CITY: SPRINGFIELD STATE: IL ZIP: 62739 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1994 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. 1-10628 CIPSCO INCORPORATED 37-1260920 (An Illinois Corporation) 607 East Adams Street Springfield, Illinois 62739 217-523-3600 1-3672 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 37-0211380 (An Illinois Corporation) 607 East Adams Street Springfield, Illinois 62739 217-523-3600 Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No _______ _______ Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date: CIPSCO INCORPORATED Common stock, no par value, 34,107,706 shares outstanding at July 31, 1994 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Common stock no par value, 25,452,373 shares outstanding and held by CIPSCO INCORPORATED at July 31, 1994 -1- CIPSCO INCORPORATED AND CENTRAL ILLINOIS PUBLIC SERVICE COMPANY FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1994 CONTENTS PART I. FINANCIAL INFORMATION Page No. Item 1: Financial Statements CIPSCO INCORPORATED Consolidated Statements of Income 4- 5 Consolidated Balance Sheets 6- 7 Consolidated Statements of Cash Flows 8- 9 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Statements of Income 10-11 Balance Sheets 12-13 Statements of Cash Flows 14-15 Condensed Notes to Financial Statements of CIPSCO Incorporated and Central Illinois Public Service Company 16-20 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations CIPSCO Incorporated and Central Illinois Public Service Company 21-25 PART II. OTHER INFORMATION Item 5: Other Information 26 Item 6: Exhibits and Reports on Form 8-K 26 Signatures 27-28 -2- The unaudited interim financial statements presented herein include the consolidated statements of CIPSCO Incorporated and Subsidiaries ("Company") as well as separate financial statements for Central Illinois Public Service Company ("CIPS"). The unaudited statements have been prepared by the Company and CIPS, respectively, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company and CIPS believe the disclosures are adequate to make the information presented not misleading. The Company consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K of CIPSCO Incorporated for the year ended December 31, 1993 (the "CIPSCO 10-K"); and the CIPS financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K of CIPS for the year ended December 31, 1993 (the "CIPS 10-K"). In the opinion of the Company and CIPS, their respective interim financial statements filed as part of this Form 10-Q reflect all adjustments necessary to present fairly the results for the respective periods. Due to the effect of weather and other factors which are characteristic of CIPS' utility operations, financial results for the periods ended June 30, 1994 and 1993 are not necessarily indicative of trends for any twelve-month period. This financial and other information is not given in connection with any sale or offer to buy any security. -3- Part I. FINANCIAL INFORMATION Item 1. Financial Statements. CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Statements of Income For the Periods Ended June 30, 1994 and 1993 (in thousands) (unaudited) Three Months Ended Six Months Ended June 30, June 30, ___________________ ___________________ 1994 1993 1994 1993 _________ _________ _________ _________ Operating Revenues: Electric......................... $178,914 $169,006 $338,246 $314,460 Gas.............................. 21,484 18,370 85,578 82,456 Investment....................... 2,107 1,915 4,303 3,679 ________ ________ ________ ________ Total operating revenues...... 202,505 189,291 428,127 400,595 ________ ________ ________ ________ Operating Expenses: Fuel for electric generation..... 50,256 45,743 103,934 90,797 Purchased power.................. 16,152 18,822 26,100 25,810 Gas purchased.................... 12,011 9,529 54,613 53,447 Other operation.................. 35,193 37,352 73,061 70,035 Maintenance...................... 16,409 17,059 31,003 28,983 Depreciation and amortization.... 20,037 19,535 40,449 39,051 Taxes other than income taxes.... 12,948 12,887 29,178 28,489 ________ ________ ________ ________ Total operating expenses...... 163,006 160,927 358,338 336,612 ________ ________ ________ ________ Operating Income................... 39,499 28,364 69,789 63,983 ________ ________ ________ ________ Interest and Other Charges: Interest on long-term debt of subsidiary....................... 8,215 8,692 16,567 17,597 Other interest charges........... 17 60 (3) 418 Allowance for funds used during construction..................... (461) (528) (485) (1,041) Preferred stock dividends of subsidiary....................... 851 981 1,679 1,935 Miscellaneous, net............... (671) (752) (1,791) (1,559) ________ ________ ________ ________ Total interest and other charges....................... 7,951 8,453 15,967 17,350 ________ ________ ________ ________ -4- Income Before Income Taxes......... 31,548 19,911 53,822 46,633 ________ ________ ________ ________ Income Taxes....................... 12,003 7,241 20,518 17,301 ________ ________ ________ ________ Net Income......................... $ 19,545 $ 12,670 $ 33,304 $ 29,332 ======== ======== ======== ======== Average Shares of Common Stock Outstanding........................ 34,108 34,108 34,108 34,108 Earnings per Average Share of Common Stock....................... .57 .37 .98 .86 The accompanying condensed notes to financial statements are an integral part of these statements. -5- CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Balance Sheets June 30, 1994 and December 31, 1993 (in thousands) June 30, December 31, 1994 1993 ___________ ____________ (unaudited) ASSETS Utility Plant, at original cost: Electric............................. $2,217,905 $2,172,578 Gas.................................. 213,169 208,208 __________ __________ 2,431,074 2,380,786 Less-Accumulated depreciation........ 1,053,082 1,020,416 __________ __________ 1,377,992 1,360,370 Construction work in progress........ 44,586 61,104 __________ __________ 1,422,578 1,421,474 __________ __________ Current Assets: Cash................................. 3,905 4,630 Temporary investments, at cost which approximates market.................. 7,480 5,527 Accounts receivable, net............. 70,686 61,445 Accrued unbilled revenues............ 28,797 38,774 Materials and supplies, at average cost................................. 42,808 40,824 Fuel for electric generation, at average cost......................... 29,178 26,046 Gas stored underground, at average cost................................. 9,431 14,335 Prepayments.......................... 9,668 10,142 __________ __________ 201,953 201,723 __________ __________ Investments and Other Assets: Investment in marketable securities........................... 43,342 42,703 Investment in leveraged leases....... 43,969 42,216 Other................................ 44,995 49,634 __________ __________ 132,306 134,553 __________ __________ $1,756,837 $1,757,750 ========== ========== -6- CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity.......... $ 633,737 $ 634,252 Unrealized investment losses, net.... (737) - Preferred stock of subsidiary........ 80,000 80,000 Long-term debt of subsidiary......... 459,468 474,323 __________ __________ 1,172,468 1,188,575 __________ __________ Current Liabilities: Long-term debt of subsidiary due within one year...................... 15,000 20,000 Accounts payable..................... 51,467 56,039 Accrued wages........................ 13,077 12,775 Accrued taxes........................ 23,946 12,973 Accrued interest..................... 9,047 9,204 Other................................ 45,140 34,902 __________ __________ 157,677 145,893 __________ __________ Deferred Credits: Accumulated deferred income taxes.... 300,326 294,732 Investment tax credits............... 57,278 58,962 Regulatory liability, net............ 69,088 69,588 __________ __________ 426,692 423,282 __________ __________ $1,756,837 $1,757,750 ========== ========== The accompanying condensed notes to financial statements are an integral part of these statements. -7- CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Periods Ended June 30, 1994 and 1993 (in thousands) (unaudited) Six Months Ended June 30, ______________________ 1994 1993 __________ __________ Operating Activities: Net income.............................. $ 33,304 $ 29,332 Adjustments to reconcile net income to net cash provided: Depreciation and amortization......... 40,449 39,051 Allowance for equity funds used during construction (AFUDC).................. (332) (673) Deferred income taxes, net............ 4,851 6,995 Investment tax credit amortization.... (1,684) (1,683) Cash flows impacted by changes in assets and liabilities: Accounts receivable and unbilled revenues.............................. 736 (2,473) Fuel for electric generation.......... (3,132) 2,155 Other inventories..................... 2,920 (582) Prepayments........................... 474 4,045 Other assets.......................... 4,639 1,726 Accounts payable and other............ 5,666 7,114 Accrued wages, taxes and interest..... 11,118 5,984 Other................................... (774) 4,719 _________ _________ Net cash provided by operating activities............................ 98,235 95,710 _________ _________ Investing Activities: Utility construction expenditures, excluding AFUDC......................... (39,969) (36,288) Allowance for borrowed funds used during construction..................... (153) (369) Change in temporary investments......... (1,953) (3,709) Long-term investment in marketable securities.............................. (1,376) (1,608) Long-term investment in leveraged leases.................................. (1,753) 725 _________ _________ Net cash used in investing activities. (45,204) (41,249) _________ _________ -8- Financing Activities: Common stock dividends paid............. (33,767) (33,084) Proceeds from issuance of long-term debt of subsidiary...................... - 135,000 Repayment of long-term debt of subsidiary.............................. (20,000) (145,000) Repayment of short-term borrowings...... - (21,393) Proceeds from issuance of preferred stock of subsidiary..................... - 30,000 Redemption of preferred stock of subsidiary.............................. - (15,000) Issuance expense, discount and premium.. 11 (5,392) _________ _________ Net cash used in financing activities. (53,756) (54,869) _________ _________ Net decrease in cash.................... (725) (408) Cash at beginning of period............. 4,630 1,534 _________ _________ Cash at end of period................... $ 3,905 $ 1,126 ========= ========= Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest, net of amount capitalized... $ 15,605 $ 13,159 Income taxes.......................... 11,053 14,013 The accompanying condensed notes to financial statements are an integral part of these statements. -9- CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Statements of Income For the Periods Ended June 30, 1994 and 1993 (in thousands) (unaudited) Three Months Ended Six Months Ended June 30, June 30, ___________________ ___________________ 1994 1993 1994 1993 _________ _________ _________ _________ Operating Revenues: Electric......................... $178,920 $169,013 $338,261 $314,474 Gas.............................. 21,486 18,372 85,581 82,459 ________ ________ ________ ________ Total operating revenues...... 200,406 187,385 423,842 396,933 ________ ________ ________ ________ Operating Expenses: Fuel for electric generation..... 50,256 45,743 103,934 90,797 Purchased power.................. 16,152 18,822 26,100 25,810 Gas purchased.................... 12,011 9,529 54,613 53,447 Other operation.................. 34,902 37,002 72,385 69,363 Maintenance...................... 16,408 17,059 31,001 28,982 Depreciation and amortization.... 19,878 19,432 40,185 38,845 Taxes other than income taxes.... 12,940 12,865 29,156 28,447 Income taxes: Current........................ 11,526 5,619 19,936 14,542 Deferred, net.................. 887 2,063 1,262 3,564 Deferred investment tax credits, net................... (842) (842) (1,683) (1,683) ________ ________ ________ ________ Total operating expenses...... 174,118 167,292 376,889 352,114 ________ ________ ________ ________ Operating Income................... 26,288 20,093 46,953 44,819 ________ ________ ________ ________ Other Income and Deductions: Allowance for equity funds used during construction.............. 316 341 332 673 Nonoperating income taxes........ (173) (124) (487) (245) Miscellaneous, net............... 818 830 2,150 1,661 ________ ________ _________ ________ Total other income and deductions.................... 961 1,047 1,995 2,089 ________ ________ ________ ________ -10- Income Before Interest Charges..... 27,249 21,140 48,948 46,908 ________ ________ ________ ________ Interest Charges: Long-term debt................... 8,215 8,692 16,567 17,597 Other interest charges........... 21 44 4 362 Allowance for borrowed funds used during construction.............. (145) (187) (153) (369) ________ ________ ________ ________ Total interest charges....... 8,091 8,549 16,418 17,590 ________ ________ ________ ________ Net Income......................... 19,158 12,591 32,530 29,318 Preferred Dividends................ 851 981 1,679 1,935 ________ ________ ________ ________ Earnings for Common Stock.......... $ 18,307 $ 11,610 $ 30,851 $ 27,383 ======== ======== ======== ======== The accompanying condensed notes to financial statements are an integral part of these statements. -11- CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Balance Sheets June 30, 1994 and December 31, 1993 (in thousands) June 30, December 31, 1994 1993 ___________ ____________ (unaudited) ASSETS Utility Plant, at original cost: Electric............................. $2,217,905 $2,172,578 Gas.................................. 213,169 208,208 __________ __________ 2,431,074 2,380,786 Less-Accumulated depreciation........ 1,053,082 1,020,416 __________ __________ 1,377,992 1,360,370 Construction work in progress........ 44,586 61,104 __________ __________ 1,422,578 1,421,474 __________ __________ Current Assets: Cash................................. 449 4,038 Temporary investments, at cost which approximates market.................. 3,780 2,734 Accounts receivable, net............. 70,795 61,591 Accrued unbilled revenues............ 28,797 38,774 Materials and supplies, at average cost................................. 42,808 40,824 Fuel for electric generation, at average cost......................... 29,178 26,046 Gas stored underground, at average cost................................. 9,431 14,335 Prepayments.......................... 9,629 9,847 __________ __________ 194,867 198,189 __________ __________ Other Assets........................... 44,362 48,799 __________ __________ $1,661,807 $1,668,462 ========== ========== -12- CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity.......... $ 561,622 $ 565,023 Preferred stock...................... 80,000 80,000 Long-term debt....................... 459,468 474,323 __________ __________ 1,101,090 1,119,346 __________ __________ Current Liabilities: Long-term debt due within one year... 15,000 20,000 Accounts payable..................... 50,913 55,931 Accrued wages........................ 13,077 12,720 Accrued taxes........................ 22,876 13,391 Accrued interest..................... 9,047 9,204 Other................................ 45,140 34,895 __________ __________ 156,053 146,141 __________ __________ Deferred Credits: Accumulated deferred income taxes.... 278,298 274,425 Investment tax credits............... 57,278 58,962 Regulatory liability, net............ 69,088 69,588 __________ __________ 404,664 402,975 __________ __________ $1,661,807 $1,668,462 ========== ========== The accompanying condensed notes to financial statements are an integral part of these statements. -13- Central Illinois Public Service Company Statements of Cash Flows For the Periods Ended June 30, 1994 and 1993 (in thousands) (unaudited) Six Months Ended June 30, ______________________ 1994 1993 __________ __________ Operating Activities: Net income.............................. $ 32,530 $ 29,318 Adjustments to reconcile net income to net cash provided: Depreciation and amortization......... 40,185 38,845 Allowance for equity funds used during construction (AFUDC).................. (332) (673) Deferred income taxes, net............ 3,131 4,261 Income tax credit amortization........ (1,684) (1,683) Cash flows impacted by changes in assets and liabilities: Accounts receivable and accrued unbilled revenues..................... 773 (2,499) Fuel for electric generation.......... (3,132) 2,155 Other inventories..................... 2,920 (582) Prepayments........................... 218 3,346 Other assets.......................... 4,437 3,272 Accounts payable and other............ 5,227 7,238 Accrued wages, taxes and interest..... 9,685 1,946 Other................................... (511) 4,925 _________ _________ Net cash provided by operating activities............................ 93,447 89,869 _________ _________ Investing Activities: Construction expenditures, excluding AFUDC................................... (39,969) (36,288) Allowance for borrowed funds used during construction............................ (153) (369) Changes in temporary investments........ (1,046) (109) _________ _________ Net cash used in investing activities. (41,168) (36,766) _________ _________ -14- Financing Activities: Repurchase of common stock.............. - (33,250) Proceeds from issuance of long-term debt - 135,000 Repayment of long-term debt............. (20,000) (145,000) Repayment of short-term borrowings...... - (17,393) Proceeds from issuance of preferred stock................................... - 30,000 Redemption of preferred stock........... - (15,000) Dividends paid: Preferred stock....................... (1,679) (1,935) Common stock.......................... (34,200) - Issuance expense, discount and premium.. 11 (5,392) _________ _________ Net cash used in financing activities. (55,868) (52,970) _________ _________ Net increase (decrease) in cash......... (3,589) 133 Cash at beginning of period............. 4,038 480 _________ _________ Cash at end of period................... $ 449 $ 613 ========= ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest, net of amount capitalized... $ 15,605 $ 13,100 Income taxes.......................... 14,047 19,066 The accompanying condensed notes to financial statements are an integral part of these statements. -15- CIPSCO INCORPORATED AND SUBSIDIARIES CENTRAL ILLINOIS PUBLIC SERVICE COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS JUNE 30, 1994 (unaudited) Note 1. GENERAL ________________ The consolidated financial statements presented herein include the accounts of CIPSCO INCORPORATED (CIPSCO), CENTRAL ILLINOIS PUBLIC SERVICE COMPANY (CIPS), and CIPSCO INVESTMENT COMPANY AND SUBSIDIARIES (CIC). CIPSCO and Subsidiaries are referred to as the "Company." CIPSCO has two first-tier subsidiaries: CIC, an investment subsidiary, and CIPS, an electric and gas public utility. Prior year amounts have been reclassified on a basis consistent with the June 30, 1994 presentation. The financial statements of CIPS, a subsidiary of CIPSCO, include only the accounts of CIPS. Prior year amounts have been reclassified on a basis consistent with the June 30, 1994 presentation. Previously, CIPSCO and CIPS have filed separate reports on Form 10-Q. Note 2. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL REMEDIATION COSTS - CIPS and certain of its predecessors and other affiliates operated facilities in the past for manufacturing gas from coal. In connection with manufacturing gas, various by-products were produced, some of which remain on sites where the facilities were located. CIPS has identified 13 of these former manufactured gas plant sites (environmental remediation sites) which contain potentially harmful materials. Under directives from the Illinois Environmental Protection Agency (IEPA), CIPS has incurred costs and associated legal expenses related to the investigation and remediation of the sites. One site was added to the United States Environmental Protection Agency (USEPA) Superfund list on August 30, 1990. On September 30, 1992 the IEPA, in consultation with the USEPA, decided that the long-term remedial plan for this site should consist of a ground water pump-and-treat program. The IEPA and CIPS entered into an agreement, which received approval by the court on March 14, 1994, for CIPS to carry out the remedial action with the IEPA providing oversight. It is not known at this time what specific remedial action will be required at the other 12 sites. In 1987, CIPS filed a lawsuit against a number of insurance carriers seeking full indemnification for all costs in connection with certain environmental sites. CIPS has now settled the lawsuit with substantially all of the insurance carriers. -16- The estimated incurred costs related to studies and remediation at these 13 sites and associated legal expenses are being accrued and deferred rather than expensed currently, pending recovery through rates, from insurance carriers or from other parties. The total amount deferred represents costs incurred and estimates for costs of completing studies at various sites and an estimate of remediation costs at the Superfund site. At June 30, 1994 the amounts recovered have exceeded the aggregate amount deferred. In 1992, the Illinois Commerce Commission (the "Illinois commission") issued an Order (the "Generic Order") in its consolidated generic proceeding initiated on March 6, 1991, regarding appropriate ratemaking treatment of cleanup costs incurred by Illinois utilities with respect to environmental remediation sites. The Generic Order indicates that allowed cleanup costs may include prudently incurred costs of investigation, assessment and cleanup of environmental remediation sites, as well as litigation costs including those involved in insurance recovery claims. The Generic Order authorizes utilities, including CIPS, to propose a mechanism to recover cleanup costs which is consistent with the provisions of the order. Such a mechanism must, among other things, provide for (1) recovery of cleanup costs over a five-year period, excluding carrying costs associated with the unrecovered balance of cleanup costs from the time that the recovery mechanism becomes effective; (2) a return to ratepayers over a five-year amortization period of any reimbursement of cleanup costs received from insurance carriers or other parties; and (3) a prudence review of each utility's expenditures. The Generic Order was upheld on appeal by the Third District Illinois Appellate Court. That decision held that a rate rider mechanism is an appropriate means for utilities to recover cleanup costs. The case has been appealed to the Illinois Supreme Court by an intervenor that maintains that no recovery of cleanup costs should be allowed and that, if allowed, a rate rider mechanism is not the proper means of providing recovery. CIPS and other utilities have also appealed to the Illinois Supreme Court seeking to include the unrecovered carrying charges in the rate rider. The Illinois Supreme Court has granted both appeals and is expected to hear the appeals during 1994. CIPS cannot predict what action the Illinois Supreme Court will take in this matter. On March 26, 1993 the Illinois commission approved CIPS' proposed environmental cost-recovery rate riders, effective with April 1993 billings to customers. Known as the electric environmental adjustment clause and the gas environmental adjustment clause, the riders are designed to enable CIPS to recover from its customers costs associated with cleanup of the environmental remediation sites, along with associated legal expenses, over a five year period on terms consistent with the Generic Order. The environmental adjustment clause riders provide for an annual review of amounts recovered through the riders. Amounts found to have been incorrectly included would be subject to refund. Through December 31, 1993, CIPS had collected $2.9 million including interest from its customers pursuant to the riders. Pursuant to monthly filings made by CIPS under the riders, no additional amounts have been collected from customers under the riders since January 1994. On April 6, 1994, the Illinois -17- commission initiated a reconciliation proceeding to review CIPS environmental remediation activities and determine whether the level of revenues collected by the riders is consistent with the amount of remediation costs prudently incurred and whether all amounts collected were correctly included in the riders. CIPS has filed testimony and provided data to the Illinois commission regarding the reconciliation proceeding. A status hearing is scheduled for January 1995. Total cost to be incurred for the cleanup of these sites or the possible recovery from insurance carriers and other parties cannot be estimated. Management believes that any costs incurred in connection with the sites that are not recovered from insurance carriers or other parties will be recovered through utility rates. Accordingly, management believes that costs incurred in connection with these sites will not have a material adverse effect on the financial position or results of operations of the Company or CIPS. FERC ORDER 636 - During 1992, the Federal Energy Regulatory Commission ("FERC") issued a series of orders that require substantial restructuring of the service obligations of interstate pipeline suppliers. These orders (together called Order 636) required mandatory unbundling of existing pipeline gas sales services. Mandatory unbundling requires pipelines to sell separately the various components previously included with gas sales services (i.e., storage, transport, capacity sales, etc.). Order 636 provides a mechanism for pipelines to recover transition costs associated with restructuring their gas sales services. Based on currently available information contained in the various interstate pipeline Order 636 compliance filings, CIPS estimates that the total amount of transition costs to be incurred by CIPS is approximately $10 million of which $4.5 million has been paid. At June 30, 1994, CIPS had recorded a liability and a related deferred gas cost of $1.4 million for that portion of the transition costs that will be billed to CIPS regardless of future pipeline services. The Illinois commission issued an order in March 1994 permitting retail gas distribution companies, including CIPS, full recovery through rates of prudently incurred Order 636 transition costs. On May 4, 1994, the Illinois commission granted rehearing of the order. CIPS believes that the rehearing will be limited to a determination of the proper allocation of transition costs among customer classes. A hearing examiner's proposed order in June 1994, reaffirmed the original order. A final order will be issued in the near future. CIPS cannot predict what further action the Illinois commission will take in this matter or whether the Illinois commission's final order in this matter will be appealed. CLEAN AIR ACT - CIPS' compliance strategy to meet the sulfur dioxide emission reduction requirements of the Clean Air Act Amendments of 1990 (Amendments) includes complying with Phase I of the Amendments by switching to a lower sulfur coal at some of its units. Phase II compliance will be accomplished by -18- additional fuel switching at various units and by increased scrubbing with its existing scrubber at Newton Unit 1. Phase I and Phase II emission provisions of the Amendments become effective in 1995 and 2000, respectively. CIPS estimates that total capital costs, primarily for modifications to boilers, precipitators, coal handling facilities, and continuous monitoring equipment for implementation of this compliance strategy, will be less than $50 million in total including amounts spent to date. Operating costs are not expected to change materially. Compliance costs could result in electric base rate increases of approximately one to two percent by the year 2000. In 1991, in accordance with the plan to switch some units to lower sulfur coal, CIPS signed a long-term coal contract with an existing supplier for lower sulfur Illinois coal. Due to the magnitude of the supplier's capital investment, the contract includes a graduated termination charge. In 1994, CIPS can terminate the contract under certain conditions, and CIPS would be required to pay up to $41 million (plus an inflation adjustment) in termination charges. Each year subsequent to 1994 the termination charge is reduced according to a formula using tons of coal purchased. The termination charge would not be effective if CIPS terminated the contract due to the failure of the coal to meet quality specifications provided for in the contract. LABOR DISPUTES - The International Union of Operating Engineers (IUOE) Local 148 and the International Brotherhood of Electrical Workers (IBEW) Local 702 each filed unfair labor practice charges in 1993 with the National Labor Relations Board (NLRB) relating to the legality of a lockout by CIPS of both unions during 1993. The Peoria Regional Office of the NLRB has issued a complaint against CIPS concerning its lockout of IBEW-702 represented employees. However, the Peoria Regional Office did not find merit to a similar charge filed by the IUOE 148 and it was dismissed. The IUOE 148 appealed the dismissal within the NLRB. On July 20, 1994, CIPS received notification from the Peoria Regional Office that the Appeals Division, located in Washington D.C., reversed the earlier decision made by the Peoria Regional Office thereby finding merit to the claim by IUOE 148 that the lockout of its members was illegal. As a result of the finding by the Appeals Division, the Peoria Regional Office may issue a complaint against CIPS regarding the lockout of the IUOE 148 employees. Both unions seek, among other things, back pay and other benefits for the period of the lockout. CIPS estimates the amount of back pay and other benefits for both unions to be less than $12 million. Management believes the lockout was both lawful and reasonable and that the final resolution of the disputes will not have a material adverse effect on financial position or results of operations of the Company or CIPS. OTHER ISSUES - CIPS is involved in other legal and administrative proceedings before various courts and agencies with respect to rates, taxes, gas and electric fuel cost reconciliations, service area disputes, environmental and other matters. Although unable to predict the outcome of these matters, management believes that -19- appropriate liabilities have been established and that final disposition of these actions will have no material adverse effect on the results of operations or the financial position of the Company or CIPS. -20- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of financial condition and results of operations is for CIPSCO Incorporated and Subsidiaries ("Company") unless otherwise stated. THE OUTLOOK CIPS currently estimates that its total construction expenditures for the 1994-1998 period will be about $431 million, including about $4 million of allowance for funds used during construction. In addition to funds for construction, projected capital requirements for the remainder of 1994 and for the 1995-1998 period include $73 million for scheduled debt retirements. Capital requirements for the 1994-1998 period are expected to be provided primarily through internally generated funds. External financing to fund scheduled debt retirements may be required. FINANCIAL CONDITION Financial condition and changes in total Shareholder Equity of the Company and CIPS for the six-month periods ended June 30, 1994 and 1993 are as follows: Six Months Ended June 30, ________________________ (in thousands) The Company: 1994 1993 _________ _________ Common Shareholders' Equity Net income $ 33,304 $ 29,332 Common stock dividends paid (33,767) (33,084) Other (789) (655) ________ ________ Change in Shareholder Equity (1,252) (4,407) ======== ======== Six Months Ended June 30, ________________________ (in thousands) CIPS: 1994 1993 _________ _________ Common Shareholders' Equity Earnings for Common stock $ 30,851 $ 27,383 Repurchase of Common stock - (33,250) Common stock dividends paid (34,200) - Other (52) (655) ________ ________ Change in Shareholder Equity (3,401) (6,522) ======== ======== -21- OVERVIEW The Company's earnings per share were $.57 for the quarter ended June 30, 1994, compared to $.37 per share earned during the same period in 1993. The increase was primarily caused by increased electric sales to customers of CIPS caused by warmer temperatures in the second quarter of 1994. The Company's earnings per share were $.98 for the six months ended June 30, 1994, compared to $.86 per share earned during the same period in 1993. The increase was due to increased sales to electric customers of CIPS caused by warmer temperatures in the second quarter of 1994, partially offset by increased operation and maintenance expenses due to one time labor settlement costs and timing of production maintenance expenses. The following table summarizes the components of consolidated net income and CIPS earnings for common stock for the three months and six months ended June 30, 1994 and 1993 (see Results of Operations for further discussion). In this table, electric operating margin equals electric operating revenues less fuel for electric generation and less purchased power. Gas operating margin equals gas operating revenues less gas purchased. Second Quarter Ended Six Months Ended June 30, June 30, ____________________ ___________________ 1994 1993 1994 1993 _________ _________ _________ _________ CIPS Electric operating margin $112,512 $104,448 $208,227 $197,867 Gas operating margin 9,475 8,843 30,968 29,012 Other deductions and interest (102,829) (100,700) (206,665) (197,561) expenses CIPS preferred stock dividends (851) (981) (1,679) (1,935) _______ _______ _______ _______ Total earnings for common stock 18,307 11,610 30,851 27,383 _______ _______ _______ _______ NON-UTILITY Investment revenues 1,958 1,819 3,983 3,539 Other deduction and expenses (720) (759) (1,530) (1,590) _______ _______ _______ _______ Total non-utility net income 1,238 1,060 2,453 1,949 _______ _______ _______ _______ Consolidated net income $ 19,545 $ 12,670 $ 33,304 $ 29,332 ======= ======= ======= ======= RESULTS OF OPERATIONS The results of operations of the Company and CIPS for the three months and six months ended June 30, 1994 compared to the same periods in 1993 are presented below. -22- The Company Net Income (in thousands) Earnings Per Share _________________________ __________________ Three Months Six Months Three Months Six Months ____________ __________ ____________ __________ 1994 $19,545 $33,304 $.57 $.98 1993 12,670 29,332 .37 .86 _______ _______ ____ ____ Increase $ 6,875 $ 3,972 $.20 $.12 ======= ======= ==== ==== Percent Increase 54% 14% 54% 14% CIPS Earnings for Common Stock (in thousands) ________________________________________ Three Months Six Months ____________ __________ 1994 $18,307 $30,851 1993 11,610 27,383 _______ _______ Increase $ 6,697 $ 3,468 ======= ======= Percent Increase 58% 13% OPERATING REVENUES The changes in electric and gas revenues described below are for the Company. The only differences between changes in electric and gas operating revenues for the Company and for CIPS are intercompany revenues which are eliminated in the consolidated financial statements. These intercompany amounts are immaterial. Electric revenues increased 6% in the second quarter and 8% in the first six months of 1994 compared to the same periods in 1993, principally due to increased KWH sales in residential, commercial and industrial classes. Overall KWH sales decreased 9% in the second quarter of 1994 due to a decrease in interchange economy and emergency sales from last year's record levels; however, sales were higher in all other customer classes due to warmer weather in the second quarter of 1994. KWH sales increased 2% in the first six months of 1994 as compared to the same period in 1993 principally due to warmer weather in the second quarter of 1994. The changes in electric revenue and KWH sales are shown below: -23- CHANGES IN ELECTRIC REVENUE AND KILOWATTHOUR SALES INCREASE (DECREASE) FROM PRIOR YEAR (in thousands) _______________________________________________________________________________________
Second Quarter Six Months __________________________________________ __________________________________________ Revenue Rev % KWH KWH % Revenue Rev % KWH KWH % _________ _____ _________ _____ _________ _____ _________ _____ Residential $2,698 6% 31,759 6% $ 2,799 3% 31,726 2% Commercial 3,214 7% 50,033 8% 2,988 4% 39,469 3% Industrial 1,682 6% 14,108 2% 3,063 6% 57,221 5% Public Authorities and Other 714 26% 209 1% 540 8% (5,470) (6)% _____ _______ ______ _______ Total Retail $8,308 7% 96,109 5% $ 9,391 4% 122,946 3% Power Supply Agreements 2,793 17% 86,962 30% 5,837 18% 184,100 34% Interchange Sales (economy/emergency) (1,836) (8)% (544,606) (36)% 7,347 24% (210,286) (10)% Cooperatives and Municipals 643 13% 12,342 11% 1,212 12% 17,801 8% _____ _______ ______ _______ Total Wholesale $1,600 4% (445,302) (23)% $14,396 20% (8,385) - _____ _______ ______ _______ Total $9,908 6% (349,193) (9)% $23,786 8% 114,561 2% ===== ======= ====== =======
Gas revenues increased 17% in the second quarter and 4% in the first six months of 1994 when compared to the same periods of 1993. The second quarter increase in revenues to residential customers was a result of increased purchase gas costs, and the increase to commercial customers was due to commercial customers switching from transported gas to purchasing directly from CIPS. The six month increase occurred primarily because industrial customers switched from transporting gas to purchasing gas directly from CIPS resulting in an increase in industrial revenues and a decrease in transportation revenues. Gas therm sales increased 19% in the second quarter and 6% in the first six months of 1994 primarily due to colder weather in 1994. The changes in gas revenues and therm sales are shown below. CHANGES IN GAS REVENUE AND THERM SALES INCREASE (DECREASE) FROM PRIOR YEAR (in thousands) _______________________________________________________________________________________
Second Quarter Six Months __________________________________________ __________________________________________ Therms Therms Revenue Rev % Therms % Revenue Rev % Therms % _________ _____ _________ _____ _________ _____ _________ _____ Residential $2,291 21% 1,840 12% $ 605 1% (21) - Commercial 611 18% 350 6% 352 2% 696 2% Industrial (45) (2)% (1,634) (18)% 2,702 57% 4,476 28% Transportation 6 - 8,465 50% (997) (20)% 7,540 13% Miscellaneous 251 - - - 460 414% 361 - _____ _____ _____ ______ Total $3,114 17% 9,021 19% $3,122 4% 12,691 6% ===== ===== ===== ======
Fuel for electric generation increased 10% for the second quarter and 14% for the six months because of the increased generation -24- required to support retail sales to customers and sales under power supply agreements. Purchased power decreased 14% for the second quarter of 1994 compared with the same period in 1993 reflecting lower levels of purchases made for resale to interchange economy and emergency customers. Purchased power increased 1% for the six months of 1994 principally due to increases in average prices of power purchased for resale. Purchased gas increased 26% for the second quarter and 2% for the six months when compared to the same periods in 1993. The primary reason for the increases in both the second quarter and for the six months was the commercial and industrial customers switching from transported gas to CIPS system gas resulting in both higher purchased gas costs and higher gas revenues. Maintenance and other operation expenses declined 5% in the second quarter of 1994 compared to the second quarter of 1993 due to fewer maintenance projects scheduled in the second quarter of 1994. Maintenance and other operation expenses increased 5% in the first six months of 1994 when compared to 1993 due to one time expenses involved with settlement of labor disputes and the scheduling of a major power station maintenance outage in the first quarter of 1994, for which a similar project in 1993 did not occur until later in the year. Depreciation and amortization expense increased 3% in the second quarter and 4% in the first six months of 1994 when compared to 1993 due to normal plant additions. Interest charges and preferred dividends decreased 7% in the second quarter and 9% in the first six months of 1994 as compared with the same periods of 1993 due principally to refinancing of long-term debt and preferred stock in 1993 at lower rates. -25- PART II. OTHER INFORMATION Item 5. Other Information Reference is made to the fifth paragraph on page 5 under "Item 1. Business - Rate Matters" in the CIPS 10-K (incorporated by reference in the CIPSCO 10-K) for information regarding the economic development rate. Effective June 13, 1994 the Illinois commission granted CIPS approval to offer qualifying customers the economic development rate through the period ending January 1, 2000. The scope of the rate was broadened to include those customers who receive service under the commercial time of use rate classification. In addition, the threshold for a customer to qualify for the special contract provision of the rate was lowered to 500 KW of load (or increments thereof) added to the CIPS system from 2,000 KW. Reference is made to the fourth paragraph on page 6 under "Item 1. Business - Electric Operations" in the CIPS 10-K (incorporated by reference in the CIPSCO 10-K) for information regarding the analysis of the generating units at the five power stations owned by CIPS. At the present time CIPS plans to continue operation of the twelve generating units at its power stations and to continue its efforts to make additional sales of capacity at market-based prices. It is expected that CIPS will conduct additional studies from time to time in the future to determine the best economic options with respect to its generating resources. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits: None (B) Reports on Form 8-K: None -26- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant, CIPSCO Incorporated, has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CIPSCO Incorporated Date: August 11, 1994 /s/ J. C. Fiaush J. C. Fiaush Controller (Chief Accounting Officer) -27- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant, Central Illinois Public Service Company, has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Central Illinois Public Service Company Date: August 11, 1994 /s/ J. C. Fiaush J. C. Fiaush Controller (Principal Accounting Officer) -28- -----END PRIVACY-ENHANCED MESSAGE-----