-----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, B1twP6jqVoecEvdgcfDH0OmFMmtLcORj3jyoHy8iNOzpbFdvXq0XgbZPBcgLqGWN EDYZJWxCweZZRDXWyiRXaw== 0000860520-95-000013.txt : 19950503 0000860520-95-000013.hdr.sgml : 19950503 ACCESSION NUMBER: 0000860520-95-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950502 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIPSCO INC CENTRAL INDEX KEY: 0000860520 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [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: 95533906 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 March 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) Of THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ........ to ........ Commission Registrant; State of Incorporation; I.R.S. 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, 34,069,542 shares outstanding at April 30, 1995 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Common stock no par value, 25,452,373 shares outstanding and held by CIPSCO INCORPORATED at April 30, 1995 -1- CIPSCO INCORPORATED AND CENTRAL ILLINOIS PUBLIC SERVICE COMPANY FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995 CONTENTS Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements CIPSCO INCORPORATED Consolidated Statements of Income 4 Consolidated Balance Sheets 6 Consolidated Statements of Cash Flows 8 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Statements of Income 10 Balance Sheets 12 Statements of Cash Flows 14 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 20 - 25 PART II. OTHER INFORMATION Item 5. Other Information 26 - 27 Item 6. Exhibits and Reports on Form 8-K 27 Signatures 28 - 29 Exhibit Index 30 Exhibit 12 Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges plus Preferred Stock Dividend Requirements Before Income Taxes (CIPS) 31 Exhibit 27 Financial Data Schedule for CIPSCO - Financial Data Schedule for CIPS - -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. Both the Company's consolidated financial statements and the CIPS financial statements should be read in conjunction with the financial statements and notes thereto included in the combined Annual Report on Form 10-K of CIPSCO Incorporated and CIPS for the year ended December 31, 1994. 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 March 31, 1995 and 1994 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 March 31, 1995 and 1994 (in thousands except per share amounts) (unaudited) Three Months Ended March 31, ___________________ 1995 1994 _________ _________ Operating Revenues: Electric......................... $153,188 $159,332 Gas.............................. 55,687 64,094 Investment....................... 1,587 2,196 ________ ________ Total operating revenues...... 210,462 225,622 ________ ________ Operating Expenses: Fuel for electric generation..... 50,878 53,679 Purchased power.................. 7,106 9,949 Gas costs........................ 34,131 42,602 Other operation.................. 41,526 37,864 Maintenance...................... 12,205 14,595 Depreciation and amortization.... 20,601 20,412 Taxes other than income taxes.... 15,763 16,230 ________ ________ Total operating expenses...... 182,210 195,331 ________ ________ Operating Income................... 28,252 30,291 ________ ________ Interest and Other Charges: Interest on long-term debt of subsidiary....................... 8,138 8,351 Other interest charges........... 399 (20) Allowance for funds used during construction..................... (186) (23) Preferred stock dividends of subsidiary....................... 968 828 Miscellaneous, net............... (315) (1,119) ________ ________ Total interest and other charges....................... 9,004 8,017 ________ ________ -4- Income Before Income Taxes......... 19,248 22,274 ________ ________ Income Taxes....................... 6,680 8,515 ________ ________ Net Income......................... $ 12,568 $ 13,759 ======== ======== Average Shares of Common Stock Outstanding........................ 34,070 34,108 Earnings per Average Share of Common Stock....................... $ .37 $ .40 The accompanying condensed notes to financial statements are an integral part of these statements. -5- CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Balance Sheets March 31, 1995 and December 31, 1994 (in thousands) March 31, December 31, 1995 1994 ___________ ____________ (unaudited) ASSETS Utility Plant, at original cost: Electric.......................... $2,265,783 $2,264,930 Gas............................... 221,441 220,347 __________ __________ 2,487,224 2,485,277 Less-Accumulated depreciation..... 1,088,048 1,077,533 __________ __________ 1,399,176 1,407,744 Construction work in progress..... 34,658 31,816 __________ __________ 1,433,834 1,439,560 __________ __________ Current Assets: Cash.............................. 881 1,963 Temporary investments, at cost which approximates market......... 21,708 5,875 Accounts receivable, net.......... 56,563 67,579 Accrued unbilled revenues......... 18,052 30,484 Materials and supplies, at average cost.............................. 40,849 39,817 Fuel for electric generation, at average cost...................... 34,185 30,305 Gas stored underground, at average cost.............................. 7,557 13,167 Prepayments....................... 12,246 10,925 __________ __________ 192,041 200,115 __________ __________ Investments and Other Assets: Investment in marketable securities........................ 48,029 43,929 Investment in leveraged leases.... 50,947 49,933 Other............................. 44,761 43,820 __________ __________ 143,737 137,682 __________ __________ $1,769,612 $1,777,357 ========== ========== -6- CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity....... $ 644,721 $ 649,230 Unrealized investment losses, net............................... (677) (1,617) Preferred stock of subsidiary..... 80,000 80,000 Long-term debt of subsidiary...... 459,695 459,619 __________ __________ 1,183,739 1,187,232 __________ __________ Current Liabilities: Long-term debt of subsidiary due within one year................... 15,000 15,000 Short-term borrowings............. - 14,985 Accounts payable.................. 46,553 54,021 Accrued wages..................... 12,981 9,833 Accrued taxes..................... 20,532 12,629 Accrued interest.................. 8,451 9,408 Other............................. 42,922 31,488 __________ __________ 146,439 147,364 __________ __________ Deferred Credits: Accumulated deferred income taxes. 312,412 313,072 Investment tax credits............ 54,755 55,595 Regulatory liabilities, net....... 72,267 74,094 __________ __________ 439,434 442,761 __________ __________ $1,769,612 $1,777,357 ========== ========== 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 March 31, 1995 and 1994 (in thousands) (unaudited) Three Months Ended March 31, ______________________ 1995 1994 __________ __________ Operating Activities: Net income.............................. $ 12,568 $ 13,759 Adjustments to reconcile net income to net cash provided: Depreciation and amortization......... 20,601 20,412 Allowance for equity funds used during construction (AFUDC).................. (171) (16) Deferred income taxes, net............ (1,376) 3,330 Investment tax credit amortization.... (840) (842) Cash flows impacted by changes in assets and liabilities: Accounts receivable, net and accrued unbilled revenues..................... 23,448 1,453 Fuel for electric generation.......... (3,880) 4,558 Other inventories..................... 4,578 6,549 Prepayments........................... (1,321) 245 Other assets.......................... (941) 3,743 Accounts payable and other............ 3,966 343 Accrued wages, taxes and interest..... 10,094 5,484 Other................................... (1,105) (434) _________ _________ Net cash provided by operating activities............................ 65,621 58,584 _________ _________ Investing Activities: Utility construction expenditures, excluding AFUDC......................... (14,648) (12,677) Allowance for borrowed funds used during construction..................... (14) (7) Change in temporary investments......... (15,833) (31,472) Long-term investment in marketable securities.............................. (3,160) (707) Long-term investment in leveraged leases.................................. (1,014) (985) _________ _________ Net cash used in investing activities. (34,669) (45,848) _________ _________ -8- Financing Activities: Common stock dividends paid............. (17,035) (16,713) Repayment of short-term borrowings...... (14,985) - Issuance expense, discount and premium.. (14) 25 _________ _________ Net cash used in financing activities. (32,034) (16,688) _________ _________ Net decrease in cash.................... (1,082) (3,952) Cash at beginning of period............. 1,963 4,630 _________ _________ Cash at end of period................... $ 881 $ 678 ========= ========= Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest, net of amounts capitalized.. $ 8,681 $ 8,195 Income taxes.......................... 2,700 3,475 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 March 31, 1995 and 1994 (in thousands) (unaudited) Three Months Ended March 31, __________________ 1995 1994 ________ ________ Operating Revenues: Electric......................... $153,195 $159,341 Gas.............................. 55,688 64,095 ________ ________ Total operating revenues...... 208,883 223,436 ________ ________ Operating Expenses: Fuel for electric generation..... 50,878 53,679 Purchased power.................. 7,106 9,949 Gas costs........................ 34,131 42,602 Other operation.................. 41,138 37,482 Maintenance...................... 12,204 14,593 Depreciation and amortization.... 20,481 20,307 Taxes other than income taxes.... 15,751 16,216 Income taxes: Current........................ 9,507 8,410 Deferred, net.................. (2,342) 375 Deferred investment tax credits, net................... (840) (842) ________ ________ Total operating expenses...... 188,014 202,771 ________ ________ Operating Income................... 20,869 20,665 ________ ________ Other Income and Deductions: Allowance for equity funds used during construction.............. 171 16 Nonoperating income taxes........ (267) (314) Miscellaneous, net............... 515 1,332 ________ ________ Total other income and deductions.................... 419 1,034 ________ ________ -10- Income Before Interest Charges..... 21,288 21,699 ________ ________ Interest Charges: Interest on long-term debt....... 8,138 8,351 Other interest charges........... 393 (17) Allowance for borrowed funds used during construction.............. (14) (7) ________ ________ Total interest charges....... 8,517 8,327 ________ ________ Net Income......................... 12,771 13,372 Preferred Stock Dividends.......... 968 828 ________ ________ Earnings for Common Stock.......... $ 11,803 $ 12,544 ======== ======== The accompanying condensed notes to financial statements are an integral part of these statements. -11- CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Balance Sheets March 31, 1995 and December 31, 1994 (in thousands) March 31, December 31, 1995 1994 ___________ ____________ (unaudited) ASSETS Utility Plant, at original cost: Electric......................... $2,265,783 $2,264,930 Gas.............................. 221,441 220,347 __________ __________ 2,487,224 2,485,277 Less-Accumulated depreciation.... 1,088,048 1,077,533 __________ __________ 1,399,176 1,407,744 Construction work in progress.... 34,658 31,816 __________ __________ 1,433,834 1,439,560 __________ __________ Current Assets: Cash............................. 676 1,320 Temporary investments, at cost which approximates market........ 20,708 2,593 Accounts receivable, net......... 56,686 67,686 Accrued unbilled revenues........ 18,052 30,484 Materials and supplies, at average cost............................. 40,849 39,817 Fuel for electric generation, at average cost..................... 34,185 30,305 Gas stored underground, at average cost............................. 7,557 13,167 Prepayments...................... 12,196 10,839 __________ __________ 190,909 196,211 __________ __________ Other Assets....................... 43,849 42,879 __________ __________ $1,668,592 $1,678,650 ========== ========== -12- CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity...... $ 569,006 $ 574,745 Preferred stock.................. 80,000 80,000 Long-term debt................... 459,695 459,619 __________ __________ 1,108,701 1,114,364 __________ __________ Current Liabilities: Long-term debt due within one year............................. 15,000 15,000 Short-term borrowings............ - 14,985 Accounts payable................. 46,286 53,900 Accrued wages.................... 12,981 9,833 Accrued taxes.................... 21,835 12,963 Accrued interest................. 8,451 9,408 Other............................ 42,921 31,488 __________ __________ 147,474 147,577 __________ __________ Deferred Credits: Accumulated deferred income taxes............................ 285,395 287,020 Investment tax credits........... 54,755 55,595 Regulatory liability, net........ 72,267 74,094 __________ __________ 412,417 416,709 __________ __________ $1,668,592 $1,678,650 ========== ========== 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 March 31, 1995 and 1994 (in thousands) (unaudited) Three Months Ended March 31, ______________________ 1995 1994 __________ __________ Operating Activities: Net income.............................. $ 12,771 $ 13,372 Adjustments to reconcile net income to net cash provided: Depreciation and amortization......... 20,481 20,307 Allowance for equity funds used during construction (AFUDC).................. (171) (16) Deferred income taxes, net............ (2,342) 1,806 Income tax credit amortization........ (840) (842) Cash flows impacted by changes in assets and liabilities: Accounts receivable, net and accrued unbilled revenues..................... 23,432 1,457 Fuel for electric generation.......... (3,880) 4,558 Other inventories..................... 4,578 6,549 Prepayments........................... (1,357) (27) Other assets.......................... (970) 3,641 Accounts payable and other............ 3,819 (144) Accrued wages, taxes and interest..... 11,063 6,544 Other................................... (984) (330) _________ _________ Net cash provided by operating activities............................ 65,600 56,875 _________ _________ Investing Activities: Construction expenditures, excluding AFUDC................................... (14,648) (12,677) Allowance for borrowed funds used during construction............................ (14) (7) Changes in temporary investments........ (18,115) (29,871) _________ _________ Net cash used in investing activities. (32,777) (42,555) _________ _________ -14- Financing Activities: Repayment of short-term borrowings...... (14,985) - Dividends paid: Preferred stock....................... (968) (828) Common stock.......................... (17,500) (17,000) Issuance expense, discount and premium.. (14) 25 _________ _________ Net cash used in financing activities. (33,467) (17,803) _________ _________ Net (decrease) in cash.................. (644) (3,483) Cash at beginning of period............. 1,320 4,038 _________ _________ Cash at end of period................... $ 676 $ 555 ========= ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest, net of amounts capitalized.. $ 8,681 $ 8,195 Income taxes.......................... 2,608 4,050 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 MARCH 31, 1995 (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. The financial statements of CIPS, a subsidiary of CIPSCO, include only the accounts of CIPS. 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 required court approval 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. As of the date of this filing, except for a circuit court verdict entered in favor of CIPS involving the coverage under one environmental impairment liability policy, lawsuits against all other insurance carriers have either been settled or dismissed. On August 26, 1994, the -16- Illinois Appellate Court reversed the aforementioned circuit court ruling on the basis that no claim was made against CIPS during the policy coverage period. The Illinois Supreme Court has denied the Company's petition for leave to appeal the Appellate Court's decision. CIPS has filed a request to reconsider the decision. The estimated incurred costs relating 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 other parties. At March 31, 1995, $39.5 million has been deferred representing costs incurred and estimates for costs of completing studies at various sites and an estimate of remediation costs at the Superfund site. The total of the costs deferred, net of recoveries from insurers and through rate riders described below, was $2.1 million at March 31, 1995. In 1992, the Illinois Commerce Commission (the "Illinois commission") issued an Order (the "Generic Order") in its consolidated generic proceeding 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. On April 6, 1994, the Illinois Supreme Court granted an intervenor's Petition for Leave to Appeal. The intervenor maintains that recovery of cleanup costs should not be allowed and that use of a rider mechanism for cost recovery is unlawful. CIPS and other utilities opposed the arguments of the intervenor and argued that the Illinois commission's decision to deny recovery of carrying costs associated with the unrecovered balance of cleanup costs should be reversed. On April 20, 1995, the Illinois Supreme Court issued an opinion which rejected the argument of the intervenor and held that (i) clean-up costs are recoverable in rates; and (ii) use of a rider mechanism for recovery of such costs is appropriate. The Court also held that the evidence in the generic proceeding did not support the Illinois commission's decision to deny recovery of carrying costs associated with the unrecovered balance of clean-up costs. Accordingly, the Supreme Court reversed the Generic Order of the -17- Illinois commission with regard to the recovery of carrying costs and remanded the case to the Illinois commission for further proceedings consistent with the Court's opinion. Management cannot predict whether the intervenor or the Illinois commission will seek rehearing of the Supreme Court's decision. 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 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 commission initiated a reconciliation proceeding to review CIPS' environmental remediation activities and determine whether the revenues collected by the riders in 1993 is consistent with the amount of remediation costs prudently incurred. CIPS has filed testimony and provided data to the Illinois commission regarding the reconciliation proceeding. A status hearing is scheduled for May 1995. On April 12, 1995, the Illinois commission issued an Order initiating the reconciliation proceedings for the year 1994. The total costs 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 Order No. 636. This and successor orders have resulted in substantial restructuring of the service obligations of interstate pipeline suppliers. Order 636 provided mechanisms for pipelines to recover transition costs associated with the restructuring. CIPS has paid substantially all direct transition costs associated with the pipeline restructuring and is currently recovering all transition costs in its rates. Any future transition costs identified and billed from pipeline suppliers are expected to be recoverable from customers of CIPS. FERC PROPOSES RULEMAKING TO CREATE OPEN ACCESS TRANSMISSION SERVICE - In March 1995, the FERC issued a notice of proposed rulemaking (NOPR) through which the FERC intends to require all utilities subject to its jurisdiction to provide electric -18- transmission service on a non-discriminatory basis to all interested parties. Under the NOPR as currently proposed the "open access" tariffs which will likely result will be designed to provide transmission access to other utility systems on a basis comparable to the way a utility utilizes its own electric system. The rules are designed to increase competition in bulk power markets. CIPS cannot predict when FERC will take final action on the NOPR or whether it will be adopted in its present form. The utility does not anticipate that operating revenues or expenses will change materially as a result of the NOPR. CLEAN AIR ACT - CIPS' current compliance strategy to meet Phase I and II of the sulfur dioxide emission reduction requirements of the Clean Air Act Amendments of 1990 (Amendments) is to switch to a lower sulfur coal at some of its units along with increased scrubbing with its existing scrubber at Newton Unit 1. The currently estimated capital costs of compliance based on the current strategy are included in the five-year construction forecast. The forecast has an estimate of $40 million for environmental compliance including compliance with regulations under the Clean Air Act. However, the five-year construction costs may increase if studies being undertaken by CIPS indicate that renovations to the Newton Unit 1 scrubber are required to allow existing or additional levels of scrubbing or if such studies indicate that CIPS should change its compliance strategy to place more reliance on fuel switching. 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 1995, CIPS can terminate the contract under certain conditions, and CIPS would be required to pay approximately $41 million (plus an inflation adjustment) in termination charges. During 1995, and each subsequent year, 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 failure of the coal to meet quality specifications provided for in the contract. LABOR DISPUTES - The International Union of Operating Engineers Local 148 and the International Brotherhood of Electrical Workers Local 702 have both filed unfair labor practice charges with the National Labor Relations Board (NLRB) relating to the legality of the lockout by CIPS of both unions during 1993. The Peoria Regional Office of the NLRB has issued complaints against CIPS concerning its lockout of both unions. 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 dollars. A hearing, before an administrative law judge of the NLRB, was completed on April 25, 1995. 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. -19- 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 torts and other matters. Although unable to predict the outcome of these matters, management believes that appropriate liabilities have been established and that final disposition of these actions will not have a material adverse effect on financial position or results of operations of the Company or CIPS. Note 3. VOLUNTARY SEPARATION PROGRAM _____________________________________ Early in 1995, the Company offered a voluntary separation program to most of its salaried employees, which was accepted by 152 employees in February 1995. The Company recorded a $6.3 million one-time charge in the first quarter of 1995 for separation benefits to be provided under the program. The one-time charge reduced first quarter 1995 earnings by 11 cents per share. The Company estimates that the payback period resulting from reduced operating expenses attributable to the program will be approximately two years. 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 1995-1999 period will be about $449 million, including about $7 million of allowance for funds used during construction. In addition to funds for construction, projected capital requirements for 1995 and for the 1996-1999 period include $123 million for scheduled debt retirements. Capital requirements for the 1995-1999 period are expected to be met primarily through internally generated funds. External financing to fund scheduled debt retirements may be required. Included in the 5-year construction forecast is an estimate of $40 million for environmental compliance, including compliance with regulations under the Clean Air Act Amendments of 1990. CIPS is evaluating alternatives for reducing fuel costs and other expenses while maintaining environmental compliance. Maintaining the current compliance strategy, or adoption of certain alternatives in fuel and/or environmental strategies, could result in substantial increases in capital expenditures in the 1995-1999 period from the amounts shown above. Additional external financing could be required. CIPS has an effective shelf registration statement on file with the Securities and Exchange Commission which permits the issuance -20- of an aggregate of up to $50 million of first mortgage bonds, medium-term notes and/or preferred stock. Proceeds will be used to replace maturing long-term debt or for general corporate purposes including payment of short-term debt incurred to finance construction expenditures. FINANCIAL CONDITION Financial condition and changes in total Shareholder Equity of the Company and CIPS for the three-month periods ended March 31, 1995 and 1994 are as follows: Three Months Ended March 31, ________________________ (in thousands) The Company: 1995 1994 _________ _________ Common Shareholders' Equity Net income $ 12,568 $ 13,759 Common stock dividends paid (17,035) (16,713) Other 898 183 ________ ________ Change in Shareholders' Equity $ (3,569) $ (2,771) ======== ======== Three Months Ended March 31, ________________________ (in thousands) CIPS: 1995 1994 _________ _________ Common Shareholder's Equity Earnings for common stock $ 11,803 $ 12,544 Common stock dividends paid (17,500) (17,000) Other (42) (75) ________ ________ Change in Shareholder's Equity $ (5,739) $ (4,531) ======== ======== OVERVIEW The Company's earnings per share were $.37 for the quarter ended March 31, 1995, compared to $.40 per share earned during the same period in 1994. The decrease in earnings was caused by one-time costs associated with a voluntary separation program offered to most salaried employees of CIPS. Excluding the impact of the one-time charge, earnings in the first quarter would have been $.48 per share, or $.08 cents per share higher than the first quarter of 1994. -21- The following table summarizes the components of consolidated net income and CIPS earnings for common stock for the three months ended March 31, 1995 and 1994 (see Results of Operations for further discussion). In this table, electric operating margin equals electric operating revenues less revenue taxes, fuel for electric generation and purchased power. Gas operating margin equals gas operating revenues less revenue taxes and gas costs. First Quarter Ended March 31, ___________________ (in thousands) 1995 1994 ________ ________ CIPS Electric operating margin $ 89,213 $ 89,821 Gas operating margin 18,112 17,683 Other deductions and interest expenses 94,554 94,132 CIPS preferred stock dividends 968 828 _______ _______ Total earnings for common stock 11,803 12,544 _______ _______ NON-UTILITY Investment revenues 1,384 1,979 Other deductions and expenses 619 764 _______ _______ Total non-utility net income 765 1,215 _______ _______ Consolidated net income $ 12,568 $ 13,759 ======= ======= -22- RESULTS OF OPERATIONS The results of operations of the Company and CIPS for the three months ended March 31, 1995, compared to the same period in 1994 are presented below. The Company Net Income Earnings (in thousands) Per Share ______________ ____________ Three Months Three Months ______________ ____________ 1995 $12,568 $ .37 1994 13,759 .40 _______ _____ Decrease $(1,191) $(.03) ======= ===== Percent Decrease (9%) (8%) CIPS Earnings for Common Stock (in thousands) ______________ Three Months ______________ 1995 $ 11,803 1994 12,544 _______ Decrease $ (741) ======= Percent Decrease (6%) 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 that are eliminated in the consolidated financial statements. These intercompany amounts are immaterial. Electric revenues decreased 4% in the first quarter of 1995 compared to the first quarter of 1994 reflecting a 10% decline in KWH sales due to the milder weather, a decrease in economy and emergency interchange sales due to changing market conditions between the periods and the fact that a portion of a contract for the sale by CIPS of electric generating capacity expired at year-end 1994. -23- The changes in electric revenue and KWH sales are shown below: CHANGES IN ELECTRIC REVENUE AND KILOWATTHOUR SALES INCREASE (DECREASE) FROM PRIOR YEAR (in thousands) __________________________________________ First Quarter __________________________________________ Revenue Rev % KWH KWH % _________ _____ _________ _____ Residential $ 1,496 3 % (17,785) (2)% Commercial 2,134 6 % 26,680 4 % Industrial (27) - (25,127) (4)% Public Authorities and Other 1,636 47 % 4,450 11 % _______ _______ Total Retail $ 5,239 4 % (11,782) (1)% Power Supply Agreements $ (2,278) (12)% (15,293) (4)% Interchange Sales (economy/emergency) (8,780) (52)% (317,230) (39)% Cooperatives and Municipals (325) (6)% (2,733) (2)% _______ _______ Total Sales for Resale $(11,383) (27)% (335,256) (25)% ________ _______ Total $ (6,144) (4)% (347,038) (10)% ======= ======== Gas revenues decreased 13% in the first quarter of 1995 compared to the same period in 1994 due primarily to milder weather in 1995 and decreased sales to all classes of customers. Gas transportation revenues decreased 5% in the first quarter of 1995 due primarily to a 3% decrease in the number of therms transported. -24- 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) __________________________________________ First Quarter __________________________________________ Therms Revenue Rev % Therms % _________ _____ _________ _____ Residential $(4,159) (10)% (7,968) (10)% Commercial (1,993) (14)% (3,459) (13)% Industrial (2,087) (44)% (5,443) (42)% Transportation (110) (5)% (1,068) (3)% Miscellaneous (58) (25)% - - ______ ______ Total $(8,407) (13)% (17,938) (11)% ====== ====== OPERATIONS __________ Fuel for electric generation declined 5% for the first quarter of 1995 compared to the first quarter of 1994 because less generation was required for fewer sales due to the milder weather in 1995 and fewer sales opportunities to other utilities. Purchased power decreased 29% for the first quarter ended March 31, 1995 compared with the same period in 1994 reflecting fewer purchases made for resale to interchange economy and emergency customers. Gas costs declined 20% for the first quarter when compared to the same period in 1994 primarily due to a 14% decline in gas requirements for the CIPS system. Other operation expenses increased 10% in the first quarter of 1995 compared to the same period in 1994 primarily due to a $6.3 million charge recognized in the quarter relating to the voluntary separation program. This charge was partially offset by reduced operating expenses in the first quarter of 1995. Maintenance expenses declined 16% in the first quarter of 1995 compared to the first quarter of 1994 due to fewer maintenance projects scheduled in the first quarter of 1995. Depreciation and amortization expense increased 1% in the first quarter of 1995 when compared to 1994 due to normal plant additions. -25- PART II. OTHER INFORMATION Item 5. Other Information (1) Reference is made to the third paragraph under Item 1. Business - Competition -- General on page 8 in the 1994 CIPSCO and CIPS combined 1994 Annual Report on Form 10-K (the "1994 Form 10-K") for information regarding the voluntary separation plan offered to eligible employees of CIPS. Approximately 150 employees or 6% of the total workforce elected to participate in the program. Total expenses related to the program resulted in a pre-tax charge of approximately $6.3 million, or 11 cents per share, which was expensed in the first quarter of 1995. (2) Reference is made to the third paragraph under Item 1. Business - Rate Matters on page 13 in the 1994 Form 10-K for information regarding Illinois commission reconciliation proceedings related to electric fuel and purchased gas charges collected by CIPS. In March 1995, the Illinois commission began reconciliation proceedings for the year 1994. (3) Reference is made to the second paragraph under Item 1. Business - Electric Power Sales/Participation Agreements on page 16 in the 1994 Form 10-K for information regarding agreements between CIPS and CILCO for the sale of limited term power to CILCO. On March 15, 1995, CIPS entered into an agreement for the sale of 50 megawatts of limited term power to CILCO for the period June 1998 through May 2009. This agreement is in addition to other agreements currently in place with CILCO. (4) Reference is made to Item 1. Business - Employees on page 22 in the 1994 Form 10-K for information regarding employees represented by labor unions. On April 21, 1995, CIPS received notification from officials of both IBEW Local Union 702 and IUOE Local Union 148 that the membership of both labor unions ratified the CIPS proposal, made April 6, 1995, to extend the current labor agreements for a one-year period beginning July 1, 1995. (5) In March 1995, the Federal Energy Regulatory Commission (FERC) issued a notice of proposed rulemaking (NOPR) in Docket No. RM95-8-000 through which the FERC intends to require all utilities subject to its jurisdiction to provide electric transmission service on a non-discriminatory basis to all interested parties. Under the NOPR as currently proposed the "open access" tariffs which will likely result will be designed to provide transmission access to other utility systems on a basis comparable to the way a utility utilizes its own electric system. The rules are designed to increase competition in bulk power markets. CIPS cannot predict when FERC will take final action on the NOPR or whether it will be adopted in its present form. -26- (6) On October 5, 1994, the Illinois commission opened rulemaking Docket No. 94-0403 with the intention of revising the current purchased gas adjustment (PGA) clause mechanism which allows Illinois utilities including CIPS to adjust the rates they charge gas customers to reflect changes in the cost of gas purchased. The purpose of the proceeding is to bring the PGA mechanism more in line with how industry functions. The Citizens Utility Board (CUB), an intervenor in this case, has proposed that demand charges that CIPS pays to interstate pipelines and suppliers be removed from the PGA and recovered instead through base rates. CIPS, other utilities and the Illinois commission staff have opposed this proposal. A proposed order in this matter is expected in June 1995. Although unable to predict the outcome of this matter, management believes that implementation of a revised PGA mechanism will not have a material adverse effect on financial position or results of operations of the Company or CIPS. (7) On March 15, 1995, the Illinois State Senate passed Senate Bill 232. This bill would allow utilities, such as CIPS, to petition the Illinois commission for approval of alternative forms of regulation which would differ from the traditional rate base/rate of return regulation. Legislative action on Senate Bill 232 is pending in the Illinois House of Representatives. In addition, other bills in early stages of the legislative process have the potential to accelerate the introduction of competition to the utility industry in Illinois. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits: Exhibit 12 Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Fixed Charges plus Preferred Stock Dividend Requirements Before Income Taxes for CIPS. Exhibit 27 Financial Data Schedule for CIPSCO (required for electronic filing only in accordance with Item 601(c)(1) of Regulation S-K). Financial Data Schedule for CIPS (required for electronic filing only in accordance with Item 601(c)(1) of Regulation S-K). (B) Reports on Form 8-K: None -27- 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: May 2, 1995 /s/ J. C. Fiaush J. C. Fiaush Controller (Chief Accounting Officer) -28- 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: May 2, 1995 /s/ J. C. Fiaush J. C. Fiaush Controller (Principal Accounting Officer) -29- CIPSCO INCORPORATED AND CENTRAL ILLINOIS PUBLIC SERVICE COMPANY EXHIBIT INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995 Exhibit No. Description ___________ ___________ 12 Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Fixed Charges plus Preferred Stock Dividend Requirements Before Income Taxes for CIPS. 27 Financial Data Schedule for CIPSCO Financial Data Schedule for CIPS -30- EX-12 2 Exhibit 12 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS BEFORE INCOME TAXES (in thousands)
12 Months Ended _______________________________________________________________ December 31, March 31, ________________________________________________ 1995 1994 1993 1992 1991 1990 _____________ ________ ________ ________ ________ ________ Net income. . . . . . . . . . . . . . . . . . . $ 81,312 $ 81,913 $ 84,011 $ 72,601 $ 75,683 $ 71,562 Add--Federal and state income taxes: Current . . . . . . . . . . . . . . . . . . . 39,194 38,097 50,441 6,110 36,316 39,380 Deferred (net). . . . . . . . . . . . . . . . 10,473 13,190 1,674 33,998 7,573 (2,964) Investment tax credit amortization. . . . . . (3,365) (3,367) (3,366) (3,336) (3,464) (3,306) Income tax applicable to nonoperating activities. . . . . . . . . . . . . . . . . 556 603 631 2,989 2,413 2,986 _______ _______ _______ _______ _______ _______ 46,858 48,523 49,380 39,761 42,838 36,096 _______ _______ _______ _______ _______ _______ Net income before income taxes. . . . . . . . . 128,170 130,436 133,391 112,362 118,521 107,658 _______ _______ _______ _______ _______ _______ Add--Fixed charges Interest on long-term debt. . . . . . . . . . 30,947 31,164 32,823 35,534 36,652 36,589 Interest on provision for revenue refunds . . - - - (803) 4,261 3,396 Other interest. . . . . . . . . . . . . . . . 769 358 479 392 1,231 1,070 Amortization of net debt premium and discount. . . . . . . . . . . . . . . . . . 1,681 1,678 1,598 863 338 326 _______ _______ _______ _______ _______ ________ 33,397 33,200 34,900 35,986 42,482 41,381 _______ _______ _______ _______ _______ ________ Earnings as defined . . . . . . . . . . . . . . $161,567 $163,636 $168,291 $148,348 $161,003 $149,039 ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges. . . . . . . 4.84 4.93 4.82 4.12 3.79 3.60 Earnings required for preferred dividends: Preferred stock dividends . . . . . . . . . . $ 3,650 $ 3,510 $ 3,718 $ 4,549 $ 5,396 $ 5,617 Adjustment to pre-tax basis*. . . . . . . . . 2,103 2,079 2,185 2,491 3,054 2,833 _______ _______ _______ ______ _______ _______ $ 5,753 $ 5,589 $ 5,903 $ 7,040 $ 8,450 $ 8,450 _______ _______ _______ ______ _______ _______ Fixed charges plus preferred stock dividend requirements . . . . . . . . . . . . $ 39,150 $ 38,789 $ 40,803 $ 43,026 $ 50,932 $ 49,831 ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges plus preferred stock dividend requirements . . . . 4.13 4.22 4.12 3.45 3.16 2.99 * An additional charge equivalent to earnings required to adjust dividends on preferred stock to a pre-tax basis (See below.) { Net income before income taxes } { ______________________________ -100% } X preferred dividends = earnings required for preferred dividends { Net income }
-31- EX-27 3
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000860520 CIPSCO Inc. 1,000 3-MOS DEC-31-1994 JAN-01-1995 MAR-31-1995 PER-BOOK 1,433,834 100 192,041 0 44,761 1,769,612 356,812 0 287,909 644,044 0 80,000 459,695 0 0 0 15,000 0 0 0 570,873 1,769,612 210,462 6,680 182,210 188,890 21,572 315 21,572 8,523 13,536 968 12,568 17,035 0 65,621 0.37 0.37 INFORMATION NOT NORMALLY DISCLOSED IN FINANCIAL STATEMENTS AND NOTES. INCLUDES INCOME TAX EXPENSE. NET INCOME BEFORE PREFERRED STOCK DIVIDEND OF SUBSIDIARY
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