An analysis of Central Illinois Public Service Company.

• Author: Stagen, Brian P.
• Position: Company Profile

1. DESCRIPTION OF COMPETITOR

   General

   Central Illinois Public Service Company (CIPS), a neighboring investor-owned public utility, has been providing electric energy since 1902. CIPS, a utility subsidiary of CIPSCO Incorporated (CIPSCO), supplies electricity which it generates, transmits, and distributes to a 20,000 square mile region of central and southern Illinois. This area includes 66 of 102 counties in Illinois (representing over 557 communities and has an estimated population of 820,000 people which represents about 7% of Illinois' population and 35% of its surface area. CIPS also sells natural gas, which it purchases from producers and suppliers and distributes through its system, and transports customer-owned natural gas.

   A second subsidiary, CIPSCO Investment Company (CIC), directs the Company's non-regulated investments, including leases, securities and energy projects. CIC was incorporated on October 2, 1990 for the purpose of managing non-regulated investments and providing investment management services to CIPSCO and its affiliates.

   CIPSCO Incorporated is a holding company incorporated under the laws of Illinois. As of February 1, 1997, CIPSCO has 34,069,542 common shares outstanding without par value. CIPSCO's common stock is publicly held and traded on both the New York and Chicago Stock exchanges. CIPS has 25,452,373 shares outstanding of common stock that is all owned by CIPSCO. In addition, CIPS has two subsidiaries: Illinois Steam, Inc. and CIPS Energy Inc. as well as owning 20% of Electric Energy, Inc. (Union Electric company also owns 40%). Electric Energy, Inc. owns and operates a 1,015,000 kilowatt coal-fired power station located in Joppa, Illinois.

   CIC has four first tier subsidiaries: CIPSCO Securities Company (invest in marketable securities), CIPSCO Leasing Company (makes long-term investments in leveraged lease transactions), CIPSCO Energy Company (invests in energy-related projects), and CIPSCO Venture Company (makes investments within the CIPS utility service territory).

   Merger in Process

   On August 11, 1995, CIPSCO entered into an agreement and Plan of Merger providing for a business combination with Union Electric Company (UE) of St. Louis, Missouri. Shareholders of both companies approved the merger agreement on December 20, 1995.

   As a result of the merger, a newly formed holding company, Ameren Corporation, will become the parent of UE, CIPS, and CIC. The merged entity is expected to realize over $700 million in net savings over 10 years from combining certain operations of the two companies and is expected to adopt UE's dividend payment level, currently at $2.54 per share.

   The Missouri Public Service Commission (MSPC) gave its approval February 21, 1997. They still need approval from the Illinois Commerce Commission and five federal agencies. The MSPC will require that Ameren join a regional electricity transmission group, known as an independent system operator (ISO), to protect the public's interest.

   Final approval of the merger is expected to be completed by the end of 1997. Once in place, the new parent company, Ameren will serve 1.5 million electric customers and 300,000 natural gas customers in Missouri and Illinois. Ameren's consolidated assets will total nearly $9 billion, and its generating capacity (11,369 megawatts composed of: UE 8,307 mw and CIPS 3,062 ms) and kilowatt hour sales will place the company among the nation's top 20 investor-owned utilities.

   TABLE 1 CIPS UE NATIONAL ILLINOIS COOPS Residential 8.01 cents 7.13 cents 8.90 cents 10.43 cents Commercial 6.76 5.90 7.86 8.60 Industrial 4.67 4.29 4.92 5.74 TOTAL RETAIL 6.55 5.92 7.12 9.35 Customer Data and Sales Data

   As of 12/31/96, CIPS has 322,000 electric and 169,000 gas customers which produced $554 million (78%) and $155 (22%) million in retail revenue, respectively. The retail electric revenues were derived approximately as follows (% of total electric operating revenue): 31% residential customers, 26% commercial customers, 16% industrial customers, and 3% public authorities and other. The natural gas revenues were approximately: 65% residential, 23% commercial, 7% industrial, and 5% other. In addition, CIPS has $177 million in interchange wholesale sales for total revenues in excess of $886 million for 12/31/96. Total kilowatt hours sold for 1996 amounted to 8,304 megawatts, excluding interchange sales, generating $6.42 retail revenue per kilowatt hours sold for 1996.

   According to their 1996 annual report, CIPS has a total of 18 industrial electric customers that have completed or announced projects that will add an additional 40 megawatts of load to the CIPS...