UNITED STATES

                    SECURITIES AND EXCHANGE COMMISSION

                         Washington, D. C.  20549


                                FORM 10-K



[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
      THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]


      For the Fiscal Year Ended December 31, 1998

                                       or

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]


      For the transition period from          to

                 Registrant, State of
                 Incorporation, Address
Commission       of Principal Executive             I.R.S. Employer
File Number      Offices and Telephone Number       Identification No.


1-11327          ILLINOVA CORPORATION               37-1319890
                 (an Illinois Corporation)
                 500 S. 27th Street
                 Decatur, IL  62521-2200
                 (217) 424-6600


1-3004           ILLINOIS POWER COMPANY             37-0344645
                 (an Illinois Corporation)
                 500 S. 27th Street
                 Decatur, IL  62521-2200
                 (217) 424-6600




<PAGE>


Securities registered pursuant to Section 12(b) of the Act:

Each of the following securities registered pursuant to Section 12(b) of the Act
are listed on the New York Stock Exchange.

Title of each class                        Registrant
-------------------                        ----------

Common Stock (a)                           Illinova Corporation


Preferred stock, cumulative,               Illinois Power Company
$50 par value
4.08% Series   4.26% Series   4.70% Series
4.20% Series   4.42% Series

Mandatorily redeemable preferred securities of subsidiary
(Illinois Power Capital, L.P.)
9.45% Series

Trust originated preferred securities of subsidiary
(Illinois Power Financing 1)
8.00% Series

First mortgage bonds

7.95% Series due 2004

New mortgage bonds
6 1/8% Series due 2000                      6 3/4% Series due 2005
5.625% Series due 2000                          8% Series due 2023
6 1/2% Series due 2003                      7 1/2% Series due 2025
6.25% Series due 2002                       6.0% Series due 2003

(a) Illinova Common Stock is also listed on the Chicago Stock Exchange.

         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.

                  Illinova Corporation     Yes [X]     No
                  Illinois Power Company   Yes [X]     No

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrants'  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K.

                  Illinova Corporation        [X]
                  Illinois Power Company      [X]


                                       2
<PAGE>

      The aggregate market value of the common stock held by  non-affiliates  of
Illinova  Corporation  at February 28, 1999,  was  approximately  $1.7  billion.
Illinova  Corporation  is the sole holder of the common stock of Illinois  Power
Company.  The  aggregate  market  value of the  voting  preferred  stock held by
non-affiliates of Illinois Power Company at February 28, 1999, was approximately
$46.6 million.  The determination of stock ownership by non-affiliates  was made
solely for the purpose of responding to this requirement and the registrants are
not bound by this determination for any other purpose.

      The number of shares of Illinova  Corporation  Common  Stock,  without par
value, outstanding on February 28, 1999, was 69,919,287.

      The number of shares of Illinois Power Company  Common Stock,  without par
value,  outstanding on February 28, 1999, was 62,892,213,  all of which is owned
by Illinova Corporation.

                   Documents Incorporated by Reference

1.   Portions of the 1998 Annual Report to Shareholders of Illinova  Corporation
     in the appendix to the Illinova Corporation Proxy Statement.
                    (Parts I, II, III and IV of Form 10-K)

2.   Portions  of the 1998  Annual  Report to  Shareholders  of  Illinois  Power
     Company  in  the  appendix  to  the  Illinois  Power  Company   Information
     Statement.
                    (Parts I, II, III and IV of Form 10-K)

3.   Portions of the Illinova 1998 Proxy Statement.
                    (Part III of Form 10-K)

4.   Portions of the Illinois Power 1998  Information  Statement.
                    (Part III of Form 10-K)



                                       3
<PAGE>



                              ILLINOVA CORPORATION

                             ILLINOIS POWER COMPANY

                                   FORM 10-K

                  For the Fiscal Year Ended December 31, 1998

         This combined Form 10-K is separately filed by Illinova Corporation and
Illinois Power Company.  Information contained herein relating to Illinois Power
Company is filed by  Illinova  Corporation  and  separately  by  Illinois  Power
Company on its own behalf.  Illinois Power Company makes no representation as to
information relating to Illinova  Corporation or its subsidiaries,  except as it
may relate to Illinois Power Company.

                                 TABLE OF CONTENTS

Part I                                                                 Page

     Item 1.   Business                                                  6
                  General                                                6
                     Dividends                                           7
                     Open Access and Competition                         8
                     Customer and Revenue Data                          10
                  IP Electric Business                                  10
                     Overview                                           10
                     Soyland Power Cooperative, Inc.                    11
                     Clinton Power Station                              12
                       General                                          12
                       Decommissioning Costs                            12
                     Fuel Supply                                        13
                     Construction Program                               16
                     Accounting Matters                                 16
                  IP Gas Business                                       17
                     Gas Supply                                         18
                  Diversified Business Activities                       18
                  Environmental Matters                                 19
                     Air Quality                                        19
                     Clean Air Act                                      19
                     Global Warming                                     20
                     Manufactured-Gas Plant Sites                       20
                     Water Quality                                      20
                     Other Issues                                       21
                     Electric and Magnetic Fields                       21
                     Environmental Expenditures                         21
                  Year 2000 Data Processing                             21
                  Research and Development                              21
                  Regulation                                            22
                  Important Information                                 22
                  Executive Officers of Illinova Corporation            25
                  Executive Officers of Illinois Power Company          26
                  Operating Statistics                                  27
     Item 2.   Properties                                               27
     Item 3.   Legal Proceedings                                        28
     Item 4.   Submission of Matters to a Vote of
                Security Holders                                        28



                                       4
<PAGE>



                           TABLE OF CONTENTS (Continued)

Part II

     Item 5.   Market for Registrants' Common Equity
                and Related Stockholder Matters                         29
     Item 6.   Selected Financial Data                                  29
     Item 7.   Management's Discussion and Analysis
                of Financial Condition and
                Results of Operations                                   29
     Item 7A.  Quantitative and Qualitative
                Disclosures About Market Risk                           29
     Item 8.   Financial Statements and Supplementary
                Data                                                    29
     Item 9.   Changes in and Disagreements with
                Accountants on Accounting and
                Financial Disclosure                                    30

Part III

     Item 10.  Directors and Executive Officers of
                the Registrants                                         31
     Item 11.  Executive Compensation                                   31
     Item 12.  Security Ownership of Certain
                Beneficial Owners and Management                        31
     Item 13.  Certain Relationships and Related
                Transactions                                            31

Part IV

     Item 14.  Exhibits, Financial Statement
                Schedules, and Reports on Form 8-K                      32


Signatures                                                              35

Exhibit Index                                                           37


                                       5
<PAGE>



                                     PART I
--------------------------------------------------------------------------------

ITEM 1.   Business
-------
                                    General
                                    -------


         Illinois  Power  Company  (IP) was  incorporated  under the laws of the
State of Illinois on May 25, 1923.

         Illinova Corporation  (Illinova) was incorporated under the laws of the
State of Illinois on May 27,  1994 and serves as the parent  holding  company of
five principal  operating  subsidiaries:  IP, Illinova Generating Company (IGC),
Illinova Energy  Partners,  Inc. (IEP),  Illinova  Insurance  Company (IIC), and
Illinova Business Enterprises,  Inc. (IBE). IBE was incorporated in 1998. In May
1996,  another  Illinova  subsidiary,  Illinova Power  Marketing,  Inc.  (IPMI),
consolidated its business  activities with those of Illinova Energy Services and
with the non-regulated  marketing activities of Illinova, in a new company named
IEP.  On April  1,  1997,  IEP and  IPMI  merged.  In the  merger,  IPMI was the
surviving corporation and subsequently changed its name to IEP.

         IP is engaged in the generation, transmission, distribution and sale of
electric energy and the distribution,  transportation and sale of natural gas in
the state of  Illinois.  IP is  affected  by  changes  in the  electric  utility
industry  driven  by  regulatory  and   legislative   initiatives  to  introduce
competition  and end monopoly  franchises.  One aspect of this change is "direct
access,"  meaning  giving  customers  the freedom to purchase  electricity  from
suppliers  they choose.  In December  1997,  electric  regulatory  restructuring
legislation was enacted by the Illinois  General  Assembly and was signed by the
Governor.  For a more detailed  discussion of these  developments,  refer to the
"Open Access and Competition" section of this item.

         IP provides funds to Illinova for operations and investments.  Illinova
accrues  interest due to IP on any borrowed  funds at a rate equal to the higher
of the rate that Illinova  would have to pay if it used a currently  outstanding
line of credit,  or IP's actual  cost of the funds  provided.  Quarterly  during
1998,  when  needed,  IP effected a common  stock  repurchase  from  Illinova by
accepting  shares  having a  market  value  equivalent  to the  amount  of funds
provided  to  Illinova  during the quarter  plus the  accrued  interest  for the
quarter. During 1998, IP provided approximately $79 million in funds to Illinova
through these stock repurchases.  IP also provided funds to Illinova in the form
of cash dividends payable on the common stock of IP. In 1998, approximately $105
million in such dividends were declared and paid. For further  information on IP
common stock  repurchases,  see Item 7 "Management's  Discussion and Analysis of
Financial  Condition  and  Results  of  Operations"  of this  report.  For  more
information   regarding  cash  dividend   restrictions   and  stock   repurchase
restrictions, see the "Dividends" section later in this item.

         IGC  is  Illinova's  wholly-owned  independent  power  subsidiary.  IGC
invests in energy  supply  projects  throughout  the world and  competes  in the
independent  power market.  For further  discussion of IGC, see the "Diversified
Business Activities" section later in this item.

         IEP is Illinova's wholly-owned subsidiary that engages in the brokering
and  marketing  of  electric  power  and  gas and the  development  and  sale of
energy-related  services to the unregulated  energy market throughout the United
States and Canada. For further discussion of IEP, see the "Diversified  Business
Activities" section later in this item.

                                       6
<PAGE>

         IIC was  licensed  in August  1996 by the State of Vermont as a captive
insurance  company.  The  primary  business of IIC is to insure the risks of the
subsidiaries  of Illinova and risks related to or associated with their business
enterprises.

         IBE is Illinova's  wholly-owned  subsidiary  which was  incorporated in
1998.  The  primary  business of IBE is to account  for  miscellaneous  business
activities  not  regulated  by the  Illinois  Commerce  Commission  (ICC) or the
Federal Energy Regulatory  Commission (FERC) and not falling within the business
scope of other Illinova subsidiaries.

         The Illinova consolidated  financial statements include the accounts of
Illinova  Corporation,  a holding  company;  IP, a combination  electric and gas
utility;  IGC, a wholly-owned  subsidiary that invests in energy supply projects
and competes in the  independent  power market;  IEP, a wholly-owned  subsidiary
that  develops and markets  energy-related  services to the  unregulated  energy
market;  IIC, a  wholly-owned  subsidiary  whose  primary  business is to insure
certain  risks  of  Illinova  and its  subsidiaries;  and IBE,  a  wholly  owned
subsidiary which was incorporated in 1998 to account for miscellaneous  business
activities  not regulated by the ICC or FERC and not falling within the business
scope of other subsidiaries.

         All  significant  intercompany  balances  and  transactions  have  been
eliminated from the  consolidated  financial  statements.  All  transactions for
Illinova's  unregulated   subsidiaries  are  included  in  the  sections  titled
"Diversified Enterprises," "Interest Charges," "Income Taxes," and "Other Income
and Deductions," in Illinova's Consolidated Statements of Income.

         The IP  consolidated  financial  statements  include  the  accounts  of
Illinois  Power Capital,  L.P., a limited  partnership in which IP serves as the
general partner; Illinois Power Financing I, a statutory business trust in which
IP serves as sponsor;  Illinois Power  Securitization  Limited Liability Company
(LLC),  a special  purpose  Delaware  LLC whose sole member is IP; and  Illinois
Power Special  Purpose Trust, a special  purpose  Delaware  business trust whose
sole owner is Illinois Power Securitization Limited Liability Company.

         To the extent that information incorporated by reference herein appears
identically  in  both  the  1998  Annual  Report  to  Shareholders  of  Illinova
Corporation  and the 1998  Annual  Report  to  Shareholders  of  Illinois  Power
Company,  reference  will be made  herein  only to the  1998  Annual  Report  to
Shareholders  of  Illinova  Corporation,  and such  reference  will be deemed to
include a reference to the 1998 Annual Report of Illinois Power Company.

Dividends
---------

         On  December  9, 1998,  Illinova  declared  a  quarterly  common  stock
dividend at $.31 per share  payable  February 1, 1999.  On  February  10,  1999,
Illinova  declared a quarterly  common stock  dividend at $.31 per share payable
May 1, 1999.

         The  provisions of  Supplemental  Indentures  to IP's General  Mortgage
Indenture and Deed of Trust  contain  certain  restrictions  with respect to the
declaration  and  payment  of  dividends.  IP was not  limited  by any of  these
restrictions at December 31, 1998. Under the Restated Articles of Incorporation,
common stock dividends are subject to the preferential  rights of the holders of
preferred and preference stock.


                                       7
<PAGE>
         IP is also limited in its payment of  dividends by the Illinois  Public
Utilities  Act, which  requires  retained  earnings equal to or greater than the
amount of any proposed  dividend  declaration or payment.  The Federal Power Act
precludes  declaration  or payment of  dividends by electric  utilities  "out of
money stated in a capital  account." At December 31, 1998, IP had a zero balance
in retained  earnings and was thus unable to declare a dividend on its common or
preferred  stock.  Payment of preferred  dividends on February 1, 1999, was made
out of a trust created in November 1998 for this purpose. IP's retained earnings
balance is expected to grow  sufficiently  during 1999 to support  payment of IP
common stock and scheduled preferred dividends.  Illinova will secure payment of
IP preferred dividends through 1999.

         IP typically  pays  dividends  on its common stock to provide  Illinova
cash for operations. Contingent on IP meeting a free cash flow test, the ICC has
authorized IP to periodically  repurchase its common stock from Illinova. IP did
not satisfy the test at year-end  1998 and does not  anticipate  satisfying  the
test in 1999.

         Illinova and IP  periodically  review their dividend  policies based on
several  factors,  including their present and  anticipated  future use of cash,
level of retained earnings, and business strategy.

Open Access and Competition
---------------------------

         Competition  has  become a  dominant  issue  for the  electric  utility
industry. It has been promoted by federal legislation,  starting with the Public
Utility  Regulatory  Policies Act of 1978, which  facilitated the development of
co-generators and independent power producers.  Federal promotion of competition
continued with enactment of the Energy Policy Act of 1992,  which authorized the
FERC to mandate wholesale wheeling of electricity by utilities at the request of
certain authorized generating entities and electric service providers.  Wheeling
is the transport of electricity  generated by one entity over  transmission  and
distribution lines belonging to another entity.

         Competition  arises not only from  co-generation  or independent  power
production,  but also  from  municipalities  seeking  to  extend  their  service
boundaries  to  include  customers  being  served  by  utilities.  The  right of
municipalities  to have power  wheeled to them by utilities was  established  in
1973. IP has been obligated to wheel power for  municipalities  and cooperatives
in its territory since 1976.

         Further  competition may be introduced by state action, as has occurred
in Illinois,  or by federal  regulatory  action,  although the Energy Policy Act
currently  precludes the FERC from mandating  retail  wheeling.  Retail wheeling
involves the transport of electricity to end-use customers.  It is a significant
departure from traditional regulation in which public utilities have a universal
obligation to serve the public in return for protected  service  territories and
regulated  pricing designed to allow a reasonable  return on prudent  investment
and recovery of operating costs.

         P.A. 90-561, Illinois electric utility restructuring  legislation,  was
enacted in December  1997.  P.A.  90-561 gives IP's  residential  customers a 15
percent  decrease  in base  electric  rates  beginning  August 1,  1998,  and an
additional  5 percent  decrease  effective  on May 1, 2002.  The rate  decreases
resulted  in revenue  reductions  of  approximately  $35  million  in 1998,  and
expected revenue  reductions of  approximately  $70 million in each of the years
1999 through 2001,  approximately  $90 million in 2002, and  approximately  $100
million in 2003, based on current consumption.

                                       8
<PAGE>

         Under P.A. 90-561,  customers with demand greater than 4 MW at a single
site and  customers  with at least 10 sites which  aggregate  at least 9.5 MW in
total demand will be free to choose their electric generation suppliers ("direct
access") starting October 1999. Direct access for the remaining  non-residential
customers  will occur in two phases:  customers  representing  one-third  of the
remaining  load in the  non-residential  class in  October  1999  and  customers
representing  the entire  remaining  non-residential  load on December 31, 2000.
Direct  access will be available to all  residential  customers in May 2002.  IP
remains obligated to serve all customers who continue to take service from IP at
tariff  rates and  remains  obligated  to  provide  delivery  service  to all at
regulated  rates.  In 1999,  rates for  delivery  services  for  non-residential
customers  will be  established  in  proceedings  mandated by P.A.  90-561.  The
transition  charges departing  customers must pay to IP are not designed to hold
IP completely  harmless from  resulting  revenue loss because of the  mitigation
factor  described  below.  IP will be able to  estimate  the  revenue  impact of
customer  choice  more   accurately  when  its  delivery   service  charges  are
established.

         Although the specified residential rate reductions and the introduction
of direct access will lead to lower electric  service  revenues,  P.A. 90-561 is
designed to protect the  financial  integrity  of  electric  utilities  in three
principal ways:

1)   Departing customers are obligated to pay transition  charges,  based on the
     utility's  lost  revenue from that  customer.  The  transition  charges are
     applicable  through  2006 and can be extended two  additional  years by the
     ICC. The transition charges are calculated by subtracting from a customer's
     fully bundled rate an amount equal to: a) delivery charges the utility will
     continue to receive from the customer,  b) the market value of the freed-up
     energy, and c) a mitigation factor, which is the higher of a fixed rate per
     kwh or a percentage of the  customer's  bundled base rate.  The  mitigation
     factor  increases  during the transition  period and is designed to provide
     incentive for  management to continue cost  reduction  efforts and generate
     new sources of revenue;

2)   Utilities are provided the opportunity to lower their financing and capital
     costs through the issuance of "securitized" bonds, also called transitional
     funding instruments; and

3)   Utilities are permitted to seek rate relief in the event that the change in
     law leads to their return on equity falling below a specified minimum based
     on a prescribed test. Utilities are also subject to an "over-earnings" test
     which requires them, in effect, to share with customers  earnings in excess
     of specified levels.  See "Note 5 - Commitments and Contingencies" on pages
     a-32 to a-37 of the 1998 Annual Report to  Shareholders  in the appendix to
     the Illinova Proxy Statement which is incorporated herein by reference.

         The extent to which revenues are affected by P.A. 90-561 will depend on
a number of factors  including  future  market  prices for  wholesale and retail
energy,  and load growth and demand levels in the current IP service  territory,
and success in marketing to customers outside IP's service territory. The impact
on net income will depend on, among other things,  the amount of revenues earned
and the cost of doing business.

         Competition  creates both risks and  opportunities.  At this time,  the
ultimate effect of competition on Illinova's consolidated financial position and
results of operations is uncertain.

                                       9
<PAGE>

Customer and Revenue Data
-------------------------

         In  1998,  approximately  73  percent  and  12  percent  of  Illinova's
operating  revenues were derived from IP's sale of electricity and IP's sale and
transportation  of  natural  gas,  respectively.  Approximately  15  percent  of
Illinova's operating revenues came from its diversified enterprises in 1998. The
territory  served by IP comprises  substantial  areas in  northern,  central and
southern  Illinois,  including nine cities with populations  greater than 30,000
and twenty  cities with a population of over 10,000 (1996 U.S.  Census  Bureau's
Estimated  Populations).  IP supplies electric service at retail to an estimated
aggregate population of 1,278,000 in 311 incorporated  municipalities,  adjacent
suburban and rural areas,  and numerous  unincorporated  communities  and retail
natural gas service to an estimated  population  of 962,000 in 266  incorporated
municipalities  and  adjacent  areas.  IP  holds  franchises  in all of the  311
incorporated municipalities in which it furnishes retail electric service and in
all of the 266  incorporated  municipalities  in which it  furnishes  retail gas
service. At March 1, 1999, IP served 580,628 active electric customers (billable
meters) and 408,632 active gas customers (billable meters). These numbers do not
include  non-metered  customers such as street lights.  Sales of electricity and
gas sales and  transportation  are affected by seasonal weather  patterns,  and,
therefore,   operating  revenues  and  associated  operating  expenses  are  not
distributed evenly during the year.

         For more  information,  see "Note 14 - Segments of  Business"  on pages
a-45 through a-47 of the 1998 Annual Report to  Shareholders  in the appendix to
the Illinova Proxy Statement which is incorporated herein by reference.


                                IP Electric Business
                                --------------------

Overview
--------

         IP supplies  electric service at retail to residential,  commercial and
industrial consumers in substantial  portions of northern,  central and southern
Illinois.  Electric  service at wholesale is supplied to numerous  utilities and
power marketing  entities,  as well as to the Illinois Municipal Electric Agency
(IMEA) as agent for 11  municipalities  and to Soyland Power  Cooperative,  Inc.
(Soyland)  for resale to its member  cooperatives.  For  additional  information
related to Soyland,  see "Note 7 -  Facilities  Agreements"  on page a-38 of the
1998  Annual  Report to  Shareholders  in the  appendix  to the  Illinova  Proxy
Statement  which is  incorporated  herein by  reference.  In 1998,  IP  provided
interchange power to 81 entities, including 69 power marketers.

         IP's highest  system peak hourly demand (native load) in 1998 was
 3,694,000 kilowatts on July 21, 1998. This establishes a new IP record for peak
 load.

         IP owns and  operates  generating  facilities  with a total net  summer
capability of 4,571,250  kilowatts.  The  generating  capability  comes from six
major steam  generating  plants and three  peaking  service  combustion  turbine
plants. See Item 2, "Properties" for further information.

         IP is a  participant,  together  with Ameren - Union  Electric  Company
(AmerenUE) and Ameren - Central Illinois Public Service Company (AmerenCIPS), in
the  Illinois-Missouri  Power Pool which was formed in 1952.  The Pool  operates
under an  interconnection  agreement which provides for the  interconnection  of


                                       10
<PAGE>

transmission  lines.  This  agreement has no expiration  date, but any party may
withdraw from the agreement by giving 36 months notice to the other parties.

         IP has  agreements  with all  major  wholesale  marketing  and  trading
entities  operating in the Midwest.  These  agreements are used for the purchase
and sale of energy in the wholesale market.

         IP,  AmerenCIPS and AmerenUE have a contract with the Tennessee  Valley
Authority (TVA) providing for the  interconnection  of the TVA system with those
of the three  companies to exchange  economy and  emergency  power and for other
working  arrangements.  This contract has no expiration  date, but any party may
withdraw  from the  agreement by giving five years  written  notice to the other
parties.

         IP also  has  interconnections  with  Indiana-Michigan  Power  Company,
Commonwealth Edison Company, Central Illinois Light Company, Mid-American Energy
Corporation,  Louisville Gas & Electric,  Southern  Illinois Power  Cooperative,
Electric Energy Inc. (EEI),  Soyland, the City of Springfield,  Illinois and the
TVA.

         IP is a member of the Mid-America  Interconnected  Network,  one of ten
regional  reliability councils established to coordinate plans and operations of
member companies regionally and nationally.

         In   January   1998,    IP,   in    conjunction    with   eight   other
transmission-owning  entities,  filed with FERC for all  approvals  necessary to
create and implement the Midwest Independent  Transmission System Operator, Inc.
(MISO).  On September 16, 1998, FERC issued an order authorizing the creation of
a MISO. The MISO is governed by a seven-person  independent  board of directors.
The  goals  of the  MISO are to:  1) put in  place a  tariff  allowing  easy and
nondiscriminatory  access to transmission facilities in a multi-state region, 2)
enhance   regional   reliability  and  3)  establish  an  entity  that  operates
independent  of any  transmission  owner(s) or other  market  participants  thus
furthering  competition in the wholesale generation market,  consistent with the
objectives of the FERC's Transmission Open Access Notice of Proposed Rulemaking,
Order No. 888.  Since  January  1998,  four other  transmission-owning  entities
joined the MISO.  Participation in an ISO is a requirement of P.A.  90-561.  The
MISO  has  stated  a goal to  begin  limited  operation  in 1999 and to be fully
operational in 2000.

         In 1996, IP transferred,  through a dividend,  its 20% ownership of the
capital stock of EEI to Illinova.  Illinova's interest was transferred to IGC in
1996. EEI was organized to own and operate a steam electric  generating  station
and related  transmission  facilities  near Joppa,  Illinois to supply  electric
energy to the U.S.
Department of Energy (DOE) for its project near Paducah, Kentucky.

Soyland Power Cooperative, Inc.
-------------------------------

         For  discussion  of the  transfer to IP of  Soyland's  share of Clinton
Power Station  (Clinton) and the amended Power  Coordination  Agreement  between
Soyland and IP, see "Note 7 -  Facilities  Agreements"  on page a-38 of the 1998
Annual Report to  Shareholders  in the appendix to the Illinova Proxy  Statement
which is incorporated herein by reference.



                                       11
<PAGE>
Clinton Power Station
---------------------

     General
     -------

          In March 1997, the NRC issued an order approving transfer to IP of the
Clinton  operating  license  related to Soyland's  13.2%  ownership  interest in
Clinton in  connection  with the transfer from Soyland to IP of all of Soyland's
interest in Clinton.  Soyland's  title to the plant and directly  related assets
such as  nuclear  fuel were  transferred  to IP in May 1997.  Soyland's  nuclear
decommissioning trust assets were transferred to IP in May 1997, consistent with
IP's  assumption  of all of  Soyland's  ownership  obligations  including  those
related to decommissioning.

         Clinton was placed in service in 1987 and represents  approximately 20%
of IP's installed generation capacity. For more information on the Clinton Power
Station,  see "Note 4 - Clinton  Power  Station" on page a-31 of the 1998 Annual
Report to  Shareholders in the appendix to the Illinova Proxy Statement which is
incorporated herein by reference.

         Due to uncertainties of deregulated  generation pricing in Illinois and
due to various operation and management  factors,  Illinova's and IP's Boards of
Directors voted in December 1998 to sell or close Clinton. The decision resulted
in an impairment of  Clinton-related  assets and accrual of exit-related  costs.
The impairment and accrual of related  charges  resulted in a $1,327.2  million,
net of income taxes, charge against earnings.

         IP has entered into discussions  with parties  interested in purchasing
Clinton.  Principal concerns of interested parties are plant restart, funding of
the  decommissioning  liability,  terms  of any  purchase  agreement  for  power
generated by Clinton,  including  the length of any  agreement  and the price of
electricity in any agreement,  market price  projections  for electricity in the
region, property tax obligations of the purchaser,  and income tax issues. These
concerns create  substantial  uncertainty  with regard to the ability to convert
any  tentative  agreement  into an  executable  transaction.  Therefore,  IP has
accounted for the Clinton exit based on the  expectation  of plant closure as of
August 31, 1999. An August 31, 1999,  closure allows IP to pursue  opportunities
to sell  Clinton,  which has the  potential  economic  benefit of reducing  IP's
financial exposure to  decommissioning.  An August 31, 1999, closure also allows
IP to  refine  its  plans to  close  and  decommission  Clinton  if a  tentative
agreement  cannot be  converted  into an  executable  transaction.  In addition,
Clinton would be available for the summer cooling season.  The estimated Clinton
other   operating  and   maintenance   expense,   including   expensed   capital
expenditures, is $151 million for January through August 1999.

         See "Note 2 - Clinton  Impairment  and  Quasi-Reorganization"  on pages
a-27 through a-29 of the 1998 Annual Report to  Shareholders  in the appendix to
the Illinova Proxy Statement which is incorporated herein by reference.


     Decommissioning Costs
     ---------------------

         IP is  responsible  for the costs of  decommissioning  Clinton  and for
spent nuclear fuel disposal costs. In May 1997,  consistent with IP's assumption
of  all  of  Soyland's  ownership  obligations  of  Clinton,  Soyland's  nuclear
decommissioning trust assets of approximately $6 million were transferred to IP.
P.A. 90-561 provides for the continued recovery of decommissioning costs through
rates charged to IP's delivery service customers.  An ICC approved site-specific


                                       12
<PAGE>

decommissioning  study  projected  a cost of $538  million in 1996  dollars  for
decommissioning  based on the assumption of the DECON method (prompt removal and
dismantlement of Clinton),  which results in material  expenditures in the early
years of decommissioning  Clinton.  The projected cost estimate in 2026 dollars,
assuming a 2 percent annual  inflation  factor,  is $988 million.  This estimate
continues as the basis for assessing decommissioning costs to IP's customers.

         On December 9, 1998,  Illinova's  and IP's Boards of Directors  decided
that IP would exit the nuclear business. The ultimate disposition of Clinton, as
well as the decommissioning  method chosen,  could have a material impact on the
total  decommissioning  liability.  For more information on the  decommissioning
costs related to Clinton,  see  "Decommissioning  and Nuclear Fuel  Disposal" in
"Note 5 - Commitments and  Contingencies" on page a-34 of the 1998 Annual Report
to  Shareholders  in the  appendix  to the  Illinova  Proxy  Statement  which is
incorporated herein by reference.

Fuel Supply
-----------

         Coal was used to generate approximately 97% of the electricity produced
by IP during 1998, with other fuels generating the remaining 3%. For 1999, after
Clinton  returns to service,  the  percentages  of  generation  attributable  to
nuclear fuel is projected to increase while projected  generation from coal will
decline. As explained in "Note 2 - Clinton Impairment and  Quasi-Reorganization"
on pages a-27  through  a-29 of the 1998 Annual  Report to  Shareholders  in the
appendix  to the  Illinova  Proxy  Statement,  which is  incorporated  herein by
reference,  Illinova's  and IP's  Boards  of  Directors  voted  to exit  nuclear
operations. See this note for further information.

         On March 6, 1998, IP initiated an ICC proceeding for elimination of the
UFAC.  This  established  a new base fuel cost  recoverable  under IP's electric
tariffs which includes a component for recovery of fuel costs,  but not a direct
pass-through of such costs.  Elimination of the UFAC exposes IP to the risks and
opportunities  of  market  price  volatility  and  operating  efficiencies.   By
eliminating the UFAC, IP eliminated  exposure for potential  disallowed fuel and
purchased power costs for the periods after December 31, 1996.  Whether electric
energy  production  costs will  continue to be recovered  depends on a number of
factors,  including the number of customers served, demand for electric service,
and changes in fuel cost  components.  Furthermore,  IP's base electric rates to
residential  customers  were  reduced  beginning  in  August  1998  and  certain
customers will be free to choose their electric  generation  suppliers beginning
in  October  1999.  These  variables  will be  influenced,  in turn,  by  market
conditions,  availability of generating capacity, future regulatory proceedings,
and environmental  protection costs, among other things. IP's electric customers
are receiving  refunds  totaling  $15.1 million during the first quarter of 1999
related to fuel cost  disallowances as the final phase of the elimination of the
UFAC.  These  refunds  close the ICC  review  process  related  to the UFAC cost
pass-through for the years 1989, 1994, 1995, and 1996.

         For additional information,  see the information under the sub-captions
"Revenue  and  Energy  Cost"  of "Note 1 -  Summary  of  Significant  Accounting
Policies" on pages a-25 and a-26 and "Fuel Cost Recovery" of "Note 5 Commitments
and Contingencies" on page a-32 of the 1998 Annual Report to Shareholders in the
appendix  to the  Illinova  Proxy  Statement  which is  incorporated  herein  by
reference.

COAL - Coal is expected to be the primary source of fuel for future  generation.
Through both long-term and short-term contracts, IP has obtained commitments for
a major portion of its future coal  requirements.  IP announced in November 1998


                                       13
<PAGE>

that it will  comply with Phase II of the Clean Air Act  Amendments  that become
effective January 1, 2000, by switching to low sulfur Powder River Basin coal at
its Baldwin and Hennepin Power Stations. IP will continue to comply during 1999,
the final year of Phase I of the Clean Air Act,  with  Illinois high sulfur coal
and emission allowances.  IP renegotiated one contract in 1998 that will provide
Powder River Basin coal through 2010. IP also has short-term  contracts with two
suppliers which last through 2000 and a third contract which lasts through 2002.

         Spot purchases of coal in 1998  represented  less than 5% of IP's total
coal purchases. Given the above-mentioned  commitments, IP believes that it will
be able to obtain  sufficient coal to meet its future  generating  requirements.
However, IP is unable to predict the extent to which coal availability and price
may  fluctuate  in the future.  Coal  inventories  on hand at December 31, 1998,
represented  a 43-day supply based on IP's average  daily burn  projections  for
1999.

NUCLEAR  - IP leases  nuclear  fuel  from  Illinois  Power  Fuel  Company  (Fuel
Company). The Fuel Company, which is 50% owned by IP, was formed in 1981 for the
purpose of leasing  nuclear fuel to IP for Clinton.  Lease payments are equal to
the Fuel Company's  cost of fuel as consumed  (including  related  financing and
administrative  costs). IP is obligated to make  subordinated  loans to the Fuel
Company  at any  time the  obligations  of the Fuel  Company  which  are due and
payable exceed the funds available to the Fuel Company. At December 31, 1998, IP
had outstanding loans to the Fuel Company of approximately  $1.96 million.  This
amount was repaid in January  1999.  Lease terms  stipulate  that,  in the event
Clinton is out of service for 24 consecutive months, IP is obligated to purchase
Clinton's  in-core  nuclear fuel from the Fuel Company.  In accordance with this
provision,  IP purchased  $62.1 million of fuel in the first quarter of 1999. IP
has an obligation  for nuclear fuel disposal  costs of leased  nuclear fuel. For
additional information relating to the nuclear fuel lease, see "Note 9 - Capital
Leases" on page a-39 of the 1998 Annual Report to  Shareholders  in the appendix
to the Illinova Proxy Statement which is  incorporated  herein by reference.  At
December 31, 1998, IP's net investment in nuclear fuel was $20.4 million.

         IP has one  long-term  contract for the supply of uranium  concentrates
with Cameco,  a Canadian  corporation.  The Cameco contract was  renegotiated in
1994 to lower the price  and  provide  55% to 65% of  Clinton's  estimated  fuel
requirements  approximately through 2000. The decision to utilize Cameco for the
additional  10% of  Clinton's  fuel  requirements  is made the year  before each
delivery  and  depends on the  estimated  price and  availability  from the spot
market versus the estimated  contract price.  The contract with Cameco is stated
in terms of U.S.  dollars.  It is expected that this contract will be terminated
in 1999 as a result of the decision to exit Clinton operations.
Accordingly, termination fees were accrued at December 31, 1998.

         Conversion  services  for the  period  1991-2005  are  contracted  with
Sequoyah Fuels.  Sequoyah Fuels closed its Oklahoma conversion plant in 1992 and
joined with Allied Chemical Company to form a marketing  company named CoverDyn.
All  conversion  services  will be  performed at Allied's  Metropolis,  Illinois
facility,  but Sequoyah  Fuels retains the contract with IP. It is expected that
this  contract  will be  terminated  in 1999 as a result of the decision to exit
Clinton operations.  Accordingly,  termination fees were accrued at December 31,
1998.

         IP has a utility services contract for uranium enrichment  requirements
with the DOE  which  provides  70% of the  enrichment  requirements  of  Clinton
through  1999.  The remaining  30% has been  contracted  with the DOE through an
amendment to its incentive  pricing plan through 1999. This amendment  allows IP


                                       14
<PAGE>

to either  purchase  the  enrichment  services at the DOE's  incentive  price or
provide  electricity at DOE's Paducah,  Kentucky  enrichment  plant at an agreed
exchange rate.

         A contract with General  Electric  Company  provides  fuel  fabrication
requirements for the initial core and 11 reloads, or approximately through 2011.
The contract was renegotiated in 1998 to lower the price and reduce the duration
from  approximately  19  reloads.  It is  expected  that this  contract  will be
terminated  in 1999 as a result  of the  decision  to exit  Clinton  operations.
Accordingly, termination fees were accrued at December 31, 1998.

         Under the Nuclear Waste Policy Act (NWPA),  the DOE is responsible  for
the  permanent  storage and disposal of spent  nuclear  fuel.  The DOE currently
charges one mill  ($0.001) per net kwh (one dollar per MWH)  generated  and sold
for future disposal of spent fuel. IP is recovering these charges through rates.
In 1996,  at the  request  of  nuclear-owning  utilities  and  state  regulatory
agencies,  the District of Columbia  (D.C.)  Circuit Court of Appeals  issued an
order confirming DOE's unconditional obligation to take responsibility for spent
nuclear fuel  commencing in 1998. The DOE argued that it had no such  obligation
because  of  its   inability  to  site  and  license  a  permanent   repository.
Notwithstanding  this  decision,  which  the  DOE did  not  appeal,  the DOE has
indicated to all nuclear utilities that it will experience delay in performance.
The impact of any such delay on IP will depend on many  factors,  including  the
duration of such delay and the cost and feasibility of interim, on-site storage.
Nuclear plant owners and others are pursuing  litigation against DOE at the D.C.
Circuit Court of Appeals,  the Federal Court of Claims,  federal district court,
and in  administrative  proceedings.  These lawsuits are focused on establishing
DOE liability for damages  caused by its failure to perform,  the scope of those
damages,  and other remedies.  IP is participating in such litigation before the
D.C.  Circuit  Court of  Appeals.  To date,  the  unconditional  nature of DOE's
obligation  has been upheld but no court has yet  quantified  damages or ordered
specific performance. The outcome of these lawsuits is uncertain.

         Currently, commercial reprocessing of spent nuclear fuel is not allowed
in the United States.  The NWPA was enacted to establish a government  policy on
disposal of spent nuclear fuel and/or high-level radioactive waste. Although the
DOE has failed to comply  with its  obligation  under the NWPA to provide  spent
nuclear fuel  retrieval and storage by 1998, IP has on-site  underwater  storage
capacity that will accommodate its spent fuel storage needs for approximately 10
years. IP is currently an equity partner with seven other utilities in an effort
to develop a private  temporary  repository.  A spent fuel  storage  license was
filed with the NRC in 1997,  initiating a process  which will take the NRC up to
three years to complete. Safe, dry, on-site storage is technologically feasible,
but is subject to licensing and local permitting  requirements,  for which there
may be effective opposition.

         Under the Energy Policy Act of 1992, IP is responsible for a portion of
the  cost  to  decontaminate  and  decommission  the  DOE's  uranium  enrichment
facilities. Each utility is assessed an annual fee for a period of fifteen years
based on quantities  purchased from the DOE  facilities  prior to passage of the
Act.  At  December  31,  1998,  IP has a  remaining  liability  of $5.9  million
representing  future  assessments.  IP  had  been  recovering  these  costs,  as
amortized,  through its UFAC  subject to UFAC  limitations  discussed  under the
heading "Fuel Supply" previously in this item.

OIL and GAS - IP used  natural gas and oil to generate  1.8% of the  electricity
produced  in 1998.  IP has not  experienced  difficulty  in  obtaining  adequate
supplies  of these  resources.  However,  IP is unable to predict  the extent to
which oil and gas availability and price may fluctuate in the future.

                                       15
<PAGE>

         Reference is made to the section "Environmental  Matters" hereunder for
information regarding pollution control matters relating to IP's fuel supply.

Construction Program
--------------------

         To  meet  anticipated  needs,  Illinova  and IP  have  used  internally
generated  funds and  external  financings.  The timing  and amount of  external
financings  depend primarily on economic and financial market  conditions,  cash
needs and capitalization ratio objectives.

         For more information on Illinova's  construction program and liquidity,
see "Note 5 -  Commitments  and  Contingencies"  on page a-32 of the 1998 Annual
Report to  Shareholders in the appendix to the Illinova Proxy Statement which is
incorporated  herein  by  reference;  "Note 6 - Lines of Credit  and  Short-Term
Loans" on page a-37 of the 1998 Annual Report to Shareholders in the appendix to
the Illinova Proxy  Statement  which is  incorporated  herein by reference;  and
"Liquidity and Capital  Resources" in "Management's  Discussion and Analysis" on
pages  a-12  through  a-15 of the 1998  Annual  Report  to  Shareholders  in the
appendix  to the  Illinova  Proxy  Statement  which is  incorporated  herein  by
reference.

         For more information on IP's  construction  program and liquidity,  see
"Note 4 -  Commitments  and  Contingencies"  on pages  a-28 and a-33 of the 1998
Annual Report to Shareholders in the appendix to the Illinois Power  Information
Statement which is incorporated  herein by reference;  "Note 5 - Lines of Credit
and Short-Term  Loans" on page a-33 of the 1998 Annual Report to Shareholders in
the appendix to the Illinois Power  Information  Statement which is incorporated
herein by reference;  and  "Liquidity  and Capital  Resources" in  "Management's
Discussion and Analysis" on pages a-10 through a-14 of the 1998 Annual Report to
Shareholders in the appendix to the Illinois Power  Information  Statement which
is incorporated herein by reference.

Accounting Matters
------------------

Prior to the enactment of P.A. 90-561,  IP prepared its  consolidated  financial
statements in accordance with Statement of Financial  Accounting Standards (FAS)
71, "Accounting for the Effects of Certain Types of Regulation." Reporting under
FAS 71 allows  companies  whose service  obligations and prices are regulated to
maintain  assets on their  balance  sheets  representing  costs  they  expect to
recover from customers,  through  inclusion of such costs in their future rates.
In July  1997,  the  Emerging  Issues  Task  Force of the  Financial  Accounting
Standards Board (EITF) concluded that application of FAS 71 accounting should be
discontinued at the date of enactment of  deregulation  legislation for business
segments for which a plan of deregulation has been established. The EITF further
concluded that regulatory  assets and liabilities that originated in the portion
of the business being deregulated should be written off unless their recovery is
specifically  provided for through future cash flows from the regulated  portion
of the business.

         Because  P.A.  90-561  provides  for  market-based  pricing of electric
generation  services,  IP discontinued  application of FAS 71 for its generating
segment as of December 1997. IP evaluated its regulatory  assets and liabilities
associated  with its generation  segment and  determined  that recovery of these
costs was not probable  through rates charged to transmission  and  distribution
customers, the regulated portion of the business.

         In December 1997, IP wrote off generation-related regulatory assets and
liabilities  of  approximately  $195  million (net of income  taxes).  These net


                                       16
<PAGE>

assets  related  to  previously  incurred  costs  that had been  expected  to be
collected through future revenues,  including deferred Clinton post construction
costs, unamortized gains and losses on reacquired debt, recoverable income taxes
and other  generation-related  regulatory assets. At December 31, 1998, IP's net
investment in non-nuclear generation facilities was $2.9 billion.

         As discussed above,  Illinova's and IP's Boards of Directors decided to
exit the nuclear portion of the business, by either sale or shutdown of Clinton.
FAS 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets  to be  Disposed  of,"  requires  that all  long-lived  assets  for which
management  has  committed  to a plan of  disposal  be  reported at the lower of
carrying amount or fair value less cost to sell. Consequently,  IP wrote off the
value of Clinton and accrued  Clinton-related  exit costs,  which resulted in an
accumulated deficit in Illinova's retained earnings of $1,419.5 million.

         Illinova's and IP's Boards of Directors also approved in December 1998,
quasi-reorganization   accounting   for   Illinova  and  IP.  The  SEC  provided
concurrence with this accounting in November 1998. A quasi-reorganization  is an
accounting procedure that eliminates an accumulated deficit in retained earnings
and  permits  the  company  to  proceed on much the same basis as if it had been
legally  reorganized.  A  quasi-reorganization  involves  restating  a company's
assets  and  liabilities  to their  fair  values,  with the net  amount of these
adjustments  added to or deducted from the deficit.  Any balance in the retained
earnings  account is then  eliminated by a transfer from other paid-in  capital,
giving the company a "fresh start" with a zero balance in retained earnings. For
additional    information    see    "Note   2   -   Clinton    Impairment    and
Quasi-Reorganization"  on pages a-27 through  a-29 of the 1998 Annual  Report to
Shareholders   in  the  appendix  to  the  Illinova  Proxy  Statement  which  is
incorporated herein by reference.


                             IP Gas Business
                             ---------------

         IP  supplies  retail  natural  gas  service to an  estimated  aggregate
population  of 962,000 in 266  incorporated  municipalities,  adjacent  suburban
areas and numerous unincorporated communities. IP does not sell gas for resale.

         IP's rate schedules  contain  provisions for passing through to its gas
customers  increases or decreases in the cost of purchased gas. For  information
on revenue and energy costs,  see the  sub-caption  "Revenue and Energy Cost" of
"Note 1 - Summary of Significant  Accounting Policies" on pages a-25 and a-26 of
the 1998 Annual  Report to  Shareholders  in the appendix to the Illinova  Proxy
Statement that is incorporated herein by reference.

         IP has eight  underground gas storage fields having a total capacity of
approximately  15.2 million  MMBtu and a total  deliverability  on a peak day of
about  347,000  MMBtu.  In  addition to the  capacity  of the eight  underground
storage  fields,  IP has  contracts  with  various  natural  gas  suppliers  and
producers  for 9.9 million  MMBtu of  underground  storage  capacity and a total
deliverability on a peak day of 160,000 MMBtu.  Operation of underground storage
permits IP to increase  deliverability to its customers during peak load periods
by taking gas into storage during the off-peak months.

         IP owns one active  liquefied  petroleum  gas plant having an aggregate
peak-day  deliverability  of about 20,000 MMBtu for peak-shaving  purposes.  Gas
properties include approximately 8,000 miles of mains.

                                       17
<PAGE>

         IP  experienced  its 1998 peak-day send out of 572,067 MMBtu of natural
gas on December 30, 1998.  This compares  with IP's record  peak-day send out of
857,324 MMBtu of natural gas on January 10, 1982.

Gas Supply
----------

         IP has  contracts  with  six  interstate  pipeline  companies  for firm
transportation  and storage  services.  These contracts have varying  expiration
dates  ranging  from  1999  to  2004.  IP also  enters  into  contracts  for the
acquisition of natural gas supply. Those contracts range in duration from one to
five months.


                         Diversified Business Activities
                         -------------------------------

         IGC, a  wholly-owned  subsidiary of Illinova,  invests in energy supply
projects  throughout the world.  IGC is an equity partner with Tenaska,  Inc. in
four  natural  gas-fired  generation  plants,  of which  three  plants  totaling
approximately  700 megawatts (MW) are in operation and one 830 MW plant is under
construction. Tenaska, Inc. is an Omaha, Nebraska-based developer of independent
power projects  throughout  the United States.  IGC also owns 100 percent of the
North American  Energy Services  Company (NAES).  NAES supplies a broad range of
operations, maintenance and support services to the world-wide independent power
generation  industry and operates the Tenaska generation plants in which IGC has
an equity interest.  IGC is an equity partner in the Indeck North American Power
Fund (Fund).  The Fund has generation  projects in Long Beach,  California,  and
Pepperell,  Massachusetts.  In  addition to these  ventures,  IGC is involved in
generation  projects in Teesside,  England;  Puerto Cortez,  Honduras;  Zhejiang
Province  and  Hunan  Province,  People's  Republic  of China;  Aguaytia,  Peru;
Tilaran,  Costa  Rica;  Old  Harbour,  Jamaica;   Barranquilla,   Columbia;  and
Balochistan,  Pakistan. In August 1996, Illinois Power's interest in the 1000 MW
coal-fired plant in Joppa, Illinois was transferred to IGC.

         IEP is Illinova's wholly-owned subsidiary that engages in the brokering
and  marketing  of  electric  power  and gas,  and the  development  and sale of
energy-related products and services to the unregulated energy market throughout
the United States and Canada.  In May 1995, IEP obtained  approval from the FERC
to conduct business as a marketer of electric power and gas to various customers
outside of IP's present service  territory.  In September 1995, IEP began buying
and selling  wholesale  electricity in the Western  United  States.  IEP owns 50
percent  of Tenaska  Marketing  Ventures  (TMV).  TMV  focuses  on  natural  gas
marketing  in the  Midwestern  United  States.  IEP and TMV have formed  Tenaska
Marketing Canada to market natural gas in Canada. In July 1996, IP received FERC
approval to sell  electricity  to IEP without  prior  transaction  approval from
FERC.  In  October  1998,  IEP  acquired  a 51%  ownership  interest  in EMC Gas
Transmission  Company,  a retail gas marketer in Michigan.  IEP consolidates the
accounts of EMC Gas Transmission Company.

         For more  information on the  activities of the Illinova's  diversified
enterprises,  see  "Note 3 -  Illinova  Subsidiaries"  on page  a-30 of the 1998
Annual Report to  Shareholders  in the appendix to the Illinova Proxy  Statement
which is incorporated herein by reference.



                                       18
<PAGE>


                             Environmental Matters
                             ---------------------

         IP is subject to regulation by certain federal and Illinois authorities
with respect to  environmental  matters and may in the future become  subject to
additional  regulation by such authorities or by other federal,  state and local
governmental bodies.  Existing regulations  affecting IP are principally related
to air and water quality, hazardous wastes and toxic substances.

Air Quality
-----------

         Pursuant  to the  Federal  Clean  Air  Act  (Act),  the  United  States
Environmental  Protection  Agency  (USEPA) has  established  ambient air quality
standards for air pollutants  which, in its judgment,  have an adverse effect on
public  health  or  welfare.  The Act  requires  each  state to  adopt  laws and
regulations,  subject to USEPA  approval,  designed to achieve  such  standards.
Pursuant to the Illinois  Environmental  Protection Act, the Illinois  Pollution
Control  Board  (Board)  adopted  and,  along  with the  Illinois  Environmental
Protection  Agency  (IEPA),  is enforcing a  comprehensive  set of air pollution
control  regulations  which  include  emission  limitations,  permit  issuances,
monitoring and reporting requirements.

         The air  pollution  regulations  of the  Board  impose  limitations  on
emissions of particulate,  sulfur dioxide, carbon monoxide,  nitrogen oxides and
various other pollutants. Enforcement of emission limitations is accomplished in
part through the regulatory  permitting  process.  IP's practice is to obtain an
operating  permit for each source of regulated  emissions.  Presently,  it has a
total of  approximately  100 permits for emission  sources at its power stations
and other  facilities,  expiring  at various  times.  In  addition to having the
requisite operating permits, each source of regulated emissions must be operated
within the regulatory limitations on emissions.  Verification of such compliance
is usually accomplished by reports to regulatory  authorities and inspections by
such authorities.

         In  accordance  with the  requirements  of the  Illinois  Clean Air Act
Permit Program (CAAPP), IP submitted new air permit applications for each of its
generating  facilities in 1995. The IEPA will review these  applications  and is
expected to issue CAAPP permits in 1999.

         In addition to the sulfur  dioxide  emission  limitations  for existing
facilities,  both  the  USEPA  and the  State of  Illinois  adopted  New  Source
Performance  Standards (NSPS) applicable to coal-fired generating units limiting
emissions  to 1.2 pounds of sulfur  dioxide per million Btu of heat input.  This
standard is applicable to IP's Unit 6 at the Havana Power  Station.  The federal
NSPS also limit nitrogen oxides,  opacity and particulate  emissions and imposes
certain monitoring requirements. In 1977 and 1990, the Act was amended and, as a
result,  USEPA has adopted more  stringent  emission  standards for new sources.
These standards would apply to any new plant constructed by IP.

Clean Air Act
-------------

         For information on the impacts of the Clean Air Act Amendments of 1990,
see "Environmental Matters" in "Note 5 - Commitments and Contingencies" on pages
a-35 and a-36 of the 1998 Annual Report to  Shareholders  in the appendix to the
Illinova Proxy Statement which is incorporated herein by reference.



                                       19
<PAGE>

Global Warming
--------------

         For  information on the impacts of the  international  negotiations  to
reduce  greenhouse  gas emissions  and the Kyoto  Protocol,  see  "Environmental
Matters" in "Note 5 - Commitments  and  Contingencies"  on page a-36 of the 1998
Annual Report to  Shareholders  in the appendix to the Illinova Proxy  Statement
which is incorporated herein by reference.

Manufactured-Gas Plant Sites
----------------------------

         IP's estimated liability for MGP site remediation is $61 million.  This
amount  represents IP's current best estimate of the costs that it will incur to
remediate the 24 MGP sites for which it is  responsible.  Because of the unknown
and unique  characteristics  at each site,  IP cannot  presently  determine  its
ultimate liability for remediation of the sites.

         In October  1995,  to offset the burden  imposed on its  customers,  IP
initiated  litigation  against  a number of  insurance  carriers  claiming  that
insurance  coverage  should apply to a portion of the cleanup costs.  As of June
1998,  settlements or settlements in principle have been  negotiated with all 30
of the carriers.  Settlement  proceeds recovered from the carriers will offset a
significant  portion  of MGP  remediation  costs  and will be  credited  to IP's
customers through the tariff rider mechanism which the ICC previously  approved.
Cleanup costs in excess of insurance  proceeds will be fully recovered from IP's
transmission and distribution customers.

Water Quality
-------------

         The Federal Water Pollution Control Act Amendments of 1972 require that
National Pollutant Discharge Elimination System (NPDES) permits be obtained from
USEPA (or, when delegated, from individual state pollution control agencies) for
any discharge into  navigable  waters.  Such  discharges are required to conform
with the  standards,  including  thermal,  established  by USEPA  and also  with
applicable state standards.

         Enforcement of discharge  limitations is  accomplished  in part through
the regulatory  permitting  process similar to that described  previously  under
"Air Quality." Presently,  IP has approximately two dozen permits for discharges
at its power stations and other facilities, which must be periodically renewed.

         In  addition  to  obtaining  such  permits,  each  source of  regulated
discharges  must be operated  within the  limitations  prescribed  by applicable
regulations.   Verification  of  such  compliance  is  usually  accomplished  by
monitoring  results  reported to regulatory  authorities and inspections by such
authorities.

         The  Clinton  permit was  reissued  in the third  quarter of 1995.  The
Havana  Power  Station  permit was  reissued in the first  quarter of 1996.  The
Hennepin  Power Station permit  application  for reissuance was submitted in the
fourth  quarter of 1996.  The permit is not  expected  until the third or fourth
quarter of 1999.  The Vermilion  Power Station permit was reissued in the fourth
quarter of 1996.  The Wood River Power Station  permit was reissued in the first
quarter of 1996.  The Baldwin  Power  Station  permit was  reissued in the first
quarter of 1998.


                                       20
<PAGE>

Other Issues
------------

         Hazardous and  non-hazardous  wastes generated by IP must be managed in
accordance  with  federal  regulations  under the Toxic  Substances  Control Act
(TSCA), the Comprehensive Environmental Response, Compensation and Liability Act
and the  Resource  Conservation  and Recovery  Act (RCRA) and  additional  state
regulations  promulgated under both RCRA and state law. Regulations  promulgated
in 1988  under RCRA  govern  IP's use of  underground  storage  tanks.  The use,
storage,  and  disposal of certain  toxic  substances,  such as  polychlorinated
biphenyls  (PCBs)  in  electrical  equipment,  are  regulated  under  the  TSCA.
Hazardous substances used by IP are subject to reporting  requirements under the
Emergency  Planning and  Community-Right-To-Know  Act. The State of Illinois has
been delegated authority for enforcement of these regulations under the Illinois
Environmental  Protection  Act and state  statutes.  These  requirements  impose
certain monitoring, recordkeeping,  reporting and operational requirements which
IP has  implemented  or is  implementing  to  assure  compliance.  IP  does  not
anticipate that compliance will have a material  adverse impact on its financial
position or results of operations.

Electric and Magnetic Fields
----------------------------

         For  information  on Electric and Magnetic  Fields,  see  "Electric and
Magnetic Fields" in "Note 5 Commitments and  Contingencies"  on page a-36 of the
1998  Annual  Report to  Shareholders  in the  appendix  to the  Illinova  Proxy
Statement which is incorporated herein by reference.

Environmental Expenditures
--------------------------

         Operating  expenses  for  environmentally-related  activities  were $53
million in 1998  (including the incremental  costs of alternative  fuels to meet
environmental requirements).  IP's net capital expenditures (including AFUDC and
capitalized  interest) for environmental  protection programs were approximately
$28.4  million in 1998.  Accumulated  net capital  expenditures  since 1969 have
reached approximately $822 million.


                           Year 2000 Data Processing
                           -------------------------

         For  information  on Year 2000  Data  Processing,  see  "Year  2000" in
"Management's  Discussion  and  Analysis"  on pages a-5  through a-8 of the 1998
Annual Report to  Shareholders  in the appendix to the Illinova Proxy  Statement
which is incorporated herein by reference.

                            Research and Development
                            ------------------------

         Illinova's   research  and  development   expenditures  for  1998  were
comprised  entirely of IP expenditures of approximately  $5.1 million.  In 1997,
Illinova's research and development expenditures were approximately $5.4 million
for IP and $2.0  million  for  Illinova.  Illinova's  research  and  development
expenditures for 1996 consisted entirely of IP expenditures of $5.4 million.



                                       21
<PAGE>

                                  Regulation
                                  ----------

         The Illinois Public Utilities Act was significantly modified in 1997 by
P.A.  90-561,  but the ICC  continues  to have broad powers of  supervision  and
regulation  with  respect  to the rates and  charges  of IP,  its  services  and
facilities,  extensions or abandonment of service,  classification  of accounts,
valuation and depreciation of property, issuance of securities and various other
matters.  Before a significant plant addition may be included in IP's rate base,
the ICC must determine that the addition is reasonable in cost, prudent and used
and useful in  providing  utility  service to  customers.  IP must  continue  to
provide  bundled retail  electric  service to all who choose to continue to take
service at tariff rates,  and IP must provide  unbundled  electric  distribution
services  to all  eligible  customers  as defined by P.A.  90-561 at rates to be
determined  by the ICC as early as September 1, 1999.  During 1998,  pursuant to
authority  granted in P.A.  90-561,  the ICC issued  rules  associated  with (i)
transactions  between the utility and its affiliates;  (ii) service reliability;
(iii)  environmental  disclosure;  and (iv) alternative retail electric supplier
certification criteria and procedures.  During 1999, it is expected that the ICC
will rule on (i) the rates and terms  associated  with the provision of delivery
services for commercial and industrial customers;  (ii) establishing the neutral
fact finder price utilized in (a) calculating  competitive  transition costs and
(b)  IP's  power  purchase  tariff;   (iii)  the  competitive   transition  cost
methodology;  and (iv) guidelines  regarding standards of conduct and functional
separation.  Additionally, the ICC has initiated a proceeding to investigate the
further unbundling of the utility's delivery services and expects to rule on the
issue in early 1999.

         Illinova  and IP are  exempt  from  all the  provisions  of the  Public
Utility Holding Company Act of 1935 except Section 9(a)(2) thereof. That section
requires  approval of the  Securities and Exchange  Commission  prior to certain
acquisitions  of any  securities  of other  public  utility  companies or public
utility holding companies.

         IP is subject to regulation  under the Federal Power Act by the FERC as
to rates and charges in connection  with the  transmission of electric energy in
interstate  commerce  and the sale of such  energy at  wholesale  in  interstate
commerce,  the issuance of debt securities  maturing in not more than 12 months,
accounting and depreciation policies,  interaction with affiliates,  and certain
other  matters.  The FERC has  declared  IP exempt  from the Natural Gas Act and
related FERC orders, rules and regulations.

         IP is subject to the  jurisdiction  of the NRC with respect to Clinton.
NRC   regulations   control  the  granting  of  permits  and  licenses  for  the
construction  and operation of nuclear power  stations and subject such stations
to continuing review and regulation. Additionally, the NRC review and regulatory
process   covers   decommissioning,   radioactive   waste,   environmental   and
radiological aspects of such stations.

         IP is subject to the jurisdiction of the Illinois Department of Nuclear
Safety (IDNS) with respect to Clinton.  IDNS and the NRC entered a memorandum of
understanding which allows IDNS to review and regulate nuclear safety matters at
state  nuclear  facilities.  The  IDNS  review  and  regulatory  process  covers
radiation safety,  environmental safety, non-nuclear pressure vessels, emergency
preparedness and emergency response.

                              Important Information
                              ---------------------
         Certain of the statements contained in this report,  including those in
Management's  Discussion  and Analysis are  forward-looking.  Other  statements,


                                       22
<PAGE>

particularly those using words like "expect," "intend,"  "predict,"  "estimate,"
and "believe," also are forward-looking.  Although Illinova and IP believe these
statements  are accurate,  its  businesses  are dependent on various  regulatory
issues,  general  economic  conditions and future trends,  and these factors can
cause actual results to differ  materially from the  forward-looking  statements
that have been made. In particular:

         Illinova's  activities,  particularly the utility activities of IP, are
         heavily  regulated  by both the  federal  government  and the  State of
         Illinois.  This  regulation  has  changed  substantially  over the past
         several years. The impacts of these changes include reductions in rates
         pursuant  to P.A.  90-561  and a phasing in of the  opportunity  for an
         increasing number of customers to choose  alternative energy suppliers.
         In addition,  future regulatory  changes are certain to occur and their
         nature and impact cannot be predicted.

         IP is likely to face increased competition in the future.  Deregulation
         of  certain  aspects  of IP's  business  at both the state and  federal
         levels  is  occurring,  the  primary  results  of which so far are that
         competing  generators of electricity will increasingly have the ability
         to sell electricity to IP's customers and to require IP to transmit and
         distribute  that  electricity.  In  addition,  alternative  sources  of
         electricity,   such   as   co-generation   facilities,   are   becoming
         increasingly  popular. When customers elect suppliers other than IP for
         their electricity, IP can avoid certain costs and can gain revenue from
         transmitting and distributing that electricity; however, the net effect
         of  these  elections  generally  is a  decrease  in  IP's  revenue  and
         operating  income.  Illinois  transition  law is  designed  to  protect
         utilities in three principal ways:

         1. Departing customers are obligated to pay transition charges based on
            the utility's lost revenue from that customer;

         2. Utilities are provided the opportunity  to lower their financing and
            capital costs through the issuance of "securitized" bonds; and

         3. Utilities are permitted to seek rate relief in the event the change
            in law leads to their ROE falling below a specified minimum based on
            a prescribed test.

         Illinova  is  exploring  various  strategies  to  best  respond  to its
         changing business and regulatory environment.  These strategies include
         acquisitions,  focused  growth  of  unregulated  businesses,  and other
         options.  Although  Illinova would only plan to undertake  transactions
         that it believes are in the best interests of its  shareholders,  there
         can  be  no  certainty   that  any   transaction   will  fulfill  these
         expectations.

         To meet IP customers' electricity requirements, IP produces electricity
         in Company-owned  generation plants.  Although IP has in place programs
         designed to match its supplies with its needs,  many  circumstances can
         occur which upset this balance. Specifically, generation facilities may
         experience  unplanned outages forcing the Company to acquire additional
         supplies in the electricity marketplace.  The availability and price of
         these  additional  supplies are uncertain and at times highly volatile.
         Such  situations  can  lead to  less  profitable  or even  unprofitable
         outcomes.

         Clinton is a nuclear-fueled  generation facility.  Although IP believes
         that it  operates  this  facility  in  accordance  with all  regulatory
         guidelines and in a safe manner,  accidents can occur.  Liabilities and


                                       23
<PAGE>

         costs from such accidents could exceed insurance provisions established
         for the Company and have a significantly negative effect on IP.

         There are various financial risks attendant to selling or shutting down
         Clinton. These risks include the possibility that IP has underestimated
         the costs  necessary to effect a particular  exit strategy.  No nuclear
         facility  sale has  been  completed  and  relatively  little  financial
         information  regarding these  transactions  is available.  Although the
         amounts  used in IP's  analyses and in  recording  year-end  accounting
         results  represent  estimates based on guidance from industry  experts,
         actual  results may be  materially  different  from the  estimates.  In
         addition,  the Company  continues to have ongoing  nuclear  operational
         exposures until the plant is sold or shut down.

         Illinova does not currently  foresee any inability to obtain  necessary
         financing on reasonably favorable terms.  However,  events can occur in
         the Company's  business  operations or in general  economic  conditions
         that could negatively impact the Company's  financial  flexibility.  In
         addition,  restructuring  activities,  such  as  the  formation  of  an
         unregulated  generation  subsidiary,  can introduce  other factors that
         could impact the Company's financial flexibility.  Further, the sale or
         shutdown of Clinton will substantially  reduce the Company's ability to
         issue indebtedness under its existing mortgages. While the Company does
         not foresee any of these events  resulting in significant  difficulties
         in obtaining future financing on reasonably  favorable terms, there can
         be no assurances that difficulties will not occur.

         The impact of  environmental  regulations on utilities is  significant;
         and  the  expectation  is  that  more  stringent  requirements  will be
         introduced over time.  Although  Illinova believes it is in substantial
         compliance  with all current  regulations,  Illinova cannot predict the
         future impact of environmental  compliance.  However, if more stringent
         requirements  are  introduced  they  are  likely  to  have  a  negative
         financial effect.

         IGC has  interest  in  foreign  facilities  and is likely  to  purchase
         additional  foreign interest in the future. The risks of doing business
         in  foreign  countries  are  different  from those  attendant  to doing
         business in the United  States.  These include  business  risks such as
         currency fluctuations,  cyclical and sustained economic downturns,  and
         political   risks.   The  adverse   impact  of  these  risks  could  be
         significant.

         Illinova,  through IEP and IP, actively purchases and sells electricity
         and natural gas futures and similar  contracts  with  respect  thereto.
         While Illinova has adopted various risk management  practices  intended
         to minimize the risk of  significant  loss,  trading in assets of these
         types is inherently  risky and these risk management  practices  cannot
         guarantee that losses will not occur.

         Although  Illinova  believes  that  it  will  complete  its  Year  2000
         preparation  in a timely  fashion,  there can be no assurances  that it
         will, or that unforeseen  problems will not arise.  The consequences of
         Year 2000  problems  are so varied that  Illinova  cannot  predict this
         ultimate impact, if any.

         All forward-looking  statements in this report are based on information
that  currently is available.  Illinova  disclaims any  obligation to update any
forward-looking statement.



                                       24
<PAGE>
                   Executive Officers of Illinova Corporation
                   ------------------------------------------

Name of Officer                 Age               Position

Charles E. Bayless               56       Chairman, President and Chief
                                          Executive Officer
Larry F. Altenbaumer             51       Chief Financial Officer, Treasurer
                                          and Controller
Alec G. Dreyer                   41       Senior Vice President
George W. Miraben                57       Senior Vice President and Chief
                                          Administrative Officer
Leah Manning Stetzner            50       General Counsel and Corporate
                                          Secretary

     Mr. Bayless  joined  Illinova as President and Chief  Executive  Officer in
July of 1998 and was elected chairman in August 1998. Prior to joining Illinova,
Mr.  Bayless was  Chairman,  President,  and Chief  Executive  Officer of Tucson
Electric Power Company.

     Mr.  Altenbaumer  was  elected  Chief  Financial  Officer,   Treasurer  and
Controller in June 1994.

     Mr. Dreyer was elected  Senior Vice  President in February 1999 in addition
to his position as President of IGC, a subsidiary of Illinova, which he has held
since  September 1995.  Prior to being elected  President of IGC, Mr. Dreyer was
Treasurer and  Controller of IP since  December 1994 and  Controller  since June
1992.

     Mr.  Miraben  joined  Illinova in January 1999 and was elected  Senior Vice
President in February 1999.  Prior to joining  Illinova,  Mr. Miraben was Senior
Vice President of UniSource  Energy  Corporation and Executive Vice President of
Tucson Electric Power Company, a subsidiary of UniSource.

     Ms. Stetzner was elected  General  Counsel and Corporate  Secretary in June
1994.

        The executive officers are elected annually by the Board of Directors at
the first  meeting of the Board held after the annual  meeting of  shareholders,
and hold office  until their  successors  are duly elected or until their death,
resignation or removal by the Board.

        For Illinova,  the information under the caption "Board of Directors" on
pages 3 through 7 of Illinova's  Proxy  Statement for its 1999 Annual Meeting of
Stockholders is incorporated herein by reference.

                                       25
<PAGE>

                  Executive Officers of Illinois Power Company
                  --------------------------------------------
Name of Officer                 Age                 Position
Charles E. Bayless               56       Chairman, President and Chief
                                          Executive Officer
Larry F. Altenbaumer             51       Senior Vice President and Chief
                                          Financial Officer
David W. Butts                   44       Senior Vice President
Alec G. Dreyer                   41       Senior Vice President
Paul L. Lang                     58       Senior Vice President
George W. Miraben                57       Senior Vice President and Chief
                                          Administrative Officer
Richard W. Eimer, Jr.            50       Vice President
Kim B. Leftwich                  51       Vice President
Robert D. Reynolds               42       Vice President
Robert A. Schultz                58       Vice President
Leah Manning Stetzner            50       Vice President, General Counsel
                                          and Corporate Secretary
Cynthia G. Steward               41       Controller
Eric B. Weekes                   47       Treasurer
John P. McElwain                 48       Chief Nuclear Officer


     Mr. Bayless joined IP as President and Chief Executive Officer in July 1998
and was elected Chairman in August 1998. Prior to joining Illinova,  Mr. Bayless
was Chairman,  President and Chief  Executive  Officer of Tucson  Electric Power
Company.

     Mr.  Altenbaumer  was elected  Senior Vice  President  and Chief  Financial
Officer  in June 1992.  Prior to being  elected  Senior  Vice  President  he was
previously Vice President, Chief Financial Officer, and Controller.

        Mr. Butts was elected Senior Vice President in February 1999 in addition
to his position as President of IEP, a subsidiary of Illinova, which he has held
since  February 1998.  Prior to being elected  President of IEP, Mr. Butts was a
Senior Vice  President at Illinois  Power  Company.  From  November 1993 through
August 1995, he was President of IGC, an Illinova subsidiary.

        Mr.  Dreyer was  elected  Senior  Vice  President  in  February  1999 in
addition to his position as President of IGC, a subsidiary of Illinova, which he
has held since September 1995. Prior to being elected President of IGC, Mr.
Dreyer was Treasurer and Controller of IP from December 1994.

     Mr. Lang was elected  Senior Vice  President in June 1992.  He joined IP as
Vice President in July 1986.

        Mr.  Miraben  joined IP in  January  1999 and was  elected  Senior  Vice
President and Chief  Administrative  Officer in February 1999.  Prior to joining
IP, Mr. Miraben was Senior Vice President of UniSource  Energy  Corporation  and
Executive  Vice  President of Tucson  Electric  Power  Company,  a subsidiary of
UniSource.

     Mr. Eimer was elected Vice President in December  1995. He previously  held
the positions of Assistant to the Vice President and Manager of Marketing.

     Mr.  Leftwich was elected Vice  President in February  1998.  He previously
held the  positions of Managing  Director - Customer  Management  Processes  and
Manager of Marketing.

                                       26
<PAGE>

     Mr. Reynolds was elected Vice President in May 1996.  Prior to his election
to Vice President, Mr. Reynolds
served as Director of Pricing and Manager of Electric Supply.

     Mr. Schultz was elected Vice President in February 1998. He previously held
the  positions of President of IEP,  President of Illinova  Power  Marketing and
Treasurer of IP.

     Ms.  Stetzner was elected Vice  President,  General  Counsel and  Corporate
Secretary  in February  1993.  She joined IP as General  Counsel  and  Corporate
Secretary in October 1989.

     Ms. Steward was elected  Controller in September  1995. She previously held
the positions of Manager of Employee Services and Director of Accounting.

     Mr. Weekes joined IP as Treasurer in January 1997. He previously  served as
Senior Financial Manager with a unit of Kraft Foods.

        Mr.  McElwain was contracted from PECO Energy Company in Philadelphia in
December 1998 and  appointed  Chief  Nuclear  Officer in January 1999.  Prior to
joining IP, as a contractor  from PECO, Mr.  McElwain held the positions of Vice
President, Nuclear Projects and Director of Outage Management for PECO.

        The  present  term of  office of each of the  above  executive  officers
extends to the first  meeting of Illinova's  and IP's Boards of Directors  after
the Annual Election of Directors. There are no family relationships among any of
the executive officers and directors of Illinova and IP.

        For IP, the information  under the caption "Board of Directors" on pages
3  through  7 of IP's  Information  Statement  for its 1999  Annual  Meeting  of
Stockholders is incorporated herein by reference.


                              Operating Statistics
                             ---------------------

        For Illinova the information under the caption "Selected  Illinois Power
Company  Statistics" on page a-53 of the 1998 Annual Report to  Shareholders  in
the  appendix  to  the  Illinova  Proxy  Statement  is  incorporated  herein  by
reference.

        For IP the  information  under  the  caption  "Selected  Illinois  Power
Company  Statistics" on page a-49 of the 1998 Annual Report to  Shareholders  in
the  appendix  to  the  IP  Information  Statement  is  incorporated  herein  by
reference.

Item 2.   Properties
-------

        IP owns and operates six steam  generating  stations with  composite net
summer capacity of 4,421,000  kilowatts.  In addition,  IP owns nine quick start
combustion  turbine  peaking units at three locations with a combined net summer
capacity of 147,000 kilowatts.  All of IP's generating stations are in the State
of Illinois,  including IP's only nuclear generating  station,  Clinton. IP owns
50% of three combustion turbine units,  located in Bloomington,  Illinois,  with
combined net capacity of 5,250 kilowatts.  State Farm Insurance Company owns the
other 50% of these  units.  The total IP  available  net  summer  capability  is
4,571,250 kilowatts.

        The major coal-fired units at Baldwin, Havana,  Hennepin,  Vermilion and
Wood  River  make up  3,491,000  kilowatts  of summer  capacity.  Three  natural


                                       27
<PAGE>

gas-fired  units at Wood  River were  reactivated  in 1997.  These  units have a
combined  net summer  capacity of 139,000  kilowatts.  Five  oil-fired  units at
Havana were reactivated in 1998. These units have a combined net summer capacity
of 238,500 kilowatts.

        IP owns an interconnected  electric transmission system of approximately
2,800 circuit  miles,  operating from 69,000 to 345,000 volts and a distribution
system which  includes  about 36,000  circuit miles of overhead and  underground
lines.

        All outstanding  First Mortgage Bonds issued under the Mortgage and Deed
of  Trust  dated  November  1,  1943 are  secured  by a first  mortgage  lien on
substantially  all of the  fixed  property,  franchises  and  rights  of IP with
certain  exceptions  expressly  provided in the mortgage securing the bonds. All
outstanding  New Mortgage  Bonds  issued under the General  Mortgage and Deed of
Trust dated November 1, 1992, are secured by a lien on IP's  properties  used in
the generation, purchase, transmission, distribution and sale of electricity and
gas. In December of 1997, the Mortgage and Deed of Trust dated November 1, 1943,
was amended to  generally  conform  with the General  Mortgage and Deed of Trust
dated November 1, 1992, following a bondholder vote and approval of the IP Board
of Directors.

Item 3.   Legal Proceedings
-------

         See  discussion of legal  proceedings  in  "Manufactured-Gas  Plant" in
"Note 5 - Commitments and  Contingencies" on page a-36 of the 1998 Annual Report
to  Shareholders  in the  appendix  to the  Illinova  Proxy  Statement  which is
incorporated herein by reference.

        See  "Environmental  Matters"  reported  under Item 1 of this report for
information regarding legal proceedings concerning environmental matters.

        See "Fuel Supply"  reported under Item 1 of this report for  information
regarding legal proceedings concerning nuclear fuel disposal.

Item 4.   Submission of Matters to a Vote of Security Holders
-------

None.


                                       28
<PAGE>
                                       PART II
-------------------------------------------------------------------------------

Item 5.   Market for Registrants' Common Equity and Related
-------   Stockholder Matters

        For  Illinova,  the  information  under the caption "Note 17 - Quarterly
Consolidated  Financial  Information and Common Stock Data  (Unaudited)" on page
a-51 of the 1998 Annual Report to  Shareholders  in the appendix to the Illinova
Proxy Statement is incorporated herein by reference.

        For  IP  the  information   under  the  caption  "Note  16  -  Quarterly
Consolidated  Financial  Information and Common Stock Data  (Unaudited)" on page
a-47 of the  1998  Annual  Report  to  Shareholders  in the  appendix  to the IP
Information Statement is incorporated herein by reference.

Item 6.   Selected Financial Data
-------

        For Illinova,  the information under the caption "Selected  Consolidated
Financial  Data" on page a-52 of the 1998 Annual Report to  Shareholders  in the
appendix to the Illinova Proxy Statement is incorporated herein by reference.

        For  IP  the  information  under  the  caption  "Selected   Consolidated
Financial  Data" on page a-48 of the 1998 Annual Report to  Shareholders  in the
appendix to the IP Information Statement is incorporated herein by reference.

Item 7.   Management's Discussion and Analysis of Financial
-------   Condition and Results of Operations

        For Illinova, the information under the caption "Management's Discussion
and  Analysis"  on  pages  a-2  through  a-18  of  the  1998  Annual  Report  to
Shareholders  in the appendix to the Illinova  Proxy  Statement is  incorporated
herein by reference.

        For IP the information  under the caption  "Management's  Discussion and
Analysis" on pages a-2 through a-16 of the 1998 Annual Report to Shareholders in
the  appendix  to  the  IP  Information  Statement  is  incorporated  herein  by
reference.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.

        For information on Quantitative and Qualitative Disclosures About Market
Risk, see "Market Risk" in "Management's  Discussion and Analysis" on pages a-16
through a-17 of the 1998 Annual  Report to  Shareholders  in the appendix to the
Illinova Proxy Statement which is incorporated herein by reference.


Item 8.   Financial Statements and Supplementary Data
-------

         For Illinova,  the consolidated  financial statements and related notes
on pages a-21 through a-51 and Report of Independent Accountants on page a-20 of
the 1998 Annual  Report to  Shareholders  in the appendix to the Illinova  Proxy
Statement  are  incorporated  herein by  reference.  With the  exception  of the
aforementioned  information and the information incorporated in Items 1, 3, 5, 6
and 7, the 1998 Annual  Report to  Shareholders  in the appendix to the Illinova
Proxy  Statement  is not to be deemed  filed as part of this  Form  10-K  Annual
Report.

                                       29
<PAGE>

         For IP the consolidated financial statements and related notes on pages
a-19 through a-47 and Report of Independent Accountants on page a-18 of the 1998
Annual Report to  Shareholders  in the appendix to the IP Information  Statement
are incorporated  herein by reference.  With the exception of the aforementioned
information and the information incorporated in Items 1, 3, 5, 6 and 7, the 1998
Annual Report to Shareholders in the appendix to the IP Information Statement is
not to be deemed filed as part of this form 10-K Annual Report.

Item 9.   Changes in and Disagreements With Accountants on
-------   Accounting and Financial Disclosure

None.



                                       30
<PAGE>

                                       PART III
-------------------------------------------------------------------------------

Item 10.  Directors and Executive Officers of the Registrants
--------

        For Illinova,  the information under the caption "Board of Directors" on
pages 3 through 7 of Illinova's  Proxy  Statement for its 1999 Annual Meeting of
Stockholders is incorporated  herein by reference.  The information  relating to
Illinova's  executive  officers is set forth in Part I of this Annual  Report on
Form 10-K.

        For IP the information under the caption "Board of Directors" on pages 3
through  7 of  IP's  Information  Statement  for  its  1999  Annual  Meeting  of
Stockholders is incorporated  herein by reference.  The information  relating to
Illinois  Power  Company's  executive  officers  is set  forth in Part I of this
Annual Report on Form 10-K.

Item 11.  Executive Compensation
--------

         For   Illinova,   the   information   under  the   caption   "Executive
Compensation"  on pages 8 through 13 of Illinova's  Proxy Statement for its 1999
Annual Meeting of Stockholders is incorporated herein by reference.

         For IP the information  under the caption  "Executive  Compensation" on
pages 8 through 13 of IP's Information  Statement for its 1999 Annual Meeting of
Stockholders is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
--------

         For Illinova,  the information under the caption "Security Ownership of
Management  and  Certain  Beneficial  Owners"  on  page  7 and  the  information
regarding  securities  owned by certain officers and directors under the caption
"Board of Directors" on pages 3 through 7 of Illinova's  Proxy Statement for its
1999 Annual Meeting of Stockholders is incorporated herein by reference.

         For IP  the  information  under  the  caption  "Security  Ownership  of
Management  and  Certain  Beneficial  Owners"  on  page  7 and  the  information
regarding  securities  owned by certain officers and directors under the caption
"Board of Directors" on pages 3 through 7 of IP's Information  Statement for its
1999 Annual Meeting of Stockholders is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions
--------

         None.


                                       31
<PAGE>



                               PART IV
--------------------------------------------------------------------------------

Item 14.  Exhibits, Financial Statement Schedules, and Reports on
--------  Form 8-K

     (a)  Documents filed as part of this report.
          (1a)  Financial Statements:
                                                         Page in 1998
                                                         Annual Report
                                                        to Shareholders
                                                        in the appendix
                                                        to the Illinova
                                                       Proxy Statement*
                                                       ----------------
                Report of Independent Accountants                  a-20
                Consolidated Statements of Income for the
                   three years ended December 31, 1998,
                      1997, 1996                                   a-21
                Consolidated Balance Sheets at
                   December 31, 1998 and 1997                      a-22
                Consolidated Statements of Cash Flows for
                   the three years ended December 31, 1998,
                      1997, 1996                                   a-23
                Consolidated Statements of Retained
                   Earnings for the three years
                   ended December 31, 1998, 1997, 1996             a-23
                Notes to Consolidated Financial Statements  a-24 - a-51

*    Incorporated  by  reference  from the  indicated  pages of the 1998  Annual
     Report to Shareholders in the appendix to the Illinova Proxy Statement.
          (1b)  Financial Statements:
                                                         Page in 1998
                                                         Annual Report
                                                        to Shareholders
                                                        in the appendix
                                                           to the IP
                                                          Information
                                                           Statement**
                                                        ---------------
                Report of Independent Accountants                  a-18
                Consolidated Statements of Income for the
                   three years ended December 31, 1998,
                      1997, 1996                                   a-19
                Consolidated Balance Sheets at
                   December 31, 1998 and 1997                      a-20
                Consolidated Statements of Cash Flows for
                   the three years ended December 31, 1998,
                      1997, 1996                                   a-21
                Consolidated Statements of Retained
                   Earnings for the three years
                   ended December 31, 1998, 1997, 1996              a-21
                Notes to Consolidated Financial Statements  a-22 - a-47
**   Incorporated  by  reference  from the  indicated  pages of the 1998  Annual
     Report to Shareholders in the appendix to the IP Information Statement


                                       32
<PAGE>

Item 14.  Exhibits, Financial Statement Schedules, and Reports on
--------  Form 8-K (Continued)

          (2)  Financial Statement Schedules:

   All Financial Statement Schedules are omitted because they are not applicable
or the  required  information  is shown  in the  financial  statements  or notes
thereto.

          (3)  Exhibits

          The exhibits filed with this Form 10-K are listed in the Exhibit Index
          located  elsewhere herein.  All management  contracts and compensatory
          plans or arrangements set forth in such list are marked with a ~.

     (b) Reports on Form 8-K since September 30, 1998:

            Report filed on Form 8-K on October 20, 1998
                 Other Events:  Illinova releases results of
                                third-quarter  earnings  and Board of  Directors
                                approval   of  common   stock   repurchase.   IP
                                announces  status of  progress  made to  restart
                                Clinton Power Station, new restart date, and new
                                estimation   of  costs  to  return   Clinton  to
                                operation.

            Report filed on Form 8-K on November 25, 1998
                 Other Events:  IP announces SEC acceptance of quasi-
                                reorganization accounting procedures if
                                the company decides to exit the nuclear
                                business.

            Report filed on Form 8-K on December 14, 1998
                 Other Events:  Illinova announces it will exit the
                                nuclear    business    and   proceed    with   a
                                quasi-reorganization  to  position  itself  as a
                                competitive leader in new energy markets.

            Report filed on Form 8-K on December 22, 1998
                 Other Events:  Illinois Power Special Purpose Trust
                                offers transitional funding trust notes
                                on Form S-3

                 Financial
                 Statements,
                 Pro Forma
                 Financial
                 Information
                 and Exhibits:  Exhibits



                                       33
<PAGE>



            Report filed on Form 8-K on January 13, 1999
                 Other Events:  Illinois Power Securitization Limited
                                Liability company files a corrected copy of Form
                                T-1,  Statement of  Eligibility  Under the Trust
                                Indenture
                                Act of 1939.

                 Financial
                 Statements,
                 Pro Forma
                 Financial
                 Information
                 and Exhibits:  Exhibits

            Report filed on Form 8-K on February 12, 1999
                 Other Events:  Illinois Power announces potential
                                impact  of  quasi  on  financial  reorganization
                                entries  and  discusses  progress  in  restoring
                                Clinton to service  and status of the company in
                                exiting the nuclear business.

            Report filed on Form 8-K on March 3, 1999
                 Other Events:  Illinova releases 1998 earnings
                                and discusses impact of the Clinton
                                Power Station impairment and
                                quasi-reorganization


                                       34

<PAGE>

                                   SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                         ILLINOIS POWER COMPANY
                                              (REGISTRANT)

                                         By/s/Charles E. Bayless
                                         Charles E. Bayless, Chairman, President
                                         and Chief Executive Officer

                                         Date: March 29, 1999

  Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities on the dates indicated.

Signature                              Title                            Date

/s/Charles E. Bayless               Chairman, President, Chief
Charles E. Bayless                  Executive Officer and Director
(Principal Executive Officer)

/s/Larry F. Altenbaumer             Senior Vice President and
Larry F. Altenbaumer                Chief Financial Officer
(Principal Financial Officer)

/s/Cynthia G. Steward               Controller
Cynthia G. Steward
(Principal Accounting Officer)

/s/J. Joe Adorjan
J. Joe Adorjan

/s/C. Steven McMillan
C. Steven McMillan

/s/Robert M. Powers
Robert M. Powers

/s/Sheli Z. Rosenberg
Sheli Z. Rosenberg                  Director                      March 29, 1999

/s/Walter D. Scott
Walter D. Scott

/s/Joe J. Stewart
Joe J. Stewart

/s/Ronald L. Thompson
Ronald L. Thompson

/s/Walter M. Vannoy
Walter M. Vannoy

/s/Marilou von Ferstel
Marilou von Ferstel

/s/John D. Zeglis
John D. Zeglis


                                       35
<PAGE>


                                   SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                         ILLINOVA CORPORATION
                                             (REGISTRANT)

                                         By /s/Charles E. Bayless
                                         Charles E. Bayless, Chairman, President
                                         and Chief Executive Officer

                                                       Date: March 29, 1999

  Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities on the dates indicated.

Signature                              Title                            Date

/s/Charles E. Bayless               Chairman, President, Chief
Charles E. Bayless                  Executive Officer and Director
(Principal Executive Officer)

/s/Larry F. Altenbaumer             Chief Financial Officer,
Larry F. Altenbaumer                Treasurer and Controller
(Principal Financial
and Accounting Officer)

/s/J. Joe Adorjan
J. Joe Adorjan

/s/C. Steven McMillan
C. Steven McMillan

/s/Robert M. Powers
Robert M. Powers

/s/Sheli Z. Rosenberg
Sheli Z. Rosenberg

/s/Walter D. Scott
Walter D. Scott                     Director                      March 29, 1999

/s/Joe J. Steward
Joe J. Stewart

/s/Ronald L. Thompson
Ronald L. Thompson

/s/Walter M. Vannoy
Walter M. Vannoy

/s/Marilou von Ferstel
Marilou von Ferstel

/s/John D. Zeglis
John D. Zeglis

                                       36
<PAGE>

                         Exhibit Index

Exhibit                          Description
-------                          -----------

(3)(i) Articles of Incorporation

Illinova Corporation

(a)(1)   Articles of Amendment to the Articles of
         Incorporation of Illinova Corporation, filed as
         of October 31, 1994.  Filed as Exhibit 3(a) to
         the Quarterly Report on Form 10-Q under the
         Securities Exchange Act of 1934 for the quarter
         ended September 30, 1994 (File No. 1-11327).                *

(a)(2)   Statement of Correction to the Articles of
         Incorporation of Illinova Corporation, filed as
         of October 31, 1994.  Filed as Exhibit 3(b) to
         the Quarterly Report on Form 10-Q under the
         Securities Exchange Act of 1934 for the quarter
         ended September 30, 1994 (File No. 1-11327).                *

Illinois Power Company

(b)(1)   Amended and Restated Articles of Incorporation
         of Illinois Power Company, dated September 7, 1994.
         Filed as Exhibit 3(a) to the Current Report on
         Form 8-K dated September 7, 1994 (File No. 1-3004).         *

(3)(ii) By-Laws

(a)      By-laws of Illinova  Corporation,  as amended,
         April 8, 1998. Filed as Exhibit  3(a)(1) to the
         Annual Report on Form 10-K under the Securities
         and Exchange Act of 1934 for the year ended
         December 31, 1998.

(b)      By-laws of Illinova Corporation, as amended
         December 14, 1994. Filed as Exhibit  3(b)(2)
         to the Annual Report on Form 10-K under
         the Securities Exchange Act of 1934 for the
         year ended December 31, 1994 (File No. 1-11327).            *

(c)      By-laws of Illinois Power Company, as amended
         December 14, 1994.  Filed as Exhibit 3(b)(1)
         to the Annual Report on Form 10-K under
         the Securities Exchange Act of 1934 for the
         year ended December 31, 1994 (File No. 1-3004).             *

(4) Instruments Defining Rights of Security Holders,
    Including Indentures


                                       37
<PAGE>

                            Exhibit Index (Continued)
Exhibit                           Description
-------                           -----------

Illinova Corporation

(a)(1)   See (4)(b) below for instruments defining the rights
         of holders of long-term debt of Illinois Power Company.

(a)(2)   Indenture dated February 1, 1997, between Illinova
         Corporation and The First National Bank of Chicago,
         as trustee. Filed as Exhibit (4)(a)(2) to the Annual
         Report on Form 10-K under the Securities Exchange Act
         of 1934 for the year ended December 31, 1996.
         (File No. 1-11327)                                          *

(a)(3)   Distribution Agreement dated January 16, 1998, and
         Officers' Certificate and Issuer Order of Illinova
         Corporation, dated January 16, 1998 (with forms of
         Fixed Rate Note and Floating Rate Note attached),
         delivered pursuant to the terms of the Indenture
         dated as of February 1, 1997, between Illinova
         Corporation and The First National Bank of Chicago.
         Filed as Exhibit (1) and (4) of Form 8-K under the
         Securities Exchange Act of 1934 dated January 21,
         1998. (File No. 1-11327)                                    *

Illinois Power Company

(b)(1)   Mortgage and Deed of Trust dated November 1, 1943.
         Filed as Exhibit 2(b) Registration No. 2-14066.             *

(b)(2)   Supplemental Indenture dated July 1, 1991, providing
         for $84,710,000 principal amount of 7 3/8% First
         Mortgage Bonds due July 1, 2021.  Filed as Exhibit
         4(mm) to the Annual Report on Form 10-K under the
         Securities Exchange Act of 1934 for the year ended
         December 31, 1991 (File No. 1-3004).                        *

(b)(3)   Supplemental Indenture No. 1 dated June 1, 1992.
         Filed as Exhibit 4(nn) to the Quarterly Report
         on Form 10-Q for the quarter ended June 30, 1992
         (File No. 1-3004).                                          *

(b)(4)   Supplemental Indenture No. 2 dated June 1, 1992.
         Filed as Exhibit 4(oo) to the Quarterly Report
         on Form 10-Q for the quarter ended June 30, 1992
         (File No. 1-3004).                                          *

(b)(5)   Supplemental Indenture No. 1 dated July 1, 1992.
         Filed as Exhibit 4(pp) to the Quarterly Report
         on Form 10-Q for the quarter ended June 30, 1992
         (File No. 1-3004).                                          *

(b)(6)   Supplemental Indenture No. 2 dated July 1, 1992.
         Filed as Exhibit 4(qq) to the Quarterly Report
         on Form 10-Q for the quarter ended June 30, 1992
         (File No. 1-3004).                                          *

                                       38
<PAGE>

                            Exhibit Index (Continued)
Exhibit                           Description
-------                           -----------

(b)(7)   Supplemental Indenture dated September 1, 1992,
         providing for $72,000,000 principal amount of 6 1/2%
         First Mortgage Bonds due September 1, 1999.  Filed
         as Exhibit 4(rr) to the Quarterly Report on Form
         10-Q for the quarter ended September 30, 1992
         (File No. 1-3004).                                          *

(b)(8)   General Mortgage Indenture and Deed of Trust dated
         as of November 1, 1992.  Filed as Exhibit 4(cc) to
         the Annual Report on Form 10-K under the Securities
         Exchange Act of 1934 for the year ended December
         31, 1992 (File No. 1-3004).                                 *

(b)(9)   Supplemental Indenture dated February 15, 1993, to
         Mortgage and Deed of Trust dated November 1, 1943.
         Filed as Exhibit 4(dd) to the Annual Report on Form
         10-K under the Securities Exchange Act of 1934 for
         the year ended December 31, 1992 (File No. 1-3004).         *

 (b)(10)  Supplemental Indenture dated February 15, 1993, to
         General Mortgage Indenture and Deed of Trust dated as
         of November 1, 1992.  Filed as Exhibit 4(ee) to the
         Annual Report on Form 10-K under the Securities
         Exchange Act of 1934 for the year ended December 31,
         1992 (File No. 1-3004).                                     *

(b)(11)  Supplemental Indenture No. 1 dated March 15, 1993,
         to Mortgage and Deed of Trust dated November 1, 1943.
         Filed as Exhibit 4(ff) to the Annual Report on Form
         10-K under the Securities Exchange Act of 1934 for
         the year ended December 31, 1992 (File No. 1-3004).         *

(b)(12)  Supplemental Indenture No. 1 dated March 15, 1993,
         to General Mortgage Indenture and Deed of Trust
         dated as of November 1, 1992.  Filed as Exhibit
         4(gg) to the Annual Report on Form 10-K under the
         Securities Exchange Act of 1934 for the year ended
         December 31, 1992 (File No. 1-3004).                        *

(b)(13)  Supplemental Indenture No. 2 dated March 15, 1993,
         to Mortgage and Deed of Trust dated November 1, 1943.
         Filed as Exhibit 4(hh) to the Annual Report on Form
         10-K under the Securities Exchange Act of 1934 for
         the year ended December 31, 1992 (File No. 1-3004).         *

(b)(14)  Supplemental Indenture No. 2 dated March 15, 1993,
         to General Mortgage Indenture and Deed of Trust
         dated as of November 1, 1992.  Filed as Exhibit
         4(ii) to the Annual Report on Form 10-K under the
         Securities Exchange Act of 1934 for the year ended
         December 31, 1992 (File No. 1-3004).                        *


                                       39
<PAGE>

                            Exhibit Index (Continued)
Exhibit                           Description
-------                           -----------

(b)(15)  Supplemental Indenture dated July 15, 1993, to
         Mortgage and Deed of Trust dated November 1, 1943.
         Filed as Exhibit 4(jj) to the Quarterly Report on
         Form 10-Q for the quarter ended June 30, 1993
         (File No. 1-3004).                                          *

(b)(16)  Supplemental Indenture dated July 15, 1993, to
         General Mortgage Indenture and Deed of Trust
         dated as of November 1, 1992.  Filed as Exhibit
         4(kk)to the Quarterly Report on Form 10-Q for
         the quarter ended June 30, 1993 (File No. 1-3004).          *

(b)(17)  Supplemental Indenture dated August 1, 1993, to
         Mortgage and Deed of Trust dated November 1, 1943.
         Filed as Exhibit 4(ll) to the Quarterly Report on
         Form 10-Q for the quarter ended June 30, 1993
         (File No. 1-3004).                                          *

 (b)(18)  Supplemental Indenture dated August 1, 1993, to
         General Mortgage Indenture and Deed of Trust
         dated as of November 1, 1992.  Filed as Exhibit
         4(mm) to the Quarterly Report on Form 10-Q for
         the quarter ended June 30, 1993 (File No. 1-3004).          *

(b)(19)  Supplemental Indenture dated October 15, 1993, to
         Mortgage and Deed of Trust dated November 1, 1943.
         Filed as Exhibit 4(nn) to the Quarterly Report on
         Form 10-Q for the quarter ended September 30, 1993
         (File No. 1-3004).                                          *

(b)(20)  Supplemental Indenture dated October 15, 1993, to
         General Mortgage Indenture and Deed of Trust dated
         as of November 1, 1992.  Filed as Exhibit 4(oo) to
         the Quarterly Report on Form 10-Q for the quarter
         ended September 30, 1993 (File No. 1-3004).                 *

(b)(21)  Supplemental Indenture dated November 1, 1993, to
         Mortgage and Deed of Trust dated November 1, 1943.
         Filed as Exhibit 4(pp) to the Quarterly Report on
         Form 10-Q for the quarter ended September 30, 1993
         (File No. 1-3004).                                          *

(b)(22)  Supplemental Indenture dated November 1, 1993, to
         General Mortgage Indenture and Deed of Trust dated
         as of November 1, 1992.  Filed as Exhibit 4(qq) to
         the Quarterly Report on Form 10-Q for the quarter
         ended September 30, 1993 (File No. 1-3004).                 *

(b)(23)  Supplemental Indenture dated February 1, 1994, to
         Mortgage and Deed of Trust dated November 1, 1943.
         Filed as Exhibit 4(hh) to the Annual Report on
         Form 10-K under the Securities Exchange Act of 1934
         for the year ended December 31, 1993
         (File No. 1-3004).                                          *

                                       40
<PAGE>

                            Exhibit Index (Continued)
Exhibit                           Description
-------                           -----------

 (b)(24)  Indenture dated October 1, 1994 between Illinois
         Power Company and the First National Bank of
         Chicago.  Filed as Exhibit 4(a) to the Quarterly
         Report on Form 10-Q for the quarter ended
         September 30, 1994 (File No. 1-3004).                       *

(b)(25)  Supplemental Indenture dated October 1, 1994, to
         Indenture dated as of October 1, 1994.  Filed as
         Exhibit 4(b) to the Quarterly Report on Form
         10-Q for the quarter ended September 30, 1994
         (File No. 1-3004).                                          *

(b)(26)  Indenture dated January 1, 1996 between Illinois
         Power Company and Wilmington Trust Company.  Filed
         as Exhibit 4(b)(36) to the Annual Report on Form
         10-K under the Securities Exchange Act of 1934 for
         the year ended December 31, 1995 (File No. 1-3004).         *

(b)(27)  First Supplemental Indenture dated January 1, 1996,
         between Illinois Power Company and Wilmington Trust
         Company. Filed as Exhibit 4(b)(37) to the Annual
         Report on Form 10-K under the Securities Exchange
         Act of 1934 for the year ended December 31, 1995
         (File No. 1-3004).                                          *

(b)(28)  Supplemental Indenture dated April 1, 1997, to
         Mortgage and Deed of Trust dated November 1, 1943
         Filed as Exhibit 4(a) to the Quarterly Report on
         Form 10-Q for the quarter ended March 31, 1997.
         (File No. 1-3004)                                           *

(b)(29)  Supplemental Indenture dated April 1, 1997 to General
         Mortgage Indenture and Deed of Trust dated November 1,
         1992.  Filed as Exhibit 4(b) to the Quarterly Report
         on Form 10-Q for the quarter ended March 31, 1997.
         (File No. 1-3004)                                           *

(b)(30)  Supplemental Indenture dated December 1, 1997 to
         Mortgage and Deed of Trust dated November 1, 1943.          *

(b)(31)  Supplemental Indenture dated as of March 1, 1998 to
         General Mortgage Indenture and Deed of Trust dated
         as of November 1, 1992 providing for the issuance of
         $18,700,000 principal amount of 5.40% pollution
         control bonds.  Filed as Exhibit 4.41 to the
         Registration Statement on Form S-3, filed January
         22, 1999. (File No. 333-71061)

(b)(32)  Supplemental Indenture dated as of March 1, 1998
         to Mortgage and Deed of Trust dated November 1, 1943
         providing for the issuance of $18,700,000 principal
         amount of pollution control bonds.  Filed as Exhibit
         4.39 to the Registration Statement on Form S-3, filed
         January 22, 1999. (File No. 333-71061)


                                       41
<PAGE>

                            Exhibit Index (Continued)
Exhibit                           Description
-------                           -----------

(b)(33)  Supplemental  Indenture  dated as of March 1, 1998 to
         General  Mortgage Indenture and Deed of Trust dated
         as of November 1, 1992  providing for the issuance
         of $33,755,000 principal amount of pollution control
         bonds. Filed as Exhibit 4.42 to the Registration
         Statement on Form S-3, filed January 22, 1999.
         (File No. 333-71061)

(b)(34)  Supplemental Indenture dated as of March 1, 1998 to
         Mortgage and Deed of Trust dated November 1, 1943
         providing for the issuance of $33,755,000 principal
         amount of pollution control bonds.  Filed as Exhibit
         4.40 to the Registration Statement on Form S-3,
         filed January 22, 1999. (File No. 333-71061)

(b)(35)  Supplemental Indenture dated as of July 15, 1998
         to General Mortgage Indenture and Deed of Trust
         dated as of November 1, 1992 providing for the
         issuance of $100,000,000 principal amount of 6.25%
         New Mortgage Bonds.  Filed as Exhibit 4.44 to the
         Registration Statement on Form S-3, filed January
         22, 1999. (File No. 333-71061)

(b)(36)  Supplemental Indenture dated as of July 15, 1998 to
         Mortgage and Deed of Trust dated November 1, 1943
         providing for the issuance of $100,000,000 principal
         amount of 6.25% First Mortgage Bonds.  Filed as Exhibit
         4.43 to the Registration Statement on Form S-3, filed
         January 22, 1999. (File No. 333-71061)

(b)(37)  Supplemental Indenture dated as of September 15, 1998
         to General Mortgage Indenture and Deed of Trust dated
         as of November 1, 1992 providing for the issuance of
         $100,000,000  principal  amount of 6.00% New Mortgage
         Bonds. Filed as Exhibit 4.46 to the Registration
         Statement on Form S-3, filed January 22, 1999.
         (File No. 333-71061)

(b)(38)  Supplemental  Indenture  dated as of September 15,
         1998 to Mortgage and Deed of Trust dated  November 1,
         1943  providing  for the  issuance of $100,000,000
         principal amount of 6.00% First Mortgage Bonds.
         Filed as Exhibit 4.45 to the Registration Statement
         on Form S-3, filed January 22, 1999.
         (File No. 333-71061)

(b)(39)  Supplemental  Indenture dated as of October 1, 1998
         to General Mortgage Indenture and Deed of Trust dated
         as of November 1, 1992  providing for the transfer of
         Letter of Credit providers on three series of pollution
         control bonds totaling $111,770,000. Filed as Exhibit
         4.47 to the Registration Statement on Form S-3, filed
         January 22, 1999.  (File No. 333-71061).

                                       42
<PAGE>

                            Exhibit Index (Continued)
Exhibit                           Description
-------                           -----------
(10) Material Contracts

Illinova Corporation

(a)(1)   Illinova Corporation Deferred Compensation Plan
         for Certain Directors, as amended April 10, 1991.
         Filed as Exhibit 10(b) to the Annual Report on
         Form 10-K under the Securities Exchange Act of
         1934 for the year ended December 31, 1991
         (File No. 1-3004). ~                                        *

(a)(2)   Illinova Corporation Director Emeritus Plan for
         Outside Directors.  Filed as Exhibit 10(e) to
         the Annual Report on Form 10-K under the
         Securities Exchange Act of 1934 for the year
         ended December 31, 1989 (File No. 1-3004). ~                *

(a)(3)   Illinova Corporation Stock Plan for Outside
         Directors as amended and restated by the Board of
         Directors on April 9, 1992 and as further amended
         April 14, 1993.  Filed as Exhibit 10(h) to the
         Annual Report on Form 10-K under the Securities
         Exchange Act of 1934 for the year ended December
         31, 1993 (File No. 1-3004).~                                *

(a)(4)   Illinova Corporation Retirement Plan for Outside
         Directors,  as amended through  December 11, 1991.
         Filed as Exhibit 10(j) to the Annual Report on Form
         10-K  under the Securities Exchange Act of 1934 for
         the year ended December 31, 1991 (File No. 1-3004).~        *

(a)(5)   Illinova Corporation 1992 Long-Term Incentive
         Compensation Plan.  Filed as Exhibit 10(k) to the
         Quarterly Report on Form 10-Q for the quarter ended
         March 31, 1992 (File No. 1-3004).~                          *

(a)(6)   Illinova Corporation Comprehensive Deferred  Stock
         Plan for  Outside Directors, as approved by the Board
         of Directors on February 7, 1996.  Filed as Exhibit 10
         (a)(6) to the Annual  Report on Form 10-K under the
         Securities  Exchange  Act of 1934 for the year ended
         December 31, 1995 (File No. 1-11327).~                      *

(a)(7)   Form of Employee Retention Agreement in place between
         Illinova Corporation and its elected officers,
         Illinois Power Company's elected officers, and the
         Presidents of Illinova  Corporation's  subsidiaries.
         Filed as  Exhibit  10(g) to the  Annual  Report on Form
         10-K under the Securities Exchange Act of 1934 for
         the year ended  December 31, 1989 (File no. 1-3004).~       *

(a)(8)   Illinova Corporation Leadership Incentive Program,
         effective January 1, 1996.~                                 *

                                       43
<PAGE>

                            Exhibit Index (Continued)
Exhibit                           Description
-------                           -----------
(a)(9)   Illinova Corporation Retirement Plan for Outside
         Directors, as amended by resolutions adopted by the
         Board of Directors on February 7, 1996.~                    *

(a)(10)  Illinova Corporation Employee Retention Agreement,
         as amended by resolutions adopted by the Board of
         Directors on February 7, 1996.~                             *

(a)(11)  Illinova Corporation Deferred Compensation Plan for
         Certain Directors as amended October 9, 1996, effective
         January 1, 1997.~                                           *

(a)(12)  Illinova Corporation Employee Retention Agreement,
         as amended by resolutions adopted by the Board of
         Directors on June 10-11, 1997.~                             *

(a)(13)  Illinova Corporation Deferred Compensation Plan for
         Certain Directors, as amended by resolutions adopted
         by the Board of Directors on June 10-11, 1997.~             *

(a)(14)  Employment Agreement entered into as of August 13,
         1998 between Illinova Corporation and Charles E.
         Bayless. ~                                                  *

(a)(15)  Employment Agreement entered into as of January 18,
         1999  between Illinova Corporation and George W.
         Miraben. ~


Illinois Power Company

(b)(1)   Group Insurance Benefits for Managerial Employees
         of Illinois Power Company as amended January 1, 1983.
         Filed as Exhibit 10(a) to the Annual Report on Form
         10-K under the Securities Exchange Act of 1934 for
         the year ended December 31, 1983 (File No. 1-3004).~        *

(b)(2)   Illinois Power Company Incentive Savings Trust and
         Illinois Power Company Incentive Savings Plan and
         Amendment I thereto.  Filed as Exhibit 10(d) to the
         Annual Report on Form 10-K under the Securities
         Exchange Act of 1934 for the year ended December 31,
         1984 (File No. 1-3004).~                                    *

(b)(3)   Illinois Power Company's Executive Incentive
         Compensation Plan.  Filed as Exhibit 10(f) to the
         Annual Report on Form 10-K under the Securities
         Exchange Act of 1934 for the year ended December 31,
         1989 (File No. 1-3004).~                                    *




                                       44
<PAGE>

                            Exhibit Index (Continued)
Exhibit                           Description
-------                           -----------

(b)(4)   Illinois Power Company Incentive Savings Plan, as
         amended and restated effective January 1, 1991.
         Filed as Exhibit 10(h) to the Annual Report on
         Form 10-K under the Securities Exchange Act of
         1934 for the year ended December 31, 1990
         (File No. 1-3004).~                                         *

(b)(5)   Illinois Power Company Executive Deferred
         Compensation Plan.  Filed as Exhibit 10(l) to
         the Annual Report on Form 10-K under the
         Securities Exchange Act of 1934 for the year
         ended December 31, 1993. (File No. 1-3004)~                 *

(b)(6)   Illinois Power Company Retirement Income Plan for
         salaried employees as amended and restated effective 
         January 1, 1989, as further amended through January
         1, 1994. Filed as Exhibit 10(m) to the Annual Report
         on Form 10-K under the Securities Exchange Act of
         1934 for the year ended December 31, 1994
         (File No. 1-3004).~                                         *

(b)(7)   Illinois Power Company Retirement Income Plan for
         employees covered under a collective bargaining
         agreement as amended and restated effective as of
         January 1, 1994. Filed as Exhibit 10(n) to the Annual
         Report on Form 10-K under the Securities Exchange Act
         of 1934 for the year ended December 31, 1994
         (File No. 1-3004).~                                         *

(b)(8)   Illinois Power Company Incentive Savings Plan as
         amended and restated effective January 1, 1991 and
         as further amended through amendments adopted
         December 28, 1994.  Filed as Exhibit 10(o)to the
         Annual Report on Form 10-K under the Securities
         Exchange Act of 1934 for the year ended December
         31, 1994 (File No. 1-3004).~                                *

(b)(9)   Illinois Power Company Incentive Savings Plan for
         employees covered under a collective bargaining
         agreement as amended and restated effective January
         1, 1991 and as further amended through amendments
         adopted December 28, 1994.  Filed as Exhibit 10(p)
         to the Annual Report on Form 10-K under the
         Securities Exchange Act of 1934 for the year ended
         December 31, 1994 (File No. 1-3004).~                       *

(b)(10)  Illinois Power Company Executive Incentive Compensation
         Plan, as amended, effective January 1, 1997. ~              *

(b)(11)  Illinois Power Company Executive Deferred 
         Compensation Plan as amended by resolutions adopted
         by the Board of Directors on June 10-11, 1997.~             *




                                       45
<PAGE>

                            Exhibit Index (Continued)
Exhibit                           Description
-------                           -----------

(b)(12)  Illinois Power Company Supplemental Retirement
         Income Plan for Salaried Employees of Illinois
         Power Company as amended by resolutions adopted
         by the Board of Directors on June 10-11, 1997.~             *

(b)(13)  Retirement and Consulting Agreement entered into
         as of June 30, 1997 between Illinois Power Company
         and Wilfred Connell.~                                       *

(12) Statement Re Computation of Ratios

(a)      Computation of ratio of earnings to fixed
         charges for Illinova Corporation.

(b)      Computation of ratio of earnings to fixed 
         charges for Illinois Power Company.

(13) Annual Reports to Shareholders

(a)      Illinova Corporation Proxy Statement and 1998
         Annual Report to Shareholders.

(b)      Illinois Power Company Information Statement
         and 1998 Annual Report to Shareholders.

(21) Subsidiaries of Registrants

(a)      Subsidiaries of Illinova Corporation and Illinois
         Power Company.

(23) Consents of Experts

         Consent of Independent Accountants for Illinova
         Corporation.

(27)     Financial Data Schedules

(a)      Illinova Corporation

(b)      Illinois Power Company

--------------------------------------
*     Incorporated herein by reference.

~     Management contract and compensatory plans or arrangements.


                                       46
<PAGE>