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                                  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

For the fiscal year ended December 31, 2000

/ /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
       OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from __________ to _____________

                         COMMISSION FILE NUMBER: 1-3004
                             ILLINOIS POWER COMPANY
             (Exact name of registrant as specified in its charter)

        ILLINOIS                                               37-0344645
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                            Identification Number)

500 S. 27TH  STREET
DECATUR, ILLINOIS                                              62521-2200
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code:  (217) 424-6600

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

    Title of each class:             Name of each exchange on which registered:

Each of the following securities are listed on the New York Stock Exchange.

PREFERRED STOCK, CUMULATIVE,
$50 PAR VALUE
4.08% Series   4.26% Series   4.70% Series
4.20% Series   4.42% Series

TRUST ORIGINATED PREFERRED SECURITIES OF SUBSIDIARY
(ILLINOIS POWER FINANCING 1)
8.00% Series

NEW MORTGAGE BONDS
6.25%  Series due 2002                            6 3/4%  Series due 2005
6.0%  Series due 2003                              7.5%  Series due 2009
6 1/2%  Series due 2003                            7 1/2%  Series due 2025

Securities registered pursuant to Section 12(g) of the Act:    None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
Yes   X      No
    -----       -----

<PAGE>

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 registrant's 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. [X]

Illinova Corporation is the sole holder of the common stock of Illinois Power
Company. There is no voting or non-voting common equity held by
non-affiliates of Illinois Power Company. Illinois Power Company is an indirect
wholly owned subsidiary of Dynegy Inc.

DOCUMENTS INCORPORATED BY REFERENCE. None.




















                                       2
<PAGE>

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                             ILLINOIS POWER COMPANY
                                   FORM 10-K


                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                          PAGE
<S>                                                                                                       <C>
                                    PART I

Item 1.   Business..............................................................................            4
          General...............................................................................            4
          Electric Business.....................................................................            6
          Gas Business..........................................................................            9
          Environmental Matters.................................................................            9
          Research and Development..............................................................           10
          Regulation............................................................................           10
          Employees.............................................................................           11
Item 2.   Properties............................................................................           11
Item 3.   Legal Proceedings.....................................................................           11
Item 4.   Submission of Matters to a Vote of Security Holders...................................           11


                                    PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters.................           12
Item 6.   Selected Financial Data...............................................................           12
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of
          Operations............................................................................           12
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk............................           22
Item 8.   Financial Statements and Supplementary Data...........................................           23
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial
          Disclosure............................................................................           23

                                   PART III

Item 10.  Directors and Executive Officers of the Registrant....................................           24
Item 11.  Executive Compensation................................................................           25
Item 12.  Security Ownership of Certain Beneficial Owners and Management........................           31
Item 13.  Certain Relationships and Related Transactions........................................           32

                                   PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................           33

Signatures......................................................................................           34

Exhibit Index...................................................................................           35
</TABLE>

               For definitions of certain terms used herein,
                   see "Item 1. Business - Definitions."

                                       3
<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 and is headquartered in Decatur, Illinois. IP has
publicly traded preferred shares outstanding and common stock wholly owned by
Illinova Corporation ("Illinova"). On February 1, 2000, Illinova and its
subsidiaries, including IP, were acquired by Dynegy Inc ("Dynegy"). The
merger involved the creation of a new holding company, now known as Dynegy
Inc., and two separate but concurrent mergers. As a result of these two
mergers, in which wholly owned subsidiaries of Dynegy Inc. merged with and
into the former Dynegy and Illinova, respectively, Illinova and the former
Dynegy continue to exist as wholly owned subsidiaries of Dynegy Inc. Dynegy
is headquartered in Houston, Texas.

   IP is engaged in the 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," giving
customers the freedom to purchase electricity from alternate suppliers. In
December 1997, electric regulatory restructuring legislation was enacted by
the Illinois General Assembly. For a more detailed discussion of these
developments, refer to the "Open Access and Competition" section of this item.

   The IP consolidated financial statements include the accounts of IP;
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 limited liability company whose
sole member is IP; and Illinois Power Special Purpose Trust, a special
purpose Delaware business trust whose sole owner is LLC.

DEFINITIONS

   As used in this Form 10-K, the abbreviations listed below are defined as
follows:

<TABLE>
<S>                 <C>
AFUDC               Allowance for Funds Used During Construction
Alliance RTO        Alliance Regional Transmission Organization
AmerGen             AmerGen Energy Company
Clinton             Clinton Power Station
DMG                 Dynegy Midwest Generation, Inc.
Dynegy              Dynegy Inc.
EITF                Emerging Issues Task Force of the Financial Accounting
                       Standards Board
FAS                 Statement of Financial Accounting Standards
FERC                Federal Energy Regulatory Commission
ICC                 Illinois Commerce Commission
Illinova            Illinova Corporation
IP                  Illinois Power Company
IPFI                Illinois Power Financing I
IPMI                Illinova Power Marketing Inc.
IPSPT               Illinois Power Special Purpose Trust
ITC                 Investment Tax Credit
kW                  Kilowatts
kWh                 Kilowatt-Hour
LLC                 Illinois Power Securitization Limited Liability Company
MGP                 Manufactured-Gas Plant
MIPS                Monthly Income Preferred Securities
MISO                Midwest Independent Transmission System Operator, Inc.
MW                  Megawatts

                                       4
<PAGE>

P.A. 90-561         Electric Service Customer Choice and Rate Relief Law of 1997
PECO                PECO Energy Company
PPA                 Power Purchase Agreement
ROE                 Return on Equity
SEC                 United States Securities and Exchange Commission
Soyland             Soyland Power Cooperative, Inc.
TOPrS               Trust Originated Preferred Securities
UGAC                Uniform Gas Adjustment Clause
</TABLE>

OPEN ACCESS AND COMPETITION

   Competition has become a dominant issue for the electric utility industry.
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. The
federal Public Utility Regulatory Policies Act of 1978 facilitated
development of co-generators and independent power producers. 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.

   P.A. 90-561, Illinois electric utility restructuring legislation, was
enacted in December 1997. Some of the major effects of this legislation are
noted in the following paragraphs.

   P.A. 90-561 - RATE ADJUSTMENT PROVISIONS. P.A. 90-561 gave IP's
residential customers a 15% decrease in base electric rates beginning August
1, 1998, and an additional 5% decrease effective on May 1, 2002.

   P.A. 90-561 - UTILITY EARNINGS CAP. P.A. 90-561 contains floor and ceiling
provisions applicable to IP's ROE during the transition period ending in 2006
(or 2008 at the option of the utility and with approval by the ICC). Pursuant
to these provisions, IP may request an increase in its base rates if the
two-year average of its earned ROE is below the two-year average of the
monthly average yields of 30-year U.S. Treasury bonds for the concurrent
period ("Treasury Yield"). Conversely, IP is required to refund amounts to
its customers equal to 50% of the value earned above a defined "ceiling
limit." The ceiling limit is exceeded if IP's ROE exceeds the Treasury Yield,
plus 6.5% in 2000 through 2004 (which increases to 8.5% in 2000 through 2004
if a utility chooses not to implement transition charges after 2006).
Regulatory asset amortization is included in the calculation of ROE for the
ceiling test, but is not included in the floor test calculation. During 2000,
IP's ROE was within the allowable ROE collar, avoiding adjustments or
customer refunds.

   P.A. 90-561 - DIRECT ACCESS PROVISIONS. Beginning in October 1999,
customers with demand greater than 4 MW at a single site, customers with at
least 10 sites having aggregate total demand of at least 9.5 MW and customers
representing one-third of the remaining load in the non-residential class
were given the right to choose their electric generation suppliers ("direct
access"). Direct access for remaining non-residential customers began 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 customers at regulated rates. The transition
charges that departing customers must pay to IP are not designed to hold IP
completely harmless from resulting revenue loss because of the mitigation
factor.

   Although the above-referenced residential rate reductions and the
introduction of direct access has led to lower

                                       5
<PAGE>

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.

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

3)   The ROE of utilities is managed through application of floor and ceiling
     test rules contained in P.A. 90-561 described above.

   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.
The impact on net income will depend on, among other things, the amount of
revenues earned and the cost of doing business.

   P.A. 90-561 - INDEPENDENT SYSTEM OPERATOR ("ISO") PARTICIPATION.
Participation in an ISO by utilities serving retail customers in Illinois was
one of the requirements included in P.A. 90-561. In January 1998, IP, in
conjunction with eight other transmission-owning entities, filed with the
FERC for all approvals necessary to create and to implement the MISO. On
September 20, 2000, IP announced its intention to withdraw its participation
in the MISO and to become a member of the Alliance RTO, pending necessary
regulatory approval. On October 13, 2000, IP filed a notice of its intent to
withdraw from the MISO with the FERC. On February 23, 2001, IP reached a
settlement in principle with all parties that allows it to withdraw from the
MISO and join the Alliance RTO, effective upon the FERC's approval of the
settlement, which is expected to occur in mid-April. IP has accrued an
adequate amount to cover its share of the settlement obligation. While IP
believes that being part of the Alliance RTO would provide greater
flexibility, cost savings and maintained transmission reliability, the
outcome of the withdrawal cannot be predicted with certainty.

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

CUSTOMER DATA

   The territory served by IP comprises substantial areas in northern,
central and southern Illinois, including 11 cities with populations greater
than 30,000 and 23 cities with populations greater than 10,000 (1999 U.S.
Census Bureau's Estimated Populations). IP supplies electric service at
retail to an estimated aggregate population of 1,303,000 in 311 incorporated
municipalities, adjacent suburban and rural areas, and numerous
unincorporated communities and retail natural gas service to an estimated
population of 981,000 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 January 3, 2001,
IP served 587,751 active electric customers (billable meters) and 412,521
active gas customers (billable meters). These numbers do not include
non-metered equipment, such as street lights. Sales of electricity and gas
and transportation are affected by seasonal weather patterns; therefore,
operating revenues and associated operating expenses are not distributed
evenly during the year. No customer accounted for 10% or more of IP's
consolidated revenues in 2000.

                                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 transmission service is also supplied to numerous
utilities, municipalities and power marketing entities.

                                       6
<PAGE>

   IP's highest system peak hourly demand (native retail load) in 2000 was
3,473,000 kW on August 31, 2000. This compares with IP's record high system
peak hourly demand (native retail load) of 3,888,000 kW on July 29, 1999.

  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 ("Pool"), which was
formed in 1952. The Pool operates under an interconnection agreement that
provides for the interconnection of transmission lines. This agreement has no
expiration date, but any party may withdraw from the agreement on 36 months'
written notice.

   IP, AmerenCIPS and AmerenUE have contracted with the Tennessee Valley
Authority ("TVA") for the interconnection of the TVA system with those of the
three companies. The contract addresses power purchase provisions among the
parties and other working arrangements. This contract has no expiration date,
but any party may withdraw from the agreement on five years' written notice.

   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. and the City of Springfield, Illinois.

   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.

FOSSIL GENERATION ASSET TRANSFER

   On August 24, 1999, the FERC, under Part 205 of the Federal Power Act,
approved IP's filing to put into place a PPA between IP and IPMI. Also, on
September 10, 1999, the FERC, under Part 203 of the Federal Power Act,
approved IP's filing to transfer all of IP's wholly owned fossil generating
assets to Illinova. These approvals, along with the previously received
approval from the ICC, satisfied all regulatory requirements related to the
formation of IPMI and the transfer to IPMI of IP's wholly owned fossil
generating assets. On October 1, 1999, IP transferred all of its wholly owned
fossil generating assets to Illinova, at book value, in exchange for a note
receivable. Illinova subsequently contributed these assets and certain
liabilities to IPMI, which was later renamed DMG. The PPA became effective on
October 1, 1999 and has a primary term that continues through December 31,
2004, with provisions to extend the agreement thereafter on an annual basis,
subject to concurrence by both parties. The PPA defines the terms and
conditions under which DMG provides capacity and energy to IP using a tiered
pricing structure. An amendment to the PPA was filed by DMG on October 16,
2000, and received the FERC's approval on November 16, 2000. The amendment
adjusts the prices and quantities for energy and capacity to be provided
under the PPA by DMG to IP, effective January 1, 2001 through the end of 2004.

CLINTON POWER STATION

   GENERAL For background information on Clinton, see "Note 3 - Clinton
Impairment, Quasi-Reorganization and Sale of Clinton" in the audited
financial statements included herein.

   PECO AND AMERGEN AGREEMENTS On April 15, 1999, IP announced that it had
reached an interim agreement with AmerGen whereby AmerGen would purchase and
operate Clinton and IP would buy at least 80% in 1999 and at least 75% during
the years 2000 through 2004 of the plant's electricity output.

   On December 15, 1999, IP completed the sale of Clinton to AmerGen. Basic
terms for the sale were unchanged from a definitive agreement announced on
July 1, 1999. AmerGen paid IP $12.4 million for the plant and property and
AmerGen assumed responsibility for operating and ultimately decommissioning
Clinton.

   IP agreed to transfer to AmerGen the existing decommissioning trust funds
in the amount of $98.5 million on the sale closing date and to make an
additional payment of $113.4 million to the decommissioning trust funds. In
addition, IP is responsible for five future annual payments of approximately
$5 million to the decommissioning trust

                                       7
<PAGE>

funds. IP made the first of its annual payments of approximately $5 million
in December 2000. AmerGen bears all other costs and risks of decommissioning.

POWER SUPPLY

   IP's transfer of its wholly owned fossil generating assets to Illinova and
the sale of Clinton to AmerGen changed the method by which IP obtains its
electricity to supply its retail customers. In conjunction with the
aforementioned events, IP entered into PPAs with IPMI, which was later
renamed DMG, and AmerGen in order to meet its service obligations under the
Illinois Public Utilities Act. These agreements secure IP's energy
requirements at pre-determined rates. Volatility of the power supply market
exposes IP to some risk in relation to these agreements.

CONSTRUCTION PROGRAM

   To meet anticipated construction needs, IP has 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 IP's liquidity, see "Note 6 - Revolving Credit
Facilities, Letters of Credit and Short-Term Loans" in the audited financial
statements included herein; and "Liquidity and Capital Resources" in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

ACCOUNTING MATTERS

   In December 1998, IP's Board of Directors decided to exit the nuclear
portion of the business by 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, in 1998 IP wrote off the value
of Clinton and accrued Clinton-related exit costs. The Clinton impairment and
accrual of exit-related costs resulted in an impairment loss of $1,523.7
million, net of income taxes. IP had an accumulated deficit in retained
earnings of $1,565.9 million after recording the impairment loss.

   At the same time, IP's Board of Directors also approved the implementation
of a quasi-reorganization. In November 1998, the SEC confirmed that it would
not object to the proposed accounting. 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 common stock
equity, giving the company a "fresh start" with a zero balance in retained
earnings. For additional information see "Note 3 - Clinton Impairment,
Quasi-Reorganization and Sale of Clinton" in the audited financial statements
included herein.

   On December 15, 1999, IP sold Clinton to AmerGen. The sale resulted in
revisions to the impairment of Clinton-related assets and the previously
accrued exit-related costs. The decrease in the impairment and accruals was
recognized as an increase in common stock equity, revising the original
effect of the 1998 quasi-reorganization on common stock equity.

                                       8
<PAGE>

                                  GAS BUSINESS

OVERVIEW

   IP supplies retail natural gas service to residential, commercial and
industrial consumers in substantial portions of northern, central and
southern Illinois. 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
Recognition and Energy Cost" of "Note 1 - Summary of Significant Accounting
Policies" in the audited financial statements included herein.

   IP has seven underground gas storage fields having a total capacity of
approximately 11.5 Billion Cubic Feet ("BCF") and a total deliverability on a
peak day of about 312,000 Thousand Cubic Feet ("MCF"). In addition to the
capacity of the seven underground storage fields, IP has contracts with
natural gas pipelines for 5.1 BCF of underground storage capacity and a total
deliverability on a peak day of 93,000 MCF. 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.

   Gas properties include approximately 8,000 miles of mains.

   IP experienced its 2000 peak-day send out of 647,004 MMBtu of natural gas
on December 21, 2000. This compares with IP's record peak-day send out of
857,324 MMBtu of natural gas on January 10, 1982.

GAS SUPPLY AND TRANSPORTATION

   IP has contracts with six interstate pipeline companies for firm
transportation and storage services. These contracts have varying expiration
dates ranging from 2001 to 2004. IP also enters into contracts for the
acquisition of natural gas supply. Those contracts range in duration from one
to five months.

                              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. IP does not expect that its compliance with any
such environmental regulations will have a material adverse effect upon its
capital expenditures, earnings or competitive position.

MANUFACTURED-GAS PLANT SITES

   IP's estimated liability for MGP site remediation is $55 million. This
amount represents IP's current estimate of the costs it will incur to
remediate the remaining 22 MGP sites for which it is responsible. Because of
the unknown and unique characteristics at each site, IP cannot currently
determine its ultimate liability for remediation of the sites. In October
1995, IP initiated litigation against a number of its insurance carriers.
Settlement proceeds recovered from these carriers offset a significant
portion of the MGP remediation costs and are credited to customers through
the tariff rider mechanism that the ICC previously approved. Cleanup costs in
excess of insurance proceeds are considered probable of recovery from IP's
transmission and distribution customers.

                                       9
<PAGE>

ELECTRIC AND MAGNETIC FIELDS

   The possibility that exposure to electric and magnetic fields ("EMF")
emanating from power lines, household appliances, and other electric sources
may result in adverse health effects continues to be the subject of
governmental, medical and media attention. Two major scientific studies
concluded in 1999 failed to demonstrate significant EMF health risk; however,
a definitive conclusion may never be reached on this topic, and future
impacts are unpredictable. Therefore, IP continues to compile the latest
research information on this topic. At the same time, IP conducts EMF
monitoring in the field when customers express a concern. Written materials
explaining the perceived hazards are also available to the public.

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 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, record keeping,
reporting and operational requirements that 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.

                            RESEARCH AND DEVELOPMENT

   Research and development expenditures for 2000 were approximately $0.1
million, down considerably from the $4.4 million spent in 1999. In 1998,
research and development expenditures were approximately $5.1 million.
Expenditures in 1999 and 1998 were primarily focused on the wholly owned
generating assets. IP's wholly owned generating assets were transferred or
sold in 1999; consequently, research and development expenditures decreased
accordingly.

                                   REGULATION

   IP is an electric utility as defined in the Public Utility Holding Company
Act of 1935 ("PUHCA"). Its direct parent company, Illinova, and Dynegy are
holding companies as defined in PUHCA. However, both Illinova and Dynegy
generally are exempt from regulation under section 3(a)(1) of PUHCA. They
remain subject to regulation under PUHCA with respect to the acquisition of
certain voting securities of other domestic public utility companies and
utility holding companies.

   In recent years, several bills have been introduced in Congress that would
repeal PUHCA. Repeal or significant modification to PUHCA could affect IP and
the electric utility industry generally. IP cannot predict the outcome of the
repeal efforts or the outlook for additional legislation in 2001.

   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. 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. During 2000, the
ICC ruled on (i) the unbundling of electric metering services; (ii) electric
meter service provider certification criteria and procedures; (iii) revisions
to the standards of service for electric utilities; and (iv) establishment of
an electric customer reliability

                                       10
<PAGE>

survey instrument and the associated rules. During 2001, it is expected that
the ICC will rule on (i) guidelines regarding standards of conduct and
functional separation for electric utilities; (ii) establishing the market
value index (in lieu of neutral fact finder price) used in (a) calculating
competitive transition costs and (b) IP's power purchase tariff; (iii)
uniformity of the terms associated with electric delivery service tariffs;
and (iv) transactions between the gas utility and its affiliates.

   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, 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's retail natural gas sales also are regulated by the ICC. Such sales
are currently priced under a purchased gas adjustment mechanism under which
IP's gas purchase costs are passed through to its customers if such costs are
determined prudent.

                                    EMPLOYEES

   At December 31, 2000, IP had 679 salaried employees and 1,356 bargaining
unit employees. IP is subject to collective bargaining agreements with each
of the following unions: International Brotherhood of Electrical Workers,
Laborers International Union of North America, United Association of
Journeymen Plumbers and Gas Fitters and International Association of
Machinists and Aerospace Workers. IP considers relations with both bargaining
unit and salaried employees to be satisfactory.

ITEM 2.   PROPERTIES

   As discussed above, IP transferred or sold all of its wholly owned
generating assets during 1999 and, therefore, did not own any such properties
in 2000. IP continues to own 50% of three combustion turbine units, located
in Bloomington, Illinois, with combined net capacity of 5,250 kW. State Farm
Insurance Company owns the other 50% of these units.

   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 that includes approximately 36,000 circuit miles of
overhead and underground lines. All of IP's transmission system is located in
the State of Illinois.

   IP owns 757 miles of gas transmission pipe and 7,486 miles of gas
distribution pipe.

ITEM 3.   LEGAL PROCEEDINGS

   See "Environmental Matters" in "Note 5 - Commitments and Contingencies" in
the audited financial statements included herein for information pertaining
to the United States Environmental Protection Agency complaint against IP.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   None.



                                       11
<PAGE>

                                     PART II
--------------------------------------------------------------------------------


ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

   All of IP's common stock is owned by its parent corporation, Illinova. For
dividend information relating to the common stock, see "Note 16 - Quarterly
Consolidated Financial Information and Common Stock Data (Unaudited)" in the
audited financial statements included herein and "Financial Condition
-Liquidity and Capital Resources - Dividends" under "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

ITEM 6.   SELECTED FINANCIAL DATA

   The selected financial information presented below was derived from, and
is qualified by reference to, the Consolidated Financial Statements of IP,
including the Notes thereto, contained elsewhere herein. The selected
financial information should be read in conjunction with the Consolidated
Financial Statements and related Notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
S E L E C T E D   F I N A N C I A L   D A T A
                                                                                                   (MILLIONS OF DOLLARS)
                                                               2000             1999       1998         1997       1996
------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>             <C>         <C>          <C>         <C>
Operating revenues
    Electric                                              $ 1,189.4       $  1,178.6  $ 1,224.2    $ 1,244.4   $1,202.9
    Electric interchange                                        2.7            420.2      557.2        175.6      137.6
    Gas                                                       393.5            304.4      287.8        353.9      348.2
------------------------------------------------------------------------------------------------------------------------
       Total operating revenues                           $ 1,585.6       $  1,903.2  $ 2,069.2    $ 1,773.9   $1,688.7
------------------------------------------------------------------------------------------------------------------------
Extraordinary item net of income tax benefit              $       -       $        -  $       -    $ (195.0)   $      -
Net income (loss) after extraordinary item                $   134.9       $    113.1  $(1,552.4)   $  (44.2)   $  228.6
Effective income tax rate                                      38.2%            38.7%      43.1%       40.1%       37.6%
------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable
    to common stock                                       $   121.0       $    95.6   $(1,572.2)   $  (65.5)   $  205.6
Cash dividends declared on common stock                           -            40.9        83.2        91.1        87.1
------------------------------------------------------------------------------------------------------------------------
Total assets                                              $ 4,971.7       $  5,297.8  $ 6,104.1    $5,291.5    $5,568.5
------------------------------------------------------------------------------------------------------------------------
Capitalization
    Common stock equity                                   $ 1,156.3       $  1,035.2  $   892.2    $1,299.1    $1,576.1
    Preferred stock                                            45.8             45.8       57.1        57.1        96.2
    Mandatorily redeemable preferred stock                    100.0            193.4      199.0       197.0       197.0
    Long-term debt                                          1,787.6          1,906.4    2,158.5     1,617.5     1,636.4
------------------------------------------------------------------------------------------------------------------------
       Total capitalization                               $ 3,089.7       $  3,180.8  $ 3,306.8    $3,170.7    $3,505.7
------------------------------------------------------------------------------------------------------------------------
Retained earnings                                         $   175.7       $     54.7  $       -    $   89.5    $  245.9
------------------------------------------------------------------------------------------------------------------------
Capital expenditures                                      $   157.8       $   197.2   $   311.5    $  223.9    $ 187.3
Cash flows from operations                                $   381.3       $    85.8   $   313.3    $  423.7    $ 449.8
Ratio of earnings to fixed charges                              2.53            2.16        N/A         2.73       3.40
------------------------------------------------------------------------------------------------------------------------
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

DYNEGY INC. AND ILLINOVA CORPORATION MERGER

   On June 14, 1999, Illinova, IP's parent company, and Dynegy announced
execution of a definitive agreement for the merger of Illinova and Dynegy. On
February 1, 2000, the merger of Dynegy and Illinova was completed and
involved the creation of a new holding company, now known as Dynegy Inc., and
two separate but concurrent mergers. In one merger, a wholly owned subsidiary
of Dynegy Inc. merged with and into Illinova. In the other merger, a second
wholly owned subsidiary of Dynegy Inc. merged with and into former Dynegy. As
a

                                       12
<PAGE>

result of these two concurrent mergers, Illinova and the former Dynegy
continue to exist as wholly owned subsidiaries of Dynegy Inc. and are
referred to as Illinova Corporation and Dynegy Holdings Inc., respectively.

   IP continues to be a wholly owned subsidiary of Illinova, but is
ultimately subject to control by the Dynegy Board of Directors. Since the
merger, IP has continued to operate as a regulated regional utility.

GENERAL

COMPANY PROFILE IP is engaged in the transmission, distribution and sale of
electric energy and the distribution, transportation and sale of natural gas
in the State of Illinois. IP's consolidated financial statements include the
accounts of IP; Illinois Power Capital, L.P., a limited partnership in which
IP serves as the general partner; IPFI, a statutory business trust in which
IP serves as sponsor; Illinois Power Securitization Limited Liability
Company, a special purpose Delaware limited liability company whose sole
member is IP; and IPSPT, a special purpose Delaware business trust whose sole
owner is Illinois Power Securitization LLC.

   IP was a leader in the development of the comprehensive electric utility
regulatory reform legislation for the State of Illinois, which provided the
foundation for IP's subsequent strategic actions and transformation.
Following the successful execution of its strategy to transfer its
fossil-fueled generation to an unregulated status and to exit its nuclear
operation, IP is now focused on delivering reliable transmission and
distribution services in a cost-effective manner. IP will also continue its
efforts to capitalize on strategic and operational synergies made possible by
the merger.

CLINTON POWER STATION

   In September 1996, a leak in a recirculation pump seal caused IP
operations personnel to shut down Clinton. Clinton returned to service May
27, 1999.

   The prolonged outage at Clinton had a significant adverse impact on IP's
financial condition, through higher operating and maintenance and capital
costs, lost opportunities to sell energy and higher replacement power costs.
In addition, due to the failure of Clinton to restart by January 31, 1999, a
provision in the lease agreement between IP and the Illinois Power Fuel
Company ("Fuel Company") required IP to pay $62.1 million in March 1999 for
the acquisition of a portion of in-core fuel to the Fuel Company Trustee for
the benefit of investors in secured notes of the Fuel Company.

   Due to uncertainties of deregulated generation pricing in Illinois and to
various operation and management factors, IP's Board of Directors decided in
December 1998 to sell or close Clinton. This decision resulted in an
impairment of Clinton-related assets and accrual of exit-related costs. In
December 1998, the impairment and accrual of exit-related charges resulted in
a $1,523.7 million, net of income taxes, charge against earnings based on the
expectation of plant closure. As a condition precedent to the merger with
Dynegy, IP sold its interest in the Clinton Power Station to AmerGen on
December 15, 1999. In accordance with the terms of the sale, IP revised its
impairment of Clinton-related assets and accruals for exit-related costs. The
decrease in the impairment and the accruals was recognized as an increase in
common stock equity, revising the original effect of the 1998
quasi-reorganization on the common stock equity account.

   In 1998, PECO was hired to manage Clinton's operations for a set fee plus
performance incentives. Beginning April 1, 1999 and continuing until December
15, 1999, IP operated under the terms of a revised management agreement with
PECO under which PECO was responsible for Clinton's direct operating and
capital expenses and assisted with the management of the station under a
management services contract. This eliminated IP's exposure to the
uncertainty regarding the costs associated with Clinton's operations. In
return for transferring this financial risk, IP paid PECO a management fee
and allowed PECO to retain 20% of power generation.

   In December 1999, AmerGen paid $12.4 million for the plant and property
and assumed responsibility for operating and ultimately decommissioning the
nuclear station. The asset sale agreement provides that IP will purchase at
least 75% of Clinton's electricity output for its customers through 2004 at
fixed prices that exceed current and projected wholesale prices. IP
transferred to AmerGen decommissioning funds of $211.9 million,

                                       13
<PAGE>

which included a $113.4 million payment to the decommissioning trust funds as
required by the asset sale agreement. IP agreed to make five annual payments
of approximately $5 million to the decommissioning trust funds, the first of
which was made in December 2000. AmerGen bears all other costs and risks of
decommissioning.

   See "Note 3 - Clinton Impairment, Quasi-Reorganization and Sale of
Clinton" in the audited financial statements included herein for additional
information.

OPEN ACCESS AND COMPETITION

   See "Open Access and Competition" under "General" in "Item 1.  Business"
for discussion.

ACCOUNTING MATTERS

2000 IP's consolidated financial statements have been prepared on the
historical cost basis and do not reflect any allocation to IP of the purchase
price recorded by Dynegy as a result of the merger. Push down accounting was
not required because IP has publicly held debt and preferred stock
outstanding. Dynegy accounted for the merger as a purchase of Illinova. This
accounting treatment is based on various factors present in the merger,
including the majority ownership (and voting control) of Dynegy's
shareholders following the merger, the role of Dynegy's management following
the merger and the influence of Chevron U.S.A. Inc., resulting from the size
of its ownership interest and its rights under a shareholder agreement, the
articles of incorporation and bylaws. As a result, the consolidated financial
statements of Dynegy after the merger reflect the assets and liabilities of
former Dynegy at historical book values and the assets and liabilities of
Illinova at allocated fair values. For accounting purposes, the effective
date of the merger was January 1, 2000.

1999 Effective October 1, 1999, IP's wholly owned fossil generating assets
and other generation-related assets and liabilities were transferred to
Illinova. For further information, see "Fossil Generation Transfer" under
"Regulatory Matters" in this item and "Note 4 - Related Parties" in the
audited financial statements included herein.

   Effective December 15, 1999, with the sale of Clinton, IP revised its
impairment of Clinton-related assets and accruals for exit-related costs in
accordance with the terms of the sale. The net of the revisions was credited
to the common stock equity account. See "Note 3 - Clinton Impairment,
Quasi-Reorganization and Sale of Clinton" in the audited financial statements
included herein for additional information.

1998 Concurrent with the decision to exit Clinton operations, as previously
discussed, IP's Board of Directors also decided to effect a
quasi-reorganization in which IP's consolidated accumulated deficit in
retained earnings of $1,565.9 million was eliminated. A quasi-reorganization
is an accounting procedure whereby a company adjusts its accounts to obtain a
"fresh start." In a quasi-reorganization, a company restates its assets and
liabilities to their fair value, adopts accounting pronouncements issued but
not yet adopted, and eliminates any remaining deficit in retained earnings by
a transfer from common stock equity.

   See "Note 3 - Clinton Impairment, Quasi-Reorganization and Sale of
Clinton" in the audited financial statements included herein for additional
information.

   See the audited financial statements included herein for a discussion of
other accounting issues.

REGULATORY MATTERS

P.A. 90-561 - RATE ADJUSTMENT PROVISIONS P.A. 90-561 gave IP's residential
customers a 15% decrease in base electric rates beginning August 1, 1998, and
an additional 5% decrease effective on May 1, 2002. The rate decreases result
in expected revenue reductions of approximately $75 million in the year 2001,
approximately $92 million in 2002, approximately $100 million in 2003, and
approximately $102 million in 2004, based on projected consumption.

                                       14
<PAGE>

FOSSIL GENERATION TRANSFER In August 1999, the FERC, under Part 205 of the
Federal Power Act, approved IP's filing to put into place a PPA between IP
and IPMI. Also, in September 1999, the FERC, under Part 203 of the Federal
Power Act, approved IP's filing to transfer IP's wholly owned fossil
generating assets to its parent, Illinova, and subsequently its affiliate,
IPMI. These approvals, along with the previously received approval from the
ICC, satisfied all regulatory requirements related to the formation of IPMI
and the transfer to IPMI of IP's non-nuclear generating assets.

   In October 1999, IP's wholly owned fossil generating assets and other
generation-related assets and liabilities were transferred at book value to
Illinova in exchange for an unsecured note in the amount of $2.8 billion.
Illinova then contributed these assets to DMG (formerly IPMI). The note
between IP and Illinova matures September 30, 2009 and bears interest at an
annual rate of 7.5%, payable semiannually on the first day of April and
October each year. Interest income on the note during 2000 was $174.9 million.

   A PPA was negotiated between IP and DMG to provide IP with continued
energy supply from the fossil generating assets. The PPA became effective on
October 1, 1999 and has a primary term that continues through December 31,
2004, with provisions to extend the agreement thereafter on an annual basis,
subject to concurrence by both parties. The PPA defines the terms and
conditions under which DMG provides capacity and energy to IP using a tiered
pricing structure. An amendment to the PPA was filed by DMG on October 16,
2000, and received the FERC approval on November 16, 2000. The amendment
adjusts the prices and quantities for energy and capacity to be provided
under the PPA by DMG to IP, effective January 1, 2001 through the end of 2004.

   The PPA specifies that IP is responsible for dispatching DMG's generating
units recognizing specified design limits on unit operation. IP will
generally follow the principles of economic dispatch, while fulfilling its
obligation to maintain adequate reliability of its transmission system. If IP
dispatches the generating units out of economic order for reliability
purposes, IP compensates DMG for the associated cost. IP provides load
schedules to DMG and may be required to compensate DMG for overscheduling.
DMG is required to provide planned outage schedules for the generating units
to IP and must consider IP's reliability needs in developing the schedules.

   DMG is responsible for adequately maintaining its generating capacity,
obtaining necessary licenses and permits, maintaining minimum levels of
insurance coverage, procuring fuel and reporting certain performance data. IP
and DMG are required to provide security guarantees to each other. The PPA
also specifies metering, billing, dispute resolution procedures and defines
force majeure conditions.

   See "Note 4 - Related Parties" in the audited financial statements
included herein for further discussion.

   See "Note 7 - Facilities Agreements" in the audited financial statements
included herein for a discussion of Soyland and the Soyland PCA.

POWER SUPPLY AND RELIABILITY

   Electricity was in short supply during the 1998 summer cooling season
because of an unusually high number of plant outages in the Midwest region.
IP bought generation and transmission capacity to prevent firm load
curtailment and took additional steps to avoid power outages, including
upgrading transmission lines and equipment, readying emergency procedures and
returning to service five units that had been in cold shutdown. Expenses
incurred as a result of the shortage had a material adverse impact on IP
during 1998.

   IP took additional steps in 1999 to increase power supply and avoid future
power shortages. IP had in excess of 400 MW of additional generation on line
for the summer, including approximately 235 MW from five oil-fired units that
were brought up from cold shutdown during the summer of 1998, and 176 MW from
four natural gas turbines installed during 1999. IP also refurbished nine gas
turbines.

                                       15
<PAGE>

CONSOLIDATED RESULTS OF OPERATIONS

   As a result of the enterprise changes impacting IP during the fourth
quarter of 1999, IP's operations now consist of a single prospective
reportable segment. For 2000, this segment includes the transmission,
distribution and sale of electric energy in Illinois; and the transportation,
distribution and sale of natural gas in Illinois. Also included in this
segment are specialized support functions, including accounting, legal,
performance management, information technology, human resources,
environmental resources, purchasing and materials management and public
affairs. For comparability purposes, results for 2000 should be compared with
the Customer Service segment from the previous period.

   IP's  operations  were divided  into four  reportable  segments in 1999
and 1998:  Customer  Service,  Wholesale Energy, Nuclear and Other.

   The business groups and their principal services in 1999 and 1998 were as
follows:

--   Customer Service Business Group - transmission, distribution and sale of
     electric energy; distribution, transportation and sale of natural gas in
     Illinois.
--   Wholesale Energy Business Group - fossil-fueled electric generation in
     Illinois, wholesale electricity transactions throughout the United States
     and dispatching activities.
--   Nuclear Generation Business Group - nuclear-fueled electric generation in
     Illinois.
--   Other - This category included the financial support functions such as
     accounting, finance, corporate performance, audit and compliance, investor
     relations, legal, corporate development, regulatory, risk management and
     tax services. Also included in this group were specialized support
     functions, including information technology, human resources, environmental
     resources, purchasing and materials management and public affairs.

   For the year 2000, IP had four measures that it monitored regarding its
financial performance. They were Operating Margin; Earnings Before Interest
and Taxes (EBIT); Cash Flow; and Return on Invested Capital (ROIC). IP's
Operating Margin and EBIT performance fell slightly below targeted measures
while Cash Flow and ROIC targets were exceeded.

   See "Note 13 - Segments of Business" in the audited financial statements
included herein for additional information.

TRANSMISSION, DISTRIBUTION AND SALE OF ELECTRIC ENERGY AND GAS Regulators
historically have determined IP's rates for electric service: the ICC at the
retail level and the FERC at the wholesale level. The ICC determines IP's
rates for gas service. These rates have been designed to recover the cost of
service and allow shareholders the opportunity to earn a reasonable rate of
return. As described in "Open Access and Competition" under "General" in
"Item 1. Business," P.A. 90-561 phases in a competitive marketplace for
electric generation while maintaining cost-based regulation for electric
delivery services and gas service, protecting the financial integrity of the
company during the transition period. Future electric and natural gas sales
will continue to be affected by an increasingly competitive marketplace,
changes in the regulatory environment, transmission access, weather
conditions, gas cost recoveries, customer conservation efforts and the
overall economy.

   Electricity was provided to IP by its Wholesale Energy Business Group and
Nuclear Business Group at a fixed 2.5 cents and 2.9 cents per kWh in 1998 and
the first nine months of 1999, respectively. Following the transfer and sale
of IP's generation assets in 1999, electricity was provided by DMG and
AmerGen at PPA prices during the fourth quarter 1999 and in the year 2000.

   Gas revenues are derived through regulated tariffs and provide for the
recovery of gas costs purchased from natural gas suppliers and pipelines.

OTHER Included in this category are the Financial Business Group, the Support
Services Business Group and other corporate functions. These segments did not
individually meet the minimum threshold requirements for separate disclosure.
Collectively, cash flow for Other is the total of changes in assets and
liabilities not directly assigned to the business segments and the non-cash
portion of income taxes (deferred).

                                       16
<PAGE>

   See "Note 13 - Segments of Business" in the audited financial statements
included herein for additional information regarding IP's segments.

OVERVIEW

NET INCOME (LOSS) APPLICABLE TO COMMON STOCK

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS)                                                     2000         1999              1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>         <C>             <C>
Net income (loss) applicable to common stock                              $121.0       $95.6            $(1,572.2)

Net  income (loss) applicable to common stock
     Excluding Clinton plant impairment loss in 1998
     and carrying amount over consideration paid for
     redeemed preferred stock in 1999                                     $121.0       $93.9            $   (48.5)
-------------------------------------------------------------------------------------------------------------------
</TABLE>

2000 The increase in 2000 earnings compared to 1999 was due to lower
operating expenses, depreciation and taxes from the transfer of the fossil
assets to Illinova and sale of Clinton, and increased interest income from
the note between IP and Illinova.

1999 The increase in 1999 earnings compared to 1998 was due primarily to the
decrease in power purchased due to the restart of Clinton in May 1999 and
unprecedented summer price spikes in 1998, lower expenses due to the 1998
Clinton impairment and the transfer of the wholly owned fossil generating
assets to Illinova on October 1, 1999 and increased interest income from the
note between IP and Illinova related to the transfer of the fossil generating
assets.

ELECTRIC OPERATIONS For the years 1998 through 2000, electric revenues,
including interchange, decreased 33% and the gross electric margin decreased
42% as follows:

<TABLE>
<CAPTION>
------------------------------------------------------ ---------------- --------------- ----------------
(MILLIONS OF DOLLARS)                                         2000            1999             1998
------------------------------------------------------ ---------------- --------------- ----------------
<S>                                                    <C>              <C>             <C>
Electric revenues                                            $ 1,189.4       $ 1,178.6        $ 1,224.2
Interchange revenues                                               2.7           420.2            557.2
Fuel cost & power purchased                                     (729.3)         (612.3)          (985.4)
------------------------------------------------------ ---------------- --------------- ----------------
     Electric margin                                         $   462.8       $   986.5        $   796.0
------------------------------------------------------ ---------------- --------------- ----------------
</TABLE>

   The components of annual changes in electric revenues were:

<TABLE>
<CAPTION>
------------------------------------------------------ ---------------- ---------------
 (MILLIONS OF DOLLARS)                                        2000            1999
------------------------------------------------------ ---------------- ---------------
<S>                                                    <C>              <C>
Price                                                          $ (39.8)        $ (86.6)
Volume and other                                                  50.6            29.5
Fuel cost recoveries                                                 -            11.5
------------------------------------------------------ ---------------- ---------------
     Revenue increase (decrease)                               $  10.8         $ (45.6)
------------------------------------------------------ ---------------- ---------------
</TABLE>

2000 Electric revenues excluding interchange sales remained relatively
constant. The significant reduction in interchange revenues is due to the
transfer of the fossil generating units to Illinova in October 1999, the sale
of Clinton to AmerGen in December 1999 and IP's strategic focus on the
transmission and distribution business.

1999 Electric revenues excluding interchange sales decreased primarily due to
the 15% residential rate decrease effective August 1, 1998 and the
reclassification of revenue-related taxes mandated by P.A. 90-561. This
decrease was partially offset by increased wheeling revenues due to increased
capacity. Interchange revenues decreased due to a decrease in interchange
volume offset by revenue recognition resulting from the restructuring of a
Soyland power supply contract. Electric margin increased primarily due to
lower power purchase costs in

                                       17
<PAGE>

1999 as compared to 1998 and decreased fuel costs resulting from the transfer
of IP's wholly owned fossil generating assets to Illinova on October 1, 1999.

   The cost of meeting IP's system requirements was reflected in fuel costs
for electric plants and power purchased. Changes in these costs are detailed
below:

<TABLE>
<CAPTION>
--------------------------------------------- --------------------- ---------------------
 (MILLIONS OF DOLLARS)                               2000                  1999
--------------------------------------------- --------------------- ---------------------
<S>                                           <C>                   <C>
Fuel for electric plants                         $  (191.2)             $  (59.0)
Power purchased                                      308.2                (314.1)
--------------------------------------------- --------------------- ---------------------
     Total increase (decrease)                   $   117.0              $ (373.1)
--------------------------------------------- --------------------- ---------------------
</TABLE>

   System load requirements, generating unit availability, fuel prices,
purchased power prices, resale of energy to other utilities, emission
allowance costs, fuel cost recovery through UFAC, the transfer of IP's wholly
owned fossil generating assets to Illinova on October 1, 1999 and the sale of
Clinton to AmerGen caused changes in these costs.

2000 With the transfer of the fossil generating units to Illinova and the
sale of Clinton to AmerGen, IP no longer incurs any fuel costs for electric
plants. Conversely, a significant increase occurs in power purchases due to
the PPAs in effect with DMG and AmerGen, which simulate fuel cost and
operating expenses.

1999 The decrease in fuel cost was primarily due to the transfer of IP's
wholly owned fossil generating assets to Illinova on October 1, 1999. Fuel
costs in the fourth quarter of 1999 were $65.1 million lower than in the
fourth quarter of 1998. Power purchased decreased primarily due to decreased
interchange volume and unusually high priced power purchased during 1998.
Power purchased during the fourth quarter of 1999 was $32.6 million higher
than in the fourth quarter of 1998 due to the generating asset transfer.

GAS OPERATIONS For the years 1998 through 2000, gas revenues, including
transportation, increased 37%, while the gross margin on gas revenues
increased 2% as follows:

<TABLE>
<CAPTION>
-------------------------------------------------- -------------------- ------------------ ------------------
(MILLIONS OF DOLLARS)                                     2000                 1999               1998
-------------------------------------------------- -------------------- ------------------ ------------------
<S>                                                <C>                  <C>                <C>
Gas revenues                                            $ 388.0              $ 298.9            $ 281.1
Transportation revenues                                     5.5                  5.5                6.7
Gas cost                                                 (252.7)              (165.1)            (149.6)
-------------------------------------------------- -------------------- ------------------ ------------------
     Gas margin                                         $ 140.8              $ 139.3            $ 138.2
-------------------------------------------------- -------------------- ------------------ ------------------

-------------------------------------------------- -------------------- ------------------ ------------------
(MILLIONS OF THERMS)                                      2000                 1999               1998
-------------------------------------------------- -------------------- ------------------ ------------------
Therms sold                                               574                  553                529
Therms transported                                        259                  270                267
-------------------------------------------------- -------------------- ------------------ ------------------
     Total delivered                                      833                  823                796
-------------------------------------------------- -------------------- ------------------ ------------------


Average cost per therm delivered                           48.3(CENTS)          26.8(CENTS)        27.1(CENTS)
-------------------------------------------------- ------------------- ------------------- ------------------
</TABLE>

   Changes in the cost of gas purchased for resale were:

<TABLE>
<CAPTION>
-------------------------------------------------- ------------------- -------------------
(MILLIONS OF DOLLARS)                                      2000                1999
-------------------------------------------------- ------------------- -------------------
<S>                                                <C>                 <C>
Gas purchased for resale:
Cost                                                     $ 127.7              $ (3.1)
Volume                                                       4.0                10.1
Gas cost recoveries                                        (44.1)                8.5
-------------------------------------------------- ------------------- -------------------
     Total increase                                      $  87.6              $ 15.5
-------------------------------------------------- ------------------- -------------------
</TABLE>

   The 2000 increase in gas costs was attributable to market conditions that
caused natural gas prices to reach unprecedented highs offset by the effects
of UGAC. The 1999 increase in gas costs was due to higher consumption and
effects of the UGAC.

                                       18
<PAGE>

OTHER EXPENSES A comparison of significant increases (decreases) in other
operating expenses, maintenance, and depreciation and amortization for the
last two years is presented in the following table:

<TABLE>
<CAPTION>
-------------------------------------------------- ------------------- -------------------
(MILLIONS OF DOLLARS)                                      2000                1999
-------------------------------------------------- ------------------- -------------------
<S>                                                <C>                 <C>
Other operating expenses                                  $(292.4)             $85.3
Maintenance                                                 (50.1)             (48.5)
Depreciation and amortization                               (50.0)             (25.4)
-------------------------------------------------- ------------------- -------------------
</TABLE>

   The decrease in operating and maintenance expense for 2000 is primarily
due to the transfer of the fossil generating assets to Illinova on October 1,
1999 and the sale of Clinton to AmerGen on December 15, 1999, offset by the
recognition of the retirement and severance expense in 2000.

   The increase in operating expenses for 1999 is primarily due to the
Clinton outage, expenses that would have been considered capital additions
had Clinton not been impaired, and the Clinton management fees paid to PECO,
partially offset by reduced operating expenses due to the transfer of the
wholly owned fossil generating assets to Illinova on October 1, 1999.
Maintenance expenses decreased primarily due to the Clinton management
arrangement with PECO, a decrease in outside consulting fees and the transfer
of the fossil generating assets.

   The decrease in depreciation and amortization for 2000 is due primarily to
the transfer of the wholly owned fossil generating assets to Illinova on
October 1, 1999, partially offset by an increase in regulatory asset
amortization.

   The decrease in depreciation and amortization for 1999 is due to a
combination of several factors. Due to the Clinton impairment, nuclear
depreciation was eliminated but was partially offset by the additional
depreciation resulting from the adjustment to fair value for the fossil
generation assets. In addition, amortization of the decommissioning
regulatory asset and the transition period cost recovery regulatory asset was
recognized.

GENERAL TAXES The decrease in general taxes of $26.8 million in 2000 is
mainly due to a reduction in real estate taxes and payroll taxes stemming
from the transfer and sale of generating assets in 1999. The decrease in 1999
was due primarily to a reclassification of revenue-related taxes mandated by
P.A. 90-561. The decrease was partially offset by costs to fund a program,
provided for in P.A. 90-561, that helps low-income customers avoid shutoffs.

OTHER INCOME AND DEDUCTIONS - NET Total other income and deductions - net
increased by $77.1 million and includes $174.9 million of interest income on
the fossil asset transfer note from Illinova. Miscellaneous - net decreased
$45.3 million primarily due to increased taxes from non-utility operating
income in 2000. The decrease in 1999 of other income and deductions - net was
attributable to increased taxes related to non-utility income and decreased
Clinton ITC benefit partially offset by increased interest income from the
investment proceeds of the transitional funding trust notes, the adjustment
in the net present value of the decommissioning regulatory asset, and
increased interest income on the fossil asset transfer note.

INTEREST CHARGES Total interest charges, including AFUDC, decreased $6.4
million in 2000 and is primarily due to the redemption of $93 million of
MIPS. The increase in 1999 was primarily due to interest on the transitional
funding trust notes issued in December 1999, offset by decreased interest on
long and short-term debt.

COMPETITION Competition has become a dominant issue for the electric utility
industry. 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.

   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. However, the Energy Policy Act
currently precludes the FERC from mandating retail wheeling. Retail wheeling
involves the transport of electricity to end-use customers.

                                       19
<PAGE>

SEASONALITY IP's revenue and operating margin are impacted by seasonal
factors that affect sales volumes of electricity and gas. Typically, revenues
from sales of electricity are higher in the summer months resulting from the
summer cooling season; whereas, gas revenues are higher in the winter months
resulting from the winter heating season.

EFFECT OF INFLATION Although IP's operations are affected by general economic
trends, management does not believe inflation has had a material effect on
IP's results of operations.

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

   IP has historically relied upon operating cash flow and borrowings from a
combination of commercial paper issuances, bank lines of credit, corporate
credit agreements and various public debt issuances for its liquidity and
capital resource requirements.

DEBT RATINGS The availability and cost of external financing depend to a
significant degree on the financial health of the company seeking those
funds. Security ratings are an indication of a company's financial position
and may affect the cost and the willingness of investors to invest in these
securities. IP's securities are currently rated by three principal rating
agencies as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------- ------------- ------------- ---------------
                                                                          Standard &       Fitch
                                                             Moody's       Poor's           IBCA
--------------------------------------------------------- ------------- ------------- ---------------
<S>                                                       <C>           <C>           <C>
New mortgage bonds                                            Baa1          BBB+             A-
Preferred stock                                               Baa2          BBB-             BBB
Commercial paper                                              P-2           A-2              F2
Transitional funding trust notes                              Aaa           AAA              AAA
</TABLE>

   Under current market conditions, these ratings would afford IP the ability
to issue additional securities through external financing. IP has adequate
short-term and intermediate-term bank borrowing capacity.

   In January 2000, several rating agencies upgraded IP's credit quality.
Most of these ratings have remained relatively unchanged; however, Fitch IBCA
have downgraded some New Mortgage Bonds from A to A- and Preferred Stock from
BBB+ to BBB. In addition, S&P ratings are currently under negative watch.
Duff & Phelps and Fitch IBCA have merged and are listed as Fitch IBCA.

AFFILIATE TRANSACTION IP maintains an unsecured note receivable due from its
parent relating to the October 1999 transfer of the fossil-fueled generating
assets. The note matures on September 30, 2009 and bears interest at an
annual rate of 7.5%, due semiannually in April and October. Principal
outstanding under this note totaled approximately $2.3 billion at December
31, 2000. Principal repayments and interest payments accruing under this
arrangement provide IP with a source of liquidity to meet its prospective
operating and capital expenditure requirements.

COMMERCIAL PAPER AND LINES OF CREDITS At March 9, 2001, IP had commercial
paper outstanding in the amount of $269.1 million. Remaining availability
under a credit agreement totaled $30.9 million. IP believes additional
financing arrangements can be obtained at reasonable terms, if required.

MORTGAGE Historically, a substantial portion of the funds needed by IP have
been provided by indebtedness issued pursuant to its 1992 New Mortgage. In
general, IP is able to issue debt secured by the mortgage provided that (i)
its "adjusted net earnings" are at least two times its "annual interest
requirements," and (ii) the aggregate amount of indebtedness secured by the
mortgage does not exceed three-quarters of the original cost of the property
subjected to the lien of the mortgage, reduced to reflect property that has
been retired or sold. It also generally can issue indebtedness in exchange
for repurchased and retired indebtedness independent of whether these two
tests are met.

                                       20
<PAGE>

   Aggregate principal outstanding under IP's New Mortgage Bonds approximated
$1.1 billion at December 31, 2000, bearing interest ranging from 5.4% to 7.5%
per annum. At December 31, 2000, IP had unsecured non-mortgage-borrowing
capacity totaling approximately $347 million.

SECURITIZATION In December 1998, IPSPT issued $864 million of Transitional
Funding Trust Notes as allowed under the Illinois Electric Utility Transition
Funding Law in P.A. 90-651. IP has used proceeds from this offering to fund
open-market purchases, maturities, defeasance of debt and repurchases of
various preferred stock series. Per annum interest on these notes averages
approximately 5.4%. IP is retiring the principal outstanding under these
notes through quarterly payments of $21.6 million.

DIVIDENDS Under IP's Restated Articles of Incorporation, common stock
dividends are subject to the preferential rights of the holders of preferred
and preference stock. 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 properly stated in a capital account." IP's retained
earnings balance is expected to be sufficient during 2001 to support payment
of all scheduled preferred dividends. On March 2, 2001, IP declared and paid
common stock dividends of $100.0 million to Illinova.

PREFERRED SECURITIES OF SUBSIDIARY TRUST IPFI, a wholly owned subsidiary of
IP, has $100 million aggregate liquidation amount of Subordinated Capital
Income Securities outstanding at December 31, 2000, which were issued in a
private transaction. These TOPrS were issued at 8% with a $25 per share
liquidation preference. The TOPrS mature on January 31, 2045 and may be
redeemed at IP's option, in whole or in part, from time to time on or after
January 31, 2001. IP redeemed all $93 million of the tax advantaged MIPS held
by Illinois Power Capital, L.P. on May 31, 2000. No other debts exist within
the limited partnership.

CAPITAL ASSET PROGRAM Construction expenditures for 2000 were approximately
$158 million. IP construction expenditures for 2001 through 2005 are expected
to total approximately $819 million. Additional expenditures may be required
during this period to accommodate the transition to a competitive
environment, environmental compliance, system upgrades and other costs that
cannot be determined at this time.

DECOMMISSIONING See "Note 3 - Clinton Impairment, Quasi-Reorganization and
Sale of Clinton" in the audited financial statements included herein for
additional information.

ENVIRONMENTAL MATTERS See "Note 5 - Commitments and Contingencies" in the
audited financial statements included herein and "Environmental Matters" in
"Item 1. Business" for a discussion of environmental matters that impact or
could potentially impact IP.

TAX MATTERS See "Note 8 - Income Taxes" in the audited financial statements
included herein for a discussion of effective tax rates and other tax issues.

UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION. IP's reports,
filings and other public announcements often include statements reflecting
assumptions, expectations, projections, intentions or beliefs about future
events. These statements are intended as "forward-looking statements" under
the Private Securities Litigation Reform Act of 1995. You can identify these
statements by the fact that they do not relate strictly to historical or
current facts. They use words such as "anticipate," "estimate," "project,"
"forecast," "may," "should," "expect," "will" and other words of similar
meaning. In particular, these include, but are not limited to, statements
relating to the following:

--   projected operating or financial results;
--   beliefs about the financial impact of deregulation;
--   assumptions regarding the outcomes of legal and administrative proceedings;
--   intentions with respect to future energy supplies;
--   anticipated costs associated with legal and regulatory compliance; and
--   expectations regarding savings or synergies relating to the Dynegy-Illinova
     merger.

                                       21
<PAGE>

   Any or all of IP's forward-looking statements may turn out to be wrong.
They can be affected by inaccurate assumptions or by known or unknown risks
and uncertainties, including the following:

-- the timing and extent of changes in commodity prices for natural gas and
   electricity;

-- competitive practices in the industries where IP competes;

-- the effects of deregulation of the energy industry and the rules and
   regulations adopted in connection therewith;

-- general United States and Illinois economic conditions, including
   fluctuations in interest rates;

-- operational factors affecting the ongoing commercial operations of IP's
   transmission, transportation and distribution facilities, including
   catastrophic weather-related damage, unscheduled repairs or workforce issues;

-- cost and other effects of legal and administrative proceedings, settlements,
   investigations or claims, including environmental liabilities that may not be
   covered by indemnity or insurance; and

-- other regulatory or legislative developments that affect the energy industry
   in general and IP's operations in particular.

   Many of these factors will be important in determining IP's actual future
results. Consequently, no forward-looking statement can be guaranteed. IP's
actual future results may vary materially from those expressed or implied in
any forward-looking statements.

   All of IP's forward-looking statements, whether written or oral, are
expressly qualified by these cautionary statements and any other cautionary
statements that may accompany such forward-looking statements. In addition,
IP disclaims any obligation to update any forward-looking statements to
reflect events or circumstances after the date of this report.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   IP's operating results may be impacted by commodity price fluctuations
resulting from purchases of electricity used in supplying service to its
customers. IP has contracted for volumes from various suppliers under
contracts having various commercial terms. Certain of these contracts do not
obligate the supplier to provide replacement power to IP in the event of a
curtailment or shutdown of operating facilities. Management believes that
these arrangements provide a significant, stable supply of electricity that
will allow it to effectively manage supply needs and reduce the risk of
short-term supply shortages during periods of peak demand. However, if the
commodity volumes supplied from these agreements are inadequate to cover IP's
native load, IP will be required to purchase its supply needs in open-market
purchases at prevailing market prices. Such purchases would expose IP to
commodity price risk. Price risk associated with gas marketing operations of
IP is mitigated through contractual terms applicable to the business, as
allowed by the ICC. IP applies prudent risk management practices in order to
minimize these market risks. Such risk management practices may not fully
mitigate these exposures.

   Periodically, IP has utilized interest rate derivatives (principally
interest rate swaps and caps) to adjust the portion of its overall borrowings
subject to interest rate risk. As of December 31, 2000 and 1999, there were
no interest rate derivatives outstanding.

   IP market risk is considered as a component of the entity-wide risk
management polices of its parent company, Dynegy. Dynegy measures entity-wide
market risk in its financial trading and risk management portfolios using
Value at Risk. The quantification of market risk using Value at Risk provides
a consistent measure of risk across diverse energy markets and products with
different risk factors to set the overall corporate risk tolerance, determine
risk targets and position limits. The use of this methodology requires a
number of key assumptions including the selection of a confidence level and
the holding period to liquidation. In addition to Value at Risk, Dynegy
performs regular stress and scenario analyses to measure extreme losses due
to exceptional events. Additional measures are used to determine the
treatment of risks outside the Value at Risk methodologies, such as market
volatility, liquidity, event and correlation risk.

IMPACT OF PRICE FLUCTUATION IP's operating results may be impacted by
commodity price fluctuations for electricity used in supplying service to its
customers. IP has contracted with AmerGen and DMG to supply power via PPAs.
With these arrangements, IP has provided adequate power supply for expected
IP load plus a reserve supply above that expected level. Should power
acquired under these agreements be insufficient to meet IP load requirements,
IP will have to buy power at current market prices. The PPA with DMG
obligates DMG to provide power up to the reservation amount even if DMG has
individual units unavailable at various times. The PPA with AmerGen

                                       22
<PAGE>

does not obligate AmerGen to acquire replacement power for IP in the event of
a curtailment or shutdown at the Clinton Power Station. Under a Clinton
shutdown scenario, to the extent IP exceeds its capacity reservation with
DMG, IP will have to buy power at current market prices.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The audited financial statements are included herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

   On February 1, 2000, IP dismissed its prior independent accountants,
PricewaterhouseCoopers LLP, upon completion of the audits of IP's financial
statements as of and for the year ended December 31, 1999. Also on February
1, 2000, IP engaged Arthur Andersen LLP as its new independent accountants.
The decision to change accountants was approved by IP's Board of Directors
and occurred in connection with the merger of Dynegy and Illinova and its
subsidiaries, including IP. For additional information regarding this change
in IP's independent accountants, please read the Current Report on Form 8-K
filed by IP on February 8, 2000 reporting of such change.























                                       23
<PAGE>

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


ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   The following table sets forth certain information with respect to IP's
directors and executive officers as of March 1, 2001:

<TABLE>
<CAPTION>
                                                                                           SERVED WITH THE
NAME                        AGE      POSITION(S)                                           COMPANY SINCE
----                        ---      -----------                                           -------------
<S>                         <C>      <C>                                                   <C>
C.L. Watson                 51       Chairman of the Board                                 2000

Stephen W. Bergstrom        43       Chief Executive Officer and Director                  2000

Larry F. Altenbaumer        52       President and Director                                1970

David W. Butts              46       Chief Operating Officer and Executive Vice            1978
                                     President

Robert D. Doty              43       Chief Financial Officer, Senior Vice President and    2000
                                     Director

Kathryn L. Patton           36       Vice President, General Counsel and Corporate         2000
                                     Secretary

Peggy E. Carter             38       Vice President and Controller                         1985

Kenneth E. Randolph         44       Director                                              2000
</TABLE>

   The directors named above will serve in such capacity until IP's next
annual shareholder meeting and until their respective successors have been
duly elected and qualified, or until their earlier death, resignation or
removal. The executive officers named above will serve in such capacities
until IP's next annual Board of Directors meeting or until their respective
successors have been duly elected and qualified or until their earlier death,
resignation or removal.

C.L. WATSON has served as Chairman of the Board of Directors of IP since
February 2000 and was elected to serve as such following the consummation of
the Dynegy-Illinova merger. Mr. Watson also serves as Chairman and Chief
Executive Officer of Dynegy. He joined Dynegy as President in 1985 and became
Chairman and Chief Executive Officer in 1989. Prior to his employment with
Dynegy, Mr. Watson served as Director of Gas Sales for the Western United
States for Conoco Inc. Mr. Watson serves on the Board of Directors of Baker
Hughes Incorporated.

STEPHEN W. BERGSTROM has served as Chief Executive Officer and a Director of
IP since February 2000 and was elected to serve in such capacities following
the consummation of the Dynegy-Illinova merger. Mr. Bergstrom also serves as
President and Chief Operating Officer of Dynegy and is responsible for the
day-to-day execution of Dynegy's strategy across its operating business
units. He also is a member of Dynegy's Board of Directors. Mr. Bergstrom was
formerly President and Chief Operating Officer of Dynegy Marketing and Trade
and Executive Vice President of Dynegy. After joining Dynegy in 1986 as Vice
President of Gas Supply, Mr. Bergstrom was promoted to Senior Vice President
of Gas Marketing

                                       24
<PAGE>

and Supply in 1987. Prior to joining Dynegy, Mr. Bergstrom was Vice President
of Gas Supply for Enron Gas Marketing.

LARRY F. ALTENBAUMER has served as President of IP since September 1999 and
as a Director since February 2000. Mr. Altenbaumer was elected to serve as a
Director of IP following the consummation of the Dynegy-Illinova merger. Mr.
Altenbaumer also serves as Senior Vice President of Dynegy. Mr. Altenbaumer
previously served as Senior Vice President and Chief Financial Officer of IP
from 1992 until September 1999 and as Senior Vice President, Chief Financial
Officer, Treasurer and Controller of Illinova from June 1994 until September
1999.

DAVID W. BUTTS has served as Chief Operating Officer and Executive Vice
President of IP since September 1999. Mr. Butts also serves as Senior Vice
President of Dynegy. Mr. Butts previously served as President of Illinova
Energy Partners ("IEP"), an affiliate of IP, from February 1998 until
September 1999. Prior to being elected President of IEP, Mr. Butts was Senior
Vice President of IP and, from November 1993 through August 1995, he was
President of Illinova Generating Company, another IP affiliate.

ROBERT D. DOTY has served as Chief Financial Officer, Senior Vice President
and a Director of IP since May 2000. Mr. Doty also serves as Senior Vice
President and Chief Financial Officer of Dynegy and has served as Dynegy's
principal financial officer since May 2000. In such capacity, he is
responsible for the overall financial strategy and operation of Dynegy. He is
responsible for accounting, finance, investor relations, risk control,
treasury and tax. He previously served Dynegy as Senior Vice President of
Finance. Prior to joining Dynegy, Mr. Doty was employed by Arthur Andersen
LLP.

KATHRYN L. PATTON has served as Vice President, General Counsel and Secretary
of IP since February 2000 and was elected to serve in such capacities
following the consummation of the Dynegy-Illinova merger. Ms. Patton
previously served Dynegy as Director and Regulatory Counsel from May 1995 to
March 1999 and Senior Director and Regulatory Counsel from March 1999 until
February 2000.

PEGGY E. CARTER has served as Vice President of IP since February 2000 and as
Controller since November 1999. Ms. Carter was elected to serve as Vice
President of IP following the consummation of the Dynegy-Illinova merger. Ms.
Carter previously served IP in various capacities from 1985, including
Business Leader in IP's accounting department from August 1994 until November
1999.

KENNETH E. RANDOLPH has served as a Director of IP since February 2000 and
was elected to serve as such following the consummation of the
Dynegy-Illinova merger. Mr. Randolph also serves as General Counsel and
Secretary of Dynegy. He has served in such capacity with Dynegy since July
1987. In addition, he served as a member of Dynegy's Management Committee
from May 1989 through February 1994 and managed Dynegy's marketing operations
in the Western and Northwestern United States from July 1984 through July
1987. Prior to his employment with Dynegy, Mr. Randolph was associated with
the Washington, D.C. office of Akin, Gump, Strauss, Hauer & Feld, L.L.P.

ITEM 11.   EXECUTIVE COMPENSATION

   The following table sets forth certain information regarding the
compensation earned by the individual who serves as IP's Chief Executive
Officer and the four other most highly compensated executive officers of IP
at the end of 2000 (the "Named Executive Officers"), as well as amounts
earned by or awarded to certain of such individuals for services rendered in
all capacities to IP for the fiscal years of 1998 and 1999.

                                       25
<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                        LONG-TERM
                                           ANNUAL COMPENSATION                          COMPENSATION AWARDS
                                           -------------------                          -------------------
                                                                                        RESTRICTED  SECURITIES
                                                                       OTHER ANNUAL     STOCK       UNDERLYING    ALL OTHER
NAME AND PRINCIPAL POSITION          YEAR       SALARY(1)   BONUS(2)   COMPENSATION(3)  AWARDS(4)   OPTIONS(5)    COMPENSATION(6)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>        <C>          <C>        <C>             <C>         <C>           <C>
Stephen W. Bergstrom                 2000(8)          (9)          (9)       (9)              (9)          (9)             (9)
   Chief Executive Officer(7)

Larry F. Altenbaumer                 2000       $303,208     $485,000   $   ---         $250,000       84,553        $  5,250
   President                         1999       $259,125     $156,600   $   ---         $   ---        35,120        $676,983
                                     1998       $244,375     $  9,855   $   ---         $ 19,855       10,000        $  2,500

David W. Butts                       2000       $254,938     $245,444   $   ---         $   ---        41,491        $  5,250
   Chief Operating Officer           1999       $168,750(13) $135,000   $   ---         $   ---        47,400        $298,733
   Executive Vice President          1998       $214,732     $  4,441   $   ---         $ 14,441       10,000        $  2,339

Kathryn L. Patton                    2000(10)   $176,750     $130,000   $45,943(11)     $   ---        16,548        $ 25,500
   Vice President, General
   Counsel and Corporate
   Secretary

Peggy E. Carter                      2000(12)   $112,371     $ 75,850   $   ---         $   ---         3,129        $  2,329
   Vice President and
   Controller
</TABLE>

--------------------------------
(1)  Salary amounts for Messrs. Altenbaumer and Butts include additional base
     salary payments of $12,083 and $8,438, respectively, representing payment
     for the period from September 1999, when they became executive officers of
     IP, to February 1, 2000, the closing date of the Dynegy-Illinova merger,
     covering the pro-rata difference between their new base salaries and their
     final base salaries at Illinova. Salary amount for Ms. Carter includes a
     similar payment of $7,560 relative to her promotion to Controller in
     November 1999.
(2)  Bonus amounts include bonuses earned in 1998, 1999 and 2000 which were paid
     in 1999, 2000 and 2001, respectively. Bonus amounts for Messrs. Altenbaumer
     and Butts for 1999 represent the cash portions of grants made to them under
     IP's Executive Incentive Compensation Plan for 1999, including amounts
     deferred under IP's Executive Deferred Compensation Plan.
(3)  Includes "Perquisites and Other Personal Benefits" if value is greater than
     the lesser of $50,000 or 10% of the reported salary and bonus.
(4)  For 2000, Mr. Altenbaumer received 10,696 shares of restricted Dynegy Class
     A common stock valued at $23.38 per share. Such shares vest five years from
     the date of grant. During such period, dividend equivalents will be
     credited to Mr. Altenbaumer's account. For 1998, Messrs. Altenbaumer and
     Butts received stock unit awards under IP's Executive Incentive
     Compensation Plan. One-half of each year's award under this plan converted
     into stock units representing shares of Illinova (now Dynegy) common stock
     based on the closing price of such stock on the last trading day of the
     award year. The other one-half of the award is cash and is included under
     the "Bonus" column. Stock units awarded in a given year, together with
     cash representing the accumulated dividend equivalents on those stock
     units, became fully vested after a three-year holding period. Stock units
     are converted into cash based on the closing price of the common stock on
     the first trading day of the distribution year. Participants (or
     beneficiaries of deceased participants) whose employment is terminated by
     retirement on or after age 55, disability or death receive the present
     value of all unpaid awards on the date of such termination. Participants
     whose employment is terminated for reasons other than retirement,
     disability or death forfeit all unvested awards. In the event of a
     termination of employment within two years after a change in control of
     Illinova or any of its subsidiaries, without good cause or by any
     participant for good reason, all awards become fully vested and payable.
(5)  Number of shares underlying options reflects the two-for-one stock split
     effected by Dynegy Inc. in August 2000 and the .69 merger conversion ratio
     used in the Dynegy-Illinova merger. Such number also includes options
     granted in 2001 for 2000.
(6)  The amounts included as "All Other Compensation" for 2000 represent
     contributions to the Named Executive Officers' respective savings plan
     accounts. The amounts included for Messrs. Altenbaumer and Butts for 1999
     also include pre-severance payments under compensation plans that were
     retired in connection with the Dynegy-Illinova merger.
(7)  Mr. Bergstrom served as IP's only Chief Executive Officer for the year
     2000, as IP's previous Chief Executive Officer terminated as such in
     December 1999.
(8)  Mr. Bergstrom became an executive officer of IP in February 2000.
(9)  Mr. Bergstrom is not compensated by IP for services rendered as its Chief
     Executive Officer. Mr. Bergstrom is compensated by Dynegy for services
     rendered in all capacities to Dynegy and its affiliates, including IP.
     Information with respect to Mr. Bergstrom's compensation will be contained
     in Dynegy's Proxy Statement for its 2001 Annual Meeting of Shareholders
     (the "Proxy Statement").
(10) Ms. Patton became an executive officer of IP in February 2000.

                                       26
<PAGE>

(11) Amount includes an aggregate annual allowance for living and car expenses
     of $27,924 and $15,540 of reimbursements related to expenses incurred by
     Ms. Patton in connection with her relocation to Illinois following the
     Dynegy-Illinova merger. See "-Employment Contracts and Change-in-Control
     Arrangements."
(12) Ms. Carter became an executive officer of IP in February 2000.
(13) Reflects amounts paid to Mr. Butts by IP from March 1999 through December
     1999. Mr. Butts was compensated by IEP for his employment with IEP during
     January and February 1999.


OPTION GRANTS IN 2000

   The following table sets forth certain information with respect to Dynegy
stock option grants made to the Named Executive Officers during 2000 under
the Dynegy Inc. 2000 Long-Term Incentive Plan. Dynegy indirectly owns all of
the common stock of IP. No stock option appreciation rights were granted
during 2000.

INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
                                                                                         POTENTIAL REALIZABLE VALUE
                       NUMBER OF            % OF TOTAL                                   AT ASSUMED ANNUAL RATES OF
                       SECURITIES           OPTIONS                                      STOCK PRICE APPRECIATION
                       UNDERLYING           GRANTED TO                                   FOR OPTION TERM(2)
                       OPTIONS              EMPLOYEES     EXERCISE          EXPIRATION   ------------------
NAME                   GRANTED(1)           IN 2000(1)    PRICE $/SHARE(1)  DATE                 5%           10%
----                   ----------           ----------    ----------------  ----                 --           ---
<S>                    <C>                  <C>           <C>               <C>          <C>           <C>
Stephen W. Bergstrom             (3)              (3)                (3)           (3)             (3)          (3)
Larry F. Altenbaumer         25,218                *             $23.38        2/2/10      $  370,794   $  939,666
                             59,335                *             $47.19       2/19/11      $1,760,917   $4,462,509
David W. Butts               22,728                *             $23.38        2/2/10      $  332,753   $  843,262
                             18,763                *             $47.19       2/19/11      $  556,840   $1,411,141
Kathryn L. Patton            16,548                *             $47.19       2/19/11      $  491,104   $1,244,554
Peggy E. Carter               3,129                *             $47.19       2/19/11      $   92,861   $  235,328
</TABLE>

--------------------------------
* Less than 1%.
(1)   Number of securities underlying options/exercise price reflects the
      two-for-one stock split effected by Dynegy Inc. in August 2000 and the .69
      merger conversion ratio used in the Dynegy-Illinova merger. Such number
      also reflects options granted to the Named Executive Officers in 2001 for
      2000. Percent of total options granted to employees reflects the number of
      Dynegy stock options granted to employees of Dynegy and its affiliates,
      including IP, in 2000.
(2)   The dollar amounts under these columns represent the potential realizable
      value of each grant of options assuming that the market price of Dynegy
      common stock appreciates in value from the date of grant at the 5% and 10%
      annual rates prescribed by the SEC and are not intended to forecast
      possible future appreciation, if any, of the price of Dynegy common stock.
(3)   Information with respect to Mr. Bergstrom's Dynegy stock option grants
      will be contained in Dynegy's Proxy Statement under the heading "Executive
      Compensation."



                                       27
<PAGE>

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

   The following table sets forth certain information regarding Dynegy stock
options held by the Named Executive Officers at December 31, 2000.

<TABLE>
<CAPTION>
                                                   NUMBER OF SECURITIES           VALUE OF UNEXERCISED
                                                   UNDERLYING UNEXERCISED         IN-THE-MONEY OPTIONS AT
                        SHARES                     OPTIONS AT FISCAL YEAR-END(1)  FISCAL YEAR-END(2)
                        ACQUIRED     VALUE         ------------------------------ -------------------
NAME                    ON EXERCISE  REALIZED      EXERCISABLE   UNEXERCISABLE    EXERCISABLE   UNEXERCISABLE
----                    -----------  --------      -----------   -------------    -----------   -------------
<S>                     <C>          <C>           <C>           <C>              <C>           <C>
Stephen W. Bergstrom        (3)          (3)           (3)             (3)            (3)           (3)
Larry F. Altenbaumer         38,600  $1,244,863        76,206        60,812       $3,151,415      $2,541,189
David W. Butts               41,800  $1,327,391        53,976        45,152       $2,190,747      $2,144,693
Kathryn L. Patton             1,900  $   89,182        27,415         8,830       $1,199,340      $  348,277
Peggy E. Carter                   0  $        0             0         6,000       $        0      $  243,015
</TABLE>

--------------------------------
(1) Number of shares underlying options reflects the two-for-one stock split
    effected by Dynegy Inc. in August 2000 and the .69 merger conversion ratio
    used in the Dynegy-Illinova merger. Certain unexercisable options held by
    Messrs. Altenbaumer and Butts and Ms. Patton became fully vested and
    exercisable effective upon the closing of the merger on February 1, 2000.
    See "-Employment Contracts and Change-in-Control Arrangements."
(2) Value based on the closing price of $56.0625 on the New York Stock Exchange
    - Composite Tape for Dynegy common stock on December 29, 2000.
(3) Information with respect to Mr. Bergstrom's Dynegy stock option exercises
    and year-end values will be contained in Dynegy's Proxy Statement under the
    heading "Executive Compensation."


PENSION BENEFITS

   The following table shows the estimated annual pension benefits on a
straight life annuity basis payable on retirement to Messrs. Altenbaumer and
Butts and Ms. Carter based on specified annual average earnings and years of
credited service classifications, assuming continuation of the IP Retirement
Income Plan for Salaried Employees (the "IP Retirement Plan") and employment
until age 65. Estimated annual benefits under the IP Retirement Plan are
payable only with respect to annual earnings up to $170,000. This table does
not show the Social Security offset, but any actual pension benefit payments
would be subject to this offset.

<TABLE>
<CAPTION>
                               ESTIMATED ANNUAL BENEFITS (ROUNDED)
---------------- -------------- --------------- -------------- ---------------
    Annual           15 Yrs.        20 Yrs.         25 Yrs.        30 Yrs.
    Average          Credited       Credited        Credited       Credited
    Earnings         Service        Service         Service        Service
---------------- -------------- --------------- -------------- ---------------
<S>              <C>            <C>             <C>            <C>
    $125,000         $ 37,500       $ 50,000        $ 62,500       $ 75,000
---------------- -------------- --------------- -------------- ---------------
     150,000           45,000         60,000          75,000         90,000
---------------- -------------- --------------- -------------- ---------------
     170,000           51,000         68,000          85,000        102,000
</TABLE>

   The earnings used in determining pension benefits under the IP Retirement
Plan are the participants' regular base compensation, as set forth under the
"Salary" column in the Summary Compensation Table above.

                                       28
<PAGE>

   At December 31, 2000, for purposes of the IP Retirement Plan, Messrs.
Altenbaumer and Butts and Ms. Carter had completed 28, 22 and 16 years of
credited service, respectively. None of the other Named Executive Officers
participate in the IP Retirement Plan.

COMPENSATION OF DIRECTORS

   None of IP's Directors receive special or additional compensation as a
result of their service on the Board of Directors or any committee of the
Board of Directors.

EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS

   Dynegy has employment agreements with each of Messrs. Altenbaumer,
Bergstrom, Butts and Doty and Ms. Patton. The employment agreements of
Messrs. Bergstrom and Doty will be described in Dynegy's Proxy Statement. The
employment agreements of Messrs. Altenbaumer and Butts and Ms. Patton are
described below.

LARRY ALTENBAUMER EMPLOYMENT AGREEMENT. Effective upon the closing of the
Dynegy-Illinova merger on February 1, 2000, Dynegy Inc. entered into a
three-year employment agreement with Mr. Altenbaumer, pursuant to which Mr.
Altenbaumer serves as President of IP and Senior Vice President of Dynegy
Inc. The term of the agreement will automatically be extended for additional
one-year periods unless either party elects otherwise. Mr. Altenbaumer's
employment agreement entitles him to a base salary of $290,000, subject to
increase at the discretion of the Board of Directors, and the annual
opportunity to earn additional bonus amounts. Upon the closing of the merger,
Mr. Altenbaumer also was awarded grants of Dynegy stock options under the
Dynegy Inc. 2000 Long Term Incentive Plan with a value equal to 150% of his
base salary and restricted stock with an in-the-money value equal to
approximately $250,000. Under the terms of the employment agreement, all
options granted to Mr. Altenbaumer prior to November 1, 1999 became fully
vested as of February 1, 2000. The employment agreement also contains
non-compete provisions in the event of Mr. Altenbaumer's termination of
employment.

   Mr. Altenbaumer's employment agreement also includes provisions governing
the payment of severance benefits if his employment is terminated due to
resignation following a "constructive termination," as defined in the
agreement, or for any other reason other than his voluntary resignation,
death, disability or discharge for cause. Any such severance benefits shall
be made as follows: (i) A lump sum amount equal to the product of (a) 2.99
and (b) the greater of (1) the average annual base salary and incentive
compensation paid to Mr. Altenbaumer for the highest three calendar years
preceding the year of termination, and (2) Mr. Altenbaumer's base salary and
target bonus amount for the year of termination; (ii) A lump sum amount equal
to the present value, as defined by Dynegy's Board of Directors, of the
senior management benefits and other perquisites otherwise owed to Mr.
Altenbaumer through the remaining term of his employment; (iii) Vesting of
any previously granted unvested Dynegy stock options to be exercised until
the later of the term of his agreement and the one-year anniversary of the
termination date; and (iv) Continued health and welfare benefits for 36
months from the termination date.

DAVID W. BUTTS EMPLOYMENT AGREEMENT. Effective upon the closing of the
Dynegy-Illinova merger on February 1, 2000, Dynegy Inc. entered into a
three-year employment agreement with Mr. Butts, pursuant to which Mr. Butts
serves as Executive Vice President and Chief Operating Officer of IP and Vice
President of Dynegy Inc. The term of the agreement will automatically be
extended for additional one-year periods unless either party elects
otherwise. Mr. Butts' employment agreement entitles him to a base salary of
$245,000, subject to increase at the discretion of the Board of Directors,
and the annual opportunity to earn additional bonus amounts, dependent upon
certain financial objectives, as a participant in Dynegy's Incentive
Compensation Plan. Upon the closing of the merger, Mr. Butts also was awarded
grants of Dynegy stock

                                       29
<PAGE>

options under the Dynegy Inc. 2000 Long Term Incentive Plan with a value
equal to 160% of his base salary. Under the terms of the employment
agreement, all options granted to Mr. Butts prior to November 1, 1999 became
fully vested as of February 1, 2000. The employment agreement also contains
non-compete provisions in the event of Mr. Butts' termination of employment.

   Mr. Butts' employment agreement also includes provisions governing the
payment of severance benefits if his employment is terminated due to
resignation following a "constructive termination," as defined in the
agreement, or for any other reason other than his voluntary resignation,
death, disability or discharge for cause. Any such severance benefits shall
be made as follows: (i) A lump sum amount equal to the product of (a) 2.99
and (b) the greater of (1) the average annual base salary and incentive
compensation paid to Mr. Butts for the highest three calendar years preceding
the year of termination, and (2) Mr. Butts' base salary and target bonus
amount for the year of termination; (ii) A lump sum amount equal to the
present value, as defined by Dynegy's Board of Directors, of the senior
management benefits and other perquisites otherwise owed to Mr. Butts through
the remaining term of his employment; (iii) Vesting of any previously granted
unvested Dynegy stock options to be exercised until the later of the term of
his agreement and the one-year anniversary of the termination date; and (iv)
Continued health and welfare benefits for 36 months from the termination date.

KATHRYN L. PATTON EMPLOYMENT AGREEMENT. Effective upon the closing of the
Dynegy-Illinova merger on February 1, 2000, Dynegy Inc. entered into a
two-year employment agreement with Ms. Patton, pursuant to which Ms. Patton
serves as Vice President and General Counsel of IP. The term of the agreement
will automatically be extended for an additional one-year period unless
either party elects otherwise. Ms. Patton's employment agreement entitles her
to a base salary of $175,000, subject to increase at the discretion of the
Board of Directors, and the annual opportunity to earn additional bonus
amounts, dependent upon certain financial objectives, as a participant in
Dynegy's Incentive Compensation Plan. Ms. Patton also is entitled to a
housing and automobile allowance of $2,327 per month during the original
two-year term of the agreement, after which she may request that she be
returned to the Dynegy organization in Houston, Texas as a Vice President at
the same base salary and target bonus. If such request is not granted within
60 days, Ms. Patton may terminate her employment and would be entitled to 18
months of base salary and target bonus and vesting of any unvested options
granted before December 31, 1999. Under the terms of the employment
agreement, all options granted to Ms. Patton prior to November 1, 1999 became
fully vested as of February 1, 2000. The employment agreement also contains
non-compete provisions in the event of Ms. Patton's termination of employment.

   Ms. Patton's employment agreement also includes provisions governing the
payment of severance benefits if her employment is terminated due to
resignation following a "constructive termination," as defined in the
agreement, or for any other reason other than her voluntary resignation,
death, disability or discharge for cause. Any such severance benefits shall
be made as follows: (i) A lump sum amount equal to 150% of Ms. Patton's base
salary and target bonus amount for the year of termination; (ii) Vesting of
any previously granted unvested Dynegy stock options to be exercised until
the later of the term of her agreement and the one-year anniversary of the
termination date; (iii) Reimbursement of all reasonable out-of-pocket moving
expenses from Decatur, Illinois to Houston, Texas and assumption of liability
through the end of the contract term for Ms. Patton's housing and automobile
leases in Decatur, Illinois up to $2,327 per month; and (iv) Continued health
and welfare benefits for 24 months from the termination date.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

   Dynegy and IP have a joint Compensation Committee that was comprised of
Dan Dienstbier (Chairman), Charles Bayless, D.W. Callahan and Patricia Eckert
during 2000. There are no matters relating to interlocks or insider
participation that IP is required to report.

                                       30
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   All of IP's common stock is owned by Illinova, which is a wholly owned
subsidiary of Dynegy. IP also has five series of preferred stock outstanding,
none of which is owned by any director or executive officer. Moreover, to the
best of IP's knowledge, no owner holds more than 5% of any such series of
preferred stock.

   The following table sets forth, as of March 7, 2001 except as otherwise
noted, certain information regarding beneficial ownership of the capital
stock of Dynegy by:

-- each person who is known by IP to own beneficially more than 5% of Dynegy's
   capital stock,
-- each director of IP,
-- IP's Chief Executive Officer and its four other most highly compensated
   executive officers, and
-- all directors and executive officers of IP as a group.

   Share amounts and percentages shown for each individual or group in the
table have been adjusted to give effect to the (i) two-for-one stock split
effected by Dynegy Inc. in August 2000, (ii) exercise of all options and
warrants exercisable by each individual within 60 days of March 7, 2001 and
(iii) the .69 merger conversion ratio used in the Dynegy-Illinova merger.

<TABLE>
<CAPTION>
                                                                NUMBER OF SHARES (1)
                                                          ---------------------------------
                                                                                               PERCENT OF
                                                            CLASS A          CLASS B            CLASS A
                                                          COMMON STOCK     COMMON STOCK      COMMON STOCK(2)
                                                          ------------- ------------------- -----------------
<S>                                                       <C>           <C>                 <C>
CHEVRON CORPORATION (3)                                     ---             86,499,914           27.0(3)
 Chevron USA Inc.
 575 Market Street
 San Francisco, CA 94104
FIDELITY MANAGEMENT & RESEARCH COMPANY (4)                  16,703,190         ---                7.0
 82 Devonshire
 Boston, MA 02109
LARRY F. ALTENBAUMER (5)                                        89,408         ---                 *
STEPHEN W. BERGSTROM (6)                                     3,337,084         ---                1.4
DAVID W. BUTTS (7)                                              59,179         ---                 *
PEGGY E. CARTER (8)                                              1,704         ---                 *
ROBERT D. DOTY (9)                                             322,163         ---                 *
KATHRYN L. PATTON (10)                                          27,845         ---                 *
KENNETH E. RANDOLPH (11)                                     1,854,717         ---                 *
C.L. WATSON (12)                                            12,349,804         ---                5.2
EXECUTIVE OFFICERS AND DIRECTORS OF
 IP AS A GROUP                                              18,041,904         ---                7.6
 (8 persons) (5)(6)(7)(8)(9)(10)(11)(12)
</TABLE>
-------------------
  *  Less than 1%.
(1)  Unless otherwise noted, each of the persons has sole voting and investment
     power with respect to the shares reported.
(2)  Based upon 238,944,006 shares of Class A common stock and 86,499,914 shares
     of Class B common stock outstanding at March 7, 2001.
(3)  The shares are held of record by Chevron USA Inc. Chevron Corporation
     beneficially owns 100% of the capital stock of Chevron USA. Consequently,
     Chevron Corporation may be deemed to beneficially own all of the shares of
     Class B common stock owned of record by Chevron USA. Percent of Class A
     common stock beneficially owned assumes conversion of Class B common stock
     for purposes of computing Chevron's beneficial ownership only.
(4)  According to its Form 13G/A for the year ended December 31, 2000. Advisor
     subsidiaries of Fidelity Management &

                                       31
<PAGE>

     Research Company have sole voting power for 3,948,602 shares and sole
     power to dispose or direct the disposition of 16,703,190 shares.
(5)  Includes 76,206 shares of Class A common stock issuable upon the exercise
     of employee stock options held by Mr. Altenbaumer that are exercisable
     within 60 days of March 7, 2001. Also includes approximately 6,428 shares
     of Class A common stock held by the Trustee of IP's 401(k) Plan (the "IP
     401(k) Plan") as of March 7, 2001 for the account of Mr. Altenbaumer. Mr.
     Altenbaumer holds voting power with respect to such shares.
(6)  Includes 601,174 shares of Class A common stock that are owned by trusts
     established by Mr. Bergstrom for the benefit of his minor children. Mr.
     Bergstrom's father is the sole trustee of such trusts. Mr. Bergstrom
     disclaims beneficial ownership of all of the shares of Class A common stock
     held by such trusts. Also includes 824,691 shares of Class A common stock
     issuable upon the exercise of employee stock options held by Mr. Bergstrom
     that are exercisable within 60 days of March 7, 2001. The number of shares
     does not include approximately 6,033 shares of Class A common stock held by
     the Trustee of the Dynegy Inc. Profit Sharing/401(k) Savings Plan (the
     "Dynegy 401(k) Plan") as of February 28, 2001 for the account of Mr.
     Bergstrom. Participants in the Dynegy 401(k) Plan have no voting or
     investment power with respect to such shares until their distribution to
     such participants upon termination of their employment. In addition, Mr.
     Bergstrom may elect to take cash in lieu of shares of Class A common stock
     held in his Dynegy 401(k) Plan account upon termination of his employment.
(7)  Includes 262 shares of Class A common stock that are owned by trusts
     established by Mr. Butts for the benefit of his minor children. Mr. Butts'
     wife is the sole trustee of such trusts. Mr. Butts disclaims beneficial
     ownership of all of the shares of Class A common stock held by such trusts.
     Also includes 53,976 shares of Class A common stock issuable upon the
     exercise of employee stock options held by Mr. Butts that are exercisable
     within 60 days of March 7, 2001. Also includes approximately 2,199 shares
     of Class A common stock held by the Trustee of the IP 401(k) Plan as of
     March 7, 2001 for the account of Mr. Butts. Mr. Butts holds voting power
     with respect to such shares.
(8)  All of such shares are held by the Trustee of the IP 401(k) Plan as of
     March 7, 2001 for the account of Ms. Carter. Ms. Carter holds voting power
     with respect to such shares.
(9)  Includes 293,448 shares of Class A common stock issuable upon the exercise
     of employee stock options held by Mr. Doty that are exercisable within 60
     days of March 7, 2001. The number of shares does not include approximately
     5,747 shares of Class A common stock held by the Trustee of the Dynegy
     401(k) Plan as of February 28, 2001 for the account of Mr. Doty.
     Participants in the Dynegy 401(k) Plan have no voting or investment power
     with respect to such shares until their distribution to such participants
     upon termination of their employment. In addition, Mr. Doty may elect to
     take cash in lieu of shares of Class A common stock held in his Dynegy
     401(k) Plan account upon termination of his employment.
(10) Includes 27,415 shares of Class A common stock issuable upon the exercise
     of employee stock options held by Ms. Patton that are exercisable within 60
     days of March 7, 2001. The number of shares does not include approximately
     4,063 shares of Class A common stock held by the Trustee of the Dynegy
     401(k) Plan as of February 28, 2001 for the account of Ms. Patton.
     Participants in the Dynegy 401(k) Plan have no voting or investment power
     with respect to such shares until their distribution to such participants
     upon termination of their employment. In addition, Ms. Patton may elect to
     take cash in lieu of shares of Class A common stock held in her Dynegy
     401(k) Plan account upon termination of her employment.
(11) Includes 257,745 shares of Class A common stock issuable upon the exercise
     of employee stock options held by Mr. Randolph that are exercisable within
     60 days of March 7, 2001. The number of shares does not include
     approximately 5,988 shares of Class A common stock held by the Trustee of
     the Dynegy 401(k) Plan as of February 28, 2001 for the account of Mr.
     Randolph. Participants in the Dynegy 401(k) Plan have no voting or
     investment power with respect to such shares until their distribution to
     such participants upon termination of their employment. In addition, Mr.
     Randolph may elect to take cash in lieu of shares of Class A common stock
     held in his Dynegy 401(k) Plan account upon termination of his employment.
(12) Includes 8,524,816 shares held of record by one or more partnerships, of
     which Mr. Watson and his wife are the sole shareholders of the corporate
     general partner and of which Mr. Watson (individually), his wife and
     certain trusts (the "Trusts") established by Mr. Watson for the benefit of
     his three children, of which Mr. Watson or his wife are the sole trustees,
     and a corporation, of which Mr. Watson and the Trusts are the sole
     shareholders, are the sole limited partners (the "Family Limited
     Partnership"). Mr. Watson may be deemed to beneficially own all of the
     shares of Class A common stock held by the Family Limited Partnership. Mr.
     Watson may be deemed to beneficially own all of the shares of Class A
     common stock held by such trusts. Also includes 3,824,988 shares of Class A
     common stock issuable upon the exercise of employee stock options held by
     Mr. Watson that are exercisable within 60 days of March 7, 2001 for the
     account of Mr. Watson. The number of shares does not include approximately
     6,332 shares of Class A common stock held by the Trustee of the Dynegy
     401(k) Plan as of February 28, 2001 for the account of Mr. Watson.
     Participants in the Dynegy 401(k) Plan have no voting or investment power
     with respect to such shares until their distribution to such participants
     upon termination of their employment. In addition, Mr. Watson may elect to
     take cash in lieu of shares of Class A common stock held in his Dynegy
     401(k) Plan account upon termination of his employment.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   IP routinely conducts business with subsidiaries of Dynegy. These
transactions include the purchase or sale of electricity, natural gas and
transmission services as well as certain other services. IP derived
approximately $39.6 million in operating revenue from these transactions
during 2000. Also, IP paid approximately $628.0 million, including $557.9
million for power purchased, in operating expenses relating to such
transactions during 2000. All such transactions were conducted at prices and
terms similar to those available to and transacted with unrelated third
parties.

                                       32
<PAGE>

   With respect to electricity purchases, IP has a PPA with DMG that provides
IP the right to purchase power from DMG for a primary term extending through
December 31, 2004. The primary term may be extended annually, subject to
concurrence by both parties. The PPA defines the terms and conditions under
which DMG provides capacity and energy to IP pursuant to a tiered pricing
structure. For more information regarding the PPA, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Regulatory Matters."

   Effective January 1, 2000, the Dynegy consolidated group, which includes
IP, began operating under a Services and Facilities Agreement, whereby other
Dynegy affiliates exchange services with IP such as financial, legal,
information technology and human resources as well as shared facility space.
IP services are exchanged at fully distributed costs and revenue is not
recorded under this agreement.

   Effective October 1, 1999, IP transferred its wholly owned fossil
generating assets and other generation-related assets and liabilities at net
book value to Illinova in exchange for an unsecured note receivable of
approximately $2.8 billion. Such assets subsequently were contributed by
Illinova to an affiliate that later became DMG. The note matures on
September 30, 2009 and bears interest at a rate of 7.5%, due semiannually in
April and October. At December 31, 2000, principal and accrued interest
outstanding under the note approximated $2.3 billion and $42.4 million,
respectively. IP recognized $174.9 million in interest income on the note
from Illinova in 2000.


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

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

   The following documents, which have been filed by IP with the SEC pursuant
to the Securities Exchange Act of 1934, as amended, are by this reference
incorporated in and made a part of this report:

(1) Financial Statements - Consolidated financial statements of IP are
incorporated under Item 8. of this Form 10-K.

(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 ~.

     (a)  Reports on Form 8-K during the quarter ended December 31, 2000:  None

                                       33
<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/LARRY F. ALTENBAUMER
                                         ------------------------------------
                                           Larry F. Altenbaumer, President


                                      Date:   MARCH 28, 2001
                                           ----------------------------------

  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 and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                                TITLE                                   DATE
---------                                -----                                   ----
<S>                                      <C>                                     <C>
/s/Stephen W. Bergstrom                  Chief Executive Officer and Director     March 28, 2001
-----------------------------------
     Stephen W. Bergstrom
     (Principal Executive Officer)

/s/Robert D. Doty, Jr.                   Chief Financial Officer, Senior Vice     March 28, 2001
-----------------------------------      President and Director
     Robert D. Doty, Jr.
     (Principal Financial Officer)

/s/Peggy E. Carter                       Vice President and Controller            March 28, 2001
-----------------------------------
     Peggy E. Carter
     (Principal Accounting Officer)

/s/Larry F. Altenbaumer                  President and Director                   March 28, 2001
-----------------------------------
     Larry F. Altenbaumer

/s/C. L. Watson                          Director                                 March 28, 2001
-----------------------------------
     C. L. Watson

/s/Kenneth E. Randolph                   Director                                 March 28, 2001
-----------------------------------
     Kenneth E. Randolph
</TABLE>

                                       34
<PAGE>

                                 EXHIBIT INDEX
EXHIBIT                           DESCRIPTION
-------                          -------------

(3)(i) ARTICLES OF INCORPORATION

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

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 THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES

4.1 - 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).*

4.2 - 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).*

4.3 - 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).*

4.4 - 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).*

4.5 - 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).*

4.6 - 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).*

4.7 - 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).*

4.8 - 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).*

4.9 - 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).*

                                       35
<PAGE>

                             EXHIBIT INDEX (CONTINUED)
EXHIBIT                           DESCRIPTION
-------                          -------------

4.10 - 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).*

4.11 - Supplemental Indenture dated April 1, 1997, to General Mortgage Indenture
and Deed of Trust dated as of 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).*

4.12 - 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).*

4.13 - 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 5.40% pollution control bonds. Filed
as Exhibit 4.42 to the Registration Statement on Form S-3, filed January 22,
1999 (File No. 333-71061).*

4.14 - 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).*

4.15 - 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).*

4.16 - 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).*

4.17 - Supplemental Indenture dated as of June 15, 1999, to General Mortgage
Indenture and Deed of Trust dated as of November 1, 1992 providing for the
issuance of $200,000,000 principal amount of 7.50% New Mortgage Bonds. Filed as
Exhibit 4.2 to the Quarterly Report on Form 10-Q for the quarter ended June 30,
1999 (File No. 1-3004).*

4.18 - Supplemental Indenture dated as of July 15, 1999, to General Mortgage
Indenture and Deed of Trust dated as of November 1, 1992 providing for the
issuance of $35,615,000 principal amount of 5.70% Series U pollution control
bonds. Filed as Exhibit 4.4 to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 1-3004).*

4.19 - Supplemental Indenture dated as of July 15, 1999, to General Mortgage
Indenture and Deed of Trust dated as of November 1, 1992 providing for the
issuance of $84,150,000 principal amount of 7.40% Series V pollution control
bonds. Filed as Exhibit 4.6 to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 1-3004).*

(10) MATERIAL CONTRACTS

10.1 - 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).~*

                                       36
<PAGE>

                             EXHIBIT INDEX (CONTINUED)
EXHIBIT                           DESCRIPTION
-------                          -------------

10.2 - 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).~*

10.3 - 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).~*

10.4 - 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).~*

10.5 - 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).~*

10.6 - 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. Filed as Exhibit 10(b)(13) to the Annual
Report on Form 10-K under the Securities Exchange Act of 1934 for the year ended
December 31, 1997 (File No. 1-3004).~*

10.7 - Settlement Agreement entered into as of December 22, 1999 between
Illinova Corporation on behalf of it and its subsidiaries including IP and
Charles E. Bayless. Filed as Exhibit 10(a)(15) to the Annual Report on Form 10-K
under the Securities Exchange Act of 1934 for the year ended December 31, 1999
(File No. 1-3004).~*

10.8 - Settlement Agreement entered into as of December 3, 1999 between Illinova
Corporation on behalf of it and its subsidiaries including IP and George W.
Miraben. Filed as Exhibit 10(a)(16) to the Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December 31, 1999 (File No.
1-3004).~*

10.9 - Settlement Agreement entered into as of December 14, 1999 between
Illinova Corporation on behalf of it and its subsidiaries including IP and
William B. Conway Jr. Filed as Exhibit 10(a)(17) to the Annual Report on Form
10-K under the Securities Exchange Act of 1934 for the year ended December 31,
1999 (File No. 1-3004).~*

10.10 - Settlement Agreement entered into as of November 1999 between Illinova
Corporation on behalf of it and its subsidiaries including IP and the following
officers: Larry F. Altenbaumer, Paul L. Lang, Kim B. Leftwich, David W. Butts,
Robert D. Reynolds, Robert A. Schultz, Cynthia G. Steward, Leah Manning
Stetzner, and Eric B. Weekes. Filed as Exhibit 10(a)(18) to the Annual Report on
Form 10-K under the Securities Exchange Act of 1934 for the year ended December
31, 1999 (File No. 1-3004).~*

(12) STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(21) SUBSIDIARIES OF REGISTRANTS

21.1 - Subsidiaries of IP.

--------------------------------------
*     Incorporated herein by reference.
~     Management contract and compensatory plans or arrangements.


                                       37
<PAGE>

ILLINOIS POWER COMPANY
RESPONSIBILITY FOR INFORMATION

The consolidated financial statements and all information in this report are
the responsibility of management. The consolidated financial statements have
been prepared in conformity with generally accepted accounting principles and
include amounts that are based on management's best estimates and judgments.
Management also prepared the other information in this report and is
responsible for its accuracy and consistency with the consolidated financial
statements. In the opinion of management, the consolidated financial
statements fairly reflect Illinois Power's financial position, results of
operations and cash flows.

   Illinois Power believes that its accounting and internal accounting
control systems are maintained so that these systems provide reasonable
assurance that assets are safeguarded against loss from unauthorized use or
disposition and that the financial records are reliable for preparing the
consolidated financial statements.

   The current year consolidated financial statements have been audited by
Illinois Power's independent accountants, Arthur Andersen LLP, in accordance
with generally accepted auditing standards. The prior year consolidated
financial statements were audited by Illinois Power's independent
accountants, PricewaterhouseCoopers LLP in accordance with generally accepted
auditing standards. Such standards include the evaluation of internal
accounting controls to establish a basis for developing the scope of the
examination of the consolidated financial statements.




Larry F. Altenbaumer
PRESIDENT





David W. Butts
EXECUTIVE VICE PRESIDENT
& CHIEF OPERATING OFFICER




                                       40
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Illinois Power Company:

We have audited the accompanying consolidated balance sheet of Illinois Power
Company (an indirect, wholly owned subsidiary of Dynegy Inc.) and
subsidiaries as of December 31, 2000, and the related consolidated statements
of income, retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Illinois Power Company and
subsidiaries as of December 31, 2000, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.

                                       Arthur Andersen LLP

Houston, TX
March 6, 2001






                                       41
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholder of Illinois Power Company:

In our opinion, the consolidated balance sheet as of December 31, 1999 and the
related consolidated statements of income, of cash flows and of retained
earnings for each of the two years in the period ended December 31, 1999
(appearing in the Illinois Power Company (the "Company") 2000 Annual Report on
Form 10-K) present fairly, in all material respects, the financial position,
results of operations and cash flows of the Company and its subsidiaries at
December 31, 1999 and for each of the two years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. We have not audited the
consolidated financial statements of Illinois Power Company for any period
subsequent to December 31, 1999.

As explained in Note 2 to the consolidated financial statements, Illinova
Corporation ("Illinova"), the Company's parent, merged with Dynegy, Inc. on
February 1, 2000.

As explained in Note 4 to the consolidated financial statements, the Company
transferred its wholly owned fossil generating assets and other
generation-related assets and liabilities to Illinova in exchange for a note
receivable on October 1, 1999.

As explained in Note 3 to the consolidated financial statements, the Company's
commitment to exit nuclear operations resulted in an impairment of the Clinton
Power Station in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," in December 1998.

As explained in Note 3 to the consolidated financial statements, the Company
effected a quasi-reorganization in December 1998. In conjunction with the
accounting for a quasi-reorganization, the Company adjusted the recorded value
of specific assets and liabilities to fair value, including its fossil power
generation stations. In addition, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" and Emerging Issues Task Force Statement 98-10, "Accounting for
Energy Trading and Risk Management Activities."

PricewaterhouseCoopers LLP
St. Louis, Missouri
February 28, 2000





                                       42
<PAGE>

<TABLE>
<CAPTION>
ILLINOIS POWER COMPANY
C O N S O L I D A T E D   S T A T E M E N T S   O F    I N C O M E
----------------------------------------------------------------------------------------------------------------------------
                                                                                                       (MILLIONS OF DOLLARS)
----------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,                                            2000             1999               1998
<S>                                                                   <C>               <C>               <C>
OPERATING REVENUES
Electric                                                               $ 1,189.4         $ 1,178.6         $ 1,224.2
Electric interchange                                                         2.7             420.2             557.2
Gas                                                                        393.5             304.4             287.8
----------------------------------------------------------------------------------------------------------------------------
         Total                                                           1,585.6           1,903.2           2,069.2
----------------------------------------------------------------------------------------------------------------------------

OPERATING EXPENSES AND TAXES
Fuel for electric plants                                                     -               191.2             250.2
Power purchased                                                            729.3             421.1             735.2
Gas purchased for resale                                                   252.7             165.1             149.6
Other operating expenses                                                   143.5             466.9             381.6
Retirement and severance expense                                            31.0               -                 -
Maintenance                                                                 57.7             107.8             156.3
Depreciation and amortization                                               77.6             151.8             203.6
Amortization of regulatory asset                                            50.6              26.4               -
General taxes                                                               74.0             100.8             123.2
Income taxes                                                                13.2              54.4             (30.9)
Income tax - impairment loss                                                 -                 -              (982.8)
Clinton plant impairment loss (Note 3)                                       -                 -             2,666.9
----------------------------------------------------------------------------------------------------------------------------
         Total                                                           1,429.6           1,685.5           3,652.9
----------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                    156.0             217.7          (1,583.7)
----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND DEDUCTIONS - NET
ITC - Clinton impairment                                                     -                 -               160.4
Interest income from affiliates                                            175.3             52.9                -
Miscellaneous - net                                                        (58.6)           (13.3)               2.6
----------------------------------------------------------------------------------------------------------------------------
         Total                                                             116.7             39.6              163.0
----------------------------------------------------------------------------------------------------------------------------
Income (loss) before interest charges                                      272.7            257.3           (1,420.7)
----------------------------------------------------------------------------------------------------------------------------
INTEREST CHARGES
Interest expense                                                           139.1            148.4              134.9
Allowance for borrowed funds used during construction                       (1.3)            (4.2)              (3.2)
----------------------------------------------------------------------------------------------------------------------------
         Total                                                             137.8            144.2              131.7
----------------------------------------------------------------------------------------------------------------------------

Net income (loss)                                                          134.9            113.1           (1,552.4)
Less - Preferred dividend requirements                                      13.9             19.2               19.8
Plus - Carrying amount over consideration
       paid for redeemed preferred stock                                     -                1.7                -
----------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock                           $   121.0         $   95.6          $(1,572.2)
----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>

                                       43
<PAGE>

<TABLE>
<CAPTION>
ILLINOIS POWER COMPANY
C O N S O L I D A T E D   B A L A N C E   S H E E T S
----------------------------------------------------------------------------------------------------------------
                                                                                           (MILLIONS OF DOLLARS)
----------------------------------------------------------------------------------------------------------------
December 31,                                                                               2000            1999
<S>                                                                              <C>              <C>
ASSETS
UTILITY PLANT
Electric (includes construction work in progress of $113.9 million and
   $84.4 million, respectively)                                                  $      2,300.8   $     2,188.9
Gas (includes construction work in progress of $18.7 million and $17.1 million,
   respectively)                                                                          739.9           714.2
----------------------------------------------------------------------------------------------------------------
                                                                                        3,040.7         2,903.1
Less -- accumulated depreciation                                                        1,192.6         1,138.6
----------------------------------------------------------------------------------------------------------------
                                                                                        1,848.1         1,764.5
----------------------------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS                                                               15.7            13.1
----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents                                                                  24.1            23.5
Accounts receivable  (less allowance for doubtful accounts relating to 2000
and 1999 of $5.5 million)
       Service                                                                            114.2            91.7
       Other                                                                               55.1            16.4
Accounts receivable, affiliates                                                            51.4            83.6
Accrued unbilled revenue                                                                  116.7            83.4
Materials and supplies, at average cost
      Gas in underground storage                                                           36.5            24.2
      Operating materials                                                                  13.9            16.8
Prepaid and refundable income taxes                                                         -              65.9
Prepayments and other                                                                      12.4            35.8
----------------------------------------------------------------------------------------------------------------
                                                                                          424.3           441.3
----------------------------------------------------------------------------------------------------------------
DEFERRED CHARGES
Note receivable from affiliate                                                          2,262.1         2,597.6
Transition period cost recovery                                                           272.8           320.3
Other                                                                                     148.7           161.0
----------------------------------------------------------------------------------------------------------------
                                                                                        2,683.6         3,078.9
----------------------------------------------------------------------------------------------------------------
                                                                                 $      4,971.7   $     5,297.8
----------------------------------------------------------------------------------------------------------------
CAPITAL AND LIABILITIES
CAPITALIZATION
Common stock -- No par value, 100,000,000 shares authorized; 75,643,937 shares
   issued, stated at                                                             $      1,274.2   $     1,274.1
Retained earnings - accumulated since 1/1/99                                              175.7            54.7
Less -- Capital stock expense                                                               7.2             7.2
Less -- 12,751,724 shares of common stock in treasury, at cost                            286.4           286.4
----------------------------------------------------------------------------------------------------------------
      Total common stock equity                                                         1,156.3         1,035.2
Preferred stock                                                                            45.8            45.8
Mandatorily redeemable preferred stock                                                    100.0           193.4
Long-term debt                                                                          1,787.6         1,906.4
----------------------------------------------------------------------------------------------------------------
      Total capitalization                                                              3,089.7         3,180.8
----------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable                                                                          145.9            78.4
Accounts payable, affiliates                                                                5.2            13.3
Notes payable                                                                             147.8           327.3
Long-term debt maturing within one year                                                    86.4           236.4
Taxes accrued                                                                              39.6            26.8
Interest accrued                                                                           16.2            17.7
Other                                                                                      97.1            66.3
----------------------------------------------------------------------------------------------------------------
                                                                                          538.2           766.2
----------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes                                                       1,106.4         1,075.2
Accumulated deferred investment tax credits                                                23.7            24.7
Other                                                                                     213.7           250.9
----------------------------------------------------------------------------------------------------------------
                                                                                        1,343.8         1,350.8
----------------------------------------------------------------------------------------------------------------
                                                                                 $      4,971.7   $     5,297.8
----------------------------------------------------------------------------------------------------------------
(Commitments and Contingencies Note 5)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>

                                       44
<PAGE>

<TABLE>
<CAPTION>
ILLINOIS POWER COMPANY
 C O N S O L I D A T E D   S T A T E M E N T S   O F    C A S H   F L O W S
----------------------------------------------------------------------------------------------------------------------
                                                                                                 (MILLIONS OF DOLLARS)
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>          <C>        <C>
 For the Years Ended December 31,                                                     2000        1999        1998
 CASH FLOWS FROM OPERATING ACTIVITIES
 Net income (loss)                                                                  $134.9       $113.1    ($1,552.4)
 Items not requiring (providing) cash --
    Depreciation and amortization                                                    134.9        181.8        203.4
    Deferred income taxes                                                             55.3        165.4        (37.8)
    Impairment loss, net of tax                                                        -            -        1,523.7
 Changes in assets and liabilities --
    Accounts receivable                                                              (29.0)       (81.4)        11.9
    Accrued unbilled revenue                                                         (33.3)         (.8)         3.7
    Materials and supplies                                                            (9.4)        (7.6)       (15.9)
    Prepayments                                                                       68.8        (55.6)        18.5
    Accounts payable                                                                  58.8        (34.4)        38.3
    Deferred revenue                                                                   -          (69.0)        87.4
    Other deferred credits                                                           (43.3)      (112.1)        11.7
    Interest accrued and other, net                                                   43.6        (13.6)        20.8
----------------------------------------------------------------------------------------------------------------------
 Net cash provided by operating activities                                           381.3         85.8        313.3
----------------------------------------------------------------------------------------------------------------------
 CASH FLOWS FROM INVESTING ACTIVITIES
 Construction expenditures                                                          (157.8)      (197.2)      (311.5)
 Affiliate notes receivable                                                          335.5        165.0          -
 Disposition of nuclear assets                                                         -         (101.0)         -
 Other investing activities                                                           (4.8)        13.0          5.1
----------------------------------------------------------------------------------------------------------------------
 Net cash provided by (used in) investing activities                                 172.9       (120.2)      (306.4)
----------------------------------------------------------------------------------------------------------------------
 CASH FLOWS FROM FINANCING ACTIVITIES
 Dividends on common stock and preferred stock                                       (13.4)       (59.6)      (126.1)
 Repurchase of common stock                                                            -            -          (78.6)
 Redemptions --
    Short-term debt                                                                 (429.1)      (520.4)      (560.5)
    Long-term debt                                                                  (268.4)      (765.4)      (188.3)
    Preferred stock                                                                  (93.1)       (16.9)         -
 Issuances --
    Short-term debt                                                                  249.6        700.1        331.3
    Long-term debt                                                                     -          250.0      1,116.5
    Other financing activities                                                          .8        (34.4)       (14.5)
----------------------------------------------------------------------------------------------------------------------
 Net cash provided by (used in) financing activities                                (553.6)      (446.6)       479.8
----------------------------------------------------------------------------------------------------------------------
 Net change in cash and cash equivalents                                                .6       (481.0)       486.7
 Cash and cash equivalents at beginning of year                                       23.5        504.5         17.8
----------------------------------------------------------------------------------------------------------------------
 Cash and cash equivalents at end of year                                            $24.1        $23.5       $504.5
----------------------------------------------------------------------------------------------------------------------
 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>

                                       45
<PAGE>

<TABLE>
<CAPTION>
Illinois Power Company
C O N S O L I D A T E D  S T A T E M E N T S  O F    R E T A I N E D   E A R N I N G S
--------------------------------------------------------------------------------------------------------------------
                                                                                              (MILLIONS OF DOLLARS)
--------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,                                               2000           1999        1998
<S>                                                                          <C>            <C>        <C>
Balance at beginning of year                                                 $   54.7       $   -       $    89.5
Net income (loss) before dividends and carrying amount adjustment               134.9         113.1      (1,552.4)
--------------------------------------------------------------------------------------------------------------------
                                                                                189.6         113.1      (1,462.9)
--------------------------------------------------------------------------------------------------------------------
Less-
        Dividends-
          Preferred stock                                                        13.9          19.3          20.1
          Common stock                                                            -            40.8          82.9
Plus-
        Carrying amount over (under) consideration
           paid for redeemed preferred stock                                      -             1.7           -
        Quasi-reorganization adjustment (Note 3)                                  -             -         1,327.2
        Transfer from common stock equity to
           eliminate retained earnings deficit (Note 3)                           -             -           238.7

--------------------------------------------------------------------------------------------------------------------
                                                                                (13.9)        (58.4)      1,462.9
--------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                       $  175.7       $  54.7     $     -
--------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>

                                       46
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION IP is an indirect wholly owned subsidiary of
Dynegy. All outstanding common equity of IP is held by its parent Illinova.
IP is engaged in the transmission, distribution and sale of electric energy
and distribution, transportation and sale of natural gas in the State of
Illinois. The consolidated financial statements include the accounts of IP;
Illinois Power Securitization Limited Liability Company, a special purpose
LLC whose sole member is IP; Illinois Power Special Purpose Trust, a special
purpose trust whose sole owner is Illinois Power Securitization Limited
Liability Company; Illinois Power Capital, L.P.; and Illinois Power Financing
I. See "Note 9 -Long-Term Debt" and "Note 10 - Preferred Stock" for
additional information.

   All significant intercompany balances and transactions have been
eliminated from the consolidated financial statements. Preparation of
financial statements in conformity with generally accepted accounting
principles requires the use of management's estimates. Actual results could
differ from those estimates. Certain prior year amounts have been
reclassified to conform to the current year presentation.

REGULATION IP is regulated primarily by the ICC and the FERC and prepares its
consolidated financial statements in accordance with 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
balance sheet assets representing costs they expect to recover through
inclusion in future rates. Concurrent with the December 1997 enactment of
P.A. 90-561, legislation in the State of Illinois designed to introduce
competition for electric generation service over a defined transition period,
IP discontinued application of FAS 71 for its generating segment. See "Note
13 - Segments of Business" for additional information on IP's operating
segments.

REGULATORY ASSETS Regulatory assets represent probable future revenues to IP
associated with certain costs that are expected to be recovered from
customers through the ratemaking process. Significant regulatory assets at
December 31 are as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------
(MILLIONS OF DOLLARS)                                   2000           1999
----------------------------------------------------------------------------
<S>                                                    <C>            <C>
Transition period cost recovery                        $272.8         $320.3
Unamortized losses on reacquired debt                  $ 58.9         $ 66.2
Manufactured-gas plant site cleanup costs              $ 37.9         $ 44.4
Clinton decommissioning cost recovery                  $ 15.5         $ 18.7
</TABLE>

UTILITY PLANT The cost of additions to plant and replacements for retired
property units is capitalized. Cost includes labor, materials, and an
allocation of general and administrative costs, plus AFUDC or capitalized
interest as described below. Maintenance and repairs, including replacement
of minor items of property, are charged to maintenance expense as incurred.
When depreciable property units are retired, the original cost and
dismantling charges, less salvage value, are charged to accumulated
depreciation.

   Costs that would have been considered capital additions at Clinton were
expensed in 1999 due to the 1998 impairment of Clinton-related assets. See
"Note 3 - Clinton Impairment, Quasi-Reorganization and Sale of Clinton."

ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION The FERC Uniform System of
Accounts defines AFUDC as the net costs for the period of construction of
borrowed funds used for construction purposes and a reasonable rate on other
funds when so used. AFUDC is capitalized as a component of construction work
in progress by those business segments applying the provisions of FAS 71. In
2000, 1999 and 1998, the pre-tax rate used for all construction projects was
6.6%, 5.5% and 5.7%, respectively. Although cash is not currently realized
from AFUDC, it is realized through the ratemaking process over the service
life of the related property through increased revenues

                                       47
<PAGE>

resulting from a higher rate base and higher depreciation expense. In prior
years, non-regulated business segments capitalized interest under the
guidelines in FAS 34, "Capitalization of Interest Cost."

DEPRECIATION For financial statement purposes, various classes of depreciable
property are depreciated over their estimated useful lives by applying
composite rates on a straight-line basis. Depreciation of Clinton was
discontinued in 1999. In 1998, depreciation was 2.8% of the average
depreciable cost for Clinton. Provisions for depreciation for all other
electric plant facilities were 2.3%, 2.6% and 2.3% in 2000, 1999 and 1998,
respectively. Provisions for depreciation of gas utility plant, as a
percentage of the average depreciable cost, were 3.6% in 2000 and 3.5% in
1999 and 1998.

AMORTIZATION OF NUCLEAR FUEL Prior to the sale of Clinton, amortization of
nuclear fuel (including related financing costs) was determined on a unit of
production basis. A provision for spent fuel disposal costs was charged to
fuel expense based on kWh generated.

TRANSITION PERIOD REGULATORY ASSET The transition period cost recovery
regulatory asset is amortized over the stranded cost recovery period mandated
by P.A. 90-561, which extends to 2006. The amount of amortization recorded in
each period is based on the recovery of such costs from rate payers as
measured by ROE. See "Note 3 - Clinton Impairment, Quasi-Reorganization and
Sale of Clinton" for additional information on the transition period cost
recovery regulatory asset.

UNAMORTIZED DEBT DISCOUNT, PREMIUM, AND EXPENSE Discount, premium and expense
associated with long-term debt are amortized over the lives of the related
issues. Costs related to refunded debt for business segments applying the
provisions of FAS 71 are amortized over the lives of the related new debt
issues or the remaining life of the old debt if no new debt is issued. Costs
related to refunded debt for the unregulated segments in the prior years have
been expensed when incurred.

MANUFACTURED-GAS PLANT SITE CLEANUP COSTS REGULATORY ASSET The regulatory
asset for the probable future collections from rate payers of allowable MGP
site cleanup costs is amortized as the allowable costs are collected from
rate payers. See "Note 5 - Commitments and Contingencies" for additional
information.

CLINTON DECOMMISSIONING REGULATORY ASSET The regulatory asset for the
probable future collections from rate payers of decommissioning costs is
amortized as the decommissioning costs are collected from rate payers. See
"Note 3 - Clinton Impairment, Quasi-Reorganization and Sale of Clinton."

REVENUE RECOGNITION AND ENERGY COST Revenues for utility services are
recognized when services are provided to customers. As such, IP records
revenue for services provided but not yet billed. Unbilled revenues represent
the estimated amount customers will be billed for service delivered from the
time meters were last read to the end of the accounting period.

   Taxes included in operating revenues were $23 million in 2000 and 1999,
and $54 million in 1998. In August 1998, the practice of including state
public utility taxes in operating revenues, which is one of several taxes
included in operating revenues, was discontinued for the electric portion of
the business because IP became a tax collection agent.

   The cost of gas purchased for resale is recovered from customers pursuant
to the UGAC. Accordingly, allowable gas costs that are to be passed on to
customers in a subsequent accounting period are deferred. The recovery of
costs deferred under this clause is subject to review and approval by the
ICC. Prior to March 1998, the costs of fuel for electric generation and
purchased power costs were deferred and recovered from customers pursuant to
the Uniform Fuel Adjustment Clause ("UFAC"). On March 6, 1998, IP initiated
an ICC proceeding to eliminate the UFAC in accordance with P.A. 90-561. A new
base fuel cost recoverable under IP's electric tariffs was established,
effective on the date of the filing. UFAC elimination prevents IP from
automatically passing cost increases through to its customers and exposes IP
to the risks and opportunities of cost fluctuations and operating
efficiencies. Under UFAC, IP was subject to annual ICC audits of its actual
allowable fuel costs. Costs could be disallowed, resulting in negotiations
and/or litigation with the ICC. In 1998, IP agreed to settlements with the
ICC that closed the audits for

                                       48
<PAGE>

all previously disputed years. As a result of the settlements, IP electric
customers received refunds totaling $15.1 million in the first quarter of
1999. These refunds completed the process of eliminating the UFAC at IP.

INCOME TAXES Deferred income taxes result from temporary differences between
book income and taxable income and the tax basis of assets and liabilities.
The temporary differences relate principally to plant and depreciation.

   ITCs used to reduce federal income taxes have been deferred and are being
amortized to income over the service life of the property that gave rise to
the credits. As a result of the decision to exit the nuclear energy business,
all previously deferred ITCs associated with nuclear property were recorded
as a credit to income at December 31, 1998.

   IP is included in the consolidated federal income tax and combined state
tax returns of Dynegy in 2000 and Illinova in 1999 and 1998. Under Dynegy's
income tax allocation agreement, IP calculates its own tax liability and
reimburses Dynegy for such amount. Under Illinova's income tax allocation
agreement, each subsidiary calculated its own tax liability and reimbursed
Illinova for such amount. See "Note 8 - Income Taxes" for additional
discussion.

PREFERRED DIVIDEND REQUIREMENTS Preferred dividend requirements of IP
reflected in the Consolidated Statements of Income are recorded on the
accrual basis.

CONSOLIDATED STATEMENTS OF CASH FLOWS Cash and cash equivalents include cash
on hand and temporary investments purchased with an initial maturity of three
months or less. A portion of the cash on hand at December 31, 2000 and 1999
is restricted; it is unavailable for general purpose cash needs. This cash is
reserved for use in paying off the Transitional Funding Trust Notes issued
under the provisions of P.A. 90-561. See "Note 9 - Long-Term Debt" for
additional discussion of the Transitional Funding Trust Notes. The amount of
restricted cash was $12.5 million at December 31, 2000 and December 31, 1999.

   Income taxes and interest paid are as follows:

<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS)
---------------------------------------------------------------------------------------
Years ended December 31,                      2000                 1999          1998
---------------------------------------------------------------------------------------
<S>                                          <C>                  <C>           <C>
Income taxes                                 $   -                $   -         $  14.6
Interest                                     $ 139.7              $ 168.1       $ 151.6
</TABLE>

   Non-cash investing activities during 1999 include the receipt of a $2.8
billion note receivable in conjunction with the transfer of the wholly owned
fossil generating assets to Illinova. See "Note 4 - Related Parties" for more
information. There was no material non-cash investing or financing activity
in 2000 and 1998. There was no material non-cash financing activity in 1999.

ACCOUNTING PRONOUNCEMENTS Implementation of the quasi-reorganization in 1998
required the adoption of any accounting standards that had not yet been
adopted because their required implementation date had not occurred. All
applicable accounting standards were adopted as of December 1998. The
standards adopted included FAS 133, "Accounting for Derivative Instruments
and Hedging Activities," Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" and
SOP 98-5, "Reporting on the Costs of Start-Up Activities." EITF Issue 98-10,
"Accounting for Contracts Involved in Energy Trading and Risk Management
Activities," was adopted according to its December 1998 implementation rule.

   IP also adopted FAS 130, "Reporting Comprehensive Income." FAS 130
established standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. During
1999, IP recognized $6.2 million of other comprehensive income related to its
decommissioning trust fund as required by FAS 130. Concurrent with the
December 1999 sale of Clinton, the $6.2 million other comprehensive income
was reversed against common stock equity. See "Note 3 - Clinton Impairment,
Quasi-

                                       49
<PAGE>

Reorganization and Sale of Clinton." There were no other comprehensive income
items at December 31, 1999 and no items reported as other comprehensive
income in 2000 or 1998.

EMPLOYEE STOCK OPTIONS  As permitted by FAS 123, IP applies the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25") and related interpretations in accounting for its
stock compensation plans. Accordingly, compensation expense is not recognized
for stock options unless the options were granted at an exercise price lower
than the market value on the grant date. If the options were granted at an
exercise price lower than the market value on the grant date, the
compensation expense is recognized over the vesting period. See "Note 11 -
Common Stock and Retained Earnings" for additional information.

NOTE 2 - BUSINESS COMBINATION

Dynegy completed its acquisition of Illinova on February 1, 2000. The merger
of Dynegy and Illinova involved the creation of a new holding company, now
known as Dynegy Inc., and two separate but concurrent mergers. In one merger,
a wholly owned subsidiary of Dynegy Inc. merged with and into Illinova. In
the other merger, a second wholly owned subsidiary of Dynegy Inc. merged with
and into former Dynegy. As a result of these two concurrent mergers, Illinova
and former Dynegy continue to exist as wholly owned subsidiaries of Dynegy
Inc. and are referred to as Illinova Corporation and Dynegy Holdings Inc.,
respectively. Dynegy accounted for the acquisition as a purchase of Illinova.
This accounting treatment is based on various factors present in the merger,
including the majority ownership (and voting control) of Dynegy's
shareholders following the merger, the role of Dynegy's management following
the merger and the influence of Chevron U.S.A., Inc., resulting from the size
of its ownership interest and its rights under a shareholder agreement, the
articles of incorporation and bylaws. As a result, the consolidated financial
statements of Dynegy after the merger reflect the assets and liabilities of
Illinova at allocated fair values. IP continues to be a wholly owned
subsidiary of Illinova, but is ultimately subject to control by the Dynegy
Board of Directors. For accounting purposes, the effective date of the merger
was January 1, 2000.

   IP's consolidated financial statements were prepared on the historical
cost basis and do not reflect an allocation of the purchase price to IP that
was recorded by Dynegy as a result of the merger. Push down accounting was
not required because IP has publicly held debt and preferred stock
outstanding.

   As part of the merger, severance and retirement costs of $31.0 million
($18.6 million after-tax) were recorded in 2000. Severance charges
represented approximately $19.8 million ($11.9 million after-tax) of the
total costs incurred, of which $19.0 million had been paid by the end of the
year. As of December 31, 2000, 273 employees were either severed or have
retired as a result of the merger. It is expected that an additional 13
employees will be severed or retire by the end of 2001. The
severance/retirement plan is being executed pursuant to IP's plan and related
actions were substantially complete at December 31, 2000.

NOTE 3 - CLINTON IMPAIRMENT, QUASI-REORGANIZATION AND SALE OF CLINTON

In December 1998, IP's Board of Directors decided to exit Clinton operations,
resulting in an impairment of Clinton-related assets and the accrual of
exit-related costs. The impairment and accrual of costs resulted in a
$1,523.7 million, net of income taxes, charge against earnings. Concurrent
with the decision to exit Clinton, IP's Board of Directors also decided to
effect a quasi-reorganization, whereby IP's consolidated accumulated deficit
in retained earnings of $1,565.9 million at December 31, 1998 was eliminated.
On December 15, 1999, IP sold Clinton to AmerGen. The sale resulted in
revisions to the impairment of Clinton-related assets and the previously
accrued exit-related costs. All such revisions were made directly to the
common stock equity account in the balance sheet.

BACKGROUND Clinton was placed in service in 1987 and represented
approximately 20% of IP's installed generation capacity at December 31, 1998.
Clinton did not operate from September 1996 through the end of May

                                       50
<PAGE>

1999, at which time the plant was successfully restarted. Clinton's
equivalent availability was 59% for 1999, and 0% for 1998.

   In December 1997, the State of Illinois enacted P.A. 90-561, legislation
designed to introduce competition for electric generation service over a
defined transition period. P.A. 90-561 created uncertainty regarding IP's
ability to recover electric generating costs and earn a reasonable rate of
return on generating assets. Uncertainties about deregulated generation
pricing in Illinois, coupled with IP's experience with nuclear operations and
analyses of expected shareholder value from various options related to
Clinton, led management to the conclusion that either the sale or closure of
Clinton would create more shareholder value than its continued operation.
Management determined that this strategic decision would provide a
fundamental change necessary for IP to achieve success in the new environment
of deregulation and competition.

   In anticipation of a possible decision to exit Clinton, management
submitted a letter to the SEC describing proposed accounting for an
impairment loss under the "assets to be disposed of" provisions of FAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." The letter also requested concurrence with the proposed
accounting for a quasi-reorganization, whereby the fossil generation assets
would be written up to their fair value coincident with recording the
impairment loss for Clinton. In November 1998, the SEC confirmed that it
would not object to the proposed accounting.

   At the time of its decision to exit Clinton operations, IP was pursuing
potential opportunities to sell Clinton. However, substantial uncertainty
existed with regard to the ability to convert any tentative agreement into an
executable transaction. As a result, in December 1998 IP accounted for the
Clinton exit based on the expectation of plant closure as of August 31, 1999.

CLINTON IMPAIRMENT AND ACCRUAL OF EXIT COSTS Prior to impairment, the book
value of Clinton, including construction work in progress, nuclear fuel, and
material and supplies, net of accumulated depreciation, was $2,617.6 million.
FAS 121 requires that assets to be disposed of be stated at the lower of
their carrying amount or their fair value. The fair value of Clinton was
estimated to be zero. This estimate was consistent with a management decision
to close Clinton. The adjustment of Clinton plant, nuclear fuel, and
materials and supplies to fair value resulted in an impairment loss of
$2,594.4 million, net of accumulated depreciation. Nuclear fuel and materials
and supplies of $23.2 million remained on IP's books after the impairment,
given management's expectations that such amounts would be consumed in 1999
prior to Clinton's ultimate disposal. The impairment of Clinton plant,
nuclear fuel, and materials and supplies was recognized as a charge to
earnings. Consistent with Clinton's estimated fair value of zero and the
provisions of FAS 121, depreciation of Clinton was discontinued.

   Concurrent with the decision to exit Clinton operations, IP accrued the
estimated cost to decommission the facility. Recognition of this liability,
net of previously accrued amounts, resulted in a $486.6 million charge to
earnings. IP also recorded a regulatory asset of $72.3 million reflecting
probable future collections from IP's customers of decommissioning costs
deemed recoverable. The regulatory asset was recognized as a credit to
expense, offsetting a portion of the Clinton impairment.

   Also concurrent with the decision to exit Clinton operations, IP recorded
other exit-related costs of $115.5 million. These other exit costs included
termination fees for nuclear fuel contracts, costs to transition the plant
from an operating mode to a decommissioning mode, employee severance, pension
curtailment benefits and other postretirement benefit costs. See "Note 12
-Pension and Other Benefits Costs" for additional information. These costs
were recognized as charges to earnings.

   P.A. 90-561 allows utilities to recover potentially non-competitive
investment costs ("stranded costs") from retail customers during the
transition period, which extends until December 31, 2006, with possible
extension to December 31, 2008. During this period, IP is allowed to recover
stranded costs through frozen bundled rates and transition charges from
customers who select other electric suppliers. In May 1998, the SEC Staff
issued interpretive guidance on the appropriate accounting treatment during
regulatory transition periods for asset impairments and the related regulated
cash flows designed to recover such impairments. The Staff's guidance
established that an impaired portion of plant assets identified in a state's
legislation or rate order for recovery by means of a regulated cash flow
should be

                                       51
<PAGE>

treated as a regulatory asset in the separable portion of the enterprise from
which the regulated cash flows are derived. Based on this guidance and on
provisions of P.A. 90-561, IP recorded a regulatory asset of $457.3 million
for the portion of IP's stranded costs deemed probable of recovery during the
transition period. The regulatory asset was recognized as a credit to
expense, offsetting a portion of the Clinton impairment.

   The Clinton impairment and accrual of exit-related costs resulted in an
impairment loss of $1,523.7 million, net of income taxes. IP had an
accumulated deficit in retained earnings of $1,565.9 million after recording
the impairment loss.

REVALUATION OF ASSETS AND LIABILITIES The quasi-reorganization necessitated a
review of IP's assets and liabilities to determine whether the book value of
such items needed to be adjusted to reflect their fair value. IP determined
that its fossil generation assets were not stated at fair value, and an
economic assessment was made using projections of on-going operating costs,
future prices for fossil fuels and market prices of electricity in IP's
service area. Management concluded that IP's fossil generation assets had a
fair value of $2,867.0 million. This fair value was determined using the
after-tax cash flows of the fossil assets. Prior to the quasi-reorganization,
the fossil generation assets' book value, net of accumulated depreciation,
was $631.7 million. The adjustment to fair value resulted in a write-up of
$2,235.3 million, which was recognized as an increase in retained earnings.

   IP determined that the book value of its mandatorily redeemable preferred
stock and long-term debt attributable to the generation portion of the
business was less than its fair value, requiring an adjustment of $27.3
million. These adjustments to fair value were recognized as decreases in
retained earnings. The book value of current assets and liabilities equaled
fair value and therefore required no adjustments. IP's electric transmission
and distribution assets and its gas distribution assets are still subject to
cost-based rate regulation and therefore required no adjustment. See "Note 14
- Fair Value of Financial Instruments" for additional information.

EARLY ADOPTION OF ACCOUNTING PRONOUNCEMENTS As part of the
quasi-reorganization, IP was required to adopt all existing accounting
pronouncements. The effect of adopting the accounting pronouncements was $7.3
million, which was recognized as a direct charge to retained earnings. See
"Note 1 - Summary of Significant Accounting Policies" for additional
information.

REMAINING DEFICIT IN RETAINED EARNINGS After the revaluation of other assets
and liabilities to their fair value and the early adoption of accounting
pronouncements, the accumulated deficit in retained earnings was $238.7
million, which was eliminated by a transfer from common stock equity.






                                       52
<PAGE>

   A summary of consolidated retained earnings and the effects of the Clinton
impairment and quasi-reorganization on the retained earnings balance follows:

<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS)
---------------------------------------------------------------------------------------------
<S>                                                                           <C>
Retained earnings (deficit) at December 31, 1998, prior to Clinton
  impairment and quasi-reorganization                                         $   (42.2)
---------------------------------------------------------------------------------------------
Clinton impairment (charged)/credited to earnings:
         Clinton plant, nuclear fuel, and materials and supplies               (2,594.4)
         Decommissioning costs, net of regulatory asset                          (414.3)
         Other exit costs                                                        (115.5)
         Transition period cost recovery                                          457.3
         Income taxes                                                           1,143.2
---------------------------------------------------------------------------------------------
Total Clinton impairment                                                       (1,523.7)
---------------------------------------------------------------------------------------------
Accumulated deficit in retained earnings                                       (1,565.9)
---------------------------------------------------------------------------------------------
Quasi-reorganization (charged)/credited to retained earnings:
         Generation assets fair value adjustment                                2,235.3
         Mandatorily redeemable preferred stock and
           long-term debt fair value adjustment                                   (27.3)
         Early adoption of accounting pronouncements                               (7.3)
         Income taxes                                                            (873.5)
---------------------------------------------------------------------------------------------
Total quasi-reorganization                                                      1,327.2
---------------------------------------------------------------------------------------------
Retained earnings deficit at December 31, 1998                                   (238.7)
Transfer from common stock equity                                                 238.7
---------------------------------------------------------------------------------------------
Retained earnings balance at December 31, 1998, after
   quasi-reorganization                                                       $     -
---------------------------------------------------------------------------------------------
</TABLE>

SALE OF CLINTON TO AMERGEN On April 15, 1999, IP announced that it had
reached interim agreements with AmerGen and PECO, whereby AmerGen would
purchase and operate Clinton and IP would buy at least 80% in 1999 and at
least 75% during the years 2000 through 2004 of the plant's electricity
output. Under the interim agreements, PECO was responsible for Clinton's
direct operating and capital expenses and continued to assist with the
management of the plant under the existing management services contract while
IP compensated PECO for management services based on the amount of
electricity the plant produced. On July 1, 1999, IP announced that it had
signed a definitive asset sale agreement and a PPA with AmerGen. In December
1999, IP's sale of Clinton to AmerGen was completed. AmerGen paid IP $12.4
million for the plant and property.

   At December 31, 1998, IP accounted for its decision to exit Clinton based
on the expectation of plant closure. IP revised its impairment of
Clinton-related assets and accruals for exit-related costs in accordance with
the terms of the sale in December 1999. The net decrease in the impairment
and the accruals was recognized as an increase in common stock equity,
revising the original effect of the 1998 quasi-reorganization on common stock
equity. The change in the impairment loss and the net reductions in the
exit-related accruals resulted in an increase in common stock equity of $88.2
million as follows:

                                       53
<PAGE>

<TABLE>
<CAPTION>
Increase (decrease) in common stock equity                (MILLIONS OF DOLLARS)
--------------------------------------------------------------------------------
<S>                                                       <C>
Clinton plant impairment                                       $  12.4
Decommissioning costs, net of regulatory asset                   288.5
Other shutdown-related costs                                     129.1
Power purchase agreement costs                                  (145.0)
Other sale-related costs                                          (5.6)
Transition period cost recovery                                 (115.9)
Income taxes                                                     (75.3)
--------------------------------------------------------------------------------
Total change in impairment loss and accruals                   $  88.2
--------------------------------------------------------------------------------
</TABLE>

DECOMMISSIONING COSTS AND DECOMMISSIONING REGULATORY ASSET

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
DECOMMISSIONING COSTS (MILLIONS OF DOLLARS)             2000             1999
------------------------------------------------------------------------------
<S>                                                <C>             <C>
Accrual balance, beginning of period                    $24.9          $ 567.4
   Accruals                                                --               --
   Other adjustments                                       --           (330.6)
   Cash payments                                         (5.0)          (211.9)
                                                   ---------------------------
Accrual balance, end of period                          $19.9          $  24.9
                                                   ---------------------------
</TABLE>

   As a result of the sale, AmerGen has assumed responsibility for operating
and ultimately decommissioning Clinton. However, IP was required to transfer
its decommissioning trust funds in the amount of $98.5 million to AmerGen on
the sale closing date and make an additional payment of $113.4 million to the
decommissioning trust funds. In addition, IP is responsible for five future
annual payments of approximately $5 million to the decommissioning trust
funds. The reduction in the decommissioning liability was $330.6 million. IP
also reversed comprehensive income of $6.2 million, which had been recorded
on the decommissioning trust funds. The accrual balances for decommissioning
costs at December 31, 2000 and 1999 are $19.9 million and $24.9 million,
respectively, of which $5.0 million is included in other current liabilities
at December 31, 2000 and 1999 and $14.9 million and $19.9 million are
included in other deferred credits at December 31, 2000 and 1999,
respectively, in the accompanying consolidated balance sheet.

   In November 1999, the ICC allowed for continued recovery of
decommissioning costs associated with Clinton after the sale to AmerGen. IP
adjusted the regulatory asset for probable future collections from IP's
customers of decommissioning costs to reflect the ICC's limitation on
recovery of such costs to an amount corresponding to approximately 75% of
IP's future payment responsibility for decommissioning costs under the asset
sale agreement. The decrease in the regulatory asset was $48.3 million. At
December 31, 2000 and 1999, the regulatory asset balances were $15.5 million
and $18.7 million, respectively. See "Note 1 - Summary of Significant
Accounting Policies" for additional information.

OTHER SHUTDOWN-RELATED COSTS In December 1999, IP adjusted various accruals
for other exit-related costs that were originally recorded in December 1998.
IP reversed contract termination fees for nuclear fuel contracts of $7.1
million, which were transferred to AmerGen. In addition, IP reversed costs to
transition the plant from an operating mode to a decommissioning mode of
$76.9 million. IP also reduced its accrual for employee severance costs by
$37.1 million and paid $5.6 million to AmerGen on the sale closing date for
severance costs. Pension curtailment benefits increased by $7.1 million, and
other postretirement benefit costs decreased by $.9 million.

   The following table summarizes the accruals that IP recorded in December
1998 and December 1999, adjustments to the accruals, cash payments, and the
balances of the accruals at December 31, 1999 by income statement line item
in which the costs would have otherwise been recognized:

<PAGE>

<TABLE>
<CAPTION>
                                               Accrual                                                  Accrual
                                             Balances at         1999        Other        Cash        Balances at
(MILLIONS OF DOLLARS)                     December 31, 1998    Accruals   Adjustments   Payments   December 31, 1999
--------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                  <C>        <C>          <C>            <C>
Other operating expenses
        Contract termination costs               $    7.1       $    -     $  (7.1)    $      -         $        -
        Transition costs from operating
           Mode to decommissioning mode              76.9            -       (76.9)           -                  -
        Employee severance costs                     42.7            -       (37.1)       (5.6)                  -
        Pension curtailment benefits*               (11.9)           -        (7.1)           -             (19.0)
        Other postretirement                          0.7            -        (0.9)           -              (0.2)
        benefits*
-------------------------------------------------------------------------------------------------------------------
                                                 $  115.5       $    -    $ (129.1)    $  (5.6)         $   (19.2)
-------------------------------------------------------------------------------------------------------------------
</TABLE>
* These amounts are included in the curtailment gain in "Note 12 - Pension and
Other Benefits Costs."

POWER PURCHASE AGREEMENT COSTS The Clinton sale was contingent on IP signing
a PPA with AmerGen. The PPA requires that IP purchase 75% of Clinton's output
over the 5-year life of the agreement at fixed prices that exceed current and
projected wholesale prices. Therefore, IP accrued $145.0 million for the
premium that IP estimates it is paying over the life of the agreement, which
will be amortized based on the energy purchased from AmerGen. At December 31,
2000 and 1999, $30.0 million and $26.1 million, respectively, are included in
other current liabilities and $88.0 million and $118.9 million, respectively,
are included in other deferred credits in the accompanying consolidated
balance sheet.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
POWER PURCHASE AGREEMENT COSTS (MILLIONS OF DOLLARS)                                     2000           1999
-------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>            <C>
Accrual balance, beginning of period                                                   $145.0         $   --
   Accruals                                                                                --          145.0
   Amortization                                                                        (27.0)             --
                                                                                -------------- --------------
Accrual balance, end of period                                                         $118.0         $145.0
                                                                                -------------- --------------
</TABLE>

TRANSITION PERIOD COST RECOVERY If IP had known at December 31, 1998 that the
Clinton exit would ultimately be concluded as a sale transaction, the
impairment loss would have been lower and IP would have recorded a lower
transition period cost recovery regulatory asset. Accordingly, as a result of
the adjustments which decreased the accruals and the impairment loss, IP
reduced its transition period cost recovery regulatory asset by $115.9
million as of December 31, 1999.

NOTE 4 - RELATED PARTIES

Effective October 1, 1999, IP transferred its wholly owned fossil generating
assets and other generation-related assets and liabilities at net book value
to Illinova in exchange for an unsecured note receivable of approximately
$2.8 billion. Such assets were subsequently contributed by Illinova to IPMI,
which was later renamed DMG. The note matures on September 30, 2009 and bears
interest at an annual rate of 7.5%, due semiannually in April and October. At
December 31, 2000, principal and accrued interest outstanding under the note
receivable approximated $2.3 billion and $42.4 million, respectively. At
December 31, 1999, principal and accrued interest outstanding under the note
receivable approximated $2.6 billion and $51.0 million, respectively. IP has
recognized $174.9 million interest income from Illinova on the note in 2000,
and $51.0 million in 1999.

   IP routinely conducts business with subsidiaries of Dynegy. These
transactions include the purchase or sale of electricity, natural gas and
transmission services as well as certain other services. Operating revenue
derived from transactions with affiliates approximated $39.6 million for 2000
and $4.8 million for 1999. Aggregate operating expenses charged by affiliates
in 2000 approximated $628.0 million, including $557.9 million for power
purchased, and $105.8 million related to power purchased in 1999. Related
party transactions have been conducted at prices and terms similar to those
available to and transacted with unrelated parties.

                                       55
<PAGE>

   IP has a PPA with DMG that provides IP the right to purchase power from
DMG for a primary term extending through December 31, 2004. The primary term
may be extended on an annual basis, subject to concurrence by both parties.
The PPA defines the terms and conditions under which DMG provides capacity
and energy to IP using a tiered pricing structure.

   Effective January 1, 2000, the Dynegy consolidated group, which includes
IP, began operating under a Services and Facilities Agreement, whereby other
Dynegy affiliates exchange services with IP such as financial, legal,
information technology and human resources as well as shared facility space.
IP services are exchanged at fully distributed costs and revenue is not
recorded under this agreement. Management believes that the allocation method
utilized under this agreement is reasonable and amounts charged under this
agreement would result in costs to IP similar to costs IP would have incurred
for these services on a stand-alone basis.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

COMMITMENTS IP has contracts with various natural gas suppliers and
interstate pipelines to provide natural gas supply, transportation and leased
storage. Estimated committed natural gas, transportation and leased storage
costs for 2001 through 2004 total $32 million. Total natural gas purchased
was $296 million in 2000, $164 million in 1999 and $157 million in 1998. IP
anticipates that all gas-related costs will be recoverable under IP's UGAC.

   On January 3, 2001, the Governor of Illinois, in conjunction with the
creation of the Energy Cabinet, called upon the ICC to complete a full
investigation of the recent natural gas price increases which have had a
serious impact on Illinois consumers. The ICC subsequently issued a Notice of
Inquiry requesting information and other input from various entities,
including Illinois gas public utilities, with respect to the natural gas
price increases. The outcome of this proceeding is uncertain.

UTILITY EARNINGS CAP P.A. 90-561 contains floor and ceiling provisions
applicable to IP's ROE during the transition period ending in 2006 (or 2008
at the option of the utility and with approval by the ICC). Pursuant to these
provisions, IP may request an increase in its base rates if the two-year
average of its earned ROE is below the two-year average of the monthly
average yields of 30-year U.S. Treasury bonds for the concurrent period
("Treasury Yield"). Conversely, IP is required to refund amounts to its
customers equal to 50% of the value earned above a defined "ceiling limit."
The ceiling limit is exceeded if IP's ROE exceeds the Treasury Yield, plus
6.5% in 2000 through 2004 (which increases to 8.5% in 2000 through 2004 if a
utility chooses not to implement transition charges after 2006). Regulatory
asset amortization is included in the calculation of ROE for the ceiling
test, but is not included in the floor test calculation. During 2000, IP's
ROE was within the allowable ROE collar, avoiding adjustments or customer
refunds.

NUCLEAR DECOMMISSIONING COSTS See "Note 3 - Clinton Impairment,
Quasi-Reorganization and Sale of Clinton" for additional information on the
sale of Clinton Power Station.

ENVIRONMENTAL MATTERS

U.S. ENVIRONMENTAL PROTECTION AGENCY COMPLAINT On November 3, 1999, the
United States Environmental Protection Agency ("EPA") issued a Notice of
Violation ("NOV") against IP and, with the Department of Justice ("DOJ"),
filed a complaint against IP in the U.S. District Court for the Southern
District of Illinois, No. 99C833. Subsequently, the DOJ and EPA amended the
NOV and complaint to include IPMI ( now known as DMG) (IP and DMG
collectively the "Defendants"). Similar notices and lawsuits have been filed
against a number of other utilities. Both the NOV and complaint allege
violations of the Clean Air Act and regulations thereunder. More
specifically, both allege, based on the same events, that certain equipment
repairs, replacements and maintenance activities at the Defendants' three
Baldwin Station generating units constituted "major modifications" under
either or both the Prevention of Significant Deterioration and the New Source
Performance Standards regulations. When non-exempt "major modifications"
occur, the Clean Air Act and related regulations generally require that
generating facilities meet more stringent emissions standards. The DOJ
amended its complaint to assert the claims

                                       56
<PAGE>

found in the NOV. The Defendants filed an answer denying all claims and
asserting various specific defenses. By order dated April 19, 2000, a trial
date of November 2001 was set. The initial trial is limited to liability.

   The regulations under the Clean Air Act provide certain exemptions to the
definition of "major modifications," particularly an exemption for routine
repair, replacement or maintenance. IP has analyzed each of the activities
covered by the EPA's allegations and believes each activity represents
prudent practice regularly performed throughout the utility industry as
necessary to maintain the operational efficiency and safety of equipment. As
such, IP believes that each of these activities is covered by the exemption
for routine repair, replacement and maintenance and that the EPA is changing,
or attempting to change through enforcement actions, the intent and meaning
of its regulations. IP also believes that, even if some of the activities in
question were found not to qualify for the routine exemption, there were no
increases either in annual emissions or in the maximum hourly emissions
achievable at any of the units caused by any of the activities. The
regulations provide an exemption for increased hours of operation or
production rate and for increases in emissions resulting from demand growth.
Although none of the Defendants' other facilities are covered in the
complaint and NOV, the EPA has officially requested information concerning
activities at the Defendants' Vermilion, Wood River and Hennepin Plants. It
is possible that the EPA will eventually commence enforcement actions against
those plants as well. The asset(s) subject to the complaint are part of the
consolidated assets of Dynegy Holdings Inc.

   The EPA has the authority to seek penalties for the alleged violations in
question at the rate of up to $27,500 per day for each violation. The EPA
also will be seeking installation of "best available control technology" (or
equivalent) at the Baldwin Station and possibly at the other three plants as
well.

   The parties are engaged in discovery, and numerous discovery-related
disputes have arisen. The United States Magistrate heard arguments on a
number of the discovery disputes in December 2000 and issued orders favorable
to the Defendants on most of the disputed issues.

   Two utilities, Virginia Power and Cinergy, reached settlements with the
United States in 2000. The settlements call for the utilities to pay civil
fines; fund various environmental projects; reduce Nox, Sox, particulate
matter and mercury emissions through the installation of pollution control
devices over a period extending for 2012 through 2013, and forfeit certain
emission credits. IP believes the allegations are without merit and will
vigorously defend this claim. In the opinion of management, the amount of
ultimate liability with respect to this action will not have a material
adverse effect on the financial position or results of operations of IP.

MANUFACTURED-GAS PLANTS IP's estimated liability for MGP site remediation is
$55 million. This amount represents IP's current estimate of the costs it
will incur to remediate the remaining 22 MGP sites for which it is
responsible. Because of the unknown and unique characteristics at each site,
IP cannot currently determine its ultimate liability for remediation of the
sites. In October 1995, IP initiated litigation against a number of its
insurance carriers. Settlement proceeds recovered from these carriers offset
a significant portion of the MGP remediation costs and are credited to
customers through the tariff rider mechanism that the ICC previously
approved. Cleanup costs in excess of insurance proceeds are considered
probable of recovery from IP's transmission and distribution customers.

P.A. 90-561 - INDEPENDENT SYSTEM OPERATOR PARTICIPATION. Participation in an
ISO by utilities serving retail customers in Illinois was one of the
requirements included in P.A. 90-561. In January 1998, IP, in conjunction
with eight other transmission-owning entities, filed with the FERC for all
approvals necessary to create and to implement the MISO. On September 20,
2000, IP announced its intention to withdraw its participation in the MISO
and to become a member of the Alliance RTO, pending necessary regulatory
approval. On October 13, 2000, IP filed a notice of its intent to withdraw
from the MISO with the FERC. On February 23, 2001, IP reached a settlement in
principle with all parties that allows it to withdraw from the MISO and join
the Alliance RTO, effective upon the FERC's approval of the settlement, which
is expected to occur in mid-April. IP has accrued an adequate amount to cover
its share of the settlement obligation.

                                       57
<PAGE>

OTHER

LEGAL PROCEEDINGS IP is involved in legal or administrative proceedings
before various courts and agencies with respect to matters occurring in the
ordinary course of business. Management believes that the final disposition
of these proceedings will not have a material adverse effect on the
consolidated financial position or the results of operations.

ACCOUNTS RECEIVABLE IP sells electric energy and natural gas to residential,
commercial, and industrial customers throughout Illinois. At December 31,
2000, 59%, 26% and 15% of "Accounts receivable - Service" were from
residential, commercial and industrial customers, respectively. IP maintains
reserves for potential credit losses and such losses have been within
management's expectations. The reserve for doubtful accounts remained at $5.5
million in 2000.

NOTE 6 - REVOLVING CREDIT FACILITIES, LETTERS OF CREDIT AND SHORT-TERM LOANS

IP has a revolving credit agreement in the amount of $300.0 million, which
matures in May 2001. The revolving credit agreement was $350.0 million at
December 31, 1999. This bank commitment supports the amount of commercial
paper outstanding at any time and is available to support IP activities. At
December 31, 2000 and 1999, IP had $147.8 million and $302.3 million of
commercial paper outstanding, respectively. IP pays facility fees of .125% on
the revolving credit agreement, regardless of usage. The interest rate on
borrowings under the revolving credit agreement is generally at a Eurodollar
rate plus a margin that is determined based on IP's unsecured debt rating.

   IP also has total letters of credit amounting to $350.0 million, which
represent credit enhancements to long-term debt issues. These letters of
credit mature in July 2001, October 2001 and April 2002. IP pays weighted
average letter of credit fees of .43% per annum on the $350.0 million letters
of credit. The interest rate on borrowings supported by the letters of credit
is, at IP's option, based on the lending banks' reference rate, their
Certificate of Deposit rate, the borrowing rate of key banks in the London
interbank market or competitive bid.

   At December 31, 1999, IP had $25 million of extendible floating rate notes
outstanding. IP incurred interest on such notes at a rate of 8.0% during 2000
and 6.7% during 1999. The outstanding notes matured in April 2000.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS, EXCEPT RATES)                                   2000                 1999
------------------------------------------------------------------------------------------------------
<S>                                                            <C>                  <C>
Short-term borrowings at December 31,                               $ 147.8              $ 327.3
Weighted average interest rate at December 31,                          8.0%                 6.3%
Maximum amount outstanding at any month end                         $ 335.0              $ 374.3
Average daily borrowings outstanding during the year                $ 136.5              $ 266.1
Weighted average interest rate during the year                          6.4%                 5.5%
</TABLE>

NOTE 7 - FACILITIES AGREEMENTS

See "Note 3 - Clinton Impairment, Quasi-Reorganization and Sale of Clinton"
for information on facilities agreements with AmerGen.

   See "Note 4 - Related Parties" for information on facilities agreements
with DMG.

   The FERC approved an amended Power Coordination Agreement ("PCA") between
Soyland and IP in July 1997. The amended PCA obligated Soyland to purchase
all of its capacity and energy needs from IP for at least 10 years. In
December 1997, Soyland signed a letter of intent to pay in advance the
remainder of its base capacity charges in the PCA, approximately $70 million.
IP received $30 million and $40 million from Soyland during the first and
second quarters of 1998, respectively. The prepayment was deferred and was
being recognized as interchange revenue evenly

                                       58
<PAGE>

over the initial term of the PCA, September 1, 1996, through August 31, 2006.
In December 1998, Soyland and IP agreed to a restructuring of the PCA in
which IP acts as an agent for Soyland in obtaining and scheduling power and
energy and related transmission from other parties. Pursuant to a
comprehensive agreement dated March 1, 1999, the remaining deferred revenue
of $61 million was brought into income in the first quarter of 1999 and,
subsequent to December 31, 1999, IP has no further power or energy supply
obligations to Soyland.

NOTE 8 - INCOME TAXES

Deferred tax assets and liabilities were comprised of the following:

<TABLE>
<CAPTION>
                                                                                  (MILLIONS OF DOLLARS)
-------------------------------------------------------------------------------------------------------
Balances as of December 31,                                            2000               1999
-------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                <C>
Deferred tax assets
-------------------------------------------------------------------------------------------------------
Current -
     Misc. book/tax recognition differences                              $  23.4               $  19.7
-------------------------------------------------------------------------------------------------------
Noncurrent -
     Depreciation and other property related                                42.4                  45.7
     Alternative minimum tax                                                50.9                 164.6
     Unamortized investment tax credit                                      13.2                  13.8
     Misc. book/tax recognition differences                                 82.8                  91.7
-------------------------------------------------------------------------------------------------------
                                                                           189.3                 315.8
-------------------------------------------------------------------------------------------------------
     Total deferred tax assets                                           $ 212.7               $ 335.5
-------------------------------------------------------------------------------------------------------

Deferred tax liabilities
--------------------------------------------------------------------------------------------------------

Current -
     Misc. book/tax recognition differences                             $   20.7               $    1.9
--------------------------------------------------------------------------------------------------------

Noncurrent -
     Depreciation and other property related                             1,152.1                1,218.8
     Misc. book/tax recognition differences                                143.6                  172.2
--------------------------------------------------------------------------------------------------------
                                                                         1,295.7                1,391.0
--------------------------------------------------------------------------------------------------------
        Total deferred tax liabilities                                  $1,316.4               $1,392.9
--------------------------------------------------------------------------------------------------------
</TABLE>

                                       59
<PAGE>

Income taxes included in the Consolidated Statement of Income consist of the
following components:

<TABLE>
<CAPTION>
                                                                      (MILLIONS OF DOLLARS)
-------------------------------------------------------------------------------------------
Years Ended December 31,                                     2000       1999       1998
-------------------------------------------------------------------------------------------
<S>                                                       <C>        <C>        <C>
Current taxes -

     Included in operating
        expenses and taxes                                  $(102.7)     $47.6       $7.6
     Included in other income
        and deductions                                        131.7     (134.9)      (4.2)

-------------------------------------------------------------------------------------------
        Total current taxes                                    29.0      (87.3)       3.4
-------------------------------------------------------------------------------------------

Deferred taxes -

     Included in operating
       expenses and taxes
          Property related differences                          6.3       11.1      (30.0)
          Alternative minimum tax                             104.0      (24.1)      16.4
          Gain/loss on reacquired debt                         (1.6)       4.9        3.4
          Clinton plant impairment                              -          -       (982.8)
          Clinton power purchase agreement costs               10.7        -          -
          Transition period cost recovery                     (18.8)      (8.4)       -
           Uniform gas adjustment clause                       17.4       (0.2)       3.2
          Misc. book/tax recognition differences               (1.1)      24.7      (23.2)

     Included in other income
       and deductions
          Property related differences                        (64.7)     149.7         .3
          Misc. book/tax recognition differences                3.1        2.1         .3

-------------------------------------------------------------------------------------------
           Total deferred taxes                                55.3      159.8   (1,012.4)
-------------------------------------------------------------------------------------------

Deferred investment tax credit - net
     Included in operating expenses and taxes                  (1.0)      (1.2)      (8.3)

     Included in other income and deductions -
        Clinton plant impairment                                -          -       (160.4)

-------------------------------------------------------------------------------------------
          Total investment tax credit                          (1.0)      (1.2)    (168.7)
-------------------------------------------------------------------------------------------

Total income taxes                                            $83.3      $71.3  $(1,177.7)
-------------------------------------------------------------------------------------------
</TABLE>

  For the years ended December 31, 2000, 1999 and 1998, income tax expenses
(benefits) in the amounts of $70.1 million, $16.9 million and ($3.6) million,
respectively, are reported in Miscellaneous-net in the accompanying
Consolidated Statements of Income. Other tax expenses (benefits) for the
years ended December 31, 2000, 1999 and 1998 are reported as separate
components on the accompanying Consolidated Statements of Income.

                                       60
<PAGE>

   The reconciliations of income tax expense to amounts computed by applying
the statutory tax rate to reported pretax income from continuing operations
for the period are set-out below:

<TABLE>
<CAPTION>
                                                                                      (MILLIONS OF DOLLARS)
-------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                                   2000        1999        1998
------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>       <C>          <C>
Income tax expense (benefit) at the
    federal statutory tax rate                                            $76.4       $64.5      $  (955.5)
Increases / (decreases) in taxes
    resulting from -
          State taxes                                                      10.2         8.6         (127.4)
          Investment tax credit amortization                               (1.0)       (1.2)          (8.3)
          Clinton plant impairment                                          -           -            (85.4)
          Depreciation not normalized                                       3.5         2.0            4.4
          Interest expense on preferred securities                         (4.6)       (6.7)          (6.8)
          Other - net                                                      (1.2)        4.1            1.3

------------------------------------------------------------------------------------------------------------
Total income taxes (benefits) from continuing operations                  $83.3       $71.3      $(1,177.7)
------------------------------------------------------------------------------------------------------------
</TABLE>

   Combined federal and state effective income tax rates were 38.2%, 38.7%
and 43.1% for the years 2000, 1999 and 1998 respectively.

   IP is included in the consolidated federal income tax and unitary state
tax returns of Dynegy in 2000 and Illinova in 1999 and 1998. Under IP's
income tax allocation agreement with Dynegy in 2000 and Illinova in 1999 and
1998, IP calculates its own tax liability and reimburses Dynegy and Illinova
for such amount.

   IP is subject to the Alternative Minimum Tax and has an Alternative
Minimum Tax credit carryforward at December 31, 2000 of approximately $50.9
million. This credit can be carried forward indefinitely to offset future
regular income tax liabilities in excess of the tentative minimum tax.

   The Internal Revenue Service recently completed auditing Illinova's
consolidated federal income tax returns for the years 1994 through 1997. The
audits did not have a material adverse effect on Illinova's consolidated
financial position or results of operation.

                                       61
<PAGE>

NOTE 9 - LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                        (MILLIONS OF DOLLARS)
---------------------------------------------------------------------------------------------
December 31,                                                     2000               1999
---------------------------------------------------------------------------------------------
<S>                                                          <C>               <C>
New mortgage bonds--
       6 1/8%  series due 2000                               $       -         $        40.0
       5.625%  series due 2000                                       -                 110.0
       6.25%   series due 2002                                      95.7                95.7
       6.0%    series due 2003                                      90.0                90.0
       6 1/2%  series due 2003                                     100.0               100.0
       6 3/4%  series due 2005                                      70.0                70.0
       7.5%    series due 2009                                     250.0               250.0
       5.70%   series due 2024 (Pollution Control Series U)         35.6                35.6
       7.40%   series due 2024 (Pollution Control Series V)         84.1                84.1
       7 1/2%  series due 2025                                      65.6                97.6
       5.40%   series due 2028 (Pollution Control Series A)         18.7                18.7
       5.40%   series due 2028 (Pollution Control Series B)         33.8                33.8
       Adjustable rate series due 2028
              (Pollution Control Series M, N, and O)               111.8               111.8
       Adjustable rate series due 2032
              (Pollution Control Series P, Q, and R)               150.0               150.0
---------------------------------------------------------------------------------------------
      Total new mortgage bonds                                   1,105.3             1,287.3
---------------------------------------------------------------------------------------------
Transitional Funding Trust Notes--
       5.39% due 2000                                                -                  23.6
       5.26% due 2001                                               37.2               100.0
       5.31% due 2002                                               80.0                80.0
       5.34% due 2003                                               85.0                85.0
       5.38% due 2005                                              175.0               175.0
       5.54% due 2007                                              175.0               175.0
       5.65% due 2008                                              139.0               139.0
---------------------------------------------------------------------------------------------
      Total transitional funding trust notes                       691.2               777.6
---------------------------------------------------------------------------------------------
Variable rate long-term debt due 2017                               75.0                75.0
---------------------------------------------------------------------------------------------
                                                                 1,871.5             2,139.9
Adjustment to fair value                                            10.5                11.9
Unamortized discount on debt                                        (8.0)               (9.0)
---------------------------------------------------------------------------------------------
                                                                 1,874.0             2,142.8
Long-term debt maturing within one year                            (86.4)             (236.4)
---------------------------------------------------------------------------------------------
         Total long-term debt                               $    1,787.6      $      1,906.4
---------------------------------------------------------------------------------------------
</TABLE>

In the above table, the "adjustment to fair value" is the total adjustment of
debt to fair value in the quasi-reorganization. The adjustments to the fair
value of each debt series are being amortized over its remaining life to
interest expense. See "Note 3 - Clinton Impairment, Quasi-Reorganization and
Sale of Clinton" for more information.

   During January 2000, IP repurchased $32 million of 7 1/2% new mortgage
bonds due 2025. During the month of March 2000, $40.0 million of 6 1/8%
series due 2000 new mortgage bonds matured. In April 2000, $110.0 million of
5.625% series due 2000 new mortgage bonds matured.

   For the years 2001, 2002, 2003, 2004 and 2005, IP has long-term debt
maturities, excluding the Transitional Funding Trust Notes (the "Notes") in
the aggregate of (in millions) $0.0, $95.7, $190.0, $0.0 and $70.0,
respectively.

   During 1999, IP paid $132 million to extinguish all obligations of
Illinois Power Fuel Company ("Fuel Company.") The Fuel Company was formed for
the purpose of leasing nuclear fuel to IP for Clinton. There were no
obligations of the Fuel Company at December 31, 1999. IP owned 50% of the
common stock of the Fuel Company. The Fuel Company was dissolved on February
23, 2000.

                                       62
<PAGE>

   In December 1998, Illinois Power Special Purpose Trust issued $864 million
of Transitional Funding Trust Notes as allowed under the Illinois Electric
Utility Transition Funding Law in P.A. 90-561. As of December 31, 2000, IP
has used $790.3 million of the funds to repurchase outstanding debt
obligations, $13.6 million to repurchase preferred stock, $49.3 million to
repurchase 2.3 million shares of IP's common stock owned by Illinova and
$10.8 million for issuance expenses. During 1999, IP paid down the Notes by
$86.4 million. IP plans to pay down such Notes ratably through 2008;
therefore, at December 31, 2000, $86.4 million is classified as long-term
debt maturing within one year.

   At December 31, 2000 and 1999, the aggregate total of unamortized debt
expense and unamortized loss on reacquired debt was approximately $82.6
million and $91.8 million, respectively. This amount is included in the
Consolidated Balance Sheet under "Other Deferred Charges."

   The remaining balance of net bondable additions at December 31, 2000 and
1999, was approximately $431 million and $293 million, respectively.


















                                       63
<PAGE>

NOTE 10 - PREFERRED STOCK

<TABLE>
<CAPTION>
                                                                                              (MILLIONS OF DOLLARS)
--------------------------------------------------------------------------------------------------------------------
December 31,                                                                                      2000         1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>          <C>
SERIAL PREFERRED STOCK, cumulative, $50 par value -- Authorized 5,000,000
shares; 912,675 shares outstanding at December 31, 2000 and 1999, respectively.

                                2000        1999   REDEMPTION
              SERIES          SHARES      SHARES   PRICES
              4.08%          225,510     225,510 $ 51.50                                      $   11.3     $   11.3
              4.26%          104,280     104,280   51.50                                           5.2          5.2
              4.70%          145,170     145,170   51.50                                           7.2          7.2
              4.42%          102,190     102,190   51.50                                           5.1          5.1
              4.20%          143,760     143,760   52.00                                           7.2          7.2
              7.75%          191,765     191,765   50.00 after July 1, 2003                        9.6          9.6
              Net premium on preferred stock                                                       0.2          0.2
--------------------------------------------------------------------------------------------------------------------
     Total Preferred Stock, $50 par value                                                         45.8         45.8
--------------------------------------------------------------------------------------------------------------------
SERIAL PREFERRED STOCK, cumulative, without par value--
Authorized 5,000,000 shares; none outstanding,                                                 -            -
--------------------------------------------------------------------------------------------------------------------
PREFERENCE STOCK, cumulative, without par value --
Authorized 5,000,000 shares; none outstanding                                                  -            -
--------------------------------------------------------------------------------------------------------------------
     Total Serial Preferred Stock and Preference Stock                                            45.8         45.8
--------------------------------------------------------------------------------------------------------------------
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF:
ILLINOIS POWER CAPITAL, L.P.
    Monthly Income Preferred Securities, cumulative, $25 liquidation
    preference--Authorized 3,880,000 shares; 0 and                                                   -         93.1
    3,725,100 shares outstanding, respectively
ILLINOIS POWER FINANCING I
    Trust Originated Preferred Securities, cumulative, $25 liquidation
    preference--4,000,000 shares authorized and outstanding                                      100.0        100.0
ADJUSTMENT TO FAIR VALUE                                                                             -          0.3
--------------------------------------------------------------------------------------------------------------------
     Total Company Obligated Mandatorily
     Redeemable Preferred Stock                                                               $  100.0     $  193.4
--------------------------------------------------------------------------------------------------------------------
</TABLE>

In the above table, only the MIPS and TOPrS were restated to their fair value
in the quasi-reorganization. The serial preferred stock was not restated
because it is equity rather than an asset or a liability. The increase in the
value of the MIPS and the TOPrS is being amortized to interest expense over
the minimum remaining life of the securities. The amortization was complete
at December 31, 2000. See "Note 3 - Clinton Impairment, Quasi-Reorganization
and Sale of Clinton" for more information.

   Serial Preferred Stock ($50 par value) is redeemable at the option of IP,
in whole or in part, at any time with not less than 30 days and not more than
60 days notice by publication.

   Illinois Power Capital, L.P., is a limited partnership in which IP serves
as a general partner. Illinois Power Capital issued (1994) $97 million of
tax-advantaged MIPS at 9.45% (5.67% after-tax rate) with a liquidation
preference of $25 per share. IP consolidates the accounts of Illinois Power
Capital, L.P. During 2000, IP redeemed $93.1 million of Illinois Power
Capital, L.P. tax-advantaged MIPS. The carrying amount of these securities was
equal to the consideration paid.

                                       64
<PAGE>

   IPFI is a statutory business trust in which IP serves as sponsor. IPFI
issued (1996) $100 million of TOPrS at 8% (4.8% after-tax rate). IP
consolidates the accounts of IPFI. The TOPrS mature on January 31, 2045, and
may be redeemed at IP's option, in whole or in part, at any time on or after
January 31, 2001.

NOTE 11 - COMMON STOCK AND RETAINED EARNINGS

As of December 31, 1998, IP effected a quasi-reorganization in which IP's
accumulated deficit in retained earnings of $1,565.9 million was eliminated
by a $1,327.2 million restatement of other assets and liabilities to their
fair value and a transfer of $238.7 million from common stock equity. See
"Note 3 - Clinton Impairment, Quasi-Reorganization and Sale of Clinton" for
additional information regarding the effects upon retained earnings.

   On December 15, 1999, IP sold Clinton to AmerGen, which resulted in a
revision to the impairment of Clinton-related assets and the previously
accrued nuclear investment exit-related costs. The net decrease in the
impairment and the accruals was $88.2 million, which was recognized as an
increase in common stock equity, revising the original effect of the 1998
quasi-reorganization on common stock equity.

   On December 22, 1998, IPSPT issued $864 million of Transitional Funding
Trust Notes, with IP as servicer. As of December 31, 1998, IP used $49.3
million of the funds to repurchase 2.3 million of its common shares from
Illinova.

   As of December 31, 2000, IP had repurchased 12,751,724 shares of its
common stock from Illinova. Under Illinois law, such shares may be held as
treasury stock and treated as authorized but unissued, or may be canceled by
resolution of the Board of Directors. IP holds the common stock as treasury
stock and deducts it from common equity at the cost of the repurchased shares.

   Under IP's Restated Articles of Incorporation, common stock dividends are
subject to the preferential rights of the holders of preferred and preference
stock. 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 properly stated in a capital account." IP's retained earnings balance
is expected to be sufficient during 2001 to support payment of all scheduled
preferred dividends. On March 2, 2001, IP declared and paid common stock
dividends of $100.0 million to Illinova.

   IP employees participate in an Employees' Stock Ownership Plan ("ESOP")
that includes an incentive compensation feature that is tied to employee
achievement of specified corporate performance goals. This arrangement began
in 1991 when IP loaned $35 million to the Trustee of the Plans, which used
the loan proceeds to purchase 2,031,445 shares of IP's common stock on the
open market. IP financed the loan with funds borrowed under its bank credit
agreements. The loan and common shares became Illinova instruments on
formation of Illinova in May 1994. These shares are held in a Loan Suspense
Account under the ESOP and are released and allocated to the accounts of
participating employees as the loan is repaid by the Trustee with cash
contributed by IP for company stock matching and incentive compensation
awards. Common dividends received on allocated and unallocated shares held by
the Plan are used to repay the loan, which then releases additional shares to
cover dividends on shares held in participating employees' accounts. The
number of shares released when funds are received by the Trustee is based on
the closing price of the common stock on the last day of the award period or
the common stock dividend date. Effective with the merger of Dynegy and
Illinova, the shares of Illinova stock in the ESOP were converted to the same
number of shares of Dynegy Class A common stock.

   For the year ended December 31, 2000, 29,863 common shares were allocated
to salaried employees and 34,270 shares to employees covered under the
Collective Bargaining Agreement through the matching contribution feature of
the ESOP arrangement. Under the incentive compensation feature, 155,915
common shares were allocated to employees in 2000 based on incentive
compensation earned during 1999. During 2000, the common shares remaining to
be allocated under the ESOP were adjusted for the Dynegy two-for-one stock
split effective August

                                       65
<PAGE>

2000. At December 31, 2000, 24,488 shares remain unallocated. Using the
shares allocated method, IP recognized $0.5 million of expense in 2000.
During 2000, 1999 and 1998, IP contributed $3.5 million, $10.0 million and
$4.7 million, respectively, to the ESOP. Interest paid on the ESOP debt was
approximately $0.1 million in 2000, $0.5 million in 1999, and $0.9 million in
1998, and dividends used for debt service were approximately $0.9 million in
2000, $2.1 million in 1999 and $2.2 million in 1998.

   In 1992, the Board of Directors adopted and the shareholders approved a
Long-Term Incentive Compensation Plan (the Plan) for officers or employee
members of the Board, but excluding directors who are not officers or
employees. Restricted stock, incentive stock options, non-qualified stock
options, stock appreciation rights, dividend equivalents, and other
stock-based awards may be granted under the Plan for up to 1,500,000 shares
of Illinova's common stock. These stock-based awards generally vest over
three years, have a maximum term of 10 years and have exercise prices equal
to the market price on the date the awards were granted. Pursuant to terms of
the merger, certain vesting requirements on outstanding options granted prior
to the merger were accelerated.

   Each option granted is valued at an option price. The difference between
the option price and the stock price, if any, of each option on the date of
grant is recorded as compensation expense over a vesting period. Options
granted at market value vest and become exercisable ratably over a three-year
period. The average exercise price of vested options at December 31, 2000 was
$14.07. No compensation expense was recorded related to options granted
during 2000. Pursuant to the merger, all stock options granted to IP
employees were converted to options to purchase Dynegy Class A common stock
on a one-for-one basis.

   The following summary of options granted and option transactions for 2000,
1999 and 1998 reflect the effect of the two-for-one stock split.

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                             ----------------------------------------------------------------------------------------------
                                 2000           2000             1999           1999             1998          1998
                                Shares      Option Price        Shares      Option Price        Shares     Option Price
                             -------------------------------  ------------------------------  -----------------------------
<S>                          <C>           <C>                <C>          <C>                <C>         <C>
Outstanding at beginning of
  period                        1,902,800  $10.44 - $15.56      1,222,400  $10.44 - $15.13      823,900   $10.44 - $14.88
Granted                           314,109  $23.38 - $47.75        802,500  $10.89 - $15.56      571,000   $14.55 - $15.13
Exercised                        (788,700) $10.44 - $14.88       (122,100) $10.44 - $12.44      (74,700)  $10.44 - $12.44
Canceled, forfeited or
  expired                         (19,232) $15.56 - $23.38         -                            (97,800)  $10.44 - $15.13
                             -------------                    ------------                    -----------
Outstanding at end of period    1,408,977  $12.14 - $47.75      1,902,800  $10.44 - $15.56     1,222,400  $10.44 - $15.13
                             =============                    ============                    ===========


Exercisable at end of period    1,104,100  $12.14 - $15.56        377,300  $10.44 - $14.88       351,400  $10.44 - $12.44

Weighted average fair value of each
  option granted during the period
  at market                               $          14.17                 $          2.39                $          2.02
                                          ==================              ==================             ==================

Weighted average fair value of each
  option granted during the period
  at below market                                N/A                             N/A                            N/A
                                          ==================              ==================             ==================
</TABLE>

                                       66
<PAGE>

PRO FORMA DISCLOSURES

   In October 1995, the Financial Accounting Standards Board issued FAS No.
123, "Accounting for Stock-Based Compensation," effective for fiscal years
beginning after December 15, 1995. As permitted by FAS 123, IP continues to
account for its stock options in accordance with APB No. 25. Had compensation
expense for stock options held by IP employees been recognized based on the
fair value on the grant date under the methodology prescribed by FAS 123,
IP's net income (loss) applicable to common stock for the three years ended
December 31, would have been impacted as shown in the following table (in
millions).

<TABLE>
<CAPTION>
                                                                2000             1999              1998
                                                                ----             ----              ----
<S>                                                           <C>               <C>             <C>
Reported net income (loss) applicable to common stock         $121.0            $95.6           $(1,572.2)
Pro forma net income (loss) applicable to common stock        $118.9            $94.4           $(1,572.9)
</TABLE>

   The fair value of options granted, which is amortized to expense over the
option vesting period in determining the pro forma impact, is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:

<TABLE>
<CAPTION>
                                                               2000              1999            1998
                                                              ------            ------          ------
<S>                                                           <C>               <C>             <C>
Expected life of options                                      10 YEARS          10 years        10 years
Risk-free interest rates                                         6.65%             5.54%           5.61%
Expected volatility of stock                                       44%               33%             24%
Expected dividend yield                                           1.3%              4.4%            4.5%
</TABLE>








                                       67
<PAGE>

NOTE 12 - PENSION AND OTHER BENEFITS COSTS

IP is plan sponsor and administrator of the benefit plans disclosed below. These
plans cover employees of Illinova and its principal subsidiaries prior to the
February 1, 2000 merger with Dynegy. See "Note 1 - Summary of Significant
Accounting Policies" for more information. Current plan participants include the
Illinova employees as of February 1, 2000 as well as employees of IP and DMG
hired subsequent to the merger.

   IP is reimbursed by the other Illinova subsidiaries (prior to the merger) and
by other Dynegy subsidiaries (subsequent to the merger) for their share of the
expenses of the benefit plans. The values and discussion below represent the
plans in total, including the amounts attributable to the other subsidiaries.

<TABLE>
<CAPTION>
                                                                                              (MILLIONS OF DOLLARS)
----------------------------------------------------------------------------------------------------------------------
                                                                       PENSION BENEFITS           OTHER BENEFITS
                                                                      2000         1999          2000       1999
----------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>           <C>        <C>
CHANGE IN BENEFIT OBLIGATION

Projected benefit obligation at beginning of year                  $  417.3      $ 475.2       $ 90.9     $  95.5
Service cost                                                           10.0         16.3          2.3         3.1
Interest cost                                                          32.8         32.7          7.4         7.2
Participant contributions                                               -            -             -           -
Plan amendments                                                         -            0.4           -           -
Actuarial (gain)/loss                                                  (7.0)       (53.8)         3.3        (0.9)
Special termination benefits                                           10.9          6.3          1.0          -
Curtailment (gain)/loss                                                 -          (22.6)          -         (8.9)
Benefits paid                                                         (24.6)       (37.2)        (5.8)       (5.1)
----------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of year                        $  439.4     $  417.3       $ 99.1     $  90.9
----------------------------------------------------------------------------------------------------------------------

CHANGE IN PLAN ASSETS

Fair value of plan assets, beginning of year                       $  579.3     $  477.5       $ 80.1     $  63.7
Actual return on plan assets                                           61.1        120.6         (4.2)        9.8
Employer contributions                                                  -           18.4         11.5        10.9
Participant contributions                                               -            -            0.9         0.8
Benefits paid                                                         (24.6)       (37.2)        (5.8)       (5.1)
----------------------------------------------------------------------------------------------------------------------
Fair value of plan assets, end of year                             $  615.8     $  579.3     $   82.5     $  80.1
----------------------------------------------------------------------------------------------------------------------

RECONCILIATION OF FUNDED STATUS

Funded status                                                      $  176.4     $  162.0     $  (16.6)    $ (10.8)
Unrecognized actuarial (gain)/loss                                   (181.8)      (165.4)          .6       (13.8)
Unrecognized prior service cost                                         9.2         10.5           -           -
Unrecognized transition obligation/(asset)                            (13.5)       (17.7)        23.5        25.6
----------------------------------------------------------------------------------------------------------------------
Net amount recognized (gain)/loss                                  $   (9.7)    $  (10.6)    $    7.5     $   1.0
----------------------------------------------------------------------------------------------------------------------

AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF:

Prepaid benefit cost                                               $   13.6     $    5.1     $    7.5     $   1.0
Accrued benefit liability                                             (23.3)       (15.7)          -           -
----------------------------------------------------------------------------------------------------------------------
Net amount recognized (gain)/loss                                  $   (9.7)    $  (10.6)    $    7.5     $   1.0
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       68
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                                            PENSION BENEFITS          OTHER BENEFITS
                                                                           2000         1999          2000       1999
----------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>           <C>        <C>
ASSUMPTIONS AS OF DECEMBER 31

Discount rate                                                              8.0%         8.0%          8.0%       8.0%
Expected return on plan assets                                             9.5%         9.5%          9.5%       9.5%
Rate of compensation increase                                              4.5%         4.5%          4.5%       4.5%
Medical trend - initial trend                                                                         6.7%       6.9%
Medical trend - ultimate trend                                                                        5.5%       5.5%
Medical trend - year of ultimate trend                                                                2005       2005
</TABLE>


<TABLE>
<CAPTION>
                                                                                             (MILLIONS OF DOLLARS)
------------------------------------------------------------------------------------------------------------------
                                                    PENSION BENEFITS                       OTHER BENEFITS
                                                2000      1999      1998            2000         1999        1998
------------------------------------------------------------------------------------------------------------------
<S>                                           <C>        <C>      <C>             <C>          <C>          <C>
COMPONENTS OF NET PERIODIC BENEFIT COST

Service cost                                  $  10.0    $  16.3   $  12.8        $  2.3       $  3.1       $  2.6
Interest cost                                    32.8       32.7      30.4           7.4          7.2          6.3
Expected return on plan assets                  (47.8)     (40.7)    (35.3)         (7.8)        (6.0)        (4.4)
Amortization of prior service cost                1.4        1.9       1.9             -            -            -
Amortization of transition liability/(asset)     (4.2)      (4.2)     (4.2)            -          2.7          2.7
Recognized net actuarial (gain)/loss             (4.0)         -         -           2.1            -            -
------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                     $ (11.8)   $   6.0   $   5.6        $  4.0       $  7.0       $  7.2
Additional cost/(income) due to FAS 88           10.9      (12.7)        -           1.0         (0.2)           -
------------------------------------------------------------------------------------------------------------------
Total net periodic benefit cost/(income)      $   (.9)   $  (6.7)  $   5.6        $  5.0       $  6.8       $  7.2
------------------------------------------------------------------------------------------------------------------
</TABLE>

   For measurement purposes, a 6.7% health care trend rate was used for 2001.
Trend rates were assumed to decrease gradually to 5.5% in 2005 and remain at
this level going forward. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plan.

   A one percentage point change in assumed health care cost trend rates
would have the following effects for 2000:

<TABLE>
<CAPTION>
                                                                                         (MILLIONS OF DOLLARS)
-------------------------------------------------------------------------------------------------------------
                                                                              1 Percentage   1 Percentage
                                                                                 Point           Point
                                                                               Increase        Decrease
-----------------------------------------------------------------------------------------------------------
<S>                                                                           <C>            <C>
Aggregate effect on service cost and interest cost                                  $   1.3      $   (1.2)
Effect on accumulated postretirement benefit obligation                             $  10.4      $   (9.4)
-----------------------------------------------------------------------------------------------------------
</TABLE>

   As permitted under Paragraph 26 of Statement No. 87, the amortization of
any prior service cost is determined using a straight-line amortization of
the cost over the average remaining service period of employees expected to
receive benefits under the Plan.

   Concurrent with the decision to exit Clinton operations, IP recognized a
pension plan curtailment gain of $11.9 million and additional postretirement
medical plan curtailment costs of $0.7 million at December 31, 1998. These
amounts were recognized in the 1998 Consolidated Statement of Income;
however, these amounts are not reflected in the 1998 amounts in the above
tables.

                                       69
<PAGE>

   Revisions to the curtailment amounts resulted from the sale of Clinton.
The sale of Clinton in 1999 resulted in a pension plan curtailment gain of
$22.6 million and a postretirement medical plan curtailment gain of $8.9
million. Unrecognized prior service cost and transition obligation were
immediately recognized as a result of the Clinton sale curtailment in
accordance with FAS 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
accounting methods.

   The net result of FAS 88 accounting for the Clinton sale was a one-time
pension plan income item of $19.0 million and a postretirement medical plan
income item of $0.2 million in addition to the ongoing plans' net periodic
pension expense. The 1999 pension plan curtailment gain of $19.0 million and
the postretirement medical plan curtailment gain of $0.2 million were not
recognized in the 1999 Consolidated Statement of Income. Rather, these
curtailment gains were recognized as an adjustment to common stock equity, as
explained in "Note 3 - Clinton Impairment, Quasi-Reorganization and Sale of
Clinton." These amounts are reflected in the 1999 amounts in the above tables.

   The supplemental executive retirement plan ("SERP") accrued benefits were
paid as a lump sum to all participants. As a result, IP recognized an
immediate one-time cost of $6.3 million and the SERP plan ceased to exist as
of December 31, 1999.

   The former IP employees who are now employed by AmerGen due to the sale of
Clinton are considered to be terminated employees in the pension plans with
the following exceptions: (1) employees at Clinton who have not completed the
vesting requirements to qualify for benefits under the provision of the IP
pension plans can meet the service requirements for vesting by remaining
employed at AmerGen until the vesting requirement is fulfilled, and (2)
employees who remain at Clinton until age 55 are entitled to the same early
retirement benefit reductions as an active employee at IP who chooses to
retire between ages 55 and 62.

   As a result, IP retained the assets and obligations to provide pension
benefits (based on service with IP) to AmerGen employees when they terminate
or retire.

   The former IP employees who are now employed by AmerGen due to the sale of
Clinton who have met the eligibility requirements for postretirement welfare
benefits will remain eligible for these benefits and continue to accrue
service towards these benefits while employed by AmerGen. Those employees who
have not yet met the eligibility requirement for the postretirement welfare
plans, but who were age 50 or over at the time of the sale, will be able to
accrue service at AmerGen towards the eligibility and benefits under the IP
plans.

  During 2000, IP recognized special termination benefit pension expense of
$10.9 million and postretirement medical plan expense of $1.0 million due to
IP's staffing reduction plan resulting from the merger with Dynegy. See "Note
2 - Business Combination" for additional information.

NOTE 13 - SEGMENTS OF BUSINESS

IP is engaged in the transmission, distribution and sale of electric energy
and the distribution, transportation and sale of natural gas in the state of
Illinois. In previous periods, IP was also engaged in the generation of
electric energy. As previously discussed, effective October 1, 1999, IP
transferred its fossil-fueled generating assets to Illinova. Additionally, as
a condition precedent to the merger, IP sold its interest in the Clinton
Nuclear Power Station to AmerGen effective December 15, 1999. As a result of
these enterprise changes, the structure of IP's internal organization has
constricted into a single prospective reportable segment. For 2000, this
segment includes the transmission, distribution and sale of electric energy
in Illinois; and the transportation, distribution and sale of natural gas in
Illinois. Also included in this segment are specialized support functions,
including accounting, legal, performance management, information technology,
human resources, environmental resources, purchasing and materials management
and public affairs. For comparability purposes, results for 2000 should be
compared with the Customer Service segment in previous periods.

                                       70
<PAGE>

   During 1999 and 1998, IP's operations were divided into four reportable
segments: Customer Service, Wholesale Energy, Nuclear and Other.

   The business groups and their principal services were as follows:

--   Customer Service Business Group - transmission, distribution and sale of
     electric energy; distribution, transportation and sale of natural gas in
     Illinois.
--   Wholesale Energy Business Group - fossil-fueled electric generation in
     Illinois, wholesale electricity transactions throughout the United States
     and dispatching activities.
--   Nuclear Generation Business Group - nuclear-fueled electric generation in
     Illinois.
--   Other - This category included the financial support functions such as
     accounting, finance, corporate performance, audit and compliance, investor
     relations, legal, corporate development, regulatory, risk management and
     tax services. Also included in this group were specialized support
     functions, including information technology, human resources, environmental
     resources, purchasing and materials management and public affairs.

   Generally, IP accounts for intercompany transactions at prevailing rates
or fully distributed costs. Operating segment information for the year 1999
is presented below.

<TABLE>
<CAPTION>
                                                                                                   (MILLIONS OF DOLLARS)

                                                     Customer      Wholesale                                     Total
1999                                                 Service         Energy        Nuclear        Other         Company
----------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>             <C>           <C>           <C>
Unaffiliated domestic revenues                         $ 1,488.8      $  380.5       $   33.9        $    -     $   1,903.2
Intersegment domestic revenues  (1)                            -         352.7          146.4       (499.1)               -
                                                  --------------------------------------------------------------------------
   Total revenues                                        1,488.8         733.2          180.3       (499.1)         1,903.2
Depreciation and amortization                               94.5          76.9            6.8             -           178.2
Other operating expenses  (1)                            1,040.9         548.4          339.1       (475.5)         1,452.9
                                                  --------------------------------------------------------------------------
   Operating income (loss)                                 353.4         107.9        (165.6)        (23.6)           272.1
Interest expense (3)                                       105.5          68.7         (25.8)             -           148.4
AFUDC                                                      (4.2)             -              -             -           (4.2)
                                                  --------------------------------------------------------------------------
   Net income (loss) before taxes                          252.1          39.2        (139.8)        (23.6)           127.9
Income tax expense (benefit)                                94.9          13.4         (53.8)          16.8            71.3
Miscellaneous-net                                            0.5             -          (3.0)           6.1             3.6
Interest revenue (4)                                           -             -              -        (60.1)          (60.1)
                                                  --------------------------------------------------------------------------
   Net income (loss) after taxes                           156.7          25.8         (83.0)          13.6           113.1
Preferred dividend requirement and
   carrying amount over consideration paid
   for redeemed preferred stock                             13.6           9.1          (3.6)         (1.6)            17.5
                                                  --------------------------------------------------------------------------
Net income (loss) applicable to common stock           $   143.1      $   16.7      $  (79.4)      $   15.2       $    95.6
----------------------------------------------------------------------------------------------------------------------------
Other information --
   Total domestic assets  (2)                         $  2,507.8        $    -         $    -     $ 2,790.0     $   5,297.8
   Capital expenditures                                    111.1          79.1              -           7.0           197.2
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Intersegment revenue priced at 2.9 cents per kWh delivered for 1999.
     Intersegment expense is reflected in other operating expenses for Customer
     Service. Intersegment revenues and expenses are eliminated in the Other
     column. Effective October 1, 1999, Customer Service reflects power
     purchased in other operating expense at the PPA price between IP and IPMI
     of $106 million.

(2)  Primary assets in Other include notes receivable from Illinova. Effective
     October 1, 1999, the Wholesale Energy Business Group was transferred to its
     parent, Illinova, and subsequently to its affiliate, IPMI.

(3)  Interest expense is allocated based on net invested capital of the
     segments.

(4)  Interest revenue includes interest on notes receivable from Illinova and
     other affiliates of $52.9 million.

                                       71
<PAGE>

   Operating segment information for the year ended 1998 is presented below.

<TABLE>
<CAPTION>
                                                                                          (MILLIONS OF DOLLARS)

                                              Customer     Wholesale                                  Total
1998                                           Service       Energy       Nuclear       Other        Company
----------------------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>            <C>           <C>         <C>
Unaffiliated domestic revenues                $  1,505.7     $   557.2    $     6.3     $      -    $   2,069.2
Intersegment domestic revenues  (1)                    -         482.3         (2.4)      (479.9)             -
                                             -------------------------------------------------------------------
   Total revenues                                1,505.7       1,039.5          3.9       (479.9)       2,069.2
Depreciation and amortization                       68.3          30.3         99.1          5.9          203.6
Other operating expenses  (1)                      909.9         996.3        366.9       (477.0)       1,796.1
                                             -------------------------------------------------------------------
   Operating income (loss)                         527.5          12.9       (462.1)        (8.8)          69.5
Interest expense (3)                                53.9          16.2         64.8            -          134.9
AFUDC                                               (0.1)         (0.9)        (2.5)         0.3           (3.2)
                                             -------------------------------------------------------------------
   Net income (loss) before taxes                  473.7          (2.4)      (524.4)        (9.1)         (62.2)
Income tax expense (benefit)                       194.0          (5.4)      (226.2)         3.2          (34.4)
Miscellaneous-net                                    0.5          (1.0)         0.1          3.2            2.8
Interest revenue                                       -             -            -        (1.9)          (1.9)
                                             -------------------------------------------------------------------
   Net income (loss) after taxes                   279.2           4.0       (298.3)       (13.6)         (28.7)
Preferred dividend requirement                       7.3           2.4         10.1            -           19.8
                                             -------------------------------------------------------------------
   Net income (loss)                           $   271.9      $    1.6    $  (308.4)    $  (13.6)    $    (48.5)
Clinton plant impairment loss, net of tax              -             -      1,523.7            -        1,523.7
                                             -------------------------------------------------------------------
Net income (loss) applicable to common stock   $   271.9      $    1.6    $(1,832.1)    $  (13.6)    $ (1,572.2)
----------------------------------------------------------------------------------------------------------------
Other information --
   Total domestic assets  (2)                  $ 2,290.4      $3,043.7    $   241.4     $  528.6     $  6,104.1
   Capital expenditures                            124.4         116.0         62.5          8.6          311.5
----------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Intersegment revenue priced at 2.5 cents per kWh delivered. Intersegment
     expense is reflected in other operating expenses for Customer Service.
     Nuclear reflects a replacement power expense for the increment of market
     price over the intersegment price for 1998. Intersegment revenues and
     expenses are eliminated in the Other column.

(2)  Primary assets for Nuclear include decommissioning assets, shared general
     and intangible plant and nuclear fuel.

(3)  Interest expense is allocated based on net invested capital of the
     segments.


                                       72
<PAGE>

NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of SFAS No. 107, "Disclosures
About Fair Value of Financial Instruments." Using available market
information and selected valuation methodologies, IP has determined the
estimated fair value amounts. Considerable judgment is required in
interpreting market data to develop the estimates of fair value. The use of
different market assumptions or valuation methodologies could have a material
effect on the estimated fair-value amounts.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                      2000                         1999
                                                            ---------------------------------------------------------
                                                               CARRYING          FAIR         Carrying          Fair
(MILLIONS OF DOLLARS)                                             VALUE         VALUE            Value         Value
---------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>            <C>            <C>
Cash and cash equivalents                                         $24.1         $24.1            $23.5         $23.5

Mandatorily redeemable
  preferred stock                                                 100.0          99.0            193.4         169.9

Long-term debt (including current maturities)                   1,874.0       1,858.0          2,142.8       2,061.2

Notes payable                                                     147.8         147.8            327.3         327.3

----------------------------------------------------------- ------------ ------------- ---------------- -------------
</TABLE>

   The operations of IP are subject to regulation; therefore, gains or losses
on the redemption of long-term debt may be included in rates over a
prescribed amortization period, if they are in fact, settled at amounts
approximating those in the above table.

   The following methods and assumptions were used to estimate the fair value
of each class of financial instruments listed in the table above:

CASH AND CASH EQUIVALENTS The carrying amount of cash and cash equivalents
approximates fair value due to the short maturity of these instruments.

MANDATORILY REDEEMABLE PREFERRED STOCK AND LONG-TERM DEBT The fair value of
IP mandatorily redeemable preferred stock and long-term debt is estimated
based on the quoted market prices for similar issues or by discounting
expected cash flows at the rates currently offered to IP for debt of the same
remaining maturities, as advised by IP bankers.

NOTES PAYABLE The carrying amount of notes payable approximates fair value
due to the short maturity of these instruments.

NOTE 15 - FINANCIAL AND OTHER DERIVATIVE INSTRUMENTS

TRADING ACTIVITIES IP engaged in the brokering and marketing of electricity
until September 30, 1999. Effective October 1, 1999, IP's wholly owned fossil
generating assets were transferred to Illinova. Illinova subsequently
transferred these assets to IPMI. For more information regarding the transfer
of the wholly owned fossil generation, see "Note 4 - Related Parties."
Consequently, all trading activities for the last quarter of 1999 were
conducted by IPMI. During the first three quarters of 1999, IP used a variety
of instruments, including fixed-price swap agreements, variable-price swap
agreements, exchange-traded energy futures, swaps, and options contracts, and
over-the-counter forwards, swaps, and options.

                                       73
<PAGE>

   As of December 31, 1998, IP adopted EITF 98-10. IP recorded its trading
instruments at fair value in accordance with EITF 98-10's application
criteria. Until September 30, 1999 and at December 31, 1998, derivative
assets and liabilities were recorded on the Consolidated Balance Sheets at
fair value with unrealized gains and losses shown net in the Consolidated
Statements of Income. During 1999 and 1998, IP recorded realized gains and
losses as components of operating revenues and operating expenses in the
Consolidated Statements of Income. During 2000, IP did not participate in
trading activities.

NON-TRADING ACTIVITIES To reduce the risk from market fluctuations in the
price and availability of electricity and related transmission, IP entered
into forward transactions, swaps, and options (energy derivatives) until
September 30, 1999. Prior to October 1, 1999, IP used these instruments to
hedge expected purchases, sales, and transmission of electricity (a portion
of which were firm commitments at the inception of the hedge). The weighted
average maturity of these instruments was less than one year.

   Effective October 1, 1999, IP's wholly owned fossil generating assets were
transferred to Illinova. Subsequently, Illinova transferred these assets to
IPMI. Consequently, all non-trading activities were performed by IPMI during
the last quarter of 1999. For more information regarding the transfer of
wholly owned fossil generating assets, see "Note 4 - Related Parties."

   As of December 31, 1998, IP adopted FAS 133. IP's derivative assets and
liabilities were recorded on the Consolidated Balance Sheets at fair value
with unrealized gains and losses shown net in the equity section of the
Consolidated Balance Sheets as a part of the quasi-reorganization. In 1999,
hedge accounting was not applied, and unrealized gains and losses are shown
net in the Consolidated Statements of Income. IP recorded realized gains and
losses as components of operating revenues and operating expenses in the
Consolidated Statements of Income. During 2000, IP had no derivative
instruments qualifying under FAS 133.

NOTE 16 - QUARTERLY CONSOLIDATED FINANCIAL INFORMATION AND COMMON STOCK DATA
(UNAUDITED)

<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS)
---------------------------------------------------------------------------------------------------------------------
                                                     First Quarter     Second Quarter   Third Quarter  Fourth Quarter
                                                          2000              2000            2000            2000
---------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>              <C>            <C>
Operating revenues                                       $385               $339            $431         $430.6
Operating income                                           31                 40              59           26.0
Net income                                                 25                 30              53           26.9
Net income applicable to common stock                      20                 26              51           24.0
Cash dividends declared on common stock                     -                  -               -              -
Cash dividends paid on common stock                         -                  -               -              -

<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                     First Quarter     Second Quarter   Third Quarter  Fourth Quarter
                                                          1999              1999            1999            1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>              <C>            <C>
Operating revenues                                       $472.3           $378.1           $676.3         $376.5
Operating income                                           55.4             53.4             94.0           14.9
Net income                                                 23.0             20.0             59.8           10.3
Net income applicable to common stock                      18.8             15.0             56.1            5.7
Cash dividends declared on common stock                       -             19.5             21.4              -
Cash dividends paid on common stock                           -             19.5             21.4              -
</TABLE>

In addition to amounts disclosed elsewhere, during the fourth
quarter of 1999, IP incurred $5.7 million expenses related to
the merger of Illinova and Dynegy.

                                       74