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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, 2001

/ /  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                                    62521-2200
           DECATUR, ILLINOIS                                    (Zip Code)
       (Address of principal executive offices)

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

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

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 / /

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/

<Page>

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
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                             ILLINOIS POWER COMPANY
                                   FORM 10-K

                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                                    PAGE
      <S>           <C>                                                                                               <C>
                                     PART I

      Item 1.       Business..............................................................................            4
                       General............................................................................            4
                       Electric Business..................................................................            7
                       Gas Business.......................................................................            9
                       Environmental Matters..............................................................            9
                       Research and Development...........................................................           10
                       Regulation.........................................................................           10
                       Employees..........................................................................           11
      Item 2.       Properties............................................................................           11
      Item 3.       Legal Proceedings.....................................................................           12
      Item 4.       Submission of Matters to a Vote of Security Holders...................................           12

                                         PART II

      Item 5.       Market for Registrant's Common Equity and Related Stockholder Matters.................           13
      Item 6.       Selected Financial Data...............................................................           13
      Item 7.       Management's Discussion and Analysis of Financial Condition and Results of
                    Operations............................................................................           13
      Item 7A.      Quantitative and Qualitative Disclosures About Market Risk............................           25
      Item 8.       Financial Statements and Supplementary Data...........................................           25
      Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial
                    Disclosure............................................................................           25

                                        PART III

      Item 10.      Directors and Executive Officers of the Registrant....................................           26
      Item 11.      Executive Compensation................................................................           27
      Item 12.      Security Ownership of Certain Beneficial Owners and Management........................           32
      Item 13.      Certain Relationships and Related Transactions........................................           34

                                         PART IV

      Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................           35

      Signatures..........................................................................................           36

      Exhibit Index.......................................................................................           37

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

</Table>


                                        3
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                                     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 shares of preferred stock outstanding, but all of the issued and
outstanding shares of its common stock are owned by Illinova Corporation
("Illinova"). On February 1, 2000, Illinova and its subsidiaries, including IP,
were acquired by Dynegy Inc. ("Dynegy"). The transaction 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 of these changes, "direct access," provides customers the
freedom to purchase electricity from alternate suppliers. In December 1997,
electric regulatory restructuring legislation providing for "direct access,"
among other things, 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 (inactive as of May 30, 2000); Illinois Power Financing I, a
statutory business trust in which IP serves as sponsor (inactive as of September
30, 2001); Illinois Power Securitization Limited Liability Company ("LLC"), a
special purpose Delaware limited liability company whose sole member is IP;
Illinois Power Special Purpose Trust, a special purpose Delaware business trust
whose sole owner is LLC; and Illinois Power Transmission Company LLC, a limited
liability Delaware company that is not currently active.

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
APB                 Accounting Principles Board
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
FASB                Financial Accounting Standards Board
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
</Table>

                                        4
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<Table>
<S>                 <C>
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
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
UFAC                Uniform Fuel Adjustment Clause
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 enactment of the Energy
Policy Act of 1992 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. Retail wheeling involves the transport of
electricity to end-use customers. The Energy Policy Act currently precludes the
FERC from mandating retail wheeling.

     Competition arises 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. 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. An
additional 5% decrease goes into effect 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 mandatory transition period ending
in 2004. 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
2001 through 2004 (which increases to 8.5% in 2001 through 2004 if IP 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 calculation of ROE for the floor test. During 2001, IP's two-year average
ROE was within the allowable ROE collar, avoiding adjustments or customer
refunds. Although the U.S. Treasury recently announced that 30-year U.S.
Treasury bonds will no longer be issued, the ROE floor and ceiling provisions
continue to be measured against the yields of outstanding 30-year U.S. Treasury
bonds.

P.A. 90-561 - DIRECT ACCESS PROVISIONS   Since October 1999, non-residential
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 have
been 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 provide electricity service to its
customers at tariff rates and to provide delivery service to its

                                        5
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customers at regulated rates. Departing customers must pay transition charges to
IP, but those charges are not designed to compensate IP for all of its lost
revenues.

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

1)     Departing customers are obligated to pay transition charges based on the
       utility's lost revenue from that customer. The transition charges are
       applicable through 2006 and can be extended two additional years with
       approval 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 notes.

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

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. Effective on July 1, 2001, the ISO
requirements of P.A. 90-561 were amended by P.A. 92-12 to provide that a
regional transmission organization ("RTO") created under FERC rules shall be
considered to be the functional equivalent of an ISO. An electric utility shall
be deemed to meet its obligation to participate in an ISO through membership in
a RTO that fulfills the requirements of an ISO as set forth 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 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 allowed it to withdraw from the
MISO and join the Alliance RTO, effective upon the FERC's approval of the
settlement, which occurred May 8, 2001. IP has fulfilled its obligations under
the MISO settlement.

     On August 21, 2001, IP and seven of the transmission owners proposing to
form the Alliance RTO entered into a letter of intent with National Grid, USA
pursuant to which National Grid would serve as the Alliance RTO's managing
member for a period of seven years. On November 1, 2001, the Alliance companies
filed the definitive agreements with the FERC for approval.

     The proposed business and independence plan and the definitive agreements
provided that the Alliance RTO would own transmission facilities divested by
transmission owners in exchange for passive ownership interests in the Alliance
RTO or partially for cash. Alternatively, the Alliance RTO would enter into
seven-year operating agreements to functionally control the transmission
facilities of transmission owners that elect not to divest. Non-divesting
transmission owners would maintain the physical operations of their transmission
facilities.

     As proposed to the FERC by the Alliance companies, National Grid, as a
non-market participant, would operate the Alliance RTO's transmission facilities
as a for-profit corporation and receive a management fee of $14 million, a fixed
rate of return on its investment in the Alliance RTO, reimbursement of its
operating and maintenance expenditures and an opportunity to earn incentive
compensation. In return, National Grid would be required to contribute $1
billion to the Alliance RTO by 2005, $75 million of which would be used to
reimburse members for start-up costs and an additional $75 million of which
would be used to fund capital expenditures for future system costs. The
remaining $850 million would be used to purchase transmission assets and for
transmission expansions.

     In an order issued on December 20, 2001, the FERC reversed its previous
findings and stated that it could not approve the Alliance RTO as a RTO. The
FERC further directed the Alliance companies to explore how their business plan,
including the participation of National Grid, could be accommodated within the
MISO. In addition, the FERC directed the Alliance companies to file a statement
of their plans to join a RTO, including the timeframe, within 60 days of
December 20th.

                                        6
<Page>

     On January 8, 2002, the Alliance companies and National Grid commenced
substantive discussions with the MISO as directed by the FERC. In addition, the
Alliance companies continue to consider other opportunities for participation in
a RTO. On February 19, 2002, IP, in conjunction with the Alliance companies,
filed a report with the FERC stating that Alliance has been in discussions with
both MISO and PJM Interconnection LLC, but has been unable to reach agreement.

     Competition creates both risks and opportunities. At this time, the
ultimate effect of competition on IP's financial position and results of
operations cannot be predicted with any certainty.

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
27 cities with populations greater than 10,000 (2000 U.S. Census Bureau's
Redistricting Data). IP supplies electric service at retail to an estimated
aggregate population of 1,372,000 in 311 incorporated municipalities, adjacent
suburban and rural areas, and numerous unincorporated communities and retail
natural gas service to an estimated population of 1,019,000 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, 2002, IP served 588,765 active electric customers
(billable meters) and 412,142 active gas customers (billable meters). These
numbers do not include customers served by 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 2001.


                                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.

     IP's highest system peak hourly demand (native retail load) in 2001 was
3,475,000 kW on July 23, 2001. 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, MidAmerican 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.

                                        7
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FOSSIL GENERATION

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.

NUCLEAR GENERATION

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% of the plant's electricity output in 1999 and at least 75% during the
years 2000 through 2004.

     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 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 agreed to make five annual payments of approximately $5.0 million
through 2004 to the decommissioning trust funds, of which two payments have been
made through December 2001.

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

POWER SUPPLY

IP's transfer of its wholly owned fossil generating assets to Illinova and the
December 1999 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. The AmerGen PPA was entered into pursuant to the terms of
the Clinton asset sale agreement, which obligates IP to purchase at least 75% of
Clinton's electricity output through 2004 at fixed prices that exceed current
and projected wholesale prices. The DMG PPA obligates DMG to provide capacity
and energy to IP through at least December 31, 2004 using a tiered pricing
structure.

     IP believes it has provided for adequate power supply for its expected load
plus a reserve supply above that expected level. Should power acquired under
these agreements be insufficient to meet IP's 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 does not obligate AmerGen to acquire
replacement power for IP in the event of a curtailment or shutdown at Clinton.
Under a Clinton outage scenario, to the extent IP exceeds its capacity
reservation with DMG, IP will have to buy power at current market prices.
Volatility of the power market could affect the prices at which IP would
purchase any such necessary power.

                                        8
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     For more information on Clinton and the AmerGen PPA, see "Note 3 - Clinton
Impairment, Quasi-Reorganization and Sale of Clinton" in the audited financial
statements included herein. For more information on the DMG PPA, see "Regulatory
Matters" in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Note 4 - Related Parties" in the audited financial
statements included herein.

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."


                                  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 capacity of
approximately 11.6 Billion Cubic Feet ("BCF") and a total deliverability on a
peak day of about 289,000 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.

     IP experienced its 2001 peak-day send out of 566,461 MMBtu of natural gas
on January 2, 2001. 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 on six interstate pipelines for firm transportation and storage
services. These contracts have varying expiration dates ranging from 2002 to
2008. IP also enters into contracts for the acquisition of natural gas supply
ranging 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.

                                        9
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MANUFACTURED-GAS PLANT SITES

IP previously operated two dozen sites at which synthetic gas was
manufactured from coal. Operation of these MGP sites was generally
discontinued in the 1950s when natural gas became available from interstate
gas transmission pipelines. Many of these MGP sites were contaminated with
residues from the gas manufacturing process. Although IP estimates its
liability for MGP site remediation to be approximately $53 million for its
remaining 22 MGP sites, 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 portion of the estimated 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 electric and gas customers.

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 were approximately $.1 million for each of
2001 and 2000, down considerably from the $4.4 million spent in 1999.
Expenditures in 1999 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

                                       10

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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 2002.

     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 2001, the ICC ruled on
(i) the establishment of a market value index (in lieu of a neutral fact finder
price) used in (a) calculating competitive transition costs and (b) IP's power
purchase tariff; and (ii) transactions between the gas utility and its
affiliates. During 2002, it is expected that the ICC will rule on (i) guidelines
regarding standards of conduct and functional separation for electric utilities;
(ii) IP's residential electric delivery service tariffs; and (iii) uniformity of
the terms associated with residential electric delivery service tariffs. The
impact of these regulations on IP's financial condition and results of
operations cannot be predicted with certainty.

     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, 2001, IP had 654 salaried employees and 1,319 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 or
2001. IP continues to own 50% of three peaking diesel 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 standby units.

     IP owns an interconnected electric transmission system of 2,638 circuit
miles, operating from 69,000 to 345,000 volts, and a distribution system that
includes 36,758 circuit miles of overhead and underground lines. All of IP's
transmission system is located in the State of Illinois.

     IP owns 755 miles of gas transmission pipe and 7,543 miles of gas
distribution pipe.

                                       11
<Page>

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

The 2001 annual meeting of IP's shareholders was held on November 19, 2001. IP's
preferred shareholders are entitled to vote on the matters presented with IP's
common shareholder, Illinova.  The purpose of the annual meeting was to consider
and vote upon the following proposals:

   1.  to elect five directors to serve until the 2002 annual meeting of
       shareholders; and
   2.  to ratify the selection of Arthur Andersen LLP as IP's independent
       auditors for the fiscal year ending December 31, 2001.

     The Company's Board of Directors is comprised of five members. At the
annual meeting, each of the following individuals was re-elected to serve as a
director of IP: C.L. Watson; Stephen W. Bergstrom; Larry F. Altenbaumer; Robert
D. Doty, Jr.; and Kenneth E. Randolph.

     The votes cast for each nominee and the votes withheld were as follows:

<Table>
<Caption>
                                           FOR                    WITHHELD
   <S>                                 <C>                       <C>
   1.       C.L. Watson                62,892,213                912,675
   2.       Stephen W. Bergstrom       62,892,213                912,675
   3.       Larry F. Altenbaumer       62,892,213                912,675
   4.       Robert D. Doty, Jr.        62,892,213                912,675
   5.       Kenneth E. Randolph        62,892,213                912,675
</Table>

     The following votes were cast with respect to the ratification of the
selection of Arthur Andersen LLP as IP's independent auditors for the fiscal
year ending December 31, 2001:

<Table>
            <S>                                 <C>
            For:                                62,892,213
            Against/Withheld:                      912,675
            Abstentions:                               ---
            Broker Non-votes:                          ---
</Table>

     In each case, the withheld votes reflect preferred shares that were not
voted in light of Illinova's ownership of all of IP's common stock, which
represents 98.6% of IP's voting stock.

                                       12
<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 11 - Common Stock
and Retained Earnings" 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>
------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
                                                                                                   (MILLIONS OF DOLLARS)
                                                      2001           2000          1999          1998              1997
------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>            <C>           <C>             <C>
Operating revenues
    Electric                                     $   1,137.1    $   1,189.4    $   1,178.6   $ 1,224.2      $   1,244.4
    Electric interchange                                  .7            2.7          420.2       557.2            175.6
    Gas                                                476.6          393.5          304.4       287.8            353.9
------------------------------------------------------------------------------------------------------------------------
       Total operating revenues                  $   1,614.4    $   1,585.6    $   1,903.2   $ 2,069.2      $   1,773.9
------------------------------------------------------------------------------------------------------------------------
Extraordinary item net of income tax benefit     $        --    $        --    $        --   $      --      $    (195.0)
Net income (loss) after extraordinary item       $     166.2    $     134.9    $     113.1   $(1,552.4)     $     (44.2)
Effective income tax rate                               41.4%          38.2%          38.7%       43.1%            40.1%
------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable
    to common stock                              $     157.9    $     121.0    $      95.6   $(1,572.2)     $     (65.5)
Cash dividends declared on common stock                100.0             --           40.9        83.2             91.1
------------------------------------------------------------------------------------------------------------------------
Total assets                                     $   4,861.1    $   4,971.7    $   5,297.8   $ 6,104.1      $   5,291.5
------------------------------------------------------------------------------------------------------------------------
Capitalization
    Common stock equity                          $   1,221.9    $   1,156.3    $   1,035.2   $   892.2      $   1,299.1
    Preferred stock                                     45.8           45.8           45.8        57.1             57.1
    Mandatorily redeemable preferred stock                --          100.0          193.4       199.0            197.0
    Long-term debt                                   1,605.6        1,787.6        1,906.4     2,158.5          1,617.5
------------------------------------------------------------------------------------------------------------------------
       Total capitalization                      $   2,873.3    $   3,089.7    $   3,180.8   $ 3,306.8      $   3,170.7
------------------------------------------------------------------------------------------------------------------------
Retained earnings                                $     233.6    $     175.7    $      54.7   $      --      $      89.5
------------------------------------------------------------------------------------------------------------------------
Capital expenditures                             $     148.8    $     157.8    $     197.2   $   311.5      $     223.9
Cash flows from operations                       $     345.0    $     381.3    $      85.8   $   313.3      $     423.7
Ratio of earnings to fixed charges                      3.25           2.53           2.16         N/A              N/A
------------------------------------------------------------------------------------------------------------------------
</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

                                       13
<Page>

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 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. Since the merger,
IP has continued to operate as a regulated utility engaged in the transmission,
distribution and sale of electric energy and the distribution, transportation
and sale of natural gas across a 15,000-square-mile area in the State of
Illinois.

GENERAL

COMPANY PROFILE   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 (inactive as of May 30, 2000); Illinois Power Financing I, a
statutory business trust in which IP serves as sponsor (inactive as of September
30, 2001); Illinois Power Securitization Limited Liability Company ("LLC"), a
special purpose Delaware limited liability company whose sole member is IP;
Illinois Power Special Purpose Trust, a special purpose Delaware business trust
whose sole owner is LLC; and Illinois Power Transmission Company LLC, a limited
liability Delaware company that is not currently active.

     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 wholly owned generating
assets 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 Dynegy-Illinova 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.

     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, 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 $5.0 million through 2004
to the decommissioning trust funds, of which two payments have been made through
December 2001. 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.

                                       14
<Page>

ACCOUNTING MATTERS

2001   In June 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations." FAS 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred with the associated asset retirement costs being capitalized as a
part of the carrying amount of the long-lived asset. FAS 143 also includes
disclosure requirements that provide a description of asset retirement
obligations and reconciliation of changes in the components of those
obligations. IP is evaluating the future financial effects of adopting FAS 143
and expects to adopt the standard effective January 1, 2003.

     In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." FAS 144 addresses the accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" and APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The objective of FAS 144 is to establish one accounting model for
long-lived assets to be disposed of by sale as well as resolve implementation
issues related to FAS 121. IP's adoption of FAS 144 on January 1, 2002 did not
have any impact on IP's financial position or results of operations.

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 Dynegy-Illinova 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.

     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. An
additional 5% decrease goes into effect on May 1, 2002. The rate decreases
result in expected revenue reductions of approximately $93.0 million in the year
2002, approximately $101.0 million in 2003 and approximately $103.0 million in
2004, based on projected consumption.

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. 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. During
2001,

                                       15
<Page>

approximately $9.3 million of additional fossil generation-related assets
were transferred and the unsecured note receivable was adjusted accordingly.
Illinova then contributed these assets to DMG (formerly IPMI). The additional
transfer was approved by the ICC on March 21, 2001. 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 2001 was $169.9 million. In the fourth
quarter of 2001, Illinova accelerated the payment of accrued interest on the
note receivable for the three months ended December 31, 2001 in the amount of
$42.6 million. Therefore, at December 31, 2001 there was no accrued interest on
this note.

     A PPA was negotiated between IP and DMG to provide IP with continued energy
supply from the transferred 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'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.

     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. 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 Power Coordination
Agreement.

POWER SUPPLY AND RELIABILITY

IP took steps in 1999 to increase power supply and avoid power shortages like
those experienced during the 1998 summer cooling season. 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.

     During 2000 and 2001, IP has secured its power requirements through PPA
contracts. See "Note 3 - Clinton Impairment, Quasi-Reorganization and Sale of
Clinton" and "Note 4 - Related Parties" in the audited financial statements
included herein for further discussion.

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 reportable segment. For 2001 and
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, regulatory, performance management, information
technology, human resources, environmental resources, purchasing and materials
management and public affairs. For comparability purposes, results for 2001 and
2000 should be compared with the Customer Service segment from the previous
period.

                                       16
<Page>

     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.

     For both 2001 and 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 Net Invested Capital ("RONIC"). For
2001, IP's Operating Margin, EBIT and RONIC were slightly below targeted
measures while Cash Flow target was exceeded. IP's 2001 EBIT performance was
negatively impacted by a one-time early retirement and severance charge due to
corporate restructuring, which was not included in IP's target. For 2000, IP's
Operating Margin and EBIT performance fell slightly below targeted measures
while Cash Flow and RONIC targets were exceeded. IP's 2000 EBIT performance was
negatively impacted by a one-time early retirement and severance charge related
to the merger, which was not included in IP's target.

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

     The business groups and their principal services in 1999 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.

CUSTOMER SERVICE - TRANSMISSION, DISTRIBUTION AND SALE OF ELECTRIC ENERGY AND
GAS   The Customer Service Business Group derived its revenues through regulated
tariffs. Its source of electricity was the Wholesale Energy Business Group and
the Nuclear Business Group. Electricity was provided to the Customer Business
Group at a fixed 2.9 cents for the first nine months of 1999. During the last
quarter of 1999 electricity was provided to the Customer Service Business Group
at the PPA price between IP and DMG.

WHOLESALE ENERGY   The Wholesale Energy Business Group derived its revenues by
providing electricity primarily to the Customer Service Business Group.
Electricity was provided at 2.9 cents per kWh for the nine months ended
September 30, 1999. During the last quarter of 1999, electricity was provided at
the PPA price between IP and DMG.

NUCLEAR   During 1999, the Nuclear Business Group revenues consisted of
collections from customers under tariff riders to fund the decommissioning trust
and 2.9 cents per kWh generated and sold to the Customer Service Business Group.
The nuclear assets were sold to AmerGen on December 15, 1999.

OTHER   Included in this category were 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.

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

                                       17
<Page>

OVERVIEW

NET INCOME APPLICABLE TO COMMON STOCK

<Table>
<Caption>
-------------------------------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS)                                                         2001         2000          1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>           <C>          <C>

Net income applicable to common stock                                         $157.9        $121.0       $95.6

Net income applicable to common stock
     Excluding carrying amount over consideration paid for
     redeemed preferred stock in 1999                                         $157.9        $121.0       $93.9
-------------------------------------------------------------------------------------------------------------------
</Table>

2001   The increase in 2001 earnings compared to 2000 was primarily due to
incremental operating efficiencies, differences in two separate early
retirement/severance programs, final distribution of an insurance investment and
lower interest expense.

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.

ELECTRIC OPERATIONS   For the years 1999 through 2001, electric revenues,
including interchange, decreased 29% and the gross electric margin decreased 52%
as follows:

<Table>
<Caption>
--------------------------------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS)                                                         2001          2000          1999
--------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>           <C>
Electric revenues                                                          $ 1,137.1      $ 1,189.4     $  1,178.6
Interchange revenues                                                              .7            2.7          420.2
Fuel cost & power purchased                                                   (661.8)        (729.3)        (612.3)
--------------------------------------------------------------------------------------------------------------------
     Electric margin                                                       $   476.0      $    462.8    $    986.5
--------------------------------------------------------------------------------------------------------------------
</Table>

     The components of annual changes in electric revenues were:

<Table>
<Caption>
-------------------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS)                                                          2001          2000
-------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>
Price                                                                      $   (65.4)     $   (39.8)
Volume and other                                                                13.1           50.6
-------------------------------------------------------------------------------------------------------
     Revenue increase (decrease)                                           $   (52.3)     $    10.8
-------------------------------------------------------------------------------------------------------
</Table>

2001   Electric revenues including interchange sales were lower in 2001 due to
industrial customers purchasing energy from alternative retail electric
suppliers and a downturn in economic conditions.

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.

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

<Table>
<Caption>
-------------------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS)                                                               2001        2000
-------------------------------------------------------------------------------------------------------
<S>                                                                             <C>          <C>
Fuel for electric plants                                                        $       -    $ (191.2)
Power purchased                                                                     (67.5)      308.2
-------------------------------------------------------------------------------------------------------
     Total increase (decrease)                                                  $   (67.5)   $  117.0
-------------------------------------------------------------------------------------------------------
</Table>

     System load requirements, generating unit availability, fuel prices,
purchased power prices, resale of energy to other utilities, 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.

                                       18
<Page>

2001   The decrease in power purchased cost was primarily due to lower customer
demand related to the industrial downturn and fewer units purchased due to
industrial customers choosing alternative energy suppliers, partially offset by
increased PPA per unit 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.

GAS OPERATIONS   For the years 1999 through 2001, gas revenues, including
transportation, increased 57%, while the gross margin on gas revenues increased
3% as follows:

<Table>
<Caption>
--------------------------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS)                                                  2001              2000             1999
--------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>              <C>
Gas revenues                                                     $    469.8       $     388.0      $     298.9
Transportation revenues                                                 6.8               5.5              5.5
Gas cost                                                             (332.8)           (252.7)          (165.1)
--------------------------------------------------------------------------------------------------------------
     Gas margin                                                  $    143.8       $     140.8      $     139.3
--------------------------------------------------------------------------------------------------------------
<Caption>
--------------------------------------------------------------------------------------------------------------
(MILLIONS OF THERMS)                                                   2001              2000             1999
--------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>               <C>              <C>
Therms sold                                                             539               574              553
Therms transported                                                      246               259              270
--------------------------------------------------------------------------------------------------------------
     Total delivered                                                    785               833              823
--------------------------------------------------------------------------------------------------------------

Average cost per therm delivered                                       53.9 cents        48.3 cents       26.8 cents
--------------------------------------------------------------------------------------------------------------
</Table>

     Changes in the cost of gas purchased for resale were:

<Table>
<Caption>
---------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS)                                                   2001         2000
---------------------------------------------------------------------------------------------
<S>                                                              <C>             <C>
Gas purchased for resale:
Cost                                                             $     29.6      $      127.7
Volume                                                                (30.0)              4.0
Gas cost recoveries                                                    80.5             (44.1)
---------------------------------------------------------------------------------------------
     Total increase                                              $     80.1      $       87.6
---------------------------------------------------------------------------------------------
</Table>

     The 2001 and 2000 increase in gas costs was attributable to market
conditions that caused natural gas prices to reach unprecedented highs partially
offset by the effects of UGAC.

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)                                                   2001         2000
---------------------------------------------------------------------------------------------
<S>                                                              <C>             <C>
Other operating expenses                                         $     (1.2)     $     (323.4)
Retirement and severance expense                                      (15.7)             31.0
Maintenance                                                            (3.1)            (50.1)
Depreciation and amortization                                           3.9             (50.0)
---------------------------------------------------------------------------------------------
</Table>

     The decrease in operating and maintenance expense for 2001 is primarily due
to incremental operating efficiencies, while the decrease in 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.

     In 2001, IP offered an early retirement/severance program to effectuate a
reorganization. In 2000, IP offered an early retirement/severance program
related to the Dynegy-Illinova merger.

     The increase in depreciation for 2001 is primarily due to an increase in
utility 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.

                                       19
<Page>

GENERAL TAXES   The decrease in general taxes of $5.6 million in 2001 is
attributable to a change in methodology in the calculation of the electric
municipal utility tax ("MUT") partially offset by higher gas prices early in
2001. As required by the Electric Service Customer Choice and Rate Relief Law of
1997, effective December 31, 2000 the electric MUT calculation is now calculated
on consumption instead of gross revenue. The decrease in 2000 of $26.8 million
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.

OTHER INCOME AND DEDUCTIONS - NET   For year 2001, total other income and
deductions - net increased by $4.8 million primarily due to favorable results
from an insurance investment and a litigation settlement, partially offset by a
decrease in interest income from affiliates and reduced revenues from
non-utility support services. The increase in 2000 of other income and
deductions - net was attributable to interest on the Illinova note offset by
increased taxes related to non-utility income.

INTEREST CHARGES   Total interest charges, including AFUDC, decreased $16.0
million and $6.4 million in 2001 and 2000, respectfully, primarily due to the
redemption of Transitional Funding Trust Notes, and lower interest rates on
variable mortgage bonds. See "Note 9 - Long-Term Debt" in the audited financial
statements included herein for additional information.

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
enactment of the Energy Policy Act of 1992 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. Retail wheeling involves the
transport of electricity to end-use customers. The Energy Policy Act currently
precludes the FERC from mandating retail wheeling.

     Competition arises 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. P.A. 90-561, Illinois electric
utility restructuring legislation, was enacted in December 1997. For more
information regarding competition in Illinois, see "Item 1. Business - Open
Access and Competition."

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. IP's operating cash flows are subject to the
various risks described in this annual report, including the loss of revenues
due to "direct access" and the seasonality associated with IP's gas and
electricity businesses. IP's other sources of liquidity and some of the
associated risks are described below.

CREDIT RATINGS DISCUSSION   Credit ratings impact IP's ability to obtain
short- and long-term financing, the cost of such financing and the execution
of its commercial strategies in a cost-effective manner. In determining
credit ratings, the rating agencies consider a number of factors.
Quantitative factors that appear to be given significant weight include,
among other things, earnings before interest, taxes, and depreciation and
amortization ("EBITDA"); operating cash flow; total debt outstanding; off
balance sheet obligations and other commitments; fixed charges such as
interest expense, rent, or lease payments; payments to preferred
stockholders; liquidity needs and availability and various ratios calculated
from these factors. Qualitative factors appear to include, among other
things, predictability of cash flows, business strategy, industry position
and contingencies. In addition, the credit rating agencies have refocused
their attention on the credit characteristics and credit protections measures
of industry participants, and in some cases appear to have tightened the
standards for a given rating level.

   In December 2001, Moody's downgraded Dynegy's credit rating, including
ratings on IP's mortgage bonds, preferred stock and commercial paper, and
kept all ratings under review for possible further downgrade due to
uncertainty related to the litigation brought against Dynegy in connection
with its recently terminated merger transaction. Mortgage bonds were
downgraded from Baa1 to Baa2, preferred stock was downgraded from Baa2 to Ba2
and commercial paper was downgraded from P-2 to P-3.  In March 2002, Moody's
completed its review and confirmed the ratings of Dynegy and its
subsidiaries, including IP, while maintaining a negative outlook solely due
to the merger-related litigation. Standard & Poor's placed Dynegy and its
subsidiaries, including IP, on negative watch in November 2001.

   As of February 28, 2002, IP's credit ratings, as assessed by the three
major credit rating agencies, were as follows:

                                       20

<Page>

<Table>
<Caption>
-----------------------------------------------------------------------------------------------------
                                                                       Standard        Fitch
                                                          Moody's      & Poor's        IBCA
-----------------------------------------------------------------------------------------------------
<S>                                                         <C>          <C>            <C>
Mortgage bonds                                              Baa2         BBB+           A-
Senior unsecured debt                                       Baa3         BBB            BBB+
Preferred stock                                             Ba2          BBB-           BBB
Commercial paper                                            P-3          A-2            F2
Transitional funding trust notes                            Aaa          AAA            AAA
</Table>

DISCLOSURE OF FINANCIAL OBLIGATIONS AND COMMERCIAL COMMITMENTS   IP has entered
into various financial obligations and commitments in the course of its ongoing
operations and financing strategies. Financial obligations are considered to
represent known future cash payments that the enterprise is required to make
under existing contractual arrangements, such as debt and lease agreements.
These obligations may result from both general financing activities as well as
from commercial arrangements that are directly supported by related
revenue-producing activities. Financial commitments represent contingent
obligations of the enterprise, which become payable only if certain pre-defined
events were to occur, such as funding financial guarantees.

     The following table provides a summary of IP's financial obligations and
commercial commitments as of December 31, 2001 ($ in millions). This table
includes cash obligations related to principal outstanding under existing debt
arrangements, decommissioning charges, operating leases and unconditional
purchase obligations.

<Table>
<Caption>
---------------------------------------------------------------------------------------------------------------------
                                 FINANCIAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
---------------------------------------------------------------------------------------------------------------------
                                              PAYMENTS DUE BY PERIOD
---------------------------------------------------------------------------------------------------------------------
        CASH OBLIGATIONS*            TOTAL         2002        2003      2004       2005         2006    THEREAFTER
---------------------------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>        <C>       <C>         <C>         <C>          <C>
Long-Term Debt (1)                   $ 1,180.3    $  95.7    $ 190.0   $     --    $   70.0    $   --    $    824.6
Transitional Funding Trust
Notes (2)                                604.8       86.4       86.4       86.4        86.4      86.4         172.8
Operating Leases (3)                       5.8         .8         .7         .7          .7        .7           2.2
Decommissioning
Charges (4)                               14.9        5.0        5.0        4.9          --        --            --
Unconditional Purchase
Obligations (5)                        1,091.8      400.1      361.4      323.1         2.2       2.2           2.8
                                     --------------------------------------------------------------------------------
Total Contractual Cash
Obligations                          $ 2,897.6    $ 588.0    $ 643.5   $  415.1    $  159.3    $ 89.3    $   1,002.4
---------------------------------------------------------------------------------------------------------------------
</Table>

*Cash obligations herein are not discounted and do not include related interest
or accretion.

(1) Reflects indebtedness issued pursuant to IP's 1992 Mortgage, under which IP
generally is able to issue debt secured by the mortgage provided that (a) its
"adjusted net earnings" are at least two times its "annual interest
requirements," and (b) 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. IP also generally can issue indebtedness in exchange for
repurchased and retired indebtedness independent of whether these two tests are
met. Aggregate principal outstanding under IP's Mortgage Bonds approximated $1.2
billion at December 31, 2001, bearing interest ranging from 1.4% to 7.5% per
annum. IP has a mortgage bond issue of $95.7 million maturing in July 2002.

     IP also has one standby bond purchase facility in the aggregate
principal amount of $150.0 million along with one-month's interest of $1.7
million, which provides a backstop to the short-term remarketing of its
variable rate bonds. The facility relates to IP's Pollution Control Series P,
Q, R bonds. IP pays fees of .10% per annum on the full amount of the
facility. In the event of the inability to remarket the bonds

                                       21
<Page>

during an interest reset, a bank syndicate would be obligated to purchase all
un-remarketed bonds. IP would be required to purchase all un-remarketed bonds
and the associated fees ratably over a five-year period.

(2) Reflects the balance of $864 million of Transitional Funding Trust Notes
issued by IPSPT in December 1998 as allowed under the Illinois Electric Utility
Transition Funding Law in P.A. 90-651. 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 through 2008.

(3) IP's primary operating lease reflected above relates to its Material
Distribution Facility, which is a commercial property lease for IP's
storage warehouse. This lease expires in 2009.

     IP also has a lease/sublease agreement on four gas turbines located at
the Tilton site. IP entered into the five-year lease, which is accounted for
as an operating lease, beginning in September 1999 with the option for
renewal for two additional years. Beginning in October 1999, IP subsequently
sublet the turbines to DMG. Therefore, the impact of this lease is not
reflected in the above table. IP is providing a minimum residual value
guarantee on the lease of approximately $69.6 million. At the expiration of
the lease agreement, IP has the option to purchase the gas turbines. If IP
does not purchase the turbines, the turbines would be sold, and any shortfall
of the sale proceeds would be paid by IP.

(4) Reflects decommissioning charges associated with IP's former Clinton
facility. See "Note 3 - Clinton Impairment, Quasi-Reorganization and Sale of
Clinton" in the audited financial statements included herein for additional
information.

(5) Reflects an unconditional power purchase obligation between IP and another
Dynegy affiliate. The agreement requires IP to compensate the affiliate for
capacity charges over the next three years at a total contract cost of $974.7
million.

     IP also has contracts on six interstate pipeline companies for firm
transportation and storage services for natural gas. These contracts have
varying expiration dates ranging from 2002 to 2008, for a total cost of $82.4
million. IP also enters into obligations for the reservation of natural gas
supply. These obligations generally range in duration from one to five months
and require IP to compensate the provider for capacity charges. The cost of the
agreements is $34.7 million. The costs associated with these contracts are a
component of IP's revenue requirements under its rate-making process.

     In addition to the unconditional purchase obligations described above,
IP has entered into contracts that stipulate fixed payments for the supply of
energy as well as variable payments for the reimbursement of operating costs.
The costs associated with these arrangements are included in IP's revenue
requirements under its rate-making process.

CONTINGENT FINANCIAL OBLIGATIONS   IP has $.1 million in surety bonds
outstanding as of December 31, 2001, which expire in 2003.

AVAILABLE CREDIT CAPACITY   The following table provides the components of IP's
available credit capacity.

<Table>
<Caption>

--------------------------------------------------------------------------------------------
                AVAILABLE CREDIT CAPACITY AS OF DECEMBER 31, 2001
--------------------------------------------------------------------------------------------
<S>                                                                             <C>
Outstanding Revolving Credit Agreement(1)                                       $     240.0
Outstanding Commercial Paper(1)                                                        38.2
Unused Borrowing Capacity                                                              21.8
                                                                                ------------
Total Credit Capacity                                                           $     300.0
---------------------------------------------------------------------------------------------
</Table>

(1) The revolving credit agreement matures in May 2002. This bank commitment
supports the amount of commercial paper outstanding at any time and provides
funds for working capital needs and other general corporate purposes.
IP anticipates refinancing this bank credit facility in the ordinary course of
business. See "Note 6 - Revolving Credit Facilities, Letters of Credit and
Short-Term Loans" in the audited financial statements included herein for
additional information.

     Due primarily to current market conditions, the Moody's rating action and
other factors, access to the commercial paper markets is limited. During this
period of market uncertainty, IP has relied on existing credit lines, operating
cash flows and cash balances on hand for its short-term liquidity requirements.

     At December 31, 2001, IP had the ability under its Restated Articles of
Incorporation to incur additional unsecured debt of up to approximately $210.0
million. On February 25, 2002, IP commenced a solicitation of consents from its
preferred shareholders to amend IP's Restated Articles of Incorporation to
eliminate the provision restricting IP's ability to incur unsecured debt.
Concurrently, Illinova commenced a tender offer relating to the shares of IP's
preferred stock. The completion of the tender offer and consent solicitation is
conditioned on, among other things, the approval of the proposed amendment by
holders of at least two-thirds of the outstanding shares of preferred stock,
voting together as one class, and other customary conditions. The approval of
the proposed amendment would provide IP the flexibility to obtain financing on
terms more advantageous to IP than would otherwise be the case. Certain fees
incurred in connection with the consent solicitation, currently estimated not to
exceed $.2 million in the aggregate, will be paid by IP.

AFFILIATE TRANSACTION   IP maintains an unsecured note receivable due from its
parent relating to the October 1999 transfer of the fossil-fueled generating
assets. In August 2001, an additional $9.3 million of fossil-fueled generating

                                       22
<Page>

assets were transferred and the note was adjusted accordingly. The additional
transfer was approved by the ICC on March 21, 2001. The note matures on
September 30, 2009 and bears interest at an annual rate of 7.5%, due
semiannually in April and October. In the fourth quarter of 2001, Illinova
accelerated the payment of accrued interest on the note receivable for the three
months ended December 31, 2001. At December 31, 2001, principal outstanding
under this note totaled approximately $2.3 billion with no accrued interest.
Optional principal repayments and periodic interest payments accruing under
this arrangement are available from the parent to provide IP with a source of
liquidity for its required expenditures.


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 2002 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   On September 30, 2001, IP redeemed
all $100.0 million of the TOPrS issued by IPFI. The redemption was financed with
$85.0 million cash and $15.0 million in commercial paper. On May 31, 2000, IP
redeemed all $93.1 million of the MIPS issued by Illinois Power Capital, L. P.

CAPITAL ASSET PROGRAM   Construction expenditures for 2001 were approximately
$148.8 million. The construction expenditures for 2001 consisted of numerous
projects to upgrade and maintain the reliability of IP's electric and gas
distribution and transmission systems, add new customers to the system and
prepare for a competitive environment. IP construction expenditures for 2002
through 2006 are expected to total approximately $730.0 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.

MANUFACTURED GAS-PLANT   See "Note 5 - Commitments and Contingencies" 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.

BUSINESS RISK-MANAGEMENT ASSESSMENT

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 several 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. 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
IP's gas operations 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, 2001 and 2000, there were no
interest rate derivatives outstanding.

     IP's 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. 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.

                                       23
<Page>

IMPACT OF PRICE FLUCTUATIONS   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.
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
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.

     The ICC determines IP's delivery 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. The gas commodity is a pass
through cost to the end-use customer and is subject to an annual ICC prudence
review. Future 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.

UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION   This Annual Report
includes 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;
-      expectations regarding capital expenditures, preferred dividends and
       other matters;
-      beliefs about the financial impact of deregulation;
-      assumptions regarding the outcomes of legal and administrative
       proceedings;
-      estimations relating to the potential impact of new accounting standards;
-      intentions with respect to future energy supplies;
-      anticipated costs associated with legal and regulatory compliance; and
-      expectations regarding cost savings or synergies relating to the
       Dynegy-Illinova merger.

     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 political, economic and financial market conditions;
-      any extended period of war or conflict involving the United States or
       Europe;
-      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 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.

                                       24
<Page>

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Quantitative and Qualitative Disclosures About Market Risk are set forth in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Business Risk-Management Assessment" herein.


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 ("Andersen") 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.

   The Audit Committee of the Board of Directors of Dynegy, the indirect parent
company of IP, annually considers and recommends to the Board the selection of
independent public accountants for Dynegy and its subsidiaries, including IP. As
recommended by Dynegy's Audit Committee, Dynegy's Board of Directors on March
15, 2002 decided to no longer engage Andersen as independent public accountants
of Dynegy and its subsidiaries and engaged PricewaterhouseCoopers LLP to serve
as independent public accountants of Dynegy and its subsidiaries for 2002. The
appointment of PricewaterhouseCoopers LLP is subject to ratification by Dynegy's
shareholders at the 2002 annual meeting scheduled for May 17, 2002.

   Andersen's reports on IP's consolidated financial statements for the past two
years did not contain an adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.

   During IP's two most recent fiscal years and through the date of this Form
10-K, there were no disagreements with Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Andersen's satisfaction, would have caused
them to make reference to the subject matter in connection with their report on
IP's consolidated financial statements for such years; and there were no
reportable events, as listed in Item 304(a)(1)(v) of Regulation S-K.

   IP provided Andersen with a copy of the foregoing disclosures. Attached as
Exhibit 16 is a copy of Andersen's letter, dated March 20, 2002, stating its
agreement with such statements.

   During IP's two most recent fiscal years and through the date of this Form
10-K, IP did not consult PricewaterhouseCoopers LLP with respect to the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
IP's consolidated financial statements, or any other matters or reportable
events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K.



                                       25
<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 January 31, 2002:

<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          44     Chief Executive Officer and Director                        2000

Larry F. Altenbaumer          53     President and Director                                      1970

Robert D. Doty, Jr.           44     Chief Financial Officer, Executive Vice President           2000
                                     and Director

Kathryn L. Patton             37     Senior Vice President, General Counsel and                  2000
                                     Secretary

Peggy E. Carter               39     Vice President and Controller                               1985

Kenneth E. Randolph           45     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, 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, he served as Director
of Gas Sales for the Western United States for Conoco Inc. Mr. Watson also
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, following the consummation of the Dynegy-Illinova merger.
Mr. Bergstrom has also served as President and Chief Operating Officer of
Dynegy, where he is responsible for the day-to-day execution of Dynegy's
strategy across its operating business units, since August 1999. He also is a
member of Dynegy's Board of Directors and has served as such since 1995. Mr.
Bergstrom was formerly President and Chief Operating Officer of Dynegy Marketing
and Trade and Executive Vice President of Dynegy. He joined Dynegy in 1986 as
Vice President of Gas Supply.

LARRY F. ALTENBAUMER has served as President of IP since September 1999. Mr.
Altenbaumer has also served as a Director of IP and as Senior Vice President of
Dynegy since February 2000, following the consummation of the Dynegy-Illinova
merger. Mr. Altenbaumer previously served IP and its parent

                                       26
<Page>

corporation, Illinova, in various capacities since 1970, including 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.

ROBERT D. DOTY, JR. has served as Executive Vice President of IP since June 2001
and as Chief Financial Officer and a Director of IP since May 2000. Mr. Doty
also serves as Executive 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 accounting, finance, planning and strategy,
investor relations, treasury and tax. Mr. Doty joined Dynegy in 1991 and, prior
to May 2000, served Dynegy as Senior Vice President of Finance, Vice President
and Treasurer and Vice President-Tax.

KATHRYN L. PATTON has served as General Counsel and Secretary of Illinois Power
since February 2000, following the consummation of the Dynegy-Illinova merger.
Ms. Patton also has served as Senior Vice President of Illinois Power and Vice
President and Assistant General Counsel of Dynegy since July 2001, prior to
which she served as Vice President of IP from February 2000 to July 2001. 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. In February 2002, following Dynegy's acquisition of Northern
Natural Gas Company, Ms. Patton also was elected to serve as Senior Vice
President, General Counsel and Secretary of Northern Natural.

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,
following the consummation of the Dynegy-Illinova merger. Mr. Randolph also
serves as Executive Vice President and General Counsel of Dynegy. He has served
as Executive Vice President of Dynegy since July 2001 and as General Counsel of
Dynegy and its predecessor, Clearinghouse, since July 1987. In addition, he
served as a member of Dynegy's Management Committee from May 1989 through
February 1994 and managed its 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, LLP.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires that reports of
ownership and changes in ownership be filed with respect to directors, executive
officers and persons who beneficially own more than 10% of a class of equity
securities registered under Section 12 thereof. IP believes that all such
requirements were satisfied with respect to its cumulative preferred stock
during the fiscal year ended December 31, 2001.


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 2001 (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 1999 and 2000.

                                       27
<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          2001(8)             (8)            (8)            (8)         (8)          (8)               (8)
  Chief Executive Officer     2000(7)             (8)            (8)            (8)         (8)          (8)               (8)

Larry F.Altenbaumer           2001       $ 299,500      $ 350,000   $        ---    $     ---       79,050    $        5,250
  President                   2000       $ 303,208      $ 485,000   $        ---    $ 250,000       84,553    $        5,250
                              1999       $ 259,125      $ 156,600   $        ---    $     ---       35,120    $      676,983

David W. Butts                2001       $ 253,000      $ 315,050   $        ---    $     ---          ---    $    1,571,468(13)
  Chief Operating Officer     2000       $ 254,938      $ 245,444   $        ---    $     ---       41,491    $        5,250
  Executive Vice President    1999       $ 168,750(12)  $ 135,000   $        ---    $     ---       47,400    $      298,733

Kathryn L. Patton             2001       $ 188,317      $ 125,000   $     27,924(10)$     ---       42,439    $       27,200
  Senior Vice President,      2000(9)    $ 176,750      $ 130,000   $     45,943    $     ---       16,548    $       25,500
  General Counsel
  and Secretary

Peggy E. Carter               2001       $ 117,706      $  47,500   $        ---    $     ---        7,918    $        5,250
  Vice President and          2000(11)   $ 112,371      $  75,850   $        ---    $     ---        3,129    $        2,329
  Controller
</Table>

--------------------------------
(1)  Salary amounts for Messrs. Altenbaumer and Butts for 2000 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 for 2000 includes a similar payment of $7,560 relative to her
     promotion to Controller in November 1999.
(2)  As applicable, bonus amounts include bonuses earned in 1999, 2000 and 2001
     which were paid in 2000, 2001 and 2002, 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.
(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. Securities underlying options for 2000
     includes options granted in 2001 for 2000.
(6)  The amounts included as "All Other Compensation" for 2001 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 became an executive officer of IP in February 2000.
(8)  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 for 2001 will be
     contained in Dynegy's Proxy Statement for its 2002 Annual Meeting of
     Shareholders (the "Proxy Statement"). His 2000 compensation information is
     set forth in Dynegy's Proxy Statement for its 2001 Annual Meeting of
     Shareholders previously filed with the SEC.
(9)  Ms. Patton became an executive officer of IP in February 2000.
(10) Amount reflects an aggregate annual allowance for living and car expenses
     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."
(11) Ms. Carter became an executive officer of IP in February 2000.
(12) 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.

                                       28
<Page>

(13) Mr. Butts' employment with IP was terminated effective as of January 2,
     2002. In connection with his termination, all of Mr. Butts' stock options
     vested and remain exercisable through February 1, 2003. In addition, Mr.
     Butts received cash payments of approximately $1,541,218. Mr. Butts also
     will receive continued health and welfare benefits for 36 months.

     OPTION GRANTS IN 2001

     The following table sets forth certain information with respect to Dynegy
     stock option grants made to the Named Executive Officers during 2001 under
     the Dynegy Inc. 2000 Long Term Incentive Plan and the Dynegy Inc. 2001
     Non-Executive Stock Incentive Plan. Dynegy indirectly owns all of the
     common stock of IP. No stock option appreciation rights were granted during
     2001.

     INDIVIDUAL GRANTS

<Table>
<Caption>
                        NUMBER OF      % OF TOTAL
                       SECURITIES        OPTIONS                                 POTENTIAL REALIZABLE VALUE
                       UNDERLYING      GRANTED TO                                AT ASSUMED ANNUAL RATES OF
                         OPTIONS        EMPLOYEES      EXERCISE      EXPIRATION   STOCK PRICE APPRECIATION
NAME                    GRANTED(1)      IN 2001(1)  PRICE $/SHARE(1)     DATE         FOR OPTION TERM(2)
----                   -----------     -----------  ---------------- ----------  --------------------------
                                                                                        5%        10%
                                                                                        ---       ---
<S>                         <C>               <C>        <C>         <C>        <C>          <C>
Stephen W. Bergstrom              (3)             (3)         (3)            (3)         (3)            (3)
Larry F. Altenbaumer        79,050             2.3%      $23.85      12/21/11   $1,185,682   $    3,004,750
David W. Butts                 ---             ---       $  ---           ---   $      ---   $          ---
Kathryn L. Patton           16,233               *       $34.65       9/29/11   $  353,737   $      896,438
                            26,206               *       $23.85      12/21/11   $  393,067   $      996,110
Peggy E. Carter              7,918               *       $23.85      12/21/11   $  118,763   $      300,969
</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. Percent of
      total options granted to employees reflects the number of Dynegy stock
      options granted to employees of Dynegy and its affiliates, including IP,
      for 2001 performance in 2001.
(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."

                                       29
<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, 2001. No Dynegy
stock options were exercised by any of the Named Executive Officers in 2001.

<Table>
<Caption>
                         NUMBER OF SECURITIES            VALUE OF UNEXERCISED
                        UNDERLYING UNEXERCISED          IN-THE-MONEY OPTIONS AT
                      OPTIONS AT FISCAL YEAR-END (1)      FISCAL YEAR-END (2)

         NAME           EXERCISABLE    UNEXERCISABLE   EXERCISABLE  UNEXERCISABLE
         ----           -----------    -------------   -----------  -------------
<S>                     <C>            <C>             <C>          <C>
Stephen W. Bergstrom            (3)               (3)          (3)           (3)
Larry F. Altenbaumer      176,206           210,558    $ 822,368     $ 603,434
David W. Butts            117,891              ---     $ 871,427     $     ---
Kathryn L. Patton          31,830            63,402    $ 400,674     $  82,445
Peggy E. Carter               ---            17,047    $     ---     $  13,065
</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." In
     addition, all of Mr. Butts' remaining unexercisable options became fully
     vested and exercisable in connection with his January 2, 2002 termination.
(2)  Value based on the closing price of $25.50 on the New York Stock Exchange -
     Composite Tape for Dynegy common stock on December 31, 2001.
(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 Mr. Altenbaumer and Ms. Carter based
on specified annual average earnings and years of credited service
classifications, assuming continuation of the Dynegy Inc. Retirement Plan,
formerly 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.

     At December 31, 2001, for purposes of the IP Retirement Plan, Mr.
Altenbaumer and Ms. Carter had completed 28 and 15 years of credited service,
respectively. None of the other current Named Executive Officers participate in
the IP Retirement Plan.

                                       30

<Page>

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 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 Mr.
Altenbaumer and Ms. Patton are described below.

LARRY F. 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.

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
agreed to serve as Vice President and General Counsel of IP. Effective
February 2, 2002, Ms. Patton entered into a new contract under which she will
serve as Senior Vice President and General Counsel of IP and Vice President
and Assistant General Counsel of Dynegy. The initial term of the contract
ends September 1, 2002 and may be automatically extended for an additional
one-year period, unless either party elects otherwise. Ms. Patton's
employment agreement entitles her to a base salary of $210,000, 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 is also entitled to a housing and automobile allowance of
$2,327 per month. After September 1, 2002, Ms. Patton may request to 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
90 days, Ms. Patton may terminate her employment

                                       31
<Page>

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
original 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, as of December 31, 2001,
was comprised of Sheli Rosenberg (Chairperson), Charles Bayless, D.W. Callahan,
Michael D. Capellas and Patricia Eckert. There are no matters relating to
interlocks or insider participation that IP is required to report.

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 six 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 December 31, 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
       current executive officers, and
-      all current 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 December 31, 2001 and
(iii) the .69 merger conversion ratio used in the Dynegy-Illinova merger.

                                       32
<Page>

<Table>
<Caption>

                                                                NUMBER OF SHARES (1)
                                                          ---------------------------------
                                                                                                PERCENT OF
                                                            CLASS A          CLASS B             CLASS A
                                                            COMMON           COMMON              COMMON
                                                            STOCK            STOCK               STOCK(2)
                                                          ------------- ------------------- -----------------
<S>                                                         <C>              <C>                       <C>
CHEVRONTEXACO CORPORATION (3)                                      ---       96,891,014                26.5(3)
 Chevron USA Inc.
 575 Market Street
 San Francisco, CA 94104
AXA FINANCIAL, INC. (4)                                     28,234,120              ---                10.5
 1290 Avenue of the Americas
 New York, NY
PUTNAM INVESTMENTS, LLC(5)                                  25,019,424              ---                 9.3
One Post Office Square
Boston, MA  02109
MASSACHUSETTS FINANCIAL SERVICES COMPANY(6)                 14,308,497              ---                 5.3
500 Boylston Street
Boston, MA  02116
LARRY F. ALTENBAUMER (7)                                       118,062              ---                   *
STEPHEN W. BERGSTROM (8)                                     3,463,976              ---                 1.3
PEGGY E. CARTER (9)                                              2,873              ---                   *
ROBERT D. DOTY, JR. (10)                                       377,306              ---                   *
KATHRYN L. PATTON (11)                                          42,002              ---                   *
KENNETH E. RANDOLPH (12)                                     1,974,670              ---                   *
C.L. WATSON (13)                                            13,779,470              ---                 5.1
EXECUTIVE OFFICERS AND DIRECTORS OF
 IP AS A GROUP                                              19,758,359              ---                 7.4
 (7 persons) (7)(8)(9)(10)(11)(12)(13)
</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 268,335,537 shares of Class A common stock and 96,891,014 shares
     of Class B common stock outstanding at February 1, 2002.
(3)  The shares are held of record by Chevron U.S.A. Inc. ChevronTexaco
     Corporation beneficially owns 100% of the capital stock of Chevron U.S.A.
     Consequently, ChevronTexaco may be deemed to beneficially own all of the
     shares of Class B common stock owned of record by Chevron U.S.A. Percent of
     Class A common stock beneficially owned assumes conversion of Class B
     common stock for purposes of computing ChevronTexaco's beneficial ownership
     only.
(4)  According to its Form 13G/A filed with the SEC on February 12, 2002.
     Advisor subsidiaries of AXA Financial, Inc. have sole voting power for
     8,020,918 shares and sole power to dispose or direct the disposition of
     28,234,120 shares.
(5)  According to its Form 13G/A filed with the SEC on February 13, 2002.
     Advisor subsidiaries and related entities of Putnam Investments, LLC have
     shared voting power for 1,821,588 shares and shared power to dispose or
     direct the disposition of 25,019,424 shares.
(6)  According to its Form 13G filed with the SEC on February 12, 2002.
(7)  Includes 104,612 shares of Class A common stock issuable upon the exercise
     of employee stock options held by Mr. Altenbaumer. Also includes
     approximately 6,621 shares of Class A common stock held by the Trustee of
     IP's 401(k) Plan (the "IP 401(k) Plan") for the account of Mr. Altenbaumer.
     Mr. Altenbaumer holds voting power with respect to such shares.
(8)  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 1,167,412 shares of Class A common stock
     issuable upon the exercise of employee stock options held by Mr. Bergstrom.
     Also includes approximately 6,242 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") for the account of Mr. Bergstrom. Mr. Bergstrom holds
     voting power with respect to such shares.
(9)  Includes 1,043 shares of Class A common stock issuable upon the exercise of
     employee stock options held by Ms. Carter. Also includes approximately
     1,830 shares held by the Trustee of the IP 401(k) Plan for the account of
     Ms. Carter. Ms. Carter holds voting power with respect to such shares.
(10) Includes 333,314 shares of Class A common stock issuable upon the exercise
     of employee stock options held by Mr. Doty. Also includes approximately
     5,865 shares of Class A common stock held by the Trustee of the Dynegy
     401(k) Plan for the account of Mr. Doty. Mr. Doty holds voting power with
     respect to such shares.

                                       33
<Page>

(11) Includes 37,346 shares of Class A common stock issuable upon the exercise
     of employee stock options held by Ms. Patton. Also includes approximately
     4,226 shares of Class A common stock held by the Trustee of the Dynegy
     401(k) Plan for the account of Ms. Patton. Ms Patton holds voting power
     with respect to such shares.
(12) Includes 321,028 shares of Class A common stock issuable upon the exercise
     of employee stock options held by Mr. Randolph. Also includes approximately
     6,038 shares of Class A common stock held by the Trustee of the Dynegy
     401(k) Plan for the account of Mr. Randolph. Mr. Randolph holds voting
     power with respect to such shares.
(13) 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 and
     by the Trusts. Also includes 2,089,414 shares of Class A common stock
     issuable upon the exercise of employee stock options held by Mr. Watson and
     2,399,431 shares of Class A common stock issuable upon the exercise of
     employee stock options held by the Family Limited Partnership. Also
     includes approximately 6,316 shares of Class A common stock held by the
     Trustee of the Dynegy 401(k) Plan for the account of Mr. Watson. Mr. Watson
     holds voting power with respect to such shares.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

IP routinely conducts business with other 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 $32.1 million in operating revenue from these transactions
during 2001. Aggregate operating expenses charged by affiliates in 2001
approximated $526.6 million, including $459.7 million for power purchased.
See "Note 4 - Related Parties" in the audited financial statements included
herein for more information pertaining to related transactions.

     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. Effective August 31, 2001,
approximately $9.3 million of additional fossil generation-related assets were
transferred to Illinova and the unsecured note receivable was adjusted
accordingly. The note matures on September 30, 2009 and bears interest at a rate
of 7.5%, due semiannually in April and October. In the fourth quarter of 2001,
Illinova accelerated the payment of accrued interest on the note receivable for
the three months ended December 31, 2001. At December 31, 2001, principal
outstanding under the note approximated $2.3 billion with no accrued interest.
IP recognized $169.9 million in interest income on the note from Illinova in
2001.

                                       34
<Page>

                                     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, 2001:  None

                                       35
<Page>

                                   SIGNATURES

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

                               ILLINOIS POWER COMPANY
                                     (REGISTRANT)

                               By: /s/ Larry F. Altenbaumer
                                  -----------------------------------------
                                  Larry F. Altenbaumer, President

                               Date: March 21, 2002
                                    ---------------------------------------

   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 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 21, 2002
-----------------------------------
     Stephen W. Bergstrom
     (Principal Executive Officer)

/s/ Robert D. Doty, Jr.                         Chief Financial Officer, Senior Vice              March 21, 2002
-----------------------------------             President and Director
     Robert D. Doty, Jr.
     (Principal Financial Officer)

/s/ Michael R. Mott                             Senior Vice President                             March 21, 2002
-----------------------------------
     Michael R. Mott

/s/ Peggy E. Carter                             Vice President and Controller                     March 21, 2002
-----------------------------------
     Peggy E. Carter
     (Principal Accounting Officer)

/s/ Larry F. Altenbaumer                        President and Director                            March 21, 2002
-----------------------------------
     Larry F. Altenbaumer

/s/ C.L. Watson                                 Director                                          March 21, 2002
-----------------------------------
     C.L. Watson

/s/ Kenneth E. Randolph                         Director                                          March 21, 2002
-----------------------------------
     Kenneth E. Randolph
</Table>

                                       36
<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 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 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 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 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 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 for the year ended December 31, 1995 (File No. 1-3004).*

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 for the year ended December 31, 1995 (File No.
1-3004).*

                                       37
<Page>

                              EXHIBIT INDEX (CONTINUED)
EXHIBIT                            DESCRIPTION

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. Filed as Exhibit 4.41
to the Registration Statement on Form S-3, filed January 22, 1999 (Registration
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. Filed as Exhibit 4.42
to the Registration Statement on Form S-3, filed January 22, 1999 (Registration
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. Filed as Exhibit 4.44
to the Registration Statement on Form S-3, filed January 22, 1999 (Registration
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. Filed as
Exhibit 4.46 to the Registration Statement on Form S-3, filed January 22, 1999
(Registration No. 333-71061).*

4.16 - Supplemental Indenture dated as of June 15, 1999, to General Mortgage
Indenture and Deed of Trust dated as of November 1, 1992. Filed as Exhibit 4.2
to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File
No. 1-3004).*

4.17 - Supplemental Indenture dated as of July 15, 1999, to General Mortgage
Indenture and Deed of Trust dated as of November 1, 1992. Filed as Exhibit 4.4
to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File
No. 1-3004).*

4.18 - Supplemental Indenture dated as of July 15, 1999, to General Mortgage
Indenture and Deed of Trust dated as of November 1, 1992. Filed as Exhibit 4.6
to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File
No. 1-3004).*

+4.19 - Supplemental Indenture No. 1 dated as of May 1, 2001, to General
Mortgage Indenture and Deed of Trust dated as of November 1, 1992.

+4.20 - Supplemental Indenture No. 2 dated as of May 1, 2001, to General
Mortgage Indenture and Deed of Trust dated as of November 1, 1992.

(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 for the year ended December 31, 1983 (File No. 1-3004).~*

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 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 for
the year ended December 31, 1994 (File No. 1-3004).~*

                                       38
<Page>

                              EXHIBIT INDEX (CONTINUED)
EXHIBIT                            DESCRIPTION

10.4 - Illinois Power Company Incentive Savings Plan, as amended and restated
effective January 1, 2002. Filed as Exhibit 10.3 to the Registration Statement
on Form S-8 of Dynegy Inc., Registration No. 333-76570.~*

10.5 - Illinois Power Company Incentive Savings Plan Trust Agreement. Filed
as Exhibit 10.4 to the Registration Statement on Form S-8 of Dynegy Inc.,
Registration No. 333-76570.

10.6 - Illinois Power Company Incentive Savings Plan for Employees Covered Under
a Collective Bargaining Agreement, as amended and restated effective January 1,
2002. Filed as Exhibit 10.5 to the Registration Statement on Form S-8 of Dynegy
Inc., Registration No. 333-76570.~*

10.7 - Illinois Power Company Incentive Savings Plan for Employees Covered
Under a Collective Bargaining Agreement Trust Agreement. Filed as Exhibit 10.6
to the Registration Statement on Form S-8 of Dynegy Inc., Registration No.
333-76570.

10.8 - Illinois Power Company Supplemental Retirement Income Plan for Salaried
Employees, 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 for
the year ended December 31, 1997 (File No. 1-3004).~*

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

+(16) ARTHUR ANDERSEN LLP LETTER

+(21) SUBSIDIARIES OF REGISTRANT

+(99) LETTER TO SEC REGARDING ARTHUR ANDERSEN

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

                                       39
<Page>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of Illinois Power
Company (an indirect, wholly owned subsidiary of Dynegy, Inc.) and subsidiaries
as of December 31, 2001 and 2000, and the related statements of income, retained
earnings and cash flows for the years 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 audits.

We conducted our audits 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 audits provide 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, 2001 and 2000, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

                                          ARTHUR ANDERSEN LLP

Houston, Texas
February 25, 2002

                                       42

<Page>

                        REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the consolidated statements of income, of cash flows and of
retained earnings for the year ended December 31, 1999 (appearing in the
Illinois Power Company (the "Company") 2001 Annual Report on Form 10-K) present
fairly, in all material respects, the results of operations and cash flows of
the Company and its subsidiaries for the year 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 audit. We conducted our audit 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

                                       43
<Page>

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

<Table>
<Caption>
-------------------------------------------------------------------------------------------------------------------
                                                                                             (MILLIONS OF DOLLARS)
-------------------------------------------------------------------------------------------------------------------
December 31,                                                                                 2001             2000
<S>                                                                               <C>             <C>
ASSETS
UTILITY PLANT
Electric (includes construction work in progress of $113.8 million and $113.9     $       2,368.7 $        2,300.8
million, respectively)
Gas (includes construction work in progress of $18.6 million and $18.7 million,             756.7            739.9
respectively)
-------------------------------------------------------------------------------------------------------------------
                                                                                          3,125.4          3,040.7
Less -- accumulated depreciation                                                          1,220.0          1,192.6
-------------------------------------------------------------------------------------------------------------------
                                                                                          1,905.4          1,848.1
-------------------------------------------------------------------------------------------------------------------
INVESTMENTS AND OTHER ASSETS                                                                 10.9             15.7
-------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents                                                                    52.6             24.1
Accounts receivable  (less allowance for doubtful accounts of $5.5 million)
       Service                                                                               80.2            114.2
       Other                                                                                 16.9             55.1
Accounts receivable, affiliates                                                               6.8             51.4
Accrued unbilled revenue                                                                     78.3            116.7
Materials and supplies, at average cost
      Gas in underground storage                                                             32.1             36.5
      Operating materials                                                                    13.1             13.9
Prepayments and other                                                                        24.1             12.4
-------------------------------------------------------------------------------------------------------------------
                                                                                            304.1            424.3
-------------------------------------------------------------------------------------------------------------------
NOTE RECEIVABLE FROM AFFILIATE                                                            2,271.4          2,262.1
-------------------------------------------------------------------------------------------------------------------
DEFERRED DEBITS
Transition period cost recovery                                                             225.4            272.8
Other                                                                                       143.9            148.7
-------------------------------------------------------------------------------------------------------------------
                                                                                            369.3            421.5
-------------------------------------------------------------------------------------------------------------------
                                                                                  $       4,861.1 $        4,971.7
-------------------------------------------------------------------------------------------------------------------
CAPITAL AND LIABILITIES
CAPITALIZATION
Common stock -- No par value, 100,000,000 shares authorized; 75,643,937 shares    $       1,274.1 $        1,274.2
issued, stated at
Additional paid-in capital                                                                    7.8              -
Retained earnings - accumulated since 1/1/99                                                233.6            175.7
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                                                           1,221.9          1,156.3
Preferred stock                                                                              45.8             45.8
Mandatorily redeemable preferred stock                                                          -            100.0
Long-term debt                                                                            1,605.6          1,787.6
-------------------------------------------------------------------------------------------------------------------
      Total capitalization                                                                2,873.3          3,089.7
-------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable                                                                             70.9            145.9
Accounts payable, affiliates                                                                 14.7              5.2
Notes payable                                                                               278.2            147.8
Long-term debt maturing within one year                                                     182.1             86.4
Taxes accrued                                                                                64.3             39.6
Interest accrued                                                                             16.5             16.2
Other                                                                                        78.9             97.1
-------------------------------------------------------------------------------------------------------------------
                                                                                            705.6            538.2
-------------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS
Accumulated deferred income taxes                                                         1,086.6          1,106.4
Accumulated deferred investment tax credits                                                  22.6             23.7
Other                                                                                       173.0            213.7
-------------------------------------------------------------------------------------------------------------------
                                                                                          1,282.2          1,343.8
-------------------------------------------------------------------------------------------------------------------
                                                                                  $       4,861.1 $        4,971.7
-------------------------------------------------------------------------------------------------------------------
</Table>

(Commitments and Contingencies Note 5)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.

                                       44
<Page>

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

<Table>
<Caption>
---------------------------------------------------------------------------------------------------------------------
                                                                                                (MILLIONS OF DOLLARS)
---------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,                                            2001             2000               1999
<S>                                                             <C>                <C>                <C>
OPERATING REVENUES
Electric                                                        $        1,137.1   $      1,189.4     $      1,178.6
Electric interchange                                                          .7              2.7              420.2
Gas                                                                        476.6            393.5              304.4
---------------------------------------------------------------------------------------------------------------------
         Total                                                           1,614.4          1,585.6            1,903.2
---------------------------------------------------------------------------------------------------------------------

OPERATING EXPENSES AND TAXES
Fuel for electric plants                                                       -                -              191.2
Power purchased                                                            661.8            729.3              421.1
Gas purchased for resale                                                   332.8            252.7              165.1
Other operating expenses                                                   142.3            143.5              466.9
Retirement and severance expense                                            15.3             31.0                  -
Maintenance                                                                 54.6             57.7              107.8
Depreciation and amortization                                               80.9             77.6              151.8
Amortization of regulatory assets                                           51.2             50.6               26.4
General taxes                                                               68.4             74.0              100.8
Income taxes                                                                40.6             13.2               54.4
----------------------------------------------------------------------------------------------------------------------
         Total                                                           1,447.9          1,429.6            1,685.5
----------------------------------------------------------------------------------------------------------------------
Operating income                                                           166.5            156.0              217.7
----------------------------------------------------------------------------------------------------------------------

OTHER INCOME AND DEDUCTIONS - NET
Interest income from affiliates                                            171.0            175.3               52.9
Miscellaneous - net                                                        (49.5)           (58.6)             (13.3)
----------------------------------------------------------------------------------------------------------------------
         Total                                                             121.5            116.7               39.6
----------------------------------------------------------------------------------------------------------------------
Income before interest charges                                             288.0            272.7              257.3
---------------------------------------------------------------------------------------------------------------------

INTEREST CHARGES
Interest expense                                                           123.5            139.1              148.4
Allowance for borrowed funds used during construction                       (1.7)            (1.3)              (4.2)
---------------------------------------------------------------------------------------------------------------------
         Total                                                             121.8            137.8              144.2
---------------------------------------------------------------------------------------------------------------------

Net income                                                                 166.2            134.9              113.1
Less - Preferred dividend requirements                                       8.3             13.9               19.2
Plus - Carrying amount over consideration
       paid for redeemed preferred stock                                       -                -                1.7
---------------------------------------------------------------------------------------------------------------------
Net income applicable to common shareholder                     $          157.9   $        121.0     $         95.6
---------------------------------------------------------------------------------------------------------------------
</Table>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.

                                       45
<Page>

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

<Table>
<Caption>
-----------------------------------------------------------------------------------------------------------------
                                                                                            (MILLIONS OF DOLLARS)
-----------------------------------------------------------------------------------------------------------------
 For the Years Ended December 31,                                           2001             2000            1999
<S>                                                                 <C>              <C>              <C>
 CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                         $      166.2     $      134.9     $     113.1
   Items not affecting cash flows from operating activities --
      Depreciation and amortization                                        138.0            134.9           181.8
      Deferred income taxes                                                (25.6)            55.3           165.4
 Changes in assets and liabilities resulting from
   operating activities --
      Accounts receivable                                                  116.8            (29.0)          (81.4)
      Accrued unbilled revenue                                              38.4            (33.3)            (.8)
      Materials and supplies                                                 5.2             (9.4)           (7.6)
      Prepayments                                                            4.1             68.8           (55.6)
      Accounts payable                                                     (65.5)            58.8           (34.4)
      Deferred revenue                                                         -                -           (69.0)
      Other deferred credits                                               (42.3)           (43.3)         (112.1)
      Interest accrued and other, net                                        9.7             43.6           (13.6)
-----------------------------------------------------------------------------------------------------------------
 Net cash provided by operating activities                                 345.0            381.3            85.8
-----------------------------------------------------------------------------------------------------------------
 CASH FLOWS FROM INVESTING ACTIVITIES
 Capital expenditures                                                     (148.8)          (157.8)         (197.2)
 Proceeds from note receivable, affiliate                                      -            335.5           165.0
 Disposition of nuclear assets                                                 -                -          (101.0)
 Other investing activities                                                  2.1             (4.8)           13.0
-----------------------------------------------------------------------------------------------------------------
 Net cash provided by (used in) investing activities                      (146.7)           172.9          (120.2)
-----------------------------------------------------------------------------------------------------------------
 CASH FLOWS FROM FINANCING ACTIVITIES
 Dividends on common stock and preferred stock                            (108.3)           (13.4)          (59.6)
 Redemptions --
      Short-term debt                                                     (346.8)          (429.1)         (520.4)
      Long-term debt                                                      (273.2)          (268.4)         (765.4)
      Preferred stock                                                     (100.0)           (93.1)          (16.9)
 Issuances --
      Short-term debt                                                      477.2            249.6           700.1
      Long-term debt                                                       186.8                -           250.0
      Other financing activities                                            (5.5)              .8           (34.4)
-----------------------------------------------------------------------------------------------------------------
 Net cash used in financing activities                                    (169.8)          (553.6)         (446.6)
-----------------------------------------------------------------------------------------------------------------
 Net change in cash and cash equivalents                                    28.5               .6          (481.0)
 Cash and cash equivalents at beginning of year                             24.1             23.5           504.5
-----------------------------------------------------------------------------------------------------------------
 Cash and cash equivalents at end of year                           $       52.6     $       24.1     $      23.5
-----------------------------------------------------------------------------------------------------------------
</Table>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.

                                       46
<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,                                           2001             2000          1999
<S>                                                                 <C>             <C>              <C>
Balance at beginning of year                                        $       175.7   $         54.7   $          -
Net income before dividends and carrying amount adjustment                  166.2            134.9          113.1
-----------------------------------------------------------------------------------------------------------------
                                                                            341.9            189.6          113.1
-----------------------------------------------------------------------------------------------------------------
Less-
           Dividends-
             Preferred stock                                                  8.3             13.9           19.3
             Common stock                                                   100.0                -           40.8
Plus-
           Carrying amount over consideration
              paid for redeemed preferred stock                                 -                -            1.7
-----------------------------------------------------------------------------------------------------------------
                                                                           (108.3)           (13.9)         (58.4)
-----------------------------------------------------------------------------------------------------------------
Balance at end of year                                              $       233.6   $        175.7   $       54.7
=================================================================================================================
</Table>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH ARE AN INTEGRAL PART OF
THESE STATEMENTS.

                                       47
<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 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 (inactive as of May 30, 2000); Illinois Power Financing I, a statutory
business trust in which IP serves as sponsor (inactive as of September 30,
2001); Illinois Power Securitization Limited Liability Company ("LLC"), a
special purpose Delaware limited liability company whose sole member is IP;
Illinois Power Special Purpose Trust, a special purpose Delaware business
trust whose sole owner is LLC; and Illinois Power Transmission Company LLC, a
limited liability Delaware company that is not currently active. 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. The preparation of the consolidated
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an ongoing basis,
management reviews its estimates, and any changes in facts and circumstances may
result in revised estimates. Actual results could differ materially 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 requires
companies whose service obligations and prices are regulated to maintain balance
sheet assets representing costs probable of recovery 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.

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" for additional
information.

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
2001, 2000 and 1999, the pre-tax rate used for all construction projects was
4.8%, 6.8% and 5.5%, 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 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."

                                       48
<Page>

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. Provisions for depreciation for electric plant
facilities, as a percentage of the average depreciable cost, were 2.3%, 2.3% and
2.6% in 2001, 2000 and 1999, respectively. Provisions for depreciation of gas
utility plant, as a percentage of the average depreciable cost, were 3.5% in
2001, 3.6% in 2000 and 3.5% in 1999.

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)                                                                 2001            2000
------------------------------------------------------------------------------------------------------------

<S>                                                                                <C>             <C>
Transition period cost recovery                                                    $    225.4      $   272.8
Unamortized losses on reacquired debt                                              $     60.1      $    58.9
Manufactured-gas plant site cleanup costs                                          $     39.1      $    37.9
Clinton decommissioning cost recovery                                              $     11.7      $    15.5
</Table>

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," and "Note 5 - Commitments and Contingencies" 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" for additional
information.

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.

     In 2001, 2000 and 1999, public utility and municipal utility taxes included
in operating revenues were $19.4 million, $23.1 million and $23.0 million,
respectively.

     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.

     UFAC elimination in 1998 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 all previously

                                       49
<Page>

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   IP provides deferred income taxes for the temporary differences
in the tax and financial reporting bases of its assets and liabilities in
accordance with FAS 109, "Accounting for Income Taxes." The temporary
differences relate principally to net utility plant in service 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.

     IP is included in the consolidated federal income tax and combined state
tax returns of Dynegy in 2001 and 2000, and Illinova in 1999. 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, 2001 and 2000 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 $11.3 million at December 31, 2001 and $12.5 million at
December 31, 2000.

   Income taxes and interest paid are as follows:

<Table>
<Caption>
(MILLIONS OF DOLLARS)
--------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                             2001            2000               1999
--------------------------------------------------------------------------------------------------------------

<S>                                                                <C>              <C>                <C>
Income taxes                                                       $ 116.4          $     -            $     -
Interest                                                           $ 121.1          $ 139.7            $ 168.1
</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 were no material non-cash investing or financing
activities in 2001 and 2000. There were no other material non-cash financing
activities 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 including FAS 133. 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 2001 and 2000, all of IP's purchase
contracts qualified for the normal purchase and sale exemption within FAS 133
and, therefore, IP accounted for such contracts under the accrual method. IP had
no other derivative instruments qualifying under FAS 133.

     In June 2001, the FASB issued FAS No. 143, "Accounting for Asset Retirement
Obligations." FAS 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred with
the associated asset retirement costs being capitalized as a part of the
carrying amount of the long-lived asset. FAS 143 also includes disclosure
requirements that provide a description of asset retirement

                                       50

<Page>

obligations and reconciliation of changes in the components of those
obligations. IP is evaluating the future financial effects of adopting FAS 143
and expects to adopt the standard effective January 1, 2003.

     In August 2001, the FASB issued FAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." FAS 144 addresses the accounting
and reporting for the impairment or disposal of long-lived assets and
supersedes FAS 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" and APB Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The objective of FAS 144 is to establish one accounting model
for long-lived assets to be disposed of by sale as well as resolve
implementation issues related to FAS 121. IP's adoption of FAS 144 on January
1, 2002 did not have any impact on IP's financial position or results of
operations.

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. Additionally, in 2001, a charge
of $.6 million was incurred and recorded as compensation expense due to the
extension of the exercise period and the acceleration of vesting for certain
stock options due to the early retirement and severance components of the
corporate reorganization as more fully discussed in "Note 2 - Business
Combination and Reorganization." See "Note 11 - Common Stock and Retained
Earnings" for additional information.

NOTE 2 - BUSINESS COMBINATION AND REORGANIZATION

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. 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. 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 early 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. As a result of the merger, 284 employees were either severed or
have retired. The severance/retirement plan was executed pursuant to IP's plan
and related actions were substantially complete at December 31, 2000.

     IP implemented a corporate restructuring in November 2001 that affected
departments throughout the organization. As part of the restructuring, severance
and early retirement costs of $15.3 million ($9.2 million after-tax) were
recorded in 2001. Severance charges represented approximately $5.3 million ($3.2
million after-tax) of the total costs incurred, of which $.2 million had been
paid by the end of the year. As of December 31, 2001, 75 employees were either
severed or have elected early retirement as a result of the restructuring. An
additional 27 employees who have already been notified will be severed or retire
by the end of 2002. The

                                       51
<Page>

severance/retirement plan is being executed pursuant to IP's plan and related
actions are expected to be substantially completed by December 31, 2002.

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. 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 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 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

                                       52
<Page>

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. 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 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.

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.

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
recognized as a direct charge to retained earnings in 1998.

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.

                                       53
<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.

DECOMMISSIONING COSTS AND DECOMMISSIONING REGULATORY ASSET

<Table>
<Caption>
-----------------------------------------------------------------------------------------------------------
DECOMMISSIONING COSTS (MILLIONS OF DOLLARS)                                         2001           2000
-----------------------------------------------------------------------------------------------------------

<S>                                                                             <C>            <C>
Accrual balance, beginning of period                                            $      19.9    $       24.9
 Cash payments                                                                         (5.0)           (5.0)
                                                                                ---------------------------
Accrual balance, end of period                                                  $      14.9    $       19.9
                                                                                ---------------------------
</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 to make an additional payment of $113.4 million to the
decommissioning trust funds. In addition, IP agreed to make five annual payments
of approximately $5.0 million through 2004 to the decommissioning trust funds,
of which two payments have been made through December 2001. 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, 2001 and
2000 are $14.9 million and $19.9 million, respectively, of which $5.0 million is
included

                                       54
<Page>

in other current liabilities at December 31, 2001 and 2000 and $9.9 million and
$14.9 million are included in other deferred credits at December 31, 2001 and
2000, 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. At
December 31, 2001 and 2000, the regulatory asset balances were $11.7 million and
$15.5 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:

<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 benefits*             .7                -          (.9)          -                (.2)
------------------------------------------------------------------------------------------------------------------
                                        $       115.5        $       -     $ (129.1)    $  (5.6)     $       (19.2)
------------------------------------------------------------------------------------------------------------------
</Table>

*These amounts are included in the curtailment gain in "Note 12 - Employee
Compensation, Savings and Pension Plans."

POWER PURCHASE AGREEMENT COSTS

<Table>
<Caption>
---------------------------------------------------------------------------------------
POWER PURCHASE AGREEMENT COSTS (MILLIONS OF DOLLARS)             2001          2000
---------------------------------------------------------------------------------------

<S>                                                          <C>           <C>
Accrual balance, beginning of period                         $   118.0     $      145.0
   Amortization                                                  (30.5)           (27.0)
                                                             --------------------------
Accrual balance, end of period                               $    87.5     $      118.0
                                                             --------------------------
</Table>

     The Clinton sale was contingent on IP signing a PPA with AmerGen. The PPA
requires that IP purchase at least 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, 2001 and 2000, $27.4 million
and $30.0 million, respectively, are included in other current liabilities and
$60.1 million and $88.0 million, respectively, are included in other deferred
credits in the accompanying consolidated balance sheet.

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

                                       55
<Page>

accruals and the impairment loss, IP reduced its transition period cost recovery
regulatory asset by $115.9 million to $341.4 million. The transition period cost
recovery asset amortization was $47.4 million in 2001, $47.5 million in 2000,
and $21.1 million in 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. Effective August 31, 2001, approximately $9.3 million of
additional fossil generation-related assets were transferred to Illinova and the
unsecured note receivable was adjusted accordingly. The note matures on
September 30, 2009 and bears interest at an annual rate of 7.5%, due
semiannually in April and October. In the fourth quarter of 2001, Illinova
accelerated the payment of accrued interest on the note receivable for the three
months ended December 31, 2001 in the amount of $42.6 million. At December 31,
2001, principal outstanding under the note receivable approximated $2.3 billion
with no accrued interest. At December 31, 2000, principal and accrued interest
outstanding under the note receivable approximated $2.3 billion and $42.4
million, respectively. IP has recognized $169.9 million interest income from
Illinova on the note in 2001, $174.9 million in 2000 and $51.0 million in 1999.

     IP routinely conducts business with other 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 $32.1 million for 2001
and $39.6 million for 2000. Aggregate operating expenses charged by affiliates
in 2001 approximated $526.6 million, including $459.7 million for power
purchased. Aggregate operating expenses charged by affiliates in 2000
approximated $628.0 million, including $557.9 million for power purchased.
Management believes that related party transactions have been conducted at
prices and terms similar to those available to and transacted with unrelated
parties.

     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. This right to
purchase power qualifies under the normal purchase and sale exemption with
FAS 133 and, therefore, IP has accounted for the PPA under the accrual
method. 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 power and energy to IP using a tiered pricing structure.
The agreement requires IP to compensate the affiliate for capacity charges
over the next three years at a total contract cost of $974.7 million. With
this arrangement, IP believes it has provided adequate power supply for
expected IP load plus a reserve supply above that expected level. Should
power acquired under this agreement be insufficient to meet IP load
requirements, IP will have to buy power at current market prices. The PPA
obligates DMG to provide power up to the reservation amount even if DMG has
individual units unavailable at various times.

     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 on six interstate pipeline companies for firm
transportation and storage services for natural gas. These contracts have
varying expiration dates ranging from 2002 to 2008, for a total cost of $82.4
million. IP also enters into obligations for the reservation of natural gas
supply. These obligations

                                       56
<Page>

generally range in duration from one to five months, and require IP to reimburse
capacity charges. The cost of the agreements is $34.7 million. Total natural gas
purchased was approximately $296 million in 2001 and 2000, and $164 million in
1999. The cost associated with these contracts are a component of IP's revenue
requirements under its rate-making process. IP anticipates that all gas-related
costs will be recoverable under IP's UGAC.

UTILITY EARNINGS CAP   P.A. 90-561 contains floor and ceiling provisions
applicable to IP's ROE during the mandatory transition period ending in 2004.
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
2001 through 2004 (which increases to 8.5% in 2001 through 2004 if IP 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 calculation of ROE for the floor test. During 2001, IP's two-year average
ROE was within the allowable ROE collar, avoiding adjustments or customer
refunds. Although the U.S. Treasury recently announced that 30-year U.S.
Treasury bonds will no longer be issued, the ROE floor and ceiling provisions
continue to be measured against the yields of outstanding 30-year U.S. Treasury
bonds.

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 (the "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 the Prevention of Significant
Deterioration ("PSD") regulations and/or the New Source Performance Standards
regulations. When such activities occur and they are not otherwise exempt the
Act and related regulations generally require that generating facilities meet
more stringent emissions standards, which may entail the installation of
potentially costly pollution control equipment. The DOJ amended its complaint to
assert the claims found in the NOV. The Defendants filed an answer denying all
claims and asserting various specific defenses. By order dated October 19, 2001,
a trial date of February 11, 2003 has been set. The initial trial is limited to
determining whether a violation occurred.

     The regulations under the Act provide certain exemptions from the
applicability of these provisions particularly an exemption for routine repair,
replacement or maintenance. The Company 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, the
Company 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. The Company also believes that, even if some of the activities in
question were found not to qualify for the routine exemptions, the Act and
regulations also require that the activities cause certain levels of increases
in emissions and there were no such 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 include exemptions for increased hours of operation
or production rate and the PSD regulations exclude increases in emissions
resulting from demand growth. None of the Defendants' other facilities are
covered in the complaint and NOV, but 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

                                       57
<Page>

enforcement actions against those plants as well. The asset(s) subject to the
complaint are part of the consolidated assets of Dynegy.

     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 may
also seek installation of the "best available control technology" (or the
equivalent) at the Baldwin Station, and possibly at the Vermilion, Wood River
and Hennepin Plants if the EPA successfully prosecutes enforcement actions
against those plants.

     The National Energy Policy Report issued in May 2001 by the National Energy
Policy Development Group recommended that the EPA Administrator examine the new
source review regulations, including the PSD regulations, and report to the
President within 90 days on the impact of new source review on investment in new
utility and refinery generation capacity, energy efficiency and environmental
protection. The report also recommended that the Attorney General review
existing enforcement actions regarding new source review to ensure that the
enforcement actions are consistent with the Act and its regulations. The EPA
Administrator announced in August 2001 that the review would be completed in
September 2001. The events of September 11, 2001 have resulted in further delay
of the review, which remains ongoing. The DOJ issued its report concerning the
existing enforcement actions on January 15, 2002. The report concluded that the
EPA has a reasonable legal basis for proceeding with the cases.

     Tampa Electric Company ("TECO") and the government agreed to a Consent
Decree to resolve the similar case brought against TECO and that Consent Decree
was entered by the court hearing that case in 2000. Two other utilities,
Virginia Power and Cinergy, reached agreements in principle with the United
States in 2000 concerning their possible liability for similar alleged
violations, but these agreements have still not been finalized. Additionally,
PSEG Fossil LLC entered into a consent decree in January 2002 to resolve similar
claims. Generally, the TECO Consent Decree and the settlements and agreements in
principle would require the utilities to pay civil fines; fund various
environmental projects; reduce nitrogen oxides, sulfur oxides, particulate
matter and mercury emissions through the installation of pollution control
devices over periods extending through 2012 to 2013; and forfeit certain
emission allowances.

     The Company believes the allegations are without merit and will vigorously
defend against these claims. In the opinion of management, although significant
capital expenditures could be required, 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 the Company.

MANUFACTURED-GAS PLANTS   IP previously operated two dozen sites at which
synthetic gas was manufactured from coal. Operation of these MGP sites was
generally discontinued in the 1950s when natural gas became available from
interstate gas transmission pipelines. Many of these MGP sites were
contaminated with residues from the gas manufacturing process. Although IP
estimates its liability for MGP site remediation to be approximately $53
million for its remaining 22 MGP sites, 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 portion of the estimated 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 electric and
gas 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. Effective on July 1, 2001, the ISO
requirements of P.A. 90-561 were amended by P.A. 92-12 to provide that a
regional transmission organization ("RTO") created under the rules of the FERC
shall be considered to be the functional equivalent of an ISO. An electric
utility shall be deemed to meet its obligation to participate in an ISO
through membership in a RTO that fulfills the requirements of an ISO as set
forth in P.A. 90-561.

                                       58
<Page>

     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 occurred May 8, 2001. IP has fulfilled its
obligations under the MISO settlement.

     On August 21, 2001, IP and seven of the transmission owners comprising the
Alliance Companies proposing to form the Alliance RTO entered into a letter of
intent with National Grid, USA pursuant to which National Grid would serve as
the Alliance RTO's managing member for a period of seven years. Pursuant to the
letter of intent, National Grid was required to obtain a determination from the
FERC that it is a non-market participant. On August 27, 2001, IP, in
coordination with the other Alliance Companies, filed the terms of the
transaction with the FERC as the proposed business and independence plan for the
Alliance RTO. On October 31, 2001, IP and the other Alliance Companies completed
negotiations with National Grid regarding the definitive agreements necessary to
complete the transaction. On November 1, 2001, the Alliance Companies filed the
definitive agreements with the FERC for approval.

     The proposed business and independence plan and the definitive agreements
provided that the Alliance RTO would own transmission facilities divested by
transmission owners in exchange for passive ownership interests in the Alliance
RTO or partially for cash. Alternatively, the Alliance RTO would enter into
seven-year operating agreements to functionally control the transmission
facilities of transmission owners that elect not to divest. Non-divesting
transmission owners would maintain the physical operations of their transmission
facilities.

     As proposed to the FERC by the Alliance Companies, National Grid, as a
non-market participant, would operate the Alliance RTO's transmission facilities
as a for-profit corporation and receive a management fee of $14 million, a fixed
rate of return on its investment in the Alliance RTO, reimbursement of its
operating and maintenance expenditures and an opportunity to earn incentive
compensation. In return, National Grid would be required to contribute $1
billion to the Alliance RTO by 2005, $75 million of which would be used to
reimburse members for start-up costs and an additional $75 million of which
would be used to fund capital expenditures for future system costs. The
remaining $850 million would be used to purchase transmission assets and for
transmission expansions.

     In an order issued on December 20, 2001, the FERC reversed its previous
findings that the Alliance RTO had sufficient scope under Order No. 2000 and
stated that it could not approve the Alliance RTO as a RTO because it fails to
meet the characteristics specified in Order No. 2000. The FERC further directed
the Alliance Companies to explore how their business plan, including the
participation of National Grid, could be accommodated within the MISO. In
addition, the FERC directed the Alliance Companies to file a statement of their
plans to join a RTO, including the timeframe, within 60 days of the date of the
order. In a separate order issued on December 20, 2001, the FERC found that
National Grid is a non-market participant subject to the fulfillment of certain
commitments and subsequent review by the FERC of National Grid's role with
regard to the possible participation of the Alliance Companies in the MISO.

     On January 8, 2002, the Alliance Companies and National Grid commenced
substantive discussions with the MISO as directed by the FERC. In addition, the
Alliance Companies continue to consider other opportunities for participation in
a RTO. On February 19, 2002, IP, in conjuction with the Alliance companies,
filed a report with the FERC stating that Alliance has been in discussions
with both MISO and PJM Interconnection LLC, but has been unable to reach
agreement.

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.

                                       59
<Page>

ACCOUNTS RECEIVABLE   IP sells electric energy and natural gas to residential,
commercial, and industrial customers throughout Illinois. At December 31, 2001,
55%, 28% and 17% 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 allowance for doubtful accounts remained at $5.5 million in
2001.

OPERATING LEASES   Minimum commitments in connection with operating leases at
December 31, 2001, were as follows: 2002 - $.8 million; 2003 through 2006 - $.7
million annually; and thereafter $2.2 million. These operating lease payments
primarily relate to IP's material distribution facility, which is a commercial
property lease for IP's storage warehouse.

     IP has a lease/sublease agreement on four gas turbines located at the
Tilton site which is not reflected in the above lease commitments. IP entered
into the five-year operating lease beginning in September 1999, with the option
for renewal for two additional years. Beginning in October 1999, IP subsequently
sublet the turbines to DMG. IP is providing a minimum residual value guarantee
on the lease of approximately $69.6 million. At the expiration of the lease
agreement, IP has the option to purchase the gas turbines. If IP does not
purchase the turbines, the turbines would be sold, and any shortfall of the sale
proceeds would be paid by IP.

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 2002. This bank commitment supports the amount of commercial
paper outstanding at any time and provides funds for working capital needs and
other general corporate purposes. IP pays facility fees of .125% on the
revolving credit agreement, regardless of usage. At December 31, 2001 and 2000,
IP had $38.2 million and $147.8 million of commercial paper outstanding,
respectively. At December 31, 2001, IP had $240.0 million outstanding under the
revolving credit agreement. 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 senior unsecured long-term debt rating. If greater than
25% of the aggregate commitment is utilized, this margin will be increased by
..125%.

<Table>
<Caption>
----------------------------------------------------------------------------------------------------------------
(MILLIONS OF DOLLARS, EXCEPT RATES)                                                  2001                2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                  <C>
Short-term borrowings at December 31,                                             $   278.2            $  147.8
Weighted average interest rate at December 31,                                          2.8%                8.0%
Maximum amount outstanding at any month end                                        $  278.2            $  335.0
Average daily borrowings outstanding during the year                               $  216.0            $  136.5
Weighted average interest rate during the year                                          4.4%                6.4%
</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 over the initial term of the PCA, September 1, 1996,
through August 31, 2006. In December 1998, Soyland and IP

                                       60

<Page>

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,                                              2001                   2000
----------------------------------------------------------------------------------------------------
<S>                                                                <C>                    <C>
Deferred tax assets
----------------------------------------------------------------------------------------------------
Current -
     Misc. book/tax recognition differences                        $     23.9             $     23.4
----------------------------------------------------------------------------------------------------

Noncurrent -
     Depreciation and other property related                             44.8                   42.4
     Alternative minimum tax                                             15.8                   50.9
     Unamortized investment tax credit                                   12.6                   13.2
     Misc. book/tax recognition differences                              59.5                   82.8
----------------------------------------------------------------------------------------------------
                                                                        132.7                  189.3
----------------------------------------------------------------------------------------------------
     Total deferred tax assets                                     $    156.6             $    212.7
====================================================================================================
Deferred tax liabilities
----------------------------------------------------------------------------------------------------

Current -
     Misc. book/tax recognition differences                        $      6.8             $     20.7
----------------------------------------------------------------------------------------------------

Noncurrent -
     Depreciation and other property related                          1,099.0                1,152.1
     Misc. book/tax recognition differences                             120.3                  143.6
----------------------------------------------------------------------------------------------------
                                                                      1,219.3                1,295.7
----------------------------------------------------------------------------------------------------
        Total deferred tax liabilities                             $  1,226.1             $  1,316.4
====================================================================================================
</Table>

                                       61
<Page>

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

<Table>
<Caption>
                                                                         (MILLIONS OF DOLLARS)
-----------------------------------------------------------------------------------------------------
Years Ended December 31,                                              2001           2000        1999
-----------------------------------------------------------------------------------------------------
<S>                                                             <C>          <C>            <C>
Current taxes -

  Included in operating
    expenses and taxes                                          $     15.9   $     (102.7)  $    47.6
  Included in other income
    and deductions                                                   129.8          131.7      (134.9)
-----------------------------------------------------------------------------------------------------
    Total current taxes                                              145.7           29.0       (87.3)
-----------------------------------------------------------------------------------------------------

Deferred taxes -

  Included in operating
    expenses and taxes
      Property related differences                                     7.8            9.9        11.1
      Alternative minimum tax                                         35.1          104.0       (24.1)
      Gain/loss on reacquired debt                                     3.5           (1.6)        4.9
      Clinton power purchase agreement costs                          12.1           10.7           -
      Transition period cost recovery                                (18.8)         (18.8)       (8.4)
      Uniform gas adjustment clause                                  (14.6)          17.4         (.2)
      Misc. book/tax recognition differences                            .5           (4.7)       24.7

  Included in other income
   and deductions
    Property related differences                                     (57.3)         (64.7)      149.7
    Misc. book/tax recognition differences                             4.1            3.1         2.1
-------------------------------------------------------------------------------------------------------
    Total deferred taxes                                             (27.6)          55.3       159.8
-------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------
Deferred investment tax credit - net
  Included in operating expenses and taxes                             (.9)          (1.0)       (1.2)
------------------------------------------------------------------------------------------------------

Total income taxes                                              $    117.2   $       83.3   $    71.3
=====================================================================================================
</Table>

   Note: For the years ended December 31, 2001, 2000 and 1999, income tax
expenses in the amount of $76.6 million, $70.1 million and $16.9 million,
respectively, are reported in Miscellaneous-net in the accompanying Consolidated
Statements of Income. Other tax expenses for the years ended December 31, 2001,
2000 and 1999 are reported as separate components on the accompanying
Consolidated Statements of Income.

                                       62
<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,                                              2001           2000        1999
-----------------------------------------------------------------------------------------------------------
<S>                                                             <C>          <C>            <C>
Income tax expense at the
  federal statutory tax rate                                    $     99.2   $       76.4   $    64.5
Increases / (decreases) in taxes
  resulting from -
     State taxes, net of federal effect                               13.2           10.2         8.6
     Investment tax credit amortization                                (.9)          (1.0)       (1.2)
     Depreciation not normalized                                       4.4            3.5         2.0
     Interest expense on preferred securities                         (2.4)          (4.6)       (6.7)
     Other - net                                                       3.7           (1.2)        4.1

-----------------------------------------------------------------------------------------------------------
Total income taxes from continuing operations                   $    117.2   $       83.3   $    71.3
===========================================================================================================
</Table>

     Combined federal and state effective income tax rates were 41.4%, 38.2% and
38.7% for the years 2001, 2000 and 1999, respectively.

     IP is included in the consolidated federal income tax and unitary state tax
returns of Dynegy in 2001 and 2000, and Illinova in 1999. Under IP's income tax
allocation agreement with Dynegy in 2001 and 2000, and Illinova in 1999, 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, 2001 of approximately $15.8 million.
This credit can be carried forward indefinitely to offset future regular income
tax liabilities in excess of the tentative minimum tax. IP expects to use the
Alternative Minimum Tax credit carryforward of $15.8 million in 2002.

     In 2001 the Internal Revenue Service undertook a limited review of
Illinova's consolidated federal income tax returns for the years 1998 and 1999.
This review is in the early stages and is not expected to have a material
adverse effect on Illinova's consolidated financial position or results of
operations.

                                       63
<Page>

NOTE 9 - LONG-TERM DEBT

<Table>
<Caption>
                                                                                               (MILLIONS OF DOLLARS)
-------------------------------------------------------------------------------------------------------------------
December 31,                                                                        2001                   2000
-------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                    <C>
Mortgage bonds--
   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                    65.6
   5.40%   series due 2028 (Pollution Control Series S)                                18.7                    18.7
   5.40%   series due 2028 (Pollution Control Series T)                                33.8                    33.8
   Adjustable rate series due 2028
      (Pollution Control Series M, N, and O)                                              -                   111.8
   Adjustable rate series due 2032
      (Pollution Control Series P, Q, and R)                                          150.0                   150.0
   Adjustable rate series due 2028 (Series W)                                         111.8                       -
   Adjustable rate series due 2017 (Series X)                                          75.0                       -
-------------------------------------------------------------------------------------------------------------------
   Total mortgage bonds                                                             1,180.3                 1,105.3
-------------------------------------------------------------------------------------------------------------------
Transitional Funding Trust Notes--
   5.26% due 2001                                                                         -                    37.2
   5.31% due 2002                                                                      30.8                    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                                             604.8                   691.2
-------------------------------------------------------------------------------------------------------------------
Variable rate long-term debt due 2017                                                     -                    75.0
-------------------------------------------------------------------------------------------------------------------
                                                                                    1,785.1                 1,871.5
Adjustment to fair value                                                                9.6                    10.5
Unamortized discount on debt                                                           (7.0)                   (8.0)
-------------------------------------------------------------------------------------------------------------------
                                                                                    1,787.7                 1,874.0
Long-term debt maturing within one year                                              (182.1)                  (86.4)
-------------------------------------------------------------------------------------------------------------------
     Total long-term debt                                                       $   1,605.6            $    1,787.6
-------------------------------------------------------------------------------------------------------------------
</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.

     During May 2001, IP issued adjustable rate bonds series W due 2028 for
$111.8 million and series X due 2017 for $75.0 million. During June 2001, IP
used the proceeds from these issuances to repurchase $111.8 million of
adjustable rate series mortgage bonds due 2028 and $75.0 million of variable
rate long-term debt due 2017.

     For the years 2002, 2003, 2004, 2005 and 2006, IP has long-term debt
maturities, excluding the Transitional Funding Trust Notes (the "Notes"), in the
aggregate of (in millions) $95.7, $190.0, $.0, $70.0 and $.0, respectively.

     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. 90-561. As of December 31, 2001, IP has used $790.3 million

                                       64
<Page>

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.
In accordance with the Transitional Funding Securitization Financing
Agreement, IP must designate a percentage of the cash received from customer
billings to fund payment of the Transitional Funding Trust Notes. The amounts
received are remitted to IPSPT and are restricted for the sole purpose of
paying down such Notes. During 2001, IP paid down the Notes by $86.4 million
with cash from IPSPT. IP estimates they will continue to pay down such Notes
ratably through 2008. At December 31, 2001, $86.4 million of the Transitional
Funding Trust Notes are classified as long-term debt maturing within one year.

     At December 31, 2001 and 2000, the aggregate total of unamortized debt
expense and unamortized loss on reacquired debt was approximately $80.4 million
and $82.6 million, respectively. These amounts are included in the Consolidated
Balance Sheets under "Other Deferred Charges."

     The remaining balance of net bondable additions at December 31, 2001 and
2000, was approximately $652 million and $431 million, respectively.

     IP has one standby bond purchase facility in the aggregate principal amount
of $150.0 million along with one-month's interest of $1.7 million, which
provides a backstop to the short-term remarketing of its variable rate bonds.
The facility relates to IP's Pollution Control Series P, Q, R bonds. IP pays
fees of .10% per annum on the full amount of the facility. In the event of the
inability to remarket the bonds during an interest reset, a bank syndicate would
be obligated to purchase all un-remarketed bonds. IP would be required to
purchase all un-remarketed bonds and the associated fees ratably over a
five-year period.




                                       65
<Page>

NOTE 10 - PREFERRED STOCK

<Table>
<Caption>
                                                                                         (MILLIONS OF DOLLARS)
--------------------------------------------------------------------------------------------------------------
December 31,                                                                                 2001         2000
--------------------------------------------------------------------------------------------------------------
SERIAL PREFERRED STOCK, cumulative, $50 par value --
Authorized 5,000,000 shares; 912,675 shares outstanding at
December 31, 2001 and 2000, respectively.

                          2001        2000   REDEMPTION
        SERIES          SHARES      SHARES   PRICES
        <S>            <C>         <C>     <C>                                          <C>          <C>
        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                                                        .2           .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 FINANCING I
  Trust Originated Preferred Securities, cumulative, $25 liquidation
  preference--4,000,000 shares authorized and outstanding                               $      -     $  100.0
-------------------------------------------------------------------------------------------------------------
</Table>

All but one of the above series of Serial Preferred Stock ($50 par value) is
currently 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.

REDEMPTION OF PREFERRED SECURITIES OF SUBSIDIARY TRUST   IPFI is a statutory
business trust in which IP serves as sponsor. In 1996, IPFI issued $100 million
aggregate liquidation amount of 8% (4.8% after tax rate) TOPrS in a private
transaction. The TOPrS were to mature on January 31, 2045 and could be redeemed
at IP's option, in whole or in part, from time to time on or after January 31,
2001. On September 30, 2001, IP redeemed all $100 million of the TOPrS. The
redemption was financed with $85 million cash and $15 million in commercial
paper.

REDEMPTION OF MONTHLY INCOME PREFERRED SECURITIES   Illinois Power Capital,
L.P., is a limited partnership in which IP serves as a general partner. In
1994 Illinois Power Capital issued $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.

REDEMPTION OF PREFERRED STOCK AND CONSENT SOLICITATION   At December 31, 2001,
IP had the ability under its Restated Articles of Incorporation to incur
additional unsecured debt of up to approximately $210.0 million. On February
25, 2002, IP commenced a solicitation of consents from its preferred
shareholders to amend IP's Restated Articles of Incorporation to eliminate the
provision restricting IP's ability to incur unsecured debt. Concurrently,
Illinova commenced a tender offer relating to the shares of IP's preferred
stock. The completion of the tender offer and consent solicitation is
conditioned on, among other things, the approval of the proposed amendment by
holders of at least two-thirds of the outstanding shares of preferred stock,
voting together as one

                                       66
<Page>

class, and other customary conditions. Certain fees incurred in connection with
the consent solicitation, currently estimated not to exceed $.2 million in the
aggregate, will be paid by IP.

NOTE 11 - COMMON STOCK AND RETAINED EARNINGS

As of December 31, 1998, IP effected a quasi-reorganization which 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. 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 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.

     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.

     Illinova is the sole holder of all of the common stock of IP. At December
31, 2001, there were 100,000,000 shares authorized with 75,643,927 shares
issued. There is no voting or non-voting common equity held by non-affiliates of
IP. IP is an indirect wholly owned subsidiary of Dynegy.

     As of December 31, 2001, 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 2002 to support payment of all scheduled
dividends. During 2001, IP declared and paid common stock dividends of $100.0
million to Illinova.

EMPLOYEE STOCK OWNERSHIP PLAN   IP employees participated in an Employees' Stock
Ownership Plan ("ESOP") that included a stock matching and an incentive
compensation feature 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 were
held in a Loan Suspense Account under the ESOP and were released and allocated
to the accounts of participating employees as the loan was 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 were used to repay the loan, which then released
additional shares to cover dividends on shares held in participating employees'
accounts. The number of shares released when funds were received by the Trustee
was 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. The ESOP plan ended in
April 2001 upon distribution of the remaining shares held by the Plan.

                                       67
<Page>

     For the year ended December 31, 2001, 11,540 common shares were allocated
to salaried employees and 12,948 shares to employees covered under the
Collective Bargaining Agreement through the stock matching contribution feature
of the ESOP arrangement. Using the shares allocated method, IP recognized $.2
million of expense in 2001. During 2001, 2000 and 1999, IP contributed $.9
million, $3.5 million and $10.0 million, respectively, to the ESOP. Interest
paid on the ESOP debt was negligible in 2001, $.1 million in 2000, and $.5
million in 1999, and dividends used for debt service were approximately $.2
million in 2001, $.9 million in 2000 and $2.1 million in 1999.

STOCK OPTIONS  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. Options granted at market
value vest and become exercisable ratably over a three-year period. 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.
No compensation expense was recorded related to options granted during 2001,
2000 and 1999. However, compensation expense of $.6 million was recorded in 2001
related to revisions to vesting and exercise provisions extended to employees
participating in the severance and retirement components of IP's 2001
reorganization plan. Refer to "Note 2 - Business Combination and Reorganization"
for additional information. Pursuant to the merger, all stock options granted to
IP employees prior to the merger were converted to options to purchase Dynegy
Class A common stock on a one-for-one basis.

     Tax benefits associated with the exercise of Dynegy stock options by IP
employees have been recognized in 2001 by IP in accordance with IP's tax sharing
agreement. $7.8 million is reflected as a reduction in current taxes payable and
an increase to Additional Paid In Capital.

                                       68
<Page>

     The following summary of options granted and option transactions for 2001,
2000 and 1999 reflect the effect of the two-for-one stock split during 2000.

<Table>
<Caption>
                                                                    Year Ended December 31,
                             -------------------------------------------------------------------------------------------
                                   2001           2001              2000           2000            1999       1999
                                  Shares      Option Price         Shares       Option Price       Shares  Option Price
                             -------------------------------      --------------------------  --------------------------

<S>                             <C>          <C>                  <C>        <C>              <C>        <C>
Outstanding at beginning of     1,408,977    $12.14 - $47.75      1,902,800  $10.44 - $15.56  1,222,400  $10.44 - $15.13
period

Granted                           224,186    $45.12 - $56.98        314,109  $23.38 - $47.75    802,500  $10.89 - $15.56


Exercised                        (195,733)   $12.14 - $23.38       (788,700) $10.44 - $14.88   (122,100) $10.44 - $12.44


Canceled, forfeited or expired    (61,824)   $15.56 - $47.19        (19,232) $15.56 - $23.38          -
                             ------------                     -------------                  ----------
Outstanding at end of period    1,375,606    $12.14 - $56.98      1,408,977  $12.14 - $47.75  1,902,800  $10.44 - $15.56
                             ============                     =============                  ==========

Exercisable at end of period      834,334    $12.14 - $47.75        876,433  $12.14 - $15.56    377,300  $10.44 - $14.88

Weighted average fair value of each
option granted during the period
at market                                    $         28.11                 $        14.17              $          2.39
                                             ===============                 ===============              ==============

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

Options outstanding as of December 31, 2001 are summarized below:

<Table>
<Caption>
                                          OPTIONS OUTSTANDING                               OPTIONS EXERCISABLE
                     ---------------------------------------------------------------------------------------------------
                     NUMBER OF SHARES        WEIGHTED AVERAGE         WEIGHTED       NUMBER OF SHARES       WEIGHTED
     RANGE OF        OUTSTANDING AT       REMAINING CONTRACTUAL        AVERAGE        EXERCISABLE AT        AVERAGE
  EXERCISE PRICES    DECEMBER 31, 2001         LIFE(YEARS)        EXERCISE PRICE     DECEMBER 31, 2001   EXERCISE PRICE
------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                    <C>                <C>                   <C>             <C>
  $10.44 - $14.88            256,200                5.8                $13.56                256,200         $13.56

  $14.89 - $23.38            892,742                7.4                $17.70                574,685         $16.24

  $23.39 - $56.98            226,664                9.0                $47.05                  3,449         $38.38

                        -------------                                                    ------------
                           1,375,606                                                         834,334
                        =============                                                    ============
</Table>

                                       69
<Page>

PRO FORMA DISCLOSURES  In October 1995, the FASB issued FAS 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 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>
                                                                         2001              2000              1999
                                                                         ----              ----              ----
<S>                                                                     <C>               <C>                <C>
Reported net income applicable to common stock                          $157.9            $121.0             $95.6
Pro forma net income applicable to common stock                         $154.6            $118.9             $94.4

   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:

<Caption>
                                                                        2001               2000             1999
                                                                        ----               ----             ----
<S>                                                                    <C>                 <C>              <C>
Expected life of options                                               10 YEARS            10 years         10 years
Risk-free interest rates                                                   4.82%               6.65%            5.54%
Expected volatility of stock                                                 46%                 44%              33%
Expected dividend yield                                                      .6%                1.3%             4.4%
</Table>

NOTE 12 - EMPLOYEE COMPENSATION, SAVINGS AND PENSION PLANS

CORPORATE INCENTIVE PLAN  Dynegy maintains a discretionary incentive plan to
provide employees competitive and meaningful rewards for reaching corporate and
individual objectives. Specific rewards are at the discretion of the
Compensation Committee of the Board of Directors.

401(k) SAVINGS PLAN  IP employees are eligible to participate in one of two
incentive savings plans, which meet the requirements of Section 401(k) of the
Internal Revenue code and are defined contribution plans subject to the
provisions of ERISA. IP matches 50% of employee contributions to the incentive
savings plans, subject to a maximum of six percent of compensation. Employees
are immediately 100% vested in Company contributions. Matching contributions are
made in Dynegy common stock.

PENSION AND OTHER BENEFITS COSTS  Employees of IP are participants in defined
benefit plans sponsored by Dynegy Inc., which prior to the February 1, 2000
merger with Dynegy were sponsored and administered by IP. See "Note 1 - Summary
of Significant Accounting Policies" for more information.

     The values and discussion below represent the components of the Dynegy Inc.
benefit plans that were sponsored and administered by IP prior to the merger.
Plan participants include 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 these
benefit plans.

                                       70

<Page>

<Table>
<Caption>
                                                                                               (MILLIONS OF DOLLARS)
---------------------------------------------------------------------------------------------------------------------
                                                                    PENSION BENEFITS            OTHER BENEFITS
                                                                       2001          2000          2001         2000
---------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>           <C>          <C>
CHANGE IN BENEFIT OBLIGATION

Projected benefit obligation at beginning of year              $  439.4          $    417.3    $    99.1    $    90.9
Service cost                                                        9.8                10.0          2.4          2.3
Interest cost                                                      33.7                32.8          8.4          7.4
Participant contributions                                             -                   -            -            -
Plan amendments                                                       -                   -            -            -
Actuarial (gain)/loss                                              26.4                (7.0)        29.9          3.3
Special termination benefits                                        8.7                10.9            -          1.0
Benefits paid                                                     (28.4)              (24.6)        (6.1)        (5.8)
---------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of year                    $  489.6          $    439.4    $   133.7    $    99.1
---------------------------------------------------------------------------------------------------------------------

CHANGE IN PLAN ASSETS

Fair value of plan assets, beginning of year                   $  615.8          $    579.3    $    82.5    $    80.1
Actual return on plan assets                                      (30.0)               61.1         (7.4)        (4.2)
Employer contributions                                                -                   -          9.4         11.5
Participant contributions                                             -                   -          1.0           .9
Benefits paid                                                     (28.4)              (24.6)        (6.1)        (5.8)
---------------------------------------------------------------------------------------------------------------------
Fair value of plan assets, end of year                         $  557.4          $    615.8    $    79.4    $    82.5
---------------------------------------------------------------------------------------------------------------------

RECONCILIATION OF FUNDED STATUS

Funded status                                                  $   67.8          $    176.4    $   (54.3)   $   (16.6)
Unrecognized actuarial (gain)/loss                                (64.8)             (181.8)        44.7           .6
Unrecognized prior service cost                                     7.8                 9.2            -            -
Unrecognized transition obligation/(asset)                         (9.3)              (13.5)        21.4         23.5
---------------------------------------------------------------------------------------------------------------------
Net amount recognized (gain)                                   $    1.5          $     (9.7)   $    11.8    $     7.5
---------------------------------------------------------------------------------------------------------------------

AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF:
Prepaid benefit cost                                           $   26.8          $     13.6    $    11.8    $     7.5
Accrued benefit liability                                         (25.3)              (23.3)           -            -
---------------------------------------------------------------------------------------------------------------------
Net amount recognized (gain)/loss                              $    1.5          $     (9.7)   $    11.8    $     7.5
=====================================================================================================================
</Table>

                                       71
<Page>

<Table>
<Caption>
-----------------------------------------------------------------------------------------------------------------------
                                                                        PENSION BENEFITS             OTHER BENEFITS
                                                                    2001               2000          2001        2000
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                 <C>          <C>          <C>
ASSUMPTIONS AS OF DECEMBER 31

Discount rate                                                       7.5%                8.0%         7.5%         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                                                                       10.0%         6.7%
Medical trend - ultimate trend                                                                       5.5%         5.5%
Medical trend - year of ultimate trend                                                              2009         2005
</Table>

<Table>
<Caption>
                                                                                                (MILLIONS OF DOLLARS)
-----------------------------------------------------------------------------------------------------------------------
                                                          PENSION BENEFITS                     OTHER BENEFITS
                                                      2001       2000        1999       2001         2000        1999
-----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>         <C>         <C>          <C>         <C>         <C>
COMPONENTS OF NET PERIODIC BENEFIT COST

Service cost                                      $     9.8   $    10.0   $     16.3   $     2.4   $     2.3   $    3.1
Interest cost                                          33.7        32.8         32.7         8.4         7.4        7.2
Expected return on plan assets                        (53.8)      (47.8)       (40.7)       (7.8)       (7.8)      (6.0)
Amortization of prior service cost                      1.4         1.4          1.9           -           -          -
Amortization of transition liability/(asset)           (4.2)       (4.2)        (4.2)        2.1         2.1        2.7
Recognized net actuarial (gain)/loss                   (6.7)       (4.0)           -           -           -          -
-----------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                         $   (19.8)  $   (11.8)  $      6.0   $     5.1   $     4.0   $    7.0
Additional cost/(income) due to FAS 88                  8.7        10.9        (12.7)          -         1.0        (.2)
-----------------------------------------------------------------------------------------------------------------------
Total net periodic benefit cost/(income)          $   (11.1)  $     (.9)  $     (6.7)  $     5.1   $     5.0   $    6.8
=======================================================================================================================
</Table>

   For measurement purposes, a 10.0% health care trend rate was used for 2002.
Trend rates were assumed to decrease gradually to 5.5% in 2009 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 2001:

<Table>
<Caption>
                                                                                            (MILLIONS OF DOLLARS)
------------------------------------------------------------------------------------------------------------------
                                                                                1 Percentage        1 Percentage
                                                                               Point Increase      Point Decrease
------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                  <C>
Aggregate effect on service cost and interest cost                              $      1.5           $    (1.4)
Effect on accumulated postretirement benefit obligation                         $     13.4           $   (12.2)
------------------------------------------------------------------------------------------------------------------
</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.

     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 $.2 million in addition to the ongoing plans' net periodic

                                       72
<Page>

pension expense. The 1999 pension plan curtailment gain of $19.0 million and the
postretirement medical plan curtailment gain of $.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 and Reorganization" for additional information.

   During 2001, IP recognized special termination benefit pension expense of
$8.7 million due to IP's staffing reduction due to reorganization. See "Note 2 -
Business Combination and Reorganization" 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 2001 and 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 2001 and 2000 should be compared with the
Customer Service segment in previous periods.

                                       73
<Page>

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

     The business groups and their principal services in 1999 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                                  .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.

                                       74
<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 FAS 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>
--------------------------------------------------------------------------------------------------------------
                                                                    2001                       2000
                                                        ------------------------------------------------------
                                                          CARRYING         FAIR        Carrying      Fair
(MILLIONS OF DOLLARS)                                       VALUE          VALUE        Value        Value
--------------------------------------------------------------------------------------------------------------

<S>                                                     <C>            <C>            <C>         <C>
Cash and cash equivalents                               $       52.6   $       52.6   $    24.1   $       24.1

Mandatorily redeemable
  preferred stock                                                  -              -       100.0           99.0

Long-term debt (including current maturities)                1,787.7        1,776.4     1,874.0        1,858.0

Notes payable                                                  278.2          278.2       147.8          147.8

--------------------------------------------------------------------------------------------------------------
</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.

                                       75
<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, 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, IP recorded realized
gains and losses as components of operating revenues and operating expenses in
the Consolidated Statements of Income. During 2001 and 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 2001 and 2000, all of IP's purchase contracts
qualified for the normal purchase and sale exemption within FAS 133 and,
therefore, IP accounted for such contracts under the accrual method. IP had no
other 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
                                                           2001            2001         2001           2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>            <C>         <C>
Operating revenues                                      $      529.5   $      341.1   $   400.6   $      343.2
Operating income                                                40.3           50.2        56.2           19.8
Net income                                                      59.7           34.8        54.0           17.7
Net income applicable to common stock                           57.2           32.3        51.4           17.0

-----------------------------------------------------------------------------------------------------------------
<Caption>
                                                       FIRST QUARTER  SECOND QUARTER THIRD QUARTER FOURTH QUARTER
                                                           2000            2000         2000           2000
-----------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>            <C>         <C>
Operating revenues                                      $      385.1   $      338.9   $   431.0   $      430.6
Operating income                                                31.4           39.6        59.0           26.0
Net income                                                      24.9           29.9        53.2           26.9
Net income applicable to common stock                           20.1           25.9        51.0           24.0
</Table>

                                       76