ILLINOIS POWER CO - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2002

/ / 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 No.)

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

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

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 such filing
requirements for the past 90 days. YES /X/ NO / /

Illinova Corporation is the sole holder of the common stock and owns
approximately 73% of the preferred 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.

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ILLINOIS POWER COMPANY

TABLE OF CONTENTS

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ILLINOIS POWER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN MILLIONS, EXCEPT SHARE
DATA)

See notes to condensed consolidated financial statements.

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ILLINOIS POWER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN MILLIONS)

See notes to condensed consolidated financial statements.

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ILLINOIS POWER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN MILLIONS)

See notes to condensed consolidated financial statements.

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ILLINOIS POWER COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to interim financial reporting as
prescribed by the Securities and Exchange Commission ("SEC"). These interim
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in Illinois Power Company's
("IP" or the "Company") Annual Report on Form 10-K for the year ended December
31, 2001, as filed with the SEC.

The financial statements contained in this quarterly report include all
material adjustments that, in the opinion of management, are necessary for a
fair presentation of the results for the interim periods. Interim period results
are not necessarily indicative of the results for the full year. The preparation
of the condensed consolidated financial statements in conformity with generally
accepted accounting principles requires management to develop estimates and make
assumptions that affect the reported financial position and results of
operations and that impact the nature and extent of disclosure, if any, of
contingent assets and liabilities. IP reviews significant estimates affecting
its consolidated financial statements on a recurring basis and records the
effect of any necessary adjustments prior to their publication. Judgments and
estimates are based on IP's beliefs and assumptions derived from information
available at the time such judgments and estimates are made. Adjustments made
with respect to the use of these estimates often relate to information not
previously available. Uncertainties with respect to such estimates and
assumptions are inherent in the preparation of financial statements. Estimates
are primarily used in (1) developing fair value assumptions including estimates
of future cash flows and discount rates, (2) analyzing tangible and intangible
assets for impairments and (3) determining the amounts to accrue related to
contingencies. Actual results could differ materially from any such estimates.

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. The IP condensed consolidated financial statements include the
accounts of IP; Illinois Power Financing I ("IPFI") (inactive as of September
30, 2001); Illinois Power Financing II ("IPFII") (not currently active);
Illinois Power Securitization Limited Liability Company ("LLC"); Illinois Power
Special Purpose Trust ("IPSPT"); and Illinois Power Transmission Company LLC
(not currently active). All significant intercompany balances and transactions
have been eliminated from the condensed consolidated financial statements. All
nonutility operating transactions are included in the line titled "Miscellaneous
- - net" in IP's Condensed Consolidated Statements of Income. Certain prior year
amounts have been reclassified to conform to the current year presentation.

Cash and cash equivalents include cash on hand and temporary investments
purchased with an initial maturity of three months or less. As of September 30,
2002 and December 31, 2001, approximately $18 million and $11 million,
respectively, of such cash and cash equivalents was restricted. This restricted
cash is reserved for use in paying off the Transitional Funding Trust Notes
issued under the provisions of the Electric Service Customer Choice and Rate
Relief Law of 1997 ("P.A. 90-561").

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 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 Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
(Statement No. 144"). Statement No. 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 January 1, 2002 adoption of Statement No. 144 did not have
any effect on IP's financial position, results of operations or cash flows.

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ILLINOIS POWER COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

In April 2002, the FASB issued FAS 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." IP
expects to adopt FAS 145 on January 1, 2003 and does not expect the adoption to
impact IP's financial position or results of operations.

In June 2002, the FASB issued FAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities." FAS 146 addresses significant issues regarding the
recognition, measurement and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the Emerging Issues Task Force
("EITF" or the "Task Force") has set forth in EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The scope of
FAS 146 also includes (1) costs related to terminating a contract that is not a
capital lease and (2) termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit arrangement that is not
an ongoing benefit arrangement or an individual deferred compensation contract.
FAS 146 will be effective for exit or disposal activities that are initiated
after December 31, 2002.

NOTE 2 - PENDING SALE OF TRANSMISSION ASSETS

On October 9, 2002, IP announced that it had agreed to sell its high-voltage
electric transmission assets to Trans-Elect, Inc. ("Trans-Elect"), an
independent transmission company, for $239 million. The net book value of these
assets is estimated to approximate $143 million at September 30, 2002.
Facilities included are approximately 1,700 miles of 345,000-volt and
138,000-volt transmission lines, 20 transmission substations, and the
transmission assets within an additional 40 substations. IP will retain its
38,000 miles of overhead and underground lines and associated substations that
comprise IP's electric distribution system throughout Central and Southern
Illinois. The sale affirms IP's strategic direction as it relates to the
electric restructuring process in Illinois and nationwide, and, upon closing,
will provide IP with additional liquidity.

The transaction is expected to close in the first half of 2003, subject to
customary closing conditions, including required approvals from the Securities
and Exchange Commission, the Federal Trade Commission, the Illinois Commerce
Commission ("ICC"), and the Federal Energy Regulatory Commission ("FERC"). With
respect to the FERC, the sale is conditioned on its approving the levelized
rates application to be filed by Trans-Elect seeking a 13% return on equity. If
the FERC does not approve levelized rates in substantially the form sought by
Trans-Elect, then Trans-Elect is not obligated to close on the sale. IP must
also maintain certain specified credit ratings; if it does not, Trans-Elect may
request that IP provide a letter of credit in support of its obligations under
the asset purchase agreement. If IP is unable or unwilling to provide the letter
of credit, Trans-Elect may terminate the agreement.

The purchase price is subject to adjustment with respect to certain items,
including a final determination of the transmission assets to be sold, any
variance in the assumed amount of inventory on hand and the amount of accounts
payable at closing. A change in interest rates from those estimated by
Trans-Elect in contemplating its financing for the sale also could cause an
adjustment to the purchase price or postponement of the closing, at IP's option.
The pre-tax gain on the sale is estimated to be approximately $90 million and
will be recorded upon the closing of the transaction. In addition, as a result
of the sale, IP expects to accelerate approximately $90 million of regulatory
asset amortization. The sale, if approved, is expected to decrease annual
operating margin by approximately $42 million, offset by a $28 million reduction
in regulatory asset amortization, with the change in annual free cash flow
expected to be relatively neutral.

Upon transfer of ownership, IP will contract for use of the transmission
facilities sold on the same basis as other transmission customers. Trans-Elect
will participate in a FERC-approved regional transmission organization under the
same conditions that would have applied to IP. Agreements between IP and
Trans-Elect will provide continued interconnection of the existing distribution
and transmission systems and for joint use of shared facilities, such as
existing substations and poles that support both transmission and distribution
equipment. In addition, IP will provide services to operate and maintain the
transmission system under contract to Trans-Elect for an initial period of five
years.

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ILLINOIS POWER COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

NOTE 3 - BUSINESS REORGANIZATION

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 million ($9 million after-tax) were recorded
in the fourth quarter of 2001. Severance charges represented approximately $5
million ($3 million after-tax) of the total costs incurred, of which $4 million
had been paid by September 30, 2002. As of September 30, 2002, 88 employees were
either severed or have elected early retirement as a result of the
restructuring. An additional 10 employees who have already been notified will be
severed or will retire by the end of December 2002. These actions are being
executed pursuant to IP's plan and are expected to be substantially completed by
December 31, 2002.

NOTE 4 - RELATED PARTIES

IP is indirectly owned by Dynegy Inc ("Dynegy"). Dynegy recently announced a
restructuring plan that provides for the adoption of a decentralized business
structure consisting of a streamlined corporate center and operating units in
power generation, natural gas liquids, regulated energy delivery (i.e., IP)
and communications. Dynegy also announced that it would exit third party
risk management aspects of the marketing and trading business and that it is
implementing a work force reduction affecting approximately 780 employees.
Dynegy also announced the resignation of President and Chief Operating
Officer Steve Bergstrom. Several events affecting Dynegy precipitated these
actions. These events include, among others, contraction in the trading
markets, downgrades in Dynegy's credit ratings, increased collateralization
requirements and a weak commodity price environment for natural gas and
power, as well as various legal proceedings and investigations involving
Project Alpha, Dynegy's trading practices and its failed merger with Enron
Corp. These events have had a severely negative effect on Dynegy's operating
results, liquidity, and public confidence in Dynegy's ability to meet its
debt and other obligations and its long-term business strategy, all of which
is reflected in continued declines in the market price for Dynegy's debt and
equity securities. Also weighing on public confidence in Dynegy is its
previous announcement that PricewaterhouseCoopers LLP ("PwC") will re-audit
its 1999 - 2001 financial statements. PwC will not re-audit IP's financial
results for these periods except to the extent necessary to support its
re-audit of Dynegy's financial statements. IP does not expect PwC's re-audit
of Dynegy's financial statements to affect IP's financial statements for 1999
through 2001.

Due to IP's relationship with Dynegy, adverse developments and announcements
concerning Dynegy have affected IP's ability to access the capital markets and
to otherwise conduct its business. For example, in July 2002 IP priced a public
offering of $325 million mortgage bonds. In late July, following announcement
by Dynegy of a $500 million second quarter charge and lowered operating cash
flow guidance (from up to $1 billion to a range of $600 million to $700
million), all three major credit rating agencies further downgraded the credit
ratings of Dynegy and its subsidiaries, including IP. These actions caused the
termination of IP's $325 million mortgage bond offering. Additionally, the
resulting declines in IP's credit ratings have caused increased
collateralization requirements on the part of IP's gas suppliers. Because IP
currently has no borrowing capacity under its current bank facilities and few
cash resources, Dynegy has been required to post letters of credit of
approximately $25 million to support these collateral requirements.

In its third quarter 2002 Form 10-Q, Dynegy provided updated information
regarding its liquidity position and its strategy to address its significant
debt maturities in 2003 and other financial obligations. Dynegy faces execution
risk with respect to this strategy, which includes continued compliance with
its debt covenants and the repayment or refinancing of certain of
its debt obligations that mature in the second quarter 2003. If Dynegy fails to
execute the remaining elements of its strategy, it stated that it may be forced
to consider other strategic alternatives including a possible reorganization
under the protection of federal bankruptcy laws. IP cannot predict with any
degree of certainty the effects that any such actions on the part of Dynegy
would have on its financial condition and results of operations.

IP is particularly susceptible to developments at Dynegy because it relies on
an unsecured note receivable from Illinova Corporation, its direct parent
company and a Dynegy subsidiary, for a substantial portion of its net cash
provided by operating activities. This note receivable represented approximately
47% of IP's total assets as of September 30, 2002. In the event that IP does not
receive payments on this note receivable or the collectability of the
principal amount is impaired, its financial condition and results of
operations would

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ILLINOIS POWER COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

be materially adversely affected. Following is a description of the unsecured
note receivable and IP's other transactions with Dynegy.

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 Illinova Power
Marketing Inc. ("IPMI"), an Illinova subsidiary. Following the Dynegy-Illinova
merger, IPMI was renamed Dynegy Midwest Generation, Inc. ("DMG"), and
contributed to Dynegy Inc. Dynegy subsequently contributed DMG to Dynegy
Holdings Inc., a Dynegy subsidiary. Effective August 31, 2001, approximately $9
million of additional fossil generation-related assets were transferred to
Illinova, and concurrently to DMG, 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. At September
30, 2002, principal outstanding under the note receivable approximated $2.3
billion with no accrued interest due to the July 2002 prepayment of interest due
October 1, 2002 of approximately $85 million. In September 2002, Illinova
advanced payment of approximately $14 million of interest on the note receivable
for the month of October 2002. This interest was recorded as deferred revenue on
IP's Balance Sheet as of September 30, 2002. IP recognized approximately $128
million of interest income from Illinova on the note for the first nine months
of 2002 and approximately $43 million of interest income for the quarter ended
September 30, 2002. IP recognized approximately $127 million of interest income
from Illinova on the note for the first nine months of 2001 and approximately
$42 million for the quarter ended September 30, 2001. 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 $43
million. At December 31, 2001, principal outstanding under the note receivable
approximated $2.3 billion with no accrued interest.

IP routinely conducts business with subsidiaries of Dynegy. These
transactions include the purchase or sale of electricity, natural gas and
transmission services as well as certain other services. Operating revenue
derived from transactions with affiliates approximated $10 million and $26
million for the three and nine months ended September 30, 2002, respectively.
Operating revenue derived from transactions with affiliates approximated $10
million and $27 million for the three and nine months ended September 30, 2001,
respectively. Aggregate operating expenses charged by affiliates approximated
$148 million and $403 million for the three and nine months ended September 30,
2002, respectively, including $132 million and $369 million, respectively, for
power purchased. Aggregate operating expenses charged by affiliates approximated
$131 million and $410 million for the three and nine months ended September 30,
2001, respectively, including $122 million and $349 million, respectively, for
power purchased. The change in operating expenses, excluding power purchased,
resulted primarily from changes in gas purchases. 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 power purchase agreement ("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 within FAS 133, "Accounting for Derivative Instruments and Hedging
Activities," 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 and regulatory approvals. The PPA defines the terms
and conditions under which DMG provides power and energy to IP using a tiered
pricing structure. With this arrangement, IP believes it has an adequate power
supply for expected IP load plus a reserve supply above that expected level. The
PPA obligates DMG to provide power, at the same prices, up to the reservation
amount, even if DMG has individual units unavailable at various times. Should
power acquired under this agreement be insufficient to meet IP load
requirements, IP will have to buy power at current market prices.

Effective January 1, 2000, the Dynegy consolidated group, which includes IP,
began operating under a Services and Facilities Agreement ("SFA"), 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

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ILLINOIS POWER COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

would have incurred for these services on a stand-alone basis. This agreement
also includes tax sharing provisions between IP and its indirect parent, Dynegy.

On October 23, 2002, the ICC issued an order approving a petition submitted
by IP to enter into an agreement with Dynegy and its affiliates that would allow
for certain payments due to Dynegy under the Services and Facilities Agreement
to be netted against certain payments due to IP from Dynegy, should Dynegy or
its affiliates fail to make payments due to IP on or before their due dates. The
agreement also allows Dynegy to net payments in the event IP fails to make its
required payments to Dynegy. Additionally, under the terms of this petition and
the ICC's approval, IP will not pay any common dividend to Dynegy or its
affiliates until IP's first mortgage bonds are rated investment grade by Moody's
Investors Service and Standard & Poor's Rating Service and specific approval is
obtained from the ICC. The ICC also granted IP's request, subject to certain
conditions, to advance funds to service interest on Illinova Senior Notes
through February 2004, if Dynegy is not able to make such payments.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

LEGAL AND ENVIRONMENTAL MATTERS

Please see Note 5, "Commitments and Contingencies," to IP's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001 (the "Form 10-K"), and
Note 4, "Commitments and Contingencies," to IP's Quarterly Reports on Form 10-Q
for the quarters ended March 31, 2002 and June 30, 2002, respectively, for a
description of the material legal and environmental matters affecting IP. Except
as described below, no material developments affecting IP have occurred with
respect to these matters since IP's filing of the second quarter 2002 Form 10-Q.

Thirty-nine lawsuits are pending against IP, as of September 30, 2002, for
illnesses based on alleged exposure to asbestos at generation facilities
previously owned by IP. Thirty-four of these lawsuits were served during 2002,
with 9 of these served subsequent to June 30, 2002. IP intends to vigorously
defend against these lawsuits. It is not possible to predict with certainty the
extent to which IP will incur any liability or to estimate the damages, if any,
that might be incurred in connection with these or subsequent similar lawsuits;
however, IP does not expect to incur any material liability with respect to
these thirty-nine lawsuits.

RELATED PARTIES

Please see "Note 4 - Related Parties" above for a discussion of issues
currently facing Dynegy and the related effects on IP's ability to continue
receiving payments under its intercompany note receivable.

REGULATORY MATTERS

P.A. 92-0537 - EXTENSION OF RETAIL ELECTRIC RATE FREEZE On June 6, 2002, the
Governor of Illinois signed a bill that adds two years to the current retail
electric rate freeze in Illinois. The bill extends through 2006 the mandatory
retail electric rate freeze, which was originally required by P.A. 90-561. P.A.
92-0537 freezes IP's rates for full service, or "bundled" electric service at
current levels unless the two-year average of IP's earned return on equity is
below the two-year average of the monthly average yields of 30-year U.S.
Treasury Bonds through January 2002, an average of the 30-year U.S. Treasury
Bonds and Monthly Treasury Long-Term Average Rates in February 2002, and the
Monthly Treasury Long-Term Average Rates after February 2002 for the concurrent
period, in which event IP may request a rate increase from the Illinois Commerce
Commission ("ICC"). The ICC would rule on this request for a rate increase using
traditional ratemaking standards. As a result of the retail rate freeze, IP's
bundled service retail electricity consumers are expected to continue to pay
their current electric rates for the next several years. The rate freeze does
not apply to IP's rates for distribution service to customers choosing direct
access. These rates are currently required to be based on cost of service and
can be raised or lowered by the ICC. Beginning in 2007, absent further extension
of the retail electric rate freeze or other action, IP expects that the
distribution and transmission component of retail electric rates will continue
to be required to be based on costs while the power and energy component may be
required to be based on prices in the wholesale market.

P.A. 90-561/92-0537 - UTILITY EARNINGS CAP The regulatory reform legislation
contains floor and ceiling provisions applicable to IP's Return on Equity
("ROE") during the mandatory transition period ending in 2006. Pursuant to the

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ILLINOIS POWER COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

provisions in the legislation, 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 the 30-year U.S. Treasury Bonds through January 2002,
an average of the 30-year U.S. Treasury Bonds and Monthly Treasury Long-Term
Average Rates in February 2002, and the Monthly Treasury Long-Term Average Rates
after February 2002 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 two-year
average ROE exceeds the Treasury Yield, plus 6.5% in 2002 through 2006 (which
increases to 8.5% in 2002 through 2006 if IP chooses not to request 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. Prior to February 2002, the ROE test was based on the
two-year average of the monthly average yields of 30-year U.S. Treasury Bonds.
During 2001, IP's two-year average ROE was within the allowable ROE collar and
is expected to be within the ROE collar in 2002.

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 became available to all residential
customers effective May 1, 2002. However, at the present there are no
Alternative Residential Electric Suppliers registered to provide service to
IP's residential customers. IP remains obligated to provide electricity
service to its customers at tariff rates and to provide delivery service to
its 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 trust notes.

3) The ROE of utilities is managed through application of floor and ceiling
test rules contained in P.A. 90-561/92-0537 as described above in the
Utility Earnings Cap section.

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 the Federal
Energy Regulatory Commission's ("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 an 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 Midwest Independent Transmission System Operator, Inc. ("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
Regional Transmission Organization ("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.

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ILLINOIS POWER COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

On August 21, 2001, IP and seven of the transmission owners proposing to form
the Alliance RTO ("Alliance Companies") entered into a letter of intent with
National Grid, USA ("National Grid") 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.

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 an 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 an RTO, including the timeframe, within 60 days of
December 20th.

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 continued to consider other opportunities for participation
in an RTO. On February 19, 2002, IP, in conjunction with the Alliance Companies,
filed a report with the FERC stating that the Alliance Companies have been in
discussions with both MISO and PJM Interconnection LLC ("PJM"), but have been
unable to reach agreement. On March 5, 2002, IP, in conjunction with the
Alliance Companies, filed a second report and petition for declaratory order
with the FERC. The Petition requests approval of a structure under which
National Grid would operate a for-profit transmission company consisting of the
Alliance Companies' transmission assets under the oversight of the MISO. On
April 25, 2002, the FERC issued an order granting in part the Alliance
Companies' petition. The order stated the position of the FERC with regard to
the split of functions between the MISO, as the RTO for the region, and Alliance
GridCo, as a for-profit independent transmission company ("ITC") that operates
under the MISO. The FERC also approved the rate design proposed by the Alliance
Companies, whether they join PJM, MISO or another RTO. The FERC clarified that
if the Alliance Companies join MISO, the MISO must return the $60 million paid
by the Illinois utilities to exit the MISO. Finally, the FERC directed the
Alliance Companies to submit a compliance filing within 30 days indicating which
RTO they will join, and whether their participation will be collective or
individual.

On May 28, 2002, IP submitted a letter to the FERC indicating that it would
join PJM either as an individual transmission owner or as part of an ITC. On
June 21, 2002, PJM, National Grid, American Electric Power Service Corporation
("AEP"), Commonwealth Edison Company ("ComEd") and IP entered into a Memorandum
of Understanding ("MOU") outlining a 30-day process under which AEP, ComEd and
IP ("ITC Participants") would pursue the formation of an ITC under PJM with
National Grid serving as the independent manager or administrator of the ITC.
The MOU was filed with the FERC on June 25, 2002. An ITC Participant or National
Grid will be excused from its obligations under the MOU if any of such parties
are unable to reach the agreements necessary to participate in PJM through the
ITC. If an ITC Participant is unable to reach such agreements, each party is
committed to join PJM as an individual transmission owner.

At this time, IP has elected to join PJM as an individual transmission owner,
and is negotiating the agreements necessary to do so. On July 31, 2002, FERC
issued an order approving IP's proposal to join PJM, subject to certain
conditions. These conditions include a requirement that (i) the parties
negotiate and implement a rate design that will eliminate rate pancaking between
PJM and MISO, and (ii) the North American Electric Reliability Council oversee
the reliability plans for MISO and PJM. In addition, FERC has initiated an
investigation under Federal Power Act section 206 of MISO, PJM West and PJM's
transmission rates for through and out service and revenue distribution.
Although IP is not currently charging rates or collecting revenues through these
entities, once IP begins operating under PJM, IP's transmission rates and
revenues could be impacted by the outcome of this proceeding.

NOTE 6 - DEBT

On May 17, 2002, IP exercised the "term-out" provision contained in its $300
million 364-day revolving credit facility, which was scheduled to mature on May
20, 2002. In connection with this conversion, IP borrowed the remaining $60
million available under this facility. The exercise of the "term-out" provision
converted the facility to a one year term loan that matures in May 2003. As
such, the amounts outstanding under this loan are classified as current.
Borrowings of $300 million were outstanding under this loan at September 30,
2002.

12

ILLINOIS POWER COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

IP's $96 million Mortgage bonds, which matured on July 15, 2002, were
redeemed using $85 million of prepaid interest on the Illinova note and $11
million of working capital.

As of November 12, 2002, IP's debt maturities through December 31, 2003
were as follows:

Please read "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" for a discussion of
IP's liquidity and capital plans.

NOTE 7 - PREFERRED STOCK

REDEMPTION OF PREFERRED STOCK AND CONSENT SOLICITATION On March 28, 2002,
IP completed a solicitation of consents from its preferred stockholders to
amend its Restated Articles of Incorporation to eliminate a provision that
limited the amount of unsecured indebtedness that IP could issue or assume.
Concurrently, Illinova completed a tender offer pursuant to which it acquired
662,924 shares, or approximately 73%, of IP preferred stock. The New York
Stock Exchange has delisted each of the series of preferred stock that were
subject to the tender offer and previously listed thereon. On March 29, 2002,
IP amended its Restated Articles of Incorporation to eliminate this
provision. Certain charges incurred in connection with the consent
solicitation, approximately $1 million in the aggregate, were paid by IP.
These charges are reflected as an adjustment to Retained Earnings in the
accompanying Balance Sheet.

13

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements of IP included elsewhere
herein, including the notes relating thereto, and with IP's Annual Report on
Form 10-K for the year ended December 31, 2001, as filed with the SEC.

GENERAL - COMPANY PROFILE IP operates 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. Illinova Corporation is the
sole holder of the common stock and owns approximately 73% of the preferred
stock of IP. IP is an indirect wholly owned subsidiary of Dynegy Inc.

The IP condensed consolidated financial statements include the accounts of
IP; Illinois Power Financing I ("IPFI") (inactive as of September 30, 2001);
Illinois Power Financing II ("IPFII") (not currently active); Illinois Power
Securitization Limited Liability Company ("LLC"); Illinois Power Special Purpose
Trust ("IPSPT"); and Illinois Power Transmission Company LLC (not currently
active). All significant intercompany balances and transactions have been
eliminated from the condensed consolidated financial statements. All nonutility
operating transactions are included in the line titled "Miscellaneous - net" in
IP's Condensed Consolidated Statements of Income. Certain prior year amounts
have been reclassified to conform to the current year presentation.

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.

RELATIONSHIP WITH DYNEGY IP is an indirect wholly owned subsidiary of
Dynegy Inc. As described in Note 4 above, Dynegy has recently experienced a
number of events that have had a severely negative effect on its operating
results, liquidity, and public confidence in Dynegy's ability to meet its
debt and other obligations and its long-term business strategy, all of which
is reflected in continuous declines in the market price of Dynegy's debt and
equity securities. Also weighing on public confidence is Dynegy's previous
announcement that PricewaterhouseCoopers LLP ("PwC") would re-audit Dynegy's
2001 financial statements as part of the previously announced 2001
restatement process. Dynegy later announced that PwC would expand its
re-audit to include Dynegy's 1999 and 2000 financial statements. PwC will not
re-audit IP's financial results for these periods except to the extent
necessary to support its re-audit of Dynegy's financial statements. IP does
not expect PwC's re-audit of Dynegy's financial statements to affect IP's
financial statements for 1999 through 2001.

Due to IP's relationship with Dynegy, adverse developments or announcements
concerning Dynegy have affected and could continue to affect IP's ability to
access the capital markets and to otherwise conduct its business. Recent effects
include the termination of a July 2002 mortgage bond offering and increased
collateralization requirements as a result of declining credit ratings. IP is
particularly susceptible to developments at Dynegy because it relies on an
unsecured note receivable from Illinova Corporation, IP's direct parent and a
Dynegy subsidiary, for a substantial portion of its net cash provided by
operating activities. Further, the financial condition of Dynegy could impact
the collectibility of the principle balance of the note receivable. However, at
September 30, 2002, management believes that the note is fully collectible based
upon its review of Dynegy's strategic plan. Dynegy stated in its third quarter
2002 Form 10-Q that if it is unable to execute the remaining elements of its
strategy, it may be forced to consider other strategic alternatives including a
possible reorganization under the protection of federal bankruptcy laws. IP
cannot predict with any degree of certainty the effects that any such actions on
the part of Dynegy would have on its financial condition or results of
operations. Please read Dynegy's Form 10-Q for additional discussion of the
issues affecting and that could affect Dynegy and its subsidiaries, including
IP.

SALE OF TRANSMISSION ASSETS On October 9, 2002, IP announced that it had
agreed to sell its high-voltage electric transmission assets to Trans-Elect,
Inc. ("Trans-Elect"), an independent transmission company, for $239 million.
The net

14

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

book value of these assets is estimated to approximate $143 million at September
30, 2002. Facilities included are approximately 1,700 miles of 345,000-volt and
138,000-volt transmission lines, 20 transmission substations, and the
transmission assets within an additional 40 substations. IP will retain its
38,000 miles of overhead and underground lines and associated substations that
comprise IP's electric distribution system throughout Central and Southern
Illinois. The sale affirms IP's strategic direction as it relates to the
electric restructuring process in Illinois and nationwide, and, upon closing,
will provide IP with additional liquidity.

The transaction is expected to close in the first half of 2003, subject to
customary closing conditions, including required approvals from the Securities
and Exchange Commission, the Federal Trade Commission, the Illinois Commerce
Commission ("ICC"), and the Federal Energy Regulatory Commission ("FERC"). With
respect to the FERC, the sale is conditioned on its approving the levelized
rates application to be filed by Trans-Elect seeking a 13% return on equity. If
the FERC does not approve levelized rates in substantially the form sought by
Trans-Elect, then Trans-Elect is not obligated to close on the sale. IP must
also maintain certain specified credit ratings; if it does not, Trans-Elect may
request that IP provide a letter of credit in support of its obligations under
the asset purchase agreement. If IP is unable or unwilling to provide the letter
of credit, Trans-Elect may terminate the agreement.

The purchase price is subject to adjustment with respect to certain items,
including a final determination of the transmission assets to be sold, any
variance in the assumed amount of inventory on hand and the amount of accounts
payable at closing. A change in interest rates from those estimated by
Trans-Elect in contemplating its financing for the sale also could cause an
adjustment to the purchase price or postponement of the closing, at IP's option.
The pre-tax gain on the sale is estimated to be approximately $90 million and
will be recorded upon the closing of the transaction. In addition, as a result
of the sale, IP expects to accelerate approximately $90 million of regulatory
asset amortization. The sale, if approved, is expected to decrease annual
operating margin by approximately $42 million, offset by a $28 million reduction
in regulatory asset amortization, and the change in annual free cash flow is
expected to be relatively neutral.

Upon transfer of ownership, IP will contract for use of the transmission
facilities sold on the same basis as other transmission customers. Trans-Elect
will participate in a FERC-approved regional transmission organization under the
same conditions that would have applied to IP. Agreements between IP and
Trans-Elect will provide continued interconnection of the existing distribution
and transmission systems and for joint use of shared facilities, such as
existing substations and poles that support both transmission and distribution
equipment. In addition, IP will provide services to operate and maintain the
transmission system under contract to Trans-Elect for an initial period of five
years.

FACTORS AFFECTING FUTURE OPERATING RESULTS

IP's financial condition and results of operations in the fourth quarter of 2002
and beyond may be significantly affected by a number of factors, including:

- - IP's ability to successfully consummate the Trans-Elect transaction;
- - IP's ability to execute its business strategy of delivering reliable
transmission and distribution services in a cost-effective manner;
- - IP's ability to address its significant leverage given its non-investment
grade status, lack of borrowing capacity and relationship with Dynegy;
- - the effects of past or future regulatory actions, including Illinois power
market deregulation and, specifically, "direct access" on IP's electric
business;
- - IP's ability to receive payments under its intercompany note receivable and
to otherwise receive continued performance under its arrangements with
Dynegy;
- - IP's ability to maintain or improve its credit ratings;
- - the effects of weather on IP's electric and gas business; and
- - IP's ability to secure power and natural gas for its electric and gas
customers.

15

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

Reference is also made to the section "Uncertainty of Forward-Looking
Statements and Information" below for additional factors that could impact
future operating results.

LIQUIDITY AND CAPITAL RESOURCES

AVAILABLE CREDIT CAPACITY, LIQUIDITY AND DEBT MATURITIES

SOURCES OF LIQUIDITY IP is currently satisfying its capital requirements
primarily with cash from operations, cash on hand and interest income under
its $2.3 billion intercompany note receivable from Illinova.

Due to its non-investment grade credit ratings and other factors, including
its relationship with Dynegy, IP does not have access to the commercial paper
markets, and its access to the capital markets is limited. Given these facts, IP
expects to continue to rely primarily on cash from operations, cash on hand,
cash from asset sales and interest income under its intercompany note receivable
to meet its near-term obligations.

AVAILABLE CREDIT CAPACITY On May 17, 2002, IP exercised the "term-out"
provision contained in its $300 million 364-day revolving credit facility,
which was scheduled to mature on May 20, 2002. In connection with this
conversion, IP borrowed the remaining $60 million available under this
facility. The exercise of the "term-out" provision converted the facility to
a one year term loan that matures in May 2003. Borrowings of $300 million
were outstanding under this loan at September 30, 2002. IP does not expect to
repay this loan prior to its maturity unless a new revolving credit or other
facility is secured on mutually acceptable terms.

Because IP has no borrowing capacity currently available under the bank
facility discussed above, its future operations could be adversely affected.
For example, a significant portion of IP's operating cash flows will be
dedicated to the payment of principal and interest on indebtedness and will not
be available for other purposes. Further, because of IP's non-investment grade
credit rating and other factors, its ability to obtain additional financing for
working capital, capital expenditures, acquisitions, general corporate and
other purposes could be limited. Please read "Credit Ratings Discussion" for
additional factors impacting IP's financial flexibility. IP's ability to meet
debt service obligations and reduce total indebtedness will be dependent upon
future performance and the other factors described herein, many of which are
beyond its control.

IP had one standby bond purchase facility in the aggregate principal amount
of $152 million that provided credit enhancement for $150 million of Illinois
Development Finance Authority ("IDFA") 1997 Series A, B and C bonds (the
"Pollution Control Bonds"), along with one month's interest of approximately $2
million, for which IP's Pollution Control Series P, Q and R mortgage bonds were
issued without coupon and pledged to secure payment on the Pollution Control
Bonds. On April 9, 2002, the indenture was amended to incorporate an additional
interest rate setting mechanism, the auction rate mode. After the indenture was
amended, the Pollution Control Bonds were reissued without further change. The
auction rate mode does not require the use of a standby purchase facility,
allowing the standby bond purchase facility to expire without consequence.

USES OF LIQUIDITY IP's $96 million Mortgage bonds, which matured on July
15, 2002, were redeemed using $85 million of prepaid interest on the Illinova
note and $11 million of working capital.

On March 28, 2002, IP completed a solicitation of consents from its preferred
stockholders to amend its Restated Articles of Incorporation to eliminate a
provision restricting the amount of unsecured indebtedness that IP could issue
or assume. In addition, Illinova completed a tender offer pursuant to which it
acquired 662,924 shares, or approximately 73%, of IP preferred stock. The New
York Stock Exchange has taken action to delist each of the series of preferred
stock that were subject to the tender offer and previously listed thereon. On
March 29, 2002, IP amended its Restated Articles of Incorporation to eliminate
the restriction on incurring unsecured indebtedness. Certain charges incurred in
connection with the consent solicitation, approximately $1 million in the
aggregate, were paid by IP. These charges are reflected as an adjustment to
Retained Earnings in the accompanying Balance Sheet.

16

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

DEBT MATURITIES AND LIQUIDITY PLAN As described in Note 6 above, IP has
significant debt maturities through December 2003. These maturities include
the May 2003 maturity of IP's $300 million bank credit facility, the August
2003 and September 2003 mortgage bond maturities of $100 million and $90
million, respectively, and quarterly payments of approximately $22 million on
IP's transitional funding trust notes. IP is required to make these same
quarterly payments of approximately $22 million on its transitional funding
trust notes into 2004, and has a payment of up to $81 million due on its
Tilton lease financing in the third quarter thereof. IP is developing a plan
to improve its liquidity in order to meet its near-term debt maturities and
provide for ongoing operations and necessary capital expenditures. The plan
includes: (i) completion of various financing transactions, including the
previously terminated mortgage bond offering; while there are other
restrictions and limitations to issuing mortgage debt, as of September 30,
2002, IP has sufficient property and refunded bond capacity to issue up to
$974 million of additional mortgage bonds; (ii) completion of the sale of
IP's electric transmission system for $239 million before income tax and
other deductions; the net proceeds of this sale are expected to be
approximately $180 million, with closing expected during the first half of
2003; and (iii) the refinancing of its $300 million bank credit facility,
subject to agreement with its lenders on the terms of a replacement facility
of equal or lesser size. Management believes that IP has sufficient liquidity
to meet its debt maturities and other obligations through the first quarter
2003. However, long-term liquidity depends upon successful completion of IP's
liquidity plan.

IP's ability to successfully execute these initiatives is subject to a number
of risks including factors beyond its control. The factors include, among
others, the timeliness and ability to obtain regulatory approvals, the
receptiveness of the capital markets to the anticipated mortgage bond offering
and the continued negative effects of its relationship with Dynegy. If IP is
unable to successfully execute these initiatives, it could require additional
liquidity support from Dynegy, to the extent available and subject to receipt of
any required regulatory approvals, in order to satisfy its debt maturities and
other obligations as they come due. Please read "Relationship with Dynegy" above
for a discussion of the issues currently facing Dynegy.

AFFILIATE TRANSACTION IP maintains an unsecured note receivable due from
its parent relating to the October 1999 and August 2001 transfers of the
fossil-fueled generating assets. The note matures on September 30, 2009 and
bears interest at an annual rate of 7.5%, due semiannually in April and
October. In July 2002, Illinova prepaid the October 1st semi-annual payment
of approximately $85 million. In September 2002, Illinova prepaid interest of
approximately $14 million for the month of October 2002, which was recorded
as deferred revenue. At September 30, 2002, principal outstanding under the
note receivable approximated $2.3 billion with no accrued interest. 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 $43 million. At December 31, 2001, principal outstanding under the
note receivable approximated $2.3 billion with no accrued interest. Please
see "Note 4 - Related Parties" in the accompanying financial statements for a
discussion of issues currently facing Dynegy and the related effects on IP's
ability to continue receiving payments under its intercompany note
receivable. In the event that IP does not receive payments on this note
receivable, its financial condition and results of operations would be
materially adversely affected.

On October 23, 2002, the ICC issued an order approving a petition submitted
by IP to enter into an agreement with Dynegy and its affiliates that would allow
for certain payments due to Dynegy under the Services and Facilities Agreement
to be netted against certain payments due to IP from Dynegy, should Dynegy or
its affiliates fail to make payments due to IP on or before their due dates. The
agreement also allows Dynegy to net payments in the event IP fails to make its
required payments to Dynegy. Additionally, under the terms of this petition and
the ICC's approval, IP will not pay any common dividend to Dynegy or its
affiliates until IP's first mortgage bonds are rated investment grade by Moody's
Investors Service and Standard & Poor's Rating Service and specific approval is
obtained from the ICC. The ICC also granted IP's request, subject to certain
conditions, to advance funds to service interest on Illinova Senior Notes
through February 2004, if Dynegy is not able to make such payments.

CREDIT RATINGS DISCUSSION Credit ratings impact IP's ability to obtain
short-term and long-term financing, the cost of such financing and the
execution of its commercial strategies. In determining credit ratings, the
rating agencies consider a number of factors. Quantitative factors that are
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;

17

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

liquidity needs and availability; and various ratios calculated from these
factors. Qualitative factors include, among other things, predictability of cash
flows, business strategy, industry position and contingencies. In determining
IP's credit ratings, the rating agencies also consider the liquidity position
and credit ratings of Dynegy, IP's indirect parent company. Although these
factors are among those considered by the rating agencies, each rating agency
may utilize different factors and may calculate and weigh each factor
differently.

Since IP filed its second quarter 2002 Form 10-Q on August 14, 2002, Moody's
has downgraded Dynegy's and IP's credit ratings. On September 5, 2002, Moody's
lowered its ratings on Dynegy and its subsidiaries, including IP. Dynegy's
senior implied rating was lowered from "Ba3" to "B2". IP's senior secured rating
was lowered from "Ba2" to "B1" and the senior unsecured rating was lowered from
"Ba3" to "B2," both non-investment grade ratings. The rating on IP's preferred
stock was lowered from "B3" to "Caa2".

As of November 12, 2002, IP's credit ratings, as assessed by the three major
credit rating agencies, were as follows:

- ----------
* Not rated

IP's non-investment grade status has limited its ability to refinance its
debt obligations as they mature and limits its access to the capital markets.
IP's non-investment grade status will also likely increase the borrowing costs
incurred in connection with any such actions. IP's financial flexibility has
likewise been reduced as a result of, among other things, restrictive covenants
and other terms typically imposed on non-investment grade borrowers. In
addition, IP has been requested to provide letters of credit or other credit
security to support certain business transactions, including IP's purchase of
natural gas and natural gas transportation. Because of the effect of Dynegy's
credit ratings on IP's credit ratings, IP cannot guarantee that its current
credit ratings will be maintained or improved.

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.
Please see IP's Annual Report on Form 10-K for the year ended December 31,
2001, for a complete listing of obligations and commitments.

IP's contracts on six interstate pipeline companies for firm transportation
and storage services for natural gas have changed since the filing of the Form
10-K. These contracts now have varying expiration dates ranging from 2003 to
2012, for a total cost of $122 million, up from $82 million noted in the Form
10-K. The costs associated with these contracts are a component of IP's revenue
requirements under its rate-making process.

PENSION PLAN ASSETS As a result of general declines in the financial
markets, the return on pension plan assets for the Dynegy Inc. Master
Retirement Trust, which includes the assets related to the IP pension plans,
was a negative 14 % for the nine months ended September 30, 2002. These
negative returns have reduced plan assets during 2002 to levels that will
likely fall below projected plan obligations at year end. If the plan is
underfunded at year end, IP has two alternatives. The first alternative is to
contribute cash to the plan in an amount equal to the underfunded amount. The
second alternative is to

18

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

establish a liability equal to the underfunded amount and prepaid pension asset
with the offset being an after-tax reduction in shareholder's equity.
Determination of any underfunded amount will be made at year end 2002 and will
be dependent on the actual return on pension plan assets for 2002, the discount
rate assumption, which depends on year-end interest rates, and actual
participant numbers. Management does not believe that this will have a material
effect upon IP's financial condition and results of operations.

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 require 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." In addition,
the ICC generally may prevent IP from paying dividends if it determines that
IP's capital is or would be impaired. IP's retained earnings balance is
expected to be sufficient during 2002 to support payment of all scheduled
preferred dividends. For the nine months ended September 30, 2002, IP has
paid preferred stock dividends of $1.7 million. On March 28, 2002, IP
declared and paid common stock dividends of $0.5 million to Illinova.

On October 23, 2002, the ICC issued an order approving a petition submitted
by IP to enter into an agreement with Dynegy and its affiliates that would allow
for certain payments due to Dynegy under the Services and Facilities Agreement
to be netted against certain payments due to IP from Dynegy, should Dynegy or
its affiliates fail to make payments due to IP on or before their due dates. The
agreement also allows Dynegy to net payments in the event IP fails to make its
required payments to Dynegy. Additionally, under the terms of this petition and
the ICC's approval, IP will not pay any common dividend to Dynegy or its
affiliates until IP's first mortgage bonds are rated investment grade by Moody's
Investors Service and Standard & Poor's Rating Service and specific approval is
obtained from the ICC. The ICC also granted IP's request, subject to certain
conditions, to advance funds to service interest on Illinova Senior Notes
through February 2004, if Dynegy is not able to make such payments.

CAPITAL ASSET PROGRAM Construction expenditures for the nine months ended
September 30, 2002 were approximately $102 million. IP estimates that it will
spend approximately $38 million on construction for the remainder of 2002.
Construction expenditures for the nine months ended September 30, 2001, were
$105 million, and for the year ended December 31, 2001, were $149 million.
Construction expenditures consist 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 2003 through 2006
are expected to total approximately $600 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.

OTHER MATTERS

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 investments 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 also 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 and amended in
2002.

19

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

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 went into effect on May
1, 2002 and is to remain effective through December 31, 2006, due to recently
passed legislation. The combined impact of these rate decreases is expected
to result in a total annual revenue reduction of approximately $91 million in
2002, $101 million in 2003, $103 million in 2004, $105 million in 2005 and
$107 million in 2006, relative to rate levels in effect prior to August 1,
1998.

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.

20

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

BUSINESS RISK-MANAGEMENT ASSESSMENT

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 that expire at the end of 2004. 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, and at the same
prices, 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 ("Clinton").
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. Such
purchases would expose IP to commodity price risk. As discussed above, P.A.
90-561 was amended to extend the retail electric rate freeze for two additional
years, through 2006. IP has begun discussions to establish PPAs to cover this
period, including the possible modification or extension of its existing PPAs.

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. 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.

Prior to the Dynegy-Illinova merger in February 2000, IP periodically
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 September 30, 2002 and December 31, 2001, 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.

21

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

RESULTS OF OPERATIONS

Provided below is an unaudited tabular presentation of certain IP operating and
financial statistics for the three-month periods ended September 30, 2002 and
2001, respectively.

* Distribution of customer-owned energy

22

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

Provided below is an unaudited tabular presentation of certain IP operating and
financial statistics for the nine-month periods ended September 30, 2002 and
2001, respectively.

* Distribution of customer-owned energy

23

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

For the quarter ended September 30, 2002, IP reported net income of $57 million,
compared with third quarter 2001 net income of $55 million.

Operating revenues in 2002 increased by $6 million, primarily relating to
increased electric revenues. Electric revenues reflected an increase in sales
volume due to favorable weather partially offset by a 5% residential rate
reduction effective May 1, 2002. Gas revenues decreased due to lower gas sales.

Operating expenses, exclusive of income taxes discussed below, decreased $1
million in 2002 compared to 2001. Electric power purchases increased by $5
million primarily due to increased sales resulting from favorable weather. Gas
costs were down due to lower usage offset by slightly higher prices, while other
operating expenses increased slightly. General taxes decreased by $5 million
primarily due to a favorable result from a State of Illinois sales tax audit.

Other income includes interest income associated with the affiliate note
receivable arising from the fossil asset transfer of $43 million in 2002 as
compared to $42 million in 2001. Interest expense period-to-period decreased $2
million, reflecting lower average long-term debt balances coupled with lower
interest charges on short-term debt.

IP reported an income tax provision of $41 million for the three-month period
ended September 30, 2002, compared to an income tax provision of $36 million for
the 2001 period. The effective tax rates approximated 42% and 40% in 2002 and
2001, respectively. The differences between the aforementioned effective tax
rates and the statutory tax rate of 40% result principally from the tax
deductibility of the dividends on company obligated mandatorily redeemable
preferred securities. The last of IP's mandatorily redeemable preferred
securities, TOPrS, were redeemed as of September 30, 2001. The effective tax
rate for 2002 reflects the loss of this deduction as compared with the 2001
rate.

NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

For the nine months ended September 30, 2002, IP reported net income of $138
million, compared with net income of $149 million for the first nine months of
2001. Net income for 2002 reflected the effect of unseasonably mild heating
season weather, a general economic downturn and a 5% residential rate reduction
effective May 1, 2002 partially offset by favorable litigation and billing
settlements. Net income for 2001 reflected the effect of higher gas sales and a
favorable insurance settlement.

Operating revenues in 2002 decreased $128 million primarily due to decreased
gas prices, lower transportation revenues, unfavorable weather compared to last
year and decreased late payment charges. Electric revenues reflected slightly
higher sales volume due to favorable weather and resolution of a contingent
liability for a bulk power billing dispute offset by a 5% residential rate
reduction effective May 1, 2002.

Operating expenses, excluding income taxes, decreased $126 million in 2002
compared to 2001 primarily due to significantly lower market prices for natural
gas purchases, lower general taxes, and lower gas volumes purchased.

Other income includes interest income of $128 million in 2002 as compared to
$127 million in 2001. Miscellaneous - net in 2001 included favorable insurance
and litigation settlements while 2002 also included a favorable litigation
settlement. Interest expense period-to-period decreased $11 million reflecting
lower average long-term debt balances coupled with lower interest charges on
short-term debt.

IP reported an income tax provision of $97 million for the nine-month periods
ended September 30, 2002, and 2001. The effective tax rates approximated 41% and
40% in 2002 and 2001, respectively.

24

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

OPERATING CASH FLOW

Cash flow from operating activities totaled $219 million for the nine-month
period ended September 30, 2002, compared to $179 million reported in the 2001
period. Changes in operating cash flow reflect the operating results previously
discussed herein. Additional cash flow changes for 2002 resulted primarily from
accelerated interest payments on the Illinova note, partially offset by the
prepayment of some gas purchases. Cash flow in 2001 was affected by higher
priced natural gas purchases and income taxes paid.

UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION This Quarterly
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;
- - beliefs regarding the consummation of asset sales;
- - intentions with respect to future energy supplies; and
- - anticipated costs associated with legal and regulatory compliance.

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;
- - the effects of deregulation in Illinois and federally and the rules and
regulations adopted in connection therewith;
- - competition from alternate retail electric providers;
- - general economic and capital market conditions, including overall economic
growth, demand for power and natural gas, and interest rates;
- - IP's ability to successfully execute its liquidity plan, including the
previously announced sale of transmission assets to Trans-Elect;
- - the effects of the issues currently facing Dynegy Inc., our indirect parent
company, including its ability to successfully execute the remaining
elements of its strategy and to maintain adequate liquidity to satisfy its
debt maturities and other obligations and the ultimate impact of the legal
and administrative proceedings to which it is currently subject, including
legal proceedings relating to its terminated merger with Enron Corp.,
Project Alpha, and round-trip trades, the California power market,
shareholder claims, and the ongoing re-audit of Dynegy financial statements
for the three-year period ended December 31, 2001;
- - Dynegy's financial condition, including its ability to maintain its credit
ratings and to continue to pay principal and interest on IP's intercompany
note receivable;
- - the cost of borrowing, access to capital markets and other factors
affecting Dynegy's and IP's financing activities;
- - 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;
- - the 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.

25

ILLINOIS POWER COMPANY

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 2002 AND 2001

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.

26

ILLINOIS POWER COMPANY

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Quantitative and Qualitative Disclosures About Market Risk are set forth in
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Business Risk-Management Assessment" herein.

ITEM 4. CONTROLS AND PROCEDURES

Within the 90-day period immediately preceding the filing of this report, an
evaluation was carried out under the supervision and with the participation
of IP's management, including its chief executive officer and its responsible
financial officer, of the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rule 13a-14(c) under the
Exchange Act). Based upon that evaluation, the chief executive officer and
responsible financial officer concluded that the design and operation of
these disclosure controls and procedures were effective. No significant
changes were made to IP's internal controls or in other factors that could
significantly affect these controls subsequent to the date of this evaluation.

27

ILLINOIS POWER COMPANY

PART II. OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

Please see Note 5, "Commitments and Contingencies," for a description of IP's
legal proceedings.

ITEM 5 - OTHER

Accompanying the filing of this Form 10-Q for the quarterly period ended
September 30, 2002, we have provided to the Securities and Exchange
Commission the Certifications of the chief executive officer and the
responsible financial officer required pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) The following document is included as an exhibit to this Form 10-Q.

(b) Reports on Form 8-K of Illinois Power Company filed in the third quarter
2002:

- Current Report on Form 8-K dated July 24, 2002. Items 7 and 9 were
reported and no financial statements were filed.

- Current Report on Form 8-K dated August 14, 2002. Items 7 and 9 were
reported and no financial statements were filed.

28

SIGNATURES

Pursuant to the requirements 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

Date: November 14, 2002 By: /s/ Peggy E. Carter
-----------------------------------

Peggy E. Carter, Vice President
and Controller
(Duly Authorized Officer and
Principal Accounting Officer)

29

SECTION 302 CERTIFICATION

I, Larry F. Altenbaumer, certify that:

1. I have reviewed this third quarter 2002 report on Form 10-Q of Illinois
Power Company;

2. Based on my knowledge, this third quarter 2002 report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
third quarter 2002 report;

3. Based on my knowledge, the financial statements, and other financial
information included in this third quarter 2002 report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this third quarter
2002 report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
third quarter 2002 report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this third quarter 2002 report (the "Evaluation
Date"); and

(c) presented in this third quarter 2002 report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in this
third quarter 2002 report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: November 14, 2002
/s/ LARRY F. ALTENBAUMER
---------------------------------
Larry F. Altenbaumer
Chief Executive Officer

SECTION 302 CERTIFICATION

I, Michael R. Mott, certify that:

1. I have reviewed this third quarter 2002 report on Form 10-Q of Illinois
Power Company;

2. Based on my knowledge, this third quarter 2002 report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
third quarter 2002 report;

3. Based on my knowledge, the financial statements, and other financial
information included in this third quarter 2002 report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this third quarter
2002 report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
third quarter 2002 report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this third quarter 2002 report (the "Evaluation
Date"); and

(c) presented in this third quarter 2002 report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officer and I have indicated in this
third quarter 2002 report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: November 14, 2002
/s/ MICHAEL R. MOTT
-----------------------------------------
Michael R. Mott
Senior Vice President