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 June 30, 2004

¨	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 incorporation or organization)	(I.R.S. Employer Identification No.)

500 S. 27^th 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 ü NO ___

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES ___ NO ü

Illinova Corporation is the sole holder of all 62,892,213 outstanding shares 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. Illinova also owns 662,924 shares, or approximately 73%, of IP’s preferred stock. Illinois Power Company is an indirect wholly-owned subsidiary of Dynegy Inc.


	1

ILLINOIS POWER COMPANY

TABLE OF CONTENTS

	Page

PART I. FINANCIAL INFORMATION

Definitions	3

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):

Condensed Consolidated Balance Sheets: June 30, 2004 and December 31, 2003	4
Condensed Consolidated Statements of Income and Comprehensive Income: For the three and six months ended June 30, 2004 and 2003	5
Condensed Consolidated Statements of Cash Flows: For the six months ended June 30, 2004 and 2003	6
Notes to Condensed Consolidated Financial Statements	7

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29

Item 4. CONTROLS AND PROCEDURES	29

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS	31

Item 6. EXHIBITS AND REPORTS ON FORM 8-K	31


	2

AmerGen	AmerGen Energy Company
Ameren	Ameren Corporation
ARB	Accounting Research Board
ARO	Asset Retirement Obligation
Bcf	Billion cubic feet
Clinton	Clinton Power Station
CWIP	Construction work in progress
DHI	Dynegy Holdings Inc.
DMG	Dynegy Midwest Generation, Inc.
DPM	Dynegy Power Marketing Inc.
Dynegy	Dynegy Inc.
EPA	Environmental Protection Agency
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
Form 10-K	Our Annual Report on Form 10-K for the year ended December 31, 2003, filed on March 12, 2004
FIN	FASB Interpretation
GAAP	Accounting principles generally accepted in the United States of America
ICC	Illinois Commerce Commission
Illinova	Illinova Corporation, our direct parent company and a wholly-owned subsidiary of Dynegy
IP	Illinois Power Company
IPSPT	Illinois Power Special Purpose Trust
ISO	Independent System Operator
kWh	Kilowatt-hour
LLC	Illinois Power Securitization Limited Liability Company
MGP	Manufactured-Gas Plant
MISO	Midwest Independent Transmission System Operator, Inc.
MW	Megawatts
MWh	Megawatt-hour
NOV	Notice of Violation
NSPS	New Source Performance Standard
P.A. 90-561	Electric Service Customer Choice and Rate Relief Law of 1997
PGA	Purchase Gas Adjustment
PPA	Power Purchase Agreement
PSD	Prevention of Significant Deterioration
RTO	Regional Transmission Organization
SEC	U.S. Securities and Exchange Commission
SFAS	Statement of Financial Accounting Standards
SPE	Special Purpose Entity
Trans-Elect	Trans-Elect, Inc.
VIE	Variable Interest Entity

	June 30, 2004			December 31, 2003
ASSETS
Utility Plant:
Electric (includes CWIP of $70 million and $86 million, respectively)	$	2,515		$	2,499
Gas (includes CWIP of $6 million and $14 million, respectively)		795			783
		3,310			3,282
Less -- accumulated depreciation		1,203			1,199
		2,107			2,083

Investments and Other Assets		5			7

Current Assets:
Cash and cash equivalents		42			17
Accounts receivable, net		114			116
Accounts receivable, affiliates		84			75
Accrued unbilled revenue		59			82
Inventories, at average cost		37			66
Prepayments and other		38			50
		374			406

Note Receivable from Affiliate		2,271			2,271

Deferred Debits:
Transition period cost recovery		97			116
Investment in IPSPT		4			4
Receivable from IPSPT		2			2
Other		160			170
		263			292
	$	5,020		$	5,059

CAPITAL AND LIABILITIES
Capitalization:
Common stock -- no par value, 100,000,000 shares authorized: 75,643,937 shares issued, stated at	$	1,274		$	1,274
Additional paid-in capital		9			9
Retained earnings - accumulated since 1/1/99		565			505
Accumulated other comprehensive income (loss), net of tax		(9	)		(10	)
Less -- Capital stock expense		7			7
Less -- 12,751,724 shares of common stock in treasury, at cost		287			287
		1,545			1,484
Preferred stock		46			46
Long-term debt		1,366			1,435
Long-term debt, IPSPT		302			345
		3,259			3,310

Current Liabilities:
Accounts payable		47			38
Accounts payable, affiliates		6			14
Notes payable and long-term debt maturing within one year		148			71
Long-term debt maturing within one year to IPSPT		72			74
Accrued liabilities		126			155
		399			352

Deferred Credits:
Accumulated deferred income taxes		1,003			1,011
Accumulated deferred investment tax credits		19			20
Other		340			366
		1,362			1,397
	$	5,020		$	5,059

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003

Operating Revenues:
Electric	$	258		$	257		$	505		$	508
Gas		66			71			276			281
Total		324			328			781			789

Operating Expenses and Taxes:
Power purchased		154			160			305			318
Gas purchased for resale		39			41			193			193
Other operating expenses		36			33			72			63
Maintenance		16			16			27			28
Depreciation and amortization		20			20			40			40
Amortization of regulatory assets		10			10			21			21
General taxes		16			17			37			38
Income taxes		---			(2	)		8			5
Total		291			295			703			706
Operating income		33			33			78			83

Other Income and Deductions:
Interest income from affiliates		42			42			85			85
Other income taxes		(17	)		(16	)		(34	)		(33	)
Other income		7			2			12			3
Other expense		(1	)		(2	)		(1	)		(2	)
Total		31			26			62			53

Interest Charges:
Interest expense		35			41			68			84
Interest expense - IPSPT		6			---			12			---
Allowance for borrowed funds used during construction		(1	)		---			(1	)		---
Total		40			41			79			84

Earnings before cumulative effect of change in accounting principle		24			18			61			52
Cumulative effect of change in accounting principle, net of tax		---			---			---			(2	)

Net income		24			18			61			50
Less - Preferred dividend requirements		---			---			1			1
Net income applicable to common shareholder	$	24		$	18		$	60		$	49


Net income	$	24		$	18		$	61		$	50
Other comprehensive income, net of tax		---			---			1			---
Comprehensive income	$	24		$	18		$	62		$	50

	Six Months Ended
	June 30,			June 30,
CASH FLOWS FROM OPERATING ACTIVITIES:	2004			2003

Net income	$	61		$	50
Items not affecting cash flows from operating activities:
Depreciation and amortization		65			65
Deferred income taxes		(10	)		(9	)
Cumulative effect of change in accounting principle (Note 1)		---			2
Changes in assets and liabilities resulting from operating activities:
Accounts receivable		11			(33	)
Unbilled revenue		23			19
Inventories		19			7
Other assets		7			8
Prepayments		17			(4	)
Accounts payable		1			(20	)
Other deferred credits		1			(17	)
Other liabilities		(18	)		6

Net cash provided by operating activities		177			74

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures		(63	)		(67	)
Other investing activities		1			(1	)

Net cash used in investing activities		(62	)		(68	)

CASH FLOWS FROM FINANCING ACTIVITIES:

Dividends on common and preferred stock		(1	)		(1	)
Prepaid interest on affiliate note receivable		(43	)		---
Redemptions:
Short-term debt		---			(100	)
Long-term debt		(43	)		(43	)
Issuances:
Long-term debt		---			150
Increase in restricted cash		---			(1	)
Transitional funding trust notes overfunding		(3	)		---
Other financing activities		---			(8	)

Net cash used in financing activities		(90	)		(3	)

Net change in cash and cash equivalents		25			3
Cash and cash equivalents at beginning of period		17			117

Cash and cash equivalents at end of period	$	42		$	120

Electric Utility Plant	June 30, 2004		December 31, 2003		Avg. Useful Life
	(in millions)				(in years)
Transmission	$	282	$	279		49.0
Distribution		1,656		1,625		36.0
General (1)		254		249		31.3
Other (1)		253		260		5.0 - 50.0
Construction Work-In-Progress		70		86
Total Electric Utility Plant		2,515		2,499
Less: Accumulated Depreciation-Electric		865		870
	$	1,650	$	1,629

Gas Utility Plant	June 30, 2004		December 31, 2003		Avg. Useful Life
	(in millions)				(in years)
Transmission	$	123	$	121		48.2
Distribution		538		530		36.3
General		23		21		20.7
Other		105		97		5.0 - 42.0
Construction Work-In-Progress		6		14
Total Gas Utility Plant		795		783
Less: Accumulated Depreciation-Gas		338		329
	$	457	$	454

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
	(in millions)
Other income:
Other interest income	$	5		$	1		$	9		$	2
Gain on disposition of property		1			---			1			---
Other non-operating income		1			1			2			1
Total other income	$	7		$	2		$	12		$	3

Other expense:
Other non-operating expense	$	(1	)	$	(2	)	$	(1	)	$	(2	)
Total other expense	$	(1	)	$	(2	)	$	(1	)	$	(2	)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2004		2003		2004		2003
	(in millions)
Operating revenues	$	6	$	7	$	12	$	15

Power purchased	$	108	$	114	$	232	$	232
Other operating expenses		5		17		14		41
Operating expenses	$	113	$	131	$	246	$	273


	6/30/04		12/31/03

Investment in IPSPT	$	4	$	4
Receivable from IPSPT (noncurrent)	$	2	$	2
Long-term debt to IPSPT (including maturing within one year)	$	374	$	420

	Pension Benefits						Other Benefits
	Three Months Ended June 30,
	2004			2003			2004			2003
	(in millions)
Service cost benefits earned during period	$	3.9		$	3.4		$	1.2		$	1.0
Interest cost on projected benefit obligation		9.3			9.0			2.8			2.6
Expected return on plan assets		(11.6	)		(12.6	)		(1.6	)		(1.5	)
Amortization of net transition		(0.4	)		(0.4	)		0.5			0.5
Amortization of prior service cost		0.4			0.4			0.0			0.0
Amortization of net loss		0.8			0.0			1.2			1.2
Net periodic benefit cost (income)	$	2.4		$	(0.2	)	$	4.1		$	3.8

	Pension Benefits						Other Benefits
	Six Months Ended June 30,
	2004			2003			2004			2003
	(in millions)
Service cost benefits earned during period	$	7.8		$	6.8		$	2.4		$	2.0
Interest cost on projected benefit obligation		18.6			18.0			5.6			5.2
Expected return on plan assets		(23.2	)		(25.2	)		(3.2	)		(3.0	)
Amortization of net transition		(0.8	)		(0.8	)		1.0			1.0
Amortization of prior service cost		0.8			0.8			0.0			0.0
Amortization of net loss		1.6			0.0			2.4			2.4
Net periodic benefit cost (income)	$	4.8		$	(0.4	)	$	8.2		$	7.6


	Illinois Power Company


Date: August 11, 2004	By:	/s/ Peggy E. Carter

		Peggy E. Carter, Managing Director, Controller (Duly Authorized Officer and Principal Accounting Officer)

ILLINOIS POWER CO 10-Q